RENDERED: SEPTEMBER 28, 2017 TO BE PUBLISHED

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2016-SC-000280-DG
BOARD OF COMMISSIONERS OFTHE CITY OF DANVILLE, KENTUCKY



## v. ON REVIEW FROM COURT OFAPPEALS CASE NOS. 2014-CA-001300 AND 2014-CA-1301 BOYLE CIRCUIT COURT NO. 12-CI-00482
ADVOCATE COMMUNICATIONS, INC. D/B/A THE ADVOCATE-MESSENGER

OPINION OF THE**COU~T** BY JUSTICE VANMETER AFFIRMING IN PART AND VACATING IN PART APPELLANT

APPELLEE

Under Kentucky's Open Meetings Act, city council meetings are presumptively open to the public unless an exception permits a meeting to be closed. The issue we address in this case is whether the Board of Commissioners ofthe City ofDanville ("Board") permissiblywentinto closed session to discuss its intention to-bid onreal property offered for sale pursuant to an absolute auction. Under the facts ofthis case, we hold thatno exception permitted the Board's action and affirm that portion ofthe Court ofAppeals' opinion. But because the Board's action was notwillful, we vacate that portionofthe Court ofAppeals' opinion remanding to the Boyle Circuit Court for an assessment offees and costs. I. Factual and Procedural Background. For some time priorto 2012, the City ofDanville needed space to house its public works departments. To accommodate its needs, it leased a portion of the Boyle Industrial Storage Company's property, and attempted to purchase
or enter a long-term lease for the property in 2011. In 2012, the Board budgeted $2,000,000 for the purchase of

### real estate for its public works department. InJuly 2012, that property came up for 

### sale at an absolute public auction. The auction was advertised and scheduled for August 10. At its next regularly scheduled meeting, July 23, the Board went into closed session to discuss the auction advertisement. During the closed session, the Board authorized bidding at the auction up to $1,500,000, the amount for which the property appraised in 2007. In addition, the Board discussed using a bidding agent to conceal the City's interest and participation in the auction. The parties disagree on whetherthe Board decided to use a · bidding agent at the July 23 meeting, orwhether that decision was made by
. the City Manager following the meeting. The nextweek, Danville's mayor signed a confidential Agreement and Bidding Instructionwith a local realtor to act as the City's agent/bidder. The_ auction terms included a 10% buyer's premium on the successful bid. As a result, the Board's authorization limited the City's highe_st bid to $1,363,636,

. which together with the buyer's premium of$136,364, totaled $1,500,000. In 2conjunction with thatAgreement, the mayor and the agent signed a registration form with the auctioneer, and the agent signed an acknowledgement ofAuction Terms and Conditions. The significant terms
were that "[t]he successful bidder shallbe required to enter into a non-:- contingent auction purchase agreement and deposit 10% ofthe contract price[,]" with closing to be held within 30 days. The propertywas offered AS IS, WHERE IS, and potentialbidders were advised to conduct inspection prior to the auction. · At the auction, the City, through its agent, was the successful bidder at a total price, including buyer's premium, of$1,237,500. After the fall ofthe \._ hammer, the mayor, the seller, .and all parti_cipating realtors, signed the auction purchase contractwhereby the City agreed to buy the property at a closing to be held within 30 days, subject onlyto a standard contingency that the City receive merchantable title via a general warranty deed, free and clear ofall liens and encumbrances, except easements, covenants and restrictions of ·record. The mayor tendered the requisite 10% deposit check of$123,750. Significantly, the contract contained no contingency ofBoard approval. A few days after the auction, atits August 13 meeting, theBoard went into closed session to discuss the property's purchase. At the adjournment of the closed session, the Board openly and unanimouslyapproved the purchase ofthe property. At its August 27 meeting, the Board, for the first time, publicly discussed the purchase in open session.

3\ On August 30; the Danville Advocate-Messenger delivered a written complaint to the mayor regardingthe July 23 meeting, and alleged that the Board had yiolated the Open Meetings Act, KRSl 61.800, 

### etseq. ("the Act").

. 

# .

. The Board failed to respond to the complaint, and the newspaper initiated an appeal to the Attorney General's Office. The Attorney General issued a decision on September 28, 2012, that the Board had violated the Act. 12-0MD-179.2 In addition, its decision ruled that the Board had also committed a violation in failing to respond to the newspaper's written complaint. The Board then filed this action inthe Boyle Circuit Court,**~hich** upheld theAttorney General's determination, but denied the newspaper's requestfor attorneys'fees and costs on grounds that the 'violations were nqt willful. The parties filed cross-appeals to the Court of Appeals, which upheld the finding ofan open meetingviolation, butreversed the trial court's finding that the violation was notwillful and remanded the
case to the trial court for impo·sition ofcosts and attorneys'fees. II. 

### Standard ofReview. In this case, the trial court granted the newspaper's motion for summary judgment and denied that ofthe Board, implicitly concluding that a violation of the Act had occurred. We review·open meeting determinations de novo. 

### KentuckyBd. of Exam'rs of Psychologists v. The Courier

- Journal & 

### Louisville

i Kentucky Revised·Statutes. 2 OFFICE OFTHE KY. ATIY. GEN., OFFICE OF CMLAND ENVTL. L,A.w: OPEN RECORDS & OPEN MEETINGS, https://ag.ky.gov/civil/civil-enviro/orom/Pages/2012.aspx (last accessedAug. 28, 2017). 4

### Times Co., 826 S.W.2d 324, 328·(Ky. 1992); 

### WebsterCnty. Bd. of Educ. v. Franklin, 392 S.W.3d 431, 434-35 (Ky. App. 2013). III. Analysis. A. Open Meetings

### Law. As noted, meetings ofpublic agencies are open to the public at all times. KRS 61.810(1). This section states "[a]ll meetings ofa quorum ofthe members ofanypublic agency atwhich anypublic business is discussed or atwhich any action is taken by the agency' shall be public meetings, open to the public at all times." The legislative rationale is that "the formation**~f**public policyis public business and shall not be conducted in secret." KRS 61.800. While exceptions to the open meeting requirement are set forth in KRS 61.810, KRS 61.800 proVides thatthe exceptions are to be "strictly construed." No question exists that the Danville City Commission is a public agency required to open its meetings to the public. KRS 61.805(2)(c). The Board in this case argues that an open meeting exceptionrelated to the acquisition ofreal property applies to its decision to bid on the property. This exception permits "[d]eliberations on the future acquisition or sale ofreal property by a public agency, but onlywhen publicitywould be likely to affect the value ofa specific piece ofpropertyto be acquired for public 1:1-se or sold by
a public agency[.] KRS 61.810(1)(b). Significantly, this section exempts "deliberation[]," as opposed to "action taken." "Action taken" is defined, for purposes ofthe Act, as "a collective decision, a commitment or promise to

5make a positive or negative decision, or an actual vote by a majority ofthe members ofthe governmental body." KRS 61.805(3). B. Acquisition of RealPropertybyPublicAuction. The wrinkle that makes this case unique is the sale ofthe propertyby absolute auction. The Board argues thatnotwithstandingits "consensus" to bid atthe auction, the City's purchase was still subjectto Board approval following the auction in the event the citywas the successful bidder. 

# " Unfortunately, the Board's argumentfails based on basic principles ofcontract formation applicable to auction sales,3 and, importantly, under the facts ofthis
case. When a sellerplaces property for sale at auction, contract formation differs depending on whether the auction is stated to be "with reserve" or "withoutreserve." In an auction with reserve, the seller, in placing the property up for auction, is merely advising the public ofits willingness to entertain bids. 

### See Puckett v. Dunn, 529 S.W.2d 358, 359 (Ky. 1975) (stating an announcement ofpublic auction is "ameredeclaration ofintentionto hold an auction at which bids will be received
.... Itis a mere invitation to those attending the sale to make offers bybids[]"); 

### see also Restatement (Second) of Contracts§ 28(1)(a) (1981) (stating "[a]t an auction, unless a contrary intention

3 The legislature has enacted several statutes governing auction sales ofboth · real andpersonalproperty. SeeKRS 330.210, 330.220, 355.2-328. We do not purport to set forth definitive rules governing auction sales, butmerely to note the pripciples ofcontractformation that are germane to this case, specifically relating to absolute auctions. 6is manifested, the auctioneer invites offers from successive bidders which he may accept orreject[]"). Each bid constitutes an o'ffer, which the seller is not obligated to accept. Conversely, in an auction without reserve, also commonly known as an "absolute auction," the seller, through it's agent, the auctioneer; is deemed to make an offer byvirtue ofputting the propertyup for auction. Each bid made-on the propertyis an acceptance and therefore forms a contract, subject only to· the contingencies of(a) a higher bid/acceptance or (b) the withdrawal ofthe bid made before-the fall ofthe hammer, 

### i.e., the conclusion ofthe auction. 

### See**Restatem~nt** (Second) ofContracts,§ 28(1)(b) (1981) (statingthat "when goods are put up withoutreserve, the auctioneer makes an offer to sell at any,price bid by thehighest bidder[]"). 

### c. Violation ofOpenMeetingsAct. Here, the auction ofthe propertywas an absolute auction, an auction without reserve. Published terms and conditions set forth very minimal contingencies whi.ch mightpermit anybuyer to ca.:h.cel the transaction after the completion of\the auction. Before the auction, the mayor and the biddingagent both signed the auctioneer's registration form, and the agent signed an acknowledgement ofAuctionTerms and Conditions. At that point, any privacy regarding the City's intention to bid was gone. And, following the auction, the mayor and bidding agent signed the auction purchase contract and tendered the 10% deposit towards the purchase price. We agree with the newspaper that the Board's decision to bid at an absolute auction did not fall within the open meeting exception for "[d]eliberations on the future acquisition
... ofreal 7propertyby a public agency, but onlywhen publicitywould be likely to affect the value ofa specific piece ofpropertyto be acquired for public use[.]" The City's interest in bidding on the property could have been discussed in open ' session, giving all citizens an opportunity to discuss the ideawithout affecting the value ofthe property, to the City's detriment
..The closed portion ofthe meeting, we.believe, could have been used to discuss bidding strategy and the maximum price the mayor, or any otherbidding agent, would have been , / authorized to .bid. In thatway, the exception for**avoid~g** publicity likely to affect the value ofthe propertywould have been strictlycompliedwith. As the matter transpired, the City ultimatelywas obligated to purchase the property, with the decision to bid on and to buythe propertyhavingbeen made in closed session i:r:i violation ofthe Act. The Board's post-auction approvals, albeit conducted in public, were window-dressing, because irrespective ofthe Board's arguments to the contrary, the Citywas already compelled to**~omplete** the

, . purchase

- or answer a complaint for specific performance. We are not unmindful ofthe quandarythat the Board faced. Public knowledge ofthe maximum bid approved in the closed session could easily affect both the bidding process and the purchase price ofthe property. However, the vote in open,,meeting for the City to bid on and potentially purchase the propertywould not requiie disclosure ofthe maximum authorized bid.

8Thus, the decisions ofthe Attorney General, the Boyle Circuit Court and the Court ofAppeals are all affirmed on this issue. 

### D. Willfulness of the OpenMeetings Violation. The final issue concerns the willfulness ofthe Board's violation ofthe Act's requirement. Under KRS 61.848(6), the court may award costs, including reasonable attorneys'fees, to anyperson who prevails against an agency "where the violation is found to be willful." The trial court decided that the violation was not willful and denied the newspaper's motion for costs and attorneys'fees. The Court ofAppeals reversed the trial court, stating: The Board was acutely aware that discussingits bid. in a public meetingwould automatically create a disadvantage for it as a bidder in an auction. Nevertheless, the requirements ofthe Open Meetings Act are clear on theirface. The Boardwent into a closed meetingto discuss a matter ofpublic business. Its closed meeting did not satisfy any ofthe**·exception~** to the open meetings mandate. The Board deliberately elected to ignore the requirements ofthe Open Meetings Act when it proceeded to discuss public business in private. It declinedto respond to the open meetings requestby the [newspaper]. Its conductwith · respectto the clearrequiremenis ofthe statute was unquestionablywillful as construed by 

### City of Fort Thomas [ v. CincinnatiEnquirer, 406 S.W.3d 842, 854 (Ky. 2013)]. Therefore, the trial court erred when it denied the [newspaper's] motion for fees and penalties. 

### Bd. ofComm'rs v. Advocate Commc'ns, Inc., 2014-CA-001300-MR, 2014-CA001301-MR (Ky. App., Apr. 29, 2016), slip op. at 10. While we agree that the Boardviolated the Act, we find that the violation stemmed more from its effort to avoid the publicity adversely affecting the value ofthe property and its misconception ofthe law applicable to bidding at public auction without reserve, than from a willful attempt to violate the Act
.. In our 9view, ·the exception relating to real property acquisition directs its focus to· avoiding publicitywhich could affect value. In hindsight, a public**d~scussion** and concomitant decision to bid, without public disclosure ofthe maximum bid the Board would authorize, would have satisfied the Act's requirements. As we have noted, this case is unique since the real property subject to acquisition
was suddenly and witho:ut forewarning being offered at absolute auction. Under these facts and circumstances, we do not believe the trial courl abused its discretion in denying the newspaper's motion for costs and fees. To that extent, we vacate that portion ofthe Court ofAppeals' opinion. All sitting. Allconcur.
COUNSEL FORAPPELLANT: Stephen Dexter Sheehan, Barnett, Dean, Pennington, Little 

### &i Dexter, P.S.C._
COUNSEL FOR APPELLEE: Jon L. Fleischaker Jeremy StuartRogers DINSMORE & SHOHL, LLP Michael P. Abate KAPLAN & PARTNERS LLP

10COUNSEL FORAMICUS CURIAE THE MUNICIPAL ATTORNEYS ASSOCIATION OF KENTUCKY, INC.: Morgan Todd Osterloh Sturgill, Turner, Barker & Moloney, PLLC
COUNSEL FORAMICUS CURIAE KENTUCKY LEAGUE OF CITIES: Laura Milam Ross Kentucky League ofCities, Legal Services Counsel

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