Shipp, for Use, Etc. v. Rodes , 219 Ky. 349 ( 1927 )

I concur in the conclusions reached, but cannot adopt the reasoning of the majority opinion, and in view of the importance of the matter involved, feel that I should give my reason for dissenting.

This is a suit by a taxpayer of Fayette county to recover of the sheriff of that county and his bondsmen over $60,000.00, which it is alleged that officer collected and retained in commissions and fees in excess of constitutional limitations during the years 1914 to 1917 inclusive. In five years of litigation and by the prosecution of two successful appeals to this court the plaintiff has been adjudged the right to maintain the suit and to have stated a cause of action in his pleadings. See Shipp v. Rodes, 196 Ky. 523; Shipp v. Bradley, 210 Ky. 65, in which the matters in issue are fully set out. So far as the record shows during all of this period the fiscal court has been in apparent sympathy with the defendants and hostile to the enforcement of the claim.

Forced to an issue the defendants made a written proposition to the fiscal court to settle the claim by the payment of $10,000.00; the proposition was duly accepted by that body in an appropriate order, the money was paid and receipted; and among other defenses set out in the answer this settlement was pleaded in bar of the further prosecution of plaintiff's suit. Also, at the direction of the fiscal court, the county attorney filed a similar pleading for Fayette county and sought a dismissal of plaintiff's petition. Demurrers to these pleadings were overruled and appellant filed replies making a general allegation of fraud in the compromise agreement. Demurrers were sustained to these pleadings. No evidence was introduced on the other issues and the petition was dismissed.

The majority opinion holds that the plea of settlement was a complete bar to plaintiff's further prosecution of the suit unless attacked for fraud. I do not think this ruling tenable.

(1) On the authority of Com. v. Tilton, 111 Ky. 341; Lou. Car Wheel Ry. Supply Co. v. City of Louisville, 146 Ky. 573; Ludlow v. City of Ludlow, 152 Ky. 545; Citizens' National Bank v. Com., 118 Ky. 51; Title Guaranty Trust Co. v. Com.,146 Ky. 702; Hager, Auditor v. Shuck, 120 Ky. 574, it is strongly argued for appellant that the compromise settlement was an attempt to cancel a liability due the county and inhibited by section 52 of the state Constitution. Without reviewing those cases it may be said, as pointed out in the Louisville Home Tel. Co. case infra, that the liabilities attempted to be compromised or released therein were fixed demands, and therefore the release of any part of them was condemned. While not entirely free from doubt, it may be assumed from the record in this case that this claim is for an unliquidated and uncertain demand and does not fall within the constitutional inhibition. Com. v. Sou. Pac. Ry. Co., 134 Ky. 421; Louisville Home Tel. Co. v. City of Louisville, 130 Ky. 611.

(2) The county is a quasi municipal corporation that can act only by agents. By section 144 of the Constitution and section 1840 of the statutes the fiscal court is empowered "to regulate and control the fiscal affairs of the county." This power is not vested in any other person or body, and it, the fiscal court, is thus constituted the sole managing agent of the county's affairs, and, as such agent, it and it only, may as a general rule compromise and settle such claims due or owing by the county as are the proper subjects of compromise. No doubt it may do this at any time before judgment in a pending suit which is being prosecuted by its direction, and in so doing its members as public officers will be presumed to have discharged their duty, and the burden of proving the contrary is placed upon anyone attacking their action. The crucial question is whether it may thus compromise and dismiss a taxpayer's suit by settling the claim upon which it is based. In holding that it may do so the majority opinion seems to proceed on the theory that the taxpayer is merely a nominal plaintiff, and that the county is the real party in interest; that it has settled this claim by and through its regularly authorized governing body and that this settlement is conclusive unless attacked for fraud. But this premise is correct in part only. It is true that there are two classes of taxpayers' suits, (first) suits brought to prohibit anticipated illegal acts upon the part of the municipality in which preventive relief is sought. Such an action is brought by the taxpayer in his own name and he is admittedly the real party in interest. (Second). Action such as the one at bar to obtain relief against wrongful dealings with municipal property where the municipal officers, either actually or virtually, refuse to prosecute a suit. In such actions the final relief belongs to the corporation and not to the taxpayer, and is brought by the latter for the benefit of the municipality, which is said to be the real party in interest. Northern Trust Co. v. Snyder, 20 A.S.R. 872; Pomeroy's Equity Jurisprudence, sees. 1093-1094-1095. But it does not follow that the taxpayer is merely a nominal plaintiff and the fiscal court the real plaintiff, or that it has full power to act for plaintiff.

While broad powers are given this body, and its action is sometimes treated as the action of the county, after all it is but the agent of the county, and in the exercise of such powers its actions are to be construed by the rules of law applicable to agency; and, as to the county itself and the taxpayers, it is regarded as a trustee and chargeable with the highest degree of diligence. So long as the fiscal court discharges its duty a taxpayer can do no more than criticise its actions. But if, through intention or neglect, it proves derelict to its trust and wrongfully diverts the public funds or permits such to be wrongfully diverted, and fails upon request to seek proper relief or is hostile thereto, the taxpayers who furnish the funds and who are interested in their disbursement and for whose benefit the funds are held in trust are not left without remedy. In such cases any one or more of these may sue for and on behalf of all persons similarly situated for the benefit of the county, and become itsrepresentative in that suit, and as the suit does not lie except when the fiscal court is derelict, the rightful institution of such suit — a matter heretofore judicially determined in this case, and confirmed by the substantial amount offered in compromise — is in itself an impeachment of that body, and the presumption in favor of public officers discharging their duty does not apply to its subsequent acts tending to end the prosecution of the suit, or to divest the taxpayer of his right to maintain and direct it.

True, if the fiscal court does not think the issues properly presented in such suit or wishes to recommend a settlement as the judgment of the court, or believes the suit is vexatiously prosecuted, it can intervene in the suit in the name of the county and aid the court in any way proper, or place the facts in their true light. Shipp V. Stoll, 200 Ky. 646. But, subject to such intervention, the rights heretofore adjudged appellant to maintain the action embraces the power to control and direct the suit to final judgment, and it is admitted that the fiscal court had no power to interfere in these matters or to dismiss the suit. State, Ex Rel. Morrison v. City of Muskogee,70 Okla. 191.

It requires higher authority upon the part of an agent to compromise a suit than it does to prosecute it, and if by reason of its dereliction the power of a fiscal court is so abridged that it may not interfere with the management of a taxpayer's suit or dismiss it, it certainly does not possess the higher power of compromising and settling it. It is no longer the sole representative of the county in the matter, and if its subsequent conduct in relation thereto is inconsistent with the taxpayer's claim, it should bear the burden of showing its good faith, and that the rights sought in the petition are fully protected in any proposition of settlement offered by it, this to be determined by the court upon the issues of law and fact, some support of this conclusion being found in Bernheim v. Wallace, 186 Ky. 472; Com. v. Sou. Pac. Ry. Co., 134 Ky. 421.

Of course this would not prevent the county from accepting the fund paid in the proposed settlement and the continuance of the suit at the cost of the taxpayer, as in cases of private corporations, if it preferred to adopt this course. See 4th Thompson on Corporations 4571; 14 C. J. 390; 1st Daniel's Chancery Practice, page 794; Eagle Iron Co. v. Collier, 156 Fed. 594.

It is said by appellees, though not discussed in the opinion, that the indirect interest of the taxpayer is insignificant as compared with the county's interest, and that he should not be permitted to stand in the way of the duly constituted authorities in the conduct of the county's affairs; but this argument ignores the fact that the suit is for the benefit of all the taxpayers of the county and that the aggregate of their indirect interests equals the claim due the county for whom the taxpayer has acquired the right to act.

True, the law favors compromises, and, under the views expressed above, a compromise of such cases cannot be made except with the approval of the court trying the case. But it cannot successfully be maintained that an admittedly unfaithful trustee can compromise a suit rightfully instituted by another for the benefit of the cestui qui trust, and, as the sole fiscal agent and trustee of the county has incapacitated itself to act in this matter, its members cannot complain that no compromise can be had.

An additional reason for the above conclusion is that the rule adopted in the majority opinion places a double burden upon the plaintiff in the suit. A still stronger reason is that in making the bona fides of the fiscal court the sole test of the validity of the compromise, and in placing the burden of establishing the contrary on the plaintiff, such settlement is practically made immune, as fraud is elusive and hard to establish, and the rankest compromise may be made in good faith. Not only so, but by this ruling the law is rendered inconsistent in itself. The taxpayer's right to institute and maintain the action does not depend on fraud alone. True he may not institute such action in a matter upon which the fiscal courthas acted without showing mala fides. But in a meritorious case, if that body fails or refuses to act after being requested to do so, he may sue for the county, although the fiscal court is acting bona fide, and its failure to act is occasioned solely by incompetency or inefficiency. In such a case the official incompetency would likely continue and by reason of it the court might be induced to accept in good faith a wholly inadequate settlement and one that might be so considered by the trial court upon the record before him. Yet, though the plaintiff in the suit is demanding a hearing on the merits, the judge must close his eyes to the record, accept the settlement as conclusive and deny plaintiff's prayer, because he is unable to charge mala fides, something that was not required in order to institute the action. This renders a taxpayer's suit a vain thing. It puts a trust fund in a court of equity under the control of the discredited trustee and ignores the rights and prayer of the cestui qui trust. It renders the law impotent in that it gives a right and offers a remedy but withholds its enforcement.

Oakman v. City of Eveleth, 203 N.W. 574, holds to the contrary, but the matters considered supra were not discussed in that opinion, which seems to have been based on the assumption that the taxpayer was trying to thwart abona fide settlement, which I think an improper assumption.

Taxpayers' suits are the only protection afforded against inefficiency and wrongdoing upon the part of municipal fiscal officers. Public policy demands that the rights thus vouchsafed should be liberally construed and freely upheld by the courts, and not hampered by technical rules or strained constructions. Feeling that the majority opinion is not in accordance with this policy, I respectfully dissent.