Opinion ID: 1745096
Heading Depth: 1
Heading Rank: 6

Heading: Determining Agency

Text: Whether an entity is a government agent is a threshold consideration in governmental immunity analysis. However, as Berns alludes to, the determination of which entities are to be deemed agents of the state government has, historically, not been a conclusion easily forthcoming and is one which has proven troublesome for our courts in the past, leading to various tests with sometime conflicting results. One such test for determining whether an entity is an agent of the state is whether, when viewed as a whole, the entity is carrying out a function integral to state government. Berns, 801 S.W.2d at 332; see also Schwindel v. Meade County, 113 S.W.3d 159, 168 (Ky.2003). This holistic view of the entity necessarily requires several underlying, subsidiary considerations in making the integral government function determination. In Berns , we recognized that Gnau v. Louisville & Jefferson Co. Metropolitan Sewer Dist, 346 S.W.2d 754 (Ky.1961) established a two-pronged test for determining whether an entity was an agent of the state government within the meaning of the waiver provision of the Board of Claims Act, KRS 44.070, with the first prong consisting of the direction and control of the central state government/and the second addressing the extent to which the entity was `supported by monies which are disbursed by authority of the Commissioner of Finance out of the State Treasury.' Berns, 801 S.W.2d at 331. However, this test may be more accurately characterized as a factorial analysis, whose showing will lend weight to deciding if an entity should be considered a state agency. See Yanero , [6] 65 S.W.3d at 520 (These [ Berns ] factors are primarily relevant to determining whether an entity is properly classified as a state agency.); see also Withers v. University of Kentucky, 939 S.W.2d 340, 342-343 (Ky.1997). The real thrust of the test is the third factor that Berns adds to the Gnau factors, which is whether the entity carries out an integral governmental function. Thus, building off of Berns and Gnau , in Autry v. Western Kentucky University, 219 S.W.3d 713, 717 (Ky.2007), we tried once more to articulate a workable test, stating [governmental immunity extends to state agencies that perform governmental functions (i.e., act as an arm of the central state government) and are supported by money from the state treasury. However, unless created to perform a governmental function, a state agency is not entitled to governmental immunity. An analysis of what an agency actually does is required to determine its immunity status. (internal citations omitted). We believe that Autry provides a good reference point for this analysis in recognizing that there must be a subsidiary inquiry into what an entity actually does to determine if it should be entitled to government immunity. Recognizing the benefit of a factorial analysis, The Sixth Circuit has utilized a method of analysis adopted from the Third Circuit for determining whether a governmental entity ... is an arm of the state for Eleventh Amendment [sovereign immunity] purposes: [L]ocal law and decisions defining the status and nature of the agency involved in its relation to the sovereign are factors to be considered, but only one of a number that are of significance. Among the other factors, no one of which is conclusive, perhaps the most important is whether, in the event plaintiff prevails, the payment of the judgment will have to be made out of the state treasury; significant here also is whether the agency has the funds or the power to satisfy the judgment. Other relevant factors are whether the agency is performing a governmental or proprietary function; whether it has been separately incorporated; the degree of autonomy over its operations; whether it has the power to sue and be sued and to enter into contracts; whether its property is immune from state taxation, and whether the sovereign has immunized itself from responsibility for the agency's operations. Blackburn v. Floyd County Bd. of Educ. By and Through Adams, 749 F.Supp. 159, 161-162 (E.D.Ky.1990) quoting Hall v. Medical College of Ohio at Toledo, 742 F.2d 299, 302 (6th Cir.1984). At the federal level, jurisdictions are divided as to which factors should be considered in determine[ing] whether a state agency is an alter ego of the state or is sufficiently independent to constitute a citizen in its own right, [however] courts look to the attributes or characteristics of the agency which tend to associate it with or disassociate it from the sovereign. 32A Am.Jur.2d Federal Courts § 748 (2008). Among the factors considered are: (1) whether state statutes and case law tend to characterize the entity as an arm of the state, PYCA Industries, Inc. v. Harrison County Waste Water Management Dist., 81 F.3d 1412 (5th Cir.1996); (2) whether state resources may be required in satisfying adverse judgments against the entity, State Highway Commission of Wyoming v. Utah Const. Co., 278 U.S. 194, 49 S.Ct. 104, 73 L.Ed. 262 (1929); (3) whether the state has a financial or otherwise relevant beneficial interest in litigation affecting the entity, Martin Sales & Processing, Inc. v. West Virginia Dept. of Energy, 815 F.Supp. 940 (S.D.W.Va.1993); (4) how the entity is funded, Pyca Industries, Inc., 81 F.3d 1412; (5) its level of autonomy, id.; Roche v. Lincoln Property Co., 175 Fed. Appx. 597, 2006 WL 910241 (4th Cir.2006); (6) whether the entity deals with primarily local or statewide problems, Roche, 175 Fed.Appx. 597, 2006 WL 910241; (7) how state law/courts treats the entity, id.; Texas Dept. of Housing and Community Affairs v. Verex Assur., Inc., 68 F.3d 922 (5th Cir.1995) (8) the ability of the entity to sue and be sued in its own name, e.g., Bosse v. Pitts, 455 F.Supp.2d 868 (W.D.Wis.2006); (9) whether the entity holds and uses property, Pyca Industries, Inc., 81 F.3d 1412, (10) whether the entity can take or sell property, e.g., Tradigrain, Inc. v. Mississippi State Port Authority, 701 F.2d 1131 (5th Cir.1983); (11) the independent management authority of the entity, Verex Assur., Inc., 68 F.3d 922, (12) whether the entity performs governmental or proprietary functions, Ohio Bldg. Authority v. Xerox Corp., 819 F.Supp. 696 (S.D. Ohio 1993); Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd. 990C80656 v. Amoco Oil Co., 883 F.Supp. 403 (N.D.Iowa 1995); (13) the entity's corporate status, e.g., University System of New Hampshire v. U.S. Gypsum Co., 756 F.Supp. 640 (D.N.H.1991); and (14) whether the entity's property is subject to state taxation, New England Multi-Unit Housing Laundry Ass'n v. Rhode Island Housing and Mortg. Finance Corp., 893 F.Supp. 1180 (D.R.I. 1995). While this list is not exhaustive, it does characterize some of the pertinent considerations federal courts have relied upon in their classification. And, while federal courts are far from uniform in their treatment of these factors, with some indicating that no single factor should be afforded more weight, those that do place more emphasis on a single factor tend to look toward the financial nexus between the entity and the state treasury and/or whether the entity performs an essential governmental function. See 32A Am. Jur.2d Federal Courts § 748. It appears from our case law that, although the courts have engaged in somewhat of a hodgepodge of factorial considerations, Kentucky follows the latter approach in placing greater weight on the extent to which the entity engages in an essential government function. See, e.g., Berns, 801 S.W.2d at 332 (when viewed as a whole, the entity is carrying out a function integral to state government.); Schwindel, 113 S.W.3d at 168; Autry, 219 S.W.3d at 717 (unless created to perform a governmental function, a state agency is not entitled to governmental immunity.). While the initial determination of agency, for governmental immunity purposes, has proven troublesome, the subsequent liability inquiry is well-settled. If the entity is a state agency[, then it] is entitled to immunity from tort liability to the extent that it is performing a governmental, as opposed to a proprietary, function. Yanero, 65 S.W.3d at 519 ( citing 72 Am.Jur.2d, States, Territories and Dependencies, § 104 (1974)). A proprietary function is of the type normally engaged in by businesses or corporations and will likely include an element of conducting an activity for profit. See Schwindel, 113 S.W.3d at 168. With regards to the governmental versus proprietary test, when municipal immunity was curtailed, if not effectively abolished, in Haney v. City of Lexington, [386 S.W.2d 738 (Ky.1964)] and (again) in Gas Service Co., Inc. v. City of London, [687 S.W.2d 144 (Ky.1985)], many assumed that the governmental/proprietary distinction had been abolished with it. Yanero, 65 S.W.3d at 519. This was not so. Yanero recognizes that the governmental/proprietary distinction lives on and is still good law, having been utilized by this Court in Berns , which held that the government agency in that instance (the Center for the Arts) was not entitled to immunity because it Vas not created to discharge any `governmental function,' and was not `carrying out a function integral to state government.' Yanero , 65 S.W.3d at 520 ( quoting Berns, 801 S.W.2d at 330, 332). We have noted that while the government/proprietary test is imperfect, it provides a reasonable compromise between allowing state agencies to perform their governmental functions without having to answer for their decisions in the context of tort litigation, and allowing private enterprises to pursue their legitimate business interests without unfair competition from government agencies performing purely proprietary functions without the same costs and risks inherent in commercial enterprise. Id. at 521. Certainly, fire departments and volunteer fire departments are government agents engaged in governmental, as opposed to, proprietary functions. The General Assembly outlines that the procedure and authority for creating fire protection districts and volunteer fire departments is the same as creating taxing districts under KRS 65.182. Chapter 75 of the Kentucky Revised Statutes outlines the formation of volunteer fire departments and fire protection districts within this scheme and KRS 75.040 governs the delegation of authority to operate the fire department. KRS 75.020 governs the manner in which a fire protection district may annex property or reduce its land holdings. KRS 75.040 empowers a fire protection district to levy taxes. KRS 75.050 authorizes a fire protection district to enter into contracts on its own behalf. Volunteer fire departments are recognized and certified under KRS 75.410 by the Kentucky Commission on Fire Protection Personnel Standards and Education  which is attached to the Department of Housing, Buildings and Construction  under the oversight of the State Fire Marshall. KRS 75.400(1). Significantly, KRS 75.070 characterizes fire departments and volunteer fire departments as an agent of the Commonwealth that acts solely and alone in a governmental capacity. See also KRS 95A.010(1) (This chapter shall apply to the personnel of all fire departments in the state whether paid or unpaid, or both.). Fire departments of all kinds receive funding from taxes and government backing. [7] They do not sell goods nor conduct their business with an eye toward making a profit. To be sure, the very term volunteer fire department attests to their task: that is to provide a gratuitous service to the population whereby volunteer citizens risk life and limb to provide a public service. Looking to the factors previously employed by this Court and those considered by the federal courts, they weigh overwhelmingly in favor of acknowledging that fire departments and volunteer fire departments are government agents who engage in a governmental (not proprietary) function. Autry, 219 S.W.3d at 717. Thus, these facts compel the conclusion that our constitutional fathers would ... view this activity as qualifying for sovereign immunity. Berns, 801 S.W.2d at 331.