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Standing Case Analysis

The decision in this case that Lake Country lacks standing to bring the suit is consistent with the case law. Unfortunately, however, the court’s analysis only further muddles what is already a very convoluted body of case law concerning standing in taxpayer’s suits, which this case is, Lake Country’s disavowal notwithstanding.

The decision does this by completely ignoring that well-developed (albeit inconsistent) case law, and analyzing the case as if it were a garden-variety declaratory judgment action.

Taxpayer’s suits fall into two categories — derivative and nonderivative.

In City of Appleton v. Town of Menasha, 142 Wis.2d 870, 419 N.W.2d 249 (1988), the most recent Wisconsin Supreme Court case to discuss the issue of standing in taxpayer suits, the court described the difference:

“A taxpayer brings a derivative action when the taxpayer brings the suit on behalf of a municipal entity and the effect of the lawsuit on the taxpayer is ‘neither special, immediate or direct.’ (cite omitted). … The taxpayer’s rights in the suit are coextensive with those of the municipality.” City of Appleton, 142 Wis.2d at 876, 419 N.W.2d 251-152.

However, it should be noted that in Cobb v. Milwaukee County, 60 Wis.2d 99, 110, 208 N.W.2d 848 (1973), the court suggested that, in order for a taxpayer to bring an action on behalf of a municipality, the municipality must have not merely the right to bring the action on its own, but the duty to do so.

This is a dubious proposition, however, that the court adopted without any argument from the parties in the case. This was never the rule in Wisconsin previous to Cobb, and, as can be seen from the rule set out in City of Appleton, it has not been followed.

An action is classified as nonderivative, on the other hand, “when the taxpayer sues in his individual capacity and as representative of similarly situated taxpayers, not on behalf of the municipality. To bring a nonderivative action, the taxpayer must allege and prove a direct and personal pecuniary loss, a damage to himself different in character from the damage sustained by the general public.” City of Appleton, 142 Wis.2d at 877, 419 N.W.2d at 252.

Lake Country’s action is thus properly classified as nonderivative. Lake Country is seeking to stop the transfer of the property by claiming the ordinance amendment and contract were illegal, not suing on behalf of the municipality.

If the property in question were to be transferred to the YMCA pursuant to a contract, the YMCA were to breach the contract, and the village did not seek to enforce the contract, then the action would be derivative.

The most recent Supreme Court pronouncement on the subject of nonderivative actions such as Lake Country’s is that the taxpayer must prove a direct and personal pecuniary loss, different in character from the damage sustained by the general public.

The problem is that the rule is contrary to other case law, which the court has never overruled, and at least nominally, still claims to follow.

The ancient decision (but still frequently cited with approval) in Linden Land Co. v. Milwaukee Electric Railway & Lighting Co., 107 Wis. 493, 83 N.W. 851, 854 (1900), declares, “Such actions may be brought where municipal authorities are about to unlawfully dispose of public property or pay out public funds, or about to enter into unlawful and unauthorized contracts that will require public funds to discharge them, thus increasing the burdens of taxpayers, or squandering the property of the taxpayers, or both.”

In Linden Land Co., the court held that a taxpayer lacked standing to challenge an ordinance and contract that granted a third party a franchise to operate electric street railways, because he could show no squandering of property. Of the dozens of Supreme Court cases considering standing in taxpayer suits, Linden Land Co. is the most factually similar to the case at bar.

It is clear that, under either the standard set forth in Linden Land Co., or in City of Appleton, Lake Country lacks standing. They can prove neither any pecuniary loss different from that sustained by other taxpayers, nor can they prove that the sale of the property to the YMCA would squander property.

Suppose, however, that the village was corruptly selling the land to the YMCA. Suppose someone else had offered more for the property, but village officials were selling it at a fraction of that price to their cronies.

Under the standard set forth in Linden Land Co., Lake Country would have standing, because the effect of the ordinance and sale would be to squander public property, effectively raising the taxes for everyone in the Village.

Under the standard set forth in City of Appleton, however, Lake Country would not have standing, because it would
not be affected any differently than every other taxpayer.

The answer to the question of which standard is actually the governing law appears simple: the most recently enunciated standard, that in City of Appleton, governs, rather than the 102-year-old case.

The problem is that, as noted above, Linden Land Co. is still frequently cited with approval. The root of the problem lies in the Cobb case, in which the court expressly called the difference between derivative and nonderivative taxpayer suits “subtle.”


Wisconsin Supreme Court

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Taxpayer needs pecuniary
loss to have standing

In fact, the difference was so subtle that the court then proceeded to misclassify Linden Land Co. as a derivative case, rather than the nonderivative case that it actually was. The court then misclassified the case of Estate of Cole: Mulberger v. Beurhaus, 102 Wis. 1, 78 N.W. 402 (1899), which governs derivative cases, as a nonderivative case.

This misclassification of those two decisions lies at the root of the court’s announcing the new and incorrect standard for nonderivative cases in City of Appleton, in the same way that it announced an incorrect standard for derivative cases in Cobb.

The standard is not merely incorrect, however; it is worse. If a municipality is in fact giving away property that it merely holds in trust for the taxpayers for a song, when others stand ready to pay fair market value, taxpayers should have standing to seek declaratory judgment that the transaction is unlawful.

Ultimately, the Supreme Court will need to address its inconsistencies in this regard. The decision in this case, however, merely aggravates the situation, by creating a third method of analysis that treats nonderivative taxpayer suits as garden-variety actions under the Declaratory Judgments Act.

– David Ziemer

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David Ziemer can be reached by email.

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