petition for writ of certiorari, hale v north dakota, no. 12-453 (oct. 10, 2012)

7/31/2019 Petition for Writ of Certiorari, Hale v North Dakota, No. 12-453 (Oct. 10, 2012)

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No. _________

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ROBERT HALE,

Petitioner,

v.

STATE OF NORTH DAKOTA; JACK DALRYMPLE,in his official capacity as Governor of North Dakota;

SHANE GOETTLE, Director, in his official capacity asDirector of the Department of Commerce; NORTH

DAKOTA DEPARTMENT OF COMMERCE; THE MINOTAREA DEVELOPMENT CORPORATION; THE MINOT

CITY COUNCIL (Curt Zimbelman, Larry E. Frey, DavidF. Lehner, Bob Miller, Hardy Lieberg, Dean Frantsvog,

Jim Hatlelid, Chuck Barnes, Tim Greenheck, ScottKnudsvig, Mark Jantzer, Blake Krabseth, Ron Boen,

Lisa Olson, each in his or her official capacities);and THE CITY OF MINOT,

Respondents.

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On Petition For Writ Of CertiorariTo The North Dakota Supreme Court

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PETITION FOR WRIT OF CERTIORARI

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LYNN M. BOUGHEYCounsel of Record

P.O. Box 836Bismarck, ND 58502-0836(701) 751-1485(701) 751-1670 (fax)[email protected]

ANDREW HALE1919 2nd St. SEMinot, ND 58701(701) 858-0800

Attorneys for Robert Hale

================================================================COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831


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QUESTION PRESENTED FOR REVIEW

Whether the North Dakota Supreme Court improper-

ly affirmed the dismissal of Robert Hales action in

light of the assertions in the Complaint that the

economic development program of State of NorthDakota and the City of Minot are both in violation of

due process, equal protection, and the taking clause

and that these programs violate the concerns raised

by Justice Kennedy in his concurrence inKelo v. City

of New London, which are as follows:

1. the risk of undetected impermissible fa-voritism of private parties is so acute that apresumption (rebuttable or otherwise) of in-validity is warranted under the Public Use

Clause. Kelo v. City of New London, 545U.S. 469, 493, 125 S.Ct. 2655, 2670 (2005)(Justice Kennedy, concurring).

2. the transfers are so suspicious, or theprocedures employed so prone to abuse . . .that courts should presume an impermissibleprivate purpose.Kelo v. City of New London,545 U.S. 469, 493, 125 S.Ct. 2655, 2670-71(2005) (Justice Kennedy, concurring).

3. the purported benefits are so trivial or

implausible, that courts should presume animpermissible private purpose. Kelo v. Cityof New London, 545 U.S. 469, 493, 125 S.Ct.2655, 2670-71 (2005) (Justice Kennedy, con-curring).


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TABLE OF CONTENTS

Page

Question Presented for Review ........................... i

Table of Contents ................................................. ii

Table of Authorities ............................................. iv

Citations of the Official Reports of the Opinion .... 1

Concise Statement of the Basis for Jurisdiction ... 1

Constitutional Provisions Involved in the Case .... 2

Statement of the Case ......................................... 3

Argument .................................................. ........... 5

Conclusion............................................................ 34

APPENDIX

July 12, 2012 North Dakota Supreme CourtJudgment ......................................................... App. 1

July 12, 2012 North Dakota Supreme CourtOpinion ............................................................ App. 3

May 11, 2011 State District Court Decision 5-11-11 .............................................................. App. 31

August 24, 2009 Complaint .............................. App. 49

September 11, 2009 Notice of Removal ........... App. 58

March 24, 2010 Order for Remand ................... App. 78

July 8, 2010 North Dakota Department ofCommerce Answers to Requests for Admis-sion ................................................................ App. 89


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TABLE OF CONTENTS Continued

Page

July 13, 2010 Order Granting DefendantsMotion to Dismiss Based on Failure to Statea Claim and Denying Plaintiff s Motion to

Amend Complaint ........................................ App. 101

August 4, 2010 Complaint .............................. App. 104


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TABLE OF AUTHORITIES

Page

CASE LAW

Berman v. Parker, 348 U.S. 26, 75 S.Ct. 98

(1954) ........................................................... 28, 29, 33CBS Outdoor, Inc. v. New Jersey Transit Corp.,

not reported in F. Supp., 2007 WL 2509633(D.N.J. 2007) ........................................................... 32

Eastern Enterprises v. Apfel, 524 U.S. 498, 118S.Ct. 2131 (1998) .....................................................28

Goldstein v. Pataki, 516 F.3d 50 (2nd Cir. 2008) .......32

Hale v. State of North Dakota, 2012 ND 148,818 N.W.2d 684 ................................................... 1, 32

Hawaii Housing Authority v. Midkiff, 467U.S. 229, 104 S.Ct. 2321 (1984) ................ 28, 29, 33

Kelo v. City of New London, 545 U.S. 469, 125S.Ct. 2655 (2005) .............................................passim

MHC Financing, Ltd. v. City of San Rafael, notreported in F. Supp., 2008 WL 440282(N.D.Cal. 2008) .................................................. 33, 34

Western Seafood Co. v. U.S., 202 Fed.Appx.670, 2006 WL 2920809 (5th Cir. 2006) ...................33

Whittaker v. County of Lawrence, 674 F. Supp. 2d668 (W.D.Pa. 2009) ..................................................34

CONSTITUTIONAL PROVISIONS

U.S. Const. Article III, Section 2 of the UnitedStates Constitution ...................................................1

U.S. Const. Amendment V ...........................................2


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TABLE OF AUTHORITIES Continued

Page

U.S. Const. Amendment XIV, Section 1 ................. 2, 31

N.D. Const. Article X, Section 18 ....................... 7, 8, 31

STATUTES

28 U.S.C. 1331 ....................................................... 1, 3

28 U.S.C. 1257(a) .......................................................1

28 U.S.C. 2403(b) .......................................................1

RULES

Rule 10(c) ......................................................................1

Rule 29.4(b) ...................................................................1Rule 29.4(c) ...................................................................1


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CITATIONS OF THE OFFICIAL

REPORTS OF THE OPINION

Hale v. State of North Dakota, 2012 ND 148,

818 N.W.2d 684.

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CONCISE STATEMENT OF

THE BASIS FOR JURISDICTION

The Judgment in this case was entered by the

North Dakota Supreme Court on July 12, 2012. App.

2. Jurisdiction is conferred under 28 U.S.C. Sections

1331 and 1257(a) and Article III, Section 2 of the

United States Constitution. In regards to the applica-

tion of Rule 29.4(b) and Rule 29.4(c), 28 U.S.C. Sec-

tion 2403(b) does not apply because the State ofNorth Dakota is a named party in this matter.

This Court should accept jurisdiction and grant

the petition for certiorari in accordance with Rule 10,

which provides the following:

(c) a state court or a United States court ofappeals has decided an important question offederal law that has not been, but should be,settled by this Court, or has decided an im-

portant federal question in a way that con-flicts with relevant decisions of this Court.

The North Dakota Supreme Court in this case and

several Courts of Appeals have rendered decisions

which conflict with this Courts decision, and more

specifically Justice Kennedys concurrence, inKelo v.

City of New London, 545 U.S. 469, 125 S.Ct. 2655


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(2005). The lower courts are either ignoring Justice

Kennedys concurrence or misinterpreting it to reach

a result that is opposite of Justice Kennedys concur-

rence.

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CONSTITUTIONAL PROVISIONS

INVOLVED IN THE CASE

Due Process Clause and Takings Clause

AMENDMENT V

No person shall be held to answer for a capital, or

otherwise infamous crime, unless on a presentment

or indictment of a grand jury, except in cases arising

in the land or naval forces, or in the militia, when in

actual service in time of war or public danger; norshall any person be subject for the same offense to be

twice put in jeopardy of life or limb; nor shall be

compelled in any criminal case to be a witness

against himself, nor be deprived of life, liberty, or

property, without due process of law; nor shall private

property be taken for public use, without just com-

pensation.

Due Process and Equal ProtectionAMENDMENT XIV

SECTION 1.

All persons born or naturalized in the United States,

and subject to the jurisdiction thereof, are citizens of

the United States and of the state wherein they


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reside. No state shall make or enforce any law which

shall abridge the privileges or immunities of citizens

of the United States; nor shall any state deprive any

person of life, liberty, or property, without due process

of law; nor deny to any person within its jurisdiction

the equal protection of the laws.

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STATEMENT OF THE CASE

This action was initially commenced in state

court on August 24, 2009, by a seven-page Complaint

specifically asserting that the City of Minot and the

State of North Dakota economic development pro-

grams were unconstitutional under both state and

federal constitutional provisions. App. 49-57. RobertHale sued the State of North Dakota and the states

Commerce Department, the City of Minot, and the

Minot Area Development Corporation (MADC), the

entity used by the City of Minot to run its economic

development program. App. 49-51. The City of Minot

removed the action to federal court on September 11,

2009, asserting a federal question under 28 U.S.C.

Section 1331 and an interpretation of the federal

Constitution. App. 58-64. On March 24, 2010, the

federal district court, the Honorable Daniel Hovlandpresiding, ruled that the Complaint did not sufficient-

ly raise a federal question, refused to allow the Com-

plaint to be amended, discussed the interest of

comity, and remanded the matter back to the state

district court. App. 78-88. On July 13, 2010, the state

district court, the Honorable Bruce Haskell presiding,


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dismissed the Complaint without prejudice, stating

that Plaintiff s original Complaint lacks sufficient

specificity to identify what relief and what alleged

violations of the Constitution were committed by the

defendants. App. 101-103, quoted material at App.

102.

On August 4, 2010, the plaintiff Robert Hale filed

a more specific Complaint, now seventy-seven pages

long and providing specificity as to the economic

development programs being conducted by the City of

Minot and the State of North Dakota, and made very

specific references to the actions he alleged were

unconstitutional under the state and federal constitu-

tions providing specific reference to Justice Kennedys

concurrence inKelo v. City of New London. App. 104-230. Hale made a motion for declaratory judgment,

which was treated as a motion for summary judg-

ment. App. 6. The state and MADC made motions to

dismiss and the City of Minot made a motion for

summary judgment. App. 10.

On May 11, 2011, the state district court, the

Honorable David Reich presiding, granted the state

and MADCs motions to dismiss and granted the City

of Minots motion for summary judgment motion,

holding that the states system of economic develop-ment was constitutional and for a public purpose,

thus rejecting Hales state and federal assertion of

constitutional violations. App. 31-48, especially 41-42

and 45-46. The decision of the district court was

appealed, and on July 12, 2012, the North Dakota

Supreme Court affirmed the lower courts decision,


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specifically rejecting Mr. Hales state and federal

assertions of unconstitutionality. App. 3-30, especially

App. 5, 26, 28, and 29.

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ARGUMENT

The salient issue in this case is whether Justice

Kennedys views relating to the constitutional due

process, equal protection, and takings clause limits of

government spending in the realm of economic devel-

opment as contained in his concurrence inKelo v.

City of New London, a concurrence which constituted

the fifth and essential vote for the majority will be

given the force of law or ignored.

The fact that a federal question exists in our viewhas been conceded by the defendants through the

initial removal of the original complaint to federal

court. (The federal district court, the Honorable

Daniel Hovland presiding, found no federal question

under the original complaint and applied an absten-

tion doctrine and sent the matter back to the state

district court. That state court judge dismissed the

action without prejudice, asserting that the six-page

Complaint was not specific enough. Mr. Hale then re-

filed a new seventy-seven page Complaint with twen-

ty-two attachments providing the requested specificity

including a clear assertion of a federal question.)

Justice Kennedys concurrence provides three

specific areas where he opined that there would be a

due process, equal protection, or takings clause


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violation in the government expenditure of funds or a

taking in the realm of economic development plans:

1. the risk of undetected impermissible fa-voritism of private parties is so acute that apresumption (rebuttable or otherwise) of in-

validity is warranted under the Public UseClause. Kelo v. City of New London, 545U.S. 469, 493, 125 S.Ct. 2655, 2670 (2005)(Justice Kennedy, concurring).

2. the transfers are so suspicious, or theprocedures employed so prone to abuse . . .that courts should presume an impermissibleprivate purpose.Kelo v. City of New London,545 U.S. 469, 493, 125 S.Ct. 2655, 2670-71(2005) (Justice Kennedy, concurring).

3. the purported benefits are so trivial orimplausible, that courts should presume animpermissible private purpose. Kelo v. Cityof New London, 545 U.S. 469, 493, 125 S.Ct.2655, 2670-71 (2005) (Justice Kennedy, con-curring).

North Dakota is one of the few states that is not

undergoing huge economic woes. This mid-western

state has been blessed with large oil reserves and

agricultural production that has allowed it to contin-

ue throughout the last ten years and even followingthe recessions of 2008 with a surplus. One of the

results of this economic boon is the receipt of substan-

tial tax dollars and the concomitant decision by the

state government to create and fund from the public

largess (derived from the public by taxation) a

$400,000,000 a biennium economic give-away plan.


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North Dakota has delved into a no-holds-barred,

unaccountable government give-away plan, a reverse

Robin Hood theory of distribution of money received

from taxation and given to private persons, multi-

national corporations, and third-party beneficiaries,

all on the assumption that there is some undocu-mented and notional public good. The state auditor

has concluded that the state, and its political subdivi-

sions through its elected and appointed representa-

tives, are distributing these economic development

funds without accountability and without any proof

that this distribution is in reality for the public good.

Robert Hale, after theKelo v. City of New London

decision was rendered, personally reviewed the

economic development programs being run by theCity of Minot and the state Commerce Department,

spending over 1500 hours looking at the records and

reviewing the actions taken by the City of Minot and

the State of North Dakota. Complaint, Para. 31. Mr.

Hale is a businessman and attorney. Mr. Hale con-

cluded that the State of North Dakota and its politi-

cal subdivisions, particularly the City of Minot where

he resides, were clearly distributing the public funds

in direct contravention of Article X, Section 18 of the

North Dakota Constitution and in violation of thefederal constitution and the concerns raised by Jus-

tice Kennedys concurrence in Kelo v. City of New

London. Mr. Hale received from the State of North

Dakota and the City of Minots own records documen-

tation that supported this view. Mr. Hale sued the

State of North Dakota, the City of Minot, and the


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Minot Area Development Committee alleging both

state and federal constitutional violations.1

Robert Hale asserted facts in his Complaint

(which are taken as true for purposes of the motion to

dismiss that was granted) that indicate that all three

concerns listed by Justice Kennedy exist in the North

Dakota economic development scheme. Mr. Hale, with

direct reference toKelo v. City of New London, specif-

ically alleged the following in his complaint:

History of hiding its activities:

Para. 13: MADC has, in the past, attempt-ed to shield its conduct from public view, as-serting in 2001 that MADC is not a publicentity and is therefore not subject to the

state open records and meetings laws, and

1 Mr. Hale also asserted that the state and political subdivi-sion economic development programs were in violation of the StateConstitution, Article X, Section 18, which provides as follows:

Section 18. The state, any county or city may makeinternal improvements and may engage in any indus-try, enterprise or business, not prohibited by article

XX of the constitution, but neither the state nor anypolitical subdivision thereof shall otherwise loan orgive its credit or make donations to or in aid of any

individual, association or corporation except for rea-sonable support of the poor, nor subscribe to or be-come the owner of capital stock in any association orcorporation.

The North Dakota Supreme Court rejected his argument as tothe proper interpretation of the state constitution; it alsorejected his claims under federal law and the United StatesConstitution. App. 31-48, especially 41-42 and 45-46.


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that it is merely a provider of services to theCity of Minot.

Failure to have safeguards or supervisory controls:

Para. 28: The economic development pro-

gram at issue here cannot survive the test ofhaving a public purpose due to the fact thatthe state and City programs fail to incorpo-rate proper safeguards to assure that the ac-tivity has a public purpose, fail to providesufficient details in the manner of imple-menting the activity, and fail to provide forsupervisory controls to [ensure] that a publicpurpose is met.

Complete failure to determine if terms of loan met:

Para. 31(d): In regards to the Magic Fund,while the conditions for the above type ofloans required meeting the employee figurethere was NO review by anyone to see theemployee figure was reached prior to forgiv-ing the loan.

Complete failure to determine if terms of loan met:

Para. 31(e): In regards to the Magic Fund,other loans were granted conditioned uponthe entity achieving a certain number of em-

ployee growth as a condition of being grantedportions of the loan. However, as with theabove loans it was routine to NOT checkwhether these goals have been met. Instead,loans were extended or forgiven routinelywithout any checks and regardless of whether


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or not the entity met the contractual re-quirements of the contractual agreement.

Operating guidelines not followed:

Para. 31(f): In regards to the Magic Fund, I

personally challenged these practices. In do-ing so I pointed out the Guidelines that hadbeen established for the operation of theMagic Fund. I was repeatedly told that thedocumentation I referred to were simplyguidelines and they did not have to be fol-lowed. I was told this by the City FinanceDirector Bob Frantzvog, and Mayor CurtZimbleman.

Incorrect records and intentional exaggeration of job

created:

Para. 31(g): The Magic Fund did providejob creation numbers. However, upon re-view of the actual job creation count it wasdiscovered that the job creation count wasnever accurate. In fact, the jobs claimed wereoverstated, in some cases by a factor of 10.

Majority of businesses receiving public money quickly

went out of business:

Para. 31(h): In regards to the Magic Fund,the majority of public tax money provided toMagic Fund recipients ended up going to en-tities that quickly went out of business.


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Failure to have any process to collect loan money when

due:

Para. 31(i): The Magic Fund had no processin place to follow up and collect loan pay-ments when due. Those owing money to the

Magic Fund in accord with their contracts,when they did not meet the contractualterms, were ignored and generally no collec-tion efforts were made. Only after I broughtthis to the attention of the public did any-thing begin to happen so collection was initi-ated. This effort was feeble at best.

Business that failed to meet employment goals given

more money:

Para. 31(n): In one instance a recipient Infotech was granted a loan conditioned onreaching employment goals. When it failed tomeet those goals the money was providednone-the-less. When this was brought to theattention of the City the company was re-quested to give the money back. Followingthis the Magic Fund Committee met anddispensed with the conditions and gave theentity the money even though it failed tomeet its contractual obligations.

Favoritism condoned and allowed:

Para. 33: Many of the loans and/or grantswere given to entities that were connectedwith or part of the committee that was re-sponsible for handing out the money.


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Lack of oversight and conditions ignored:

Para. 34: The entity (MADC/City of Minot)provided either NO oversight to ensure com-pliance with the terms and conditions of theloans and/or grants or routinely ignored both

and continued to give money to private enti-ties and individuals even when the entitiesfailed to meet the agreed conditions requiredto receive the money.

Guidelines routinely ignored:

Para. 35: While there were guidelines es-tablished intended to see that oversight andlimitations were placed on the use of thepublic funds EVERY guideline was inten-tionally violated over and over. The responsegiven when this practice was questionedwas, they are just guidelines not require-ments.

Listing of job creation number inaccurate and exag-

gerated:

Para. 36: The requirement to monitor thenumber of jobs impacted was ignored. Thenumbers that were reported upon verifica-tion efforts and analysis were consistently

OVER STATED, inaccurate or never moni-tored. The end result to date after 19 yearsof operation of the Magic Fund is there isabsolutely no reliable data as to whether ornot the expenditure of more than $30 millionin taxpayer funds provided any measurablebenefit to anyone.


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Money to friends of those distributing the money:

Para. 37: The Magic Fund has cost taxpay-ers more than $30,000,000. Many millionswent to entities that went out of business. Asignificant amount of the money went to

friends of those overseeing the distribution ofthe money.

Mr. Hales attempts to fix accountability problems and

continuation of these problems:

Para. 55: Mr. Hale attempted to assist theCity in developing true accountability in re-gards to the expenditure of public fundsthrough the Magic Fund, particularly in re-gards to determinations whether the compa-nies or individuals receiving those fundsactually fulfilled their contractual obliga-tions relating to receiving those funds, par-ticularly before providing that person orentity even more Magic Funds money. At-tachment 15 Hale Review of MADC Ac-countability Problems. Unfortunately, asshown by public articles throughout 2008and a recent article in 2009, it is clear thatthe Magic Fund has failed entirely to createtrue accountability in regards to the MagicFund.Attachment 16 Minot Daily NewsArticles on Accountability.

Documentation provided with Complaint of accounta-

bility problems:

Para. 56: These accountability problemsare well demonstrated by City of Minotshandling of the InfoTech debacle (though


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other examples can be cited). According tothe contract with InfoTech (dated March 26,2007, after the City had paid out the money!),the City of Minot would pay $200,000 at timeof closing as a cash grant and the remaining$200,000 as a forgivable loan based at the

rate of $13,333.33 for each full-time employ-ee when the loan conditions are met. At-tachment 13 at 13.20 to 13.24, terms at13.21, date at 13.23. Cindy Hemphill, thecity finance director, noted on the authoriza-tion for check no. 194175 paid February 9,2007, that the check is an Early Check.At-tachment 13 at 13.16. Only after RobertHale raised the issue of whether InfoTechhad fulfilled its obligations did the City rec-ognize that the agreement had beenbreached. Attachment 13 InfoTech Docu-ments at 13.32 & 13.39. Despite notifyingInfoTech that it owed the City of Minot mon-ey for non-fulfillment of its agreement, theCity eventually wrote-off and forgave theloan. InfoTech was much more than one em-ployee short; indeed, InfoTech never hadenough employees to comply with any of itscontractual obligations, listing employeesthat lived in New York or were no longer em-ployed at the contingent date at issue. At-tachment 13 InfoTech Documents at13.32 to 13.43, and particularly Employ-ee Count charts at 13.33 and 13.43. Seealso Attachment 1 Affidavit of RobertHale 3(M) at 1.3 Affidavit of RobertHale.


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Press reports provided with Complaint that showed

accountability problems exist and continue to be

uncorrected:

Para. 57: As is clear from the subsequentpress reports, the city continues to fail to re-

quire accountability of the recipients of pub-lic funds or even demand compliance of thecontractual obligations of the persons orentities receiving public funds, as shown bythe following examples:

a. The Magic City Council often hasapproved MAGIC Fund assistancewithout having a written contractto review, which is contrary to theguidelines, said Cindy Hemphill,

city finance director. Minot DailyArticle, Attachment 16 at 16.1.

b. Hemphill said in certain cases, de-velopment agreements have beennegotiated after council approval,and in one instance, a contractdidnt come to her office until a fewmonths after council approval.Minot Daily Article, Attachment16 at 16.1

c. The Minot MAGIC Fund needs todo more to oversee projects andmonitor the finances of Minot AreaDevelopment Corp., according to areport from the funds screeningcommittee. Minot Daily Article,Attachment 16 at 16.2.


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d. A city committee reviewing MAGICFund operating procedures decidedTuesday that not much needs to bechanged. Minot Daily Article, At-tachment 16 at 16.3.

e. The discussion centered around thecontract enforcement earlier thisyear when InfoTech came one em-ployee short of meeting the em-ployment target necessary to haveloan forgiveness. Minot Daily Ar-ticle, Attachment 16 at 16.3.

f. The council ultimately adjusted theemployment target to bring InfoTechinto retroactive compliance. Minot

Daily Article, Attachment 16 at16.3.

Accountability problems with the State-run system

shown to lack accountability through the State Audi-

tors own report and failure to have public purpose

due to no economic impact:

Para. 58: The issue of accountability (or thelack thereof) as it relates to the Departmentof Commerce is a matter of record. Accordingto the Performance Audit Review No. 3027

conducted by the North Dakota State Audi-tor dated August 11, 2009, each of the vari-ous divisions dealing with economicdevelopment has major accountability flaws:

Centers of Excellence Accountabil-ity We determined the application pro-cess and monitoring of the Centers of


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Excellence has not provided adequateaccountability for the use of state funds.No determination has been made as towhether the Centers of Excellence arehaving the desired economic impact asrequired by state law. There is a lack of

formal policies and procedures for theapplication process, evaluating applica-tions, monitoring Centers of Excellence,and matching requirements. . . .

Monitoring Department OperationsWe determined that the Department ofCommerce has not established an ade-quate system for monitoring departmentoperations. We identified improvementsare needed to have an effective depart-

ment-wide monitoring function. Changesare needed with the monitoring of grantand loan programs to improve efficien-cies and effectiveness. . . .

Development Fund, Inc. Our reviewof the Development Fund, Inc. identifiedimprovements are needed. Improve-ments are needed to ensure policies arereviewed, updated, and complied with.There is a lack of documentation regard-

ing the monitoring activities takingplace with investments. In addition, weidentified improvements are neededwith the authority granted to staff, com-plying with open meeting requirements,and establishing a Code of Ethics.


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Agricultural Products UtilizationCommission Our review of the Agricul-tural Products Utilization Commission(APUC) grant program identified im-provements are needed. We identifiedchanges are necessary to ensure compli-

ance with North Dakota AdministrativeCode. Improvements are needed to en-sure policies are reviewed, updated, andcomplied with. Changes in monitoringare necessary to improve efficiencies andeffectiveness. A Code of Ethics should beestablished.

Attachment 17 State Auditors Perfor-mance Audit Review No. 3027 at 17.5(Executive Summary).

Examples of lack of accountability by the State con-

tained in the State Auditors report and failure to

have public purpose due to no economic impact:

Para. 59: According to the PerformanceAudit Review No. 3027 conducted by theNorth Dakota State Auditor dated August 11,2009, the following accountability concernswere specifically noted as to the states Cen-ters of Excellence program:

a. For example, supporting documen-tation included by a Center of Excel-lence did not agree with the reportedamounts. We also indentified con-cerns with the accuracy of certainnumbers within the economic im-pact report.Attachment 17 at 17.7.


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b. For example, the Commission is toconsider 9 elements such as whetherthe Center of Excellence will createhigh-value private sector employ-ment opportunities in the state, lev-erage other funding, and become

financially self-sustaining. The Cen-ters of Excellence Commission hasestablished no formal policies re-garding how applications are to beapproved and disapproved. At-tachment 17 at 17.10.

c. The Centers of Excellence Commis-sion has statutory authority to con-tract for independent, expert reviewof applications to determine wheth-

er proposed Centers of Excellenceare viable and whether they arelikely to have the desired economicimpact. No such technical reviewshave been performed on Center ofExcellence applications. Attach-ment 17 at 17.11.

d. In our review of aspects of the Cen-ters of Excellence, we identified non-compliance issues related to statelaw, noncompliance with reportingrequirements, and indications ofCenters of Excellence not meetingexpectations. For example:

Centers of Excellence fundsappear to have been used tosupplant current operationswhich is prohibited by state law.


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When reporting information inthe functional review, Centersof Excellence are required to at-tach support to corroborate re-ported contributions. In certainfunctional reviews, we identi-

fied a lack of support and sup-port which was not consistentwith reported amounts.

One Center of Excellence ap-plication projected job creationof 35-38 private sector positions.Based on information providedby the Centers of Excellence, atotal of one private sector joband six positions at the univer-

sity have been created in thethree year span of the project.

One Center of Excellence re-ceived their total approvedamount of $2 million in May2006. Information in the 2008functional review identified only$2.7 million in matching fundshad been obtained ($4 millionrequired).

Attachment 17 at 17.17.

In response to the City of Minots motion for

summary judgment, on October 25, 2010, Hale pro-

vided specific factual information relating to the lack

of accountability and his assertion that the public

monies were going to private instead of public uses in


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contravention of Justice Kennedys concurrence in

Kelo v. City of New London:

4. I [Robert Hale] have personally spentmore than 1,500 hours going throughthe records of the Minots Magic Fund

over the last twenty years. I have per-sonally reviewed virtually every file,read every document contained in thefiles, and performed analysis of theagreements, the correspondence and thedistribution of local option sales tax dol-lars that have been distributed to recipi-ents of Magic Fund Applicants.

5. In regards to the Magic Fund, based onmy review of the public records and serv-

ing on a committee regarding the MagicFund, I am able to confirm the following:

A. A significant amount of the local op-tion sales tax money that was col-lected and distributed to MagicFund Recipients was given as out-right grants. That is it was givenwith no strings attached and no re-quirement or expectation that any ofthe money ever be returned to thepublic treasury.

B. A significant amount of the local op-tion sales tax money that was col-lected and distributed was donethrough loans to private individuals,corporations or associations. Theseloans took numerous forms. Somewere conditional loans, that is, they


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were loans that stated if certainconditions were met (generally thatthe entity receiving the loans ob-tained a certain employment num-ber by a particular date the loanwould be forgiven).

C. While the conditions for the abovetype of loans required meeting theemployee figure there was NO re-view by anyone to see the employeefigure was reached prior to forgivingthe loan.

D. Other loans were granted and/orconditioned upon the entity achiev-ing a certain number of employee

growth as a condition of beinggranted portions of the loan. How-ever, as with the above loans it wasroutine to NOT check whether thesegoals have been met. Instead, loanswere extended or forgiven routinelywithout any checks and regardlessof whether or not the entity met thecontractual requirements of theagreement.

E. I personally challenged these prac-

tices. In doing so I pointed out theGuidelines that had been estab-lished for the operation of the MagicFund. I was repeatedly told that thedocumentation I referred to weresimply guidelines and they did nothave to be followed. I was told this


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by the City Finance Director BobFrantzvog, and Mayor CurtZimbleman.

F. One of the most important elementsof the Magic Fund was creation of

jobs. To that end it was the respon-sibility of the Magic Fund operationto monitor the jobs created as a re-sult of grants, loans, rent payment,property tax abolition, loan guaran-tees, and infrastructure provided bythe Magic Fund. The Magic Funddid provide job creation numbers.However, upon review of the actual

job creation count it was discoveredthat the job creation count was

never accurate. In fact, the jobsclaimed were overstated (but neverunderstated or accurate), in somecases they were overstated by a fac-tor of 10.

G. The majority of public tax moneyprovided to Magic Fund recipientsended up going to entities thatquickly went out of business.

H. The Magic Fund had no process in

place to follow up and collect loanpayments when due. Those owingmoney to the Magic Fund in accordwith their contracts, when they didnot meet the contractual terms,were ignored and generally no col-lection efforts were made. Only after


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I brought this to the attention of thepublic did anything begin to happenso collection was initiated. This ef-fort was feeble at best.

I. In other cases some entities re-

turned again and again to take pub-lic money to support purely privateinvestment of local persons who hadthe good fortune to be awarded taxfunds collected from their neighborsto fund their investment schemes.

J. Magic Fund money went to some ofthe largest corporations in theworld. One was to ING, which hasrecently been listed as the 8th larg-

est corporation in the world. Almost$100,000, went to Northrup Grum-mond one of Americas largest de-fense contractors.

K. The Minot Area Development Cor-poration (MADC) is a quasi-privateentity. I say quasi because the ma-

jority of the money it received to fundits operation comes directly from tax-payer dollars. The purpose of this en-tity is to funnel money to entities that

make application for taxpayer moneyderived from a 1% local option salestax. MADC is an agent acting solelyfor the benefit of distribution of publictax money to private individuals, en-tities, businesses, corporations and/orassociations.


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L. MADC is the exclusive conduit usedby entities attempting to access tax-payer funds (Magic Fund Dollars)for their businesses, enterprises ororganizations. MADC collects appli-cations, performs reviews of re-

quests, negotiates contracts withand then presents the request to theMinot City Council for funding forthose entities that in its sole discre-tion, it believes should receive tax-payer funding. In many cases thisfunding is in the form of outrightgrants; in some cases it is in theform of a fully forgivable loan. Insome cases the loan distribution isbased upon the applicant meetingcertain employment goals.

M. In one instance a recipient Infotech was granted a loan con-ditioned on reaching employmentgoals. When it failed to meet thosegoals the money was provided none-the-less. When this was brought tothe attention of the City the compa-ny was requested to give the moneyback. Following this the Magic Fund

Committee met and dispensed withthe conditions and gave the entitythe money even though it failed tomeet its contractual obligations.

Doc. No. 53. This affidavit, along with the facts

alleged in the Complaint and the documents attached

to the Complaint, raised a material factual dispute


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26

that the economic development scheme used by North

Dakota and one of its political subdivisions created

the risk of undetected impermissible favoritism of

private parties, indicated that the transfers are so

suspicious, or the procedures employed so prone to

abuse, demonstrated and that the purported bene-fits are so trivial or implausible.

Mr. Hale explicitly alleged violations of the

taking clause, as well as the due process rights and

equal protections in his Complaint. Para. 66-67. Mr.

Hale also specifically quoted Justice Kennedys con-

currence in Kelo v. City of New London case. Para.

66(m) footnotes 38-39, Para. 67(h) footnote 40, and

Para. 67(j) footnote 41.

Mr. Hale alleged in his Complaint explicitlyapplying Justice Kennedys standards that the

States economic development scheme violates due

process and is truly irrational:

given the facts and the state constitutionalprohibition for giving away money derivedfrom taxes to individuals, associations, orcorporations except for the reasonable sup-port of the poor, it is our view that this is acase in which the transfers are so suspi-

cious, or the procedures employed so prone toabuse, or the purported benefits are so trivialor implausible, that courts should presumean impermissible private purpose.

Complaint Para. 68 (emphasis deleted), quoting

Justice Kennedy in Kelo v. City of New London, 545


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U.S. 469, 493, 125 S.Ct. 2655, 2670-71 (2005) (Justice

Kennedy, concurring).

Mr. Hale also alleged an equal protection claim,

asserting the following:

The States economic development programviolates equal protection because RobertHale does not receive such gifts and otherpersons do. The states program of givingeconomic development money to individuals,associations, and corporations discriminatesagainst every individual, association, andcorporation that does not receive such gifts.Because the program is so prone to abuseand the purported benefits are so trivial orimplausible there is a presumption that

there is an impermissible private purpose.

Complaint Para. 66.

In regards to Mr. Hales allegations relating to

impermissible favoritism, Mr. Hale quoted the follow-

ing language of Justice Kennedys concurrence:

40. Justice Kennedy, in his concurrence(the necessary 5th vote) in Kelo v. City of

New London, indicated that a higher stan-dard of review might be appropriate when an

economic development program allows im-permissible favoritism:

My agreement with the Court that apresumption of invalidity is not war-ranted for economic development tak-ings in general, or for the particulartakings at issue in this case, does not


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foreclose the possibility that a morestringent standard of review than thatannounced in Berman [Berman v. Par-

ker, 348 U.S. 26, 75 S.Ct. 98, 99 L.Ed. 27(1954)] and Midkiff [Hawaii Housing

Authority v. Midkiff, 467 U.S. 229, 241,

104 S.Ct. 2321, 81 L.Ed.2d 186 (1984)]might be appropriate for a more narrow-ly drawn category of takings. There maybe private transfers in which the risk ofundetected impermissible favoritism ofprivate parties is so acute that a pre-sumption (rebuttable or otherwise) ofinvalidity is warranted under the PublicUse Clause. Cf. Eastern Enterprisesv. Apfel, 524 U.S. 498, 549-550, 118 S.Ct.2131, 141 L.Ed.2d 451 (1998) (KEN-NEDY, J., concurring in judgment anddissenting in part) (heightened scrutinyfor retroactive legislation under the DueProcess Clause). This demanding level ofscrutiny, however, is not required simplybecause the purpose of the taking is eco-nomic development.

Kelo v. City of New London, 545 U.S. 469,493, 125 S.Ct. 2655, 2670 (2005) (JusticeKennedy, concurring).

Complaint Para. 67(h), footnote 40.

In regards to Mr. Hales allegations relating the

program beingprone to abuse or where thepurported

benefits are so trivial or implausible that would create

a presumption that there is an impermissible private


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purpose, Mr. Hale quoted the following language of

Justice Kennedys concurrence:

41. Justice Kennedy, in his concurrence(the necessary 5th vote) in Kelo v. City of

New London, also indicated that where the

procedures employed in an economic devel-opment program are so prone to abuse orwhere the purported benefits are so trivialor implausible that there is a presumptionthat there is an impermissible private pur-pose:

This is not the occasion for conjec-ture as to what sort of cases might jus-tify a more demanding standard, but itis appropriate to underscore aspects of

the instant case that convince me nodeparture from Berman [Berman v.Parker, 348 U.S. 26, 75 S.Ct. 98, 99L.Ed. 27 (1954)] and Midkiff [Hawaii

Housing Authority v. Midkiff, 467 U.S.229, 241, 104 S.Ct. 2321, 81 L.Ed.2d186 (1984)] is appropriate here. Thistaking occurred in the context of a com-prehensive development plan meant toaddress a serious citywide depression,and the projected economic benefits of

the project cannot be characterized asde minimis. The identities of most ofthe private beneficiaries were unknownat the time the city formulated itsplans. The city complied with elaborateprocedural requirements that facilitatereview of the record and inquiry intothe citys purposes. In sum, while there


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may be categories of cases in which thetransfers are so suspicious, or the pro-cedures employed so prone to abuse, orthe purported benefits are so trivial orimplausible, that courts should pre-sume an impermissible private pur-

pose, no such circumstances are presentin this case.

Kelo v. City of New London, 545 U.S. 469,493, 125 S.Ct. 2655, 2670-71 (2005) (JusticeKennedy, concurring).

Complaint Para. 67(j), footnote 41; Complaint Para.

68, footnote 42; Para. 69.

In regards to Mr. Hales allegations that the

procedures employed by the State of North Dakota

and its subdivisions in their economic development

programs are so prone to abuse and that the pur-

ported benefits are so trivial or implausible, Mr.

Hale specifically referred to Justice Kennedys lan-

guage contained in his concurrence:

Plaintiff Robert Hale asserts that giventhe facts and the state constitutional prohibi-tion for giving away money derived fromtaxes to individuals, associations, or corpora-

tions except for the reasonable support of thepoor, it is our view that this is a case inwhich the transfers are so suspicious, or the

procedures employed so prone to abuse, or thepurported benefits are so trivial or implausi-ble, that courts should presume an impermis-

sible private purpose. Quoting JusticeKennedy inKelo v. City of New London, 545


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U.S. 469, 493, 125 S.Ct. 2655, 2670-71 (2005)(Justice Kennedy, concurring).

Complaint Para. 68, footnote 42.

The Defendants brought motions to dismiss the

action asserting, among other things, that JusticeKennedys concurrence inKelo v. City of New London

was not the law of the land and that there is no due

process violation or equal protection violation even if

the allegations brought by Mr. Hale in his Complaint

were true (such allegations being deemed to be true

for purposes of a motion to dismiss). The North

Dakota Supreme Court did so despite the fact that

Mr. Hale in his Complaint alleged and provided

documentation demonstrating the specific violations

described in Justice Kennedys concurrence.

The North Dakota Supreme Court, in its decision

below, has basically concluded that there are no

constitutional limits on what the government (state

or political subdivisions) do with funds derived from

taxation and other government revenue devices.

We decline Hales invitation to conclude eco-nomic development does not satisfy the pub-lic purpose requirements of the gift clause of

the state constitution and the due processclause of the 14th Amendment of the UnitedStates Constitution, and we hold authorizedeconomic development programs satisfy thepublic purpose component of N.D. Const. art.

X, 18 and the due process clause of the14th Amendment.


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Hale v. State of North Dakota, 2012 ND 148, 35, 818

N.W.2d 684, 696.

Other courts have failed to apply Justice Kenne-

dys analysis and concerns. In citingKelo, the lower

courts have primarily relied on Justice Kennedys

concurrence to justify programs and create a pre-

sumptionof validity, while at the same time ignoring

the concerns and possible violations raised in Justice

Kennedys concurrence. In Kelo, Justice Kennedy

noted that the lower court had carefully looked into

the facts; and yet in the post-Kelo cases, the lower

courts have repeatedly refused to look into the facts

or in some case even allow the complainants the

opportunity to conduct discovery. Focusing specifical-

ly on Justice Kennedys presumption that the gov-ernments actions were reasonable and intended to

serve a public purpose, the lower courts have turned

this presumption into an automatic presumption in

favor of government action, concluding that an alle-

gation that the purported purposes are dubious are

insufficient for judicial consideration without an

allegation that the actual purpose is to bestow a

private benefit. CBS Outdoor, Inc. v. New Jersey

Transit Corp., not reported in F. Supp., 2007 WL

2509633 at page 15 (D.N.J. 2007). Some lower courtshave acknowledged Justice Kennedys heightened

review language but then applied a rational basis

standard, lowering the bar to the point that any

reason given meets public purpose standards.

Goldstein v. Pataki, 516 F.3d 50, 64 n.10 (2nd Cir.

2008). Also, lower courts do not analyze the facts


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under Justice Kennedys stricter review standard

once the government entity claims any purported

public benefit, even when money and land is given to

a private developer who helped put together the

economic development plan for the city. Western

Seafood Co. v. U.S., 202 Fed.Appx. 670, 675, 2006 WL2920809 pages 4-5 (5th Cir. 2006) (We decline to

address whether a heightened standard is necessary

in certain cases because the facts in the instant case

do not warrant it.).

Justice Kennedy noted significantly inKelo that

a court shown a plausible accusation of impermissible

favoritism should treat it seriously. However, lower

courts have blithely overcome any plausible evidence

brought by the plaintiffs as soon as the governmententity uses the shibboleth public benefit and claims

a public benefit that justifies the taking bestowing a

private benefit. MHC Financing, Ltd. v. City of San

Rafael, not reported in F. Supp., Para. 115, 2008 WL

440282 page 18 (N.D.Cal. 2008) (when the legisla-

ture has spoken, the public interest has been declared

in terms well-nigh conclusive, quotingBerman v.

Parker, 348 U.S. 26, 32, 75 S.Ct. 98 (1954)).2 Another

2 To succeed on this claim, MHC must prove by a prepon-derance of the evidence that the circumstances surrounding theOrdinances enactment make clear that the proffered publicpurposes asserted as justification for the Ordinance are palpa-bly without reasonable foundation, seeMidkiff, 467 U.S. at240, or that the City imposed the Ordinance under the merepretext of a public purpose, when its actual purpose was tobestow a private benefit, see Kelo, 545 U.S. at 478. MHC

(Continued on following page)


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lower court held a taking which violates state law

does not violate due process under Kelo and that

there is no federal recourse to force a state to enforce

its own laws as long as it is not violating federal law.

Whittaker v. County of Lawrence, 674 F. Supp. 2d 668,

684 (W.D.Pa. 2009) (a complaint must contain alle-gations indicating that the challenged taking was not

rationally related to a conceivable public purpose in

order to state a claim for relief under the Public Use

Clause.).

Simply put, Justice Kennedys concurrence and

the concerns he raised and the analysis he suggested

are being ignored and generally disregarded by the

lower courts.

------------------------------------------------------------------

CONCLUSION

The Petitioners respectfully request this Court to

accept certiorari and, upon the matter being submit-

ted to the Court, reverse the North Dakota Supreme

Court by finding that the Complaint and the facts

alleged therein (taken as true for purposes of a mo-

tion to dismiss) raises actionable issues and viola-

tions of due process, equal protection, and the taking

Financing, Ltd. v. City of San Rafael, not reported in F. Supp.,Para. 124, 2008 WL 440282 page 19 (N.D.Cal. 2008) (emphasisadded).


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clause and should be determined on the merits by the

trial court.

Dated this 10th day of October, 2012.

Respectfully submitted,

LYNN M. BOUGHEYCounsel of Record

P.O. Box 836Bismarck, ND 58502-0836(701) 751-1485(701) 751-1670 (fax)[email protected]

ANDREW HALE1919 2nd St. SEMinot, ND 58701(701) 858-0800

Attorneys for Robert Hale