Clarke Cty. v. Quitman Sch. Dist.

378 So.3d 353

CLARKE COUNTY, Mississippi

v.QUITMAN SCHOOL DISTRICT

NO. 2022-CA-00471-SCT

Supreme Court of Mississippi.

01/18/2024

CLARKE COUNTY CHANCERY COURT, HON. CHARLES E. SMITH, JUDGE

ATTORNEYS FOR APPELLANT: RICHARD GERALD NORRIS, II, Ridgeland, WILLIAM C. HAMMACK

ATTORNEYS FOR APPELLEE: ROBERT H. COMPTON, JOHN G. COMPTON, Meridian

BEFORE KITCHENS, P.J., MAXWELL AND CHAMBERLIN, JJ.

KITCHENS, PRESIDING JUSTICE, FOR THE COURT:

¶1. This case presents the question of whether a school district is entitled to funds recovered by a county from the bankruptcy proceedings of a delinquent taxpayer. The taxes, if they had been collected in the normal time and manner, would have been used to fund the school district. During the process of funding the school district for the relevant years in question, the county board of supervisors anticipated the delinquency and adjusted the levy of ad valorem taxes to compensate. As a result, the school district did not experience a shortfall related to the delinquency. The school district argues that it is entitled to its original portion of the recovered bankruptcy funds. The county argues that this would result in a double recovery outside the statutory scheme for public school funding and that the county is entitled to the funds. We find that the county is correct. Mississippi’s scheme for funding public school districts is statutory and contains mechanisms to account for the ebb and flow of tax revenue collection on a year-by-year basis. The county’s subsequent recovery of delinquent taxes through participation in bankruptcy proceedings is outside this statutory funding scheme.

FACTS AND PROCEDURAL BACKGROUND

¶2. The underlying facts of this case are not disputed. In 2016, BTH Quitman Hickory, LLC (BTH), a torrefaction and wood pellet company, objected to the Clark County Tax Assessor’s valuation of its equipment. The Clarke County Board of Supervisors anticipated a collection delinquency of $320,537.66 that otherwise would be allocated to the funding of Quitman School District. Following the appropriate statutory procedure, the Board of Supervisors adjusted the levy of ad valorem taxes to compensate for the anticipated delinquency. As a result, for the 2016-2017 school year, Quitman School District was funded at a surplus of $111,372.40. In 2017, the board of supervisors again anticipated a delinquency of $311,985.50 related to collection of taxes owed by BTH that should go to the, school district and again adjusted the levy to compensate. For the 2017-2018 school year, Quitman School District was funded within 0.36 percent of the amount requested by the district and was able to meet its financial obligations.

¶3. For the 2018-2019 school year, the school district experienced a shortfall of $365,334. It did not elect—as is permitted by statute—to issue promissory notes to compensate. BTH filed for bankruptcy in late 2017. The portion of BTH’s 2018 taxes (as assessed in bankruptcy proceedings) that would have been attributable to the school district was $28,986.¹

¶4. In late 2018, Clarke County recovered $1,522,982.18 through BTH’s bankruptcy proceedings.² Clarke County, the City of Quitman, and Quitman School District are the entities that would have received portions of these funds had the taxes been collected in the usual time and manner. Clarke County took the position that Quitman School District was not entitled to any of the recovered funds. Quitman School District demanded that the Clarke County Tax Collector disburse a portion of the monies to the school district, prompting the tax collector to file a complaint for interpleader in Clarke County Chancery Court, naming Clarke County, Quitman School District, and the City of Quitman as parties. The complaint asked that "this Court determine to whom said funds should be paid and disburse said funds accordingly." The chancery court granted the interpleader motion.

¶5. The county claimed an undisputed amount of $614,198.28, which was the amount the county would have received had the taxes been collected in the normal time and manner. The county claimed an additional disputed amount of $699,048.82, the amount that would have gone to the school district originally. The county in the first instance had proposed that the chancellor disburse the undisputed amount of $209,735.08 to the City of Quitman, representing the amount that would have gone to the city had the taxes been collected in the normal time and manner.³ It argued that "[t]he City of Quitman and the School District are differently situated" because

While the Board of Supervisors was required to anticipate delinquencies that may affect the ad valorem tax effort for the School District and to adjust the levy accordingly to ensure the School District was appropriately funded, no such duty exists as [to] the levy for the City of Quitman and, as such, the Board of Supervisors did not adjust the levy for the City of Quitman. The City of Quitman, thus, unlike the School District, actually suffered a tax delinquency as a result of the BTH objections and bankruptcy.⁴

The county argued that "[i]n making a demand for the funds at issue, the School District seeks a windfall, seeks what amounts to a double-recovery[.]" The chancellor awarded the undisputed $209,735.08 to the City of Quitman and dismissed the city and the tax collector from the action.

¶6. The county and the school district filed motions for summary judgment, both arguing entitlement as a matter of law to the disputed $699,048.82. Citing equity, the chancellor ordered that the school district "be awarded $365, 334.00, plus accrued interest" and that the county be awarded "all remaining funds plus interest." The chancellor explained that he found both parties’ positions to be reasonable:

The Court finds no guidance in the wording of the statutes to indicate what the legislature[’]s intent would be in the factual scenario before the Court. The argument by QSD is reasonable as the monies originated from the levies determined by the Board of Supervisors for all three of the original defendants/claimants. These monies were deposited with the Tax Assessor and under normal circumstances, if paid directly by [BTH], the Tax Collector would have been obligated by statute to disburse the appropriate share of these funds to the QSD. The argument by the County is reasonable as the monies were not collected in the normal manner and time as other taxes are collected. These taxes were long overdue and litigation, funded solely by the County, was required to recover the monies currently held, along with that previously released to the City of Quitman.

The chancellor determined that a "fair and just decision … cannot be made … when applying the law alone":

QSD argues that equity should aid it as it experienced a budgetary shortfall of $365,334.00 for the 2018-2019 school year and did not issue any promissory notes for the shortfall because it did not think it fair to the school district taxpayers. This being at a time when the County held the monies at issue which originally were levied in part for the QSD. Again, this is about the taxpayers’ money, and this seems reasonable in the eyes of the Court. QSD also argues that if any surplus is received it has to be escrowed and goes to the reduction of the following year[’]s budgetary needs. This is required by statute.

The County claims that equity requires the Court to deny QSD’s claim to any of the monies. It argues that QSD did not participate in, nor pay any of the litigation fees needed to collect these funds. This is correct. That QSD received an amount in excess of its combined 2016-2017 and 2017-2018 budgetary needs. That to award them any money will be a windfall to QSD as it was over funded for these years. Additionally, it argues that if QSD incurred a shortfall for 2018-2019, it could have issued a shortfall promissory note to cover this deficiency. It further claims that this is not fair to the taxpayers as any monies awarded to QSD will create an automatic increase in its yearly base computation thereby increasing the annual taxes owed by the taxpayer. These arguments seem reasonable to the Court.

¶7. The chancellor discussed the unknown possibilities of how various hypothetical scenarios might play out:

In trying to reach a reasonable equitable decision the Court has considered possible "what ifs". When the County anticipated shortfalls for the first two years in question it wisely anticipated the short falls and adjusted the levies to account for this. What if, BTH miraculously walked in with a check and delivered itto the Tax Collector? Would QSD be entitled to receive both the monies from the original adjusted tax levy (which was paid by all the other taxpayers) and its[ ] pro rata share of the monies being paid by BTH[?] The County will say that QSD is being paid twice and this could be considered a windfall. QSD argues that it would not be a windfall as the funds would be escrowed, thereby reducing the budget for the following year. What if, QSD had issued shortfall notes for the 2018-2019 school year, would it still be entitled to a portion of the recovered funds? These are questions that the Court does not find a definitive answer for in the statutes as written.

¶8. The school district argued that the trial court should find that the county was in violation of its fiduciary duties by failing to turn over the money. In denying relief on this ground, the court held that "[t]he parties[’] competing rights to the funds is the; threshold issue before the Court. Once the Court has determined the claims and rights of the parties in dispute, then the statutory obligations and/or equitable considerations will attach, not before."

¶9. The parties cross-appealed the chancellor’s ruling, each arguing entitlement to the entirety of the funds in question.

STANDARD OF REVIEW

[1, 2] ¶10. Summary judgment rulings are reviewed de novo. Miss, Hub, LLC v. Baldwin, 358 So. 3d 305, 307 ...