Kentucky Center for the Arts Corp. v. Berns, s. 89-SC-898-D

• Decision Date: 27 December 1990
• Docket Number: 90-SC-057-DG,Nos. 89-SC-898-D,s. 89-SC-898-D
• Citation: 801 S.W.2d 327
• Parties: KENTUCKY CENTER FOR THE ARTS CORPORATION, Movant, v. Hendrik J. BERNS, Respondent. and Hendrik J. BERNS, Movant, v. KENTUCKY CENTER FOR THE ARTS CORPORATION, Respondent.
• Court: United States State Supreme Court — District of Kentucky

Page 327

801 S.W.2d 327

KENTUCKY CENTER FOR THE ARTS CORPORATION, Movant, v. Hendrik J. BERNS, Respondent. and Hendrik J. BERNS, Movant, v. KENTUCKY CENTER FOR THE ARTS CORPORATION, Respondent.

Nos. 89-SC-898-DG, 90-SC-057-DG.

Supreme Court of Kentucky.

Dec. 27, 1990.

As Modified Jan. 17, 1991.

Richard G. Segal, Eileen Walsh, Louisville, for movant Ky. Center for the Arts.

C. Thomas Hectus, Ken Nevitt, Williams & Wagoner, Louisville, for respondent Berns.

LEIBSON, Justice.

In November, 1987, Hendrik J. Berns filed suit in Jefferson Circuit Court alleging he fell and sustained permanent injuries at the Kentucky Center for the Arts, 530 W. Main Street, Louisville, Kentucky, when a railing on the steps loosened and came out while he was attempting to use it for balance.

The issues in this case involve sovereign immunity: first, whether the Kentucky Center for the Arts Corporation is immune from liability for negligence as an agency of the Commonwealth; and second, if so, whether there has been a waiver of that immunity by reason of the purchase of liability insurance.

Initially, the answer failed to raise the sovereign immunity defense. Then, in March, 1988, the Arts Corporation moved to dismiss on grounds of sovereign immunity. The motion was sustained, and this appeal followed. The Court of Appeals sustained the decision of the trial court that sovereign immunity applied, but reversed the order of dismissal and remanded finding a waiver of sovereign immunity because the legislation creating the Arts Corporation provides in part that "revenues derived by the corporation from the use of the Kentucky Center for the Arts, or contributions ... shall be solely used to defray the expenses of the Kentucky Center for the Arts, including ... the procurance of insurance." KRS 153.430(3). The Court of Appeals relied principally on Green River District Health Department v. Wigginton, Ky., 764 S.W.2d 475 (1989) and Taylor v. Knox County Board of Education, 292 Ky. 767, 167 S.W.2d 700 (1942) in reaching this decision.

The Kentucky Center for the Arts Corporation moved for discretionary review claiming these two cases do not apply because of changes in the wording of the Board of Claims Act effective in 1986. Berns filed a cross-motion for discretionary review claiming that the Kentucky Center for the Arts Corporation is not an agency of the Commonwealth constitutionally protected by sovereign immunity. We granted both motions, and we now affirm on grounds the state's sovereign immunity does not extend to the Kentucky Center for the Arts Corporation.

I. SOVEREIGN IMMUNITY

The decision when the sovereign immunity defense applies to an entity created by an act of the General Assembly has been historically troublesome to our Court, resulting in diverse decisions difficult to reconcile. At the heart of the matter is the tension between our constitutional provisions, Kentucky Constitution §§ 14, 54 and 241, protecting our citizens against legislative action to limit or deny access to the courts to pursue existing causes of action for personal injury and wrongful death, and our constitutional provision, Kentucky Constitutions § 231, interpreted through the years to constitutionalize the common law doctrine of sovereign immunity in suits brought against the Commonwealth. Section 231 limits sovereign immunity to "suits ... against the Commonwealth." The crux of the decisions to date has been that § 231 as a specific provision overrides §§ 14, 54 and 241 as general provisions, but only in suits which may be legitimately classified as "brought against the Commonwealth." See Wood v. Board of Education of Danville, Ky., 412 S.W.2d 877 (1967) and Rooks v. University of Louisville, Ky.App., 574 S.W.2d 923 (1978).

Where sovereign immunity exists, the General Assembly has the power of statutory waiver which it exercises through the Board of Claims Act. KRS 44.070 et seq. With this power of waiver comes the power to control the extent to which waiver shall be permitted. But, the General Assembly has no power to extend sovereign immunity beyond the limits of the area constitutionally protected by § 231. When it attempts to do so, it is in violation of the rights preserved to our citizens under §§ 14, 54 and 241. Our Court has performed its duty to protect our citizens against unlawful legislative intrusion upon their constitutional rights in a long line of cases, including Happy v. Erwin, Ky., 330 S.W.2d 412 (1959), Saylor v. Hall, Ky., 497 S.W.2d 218 (1973), and more recently, Gould v. O'Bannon, Ky., 770 S.W.2d 220 (1989). The only positive conclusion one can draw from the various cases is that the appropriate line separating persons and entities entitled to claim inclusion in the Commonwealth's sovereign immunity is not a line which the General Assembly may draw in its discretion, but a problem of constitutional law which our Court must address on a case by case basis. Where sovereign immunity exists by reason of the constitution, the General Assembly may extend or limit waiver as it sees fit, but where no constitutionally protected sovereign immunity exists the General Assembly cannot by statute create it.

The Kentucky Constitution, § 231, does not by its express terms elevate common law sovereign immunity to the status of a constitutional principle. All it says is:

"The General Assembly may, by law, direct in what manner and in what courts suits may be brought against the Commonwealth."

But our Court has recognized this provision as constitutionally protecting sovereign immunity in "suits against the Commonwealth" because otherwise it has no meaning. From its genesis in the First Constitution of 1792, Article VIII, § 4, to the Fourth Constitution of 1891 (the present Constitution), the pronouncement has followed immediately in sequence a proviso that "no money shall be drawn from the state treasury but in consequence of appropriations made by law." The "Debates, Kentucky Convention 1849," pp. 628-30, confirm the tie-in between §§ 230 and 231 of the present Constitution. These two sections recognize the existence at common law of sovereign immunity and authorize the General Assembly, by general act, to establish a method for adjusting claims against the state government as an alternative to private, special legislation. The purpose of the second section in the sequence (now § 231) is to make it possible for the General Assembly to provide a formula to pay claims by general law from the state treasury without violating the first section. Without § 231, a statute permitting judgments against the Commonwealth to be paid out of the state treasury would violate the previous section. As stated in Foley Construction Company v. Ward, Ky., 375 S.W.2d 392, 393 (1964):

"Kentucky Constitution Section 230 complements Section 231. It contains prohibitions against withdrawal of money from the State Treasury.... [B]oth sections are intended to promote an orderly system for the disposition of public money."

Nothing in these two sections, nor in the records of the proceedings accompanying their enactment (which exist only for the 1849 and 1890 Conventions), presupposes any broad grant of sovereign immunity in the discretion of the legislature or beyond activities commonly understood as performed by central state government at the time the Constitution was enacted.

One of the earliest cases shedding light on this subject is Gross v. Kentucky Board of Managers, 105 Ky. 840, 49 S.W. 458 (1899), decided by a court with a contemporary understanding of the subject. The Kentucky Board of Managers of the World's Columbian Exposition was created by an Act of the General Assembly in 1893 "to provide for the collection and exhibition of the resources and evidences of progress of the State of Kentucky at the World's Columbian Exposition." Although the Act "expressly absolved" the state from liability for the actions of the Board, the Court stated:

"The rule is well settled that the state cannot be sued,.... But this rule does not apply to a corporation created by the state for certain public purposes. If appellee was made by the acts referred to a corporation or a quasi corporation, we see no reason why it should be exempted.... It is true that this board has been called, in an opinion by this court, an 'agency of the state.' It was an agency of the state, but it was also vested with corporate powers, and in its corporate capacity it may be sued for its corporate acts, just as any other corporation.... The erection of a headquarters building and the running of a restaurant were matters of business, in which this board stood on the same plane as others engaged in like undertakings." Id. at 459.

Gross was a suit for damages for breach of contract. Sovereign immunity applied to breach of contract cases on the same footing as tort cases until the 1966 Act waiving its application. Cullinan v. Jefferson County, Ky., 418 S.W.2d 407 (1967).

As in Gross, the Kentucky Center for the Arts Corporation was not created to discharge any "governmental function" in the context in which § 231 of the Constitution was written. The Kentucky Center for the Arts Corporation is established in KRS 153.400-.460 pursuant to a finding of the General Assembly:

"[T]hat cultural opportunities and the arts have a direct and positive impact on the hotel industry.... [W]ill serve as catalyst in the development of Louisville and Jefferson County as a major convention and entertainment center.... [W]ill have as management priority the stimulation of the Jefferson county hotel industry and promotion of tourism...." KRS 153.400.

KRS 153.410 provides the "[t]he Kentucky Center for the Arts Corporation ... shall consist of eleven (11) members representing metropolitan Louisville and Kentucky to be appointed by the governor, ... to four-year terms," who "may be removed by the governor only for cause after being afforded notice, [and] a hearing...." The "Corporation shall be a body...