Court Rule Penalizes Taxpayers who Lose Public-Interest Lawsuits

by Timothy Sandefur         

January 29, 2019                                                                                            

Ever since the NAACP’s victorious courtroom campaign against segregated schools, public-interest litigation has been a respected method of addressing social and political wrongs. Whether it be taxpayers challenging the legality of government expenditures, same-sex couples suing for the right to marry, or voters arguing against restrictions on access to the polling place, public-interest litigation plays a critical role in our constitutional system.

But thanks to a harsh, hastily written rule imposed by the Arizona Supreme Court, citizens who ask judges to decide such public-interest lawsuits face the risk of crippling monetary penalties that unfairly punish them for exercising their legal rights. That rule — Arizona Rule of Civil Procedure 68 — mandates that when a defendant in a lawsuit offers to settle out of court, and the plaintiff disregards the offer, the plaintiff must pay twice the defendant’s legal costs, including hefty expert witness costs, if he ends up losing the case.

The rule was intended to encourage people to compromise whenever possible in cases involving traffic accidents, breaches of contract, or other arguments over money or property. But it also applies to public-interest lawsuits against the government, in which citizens simply ask courts to decide important legal questions. And the results can be harsh. Just ask Mark Stuart, a Scottsdale taxpayer who sued the city over its agreement to subsidize a private golf club with $1.5 million in taxpayer funds. Stuart thought that violated the state Constitution, which forbids government from giving public dollars to private companies, so he asked a court to block the deal. He didn’t seek money damages—just a court order vindicating his constitutional rights.

The city’s attorneys sent him a “settlement offer”–drop the case, and call it a day. Stuart refused—but he didn’t write out an objection as Rule 68 requires. So when he lost his case, the court enforced the double-costs penalty, ordering him to pay the city more than $68,000.

Such severe sanctions are likely to frighten taxpayers away from challenging possibly illegal government activity, and that’s bad for Arizona in the long run. Courts should encourage private disputes to settle out of court, but public-interest cases challenging government actions benefit everyone by resolving important legal controversies. And settling such cases is often counter-productive, since it leaves those questions unanswered and might encourage government to act illegally in the future.

That’s why federal courts use a different rule. They don’t impose costly attorney fee awards on civil rights plaintiffs who lose their cases, unless the lawsuit was “frivolous.” As the Supreme Court said in 1978, “assessing attorney’s fees against plaintiffs simply because they do not finally prevail would substantially add to the risks inhering in most litigation,” which would “undercut the efforts of Congress to promote the vigorous enforcement” of the law.

The court noted that when the government violates the law, it should be punished — but when citizens sue and lose, they’ve done nothing wrong and don’t deserve punishment except in frivolous cases.

No other state inflicts the kind of severe sanctions imposed by Rule 68. Most follow the federal model, and Michigan specifically allows judges “in the interest of justice, [to] refuse” to impose such penalties, meaning judges can decide in each case whether the lawsuit was so baseless that the plaintiff should be penalized — or whether the plaintiff, though wrong on the law, still made legitimate legal arguments.

The Goldwater Institute filed a petition last week asking the Arizona Supreme Court to amend Rule 68 to follow the federal or Michigan standards. In lawsuits that seek only a legal ruling, courts shouldn’t inflict severe penalties on people who bring legitimate complaints to court — and trial judges should be given the power to decide for themselves whether a monetary sanction serves the interests of justice. That strikes a wiser balance between the need to settle disputes — and the need to resolve them.

Nobody likes lawsuit abuse. But Arizonans benefit when vigilant taxpayers challenge potentially unlawful government actions in court. Our laws should ensure that frivolous cases are penalized, but conscientious taxpayers are not.

Timothy Sandefur is the Vice President for Litigation at the Goldwater Institute.

First appeared at the Arizona Capitol Times.