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University of Kentucky v. Moore

Supreme Court of Kentucky

October 31, 2019

UNIVERSITY OF KENTUCKY, A/K/A UK HEALTHCARE; AND MARK F. NEWMAN, IN HIS OFFICIAL CAPACITY AS EXECUTIVE VICE PRESIDENT FOR HEALTH AFFAIRS, UNIVERSITY OF KENTUCKY APPELLANTS
v.
SARAH R. MOORE; COMMONWEALTH OF KENTUCKY, DEPARTMENT OF REVENUE; AND DANIEL P. BORK, COMMISSIONER, KENTUCKY DEPARTMENT OF REVENUE APPELLEES AND COMMONWEALTH OF KENTUCKY, DEPARTMENT OF REVENUE AND DANIEL P. BORK, IN HIS OFFICIAL CAPACITY AS COMMISSIONER OF THE KENTUCKY DEPARTMENT OF REVENUE APPELLANTS
v.
SARAH R. MOORE APPELLEE

          ON TRANSFER FROM COURT OF APPEALS CASE NO. 2018-CA-000584-MR, 2018-CA-000585 FAYETTE CIRCUIT COURT NO. 17-CI-00479

          COUNSEL FOR UNIVERSITY OF KENTUCKY, A/K/A UK HEALTHCARE; AND MARK F. NEWMAN, IN HIS OFFICIAL CAPACITY AS EXECUTIVE VICE PRESIDENT FOR HEALTH AFFAIRS, UNIVERSITY OF KENTUCKY: Kevin G. Henry Bryan Howard Beauman Joshua Michael Salsburey Sturgill, Turner, Barker & Moloney PLLC William Thro Office of Legal Counsel University of Kentucky

          COUNSEL FOR COMMONWEALTH OF KENTUCKY, DEPARTMENT OF REVENUE; AND DANIEL P. BORK, IN HIS OFFICIAL CAPACITY AS COMMISSIONER OF THE KENTUCKY DEPARTMENT OF REVENUE: Mark Stephen Pitt Stephen Chad Meredith Matthew Kuhn Office of the Governor Frank L. Dempsey Frankfort, Kentucky Raymond Campbell Connell Department of Revenue

          COUNSEL FOR SARAH R. MOORE: William L. Davis Lexington, Kentucky E. Douglas Richards E. Douglas Richards, PSC

          COUNSEL FOR COMMONWEALTH OF KENTUCKY, DEPARTMENT OF REVENUE; AND DANIEL P. BORK, COMMISSIONER, KENTUCKY DEPARTMENT OF REVENUE: Mark Stephen Pitt Stephen Chad Meredith Matthew Kuhn Office of the Governor Frank L. Dempsey Frankfort, Kentucky Raymond Campbell Connell Department of Revenue

          COUNSEL FOR AMICUS CURIAE: MOREHEAD STATE UNIVERSITY: Freddi J. Vescio Fitzpatrick General Counsel

          KENTUCKY EQUAL JUSTICE CENTER: Benjamin Carter Ben Carter Law, PLLC KENTUCKY JUSTICE ASSOCIATION: Kevin Crosby Burke Jamie Kristin Neal Burke Neal PLLC

          KENTUCKY COMMUNITY AND TECHNICAL COLLEGE SYSTEM (KCTCS); WESTERN KENTUCKY UNIVERSITY; EASTERN KENTUCKY UNIVERSITY; MOREHEAD STATE UNIVERSITY; MURRAY STATE UNIVERSITY; AND NORTHERN KENTUCKY UNIVERSITY: Brent Robert Baughman Melissa Norman Bork Kyle William Miller Bingham Greenebaum Doll, LLP

          APPALRED LEGAL AID: Evan Barret Smith Appalred Legal Aid LEGAL AID OF THE BLUEGRASS: Joshua Bryan Crabtree Karen Ho skins Ginn Legal Aid of the Bluegrass KENTUCKY LEGAL AID: Amanda Anderson Young Kentucky Legal Aid

          LEGAL AID SOCIETY OF LOUISVILLE: Neva-Marie Polley Scott Legal-Aid Society of Louisville

          OPINION

          HUGHES, JUSTICE

         Kentucky Revised Statutes (KRS) Chapter 45 includes a statutory process for the collection of debts owed the Commonwealth. Using this statutory framework, the University of Kentucky referred Appellee Sarah Moore's delinquent UK HealthCare[1] accounts to the Commonwealth of Kentucky, Department of Revenue (the Department) for collection. The Department's collection efforts included imposition of a 25% collection fee and interest as well as garnishment of Moore's paychecks, bank accounts, and tax refunds. Moore petitioned the circuit court for a declaration that the University is not an agency within the executive branch as required by KRS 45.237(1)(a) and therefore not authorized to refer its accounts to the Department. After rejecting the University's claim that sovereign immunity barred Moore's action, the circuit court agreed with Moore's position, declaring the University is not in the executive branch of state government for purposes of KRS 45.237 et seq. Both the University and the Department appealed, and the appeals were transferred from the Court of Appeals to this Court. For reasons stated below, we affirm the circuit court's decision that sovereign immunity does not bar this action against the University, but reverse the court's holding that the University is not within the executive branch. Having addressed these threshold issues, we remand this case to the circuit court for further proceedings.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         Appellee Sarah R. Moore sought medical care for herself or one of her dependent children at a University of Kentucky health care facility five times between May 2011 and December 2012. When Moore failed to pay the medical bills, UK HealthCare did not file a civil action against Moore to collect the accounts, but instead certified each account as an "agency" debt and then referred it to the Department of Revenue for collection. The Department operates the Enterprise Collections Office to collect other agency-referred debt and the University claimed the qualifying "agency" status pursuant to KRS 45.237(1)(a). The Department's efforts to collect Moore's UK HealthCare debt proceeded in the standard manner with imposition of a 25% collection fee and interest on the debt and then enforcement through garnishment of Moore's state and/or federal tax refunds and her bank accounts and paychecks. The Department's collection process for agency-referred debt does not include securing a judgment against the debtor for the amount owed and thus no judgment was ever obtained against Moore.

         Moore filed suit against Defendants/Appellants University of Kentucky-UK HealthCare and UK's Executive Vice President for Health Affairs, Michael Karpf, [2] (collectively referred to as "UK"), and the Department of Revenue and its Commissioner, Daniel P. Bork (collectively referred to as "the Department"). Moore's complaint alleged that neither the University nor UK HealthCare is an agency within the executive branch as required by KRS 45.237(1)(a), and thus the statutory collection process is not available to them. Moore sought a judgment declaring that UK and UK HealthCare may not legally refer Moore's debt to the Enterprise Collections Office for collection and consequently the Department of Revenue[3] and/or the Enterprise Collections Office may not legally undertake efforts to collect debt owed to UK, [4] including efforts such as garnishing Moore's bank accounts, wages and tax refunds. The complaint also alleged that UK breached the contractual implied covenant of good faith and fair dealing, and that both UK and the Department violated the Takings and Due Process Clauses of the Fifth Amendment to the United States Constitution, and violated Section 2 of the Kentucky Constitution by exercising absolute and arbitrary power over Moore's liberty and property.

         Moore subsequently amended her complaint, leaving only her request for declaratory relief. Contemporaneously, UK and the Department each moved the trial court to dismiss the claims against them pursuant to Kentucky Rule of Civil Procedure (CR) 12.02. UK maintained that it is a state agency that shares the Commonwealth of Kentucky's sovereign immunity.[5] The Department moved for dismissal on the grounds that the circuit court did not have subject- matter jurisdiction to decide the "agency" question since the Kentucky Board of Tax Appeals (KBTA) holds exclusive jurisdiction to hear actions regarding the Department's revenue-collection activities and Moore has not exhausted her administrative remedies with the KBTA. Finding that Moore's amended complaint only sought a declaration of rights against a government entity, the circuit court concluded that sovereign immunity did not bar its jurisdiction to declare those rights.

         In her amended complaint, Moore requested a declaration that UK is not an agency, defined in KRS 45.237(1)(a) as an "organizational unit or administrative body in the executive branch of state government"; that the University may not lawfully refer the accounts of UK HealthCare to the Department of Revenue under KRS 45.237 et. seq. for collection; and that the Department of Revenue may not lawfully collect such accounts. By separate motion, Moore presented the narrow question of whether UK is an agency "within the executive branch."[6] Collectively, UK and the Department opposed the declaratory judgment action and motion arguing pertinently that UK is part of the executive branch;[7] Fayette Circuit Court lacks subject-matter jurisdiction because Moore has not exhausted the administrative remedies available to her; and sovereign immunity bars the declaratory judgment action because Moore does not allege an ongoing violation of law and because the declaratory/ injunctive relief exception to sovereign immunity cannot be used to obtain money or forgive debt.

         Following an initial order rejecting the sovereign immunity claim, the trial court entered an order and judgment granting Moore's motion for declaratory judgment, confined to the executive branch issue, stating:

[H]aving expressed the reasons for its decision in open court [and those reasons being] incorporated herein by reference, . . . [J]udgment shall be entered pursuant to the Kentucky Declaratory Judgment Act that the defendant, University of Kentucky, is not "in the executive branch of state government" for purposes of KRS 45.237 etseq. and KRS 12.010.

         The trial court designated its judgment as final and appealable.

         After the trial court denied UK's and the Department's separate motions to alter, amend or vacate the order and judgment and again designated its order final and appealable, [8] each filed a notice of appeal and a motion to transfer their appeal to this Court. This Court accepted transfer of the ensuing appeals pursuant to CR 74.02.

         II. ANALYSIS

         The only two questions before the Court are whether the University of Kentucky is within the executive branch for purposes of KRS 45.237 et seq., and, if so, whether sovereign immunity bars this declaratory judgment action against the University and the Department. These questions of law are reviewed de novo. Jacobsen v. Commonwealth, 376 S.W.3d 600, 606 (Ky. 2012).

         Before addressing the questions presented, we note that numerous other issues and arguments were presented to the trial court, and the parties' briefs to this Court largely restate those arguments, but those issues are beyond the scope of the circuit court's order and judgment. When the circuit court decided that the University is not part of the executive branch for purposes of KRS 45.237 et seq., it consequently decided, although not expressly stated, that the entire bill collection process under KRS 45.237 et seq. was not properly applicable to UK and the administrative remedies were not properly applicable as well. Consequently, premised upon a finding that the University is an agency within the executive branch, the Department's argument that the circuit court did not have subject-matter jurisdiction because Moore failed to exhaust her administrative remedies before filing this action was not decided by the circuit court and is not an issue presently before this Court. Neither are any other issues raised in the briefs, such as Moore's other arguments related to the impropriety of employing KRS 45.237 et seq. to collect her UK HealthCare accounts, and UK's and the Department's arguments that KRS 131.130(11) permits state universities to refer debts to the Department for collection.

         I. The University of Kentucky Is within the Executive Branch of State Government

         In 2004, the General Assembly enacted a new section of KRS Chapter 45 relating to collection of debts owed the Commonwealth. 2004 Ky. Acts, ch. 192. As noted, Moore's complaint challenged the Department's debt collection process for debt certified by UK HealthCare, which included garnishing her paychecks, bank accounts, and tax refunds without the amount Moore owed to UK HealthCare ever being reduced to judgment. Moore challenges UK's and the Department's collection process pursuant to KRS Chapter 45 by first seeking a declaration that UK HealthCare is not an agency "in the executive branch of state government" within the ambit of KRS 45.238(1), a declaration that would render UK Healthcare's delinquent account referral to the Department and the ensuing collection process legally improper. In short, if UK is not in the executive branch, Moore prevails in this case.

         KRS 45.238(1) states: "Debts that are certified by an agency or by a local government as provided in KRS 45.237 shall be referred to the [Department of Revenue] for collection. The [Department of Revenue] shall be vested with all the powers necessary to collect any referred debts."[9] For purposes of KRS 45.238(1), "agency" means "an organizational unit or administrative body in the executive branch of state government as defined in KRS 12.010." KRS 45.237(1)(a). KRS 12.010(1) defines "organizational unit" as "any unit of organization in the executive branch of the state government that is not an administrative body, including but not limited to any agency, program cabinet, department, bureau, division, section or office."[10] In turn, KRS 12.010(8) defines an "administrative body" as "any multi-member body in the executive branch of the state government, including but not limited to any board, council, commission, committee, authority or corporation, but does not include 'branch,' 'section,' 'unit' or 'office.'"[11]

         KRS 12.010(1) and KRS 12.010(8) place limits on the definitions of "organizational unit" and "administrative body" by informing the reader not only what each is, but also by stating what it is not, and by providing examples of entities which would qualify. "University" or "institution"[12] is not a listed example under either the "organizational unit" or "administrative body" definitions.[13]

         Moore focused her motion for declaratory judgment on the premise that the University is not in the executive branch of state government, making the determination of whether the University is an "organizational unit," an "administrative body," or neither, a non-issue before the circuit court, assuming she prevailed. Similarly, the circuit court only declared that University of Kentucky is not in the executive branch for purposes of KRS 45.237 et seq. and KRS 12.010. The circuit court relied in part on the General Assembly's action in 1952 when it removed the University of Kentucky from the Department of Education and also this Court's recent decision in Commonwealth ex rel. Beshear v. Commonwealth ex rel. Bevin, 498 S.W.3d 355 (Ky. 2016) (Beshear). UK and the Department argue that the circuit court erred when it held that University of Kentucky is not within the scope of KRS 45.237 and KRS 45.238. Because UK's and the Department's arguments overlap to some extent, we will address them collectively.

         In support of their position that the University is part of the executive branch, Appellants rely on multiple statutes and several cases. They cite KRS 49.070(1) (stating in part "state institutions of higher education under KRS Chapter 164 are agencies of the state"); Withers v. University of Kentucky, 939 S.W.2d 340, 343 (Ky. 1997), explaining that the University of Kentucky "operates under the direction and control of central state government;"[14] and KRS 164.225 (expressly stating that the University of Kentucky is "an independent agency and instrumentality of the Commonwealth"). They also cite Beshear, 498 S.W.3d at 380, for its reiteration that "universities are state agencies" and explanation that state universities are part of the executive branch, even though universities are somewhat different than program cabinets and boards directly under the Governor's control. Noting that the Kentucky Constitution requires the University of Kentucky to be within one of the three - and only three - branches of government, Appellants insist it can logically only be within the executive branch. As noted supra, Moore relies on the General Assembly's removal of the University from the Department of Education in 1952 as well as other statutes and portions of Beshear, 498 S.W.3d 355, to support her argument. After review, we conclude Appellants' position regarding UK's status within the executive branch is persuasive.

         We begin with the Kentucky Constitution which established the three branches of government - legislative, executive, and judicial - with each branch (or department as the Constitution refers to them) being separate and having its own powers. Section 27. No person(s) of one department "shall exercise any power properly belonging to either of the others, except in the instances . . . expressly directed or permitted [by the Constitution]." Section 28. As this Court has held, there is no autonomous "fourth branch of government" under these constitutional provisions. LRC v. Brown, 664 S.W.2d 907, 917 (Ky. 1984) (Constitution recognizes only three branches and Legislative Research Commission resides in legislative branch, not outside it).

         Moore asserts that the term "executive branch" is not used in the Kentucky Constitution and as used in KRS 45.237, and other statutes including the Executive Branch Code of Ethics, it has a statutory meaning that does not raise constitutional issues. She maintains that when one examines the term's statutory usage, it relates to the operational authority that the Governor or other elected official may exert over the agency or entity in question and that actual executive control by the Governor is the touchstone for an agency being deemed to be in the executive branch for purposes of KRS 45.237 et seq. However, a cardinal rule of statutory construction is "[a]ll words and phrases [in the statute] shall be construed according to the common and approved usage of language, but technical words and phrases, and such others as may have acquired a peculiar and appropriate meaning in the law, shall be construed according to such meaning." KRS 446.080(4). We do not find "executive branch" to be a technical word or phrase and therefore, construe it according to its common usage.

         Moreover, we agree with Appellants that the University is principally a creature of the legislature, and must fall within one of the three recognized branches. LRC, 664 S.W.2d at 917. Moore's premise that the University may exist in some type of limbo or intermediate classification across the three branches finds no support in Kentucky law. Recognizing that the University must be categorized in one of the three branches, we consider Moore's argument that the General Assembly specifically removed public universities from the executive branch in 1952 when they were removed from the Department of Education.

         Prior to its 1952 amendment, KRS 156.010(3) pertinently provided that the University of Kentucky and state teachers colleges, [15] with their governing boards, "are included in the Department of Education and constitute a division thereof, but each shall continue to exercise all the functions conferred upon it by law."[16] In 1952, the General Assembly removed the University of Kentucky and the state teachers colleges from the Department of Education, amending KRS 156.010(3) to reflect the removal and enacting KRS 164.285, which states:

KRS 156.010 and 64.640 and any other statute, to the extent that they provide that the University of Kentucky, Eastern Kentucky State University, Western Kentucky State University, Murray State University, and Morehead State University shall be included in the Department of Education and constitute a division thereof, are hereby repealed.

         Moore equates the University's removal from the Department of Education with removal from the entire ...


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