Sovereign immunity of state faces court test

After nearly a decade of having its breach-of-contract claim rejected by the state, an Oklahoma construction company has appealed to the courts and seeks to have the way Arkansas settles its debts ruled unconstitutional.

Attorneys for the state argue that the Arkansas Constitution doesn’t allow the state to be challenged in its own courts and that the Pulaski County Circuit Court where the case was filed has no jurisdiction to consider the claim.

Article 5, Section 20 of the Arkansas Constitution states: “The State of Arkansas shall never be made defendant in any of her courts.” The provision is known as sovereign immunity.

People and businesses may seek compensation through the Arkansas Claims Commission when the state has wronged them. The five-member commission hears claims against the state for such things as property damage, personal injury, breach of contract and refunds.

The Claims Commission recommends to the state General Assembly whether to award money to compensate the claimants, and lawmakers decide which claims are paid. The process is used hundreds of times a year to resolve state debts.

Duit Construction Co. of Edmond, Okla., went through that process.

In 2002, the company bid on and won two contracts totaling $68.7 million with the Arkansas Highway and Transportation Department to reconstruct bridges and overpasses, and to add a lane in both directions to Interstate 30 near Benton and in south Little Rock.

In a brief to the Claims Commission in 2011, Duit wrote that the Highway Department didn’t warn the company of unstable “bad” soil at both sites, which had to be replaced and chemically modified. The unexpected soil condition caused months of delays and increased the cost of the job by $3.48 million, it states.

Duit asked the department twice to reimburse it for the soil costs above what it had originally bid. It said the state should have informed bidders of how poor quality the site soil was and the department should have let the company use certain chemicals to treat the dirt and overcome the quality issue.

The department refused and accused Duit of trying to renegotiate its bid when work was complete. The department said the construction company should have examined the work site before bidding.

The company’s claim was then rejected twice by the Claims Commission. On March 20 it was rejected by the Arkansas Legislative Council’s Claims Review Subcommittee.

On April 19, Duit’s attorney, Jack East of Little Rock, filed an administrative appeal in Pulaski County Circuit Court that named the Claims Commission, the Legislature’s Joint Budget Committee, the state Highway Commission and the Highway Department.

In an amended brief filed Friday, East said the company had exhausted all appeals provided by the General Assembly.

East wouldn’t discuss the appeal Friday. He would not speak about why Duit Construction chose to pursue an administrative appeal.

The appeal points to Arkansas District Court Rule 9(f ), which states that the final decision “of any governmental body or agency” can be appealed to the district court within 30 days if there is no statute that provides a method to appeal the decision. Because the state Capitol is in Pulaski County, that circuit court has jurisdiction over challenges to decisions by the Legislature.

Senior Assistant Attorney General Joe Cordi wrote in a motion to dismiss the case that such a move isn’t legal under the Arkansas Constitution because it violates the sovereign immunity provision. Attorney General Dustin McDaniel’s spokesman Aaron Sadler wouldn’t comment further.

Duit’s appeal has been assigned to Pulaski County Circuit Judge Tim Fox. According to his office, he has not set a hearing date.

Duit wrote in Friday’s brief that the procedure used by the state violates the due process clause of the Fourteenth Amendment to the U.S. Constitution because it does not provide a fair and impartial procedure for settling debts.

East calls the process neither fair nor meaningful and said decisions are based upon irrelevant and unjust factors like how the department’s budget would be affected by awarding the claim.

“The [Claims Commission] and the Arkansas General Assembly are composed of individuals who decide contract claims based upon budgetary considerations and political issues rather than providing claimants a fair, impartial and meaningful hearing for the redress of wrongs,” the appeal states.

Subcommittee Chairman Sen. Robert Thompson, D-Paragould, said agencies are right to bring up how awarding the claim would affect their ability to provide state services.

“It’s taxpayer dollars that would be used to pay the judgment. Whether a particular argument is made doesn’t determine whether the process itself is fair,” he said.

Thompson, an attorney, said Duit is in essence attempting to overturn a budget decision made by the Legislature.

“No system is perfect but the claims process, I think, works well. It preserves the concept of sovereign immunity to preserve the assets of the state for taxpayers but at the same time determining when the state should be liable for certain claims and when those claims should be paid,” Thompson said. “The claims process is not technically a legal action, it’s a budget action. The claims subcommittee is not a court and the budget committee is not a court.”

Thompson said the committee took the claim seriously.

“I think it’s a fair process. The fact that it’s fair does not mean that the claimant always wins but it means the claimant always gets a fair hearing,” he said. “It would really almost make the Legislature irrelevant if the judicial branch can overrule the decisions of a legislative committee.”

Claimants have sought to go around the sovereignty provision through Arkansas courts repeatedly since 1935, though the last such attempt was more than a decade ago.

In 1990, the state Supreme Court rejected a suit over a contract with the state for highway construction in Fireman’s Insurance Company v. Arkansas State Claims Commission, writing that the constitution not only states that Arkansas cannot be sued, “but that all suits against the state were expressly forbidden.”

In a 2000 case, Link v. Arkansas Tech University, the state Supreme Court reversed a trial court’s decision not to dismiss the sovereign immunity case.

University of Arkansas at Little Rock law professor Josh Silverstein said he’s not sure sovereign immunity will be enough of a defense for the state. He teaches commercial law and legal philosophy.

“I’ve never come across anything quite like this,” he said. “This may be a circumstance when sovereign immunity doesn’t apply.”

Silverstein said the provision is used commonly as a defense when someone sues the state for damages, but Duit is trying to reverse a decision made about damages by the Legislature.

“When state and federal governments are sued … sovereign immunity is usually one of the first defenses they raise,” he said. “There is a good chance the court will look past the framing of the case and get to the substance of it.”