Thursday, May 03, 2007

Municipal Cost Recovery Rule Restricts Government Tort Suits

We were impressed by the number of links and other favorable attention that followed our post here about barring municipalities from hiring outside contingent fee counsel in nuisance actions brought against product manufacturers. Naturally we’re inclined to go back to the same well – even if (thankfully) municipalities have yet to get into the habit of claiming that FDA-approved products are public nuisances.

And if they do…? Well, they’ll have a knock down, drag out preemption fight on their hands – but that’s the subject for another post - if and when the day comes.

What we’re going to discuss now is the secret weapon in municipal tort litigation where, as in the nuisance cases, the government is suing in a quasi-parens patriae posture – that is, where it’s suing over response costs created by purported injuries to its citizens rather than for damage to government property or something similar. We’re not talking about cases where City Hall burned down.

The secret: For the most part the government can’t seek such “damages” – period. It amounts to taxation by litigation, and there’s a long history of hostility in this country to the government taking people’s money without legislative blessing. That’s called “taxation without representation.” [Here is where we wrap ourselves in the flag and cue the martial music.]

Closing-argument-type histrionics aside, the legal point we’re talking about is as legitimate as it is arcane. There’s a legal doctrine out there called the “municipal cost recovery rule” that prevents governmental bodies from suing over response costs (medical bills, law enforcement, emergency services, that kind of thing) because it’s an end run around the democratic process. Unless they’ve got specific legislative authorization to sue to recover such costs (that’s where the Medicare as Secondary Payer legislation comes in), governments can’t just waltz into court with their hands out – in most places anyway.

Since it’s our clients who are typically the targets of this type of litigation, we’re opposed to it. Because we’re opposed to it, we thought we’d let everyone in on the secret, even if it does involve a lot of boring legal stuff that only hard-core lawyers could love. It’s not kryptonite or the magic bullet, but it comes close. It doesn’t matter what the product is (it doesn’t even have to be a product). While public nuisance has very occasionally been alleged against drug manufacturers, it’s reared its ugly head mostly against those products that a lot of people use (or used) even though we all know they’re dangerous – guns, booze, lead-based paint, and cigarettes primarily. But in the current “nanny state” climate, can suits involving SUVs and global warming be far behind?

Most courts instinctively recognize that letting the government sue product manufacturers for some sort of collective, industry-wide liability “would amount to a regressive excise tax.” imposed without legislative action. International Brotherhood. of Teamsters, Local 734 Health & Welfare Fund v. Philip Morris, Inc., 196 F.3d 818, 825 (7th Cir. 1999). It is also ultra vires under well-established law.

The seminal case applying the municipal cost recovery rule (sometimes also called the “free public services doctrine”) is a sixty-year old Supreme Court case called United States v. Standard Oil of California, 332 U.S. 301, 314 (1947). The Standard Oil case even preceded the rule being given its name – which causes lawyers research problems. In that case, the Court rejected a lawsuit by the United States seeking to recoup the cost of hospitalizing a soldier tortiously injured in an auto wreck involving one of the defendant’s trucks. The Court accurately perceived the issue as “not. . .simply a question of creating a new liability in the nature of a tort,” but rather one of “fiscal policy” and what branch of government properly sets such policy. Id. at 314.

Thus, the Standard Oil court rejected the government’s “tort law analogy” as a basis for “establishing. . .fiscal and regulatory policies.” Id. The task of funding government services belongs to the legislature, not the courts:
[This] is a proper subject for Congressional action, not for any creative power of ours. Congress, not this Court or the other federal courts, is the custodian of the national purse. . .[and] the exclusive arbiter of federal fiscal affairs. And these comprehend, as we have said, securing the treasury or the government against financial losses however inflicted, including requiring reimbursement for injuries creating them, as well as filling the treasury itself.
Id. at 314-15.

The simple truth is that “the government constantly sustains losses [from] tortious or even criminal conduct,” and only the legislature should decide whether to authorize recovery. Id. at 315. The “exercise of judicial power to establish the new liability. . .would be intruding within a field properly within Congress’ control and as to a matter concerning which it has seen fit to take no action.” Id. at 316. Unless the legislature “acts to establish the liability, this Court and others should withhold creative touch.” Id. at 317.

That, in a nutshell, is both the municipal cost recovery rule and the rationale for it. In the six ensuing decades (and in some cases even before), it has been applied to all levels of government – most notably municipalities.

The biggest recent the municipal cost recovery case was in Illinois. In City of Chicago v. Beretta U.S.A. Corp., 821 N.E.2d 1099 (Ill. 2004), the city called guns “public nuisances” because people could get shot. The problem is that, like prescription medical products, guns are unavoidably dangerous. People get shot. That’s not enough to create product liability. Restatement (Second) of Torts §402A, comment k (1965). That’s why “public nuisance” gets called into play. Anyway, the Illinois Supreme Court held that the rule against governments funding operations through litigation could not be circumvented by calling the proceedings “public nuisance.” The rule did “not turn on the underlying theory of tort liability, or on the question of proximate or legal cause of the expenditures. Rather, the identity of the claimant and the nature of the cost combine[s] to deny recovery.” 821 N.E.2d at 1144.


We agree that where a system already exists for the rational allocation of costs, and where society as a whole relies upon that system, there is little reason for a court to impose an entirely new system of allocation. This is particularly true where, as here, allowing recovery of the costs of routine police and other emergency services could have significant unintended consequences.

Id. at 1145. It “defied common sense,” to allow a governmental body to sue for recovery of “ongoing” expenses of services it was already obligated to perform. Given the “staggering” consequences of allowing municipal suits of this sort, the City’s remedy was to seek an exception from the legislature, not the courts:

It defies common sense to suggest that the more predictable the expense, the greater the ability of the city to recover its costs in tort. The potential unintended consequences of such a rule are staggering. We agree with defendants that when the need for emergency services in response to an alleged nuisance is ongoing, the municipal cost recovery rule is stronger, not weaker, because the legislature is better able to consider need for cost-recovery legislation than in cases of sudden disaster. If the legislature concludes that the costs of a certain public service should be borne by the parties whose conduct necessitates that service, rather than by the taxpayers in general, it has the ability to enact a statute expressly authorizing recovery of such costs.

Id. at 1147. Whether or not municipal liability might provide “economic incentive” for more responsible product marketing was irrelevant – as “this is a question for the legislature.” Id. See also Champaign County v. Anthony, 337 N.E.2d 87, 88 (Ill. App. 1975) (a “state can never sue in tort in its political or governmental capacity”), aff’d, 356 N.E.2d 561 (Ill. 1976).

Chicago v. Beretta is the latest in a long line of decisions recognizing the municipal cost recovery rule in one context or another. A municipality sought a similar tort-based tax in District of Columbia v. Air Florida, Inc., 750 F.2d 1077 (D.C. Cir. 1984), suing an airline for “the costs of emergency services and cleanup required in the aftermath” of an air crash. Id. at 1078. The court unanimously found the claim to be untenable:

The general common-law rule in force. . .provides that, absent authorizing legislation, the cost of public services for protection from fire or safety hazards is to be borne by the public as a whole, not assessed against the tortfeasor whose negligence creates the need for the service. . . . Where emergency services are provided by the government and the costs are spread by taxes, the tortfeasor does not anticipate a demand for reimbursement.

Id. at 1080.

The government’s reliance upon “new tort doctrines” in Air Florida was unconvincing, because “a generally fair system for spreading the costs of accidents is already in effect. . .through assessing taxpayers the expense of emergency services.” 750 F.2d at 1080. Rather, the municipality was attempting to foist a “legislative policy decision” onto the courts:

We are especially reluctant to reallocate risks where a governmental entity is the injured party. It is critically important to recognize that the government’s deci­sion to provide tax-supported services is a legislative policy determination. It is not the place of the courts to modify such decisions. . . . [I]t is within the power of the government to protect itself from extraordinary emergency expenses by passing statutes or regulations that permit recovery from negligent parties.

Id. “If the government has chosen to bear the cost. . .the decision implicates fiscal policy; the legislature and its public deliberative processes, rather than the court, is the appropriate forum. . . .” City of Flagstaff v. Atchison, Topeka & Santa Fe Ry. Co., 719 F.2d 322, 324 (9th Cir. 1983) (applying Arizona law). In other words, once they come to court, even municipal litigants must stop acting as if they were elected officials with the power to tax.

The municipal cost recovery rule is widely accepted. “The state can never sue in tort in its political or governmental capacity.” William Prosser & W. Page Keeton, The Law of Torts §2, at 7 (5th ed. 1984). The “general rule is that public expenditures made in the performance of governmental functions are not recoverable.” Koch v. Consolidated Edison Co., 468 N.E.2d 1, 7-8 (N.Y. 1984). There are a lot of New York municipal cost recovery cases. In re AA, 594 N.Y.S.2d 430, 432 (N.Y. App. 1993); Austin v. City of Buffalo, 586 N.Y.S.2d 841, 842 (N.Y. App. 1992); New York v. Long Island Lighting Co., 493 N.Y.S.2d 255, 257 (N. Y. Co. 1985) (all holding that expenses of performing governmental functions are “not recoverable” in tort litigation). On this issue, we love New York.

The municipal cost recovery rule is “grounded in considerations of public policy.” Koch, 468 N.E.2d at 8. Governments cannot supplement taxing authority by suing for the cost of the very services they exist to provide. “[T]he public. . .should not have to pay twice, through taxation and through individual liability, for [government] service.” Calatayud v. State, 959 P.2d 360, 363 (Cal. 1998) (citation and quotation marks omitted).

We are especially reluctant to reallocate risks where a governmental entity is the injured party. It is critically important to recognize that the government’s deci­sion to provide tax-supported services is a legislative policy determination. It is not the place of the courts to modify such decisions. Furthermore, it is within the power of the government to protect itself from extraordinary emergency expenses by passing statutes or regulations that permit recovery from negligent parties. In particular, a government entity may not, as the County seeks to do in this case, recover the costs of law enforcement absent authorizing legislation.

County of San Luis Obispo v. Abalone Alliance, 223 Cal. Rptr. 846, 851 (App. 1986) . Come to think of it, we love California too. See also People v. American Art Enterprise, Inc., 656 P.2d 1170, 1173 & n.11 (Cal. 1983) (no recovery of nuisance abatement costs); Dep’t of Mental Hygiene v. Hawley, 379 P.2d 22, 25 (Cal. 1963) (no recovery of law enforcement costs); People v. Minor, 116 Cal. Rptr. 2d 591, 594-97 (App. 2002) (same); County of Lassen v. California, 6 Cal. Rptr. 2d 359, 362 (App. 1992) (same); Selma Pressure Treating Co. v. Osmose Wood Preserving Co., 271 Cal. Rptr. 596, 603 (App. 1990) (no recovery of nuisance abatement costs); City of Los Angeles v. Shpegel-Dimsey, Inc., 244 Cal. Rptr. 507, 510-11 (App. 1988) (no recovery of fire abatement costs); People v. Wilson, 49 Cal. Rptr. 792, 794 (App. 1966) (same).

In addition to Illinois, New York, California, and the nation’s capital, jurisdictions with similar rules are:

  • Alaska: Kodiak Island Borough v. Exxon Corp., 991 P.2d 757, 760-61 (Alaska 1999) (“free public services doctrine” bars recovery of municipal response costs except by statute).
  • Arizona: Flagstaff v. Atchison, Topeka, 719 F.2d at 323 (“[w]here [municipal] services are provided by the government and the costs are spread by taxes, the tortfeasor does not expect a demand for reimbursement”).
  • Arkansas: Ouachita Wilderness Institute, Inc. v. Mergen, 947 S.W.2d 780, 784 (Ark. 1997) (“[p]ublic policy would be violated if a citizen was said to invite private liability merely because he happened to create a need for public services”).
  • Connecticut: Ganim v. Smith & Wesson Corp., 1999 WL 1241909, at *6 & n.7 (Conn. Super. Dec. 10, 1999) (city cannot sue for “recoupment” of municipal expenditures), aff’d on other grounds, 780 A.2d 98 (Conn. 2001).
  • Delaware: Baker v. Smith & Wesson Corp., 2002 WL 31741522, at *4-5 (Del. Super. Nov. 27, 2002) (“governmental entities themselves currently bear the cost in question. . ; the legislature and its public deliberative processes, rather than the court, is the appropriate forum to address such fiscal concerns”).
  • Florida: Penelas v. Arms Technology, 1999 WL 1204353, at *2 (Fla. Cir. Dec. 13, 1999) (“costs to provide 911, police, fire and emergency services. . .are not, without express legislative authorization, recoverable by governmental entities”), aff’d on other grounds, 778 So.2d 1042 (Fla. App. 2001).
  • Georgia: Kapherr v. MFG Chemicals, Inc., 625 S.E.2d 513, 515 (Ga. App. 2005) (“it offends public policy to say that a citizen invites private liability merely because he happens to create a need for those public services”); Torres v. Putnam County, 541 S.E.2d 133, 136 & n.4 (Ga. App. 2000) (allegation that defendant “caus[ed] the county to spend money enforcing its laws and protecting its citizens” failed to state a claim).
  • Hawaii: Thomas v. Pang, 811 P.2d 821, 825 (Haw. 1991) (“it offends public policy to say that a citizen invites private liability merely because he happens to create a need for those public services”). A lot of times courts say the same thing.
  • Idaho: Canyon County v. Syngenta Seeds, Inc., 2005 WL 3440474, at *6 (D. Idaho Dec. 14, 2005) (“[a]t common law, a governmental entity generally [i]s not allowed to recover the cost of its services from a non-contracting party”).
  • Louisiana: Mayor & Council of City of Morgan City v. Jesse J. Fontenot, Inc., 460 So.2d 685, 688 (La. App. 1984) (the law “does not include within the ambit of its protection the risk that public property and funds will be expended”).
  • Maryland: Crews v. Hollenbach, 751 A.2d 481, 489 (Md. 2000) (“taxpayers should not be subjected to. . .one charge in the form of state tax and the second in paying damages in [a government] civil suit”).
  • Massachusetts: Town of Freetown v. New Bedford Wholesale Tire, Inc., 423 N.E.2d 997, 997-98 (Mass. 1981) (no recovery of governmental services “maintained for the benefit of the public and without pecuniary compensation or emolument”).
  • Michigan: Brandon Twp. v. Jerome Builders, Inc., 263 N.W.2d 326, 328 (Mich. App. 1977) (no recovery in nuisance for governmental expenses; “the appropriate remedy in such a situation is not a suit for damages”).
  • Missouri: Montgomery County v. Gupton, 39 S.W. 447, 448 (Mo. 1897) (no recovery for cost of housing insane person; “the provision made by law for the support of the poor is a charitable provision, from which no implication of a promise to repay arises, and moneys so expended cannot be recovered”).
  • Nebraska: Syracuse Rural Fire Dist. v. Pletan, 577 N.W.2d 527, 533 (Neb. 1998) (“citizen[s] should not be made to pay twice for the rendering of a public service, once through taxation and a second time through damages”).
  • New Hampshire: Portsmouth v. Campanella & Cardi Construction Co., 123 A.2d 827, 830-31 (N.H. 1956) (liability for municipal fire fighting expenses limited to statute).
  • New Jersey: Cherry Hill Twp. v. Conti Construction Co., 527 A.2d 921, 922 (N.J. Super. 1987) (“recogniz[ing] the public policy of spreading the risk of certain losses by shifting from a negligent tortfeasor to the taxpayers); City of Bridgeton v. B.P. Oil, Inc., 369 A.2d 49, 54-55 (N.J. Super. 1976) (“a municipal corporation may not recover as damages the costs of its governmental operations which it was created to perform”); but see James v. Arms Technology, Inc., 820 A.2d 27, 48-49 (N.J. Super. 2003) (rejecting limitations upon municipal cost recovery). In New Jersey, so far the courts have not been able to make up their minds on this issue.
  • North Carolina: North Carolina Highway & Public Works Comm’n v. Cobb, 2 S.E.2d 565, 567 (N.C. 1939) (“no governmental expenditure paid out for apprehension of a criminal or the maintenance or recovery of his custody incident to the punishment or correction of such a crime can be construed into a tortious invasion of the property rights of the State”).
  • Pennsylvania: City of Pittsburgh v. Equitable Gas Co., 512 A.2d 83, 84 (Pa. Cmwlth. 1986) (“[t]he cost of public services for protection from a safety hazard is to be borne by the public as a whole, not assessed against a tortfeasor whose negligence creates the need for the service”); City of Philadelphia v. Beretta U.S.A., Inc., 126 F. Supp.2d 882, 894-95 (E.D. Pa. 2000) (same), aff’d on other grounds, 277 F.3d 415 (3d Cir. 2002).
  • Utah: Fordham v. Oldroyd, 131 P.3d 280, 284 (Utah App. 2006) (“it offends public policy to say that a citizen invites private liability merely because he happens to create a need for those public services”). This one’s on further appeal, so watch it.
  • Virginia: Board of Supervisors of Fairfax County v. U.S. Home Corp., 85225, 1989 WL 646518, at *1 (Va. Cir. Aug. 14, 1989) (“cost of public services. . .is to be borne by the public as a whole, not assessed against a tortfeasor”).
  • Wisconsin: Dep’t of Natural Resources v. Wisconsin Power & Light Co., 321 N.W.2d 286, 288 (Wis. 1982) (“no common law liability permitting a governmental entity to charge [a defendant] for fire suppression expenses”); Town of Howard v. Soo Line R.R. Co., 217 N.W.2d 329, 330 (Wis. 1974) (same).

The precedent unfortunately is not unanimous. Then, if it ever were, we’d be looking for another line of work. Opposed to the municipal cost recovery rule are City of Cincinnati v. Beretta U.S.A. Corp., 768 N.E.2d 1136, 1149-50 (Ohio 2002), and James, 820 A.2d at 48-49. The rationale in Cincinnati for departing from all prior appellate precedent is two sentences long. First, “continuing. . .misconduct may justify the recoupment of such governmental costs.” 768 N.E.2d at 1149. Second, there was an aside (what we lawyers call dictum) in Flagstaff that government cost recovery might be “allowed ‘where the acts of a private party create a nuisance.’” Id. at 1150 (quoting 719 F.2d at 324).

It's no surprise, but we don’t find either reason is persuasive. As Chicago v. Beretta explained, governmental recoupment of “continuing” expenditures even more closely resembles a judicially imposed tax than recovery for a discrete incident. As for the Flagstaff case – it was not a nuisance case, and the cases cited in its dictum did not hold that nuisance trumps the municipal cost recovery rule. The most we can say for the Cincinnati case is that we hope the issue gets appealed again ASAP. It was 4-3 decision, and it hasn’t been followed very much. Maybe the court would reconsider.

James refused to follow prior precedent applying the municipal cost recovery rule because New Jersey had abolished the professional rescuers doctrine (That’s the PC name for the “Firemen’s Rule,” which is why a fireman or policeman who gets hurt on your property while doing his/her duty can't sue you). 820 A.2d at 48. Unlike New Jersey, most states still don’t let public employees sue members of the public. And even so, the public policy critique of allowing governments to self-finance through litigation that the United States Supreme Court made in Standard Oil strikes us as the more important reason for the municipal cost recovery rule in any event.

Basically, we have problems with governments seeking court-ordered subsidies when they should be following constitutional procedures for raising revenues. There are reasons why governments exist and why they collect taxes. If politicians running a governmental entity can get away from the politically unpopular need to levy taxes on voters, and instead sue product manufacturers located elsewhere who can’t vote them out of office, which option do you think they’ll choose?

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