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Downtown Development District of City of New Orleans v. The City of New Orleans

Court of Appeals of Louisiana, Fourth Circuit

May 8, 2019

DOWNTOWN DEVELOPMENT DISTRICT OF THE CITY OF NEW ORLEANS
v.
THE CITY OF NEW ORLEANS AND BEVERLY B. GARIEPY, INDIVIDUALLY AND IN HER CAPACITY AS DIRECTOR OF FINANCE FOR THE CITY OF NEW ORLEANS

          APPEAL FROM CIVIL DISTRICT COURT, ORLEANS PARISH NO. 2018-03901, DIVISION "I-14" Honorable Piper D. Griffin, Judge

          William D. Aaron, Jr. DeWayne L. Williams Anna A. Rainer AARON & GIANNA, PLC COUNSEL FOR PLAINTIFF/APPELLEE

          Kim M. Boyle Alex H. Glaser PHELPS DUNBAR LLP

          Kimberly K. Smith Assistant City Attorney Tanya L. Irvin Assistant City Attorney Cherrell S. Taplin Senior Chief Deputy City Attorney Sunni J. LeBeouf City Attorney COUNSEL FOR DEFENDANTS/APPELLANTS

          Court composed of Judge Roland L. Belsome, Judge Joy Cossich Lobrano, Judge Tiffany G. Chase

          JOY COSSICH LOBRANO JUDGE

         In this ad valorem tax matter, defendants/appellants, the City of New Orleans and Norman White in his official capacity as Director of Finance for the City of New Orleans (collectively the "City"), appeal the August 1, 2018 judgment of the district court, which, in pertinent part, granted a preliminary injunction in favor of plaintiff/appellee, the Downtown Development District of the City of New Orleans ("DDD"), prohibiting the City from withholding certain proceeds of a special ad valorem tax. The DDD answers the appeal herein, seeking reversal of the district court's denial of the DDD's request for writ of mandamus. The City also raises peremptory exceptions of no cause of action and no right of action, as well as a motion for this Court to take judicial notice of certain DDD budget hearing testimony. For the reasons that follow, the judgment of the district court is affirmed, and the exceptions and motion are denied.

         The DDD is a special taxing district, located within the City, [1] which was created effective January 1, 1975, pursuant to La. R.S. 33:2740.3 (its "enabling statute"). The enabling statute authorizes the city council to levy and collect a special ad valorem tax (the "DDD tax") on all taxable real property located in the DDD boundaries to be used for public improvements, facilities, and services within the DDD geographical area.[2] Thus, owners of property within the DDD boundaries are assessed the DDD tax in addition to the regular ad valorem taxes levied on their property. In 2001, pursuant to the enabling statute, a ballot proposition for the continuation of the DDD tax was presented to the voters as follows:

         CITY OF NEW ORLEANS (DOWNTOWN DEVELOPMENT DISTRICT)

         PROPOSITION (TAX CONTINUATION)

SUMMARY: CONTINUED AUTHORITY TO LEVY A NOT EXCEEDING 22.97 MILLS PROPERTY TAX IN THE DOWNTOWN DEVELOPMENT DISTRICT FOR AN ADDITIONAL 25 YEARS, BEGINNING WITH THE YEAR 2005 AND ENDING WITH THE YEAR 2029, FOR PUBLIC IMPROVEMENTS, FACILITIES AND SERVICES, AND DEBT SERVICE ON BONDS OF THE CITY ISSUED FOR CAPITAL IMPROVEMENTS AND FACILITIES WITHIN THE DISTRICT.
Shall the City of New Orleans, State of Louisiana (the "City"), acting through its Council as the governing authority thereof, continue to be authorized to levy a special tax of not exceeding Twenty-Two and Ninety-Seven Hundredths (22.97) mills upon all taxable real property situated within the boundaries of the Downtown Development District of the City of New Orleans (the "District") as defined by La. R.S. 33:2740.3, as amended (the "Act"), for an additional twenty-five (25) years, beginning with the year 2005 and ending with the year 2029, said tax to be for the use and benefit of the District with the proceeds of said tax to be dedicated and used solely for public improvements, facilities and services within the District, and shall the City be further authorized to issue such bonds in a principal amount not exceeding $10, 000, 000, which bonds shall be payable solely from the proceeds of special tax?

         On April 20, 2018, the DDD filed a Petition for Preliminary and Permanent Injunction, Writ of Mandamus, and/or Alternatively, Declaratory Judgment, and Damages, alleging that in or about 2007, the City began withholding money from the net tax receipts due to the DDD, which totaled $393, 207.00 as of December 31, 2016. The DDD alleges that the City illegally withheld these tax proceeds from the DDD in an effort to finance the City's indebtedness to certain state pension funds. According to the DDD, the City is required to pay its obligations to the pension funds from ad valorem taxes due to the City, not from the DDD tax. Rather, the DDD alleges, the enabling statute requires that DDD tax proceeds be used solely and exclusively for the purposes and benefit of the DDD.

         In its petition, the DDD sought preliminary and permanent injunctions prohibiting the City from withholding and/or diverting the proceeds of the DDD tax, for a purpose other than the exclusive benefit of the DDD. The DDD also sought a writ of mandamus ordering the City to immediately direct payment to the DDD of all illegally withheld tax proceeds. Alternatively, the DDD sought a declaratory judgment that the City's actions are unlawful and monetary damages.

         On July 20, 2018, the district court held a hearing, and on August 1, 2018, it rendered judgment granting the DDD's request for preliminary injunction, which ordered as follows:

…the City of New Orleans and Norman White in his Capacity as Director of Finance, are prohibited from withholding and/or diverting the proceeds of the special ad valorem tax, specifically approved by a vote of the citizens of New Orleans for the exclusive benefit of the DDD, for any purpose other than the exclusive benefit of the DDD, except for a 2% collection fee, in compliance with La. R.S. 33:2740.3(I).

         The DDD's request for writ of mandamus, however, was denied. This appeal followed. Before reaching the merits of the City's appeal and the DDD's answer to appeal, we address the exceptions filed by the City.

         For the first time on appeal, the City filed in this Court a combined exception of no right of action and no cause of action, disputing the DDD's power to sue and contending that the City is entitled to dismissal of all claims against it by the DDD.[3] The City argues that: (1) the DDD's enabling statute does not grant it the power to sue; (2) the DDD is not a separate juridical entity from the City; (3) the doctrine of confusion would extinguish any award against the City because the DDD is not a separate entity from the City; and (4) the city council has not authorized the DDD to sue the City.

         The exception of no right of action and the exception of no cause of action are peremptory exceptions. La. C.C.P. art. 927. "The appellate court may consider the peremptory exception filed for the first time in that court, if pleaded prior to a submission of the case for a decision, and if proof of the ground of the exception appears of record." La. C.C.P. art. 2163. Both the exception of no right of action and the exception of no cause of action involve questions of law. Hornot v. Cardenas, 2006-1341, p. 12 (La.App. 4 Cir. 10/3/07), 968 So.2d 789, 798. "[O]ne of the primary differences between the exception of no right of action and no cause of action lies in the fact that the focus in an exception of no right of action is on whether the particular plaintiff has a right to bring the suit, while the focus in an exception of no cause of action is on whether the law provides a remedy against the particular defendant." Badeaux v. Sw. Computer Bureau, Inc., 2005-0612, p. 6 (La. 3/17/06), 929 So.2d 1211, 1216-17 (citations omitted).

         The exception of no right of action questions whether the particular plaintiff has standing to bring the lawsuit, "but it assumes that the petition states a valid cause of action for some person and questions whether the plaintiff in the particular case is a member of the class that has a legal interest in the subject matter of the litigation." Howard v. Administrators of Tulane Educ. Fund, 2007-2224, p. 17 (La. 7/1/08), 986 So.2d 47, 60 (citations omitted). "If the pleadings fail to disclose a right of action, the claim may be dismissed without evidence, but the plaintiff should be permitted to amend to state a right of action if he or she can do so." Gisclair v. Louisiana Tax Comm'n, 2010-0563, p. 1 (La. 9/24/10), 44 So.3d 272, 273 (citations omitted). "If the pleadings state a right of action in the plaintiff, the exceptor may introduce evidence to controvert the pleadings on the trial of the exception, and the plaintiff may introduce evidence to controvert any objections." Id., 2010-0563, p. 2, 44 So.3d at 274.

         "In contrast, an exception of no cause of action questions whether the law extends a remedy against the defendant to anyone under the factual allegations of the petition." Badeaux, 2005-0612, p. 7, 929 So.2d at 1217 (citation omitted). The exception of no cause of action is tried "on the face of the petition" and, "to determine the issues raised by the exception, each well-pleaded fact in the petition must be accepted as true." Id.

         Whether a party has the power to sue or be sued is an issue typically raised in the dilatory exception of lack of procedural capacity.[4] See La. C.C.P. art. 926; Bridges v. Anderson, 2016-0432, p. 7 (La.App. 4 Cir. 12/7/16), 204 So.3d 1079, 1083; Stonecipher v. Caddo Par., 51, 148 (La.App. 2 Cir. 4/7/17), 219 So.3d 1187, 1192, reh'g denied (5/11/17), writ denied, 2017-0972 (La. 10/9/17), 227 So.3d 830. "The determination of whether a party has the procedural capacity to sue or be sued involves a question of law." Woodard v. Upp, 2013-0999, p. 5 (La.App. 1 Cir. 2/18/14), 142 So.3d 14, 18.

         Procedural capacity of a party to sue or be sued "shall be presumed, unless challenged by the dilatory exception." La. C.C.P. art 855. The dilatory exception is waived if not pleaded prior to or in the answer. La. C.C.P. arts. 926(B), 928(A); Bridges, 2016-0432, pp. 7-8, 204 So.3d at 1083. The City raises the DDD's capacity to sue for the first time for appeal. As this issue was not raised in the lower court or preserved for appellate review, it is not properly before us, and this Court cannot consider it.

         Failure to assert a dilatory exception in the lower court, however, does not dispose of the City's remaining arguments. This Court must next consider whether the DDD is a separate juridical entity from the City in order to determine whether any obligation that the City owes the DDD is extinguished by confusion and whether the DDD's right to proceed is barred for failing to obtain city council approval to sue the City.

         "A juridical person is an entity to which the law attributes personality, such as a corporation or a partnership." La. C.C. art. 24. "[J]uridical persons are classified either as private persons or public persons." Williams v. New Orleans Ernest N. Morial Convention Ctr., 2011-1412, p. 5 (La.App. 4 Cir. 5/11/12), 92 So.3d 572, 576 (quoting La. C.C. art. 24, cmt. c). "The capacity of a juridical person is governed by provisions in its charter, governing legislation, and customs." La. C.C. art. 24, cmt. d.

         Louisiana Constitution Article VI, §44 defines a political subdivision as "a parish, municipality, and any other unit of local government, including a school board and a special district authorized by law to perform governmental functions." (Emphasis added). The Louisiana Supreme Court, in reviewing an exception of no cause of action, has considered whether a local government unit qualifies as a separate juridical person from the City. Roberts v. Sewerage & Water Bd. of New Orleans, 92-2048 (La. 1994), 634 So.2d 341. In Roberts, the Supreme Court found that the Sewerage and Water Board of New Orleans ("SWB") was a separate juridical entity from the City and, therefore, a "third person" for the purposes of the Louisiana Workers' Compensation Act. Id., 92-2048, pp. 8-11, 634 So.2d at 346-47.

         The Supreme Court explained that "[l]ocal government units such as the SWB are generally treated as separate and distinct public juridical persons or corporations for certain purposes whether they are called that or not." Id., 92-2048, p. 10, 634 So.2d at 346. The Court further set forth its "functional approach" for determining whether a political subdivision is a separate and distinct juridical person:

The important determination with respect to the juridical status or legal capacity of an entity is not its creator, nor its size, shape, or label. Rather the determination that must be made in each particular case is whether the entity can appropriately be regarded as an additional and separate government unit for the particular purpose at issue. In the absence of positive law to the contrary, a local government unit may be deemed to be a juridical person separate and distinct from other government entities, when the organic law grants it the legal capacity to function independently and not just as the agency or division of another governmental entity.
Such a determination will depend on an analysis of specifically what the entity is legally empowered to do.

Id., 92-2048, p. 10, 634 So.2d at 346-47 (internal citations omitted).

         In concluding that the SWB is a separate juridical entity from the City, the Roberts court "refuse[d] to disregard the autonomy and independence of the SWB from the City of New Orleans in regards to its management and operations; its source of revenues; and its employment, deployment, direction and control of its work force." Id., 92-2048, pp. 20-21, 634 So.2d at 352.

         According to its enabling statute, the DDD is a special taxing district. La. R.S. 33:2740.3(A). The enabling statute creates an eleven-member board of commissioners to provide for the "orderly planning, development, acquisition, construction and effectuation of the services, improvements and facilities to be furnished by the [DDD], and to provide for the representation in the affairs of the [DDD] of those persons and interests immediately concerned with and affected by the purposes and development of the district…" La. R.S. 33:2740.3(C). Nine of those board members are appointed by the mayor, with city council approval, but five of those mayor-appointees must come from a list of nominees generated by the New Orleans Chamber of Commerce. La. R.S. 33:2740.3(D)(1)(a). The remaining two board members "shall be jointly appointed by the state senators and state representatives who represent the [DDD] district." La. R.S. 33:2740.3(D)(2)(a). The board has the authority to elect officers "from their number," "select[]" or "employ[]" a secretary of the board, "engage such assistants and employees as [] needed to assist the board in the performance of its duties," and "adopt such rules and regulations as it deems necessary or advisable for conducting its business and affairs…" La. R.S. 33:2740.3(D)(3). The board has the power to contract with the City for services and capital improvements in the DDD, for which the DDD must pay, to the City, from the proceeds of the DDD tax. La. R.S. 33:2740.3(H)(2). With prior approval from the mayor and city council, the DDD may contract with other entities to obtain services not ordinarily provided by the City, and the DDD must pay for the contracted services from the DDD's budgeted funds. La. R.S. 33:2740.3(H)(3). City council is authorized to levy and collect the DDD tax. La. R.S. 33:2740.3(I). The DDD tax proceeds "shall be used solely and exclusively for the purposes and benefit" of the DDD and be "maintained in a separate account." Id. The DDD, with city council approval, can authorize ...


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