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Armor Correctional Health Services Inc. v. The Board of County Commissioners of Oklahoma County

Supreme Court of Oklahoma

June 13, 2017

ARMOR CORRECTIONAL HEALTH SERVICES INC., a Florida corporation, Plaintiff/Appellee,
v.
THE BOARD OF COUNTY COMMISSIONERS OF OKLAHOMA COUNTY, a subdivision of the State of Oklahoma, Defendant/Appellant.

         APPEAL FROM THE DISTRICT COURT OKLAHOMA COUNTY, HONORABLE ROGER H. STUART, TRIAL JUDGE

          Ray Zsciesche and Marc Edwards, PHILLIPS MURRAH P.C., Oklahoma City, Oklahoma for Plaintiff/Appellee,

          Susan Loving and Andrew W. Lester, SPENCER FANE LLP, Edmond, Oklahoma, for Defendant/Appellant.

          REIF, J.

         ¶0 Medical provider sued the Board of County Commissioners of Oklahoma County (County) for payment of medical services provided to prisoners and detainees in the Oklahoma County Jail. County admitted the prisoners and detainees received the medical services in question and that the County had not paid. County resisted the entry of a judgment, however, on the ground that medical provider had not produced sufficient evidence of the availability of funds to pay for the services. The trial court granted summary judgment to medical provider and County appealed. This Court retained the appeal to address the public interest issue of government liability for services mandated by the Oklahoma Constitution.

         ¶1 Armor Correctional Health Services, Inc., sued the Board of County Commissioners of Oklahoma County (County) for payment of medical services provided to prisoners and detainees in the Oklahoma County Jail. County admitted that Armor provided the medical services in question pursuant to a contract for the period January 1, 2014 to June 30, 2014, and an extension of this contract for the period July 1, 2014 to June 30, 2015. County did not dispute the accuracy of Armor's monthly invoices for such services and admitted it had not paid some invoices totaling $3, 302, 297.04.

         ¶2 Despite these admissions, County argued that judgment could not be entered because Armor had not provided proof of the availability of funds as required by 62 O.S.2001, §§ 362 [1] and 363 [2]. In reply, Armor argued that the County's obligation to pay for the medical services to the prisoners and detainees was not a claim founded on contract alone that is subject to the provisions of §§ 362 and 363. Armor also argued that the obligation was not "indebtedness" as addressed in Article 10, § 26 [3] of the Oklahoma Constitution. Armor asserted the County's obligation to pay the medical services provided to prisoners and detainees was incurred in fulfillment of a governmental function mandated by the Oklahoma Constitution. As such, the County's obligation was exempt from Article 10, § 26 as well as §§ 362 and 363.

         ¶3 The trial court ruled that Article 10, § 26 did apply, but that Armor's summary judgment materials made a prima facie case of the availability of funds. The trial court concluded that the burden shifted to the County and that the County's excuse of a revenue failure within the Sheriff's budget did not bar payment. In so ruling, the trial judge said "whenever there's a failure of revenue within a particular department the County Commissioners look to their general revenue and do what they need to do in order to compensate vendors who are out there that they have legal obligations to."

         ¶4 The trial court granted summary judgment to Armor in the amount of $3, 302, 297.04 and County has appealed. We have retained this appeal for de novo review of the summary judgment and the important constitutional issue presented. See Wathor v. Mutual Assurance Administrators, Inc., 2004 OK 2, ¶ 4, 87 P.3d 559, 561. Upon review, we affirm the summary judgment in favor of Armor, albeit for a different reason than given by the trial court.

         ¶5 Article 17, § 2 of the Oklahoma Constitution established the office of sheriff for each of the seventy-seven counties, and Article 25, § 18 prescribed the duties of that office by reference to and incorporation of the duties of that office under territorial law. [4] Smartt v. Board of County Commissioners of Craig County, 1917 OK 590, ¶¶ 3 and 4, 169 P. 1101, 1101. One such constitutional duty imposed upon a sheriff was "[t]he keeping of prisoners confided to his custody." Id. at ¶4, 169. P. at 1102. Performance of this and other constitutionally prescribed duties "are made mandatory because necessary for the protection and well-being of the people composing the state." Id. at ¶ 6, 169 P. at 1102.

         ¶6 In the Smartt case, this Court held that expenses "incurred in the necessary discharge of his duties imposed... by the imperative mandate of law, are not within the limitation imposed by section 26, art. 10." Id. This Court explained this holding by observing that "[i]n many instances the amount necessary for a proper performance of such duties could not be reasonably foreseen, for it is not always possible to tell in advance how much will be required." Id. at ¶ 20, 169 P. at 1104.

         ¶7 Financial obligations for the fulfillment of constitutionally mandated functions are termed "compulsory" debts, as distinguished from those based on contract alone. Board of County Commissioners of Caddo County v. Lawrence, 1938 OK 173, ¶ 11, 78 P.2d 669, 671. The appropriation of funding for such obligations occurs by the "force and vigor" of the Oklahoma Constitution, and does not require further fiscal action to be effective, although the better practice is to observe the formal appropriation process. Edwards v. Carter, 1934 OK 46, ¶¶ 20-21, 29 P.2d 610, 613. The only limitation upon either an appropriation or a judgment directing payment for constitutionally mandated functions is that "the items and amounts are reasonable, proper, and necessary to the conduct of the government in accordance with [the pertinent] constitutional provisions." Little v. County Excise Board of Marshall County, 1932 OK 833, ¶ 9, 16 P.2d 1080, 1082.

         ¶8 Nothing in the record suggests that the medical services provided by Armor for the prisoners and detainees in the Oklahoma County Jail were not "reasonable, proper, and necessary." As those services and the charges therefor were in fulfillment of the sheriff's constitutional duty for "the keeping of prisoners confided to his custody, " Armor is entitled to a judgment in the amount of $3, 302, 297.04.

         AFFIRMED

          CONCUR: COMBS, C.J., KAUGER, WATT, WINCHESTER, EDMONDSON, COLBERT, REIF, and WYRICK, JJ.

          CONCURS IN JUDGMENT: GURICH, V.C.J. (By separate writing.)

          Gurich, V.C.J., concurring in judgment:

         ¶ 1 Although I agree that Armor Correctional Health Services is entitled to judgment in the amount of $3, 302, 297.04 for medical services it provided to the Oklahoma County Detention Center, I reach that conclusion for a different reason. Article 10, § 26 of the Oklahoma Constitution limits a county's ability to become indebted, and provides in relevant part that:

[N]o county, city, town, township, school district, or other political corporation, or subdivision of the state, shall be allowed to become indebted, in any manner, or for any purpose, to an amount exceeding, in any year, the income and revenue provided for such year without the assent of three-fifths of the voters thereof, voting at an election, to be held for that purpose.... [1]

         "The purpose behind this constitutional provision is to force cities and municipalities [and counties] to operate on a cash basis, and to prevent indebtedness extending beyond one year." City of Del City v. Fraternal Order of Police, Lodge No. 114, 1993 OK 169, ¶ 5, 869 P.2d 309, 311.

         ¶2 This Court, however, has exempted certain debts from the purview of Art. 10, § 26 if "the indebtedness arises from a claim based on a constitutional governmental function" pursuant to this Court's decision in Smartt v. Board of County Commissioners of Craig County, 1917 OK 590, 169 P. 1101. [2] However, the Smartt exception, has been "met with a great deal of criticism, " and has "caused considerable confusion" since it was decided in 1917. City of Del City, 1993 OK 169, ¶ 19, 869 P.2d at 314. Rightfully, over the last 100 years, the Smartt exception has been "narrowly construed to avoid allowing the exception to swallow the constitutional rule" against indebtedness extending beyond one year. [3]

         ¶3 In Protest of Kansas City Southern Railway Co., 1932 OK 328, 11 P.2d 500, the Court explained when the Smartt exception should be invoked. In that case, an appropriation had been made for the performance of a constitutional governmental function, specifically "feeding of prisoners in the county jail and the supplies necessary for the maintenance of the county jail, " but such appropriation was insufficient due to unforeseen conditions in revenue collection. The Court stated:

[W]here a county officer, in good faith, requests an appropriation to be made and where the county taxing officials, in good faith, make an appropriation for the conduct of his office and by reason of unforeseen conditions the appropriation so made is insufficient... it is [the officer's] duty to apply to the county taxing officials for a supplemental appropriation for the conduct of his office, and a supplemental appropriation therefor should be made, although to make it requires the transfer of funds from unexpended appropriations theretofore made for other purposes. In the event that no such supplemental appropriation may be made, then and then only does the rule stated in the 'Smart[t]' Case apply.... [4]

         ¶4 The case now before this Court is distinguishable from Smartt, and thus, we need not invoke the exception in this case. In Smartt, the sheriff sought to recover monies from the Board of County Commissioners for expenses incurred for boarding prisoners. The commissioners denied the Sheriff's request because the county's revenue fund had "been exhausted prior to the accrual or presentation" of the sheriff's claim. [5] In other words, in Smartt, the county actually had no funds to reimburse the sheriff. In this case, the record makes clear that Oklahoma County withheld payment to Armor Correctional Health Services not because it lacked the funds to do so. Rather, the County withheld payment after being advised to do so by the District Attorney. [6]

         ¶5 The record reveals that on January 22, 2014, Oklahoma County entered into an Inmate Health Care Services Agreement with Armor Correctional Health Services (Armor) under which Armor provided designated health-related services for inmates of the Oklahoma County Detention Center. On June 25, 2014, the County extended the Agreement for an additional year, effective July 1, 2014, through June 30, 2015 (FY 2014-2015). [7] Under such contract, Armor was to be paid a base compensation, in equal installments in the amount of $7, 360, 638.82. In addition, Armor was entitled to invoice the County for costs incurred by Armor over and above an aggregate limit of $1, 050, 000.00 for hospitalization, off-site, and on-site specialty services, emergency transportation services, and pharmacy costs.

         ¶6 The Armor contract was fully appropriated by the County for FY 2014-2015 and was to be paid in part from the Sheriff's Special Revenue Fund and in part from the County's General Revenue Fund. Armor performed all duties and responsibilities as required under the contract, and until February of 2015, the County paid all invoices submitted to it by Armor for services provided by Armor under the contract. [8] Due to unforeseen circumstances, the Sheriff's Special Revenue Fund had a revenue failure during FY 2014-2015, and Armor stopped receiving payments from the County. When certain county officials became aware that Armor invoices were not being paid, "members of the Budget Board began looking at ways to amend the County Budget to make a supplemental appropriation using available funds of the County to pay the balance due on the contract." [9] However, the District Attorney advised the County to continue to withhold payment, citing Art. 10, § 26 of the Oklahoma Constitution. Armor then sued for breach of contract in the District Court of Oklahoma County to recover payment. [10]

         ¶7 A contract claim against a County is specifically governed by 62 O.S. 2011 ...


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