Dieck v. Unified School Dist. of Antigo

• Decision Date: 12 December 1991
• Docket Number: No. 89-2356,89-2356
• Parties: , 71 Ed. Law Rep. 908 William DIECK and James Tatro, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants-Petitioners, v. UNIFIED SCHOOL DISTRICT OF ANTIGO, Langlade, Marathon, and Shawano Counties, Wisconsin, Linda Szitta, Jeffrey Wagner, Michael Hunter, Gary Kieper, Nancy Igl, Thomas Hartman, Dr. Robert Keener, Shirley Nagel, Steven Brettingen, Antigo School Building Leasing Corporation and First Wisconsin Trust Company, Milwaukee, Wisconsin, Defendants-Respondents.
• Court: Wisconsin Supreme Court

Page 613

477 N.W.2d 613

165 Wis.2d 458, 71 Ed. Law Rep. 908

William DIECK and James Tatro, on behalf of themselves and all others similarly situated Plaintiffs-Appellants-Petitioners, v. UNIFIED SCHOOL DISTRICT OF ANTIGO, Langlade, Marathon, and Shawano Counties, Wisconsin, Linda Szitta, Jeffrey Wagner Michael Hunter, Gary Kieper, Nancy Igl, Thomas Hartman, Dr Robert Keener, Shirley Nagel, Steven Brettingen, Antigo School Building Leasing Corporation and First Wisconsin Trust Company, Milwaukee, Wisconsin, Defendants-Respondents.

No. 89-2356.

Supreme Court of Wisconsin.

Argued Sept. 4, 1991.

Decided Dec. 12, 1991.

Richard J. Weber, argued, and Kelley, Weber, Pietz & Slater, S.C., Wausau, on the brief, for plaintiffs-appellants-petitioners.

Cassandra B. Westgate, argued, and Terwilliger, Wakeen, Piehler & Conway, S.C., on the brief, for defendants-respondents.

William L. Fahey, Jill Weber Dean and Lathrop & Clark, Madison, amicus curiae, for Wisconsin Ass'n of School Boards, Inc.

SHIRLEY S. ABRAHAMSON, Justice.

This is a review of a published decision of the court of appeals, Dieck v. Unified School District of Antigo, 157 Wis.2d 134, 458 N.W.2d 565 (Ct.App.1990), affirming a summary judgment of the Langlade County Circuit Court, Gary L. Carlson, Circuit Judge, in favor of the defendants, the Unified School District of Antigo, school board members, and other persons.

The principal issue presented is whether the Unified School District of Antigo incurred indebtedness in violation of art. XI, sec. 3(2), of the Wisconsin Constitution or chapter 67 or 120, Stats.1989-90, when it executed a lease purchase agreement to finance the construction of a new high school. The lease purchase agreement includes a nonappropriation option that gives the District the right to terminate the lease purchase agreement by electing not to appropriate funds for rental payments. Thus the lease purchase agreement provides that the District has no legal obligation for unpaid rentals.

We affirm the decision of the court of appeals, which affirmed the circuit court's granting summary judgment in favor of the defendants declaring that the District had the power to enter into this lease purchase transaction. The circuit court held that the District did not incur indebtedness when it executed the lease purchase agreement with a nonappropriation option and thus did not violate the constitution or statutes. The circuit court also held that the District has the authority to enter into an agreement with a Leasing Corporation created to enable the District to finance the acquisition of land and the construction of a new school. The circuit court further held that the District may use $500,000 raised through taxation for general operations as a payment under the lease purchase agreement. The court of appeals agreed with the circuit court on the resolution of these issues.

We conclude, as did the court of appeals and the district court, that the defendants' motion for summary judgment should be granted. ¹ Because the lease purchase agreement includes a nonappropriation option, the lease purchase agreement does not violate the constitution or statutes of Wisconsin. The District has the authority to enter into an agreement with a Leasing Corporation created to enable the District to finance the acquisition of land and the construction of a school. The District may disburse $500,000 from its general fund as a payment under the lease purchase agreement. Accordingly, we affirm the decision of the court of appeals, which affirmed the circuit court's judgment granting the District's motion for summary judgment.

I.

The relevant facts are not in dispute. The plaintiffs, taxpayers residing within the boundaries of the Unified School District of Antigo, filed a class action suit seeking a declaratory judgment and injunctive relief against the Unified School District of Antigo and others. This suit challenged the District's authority to enter into a lease purchase agreement, executed on June 12, 1989, with the Antigo School Board Leasing Corporation, to finance the acquisition of land and the construction of a new high school. The Leasing Corporation is a chapter 181 not-for-profit corporation.

According to the lease purchase agreement, the Leasing Corporation (the lessor) will acquire the site, construct the new building, and hold title to the property. The District (the lessee), however, will act as the Leasing Corporation's agent to select the site and oversee the design and construction of the building. Under the lease purchase agreement the District may lease the building from the Leasing Corporation for twenty years, paying rent annually from annual appropriations.

The lease purchase agreement incorporates and approves the terms of a Mortgage and Indenture of Trust between the Leasing Corporation and the First Wisconsin Trust Company (the trustee). The District has no direct contractual relationship with the Trust Company. The Leasing Corporation has assigned its rights to rental payments to the Trust Company. Thus the District makes payments directly to the Trust Company, which maintains all accounts created under the lease purchase agreement.

If the District rents the school for the duration of the twenty-year lease period, it has the option to purchase the property for ten dollars. The Trust Company holds in escrow a deed from the Leasing Corporation to the District.

As we explained previously, the District has the right under the nonappropriation option to terminate the lease purchase agreement by electing not to appropriate funds for the following fiscal year's payment. If the District exercises this nonappropriation option it will not be obligated to make any future payments under the lease purchase agreement but forfeits its right to future use of the school building and all the monies that it has appropriated. No funds of the District are jeopardized beyond the current fiscal year. ²

The Leasing Corporation will acquire the $9,725,000 necessary to buy the site and construct the school from the sale of certificates of participation. These certificates entitle the registered owners to receive a portion of the rent the Trust Company receives from the District. The District has no direct contractual relationship with the certificate owners. The right of certificate owners to receive their share of the District's rental payments is subject to the provisions of the lease purchase agreement, including the District's nonappropriation option. The certificate owners' interests will be secured by a mortgage interest in the property and in any funds held in the Trust Company's accounts and by a municipal bond insurance policy which is to insure the payment of principal and interest to the certificate owners. No municipal bond insurance policy had been obtained when plaintiffs filed the complaint or at the time of oral argument in this court. A sample municipal bond insurance policy is part of the record. According to the lease purchase agreement which has been executed and is in effect, the District's obligations to any bond insurer are expressly restricted to annually appropriated rents.

The plaintiffs assert that the lease purchase agreement is expressly designed to create indebtedness without giving the electors of the district an opportunity to vote. This lease purchase agreement, according to the plaintiffs, circumvents chapters 67 and 120, Stats.1989-90, and contravenes the wishes of the electorate who, over the past 20 years, have rejected eight referenda for the issuance of general obligation bonds to fund school construction. The last vote occurred on September 13, 1988, when over 53 percent of the voters opposed the issuance of bonds.

II.

We first address the plaintiffs' claim that the lease purchase agreement violates art. XI, secs. 3(2) and (3), of the Wisconsin Constitution. Article XI, secs. 3(2) and (3), limit the power of school districts to become indebted. Article XI, sec. 3(2), states:

(2) No county, city, town, village, school district, sewerage district or other municipal corporation may become indebted in an amount that exceeds an allowable percentage of the taxable property located therein equalized for state purposes as provided by the legislature. In all cases the allowable percentage shall be 5 percent except as specified in pars. (a) and (b)....

Section 3(3) requires a school district that incurs indebtedness under art. XI, sec. 3(2), to collect a direct annual tax sufficient to pay the interest on the debt as it falls due and also to pay and discharge the principal of the debt within 20 years from the time the debt was contracted. Article XI, sec. 3(3), states:

(3) Any county, city, town, village, school district, sewerage district or other municipal corporation incurring any indebtedness under sub. (2) shall, before or at the time of doing so, provide for the collection of a direct annual tax sufficient to pay the interest on such debt as it falls due, and also to pay and discharge the principal thereof within 20 years from the time of contracting the same. (emphasis added)

At issue in this case is whether, by its execution of the lease purchase agreement with a nonappropriation option, the District will become indebted or incur any indebtedness, as those words are used in art. XI, secs. 3(2) and (3). If the District becomes indebted or incurs indebtedness under art. XI, secs. 3(2) and (3), by executing the lease purchase agreement, it violates art. XI, sec. 3(3), because the District has failed to provide for a direct annual tax sufficient to pay the interest on such debt and to pay and discharge the principal within 20 years. If the District does not become indebted or incur indebtedness under art. XI, secs. 3(2) and (3), by executing the lease purchase agreement, then the District need not comply with the tax levy provisions of art. XI, sec. 3(3), and the lease purchase agreement is...