Lake View School District et al v Huckabee et al

• Decision Date: 02 March 2000
• Docket Number: 99-28
• Citation: 10 S.W.3d 892
• Parties: LAKE VIEW SCHOOL DISTRICTof Phillips County, Arkansas, et al. v. Mike HUCKABEE, Governor of the State of Arkansas, et al. 99-28 ___ S.W.3d ___ Opinion delivered
• Court: Arkansas Supreme Court

LAKE VIEW SCHOOL DISTRICT No. 25 of Phillips County, Arkansas, et al. v Mike HUCKABEE, Governor of the State of Arkansas, et al.

99-28 ___ S.W.3d ___

Opinion delivered March 2, 2000

Supreme Court of Arkansas

Appeal from Pulaski Chancery Court; Collins Kilgore, Chancellor; reversed and remanded.

1. Action -- class action -- court approval required for compromise. --Approval of the court is required for a class-action compromise; the supreme court does not view court approval as a rubber stamp but rather as action entailing discretion by the trial court; there was no abuse of discretion by the trial court in connection with its refusal to sign an Agreed Order.

2. Schools & school districts -- Ark. Const. amend. 74 -- does not resolve disparities in per pupil expenditures & opportunities. -- Amendment 74, which allows funding variances among school districts due to local taxes, does not by itself resolve disparities in per pupil expenditures and opportunities under the Arkansas Constitution's equal protection clauses.

3. Appeal & error -- compliance trial necessary -- reversed & remanded. --Where the trial court's dismissal was based on grounds of mootness and failure to state a claim, the supreme court determined that a compliance trial and decision by the chancery court on whether disparities in treatment noted in a 1994 order had been corrected by legislative and constitutional changes so as to pass constitutional muster were necessary to achieve the goals of finality and resolution; reversed and remanded for trial.

4. Attorney & client -- attorneys' fees -- American Rule. -- Arkansas follows the American Rule that attorneys' fees are not chargeable as costs in litigation unless permitted by statute but recognizes exceptions.

5. Constitutional law -- sovereign immunity -- doctrine stated. -- Article 5, section 20, of the Arkansas Constitution provides that the State shall never be a defendant in any of her courts.

6. Constitutional law -- sovereign immunity -- tapping state treasury will render State defendant. -- Tapping the State's treasury for payment of damages will render the State a defendant.

7. Constitutional law -- sovereign immunity -- doctrine applied where state treasury would be ultimately liable for legal fees. -- Where it was the state treasury that would pay either on a pro rata basis from revenues allocated to those school districts that benefitted from the litigation or from the state coffers, thus making the state treasury ultimately liable for legal fees, the supreme court held the sovereign-immunity doctrine applicable.

8. Constitutional law -- sovereign immunity -- State may waive. -- The State of Arkansas can voluntarily waive a sovereign-immunity defense; in addition, the State can consent to being sued.

9. Constitutional law -- sovereign immunity -- State waived defense to payment of attorneys' fees. -- Where the State signed off in two published notices to class members advocating that attorneys' fees be paid and continued to push for payment of attorneys' fees even after the chancery court refused to sign the Agreed Order, it waived its sovereign-immunity defense to payment of those fees.

10. Constitutional law -- sovereign immunity -- chancery court erred in refusing to consider waiver issue. -- The supreme court concluded that the chancery court erred in refusing to consider the waiver issue on grounds that it had been raised too late by appellants; where letter briefs had been submitted by appellants onattorneys' fees, and the State then filed its brief in response, arguing the sovereign-immunity defense and praying that no more briefs be filed, and where appellants responded four days later, countering the sovereign-immunity defense, the chancery court erred in refusing to consider the reply brief; appellants should have been allowed to counter the sovereign-immunity defense; to hold otherwise would allow the State to argue a defense and then effectively foreclose a response from the other side; furthermore, based on the State's motion to strike, both the State's brief in response and appellants' reply were untimely.

11. Attorney & client -- attorneys' fees -- chancery court's denial reversed & remanded for determination of reasonable fees -- State liable. --Emphasizing the uniqueness of the circumstances of the case, the supreme court held that because an economic benefit accrued to the State due to appellants' efforts, attorneys' fees should be awarded, and the State should pay the fees awarded; the supreme court reversed the chancery court's decision denying attorneys' fees and remanded for a determination of reasonable fees after completion of the compliance trial.

Wilson & Valley, by: J.L. Wilson; Lewellen & Associates; Don Trimble; and Jack, Lyon & Jones, P.A., by special attorney Eugene G. Sayre, for appellants.

Mark Pryor, Att'y Gen., by: Tim Humphries, Senior Ass't Att'y Gen.; and Thompson and Llewellyn, P.A., by: William P. Thompson, for appellee.

Lavey & Burnett, by: John L. Burnett, for amicus curiae American Civil Liberties Union.

Robert L. Brown, Justice.

The original plaintiffs in this case, now appellants, are Lake View School District No. 25 of Phillips County, Arkansas and School District board members and officials, and certain individuals residing in Phillips County (hereafter Lake View). The defendants, now appellees, are the Governor of the State of Arkansas, the Treasurer of the State of Arkansas, the Speaker of the House of Representatives and President Pro Tempore of the Senate of the Arkansas General Assembly, officers of the Arkansas Department of Education, and members of the Arkansas Board of Education (hereinafter State of Arkansas). In this appeal, LakeView raises multiple substantive issues relating to the final order of the chancery court, which dismissed the Lake View complaint, and its petition to show cause for contempt on grounds of mootness and failure to state a claim under Ark. R. Civ. P. 12(b)(6). Lake View further appeals the chancery court's denial of attorneys' fees. We hold that two bases for the Lake View appeal have merit. The trial court erred in dismissing Lake View's complaint and show-cause petition for mootness and for failure to state a claim. It also erred in denying attorneys' fees.

I. Procedural History

The history of this case is long and tortured, but reviewing the history is critical to the resolution of the matter. On August 19, 1992, Lake View filed suit against the State of Arkansas, in which it contested the constitutionality of the public school funding system under both the U.S. Constitution and the Arkansas Constitution. Lake View requested that the chancery court declare the school funding system unconstitutional and that the court enjoin implementation of the unconstitutional system. This complaint subsequently was amended five times. The second amended complaint was tried before the chancery court for five days in September 1994. Following trial, the chancery court entered its order on November 9, 1994. The order was fifty-two pages long, and it contained one hundred and forty-seven findings of fact and eighteen conclusions of law.

What was at issue in the Lake View case was the disparity in funds available for education in school districts across the state under the school funding system. In 1994, school districts received approximately thirty percent of their revenue from local funds, sixty percent from state aid, and ten percent from federal funds. Local funds were tied to the local tax base which was tied to property values within the districts. School districts with higher property values necessarily generated higher local taxes and more money available for education. This resulted in significant disparities. As an example, disparities in per pupil expenditures in the 1992/93 school year ranged from $4,064 spent per pupil in the Little Rock School District to $2,270 spent per pupil in the Mountain View School District. One of the purposes of state aid was to equalize per pupil expenditures regardless of the wealth of the school district and to make available equal educational opportunities for all students. See Dupree v. Alma School District No. 30, 279 Ark. 340, 651 S.W.2d 90 (1983).

In its November 9, 1994 order, the chancery court concluded that the equal protection provisions of the Arkansas Constitution(Article 2, §§ 2, 3, 18) applied to Arkansas school funding and that there was no rational basis for the disparity in available school funds among poor and wealthy school districts under Arkansas' school funding system. The court further concluded that the school funding system violated Article 14, § 1, of the Arkansas Constitution by failing to provide a "general, suitable and efficient system of free public schools." Two problems were pointed out by the 1994 Order: (1) school districts were allowed to keep excess tax revenues raised locally, thereby producing funding variances; and (2) state aid under Act 1 of 1994 did not cure the disparities in per pupil expenditures.

The chancery court stayed the effect of its decision for two years to give the Arkansas General Assembly time to implement a constitutional system "in conformity with this opinion." On December 21, 1994, the chancery court modified its first order slightly with two additional orders and repeated the two-year stay to give the General Assembly an opportunity to enact a constitutional system "in conformity with this opinion." The court also cited authority from other as support states for its stay.¹ The three orders will be referred to in this opinion as the 1994 Order.

On March 6, 1995, the chancery court refused to award Lake View attorneys' fees, because no common fund had been established as a result of counsels' efforts. Also, in 1995, the General Assembly passed three acts in an attempt to comply with the 1994 Order:

Act 916 -- Levied an income tax surcharge of ten percent against residents in a...