City of Ozark v. Trawick

• Decision Date: 21 August 1992
• Citation: 604 So.2d 360
• Parties: CITY OF OZARK v. Johnny TRAWICK, et al. 1910692.
• Court: Alabama Supreme Court

Page 360

604 So.2d 360

CITY OF OZARK v. Johnny TRAWICK, et al.

1910692.

Supreme Court of Alabama.

Aug. 21, 1992.

Joseph W. Adams, Ozark, and John G. Harrell and G. Edward Cassady III of Bradley, Arant, Rose & White, Birmingham, for appellant.

Samuel A. Cherry of Cherry, Givens, Tarver, Peters, Lockett & Diaz, P.C., Dothan, for appellees.

HOUSTON, Justice.

This is a tax case, where it is undisputed that the legal authority to collect the tax had expired and that the taxpayers are entitled to a refund of the amounts they paid. The amount of the refund is not at issue. What is at issue is the trial court's award of prejudgment interest and its award of attorney fees.

The facts are as follows:

On October 12, 1954, the City of Ozark ("the City") held a special election to authorize a special ad valorem tax to provide funds to build a new high school in the City. The tax was approved for the period beginning October 1, 1955, and ending September 30, 1985. By mistake, the City continued to collect the taxes for two more years, through September 30, 1987. ¹

Johnny Trawick, individually, and as representative of the class ("the Class") composed of all persons who had owned land situated within the City during the period October 1, 1985, through September 30, 1987, and who had paid taxes as assessed for that period after the authorized 30-year period had expired, and who desired a refund of the taxes paid during that two-year period, sued the City for a refund and sought prejudgment interest on those amounts and reasonable attorney fees. The City counterclaimed, seeking to have any taxpayer's refund offset by the amount of ad valorem taxes the taxpayer had failed to pay. The trial court entered a judgment for the Class, which reads in part as follows:

"4. That the total number of taxpayers who paid the taxes in question during the tax period in question and who did not desire a refund is 503.

"5. That the total number of taxpayers who paid the taxes in question during the period in question and who desire a refund [is] 4,106.

"6. That the class is entitled to interest on its refund entitlement under the authority of Sims v. White, 522 So.2d 239 (Ala.1988) (a case involving a question of valuation of property and excessive assessment thereof in which the Court, applying Ala.Code 1975, § 40-3-25, held that the taxpayer was entitled to an award of prejudgment interest on the tax refund he received).

"7. That the total amount of refunds to which the [Class] is entitled is as follows:

                A"Refund                $222,192.04
                B"Prejudgment Interest  $127,145.65
                                        -----------
                C"Total                 $349,337.69
                

"8. The court finds that this is an appropriate case for an award of attorney fees and expenses from the refund produced as a result of the efforts of the attorneys for the Class and in light of the work done, the expertise of the lawyers, the results obtained for the Class and other factors, the court finds that a reasonable fee for the attorneys in this cause is thirty three and one-third per-cent of the amount recovered for the Class ($349,337.69) and such money [$116,445.90 for attorney fees] is hereby awarded as a charge against the refund collected [and shall be deducted from the total refund amount which shall result in a reduction in thirty three and one-third pro-rata reduction in the net disbursal to the Class of the refund entitlements].

"9. That no off-sets have been established by the [City] to refund entitlement of the [Class]."

The City appeals from the trial court's award of prejudgment interest on the refund and from the "lump sum" award of attorney fees in the amount of 1/3 of the total refund ordered. We affirm in part and reverse in part and remand.

The law is well settled, and the parties agree, that absent express statutory authorization, no prejudgment interest can be awarded on refunds of municipal taxes. See Glass v. Prudential Insurance Co. of America, 246 Ala. 579, 22 So.2d 13 (1945).

The City argues that there is no statutory authority for awarding prejudgment interest on refunds of illegally collected ad valorem taxes such as in this case, because neither of the applicable statutory provisions, Ala.Code 1975, § 40-10-164, or Ala.Code 1975 § 11-51-72, permits the imposition of prejudgment interest. It further argues that Ala.Code 1975, § 40-3-25 (the tax statute upon which the trial court and the Class relied as authority for the award of prejudgment interest) is not applicable in this case because that section governs property valuation and assessment (classification for valuation purposes) and deals with procedures for appealing the property valuations, which is not at issue in this case; and because, the City says, § 40-3-25 does not deal with refunds of ad valorem taxes erroneously paid or collected, such as in this case. According to the City, prejudgment interest is not available on refunds where the basis of the refund is the incorrect levy of a tax, as in this case, as compared to a claim for refund based on an allegedly incorrect assessment of property where the levy is correct.

The Class argues that § 40-3-25 is the applicable statutory authority for the imposition of prejudgment interest. According to the Class, the fact that § 40-3-25 was written in the context of overassessments does not preclude its application to all ad valorem taxes erroneously paid--that is, that § 40-3-25 "can be consistently read with all of the other procedural statutes [i.e., § 40-10-164 and § 11-51-72, which provide procedural instructions on how a taxpayer is to file for a refund on taxes paid through an error in assessment or collection and which instruct various local officials as to their respective duties to order and pay refunds found to be owed by the taxpayer through such an error.] It does not require a choice between one or the other."

Section 40-3-25 deals specifically with the process of valuing property and assessing the taxes thereon and with the procedure for appealing "from the rulings of the board of equalization fixing value of property":

"If ... the court is of the opinion that the valuation is either too high or too low, it shall render a judgment fixing such valuation as it may deem fit. ... It shall decide all questions as to the legality of the assessment and the valuation of the property. ... The court shall ascertain and determine by its judgment the amount of tax which was invalid or which was excessive ... paid to the ... municipalit[y] ... and thereupon, upon presentation of a certified copy of the judgment to the ... governing body of [the] municipality, ... the treasurer of such ... municipality [is] hereby required to refund such amounts received ... with interest as herein provided."

(Emphasis added.) Section 40-3-25 is part of "Chapter 3. COUNTY BOARDS OF EQUALIZATION" (§§ 40-3-1 through 40-3-26), which sets forth, among other things, the method of creating a board of equalization, the qualifications for membership on that board, the method of selecting members, the terms of office, the method of filing vacancies, compensation, the duties of the board and its members, the method of reviewing assessments, the procedure for hearing objections to valuations, and the procedure for appealing. Where assessment and valuation of property are not at issue, § 40-3-25 does not apply. In this case, the valuation of property is not at issue. Therefore, § 40-3-25 is not applicable.

On the other hand, § 40-10-164 (a provision of Article 6. "REFUND OF TAXES PAID BY MISTAKE OR ERROR," which sets out a statutory refund procedure for taxpayers who have paid a tax through mistake, double assessment, or error on property where no taxes were due, see State v. Ross Grady Insurance Agency, Inc., 48 Ala.App. 578, 266 So.2d 787 (1972)) deals specifically with "Recovery from municipalities, etc.:"

"In case of the payment of money under mistake of law or fact upon any illegal tax assessment made under color of any law ... or by any of [the state's] political subdivisions, authorizing the assessment or collection of taxes for any purpose whatever, whether for any municipality, ... for schools or otherwise, ... the same shall be recoverable by appropriate proceedings against the proper parties or their successors, with the usual rights of...