Appalachian Stream Restoration, LLC v. Commonwealth of Kentucky, Division of Engineering and Contract Administration et al

Filing 30

MEMORANDUM OPINION & ORDER: 1. Motions (R. 15 ; R. 16 ) are GRANTED as to all Counts of the Plaintiff's Complaint. 2. Counts One through Seven of the Plaintiffs Complaint against the Commonwealth of Kentucky, Division of Engineering and Contract Management; Department Facilities and Support Services; Finance Cabinet; and Kentucky Department of Fish and Wildlife are DISMISSED WITHOUT PREJUDICE. Signed by Judge Gregory F. VanTatenhove on 3/1/2019.(CBD)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
FRANKFORT

APPALACHIAN STREAM
RESTORATION, LLC,
Plaintiff,
V.
COMMONWEALTH OF KENTUCKY, et
al.,
Defendants.

)
)
)
)
)
)
)
)
)
)

Civil. No. 3:17-cv-00103-GFVT

MEMORANDUM OPINION
&
ORDER

)

*** *** *** ***
Appalachian Stream Restoration, LLC, a West Virginia Corporation, brings suit in
diversity against the Commonwealth of Kentucky; Division of Engineering and Contract
Administration; Department of Facilities and Support Services; Finance and Administration
Cabinet; the Kentucky Department of Fish and Wildlife; and ICA Engineering, Inc., a Kentucky
corporation. The Commonwealth of Kentucky, Division of Engineering and Contract
Administration, and Fish and Wildlife have moved for dismissal, asserting the defense of
sovereign immunity. [R. 15; R. 16.] For the following reasons, the Court GRANTS
Defendants’ motions and DISMISSES claims against them for lack of subject matter
jurisdiction.
I
On July 6, 2015, Appalachian Stream Restoration (ASR) entered into a contract with the
Commonwealth of Kentucky, which includes the Division of Engineering and Contract
Administration (DECA), the Department for Facilities and Support Services (FSS), and the

Finance Administration Cabinet (FAC) (collectively “Finance”). [R. 1.] The Kentucky
Department of Fish and Wildlife Resources was the regulatory agency overseeing the work
performed under the contract at issue. [R. 1.] By their contractual terms, ASR was hired by the
Commonwealth for “construction of a stream and wetland mitigation site located on the
Higginson-Henry Wildlife Management Area in Union County, Kentucky.” [R. 1 at 3.] The
work was to include “the installation of several different in-stream structures and placement of
gravel material in restored riffles” as well as “installation of groundwater dams, grading
historically modified wetland areas to proposed elevations, and removal and plugging of drain
tiles in active agricultural field” among other projects. [R. 1 at 3.] Plans for the construction
were created and provided by ICA Engineering, Inc., another defendant. [R. 1 at 7.]
The complaint alleges that ASR repeatedly voiced concern over the design of the plans,
which it characterizes as “negligently prepared” and “flawed,” but that its concerns were ignored
by the Defendants. Then, in May, 2016 “heavy rainfall and flood waters at and near the
project . . .caus[ed] failure in certain construction work.” [R. 1 at 7.] The Defendants blamed
the failure on ASR’s construction work, and withheld payment for the work ASR already
completed. [R. 1 at 4]. In December, 2017, ASR filed this lawsuit under diversity jurisdiction.
See 28 U.S.C. § 1132. ASR’s complaint includes seven counts, including statutory liability
pursuant to the Kentucky Fairness in Construction Act, breach of contract, conspiracy, unjust
enrichment, tortious interference, fraud and misrepresentation, and negligence. [R.1.]
Except for ICA Engineering, all Defendants have moved for dismissal pursuant to Rule
12(b)(1) or 12(b)(6)1. [R. 15; R. 16.] Defendants assert that ASR’s claims must be dismissed
because they, as state agencies, are entitled to sovereign immunity per the Eleventh Amendment.

1

The motion filed by Finance cites only Federal Rule of Civil Procedure Rule 12(b)(6), whereas the Department of
Fish and Wildlife’s motion cites both 12(b)(1) and (6) as grounds for dismissal.

2

[R. 15; R. 16.] ASR does not dispute the Defendants’ status as members of the executive branch
of Kentucky’s government; rather, ASR asserts that the Defendants have waived sovereign
immunity and consented to suit in federal court by the terms of their contract. [R. 20.] The
contract contains a clause which states in relevant part:
The Owner and Contractor2 agree that any suit, action or proceeding with respect
to this Contract may only be brought in or entered by the courts of the
Commonwealth of Kentucky situated in Frankfort, Franklin County, Kentucky, or
the United States District Court for the Eastern District of Kentucky, Frankfort
Division, and the parties hereby submit to the non-exclusive jurisdiction of such
courts for the purpose of any such suit, action, proceeding or judgment and waive
any other preferential jurisdiction by reason of domicile or location.
[R. 18 at 61.] This clause, ASR argues, constitutes a waiver of sovereign immunity and consent
on the part of the Commonwealth to suit in federal court, specifically this Court. Defendants
disagree, and instead maintain that immunity may only be waived by an act of the General
Assembly. [R. 20 at 1.] Neither party argues that the United States has abrogated state
immunity in this context, and all agree that the moving Defendants are state agencies for
purposes of immunity. Therefore, the only question before this Court is whether the language in
the contract is, in fact, a valid waiver of sovereign immunity and consent to suit in federal court.
II
Federal Rule of Civil Procedure 12(b)(1) provides that a defendant may assert lack of
subject-matter jurisdiction as a defense. Fed.R.Civ.P. 12(b)(1). A motion to dismiss under Rule
12(b)(1) is different than a motion to dismiss under Rule 12(b)(6) because it challenges the
Court’s power to hear the case before it. When jurisdiction is challenged under this rule, the
burden is on the plaintiff to prove that jurisdiction exists. RMI Titanium Co. v. Westinghouse
Elec. Corp., 78 F.3d 1125, 1134 (6th Cir. 1996). In answering this question, the Court is

2

Per the terms of the contract, “Owner” refers to the Commonwealth, and “Contractor” refers to ASR.

3

“empowered to resolve factual disputes” and need not presume that either parties’ factual
allegations are true. Id.
A motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of a plaintiff’s
complaint. In reviewing a Rule 12(b)(6) motion, the Court “construe[s] the complaint in the
light most favorable to the plaintiff, accept[s] its allegations as true, and draw[s] all inferences in
favor of the plaintiff.” DirecTV, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007) (citation
omitted). The Court, however, “need not accept as true legal conclusions or unwarranted factual
inferences.” Id. (quoting Gregory v. Shelby County, 220 F.3d 433, 446 (6th Cir. 2000)). The
Supreme Court explained that in order “[t]o survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 570 (2007)). See also Courier v. Alcoa Wheel & Forged Products, 577 F.3d 625,
629 (6th Cir. 2009).
A
The Eleventh Amendment mandates that, “the Judicial power of the United States shall
not be construed to extend to any suit in law or equity, commenced or prosecuted against one of
the United States[.]” U.S. Const. amend. XI. Simply put, the States enjoy immunity from the
adjudication of state law claims filed against them in federal court. Ernst v. Rising, 465 F.3d
351, 358 (6th Cir. 2005). “A State, however, may choose to waive its immunity in federal court
at its pleasure.” Sossamon v. Texas, 563 U.S. 277, 284 (2011). The “test for determining
whether a State has waived its immunity from federal-court jurisdiction is a stringent one,” and
federal courts should only find a waiver where there is a “clear declaration that a state intends to
submit itself to [federal] jurisdiction.” College Sav. Bank v. Fla. Prepaid Postsecondary Educ.

4

Expense Bd., 527 U.S. 666, 675 (1999) (internal citations omitted). Further, a State does not
waive sovereign immunity in federal court merely by consenting to suit in its own courts. Id. at
676.
Also relevant to a finding of valid waiver is Kentucky state law. Per the Constitution of
Kentucky, “The General Assembly may, by law, direct in what manner and in what courts suits
may be brought against the Commonwealth.” Ky. Const. § 231. According to Kentucky’s
Supreme Court, “the immunity is such that it may not be waived, except by legislative action.”
Commonwealth, Dep’t of Highways v. Davidson, 383 S.W.2d 346, 348 (Ky. 1964). The General
Assembly has taken such action in passing KRS § 45A.245, which says:
Any person, firm or corporation, having a lawfully authorized written contract
with the Commonwealth . . . may bring an action against the Commonwealth on
the contract, including but not limited to actions either for breach of contracts or
for enforcement of contracts or both. Any such action shall be brought in the
Franklin Circuit Court and shall be tried by the court sitting without a jury.
Ky. Rev. Stat. § 45A.245(1). In passing this statute, “the General Assembly has specifically
chosen to waive the defense of governmental immunity in all cases based upon written contracts
with the Commonwealth.” Univ. of Louisville v. Rothstein, 532 S.W.3d 644, 651 (Ky. 2017).
The parties have not pointed to, and this Court can find, no other statutes addressing sovereign
immunity passed by the General Assembly with respect to any of the other bases of liability ASR
alleges in its complaint.3
Section 45A.245 contains a valid waiver of sovereign immunity as to ASR’s contractual
claims, provided such claims are brought in Franklin Circuit Court. See KRS § 45A.245(1);
College Sav. Bank, 527 U.S. at 676. But ASR argues that the Defendants have also waived

Counsel for Finance posits that the General Assembly has also waived sovereign immunity as to ASR’s negligence
claims, but only before the Kentucky Claims Commission, through KRS § 49.060. This Court does not surmise
whether or not ASR could bring its negligence claims under this statute, and it has no bearing on the validity of the
waiver set forth in the parties’ contract.
3

5

sovereign immunity over its contractual claims in this Court, by the language of the contract
itself. [R. 20.] This Court does not agree. ASR is correct that the contract term at issue is “clear
and unambiguous,” but it is far from clear that Defendants had the authority, as arms of the
executive branch of Kentucky government, to agree to such a provision. According to ASR,
“nowhere does the general law of Kentucky, as enacted by the legislature or provid[ed] by the
state constitution, appear to limit Defendants’ power to contract away—even in limited fashion,
as here—their sovereign immunity in federal court.” [R. 20 at 8.] But Kentucky’s Supreme
Court has stated time and time again that, in accordance with § 231, only the General Assembly
may waive sovereign immunity. See, e.g., Furtula v. Univ. of Ky., 438 S.W.3d 303 (Ky. 2014);
Caneyville Volunteer Fire Dep’t v. Green’s Motorcycle Salvage, Inc., 286 S.W.3d 790 (Ky.
2009); Dep’t of Corrections v. Furr, 23 S.W.3d 615 (Ky. 2000); Commonwealth. Dep’t of
Highways v. Davidson, 383 S.W.2d 346 (Ky. 1964).
Nor has the General Assembly waived sovereign immunity by endowing state agencies
with a general power to contract, for “certainly the constitutional mandate would be of small
stature if its precepts could be waived by any state officer or agent other than the general
assembly.” Commonwealth Dep’t of Highways v. Davidson, 383 S.W.2d 346, 348 (Ky. 1964).
Although federal district courts in Florida have found waiver “stemming from general law
empowering [Florida] state agencies to enter into contracts,” such cases were preceded by the
Florida Supreme Court’s holding “that the [Florida] legislature had implicitly waived its
sovereign immunity by authorizing the state to enter into valid contracts with private parties.”
Posen Constr. v. Lee County, 921 F. Supp.2d 1350, 1356 (M.D. Fla. 2013) (citing Pan-Am
Tobacco Corp. v. Dept. of Corrections, 471 So.2d 4 (Fla. 1984)). There has been no such
holding from the Supreme Court of Kentucky.

6

Finally, ASR relies heavily on C&L Enterprises to support its argument, but this reliance
is misplaced. See C&L Enterprises, Inc. v. Citizen Band Potawatomi Indian Tribe of Oklahoma,
532 U.S. 411 (2001). “The immunity possessed by Indian tribes is not coextensive with that of
the states.” Kiowa Tribe v. Mfg. Techs., 523 U.S. 751, 756 (1998). Whether tribal immunity in
this case could be waived by contract is unrelated to the issue of sovereign immunity here,
because it does not arise from the Eleventh Amendment, “but is judicially created, developing
‘almost by accident.’” Michigan v. Bay Mills Indian Cmty., 695 F.3d 406, 414 (6th Cir. 2012)
(citing Kiowa Tribe, 523 U.S. at 756).
III
The Court is sympathetic to ASR’s predicament. It is undoubtedly frustrating to discover
that the contract provision that seemed so clear and unambiguous, is in fact, unenforceable in
federal court. But ASR is not without a remedy. The doors of the Franklin Circuit Court are
open to ASR, at least as to its contractual claims, by way of valid waiver of sovereign immunity,
executed by the General Assembly. Without such waiver, this Court is without subject matter
jurisdiction to hear ASR’s claims against the DECA and the Department of Fish and Wildlife.
Therefore, and the Court being otherwise sufficiently advised, it is hereby ORDERED as
follows:
1.

The Defendants’ Motions [R. 15; R. 16] are GRANTED as to all Counts of the

Plaintiff’s Complaint.
2.

Counts One through Seven of the Plaintiffs’ Complaint against the

Commonwealth of Kentucky, Division of Engineering and Contract Management; Department
Facilities and Support Services; Finance Cabinet; and Kentucky Department of Fish and Wildlife
are DISMISSED WITHOUT PREJUDICE.

7

This the 1st day of March, 2019.

8