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Louisville Arena Authority, Inc. v. RAM Engineering & Construction, Inc.

Court of Appeals of Kentucky

August 30, 2013

LOUISVILLE ARENA AUTHORITY, INC., APPELLANT
v.
RAM ENGINEERING & CONSTRUCTION, INC.; RICHARD C. CHILTON; WILLIAM W. CHILTON, III; THE FINANCE AND ADMINISTRATION CABINET; M.A. MORTENSON COMPANY; AND VEIT & COMPANY, INC., APPELLEES and COMMONWEALTH OF KENTUCKY, FINANCE AND ADMINISTRATION CABINET, APPELLANT
v.
RAM ENGINEERING AND CONSTRUCTION, INC.; RICHARD C. CHILTON; WILLIAM W. CHILTON, III; LOUISVILLE ARENA AUTHORITY, INC; M.A. MORTENSON COMPANY; AND VEIT COMPANY, INC., APPELLEES and COMMONWEALTH OF KENTUCKY, FINANCE & ADMINISTRATION CABINET, APPELLANT
v.
RAM ENGINEERING AND CONSTRUCTION, INC.; RICHARD C. CHILTON; WILLIAM W. CHILTON, III; LOUISVILLE ARENA AUTHORITY, INC; M.A. MORTENSON COMPANY; AND VEIT COMPANY, INC. APPELLEES

APPEAL FROM FRANKLIN CIRCUIT COURT HONORABLE PHILLIP J. SHEPHERD, JUDGE ACTION NO. 08-CI-01500.

BRIEFS FOR APPELLANT LOUISVILLE ARENA AUTHORITY: Sheryl G. Snyder Griffin Terry Sumner C. Michael Shull Louisville, Kentucky.

BRIEFS FOR APPELLANT FINANCE AND ADMINISTRATION CABINET, COMMONWEALTH OF KENTUCKY: Richard M. Sullivan Kenneth A. Bohnert Scott A. Johnson Edward F. Busch Louisville, Kentucky E. Jeffrey Mosley Frankfort, Kentucky.

BRIEFS FOR APPELLEES RAM ENGINEERING & CONSTRUCTION, INC., RICHARD C. CHILTON AND WILLIAM W. CHILTON, III: Deborah H. Patterson Donald J. Kelly Rania M. Basha Louisville, Kentucky G. Bruce Stigger Louisville, Kentucky.

BEFORE: CAPERTON, STUMBO AND THOMPSON, JUDGES.

OPINION

THOMPSON, JUDGE

These consolidated appeals arise from the procurement of subcontractors for the construction of the KFC Yum! Center (Arena) in downtown Louisville and involve the claims of Ram Engineering & Construction, Inc., an unsuccessful subcontract bidder on the project, and its principals, Richard C. Chilton and William W. Chilton, III, as taxpayers of the Commonwealth of Kentucky (collectively referred to as RAM). The Louisville Arena Authority, Inc. (LAA) and the Commonwealth of Kentucky, Finance and Administration Cabinet filed these interlocutory appeals after the circuit court denied their motions for summary judgment based on sovereign and governmental immunity.

BACKGROUND

The Arena was a project completed under the authority of the LAA, a nonprofit corporation formed to create, finance, develop and oversee the construction and management of the multi-use Arena. The LAA was established on December 12, 2005, by Executive Order of Governor Ernie Fletcher and, pursuant to that same order, the Secretary of Commerce, James Host, would serve as Chairman of the Board of Directors, and the Governor would appoint ten members of the Board and the Mayor of Louisville would appoint five members.

The LAA received a portion of the initial funding for the $225 million Arena from a $75 million grant from the Commonwealth through a budget appropriation contained in House Budget Bill 380. Budget Bill 380 noted that "the Arena was a public project intended for multiple uses as a public, recreational, cultural, and sports facility." It further stated that the bond funds were conditioned upon the LAA conducting all business in accordance with the applicable provisions of KRS 45A, Kentucky's Model Procurement Code (KMPC). The Budget Bill further stated:

Any additional debt issued by any other entity other than the Commonwealth shall not constitute a debt of the Commonwealth or a pledge of the faith and credit of the Commonwealth. Nor shall any debt issued by any other entity other than the Commonwealth be deemed, directly or indirectly, to be a moral obligation of the Commonwealth. In no case shall the Commonwealth pay for any construction cost overruns or operating costs associated with the Louisville Arena.

The LAA decided that, as authorized by the KMPC, it would use the proposal-solicitation process referred to as "Construction Manager-At-Risk" (CMAR). The process is authorized by KRS 45A.030(6) where it is defined as "a project delivery method in which the purchasing officer enters into a single contract with an offeror that assumes the risk for construction at a contracted guaranteed maximum price as a general contractor, and provides consultation and collaboration regarding the construction during and after design of a capital project."

On January 5, 2007, the LAA sent a "Request for Proposal" to various construction firms indentified as potential CMARs. Ultimately, the LAA awarded the contract to M.A. Mortenson Company and the parties entered into a CMAR agreement on August 20, 2007.

On April 17, 2008, Mortenson solicited proposals for the performance of certain subcontractor work on the Arena and RAM responded with a bid. On June 9, 2008, RAM was informed by Mortenson that Veit & Company, Inc., a RAM competitor, was awarded the subcontracts on which RAM bid.

On June 23, 2008, pursuant to KRS 45A.285, RAM filed an administrative protest of the subcontract award with the Finance Cabinet alleging violations of the KMPC procurement process. On August 11, 2008, the Finance Cabinet denied RAM's protest on the basis that although the LAA was subject to the KMPC, subcontract procurement under the CMAR delivery method was not subject to the KMPC and, therefore, RAM lacked standing to complain.

On September 10, 2008, RAM filed a complaint in the Franklin Circuit Court seeking judicial review of the Finance Cabinet's decision. In the complaint, it was alleged that the Finance Cabinet's decision was arbitrary, capricious and contrary to law and, further, that the LAA's and Finance Cabinet's failure to abide by the law and their wrongful/illegal expenditure of taxes violated Section 2 of the Kentucky Constitution prohibiting arbitrary state action. It was alleged that any payment to Mortenson was void and a misuse of taxpayer funds. Although the original complaint did not assert the existence of a written contract, the prayer for relief sought monetary damages.

The complaint was subsequently amended to allege three additional claims: (1) that RAM was a third party beneficiary of the contractual relationship between the Commonwealth and the LAA arising from the legislative appropriation in Budget Bill 380; (2) KMPC violations; and (3) a violation of implied and statutory covenants of good faith and fair dealing. In its prayer for relief, RAM again sought monetary damages.

Initially, the LAA moved for summary judgment arguing that it was not a public agency and, although it had utilized a KMPC authorized process, it was not required to comply with the KMPC. The circuit court disagreed and found the LAA was acting as the "alter ego" of the Finance Cabinet for purposes of the KMPC. The LAA then filed a motion for partial summary judgment on the monetary claims against it asserting because the circuit court found it was acting as the alter ego of the Finance Cabinet, it was entitled to immunity. Further, it argued the KMPC did not permit a private cause of action for lost profits and attorney fees. The Finance Cabinet moved for summary judgment on similar grounds.

The circuit court found there is no private cause of action for lost profits by unsuccessful bidders under the KMPC and dismissed those claims. It reasoned that lost profits could be claimed only where a valid contract exists or promissory estoppel applied and neither existed in this case. However, it denied the motion to dismiss the claims for attorney fees finding an allegation of bad faith could entitle RAM to a trial on that issue. Because the LAA's activity in the construction and operation of the Arena was proprietary rather than governmental in nature, the circuit court denied the LAA's motion for partial summary judgment on the basis of governmental immunity. The LAA filed an interlocutory appeal from that part of the circuit court's order denying it immunity. Subsequently, the circuit court clarified that its denial of partial summary judgment to the LAA also included its denial of immunity to the Finance Cabinet and the Cabinet appealed. The LAA and the Finance Cabinet moved to stay the forthcoming trial proceedings during the pendency of the appeals. Contrary to its earlier holding, the circuit court held that a contract claim remained below. Concluding that the KMPC contains an express waiver of immunity for contract claims, the circuit court refused the motion to stay the proceedings. The Finance Cabinet filed an appeal from the order denying a stay.

A motion panel of this Court considered and granted the Finance Cabinet's motion to consolidate the appeals. RAM's motion to dismiss the appeals as interlocutory was denied. Finally, the LAA's and the Finance Cabinet's motions for intermediate relief to stay the proceedings below were granted.

Although the Finance Cabinet appealed from the circuit court's order denying its motion to stay the proceedings, that issue was resolved by a motion panel of this Court and that appeal is now moot. That same motion panel also concluded that the denial of immunity from monetary damages to the Finance Cabinet and the LAA were immediately appealable based on Breathitt County Bd. of Educ. v. Prater, 292 S.W.3d 883 (Ky. 2009) (holding that an order denying summary judgment to a party asserting immunity is appealable).

Prater expresses the current view in this jurisdiction. However, after review of the record and the parties' briefs, we make a prefatory comment before deciding the issues regarding immunity. So that our opinion is not misunderstood, we have strived not to comment on the merits of the underlying claims or suggest any damages that may be recovered from a nonimmune entity. Such issues are properly presented in an appeal from a final order.

STANDARD OF REVIEW

Summary judgment is only proper when "it would be impossible for the respondent to produce evidence at the trial warranting a judgment in his favor and against the movant." Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 483 (Ky. 1991) (internal quotation omitted). In ruling on a motion for summary judgment, the Court is required to construe the record "in a light most favorable to the party opposing the motion ... and all doubts are to be resolved in his favor." Id. at 480. A party opposing a summary judgment motion "cannot rely on the hope that the trier of fact will disbelieve the movant's denial of a disputed fact, but must present affirmative evidence in order to defeat a properly supported motion for summary judgment." Id. at 481 (internal quotations ...


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