No.

_________ ================================================================

In The

Supreme Court of the United States

-----------------------------------------------------------------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 as Director of the Department of Commerce; NORTH DAKOTA DEPARTMENT OF COMMERCE; THE MINOT AREA DEVELOPMENT CORPORATION; THE MINOT CITY COUNCIL (Curt Zimbelman, Larry E. Frey, David F. Lehner, Bob Miller, Hardy Lieberg, Dean Frantsvog, Jim Hatlelid, Chuck Barnes, Tim Greenheck, Scott Knudsvig, Mark Jantzer, Blake Krabseth, Ron Boen, Lisa Olson, each in his or her official capacities); and THE CITY OF MINOT, Respondents. -----------------------------------------------------------------On Petition For Writ Of Certiorari To The North Dakota Supreme Court -----------------------------------------------------------------PETITION FOR WRIT OF CERTIORARI -----------------------------------------------------------------LYNN M. BOUGHEY Counsel of Record P.O. Box 836 Bismarck, ND 58502-0836 (701) 751-1485 (701) 751-1670 (fax) lynnboughey@midconetwork.com ANDREW HALE 1919 2nd St. SE Minot, ND 58701 (701) 858-0800

Attorneys for Robert Hale ================================================================

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964 OR CALL COLLECT (402) 342-2831

i QUESTION PRESENTED FOR REVIEW Whether the North Dakota Supreme Court improperly affirmed the dismissal of Robert Hales action in light of the assertions in the Complaint that the economic development program of State of North Dakota 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 in Kelo v. City of New London, which are as follows: 1. the risk of undetected impermissible favoritism of private parties is so acute that a presumption (rebuttable or otherwise) of invalidity is warranted under the Public Use Clause. Kelo v. City of New London, 545 U.S. 469, 493, 125 S.Ct. 2655, 2670 (2005) (Justice Kennedy, concurring). 2. the transfers are so suspicious, or the procedures employed so prone to abuse . . . that courts should presume an impermissible private 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 an impermissible private purpose. Kelo v. City of New London, 545 U.S. 469, 493, 125 S.Ct. 2655, 2670-71 (2005) (Justice Kennedy, concurring).

ii TABLE OF CONTENTS Page Question Presented for Review ........................... Table of Contents ................................................. Table of Authorities ............................................. Citations of the Official Reports of the Opinion .... Concise Statement of the Basis for Jurisdiction ... Constitutional Provisions Involved in the Case .... Statement of the Case ......................................... Argument ............................................................. i ii iv 1 1 2 3 5

Conclusion............................................................ 34 APPENDIX July 12, 2012 North Dakota Supreme Court Judgment ......................................................... App. 1 July 12, 2012 North Dakota Supreme Court Opinion ............................................................ App. 3 May 11, 2011 State District Court Decision 511-11 .............................................................. 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 of Commerce Answers to Requests for Admission ................................................................ App. 89

iii TABLE OF CONTENTS Continued Page July 13, 2010 Order Granting Defendants Motion to Dismiss Based on Failure to State a Claim and Denying Plaintiff s Motion to Amend Complaint ........................................ App. 101 August 4, 2010 Complaint .............................. App. 104

iv TABLE OF AUTHORITIES Page CASE LAW Berman v. Parker, 348 U.S. 26, 75 S.Ct. 98 (1954) ........................................................... 28, 29, 33 CBS 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, 118 S.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, 467 U.S. 229, 104 S.Ct. 2321 (1984) ................ 28, 29, 33 Kelo v. City of New London, 545 U.S. 469, 125 S.Ct. 2655 (2005) ............................................. passim MHC Financing, Ltd. v. City of San Rafael, not reported 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. 2d 668 (W.D.Pa. 2009) ..................................................34 CONSTITUTIONAL PROVISIONS U.S. Const. Article III, Section 2 of the United States Constitution ...................................................1 U.S. Const. Amendment V ...........................................2

v 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) ...................................................................1 Rule 29.4(c) ...................................................................1

1 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 application of Rule 29.4(b) and Rule 29.4(c), 28 U.S.C. Section 2403(b) does not apply because the State of North 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 of appeals has decided an important question of federal law that has not been, but should be, settled by this Court, or has decided an important federal question in a way that conflicts 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, in Kelo v. City of New London, 545 U.S. 469, 125 S.Ct. 2655

2 (2005). The lower courts are either ignoring Justice Kennedys concurrence or misinterpreting it to reach a result that is opposite of Justice Kennedys concurrence.
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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; nor shall 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 compensation. Due Process and Equal Protection AMENDMENT 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

3 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 programs were unconstitutional under both state and federal constitutional provisions. App. 49-57. Robert Hale 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 Hovland presiding, ruled that the Complaint did not sufficiently raise a federal question, refused to allow the Complaint 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,

4 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 constitutions providing specific reference to Justice Kennedys concurrence in Kelo v. City of New London. App. 104230. Hale made a motion for declaratory judgment, which was treated as a motion for summary judgment. 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 development 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,

5 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 development as contained in his concurrence in Kelo 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 view has 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 abstention 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 refiled a new seventy-seven page Complaint with twenty-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

6 violation in the government expenditure of funds or a taking in the realm of economic development plans: 1. the risk of undetected impermissible favoritism of private parties is so acute that a presumption (rebuttable or otherwise) of invalidity is warranted under the Public Use Clause. Kelo v. City of New London, 545 U.S. 469, 493, 125 S.Ct. 2655, 2670 (2005) (Justice Kennedy, concurring). 2. the transfers are so suspicious, or the procedures employed so prone to abuse . . . that courts should presume an impermissible private 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 an impermissible private purpose. Kelo v. City of New London, 545 U.S. 469, 493, 125 S.Ct. 2655, 2670-71 (2005) (Justice Kennedy, concurring). 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 continue throughout the last ten years and even following the recessions of 2008 with a surplus. One of the results of this economic boon is the receipt of substantial 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.

7 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, multinational corporations, and third-party beneficiaries, all on the assumption that there is some undocumented and notional public good. The state auditor has concluded that the state, and its political subdivisions through its elected and appointed representatives, 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 the Kelo v. City of New London decision was rendered, personally reviewed the economic development programs being run by the City 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 concluded that the State of North Dakota and its political 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 the federal constitution and the concerns raised by Justice 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 documentation that supported this view. Mr. Hale sued the State of North Dakota, the City of Minot, and the

8 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 to Kelo v. City of New London, specifically alleged the following in his complaint: History of hiding its activities: Para. 13: MADC has, in the past, attempted to shield its conduct from public view, asserting in 2001 that MADC is not a public entity and is therefore not subject to the state open records and meetings laws, and
Mr. Hale also asserted that the state and political subdivision economic development programs were in violation of the State Constitution, Article X, Section 18, which provides as follows: Section 18. The state, any county or city may make internal improvements and may engage in any industry, enterprise or business, not prohibited by article XX of the constitution, but neither the state nor any political subdivision thereof shall otherwise loan or give its credit or make donations to or in aid of any individual, association or corporation except for reasonable support of the poor, nor subscribe to or become the owner of capital stock in any association or corporation. The North Dakota Supreme Court rejected his argument as to the proper interpretation of the state constitution; it also rejected his claims under federal law and the United States Constitution. App. 31-48, especially 41-42 and 45-46.
1

9 that it is merely a provider of services to the City of Minot. Failure to have safeguards or supervisory controls: Para. 28: The economic development program at issue here cannot survive the test of having a public purpose due to the fact that the state and City programs fail to incorporate proper safeguards to assure that the activity has a public purpose, fail to provide sufficient details in the manner of implementing the activity, and fail to provide for supervisory controls to [ensure] that a public purpose 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 of loans required meeting the employee figure there was NO review by anyone to see the employee figure was reached prior to forgiving 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 upon the entity achieving a certain number of employee growth as a condition of being granted portions of the loan. However, as with the above loans it was routine to NOT check whether these goals have been met. Instead, loans were extended or forgiven routinely without any checks and regardless of whether

10 or not the entity met the contractual requirements of the contractual agreement. Operating guidelines not followed: Para. 31(f): In regards to the Magic Fund, I personally challenged these practices. In doing so I pointed out the Guidelines that had been established for the operation of the Magic Fund. I was repeatedly told that the documentation I referred to were simply guidelines and they did not have to be followed. I was told this by the City Finance Director Bob Frantzvog, and Mayor Curt Zimbleman. Incorrect records and intentional exaggeration of job created: Para. 31(g): The Magic Fund did provide job creation numbers. However, upon review of the actual job creation count it was discovered that the job creation count was never accurate. In fact, the jobs claimed were overstated, 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 to Magic Fund recipients ended up going to entities that quickly went out of business.

11 Failure to have any process to collect loan money when due: Para. 31(i): The Magic Fund had no process in place to follow up and collect loan payments when due. Those owing money to the Magic Fund in accord with their contracts, when they did not meet the contractual terms, were ignored and generally no collection efforts were made. Only after I brought this to the attention of the public did anything begin to happen so collection was initiated. 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 on reaching employment goals. When it failed to meet those goals the money was provided none-the-less. When this was brought to the attention of the City the company was requested to give the money back. Following this the Magic Fund Committee met and dispensed with the conditions and gave the entity the money even though it failed to meet its contractual obligations. Favoritism condoned and allowed: Para. 33: Many of the loans and/or grants were given to entities that were connected with or part of the committee that was responsible for handing out the money.

12 Lack of oversight and conditions ignored: Para. 34: The entity (MADC/City of Minot) provided either NO oversight to ensure compliance with the terms and conditions of the loans and/or grants or routinely ignored both and continued to give money to private entities and individuals even when the entities failed to meet the agreed conditions required to receive the money. Guidelines routinely ignored: Para. 35: While there were guidelines established intended to see that oversight and limitations were placed on the use of the public funds EVERY guideline was intentionally violated over and over. The response given when this practice was questioned was, they are just guidelines not requirements. Listing of job creation number inaccurate and exaggerated: Para. 36: The requirement to monitor the number of jobs impacted was ignored. The numbers that were reported upon verification efforts and analysis were consistently OVER STATED, inaccurate or never monitored. The end result to date after 19 years of operation of the Magic Fund is there is absolutely no reliable data as to whether or not the expenditure of more than $30 million in taxpayer funds provided any measurable benefit to anyone.

13 Money to friends of those distributing the money: Para. 37: The Magic Fund has cost taxpayers more than $30,000,000. Many millions went to entities that went out of business. A significant amount of the money went to friends of those overseeing the distribution of the money. Mr. Hales attempts to fix accountability problems and continuation of these problems: Para. 55: Mr. Hale attempted to assist the City in developing true accountability in regards to the expenditure of public funds through the Magic Fund, particularly in regards to determinations whether the companies or individuals receiving those funds actually fulfilled their contractual obligations relating to receiving those funds, particularly before providing that person or entity even more Magic Funds money. Attachment 15 Hale Review of MADC Accountability Problems. Unfortunately, as shown by public articles throughout 2008 and a recent article in 2009, it is clear that the Magic Fund has failed entirely to create true accountability in regards to the Magic Fund. Attachment 16 Minot Daily News Articles on Accountability. Documentation provided with Complaint of accountability problems: Para. 56: These accountability problems are well demonstrated by City of Minots handling of the InfoTech debacle (though

14 other examples can be cited). According to the contract with InfoTech (dated March 26, 2007, after the City had paid out the money!), the City of Minot would pay $200,000 at time of 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 employee when the loan conditions are met. Attachment 13 at 13.20 to 13.24, terms at 13.21, date at 13.23. Cindy Hemphill, the city finance director, noted on the authorization for check no. 194175 paid February 9, 2007, that the check is an Early Check. Attachment 13 at 13.16. Only after Robert Hale raised the issue of whether InfoTech had fulfilled its obligations did the City recognize that the agreement had been breached. Attachment 13 InfoTech Documents at 13.32 & 13.39. Despite notifying InfoTech that it owed the City of Minot money for non-fulfillment of its agreement, the City eventually wrote-off and forgave the loan. InfoTech was much more than one employee short; indeed, InfoTech never had enough employees to comply with any of its contractual obligations, listing employees that lived in New York or were no longer employed at the contingent date at issue. Attachment 13 InfoTech Documents at 13.32 to 13.43, and particularly Employee Count charts at 13.33 and 13.43. See also Attachment 1 Affidavit of Robert Hale 3(M) at 1.3 Affidavit of Robert Hale.

15 Press reports provided with Complaint that showed accountability problems exist and continue to be uncorrected: Para. 57: As is clear from the subsequent press reports, the city continues to fail to require accountability of the recipients of public funds or even demand compliance of the contractual obligations of the persons or entities receiving public funds, as shown by the following examples: a. The Magic City Council often has approved MAGIC Fund assistance without having a written contract to review, which is contrary to the guidelines, said Cindy Hemphill, city finance director. Minot Daily Article, Attachment 16 at 16.1. Hemphill said in certain cases, development agreements have been negotiated after council approval, and in one instance, a contract didnt come to her office until a few months after council approval. Minot Daily Article, Attachment 16 at 16.1 The Minot MAGIC Fund needs to do more to oversee projects and monitor the finances of Minot Area Development Corp., according to a report from the funds screening committee. Minot Daily Article, Attachment 16 at 16.2.

b.

c.

16 d. A city committee reviewing MAGIC Fund operating procedures decided Tuesday that not much needs to be changed. Minot Daily Article, Attachment 16 at 16.3. The discussion centered around the contract enforcement earlier this year when InfoTech came one employee short of meeting the employment target necessary to have loan forgiveness. Minot Daily Article, Attachment 16 at 16.3. The council ultimately adjusted the employment target to bring InfoTech into retroactive compliance. Minot Daily Article, Attachment 16 at 16.3.

e.

f.

Accountability problems with the State-run system shown to lack accountability through the State Auditors own report and failure to have public purpose due to no economic impact: Para. 58: The issue of accountability (or the lack thereof) as it relates to the Department of Commerce is a matter of record. According to the Performance Audit Review No. 3027 conducted by the North Dakota State Auditor dated August 11, 2009, each of the various divisions dealing with economic development has major accountability flaws: Centers of Excellence Accountability We determined the application process and monitoring of the Centers of

17 Excellence has not provided adequate accountability for the use of state funds. No determination has been made as to whether the Centers of Excellence are having the desired economic impact as required by state law. There is a lack of formal policies and procedures for the application process, evaluating applications, monitoring Centers of Excellence, and matching requirements. . . . Monitoring Department Operations We determined that the Department of Commerce has not established an adequate system for monitoring department operations. We identified improvements are needed to have an effective department-wide monitoring function. Changes are needed with the monitoring of grant and loan programs to improve efficiencies and effectiveness. . . . Development Fund, Inc. Our review of the Development Fund, Inc. identified improvements are needed. Improvements are needed to ensure policies are reviewed, updated, and complied with. There is a lack of documentation regarding the monitoring activities taking place with investments. In addition, we identified improvements are needed with the authority granted to staff, complying with open meeting requirements, and establishing a Code of Ethics.

18 Agricultural Products Utilization Commission Our review of the Agricultural Products Utilization Commission (APUC) grant program identified improvements are needed. We identified changes are necessary to ensure compliance with North Dakota Administrative Code. Improvements are needed to ensure policies are reviewed, updated, and complied with. Changes in monitoring are necessary to improve efficiencies and effectiveness. A Code of Ethics should be established. Attachment 17 State Auditors Performance Audit Review No. 3027 at 17.5 (Executive Summary). Examples of lack of accountability by the State contained in the State Auditors report and failure to have public purpose due to no economic impact: Para. 59: According to the Performance Audit Review No. 3027 conducted by the North Dakota State Auditor dated August 11, 2009, the following accountability concerns were specifically noted as to the states Centers of Excellence program: a. For example, supporting documentation included by a Center of Excellence did not agree with the reported amounts. We also indentified concerns with the accuracy of certain numbers within the economic impact report. Attachment 17 at 17.7.

19 b. For example, the Commission is to consider 9 elements such as whether the Center of Excellence will create high-value private sector employment opportunities in the state, leverage other funding, and become financially self-sustaining. The Centers of Excellence Commission has established no formal policies regarding how applications are to be approved and disapproved. Attachment 17 at 17.10. The Centers of Excellence Commission has statutory authority to contract for independent, expert review of applications to determine whether proposed Centers of Excellence are viable and whether they are likely to have the desired economic impact. No such technical reviews have been performed on Center of Excellence applications. Attachment 17 at 17.11. In our review of aspects of the Centers of Excellence, we identified noncompliance issues related to state law, noncompliance with reporting requirements, and indications of Centers of Excellence not meeting expectations. For example: Centers of Excellence funds appear to have been used to supplant current operations which is prohibited by state law.

c.

d.

20 When reporting information in the functional review, Centers of Excellence are required to attach support to corroborate reported contributions. In certain functional reviews, we identified a lack of support and support which was not consistent with reported amounts. One Center of Excellence application projected job creation of 35-38 private sector positions. Based on information provided by the Centers of Excellence, a total of one private sector job and six positions at the university have been created in the three year span of the project. One Center of Excellence received their total approved amount of $2 million in May 2006. Information in the 2008 functional review identified only $2.7 million in matching funds had been obtained ($4 million required).

Attachment 17 at 17.17. In response to the City of Minots motion for summary judgment, on October 25, 2010, Hale provided 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

21 contravention of Justice Kennedys concurrence in Kelo v. City of New London: 4. I [Robert Hale] have personally spent more than 1,500 hours going through the records of the Minots Magic Fund over the last twenty years. I have personally reviewed virtually every file, read every document contained in the files, and performed analysis of the agreements, the correspondence and the distribution of local option sales tax dollars that have been distributed to recipients of Magic Fund Applicants. In regards to the Magic Fund, based on my review of the public records and serving on a committee regarding the Magic Fund, I am able to confirm the following: A. A significant amount of the local option sales tax money that was collected and distributed to Magic Fund Recipients was given as outright grants. That is it was given with no strings attached and no requirement or expectation that any of the money ever be returned to the public treasury. B. A significant amount of the local option sales tax money that was collected and distributed was done through loans to private individuals, corporations or associations. These loans took numerous forms. Some were conditional loans, that is, they

5.

22 were loans that stated if certain conditions were met (generally that the entity receiving the loans obtained a certain employment number by a particular date the loan would be forgiven). C. While the conditions for the above type of loans required meeting the employee figure there was NO review by anyone to see the employee figure was reached prior to forgiving the loan. D. Other loans were granted and/or conditioned upon the entity achieving a certain number of employee growth as a condition of being granted portions of the loan. However, as with the above loans it was routine to NOT check whether these goals have been met. Instead, loans were extended or forgiven routinely without any checks and regardless of whether or not the entity met the contractual requirements of the agreement. E. I personally challenged these practices. In doing so I pointed out the Guidelines that had been established for the operation of the Magic Fund. I was repeatedly told that the documentation I referred to were simply guidelines and they did not have to be followed. I was told this

23 by the City Finance Director Bob Frantzvog, and Mayor Curt Zimbleman. F. One of the most important elements of the Magic Fund was creation of jobs. To that end it was the responsibility of the Magic Fund operation to monitor the jobs created as a result of grants, loans, rent payment, property tax abolition, loan guarantees, and infrastructure provided by the Magic Fund. The Magic Fund did provide job creation numbers. However, upon review of the actual job creation count it was discovered that the job creation count was never accurate. In fact, the jobs claimed were overstated (but never understated or accurate), in some cases they were overstated by a factor of 10.

G. The majority of public tax money provided to Magic Fund recipients ended up going to entities that quickly went out of business. H. The Magic Fund had no process in place to follow up and collect loan payments when due. Those owing money to the Magic Fund in accord with their contracts, when they did not meet the contractual terms, were ignored and generally no collection efforts were made. Only after

24 I brought this to the attention of the public did anything begin to happen so collection was initiated. This effort was feeble at best. I. In other cases some entities returned again and again to take public money to support purely private investment of local persons who had the good fortune to be awarded tax funds collected from their neighbors to fund their investment schemes. Magic Fund money went to some of the largest corporations in the world. One was to ING, which has recently been listed as the 8th largest corporation in the world. Almost $100,000, went to Northrup Grummond one of Americas largest defense contractors.

J.

K. The Minot Area Development Corporation (MADC) is a quasi-private entity. I say quasi because the majority of the money it received to fund its operation comes directly from taxpayer dollars. The purpose of this entity is to funnel money to entities that make application for taxpayer money derived from a 1% local option sales tax. MADC is an agent acting solely for the benefit of distribution of public tax money to private individuals, entities, businesses, corporations and/or associations.

25 L. MADC is the exclusive conduit used by entities attempting to access taxpayer funds (Magic Fund Dollars) for their businesses, enterprises or organizations. MADC collects applications, performs reviews of requests, negotiates contracts with and then presents the request to the Minot City Council for funding for those entities that in its sole discretion, it believes should receive taxpayer funding. In many cases this funding is in the form of outright grants; in some cases it is in the form of a fully forgivable loan. In some cases the loan distribution is based upon the applicant meeting certain employment goals.

M. In one instance a recipient Infotech was granted a loan conditioned on reaching employment goals. When it failed to meet those goals the money was provided nonethe-less. When this was brought to the attention of the City the company was requested to give the money back. Following this the Magic Fund Committee met and dispensed with the conditions and gave the entity the money even though it failed to meet 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

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 benefits 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 concurrence 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 explicitly applying Justice Kennedys standards that the States economic development scheme violates due process and is truly irrational: given the facts and the state constitutional prohibition for giving away money derived from taxes to individuals, associations, or corporations except for the reasonable support of the poor, it is our view that this is a case in which the transfers are so suspicious, or the procedures employed so prone to abuse, or the purported benefits are so trivial or implausible, that courts should presume an impermissible private purpose. Complaint Para. 68 (emphasis deleted), quoting Justice Kennedy in Kelo v. City of New London, 545

27 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 program violates equal protection because Robert Hale does not receive such gifts and other persons do. The states program of giving economic development money to individuals, associations, and corporations discriminates against every individual, association, and corporation that does not receive such gifts. Because the program is so prone to abuse and the purported benefits are so trivial or implausible 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 following 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 standard of review might be appropriate when an economic development program allows impermissible favoritism: My agreement with the Court that a presumption of invalidity is not warranted for economic development takings in general, or for the particular takings at issue in this case, does not

28 foreclose the possibility that a more stringent standard of review than that announced in Berman [Berman v. Parker, 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 narrowly drawn category of takings. There may be private transfers in which the risk of undetected impermissible favoritism of private parties is so acute that a presumption (rebuttable or otherwise) of invalidity is warranted under the Public Use Clause. Cf. Eastern Enterprises v. Apfel, 524 U.S. 498, 549-550, 118 S.Ct. 2131, 141 L.Ed.2d 451 (1998) (KENNEDY, J., concurring in judgment and dissenting in part) (heightened scrutiny for retroactive legislation under the Due Process Clause). This demanding level of scrutiny, however, is not required simply because the purpose of the taking is economic development. Kelo v. City of New London, 545 U.S. 469, 493, 125 S.Ct. 2655, 2670 (2005) (Justice Kennedy, concurring). Complaint Para. 67(h), footnote 40. In regards to Mr. Hales allegations relating the program being prone to abuse or where the purported benefits are so trivial or implausible that would create a presumption that there is an impermissible private

29 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 development program are so prone to abuse or where the purported benefits are so trivial or implausible that there is a presumption that there is an impermissible private purpose: This is not the occasion for conjecture as to what sort of cases might justify a more demanding standard, but it is appropriate to underscore aspects of the instant case that convince me no departure from Berman [Berman v. Parker, 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)] is appropriate here. This taking occurred in the context of a comprehensive development plan meant to address a serious citywide depression, and the projected economic benefits of the project cannot be characterized as de minimis. The identities of most of the private beneficiaries were unknown at the time the city formulated its plans. The city complied with elaborate procedural requirements that facilitate review of the record and inquiry into the citys purposes. In sum, while there

30 may be categories of cases in which the transfers are so suspicious, or the procedures employed so prone to abuse, or the purported benefits are so trivial or implausible, that courts should presume an impermissible private purpose, no such circumstances are present in this case. Kelo v. City of New London, 545 U.S. 469, 493, 125 S.Ct. 2655, 2670-71 (2005) (Justice Kennedy, 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 purported benefits are so trivial or implausible, Mr. Hale specifically referred to Justice Kennedys language contained in his concurrence: Plaintiff Robert Hale asserts that given the facts and the state constitutional prohibition for giving away money derived from taxes to individuals, associations, or corporations except for the reasonable support of the poor, it is our view that this is a case in which the transfers are so suspicious, or the procedures employed so prone to abuse, or the purported benefits are so trivial or implausible, that courts should presume an impermissible private purpose. Quoting Justice Kennedy in Kelo v. City of New London, 545

31 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 Justice Kennedys concurrence in Kelo 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 economic development does not satisfy the public purpose requirements of the gift clause of the state constitution and the due process clause of the 14th Amendment of the United States Constitution, and we hold authorized economic development programs satisfy the public purpose component of N.D. Const. art. X, 18 and the due process clause of the 14th Amendment.

32 Hale v. State of North Dakota, 2012 ND 148, 35, 818 N.W.2d 684, 696. Other courts have failed to apply Justice Kennedys analysis and concerns. In citing Kelo, the lower courts have primarily relied on Justice Kennedys concurrence to justify programs and create a presumption of 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 specifically on Justice Kennedys presumption that the governments 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 allegation 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 courts have 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

33 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 WL 2920809 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 in Kelo 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 government entity 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 legislature has spoken, the public interest has been declared in terms well-nigh conclusive, quoting Berman v. Parker, 348 U.S. 26, 32, 75 S.Ct. 98 (1954)).2 Another
To succeed on this claim, MHC must prove by a preponderance of the evidence that the circumstances surrounding the Ordinances enactment make clear that the proffered public purposes asserted as justification for the Ordinance are palpably without reasonable foundation, see Midkiff, 467 U.S. at 240, or that the City imposed the Ordinance under the mere pretext of a public purpose, when its actual purpose was to bestow a private benefit, see Kelo, 545 U.S. at 478. MHC (Continued on following page)
2

34 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 allegations 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.
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CONCLUSION The Petitioners respectfully request this Court to accept certiorari and, upon the matter being submitted 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 motion to dismiss) raises actionable issues and violations 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) (emphasis added).

35 clause and should be determined on the merits by the trial court. Dated this 10th day of October, 2012. Respectfully submitted,
LYNN M. BOUGHEY Counsel of Record P.O. Box 836 Bismarck, ND 58502-0836 (701) 751-1485 (701) 751-1670 (fax) lynnboughey@midconetwork.com ANDREW HALE 1919 2nd St. SE Minot, ND 58701 (701) 858-0800

Attorneys for Robert Hale