Kuhnhein v. Kenton County Public Library Board of Trustees

Filing 13

MOTION to Dismiss by Kenton County Public Library Board of Trustees (Attachments: # 1 Memorandum in Support, # 2 Proposed Order)(Hawkins, Michael)

UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF KENTUCKY,
NORTHERN DIVISION AT COVINGTON
CIVIL ACTION NO. 2:12-cv-00035
GARTH KUHNHEIN, ON BEHALF
OF HIMSELF AND OTHERS

SIMILARLY SITUATED

PLAINTIFF

V.

KENTON COUNTY PUBLIC LIBRARY
BOARD OF TRUSTEES

DEFENDANT

DEFENDANT'S MEMORANDUM IN SUPPORT OF ITS
MOTION TO DISMISS PLAINTIFF'S COMPLAINT

The Defendant, Kenton County Library Board
Memorandum

I.

in Support

of Trustees, by

and through counsel, for its

of its Motion to Dismiss, states as follows:

FACTUAL BACKGROUND
On January 20, 2012, Garth Kuhnhein

Jury Trial Demand and Declaration

Library Board

filed a Class Action Complaint with

of Rights ("Complaint" ) against the Kenton County Public

of Trustees (the "Library" )

alleges he is a resident and property

("Plaintiff')

in Kenton Circuit Court. In relevant

owner in the County

of Kenton,

taxes to the Library as set forth on his yearly county tax bill.
Plaintiff, KRS 173.790 governs the increase or decrease

Kentucky, and has paid

Complaint,

of the tax

part, Plaintiff

$ 2. According to

levy for the Library and states

that the ad valorem tax rate "shall not be increased or decreased unless a duly certified petition

requesting

an increase or decrease in the tax rate

of a specifically stated amount is

one (51'/o of the number of duly qualified voters voting in the last general

signed by fifty

election...."

Id. at

tt

7. At the time of the formation of the Library, the ad valorem tax rate was set as the

of $ 0.60 per one

thousand dollars

of value

equivalent

on a home. Id. at $ 8.

Plaintiff alleges that from 2007-2011 the Library has incrementally

increased

its ad

valorem tax rate from $ 0.82 to $ 0.113.Id. at $ 9. In enacting these increases, Plaintiff asserts that

the Library has disregarded

KRS 173.790 (Id. at $$ 17-18), which has resulted

with the rates being over the authorized

in many years

$ .060 per one thousand dollars rate. Id. at $ 10. Further,

Plaintiff alleges that, as a result of the purported

improper tax increases, he and the proposed

class members are owed not only a refund of $ 5,125,466.97 for the year 2011, but also for all
other years where the tax has been increased above $ .060 per one thousand dollars tax rate (a.k.a

2007-2011). Id. The putative class consists of "All property owners/or taxpayers, who have paid
Kenton County Library taxes in excess

of the last

lawfully

set rate set by certified petition." Id.

at $ 19.

Plaintiff asserts four causes
Library concerning

the assessment

of action

in his Complaint:

and collection

of

declaratory judgment against the

ad valorem

taxes in excess of the rate

established by KRS Chapter 173 (Count I); Conversion (Count II); unlawful taking per 42 U.S.C.
$

1983 (Count III); and unjust enrichment

Plaintiff seeks injunctive

relief requiring

collected in excess of the statutorily

relief preventing
compensatory

(Count IV). Id. at f[$ 28-46. In terms of relief,
the Library

approved rate

to issue refunds

of $ 0.60 per one

for taxes billed and

thousand

dollars; injunctive

the Library from increasing its tax rate unless KRS 173.790 is complied with;

damages in the form

of refunds,

with interest; a declaratory

judgment

that KRS

173.790 governs the tax rate and the ability to increase or decrease the rate; prejudgment interest,
court costs and attorneys fee, per 42 U.S.C. $ 1983; and certification

2

of a class.

On February 2, 2012, the Library removed the action to this Court because

of the federal

claims asserted in the Complaint and it now seeks to dismiss the Complaint pursuant to Fed. R.

Civ. P. 12(b)(6) because Plaintiff has failed to state a claim upon which relief can be granted.

II.

ARGUMENT
Plaintiff s Complaint

should be dismissed

because he fails to state a claim upon which

relief can be granted. First, Plaintiff has not alleged that he exhausted his administrative
prior to filing this lawsuit, as mandated by KRS 134.590. Second, even
his administrative

claim for tax refunds

dismissed because the two-year statute

immunity

had exhausted

remedies, he is precluded from asserting a class action for tax refunds under

KRS 134.590. Third, Plaintiff's

Finally, Plaintiff's

if Plaintiff

remedies

conversion

of limitations

for the years prior to 2010 should be

in KRS

claim should be dismissed

134.590 has

run on those refunds.

because the Library has sovereign

from all tort claims.

Because Plaintiff does not allege that he filed a claim requesting a tax refund
prior to filing this lawsuit, he has failed to exhaust his administrative
remedies.

A.

Plaintiff's Complaint should be dismissed because he does not allege that he filed a claim
requesting

a tax refund under KRS 134.590 prior to filing suit. Before filing a lawsuit seeking a

refund for excess payment

of ad valorem taxes, a taxpayer

must first exhaust administrative

remedies, as mandated by KRS 134.590. Cromwell Louisville Assoc. v. Kentucky, 323 S.W.3d 1,

7 (Ky. 2010) (citing Ky. Rev. Stat. $ 134.590 and holding that "a taxpayer must exhaust the
administrative

remedy procedures

before seeking a refund"); Bischoff

S.W.2d 762 (Ky. App. 1987). If a plaintiff fails to exhaust administrative
a lawsuit for a tax refund, the complaint should be dismissed.
Accord:

Department

of Revenue

v. Curtsinger,

3

v. City

of Newport, 733

remedies prior to filing

Bischoff, 733 S.W.2d at 764.

No. 2006-CA-001379 and 2006-CA-001462,

2007 Ky. App. Unpub. LEXIS 699, at *16-17 (Ky. App. Oct. 26, 2007) (acknowledging

that

when a taxpayer alleges that an ad valorem tax was paid where the taxes were not owed, the

taxpayer is required to exhaust the administrative

of KRS 134.590 prior to

remedies

filing suit).

KRS 134.590(6) states, in relevant part:
No refund for ad valorem taxes, except those held unconstitutional, shall be made
unless the taxpayer has properly followed the administrative remedy procedures
established through the protest provisions of KRS 131.110,the appeal provisions
of KRS 133.120,the correction provisions of KRS 133.110and 133.130,or other
administrative remedy procedures.
In Bischoff, the City

of Newport enacted

ordinances establishing

the city's ad valorem tax

rates for the years 1980 to 1985. 733 S.W.2d at 763. The plaintiff filed suit challenging
ordinances

as violating

the

KRS 132.027, which limited the tax rate a city could set. Id. The

complaint requested the circuit court to declare the ordinances invalid and require the refund

of

the excess taxes paid for those years. Id. The city moved to dismiss, arguing that the plaintiff

failed to exhaust

his administrative

remedies

as required

by KRS

134.590 prior to filing a

lawsuit. Id. The circuit court granted the city's dismissal. On appeal, the appellate court upheld
the circuit court's dismissal. Id, The court rejected the plaintiff's contention that the circuit court
should have declared whether the tax rates were valid merely because it was a proper subject for

a declaration of rights; instead holding that a declaration of rights is appropriate

only where an

"actual controversy" exists. Id. The court found that, where the taxpayer has paid a tax which he
or she later concludes was based upon an illegal rate and seeks a refund, "the tax payer must
exhaust that remedy [in KRS 134.590] before seeking a refund

Bischoff court found that since "the timely administrative
precedent to entitlement

judicially...."

Id. at 764. The

application for a refund is a condition

to recover a tax already paid, it must follow that such application is also

necessary to create an actual controversy with respect to the rate upon which that tax is based."

4

Id. Accord: Light

v. City

of Louisville, 93 S.W.3d 696, 697 (Ky. App. 2002); City of Somerset

v.

Bell, 156 S.W.3d 321, 330 (Ky, App. 2005).
Like the plaintiffs in Bischoff, Light and Bell, Plaintiff is asking this court to declare that
the Library increased its ad valorem tax rate in violation

refund.'pecifically,

of a Kentucky

statute and he seeks a

Plaintiff asserts that "KRS 173.790 governs any increases or decreases to

said [ad valorem tax] rate" and that the Library has increased the rate "in violation

of KRS

30-31. As a result, Plaintiff seeks a refund of taxes collected

in excess

173.790." Complaint,

of the proposed

statutorily

Nowhere
administrative

ptt

in his

approved rate

Complaint,

remedy procedures

the appeal provisions

or other administrative

of $ 0.60 per one

does Plaintiff

however,

established

through

of property value.

thousand dollars

allege

he has

the protest provisions

"followed

the

of KRS 131.110,

of KRS 133.120, the correction provisions of KRS 133.110and 133.130,
remedy procedures

[such as filing a claim for a refund]," prior to filing

this lawsuit, as is required under KRS $ 134.590. See Complaint, tttt 1-46. Therefore, Plaintiff's

Complaint must be dismissed for failure to exhaust administrative

B.

remedies.

Because Plaintiff cannot maintain a class action for a refund of the alleged
excess taxes paid, his request for compensatory damages on behalf of the
class should be dismissed.

Plaintiff seeks to represent a class of "All property owners/or
Kenton County Library taxes in excess of the last lawfully
Complaint, $

taxpayers, who have paid

set rate set by certified petition."

19. As part of the class wide relief sought, Plaintiff requests "judgment

and award

'ecause Plaintiff s lawsuit seeks to recover money paid as excess taxes by an allegedly illegal assessment, this
Court is not divested of jurisdiction by the Tax Injunction Act, 28 USC $ 1341. See Central Stee! & Wire Co. v.
Detroit, 99 F. Supp. 639, 640-641 (D. Mich. 1951) ("It is not apparent to this Court that a statute which in plain
language prohibits a District Court from enjoining, suspending or restraining the assessment, levy or collection of
any tax under state law had any conceivable application to this cause of action. A suit to recover money paid as
taxes by an allegedly illegal assessment is far removed from an action to enjoin, suspend or restrain the assessment,
levy or collection of a tax, and to hold that Section 1341, Title 28 U.S.C. controls such an action at law would
require this Court to ignore well established principles of statutory construction.").
5

of compensatory damages,

in the form

of refunds,

with interest, against the Defendant Library in

by the finder." Complaint, p. 8.

the amount to be determined

Class relief is not available to obtain a refund of ad valorem taxes because in Kentucky

each taxpayer is required

to apply for a refund of taxes individually

before seeking judicial

redress. KRS 134.590(6) provides:

"(6) No

refund shall be made unless each taxpaver individuallv applies within two
(2) years from the date payment was made. If the amount of taxes due is in
litigation, the taxpaver shall individuallv applv for refund within two (2) years
from the date the amount due is finally determined. Each claim or application for
a refund shall be in writing and state the specific grounds upon which it is based,
No refinid for ad valorem taxes, except those held unconstitutional, shall be made
unless the taxpayer has properly followed the administrative remedy procedures
established through the protest provisions I 1„ the appeal provisions I 1, the
remedv procedures."
correction provisions
1 and, or other administrative
(emphasis added).
I

The current

apply for a

individually

of

the statute

refund..."

could not be any clearer. "[T]he taxpayer

(emphasis added).

Indeed, in Board

of Education of Fayette

shall

KRS 134.590(6) provides a mandatory

procedure for seeking refunds from the Department

administrative

agencies,

language

of Revenue

and other taxing

County v. Taulbee, 706 S.W.2d. 827, 828-29

(Ky. 1986), the Kentucky Supreme Court, addressing this very issue and statute, held that since

KRS 134.590(6) provided a specific, mandatory
was unavailable

procedure to seek refunds, class action relief

for the refund of taxes, The Taulbee holding

was re-affirmed

in the later

Kentucky Supreme Court decision, Griggs v. Dolan, 759 S.W.2d. 593, 597 (Ky. 1988).
In 2005, the Kentucky Court

of Appeals,

in City

of Somerset

v.

Bell, 156 S.W.3d. 321

(Ky. App. 2005) appeared to reverse direction from the Kentucky Supreme Court precedent set
forth in Taulbee and Griggs. In Bell, a group

of Somerset,

of taxpayers,

living in an area annexed by the City

brought a class action lawsuit alleging that the City

of Somerset

had improperly

collected ad valorem property taxes from them. The trial court, relying upon Taulbee, supra.,

6

concluded

the taxpayers

that although

were entitled to a refund,

Taulbee, the Kentucky

from

of Appeals

however, held that

because in 1996, and after the Supreme

Court decision in

recovering funds in a class-action lawsuit.

class action relief vvas available

they were precluded

Legislature

each case." Thus, the Kentucky

The Kentucky Court

had amended

KRS 134.590(6) and removed the phrase "in

of Appeals

Court

in Bell concluded

that

the Kentucky

Legislature had in effect repealed the Taulbee holding.

Significantly,

after the Court

of Appeal's decision

in Bell, the Kentucky Legislature again

re-visited KRS 134.590(6). In 2006, the Kentucky Legislature amended the statute to add in the
words "each taxpayer

individually

Preamble to this amendment,

applies for a [refund]." KRS 134.590. Moreover,

in the

the General Assembly stated that it:

"wishe[d] to make it clear that each taxpayer must file an individual refund
claim and that the filing of a class action lawsuit does not constitute a timely
filing for each member or the class...." (emphasis added)
It is clear that the Bell decision was an aberration; and that the current version of KRS

134.590, much like the language in the statute prior to the Kentucky Court of Appeal's decision
in Bell, prohibits taxpayers from maintaining

Plaintiff's

class action complaint

class action lawsuits to recover tax refunds.

must be dismissed

as a matter

of

law, because KRS

134.590 precludes recovery of ad valorem tax refunds on a class action basis. Even
cases where courts have determined

that a local government

invalid ad valorem tax, the relief sought

v.

excessive or

—
has been denied because
namely class action refund —

each taxpayer is required to apply for a refund individually

KRS 134.590(6); Griggs

charged an improper,

in those

under Kentucky's

statutory scheme.

Dolan, 759 S.W.2d 593, 597 (Ky. 1988); Board

'RS 134.590(6) currently

of Education

reads in part "No refund shall be made unless each taxvaver individuallv
two (2) years from the date payment was made."

7

v.

avplies within

Taulbee, 706 S.W.2d 827, 829 (Ky. 1986). Accordingly,
Library raised the ad valorem

even

if

this Court found that the

tax rate in violation of KRS 173.790, Plaintiff cannot obtain

refiUids on a class wide basis. Thus, Plaintiff s request for class wide compensatory

the form

of refunds

C.

damages in

must be dismissed.

Plaintiff's claim for tax refunds prior to 2010 is barred by the statute of
limitations.

Plaintiff seeks tax refunds for all alleged excessive taxes due from 2007 to the present.
Complaint, $

9. KRS 134.590, however, provides for a two-year statute of limitations.

if Plaintiffs were successful

filed this action on January 20, 2012. Therefore, even

their claims seeking a tax refund for alleged excess tax payments

Plaintiffs

on the merits,

made prior to 2010 must be

dismissed.
Pursuant to KRS 134.590(6), "No refund shall be made unless each taxpayer individually

applies within two (2) years from the date payment was made." Accordingly,

as each class member individually,

Plaintiff, as well

is required to seek a refund within two years from the date he

allegedly made the excessive tax payment.

While the statute also provides that

taxes due is in litigation, the taxpayer shall individually

"if the

amount

of

apply for a refund within two (2) years

from the date the amount due is finally determined," this provision does not save any claim for a

tax refund Plaintiff may have had prior to January 20, 2012, the date he filed this lawsuit.
litigation is filed in two years, the time for administrative

application will expire after two years

elapse from the date payment was made." Griggs, 759 S.W.2d at 596. Thus, subsequent
challenging

the amount

of taxes owed

not benefit the taxpayer
Translated

individually

into present circumstances,

"If no

litigation

that is filed more than two years after the tax is paid "will

by extending

the time for applying

for a refund." Id.

Plaintiff's right to file for a refund under KRS 134.590

8

prior to this lawsuit expired two years after the taxes were paid because no litigation was filed
that would have otherwise tolled the statute

of limitations. Id.

A taxpayer is required to comply with the two-year statute
even

if the

results are "harsh." Department

of Revenue

v.

of limitations

in KRS

134.590,

Curtsinger, No. 2006-CA-001378 and

2006-CA-001462, 2007 Ky. App. Unpub. LEXIS 699, at *13 (Ky. App. Oct. 26, 2007). "The
two-year statute

of limitations is necessary to protect the state's fiscal security,

from having to repay to taxpayers millions
various requirements

of the state's

shielding the state

of dollars, which had presumably been allocated to

budget, years after a tax was collected." Revenue Cabinet v.

Gossum, 887 S.W.2d 329, 335 (Ky. 1994).

D.

because the Library

Plaintiff's conversion claim must be dismissed
sovereign immunity against tort liability.

has

Plaintiff's conversion claim against the Library fails to state a claim upon which relief
because the Library

can be granted

has sovereign

sovereign state cannot be held liable in a court
committed

by its agents." Calvert Investments,

immunity

against

of law for either intentional or
Inc. v. Louisville

ck

"[T]he

tort liability.
unintentional

torts

Jefferson Co. Metro. Sewer

Dist., 805 S.W.2d 133, 139 (Ky. 1991). If an entity is a state agency, then it "is entitled to
immunity

proprietary,

from tort liability to the extent that is performing

function." Yanero

v.

of the Commonwealth,

It is well-settled
with sovereign

that the

of the Kentucky Board of Education,

and therefore, qualifies for sovereign immunity).

law that counties are state agencies, and that, not only are they cloaked

immunity,

likewise enjoy sovereign

as opposed to a

Davis, 65 S.W.3d 510, 519 (Ky. 2001) (holding

Kentucky High School Athletic Association is the agent
which is an agent

a governmental,

but agencies which derive their genesis from county
immunity

from tort claims. See Caneyville

Volunteer

government

Fire Dept.

Green 's Motorcycle Savage, Inc., 286 S.W.3d 790, 805 (Ky. 2009) (finding that fire departments

9

v.

are government

agents engaging in governmental

functions, and thus, "are cloaked in immunity

from suit in tort"); Comair Inc. v. I.exington-Fayette

Urban County Airport Corporation,

S.W.3d 91 (Ky. 2009) (holding that a city-county airport board has sovereign immunity).
key to the inquiry
government.
immunity

state

is whether

Thus, in Comair,

"extend...

should

the entity

supra,

the Kentucky

to departments,

as to come within

government

is exercising

295
The

a function that is integral to state

Supreme

Court observed that sovereign

boards or agencies that are such integral parts

regular

patterns

of

administrative

organization

of
and

structure." 801 S.W,2d at 332 (internal quotation marks omitted). The focus, however, is on state
level governmental

those concerns

concerns that are common to all of the citizens

may be addressed

by smaller

geographic

entities

of this state,

even though

(e.g., by counties). Such

concerns include, but are not limited to, police, public education, corrections, tax collection, and
public highways.
Applying

the Comair analysis,

sovereign immunity

clearly extends to protect a library

from tort claims, in the same manner as it does for all other similarly-situated
departments,

operation

state agencies,

or boards. Indeed, at least one Kentucky court has expressly acknowledged

of a

county library

a "governmental

"is manifestly a governmental

capacity." Alvey

v.

that

function" and a library board acts in

Birgham, 150 S.W.2d 935, 940 (Ky. App. 1940). County

of providing public

library services

on a state-wide basis to the general public, and are subject to state administrative

regulation and

libraries were created by state statutes solely for the purpose

control. Therefore, the Library, and its governing
and cannot be held liable on Plaintiff's

must be dismissed as a matter

tort claims.

of law.

10

board are cloaked with sovereign immunity,

Consequently,

Plaintiff s conversion claim

III.

CONCLUSION
For the foregoing reasons, the Library's Motion to Dismiss should be granted, and the

Plaintiff s Complaint should be dismissed, with prejudice at Plaintiff's cost.
Respectfully submitted,
Is/ Michael 8'. Hawkins

Michael W. Hawkins, Esq. (82949)
Cori R. Stirling (81447)
Dinsmore
Shohl LLP
255 East Fifth Street, Suite 1900
Cincinnati, Ohio 45202
Phone: [phone]

2

Fax: [phone]
Mary Ann Stewart

ADAMS, STEPNER,
WOLTERMANN
DUSING, PLLC
40 W. Pike Street
P.O. Box 861
Covington, KY 41012
Phone: [phone]

4

Fax: [phone]
Email: [e-mail]

Attorneys for Defendant Kenton County
Public Library Board of Trustees

CERTIFICATE OF SERVICE
I hereby certify that on February 23, 2012, I electronically filed the foregoing with the
Clerk

of Court using the CM/ECF system which

following:

will send notification

of such

filing to the

Brandon N. Voelker, THE VOELKER FIRM, 4135 Alexandria Pike, Suite 109,

Cold Spring, KY 41076, Attorney for Plaintiff.

3s( Michael 8'. Hawkins

2090507vl

11