Boeing Co. v. Oaklawn Imp. Dist.

Decision Date19 July 1994
Docket NumberNo. 69863,69863
Citation255 Kan. 848,877 P.2d 967
CourtKansas Supreme Court

Syllabus by the Court

1. The constitutionality of K.S.A. 19-2753 et seq., the Improvement Districts Act, is discussed and upheld. The Act does not violate procedural or substantive due process. Personal notice to a prospective taxpayer of the taxing authority's intention to impose a levy to retire bonds issued to pay for sewer improvements is not required by either the legislature or the constitution.

2. The phrase "the illegal levy of any tax, charge or assessment," contained in K.S.A. 60-907, refers to an action of an administrative official or board taken without valid legislative authority, or which amounts to fraud or corruption, or is so oppressive, arbitrary, or capricious as to amount to fraud in connection with the levy of any tax, charge, or assessment.

3. Where a full and adequate administrative remedy is provided in tax matters, such remedy must ordinarily be exhausted before a litigant may resort to the courts.

Thomas R. Powell, of Hinkle, Eberhart & Elkouri, L.L.C., Wichita, argued the cause, and Roger M. Theis, of the same firm, was with him on the brief, for appellant.

Darrell L. Warta, of Foulston & Siefkin, Wichita, argued the cause, and Eric F. Melgren, of the same firm, was with him on the brief, for appellee.

SIX, Justice.

This case focuses on a dispute between a taxpayer and an improvement district arising from the district's levy of ad valorem taxes to pay for bonds issued to finance sewer improvements. Our journey to resolution of the controversy considers the constitutionality of the Improvement Districts Act, K.S.A. 19-2753 et seq. (Act); the requirement of administrative remedy exhaustion; and the interpretation of K.S.A. 1993 Supp. 79-2005(m) (disbursement by the county treasurer of taxes paid under protest). The constitutional issue involves questions concerning sufficiency of notice to the taxpayer.

Voters in the Oaklawn Improvement District (Oaklawn or the District) in Sedgwick County authorized the issuance of general obligation bonds to finance a sewer repair project under the Act. Oaklawn levied ad valorem taxes against all property in the District to pay principal and interest payments on the bonds. The Boeing Company (Boeing), a taxpayer, sought an injunction under K.S.A. 60-907 prohibiting the levy, assessment, and collection of future taxes against Boeing's tangible property located within Oaklawn. The district court sua sponte declared the Act unconstitutional and granted the injunction. The constitutional issue was neither briefed nor argued by the parties. Oaklawn appeals. Our jurisdiction is under K.S.A. 1993 Supp. 60-2101(b) (direct appeal to this court from a judgment in a civil action in which a statute is held to be unconstitutional).

We hold the Act constitutional and reverse on the basis that Boeing has not exhausted appropriate administrative remedies.


The facts stipulated to by the parties were approved by the district court and made a part of the record. Additional testimony was introduced at trial.

Oaklawn is a quasi-municipal corporation formed by the Sedgwick County Board of Commissioners for the purpose of undertaking improvements to properties within District boundaries. Oaklawn is adjacent to the south Wichita city limits. There are approximately 1,032 homes located in Oaklawn, most of which were valued at $20,000 or less, along with several small retail establishments. Boeing owns substantial commercial facilities located south of Wichita, some of which are inside the District. Boeing also leases and conducts operations on properties within Oaklawn.

One of Oaklawn's functions has been to provide sewer service to its residents. The primary method of financing sewer construction in the District has been by assessing the costs of the improvements as fixed sums against the properties benefited. In 1980, Oaklawn constructed a new trunk line running along the western edge of the District to carry sewage to the City of Wichita plant. The trunk line was financed by an Environmental Protection Agency (EPA) grant and tax assessments based on special benefit. Oaklawn's treatment plant was eliminated because the District was provided access to Wichita's plant.

In 1982, Oaklawn annexed, at the request of the landowner, 90 acres of unimproved property located between the boundaries of Oaklawn and the Boeing complex. The landowner petitioned for annexation to obtain sewer service for planned warehouses. The 90-acre tract was sold to Boeing in 1983. This land was part of a plan for the development of a high-tech commercial complex. As part of the planning for the project, Boeing performed engineering studies during 1983-84 to identify the sewer trunk line capacity required to service the proposed development area. Boeing determined that a 24-inch trunk line would be needed to handle the anticipated volume. Boeing informed Oaklawn of its plans and need for expanded sewage facilities. Boeing determined that the Oaklawn sewer system did not have sufficient capacity to accommodate the anticipated volume. As a result, Boeing decided to construct its own sewer system. Oaklawn's engineering representative was notified and concurred in Boeing's decision. Boeing estimated that the construction of the separate sewer system could cost $2.75 million.

A temporary connection to the Oaklawn system was disconnected in 1985, and Boeing's property was connected to the then operational new trunk line. At no time other than during the temporary sewer service was Boeing's 90-acre tract or any other property owned by Boeing connected to Oaklawn's sewer system. No other services, such as water, fire hydrants, or street lighting, have been provided by Oaklawn to Boeing properties.

Commencing in 1984 through 1987, Oaklawn, at the request of the owner, annexed acreage with three office buildings for the intended purpose of providing sewer service. Boeing leased the three buildings, with a total projected occupancy of 2,050 employees. Sewer service for these buildings is provided by Oaklawn. Sewage from the leased buildings does not pass through the improvement lines which are the subject of this litigation.

Boeing acquired 24 acres of unimproved land within the District. The 24-acre tract was also within the service area of the Boeing sewer line constructed in 1985, so the tract was connected directly to that system. Boeing did not seek service from Oaklawn.

Oaklawn determined it was necessary to undertake a major renovation and reconstruction of its existing lateral sewer lines located in the original residential portion of the District. Oaklawn applied for an EPA grant in 1988 to finance a portion of the projected repair costs. Several methods of spreading the $1.27 million in local costs were considered. On May 31, 1988, and June 4, 1988, Oaklawn held public meetings for the purpose of discussing financing of the lateral sewer improvements. Several articles in local newspapers concerning the project and issuance of the general obligation bonds to pay for the project appeared in June 1988 (two in the Derby Daily Reporter and one in the Wichita Eagle). Oaklawn's residents voted on June 7, 1988, to finance the local costs by the issuance of general obligation bonds to be repaid by ad valorem taxation. The EPA rejected the grant application.

Oaklawn decided to undertake the sewer improvements in two phases, with the first phase covering the portions of the lateral sewer lines in the worst condition at a cost of $1 million. A letter dated March 24, 1989, with the caption, "To All Citizens of The Oaklawn Improvement District," invited participation at an informational meeting held on April 1, 1989. The purpose of the meeting was to discuss funding for the first phase of the project. Boeing contends that it was neither notified by letter nor invited to attend this meeting. Notice of the election was published for two consecutive weeks in the Derby Daily Reporter. Issuance of the bonds required the approval of more than 50% of those voting. Sedgwick County Election Commission records indicate there were approximately 826 registered voters within Oaklawn. Boeing states that it was not allowed to vote in this election. The issuance of the first series of bonds was approved at the April 4, 1989, election by a vote of 77 in favor, 29 opposed. The second phase of the rehabilitation was similarly approved by a 40-0 vote in an election held March 20, 1990, following another informational meeting and notice by publication.

Upon completion of the rehabilitation project, Oaklawn levied ad valorem taxes against all taxable real and personal property in the district to fund the sewer bond installment payments. Of the total of $205,833 in taxes levied in 1990, Boeing paid $122,150 (59.3%). Boeing paid $116,280 (67.4% of the total of $172,571) in 1991 and was assessed for $202,587 (70% of the total of $289,608) in 1992. Although Boeing did not protest the payment of the 1990 taxes, it did pay its 1991 and first half 1992 taxes under protest and currently has refund actions pending before the Board of Tax Appeals (BOTA). The assessments are levied entirely against Boeing's tangible personal property because its real property is subject to an Industrial Revenue Bond exemption.

The Pretrial Order

An amended pretrial conference order was agreed to by the parties and approved by the district court. Boeing contended that the levy exceeded the authority granted Oaklawn under the Act and that the tax was a taking of property under color of state law without due process or just compensation in violation of 42 U.S.C. § 1983 (1988). (Boeing alleged it received no special or direct benefit.) Boeing sought injunctive relief against the levy and collection of future taxes. Boeing did not seek to invalidate the issuance of the...

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4 cases
  • Appeal of Boeing Co.
    • United States
    • Kansas Supreme Court
    • January 24, 1997
    ...deciding that Boeing had not exhausted its remedies before the Board ofTax Appeals (BOTA). Boeing Co. v. Oaklawn Improvement Dist., 255 Kan. 848, 859, 877 P.2d 967 (1994) (Boeing I). We "The question is whether the Act's language requiring 'benefit' to property in the district and permittin......
  • Board of Sedgwick County Com'rs v. Action Rent To Own, Inc., 79422
    • United States
    • Kansas Supreme Court
    • December 11, 1998
    ...court. See e.g., Dillon Stores v. Board of Sedgwick County Comm'rs, 259 Kan. 295, 912 P.2d 170 (1996); Boeing Co. v. Oaklawn Improvement Dist., 255 Kan. 848, 877 P.2d 967 (1994); J. Enterprises, Inc. v. Board of Harvey County Comm'rs, 253 Kan. 552, 857 P.2d 666 (1993); Tri-County Public Air......
  • Kyburz v. Franklin
    • United States
    • Kansas Court of Appeals
    • January 3, 1997
    ...assessment was invalid because the action of the Secretary was without valid legislative authority. See Boeing Co. v. Oaklawn Improvement Dist., 255 Kan. 848, 858, 877 P.2d 967 (1994) (Exhaustion of administrative remedies is not required where the action taken is without authority or perme......
  • Dillon Stores v. Board of County Com'rs of Sedgwick County
    • United States
    • Kansas Supreme Court
    • March 8, 1996
    ...authorities does not, alone, render a tax arbitrary, capricious, and unreasonable so as to vest a court with jurisdiction." 255 Kan. at 857, 877 P.2d 967. Finally, even if the County acted in an arbitrary or capricious manner (which the record before us does not support) in determining the ......

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