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Appalachian Stream Restoration, LLC v. Commonwealth

United States District Court, E.D. Kentucky, Central Division

March 1, 2019




         Appalachian Stream Restoration, LLC, a West Virginia Corporation, brings suit in diversity against the Commonwealth of Kentucky; Division of Engineering and Contract Administration; Department of Facilities and Support Services; Finance and Administration Cabinet; the Kentucky Department of Fish and Wildlife; and ICA Engineering, Inc., a Kentucky corporation. The Commonwealth of Kentucky, Division of Engineering and Contract Administration, and Fish and Wildlife have moved for dismissal, asserting the defense of sovereign immunity. [R. 15; R. 16.] For the following reasons, the Court GRANTS Defendants' motions and DISMISSES claims against them for lack of subject matter jurisdiction.


         On July 6, 2015, Appalachian Stream Restoration (ASR) entered into a contract with the Commonwealth of Kentucky, which includes the Division of Engineering and Contract Administration (DECA), the Department for Facilities and Support Services (FSS), and the Finance Administration Cabinet (FAC) (collectively "Finance"). [R. 1.] The Kentucky Department of Fish and Wildlife Resources was the regulatory agency overseeing the work performed under the contract at issue. [R. 1.] By their contractual terms, ASR was hired by the Commonwealth for "construction of a stream and wetland mitigation site located on the Higginson-Henry Wildlife Management Area in Union County, Kentucky." [R. 1 at 3.] The work was to include "the installation of several different in-stream structures and placement of gravel material in restored riffles" as well as "installation of groundwater dams, grading historically modified wetland areas to proposed elevations, and removal and plugging of drain tiles in active agricultural field" among other projects. [R. 1 at 3.] Plans for the construction were created and provided by ICA Engineering, Inc., another defendant. [R. 1 at 7.]

         The complaint alleges that ASR repeatedly voiced concern over the design of the plans, which it characterizes as "negligently prepared" and "flawed," but that its concerns were ignored by the Defendants. Then, in May, 2016 "heavy rainfall and flood waters at and near the project. . .caus[ed] failure in certain construction work." [R. 1 at 7.] The Defendants blamed the failure on ASR's construction work, and withheld payment for the work ASR already completed. [R. 1 at 4]. In December, 2017, ASR filed this lawsuit under diversity jurisdiction. See 28 U.S.C. § 1132. ASR's complaint includes seven counts, including statutory liability pursuant to the Kentucky Fairness in Construction Act, breach of contract, conspiracy, unjust enrichment, tortious interference, fraud and misrepresentation, and negligence. [R.I.]

         Except for ICA Engineering, all Defendants have moved for dismissal pursuant to Rule 12(b)(1) or 12(b)(6)[1]. [R. 15; R. 16.] Defendants assert that ASR's claims must be dismissed because they, as state agencies, are entitled to sovereign immunity per the Eleventh Amendment.

         [R. 15; R. 16.] ASR does not dispute the Defendants' status as members of the executive branch of Kentucky's government; rather, ASR asserts that the Defendants have waived sovereign immunity and consented to suit in federal court by the terms of their contract. [R. 20.] The contract contains a clause which states in relevant part:

The Owner and Contractor[2] agree that any suit, action or proceeding with respect to this Contract may only be brought in or entered by the courts of the Commonwealth of Kentucky situated in Frankfort, Franklin County, Kentucky, or the United States District Court for the Eastern District of Kentucky, Frankfort Division, and the parties hereby submit to the non-exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment and waive any other preferential jurisdiction by reason of domicile or location.

[R. 18 at 61.] This clause, ASR argues, constitutes a waiver of sovereign immunity and consent on the part of the Commonwealth to suit in federal court, specifically this Court. Defendants disagree, and instead maintain that immunity may only be waived by an act of the General Assembly. [R. 20 at 1.] Neither party argues that the United States has abrogated state immunity in this context, and all agree that the moving Defendants are state agencies for purposes of immunity. Therefore, the only question before this Court is whether the language in the contract is, in fact, a valid waiver of sovereign immunity and consent to suit in federal court.


         Federal Rule of Civil Procedure 12(b)(1) provides that a defendant may assert lack of subject-matter jurisdiction as a defense. Fed.R.Civ.P. 12(b)(1). A motion to dismiss under Rule 12(b)(1) is different than a motion to dismiss under Rule 12(b)(6) because it challenges the Court's power to hear the case before it. When jurisdiction is challenged under this rule, the burden is on the plaintiff to prove that jurisdiction exists. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir. 1996). In answering this question, the Court is "empowered to resolve factual disputes" and need not presume that either parties' factual allegations are true. Id.

         A motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of a plaintiff s complaint. In reviewing a Rule 12(b)(6) motion, the Court "construe[s] the complaint in the light most favorable to the plaintiff, accept[s] its allegations as true, and draw[s] all inferences in favor of the plaintiff." DirecTV, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007) (citation omitted). The Court, however, "need not accept as true legal conclusions or unwarranted factual inferences." Id. (quoting Gregory v. Shelby County, 220 F.3d 433, 446 (6th Cir. 2000)). The Supreme Court explained that in order "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroftv. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). See also Courier v. Alcoa Wheel & Forged Products, 577 F.3d 625, 629 (6th Cir. 2009).


         The Eleventh Amendment mandates that, "the Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States[.]" U.S. Const, amend. XL Simply put, the States enjoy immunity from the adjudication of state law claims filed against them in federal court. Ernst v. Rising,465 F.3d 351, 358 (6th Cir. 2005). "A State, however, may choose to waive its immunity in federal court at its pleasure." Sossamon v. Texas, 563 U.S. 277, 284 (2011). The "test for determining whether a State has waived its immunity from federal-court jurisdiction is a stringent one," and federal courts should only find a waiver where there is a "clear declaration that a state intends to submit itself to [federal] jurisdiction." College Sav. Bank v. Fla. Prepaid Postsecondary Educ. ...

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