The Arkansas Supreme Court heard oral arguments Thursday challenging whether the Arkansas Department of Transportation can use sovereign immunity to avoid paying more than $18 million in attorneys' fees related to a lawsuit filed earlier this year by a group of taxpayers who successfully challenged the agency's spending on two major road construction projects.
The Department of Transportation argued in a brief earlier this year that "winning an illegal exaction lawsuit should not be the equivalent of winning the lottery for the taxpayers' lawyers."
Pulaski County Circuit Judge Chip Welch ruled from the bench in May that the legal team, led by Joe Denton and Justin Zachary of the law firm Denton & Zachary PLLC, should receive 15% of the $121,109,391.84 the Department of Transportation was required to reimburse to the so-called Amendment 91 fund, or $18,160,000.
Denton & Zachary PLLC represents a group of taxpayers who sued the department and the other defendants in November 2018 for wrongfully spending proceeds from a 0.05% sales tax, authorized by Amendment 91 to the Arkansas Constitution, on road projects that exceeded the four-lane limit specified in the amendment. Voters approved the amendment in 2012.
Attorney Kevin Arlen Crass, who represents the Department of Transportation, and Assistant Attorney General Vincent P. France argued that sovereign immunity protected the state from being forced to pay attorneys' fees.
"This case will decide whether this money remains at the Department of Transportation to the benefit of the taxpayers or will it go to the private lawyers," Crass said during Thursday's proceedings, the first oral arguments of the fall that were held in the old Supreme Court Chamber in the State Capitol building. "I am sympathetic to the fact that they have earned a fee, but the law is pretty clear in my judgment and they took that risk."
Crass said there is no dispute when it comes to the law of sovereign immunity protecting the state from paying attorneys' fees using tax dollars.
"I am contending under the constitution of this state they are not entitled to a fee. That is my primary argument," he said. "We all take cases, and we analyze if there is a fee at the end, and the case law is pretty clear to me and they must have recognized it. If you reject the argument on that, then they are definitely not entitled to $18 million, and I will urge the court to look at the time that was spent and reflect on the hourly rates and award a reasonable fee."
Sovereign immunity is addressed in Article 5, Section 20, of the Arkansas Constitution, which states Arkansas "shall never be made a defendant in any of her courts."
"The question whether there should be a fee attached to an illegal exaction case is one of public policy. It should be decided on the floor above us," Crass said. "And in fact, in 1977 that is what those legislators upstairs did."
Associate Justice Courtney Hudson asked Crass and France if this means they are seeking to give the attorneys who represented the taxpayers nothing.
"They knew sovereign immunity exists and they knew the risks," Crass said while acknowledging the attorneys probably deserve some payment but that $18 million was too much. "... I know it sounds harsh ... but law can be harsh. I would advocate change if I was a policy maker, but I am not."
At the least, they added, the court should modify the trial court's fee award to reflect the total hours worked based on "a reasonable hourly rate."
"I know we get numb to the dollars, and millions doesn't seem to mean as much as it did when I first started practicing law, but $18 million coming from the state taxpayers is too much money," Crass said. "It is within your providence to say whether that's excessive, and I urge you to say that it is."
France said if the 15% decision is upheld, it would mean attorneys' fees would equal around $23,000 to $24,000 an hour for 771 hours of work.
The amount of money also gave some justices pause, as they asked about hourly rates and wondered aloud about the high price tag associated with the attorneys' fees.
"I look at this $18 million, frankly, it makes me think the court affirms that I should step down from my job because I think I would be better suited spending my time asking the state government in Arkansas to account for funds on a regular basis and you walk away with millions," Associate Justice Rhonda Wood said. "That is the type of message this sends."
Zachary, who represented the appellees in the case, argued Thursday that his team worked almost daily on the case and gave the accurate number of hours.
"We did everything we could to win," he said. "We could have padded our hours, but we didn't."
Zachary said the argument is supported by the Supreme Court, and it would discourage other members of the public from taking on state entities because of fear of having to pay out of pocket.
"A constitutional tax does not have the same oversight as one passed through the General Assembly," he said. "The only oversight is the public's ability to file suit."
Wood said the issue of sovereign immunity was a decision made by the legislative body, and to overturn that concept would mean the court would be getting into the policy-making business.
"The Legislature is a policy-making arm, not the Supreme Court," she said. "While we are sympathetic to the work that you did on the behalf of citizens, those policy arguments are better suited for that arm of government. If they passed a statutory provision for attorney fees and left this out, and then for us to come in and say we don't like this policy decision of the Legislature then we are going to make a different one, how is that allowed?"
Zachary said the question deserves to be looked at by the Supreme Court because allowing the state to use sovereign immunity in this instance will discourage other lawyers from taking such cases.
"If the people of this state don't have the ability to hire a private lawyer, then they aren't going to be able to bring these suits," he said. "It would be a discouragement."
Wood asked if that was the role of the court.
"I think we have here a constitutional right to institute suits against the state and the remedies go along with it, whether that be refunds, reimbursement or attorneys' fees," Zachary said. "You have to be able to fully bring the suit."
The lawsuit at the heart of the argument focused on only two of the projects benefiting from Amendment 91 money under the department's Connecting Arkansas Program, a $1.8 billion road construction program focusing on regionally significant projects.
Those projects were 30 Crossing -- a $1 billion project that will widen a 6.7-mile section of Interstate 30 through downtown Little Rock and North Little Rock to up to 10 lanes in places, as well as replace the I-30 bridge over the Arkansas River -- and the widening of a 5.5-mile section of Interstate 630 in west Little Rock to eight lanes. Both segments were already six lanes.
Welch initially accepted the state defendants' arguments that the wording of the amendment was similar to terms that department officials regularly employed when discussing major routes and lumped them together in the four-lane grid system even though some were wider than four lanes.
But the Arkansas Supreme Court vacated Welch's ruling and said the spending on those projects from Amendment 91 money amounted to "illegal exaction" under the Arkansas Constitution, and had to be refunded because the wording of the amendment limited the money to four-lane roads or roads that were to be widened to four lanes, a notion that the department vigorously disputed. The high court returned the case to Welch.
In February 2021, Welch gave the Department of Transportation 60 days to reimburse the Amendment 91 account $121 million, which was the amount of Amendment 91 money spent on the projects before the Supreme Court ruling.
Department of Transportation Director Lorie Tudor crafted a reimbursement plan that involved making "journal entries" in which the Amendment 91 money spent on the 30 Crossing and I-630 projects was assigned to eight other projects.
Those projects were no wider than four lanes and already had been completed. The regular state and federal road construction money that was spent on that work was applied to the 30 Crossing and I-630 projects.
Tudor testified the changes were aboveboard and would pass the review of state and federal auditors. A top executive at the state finance department offered similar testimony.
Crass said the Arkansas Department of Transportation's only option to reimburse the fund was to use the journal entries since the money had already been paid out to contractors. He said because of that, there was no pot of money for attorneys fees to be paid from when it comes to the lawsuit, which means it would come from taxpayers.
"It's coming from the state's coffers, and your case law makes it very clear when that is the case the percentage approach is not appropriate," Crass said. "The $18 million is so excessive it goes back to an old standard review that it shocks the conscious. It's too much money."
The Supreme Court will issue its opinion in the coming weeks.