Kea-Ham Contracting, Inc. v. Floyd County Development Authority

37 S.W.3d 703, 2000 WL 1597746
CourtKentucky Supreme Court
DecidedMarch 22, 2001
Docket1998-SC-0982-DG
StatusPublished
Cited by11 cases

This text of 37 S.W.3d 703 (Kea-Ham Contracting, Inc. v. Floyd County Development Authority) is published on Counsel Stack Legal Research, covering Kentucky Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Kea-Ham Contracting, Inc. v. Floyd County Development Authority, 37 S.W.3d 703, 2000 WL 1597746 (Ky. 2001).

Opinions

LAMBERT, Chief Justice.

This Court granted discretionary review to consider the doctrine of sovereign immunity as it may apply to a county development authority and the doctrine of official immunity as it may apply to the board chairman of that entity. In the trial court, summary judgment was granted in favor of the development authority and its board chairman on grounds that each of them were entitled to their asserted immunity. The Court of Appeals affirmed the trial [705]*705court’s decision on immunity grounds. As this case was dealt with by both courts below as presenting pure questions of law, the averments of Appellant’s pleadings as recited herein are understood to be controverted. Thus, our statement of the case should not be treated as findings of fact or as unassailable. If, at trial, the evidence is in dispute, it should be resolved as the law requires.

The Chairman of the Board of the Floyd County Development Authority assured Kea-Ham Contracting Inc., that interim financing was in place to make progress payments upon a construction contract. In fact, the interim financing was not in place and the Authority defaulted on its payments, compelling Kea-Ham to sue for damages. The Authority claims to be a part of the central state government of Kentucky and thus protected by the doctrine of sovereign immunity. Kea-Ham asserts that the Authority is a municipal corporation and is without sovereign immunity protection. As to the Board Chairman, a claim of official immunity is asserted on the view that his actions were discretionary rather than merely ministerial. Kea-Ham takes the opposing view.

The Floyd County Development Authority is a non-profit entity created by Floyd County pursuant to KRS 154.50-316 to promote economic progress in the county by acquiring and developing land for industrial and commercial uses. The Authority is governed by a six-person board appointed by the County Judge-Executive. Its sources of funding include grants from state agencies. It may also borrow money and issue bonds.

The underlying dispute arose from the development of an industrial site by the Authority. The Authority undertook to purchase and develop a tract of land and then sell it to a corporation that had agreed to construct a manufacturing facility on the site. To finance the project, the Authority received grants of approximately $2 million from the Kentucky Economic Development Finance Authority and the Kentucky Department of Local Government. The Authority advertised for bids for excavation of the site and Kea-Ham Contracting, Inc. was awarded the construction contract.

One of the Authority’s obligations under the contract was to make progress payments to - Kea-Ham as phases of the work were completed. The project conditions required a performance and payment bond by Kea-Ham. For Kea-Ham to obtain this bond, the bonding company required assurances that funding for the project was in place before Kea-ham began work. Because of Kea-Hams’ small size and financial limitations, the company could not withstand a period of non-payment. Thus, Kea-Ham sought assurances from the Authority that adequate funding was in place, and, consequently, Burl Wells Spurlock, Chairman of the Board of the Authority, wrote a letter to Kea-Ham’s insurance agent representing that interim funding was in place at a local bank.1 Kea-Ham began the earth moving work, but the Authority failed to make its progress payments. Kea-Ham then learned that, contrary to the terms of the letter, there was no funding, and it ceased working on the construction project.

[706]*706Kea-Ham sued Spurlock for fraud and/or negligence, and it sued the Authority for Spurlock’s actions as well as for breach of contract. The Authority and Spurlock filed motions to dismiss based upon sovereign immunity and official immunity, respectively. The Floyd Circuit Court granted the motions (in the form of summary judgments since facts outside the pleadings had been considered), ruling that both defendants were entitled to immunity on all claims. The Circuit Court declined to dismiss the claims against the Authority entirely, however, ruling that immunity had been waived to the extent that insurance coverage was in place to compensate for the loss.

All parties appealed, and the Court of Appeals affirmed. Relying on a 1985 Court of Appeals case, Inco, Ltd. v. Lexington-Fayette Urban County Airport Board,2 the Court of Appeals held that the Authority was an agency of Floyd County and thus entitled to immunity. It also held that Spurlock was protected from suit by the doctrine of official immunity, as his actions were discretionary in nature. The Court of Appeals also reversed the Circuit Court’s ruling that immunity was waived to the extent of insurance coverage, relying on this Court’s holding in Withers v. University of Kentucky.3

Kea-Ham now contends that the Court of Appeals decision is flawed because it failed to apply the proper test, announced in Kentucky Center for the Arts v. Berns,4 for determining whether an entity is entitled to sovereign immunity. In Bems, the main issue was whether the Kentucky Center for the Arts (KCA) was a part of the central state government, and thus immune from suit, or a municipal corporation, and thus without immunity. For its decision, the Court applied a two-part test, which focused on control and funding. The control part of the test inquired whether the KCA was under the direction and control of an immune entity or, whether it was independently controlled. The funding part of the test inquired whether the KCA was funded by the central state government or whether it had alternate methods of funding.

Bems also provided a description of entities properly classified as municipal corporations In Berns, the Court stated that municipal corporations are “local entities created by act of the General Assembly and not agencies performing the services of the central state government.”5 In articulating the distinction between state agencies and municipal corporations, Bems concluded that the key factor is not “whether the entity created by state statute is or is not a city, but whether, when viewed as a whole, the entity is carrying out a function integral to state government.”6 A similar point was made in Withers with the observation that operation of a hospital is essential to the teaching and research function of the University of Kentucky Medical School.

Application of the two-part Bems test to the Authority indicates that it is a municipal corporation unprotected from suit by the shield of sovereign immunity. With regard to the control test, although the Authority’s board members are appointed by the County Judge-Executive, they serve for a term of four years and have independent responsibility for making decisions for the Authority.

The funding part of the Bems test also indicates that the Authority is an independent municipal corporation, as it has several alternate means of funding. The Authority’s funding is not limited to appropriations from the central government, as it can receive grants from other agencies, borrow money on its own credit, and issue [707]*707bonds.7 It can also generate funds by the purchase and sale of real estate.

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Cite This Page — Counsel Stack

Bluebook (online)
37 S.W.3d 703, 2000 WL 1597746, Counsel Stack Legal Research, https://law.counselstack.com/opinion/kea-ham-contracting-inc-v-floyd-county-development-authority-ky-2001.