Hale v. State

• Decision Date: 12 July 2012
• Docket Number: No. 20110146.,20110146.
• Citation: 2012 ND 148,818 N.W.2d 684
• Parties: Robert HALE, Plaintiff and Appellant v. STATE of North Dakota; Jack Dalrymple, in his official capacity as Governor of North Dakota; Shane Goettle, Director, in his official capacity as Director of the Department of Commerce; North Dakota Department of Commerce; the Minot Area Development Corporation; the Minot City Council (Curt Zimbelman, Larry E. Frey, David F. Lehner, Bob Miller, Hardy Lieberg, Dean Frantsvog, Jim Hatlelid, Chuck Barnes, Tim Greenheck, Scott Knudsvig, Mark Jantzer, Blake Krabseth, Ron Boen, Lisa Olson, each in his or her official capacities); and the City of Minot, Defendants and Appellees.
• Court: North Dakota Supreme Court

818 N.W.2d 684

2012 ND 148

Robert HALE, Plaintiff and Appellant

v.STATE of North Dakota; Jack Dalrymple, in his official capacity as Governor of North Dakota; Shane Goettle, Director, in his official capacity as Director of the Department of Commerce; North Dakota Department of Commerce; the Minot Area Development Corporation; the Minot City Council (Curt Zimbelman, Larry E. Frey, David F. Lehner, Bob Miller, Hardy Lieberg, Dean Frantsvog, Jim Hatlelid, Chuck Barnes, Tim Greenheck, Scott Knudsvig, Mark Jantzer, Blake Krabseth, Ron Boen, Lisa Olson, each in his or her official capacities); and the City of Minot, Defendants and Appellees.

No. 20110146.

Supreme Court of North Dakota.

July 12, 2012.

Lynn M. Boughey, Bismarck, N.D., for plaintiff and appellant.

Douglas A. Bahr, Solicitor General, Office of Attorney General, Bismarck, N.D., for defendants and appellees State of North Dakota; Jack Dalrymple, in his official capacity as Governor of North Dakota; Shane Goettle, Director, in his official capacity as Director of the Department of Commerce and North Dakota Department of Commerce.

Bryan L. Van Grinsven, Minot, N.D., for defendant and appellee the Minot Area Development Corporation.

Randall J. Bakke, Bismarck, N.D., for defendants and appellees the Minot City Council and the City of Minot.

CROTHERS, Justice.

[¶ 1] Robert Hale appeals from a district court order dismissing his action against the State of North Dakota, the Governor of North Dakota in his official capacity, the Director of the Department of Commerce in his official capacity and the Department of Commerce (“State entities”); the Minot City Council members in their official capacities and the City of Minot “(Minot defendants”); and the Minot Area Development Corporation (“MADC”) for a declaration that the state and the federal constitutions prohibit the disbursement of public funds to private persons, associations, or corporations for economic development. Hale primarily argues the “gift clause” provisions of N.D. Const. art. X, § 18 prohibit the State entities and the Minot defendants from using public funds to loan, give credit or make donations to individuals, associations, or corporations for economic development. We conclude statutes authorizing the State entities and the Minot defendants to implement economic development programs constitute an enterprise for a public purpose under N.D. Const. art. X, § 18 and are not unconstitutional. We affirm.

I

[¶ 2] In August 2010, Hale brought suit alleging more than sixty state statutes authorizing those entities to implement economic development programs violate N.D. Const. art. X, § 18 and the due process, equal protection, and takings provisions of the state and the federal constitutions. Hale claimed those statutes violated N.D. Const. art. X, § 18 because they permitted using public funds to make loans, give credit, or make donations to private persons, associations, or corporations for reasons other than the support of the poor. Hale sought (1) a declaration that N.D. Const. art. X, § 18 prohibits direct and indirect disbursements of public funds, loans, grants, loan guarantees, and giving of credit or gifts to private persons, associations and corporations for reasons other than the support of the poor; (2) a declaration that the giving by grant, credit, or loan to corporations as part of an economic development program constitutes an improper gift or donation to individuals, associations or corporations because the gift or donation was not for the benefit of the poor; (3) a declaration that the state and the city economic development programs lack accountability; (4) a declaration that more than sixty state statutes violate the gift clause; (5) an injunction prohibiting the defendants from disbursing public funds to private entities for economic development; (6) an order making taxpayers whole for funds improperly spent for economic development since 1990; (7) an order awarding Hale sufficient attorney fees “to discourage the state and its political sub-divisions from enacting such schemes in the future”; and (8) reasonable attorney fees under 42 U.S.C. § 1988.

[¶ 3] One day after filing the complaint and before the defendants answered, Hale moved for what he called “declaratory judgment.” Hale's motion really was one for summary judgment seeking the relief requested in his complaint, claiming it was undisputed the defendants were improperly loaning money, giving credit, or making donations to individuals, associations and corporations in a manner that did not constitute reasonable support of the poor.

[¶ 4] The State entities opposed Hale's motion and moved to dismiss his complaint for failure to state a claim upon which relief could be granted. SeeN.D.R.Civ.P. 12(b)(6). The State entities argued the statutes authorizing the State to engage in economic development programs were constitutional:

“There is no question the North Dakota Legislative Assembly has authorized the distribution of public funds for economic development. See, e.g.,N.D.C.C. § 54–60–02 (creating Division of Economic Development and Finance); N.D.C.C. § 54–34.3–04(3), (4) (stating the director of the Division of Economic Development and Finance is responsible to develop, implement, and coordinate a comprehensive program of economic development); N.D.C.C. ch. 4–14.1 (explaining purpose and authority of the agricultural fuel tax fund and the Agricultural Products Utilization Commission); N.D.C.C. § 10–30.5–02 (explaining purposes of North Dakota Development Fund); N.D.C.C. ch. 17–02 (providing for ethanol production incentives). In accordance with this statutory authority, the State, typically through the Department of Commerce, has and does disburse funds, provide grants, and provide loans to private persons, associations, or corporations in conjunction with economic development programs administered by it. The State, through the North Dakota Department of Commerce, has also taken equity positions in companies in conjunction with economic development programs administered by it. The question is not whether those activities are authorized or occur, but whether the authorizing statutes violate [N.D. Const. art. X, § ] 18. As demonstrated below, the Legislative Assembly may authorize the distribution of public funds for economic development. Accordingly, the Complaint fails to state a claim upon which relief can be granted and should be dismissed.”

[¶ 5] MADC moved to dismiss Hale's complaint for failure to state a claim, asserting N.D. Const. art. X, § 18 applies only to the State and its political subdivisions and does not apply to MADC because it is a private non-profit entity. MADC also asserted that if it is an agent of the City of Minot, it is not a necessary party because the alleged principal, the City of Minot, is a named defendant and MADC's alleged liability is no different than Minot's alleged liability.

[¶ 6] The Minot defendants answered Hale's complaint, opposed his motion for declaratory relief, and moved for summary judgment, claiming no disputed issues of material fact existed regarding the constitutionality of its economic development activities. The Minot defendants submitted an affidavit from its finance director, explaining Minot's relationship with MADC and its procedure for disbursing funds for economic development:

“2. The Minot Area Growth through Investment and Cooperation (MAGIC) Fund is financed by 40% of a 1% sales tax charged by the City of Minot....

“3. ... The MAGIC Fund provides incentives to businesses that desire to expand or locate in the greater Minot trade area. The primary purposes of the MAGIC Fund are to create new jobs, increase capital investment, improve the entrepreneurial climate of the region, and generally expand the primary sector financial base of the area. In addition, the MAGIC Fund may be used for workforce development to attract workers to meet workforce deficiencies in the region.

“4. The City of Minot enters from time to time into a Services Agreement with the Minot Area Development Corporation (hereinafter “MADC”) for the purposes of engaging MADC's services, expertise, and resources.

“5. .... Under this Services Agreement, MADC is obliged to, among other things, market and promote the City of Minot with respect to employment and business opportunity, coordinate efforts in this regard with Minot and various other entities, recruit and prospect new business, and present qualified applicants to the MAGIC Fund Committee.

“6. The Minot City Council must give its approval to the Services Agreement with MADC prior to its being signed by the Mayor of the City of Minot....

“7. The MADC and/or other applicable organizations make recommendations to the MAGIC Fund Committee to provide economic incentives to certain businesses, if appropriate. The MAGIC Fund Committee then makes a recommendation to the Minot City Council to approve or deny the request for funds. The Minot City Council gives final approval or denial of all applications. MAGIC Fund assistance is provided to businesses in the form of various financial arrangements. These financial arrangements include but are not limited to loans, grants, and tax deferments.”

[¶ 7] The district court granted the motions by the State entities and MADC to dismiss under N.D.R.Civ.P. 12(b)(vi) and the motion by the Minot defendants for summary judgment under N.D.R.Civ.P. 56. The court concluded statutes authorizing the State and governmental subdivisions to disburse public funds to private persons, associations or corporations for economic development programs constitute an enterprise for a public purpose under N.D. Const. art. X, § 18 and were not facially unconstitutional. In addressing Hale's claims that the defendants' economic development activities were unconstitutional, the court concluded the Minot defendants' implementation of the MAGIC Fund was an enterprise and Hale failed to raise a material factual dispute...