Board of Commissioners of the City of Danville, Kentucky v. Advocate Communications, Inc. D/B/A the Advocate-Messenger

RENDERED: SEPTEMBER 28, 2017
TO BE PUBLISHED
~uprtmt @nµrl nf ~tnfurku
2016-SC-000280-DG
BOARD OF COMMISSIONERS OF THE CITY APPELLANT
OF DANVILLE, KENTUCKY
ON REVIEW FROM COURT OF APPEALS
v. CASE NOS. 2014-CA-001300 AND 2014-CA-1301
BOYLE CIRCUIT COURT NO. 12-CI-00482
ADVOCATE COMMUNICATIONS, INC. APPELLEE
D /B/ A THE ADVOCATE-MESSENGER
OPINION OF THE COU~T BY JUSTICE VANMETER
AFFIRMING IN PART
AND
VACATING IN PART
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 of the City of Danville ("Board") permissibly went into closed
session to discuss its intention to- bid on real property offered for sale pursuant
to an absolute auction. Under the facts of this case, we hold that no exception
permitted the Board's action and affirm that portion of the Court of Appeals'
opinion. But because the Board's action was not willful, we vacate that portion
of the Court of Appeals' opinion remanding to the Boyle Circuit Court for an
assessment of fees and costs.
I. Factual and Procedural Background.
For some time prior to 2012, the City of Danville 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. In July 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 whether the Board decided to use a ·
bidding agent at the July 23 meeting, or whether that decision was made by .
the City Manager following the meeting.
The next week, Danville's mayor signed a confidential Agreement and
Bidding Instruction with 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
2
conjunction with that Agreement, the mayor and the agent signed a
registration form with the auctioneer, and the agent signed an
acknowledgement of Auction Terms and Conditions. The significant terms
were that "[t]he successful bidder shall be required to enter into a non-:-
contingent auction purchase agreement and deposit 10% of the contract
price[,]" with closing to be held within 30 days. The property was offered AS IS,
WHERE IS, and potential bidders 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 of the
\._
hammer, the mayor, the seller, .and all parti_cipating realtors, signed the
auction purchase contract whereby the City agreed to buy the property at a
closing to be held within 30 days, subject only to a standard contingency that
the City receive merchantable title via a general warranty deed, free and clear
of all 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 of Board approval.
A few days after the auction, at its August 13 meeting, the Board went
into closed session to discuss the property's purchase. At the adjournment of
the closed session, the Board openly and unanimously approved the purchase
of the 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 regarding the July 23 meeting, and alleged that the
Board had yiolated the Open Meetings Act, KRSl 61.800, et seq. ("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 in the Boyle
Circuit Court, ~hich upheld the Attorney General's determination, but denied
the newspaper's request for 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 of an open meeting violation, but reversed
the trial court's finding that the violation was not willful and remanded the
case to the trial court for impo·sition of costs and attorneys' fees.
II. Standard of Review.
In this case, the trial court granted the newspaper's motion for summary
judgment and denied that of the Board, implicitly concluding that a violation of
the Act had occurred. We review·open meeting determinations de novo.
Kentucky Bd. of Exam'rs of Psychologists v. The Courier - Journal & Louisville
\
i Kentucky Revised·Statutes.
2 OFFICE OF THE 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
accessed Aug. 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 of public agencies are open to the public at all times.
KRS 61.810(1). This section states "[a]ll meetings of a quorum of the members
of any public agency at which any public business is discussed or at which 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 policy is
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 that the 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 exception related to
the acquisition of real property applies to its decision to bid on the property.
This exception permits "[d]eliberations on the future acquisition or sale of real
property by a public agency, but only when publicity would be likely to affect
the value of a specific piece of property to 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 of the Act, as "a collective decision, a commitment or promise to
5
make a positive or negative decision, or an actual vote by a majority of the
members of the governmental body." KRS 61.805(3).
B. Acquisition of Real Property by Public Auction.
The wrinkle that makes this case unique is the sale of the property by
absolute auction. The Board argues that notwithstanding its "consensus" to
bid at the auction, the City's purchase was still subject to Board approval
following the auction in the event the city was the successful bidder.
"
Unfortunately, the Board's argument fails based on basic principles of contract
formation applicable to auction sales,3 and, importantly, under the facts of this
case.
When a seller places property for sale at auction, contract formation
differs depending on whether the auction is stated to be "with reserve" or
"without reserve." In an auction with reserve, the seller, in placing the property
up for auction, is merely advising the public of its willingness to entertain bids.
See Puckett v. Dunn, 529 S.W.2d 358, 359 (Ky. 1975) (stating an
announcement of public auction is "a mere declaration of intention to hold an
auction at which bids will be received .... It is a mere invitation to those
attending the sale to make offers by bids[]"); 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 of both ·
real and personal property. See KRS 330.210, 330.220, 355.2-328. We do not
purport to set forth definitive rules governing auction sales, but merely to note the
pripciples of contract formation that are germane to this case, specifically relating to
absolute auctions.
6
is manifested, the auctioneer invites offers from successive bidders which he
may accept or reject[]"). 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 by virtue of putting the property up for auction.
Each bid made- on the property is an acceptance and therefore forms a
contract, subject only to· the contingencies of (a) a higher bid/ acceptance or (b)
the withdrawal of the bid made before-the fall of the hammer, i.e., the
conclusion of the auction. See Restatem~nt (Second) of Contracts,§ 28(1)(b)
(1981) (stating that "when goods are put up without reserve, the auctioneer
makes an offer to sell at any ,price bid by the highest bidder[]").
c. Violation of Open Meetings Act.
Here, the auction of the property was an absolute auction, an auction
without reserve. Published terms and conditions set forth very minimal
contingencies whi.ch might permit any buyer to ca.:h.cel the transaction after the
completion of\the auction. Before the auction, the mayor and the bidding agent
both signed the auctioneer's registration form, and the agent signed an
acknowledgement of Auction Terms 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 ... of real
7
property by a public agency, but only when publicity would be likely to affect
the value of a specific piece of property to 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 idea without affecting
the value of the property, to the City's detriment.. The closed portion of the
meeting, we.believe, could have been used to discuss bidding strategy and the
maximum price the mayor, or any other bidding agent, would have been ,
/
authorized to .bid. In that way, the exception for avoid~g publicity likely to
affect the value of the property would have been strictly complied with. As the
matter transpired, the City ultimately was obligated to purchase the property,
with the decision to bid on and to buy the property having been made in closed
session i:r:i violation of the Act. The Board's post-auction approvals, albeit
conducted in public, were window-dressing, because irrespective of the Board's
arguments to the contrary, the City was already compelled to ~omplete the
, .
purchase - or answer a complaint for specific performance.
We are not unmindful of the quandary that the Board faced. Public
knowledge of the maximum bid approved in the closed session could easily
affect both the bidding process and the purchase price of the property.
However, the vote in open,,meeting for the City to bid on and potentially
purchase the property would not requiie disclosure of the maximum
authorized bid.
8
Thus, the decisions of the Attorney General, the Boyle Circuit Court and
the Court of Appeals are all affirmed on this issue.
D. Willfulness of the Open Meetings Violation.
The final issue concerns the willfulness of the Board's violation of the
Act's requirement. Under KRS 61.848(6), the court may award costs, including
reasonable attorneys' fees, to any person 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 of Appeals reversed the trial court, stating:
The Board was acutely aware that discussing its bid. in a
public meeting would automatically create a disadvantage for it as
a bidder in an auction. Nevertheless, the requirements of the Open
Meetings Act are clear on their face. The Board went into a closed
meeting to discuss a matter of public business. Its closed meeting
did not satisfy any of the ·exception~ to the open meetings
mandate. The Board deliberately elected to ignore the
requirements of the Open Meetings Act when it proceeded to
discuss public business in private. It declined to respond to the
open meetings request by the [newspaper]. Its conduct with ·
respect to the clear requiremenis of the statute was
unquestionably willful as construed by City of Fort Thomas [v.
Cincinnati Enquirer, 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-CA-
001301-MR (Ky. App., Apr. 29, 2016), slip op. at 10.
While we agree that the Board violated the Act, we find that the violation
stemmed more from its effort to avoid the publicity adversely affecting the value
of the property and its misconception of the law applicable to bidding at public
auction without reserve, than from a willful attempt to violate the Act .. In our
9
view, ·the exception relating to real property acquisition directs its focus to·
avoiding publicity which could affect value. In hindsight, a public d~scussion
and concomitant decision to bid, without public disclosure of the 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 of the Court of Appeals' opinion.
All sitting. All concur.
COUNSEL FOR APPELLANT:
Stephen Dexter
Sheehan, Barnett, Dean, Pennington, Little &i Dexter, P.S.C._
COUNSEL FOR APPELLEE:
Jon L. Fleischaker
Jeremy Stuart Rogers
DINSMORE & SHOHL, LLP
Michael P. Abate
KAPLAN & PARTNERS LLP
10
COUNSEL FOR AMICUS CURIAE
THE MUNICIPAL ATTORNEYS
ASSOCIATION OF KENTUCKY, INC.:
Morgan Todd Osterloh
Sturgill, Turner, Barker & Moloney, PLLC
COUNSEL FOR AMICUS CURIAE
KENTUCKY LEAGUE OF CITIES:
Laura Milam Ross
Kentucky League of Cities, Legal Services Counsel
11