Friends of Chamber Music v. City and County of Denver, 83SA185

• Docket Nº: No. 83SA185
• Citation: 696 P.2d 309
• Case Date: February 25, 1985
• Court: Supreme Court of Colorado

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696 P.2d 309 FRIENDS OF CHAMBER MUSIC, a Non-Profit Corporation, for
Itself and All Others Similarly Situated, Suzanne W. Joshel,
and Kevin Markey, for Themselves and All Others Similarly
Situated, Plaintiffs-Appellants and Cross-Appellees,
v.
CITY AND COUNTY OF DENVER; The Board of Council, City and
County of Denver, and the Members thereof; M.R. Licht, City
Auditor, City and County of Denver; Thomas P. Briggs,
Manager of Revenue, City and County of Denver; and Martha
Guevara, Manager of Parks and Recreation, City and County of
Denver, Defendants-Appellees and Cross-Appellants. No. 83SA185. Supreme Court of Colorado,
En Banc. Feb. 25, 1985.

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Edward H. Sherman, G. Kevin Conwick, Donald J. Hopkins, A. Edgar Benton, Holme, Roberts & Owen, Denver, for plaintiffs-appellants and cross-appellees.

Stephen H. Kaplan, City Atty., Donald E. Wilson, Asst. City Atty., Denver, for defendants-appellees and cross-appellants.

DUBOFSKY, Justice.

The plaintiffs, Friends of Chamber Music, Suzanne W. Joshel and Kevin Markey, appeal a district court decision that upheld an ordinance adopting a Facilities Development Admissions Tax (admissions tax) to

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retire municipal bonds issued by the City and County of Denver (Denver) for improvements to Mile High Stadium. Denver cross-appeals, challenging the standing of plaintiff Friends of Chamber Music and the certification of this case as a class action. We affirm the judgment of the district court, but rule that Friends of Chamber Music does not have standing as a tax collector to pursue its claim and that the members of the ticket purchaser class certified by the district court cannot be bound by this judgment because they did not receive adequate notice.

On July 15, 1974, the Denver City Council (council) enacted an ordinance calling for an election on the issuance of two sets of general obligation bonds. Denver, Colo., Ordinance No. 480, Series of 1974. The first question to be submitted to the voters authorized Denver to issue $22,000,000 worth of bonds for the improvement of Mile High Stadium. The second question authorized the issuance of an additional $2,500,000 in bonds to refinance outstanding municipal stadium revenue bonds. Each of the questions indicated that the bonds were "to be payable from general ad valorem taxes." Id. § 2. At the time the ordinance was adopted, the Denver Charter provided that the money necessary to retire bonds could come from property taxes "or other sources as specified by ordinance." Denver, Colo., Charter, § A6.11 (as amended May 15, 1973). The ordinance calling for the election erroneously relied on language in an earlier version of the charter stating that "the amount required to pay the interest on the bonded indebtedness and provide for the sinking fund shall always be provided for out of the tax on property." Id. § 4.

On August 26, 1974, before the electorate voted on the new bonds, the council adopted an ordinance imposing the "Facilities Development Admissions Tax," a tax of forty cents on admission to any event held at a city facility. The ordinance provided that vendors of admissions to events held at city facilities would be responsible for returning the tax to the city. The purpose of the tax as defined by the ordinance was "for the payment of the principal and interest due on any bonds issued in accordance with the proposition submitted to the electorate September 10, 1974, by Ordinance 480, Series of 1974, and for the payment of the expenses of operating and improving the city and its facilities; ..." Denver, Colo., Ordinance No. 590, Series of 1974 (codified as amended at Denver, Colo., Revised Municipal Code § 53-343 (1982)).

At the September 10 election, the voters approved the bond submission questions. Accordingly, on November 11, 1974, the council enacted two ordinances issuing the two sets of bonds. Denver, Colo., Ordinance Nos. 727, 742, Series of 1974. The stadium refinancing bond ordinance specified:

All of the 1974 bonds, as the principal thereof and the interest thereon ..., shall constitute general obligations of the issuer, which hereby pledges its full faith and credit for their payment. The bonds as to all Bond Requirements shall be payable from General Taxes as herein provided.

Denver, Colo., Ordinance No. 727, Series of 1974 § 7. The Mile High Stadium improvement bond ordinance contained essentially the same provision. Denver, Colo., Ordinance No. 742, Series of 1974 § 6. The second ordinance, which provided for the issuance of bonds authorized for several different projects in addition to the stadium, specifically provided that direct taxes on property could be levied to pay the interest and principal on the bonds but also reserved the power to pay off the bonds with funds derived from other sources. Id. § 21.

Meanwhile, on October 29, 1974, the council had amended the admissions tax ordinance to require a tax of ten percent on the admissions to each event at a public facility instead of the forty cent per admission tax. Denver, Colo., Ordinance No. 716, Series of 1974. Several later ordinances made minor changes in the admissions tax, particularly revising the expressed purpose of the tax to specify that

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surplus funds should be used for improvements and maintenance of other public facilities. None of these amendments, however, significantly changed the form of the tax or the fact that it primarily was to be used to pay off the stadium bonds.

The admissions tax became effective January 1, 1975. In December 1976, Friends of Chamber Music filed a complaint in the District Court for the City and County of Denver alleging that the admissions tax was unconstitutional and unlawful. Friends of Chamber Music is a nonprofit organization that has rented Phipps Auditorium, a city facility, for presentation of chamber music concerts. Friends of Chamber Music is a vendor for purposes of the admissions tax and must collect and return the ten percent tax to Denver's Department of Revenue. The complaint was later amended to add as plaintiffs two individuals who had attended events at Denver facilities and paid the tax. The suit was brought as a class action on behalf of two classes: vendors and purchasers of admissions to events at Denver facilities. The plaintiffs requested class certification under C.R.C.P. 23(b)(1), (2) and (3). ¹ On April 3, 1979, the district court certified the plaintiff classes under C.R.C.P. 23(b)(3). ²

The district court held a hearing to determine what form of notice would meet the requirements of C.R.C.P. 23(c)(2), which requires that notice be given to all the members of a class certified under C.R.C.P. 23(b)(3), allowing them the opportunity to opt out of the class and avoid being bound by the court's judgment. ³ The court found

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that to meet the C.R.C.P. 23(c)(2) requirements of "the best notice practicable under the circumstances, including individual notice to all [class] members who can be identified through reasonable efforts," the plaintiffs should give personal notice by mail to all the members of the vendor class, ⁴ to all season ticket holders who could be identified through vendor mailing lists, ⁵ and constructive notice through newspaper publication to the members of the ticket purchaser class. ⁶ The court excluded from the ticket purchaser class all those who were exempted from paying the admissions tax and all those who attended events at Mile High Stadium.

Accordingly, the court ordered: (1) individual notice to all vendors except those who held events at Mile High Stadium; (2) individual notice to purchasers who were season ticket holders or subscribers to events held at Denver facilities other than Mile High Stadium, by voluntary inclusion of the notice in vendor mailings to those season ticket holders or subscribers; and (3) published notice in the Rocky Mountain News and Denver Post, with one notice to go in the sports section of one newspaper and one in the entertainment section of the other newspaper. The plaintiffs complied with the court's order and requested that all vendors notified include a notice of the class action in one of their mailings to their season ticket holders or subscribers. Most of the vendors, however, refused to include the notice. ⁷

All evidence at trial consisted of stipulations and exhibits. The district court held that the enactment of the admissions tax was not an illegal alteration of the method of payment specified by the voters in approving the stadium bonds. The court determined that the submission to the voters indicating that the bonds would be payable from ad valorem taxes was necessary to the authorization of general obligation bonds, but did not limit the source of funds for the bonds to ad valorem taxes. The court also ruled that the admissions tax did not deny equal protection or due process under the federal and state constitutions.

The plaintiffs on appeal assert that the admissions tax is an illegal variance from the method approved by the voters to retire the bonds, that the tax violates equal protection guarantees, and that it deprives ticket purchasers of due process of law. The defendants on cross-appeal maintain that: (1) the plaintiff Friends of Chamber Music lacks standing to challenge the tax; (2) the action should not have been certified as a class action or individual notice to all class members should have been required; and (3) recovery of taxes paid should be limited to those taxpayers who have exhausted their administrative remedies if the district court judgment is reversed. We first address the cross-appellant's questions of standing and class certification.

I.

Denver asserts that the plaintiff Friends of Chamber Music lacks standing as a collector

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of the admissions tax to challenge the validity and constitutionality of the tax. Although the district court did not rule directly on the standing question, we address it at the outset.

As we have...