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Landrum v. Commonwealth ex rel. Beshear

Supreme Court of Kentucky

August 29, 2019



          COUNSEL FOR APPELLANT: Mark Stephen Pitt Stephen Chad Meredith Berry Lee Dunn Matthew Kuhn Office of the Governor Brett Nolan Office of the General Counsel

          COUNSEL FOR APPELLEE: Andy Beshear Attorney General of Kentucky John Michael Brown La Tasha Arnae Buckner Steven Travis Mayo Laura Tipton Taylor Allen Payne Marc Farris Office of the Attorney General



         The Office of the Attorney General ("OAG") contracted on a contingency-fee basis with a team of law firms led by Morgan & Morgan to conduct investigation into and commence litigation on potential statutory violations arising out of the manufacturing, distribution, and dispensing of prescription opioid products within the Commonwealth. The Government Contract Review Committee ("Committee") of the Legislative Research Commission ("LRC") recommended that Secretary of the Finance and Administration Cabinet ("Cabinet") William Landrum disapprove and cancel the contract. And Secretary Landrum ultimately did as the Committee recommended.

         Asserting the right-free of the Committee's and Secretary Landrum's interference-to contract with outside counsel on a contingency-fee basis, the OAG brought this declaratory-judgment action in Franklin Circuit Court to vindicate this asserted right. Finding that the OAG is subject to the contracting-oversight requirements of the Model Procurement Code ("MPC")[1]and that the Committee and Secretary Landrum did not act inappropriately by disapproving and ultimately canceling the contract, we find in favor of Secretary Landrum. Accordingly, we reverse the judgment of the Franklin Circuit Court and remand this case to that court with direction to enter judgment in favor of Secretary Landrum.

         I. BACKGROUND.

         In June 2017, the OAG sought to contract with outside counsel on a contingency-fee basis to investigate and litigate potential violations of state consumer-protection, Medicaid, antitrust, and other statutes in the manufacturing, distribution, and dispensing of prescription opioid products within the Commonwealth. Out of the seventeen law firms submitting proposals, the OAG review panel decided to contract with a team of law firms and attorneys led by Morgan & Morgan.[2]

         The OAG prepared its contract with the Morgan & Morgan team and submitted it to the Cabinet on September 21, 2017. On October 31, 2017, the Cabinet responded, rejecting the proposed contract. The Cabinet explained that the contract should include additional language requiring that any funds produced under the contract must first be paid in full to the State Treasurer before the contingent fee would be distributed to counsel. On November 2, 2017, the Cabinet proposed language to address these concerns. The OAG added this language and submitted the revised contract on November 14, 2017. On December 13, 2017, the Cabinet notified the OAG that it disapproved the added language and rejected the revised contract. The OAG revised the contract again and submitted a third version. The Cabinet ultimately approved the contract on December 21, 2017.

         The Cabinet then submitted the contract to the Committee. The Committee held a meeting to review it on January 9, 2018. The Committee voted to disapprove the contract and informed Secretary Landrum of this decision in a letter dated January 10, 2018. In the letter, the LRC explained the reason for its recommended disapproval of the contract: "The committee is concerned, in consideration of the enormity of the potential financial settlement resulting from litigation, a more favorable contingency fee schedule has not been extended to the Commonwealth and there is no cap on the total amount of fees to be paid to the contractor." The letter then explained, "By disapproving this contract, the committee was merely exercising its statutory oversight duties in an attempt to protect taxpayer dollars."

         On January 16, 2018, before Secretary Landrum took any action regarding the letter, the OAG filed this declaratory judgment action in Franklin Circuit Court. The OAG sought the following relief, as specified in its complaint:

         I. That this Court issue a declaration and order that:

A. the Attorney General's contracts for legal services are exempt from review by the Finance and Administration Cabinet and Government Contract Review Committee, pursuant to KRS 15.100(3), KRS 45A.7OO(1), and the Kentucky Constitution;
B. the Government Contract Review Committee's disapproval of the Contract is null and void;
C. any attempt by Secretary Landrum to cancel or otherwise interfere with the Contract is null and void; and
D. in the alternative, the review of the Contract was clearly erroneous, arbitrary and capricious, and contrary to law, in violation of the Model Procurement Code.

         The OAG also sought a permanent injunction, essentially preventing the LRC and the Secretary from "interfering" with this contract with the Morgan & Morgan team and any future contract for outside representation the OAG may make.

         On January 18, 2018, Secretary Landrum notified the OAG, the LRC, the Committee, and the Morgan 86 Morgan team that he "will not overrule the decision to disapprove the contract." He also stated, "for all of the reasons raised by the Committee, I have determined that the contract is canceled pursuant to KRS 45A.705(6)(b)."

         Both parties filed motions for summary judgment in the declaratory-judgment action. The trial court granted the OAG basically all the relief it sought. Secretary Landrum then filed a Notice of Appeal and Motion for Emergency Relief in the Court of Appeals. After the Court of Appeals denied Secretary Landrum's Motion for Emergency Relief, Secretary Landrum sought to transfer the case to this Court, which we granted.

         II. ANALYSIS.

         A. The constitutional authority of the Attorney General to enter into a contingency-fee contract with outside counsel is subject to the overriding authority of the General Assembly.

         The Kentucky Constitution names the Attorney General as a constitutional state officer and prescribes his or her powers. Section 91 of the Kentucky Constitution states: "A[n] . . . Attorney-General[] shall be elected by the qualified voters of the State[.] . . . The duties of [the Attorney General] shall be such as may be prescribed by law[.]"[3] Section 93 of the Kentucky Constitution provides further guidance on the power of the Attorney General: "The duties and responsibilities of [the Attorney General] shall be prescribed by law[.]"[4] Sections 91 and 93 make clear that the Attorney General's power extends only so far as what the law prescribes. And since "[t]he Legislature makes the laws, "[5] the General Assembly is the body that outlines the power of the Attorney General.

         That the Attorney General's power is essentially completely governed by the General Assembly is a concept made clear by former Chief Justice Palmore in Brown v. Barkley: "The officers named in Const. Sec. 91 [e.g., the Attorney General] have no powers or duties not assigned to them by statute, except for . . . the common-law prerogatives of the Attorney-General that have not been removed or diminished by statute."[6] This Court expounded further on this principle in Johnson v. Commonwealth ex rel. Meredith:

In conclusion, we are of opinion that, while the Attorney General possesses all the power and authority appertaining to the office under common law and naturally and traditionally belonging to it, nevertheless the General Assembly may withdraw those powers and assign them to others or may authorize the employment of other counsel for the departments and officers of the state to perform them. This, however, is subject to the limitation that the office may not be stripped of all duties and rights so as to leave it an empty shell, for, obviously, as the legislature cannot abolish the office directly, it cannot do so indirectly by depriving the incumbent of all his substantial prerogatives or by practically preventing him from discharging the substantial things appertaining to the office.[7]

         What we can definitively say as it pertains to the present case: Whatever the breadth of the constitutional power of the Attorney General to enter into a contingency-fee contract with outside counsel may be, that power gives way to the overriding authority of the General Assembly.

         Other jurisdictions honor this principle, as well. "An attorney general has the authority to appoint special private counsel in actions or proceedings instituted in the attorney general's name, including the authority to hire private counsel in a civil action on a contingency fee basis, in the absence of a statutory prohibition."[8] Moreover, "When a statute governs the conditions to be met and the procedure to be followed for obtaining outside counsel, the attorney general must follow the procedural requisites in doing so."[9]

         In sum, regardless of any inherent constitutional authority of the Attorney General to enter into a contingency-fee contract with outside counsel, the Kentucky Constitution explicitly limits that authority to the will of the General Assembly. We must determine the General Assembly's will on this issue as expressed through its pertinent statutes.

         B. The oversight process of the MPC applies to the contract at issue here.

         Since we have determined that the General Assembly has full power over the OAG's ability to enter into contingency-fee contracts with outside counsel, we next examine whether the General Assembly has exercised that power. Secretary Landrum and the Attorney General identify seemingly competing statutes on this issue.

         KRS 15.100(3) states, '[T]he Attorney General may enter into such contracts for legal services as he deems necessary and advisable."[10] So the General Assembly has broadly given the Attorney General the power to enter into whatever contracts he or she deems necessary and advisable.

         But this ability, if the General Assembly so desires, could still be subject to the MPC. KRS 15.100(3) does not exempt the OAG's contracts from the provisions of the MPC; rather, the function of that statute is legislative recognition that the OAG can enter into contracts, including contracts for legal services. But recognizing the power of the OAG to do something is not the same as providing the OAG complete and unfettered control over that power. Secretary Landrum quotes in his brief how a former attorney general of this state described, in a brief to a federal court, the relationship between KRS 15.100(3) and the MPC: "KRS 15.100(3) authorizes the retention of outside counsel by the Attorney General. The manner in which such retention is made is governed by KRS 45A.695, the state bidding process."[11]

         This significant distinction is brought into focus by the fact that other state agencies are also authorized by statute to enter into contracts they deem "necessary and advisable."[12] The General Assembly's recognition of the power of these agencies to enter into contracts cannot be interpreted as exempting those agencies from MPC oversight. Otherwise, a gaping loophole exists in the MPC, making it is questionable whether any state agency's contracting is subject to the MPC mechanism. Recognizing this distinction in the statutes offered up on both sides of the present case, it is our role to harmonize the law to give meaningful effect to both statutes[13] in furtherance of the General Assembly's intent in enacting them.[14]

         The MPC creates a government-oversight mechanism over certain government actors' entering into of certain contracts. KRS 45A.020(1) provides the general rule for application of the MPC: "This code shall apply to every expenditure of public funds by this Commonwealth under any contract or like business agreement."[15] KRS 446.010(41) defines "public funds" to "mean[] sums actually received in cash or negotiable instruments from all sources unless otherwise described by any state agency ... or any other form of organization whether or not the money has ever been paid into the Treasury and whether or not the money is still in the Treasury if the money is controlled by any form of state organization[.]"

         So we must determine whether the contingency-fee contract at issue here constitutes "an expenditure of public funds[, ]" "public funds" meaning "sums actually received." To assist us in our statutory interpretation, we note the following duty this Court has in so doing:

In interpreting a statute, this Court must be guided by the intent of the legislature in enacting the law. No single word or sentence is determinative, but the statute as a whole must be considered. In order to effectuate the legislative intent, words may be supplied, omitted, substituted or modified. The purpose is to give effect to the intent of the legislature. KRS 446.080 provides that all statutes shall be liberally construed to carry out the intent of the legislature.[16]

         We explained the nature of a contingency-fee contract in First Nat. Bank of Louisville v. Progressive Cas. Ins. Co.:

Contingent fee contracts owe their very existence to the principle that the attorney does not gain any share in the title of the thing he has engaged himself to recover. It was the law in England and has been the law in this state from time immemorial that "an agreement to aid in a suit, and then divide the thing recovered" is champertous and void. An agreement to measure an attorney's fee by the value of what is recovered is valid only upon the theory that the client "is not to give a part or profit of the thing in contest." . . .
It is customary for insurance companies, as well as others against whom claims for money are asserted, to make a settlement draft payable to the claimant and his attorney. That is for the protection of the lawyer and for the protection of the payor against a claim by the lawyer that he was dealt around and divested of his lien. It gives him no real ownership interest, since he is not entitled to a fee for money collected until he delivers it over to his client. Only then does the client owe him anything. And it is no answer to say that [the attorney] had a lien on the proceeds of the draft. The bank had no more of a right to pay him off separately than would [the losing party]. . . . The stubborn fact is that [the attorney] did not have any ownership or other interest in these drafts that would entitle him to collect upon them independently of his clients, who were the owners.[17]

         Before the Morgan & Morgan team can recover for its work on behalf of the Commonwealth, the Commonwealth must "actually receive[]" any and all "sums" of money recovered through the lawsuit. Not only is this mandated by common law, but it is also mandated by the contract in this case: "Prior to accepting a monetary recovery on behalf of the Commonwealth, Contractor shall advise the Court of the statutory requirements of KRS 48.005(3) mandating that the total monetary recovery be paid directly to the Commonwealth and deposited in the State Treasury."

         Any sum recovered in the OAG's lawsuit will be "actually received" by the Commonwealth, making that whole sum "public funds." The Commonwealth will then use a portion of these "public funds" to pay the Morgan & Morgan team for professional services rendered. Unquestionably, this an "expenditure of public funds." As such, the MPC applies to the contract at issue here.

         The OAG argues that the possibility that recovery could be nothing, meaning that the Commonwealth would not "actually receive[]" any "sums," exempts the contract from application of the MPC. This argument bleeds into the OAG's additional argument that even if the MPC applies to the contract at issue here, KRS 45A.700 does as well. And KRS 45A.700(1) provides, "Personal service contracts in aggregate amounts of ten thousand dollars ($10, 000) or less during any one (1) fiscal year shall be exempt from routine review by the committee and shall be filed with the committee not more than thirty (30) days after their effective date for informational purposes only." The OAG argues that although the contingency-fee contract could amount to a contract worth much more ...

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