Edgar H. Hughes Co., Inc. v. TURNPIKE AUTH. OF KENTUCKY, 408.

• Decision Date: 05 February 1973
• Docket Number: No. 408.,408.
• Citation: 353 F. Supp. 1105
• Parties: EDGAR H. HUGHES COMPANY, INC., Plaintiff, v. The TURNPIKE AUTHORITY of KENTUCKY, Defendant.
• Court: U.S. District Court — Eastern District of Kentucky

353 F. Supp. 1105

EDGAR H. HUGHES COMPANY, INC., Plaintiff, v. The TURNPIKE AUTHORITY of KENTUCKY, Defendant.

No. 408.

United States District Court, E. D. Kentucky, Frankfort Division.

February 5, 1973.

Joseph J. Leary, Frankfort, Ky., for plaintiff.

Jim Robinson, Asst. Atty. Gen., Cyril E. Shadowen, Dept. of Highways, Frankfort, Ky., for defendant.

MEMORANDUM

SWINFORD, District Judge.

The record of this case is before the court on the defendant's motion to dismiss the complaint for the reason that the court lacks jurisdiction. More specifically the defendant, the Kentucky Turnpike Authority, contends that the Kentucky Department of Highways, an agent of the Commonwealth of Kentucky, is the real party in interest, and that said real party in interest is not amenable to federal diversity jurisdiction by reason of the Eleventh Amendment to the Constitution.

For the purpose of deciding this motion the facts of the case need not be detailed. Suffice it to say that the plaintiff, Edgar H. Hughes Company, Inc., a citizen of Indiana with its principal place of business in Indiana is suing the Kentucky Turnpike Authority to recover damages arising out of the defendant's alleged negligence. The sole question before the court is whether the defendant is sufficiently disassociated with the state or an agent of the state so as not to be considered an alter ego of the state or an agent of the state thereby making the state the real party in interest. Succinctly put, may the Kentucky Turnpike Authority be considered a citizen of the state so as to come within this court's diversity jurisdiction.

The same question raised by the defendant's motion was decided by this court in S. J. Groves & Sons Co. v. The Turnpike Authority of Kentucky, No. 262 Frankfort Division, 1966. There the Turnpike Authority's motion to dismiss for lack of jurisdiction upon the same contentions as here asserted was overruled. As counsel for the plaintiff states in his brief, "There probably is no better precedent in this court than its own orders." In Civil Action No. 262 on this docket, the court by its order of June 8, 1966, apparently sustained the position taken by the plaintiff here in holding that the court had jurisdiction over an action against the Turnpike Authority of Kentucky. This, however, is not a reported case and there is no memorandum or opinion of the presiding judge setting forth the circumstances prevailing at the time or the reasoning on which the determination was made. The court concedes the full import of its own ruling in what appears now to be an identical situation. Nevertheless, in the light of its present research and study of this question it cannot in good conscience follow its decision on the motion to dismiss in Groves v. The Turnpike Authority of Kentucky.

A casual reading of the statutory provisions and legal documents pertaining to the Kentucky Turnpike Authority yields the conclusion that the Authority has no meaningful existence apart from the Highway Department. KRS 175.430, an introductory section, provides that:

"(1) The governor, the lieutenant governor, the commissioner of highways, the state highway engineer, and the attorney general, and their respective successors in office, shall be a body corporate and politic constituting a public corporation and governmental agency and instrumentality of the commonwealth by the name of `The Turnpike Authority of Kentucky,' with perpetual succession and with power in that name to contract and be contracted with, sue and be sued, have and use a corporate seal, and exercise, in addition to the powers and functions specifically stated in this chapter, all of the usual powers of private corporations to the extent that the same are not inconsistent with specifically enumerated powers."

While the language in the latter part of this section seems to indicate an intent to create a freestanding corporation, further examination of the statute displaces this initial impression. KRS 175.430(3) deals with the location and controlling members of the Authority:

"The governor shall, by virtue of his office, be the chairman of the authority and the lieutenant governor shall in like manner be the vice-chairman. The authority shall elect a secretary and a treasurer who shall not be members of the authority, each of whom shall serve at the pleasure of the authority and shall receive such compensation as may be determined by the authority with approval of the commissioner of personnel to be paid from the budgeted funds of the department. . . . The authority shall establish and maintain an office in premises which shall be provided for that purpose by the department of highways without cost to the authority. . ."

The placement of high government officials in key positions, as well as the allowance for state-provided office space and salaries, reflect a desire that the control and situs of the Authority's operations be placed directly in the hands of the state.

While the intent manifest in the above legislation is significant, an even more important criterion is the extent of the Authority's financial involvement with and dependence on the state. Other statutory provisions, and the documents to which they relate, indicate that this "corporation" enjoys no true financial independence. KRS 175.460 provides that the Authority and Highway Department are authorized to enter into agreements relating to the financing, construction and operation of turnpikes, which agreements may include provisions binding the Department, upon completion of a turnpike, to

"continuously pay all or any part of the cost of repairing, maintaining and operating the project as a public highway provided for the use of the commonwealth, equitably belonging to the commonwealth, and intended for ultimate unencumbered ownership by the commonwealth. . ." Subsection (6).

"(7) Agree that upon the happening of stated events and the performance of stated conditions not inconsistent with law, the authority shall convey the project to the commonwealth. . . ."

While the statute blandly provides that the responsibilities enumerated in Subsection (6) "may" be undertaken by the Department, the executed agreement stipulates that these burdens are assumed by the state. Agreement of February 18, 1969, Sections 601, 602. Section 701 of this Agreement effectuates the language in Subsection (7) above: upon refund of the bonds, the project

"if then in good condition and repair as determined by the Department, shall be conveyed by the Authority to the Commonwealth and shall become part of the state highway system and shall thereafter be maintained

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