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Utility Management Group, LLC v. Pike County Fiscal Court

Supreme Court of Kentucky

November 2, 2017



          COUNSEL FOR APPELLANT: Kevin Crosby Burke Jamie Kristin Neal Burke Neal PLLC

          COUNSEL FOR APPELLEE: John Doug Hays David Seth Kaplan Casey Leigh Hinkle Kaplan & Partners LLP




         Appellant Utility Management Group, LLC (UMG), a privately-owned limited liability company, provides management and operational services to Mountain Water District (the District), a water district created pursuant to Kentucky Revised Statute (KRS) Chapter 74. Residents of the unincorporated areas of Pike County pay the District for water and sewer services provided to them through infrastructure and equipment owned by the District, and the District in turn pays UMG a monthly fee specified in the parties' contract. A January 2011 audit of the District by former Auditor of Public Accounts Crit Luallen revealed that from the contract's inception in July 2005 through June 2010 the District paid UMG over $36 million. The Auditor had limited success in obtaining business records from UMG regarding the actual costs of the services UMG provided, so in March 2011 the Pike County Fiscal Court made an Open Records request pursuant to KRS 61.870 and 61.872. When UMG declined to produce the requested documents on grounds it was a "wholly private entity, " Pike County pursued and secured an Attorney General opinion, 11-ORD-143, finding UMG subject to the Open Records Act, KRS 61.870-.884 (the Act) and requiring production. On UMG's judicial appeal, the Circuit Court rejected the Attorney General's analysis and, having additionally found part of the statute unconstitutionally vague, concluded that UMG had no disclosure obligation under the Act. The Court of Appeals reversed, holding that UMG was subject to the Act as it existed at the time of the initial request and denial in March 2011 and further that the statute was not unconstitutionally vague. On discretionary review, we affirm the Court of Appeals' opinion remanding this matter to Pike Circuit Court for entry of an order requiring UMG to comply with the Open Records Act.


         The District was established in 1986 through the merger of three separate water districts, and is a public utility subject to the Public Service Commission. KRS 278.015. Beginning July 3, 2005, the District's Board of Commissioners entered into a five-year contract with UMG whereby UMG would perform the operations, management and maintenance of the District for an annual fee of $6, 819, 000, subject to annual adjustment for an increase in customers and changes in the Consumer Price Index. In the year preceding the aforementioned Attorney General's Opinion, 11-ORD-143 (Sept. 14, 2011), the annual fee was approximately $7.6 million. Under the contract, the District retained ownership of all equipment and infrastructure but transferred all of its personnel and water district responsibilities to UMG.

         UMG was organized in Kentucky in August 2004 and the District was its first client. The record reflects that as of the date of this litigation (and apparently throughout its existence) UMG had only one other client, the City of Pikeville. Under an approximately $4 million annual contract with the City of Pikeville, UMG provides water and sewer services, garbage pickup, street services and parks maintenance. Although the record is less than clear, it appears that UMG has never contested that all or essentially all of its income is derived from its contracts with the District and the City of Pikeville.

         An audit of the District by the Auditor of Public Accounts produced a January 27, 2011 report raising significant concerns about the District and its contract with UMG.[1] On March 4, 2011, an Assistant Pike County Attorney, on behalf of Pike County Fiscal Court, asked UMG to produce business records pertaining to the District/UMG contract from January 7, 2005 through the present. When UMG declined, Pike County sought and obtained an Attorney General Opinion.

         In 1 l-ORD-143, the Attorney General noted that KRS 61.870(1)(h), as it then existed, defined a "public agency" subject to the Act to include "any body which derives at least twenty-five percent (25%) of its funds expended by it in the Commonwealth of Kentucky from state or local authority funds." The Attorney General opined that UMG met that definition because (1) its only known sources of revenue were the funds derived under its contracts with the District and the City of Pikeville; (2) the District and the City were public agencies collecting statutorily authorized fees and thus the monthly contract payments to UMG were properly characterized as "state or local authority funds;" and (3) UMG necessarily derived at least 25% (and probably all) of the funds expended by it in Kentucky from state or local authority funds.[2] The Attorney General concluded that UMG was thus required to comply with the Act and to the extent it objected to production of individual documents it was necessary to identify in writing the applicable exception under KRS 61.878(1)(a)-(n).

         UMG filed a Complaint and Petition for Declaration of Rights in Pike Circuit Court on September 28, 2011. While the case was pending, the General Assembly amended KRS 61.870(1)(h), effective July 12, 2012. The new provision provides:

Any body which, within any fiscal year, derives at least twenty-five percent (25%) of its funds expended by it in the Commonwealth of Kentucky from state or local authority funds. However, any funds derived from a state or local authority in compensation for goods or services that are provided by a contract obtained through a public competitive procurement process shall not be included in the determination of whether a body is a public agency under this subsection.

         If applicable, the highlighted amendment language removes UMG from the coverage of the Act because its contracts with the District and the City of Pikeville were ostensibly pursuant to a public competitive procurement process.[3] Following briefing, the Circuit Court concluded that the 2012 amendment was remedial and therefore applied retroactively. Alternatively, it held that the "body" referred to in the earlier version of KRS 61.870(1)(h) (hereafter referred to as the 1994 version) meant a "public body, " not a private business entity, and in any event the statutory definition was unconstitutionally vague.

         The Court of Appeals rejected all of the circuit court's conclusions. It found the 2012 amendment to be substantive and therefore not retroactive. Analyzing the 1994 version of KRS 61.870(1)(h), it concluded that considered in the context of other provisions of the Act, the word "body" necessarily included a private business entity such as UMG and, finally, that the statute was not void for vagueness.


         I. UMG is a "Body" Subject to the Open Records Act.

         The Open Records Act was adopted in 1976 with a preamble stating that "access to information concerning the conduct of the peoples' business is a fundamental and necessary right of every citizen in the Commonwealth of Kentucky." 1976 Ky. Acts Chapter 273. The Act applies to any entity qualifying as a "public agency" under KRS 61.870(1) including state or local government officials, departments, commissions, boards and special district boards. As noted, the initial focus in this case is the 1994 version of KRS 61.870(1)(h), which refers to a "body" that derives at least 25% of the funds it expends in Kentucky from "state or local authority funds." In construing "body, " the circuit court focused on the absence of any reference in the Act to companies, corporations, limited liability companies or other private business entities and the use of the word "body" in several parts of KRS 61.870 as referencing clearly governmental bodies. See, e.g., KRS 61.870(1)(d) "every county and city governing body . . .;" KRS 61.870(1)(g) "any body created by state or local authority in any branch of government. . . ." That court concluded, erroneously, that construing "body" to include a "private, nongovernmental business is clearly inconsistent with a plain reading of the balance of the statute."

         As often stated, our primary goal in construing statutes is to give effect to the intent of the General Assembly and we derive that intent, to the extent possible, from the language the legislature chose, employing statutory definitions if they are provided and otherwise construing terms "as generally understood in the context of the matter under consideration." Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 551 (Ky. 2011). "We presume that the General Assembly intended for the statute to be construed as a whole, for all of its parts to have meaning, and for it to harmonize with related statutes." Id. citing Hall v. Hospitality Res., Inc., 276 S.W.3d 775 (Ky. 2008). We also presume that legislators "did not intend an absurd statute or an unconstitutional one." Id. If the statute is truly ambiguous or frustrates a plain reading, only then do we resort to extrinsic aids such as legislative history or the construction of similar statutes (especially model or uniform statutes) by other courts. Id.

         There is no definition of "body"[4] in the Open Records Act but the word is illuminated by the definition of "public record" in KRS 61.870(2) which provides:

"Public record" means all books, papers, maps, photographs, cards, tapes, discs, diskettes, recordings, software, or other documentation regardless of physical form or characteristics, which are prepared, owned, used, in the possession of or retained by a public agency. "Public record" shall not include any records owned or maintained by or for a body referred to in subsection (1)(h) of this section that are not related ...

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