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Kentucky Court Allows City to Sue State Pension Board For Imprudent Investments

December 5th, 2017

Bd. of Trustees of the Ky. Retirement Systems v. City of Fort Wright, 2016 WL 5319180 (Ky. App. Sep. 23, 2016).

In a case being watched by pension advocates across America, the City of Fort Wright, Kentucky has been permitted to sue the Kentucky Retirement Systems (“KRS”), which serves as Kentucky’s statewide municipal retirement system. Starting in 2014, the City filed a class-action suit against KRS alleging it had engaged in imprudent investments and overpaid management fees. The City demands an accounting of the assets and segregation of its assets from KRS.

 

KRS greeted the City’s lawsuit with a motion to dismiss.  The trial court denied KRS’ motion.  KRS then appealed asserting sovereign immunity barred the City’s suit. Sovereign immunity was the sole issue on appeal. The Appellate Court, on September 23, 2016, found the doctrine of sovereign immunity was deemed waived as a matter of statute.  On February 9, 2017, Kentucky’s Supreme Court declined to hear the case. Shortly thereafter, the case returned to the Franklin County Circuit Court.  The parties are currently engaged in discovery.  We are certain a veracious summary judgment process will follow.  Then, if necessary, pre-trial motions and trial will set the table for a return to the appellate court.

 

The myriad of legal issues wrapped into this case are too many to discuss.  However, allow this article to serve as a preview of this case.  While sovereign immunity is an issue, it is far from the most direct impact to the majority of our readers. The Illinois Supreme Court eliminated sovereign immunity in Illinois.  In response, the General Assembly installed a series of laws curtailing tort immunity for governmental entities. Certainly, sovereign/tort immunity will undoubtedly play a substantial role in the KRS case, and any successor cases. However, those are only the tip of the iceberg.

 

The Kentucky case begs a variety of questions. What, if any, duty does a pension board owe to a sponsoring employer?  Does the employer have standing to bring such a suit?  To what extent are trustees personally liable to the employer?  Are the duties different for single and multi-employer plans?  There are many more questions regarding liability.  Then, assuming liability is established, what comes next?

 

What remedies are available to an employer who successfully establishes it was owed a duty and that duty was breached.  Is it owed money?  If so, from where?  Can it enjoin the pension trustees and require them to invest in a certain manner?  Can the employer demand to be removed from the pension system?  Again, this is just a preview.  We will continue to track this case.