Eastern Kentucky University v. Ohio Valley Conference

RENDERED: JANUARY 6, 2023; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2021-CA-1362-MR
EASTERN KENTUCKY APPELLANT
UNIVERSITY
APPEAL FROM FRANKLIN CIRCUIT COURT
v. HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 21-CI-00621
OHIO VALLEY CONFERENCE APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: ACREE, CETRULO, AND GOODWINE, JUDGES.
CETRULO, JUDGE: Appellant Eastern Kentucky University (“EKU”) appeals
the order of the Franklin Circuit Court denying its motion to dismiss the complaint
of Appellee Ohio Valley Conference (“OVC”).
I. FACTUAL AND PROCEDURAL HISTORY
EKU was a founding member of OVC, a collegiate athletic
conference. OVC is a nonprofit association made up of member schools located in
Kentucky, Illinois, Missouri, and Tennessee; and is governed by a constitution,
which the Board of Presidents1 periodically amends (the “OVC Constitution”).
The OVC Constitution identifies members’ rights and obligations and requires
members to comply with conference rules. Additionally, the OVC Constitution
authorizes OVC to penalize members who violate its rules.
Importantly, the OVC Constitution details the procedure members
must follow to resign from conference membership: a resigning member must
provide two years’ notice of its intent to withdraw and, if it fails to do so, forfeits
its right to certain conference fund distributions and must pay a $1 million exit fee.
Half of that fee is due upon departure and the other half is due within one year of
the initial payment. EKU was one of the founding members, and its President,
sitting on the Board of Presidents, voted to approve those measures.
In January 2021, EKU informed OVC that it was resigning from the
conference, effective July 2021 (a year and a half short of the two-year notice
1
The Board of Presidents is made up of Chancellors and Presidents of each of OVC’s member
schools.
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requirement). EKU did not pay the first half of the exit fee – $500,000 – at that
time, and it notified OVC that it would not pay any portion of the fee.
OVC then filed a complaint in Franklin Circuit Court alleging that
EKU breached its contract (i.e., the OVC Constitution) with OVC. The complaint
claimed that EKU’s failure to pay the exit fee caused OVC – and its members –
damage and it sought a declaratory judgment stating the OVC Constitution was a
valid contract that obligated EKU to pay the fee.
EKU moved to dismiss the complaint for failure to state a claim for
which relief could be granted. In pertinent part, EKU argued that it was entitled to
governmental immunity because it is a state agency. Although EKU recognized
that KRS2 45A.245 waives governmental immunity for contractual claims, EKU
argued that the statutory waiver should not apply because OVC did not have the
capacity or standing to sue, and EKU did not agree that the OVC Constitution was
a valid contract.
In October 2021, the circuit court heard arguments on the motion to
dismiss. The parties presented largely the same arguments as each had briefed, and
the circuit court noted that the main questions before it were whether: 1) OVC had
the capacity and standing to sue EKU; and, 2) whether the OVC Constitution was a
valid contract.
2
Kentucky Revised Statute.
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The next month, the circuit court entered its order denying EKU’s
motion to dismiss (“November 2021 Order”), stating that OVC had associational
standing and EKU’s argument regarding the validity of the contract “hinges on
whether the OVC Constitution is an enforceable contract . . . under KRS 45A.245.”
It concluded that at that stage in the proceeding – pre-discovery – it was required to
“assume the validity of the allegations of the Complaint,” which it found had
adequately pleaded “the requirements for ‘a lawfully authorized written contract’
under . . . KRS 45A.245.” As such, the circuit court reserved judgment on the
issue of EKU’s entitlement to governmental immunity pending further factual
development. Therefore, the circuit court directed the parties to “proceed with
discovery,” and explained that “the issues related to the validity of the alleged
written contract are subject to further review after discovery[.]”
EKU appealed that denial, and then OVC filed a motion to dismiss the
appeal, claiming that it was premature because the circuit court never definitively
denied EKU’s right to governmental immunity.3 Therefore, OVC argued there was
no basis for this Court to review the interlocutory order. This Court determined,
however, that the appeal shall proceed, but “the issues on appeal shall be
LIMITED to [EKU’s] claim of governmental immunity.”
3
While this argument was well received, a motion panel of this Court reserved the right to
consider the full appeal before making a determination on the matter. See Upper Pond Creek
Volunteer Fire Dep’t, Inc. v. Kinser, 617 S.W.3d 328, 332 (Ky. 2020).
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EKU now argues that the circuit court erred in denying EKU’s motion
to dismiss because (1) OVC did not have the capacity or standing to sue on a
contract theory under KRS 45A.245; and (2) the OVC Constitution was not a valid
contract.4
II. STANDARD OF REVIEW
A circuit court should not grant a motion to dismiss “unless it appears
the pleading party would not be entitled to relief under any set of facts which could
be proved.” Fox v. Grayson, 317 S.W.3d 1, 7 (Ky. 2010) (citation omitted). Thus,
“the pleadings should be liberally construed in the light most favorable to the
plaintiff, all allegations being taken as true.” Id. (citation omitted). This
“eliminates any need by the trial court to make findings of fact; ‘rather, the
question is purely a matter of law.’” Id. (citation omitted). Therefore, this Court
4
EKU also claims that the circuit court erred when it failed to dismiss OVC’s non-contractual
claims – promissory estoppel, unjust enrichment, and conversion – because they were barred by
governmental immunity. However, this Court limited its review to the determination of
governmental immunity, not any analysis that should supersede such determination. As such, it
is not appropriate for this Court to address the validity of those additional claims at this time.
Further, while there may be equitable claims that could be subject to dismissal, the circuit court
did not address those in the November 2021 Order. Thus, we are not inclined to review such
claims at this juncture. In Baker v. Fields, 543 S.W.3d 575, 578 (Ky. 2018), the Kentucky
Supreme Court held that a reviewing court can only address the issues presented in the
interlocutory appeal itself or parties would bypass the proper appellate process. See also
Commonwealth v. Samaritan All., LLC, 439 S.W.3d 757, 760 (Ky. App. 2014) (“Although a
party can immediately appeal from the denial of a motion to dismiss based upon absolute
immunity, most other substantive defenses must wait for adjudication by a final order.”). We
agree with the circuit court that further discovery is warranted, which permits further briefing
and motion practice before that court on those claims.
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owes no deference to the circuit court’s determination and instead, reviews the
issue de novo. Id. (citation omitted).
III. ANALYSIS
EKU argues that the statutory waiver to governmental immunity,
under KRS 45A.245, did not apply because (A) OVC did not have the capacity or
standing to sue; and (B) the OVC Constitution was not a valid contract.
A. OVC Capacity and Standing to Sue
Although related, capacity to sue and standing to sue are distinct
issues. Winn v. First Bank of Irvington, 581 S.W.2d 21, 23 (Ky. App. 1978).
Capacity to sue speaks to “the right to come into court,” and standing to sue speaks
to “the right to relief.” Id. EKU claims that OVC falls short of both analyses and
therefore is not entitled to sue under KRS 45A.245. Specifically, EKU claims
OVC did not have capacity to sue because it is a nonprofit association, and that
OVC did not have standing to sue because it did not meet the requirements for
associational standing. We disagree on both issues.
1. Capacity to sue
First, EKU argues that OVC does not have capacity to sue because it
is a nonprofit association and therefore not a “person, firm or corporation” under
KRS 45A.245. KRS 45A.245 states, in pertinent part, that “[a]ny person, firm or
corporation . . . may bring an action against the Commonwealth on the contract,
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including . . . actions [] for breach of contracts[.]” KRS Chapter 45 defines
“Person” as “any business, individual, organization, or group of individuals.” KRS
45A.030(20). Further, it defines “Business” as “any corporation, partnership,
individual, sole proprietorship, joint stock company, joint venture, or any other
legal entity through which business is conducted[.]” KRS 45A.030(1).
KRS 273A.010(1) states that “[a]n unincorporated nonprofit
association is a legal entity distinct from its members and managers.” (Emphasis
added.) Further, KRS 273A.010(3) provides that “[a]n unincorporated nonprofit
association shall have the same powers as an individual to do all things necessary
or convenient to carry on its purposes.” Taking the allegations in OVC’s
complaint in a light most favorable to it, we must conclude that OVC is a nonprofit
association and therefore a legal entity, which falls within the definition of
“person” under KRS 45A.245.
Further, KRS 273A.035(1), enacted in 2015, states that “[a]n
unincorporated nonprofit association may sue or be sued in its own name.” This
makes EKU’s reliance on a 2014 case stating that “an unincorporated association
cannot typically be sued in its own name,” unpersuasive.5 See United Bhd. of
Carpenters v. Birchwood Conservancy, 454 S.W.3d 837, 841 (Ky. 2014).
5
Even still, that case focused on the timeliness of the capacity argument. Birchwood, 454
S.W.3d at 841. As that is not the issue here, and the legislature enacted statutes clarifying
capacity for nonprofit associations, it is difficult to surmise the value of that case in our analysis.
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Therefore, we find OVC had the capacity to sue under KRS 45A.245.
2. Standing to sue
To bring suit in Kentucky, a party must also have standing. Because
an association is made up of members, determining standing for such groups
requires a specialized analysis: associational standing. The Kentucky Supreme
Court has detailed the associational-standing test – a modified6 Hunt-test7 – which
requires “at least one member of the association . . . individually have standing to
sue in his or her own right.” Interactive Gaming Council v. Commonwealth ex rel.
Brown, 425 S.W.3d 107, 113 (Ky. App. 2014) (citation omitted)). “To have
standing to sue, one must have a judicially cognizable interest in the subject matter
of the suit.” Bailey v. Preserve Rural Roads of Madison Cnty., Inc., and Curtis
Tate, 394 S.W.3d 350, 355 (Ky. 2011). Such interest “may not be ‘remote and
speculative,’ but must be a present and substantial interest in the subject matter.”
Id. (citations omitted).
6
In Interactive Gaming Council v. Commonwealth ex rel. Brown, 425 S.W.3d 107, 113 (Ky.
App. 2014) (citation omitted), this Court acknowledged that “Kentucky has never officially
adopted the entire Hunt test.”
7
Alternatively, Federal Courts follow the full test outlined in Hunt v. Washington State Apple
Advertising Commission, 432 U.S. 333, 343. 97 S. Ct. 2434, 2441, 53 L. Ed. 2d 383 (1977):
“[a]n association has standing to bring suit on behalf of its members when: (a) its members
would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are
germane to the organization’s purpose; and (c) neither the claim asserted nor the relief requested
requires the participation of individual members in the lawsuit.”
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EKU argues that OVC member schools do not meet these standards
because they could not demand an exit fee from EKU on their own. However, that
is not the relevant question. Here, we must ask whether each member has an
interest in the subject matter of the suit – i.e., the exit fee. According to OVC’s
complaint, they do. OVC explained that if EKU does not pay the fee, OVC
member schools will be injured. OVC’s complaint outlined its members’ interests,
as reiterated in its brief: “the clear interest of the OVC’s members is in the goods
and services that the exit and ticket fees from EKU could enhance, such as OVC
athletics competitions, administrative and legal support, seminars and
programming, equipment, and – most fundamentally – distributions of funds.”
Further, the complaint noted that payment of exit fees is “paramount to protecting
the interests of athletics conferences, their members, and student-athletes.”
In Bailey, the Kentucky Supreme Court provided clarification on the
amount of “proof” required to meet the standard for associational standing at this
stage in the proceeding. Bailey, 394 S.W.3d at 357. There, like here, the appellant
claimed the appellee did not adequately prove “that any member of the group ha[d]
individual standing.” Id. at 356. The Kentucky Supreme Court emphasized that
“[a]t the pleading stage, less specificity is required. At that point, an association
may speak generally of the injuries to ‘some’ of its members, for the ‘presumption
is that general allegations embrace those specific facts that are necessary to support
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the claim.’” Id. at 357 (brackets omitted) (quoting Commonwealth ex rel. Brown v.
Interactive Media Entertainment and Gaming Ass’n, Inc., 306 S.W.3d 32, 39-40
(Ky. 2010)).
The Kentucky Supreme Court found that the evidence8 submitted in
Bailey, although “far from overwhelming,” was “sufficient evidence to establish
associational standing . . . to shift to appellant the burden of going forward with
proof to the contrary.” Id. See also Warren Cnty. Citizens for Managed Growth,
Inc. v. Bd. of Comm’ns of City of Bowling Green, 207 S.W.3d 7, 13 (Ky. App.
2006) (finding that “evidence that [members of an association] will be directly
affected by [appellee’s action]” was sufficient to establish standing for the
appellants). There, the Kentucky Supreme Court found the appellant did not
present evidence to refute the appellee’s evidence of associational standing. Id.Considering these facts in a light most favorable to OVC, as required,
it is clear that at least one member of the OVC (likely, all) has an interest in their
conference receiving money that will contribute to their programming and
distributions. OVC’s complaint detailed sufficient evidence to establish
associational standing; therefore, the burden shifted to EKU to prove the contrary.
Like the appellant in Bailey, EKU failed to present evidence that refuted OVC’s
8
There, the appellee simply provided evidence proving that one of the members truly was
involved in the association, e.g., testimony that he was a member and a list showing his name on
the roster. Id.-10-
assertion that its members had an interest in EKU paying the exit fee to their
conference. Therefore, at this stage, we must conclude that OVC has associational
standing.
B. Lawfully Authorized Written Contract with EKU
Next, EKU argues that the OVC Constitution was not a valid contract
because it lacked “language demonstrating EKU’s intent to be bound or other
essential elements of a contract[.]” OVC contends, however, that at this stage in
the proceedings, the court must “assume the validity of the allegations of the
Complaint.” We agree.
KRS 45A.245 requires the parties to have entered “a lawfully
authorized written contract[.]” In University of Louisville v. Rothstein, 532 S.W.3d
644, 651 (Ky. 2017), the Kentucky Supreme Court emphasized that in enacting
KRS 45A.245, “the legislature has waived governmental immunity on all claims
brought by all persons on all lawfully authorized written contracts with the
Commonwealth.” Therefore, as the circuit court stated, EKU’s argument for
governmental immunity “hinges on whether the OVC Constitution is an
enforceable contract with EKU under KRS 45A.245.”
OVC’s complaint stated explicitly that the OVC Constitution was a
“lawfully authorized written contract between [OVC] and [EKU].” However,
EKU disputes the existence of a contract and claims that despite those allegations,
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OVC failed to “show that EKU approved the OVC Constitution or agreed to be
bound by it.”
At this stage in the proceedings, we must take OVC’s allegations as
true. Fox, 317 S.W.3d at 7 (citation omitted). In Commonwealth v. Samaritan
Alliance, LLC, 439 S.W.3d 757 (Ky. App. 2014), this Court addressed a similar
issue in which the plaintiff filed a breach of contract suit against the government
and claimed the statutory waiver under 45A.245 applied because their agreement
was in writing. Although this Court noted that the writing requirement – like
here – was undisputed, the parties disagreed as to whether the agreement was a
contract. Id. at 762. There, this Court correctly noted that “the pleadings should
be construed in the light most favorable to the plaintiff and all allegations taken as
true.” Id. (citations omitted). Further, it concluded that in such situations, “[a]ny
factual dispute regarding the existence of a contract is not yet ripe for
adjudication.” Id.Here, OVC’s complaint alleged that the OVC Constitution was a
lawfully authorized written contract with an agent of the Commonwealth.
Although EKU disagrees with that allegation, under Samaritan, that question is not
yet ripe for adjudication. Importantly, the circuit court acknowledged that and
concluded that further discovery was required. We agree.
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Therefore, because the complaint of OVC alleged the OVC
Constitution was a lawfully authorized written contract and there remain factual
disputes as to the existence of such contract, we find the circuit court properly
denied EKU’s motion to dismiss.
IV. CONCLUSION
The complaint of OVC established that it had the capacity and
standing to sue EKU under KRS 45A.245 and that the parties had a lawfully
authorized written contract. Therefore, we AFFIRM the November 2021 Order of
the Franklin Circuit Court denying the motion to dismiss of EKU and remand to
the circuit court for further proceedings.
ALL CONCUR.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE:
Jeffrey C. Mando Cory J. Skolnick
Covington, Kentucky Griffin Terry Sumner
Louisville, Kentucky
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