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Taylor v. Town of Cabot

Supreme Court of Vermont

October 6, 2017

Grant Taylor and Richard Scheiber
Town of Cabot, The Cabot Community Association, Inc., and United Church of Cabot, Inc.

         On Appeal from Superior Court, Washington Unit, Civil Division

          Timothy B. Tomasi, J. Robert A. Gensburg and Hanne A.A. Trudeau, St. Johnsbury, for Plaintiffs-Appellees.

          Daniel P. Richardson and Stephen F. Coteus of Tarrant, Gillies & Richardson, Montpelier, for Defendant-Appellant Town of Cabot.

          PRESENT: Reiber, C.J., Dooley, Skoglund, Robinson and Eaton, JJ.

          ROBINSON, J.

         ¶ 1. This case involves a challenge under the Compelled Support Clause of the Vermont Constitution to the Town of Cabot's grant of federally derived but municipally managed funds for the purpose of repairs to a historic church. On interlocutory appeal, we consider whether plaintiffs have standing to pursue their claims and whether the trial court erred in issuing a preliminary injunction prohibiting the Town from paying the grant funds pending further order of the court. We conclude that plaintiffs do have municipal taxpayer standing, but vacate the trial court's award of a preliminary injunction and remand for further proceedings to resolve the case on the merits.

         ¶ 2. Relying on Chapter I, Article Three of the Vermont Constitution, plaintiffs challenged the Town of Cabot's award of a grant to fund repairs to the United Church of Cabot, and sought a preliminary injunction enjoining the grant. Defendants moved to dismiss the case on the ground that plaintiffs lacked standing. At the hearing on the motion for preliminary injunction, the parties did not present testimony, but each offered documentary exhibits and stipulated to a number of facts. On this record, the trial court made the following findings.

         ¶ 3. In the late 1980s, the U.S. Department of Housing and Urban Development (HUD) issued the Town a two-million-dollar Urban Development Action Grant (UDAG) to fund a loan to the Cabot Farmers' Cooperative Creamery so it could construct a warehouse. By 2003, the Cooperative had paid the loan back to the Town. Pursuant to its agreement with HUD, the Town was allowed to keep the funds for uses consistent with the applicable HUD regulations and the federal Housing and Community Development Act of 1974. The Town has kept the funds isolated from other municipal funds in what it now calls the Community Investment Fund of Cabot (CIFC fund).

         ¶ 4. The CIFC fund gives grants and loans to local individuals or groups to promote its goals, including to "[p]rotect and enhance the quality of life and character of the town" and to "[i]mprove community infrastructure, facilities and services." Groups eligible to apply for the grants include "community groups, non-profits, civic organizations, [and] fraternal organizations" as well as entities created by the Town, such as the Cabot Historical Society and the Cemetery Commission. In order to get a grant from the CIFC fund, the individual or group must submit an application to a committee appointed by the selectboard. The committee then reviews the application and decides whether the intended use of the grant is consistent with the goals of the CIFC fund. If an application is approved by the selectboard, it is put to a vote on Town Meeting Day and the voters decide if the proposed project is a worthwhile use of CIFC funds.

         ¶ 5. The United Church of Cabot (UCC) is a place of worship. It also makes its premises available for many nonsectarian community events and gatherings, and is an important and historic building in the town. In 2014, a consultant prepared a "Conditions Assessment, " which revealed that the building was in need of repair. The UCC spent significantly on those repairs, but needed more funds and accordingly applied for a $10, 000 CIFC grant. The $10, 000 amounted to a small portion of the total funds needed to repair the church. The reviewing committee approved the request and the matter was put to a vote on Town Meeting Day in 2016. The warned question was: "Shall the voters of the Town of Cabot approve the sum of ten thousand dollars ($10, 000) from UDAG funds in 2016 for the Cabot Community Association (CCA) for the purpose of repairing the steeple, stairwell and other interior sections in urgent need of repair at the United Church of Cabot."[1] The voters approved the grant.

         ¶ 6. With respect to the Town's motion to dismiss, the trial court concluded that plaintiffs did have standing on two independent bases. First, the court concluded that plaintiffs had standing as municipal taxpayers. The court rejected the argument that municipal taxpayer standing does not apply because the funds at issue originated from federal coffers. It explained that the funds cannot reasonably be characterized now as anything other than public, municipal funds, and that the funds are intended to be distributed, in part, to projects that might otherwise be funded from local tax revenues, such that there is no meaningful way to divorce the CIFC funds from effects on municipal taxation. Alternatively, the court concluded that plaintiffs had taxpayer standing because their claim was akin to a claim under the Establishment Clause of the First Amendment to the United States Constitution. The court reasoned that a violation of the Compelled Support Clause of the Vermont Constitution is analogous to an Establishment Clause violation. Just as federal taxpayers have standing to pursue certain Establishment Clause claims, as recognized in Flast v. Cohen, 392 U.S. 83, 85 (1968), state taxpayers have standing to advance Compelled Support claims under the Vermont Constitution.

         ¶ 7. The trial court awarded the preliminary injunction sought by plaintiffs after considering their likelihood of success, whether they would suffer irreparable injury in the absence of a preliminary injunction, and the potential for injury to the public interest or third parties. The court concluded that the first factor weighed in favor of an injunction primarily on account of the breadth of the Town Meeting Day warning concerning the vote. The warning authorized a grant "for the purpose of repairing the steeple, stairwell and other interior sections, " without any express restrictions against using the monies to repair religious areas such as the pulpit or altar. The court reasoned that without such restrictions, the grant was analogous to the unrestricted funding for a religious school that this Court struck down in Chittenden Town School District v. Department of Education, 169 Vt. 310, 738 A.2d 539 (1999). With respect to irreparable harm, the court concluded that even if the grantee could be required to repay the grant funds to the Town if plaintiffs prevailed in this case, plaintiffs will have suffered an irreparable affront to their values arising from the unconstitutional use of government dollars by the UCC during pendency of the action. And the court concluded that injunctions protecting freedoms guaranteed by the Declaration of Rights protect the public interest generally, in addition to plaintiffs' own interests.

         ¶ 8. The trial court granted interlocutory appeal of its ruling. The Town challenges both the trial court's analysis of standing, and its award of a preliminary injunction. In particular, the Town argues that plaintiffs do not have municipal taxpayer standing because the funds at issue derived from a federal grant, and have been held separate from the municipal budget and municipal operating funds. It further argues that Flast is limited to cases in which taxpayers can show a nexus between their status as taxpayers and the constitutional violation, which is absent here. With respect to the preliminary injunction, the Town argues that the trial court misapprehended the merits for a host of reasons, including that the court failed to adequately account for the legal restrictions on the use of the grant funds in concluding that the grant ran afoul of the compelled support clause. It also challenges the trial court's conclusion that an award of the grant would cause the plaintiffs irreparable harm, even if it is subject to repayment if plaintiffs prevail. We consider each argument in turn.

         I. Standing

         ¶ 9. We conclude that plaintiffs have standing to prosecute their claims. Municipal taxpayer standing under our law encompasses claims that municipal assets have been improperly wasted, and the record in this case supports the conclusion that the grant funds here are municipal assets notwithstanding the fact that the funds originated from the U.S. Treasury.[2] Whether a plaintiff has standing is a legal question, which we review with no deference to the trial court. Baird v. City of Burlington, 2016 VT 6, ¶ 11, 201 Vt. 112, 136 A.3d 223.

         ¶ 10. We have held that the basis of municipal taxpayer standing "is not that any direct loss has been caused to the plaintiff, but that municipal assets have been improperly wasted." Cent. Vt. Pub. Serv. Corp. v. Town of Springfield, 135 Vt. 436, 438, 379 A.2d 677, 679 (1977); see also Baird, 2016 VT 6, ¶ 21 ("Although taxpayer suits in Vermont are generally 'recognized as appropriate vehicles for seeking relief from official action, ' to have standing a plaintiff must still demonstrate that she has either sustained some 'direct loss' or that municipal assets have been 'improperly wasted.' " (quoting Cent. Vt. Pub. Serv. Corp., 135 Vt. at 438, 379 A.2d at 679)).

         ¶ 11. Our law in this regard is consistent with the U.S. Supreme Court's understanding of municipal standing. Contrasting a claim of federal taxpayer standing with its municipal analog, the Supreme Court referenced "the rule, frequently stated by this court, that resident taxpayers may sue to enjoin an illegal use of the moneys of a municipal corporation." Massachusetts v. Mellon, 262 U.S. 447, 486 (1923). The Court further explained:

The interest of a taxpayer of a municipality in the application of its moneys is direct and immediate and the remedy by injunction to prevent their misuse is not inappropriate. It is upheld by a large number of state cases and is the rule of this court. Nevertheless, there are decisions to the contrary. The reasons which support the extension of the equitable remedy to a single taxpayer in such cases are based upon the peculiar relation of the corporate taxpayer to the corporation, which is not without some resemblance to that subsisting between stockholder and private corporation . . . But the relation of . . . taxpayer[s] of the United States to the federal government is very different. [Their] interest in the moneys of the treasury-partly realized from taxation and partly from other sources-is shared with millions of others, is comparatively minute and indeterminable, and the effect upon future taxation, of any payment out of the funds, so remote, fluctuating and uncertain, that no basis is afforded for an appeal to the preventive powers of a court of equity.

Id. at 486-87 (citations omitted).

         ¶ 12. Notwithstanding the federal origin of the monies at issue here, we conclude that plaintiff can assert municipal taxpayer standing to challenge the Town's use of the funds. We base this conclusion on the language of the HUD authorization, the extensive control the Town has over the funds, the absence of meaningful federal oversight of the Town's use of the funds, and the fact that the funds would otherwise be available for potential municipal expenditures.

         ¶ 13. The Town's 1992 close-out agreement with HUD in connection with the underlying federal grant recognizes that the funds are possessed and controlled by the Town, and authorizes the Town to use them for a broad array of purposes, with virtually no oversight. The agreement provides that UDAG loan repayments to the Town, as well as other payments and income associated with this grant, "shall be considered to be miscellaneous revenues" and "shall be made available by the [Town] for eligible Title I activities pursuant to the Housing and Community and Development Act of 1974."

         ¶ 14. The scope of permissible expenditures pursuant to Title I is quite ...

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