Dolt, Thompson, Shepherd & Conway, P.S.C. F/K/A Dolt, Thompson, Shepherd & Kinney, P.S.C. v. Commonwealth of Kentucky, Ex Rel. William M. Landrum, III, Secretary of the Finance and Administration Cabinet ( 2020 )


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  •                                             RENDERED:
    2019-SC-0197-DG
    2019-SC-0199-DG
    DOLT, THOMPSON, SHEPHERD 85                     APPELLANT/CROSS-APPELLEE
    CONWAY, P.S.C. F/K/A DOLT,
    THOMPSON, SHEPHERD & KINNEY, P.S.C.
    ON REVIEW FROM COURT OF APPEALS
    V.                     CASE NO. 2018-CA-000467-MR
    FRANKLIN CIRCUIT COURT
    NOS. 17-CI-01129 AND 17-CI-01130
    COMMONWEALTH OF KENTUCKY,                    APPELLEES/CROSS-APPELLANTS
    EX REL., WILLIAM M. LANDRUM, III,
    SECRETARY OF THE FINANCE AND
    ADMINISTRATION CABINET AND DANIEL
    CAMERON, ATTORNEY GENERAL OF
    KENTUCKY
    OPINION OF THE COURT BY JUSTICE WRIGHT
    REVERSING
    I. BACKGROUND
    This case arises from the 2007 lawsuit filed by then-Attorney General
    Greg Stumbo in Pike Circuit Court against Purdue Pharma and other drug
    manufacturers regarding the OxyContin epidemic as it plagued the
    Commonwealth. After General Stumbo’s term ended, Attorney General Jack
    Conway pursued the action on behalf of the Commonwealth. On April 1, 2013,
    the Pike Circuit Court entered a judgment on liability in favor of the
    Commonwealth due to the drug companies’ failure to answer requests for
    admissions.
    In 2014, the Office of the Attorney General (OAG) engaged in a
    competitive bidding process to hire outside counsel to assist in the
    Commonwealth’s litigation against Purdue Pharma, the manufacturer of the
    drug OxyContin. Under then-Attomey General Jack Conway, the OAG selected
    the firm Dolt, Thompson, Shepherd & Kinney, P.S.C. (Dolt Thompson).1
    Pursuant to the contract entered into between the Commonwealth and Dolt
    Thompson, the law firm would be paid for its legal services on a contingency
    basis—that is, it provided Dolt Thompson would be “compensated for . . .
    services pursuant to” the contract “[i]f the Commonwealth receives ... a
    settlement or award.” Dolt Thompson agreed to cover associated legal costs
    and provide hours of work on the case in return for a contingency fee of 16% of
    any recovery plus reasonable expenses. The parties performed under the terms
    of the contract.
    In December 2015, the OAG settled with Purdue Pharma for
    $24,000,000. Purdue Pharma was to make an initial $12,000,000 payment
    within thirty days of the Pike Circuit Court’s entry of judgment, with the
    remaining $12,000,000 paid in eight yearly installments of $1,500,000 each.
    The settlement agreement and release (which the Pike Circuit Court
    incorporated into its final judgment) expressly provided for OAG to pay
    1 After General Conway’s unsuccessful gubernatorial bid, he became a partner
    in the firm, which was renamed Dolt, Thompson, Shepherd & Conway, P.S.C.
    2
    attorney’s fees and expenses out of the settlement amount. Thereafter, Purdue
    Pharma made the initial $12,000,000 payment to Dolt Thompson. Later, then-
    Attorney General Andy Beshear authorized Dolt Thompson to pay itself the
    agreed-upon attorney’s fees and expenses from the settlement funds.
    In the meantime, it had come to the attention of the OAG’s office that its
    contract with Dolt Thompson had expired in June 2015,even though the firm
    had continued to provide services and incur costs in the Purdue Pharma case.
    After discovering the contract had expired, the OAG staff contacted the Finance
    Cabinet for guidance regarding how to confirm the contractual relationship
    with Dolt Thompson in order to distribute the settlement funds. Initially, the
    OAG sent in a purchase request to the Finance Cabinet for an extension of the
    contract. However, Cabinet personnel instructed the OAG it needed to,
    instead, submit a request for a new “Not Practicable to Bid” contract. After the
    OAG so amended its request and resubmitted, the Cabinet approved the
    purchase request.
    In March 2016, the Kentucky General Assembly’s Government Contract
    Review Committee reviewed the purchase request and 2016 contract. Three
    OAG employees appeared at the hearing to answer any questions. The
    Committee neither disapproved nor objected to the contract. The following
    month, the 2016 biennium budget bill was signed into law. The budget
    specified, “Purdue Pharma Settlement Funds: The Attorney General, after
    payment of attorney’s fees and expenses, shall transfer the settlement funds
    resulting from the suit against Purdue Pharma, et al. as follows . . . .” Act of
    3
    April 28, 2016, ch. 149 § 1, Part I(A)(19)(8). The expenditures listed after the
    payment of attorney’s fees totaled $7,950,000, which approximately equates to
    the amount of the Purdue Pharma initial payment less the amount paid to Dolt
    Thompson.2
    In October 2017, a year and a half after the budget ordering attorney’s
    fees and costs was signed into law by Governor Bevin, the Finance Cabinet
    sent a letter to then-General Andy Beshear asserting the Cabinet believed the
    OAG “may have unlawfully authorized or facilitated payment” to Dolt
    Thompson. The OAG then filed a complaint in Franklin Circuit Court seeking a
    declaration that the 2016 contract was enforceable and the payment to Dolt
    Thompson was proper. The Cabinet filed an action the same day against Dolt
    Thompson in Franklin Circuit Court. The Franklin Circuit Court consolidated
    the cases and then granted the OAG’s and Dolt Thompson’s motions for
    summary judgment. The Cabinet appealed to the Court of Appeals, which
    reversed and remanded to the Franklin Circuit Court, ordering that court allow
    the Cabinet to conduct discovery. The OAG and Dolt Thompson filed a motion
    for discretionary review to this Court, which we granted. We now reverse the
    Court of Appeals and reinstate the Franklin Circuit Court’s order granting
    summary judgment.
    2 $12,000,000 - $7,950,000 = $4,050,000. OAG had authorized Dolt Thompson
    to pay itself $4,195,547.47, creating a discrepancy of $145,547.47.
    4
    II. ANALYSIS
    A. Standard of Review
    It has long been the law in this Commonwealth that summary judgment
    “should only be used ‘to terminate litigation when, as a matter of law, it
    appears that it would be impossible for the respondent to produce evidence at
    the trial warranting a judgment in his favor and against the movant.”’
    Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 
    807 S.W.2d 476
    , 483 (Ky. 1991)
    (quoting Paintsville Hosp. Co. v. Rose, 
    683 S.W.2d 255
    , 256 (Ky. 1985)).
    Furthermore, Kentucky Rules of Civil Procedure (CR) 56.03 states that
    summary judgment should be granted if the evidence shows that there is no
    genuine issue as to any material fact and that the moving party is entitled to a
    judgment as a matter of law. “The record must be viewed in a light
    most favorable to the party opposing the motion for summary judgment and all
    doubts are to be resolved in his favor.” 
    Steelvest, 807 S.W.2d at 480
    .
    “Because summary judgments involve no fact finding, this Court will
    review the circuit court’s decision de novo.” 3D Enterprises Contracting Corp. v.
    Louisville & Jefferson Cnty. Metro. Sewer Dist., 
    174 S.W.3d 440
    , 445 (Ky. 2005).
    On appeal, “[t]he standard of review ... of a summary judgment is whether
    the circuit judge correctly found that there were no issues as to any material
    fact and that the moving party was entitled to a judgment as a matter of law.
    Summary judgment is appropriate where the movant shows that the adverse
    party could not prevail under any circumstances.” Pearson ex rel. Trent v. Nat'l
    Feeding Sys., Inc., 
    90 S.W.3d 46
    , 49 (Ky. 2002). As our analysis, infra, “raise[s]
    5
    questions of statutory interpretation, such questions are also subject to de
    novo review.” Community Fin. Serv. Bank v. Stamper, 
    586 S.W.3d 737
    , 741 (Ky.
    2019) (citation omitted). It is through the lens of this de novo standard of
    review that we examine this case.
    B. Model Procurement Code
    In Landrum v. Commonwealth ex rel. Beshear, 
    599 S.W.3d 781
    , 789 (Ky.
    2019), we unequivocally held the Model Procurement Code, KRS Chapter 45A,
    applies to contracts entered into by the OAG. All contracts with the
    Commonwealth must be in writing. See KRS 45A.245(1) (authorizing contract
    actions against the Commonwealth based on “lawfully authorized written
    contracts^”). Contracts may not extend past the biennium in which they are
    entered. KRS 45A. 145(1). Modifications of contracts with the Commonwealth
    must be in writing and approved by the Office of Procurement Services. See
    Finance and Administration Cabinet Manual of Policies and Procedures, FAP
    110-10-00(22) “(d)uring the period of the contract, a modification shall not be
    permitted in any of its conditions and specifications, unless the contractor
    receives electronic or written approval from OPS[]”.3 Similarly, FAP 111-43-
    00(5) provides
    Modification to a PSC shall be processed in the same manner as
    the original Contract in the state’s eProcurement system. A
    Modification shall be used, if the parties to an established PSC
    agree, to increase or decrease funds, revise the scope of work,
    extend the time for performance within the current biennium or any
    other change. (Emphasis added.)
    3 KRS 45A.035(l) authorizes the Cabinet secretary to adopt regulations. 200
    KAR 5:021 § 2 incorporates the Cabinet’s Manual of Policies and Procedures.
    6
    We have held “anyone who deals or contracts with public officials or with
    public bodies must at his own peril take notice of their authority since they can
    only act within the limits of express or necessarily implied powers conferred
    upon them by law.” Commonwealth v. Whitworth, 
    74 S.W.3d 695
    , 699 (Ky.
    2002) (citation omitted). Long ago, our predecessor court expressed a similar
    rule with respect to municipalities, “(a]ny other rule would destroy all the
    restrictions which are thrown around the people of municipalities for their
    protection by the statute laws and the Constitution and would render abortive
    all such provisions. The rule in certain instances may be harsh, but no other
    is practical.” City of Princeton v. Princeton Elec. Light & Power Co., 
    166 Ky. 730
    ,
    741, 
    179 S.W. 1074
    , 1079 (1915).
    C. Equitable Estoppel
    Furthermore, equitable estoppel does not apply in state government
    procurement, as argued by Dolt Thompson and the OAG. In All-American
    Movers Inc. v. Commonwealth, ex rel. Hancock, 
    552 S.W.2d 679
    (Ky. 1977), the
    Commonwealth entered into a contract for the moving of various agencies to
    the Capitol Plaza Building. Thereafter, the moving company claimed it had an
    oral agreement with the Commissioner of Finance to move new furniture from
    the building’s basement into the building, and performed the work claimed
    which the Court noted was a benefit to the Commonwealth. Because the oral
    contract, however, had not been entered into as required by law, it was void.
    Id. at 681.
    The Court then stated “(p)ayments made under such a void
    7
    agreement can be recovered and the acceptance of benefits conferred upon the
    Commonwealth does not work an estoppel.”
    Id. (citations omitted). In
    this case, Dolt Thompson and the OAG admit that after June 30,
    2015, and through the dates the Purdue Pharma case was settled, funds were
    wired to Dolt Thompson. It is undisputed that when the OAG authorized
    payment to the law firm, the written contract between Dolt Thompson and the
    Commonwealth had expired seven months prior. Even under the best-case
    scenario for Dolt Thompson, (i.e., that it had a renewed contract from July 1,
    2014 to June 30, 2015) it admits that the terms of the second contract were
    identical to the first contract. The renewal provision of the contract provides,
    Upon expiration of the initial term, the contract may be renewed in
    accordance with the terms and conditions in the original
    solicitation. Renewal shall be subject to prior approval from the
    Secretary of the Finance and Administration cabinet or his
    authorized designee and the LRC Government Contract Review
    Committee in accordance with KRS 45A.695 and KRS 45A.705,
    and contingent upon available funding.
    The record contains no indication that any renewal of the contract occurred
    prior to Dolt Thompson taking its fee. Because equitable estoppel does not
    apply in the realm of government procurement, the Franklin Circuit Court
    erred in granting summary judgment on that basis in favor of Dolt Thompson
    and the OAG on these grounds.
    D. 2016 Budget Bill
    While Dolt Thompson’s contract with the OAG fell under the Model
    Procurement Code and equitable estoppel does not provide the firm with relief,
    our analysis of the issue does not end there. The fact that the 2016 budget bill
    8
    directed payment of “attorney’s fees and expenses” in the Purdue Pharma case
    makes the trial court’s grant of summary judgment in favor of OAG and Dolt
    Thompson the proper ruling herein.
    The Legislature has the power to modify the laws it has passed—and
    exceptions and variances to laws are made when necessary in the budget. A
    budget may suspend substantive existing statutes which are germane to the
    Commonwealth’s financial framework. Armstrong v. Collins, 
    709 S.W.2d 437
    (1986). This Court has even held the Legislature may suspend statutes
    retroactively when the Governor has acted contrary to existing statutes, but the
    Legislature wishes to ratify his actions: “[p]lainly then, the General Assembly
    may retroactively suspend statutes . . . provided that the legislature clearly
    manifests its intent to do so.” Beshear v. Haydon Bridge Co., Inc., 
    304 S.W.3d 682
    , 694 (Ky. 2010) (internal quotation marks and citation omitted).
    It is clearly within the Legislature’s authority to temporarily suspend the
    Kentucky Model Procurement Code (even if the contract failed to fully comply)
    and order the payment of the “attorney’s fees and costs” in the Purdue Pharma
    case. The only requirement in this suspension of statutes is that the
    Legislature clearly manifest its intent to do so—as it did in this instance. The
    2016 budget bill passed by the Legislature and signed into law by Governor
    Bevin directed the “attorney’s fees and expenses” in Purdue Pharma be paid.
    2016 Ky. Acts ch. 149, Part I(A)(19)(8).
    The 2016 budget stated no conditions to the payment of the attorney’s
    fees. Rather, as noted previously, it directed the disbursement of amounts
    9
    roughly equivalent to Purdue Pharma’s settlement payment minus Dolt
    Thompson’s 16% contingency fee plus expenses. “‘[T]he plain meaning of the
    statutory language is presumed to be what the Legislature intended, and if the
    meaning is plain, then the court cannot base its interpretation on any other
    method or source.” Revenue Cabinet v. O’Daniel, 
    153 S.W.3d 815
    , 819 (Ky.
    2005) (quoting Ronald Benton Brown & Sharon Jacobs Brown, Statutory
    Interpretation: The Search for Legislative Intent § 4.2, at 38 (NITA, 2002)).
    The budget clearly directed payment of the attorney’s fees and expenses
    from the suit against Purdue Pharma, et al. The budget did not contain any
    condition, exception or qualification of its order to pay the Purdue Pharma
    attorney’s fees and costs. “[W]e assume that the Legislature “‘meant exactly
    what it said, and said exactly what it meant.”
    Id. at 819
    (quoting Stone v.
    Pryor, 
    103 Ky. 645
    , 
    45 S.W. 1136
    , 1142 (1898) (Waddle, S. J., dissenting)). The
    2016 budget was signed into law and clearly ordered payment of the Purdue
    Pharma attorney’s fees and costs.
    Could the Legislature actually intend that a contract that failed to fully
    comply with every part of the model procurement code be paid? Mistakes,
    oversights, and the vast, complicated organization that is state government
    requires this in every budget. KRS 45.231 provides for payment of these
    claims bills. This statutory authority forms the basis of the biennial legislative
    claims bills which appear to be routinely presented to and passed by the
    Legislature.”
    10
    As noted, our rules of statutory interpretation assume the Legislature
    knows what it is doing and intends the clearly expressed language of the
    legislation. KRS 45.231 is one example that the Legislature clearly has the
    ability to order the payment of contracts that have failed to fully comply with
    the Kentucky Model Procurement Code found in KRS Chapter 45A. Could the
    Legislature have chosen to order the “attorney’s fees and costs” paid based on
    its own review and investigation instead of delaying to have it considered under
    KRS 45.231? It would be reasonable to presuppose the Legislature decided to
    pay the attorney’s fees and costs based on the legislators’ evaluation of the
    contract instead of delaying for it to be reviewed as set forth .in KRS 45.231. In
    this case, the Legislature ordered the attorney’s fees and costs paid based on
    its own decision rather than having it presented under KRS 45.231. This is
    clearly within the power and authority of the Legislature.
    There are many reasons the Legislature may have ordered pay for work
    that complied with the original contract even though the contract was not
    extended under the Kentucky Model Procurement Code. For example, it would
    be reasonable to presume the Legislature decided to pay the attorney’s fees and
    costs because the work originally contracted for had been completely and
    satisfactorily performed. The Legislature could then include the twelve-million-
    dollar Purdue Pharma settlement in the budget and allow the people of the
    Commonwealth of Kentucky to obtain the benefits of the money in the 2016
    budget rather than waiting to allocate the money in a later budget. This would
    be a valid reason for the budget to order payment of the attorney’s fees and
    11
    costs. Whether this is the reason is irrelevant because we are bound to follow
    the clear and unambiguous language of the law. The 2016 budget clearly and
    unambiguously ordered payment of the “attorney’s fees and costs” in the
    Purdue Pharma case. It would be improper for this Court to presume and
    impose any conditions upon the clearly expressed budget ordering that Dolt
    Thompson be paid the earned attorney’s fees and expenses in the Purdue
    Pharma case.
    In this case, the Legislature passed a budget that was signed into law by
    Governor Bevin. The 2016 budget stated “(8) Purdue Pharma Settlement
    Funds: The Attorney General, after payment of attorney’s fees and expenses,
    shall transfer the settlement funds resulting from the suit against Purdue
    Pharma, et al. as follows: . . . .”
    Id. The Legislature did
    not have to state the
    attorney’s fees and costs were to be paid in its budget—rather, that was an
    intentional statement without any conditions. The language is clear the
    attorney’s fees and expenses were to be paid before the other expenditures, and
    the Court is bound to follow the clear unambiguous language of the legislation.
    Here, there are no facts remaining to be discovered. The Legislature
    acted within its authority and stated the attorney’s fees should be paid prior to
    any other disbursement of the Purdue Pharma funds. There are no facts the
    Cabinet may discover which will change the words enacted by the Legislature
    and signed by the Governor in the budget. Therefore, we reverse the Court of
    Appeals and reinstate the summary judgment granted by the Franklin Circuit
    12
    Court, though for other reasons than that court expressed in granting the
    motion.
    III.   CONCLUSION
    For the foregoing reasons, we reverse the Court of Appeals’ decision and
    reinstate the summary judgment granted by the Franklin Circuit Court.
    Minton, C.J.; Hughes, Keller, Lambert, JJ., concur. Nickell, J., not
    sitting. VanMeter, J., concurs in part and dissents in part by separate opinion.
    VANMETER, J., CONCURRING IN PART/DISSENTING IN PART: I concur
    with so much of the majority opinion as states that the OAG’s contracts are
    subject to the Model Procurement Code and that equitable estoppel does not
    apply as to contracts with the Commonwealth. I respectfully dissent with so
    much of the majority opinion as reverses the Court of Appeals’ opinion
    remanding this matter back to the trial court for discovery. Sufficient factual
    issues remain unresolved concerning what transpired between the Finance and
    Administration Cabinet and the OAG to give rise to the post hoc agreement in
    February 2016. I further disagree that the legislature tacitly approved these
    fees, after the fact, by virtue of the 2016 budget bill. In my view, legislative
    approval of attorneys’ fees was implicitly conditioned on a valid, written
    contract being in place for those fees. Additionally, no one has offered any
    authority to support the OAG’s approval of a discounted, present value fee
    arrangement with Dolt Thompson on future payments due the Commonwealth,
    13
    which payments appear to have never been received by the Commonwealth.4
    Even if some issues ultimately were resolved against Dolt Thompson, it has
    always had a remedy to collect fees properly due it under KRS 45.231.
    4 In 2018, the legislature enacted KRS 45A.717 governing contingency fees for
    legal services under personal service contracts. If this statute had been in effect for
    the Dolt Thompson contract, KRS 45A.717(5) would have prohibited this arrangement.
    14
    COUNSEL FOR APPELLANT/CROSS-APPELLEE
    DOLT, THOMPSON, SHEPHERD
    & CONWAY, P.S.C., F/K/A
    DOLT, THOMPSON, SHEPHERD
    & KINNEY:
    J. Guthrie True
    Frankfort, KY
    Richard M. Guarnieri
    Frankfort, KY
    COUNSEL FOR APPELLEE/CROSS-APPELLANT
    COMMONWEALTH OF KENTUCKY,
    ex rel., WILLIAM M. LANDRUM, III,
    SECRETARY OF THE FINANCE AND
    ADMINISTRATION CABINET; WILLIAM
    M. LANDRUM, III, IN HIS CAPACITY
    AS SECRETARY OF THE FINANCE AND
    ADMINISTRATION CABINET:
    Patrick W. McGee
    Independence, KY
    Hiren B. Desai
    Nicholasville, KY
    COUNSEL FOR APPELLEE/CROSS-APPELLANT
    DANIEL CAMERON, ATTORNEY
    GENERAL AND DANIEL CAMERON
    IN HIS OFFICIAL CAPACITY AS
    ATTORNEY GENERAL OF THE
    COMMONWEALTH OF KENTUCKY:
    Victor Bruce Maddox
    Frankfort, KY
    Carmine Gennaro Iaccarino
    Versailles, KY
    Marc Edwin Manley
    Frankfort, KY
    Daniel Jay Cameron
    Office of the Attorney General
    15