Beth Lewis Maze & Unknown Similarly Situated Purchasers Contracts v. Bd. of Dirs. for the Commonwealth Postsecondary Educ. Prepaid Tuition Trust Fund

• Decision Date: 01 November 2018
• Docket Number: 2017-SC-000233-DG
• Citation: 559 S.W.3d 354
• Parties: Beth Lewis MAZE and Unknown Similarly Situated Purchasers of Kapt Contracts, Appellants v. BOARD OF DIRECTORS FOR the COMMONWEALTH POSTSECONDARY EDUCATION PREPAID TUITION TRUST FUND; David L. Allen, in His Official Capacity as a Member of the Board of Directors; John Cheshire, in His Official Capacity as a Member of the Board of Directors; Charles Vinson, in His Official Capacity as a Member of the Board of Directors; Erica L. Horn, in Her Official Capacity as a Member of the Board of Directors; Becky Lamb, in Her Official Capacity as a Member of the Board of Directors; Brent A. McKim, in His Official Capacity as a Member of the Board of Directors; Kristi P. Nelson, in Her Official Capacity as a Member of the Board of Directors; Lisa Payne, in Her Official Capacity as a Member of the Board of Directors; Barbara Sexton-Smith, in Her Official Capacity as a Member of the Board of Directors; J. Scott Wantland, in His Official Capacity as a Member of the Board of Directors; Dr. Gary S. Cox, in His Official Capacity as an Ex Officio Member of the Board of Directors; Dr. Todd Hollenbach, in His Official Capacity as an Ex Officio Member of the Board of Directors; Dr. Terry Holliday, in His Official Capacity as an Ex Officio Member of the Board of Directors; Dr Robert King, in His Official Capacity as an Ex Officio Member of the Board of Directors; Dr. Lori Flanery, in Her Official Capacity as an Ex Officio Member of the Board of Directors; Kentucky Higher Education Assistance Authority; and the Commonwealth of Kentucky, Finance and Administration Cabinet, Appellees
• Court: United States State Supreme Court — District of Kentucky

559 S.W.3d 354

Beth Lewis MAZE and Unknown Similarly Situated Purchasers of Kapt Contracts, Appellants

v.BOARD OF DIRECTORS FOR the COMMONWEALTH POSTSECONDARY EDUCATION PREPAID TUITION TRUST FUND; David L. Allen, in His Official Capacity as a Member of the Board of Directors; John Cheshire, in His Official Capacity as a Member of the Board of Directors; Charles Vinson, in His Official Capacity as a Member of the Board of Directors; Erica L. Horn, in Her Official Capacity as a Member of the Board of Directors; Becky Lamb, in Her Official Capacity as a Member of the Board of Directors; Brent A. McKim, in His Official Capacity as a Member of the Board of Directors; Kristi P. Nelson, in Her Official Capacity as a Member of the Board of Directors; Lisa Payne, in Her Official Capacity as a Member of the Board of Directors; Barbara Sexton-Smith, in Her Official Capacity as a Member of the Board of Directors; J. Scott Wantland, in His Official Capacity as a Member of the Board of Directors; Dr. Gary S. Cox, in His Official Capacity as an Ex Officio Member of the Board of Directors; Dr. Todd Hollenbach, in His Official Capacity as an Ex Officio Member of the Board of Directors; Dr. Terry Holliday, in His Official Capacity as an Ex Officio Member of the Board of Directors; Dr Robert King, in His Official Capacity as an Ex Officio Member of the Board of Directors; Dr. Lori Flanery, in Her Official Capacity as an Ex Officio Member of the Board of Directors; Kentucky Higher Education Assistance Authority; and the Commonwealth of Kentucky, Finance and Administration Cabinet, Appellees

2017-SC-000233-DG

Supreme Court of Kentucky.

NOVEMBER 1, 2018

COUNSEL FOR APPELLANTS: Robert Andrew Rowland.

COUNSEL FOR APPELLEES: Laura Tipton, Taylor Allen Payne, Assistant Attorneys General.

OPINION OF THE COURT BY JUSTICE VENTERS

Beth Lewis Maze, et al. (Appellants)¹ appeal from a decision of the Court of Appeals which reversed the order of the Franklin Circuit Court that granted partial summary judgment to Appellants in a dispute concerning various statutory amendments to the Kentucky Affordable Prepaid Tuition Fund (KAPT) contracts previously purchased by the Appellants. Appellees are the Board of Directors for the Commonwealth Postsecondary Education Prepaid Tuition Trust Fund (Board) and its individual members named in their official capacities; the Kentucky Higher Education Assistance Authority; and the Finance and Administration Cabinet.

The Court of Appeals disagreed with the trial court’s legal conclusion regarding the retroactive application of the 2014 statutory changes affecting the 2003 contracts for prepaid college tuition entered into by Maze and the Board. The Court of Appeals interpreted those contracts as providing, in association with their enabling statutes, that KAPT participants like Maze, and others similarly situated, had expressly agreed to be bound by amendments to the contracts imposed by future statutory and regulatory changes. The Court of Appeals thus concluded that the 2014 amendments validly altered Appellants' contracts. The Court of Appeals reversed the trial court and held that the Appellees, rather than Maze, should have been granted summary judgment as a matter of law.

For the reasons stated below, we conclude that the KAPT contracts executed by Maze and those similarly situated, and the underlying enabling statutes, do not authorize the contractual changes imposed by the retroactive application of the statutory amendments involved here, and that the retroactive imposition of those amendments upon Maze unlawfully impairs her contracts in violation of U.S. Const. Art. I § 10, cl. 1. and Ky. Const. § 19. Accordingly, we reverse the Court of Appeals and reinstate the judgment of the trial court.

I. FACTUAL AND PROCEDURAL BACKGROUND

The material facts are not in dispute and may be summarized as follows. In 2000, the Kentucky General Assembly enacted KRS 164A.700 - 164A.709, establishing the Commonwealth Postsecondary Education Prepaid Tuition Trust Fund, also known as the Kentucky Affordable Prepaid Tuition Fund, or KAPT. This program allowed and encouraged Kentucky families with pre-college aged children to contract with the KAPT Board to "lock in" the current tuition rates for future attendance at a public university in Kentucky.² Allowing the prepayment of college tuition permitted the parents of young children to insure against future increases in tuition rates. KRS 164A.701(2)(b) identifies KAPT’s primary goal as, "provid[ing] students and their parents economic protection against rising tuition costs." In addition to the statutory provisions of KRS Chapter 164A, KAPT contracts are governed by the KAPT "Master Agreement" whose provisions track the enabling statutory language, generally providing that a contract participant will be guaranteed the state college tuition rate existing at the time the participant entered into the program.

Of crucial significance to our analysis, KRS 164A.705(1) expresses an unequivocal assurance to plan participants that they will receive the benefits they purchased as promised: "The prepaid tuition contract entered into by the purchaser and the board shall constitute an irrevocable pledge and guarantee by the fund to pay for the tuition of a qualified beneficiary upon acceptance and enrollment at an eligible educational institution in accordance with the tuition plan purchased."

In January 2003, Maze purchased a KAPT "Standard Plan" contract for the benefit of each of her three sons. She listed their Projected College Entrance Years (PCEY) as 2008, 2010, and 2013, respectively. The Standard Plan contracts permitted purchasers to pre-pay at the time of purchase up to five years of tuition at the then-current cost of full-time tuition at Kentucky’s most expensive public university. The payments could be paid in a single lump sum, or through a monthly payment plan. The Plan covered both undergraduate and graduate school tuition.

With those purchases, Maze entered into a Master Agreement which incorporated "the terms and provisions of KAPT Regulations and KRS 164A.700 -709, as may be amended from time to time." At the time of Maze’s purchase, neither the KAPT contracts themselves nor the statutes governing KAPT contained a time limitation within which the prepaid tuition must be used; nor did the contracts and governing statutes provide a time limit after which the plan would cover something less than the full cost of tuition at any of Kentucky’s public universities. Maze fulfilled all of her obligations under the KAPT agreements. When their time of college enrollment came, two of Maze’s sons received substantial academic scholarships, and they did not need immediate use of their prepaid tuition. They intended to apply their KAPT funds toward graduate school tuition.

2014 Legislative Changes

In 2014, with the enactment of House Bill 279, the General Assembly made several significant changes to the KAPT program that affected the contracts Maze had purchased eleven years earlier. Among the amendments was the imposition of a newly devised "utilization period," which for the first time imposed time limitations upon the KAPT contracts. The legislation defined the "utilization period" as "the period of time in which a prepaid tuition contract is to be used beginning with the projected college year and continuing for the number of prepaid tuition years purchased." KRS 164A.700(18).

The statutorily imposed condition operated retroactively to cover the contracts that Maze, and others, had purchased and paid for. Under this new provision, a KAPT plan participant who had purchased four years of prepaid tuition, with a projected college entry year of 2008, would have to use up the prepaid tuition before the end of 2012. Under the statutory change, plan participants lost the option of reserving their use of prepaid tuition for tuition needs beyond the "utilization period."³

The statutory changes also added a limit on the extent to which a purchased plan would cover the inflation of future college tuition. Maze’s KAPT contracts had no such limitation. House Bill (HB) 279 amended KRS 164A.705(7) to provide:

During an account’s utilization period, the value of the prepaid tuition account shall increase consistent with tuition rates for the applicable tuition plan and academic year. If all tuition benefits have not been used at the conclusion of [the utilization] period, the account value shall increase at a rate of three percent (3%) per annum or the applicable tuition plan value increase, whichever is less, for a period not to exceed two (2) additional years. No additional value shall be added to a prepaid tuition account after two (2) years past the utilization period [ (2014 for Maze’s oldest child) ].

Finally, the 2014 amendments also set June 30, 2028 as the termination date of the KAPT program, requiring that any prepaid tuition not used by that date be refunded to the purchaser. KRS 164A.709(8).

These legislative actions appear to have been an attempt to correct for a significant miscalculation in the financial viability of the program from its inception. In the years following the creation of the KAPT program, college tuition for public universities in Kentucky increased at rates well beyond what was anticipated and well beyond the growth of the fund managed by the KAPT Board, resulting in a substantial unfunded liability in the program.

On July 14, 2015, Maze filed a Complaint and Petition, on behalf of herself and "Unknown Similarly Situated Purchasers of KAPT Contracts,"⁴ seeking declaratory and injunctive relief against the enforcement of the 2014 amendments. At the time of her Complaint, unused KAPT funds remained available in all three of her accounts. Maze asserts that her sons intended to apply the funds in their KAPT accounts to their graduate school tuition, which would fall outside of the "utilization period" established under the 2014 KAPT amendments. Citing this provision and the newly...