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County Employees Retirement System v. Frontier Housing, Inc.

Court of Appeals of Kentucky

December 22, 2017

COUNTY EMPLOYEES RETIREMENT SYSTEM AND THE BOARD OF TRUSTEES OF THE KENTUCKY RETIREMENT SYSTEMS APPELLANTS
v.
FRONTIER HOUSING, INC. AND HOUSING ORIENTED MINISTRIES ESTABLISHED FOR SERVICE, INC. APPELLEES

         APPEAL FROM FRANKLIN CIRCUIT COURT HONORABLE PHILLIP J. SHEPHERD, JUDGE ACTION NO. 13-CI-01097

          BRIEFS FOR APPELLANTS: Robert W. Kellerman Frankfort, Kentucky

          BRIEF FOR APPELLEES: Andrew R. Jacobs Lexington, Kentucky R. Benjamin Crittenden Frankfort, Kentucky

          BEFORE: ACREE, JONES AND NICKELL, JUDGES.

          OPINION

          NICKELL, JUDGE.

         Since 2002, Frontier Housing, Inc. (Frontier) has participated in the County Employees Retirement System (CERS), a public retirement system for county and school board employees created under KRS[1] 78.510 et. seq. and administered by the Kentucky Retirement Systems (KRS) (jointly Appellants) through its Board of Trustees (Board). KRS 61.645. Since 2003, Housing Oriented Ministries Established for Service, Inc. (HOMES), has also participated in CERS. Both Frontier and HOMES (jointly Appellees), [2] became participating employers in CERS only after the Board approved their applications.

         In September 2013, citing KRS 418.040, Appellees jointly petitioned the Franklin Circuit Court for a declaratory judgment deeming them ineligible to participate in CERS and allowing them to withdraw therefrom. Each alleged it is neither a "county, "[3] nor a "school board."[4]

         Appellants moved to dismiss the petition on multiple grounds including: lack of subject matter jurisdiction under KRS Chapter 418; failure to state a claim on which relief may be granted; and, failure to join an indispensable party under CR[5] 19. Additionally, Appellants sought dismissal claiming: both Frontier and HOMES represented themselves during the application process as being eligible to participate in CERS-representations on which the Board relied in approving their applications; once participation in CERS begins, applicable statutes require continued participation and prohibit voluntary withdrawal; sovereign immunity; absence of necessary parties; and, lack of an actual controversy subject to determination via a petition for declaration of rights.

         After hearing oral argument, and in reliance upon Commonwealth v. Kentucky Retirement Systems, 396 S.W.3d 833, 841 (Ky. 2013), the trial court denied the motion to dismiss stating sovereign immunity does not apply in declaratory judgment actions. Additionally, the trial court found an actual controversy exists under KRS 418.040 as to whether Appellees were properly admitted into CERS and must continue participating therein; while CR 20.01 allows current and former employees of Frontier and HOMES to participate in this litigation, it does not require them to do so because they are not indispensable parties under CR 19; and, Appellants will adequately represent employees who wish to continue participating in CERS. The trial court determined two questions -an alleged statute of limitations violation and whether continued participation in CERS by Appellees is an on-going statutory violation-are disputed and require fact-finding before a ruling can be made.

         Appellants timely appealed and now challenge the trial court's finding that sovereign immunity does not apply to a petition for declaratory judgment. Upon review of controlling case law, we affirm.

         ANALYSIS

         Denial of a motion to dismiss is generally interlocutory and unappealable because appellate review is reserved for final judgments. CR 54.01. However, when an appeal is based on a claim of sovereign immunity, immediate de novo review is available upon request. Breathitt County Bd. of Educ. v. Prater, 292 S.W.3d 883, 886 (Ky. 2009). Were we to deny consideration until Appellants have borne the expense and burden of trial they would be denied "meaningful review." Id. at 884. Thus, we have jurisdiction to consider those aspects of the appeal directly related to the claim of sovereign immunity. That, however, will be the extent of our review. Other alleged errors are not properly within the scope of this interlocutory appeal and can be considered by filing an appeal after entry of final judgment.

         In Commonwealth, the case relied upon by the trial court to find sovereign immunity inapplicable to a petition for a declaration of rights, the Supreme Court of Kentucky recognized three circumstances in which sovereign immunity may be waived. One[6] of those circumstances-when a ...


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