The North Carolina Business Court dismissed today a highly publicized case brought by a City of Roanoke Rapids taxpayer who sought to challenge the City’s investment of more than $13 million to build the "Randy Parton Theater" in Halifax County. (See here, here, and here for local and national articles about the lawsuit). The Court held that the Plaintiff, Garrett, lacked standing to bring the suit, either as an individual taxpayer or on a derivative basis on behalf of the City.
Roanoke Rapids, in reliance on a business plan presented by Randy Parton, the younger and less talented brother of Dolly Parton, had financed a music theater with Tax Increment Financing bonds. Those are a relatively new public financing mechanism authorized by a 2004 Amendment to the North Carolina Constitution. The Roanoke Rapids financing — by which the City was authorized to issue $21 million in TIF bonds to finance the Theater and a related development — was reportedly the first TIF financing in North Carolina.
After the Theater was built, there were allegations of misuse of funds by Parton (like a $600 pair of pants and trips to Las Vegas), conflicts of interest, and mismanagement of the venture. Parton, a regular headliner at the Theater, wasn’t much of a draw and reportedly showed up intoxicated for his shows. The Theater failed, and the City was unable to make payments on the TIF Bonds from the revenues of the Theater, which were the anticipated repayment source.
In February 2008, the City entered into a Settlement Agreement with Parton, paying him $750,000 for the privilege of being released from his $1.5 million per year management contract. The release included the "Moonlight Bandit" entities which had been formed by Parton and others in connection with the Theater.
The Plaintiff, backed by the North Carolina Institute for Constitutional Law, filed a Complaint notwithstanding the settlement against Parton, the Moonlight Bandit entities, and others involved in the failed venture. Taxpayers don’t get a vote on the issuance of TIF bonds. Former Supreme Court Justice Bob Orr, who is the Executive Director of the Institute for Constitutional Law, said on his More from Orr Blog that "the voting public was literally snookered into giving up their constitutionally guaranteed right to vote on the issuance" of these types of bonds.
The issue before Judge Jolly was whether Garrett, a resident of the City, had standing to sue. Garrett claimed that he was entitled to bring suit individually because the losses from the failed Theater would be borne by all of the taxpayers of the City, and alternatively that he was entitled to sue derivatively on behalf of the City because the proper authorities had refused to act with regard to such losses.
No Individual Taxpayer Standing
The law of North Carolina is that individual taxpayers don’t have standing to bring a suit in the public interest. Op. ¶41. Garrett argued that he was entitled to an exception to this general rule (under a case called Texfi Industries v. City of Fayetteville, 44 N.C. App. 268, 261 S.E.2d 21 (1979)) because the Theater had levied a tax on him "for an unconstitutional, illegal, or unauthorized purpose."
Judge Jolly rejected Garrett’s individual standing argument, holding:
here, the expenditures used in support of the Theater Project were funded by TIF bonds that were issued only after a feasibility study was conducted for the benefit of the City, and which was lawfully approved by the City and the [Local Government Commission]. . . . Notwithstanding that the Theater Project ultimately failed and may well have been a very bad business decision by the City, the obligations undertaken by the City were neither illegal nor unauthorized.
No Derivative Taxpayer Standing
The Court ruled that Garrett didn’t have derivative standing either. North Carolina recognizes derivative standing for taxpayers if "public authorities wrongfully neglect or refuse to act." A taxpayer must show, however, that "their either (a) has been a demand upon and wrongful refusal by the proper authorities to act, or (b) the particular facts would make such a demand futile." Op. ¶46.
The fact of the City’s settlement with Parton doomed Garrett’s derivative standing. Judge Jolly held that "the Settlement Agreement acts to resolve the very claims in behalf of the City that otherwise — given refusal or inaction after timely taxpayer demand — arguably might be available derivatively to a taxpaying citizen. In fact, the City’s action in settling with Parton and Moonlight Bandit on terms with which the Plaintiff disagrees apparently is the very reason Plaintiff seeks to bypass the City." Op. ¶47.
The Theater has been renamed the "Roanoke Rapids Theater." The City is trying to sell it to a private investor.