Phelps v. Louisville Water Co.
| Decision Date | 24 April 2003 |
| Docket Number | No. 2001-SC-0472-DG.,No. 2001-SC-1051-DG.,2001-SC-0472-DG.,2001-SC-1051-DG. |
| Citation | 103 S.W.3d 46 |
| Parties | Beverly K. PHELPS, Administrator of the Estate of Dannie Phelps, Jr.; and Lawrence M. Cason, Administrator of the Estate of Lawrence Michael Cason, Jr. Appellants/Cross-Appellees v. LOUISVILLE WATER COMPANY Appellee/Cross-Appellant |
| Court | United States State Supreme Court — District of Kentucky |
F. Thomas Conway, Michael D. Morris, Ronald P. Hillerich, Louisville, for Appellants/Cross-Appellees.
Donald L. Miller II, Christopher M. Mussler, Frost, Brown, Todd, LLC, Laura M. Haara, Brown, Todd & Heyburn, PLLC, for Appellee/Cross-Appellant.
Lawrence Michael Cason, Jr. and Dannie Phelps, II were killed on February 19, 1997, when the car they were riding in crashed into a flatbed trailer parked at a Louisville Water Company (LWC) work site on a closed street in Louisville. The estates of both decedents sued LWC for compensatory and punitive damages arising from the accident. A jury awarded a total of $176,361.64 in compensatory damages (after apportioning for relative fault) and $2,000,000 in punitive damages against LWC. The Court of Appeals held that LWC was an agency of the City of Louisville, and as such, fell within the definition of "local government" as defined by Kentucky Revised Statute (KRS) 65.200(3), Claims Against Local Governments Act. The court found that KRS 65.200 et seq. precludes an award of punitive damages against a "local government" and therefore reversed the $2,000,000 punitive award against LWC. We granted Appellants' Motion for Discretionary Review and LWC's Cross-Motion for Discretionary Review and now reverse the Court of Appeals' decision and reinstate the judgment of the Jefferson Circuit Court.
The LWC was established as a private corporation pursuant to Chapter 507 of the Acts of the General Assembly of 1854 and operated as such until the City of Louisville purchased all of LWC's shares of stock. Subsequent Acts of the General Assembly provided that the stock was to be held by the sinking fund commission of the City and used as a resource for the payment of the City's bonded debt. In 1906, the legislature created the Board of Waterworks of the City of Louisville (Board) to govern LWC. Now codified as KRS 96.230-.310, the act gave the Board possession, control, and management of
LWC's property and operations. Also, in 1908 the LWC transferred legal title to all its property to the City of Louisville to avoid the levy of ad valorem taxes. See Burkholder v. City of Louisville, Ky., 276 S.W.2d 29 (1955). Accordingly, the makeup of LWC is as follows: the City of Louisville holds legal title to the physical property; all stock is owned by the City and held in its sinking fund; the Board controls the management and properties of LWC; and LWC itself is still a distinct corporate entity. Id. at 31.
The initial act that created LWC, entitled "An Act to incorporate the Louisville Water Company" was approved on March 6, 1854 and read in pertinent part:
Sec. 7. The said corporation is hereby empowered to sell the privilege of using the water which may be conducted through its pipes or aqueducts to any corporation or person, and the said corporation may make all reasonable rules and regulations as to the manner and the times in which said water may be taken and used.
Sec. 8. The city of Louisville may at any time purchase of the said corporation its franchise and all its personal and real property, by paying therefor such a sum as, together with its receipts, will reimburse the whole amount expended, with an annual interest of ten per cent; and from and after the execution of the conveyance the said city of Louisville shall have all the right and be subject to all the duties in this act expressed as to said corporation.
Dolan v. Louisville Water Co., 295 Ky. 291, 174 S.W.2d 425, 429 (1943). The City, however, did not exercise its option to purchase the franchise and assets of the LWC, as allowed by Section 8; rather, the City chose only to purchase the stock of the corporation. Id. As a result, the City of Louisville and LWC stand related merely as shareholder and corporate entity. The legal entity of LWC is completely separate and apart from its shares of stock owned and held by the City of Louisville's sinking fund commission. "[T]he Louisville Water Company now is and has been since its incorporation pursuant to the Act of March 6, 1854, a distinct corporate entity separate and apart from the city of Louisville and under authority of Section 7 of the Act the water company has the legal right to contract with the board of waterworks of the city to furnish the city and its inhabitants with water ...." Id. at 430.
We recognize that our case law has never squarely addressed the issue of whether LWC is an agency of the City of Louisville, but has merely stated as much in dicta. This Court said in Barber v. City of Louisville, Ky., 777 S.W.2d 919, 921 (1989) (), that when the legislature in 1906 adopted the act now codified in KRS 96.230-.310, it changed the status of the LWC to that of an agency of the City of Louisville. We, however, find no authority to support this contention. KRS 96.230-.310 merely created the Board of Waterworks to govern the management of for-profit water companies that are wholly-owned by cities of the first class or consolidated local governments. The Court held in Bell v. City of Louisville, 32 Ky. L. Rptr. 699, 106 S.W. 862, 863 (1908):
The act of the General Assembly of Kentucky, approved March 6, 1906, entitled, "An act in relation to the control, management and operation of water works in cities of the first class" (Acts 1906, p. 52, c. 16), does not change the status of the water company towards the city. The changes made are merely as to the management of the water company, and the appointment of its board of directors; but the corporate entity remains, and the shares of stock are still owned by the sinking fund of Louisville.
It is the opinion of this Court that the legislature did not intend to change LWC's status to that of an agency of the City of Louisville when it passed the act now codified as KRS 96.230-.310 It should also be noted that the Barber decision, supra, was only a plurality opinion of this Court and therefore is not binding precedent. The remainder of Kentucky case law cited by LWC in support of its agency position are Court of Appeals' opinions and are also not binding on this Court.
"Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act." CSX Transportation, Inc. v. First National Bank of Grayson, Ky.App., 14 S.W.3d 563, 566 (1999) (quoting McAlister v. Whitford, Ky., 365 S.W.2d 317, 319 (1962)). "Under Kentucky law, the right to control is considered the most critical element in determining whether an agency relationship exists." Id. at 566-567 (quoting Grant v. Bill Walker Pontiac-GMC, Inc., 523 F.2d 1301, 1305 (6th Cir.1975)). KRS 96.260 vests the Board of Waterworks with the control and management of the LWC and its properties:
The board of waterworks shall be vested with all the authority and privileges, exercise all the franchises, and have possession, control, and management of all the property, of the corporation of which the consolidated local government or city owns all the stock. It may make contracts and sue and be sued, but only in the name of the corporation.
The legislature made clear that the LWC, through the Board, was prohibited from contracting or acting on behalf of the City. Such is not characteristic of an agency relationship. The language is evidence that the City does not control LWC's contractual endeavors and is therefore not responsible for any liabilities incurred therefrom.
The Board is comprised of six persons, four of which are appointed by the mayor and two of which are appointed by the Jefferson County judge/executive.1 KRS 96.240. The City of Louisville does not control the LWC; rather, the mayor merely appoints four of the members of the Board, much like voting shareholders of a corporation elect a board of directors. The Restatement (Second) of Agency section 14M (1958) states, "[a] corporation does not become an agent of another merely because a majority of its voting shares is held by the other." In the case at bar, it is clear that the Board controls LWC's day to day operations, with the City "controlling" only through its ability to "vote in" some of that body's members. This relationship alone, does not make the LWC an agent of the City of Louisville. Moreover, LWC does not depend financially on the City and the City is not liable for the debts of LWC. KRS 96.290 states:
All the existing obligations of the waterworks corporation and all the obligations created by the board of waterworks in the management and operation of the properties and in the performance of its duties, shall be discharged out of the property and rents, earnings, and incomes of the waterworks. The consolidated local government shall not be liable as a municipal corporation for such obligations.
The City does not exercise control over LWC's fiscal matters and any losses incurred by LWC are not imputed to the City and its taxpayers. This is further evidence that the legislature did not intend the LWC to operate as an agent of the City of Louisville. Accordingly, we hold that the LWC is not an agent of the City of Louisville and therefore does not fall within the definition of "local government" pursuant to KRS 65.200(3). As a result, KRS 65.200-2002 does not preclude an award of punitive damages against LWC.2
LWC alleges several errors on cross-appeal. Generally, LWC finds fault with this state's entire common law...
To continue reading
Request your trial
-
Ellis v. Gallatin Steel Co.
...negligence was accompanied by `wanton or reckless disregard for the lives, safety or property of others.'" See Phelps v. Louisville Water Co., 103 S.W.3d 46, 52 (Ky.2003). Applying this test, the district court found that, "[b]ased upon the entire record,... Harsco's conduct is [in] `wanton......
-
Clark v. Chrysler Corp.
...of $600,000 in racial harassment claim "is a lot of money" and reducing punitive damages to 1:1 ratio); see also Phelps v. Louisville Water Co., 103 S.W.3d 46, 54 (Ky.2003) (noting "the relatively small amount of compensatory damages awarded" to determine appropriate ratio). The compensator......
-
Sergent v. McKinstry
...others.” Peoples Bank of No. Ky., Inc. v. Crowe Chizek and Co. LLC, 277 S.W.3d 255, 267–68 (Ky.App.2008) (citing Phelps v. Louisville Water Co., 103 S.W.3d 46, 51–52 (Ky.2003)). Thus, ruling on the Proofs of Claim alone will not dispose of the gross negligence claim. Accord Stern, 131 S.Ct.......
-
Quicken Loans, Inc. v. Brown
...damages [$443,500], making a punitive award equal to the compensatory damage award more appropriate.”); see also Phelps v. Louisville Water Co., 103 S.W.3d 46, 54 (Ky.2003) (noting “the relatively small amount of compensatory damages awarded” to determine appropriate ratio).Moreover, the fa......
-
State farm and punitive damages: call the jury back.
...AL., supra note 294, at ch. 3. (295.) 6 Cal.Rptr.3d 793 (Cal. Ct. App. 2003). (296.) Id. at 811. See also Phelps v. Louisville Water Co., 103 S.W.3d 46 (Ky. 2003). The court upheld a $2 million punitive damages verdict for the wrongful deaths of two teenage boys in an auto accident, despite......