Pub. 4 2015 Issue 8

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 6 KBA LEADERS LEDGER KANSAS SUPREME COURT RULES IN FEE SWEEPS CASE By Kathleen Taylor, Svp General Counsel G IVING CREDENCE to the saying that “the wheels of justice turn slowly”, the Kansas Bankers Association, along with several other plaintiffs, finally received some good news on a lawsuit that started in January of 2010. 2009 was the year that the straw actually broke the camel’s back (another great saying), when the Kansas legislature chose to take moneys from fee funded agencies to balance the state’s budget. This was not the first time that “fee sweeps” had occurred, but the sweeps were significant, and the agencies who had collected those fees to cover administration costs, and/or the industries who had paid those fees for that purpose (i.e., bankers) were fed up. The case was filed in Shawnee County District Court and we plaintiffs asked for three things: 1) a declaratory judgment finding that fee sweeps were an unconstitutional taking; 2) an injunction against future fee sweeps; and 3) a refund of all the fees that were swept by the 2009 Kansas legislature. The District Court dismissed the case for lack of standing by the plaintiffs. The Kansas Court of Appeals reversed and remanded, finding that the plaintiffs did have standing. The Kansas Supreme Court then accepted review in January of 2014. The Supreme Court’s analysis focused on whether a) challenging the action by the legislature to sweep fee funds was appropriate for the Court to consider; and b) the plaintiffs had standing. We as plaintiffs, objected to the practice of diverting fee funds that were assessed for specifically authorized purposes, and then used as if they were general tax moneys. We argued that this was an invalid exercise of the State’s police powers, and an unconstitutional exercise of its taxing authority. Our challenge was not to the State’s authority to appropriate public moneys, but to this specific practice of taking fee funds as if they were public moneys. The Supreme Court agreed that this was appropriate for judicial review, recognizing that our challenge was not to the State’s police power in general, but to this specific practice, stating in part that, “For instance, money in the Bank Fund cannot be used to build a bridge or to pay the Governor’s salary.” It reiterated that the State can, under its police power, reimburse itself for the costs of valid regulation and supervision, but when a measure becomes a revenue enactment, it amounts to a tax and violates the State Constitution. The Court then looked at the standard for determining standing which is a party’s right to make a legal claim. In short, the Court found that all plaintiffs had standing as they had suffered a cognizable injury (were required to pay increased fees as a result of the fee sweep); and there was a causal connection between the action of the legislature and the resulting injury. While this represents a clear victory to the plaintiffs, the Court then remanded the case back to the Shawnee County District Court for a hearing on the merits. With these findings by the Supreme Court, the only remaining question of fact is whether the State can show that the sweeps were for the legitimate purpose of reimbursing the State for actual, incurred costs. This will be an uphill battle for the State as fee funded agencies had been subject to an annual statutory requirement to turn over 20% of their fees for administrative costs (in addition to the swept amount). So…stay tuned. The wheels are still turning, and the KBA remains committed to ending this practice once and for all.