Court Opinion

ID: 9876634
Source: CourtListenerOpinion
Date Created: 2023-09-27 15:27:08.596227+00
Date Added: 2024-06-11T07:47:13.224013
License: Public Domain

Gurich, V.C. J.,
concurring in judgment:
¶ 1 Although I agree that Armor Correctional Health Services is entitled to judgment in the amount of $3,302,297.04 for medical services it provided to' 'the Oklahoma County Detention Center, I reach that conclusion for a different reason. Article 10, § 26 of the Oklahoma Constitution limits a county’s ability to .become indebted, and provides in relevant part that:. . .
[N]o county, .city,- town, township, school district, or other political: corporation, or subdivision, of the state, shall be allowed to become indebted, in any manner, or for any purpose, to an amount, exceeding, in any .year, the income and revenue, provided for such year without the assent of three-fifths of the voters thereof, voting at an election, to be held for that purpose _1
“The purpose behind this constitutional provision is to force cities and municipalities [and counties] to operate on a cash basis, and to prevent indebtedness extending beyond one year.” City of Del City v. Fraternal Order of Police, Lodge No. 114, 1993 OK 169, ¶ 5, 869 P.2d 309, 811.
¶ 2 This .Court, however, has exempted certain debts from the purview of Art.. 10, § 26 if “the.indebtedness arises from a cíaim based on a constitutional governmental function” pursuant to this Court’s decision in Smartt v. Board of County Commissioners of Craig County, 1917 OK 590, 67 Okla, 141, 169 P. 1101.2 However, the Smartt exception, has been “met with a great deal of criticism,” and has “caused considerable confusion” since it was decided in 1917. City of Del City, 1998 OK 169, ¶ 19, 869 P.2d at 314. Rightfully, over the last 100 years, the Smartt exception has been “narrowly construed to avoid allowing the exception to swallow the constitutional rule” against indebtedness extending beyond one year,3 ''
¶3 In Protest of Kansas City Southern Railway Co., 1932 OK 328, 167 Okla. 246, 11 P.2d 500, the Court 'explained when the Smartt exception should be invoked. In that case, an appropriation had been made for the *728performance of a constitutional governmental function, specifically “feeding of prisoners in the county jail.and the supplies necessary for the maintenance of the county jail,” but such appropriation was insufficient due to unforeseen conditions in revenue collection, The Court stated:
[W]here a county officer, in good faith, requests an appropriation to be made and where the county taxing officials, in good faith, make an appropriation for the conduct of his office and by reason of unforeseen conditions the appropriation so made is insufficient ..; it is [the officer’s] duty to apply to the county taxing officials for a supplemental appropriation for the conduct of his office, and a supplemental appropriation therefor should be made, although to make it requires the transfer of funds from unexpended appropriations theretofore made for other purposes. In the event that no such supplemental appropriation may be made, then and then only does the rule stated in the ‘Smart[t]’ Case apply ....4
¶ 4 The case now before this Court is distinguishable from Smartt, and thus, we need not invoke the exception in this case. In Smartt, the sheriff sought to recover monies from the Board of County Commissioners for expenses incurred for boarding prisoners. The commissioners denied the Sheriffs request because the county’s revenue fund had “been exhausted prior to the accrual or presentation” of the sheriffs claim.5 In other words, in Smartt, the county actually had no funds to reimburse the sheriff. In this case, the record makes clear that Oklahoma County withheld payment to Armor Correctional Health Services not because it lacked the funds to do so. Rather, the County withheld payment after being advised to do so by the District Attorney.6
¶ 5 The record reveals that on January 22, 2014, Oklahoma County entered into an Inmate Health Care Services Agreement with Armor Correctional Health Services (Armor) under which Armor provided designated health-related services for inmates of the Oklahoma County Detention Center. On June 25, 2014, the County extended the Agreement for an additional year, effective July 1, 2014, through June 30, 2015 (FY 2014-2015).7 Under such contract, Armor was to be paid a base compensation, in equal installments in the amount of $7,360,638.82. In addition, Armor was entitled to invoice the County for costs incurred by Armor over and above an aggregate limit of $1,050,000.00 for hospitalization, off-site, and on-site specialty services, emergency transportation services, and pharmacy costs.
¶ 6 The Armor contract was fully appropriated by the County for FY 2014-2015 and was to be paid in part from the Sheriffs Special Revenue Fund and in part from the County’s General Revenue Fund. Armor performed all duties and responsibilities as required under the contract, and until February of 2015, the County paid all invoices submitted to it by Armor for services provided by Armor under the contract.8 Due to unforeseen circumstances, the Sheriffs Special Revenue Fund had a revenue failure during FY 2014-2015, and Armor stopped receiving payments from the County. When certain county officials became aware that Armor invoices were not being paid, “members of the Budget Board began looking at ways to amend the County Budget to make a supplemental appropriation using available funds of the County to pay the balance due on the contract.”9 However, the District At-*729tomey advised the County to continue to ■withhold payment, citing Art. 10, § 26 of the Oklahoma Constitution. Armor then sued for breach of contract in the District Court of Oklahoma County to recover payment.10
¶ 7 A contract claim against a County is specifically governed by 62 O.S. 2011 § 362-363. Section 362 provides:
Before final judgment in any suit based on contract, including but not limited to proceedings by the Commissioners of the Land Office to collect deficient payments plus interest and reasonable attorney fees related to bonds or other types of indebtedness guaranteed by the corpus of the permanent school fund for the support of common schools pursuant to Section 10 o'f this act, shall he rendered against any municipality by any court of any county in the State of Oklahoma, except in proceedings to refund any indebtedness of said municipality, proof shall be made to the court, of the existence, character and amount of the outstanding legal indebtedness of said municipality, which proof shall include a statement compiled by the various officers having custody of the records from which the information required in the statement is taken, under oath, showing the following:
1. An itemized statement of the bonded indebtedness of said municipality.
2. An itemized statement of the legal indebtedness of said municipality, exclusive of the bonded indebtedness and the alleged indebtedness proposed to be converted into a judgment.
3. An itemized statement of the indebtedness proposed to be converted into a judgment, so classified as to show, in separate exhibits, all items of questionable legality, if any, and the reasons of said officer or officers therefor:
(a.) The appropriations against which .each warrant was drawn or claim accrued if in judgment, and if within the limits and purposes thereof as provided by law;
(b.) The income and revenue provided for the respective years, consisting of taxes levied and the actual collections of “estimated income”; the total warrants issued against the same or the accumulated accruals as the ease may be, and the amount, if any, in excess of the -total income and revenue of the year;
(c.) The condition of each fund from which such indebtedness is payable as of the close of the month next preceding the filing of application.
Appeals from the judgment of the court shall be allowed as provided by law upon the giving of a'bond for cost and damages in such sum as the court shall require; provided, that the county attorney of any county may, without -the consent of the board of county commissioners of said county, take an appeal from said judgment on behalf of said county and without bond for costs and damages.11
Section 363 provides that:
No judgment shall be rendered against any municipality by any court until the provisions of Section 2 hereof, have been fully complied with. Any judgment rendered in violation of the provisions of this act shall be void and of no effect.12
¶ 8 Sections 362 and 363 exist to avoid collusion among contractors and county officials, and in a contract action against a county, the party seeking judgment against the county must provide the requisite proof under 362 before a judgment can be rendered against the County. See Okla. City v. Green Constr. Co., 1938 OK 510, ¶¶ 5-9, 184 Okla. 98, 84 P.2d 623, 624. A county attorney may not agree to a judgment against a county, and the County must put forth a good faith defense to the contract action to ensure no fraud upon the county and its taxpayers has taken place. Choctaw Cnty. Excise Bd. v. St. Louis-San Francisco Ry. Co., 1969 OK 110, ¶ 5, 456 P.2d 545, 547. In fact, this Court has held that §§ 362 and 363 of Title 62 “function as jurisdictional predicates ‘to govern the *730expenditures within the limits set by [Article 10, Section 26. of] the [Oklahoma] Constitution.’” Baylis, 1989 OK 90, ¶ 5, 780 P.2d at 687 (emphasis added). Failure to prove the requisite facts pursuant to § 362 is a “jurisdictional defect” that subjects a judgment to being declared void.13
¶ 9 In the case before us, Armor presented to the trial court an “itemized statement of the bonded indebtedness” of the County, and an “itemized statement of the legal indebtedness” of the County for the FY 2014-2016 pursuant to § 362(l)-(2),14 Pursuant to § 362(3), Armor submitted invoices for each month describing the “indebtedness proposed to be converted into a judgment,”.and the County has not alleged any “items of questionable legality.” In fact, the record is clear that the County entered into a legal, binding contract for medical services with Armor and Armor performed all duties and responsibilities as required under the contract,15 Pursuant to § 362(3)(a), Armor presented evidence that the Sheriff requested the Armor contract be fully appropriated, and that the adopted budget for the' Sheriffs Department for FY 2014-2015 did in fact fully appropriate the Armor contract for FY 2014-2015 through maintenance and operations funds from both the General Revenue Fund for the County and the Sheriffs Special Revenue Fund.16
¶ 10 Pursuant to § 362(3)(b), Armor provided the approved budget for the'County for FY 2014-2015, which provides the “income and revenue provided for the respective years, consisting of taxes levied and the actual collections of ‘estimated income’ ” for the County, and also provides “the total warrants issued against the same or the accumulated accruals as the case may be, and the amount, if any, in excess of the total income and revenue of the year.” Pursuant to § 362(3)(c), Armor submitted each invoice along with a daily report from the Treasurer’s office on the date such invoices were due establishing that at the time those invoices were presented, the County had funds available in the General Revenue Fund to pay those invoices.
¶ 11 In addition, Armor presented evidence that estimated expenditures for the Sheriffs Department did not exceed approved estimated revenues .-in the budget approved by the County.17 The trial court also pointed out affidavits in the record put forth by Armor from the County Clerk for Oklahoma County:
The Court: “You’ve got affidavits from Caudill that shows at the time the contract was extended that there was sufficient monies to pay for the contract. And- you’ve also shown at the end of the time that there was sufficient monies to pay for the contract. In fact, have you not shown that during the entire operation of the contract there was sufficient monies?
A: We have, Your honor,18
¶ 12 The,trial court found that Armor had presented a prima facie case of the availability of funds,to pay the invoices under § 362 and that the burden then “shift[ed] to the County to show, that [the funds] [were] encumbered. That [the fiinds] [weren’t] avail*731able.”19 The only evidence the County presented in response was that .the. Sheriffs Special Revenue Fund had a revenue failure. The County presented .no evidence with regard to whether the Sheriff requested a supplemental appropriation, but the record makes clear the County had money on hand to pay the Armor invoices as they came due and could have transferred funds from appropriations made for other purposes pursuant to Protest of Kansas City Southern Railway Co., 1932 OK 328, 157 Okla. 246, 11 P.2d 500.
¶ 13 Certain necessary fundamental governmental functions “must always be actively exercised in order to preserve the existence of the state and secure to the people the rights guaranteed to them .... ” Baylis, 1989 OK 90, ¶ 8, 780 P.2d at 688. “[Conservation of the public peace, health,' and safety,” “the administration of justice in the courts,” and “the maintenance of a public school system” are among the constitutional functions of government that are “elementary and indestructible,”20 and this Court, has held that indebtedness arising from claims based on such constitutional governmental functions is “not subject to the debt limitation provisions of Article 10, Section 26 of the Oklahoma Constitution.” Baylis, 1989 OK 90, ¶ 7, 780 P.2d at 688 (citing Smartt, 1917 OK 590, 169 P. 1101).
¶ 14 But we need not invoke the Smartt exception under the facts of this case. The Smartt exception should be construed narrowly so as not to thwart the clear purpose of Art. 10, § 26, which is to safeguard the citizens and taxpayers of the county from “the inadvertence, carelessness, [or] the corruption of public officials charged with the handling of public monies,”21. In accordance with Protest of Kansas City Southern Railway Co., 1932 OK 328, 157 Okla. 246, 11 P.2d 500, constitutionally mandated governmental functions should be fully appropriated and should take priority in ..budgeting -expenditures. Obligations to service providers who contract with the county to carry out such functions should be paid in advance of other obligations not considered, constitutionally mandated.22
¶ 15 That Sifi4, the record in this case makes clear that the County did in fact fully appropriate the Armor contract to provide medical care to inmates and had funds on hand to pay Armor’s invoices as they came due. When the County withheld payment to Armor, Armor’s recourse was to sue for breach of contract, which is governed by 62 O.S. 2011 § 862-363. Section 362 specifically provides a mechanism to ensure counties operate within the confines of Art. 10, § 26 when creating contractual obligations. Armor presented the proof required under § 362 to render a valid judgment against the County in this case; and the trial court’s decision should be affirmed.

. Okla. Const. art. 10, § 26.

. Baylis v. City of Tulsa, 1989 OK 90, ¶ 7, 780 P.2d 686, 688.

. City of Del City, 1993 OK 169, ¶ 19, 869 P.2d at 314.

. Protest of Kansas City Southern Ry. Co., 1932 OK 328, ¶ 31, 11 P.2d at 509-10 (emphasis added).

. Smartt, 1917 OK 590, ¶ 1, 169 P. at 1101.

. In fact, Armor did not plead the Smartt exception. Armor treated this case as a breach of contract case, submitting materials providing proof the County had funds on hand to pay Armor's invoices.

. The Extended Agreement incorporated the terms of the original 'Agreement with the base compensation being increased by 2.5% pursuant to the terms of the original Agreement.

. Beginning in March of 2015, the County stopped paying Armor’s invoices for both base compensation and costs incurred by Armor in excess of the aggregate limit, accumulating a balance of more than $3 million dollars.

. Record on Accelerated Appeal, Ex. E at 2.

. The District Attorney recused, so private counsel was hired to represent the County in this litigation.

. 62 O.S. 2011 § 362 (emphasis added). Section 361(G) of Title 62 defines municipality to include a county. 62 O.S. 2011 § 361(C).

. 62 O.S. 2011 § 363.

. Baylis, 1989 OK 90, ¶ 5, 780 P.2d at 687. In addition, in Baylis the Court said that "the question of jurisdiction is an issue which is primary and fundamental in each case [and] this Court must inquire into its own jurisdiction as well as to the jurisdiction of the court from which the appeal is taken ...Id, ¶ 6, 780 P.2d at 688.

. Record on Accelerated Appeal, Ex. D, Ex. 38 (Oklahoma County, Oklahoma Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 201S, at 26).

. See City of Healdton v. Blackburn, 1934 OK 573, 169 Okla. 357, 37 P.2d 311 (finding that sufficient funds derived from the sale of bonds were on hand at the time the contracts were entered into to cover the cost of the water system,- so the fact that those funds may have been subsequently consumed for other purposes, so that none were left with which to satisfy plaintiff’s claim or his contracts, did not render the contracts illegal).

. The trial court allowed the parties to .submit additional briefs after the hearing on summary judgment. Armor submitted an "Offer of Proof,” which- had attached to it the Sheriffs proposed budget for FY 2014-r2015 and the budget actually adopted by the County. See Supplement to Record on Accelerated Appeal.

. Supplement to Record on Accelerated Appeal, Ex. 3.

. Record on Accelerated Appeal, Ex. K at 18.

. Record on Accelerated Appeal, Ex. K at 34,

. Smartt, 1917 OK 590, ¶ 20, 169 P. at 1104.

. City of Del City 1993 OK 169, ¶¶ 37-38, 869 P.2d at 318 (citing Boardman v. Bd. of Cnty. Comm'rs, 1929 OK 10, 136 Okla. 85, 276 P. 474).

. "[T]he duty of providing medical care to prisoners [is] well established by both Oklahoma statutory law and federal law as well as by state jurisprudence." HCA Health Servs. of Okla. Inc. v. Whelsel, 2007 OK 101, ¶ 7, 173 P.3d 1203, 1205 (citing 57 O.S. 2001 § 52; 19 O.S. 2001 § 746; State ex rel. Dep’t of Human Servs. v. Bd. of Cnty. Comm'rs of McClain Cnty., 1992 OK 29, 829 P.2d 961; State ex rel. Dep’t of Human Servs. v. Bd. of Cnty. Comm'rs of Okla. Cnty., 1991 OK CIV APP 86, 831 P.2d 1006; City of Tulsa v. Hillcrest Med. Ctr., 1956 OK 21, 292 P.2d 430).