Source: http://openjurist.org/241/f3d/501
Timestamp: 2015-01-26 06:27:51
Document Index: 641959066

Matched Legal Cases: ['§125', '§ 125', '§ 125', '§125', '§ 125', '§ 501', '§ 501', '§ 125', '§ 103', '§ 145']

241 F3d 501 Walter Johnson v. Economic Development Corporation of the County of Oakland | OpenJurist
241 F. 3d 501 - Walter Johnson v. Economic Development Corporation of the County of Oakland	Home241 f3d 501 walter johnson v. economic development corporation of the county of oakland
241 F3d 501 Walter Johnson v. Economic Development Corporation of the County of Oakland 241 F.3d 501 (6th Cir. 2001)
Walter Johnson, Plaintiff-Appellant,v.Economic Development Corporation of the County of Oakland, Defendant-Appellee.
Argued: November 29, 2000Decided and Filed: February 27, 2001
Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 98-71672Robert A. Sedler, WAYNE STATE UNIVERSITY LAW SCHOOL, Detroit, Michigan, for Appellant.
Kevin T. Baine, WILLIAMS & CONNOLLY, Washington, D.C., for Appellee.
Betty Lee Dunkum (briefed), Chiristian Legal Society, Annandale, VA, for Amicus Curiae
CLAY, J., delivered the opinion of the court, in which SILER, J., joined.
NELSON, J. (pp. 32-34), delivered a separate concurring opinion.
Plaintiff, Walter Johnson, appeals from the district court's order denying summary judgment to Plaintiff and granting summary judgment to Defendant, the Economic Development Corporation of the County of Oakland ("Oakland EDC"), on Plaintiff's claim alleging that Defendant violated the First Amendment Establishment Clause by issuing tax-exempt revenue bonds to finance the construction of buildings at the Academy of the Sacred Heart (the "Academy"), a Catholic elementary and secondary school. For the reasons that follow, we AFFIRM the district court's order denying summary judgment to Plaintiff and granting summary judgment to Defendant.
Plaintiff is a resident and taxpayer of Oakland County, Michigan. Defendant is a public economic development corporation incorporated pursuant to the Economic Development Corporation Act, Mich. Comp. Laws §125.1601 et seq.(the "EDC Act" or "Act"). The Academy, a non-party, is an independent Roman Catholic school in Bloomfield Hills, Michigan. For purposes of the summary judgment motion, the parties stipulated to facts in this case.
In 1974, the Michigan Legislature enacted the EDC Act to "alleviate and prevent conditions of unemployment." Mich. Comp. Laws Ann. § 125.1602 (West 1997). To deal with the problems of unemployment, the legislature found that it was "necessary to assist and retain local industrial and commercial enterprises" and "to provide means and methods for the encouragement and assistance of industrial and commercial enterprises . . . in locating, purchasing, constructing, reconstructing, modernizing, improving, maintaining, repairing, furnishing, equipping, and expanding in this state and in its municipalities." Id. To further these goals, the EDC Act authorizes the creation of an economic development corporation ("EDC") in each municipality; municipality is defined as a county, city, village or township. See Mich. Comp. Laws Ann. § 125.1603(d). To accomplish the goals of the EDC Act, an EDC is authorized, inter alia, to borrow money and issue revenue bonds to finance building and improvement projects. See Mich. Comp. Laws Ann. §125.1607(d). The EDC Act provides that the municipality shall not be liable on notes of the EDC, and that the notes and bonds shall not be a debt of the municipality. See Mich. Comp. Laws Ann. § 125.1623(2).
Defendant was created pursuant to the terms of the EDC Act for the purposes set forth in the Act. Defendant performs the functions authorized under section 125.1607 of the EDC Act relating to the approval of projects and the issuance of tax-exempt bonds in connection therewith, as well as other economic development related work for the Oakland County area. Defendant has 15 regular voting members, none of whom are officials of Oakland County. All voting members, as well as two project-specific, non-voting members are drawn from the private sector.
Article IX of Defendant's Articles of Incorporation provides that the Oakland EDC will be financed from donations, gifts, grants, and devises, either solicited or unsolicited, obtained from public authorities, individuals, corporations and other organizations, by earnings from its activities, borrowings and issuance of revenue bonds and notes. Defendant uses the facilities of the Oakland County Development and Planning Division (the "DPD") for its day to day operations. Defendant, however, reimburses the DPD for its proportionate share of the building rent, equipment and other overhead costs. In addition, the administrative support services for Defendant are furnished by two DPD employees, who spend between five and ten percent of their time working for Defendant. Defendant also reimburses the DPD for the proportionate salaries of these employees. Defendant has no taxing power. However, Defendant receives some portion of its revenue from certain unrefundable fees from project applicants. From each applicant, Defendant receives (1) a $500 fee at the project application phase; (2) a $500 fee at the "Resolution of Inducement" phase; (3) a $500 fee when the final project plan is submitted; and (4) a closing fee equal to 1/8 of 1% of the face value of bonds issued.
Founded in 1851, the Academy is an independent Roman Catholic school located in Bloomfield Hills, Michigan. The Academy has more than 450 students including pre-school from nearly forty communities. It is divided into four schools: Pre, Lower, Middle and Upper. It educates girls in grades K-12 and boys in grades K-5. The Academy is a nonprofit organization, as described in § 501(c)(3) of the Internal Revenue Code, and is exempt from federal income taxation under § 501(a) of the Code. The Academy, which is incorporated under the laws of Michigan, holds legal title to all school property.
Article II of the Academy's Restated Articles of Incorporation provides that the purpose of the Academy is to "conduct an independent Catholic school from pre-school through and including the 12th grade, wherein the arts and sciences, and other forms of primary and secondary learning are taught, and diplomas and honors therein conferred: while maintaining a philosophy consonant with that of the network of the Sacred Heart schools of which it is a member." (J.A. at 66.) The Academy's curriculum and requirements provide that [e]very student at [the Academy] receives intensive training in the basic academic skills of English, Mathematics, History, Foreign Language and Science. Art, Music, Drama, Forensics, Theology and Computer Science are essential parts of this program. [The Academy] offers each student a full Physical Education Program designed to develop a sense of sportsmanship, a respect for physical fitness and an awareness of the enjoyment derived from athletic endeavors.
(J.A. at 154.) In its recruiting brochure, the Academy describes itself as "a Christ-centered school operating in the evolving tradition of the Church [that] has always included students and faculty of all faiths." (J.A. at 116.) The course overview of the Academy's Religion Department states that The academy provides education in, and opportunities for, decision making in the light of Gospel values. These moral and ethical values are taught in an age-appropriate, all-inclusive program developed across disciplines. The religious studies program probes the relationship of self to God, to others, and to the world. The academy teaches a respect for the various religious traditions of the world while presenting itself to the wider community as a Christ-centered institution within the tradition of the Roman Catholic Church.
(J.A. at 322.)
An independent Board of Trustees consisting of no more than 24 members governs the Academy. There are no religious requirements for membership on the Board. Non-Catholics have served, and currently serve, on the Board. The Academy does not discriminate on the basis of race, color, creed, or national origin in its admissions process; nor does it give preference in admission to Roman Catholics. Moreover, the Academy does not discriminate on the basis of race, color, or national origin in any of its educational policies, scholarship and loan programs, athletic or extracurricular activities, or other-school administered programs. As of the date of the issuance of the bonds at issue, 135 of the 366 (non-preschool) students at the Academy or 37%, were non-Catholic. As of the date of the stipulation, 34% of the students were non-Catholic. Faiths represented in the Academy student body include non-Catholic Christian, Jewish, Islamic, Shinto and others. Furthermore, the Academy does not discriminate on the basis of race, color, creed or national origin in the hiring of its employees. The Academy has a teaching faculty of 60, of whom five are members of religious orders. There is no religious-affiliation requirement or preference for the Academy's teachers, and the school does not inquire as to the religious affiliation of prospective faculty members.
In March 1995, representatives of the Academy approached Defendant with a proposal to obtain tax-exempt bond financing for a project to improve facilities at the Academy (the "Project"). The Project consisted of (1) construction of an approximately 6700 square foot addition to the Academy's lower school, (2) renovation of and improvements to a science wing, and (3) other renovations of existing facilities including new telephone equipment, classroom monitors, fiber-optic cable and an intercom system. The Project did not include any construction, renovation or improvement of the Academy's chapel. On March 13, 1995, the Academy submitted an Application for Assistance to initiate the approval process.
On March 21, 1995, at its regularly scheduled monthly meeting, Defendant unanimously adopted the Resolution of Inducement (the "Resolution") finding that the Project served a public purpose. The Resolution stated that construction of the Project would create job opportunities for the residents of the County and would aid in the general economic welfare of the County and State of Michigan. The Resolution further provided that the Project would create seven new permanent jobs, five teaching and two maintenance positions, at the Academy. Through that Resolution, Defendant decided to issue economic development limited obligation revenue bonds for the purpose of paying the costs of the Project, provided that all necessary preliminary hearings, proceedings, approvals, and other requirements of the EDC Act were satisfied. The Resolution stated that under no circumstances would Defendant, Oakland County, the State of Michigan, or any of its taxpayers or citizens ever be required to pay the principal, interest, or any other costs associated with the bonds, e.g., attorneys', trustee's, placement agent's, or remarketing agent's fees, or any letter-of-credit, real estate, title-related or other costs. The Resolution provided that Defendant would retain a private law firm as bond counsel on the Project. The counsel's legal fees were to be paid by the Academy from the proceeds of the sale of the bonds, but not as a cost to Defendant.
On April 28, 1995, the Oakland County Clerk caused to be published in the Oakland Press a Notice of Public Hearing on the Project plan for the Academy. The notice announced a hearing on the Project and invited the submission of written comments. Plaintiff neither attended the meeting nor provided the Commissioners with any objections or other written comments on the Project. No other person objected to the Project. After the hearing, the Board of Commissioners gave final approval to the project plan. On June 20, 1995, Defendant unanimously adopted a Bond Authorizing Resolution authorizing the issuance of limited obligation revenue bonds for the Project.
On June 27, 1995, Defendant issued variable rate demand limited obligation revenue bonds, which were delivered to and sold by NBD Bank to private investors. The proceeds from the sale of the bonds were loaned to the Academy pursuant to a Loan Agreement, which requires the Academy to make all payments of principal and interest on the loan directly to the bank. Under the Loan Agreement, the Academy is responsible for paying all fees and expenses incurred by Defendant relating to the Project. In addition, all of the financing documents provide that neither the State of Michigan nor any political subdivision thereof is obligated to pay the principal or interest on the bonds or any other cost incident thereto. The Project is now complete and the Academy is making quarterly interest and annual principal payments under the terms of the loan note.
The Academy paid fees of $5875 to Defendant in connection with the Project. This sum more than covered the expenses incurred by Defendant in connection with the Project.
Bonds issued under the EDC Act are exempt from all taxation in the State of Michigan except inheritance and transfer taxes, and the interest thereon is exempt from all taxation in the state of Michigan. See Mich. Comp. Laws Ann. § 125.1623(1). Moreover, because the bonds in this case meet the relevant criteria of § 103 of the Internal Revenue Code, interest on the bonds is also excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. See 26 U.S.C. § 145.
The Academy loan was for the sum of $3.5 million. Under the Loan Agreement, the Academy is obligated to repay the borrowed principal over a 10-year period with a final payment of principal scheduled for December 1, 2005. The Academy also makes quarterly payments to cover the outstanding interest obligation of the loan. Because of the tax-exempt status of the bonds and the interest thereon, the interest payments made by the Academy to the bank were less than such payments would have been for an otherwise comparable non-tax-exempt commercial loan. If the Academy project had not been approved by Defendant, it was the Academy's plan to obtain a commercial loan from a bank to finance the improvements of its school facilities. Plaintiff estimates that the savings to the Academy as a result of the tax-exempt status of the bonds is over $1 million. Plaintiff further alleges that, as a result of the Project and the tax-exempt nature of the bonds, the Michigan treasury will lose $68,400 in tax revenue.
The parties have stipulated that, in approving the financing of the Project, Defendant acted without regard to the religious affiliation of the Academy. Since its creation in 1980, Defendant has approved financing of numerous projects using the same criteria that were used to approve the Academy Project. Those projects have included various for-profit undertakings including construction of factories and office buildings and the purchase of machinery and equipment. Those projects have also included various not-for-profit entities including schools, medical facilities and nursing homes--some of which are religiously affiliated and some of which are not.
After Defendant issued the tax-exempt revenue bonds on behalf of the Academy, Plaintiff, on April 21, 1998, filed a complaint in the district court alleging that Defendant's issuance of tax-exempt revenue bonds on behalf of the Academy for construction of certain buildings on the Academy's campus violated the Establishment Clause. After responsive pleadings were filed, on November 13, 1998, Defendant filed a motion for summary judgment. On that same day the parties filed a joint stipulation of the facts. While Defendant's motion for summary was pending, Plaintiff filed, with the court's approval, a second-amended complaint on November 24, 1998. Defendant answered the second-amended complaint and filed amended counterclaims on November 30, 1998. On December 12, 1998, Plaintiff filed a motion for summary judgment. The district court granted Defendant's motion for summary judgment and denied Plaintiff's motion for summary judgment on June 29, 1999. See Johnson v. Economic Dev. Corp., 64 F. Supp. 2d 657 (E.D. Mich. 1999). This appeal followed.
"Standing is 'the threshold question in every federal case.'" Coyne v. American Tobacco Co., 183 F.3d 488 (6th Cir. 1999) (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)). We review the district court's determination of standing de novo. See id. at 492.
Plaintiff claims that he has state taxpayer standing because the issuance of the tax-exempt bonds violated the Establishment Clause and cost the Michigan treasury $68,400 in lost revenue from income tax that would have resulted from the interest on the bonds. Defendant, however, argues that Plaintiff lacks standing to sue because he has failed to allege a nexus between a legislative expenditure and the alleged Establishment Clause violation. The district court held that Plaintiff had "standing due to the potential loss of revenue caused by the issuance of tax-exempt bonds." Johnson, 64 F. Supp. 2d at 661 (relying on Hawley v. City of Cleveland, 773 F.2d 736, 741-42 (6th Cir. 1985)). This Court agrees.
Very few cases have dealt with state taxpayer standing as it relates to the Establishment Clause. We find, however, that the Supreme Court's decision in Doremus v. Board of Education, 342 U.S. 429 (1952), controls the instant case. InDoremus, the Court held that the plaintiffs lacked state taxpayer standing to challenge the school district's practice of reading five verses from the Old Testament at the opening of each public school day as a violation of the Establishment Clause. 342 U.S. at 433-35. The plaintiffs did not have standing, the Court concluded, because they failed to allege a "good-faith pocketbook" injury, i.e., that there was a "financial interest that is, or is threatened to be, injured by the unconstitutional conduct." Id. at 434-35. Therefore, the question now before this Court is whether Plaintiff has alleged the requisite financial interest.
Defendant argues that this requisite financial interest must be an expenditure of government funds. See Appellee's Br. at 16 (citing, inter alia, Doe v. Madison Sch. Dist. No. 321, 177 F.3d 789, 793 (9th Cir. 1999); Doe v. Duncanville Indep. Sch. Dist., 70 F.3d 402, 408 (5th Cir. 1995); Friedmann v. Sheldon Community Sch. Dist., 995 F.2d 802 (8th Cir. 1993)). Defendant's reliance on these cases, however, is misplaced. Although each of these cases specifically found that the plaintiffs lacked standing because they failed to allege that there was a government expenditure of funds, none of these cases address the precise issue now before this Court--whether a loss of revenue is sufficient to establish a financial interest under Doremus. See Madison Sch. Dist. No. 321, 177 F.3d at 793 (holding that plaintiff lacked standing to challenge Establishment Clause violation where challenged act was graduation prayer and there was no financial interest involved);Duncanville Indep. Sch. District., 70 F.3d at 408 (holding that plaintiff lacked standing to challenge Establishment Clause violation where challenged act was distribution of bibles on school's premises which did not invol