Opinion
NO. 2018-CA-001518-MR NO. 2018-CA-001569-MR
01-10-2020
CITY OF FORT WRIGHT, KENTUCKY; CITY OF COVINGTON, KENTUCKY; CITY OF TAYLOR MILL, KENTUCKY; AND CITY OF INDEPENDENCE, KENTUCKY APPELLANTS/CROSS-APPELLEES v. BOARD OF TRUSTEES OF THE KENTUCKY RETIREMENT SYSTEMS APPELLEE/CROSS-APPELLANT
JOINT BRIEFS FOR APPELLANTS/CROSS-APPELLEES: Ronald R. Parry Robert R. Sparks Amy L. Hunt Cincinnati, Ohio Counsel for City of Fort Wright, Kentucky: Todd V. McMurtry Fort Mitchell, Kentucky Counsel for City of Covington, Kentucky: Michael Bartlett Covington, Kentucky Counsel for City of Taylor Mill, Kentucky: Frank A. Wichmann Erlanger, Kentucky Counsel for City of Independence, Kentucky: Jack S. Gatlin Fort Mitchell, Kentucky BRIEFS FOR APPELLEE/CROSS-APPELLANT: Robert W. Kellerman Frankfort, Kentucky
NOT TO BE PUBLISHED APPEAL AND CROSS-APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE THOMAS D. WINGATE, JUDGE
ACTION NO. 14-CI-01259 OPINION
AFFIRMING
** ** ** ** **
BEFORE: GOODWINE, LAMBERT, AND K. THOMPSON, JUDGES. GOODWINE, JUDGE: The City of Fort Wright, Kentucky; City of Covington, Kentucky; City of Taylor Mill, Kentucky; and City of Independence, Kentucky (collectively "Cities") appeal from a judgment of the Franklin Circuit Court denying the Cities' motion for declaratory judgment and granting the Board of Trustees of the Kentucky Retirement Systems' ("Board") cross-motion for declaratory judgment. The sole issue on appeal is whether the Board was permitted by statute to make certain types of investments on behalf of the County Employees Retirement System ("CERS"). After careful review, finding no error, we affirm.
This case was previously before this Court on interlocutory appeal. The Board sought to determine whether it was entitled to sovereign immunity. This Court summarized the background of the case as follows:
The [Cities] and [their] employees participate in [CERS]. CERS is a public retirement system created under Kentucky Revised Statutes (KRS) 78.510 et seq. CERS is administered by the Board of Trustees of the Kentucky Retirement Systems. See KRS 78.780.
The City [of Fort Wright] filed a class action complaint against the Board in Kenton Circuit Court, on behalf of itself and all other participants in CERS. The complaint alleged the Board had violated its statutory and fiduciary obligations by placing CERS funds in unauthorized and high-risk "alternative assets" investments, and the Board had paid substantial management fees (exceeding $50 million over a period of five years) in connection with these inappropriate investments. The complaint sought a declaration of the rights of the parties, to enjoin the Board from investing CERS assets in funds that are not registered pursuant to the Federal Investment Company Act of 1940, 15 U.S.C. Sec. 80a-1 et seq., and to enjoin the Board from using CERS assets to pay management fees for such investments. It sought an accounting from the Board for
the previous five years and a segregation and reallocation of investment assets in the three funds the Board administers: CERS, the Kentucky Employees Retirement System (KERS) and the State Police Retirement Systems (SPRS).Board of Trustees of the Kentucky Retirement Systems v. City of Fort Wright, No. 2015-CA-000878-MR, 2016 WL 5319180, at *1 (Ky. App. Sept. 23, 2016) (footnote omitted). The Board's interlocutory appeal followed, and this Court held the Board waived its entitlement to sovereign immunity.
The Board moved to dismiss. The Kenton Circuit Court transferred the case to the Franklin Circuit Court which entered an order denying the motion to dismiss. The Board then moved the court specifically to address its sovereign immunity defense. The trial court issued another order expressly ruling sovereign immunity did not bar this action.
Then, the trial court ruled on the parties' cross-motions for a declaratory judgment. The court found the Board had broad discretion in making investments, and the investments it made were permitted by Kentucky law. This appeal followed.
On appeal, the Cities argue the standard for investing CERS funds is more restrictive than the standard for investing KERS funds. Participation in CERS, like KERS, is "controlled by statute." Kentucky Employees Retirement System v. Seven Ctys. Services, Inc., 580 S.W.3d 530, 537 (Ky. 2019). Statutory interpretation is a question of law, which we review de novo. Maupin v. Tankersley, 540 S.W.3d 357, 359 (Ky. 2018). "We interpret statutory terms based upon their common and ordinary meaning, unless they are technical terms. We liberally construe our reading of a statute with the goal of achieving the legislative intent of the General Assembly regarding the statute's purpose." Id. (citations omitted).
KRS Chapter 61 establishes and dictates the operations of KERS, and KRS Chapter 78 governs CERS. The Cities assert that both chapters set forth standards for investing assets. KRS 61.650(1)(c) provides in pertinent part:
A trustee, officer, employee, or other fiduciary shall discharge duties with respect to the retirement system:(Emphasis added). KRS 78.790(1) provides:
1. Solely in the interest of the members and beneficiaries;
2. For the exclusive purpose of providing benefits to members and beneficiaries and paying reasonable expenses of administering the system;
3. With the care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with those matters would use in the conduct of an activity of like character and purpose[.]
The board . . . shall have full power to invest and reinvest such funds subject to the limitations that no investments shall be made except upon the exercise of bona fide discretion, in securities which, at the time of making the investment, are, by law, permitted for the investment of funds by fiduciaries in this state except that the board
may, at its discretion, purchase common stocks in corporations that do not have a record of paying dividends to their stockholders. Subject to such limitations, the board shall have full power to hold, purchase, sell, assign, transfer or dispose of any of the securities or investments in which any of the funds created herein have been invested, as well as of the proceeds of such investments and any moneys belonging to such funds.(Emphasis added).
The Cities argue that the Board's investments for KERS are subject to the less stringent "prudent person" standard, while the Board may only invest CERS funds as "permitted for the investment of funds by fiduciaries in this state." The Cities further argue under KRS 386.020, the Board, as a fiduciary, may only invest CERS funds in the following specific types of investments:
Real estate mortgage notes, bonds, and other interest-bearing or dividend-paying securities, including securities of any open-end or closed-end management type investment company or investment trust registered under the Federal Investment Company Act of 1940 or units of common trust funds managed by the fiduciary, which would be regarded by prudent businessmen as a safe investment. The fact that the fiduciary is providing services to the foregoing investment company or trust as investment advisor, custodian, transfer agent, registrar, or otherwise shall not preclude the fiduciary from investing in the securities of such investment or trust[.]KRS 386.020(1)(g). However, KRS Chapter 78 never references KRS 386.020, so there is no indication our legislature intended KRS 386.020 apply to investments made on behalf of CERS.
Despite the Cities' attempts to create a complicated investment standard for CERS funds, our legislature clearly intended the same standard to apply to both KERS and CERS investments. KRS 78.780(1) provides:
The government and control of the system is vested in the board of trustees of the Kentucky Retirement Systems. The board shall carry out the provisions of KRS 78 .510 to 78.852 in the same manner in which it administers the Kentucky Employees Retirement System. In all matters concerning the administration of KRS 78.510 to 78.852, the same rights, duties, and obligations shall apply to the board as apply under the provisions of KRS 61.510 to 61.705, except that members of the board, when acting for the County Employees Retirement System, shall be paid a per diem of eighty dollars ($80), plus actual expenses.(Emphasis added). KRS 78.780(1) requires CERS to be administered in the same manner as KERS, so the standard for investing the assets of both funds must be the same. Therefore, the "prudent person" standard in KRS 61.650 also applies to CERS investments, and the trial court correctly concluded that the investments made on behalf of CERS were permitted by Kentucky law. Because we affirm the trial court's ruling on the merits, the arguments raised in the Board's cross-appeal are rendered moot.
For the foregoing reasons, we affirm the judgment of the Franklin Circuit Court.
LAMBERT, JUDGE, CONCURS.
THOMPSON, K., JUDGE, CONCURS IN RESULT ONLY. JOINT BRIEFS FOR APPELLANTS/
CROSS-APPELLEES: Ronald R. Parry
Robert R. Sparks
Amy L. Hunt
Cincinnati, Ohio Counsel for City of
Fort Wright, Kentucky:
Todd V. McMurtry
Fort Mitchell, Kentucky Counsel for City of
Covington, Kentucky:
Michael Bartlett
Covington, Kentucky Counsel for City of
Taylor Mill, Kentucky:
Frank A. Wichmann
Erlanger, Kentucky Counsel for City of
Independence, Kentucky:
Jack S. Gatlin
Fort Mitchell, Kentucky BRIEFS FOR APPELLEE/
CROSS-APPELLANT: Robert W. Kellerman
Frankfort, Kentucky