Court Opinion

ID: 4568549
Source: CourtListenerOpinion
Date Created: 2020-09-22 23:05:55.523998+00
Date Added: 2024-06-11T13:28:06.332466
License: Public Domain

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                                              RENDERED: FEBRUARY 20, 2020
                                                     NOT TO BE PUBLISHED

              JBupreutr Court of
                              2018-SC-000494-D

LEDBETTER WATER.DISTRICT                                         , APPELLANT

                    ON APPEAL FROM COURT OF APPEALS
V.                       CASE NO. 2017-CA-000578
                LIVINGSTON CIRCUIT COURT NO. 15-CI-00079
                      HON. CLARENCE A. WOODALL, III

CRITTENDEN-LIVINGSTON WATER DISTRICT                              APPELLEE

                  MEMORANDUM OPINION OF THE COURT

                                    REVERSING

      The Kentucky Court of Appeals reversed a summary judgment entered by

the Livingston Circuit Court which found that a contract entered into between

Ledbetter Water District (“Ledbetter”) and the Crittenden-Livingston Water

District (“Crittenden-Livingston”) was void because it violated Kentucky

Constitution § 164.    After review, we now reverse the Court of Appeals and

reinstate the trial court judgment in favor of Ledbetter.

                               I.    BACKGROUND

      Ledbetter and Crittenden-Livingston are both non-profit water districts

organized under Kentucky Revised Statutes (“KRS”) Chapter 74. Ledbetter is an

unincorporated community located in Livingston County.      Crittenden County

and Livingston County formed a water company together. In 1988, Ledbetter

entered into a four-year agreement with the city of Grand Rivers for Grand

Rivers to become Ledbetter’s new source of water supply. Ledbetter and Grand
Rivers entered into multiple water purchase agreements between 1988 and

2000. Ledbetter learned that Grand Rivers planned to close their water plant

and could no longer supply Ledbetter the amount of water they needed moving

forward.

      In 1996, the Crittenden-Livingston Board of Commissioners began

drawing up plans to expand the Crittenden-Livingston water plant. Crittenden-

Livingston marketed water to five local areas within Crittenden and Livingston

counties to help fund the expansion. Ledbetter was one of the communities to

which Crittenden-Livingston marketed a water supply contract.

      In May 1996, the Crittenden-Livingston Superintendent attended a

Ledbetter Water Board meeting to present the new plan. Ledbetter then sent a

letter to Crittenden-Livingston stating that it wanted to purchase 3,000,000

gallons of water per month from Crittenden-Livingston, at a price of $1.68 per

thousand gallons, for an unspecified length of time.

      Experiencing delays in the project, it was not until January 17, 2000

that Crittenden-Livingston faxed a proposed contract to the Ledbetter Board for

consideration.   A week later, the Ledbetter Board approved the proposed

contract.   Relevant to our review, Ledbetter did not advertise, publicly or

privately, for bids before voting to enter into this contract. Under this contract,

Ledbetter and Crittenden-Livingston agreed for Crittenden-Livingston to

provide and sell a minimum of three million gallons of water per month for a

period of forty years.   Crittenden-Livingston was also granted the right to

install a master meter in a constructed meter housing building on Ledbetter

                                        2
property and to install water line connections to the Ledbetter water system.

Crittenden-Livingston also reserved the right to enter Ledbetter property to

read the meter and provide maintenance.

      Over the course of the contract, Crittenden-Livingston tried to persuade

Ledbetter to purchase more than the minimum 3,000,000 gallons.         By 2010,

Ledbetter was able to produce some of their water supply at their own plant at

a substantially lower cost than the contracted price.

      In 2013, Ledbetter sought an opinion from the Kentucky Attorney

General’s office regarding the legality of the contract between the two entities.

Assistant Attorney General Matt James rendered an advisory opinion that the

contract was void because it violated Kentucky Constitution § 164. The letter

addressed a savings clause within the contract, which would have shifted the

term of years from forty to twenty; however, the contract was still deemed void

as the contract was not put up for public bid. Ledbetter advised the Crittenden

Board of Commissioners of this opinion, which Crittenden-Livingston rejected.

      Ledbetter then filed a declaratory judgment action with the Livingston

Circuit Court.    The trial court determined that the contract was within

Ledbetter’s authority to make; however, because the contract granted a

franchise and was in excess of twenty years, it was void under the Kentucky

Constitution.

      The Court of Appeals reversed the Livingston Circuit Court holding that

because the contract involved two public entities, the franchise provision and

                                        3
the public bidding requirements of the Kentucky Constitution did not apply.

This appeal followed.

                          II.   STANDARD OF REVIEW

      Summary judgment is only proper “to terminate litigation when, as a

matter of law, it appears that it would be impossible for the respondent to

produce evidence at trial warranting a judgment in his favor and against the

movant.”1    Because the grant of summary judgment does not involve fact­

finding, our standard of review is de novo.2

                                 III.   ANALYSIS

      First, we review how the Kentucky Constitution applies to the facts

before us. Ky. Const. § 162, states,

             No county, city, town or other municipality shall ever
             be authorized or permitted to pay any claim created
             against it, under any agreement or contract made
             without express authority of law, and all such
             unauthorized agreements or contracts shall be null
             and void.

      Ky. Const. § 164, Term of Franchises, states:

             No county, city, town, taxing district or other
             municipality shall be authorized or permitted to grant
             any franchise or privilege, or make any contract in
             reference thereto, for a term exceeding twenty years.
             Before granting such franchise or privilege for a term
             of years, such municipality shall first, after due
             advertisement, receive bids therefor publicly, and
             award the same to the highest and best bidder; but it

      1 Paintsville Hosp. Co. v. Rose, 683 S.W.2d 255, 256 (Ky. 1985) (quoting
Roberson v. Lampton, 516 S.W.2d 838, 840 (Ky. App. 1974)).
      2 Pinkston v. Audubon Area Community Services. Inc., 210 S.W.3d 188, 189 (Ky.
App. 2006).

                                          4
            shall have the right to reject any or all bids. This
            section shall not apply to a trunk railway.

(emphasis added). Therefore, when examining the requirements set out in the

Kentucky Constitution, we review both § 162 and § 164.

      We must also determine the meaning of a “franchise.”       In E.M. Bailey

Distributing Co., Inc. v. Conagra, Inc.,3 the Lyon County Riverport Authority had

granted Conagra, a private company, use of a grain loading facility on public

property. E.M. Bailey, a competing private company, filed suit to challenge the

legality of the agreement under § 164 because the riverport authority did not

advertise for competitive bidding. Our Court defined a franchise as follows: “A

franchise is generally defined as a right or privilege granted by a sovereign

power, government or a governmental entity to a party to do some act which

such party could not do without a grant from the government.”4 Furthermore,

a franchise is a grant of a right to use public property or at least the property

over which the granting authority has control.5 The Court held that the

“riverport authority holds title to the land and the improvements in an absolute

trust for all the people of Lyon County. Such a public asset cannot be disposed

of without due advertising, competitive bidding and process mandated by the

Kentucky Constitution § 164.”6

      3 676 S.W.2d 770 (Ky. 1984).
Id. at 771.
      s Young v. City of Morehead, 233 S.W.2d 978 (Ky. 1950).
      6 E.M. Bailey, 676 S.W.2d at 773.

                                          5
       Crittenden-Livingston argues that it is impossible that Ledbetter is

empowered to grant a franchise because it is an extension of Livingston

County, one of the two participating counties of Crittenden-Livingston.

Additionally, Crittenden-Livingston argues that this claim involves one public

entity acquiring the services of another public entity, and therefore does not

require a franchise and public bidding.

       In reviewing Public Service Commission of Kentucky v. Dewitt Water

District, this Court provided insight to the issue of an unincorporated city water

district.7   Dewitt is an unincorporated city in Knox County, Kentucky.       The

Dewitt court held that an unincorporated city water district is a division of the

county’s government stating: “There are approximately 115 water districts in

the Commonwealth of Kentucky which are nonprofit political subdivisions of

county government.”8 This Court continued:

              It is important to remember that this case involves
              water districts which are nonprofit utilities
              organized under Chapter 74 of the Kentucky Revised
              Statutes. The owners and consuming ratepayers are
              essentially the same individuals because the districts
              are political subdivisions of county government.9

       Crittenden-Livingston argues that Ledbetter has no authority to grant or

deny it a franchise as it is not a county, city, town, taxing district, or other

municipality under Ky. Const. § 164. However, water districts have long been

       7 720 S.W.2d 725 (Ky. 1986).
       s Id. at 727.
       9 Id. at 731. (emphasis added).

                                          6
held to be political subdivisions, and therefore observe the same formalities

required of counties and municipalities to contract.10

      Crittenden-Livingston argues that unlike E.M. Bailey, the claim here

involves two public entities; not a public entity and private party. They argue

that this distinction means that the contract cannot be a franchise.

Crittenden-Livingston claims that this is not a franchise agreement, as it did

not grant governmental rights or privileges that Crittenden-Livingston did not

already possess.

      By dissent, Chief Justice Minton cites Inland Waterways Co. v. City of

Louisville, where a lease involving property held by the City of Louisville was

given to a private corporation to be used for wharf purposes.11 However, as

pointed out specifically within Inland Waterways and by our court in E.M.

Bailey, Inland Waterways is factually distinguishable because the lease granted

Inland Waterways Co. only temporary use of the property, and the City of

Louisville retained a recapture provision allowing it to recover the wharf at any

time.12

            Inland Waterways, supra, cited in support of
            respondents' position, is distinguishable from the facts
            in this case because it involved a lease by the City of
            Louisville of property held by it, but not being used for,
            wharf purposes. The lease granted only a temporary
            use of the property and the City could recover it at any
            time it was needed for wharf purposes. This Court held
            that the lease was not a franchise, noting that the

      10 Louisville Extension Water Dist. v. Diehl Pump & Supply Co., 246 S.W.2d 585,
      586 (Ky. 1952).
      11 13 S.W.2d 283, 284-286 (Ky. 1929).
      12 E.M. Bailey, 676 S.W.2d at 772.

                                           7
                  recapture provisions in the lease were wholly
                  incompatible with the idea of a fixed right for a definite
                  term.

                  Here Conagra is permitted a fixed right to use the
                  grain facilities as needed by it for a definite term of five
                  years. The authority cannot regain the grain facility
                  once Conagra has given the required notice and
                  cannot in any event ever recapture the operational
                  area adjacent thereto over which Conagra has been
                  granted absolute exclusive control.

                  In considering this matter, it is useful to distinguish a
                  franchise from a license. A license in respect to real
                  property can be defined as a personal privilege to do
                  acts upon the land of the licensor of a temporary
                  nature which are revocable at the will of the licensor. A
                  franchise is neither temporary or personal and it is not
                  revocable at the will of the grantor. See 36 Am.Jur.2d
                  § 2, Franchises; cf. Owensboro v. Cumberland Tel. &
                  Tel. Co., 230 U.S. 58, 33 S. Ct. 988, 57 L. Ed. 1389
                  (1913).13

       Analogous to our present case, in E.M. Bailey, Conagra was permitted a

fixed right to use the grain facilities for a definitive term, there was no

recapture provision included and Conagra was granted exclusive control over

the facilities.14

       Here, the contract did in fact grant Crittenden-Livingston rights they

would not have possessed without the contract with Ledbetter.                    The

Crittenden-Livingston Water District encompassed areas within Crittenden and

Livingston counties; however, it did not include the Ledbetter district. With the

agreement, Crittenden-Livingston was permitted to install connecting water

lines and a master meter with valves, to maintain a building on the Ledbetter

       is Id.
       1^ Id.

                                               8
water tower property so as to gain access to the Ledbetter master meter and

was granted rights to enter the Ledbetter facility for readings and maintenance.

The contract also granted Crittenden-Livingston the right to use Ledbetter’s

water system infrastructure to transport a minimum of 3,000,000 gallons of

water each month to fulfill the terms of the contract by selling water to

Ledbetter.

      Justice VanMeter's dissent notes that pursuant to KRS 74.070(1) a water

district is authorized to     "make   contracts for the water       district with

municipalities and other persons."      He concludes this is just a contract

between the two public entities while a franchise is implemented where a water

district contracts with a private entity to create infrastructure, deliver water to

citizens and then direct bills those citizens. However, in KRS 96.120(1) the

legislature refers to a contract such as the one before us as a franchise: "Any

city that owns and operates its own water or light plant may acquire a

franchise to furnish water and light to any other city, in the same manner that

any private corporation or individual may acquire such a franchise." Although

the statute refers to a water supply arrangement between two cities, there's no

reason the rule would be different for two water districts, which as noted are

political subdivisions of county government.

      On October 5, 1981, Honorable Martin W. Johnson, City Attorney for

Benton, Kentucky, requested an opinion from the Office of the Attorney

General (“OAG”) as to whether two public entities could enter into a forty year

                                        9
contract as was required by the lender.15        Under the contract the City of

Benton planned to furnish water to the City of Hardin.16          The contract in

question included a proposed term of forty years. In response, the OAG made

the following recommendation:

                     We initially refer you to KRS 96.120, which
               reads as follows: “Any city may acquire a franchise to
               furnish water and light to any other city, in the same
               manner that any private corporation or individual may
               acquire such a franchise.”

                     The above statute authorizes the proposed sale
               of water between the cities of Benton and Hardin.
               However, such a contract would necessarily be in the
               nature of a franchise acquired in this instance by the
               City of Benton from the City of Hardin and would be
               governed, in our opinion, by Section 164 of the
               Constitution. As you know, this section prohibits any
               franchise from exceeding twenty years and at the same
               time requires that it be let on a bid basis, though from
               a practical standpoint, in this instance, there would
               only be one bidder. Nevertheless, we believe that the
               terms of Section 164 must be complied with.17

Much like the OAG opinion rendered regarding the contract between the cities

of Benton and Hardin, in the present case we have an analogous OAG advisory

opinion stating that the contract between Ledbetter and Crittenden-Livingston

was void because it violated Kentucky Constitution § 164.

      Crittenden-Livingston relies on Southeast Bullitt Fire Protection District v.

Southeast Bullitt Fire and Rescue Department, a dispute between public entities

     is 1980-1981 Ky. Op. Atty. Gen. 2-883 (Ky. A.G.), Ky. OAG 81-365, 1981 WL
142437.
      is Id.
      17 Id.

                                          10
in Bullitt County.18 That contract dispute involved a volunteer fire department

that provided non-utility fire protection services in the district’s area.             The

Bullitt court held, “The District is correct that the fire protection contract was

not publicly advertised; however, the Fire Department argues that it provides a

“professional service” and no public bidding was required. The trial court held

that the Fire Department provided professional services and we agree with

that conclusion.”19 This decision is factually distinguishable from the present

case. Here we have a franchise granted for providing water utilities, rather than

a contract for professional services. Since 1896 it has been held that a utility

contract regarding water supply is a franchise, and pursuant to the Kentucky

Constitution, a franchise or privilege that was not advertised and publicly bid

is void pursuant to § 164.20

      Since the contract entered into by Ledbetter and Crittenden-Livingston

was both for a term of greater than twenty years and was not advertised for

public bidding, it violates the Kentucky Constitution and applicable statutes

and, thus, is void.       We reverse the Court of Appeals and reinstate the

Livingston Circuit Court grant of summary judgment.

      Minton, C.J.; Hughes, Keller, Lambert, VanMeter and Wright, J.J.,

sitting. Nickell, J., not sitting.

      18 Southeast Bullitt Fire Prot. Dist. v. Southeast Bullitt Fire and Rescue Dep’t., 537
S.W.3d 828 (Ky. App. 2017).
      19 Id. at 831 (emphasis added).
      20 Nicholasville Water Co. v. Bd. of Councilmen of Town of Nicholasville, 36 S.W.
549 (Ky. 1896).

                                            11
      Hughes, Keller, Lambert and Wright, J.J., concur. Minton, C.J. dissents

with separate opinion in which VanMeter, J., joins. VanMeter, J. dissents with

a separate opinion in which Minton, C.J., joins.

      MINTON, C. J., DISSENTING: I agree with the result reached by Justice

VanMeter’s dissenting opinion21 but write separately to express an additional

point that, in my view, is a critical point under these facts. Ledbetter argues, in

part, that the contract was a franchise because it granted to Crittenden-

Livingston the right to use the real property of Ledbetter. Specifically, the

contract gave Crittenden-Livingston the right to use Ledbetter property to

install a water line and meter and to erect a building to house the meter. But

while the granting “of a right to use public property or at least the property over

which the granting authority has control”22 may be an attribute of a franchise,

that fact alone does not render the granting of a lease a franchise. The nature

of the public property and the activity being conducted on the property must be

considered.

      For example, in Inland Waterways Co. v. City of Louisville, our

predecessor court found that a lease given to a private corporation by the City

21 The point in Justice VanMeter’s dissent, that the right to produce and sell water to a
water district is not the prerogative of the government, and a franchise is therefore not
required to grant such a right, is supported by our case law. See Young v. City of
Morehead, 233 S.W.2d 978, 980 (Ky. 1950) (“The right to produce and sell gas is not a
prerogative of a government but is a business open to all, therefore, Young was not
exercising a franchise when he contracted to sell and deliver his gas to the City at its
corporate limits.”); City of Princeton v. Princeton Electric Light & Power Co., 179 S.W.
1074, 1077 (Ky. 1915) (“The right to produce and sell electricity as a commercial
product is not a prerogative of a government, but is a business which is open to all,
and for that reason is not a franchise.”).
22 E.M. Bailey Distributing Co., Inc., v. Conagra, Inc., 676 S.W.2d 770, 771 (Ky. 1984)
(citing Young, 233 S.W.2d 978).

                                           12
of Louisville upon real property held by the City was not a franchise requiring

advertisement and competitive bidding under Section 164.23 More specifically,

the contract in that case leased to the Inland Waterways Company, for a fixed

term, two separate tracts of land abutting the Ohio River with the express

purpose that the lessee develop the parcels to be used as a wharf.24 The lease

had been challenged as an invalid franchise under Section 164.25

         The Court explained that a franchise of the type contemplated by Section

164 “is generally understood to designate and denote a right or preference

conferred by law which may be granted only by the sovereign, and not by

individuals generally.”26 The Court went on to explain that such a right may

not be conveyed by a lease even if the lease provides for the use of land held by

the government.27 It is instead the nature of the right being conveyed—whether

it confers some special privilege not belonging to the public—that ultimately

determines whether a franchise has been created.

         The Court concluded that the lease at issue did not confer any special

privilege exclusive to the City of Louisville but instead conferred only the right

to operate a private wharf on the lessor’s land—a right that could have been

conveyed by any private entity.28 The fact that the City of Louisville held title to

23 13 S.W.2d 283, 284-86 (Ky. 1929).
24 Id. at 285.
25 Id.
25 Id.
27 See id. at 286.
28 See id. at 286-87.

                                         13
the land did not change the nature of that right. The city was simply conveying

the right to use land as other private individuals may do.29

      Likewise, the Ledbetter lease at issue does not involve a right that may

be granted only by the sovereign but instead involves a right that may be

conferred by private individuals generally—the right to produce and sell water

and construct water lines and meters on the lessor’s property—as Justice

VanMeter properly notes. The fact that Ledbetter holds title to the property

does not change the nature of this right. Leases identical to this one could be

executed by any private entity.

      As such, I would hold that the lease is not void for granting a franchise

or privilege without allowing competitive bidding under Section 164. I would

affirm the decision the Court of Appeals for the reasons I have stated.

VanMeter, J., joins.

      VanMeter, J., DISSENTING: Respectfully, I dissent. The majority’s

analysis of Section 164 of the Kentucky Constitution fails to recognize that the

water districts in question entered into a simple contract for the sale of water

from one district to the other, thus removing any contract for services between

Ledbetter and Crittenden-Livingston from Section 164’s provisions regarding

franchises. “A franchise is generally defined as a right or privilege granted by a

sovereign power, government or a governmental entity to a party to do some act

29 See id. at 287 (citing Ky. Stats. § 2742; Carrollton Furniture Mfg. Co. v. City of
Carrollton, 47 S.W. 439 (Ky. 1898)); Board of Councilmen of the City of Frankfort v.
Pattie, 12 S.W.2d 1108 (Ky. 1928)) (“A municipal corporation may be the owner of land
and may control, use, lease, and dispose of it as other proprietors may do.”).

                                         14
which such party could not do without a grant from the government.” E.M.

Bailey Distrib. Co. v. Conagra, Inc., 676 S.W.2d 770, 771 (Ky. 1984).

      In the context of public utilities, such as waterworks, a franchise is

implemented if a water district contracted with a private entity to carry out the

water district’s duties in creating infrastructure, delivering water to the

district’s citizens, and billing them directly. However, under the present

arrangement, Ledbetter is simply purchasing water from an adjacent water

district—not to franchise the supplying of water to Ledbetter citizens—but to

add to Ledbetter’s existing, limited supply held in its water tower. This Court

has held, under similar factual circumstances related to two non-profit

government entities contracting for services, “[t]he contracts involved have

some of the attributes of a privilege, but the rights conferred do not have the

character of a franchise. * * * The contracts are mutually advantageous to the

three municipal corporations. They have added no appreciable burden. They

constitute mere rental of a surplus facility.” City of Russell v. City of

Flatwoods, 394 S.W.2d 900, 902 (Ky. 1965) (quoting Louisville & Jefferson

Cnty. Metro Sewer Dist. v. Strathmoor Village, 307 Ky. 343, 345-46, 211 S.W.2d
127, 129 (1948)).

      Under KRS 74.070(1), Ledbetter’s commission “may make contracts for

the water district with municipalities and other persons.”    Ledbetter’s contract

with Crittenden-Livingston was simply fulfilling Ledbetter’s statutory duty to

provide water to its citizens, not through a franchise, but through a contract

for an amount of water to be added to Ledbetter’s own supply. Much like the

                                         15
sewer services contracts between the three municipal corporations in

Strathmoor Village, “[t]hese are contracts such as individuals owning like

facilities as private property might have made.” 307 Ky. at 346, 211 S.W.2d at

129. Thus, Ledbetter should be free to contract with Crittenden-Livingston for

the provision of external water resources without implication of the franchise

prohibition and requirements of Section 164.

Minton, C.J., joins.

COUNSEL FOR APPELLANT:

Van Franklin Sims
Paducah, Kentucky

COUNSEL FOR CRITTENDEN-LIVINGSTON WATER:

Robert Bartley Frazer
Marion, Kentucky

COUNSEL FOR KENTUCKY RURAL WATER ASSOCATION, INC, AMICUS
CURIAE :

Damon R. Tally
Hodgenville, Kentucky

Stephen A. Sherman
Louisville, Kentucky

                                       16
                              2018-SC-000494-DG

LEDBETTER WATER DISTRICT                                             APPELLANT

                    ON REVIEW FROM COURT OF APPEALS
V.                       CASE NO. 2017-CA-000578
                LIVINGSTON CIRCUIT COURT NO. 15-CI-00079

CRITTENDEN-LIVINGSTON WATER                                           APPELLEE
DISTRICT, ETAL.

              ORDER DENYING PETITION FOR REHEARING
           ARD FOR MODIFICATION OR EXTENSION OF OPINION

      Appellee’s Petition for Rehearing and for Modification or Extension of the

Opinion of the Court, rendered February 20, 2020, is DENIED.

      Minton, C.J.; Hughes, Keller, Lambert and Wright, JJ., concur.

VanMeter, J., would grant the Petition for Rehearing. Nickell, J., not sitting.

      ENTERED: July 9, 2020.

                                        CHIEF JUSTICE