Ky. River Foothills Dev. Council, Inc. v. Phirman, 2015–SC–000244–DG

504 S.W.3d 11

KENTUCKY RIVER FOOTHILLS DEVELOPMENT COUNCIL, INC., Appellant

v.Cathy PHIRMAN, Administratrix of the Estate of Melissa Steffen; Joanne Gilliam, as Guardian of Conner Keith Gilliam and Carter Ray Gilliam, Unmarried Infants; and Daryll Gilliam, as Guardian of Conner Keith Gilliam And Carter Ray Gilliam, Unmarried Infants, Appellees

2015–SC–000244–DG

Supreme Court of Kentucky.

DECEMBER 15, 2016

COUNSEL FOR APPELLANT: Daniel Barry Stilz, Robert Coleman Stilz III, Adrian M. Mendiondo, Lynn Sowards Zellen, Kinkead & Stilz PLLC

COUNSEL FOR APPELLEES: James T. Gilbert, Coy, Gilbert, Shepherd & Wilson, Douglas Loy Hoots, Landrum & Shouse LLP, Gregory Michael Funfsinn

OPINION OF THE COURT BY JUSTICE KELLER

Kentucky River Foothills Development Council, Inc.¹ (Kentucky River), a community action agency, filed a motion for summary judgment on the grounds that it is entitled to sovereign immunity. The Madison Circuit Court denied Kentucky River's motion and the Court of Appeals affirmed. We granted discretionary review and, having reviewed the record and the parties' arguments, we affirm the denial of summary judgment but for reasons that differ from those set forth by the circuit court and the Court of Appeals.

I. BACKGROUND.

For purposes of this appeal, the underlying facts are not in dispute. Melissa Steffen, who suffered from Bipolar Disorder, served time in prison for a drug offense. When she was paroled, Melissa was required to find some type of living arrangement before she could be released. Melissa's mother, Cathy Phirman, located Liberty Place Recovery Center for Women, LLC (Liberty Place), a peer-based substance abuse recovery program administered by Kentucky River, and Melissa put her name on the waiting list. When a bed became available, Melissa was released from prison and accepted at Liberty Place despite having a medical/psychological history that included three suicide attempts and treatment for Bipolar Disorder.

At the time of her admission to Liberty Place, Melissa was taking prescription medication for her Bipolar Disorder. However, during the course of her stay at Liberty Place, Melissa ran out of her medication. As a result, Melissa became increasingly disturbed and, approximately six weeks after her admission, she left the facility. A few hours after Melissa left the facility, one of Liberty Place's employees saw her on the side of the road. The employee took Melissa to the Salvation Army and spoke with someone to secure a bed for the night for Melissa. However, because the Salvation Army was not yet open for clients, the employee took Melissa to the public library and left her there. When Phirman tried to contact Melissa at Liberty Place, personnel there would not give her any information. Phirman ultimately discovered that Melissa was no longer at Liberty Place, and she filed a missing person's report and searched for Melissa but could not find her.

In October 2010, approximately five months after Melissa left Liberty Place, a person who was taking copper pipe from an abandoned building discovered Melissa's body. The coroner determined that Melissa had committed suicide near the time she left Liberty Place.

Phirman, as administratrix of Melissa's estate, and Joanne and Daryll Gilliam, as guardians of Melissa's two minor sons, filed suit against Liberty Place and Kentucky River. The parties conducted extensive discovery and, on July 22, 2013—approximately six weeks before trial—Kentucky River filed a motion for summary judgment asserting "sovereign immunity."² For reasons that are unclear from the record, the court entered two orders denying that motion. Relying on Comair, Inc. v. Lexington – Fayette Urban County Airport Corp. , 295 S.W.3d 91 (Ky. 2009), one of the court's orders stated that Kentucky River was not entitled to immunity because it was not the offspring of an entity entitled to immunity and because Kentucky River provides services that other non-governmental entities provide. The other order, also relying on Comair, found that Kentucky River failed the "parent' test" because it was not a governmental agency.

Kentucky River appealed to the Court of Appeals. The Court of Appeals, in a divided opinion, affirmed. In doing so, the Court first noted that Kentucky River is neither the Commonwealth nor a county, therefore, it is not entitled to sovereign immunity. The Court then determined that Kentucky River, which was initially formed as a private nonprofit corporation, was not entitled to governmental immunity under Comair's parent test because it had not been created by an entity entitled to immunity, i.e. , a county. The Court also noted that Kentucky River continues to operate as a private nonprofit entity.

As noted above, Kentucky River sought discretionary review, which we granted to address the issue of governmental immunity.

II. STANDARD OF REVIEW.

Whether a defendant is entitled to "immunity is a question of law ... , which we review de novo. " Rowan County v. Sloas , 201 S.W.3d 469, 475 (Ky. 2006), as corrected (Sept. 26, 2006)(internal citations omitted).

III. ANALYSIS.

At the outset, we note that this matter involves services provided by Liberty Place, an entity administered by Kentucky River. It does not involve any other services that Kentucky River may provide. Thus, the issue is whether Kentucky River has immunity with regard to its operation of Liberty Place, and our holding today is limited to that issue. Our holding does not apply to Kentucky River's operations generally or to its operation of any other services.

Kentucky River is a community action agency. The Court of Appeals did a commendable job of summarizing the history of community action agencies and we adopt that summary as our own.

The community action agency concept originated in Title II of the Economic Opportunity Act of 1962 ("the EOA"), 42 U.S.C. 3§§ 2781 –2837 (1976) (repealed 1981). Through the EOA's provisions, Congress sought to encourage the creation of community operated agencies that would coordinate federal, state, and private resources to combat poverty at a local level. U. S. v. Orleans, 425 U.S. 807, 818, 96 S.Ct. 1971, 1977, 48 L.Ed.2d 390 (1976). Under the EOA, funding flowed directly from the federal government to community action groups that were properly designated as such by state or local authorities and that complied with federal statutory and administrative requirements. SeeCervantes v. Guerra, 651 F.2d 974, 975 (5th Cir. 1981). While Congress defined the basic structure and functions of these agencies and established requisites for federal funding, it largely left discretion in administering the programs and funding to the community action groups themselves. SeeGilmore v. Salt Lake Cmty. Action Program, 710 F.2d 632, 634 (10th Cir. 1983).

In 1981, Congress repealed the community action agency provisions of the EOA and established the Community Services Block Grant Program, ("CSBGP") 42 U.S.C.A. 4§§ 9901 –9912 (1983 & Supp. 1989). See 42 U.S.C.A. § 9912(a). The distinguishing feature of the CSBGP was that it shifted the responsibility for running the program from the federal government to the States. Guilford County Cmty. Action Program, Inc. v. Wilson , 348 F.Supp.2d 548, 552 (M.D.N.C. 2004). Instead of giving funds directly to community action agencies, funds to reduce poverty were allocated to the States through block grants. Id. "The States would then channel the funding to eligible entities, generally nonprofit community action agencies that specialized in poverty reduction. In turn, those agencies provided funding to individuals and to programs designated to reduce poverty." Id.

...

In response to the CSBGP, the Commonwealth of Kentucky enacted a set of statutes, KRS 273.405 to 273.453, to govern the establishment and administration of community action agencies. The statutes, which mirror in large part the federal scheme under the EOA, became effective July 15, 1982.

By statute, the Commonwealth mandated that "[t]here shall be established community action agencies throughout political subdivisions of the Commonwealth." KRS 273.405. A "community action agency" is defined as "a corporation organized for the purpose of alleviating poverty within a community or area by developing employment opportunities; by bettering the conditions under which people live, learn, and work; and by conducting, administering, and coordinating similar programs." KRS 273.410 (2).

Kentucky River Foothills Development Council, Inc. v. Cathy Phirman, et al. , 2013–CA–001858–MR, 2015 WL 1746483, at *6–8 (Ky. App. April 17, 2015).

Kentucky River was created in 1962 as a private nonprofit corporation. In 1968, Clark County designated Kentucky River as a community action agency for the purpose of receiving Economic Opportunity Act funding from the federal government. Kentucky River's designation as a community action agency continued through the adoption of KRS 273.405, et seq. , and it receives federal funding through the Community Services Block Grant Program.

Ultimately, Kentucky River also became the community action agency for Community Services Block Grant Program purposes for Madison, Estill, and Powell Counties. As a community action agency, Kentucky River administers a number of programs, including Head Start, and programs to provide emergency food, shelter, and energy assistance; housing assistance for the homeless; public transportation; and health care for the uninsured and underinsured homeless citizens in Estill and Powell Counties. Kentucky River's Articles of Incorporation, which were amended in 2002, state, in pertinent part, that Kentucky River:

[I]s organized exclusively for charitable and educational purposes. Said corporation shall be for the benefit of the people of the Commonwealth of Kentucky, including but not limited to the provision of early childhood education for poor and handicapped children, housing for low and moderate income families, economic development, job training, and social

...