Kan. Bldg. Indus. Workers Comp. Fund v. State

302 Kan. 656

359 P.3d 33

KANSAS BUILDING INDUSTRY WORKERS COMPENSATION FUND, et al., Appellants

v.STATE of Kansas and Kent Olson, Director of Division of Accounts and Reports, Department of Administration, Appellees.

108,607.

Supreme Court of Kansas.

Aug. 28, 2015.

Michael R. O'Neal, of Gilliland & Hayes, P.A., of Hutchinson, argued the cause, and Shannon L. Holmberg, of the same firm, was with him on the briefs for appellants.

Derenda J. Mitchell, assistant attorney general, argued the cause, and Derek Schmidt, attorney general, was with her on the briefs for appellees.

Opinion

The opinion of the court was delivered by JOHNSON, J.:

Plaintiffs, who were required to pay fees to a State agency in order to practice their trade or transact business in Kansas, brought suit against the State of Kansas and Kent Olson, Director of Division of Accounts and Reports in the Department of Administration. The action challenged a 2009 appropriations bill, Senate Substitute for House Bill No. 2373, which directed the transfer of moneys into the State General Fund (SGF) from the various State agency fee fund accounts into which the respective plaintiffs had paid fees. The plaintiffs argued that the legislature's sweep of large sums of money from the fee-funded accounts into the SGF was an invalid exercise of the State's police powers and an unconstitutional exercise of its taxing authority.

The district court dismissed the lawsuit, finding that plaintiffs did not have standing to sue, because the moneys were taken from the agencies, not from the individuals that paid fees into the agencies' accounts. Further, the district court opined that the plaintiffs' complaints were required to be addressed under the Kansas Judicial Review Act (KJRA), K.S.A. 77–601 et seq.

Plaintiffs appealed and the Court of Appeals reversed the order of dismissal, finding that plaintiffs had standing because they had been uniquely damaged by the transfer of funds and that the plaintiffs were not required to bring their claims under the KJRA because the agencies had no authority under the KJRA to grant the relief sought by plaintiffs, which was a finding that the legislation directing the fee fund transfers was unconstitutional.

The defendants petitioned this court for review, raising several issues. Initially, this court only granted review of the standing issue. Subsequently, we requested additional briefing on whether plaintiffs ' claims involved a political question and, if so, whether that deprived the judiciary of jurisdiction. We resolve both the standing and political question issues in plaintiffs' favor and remand to the district court to reinstate the action.

Factual and Procedural Overview

In the district court, the litigation was terminated early upon a motion to dismiss. Accordingly, we look to the plaintiffs' amended petition for the salient facts. Board of Sumner County Comm'rs v. Bremby, 286 Kan. 745, 751, 189 P.3d 494 (2008) (when district court grants motion to dismiss based on lack of standing, appellate court must accept facts alleged by plaintiff as true, along with any inferences that can reasonably be drawn therefrom); cf. McCormick v. Board of Shawnee County Comm'rs, 272 Kan. 627, 634, 35 P.3d 815 (2001) (review of district court's grant of motion to dismiss for failure to state a claim requires appellate court to assume the facts alleged by the plaintiffs and reasonably drawn inferences are true).

Background of H.B. 2373

In 2009, the Governor informed the legislature of an anticipated total revenue gap between expenditures and available resources for fiscal year 2010 of over $900 million. Ostensibly, in order to make up for this revenue gap, the Governor recommended transferring $29 million in Special Revenue Fund balances into the SGF in fiscal year 2009 and another $2.2 million in fiscal year 2010. The Governor's published recommended budget contained an itemized listing of the proposed revenue transfers, which were characterized as “cash sweeps.” The listing included proposed transfers from the Workers Compensation Fund administered by the Kansas Insurance Department (WC Fund), the Real Estate Fee Fund administered by the Kansas Real Estate Commission (RE Fund), and the Bank Commission Fee Fund administered by the Office of the State Bank Commissioner (Bank Fund).

Using the Governor's proposed budget, the 2009 Kansas Legislature passed Senate Substitute for House Bill 2373 (H.B. 2373). Senate floor amendments reduced the total amount of transfers by 21.5 percent and granted outright exemptions to several fee funds originally included within the Governor's itemized listing of proposed revenue transfers. Ultimately, H.B. 2373 passed and was signed into law, effective June 11, 2009. The final version of H.B. 2373 authorized and directed the Director of Accounts and Reports to transfer a total of $2.355 million from the WC Fund account to the SGF, a total of $195,671 in RE Fee Funds to the SGF, and a total of $534,517 in the Bank Fund to the SGF. The legislation stated that the purpose of the transfers was to reimburse the SGF for accounting, auditing, budgeting, legal, payroll, personnel and purchasing services, and any other governmental services performed on behalf of the affected agencies by other state agencies which receive appropriations from the SGF to provide such services.

Workers Compensation Fee Fund

Most Kansas employers are required to provide workers compensation coverage for their employees. An employer may self-insure or obtain an insurance policy from a State authorized insurance carrier or group-funded workers compensation pool. These insurers are also required, by statute, to fund the operations of the WC Fund, which is administered by the Kansas Commissioner of Insurance and is liable for specific statutorily authorized workers compensation awards, as well as payment of the actual expenses of the Insurance Commissioner that are incurred in administering the WC Fund.

On June 1 of each year, the Commissioner of Insurance may impose an assessment against the insurers in order to assure payment of compensation under the Workers Compensation Act (the Act). The Act details how the assessment amount for each insurer is computed, but the total amount of the assessment “shall be equal to an amount sufficient, in the opinion of the commissioner of insurance, to pay all amounts, including attorney fees and costs, which may be required to be paid from such fund during the current fiscal year.” K.S.A. 2014 Supp. 44–566a(b)(1). The assessments are received by the Commissioner and remitted to the State Treasurer , who deposits them in the State Treasury to the credit of the WC Fund.

In June 2009, the Kansas Insurance Department informed insurers that the legislature's 2009 fund sweep required that the Department impose a 1 percent assessment for fiscal year 2010. Subsequently, in June 2010 and June 2011, the Department sent out additional notices indicating that because the legislature continued to sweep money from the WC Fund, the Department would again have to assess additional fees to the insurers. The Department represented that “but for” the $2.355 million sweep from the WC Fund, no assessment would have been required in fiscal years 2010 and 2011. At oral argument, plaintiffs alleged that the WC Fund receives no services from any other state agency that receives appropriations from the SGF to provide such services to the WC Fund.

Real Estate Fee Fund

All persons desiring to operate as a licensed real estate agent or broker in Kansas are required to pay licensing fees to the Kansas Real Estate Commission every 2 years. The license fees are ultimately deposited in the State Treasury, and at the time of the actions giving rise to this lawsuit, 20 percent of the deposits were credited to the SGF for administration costs, but the remainder was credited to the RE Fund. Plaintiffs alleged, and the State admitted, that the transferred amount of $195,671 from the RE Fund was derived from the Kansas Savings Incentive Program (KSIP), a State program that allowed participating agencies to keep half of any savings realized by their agency during the prior fiscal year to spend on employee bonuses, technology purchases, and professional development.

Bank Commissioner Fee Fund

The Kansas State Bank Commissioner is statutorily authorized to make assessments on all banks, savings and loan associations, and trust companies (hereinafter “banks”) in order to pay for all costs and expenses associated with administering the banking, saving and loan, and trust laws in Kansas. The Bank Commissioner remits the collected assessments to the State Treasurer, who deposits the money in the State Treasury. Pursuant to the law in existence at the time of the 2009 transfer, 20 percent of the deposit must be credited to the SGF, with the balance credited to the Bank Fund. In other words, normally the State takes $1 out of every $5 of fees that the banks pay into the Bank Fund, ostensibly to cover the costs incurred by other, tax-funded agencies that support the operations of the Bank Fund. The transferred amount of $534,517 from the Bank Fund—which was in addition to the usual upfront 20 percent service fee—was derived from KSIP.

District Court Proceedings

In January 2010, plaintiffs brought suit against the State of Kansas, Department of Administration, Division of Accounts and Reports. Plaintiffs were subsequently granted leave to file an amended petition naming the State of Kansas and Kent Olson, Director of Accounts and Reports, Department of Administration, as defendants in the case. Plaintiffs were comprised of: (1) Insurers who provide workers compensation insurance and are required to pay assessments into the WC Fund (Insurer plaintiffs); (2) the Kansas Association of Realtors, which is comprised of real estate agents and brokers who must pay licensure fees every 2 years to the RE Fund (Realtor plaintiffs); and (3) two supervised lenders, together with the Kansas...