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University of Kentucky v. Davis

Court of Appeals of Kentucky

September 15, 2017

UNIVERSITY OF KENTUCKY APPELLANT
v.
REBECCA LYNN DAVIS AND PNC BANK, NATIONAL ASSOCIATION APPELLEES AND UNIVERSITY OF KENTUCKY AND UNIVERSITY OF KENTUCKY BOARD OF TRUSTEES APPELLANTS
v.
ROLAND TAYLOR AND PNC BANK, NATIONAL ASSOCIATION APPELLEES

         APPEAL FROM FRANKLIN CIRCUIT COURT HONORABLE PHILLIP J. SHEPHERD, JUDGE ACTION NO. 10-CI-01991

         APPEAL FROM FRANKLIN CIRCUIT COURT HONORABLE THOMAS D. WINGATE, JUDGE ACTION NO. 13-CI-00057

          BRIEFS FOR APPELLANTS: William E. Thro Stephen L. Barker Joshua M. Salsburey Barbara A. Kriz

          BRIEF FOR APPELLEES REBECCA LYNN DAVIS AND ROLAND TAYLOR: Elizabeth A. Thornsbury M. Austin Mehr Philip G. Fairbanks

          BRIEF FOR APPELLEE PNC BANK, N.A.: Jon Salomon Abigale Rhodes Green

          BEFORE: COMBS, STUMBO AND THOMPSON, JUDGES.

          OPINION

          THOMPSON, JUDGE:

          In separate cases, the Franklin Circuit Court denied the University of Kentucky's (UK) motions to dismiss actions filed by Rebecca Lynn Davis and Roland Taylor after they were denied long-term disability benefits. UK contends that any claim by Davis or Taylor for declaratory and injunctive relief is precluded by governmental immunity. We agree with the circuit court that at this point in the litigation when no discovery has taken place, dismissal based on immunity is not appropriate and affirm.

         Davis and Taylor were long-term employees of UK. Because of their length of employment with UK, each qualified to participate in UK's long-term disability (LTD) benefits program for its regular full-time employees. The LTD Program is a unilateral, self-funded, non-ERISA benefit that UK makes available to its employees at no cost. Although the benefits paid during the first six months of disability are paid under the salary continuation part of the program, long-term benefits paid under the LTD program are funded by an irrevocable LTD Trust established in 1981. PNC Bank, National Association serves as trustee.

          The LTD program is governed by the employee staff handbook, human resources policies and procedures and documents adopted by the Board of Trustees. An employee's application for LTD benefits is reviewed by UK's employee relations department, which considers information submitted by the applicant and may include independent medical and vocational examinations relevant to whether the application is totally disabled under the terms of the LTD program. If an employee is denied, he or she may appeal that decision within sixty days to the appropriate UK vice president's office.

         Davis and Taylor applied for and were denied LTD benefits and, after following the procedure for internal appeals as provided for in the LTD program, each commenced an action alleging breach of contract against UK based on the staff handbook and the associated personnel policy documents that define the disability compensation programs. They alleged that any immunity UK may have as a state agency was waived by Kentucky Revised Statutes (KRS) 45A.245, part of the Model Procurement Code, which waives immunity for claims brought pursuant to a written contract with the Commonwealth. They further alleged breach of fiduciary duty against PNC Bank. Davis's case was assigned to Division I and Taylor's case was assigned to Division II of the Franklin Circuit Court.

         UK filed motions to dismiss on the basis that, as a state agency, it was entitled to immunity. It alleged there was no written contract between it and its employees under the LTD program as required by KRS 45A.245 to waive immunity.

         At the time UK's motion was filed, Furtula v. University of Kentucky, 438 S.W.3d 303 (Ky. 2014) was pending in the Kentucky Supreme Court. Because the claims in Furtula were identical to the contract claims raised by Davis and Taylor against UK and governmental immunity was asserted in that case by UK, both divisions of the Franklin Circuit Court entered orders holding Davis's and Taylor's cases in abeyance pending the Supreme Court's final decision.

         In Furtula, the Supreme Court held that summary judgment was properly granted to UK on the contract claims based on governmental immunity. It held that the documents relied on by the former UK employees did not constitute a written contract so that immunity was not waived by KRS 45A.245. Following Furtula, UK and PNC filed motions to dismiss Davis's and Taylor's cases. In Taylor's, the Division II court dismissed the action based on Furtula.

         In Davis's case, her contract claim against UK was dismissed as precluded by governmental immunity. However, the court held that Davis's claim could proceed based on a request for declaratory and injunctive relief and granted Davis thirty days to file an amended complaint alleging claims for arbitrary and capricious action by UK in violation of Section 2 of the Kentucky Constitution. Although the circuit court concluded that PNC did not owe Davis a fiduciary duty to disburse benefits and dismissed that claim, it ...


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