Schires v. Carlat

• Decision Date: 08 February 2021
• Docket Number: No. CV-20-0027-PR,CV-20-0027-PR
• Citation: 480 P.3d 639,250 Ariz. 371
• Parties: Darcie SCHIRES, et al., Plaintiffs/Appellants v. Cathy CARLAT, et al., Defendants/Appellees.
• Court: Arizona Supreme Court

250 Ariz. 371

480 P.3d 639

Darcie SCHIRES, et al., Plaintiffs/Appellants

v.Cathy CARLAT, et al., Defendants/Appellees.

No. CV-20-0027-PR

Supreme Court of Arizona.

Filed February 8, 2021

Christina Sandefur(argued), Timothy Sandefur, Scharf-Norton Center for Constitutional Litigation at the Goldwater Institute, Phoenix, Attorneys for Darcie Schires, et al.

Mary R. O'Grady(argued), Emma Cone-Roddy, Osborn Maledon, P.A., Phoenix; Vanessa Hickman, City Attorney, Amanda Sheridan, Senior Assistant City Attorney, Saman J. Golestan, Assistant City Attorney, Office of the City Attorney, City of Peoria, Peoria, Attorneys for Cathy Carlat, et al.

Mark Brnovich, Arizona Attorney General, Brunn (Beau)W. Roysden III, Solicitor General, Michael S. Catlett, Deputy Solicitor General, Dustin D. Romney, Assistant Attorney General, Phoenix, Attorneys for Amicus Curiae State of Arizona

Benjamin Nielsen, Quarles & Brady LLP, Phoenix, Attorneys for Amici Curiae Arizona Tax Research Association

Aditya Dynar, Dynar Law, PLC, Gilbert, Attorney for Amicus Curiae Americans For Prosperity Foundation - Arizona

Kory Langhofer, Thomas Basile, Statecraft, Phoenix, Attorneys for Amicus Curiae Public Integrity Alliance

Laura Conover, Pima County Attorney, Regina L. Nassen, Deputy County Attorney, Pima County Attorney's Office, Tucson, Attorneys for Amicus Curiae Pima County

Timothy J. Berg, Emily Ward, Taylor Burgoon, Fennemore Craig, P.C., Phoenix, Attorneys for Amicus Curiae Greater Phoenix Leadership, et al.

Christina Estes-Werther, General Counsel, The League of Arizona Cities and Towns, Phoenix, Attorneys for Amicus Curiae The League of Arizona Cities and Towns

VICE CHIEF JUSTICE TIMMERauthored the opinion of the Court, in which CHIEF JUSTICE BRUTINEL, and JUSTICES BOLICK, GOULD, LOPEZ, BEENE, and MONTGOMERY joined.

VICE CHIEF JUSTICE TIMMER, opinion of the Court:

¶1 The Arizona legislature has authorized municipalities to "appropriate and spend public monies for and in connection with economic development activities."A.R.S. § 9-500.11(A).This case addresses whether the City of Peoria violated article 9, section 7 of the Arizona Constitution(the "Gift Clause") by spending public funds to induce a private university to open a branch campus in Peoria.

We hold that the City violated the Gift Clause.

BACKGROUND

¶2 In 2010, the City of Peoria adopted strategies to spur economic development.One strategy was paying money to businesses in desirable fields, including higher education and technology, in return for their expansion within Peoria (existing businesses) or relocation there (new businesses).Another strategy was partially reimbursing eligible property owners for making tenant improvements to vacant commercial buildings in an underused area in Peoria known as the "P83 District."This case arises from the City's implementation of these strategies to persuade Huntington University, Inc.("HU"), an accredited private institution based in Indiana, to open a branch in the P83 District.

¶3 In 2015, HU and the City entered into an agreement for HU to lease space from a private property owner and open a campus in the P83 District to offer undergraduate degrees in digital media.HU also agreed to refrain from offering similar programs in other Arizona cities for seven years and to participate in "economic development activities" with the City to attract other targeted industries to Peoria.In return, the City promised to pay HU up to $1,875,000 over a three-year period for developing the campus and programs if HU met specified "performance thresholds" that tracked HU's progress in opening and operating its campus.

¶4 To fulfill its agreement with the City, HU leased a building in the P83 District from Arrowhead Equities, LLC("Arrowhead").The City then agreed to reimburse Arrowhead up to $737,596 for renovating the building to suit HU's needs, contingent on Arrowhead meeting certain "performance criteria" tied generally to Arrowhead's performance of its lease obligations.

¶5Plaintiffs are taxpayers residing in Peoria.They initiated this lawsuit to enjoin the above-described payments, asserting they violated the Gift Clause.The trial court granted summary judgment for the City and denied Taxpayers’ cross-motion for summary judgment.The court of appeals affirmed in a divided decision.Schires v. Carlat , No. 1 CA-CV 18-0379, 2020 WL 390671, at *1 ¶ 1(Ariz. App. Jan. 23, 2020)(mem. decision).While this lawsuit was pending, the City completed all payments to HU but remains obligated to make payments to Arrowhead.We accepted review to clarify our Gift Clause jurisprudence and provide guidance to public entities entering into economic development agreements, matters of statewide importance.

DISCUSSION

I.General principles

¶6 The Gift Clause provides:

Neither the state, nor any county, city, town, municipality, or other subdivision of the state shall ever give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation, or become a subscriber to, or a shareholder in, any company or corporation, or become a joint owner with any person, company, or corporation, except as to such ownerships as may accrue to the state by operation or provision of law or as authorized by law solely for investment of the monies in the various funds of the state.

Ariz. Const. art. 9, § 7.We have frequently described the historical impetus for this provision and analogous ones that exist in many state constitutions.See, e.g. , Day v. Buckeye Water Conservation & Drainage Dist ., 28 Ariz. 466, 473, 237 P. 636(1925);Indus. Dev. Auth. of Pinal Cnty. v. Nelson , 109 Ariz. 368, 372, 509 P.2d 705, 709(1973);Turken v. Gordon , 223 Ariz. 342, 346 ¶ 10, 224 P.3d 158, 162(2010).In a nutshell, "the evil to be avoided was the depletion of the public treasury or inflation of public debt by [a public entity] engag[ing] in non-public enterprises,"State v. Nw. Mut. Ins. Co. , 86 Ariz. 50, 53, 340 P.2d 200(1959), or "by giving advantages to special interests,"Wistuber v. Paradise Valley Unified Sch. Dist. , 141 Ariz. 346, 349, 687 P.2d 354, 357(1984).

¶7We adopted a two-pronged test in Wistuber to determine whether a public entity has violated the Gift Clause.First, a court asks whether the challenged expenditure serves a public purpose.Seeid.If not, the expenditure violates the Gift Clause, and the inquiry ends.Seeid.If a public purpose exists, the court secondarily asks whether "the value to be received by the public is far exceeded by the consideration being paid by the public."Id.If so, the public entity violates the Gift Clause by "providing a subsidy to the private entity."Id.;see also Turken , 223 Ariz. at 345 ¶ 7,347–48 ¶¶ 19–22, 224 P.3d at 161, 163–64(applying the Wistuber test);Cheatham v. DiCiccio , 240 Ariz. 314, 318 ¶ 10, 379 P.3d 211, 215(2016)(same).The party asserting a Gift Clause violation bears the burden of proving it.SeeWistuber , 141 Ariz. at 350, 687 P.2d at 358.

II.Application here

A.Public purpose

¶8 What constitutes a "public purpose" has proved elusive to define.SeeCity of Glendale v. White , 67 Ariz. 231, 236, 194 P.2d 435(1948)(stating that the term "is incapable of exact definition," changes with the times, and is best elucidated by examples).In general, however, a public purpose promotes the public welfare or enjoyment.Id. at 237, 194 P.2d 435(citingCity of Tombstone v. Macia , 30 Ariz. 218, 228, 245 P. 677(1926) );see alsoMacia , 30 Ariz. at 227–28, 245 P. 677(stating cities are not limited to providing material necessities but may also "minister to their [citizens’] comfort, health, pleasure, or education" and listing less-obvious examples of permissible expenditures, such as opening an exhibit at an exposition and decorating buildings (citing Ruling Case Law, vol. 19, at p. 721)).A court can consider both direct and indirect benefits of a government expenditure in deciding whether it serves a public purpose and thus satisfies the first prong of the Wistuber test.See Turken , 223 Ariz. at 348–49 ¶¶ 24–27, 224 P.3d at 164–65.In making this determination, a court should not concern itself with the wisdom or necessity of the expenditure in question, as those considerations lie exclusively within the public entity's discretion.SeeNelson , 109 Ariz. at 371, 509 P.2d at 708.

¶9 Perhaps because of the difficulty in precisely defining "public purpose,"courts take "a broad view of permissible public purposes" and give significant deference to the judgment of elected officials, who are tasked with identifying and furthering such purposes.See Turken , 223 Ariz. at 346 ¶ 28, 224 P.3d at 162("[T]he primary determination of whether a specific purpose constitutes a ‘public purpose’ is assigned to the political branches of government, which are directly accountable to the public.");see alsoWhite , 67 Ariz. at 237, 194 P.2d 435(affording the city council "some latitude" in deciding whether membership in a city league would benefit the city and refusing to interfere with that judgment absent adverse proof);Wistuber , 141 Ariz. at 349, 687 P.2d at 357("[C]ourts must not be overly technical and must give appropriate deference to the findings of the governmental body.").As we reiterated in Turken , "[w]e find a public purpose absent only in those rare cases in which the governmental body's discretion has been ‘unquestionably abused.’ "223 Ariz. at 349 ¶ 28, 224 P.3d at 165;cf.White , 67 Ariz. at 238, 194 P.2d 435(characterizing a prior case as recognizing that public money spent to defeat a proposed amendment to the Workmen's Compensation Law served a political purpose rather than a public purpose (citingSims v. Moeur , 41 Ariz. 486, 19 P.2d 679(1933) )).

¶10 The City found that incentivizing HU to establish a branch campus in the P83 District and reimbursing Arrowhead for part of HU's tenant improvements would serve the public by (1...