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September 22, 2016

COA finds that prior litigation bars additional unfunded mandate challenge

The doctrine of res judicata applies in actions to enforce the Michigan Constitution’s Headlee tax limitation amendment, said the Michigan Court of Appeals in Adair v. Michigan, No. 311779.
 
This taxpayer action arises as the third case in a series of litigation instituted by the plaintiffs against the state of Michigan, asserting that the state legislature repeatedly violated the Headlee Amendment’s “prohibition on unfunded mandates” provision (“POUM provision”) by failing to allocate sufficient funds to reimburse state school districts for the necessary costs incurred with the districts’ compliance with various recordkeeping mandates.  In the plaintiff’s first action in 2010, the Michigan Supreme Court ruled in the plaintiff’s favor, holding that the state violated the POUM provision when it required school districts to collect, maintain, and report various data to the state without providing the funds necessary to comply with the mandate.  Adair v. Michigan, 486 Mich. 468; 785 N.W.2d 119 (Mich. 2010) (“Adair I”).  Thereafter, in efforts to remedy the underfunding issue, the legislature enacted legislation, 2010 PA 217 § 152a, appropriating funds for the 2010-2011, and 2011-2012 school year.  The new legislation also included funds to reimburse the costs of a new reporting requirement.
 
The plaintiffs then commenced their second suit under the Headlee Amendment (“Adair II”).  In that action, they alleged, among other things, that: (1) the legislature again failed to adequately fund the school districts with the appropriations necessary to comply with the state’s recordkeeping mandates for the 2010-2011 and 2011-2012 schoolyear; and (2) the legislature’s enactment of § 152a was unconstitutional to the extent that it reduced the overall discretionary state aid funds by reallocating a portion of those funds to § 152a, thereby shifting the tax burden to local taxpayers.

The Michigan Court of Appeals referred the case to a special master, who granted summary disposition in the state’s favor and later granted a motion by the state to involuntarily dismiss the plaintiff’s claim.  He opined that: (1) regarding the plaintiffs’ underfunding claim, the plaintiffs failed to prove a specific dollar amount of underfunding; and (2) with respect to the method the legislature chose in funding its appropriations, the Michigan Supreme Court had rejected the argument advanced by plaintiffs in prior cases.  The Michigan Court of Appeals vacated the special master’s grant of involuntary dismissal, but the Michigan Supreme Court reversed the appellate court.

In the meantime, plaintiffs commenced the third suit (“Adair III”), again asserting an underfunding claim.  The state moved for summary disposition, asserting that, among other reasons, the doctrine of res judicata, or alternatively, the doctrine of collateral estoppel, barred plaintiffs from relitigating the adequacy of the same appropriations unsuccessfully challenged in Adair II.  The special master and the appellate court agreed.  As the court stated, the doctrine of res judicata bars a subsequent action when the following three elements are met: (1) the prior action was decided on the merits; (2) both actions involve the same parties or their privies; and (3), the matter in the second case was, or could have been, resolved in the first. 

Against this framework, the appellate court first recognized that neither party contested that the second element was satisfied under the doctrine.  Both actions involved the same parties.  Thus, the only elements to be resolved were elements (1) and (3).  The court reasoned that regarding the first element, the Adair II litigation concluded in an involuntary dismissal under MCR 2.504(B)(2), which operates as an adjudication on the merits.  In the absence of any language in the order of dismissal limiting the scope of the merits decided, the court reasoned the first element was satisfied.  With respect to the third element, the court determined that under the “transactional test,” which states that the assertion of different kinds or theories of relief still constitutes a single cause of action if a single group of operative facts give rise to the assertion of relief, the plaintiffs were attempting to relitigate the base funding appropriate to comply with recording mandates.  Because the issue was already resolved in Adair II, the appellate court held, the third element of the doctrine of res judicata was satisfied.  Therefore, the doctrine barred the plaintiffs from bringing the instant action.

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