Negligent misrepresentation claim in purchase of “service credit” against KERS not recognized at time of BOC claim: BOARD OF TRUSTEES OF KENTUCKY RETIREMENT SYSTEMS V. COMMONWEALTH OF KENTUCKY (COA 4/4/08)

BOARD OF CLAIMS:  Negligent misrepresentation claim, sovereign immunity, and exhaustion of administrative remedies for purchasing retirement through KERS
Commonwealth of Kentucky
Date: 4/4/2008

This appeal centers around Vicki Knable’s complaint filed with the Board of Claims in April 2005 against KERS regarding the purchase of “service credit” or “service.”

The purpose of purchasing service is to fund KERS for employer and employee retirement contributions that would have been paid over an employee’s term of employment, so that the employee will be credited with years of service for determining eligibility for retirement. KRS 61.525(2)(b) allows a person who rejects membership to subsequently elect to become a member of KERS and was amended in 2004 to provide that purchases of service credit can only be made by members who are vested or have at least sixty months of service at the time of the purchase if they are under the age of sixty five. Knable fits into the latter category.

Knable believed that only past service fitting into this category had to be purchased by July 12 and thought the deadline did not apply to her so that she did not purchase any past service prior to the deadline.

After July 2004, when Knable attempted to purchase past service, KERS refused her request because she was not vested as she had not been a member of KERS for sixty months. This appeal followed (as well as a Board of Claims action).

Knable contends KERS’ failure to honor the language in the May 2004 newsletter forced her to wait until she was a member for sixty months before allowing her to purchase any past service. Knable calculated that this would cause her to spend an extra $90,000.00 in order to purchase the past service that she wanted to buy, thereby, causing her damage. KERS moved to dismiss the BOC action pursuant to KRS 44.070 claiming the BOC only has jurisdiction over claims in which a person has suffered either personal injury or property damage as the result of negligence on the part of the Commonwealth.

COA ruled that KERS did not have to exhaust its administrative remedies before the BOC prior to filing its declaratory judgment action in that it is not necessary to have previously exhausted administrative remedies if the only issue being raised is subject matter jurisdiction, which is a legal question not dependent upon disputed facts.

The doctrine of exhaustion of administrative remedies defined as the “’proper judicial administration mandates judicial deference until after exhaustion of all viable remedies before the agency vested with primary jurisdiction over the matter.’”

There are two exceptions to the general and often relied upon rule that to appeal an agency’s decision, one must previously exhaust all administrative remedies: 1) where a regulation is void on its face; or 2) where continuation of the administrative process would be an exercise in futility. The latter exception applies “when a complaint ‘raises an issue of jurisdiction as a mere legal question, not dependent upon disputed facts, so that an administrative denial of the relief sought would be clearly arbitrary.’”

As a general rule, state agencies, carrying out integral state functions, have sovereign immunity. Waiver of this immunity is a matter of legislative grace.

COA held further that any construction of other statutes to result in a waiver of immunity which differs from the language of the Board of Claims Act is untenable. In various places throughout the Board of Claims Act, waiver of immunity is alluded to and in every instance an express waiver is required.

Accordingly, sovereign immunity must be expressly waived by the General Assembly. Its waiver cannot be assumed by the courts or even the BOC.

When enacted, the BOC was given exclusive jurisdiction over all claims for the negligent performance of ministerial acts by the Commonwealth or its agencies. The rub in the case at hand is obviously whether this jurisdiction includes negligent misrepresentation. BOC does not have jurisdiction over Knable’s claim which is one of negligent misrepresentation and which was not adopted by the Kentucky Supreme Court until 2004 in Presnell Construction Managers, Inc. v. EH Construction, LLC, 134 S.W.3d 575 (Ky. 2004). Because negligent misrepresentation, which has elements separate from negligence, was not recognized as a tort at the time KRS 44.072 was enacted, and the General Assembly’s not having expressly waived sovereign immunity to this tort after its adoption by the Kentucky Supreme Court, the BOC did not have jurisdiction over Knable’s claim.

Accordingly, the BOC’s order to the contrary is void, and the KERS’ action for declaratory action was properly taken having raised jurisdiction as a legal question. COA reversed the circuit court, and remanded this case for entry of judgment consistent with this opinion.

Digested by Michael Stevens


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