Friday, December 15, 2006, 4:09 PM

Taxpayer Standing

Today the NC SCT decided a case involving taxpayer standing: Goldston v. State. The Court, by a 4-1 vote, found standing to exist in a case where the COA unanimously had found no standing.
This is the SCT's first taxpayer standing case in nearly 20 years. In the past two decades it has been the COA, not the SCT, that has issued the authoritative decisions on standing. During that time the COA had gravitated toward the more stringent federal standing requirements (i.e., Article III constitutional standing), incorporating them into NC law. For example, the COA repeatedly has cited Lujan v. Defenders of Wildlife (1992), a seminal standing case written by Justice Scalia.
In today's case, the NC SCT distanced itself from federal standing requirements and recognized a more permissive approach to taxpayer standing than exists under federal law.
Background
The case involves withdrawals from the Highway Trust Fund. The Trust Fund was established by law as a special account consisting of funds from certain fuel and motor vehicle taxes. By law, the Trust Fund may be used for limited purposes. However, in response to a budget shortfall for fiscal year 2002-03, the General Assembly borrowed $125 million from the Trust Fund and put it in the General Fund. In addition, Governor Easley issued executive orders authorizing the transfer of money from the Trust Fund to the General Fund, resulting in an $80 million transfer in 2002.
Citizens and taxpayers sued the State and Governor Easley. They alleged that the withdrawals from the Trust Fund violated North Carolina's Constitution in several respects. For example, they alleged that the Trust Fund monies were applied to an unauthorized purpose in violation of Article V, section 5, which provides, "Every act of the General Assembly levying a tax shall state the special object to which it is to be applied, and it shall be applied to no other purpose."
The trial court granted summary judgment to the defendants. The COA affirmed, holding that the plaintiffs lack standing. The COA held that the plaintiffs do not have taxpayer standing, observing that the withdrawals affected plaintiffs in the same way it affected all citizens and taxpayers in the State. The COA also held that the plaintiffs did not have so-called "constitutional standing" as citizens seeking to challenge the constitutionality of government action.
The SCT granted the plaintiffs' petition for discretionary review. Two of the seven Justices were recused (Justice Timmons-Goodson, an Easley appointee who sat on the panel below in Goldston, and Justice Martin). With these Justices out, the Court was down to five members.
The SCT reversed in a 4-1 decision, with Chief Justice Parker dissenting. The Court held that Plaintiffs have standing.

Analysis

The decision is significant in this respect: The Court had the opportunity to embrace the more stringent federal standing doctrine and to roll back its own permissive state-taxpayer standing precedents. But the Court did the opposite.
First, the Court distanced NC law from the federal standing doctrine:

"We observe that, in finding plaintiffs lack standing to bring their claims against the Governor and the General Assembly, the Court of Appeals relied upon federal standing doctrine.... This reliance was misplaced. While federal standing doctrine can be instructive as to general principles ... and for comparative analysis, the nuts and bolts of North Carolina standing doctrine are not coincident with federal standing doctrine. Compare Piedmont Canteen Serv., Inc. v. Johnson, 256 N.C. 155, 166, 123 S.E.2d 582, 589 (1962) ("Only those persons may call into question the validity of a statute who have been injuriously affected thereby in their persons, property or constitutional rights." (emphasis added)), with Lujan v. Defenders of Wildlife, 504 U.S. at 560, 119 L. Ed. 2d at 364 (noting that one of the three elements of federal standing is an "'injury in fact'" that is "concrete and particularized")."


Second, the Court reaffirmed its own permissive standing precedents. The majority decision was based squarely on stare decisis. The Court relied on old NC SCT cases, none of which was decided in the past 30 years.

It's too bad, however, that the Court didn't take the opportunity to examine the propriety of the old precedents on which it relied. Had it done so, it might've wondered whether its state-taxpayer standing precedents were the result of a mistake. Here's why.

The Court's taxpayer standing doctrine developed innocently enough at the beginning of the 20th century with the Court adopting the prevailing view that municipal taxpayers have standing to challenge disbursements of public funds. See Merrimon v. S. Paving & Constr. Co., 142 N.C. 427, 431 (1906). The municipal-taxpayer standing doctrine was based on an analogy to shareholder derivative actions: The municipality (the so-called municipal corporation) was deemed analogous to a corporation, and its taxpayers were deemed analogous to corporate shareholders. See id. That is how taxpayer standing originated in NC, and elsewhere. Thus, in the famous case of Frothingham v. Mellon (1923), the US SCT noted with approval the standing of municipal residents to enjoin the "illegal use of the moneys of a municipal corporation," relying on "the peculiar relation of the corporate taxpayer to the corporation" to distinguish such a case from the general bar on taxpayer suits.

But, as the US SCT has also observed, the corporate analogy underlying the municipal-taxpayer standing doctrine doesn't rightly fit in the context of federal taxpayers challenging federal action or state taxpayers challenging state action. The US SCT has likened state taxpayers to federal taxpayers and has refused to confer standing upon them absent a showing of "direct injury," pecuniary or otherwise.

The NC SCT initially approached state-taxpayer standing more cautiously than municipal-taxpayer standing. But then, in a 1950 case involving a state taxpayer challenge, the Court said, that the taxpayer had standing, and for support the Court cited a municipal-taxpayer standing case (as well as a case that didn't discuss standing and another case where the statement on standing was dictum with no analysis). The Court did so without pausing the consider the peculiar historical underpinnings of the municipal-taxpayer standing doctrine and whether the corporate analogy makes sense in the context of state-taxpayer challenges. That case was then cited as precedent in a later case involving a state taxpayer challenge. A snowball effect then ensued, with later cases citing the earlier cases, and by the 1970s the NC SCT was embracing a permissive state-taxpayer standing doctrine.

Today in Goldston the Court could've said that the rise of state-taxpayer standing in its precedents was the result of a mistake, and the Court could've drawn a distinction between municipal taxpayers and state taxpayers for purposes of standing, as the US SCT has done. But the Court didn't.

Sidebar

  • While Goldston involves taxpayer standing, the biggest winners today may be environmental groups. Those groups have been the most disaffected by the US SCT's modern decisions on standing. By distancing NC law from federal law on standing, the NC SCT today may have opened the door for more environmental litigation.
  • For those urging the NC SCT to adopt federal standards in any case, don't assume the Court will be so inclined. In fact, you might want to assume the opposite. In this respect, today's case is reminiscent of Howerton v. Arai Helmet, Ltd., 597 S.E.2d 674 (N.C. 2004), where the Court rejected the federal Daubert standard for determining admissibility of expert testimony and embraced a more flexible standard. Interestingly, in that case--as in Goldston today--Justice Parker was alone in dissent, dissenting from a decision by all the Republican Justices who (as today) opted for a standard more permissive than the federal one.
  • In Goldston all of the judges who voted in favor of standing are Republicans (they did so on the basis of stare decisis), and all of the Democrat appellate judges who heard this case voted against standing. So much for the conventional wisdom that it's the conservative judges who favor a stringent standing doctrine.

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