Ledbetter Water District v. Crittenden-Livingston Water District

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NOT TO BE PUBLISHED OPINION
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RENDERED: FEBRUARY 20, 2020
NOT TO BE PUBLISHED
2018-SC-000494-DG
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).
4
Id. at 771.
5 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
13 Id.14 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
15 1980-1981 Ky. Op. Atty. Gen. 2-883 (Ky. A.G.), Ky. OAG 81-365, 1981 WL
142437.
16 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.26 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. u. 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