Use of County Funds for Payment of District Attorney’s Outside Legal Fees; Separation of Powers
Kleinbard LLC v. Office of Dist. Att’y of Lancaster Cty., 2023 WL 3065855 (Pa. Cmwlth.) (unreported), allocatur granted Oct. 31, 2023, appeal docket 101 MAP 2023
Kleinbard, LLC, a private law firm, filed a complaint in mandamus, breach of contract, unjust enrichment, and tortious interference against several Lancaster County officials seeking payment of unpaid legal fees incurred as a result of Kleinbard’s litigation of a lawsuit on behalf of former Lancaster County District Attorney Craig Stedman against certain Lancaster County Commissioners alleging the Commissioners inhibited Stedman’s use of District Attorney funds. Commonwealth Court summarized the background leading up to Kleinbard’s suit against the Lancaster County District Attorney’s Office, Lancaster County District Attorney Heather Adams (DA Adams); the Lancaster County Board of Commissioners (Commissioners), the County Solicitor, and the County Controller (collectively, the County or Appellees), as follows:
In early March 2019, the former Lancaster County DA Craig Stedman (Stedman) signed an engagement agreement with the private law firm, Kleinbard, to represent him in his official capacity as Lancaster County DA, “in connection with matters related to him performing his duties, tasks and responsibilities as DA.” (Reproduced Record (R.R.) at 41a-43a.) The legal services rendered by Kleinbard related to a lawsuit filed in this Court’s original jurisdiction by Stedman in his official capacity as Lancaster County DA against several of the Appellees here (Stedman Lawsuit). (R.R. at 15a, ¶ 22; 45a-117a.) The Stedman Lawsuit, filed against inter alia, the Commissioners and Pennsylvania Attorney General, was based on Stedman’s allegations that the Commissioners were attempting to inhibit his use of funds exclusively committed to his control. On November 20, 2019, following argument before an en banc panel, this Court decided, without reaching the merits of the case, that the Attorney General was not an indispensable party to the Stedman Lawsuit and, accordingly, transferred the matter to the Court of Common Pleas of Lancaster County. See Stedman v. Lancaster County Board of Commissioners, 221 A.3d 747 (Pa. Cmwlth. 2019).
Shortly after Stedman engaged Kleinbard, the Commissioners issued a public letter on March 27, 2019, announcing they would not approve payment of fees incurred by Stedman or the DA’s Office resulting from the Stedman Lawsuit, specifically including any fees for Kleinbard’s legal services. (R.R. at 22a, ¶ 46; 100a-02a)
From March 2019 through December 2019, Kleinbard performed legal services for Stedman and the DA’s Office. In December 2019, with the case still pending, Stedman, who was due to resign to assume a judgeship, submitted a voucher to the Controller for payment of Kleinbard’s services in the amount of $74,193.06, which included fees, costs and expenses incurred while litigating the Stedman Lawsuit. Stedman maintained that he had the necessary funds in his budget to pay Kleinbard’s legal fees. Specifically, he identified the following three sources of funds under his purview and control, as DA, from which Kleinbard’s legal fees should be paid: (1) the DA’s annual $5,000 budget for legal fees; (2) the DA’s Office’s drug/alcohol diversionary program account; and (3) the DA’s Office’s bad check restitution program account (Program Accounts).
The Commissioners refused to approve payment, and newly sworn-in DA Adams subsequently discontinued the Stedman Lawsuit.
Slip op. at 2-3. Kleinbard filed suit in the Lancaster Court of Common Pleas seeking payment of its legal fees, alleging that it could be paid by the funds that had accumulated in the Program Accounts because they are not taxpayer funds that are drawn from the County Treasury. The County filed preliminary objections, arguing, inter alia, that the engagement agreement between Stedman and Kleinbard was invalid to the extent Stedman agreed to pay Kleinbard an amount that exceeded the $5,000 budget for attorney fees. The trial court ordered the County to pay Kleinbard $5,000 (the amount budgeted by the County for legal fees), but sustained the County’s preliminary objections as to the remainder of the fees owed. The trial court held that under Yost v. McKnight, 865 A.2d 979 (Pa. Cmwlth. 2005) (holding that a district attorney may only enter into contracts “for those services for which he has funds in his budget. Otherwise, he must request that the Commissioners appropriate such funds for his use.”), Stedman was limited to the County’s $5,000 budget in contracting for legal services. Commonwealth Court summarized the trial court’s decision as follows:
The trial court found that the engagement agreement, although valid, was not enforceable because the DA’s Office had only $5,000 to disburse for legal fees in 2019, because that was the amount budgeted for and appropriated by the Commissioners for that year. In the trial court’s view, Stedman sought to spend more money than was appropriated to him for legal fees, and he was therefore required to follow Section 1773 of the County Code’s requirements for requesting supplemental appropriations from the Commissioners. The trial court found that Stedman lacked any statutory authority to transfer funds from any other line item of his budget to exceed the legal fee appropriation limit of $5,000. The trial court observed, were the DA unilaterally able to make supplemental appropriations, which in effect would exceed his legal fee appropriation limit, he would be invading the legislative prerogative of the Commissioners. The trial court further found that it was incumbent upon Kleinbard to know the limitations of the DA’s authority, in this case, that Stedman was operating within an assigned budget by the Commissioners. The court reasoned that Kleinbard was informed early on that the Commissioners would not authorize payment of its fees, and proceeded at its own peril by continuing to perform pursuant to the engagement agreement.
Slip op. at 4-5. Kleinbard appealed, arguing that (1) the trial court erred when it applied Section 1773 of the County Code to DA-controlled accounts because the monies in those accounts are not appropriated from the County Treasury via the budget process, and thus are not subject to the Commissioners’ discretion; (2) the trial court misconstrued Yost v. McKnight, 865 A.2d 979 (Pa. Cmwlth. 2005), and related case law because, unlike in Yost, Stedman sought to draw monies from DA-controlled funds and therefore did not ask the Commissioners for additional monies from the County Treasury; and (3) the trial court’s holding violated separation of powers principles by allowing the Commissioners to interfere with a DA’s right to spend monies within his budget.
Commonwealth Court agreed with the trial court that because DA Stedman could not unilaterally exceed the $5,000 budget for legal fees set by the County, the fee agreement with Kleinbard was void. The court rejected Kleinbard’s arguments that the fees could be paid from outside the County Treasury, reasoning that:
First, Kleinbard’s argument ignores that Stedman could not, pursuant to Section 1773(b), enter into a contract that exceeded the $5,000 line-item appropriation for legal fees. The fact that there may have been money elsewhere to pay the invoice is beside the point. The point rather is that Stedman could not enter into the contract to the extent that it exceeded the amount budgeted for legal fees. A DA’s legal fees are payable out of money raised by taxation. Here, Stedman’s budget contained an appropriation for $5,000 which was available for him to spend on legal fees. If Stedman wished to exceed the legal fees appropriation limit of $5,000, he should have asked the Commissioners for a supplemental appropriation. He had no right to unilaterally enter into a contract for the payment for legal services that far exceeded his allotted budget for legal expenditures without first obtaining the Commissioners’ approval. Because there was no prior appropriation for the $74,193.06 invoice, the Commissioners were well within their rights to deny payment of it. Suffice it to say, Kleinbard is presumed to have knowledge of the County’s appropriation requirements.
With respect to Kleinbard’s argument that Stedman was free to use the funds in the Program Accounts, over which he had sole discretionary control, to pay Kleinbard’s legal fees, we must disagree. Kleinbard has not provided the Court with any citation to or reference to where or by whom the drug/alcohol diversionary program account and the bad check restitution program account were created, nor have we been able to locate any information about the programs. Accordingly, there is nothing for this Court to reference with respect to the limitations, if any, on the use of the funds in such accounts. Therefore, we are unable to confirm that Stedman was, in fact, entitled to use funds for a purpose other than that for which they are earmarked.
Moreover, in Yost, this Court held that a DA may only enter into contracts “for those services for which he has funds in his budget.” Yost, 865 A.2d at 986 (emphasis added). Here, the “funds” to which Kleinbard refers were not in Stedman’s “budget,” but rather were from a drug/alcohol diversionary program account and the bad check restitution program account. In other words, the $69,193.06 from these programs were not “funds in his budget,” as Kleinbard contends. The fact that he may ultimately have had an indeterminate amount of resources at his disposal does not change the fact that the engagement agreement was invalid because Stedman contracted for legal fees in an amount that exceeded his allotted legal fees budget
Slip op. at 7-9. Commonwealth Court found that the trial court’s decision was consistent with Yost, explaining that:
In Yost, the Board of County Commissioners of Clinton County brought a declaratory judgment action against the Clinton County District Attorney to determine the appropriate procedure for a district attorney to appoint a lawyer to the position of temporary special assistant attorney to assist with a capital murder case. In the process of interpreting Section 1420, 16 P.S. § 1420 (Assistant district attorneys; number; compensation) of the County Code, this Court held that a DA may only enter into contracts “for those services for which he has funds in his budget. Otherwise, he must request that the Commissioners appropriate such funds for his use.” Id. at 986 (citing Section 1784 of the County Code, 16 P.S. § 1784) (emphasis in original). The Yost Court explained that:
Given the scope and breadth of their fiscal responsibilities, it would be illogical to compel the [c]ommissioners to provide non-budgeted funds to cover the expense of legal service contracts entered into by the District Attorney without their approval…. ‘Forcing’ the payment of such contracts could potentially overdraw the amount the Commissioners have budgeted for the department, or cause the Commissioners to appropriate funds from other line items or other departments and levy taxes in an amount sufficient to meet the District Attorney’s expenses…. In essence, entering an order compelling the commissioners to approve payment of such an expenditure would allow the District Attorney to ‘invade the province of the legislative body by applying any excess money from other departmental line items to [his legal service contracts] when those excess monies might be needed for some other purpose in the county.’ … The County Code is clear that the District Attorney lacks the authority to do so.
Id. (citing Lewis v. Monroe County, 737 A.2d 843 (Pa. Cmwlth. 1999)). See also Cadue v. Moore, 646 A.2d 683 (Pa. Cmwlth. 1994).
Ultimately, this Court in Yost found that the Clinton County district attorney had the authority to hire a temporary special assistant district attorney pursuant to Section 1420(b) of the County Code because his budget included funds for this use. 865 A.2d at 987. Thus, the Court held “because it is within his budget, this contract does not invade the province of the [c]ommissioners.” Id.
Therefore, as the trial court held, under Yost, Stedman was limited to contracting for those services for which he has funds in his legal fees budget. For any legal services contract exceeding the budgeted amount for legal fees, Stedman was required to request that the Commissioners appropriate such funds pursuant to Section 1773 of the County Code. Id.
Slip op. at 9-10. Finally, Commonwealth Court held that, based on its finding that the trial court properly held that the engagement agreement was unenforceable beyond the $5,000 budgeted to Stedman, the trial court “did not violate separation of powers principles when it held that the Commissioners had the authority to refuse payment of funds exceeding the limitation set forth in Stedman’s budget.” Slip op. at 11.
The Pennsylvania Supreme Court will consider the following issues, as stated by Kleinbard:
(1) Did the lower courts err when they applied 16 P.S. § 1773 of the County Code to District Attorney-controlled accounts because the monies in those accounts are not appropriated from the County Treasury, and thus are not subject to the County Commissioners’ discretion?
(2) Did the lower courts misconstrue Yost v. McKnight, 865 A.2d 979 (Pa. Cmwlth. 2005), and related case law given that the District Attorney sought to draw monies from District Attorney-controlled accounts and therefore did not ask the County Commissioners for additional monies from the County Treasury?
(3) Did the lower courts’ holdings violate separation of powers principles by allowing the county Commissioners to interfere with the District Attorney’s right to spend monies within his budget in order to defend against the Commissioners’ illegal encroachment on his constitutional role in County government?
For more information, contact Kevin McKeon or Dennis Whitaker.