Opinion ID: 1755180
Heading Depth: 1
Heading Rank: 17

Heading: Availability of Disgorgement Remedy Against Westridge and WG Trading

Text: Myers argues that the court erred in dismissing Westridge and WG Trading because they were liable under the void public contracts to restore all moneys received from the State and to disgorge all profits. He argues that when a governmental entity makes a contract that is not within its powers, a private party to the contract must restore to the governmental entity all government funds and fees that it received under the contract, even when quantum meruit is permitted. In support, Myers cites Rath v. City of Sutton, 267 Neb. 265, 673 N.W.2d 869 (2004), but Rath is not supportive. In Rath, we held that when a taxpayer seeks to enjoin an illegal expenditure of public funds, it is an inherently irreparable injury if an action is `void not because of a lack of power but because of a failure to properly exercise existing power.' 267 Neb. at 280, 673 N.W.2d at 884, quoting Fulk v. School District, 155 Neb. 630, 53 N.W.2d 56 (1952). Although we did not clearly distinguish between unenforceable and void contracts, the injury is irreparable when a governmental entity has failed to properly exercise its power because a taxpayer cannot recover the expenditure in that circumstance. Rath v. City of Sutton, supra . The Nebraska cases cited by Myers show that a governmental entity or taxpayer may recover from a private party only when the public contract was void ab initio because the governmental entity was wholly without authority to make the contract or because a statute avoided the obligation. See, Arthur v. Trindel, 168 Neb. 429, 96 N.W.2d 208 (1959); Heese v. Wenke, 161 Neb. 311, 73 N.W.2d 223 (1955); Fulk v. School District, supra ; Village of Bellevue v. Sterba, 140 Neb. 744, 1 N.W.2d 820 (1942). Moreover, none of the cases Myers cites from other jurisdictions hold that a taxpayer may seek disgorgement from a private party contracting with a governmental entity in good faith when the governmental entity had general power to make the contract. As noted, this court has consistently held that a taxpayer, in pursuing a derivative action on behalf of a governmental entity, has no greater rights against a party contracting with the governmental entity than the entity itself possesses. See, e.g., Lanphier v. OPPD, 227 Neb. 241, 417 N.W.2d 17 (1987). Because we have determined that the contracts were not void ab initio, the NIC could not avoid its obligation under the contract to pay for services received. Because Myers' rights are derivative, he may not seek disgorgement from Westridge or WG Trading.