City of Appleton v. Town of Menasha

• Citation: 142 Wis.2d 870,419 N.W.2d 249
• Decision Date: 19 February 1988
• Docket Number: No. 86-2228,86-2228
• Parties: CITY OF APPLETON, a Wisconsin Municipal Corporation, Plaintiff, v. TOWN OF MENASHA, a Wisconsin town, Defendant. Garth WALLING, Third Party Plaintiff-Appellant, v. CITY OF APPLETON, a Wisconsin Municipal Corporation and State of Wisconsin, Third Party Defendants-Respondents.
• Court: United States State Supreme Court of Wisconsin

Page 249

419 N.W.2d 249

142 Wis.2d 870

CITY OF APPLETON, a Wisconsin Municipal Corporation, Plaintiff, v. TOWN OF MENASHA, a Wisconsin town, Defendant.

Garth WALLING, Third Party Plaintiff-Appellant, v. CITY OF APPLETON, a Wisconsin Municipal Corporation and State of Wisconsin, Third Party Defendants-Respondents.

No. 86-2228.

Supreme Court of Wisconsin.

Argued Jan. 5, 1988.

Decided Feb. 19, 1988.

Roger W. Clark, Appleton, argued, for third party plaintiff-appellant; Herrling, Clark, Hartzheim & Siddall, Ltd., Appleton, on brief.

David G. Geenen, Appleton, for third party defendants-respondents.

SHIRLEY S. ABRAHAMSON, Justice.

This is an appeal from an order of the circuit court for Outagamie county, James T. Bayorgeon, Circuit Judge, denying Garth Walling's (Walling) motion to intervene in a proceeding brought by the City of Appleton against the Town of Menasha, on the ground that Walling lacks standing. Walling, a taxpayer of the Town of Menasha, had moved to intervene and filed a third-party complaint seeking a declaration of rights to determine the constitutionality of the statute upon which the City of Appleton bases its proceeding. ¹ The circuit court denied Walling's motion to intervene and dismissed the complaint, holding that Walling has no standing to challenge the constitutionality of the statute.

The appeal comes to this court on certification of the court of appeals pursuant to sec. 808.05 (2) and sec. (Rule) 809.61, Stats. 1985-86. The court of appeals certified the case, requesting this court to clarify several "apparently conflicting holdings" on a taxpayer's standing to challenge the constitutionality of a statute.

The issue in this case is whether Walling has standing to challenge the constitutionality of the statute upon which the City of Appleton relies. ² The City argues that Walling is suing on behalf of the Town and that Walling's action is subject to the same limitations as the Town's. Because the Town cannot challenge the constitutionality of the statute, the City argues that Walling is similarly barred.

We conclude that Walling has a direct and personal pecuniary interest in this action and brings this third party action on behalf of himself and similarly situated taxpayers. Thus Walling's rights are not coextensive with--or limited by--the Town of Menasha's rights in the action. Accordingly we hold that although the Town cannot challenge the constitutionality of the statute, Walling has standing to challenge the constitutionality. We reverse the circuit court's order and remand the cause for further proceedings.

The facts are not disputed. In 1983, the City of Appleton annexed several parcels of land from the Town of Menasha. Appleton and Menasha were unable to agree on the division or adjustment of assets and liabilities attributable to the annexation. In 1986, Appleton commenced this proceeding against Menasha, pursuant to sec. 66.03 (5), Stats. 1983-84, requesting the circuit court to apportion assets and liabilities. After Menasha answered the complaint, Walling, a resident and taxpayer of Menasha and chairman of the Menasha Town Board, moved to intervene and filed a third-party complaint against Appleton. In his complaint, Walling alleges that Appleton's proceeding, if successful, will deprive him and all other Menasha taxpayers of "rights, privileges and property." Walling further alleges that the apportionment will deprive him of assets paid for by his tax dollars and will require him and other Menasha property owners to pay additional taxes. Walling further alleges that the apportionment statute, upon which Appleton bases its proceeding, is unconstitutional.

Before discussing Walling's standing to challenge the constitutionality of the statute, we acknowledge, as do the parties, that this court has repeatedly stated that towns and other legislatively created entities of the state cannot challenge the constitutionality of a statute. ³ Although the court has recognized exceptions to this rule, ⁴ the parties agree that no exception applies to this case and that the Town of Menasha cannot challenge the constitutionality of the statute that is the basis for the City's suit. At oral argument Walling's counsel asked the court to re-examine the question of whether a municipality has standing to challenge the constitutionality of a statute. This issue has not, however, been briefed, and we do not reach it.

According to our prior cases, the issue of Walling's standing to challenge the constitutionality of the statute depends on whether Walling's third-party action is a derivative action or a nonderivative action.

This court has distinguished between derivative and nonderivative actions since at least 1900 but has recognized that it is not easy to differentiate between the two. Indeed numerous cases do not discuss the two types of actions, and the court frequently decides the taxpayer's standing to bring the lawsuit without characterizing the action as either derivative or nonderivative. In 1973 the court described the "distinction which exists between ... a derivative action ... and the more typical taxpayers' action [which we refer to as a nonderivative action]" as "very subtle." Cobb v. Milwaukee County, 60 Wis.2d 99, 110-111, 208 N.W.2d 848 (1973), citing Linden Land Co. v. Milwaukee Electric Railway & Light Co., 107 Wis. 493, 503-504, 83 N.W. 851 (1900). ⁵

According to our decisions, a taxpayer brings a derivative action when the taxpayer brings the suit on behalf of a municipal entity and the effect of the lawsuit on the taxpayer is "neither special, immediate nor direct...." State ex rel. Skogstad v. Anderson, 130 Wis. 227, 230, 109 N.W. 981 (1906). The basis of the derivative action is that the municipality has been injured and has the primary right to proceed but has refused to bring the action. The individual brings the action because the municipality fails to exercise its own right to sue. Coyle v. Richter, 203 Wis. 590, 234 N.W. 906 (1931). ⁶

When a taxpayer brings an action on behalf of the municipality, that is, a derivative action, the taxpayer's rights in the suit are coextensive with those of the municipality. This rule was set forth in Madison Metropolitan Sewerage District v. Committee on Water Pollution, 260 Wis. 229, 249-50, 50 N.W.2d 424 (1951), in which the court denied a taxpayer standing to challenge the constitutionality of a statute. According to this case, if Walling's third-party complaint is a derivative action, then Walling's rights are no greater than the rights of the Town; Walling cannot challenge the constitutionality of the statute because, as we stated earlier, the Town cannot do so.

On the other hand, a taxpayer's action is nonderivative when the taxpayer sues in his individual capacity and as representative of similarly situated taxpayers, not on behalf of the municipality. To bring a nonderivative action, the taxpayer must allege and prove a direct and personal pecuniary loss, a damage to himself different in character from the damage sustained by the general public.

This court has held that a taxpayer has the right to raise, on behalf of himself and other taxpayers, a constitutional issue affecting his and their individual rights. ⁷ See, e.g., Buse v. Smith, 74 Wis.2d 550, 563, 247 N.W.2d 141 (1976); Thompson v. Kenosha County, 64 Wis.2d 673, 679, 221 N.W.2d 845 (1974); State ex rel. La Crosse v. Rothwell, 25 Wis.2d 228, 233, 239a, 130 N.W.2d 806 (1964); City of Marshfield v. Town of Cameron, 24 Wis.2d 56, 64, 127 N.W.2d 809 (1964); Columbia County v. Wisconsin Retirement Fund, 17 Wis.2d 310, 319-20, 116 N.W.2d 142 (1962). If Walling is bringing the third-party action on his own behalf and on behalf of taxpayers similarly situated, his right to challenge the constitutionality of the statute is not limited by the Town's right.

A survey of cases decided in the past thirty-five years since Madison Metropolitan Sewerage, supra 260 Wis. 229, 50 N.W.2d 424, involving a taxpayer's challenge to the constitutionality of governmental action demonstrates that this court has been disposed toward finding that the taxpayer has sustained a direct and personal pecuniary loss. If the taxpayer shows even a slight loss, this court has granted the taxpayer standing to challenge the constitutionality of a statute.

A leading case is Columbia County v. Wisconsin Retirement Fund, 17 Wis.2d 310, 116 N.W.2d 142 (1962). In that case eight counties and one taxpayer sued for declaratory relief against the Board of Trustees of the Wisconsin Retirement Fund seeking an adjudication of the constitutionality of a statute requiring counties to come under the Fund. The court concluded that the counties could not challenge the constitutionality of the statute. Because the taxpayer, however, had alleged a direct pecuniary loss (which the defendant admitted by demurrer) and therefore met the requirements of a taxpayer's action for his own injury, the court concluded that the taxpayer had standing to raise the question of constitutionality.

The Columbia County decision makes it clear that courts are disposed toward granting standing to individual taxpayers seeking to challenge the constitutionality of statutes relating to governmental powers that affect them as individuals. The court explained that because the municipality was precluded from challenging constitutionality, unless a taxpayer has standing to make the challenge in state courts, no one else would be able to do so. The message of Columbia County is that if an injured taxpayer is denied standing to challenge the constitutionality of a statute, the legislature could violate the constitutional limitations of its powers relating to municipalities with impunity. The court explained its policy of keeping courts open to taxpayer actions as follows:

"Unless an individual taxpayer can ground an action for an injury to himself and raise the question of unconstitutionality of the laws so affecting...