Dolt v. Commonwealth ex rel. Landrum

• Decision Date: 24 September 2020
• Docket Number: 2019-SC-0197-DG,2019-SC-0199-DG
• Citation: 607 S.W.3d 683
• Parties: DOLT, THOMPSON, SHEPHERD & CONWAY, P.S.C. f/k/a Dolt, Thompson, Shepherd & Kinney, P.S.C., Appellant/Cross-Appellee v. COMMONWEALTH of Kentucky, EX REL., William M. LANDRUM, III, Secretary of the Finance and Administration Cabinet and Daniel Cameron, Attorney General of Kentucky, Appellees/Cross-Appellants
• Court: United States State Supreme Court — District of Kentucky

607 S.W.3d 683

DOLT, THOMPSON, SHEPHERD & CONWAY, P.S.C. f/k/a Dolt, Thompson, Shepherd & Kinney, P.S.C., Appellant/Cross-Appellee

v.COMMONWEALTH of Kentucky, EX REL., William M. LANDRUM, III, Secretary of the Finance and Administration Cabinet and Daniel Cameron, Attorney General of Kentucky, Appellees/Cross-Appellants

2019-SC-0197-DG

2019-SC-0199-DG

Supreme Court of Kentucky.

SEPTEMBER 24, 2020

I. BACKGROUND

This case arises from the 2007 lawsuit filed by then-Attorney General Greg Stumbo in Pike Circuit Court against Purdue Pharma and other drug manufacturers regarding the OxyContin epidemic as it plagued the Commonwealth. After General Stumbo's term ended, Attorney General Jack Conway pursued the action on behalf of the Commonwealth. On April 1, 2013, the Pike Circuit Court entered a judgment on liability in favor of the Commonwealth due to the drug companies’ failure to answer requests for admissions.

In 2014, the Office of the Attorney General (OAG) engaged in a competitive bidding process to hire outside counsel to assist in the Commonwealth's litigation against Purdue Pharma, the manufacturer of the drug OxyContin. Under then-Attorney General Jack Conway, the OAG selected the firm Dolt, Thompson, Shepherd & Kinney, P.S.C. (Dolt Thompson).¹ Pursuant to the contract entered into between the Commonwealth and Dolt Thompson, the law firm would be paid for its legal services on a contingency basis—that is, it provided Dolt Thompson would be "compensated for ... services pursuant to" the contract "[i]f the Commonwealth receives ... a settlement or award." Dolt Thompson agreed to cover associated legal costs and provide hours of work on the case in return for a contingency fee of 16% of any recovery plus reasonable expenses. The parties performed under the terms of the contract.

In December 2015, the OAG settled with Purdue Pharma for $24,000,000. Purdue Pharma was to make an initial $12,000,000 payment within thirty days of the Pike Circuit Court's entry of judgment, with the remaining $12,000,000 paid in eight yearly installments of $1,500,000 each. The settlement agreement and release (which the Pike Circuit Court incorporated into its final judgment) expressly provided for OAG to pay attorney's fees and expenses out of the settlement amount. Thereafter, Purdue Pharma made the initial $12,000,000 payment to Dolt Thompson. Later, then-Attorney General Andy Beshear authorized Dolt Thompson to pay itself the agreed-upon attorney's fees and expenses from the settlement funds.

In the meantime, it had come to the attention of the OAG's office that its contract with Dolt Thompson had expired in June 2015 even though the firm had continued to provide services and incur costs in the Purdue Pharma case. After discovering the contract had expired, the OAG staff contacted the Finance Cabinet for guidance regarding how to confirm the contractual relationship with Dolt Thompson in order to distribute the settlement funds. Initially, the OAG sent in a purchase request to the Finance Cabinet for an extension of the contract. However, Cabinet personnel instructed the OAG it needed to, instead, submit a request for a new "Not Practicable to Bid" contract. After the OAG so amended its request and resubmitted, the Cabinet approved the purchase request.

In March 2016, the Kentucky General Assembly's Government Contract Review Committee reviewed the purchase request and 2016 contract. Three OAG employees appeared at the hearing to answer any questions. The Committee neither disapproved nor objected to the contract. The following month, the 2016 biennium budget bill was signed into law. The budget specified, "Purdue Pharma Settlement Funds : The Attorney General, after payment of attorney's fees and expenses, shall transfer the settlement funds resulting from the suit against Purdue Pharma, et al. as follows...." Act of April 28, 2016, ch. 149 § 1, Part I(A)(19)(8). The expenditures listed after the payment of attorney's fees totaled $7,950,000, which approximately equates to the amount of the Purdue Pharma initial payment less the amount paid to Dolt Thompson.²

In October 2017, a year and a half after the budget ordering attorney's fees and costs was signed into law by Governor Bevin, the Finance Cabinet sent a letter to then-General Andy Beshear asserting the Cabinet believed the OAG "may have unlawfully authorized or facilitated payment" to Dolt Thompson. The OAG then filed a complaint in Franklin Circuit Court seeking a declaration that the 2016 contract was enforceable and the payment to Dolt Thompson was proper. The Cabinet filed an action the same day against Dolt Thompson in Franklin Circuit Court. The Franklin Circuit Court consolidated the cases and then granted the OAG's and Dolt Thompson's motions for summary judgment. The Cabinet appealed to the Court of Appeals, which reversed and remanded to the Franklin Circuit Court, ordering that court allow the Cabinet to conduct discovery. The OAG and Dolt Thompson filed a motion for discretionary review to this Court, which we granted. We now reverse the Court of Appeals and reinstate the Franklin Circuit Court's order granting summary judgment.

II. ANALYSIS

A. Standard of Review

It has long been the law in this Commonwealth that summary judgment "should only be used ‘to terminate litigation when, as a matter of law, it appears that it would be impossible for the respondent to produce evidence at the trial warranting a judgment in his favor and against the movant.’ " Steelvest, Inc. v. Scansteel Serv. Ctr., Inc. , 807 S.W.2d 476, 483 (Ky. 1991) (quoting Paintsville Hosp. Co. v. Rose , 683 S.W.2d 255, 256 (Ky. 1985) ). Furthermore, Kentucky Rules of Civil Procedure (CR) 56.03 states that summary judgment should be granted if the evidence shows that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. "The record must be viewed in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor." Steelvest , 807 S.W.2d at 480.

"Because summary judgments involve no fact finding, this Court will review the circuit court's decision de novo. " 3D Enterprises Contracting Corp. v. Louisville & Jefferson Cnty. Metro. Sewer Dist. , 174 S.W.3d 440, 445 (Ky. 2005). On appeal, "[t]he standard of review ... of a summary judgment is whether the circuit judge correctly found that there were no issues as to any material fact and that the moving party was entitled to a judgment as a matter of law. Summary judgment is appropriate where the movant shows that the adverse party could not prevail under any circumstances."

Pearson ex rel. Trent v. Nat'l Feeding Sys., Inc. , 90 S.W.3d 46, 49 (Ky. 2002). As our analysis, infra , "raise[s] questions of statutory interpretation, such questions are also subject to de novo review." Community Fin. Serv. Bank v. Stamper , 586 S.W.3d 737, 741 (Ky. 2019) (citation omitted). It is through the lens of this de novo standard of review that we examine this case.

B. Model Procurement Code

In Landrum v. Commonwealth ex rel. Beshear , 599 S.W.3d 781, 789 (Ky. 2019), we unequivocally held the Model Procurement Code, KRS Chapter 45A, applies to contracts entered into by the OAG. All contracts with the Commonwealth must be in writing. See KRS 45A.245(1) (authorizing contract actions against the Commonwealth based on "lawfully authorized written contracts[ ]"). Contracts may not extend past the biennium in which they are entered. KRS 45A.145(1). Modifications of contracts with the Commonwealth must be in writing and approved by the Office of Procurement Services. See Finance and Administration Cabinet Manual of Policies and Procedures, FAP 110-10-00(22) "[d]uring the period of the contract, a modification shall not be permitted in any of its conditions and specifications, unless the contractor receives electronic or written approval from OPS[ ]".³ Similarly, FAP 111-43-00(5) provides

Modification to a PSC shall be processed in the same manner as the original Contract in the state's eProcurement system. A Modification shall be used, if the parties to an established PSC agree, to increase or decrease funds, revise the scope of work, extend the time for performance within the current biennium or any other change. (Emphasis added.)

We have held "anyone who deals or contracts with public officials or with public bodies must at his own peril take notice of their authority since they can only act within the limits of express or necessarily implied powers conferred upon them by law." Commonwealth v. Whitworth , 74 S.W.3d 695, 699 (Ky. 2002) (citation omitted). Long ago, our predecessor court expressed a similar rule with respect to municipalities, "[a]ny other rule would destroy all the restrictions which are thrown around the people of municipalities for their protection by the statute laws and the Constitution and would render abortive all such provisions. The rule in certain instances may be harsh, but no other is practical." City of Princeton v. Princeton Elec. Light & Power Co. , 166 Ky. 730, 741, 179 S.W. 1074, 1079 (1915).

C. Equitable Estoppel

Furthermore, equitable estoppel does not apply in state government procurement, as argued by Dolt Thompson and the OAG. In All-American Movers Inc. v. Commonwealth, ex rel. Hancock , 552 S.W.2d 679 (Ky. 1977), the Commonwealth entered into a contract for the moving of various agencies to the Capitol Plaza Building. Thereafter, the moving company claimed it had an oral agreement with the Commissioner of Finance to move new furniture from the building's basement into the building, and performed the work claimed which the Court noted was a benefit to the Commonwealth. Because the oral contract, however, had not been entered into as required by law, it was void. Id. at 681. The Court then stated "[p]ayments made under such a void agreement can be recovered and the acceptance of benefits conferred upon the Commonwealth...