Lawrenceburg appeals county's $3 million judgment

Photo courtesy of Indiana Court of AppealsAttorney Alice Morical (from left), representing Lawrenceburg, said, "This contract was never enforceable... I'm saying from the outset the contract was void." Attorneys Paul Jefferson and Grant Reeves, representing Franklin County, are listening.

Franklin County was awarded $3.09 million in damages in its lawsuit against Lawrenceburg over the improper termination of a riverboat gaming revenue sharing-agreement between Lawrenceburg and Franklin County last December. The damages award consisted of five missed payments totaling $2.5 million plus prejudgment interest in the amount of $592,334.

A special judge, Decatur Superior Court Judge Matthew Bailey, previously determined that this termination was a breach of contract.

The agreement provided for the annual sharing with Franklin County of $500,000 of certain tax revenues from the riverboat in Lawrenceburg. In fall 2013, Lawrenceburg officials decided to end the agreement.

Oral arguments in an appeal, City of Lawrenceburg vs. Franklin County, were heard by the Indiana Court of Appeals July 22. The webcast is archived at https://bit.ly/2M7LhDT

Alice Morical, Indianapolis, representing Lawrenceburg, said, "The trial court's judgment should be reversed because the contract obligation ... an obligation to pay a half a million into perpetuity, was not supported by an appropriation at the time the agreement was signed in 2006." She added that Section 12 of the wagering and tax revenue statute states that "absent an appropriation, the agreement is void."

Judge Margret Robb asked, "Isn't that a nice way to get out of a contract?"

Morical contended, "The statute allows the city to get out of any contract if the funds are not fully appropriated at the outset of the agreement."

The judge pressed her. Morical admitted, "Yes, it is a way to avoid a contract."

Robb wondered, "How do you do an appropriation for a contract that's year to year, it might last a year, ... five years. There were reasons a contract might end" if gaming monies ceased. "You're saying any multiyear contract has to be void at the start?"

The attorney pointed out, "They could have agreed to pay $500,000 a year for 10 years." She maintained officials can only appropriate money they have on hand. "They would have set aside $5 million in year one."

Judge Edward Najam Jr. mused the contract should have contained this phrase: "provided the state keeps sending the money every year from gaming and admissions revenue."

Morical said two court cases, Miller and Wann, highlight the difficulty of counting on money coming from future payments.

Chief Judge John Baker understood the logic. A mayor can't enter into a contract past his or her term because future lawmakers may not agree to it.

Morical said, "It is to protect the taxpayers. Public officials need to be able to react to changing circumstances and changing interests of the constituency."

Robb asked, "Does Lawrenceburg lose its (gaming) license" if it was granted due to this agreement? According to the attorney, "The license for Lawrenceburg was issued many years before this agreement."

Baker recalled, "There was concern expressed in the General Assembly in the mid-2000s as to whether or not continuing to give Lawrenceburg all of this tax money was in the best interest of the area." Morical responded, "There is no evidence in the record to that effect."

In her brief, Morical said the case should be remanded to Decatur Superior Court so that three questions of fact could be considered.

Najam asked, "What are those questions of fact?"

The attorney said the first issue is whether the contract is enforceable. "Was there any consideration for this agreement? The parties discussed payments as contributions and they would only continue if Lawrenceburg enjoyed financially stability" and received a steady flow of revenue.

The second question is whether Franklin County performed. "The trial court found that Franklin County performed," but the Lawrenceburg clerk-treasurer's affidavit said the county "provided nothing of value, no performance."

The third issue is the agreement's duration is contingent on continued wagering and tax revenue receipts. "That language is ambiguous."

Attorney Paul Jefferson, Indianapolis, representing Franklin County, was disgruntled the opposing litigator believed the contract was never valid to begin with. "I think there's another requirement that actually governs this case." The word share appears six times in the contract, according to him. "You're allowed to share revenue and not have to go through the appropriations process."

Najam asked, "Would it be fair and accurate to say that your contention is that the regular appropriations statute that applies to other city revenue does not apply (to the agreement) because the source of these funds is from gaming and admissions?"

The attorney added, "And because they were shared." He explained state legislators have said "the goal of gaming revenue is to spread it across as much of a geographic area as we can" to improve Hoosiers' quality of life.

Lawrenceburg has received over $100 million from the riverboat since 2006, he reported. "Interestingly, the city of Lawrenceburg cites financial insecurity," but trial court evidence showed the income was relatively flat. "They just didn't want to fulfill their obligations."

Robb questioned, "Was there consideration ... and then what did you do to meet that obligation?"

Jefferson answered that letters of support for gaming gathered by Franklin County were consideration for the agreement. "Lawrenceburg wanted that support" to continue to receive the money instead of having state legislators take control of it.

Najam remembered working on the Bloomington budget process early in his career. "It's a long process," with hearings held by the city council. "There's a lot of discussion about how much money is going to be raised ... and spent. Now if this decision to spend this riverboat money is not made by the local legislative body ... where is this decision made? Is it made behind closed doors? ... How does the public have input ... if it doesn't go through the appropriations process?"

Jefferson said, "It did go through the appropriations process once," when the agreement was signed Jan. 17, 2006, stating the first payment was due Jan. 31.

Najam asked, "Where's the local public input?" Jefferson responded, "With the elected officials and the agreement itself. ... Gaming revenue ... is treated in a very public and scrutinized way by a number of regulatory agencies."

The attorney concluded, "We ask that the trial court judgment be affirmed."

In her rebuttal, Morical emphasized that only one $500,000 payment was appropriated by Lawrenceburg leaders at the time the agreement was signed.

Baker suggested that between 2007-13 "somebody spent money they were not authorized by appropriation to spend."

Najam wondered whether the Indiana State Board of Accounts detected irregularities in Lawrenceburg's books. Morical said, "Nobody needs to go to jail on this." She contended the payments were grants.

Najam asked, "Does the word grant appear in the agreement?" No, she admitted.

The judge continued, "Your argument is the payments after the first year were entirely gratuitous?" She replied, "Yes, your Honor." The city was "well within its rights" to stop payments at any time.

Morical ended her argument by saying, "The result to Franklin County is not unfair because courts have recognized a remedy for quantum meruit (which relates to the amount paid for services if a contract doesn't exist). If Franklin County had provided something of value to Lawrenceburg, they would have had the opportunity to bring a quantum meruit claim, which was not alleged."

The chief judge said, "We appreciate your oral and written presentations... We'll give you a timely response."

Debbie Blank can be contacted at debbie.blank@batesvilleheraldtribune.com or 812-934-4343, Ext. 113.