Bear Creek Valley Sanitary Authority ex rel. Bashaw v. Hopkins

• Decision Date: 27 July 1981
• Docket Number: No. 75-997-E-2,75-997-E-2
• Citation: 53 Or.App. 212,631 P.2d 808
• Parties: BEAR CREEK VALLEY SANITARY AUTHORITY ex rel. E. R. BASHAW and Lucy M. Bashaw, and E. R. Bashaw and Lucy M. Bashaw, individually, Appellants, v. Bereth P. HOPKINS, Chester Irish, W. B. Brill, Robert Dunn, Karl O. Kohler, Ronald V. Meyer, E. W. Nitcher, individually and as officers of Bear Creek Valley Sanitary Authority, Respondents, George E. Stacey, John D. Watkins, and Robert E. Burton, E. G. Tischauser, Val A. Bubb, Dennis Cooper, Bruce Bauer and George Flanagan, Defendants. ; CA 19065.
• Court: Oregon Court of Appeals

Page 808

631 P.2d 808

53 Or.App. 212

BEAR CREEK VALLEY SANITARY AUTHORITY ex rel. E. R. BASHAW and Lucy M. Bashaw, and E. R. Bashaw and Lucy M Bashaw, individually, Appellants, v. Bereth P. HOPKINS, Chester Irish, W. B. Brill, Robert Dunn Karl O. Kohler, Ronald V. Meyer, E. W. Nitcher individually and as officers of Bear Creek Valley Sanitary Authority, Respondents George E. Stacey, John D. Watkins, and Robert E. Burton, E. G. Tischauser, Val A. Bubb, Dennis Cooper, Bruce Bauer and George Flanagan, Defendants.

No. 75-997-E-2; CA 19065.

Court of Appeals of Oregon.

Argued and Submitted May 11, 1981.

Decided July 27, 1981.

Stanley Carroll Jones, Jr., Klamath Falls, argued the cause for appellants. With him on the briefs were Steven A. Zamsky, Klamath Falls, E. R. Bashaw, Medford, and Giacomini, Jones & Associates, Klamath Falls.

Ervin B. Hogan, Medford, argued the cause and filed the brief for respondents.

Before GILLETTE, P. J., and ROBERTS and YOUNG, JJ.

GILLETTE, Presiding Judge.

This is an action by the Bear Creek Valley Sanitary Authority on behalf of two of its taxpayers against the directors of the Authority pursuant to ORS 294.100, post. The taxpayers seek the return of moneys which they allege were expended by the Authority for purposes other than those authorized by law and an injunction forbidding the further unauthorized use of the Authority's funds. The trial court granted summary judgment in favor of the defendants, and plaintiffs appeal. ¹ We reverse.

This dispute arose from the issuance of bonds by the Authority in 1970 to finance the construction of a sewer project known as the Bear Creek Interceptor (BCI). The Authority, after receiving voter approval, issued $4,860,000 in general obligation bonds to finance the construction of the BCI. The Authority also eventually received state and federal grants totalling over three million dollars related to the BCI construction.

The taxpayers challenge the disposition of both the bond sale proceeds and the grant moneys received by the Authority. They contend that, between fiscal years 1970 and 1975, the directors expended both bond and grant funds for unauthorized purposes. They rely on ORS 450.920, which provides:

"The proceeds of the sale of bonds shall be deposited with the county treasurer who is custodian of the funds of the authority and shall be placed by him in the sanitary authority fund and credited to a special account or accounts which are designated for use for the particular purpose or purposes for which the bond proceeds are to be used. The proceeds of such bonds shall be used solely for the purpose or purposes indicated in the order calling for election upon the question of the issuance of the bonds and for no other purpose. However, the proceeds of the sale of the bonds may be used for payment of the principal and interest of such bonds and expenses of the formation of the authority." (Emphasis supplied.) ²

It is the taxpayers' contention that the directors have used the bond proceeds for purposes other than those indicated in the order calling for the election on the issuance of the bonds (set out in part in the margin), ³ and that the directors are liable for the return of the amounts so expended pursuant to ORS 294.100(2):

"(2) Any public official who expends any public money in excess of the amounts, or for any other or different purpose or purposes than authorized by law, shall be civilly liable for the return of the money by suit of the district attorney of the district where the offense is committed, or at the suit of any taxpayer of such district."

Defendants' motion for summary judgment was granted by the trial court on two grounds: that defendants relied in good faith on the advice of counsel in making the decisions to expend the funds as they did, and that the funds were all expended for proper purposes, so that neither the Authority nor its taxpayers were injured. Defendants also suggest several other bases upon which the summary judgment can be supported: (1) the expenditures were in fact all appropriate because all bond sale proceeds were used for construction of the BCI and there was no restriction on the use of the grant moneys received by the Authority; (2) all expenditures were authorized by the budgets for each of the years in which they were made as required by the Local Budget Law, ORS 294.305 et seq., and the directors may not be held liable for such budgeted expenditures; and (3) the taxpayers are barred by laches from bringing this action.

The granting of summary judgment is appropriate only when there is no material issue of fact and the moving party is entitled to judgment as a matter of law. ORCP 47(C); Seeborg v. General Motors Corporation, 284 Or. 695, 588 P.2d 1100 (1978); Wilford v. Crater Lake Motors, Inc., 277 Or. 709, 561 P.2d 1027 (1977). We consider each of defendants' proffered justifications for summary judgment.

ADVICE OF COUNSEL

The advice of counsel defense relied upon by the trial court was enunciated in State ex rel. v. Mott, 163 Or. 631, 97 P.2d 950 (1940), in which the Secretary of State had been advised by the Attorney General that a particular claim was valid. The court said:

"While the secretary of state was not bound to follow such opinion, he had the right to do so and is protected while acting in good faith even though it is assumed the same was erroneous * * *. If the law were otherwise few responsible administrative officers would care to assume the hazards of rendering close decisions in public affairs. Officers acting in good faith have a right to rely on the opinion of the attorney general, as he is the officer designated by law to render such service for their guidance and protection. What has been said has no application, however, where the officer to whom the opinion is given participates in the fruits of a wrongful or unlawful act. In such cases the advice of the attorney general is no defense." 163 Or. at 640, 97 P.2d 950.

And see Cannon v. Taylor, 88 Nev. 89, 493 P.2d 1313 (1972); State v. Spring City, 123 Utah 471, 260 P.2d 527 (1953); see also Stanson v. Mott, 17 Cal.3d 206, 130 Cal.Rptr. 697, 551 P.2d 1 (1976).

This case differs from State ex rel. v. Mott in one important respect: Defendants here have indicated that they relied upon the advice of the general counsel for the Authority, a private attorney, in making the decisions to expend the funds as they did. They contend that they may not call upon the Attorney General to advise them, see ORS 180.060(2) and (3) ⁴, and must, therefore, rely upon private counsel. They contend that the same policy which supports the defense of advice of counsel when such advice is given by the Attorney General also applies to the situation in which municipal officers rely in good faith upon the advice of private counsel.

In Porter v. Tiffany, 11 Or.App. 542, 502 P.2d 1385 (1972), rev. den. (1973), this court was presented with a defense of advice of counsel in an action under ORS 294.100 against members of the Eugene Water and Electric Board. There we found that the board members had not followed the advice given by their counsel and had not established their defense. We noted that, because the defense had not been established, it was not necessary to decide whether Mott should be extended to apply to reliance upon the advice of private counsel. The present case requires resolution of that question.

We recognize that there are significant differences between reliance on the advice of private counsel and reliance on the advice of the Attorney General. For one thing, counsel for the Authority is retained by it and is subject to dismissal by it, while the Attorney General is an elected public official who has a broader responsibility. We believe, however, that the policy expressed in Mott militates in favor of allowing a defense of good faith reliance on advice of counsel to public officers such as the directors in this case. We do not believe that local officials should be required to make complex decisions regarding expenditures of public funds without the advice of counsel and at their own risk. Such a requirement would discourage competent individuals from seeking or accepting such positions and would be a detriment to local government. We hold that the defense is available to these defendants.

Turning to the affidavits submitted by the parties, however, we find that issues of fact remain regarding the advice of counsel defense which make the granting of the summary judgment on that ground erroneous. In order to establish the defense of advice of counsel defendants must show that they relied in good faith and without personal benefit upon the advice that was given by their attorney. See State ex rel. v. Mott, supra.

There is no contention here that defendants personally benefited from any of the expenditures at issue. Defendants have submitted an affidavit from the general counsel for the Authority stating that he advised them regarding the propriety of certain expenditures. However, the only affidavit which attempts to establish that the directors actually relied in good faith on such advice is that W. B. Brill, a member of the Authority's board of directors during all relevant times. This affidavit distinguishes between expenditures of direct proceeds of the bond sale and grant moneys received. It states in part:

"The directors of the Authority at no time expended or authorized the expenditure of any of the proceeds of the bond sale referred to in plaintiffs' complaint for any purpose other than the payment of costs of construction of the Bear Creek Interceptor or payment upon the principal and interest accruing upon said bond issue excepting only (an advance made to another fund for acquisition of office facilities which has since been repaid.) * * *.

"In authorizing said advance * * * the directors sought and in good faith relied upon the advice of Manville Heisel, attorney for the Authority, to...