Brinkley et al v. University of Louisville, et alBRIEF Supplemental reW.D. Ky.November 23, 20161 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF KENTUCKY LOUISVILLE DIVISION UNITED STATES OF AMERICA ex rel. ) KAREN BRIKLEY, et al. ) ) PLAINTIFFS ) ) v. ) Civil Action No.: 3:15-CV-180-DJH ) UNIVERSITY OF LOUISVILLE, et al. ) ) DEFENDANTS ) ______________________________________________________________________ PLAINTIFFS’ SUPPLEMENTAL BRIEF IN OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS ______________________________________________________________________ Plaintiffs Karen Brinkley and Carol Whetstone, by counsel and pursuant to the Court’s November 9, 2016 Order, submit this supplemental brief. Defendants ask the Court to dismiss all claims, before any discovery, arguing that all defendants—University of Louisville (“UofL”), University of Louisville Research Foundation, and the individual defendants—are “arms-of-the state” and, thus, not “persons” subject to liability under the False Claims Act. In the context of the FCA, “arm- of-the-state analysis is a fact-intensive inquiry often ill-suited to judgment on the pleadings.” United States ex rel. Oberg v. Pa. Higher Educ. Assist. Agency, 745 F.3d 131, 145 (4th Cir. 2014). The Court should deny the motion to dismiss or, at a minimum, allow discovery as to whether defendants are truly arms-of-the-state. I. Solinger does not apply: Although acknowledging that this Court is not bound to follow it, defendants rely heavily on a 2006 decision in which Judge Heyburn determined that the Research Case 3:15-cv-00180-DJH Document 33 Filed 11/23/16 Page 1 of 10 PageID #: 1115 2 Foundation is “part of” a state agency and, therefore, immune from suit under the FCA. United States v. Solinger, 457 F. Supp. 2d 743, 755 (W.D. Ky. 2006). FCA law, however, has developed significantly since 2006.1 Less than a year ago the Sixth Circuit addressed the “matter of first impression in this Circuit” of what test should apply to determine if a defendant is a “state agency and therefore not a ‘person’ under the FCA.” Kreipke v. Wayne State Univ., 807 F.3d 768, 775 (6th Cir. 2015).2 The Sixth Circuit held that, “to determine whether an entity is an ‘arm of the state’” for FCA purposes, a court should consider the following factors: (1) the State's potential liability for a judgment against the entity; (2) the language by which state statutes and state courts refer to the entity and the degree of state control and veto power over the entity's actions; (3) whether state or local officials appoint the board members of the entity; and (4) whether the entity's functions fall within the traditional purview of state or local government. Id. The state’s potential liability for a judgment is the “foremost factor.” Id. Solinger did not apply this test, because the Sixth Circuit had not adopted it yet. Of particular note, the Solinger analysis does not consider at all the factor that the Sixth Circuit has now identified as “foremost”: the state’s potential liability for any judgment against the Research Foundation.3 Solinger, 457 F. Supp. 2d at 755. In addition, defendants have not shown that the nature of the Research Foundations’ operations and its relationship to the State are the same as in 2006. 1 As explained in more detail below, see pp. 9-10, FCA law is in a state of flux. 2 Kreipke is the subject of a petition for writ of certiorari pending before the U.S. Supreme Court. See Supreme Court Docket No. 15-1419, https://www.supremecourt.gov/search.aspx?filename=/docketfiles/ 15-1419.htm. 3 Defendants argue that Solinger did address this issue, but the language defendants cite is not found in the Solinger opinion. See Reply in Support of Mot. to Dismiss [DN 24] at p. 4. Case 3:15-cv-00180-DJH Document 33 Filed 11/23/16 Page 2 of 10 PageID #: 1116 3 II. The Research Foundation is not an arm-of-the-state: Defendants bear the burden of proving that they are arms-of-the-state.4 First, and most importantly, defendants have not presented any evidence that the state of Kentucky would be liable for a judgment against the Research Foundation. Instead, defendants erroneously rely on Solinger, arguing that this issue has already been decided, when the Solinger opinion does not even address this factor.5 Even before Solinger, the Kentucky Attorney General opined that university foundation funds “are actually ‘private funds’ rather than public.”6 OAG 82-521, attached. Based on the most recent information publicly available, the Research Foundation has a “strong” financial position and significant corporate wealth, with $77.8 million in net corporate assets as of June 30, 2014.7 The Research Foundation’s revenues and assets come not from state funds, but from “clinical services and practice plans,” “grants8 and contracts,” “facilities and administrative costs recoveries,” and “other operating revenues.”9 There is no evidence that the Research Foundation could not use its substantial assets for any judgment against it. See, e.g., US ex rel. Oberg v. Penn. Higher Ed. Assistance Auth., 804 F.3d 646, 667 (4th Cir. 2015)(holding that even an entity created by state statute and required to deposit its funds in the state treasury did not potentially subject the state to liability for any judgment because of the entity’s 4 Kreipke does not address the burden of proof. But the new Kreipke FCA state agency test is the same as the test for Eleventh Amendment immunity. Kreipke, 807 F.3d at 775. The “entity asserting Eleventh Amendment immunity has the burden to show that it is entitled to immunity, i.e., that it is an arm of the state.” Gragg v. Kentucky Cabinet for Workforce Dev., 289 F.3d 958, 963 (6th Cir. 2002). 5 See Reply in Support of Mot. to Dismiss [DN 24] at pp. 4-5. 6 To the extent there is ambiguity in state law, a state Attorney General's interpretation is entitled to deference from a federal court. Stolaj v. Holder, 577 F.3d 651, 656 (6th Cir. 2009). 7 See Independent Auditor’s Report, June 2014, at p. 3, attachment to Nov. 13, 2014 minutes of the Research Foundation, found at http://louisville.edu/president/research/minutes/november-13-2014. The Independent Auditor’s Report begins at p. 7 of the Nov. 13, 2014 minutes. 8 Although it appears that the Research Foundation receives some limited state grants, grants often go to private entities. See id. at p. 14. 9 Id. at p. 8. Case 3:15-cv-00180-DJH Document 33 Filed 11/23/16 Page 3 of 10 PageID #: 1117 4 strong financial position and functional independence). “This factor is entitled to “substantial weight.” Kreipke, 807 F.3d at 776. Second, Kentucky does not consider the Research Foundation a state entity. Unlike the defendant in Kreipke, the Research Foundation was not established by state statute. Rather, the Research Foundation is a non-profit corporation, established by filing Articles of Incorporation with the Secretary of State, just like any other corporate entity.10 Pursuant to the Research Foundation’s Articles of Incorporation, it is an “affiliated corporation of the University of Louisville.”11 And Kentucky statute specifically provides that an “affiliated corporation” of a university is “not a public agency.” KRS 164A.550(3)(emphasis added). In addition, the Research Foundation has not presented any evidence that the state of Kentucky “controls” or has “veto power” over the Foundation’s actions. See Kreipke, 807 F.3d at 777-78 (noting that even universities themselves are typically independent of state control).12 Third, the Research Foundation’s functions are not within the “traditional purview” of state government.” Id. at 775. The “objects and purposes” of the Research Foundation, as set out in its Articles of Incorporation, focus on conducting and supporting scientific “research projects.”13 In addition, it appears that much of the Research Foundation’s revenue comes from providing clinical care to patients.14 The 10 See Research Foundation Articles of Incorporation, http://louisville.edu/president/research/articles-of- incorporation/view. 11 Id. 12 Kentucky state courts have not considered the status of the Research Foundation. Kentucky statute states that a university exercises “effective control” over an affiliated corporation, but provides no details. KRS 164A.550(3). 13 See Research Foundation Articles of Incorporation, http://louisville.edu/president/research/articles-of- incorporation/view. 14 See Independent Auditor’s Report, June 2014, at p. 8 (listing “clinical services and practice plans” as the Research Foundation’s top source of revenue for 2012-14, with additional reference to “Medicaid patients”), attachment to Nov. 13, 2014 minutes of the Research Foundation, found at http://louisville.edu/president/research/minutes/november-13-2014. Case 3:15-cv-00180-DJH Document 33 Filed 11/23/16 Page 4 of 10 PageID #: 1118 5 traditional functions of state government include “administering the public law and furnishing public services.” Nat'l League of Cities v. Usery, 426 U.S. 833, 851 (U.S. 1976), overruled on other grounds. Even an entity that is created by state statute is not within the “traditional purview” of state government if its “functions are not integral to state government.” Gaffney v. Ky. Higher Ed. Student Loan Corp., 2016 U.S. Dist. LEXIS 90171 at *22 (M.D. Tenn. July 12, 2016). If a “corporation performs substantially the same functions as any private business,” it should not be granted sovereign immunity or immunity will become limitless. Id. at *21-*22. Although higher education is a traditional function of state government, the Research Foundation is not providing education. Neither scientific research nor patient care are traditional functions of state government. The only factor that weighs slightly in favor of a determination that the Research Foundation is an arm-of-the-state is that the governor indirectly appoints some members of the Foundation’s board of directors.15 Considering all of the Kreipke factors, the Research Foundation is not an arm-of-the-state, and plaintiffs’ FCA claims should be allowed to proceed. III. The University is not an arm-of-the-state: As the Kreipke factors show, whether an entity is an arm-of-the-state is a fact- intensive inquiry that must be conducted on a case-by-case basis. The fact that the Kreipke court determined that Wayne State University is an arm of the state of Michigan does not mean that UofL is an arm of the state of Kentucky. See, i.e., Kovats v. 15 The Foundation’s Board of Directors includes members of the Board of Trustees of the University of Louisville. See Research Foundation Bylaws ¶2.1, http://louisville.edu/president/research/bylaws-1/view. The governor appoints the majority of the members of UofL’s Board of Trustees. See KRS 164.821. Case 3:15-cv-00180-DJH Document 33 Filed 11/23/16 Page 5 of 10 PageID #: 1119 6 Rutgers, State University, 822 F.2d 1303 (3d Cir. N.J. 1987) (holding that Rutgers University is not an arm-of-the-state). In addition to Solinger, defendants rely on decisions from 40 years ago in support of their position that there is “no question” that UofL is an arm of the state.16 But those opinions do not consider the Kreipke factors, particularly whether the state would be liable for any judgment against UofL. As one commentator has noted, “given the nationwide trend of shrinking state financial support to state-aided institutions, as well as the sheer complexity of the relationship, virtually any federal court could decide that a university no longer deserves protection from suit under the Eleventh Amendment.” Frank A. Julian, The Promise and Perils of Eleventh Amendment Immunity in Suits Against Public Colleges and Universities, 36 S. TEX. L. REV. 85, 107 (1995). IV. The individual defendants are not arms-of-the-state or otherwise immune: Defendants presume that plaintiffs are asserting only official-capacity claims against the individual defendants, but that is not true. Plaintiffs’ claims against the individual defendants are both individual-capacity and official-capacity claims. There is no requirement that plaintiffs’ complaint explicitly state whether a defendant is sued in an official or individual capacity. Moore v. City of Harriman, 272 F.3d 769, 772 (6th Cir. 2001). Rather, defendants only have to receive “notice of the plaintiff’s intent to hold them personally liable.” Id. Plaintiffs have given the individual defendants such notice.17 When a “plaintiff seeks to hold individual employees personally liable for their knowing participation in the submission of false or fraudulent claims to the United States government, the state is not the real party in interest,” and the individual defendants are 16 Motion to Dismiss [DN 11-1] at p. 8, citing Martin v. Univ. of Louisville, 541 F.2d 1171 (6th Cir. 1976); Univ. of Louisville v. Martin, 574 S.W.2d 676 (Ky. App. 1978). 17 See, e.g., Pls.’ Resp. to Mot. to Dismiss at p. 14, DN 23. Case 3:15-cv-00180-DJH Document 33 Filed 11/23/16 Page 6 of 10 PageID #: 1120 7 not immune from suit. Stoner v. Santa Clara Co. Office of Ed., 502 F.3d 1116, 1125 (9th Cir. 2007).18 As the Ninth Circuit explained, a decision “to preclude an action against state officials in their personal capacities … would be tantamount to a grant of absolute immunity under the FCA to state officials for any actions taken in the course of their governmental responsibilities.” Id. There is no support in the FCA for such an interpretation, and it “is also contrary to the principles of the Supreme Court's well- established public employee immunity jurisprudence.” Id. Moreover, “no governmental employee would be authorized to knowingly present a false claim, so there is no public- policy reason to immunize employees who do so.” United States ex rel. Burlbaw v. Regents of the N.M. State Univ., 324 F. Supp. 2d 1209, 1216 (D.N.M. 2004). Absolute official immunity extends only to a very limited class of officials, “including the President of the United States, legislators carrying out their legislative functions, and judges carrying out their judicial functions.” Hafer v. Melo, 502 U.S. 21, 29 (1991). Otherwise, “individual state employees may be sued in their individual capacity for violations of federal law they may have committed, and are generally entitled to only qualified, not absolute, immunity.” Burblaw, 324 F. Supp. 2d at 1218. As the District of New Mexico succinctly explained, there is “no principled reason to treat the FCA differently, for purposes of public-employee liability, than any other federal statute.” Id. Thus, “state employees may be sued in their individual capacities under the FCA for actions taken in the course of their official duties.” Stoner, 502 F.3d at 1125. 18 Even the case law that defendants rely upon recognizes the basic principle that the “Eleventh Amendment does not bar federal claims seeking damages against a state official acting in his personal capacity.” United States ex rel. McVey v. Bd. of Regents, 165 F. Supp. 2d 1052, 1057 (N.D. Cal. 2001); see also United States ex rel. Gaudineer & Comito, L.L.P. v. Iowa HHS, 269 F.3d 932, 937 (8th Cir. 2001)(recognizing that, under the FCA, “state official may be liable for money damages in his individual capacity”). Case 3:15-cv-00180-DJH Document 33 Filed 11/23/16 Page 7 of 10 PageID #: 1121 8 To present an individual-capacity claim, a relator “need only allege that [the individual defendant] ‘knowingly present[ed], or cause[d] to be presented, a false or fraudulent claim for payment or approval’ or ‘knowingly ma[de], use[d], or cause[d] to be made or used, a false record or statement material to a false or fraudulent claim.’” US ex rel. Jones v. Univ. of Utah Health Sciences Ctr., 2013 U.S. Dist. LEXIS 137797 at *13-*14 (Sep. 24, 2014) (quoting 31 U.S.C. § 3729(a)(1)). That is precisely what plaintiffs allege here: “Defendants knowingly presented, or caused to be presented, multiple false and/or fraudulent claims to the Government for its payment or approval, in violation of the False Claims Act (31 U.S.C. §3729(a)(1)(A), to the damage of the Treasury of the United States of America, and/or causing the United States to pay out millions of dollars to Defendants that it was not obligated to pay.”19 V. In the alternative, the Court should allow discovery: Because of the fact-intensive nature of determining whether an entity is an arm- of-the-state, several courts have held that discovery is appropriate before making the determination. For example, the Fourth Circuit vacated a district court’s judgment of dismissal and remanded the case for “limited discovery on the question” of whether the defendant was "truly subject to sufficient state control to render [it] a part of the state." United States ex rel. Oberg v. Pa. Higher Educ. Assistance Agency, 745 F.3d 131, 140- 141 (4th Cir. 2014); see also Burlbaw, 324 F. Supp. 2d at 1211; Bowers v. NCAA, 475 F.3d 524, 532 (3d Cir. 2007) (regarding 11th Amendment immunity generally, not specific to FCA claims). Here, there is limited information currently available, particularly regarding the Research Foundation. Discovery would be helpful to establish the degree and nature of 19 See, e.g., First Amen. Compl. [DN 9] at ¶ 147. Case 3:15-cv-00180-DJH Document 33 Filed 11/23/16 Page 8 of 10 PageID #: 1122 9 the relationship between the Foundation and the state, including obtaining the Foundation’s most recent Articles of Incorporation, Bylaws, board minutes, insurance policies and applications, financial statements, and taxation information. Depositions could also reveal how much control the state of Kentucky exercises over the Foundation – if any. Similar discovery would also shed light on how much control the state truly exercises over UofL. Allowing discovery would also permit time for the United States Supreme Court to decide whether it will review the decision by the Fourth Circuit in US ex rel. Oberg v. Penn. Higher Ed. Assistance Auth., 804 F.3d 646 (4th Cir. 2015), which could be directly relevant here. The Oberg petition asks the Supreme Court to weigh in on the exact question presented here, namely what test should be used to determine whether an entity is an arm-of-the-state in the context of the FCA.20 The Supreme Court has not yet accepted review, but it invited the Solicitor General to file a brief, indicating that the Court is seriously considering the case. As the Oberg petition explains, the federal “courts of appeals have hopelessly splintered over how to determine whether a particular entity is an arm of the state.”21 In Oberg, the Fourth Circuit determined that the Pennsylvania Higher Education Assistance Authority—an entity that, like the Research Foundation, assists universities, but does not provide education—is not an arm-of-the-state. Oberg, 804 F.3d at 677. The Fourth Circuit considered factors that are similar, but not identical, to those adopted by the Sixth Circuit in Kreipke, specifically: (1) whether any judgment against the entity as defendant will be paid by 20 Petition for Certiorari, Penn. Higher Ed. Assistance Auth. v. US ex rel. Oberg, Docket No. 15-1045, found at http://www.scotusblog.com/wp-content/uploads/2016/02/Oberg-cert-petition-FILED.pdf. 21 Id. at 14. Case 3:15-cv-00180-DJH Document 33 Filed 11/23/16 Page 9 of 10 PageID #: 1123 10 the State . . . ; (2) the degree of autonomy exercised by the entity, including such circumstances as who appoints the entity's directors or officers, who funds the entity, and whether the State retains a veto over the entity's actions; (3) whether the entity is involved with state concerns as distinct from non- state concerns, including local concerns; and (4) how the entity is treated under state law, such as whether the entity's relationship with the State is sufficiently close to make the entity an arm of the State. Id. at 650-651. Because the issue presented in Oberg is identical to the issue currently before this court, and because there are similarities between the Oberg defendant and the Research Foundation, a decision by the Supreme Court could be directly applicable here. In sum, the Court should deny defendants’ motion to dismiss or allow discovery. Respectfully Submitted, s/ Vanessa B. Cantley Vanessa B. Cantley Patrick E. Markey Bahe Cook Cantley & Nefzger PLC Marion E. Taylor Building, 6th Floor 312 S. Fourth Street Louisville, KY 40202 Tel. (502) 587-2002 Fax (502) 587-2006 vanessa@bccnlaw.com patrick@bccnlaw.com Counsel for Plaintiffs CERTIFICATE OF SERVICE On November 23, 2016, I electronically filed this document with the clerk of the court using the CM/ECF system, which will send a notice of electronic filing to all counsel of record. s/ Vanessa B. Cantley Vanessa B. Cantley Case 3:15-cv-00180-DJH Document 33 Filed 11/23/16 Page 10 of 10 PageID #: 1124 Mr. Vic Hellard, Jr., 1982 Ky. Op. Atty. Gen. 2-537 (1982) © 2016 Thomson Reuters. No claim to original U.S. Government Works. 1 1982 Ky. Op. Atty. Gen. 2-537 (Ky.A.G.), Ky. OAG 82-521, 1982 WL 177291 *1 Office of the Attorney General Commonwealth of Kentucky OAG 82-521 September 21, 1982 Mr. Vic Hellard, Jr. Director Legislative Research Commission Capitol Building Frankfort, Kentucky 40601 Dear Mr. Hellard: You have asked the Office of the Attorney General to respond to two questions relative to university foundations which have arisen from confusion concerning two bills enacted by the 1982 session of the General Assembly, House Bill 622 and Senate Bill 243. The two questions presented were stated by you as follows: “(1) Do the universities have a choice as to whether the provisions of House Bill 622 apply to their affiliated corporations? Specifically, Sections 14 and 15, as well as Section 4(8) and Section 5, address the operations of affiliated corporations. Are these provisions mandatory or do they only apply if the universities elect to perform under the provisions of HB 622 (per Section 3)? “(2) Foundations (affiliated corporations) may hold several types of funds, including student fees, government grants and contracts, sales and service income, as well as private gifts and endowments. (These accounts are defined by the American Institute of Certified Public Accountants, which is the accounting guide used by the universities and will be required by the Department of Finance pursuant to House Bill 622.) “It is my understanding that Section 30(31) of Senate Bill 243 includes all these funds except private funds as described in KRS 41.290, and, therefore, KRS 41.070 would apply to all these funds except private monies. Is this correct in your opinion?” In respond to your first question, we have answered this issue in another recently rendered opinion to you, OAG 82-520. We concluded in that opinion “The state universities are at liberty to elect all, some of or none of the provisions of House Bill 622.” In view of this previously reached conclusion, we believe the state universities do have a choice as to whether or not to organize an affiliated corporation pursuant to KRS Chapter 273 to be subject to the provisions of House Bill 622. KRS 164A.560(1) provides that state universities may elect to perform in accordance with the provisions of House Bill 622, as codified, regarding various matters, including “affiliated corporations.” As to your second question, you seem to equate university foundations with affiliated corporations. We do not believe the terms, let alone the entities, are synonymous. By definition in House Bill 622, at what is now KRS 164A.550(3), “Affiliated corporation” is defined as “a corporate entity which is not a public agency and which is organized pursuant to the provisions of KRS Chapter 273 over which an institution exercises effective control, by means of appointments to its board of directors, and which could not exist or effectively operate in the absence of substantial assistance from an institution.” Another part of House Bill 622 (Section 14), codified as KRS 164A.610, addresses the organization and operation of affiliated corporations as follows: *2 “(1) An institution may organize and operate one (1) or more affiliated corporations to assist it in carrying out its programs, missions or other functions. A qualified firm of certified public accountants experienced in the auditing of colleges and universities and their affiliated corporations shall be engaged to conduct an annual examination of the corporation’s financial statements in accord with generally accepted auditing standards for the purpose of rendering an independent opinion thereon and preparing a report of findings and recommendations concerning appropriate accounting controls and compliance with applicable statutes. The affiliated corporation shall adhere to the principles of accounting and purchasing used by the Case 3:15-cv-00180-DJH Document 33-1 Filed 11/23/16 Page 1 of 3 PageID #: 1125 Mr. Vic Hellard, Jr., 1982 Ky. Op. Atty. Gen. 2-537 (1982) © 2016 Thomson Reuters. No claim to original U.S. Government Works. 2 institution with which it is affiliated. “(2) The affiliated corporation shall provide the institution with an accounting at least quarterly, of all income and expenditures of said corporation in connection with contracts or grants with entities external to the institution and the corporation, for the conduct of research or other projects carried out, in whole or in part, through the use of institutional facilities or personnel. “(3) The affiliated corporation shall pay to, or for the benefit of, the institution any and all funds received by it from any person, corporation, association or government agency external to the institution and the affiliated corporation as reimbursement for indirect expenses incurred by the institution in carrying out research or furnishing other goods or services, deducting from such payments only the expenses attributable to the procurement and performance of research grants and contracts and other contracts for the provision of such goods and services and such sums as may be essential to meet contractual obligations incurred at the request of the institution’s governing board.” In contrast, Section 14 of Senate Bill 243 created a new section of KRS Chapter 42, now KRS 42.540, which references with particularity the state universities respective foundations. These foundations are listed as examples of a “nonprofit fiduciary holding funds for the benefit of any form of state organization.” With the above distinction in mind, we believe there are actually two parts to your second question. The first part is whether funds, other than private funds and contributions, received by an affiliated corporation are subject to the provisions of KRS 41.070. We believe the answer to this question is in the affirmative tempered by the provisions of House Bill 622 relative to the receiving of funds if elected by a state university. That is, if the state university has elected to “ . . . receive, deposit, collect, retain, invest, disburse and account for all funds received or due from any source . . .” [[KRS 164A.560(2)], then the receipts of an affiliated corporation to that university would no longer be required to be deposited in the state treasury. The second part of your second question goes to looking at the university foundations. We do not believe the foundation of a state university (a nonprofit fiduciary holding funds for the benefit of any form of state organization) is required under KRS 41.070, as amended, to deposit monies received by it in the state treasury. “State funds” or “public funds” has been defined in KRS 446.010(31), Section 30 of Senate Bill 243, as follows: *3 (31) “State funds” or “public funds” means sums actually received in cash or negotiable instruments from all sources unless otherwise described by any state agency, stateowned corporation, university, department, cabinet, fiduciary for the benefit of any form of state organization, authority, board, bureau, interstate compact, commission, conference, council, office or any other form or organization whether or not the money has ever been paid into the treasury and whether or not the money is still in the treasury if the money is controlled by any form of state organization, except for those funds the management of which is to be reported to the legislative research commission pursuant to Sections 16, 17, and 19 of this Act; It is acknowledged that a university foundation is a “fiduciary for the benefit of any form of state organization.” Irrespective of this fact, while some funds received by a foundation would fit this general definition of public or state funds for the purposes of KRS 41.070 and the depositing of money in a state depository, we believe that foundation funds are actually “private funds” rather than public. KRS 41.070, amended in Section 31 of Senate Bill 243, still begins, in subsection (1) “Unless otherwise expressly provided by law, . . .” KRS 41.290 exempts from the requirement of depositing with the state treasury “private funds” available to the governing boards of state universities. If state university foundation money were not to be considered “private funds” for depository purposes, then Section 14 of Senate Bill 243, now KRS 42.540, would make little sense. This statute reads: Notwithstanding KRS 41.290, every nonprofit fiduciary holding funds for the benefit of any form of state organization including but not limited to Eastern Kentucky University, Kentucky State University, Morehead State University, Murray State University, Northern Kentucky University, University of Kentucky, University of Louisville, Western Kentucky University, the state fair board, and the Kentucky department of energy shall make a report according to generally accepted accounting principles of all money received and disbursed during each fiscal year, on or before the 15th of July, showing receipts, expenditures, depositories, rates of interest paid by depositories, investments, and rates of return in investments to the state investment commission. Such fiduciaries include, but are not limited to Eastern Kentucky University Foundation; Kentucky State University Foundation, Inc.; Morehead State University Foundation, Inc.; Morehead Alumi Foundation, Inc.; Eagle Athletic Foundation, Inc.; Murray State University Foundation; Northern Kentucky University Foundation, Inc.; Case 3:15-cv-00180-DJH Document 33-1 Filed 11/23/16 Page 2 of 3 PageID #: 1126 Mr. Vic Hellard, Jr., 1982 Ky. Op. Atty. Gen. 2-537 (1982) © 2016 Thomson Reuters. No claim to original U.S. Government Works. 3 University of Kentucky Research Foundation; University of Kentucky Athletics Association; The Fund for the Advancement of Education and Research in the University of Kentucky Medical Center; Health Care Collection Service, Inc.; McDowell Cancer Network, Inc.; University of Kentucky-Business Partnership Foundation, Inc.; Kentucky Medical Services Foundation, Inc.; University of Louisville Foundation, Inc.; University of Louisville Hospital, Inc.; University of Louisville Institute of Industrial Research, Inc.; University of Louisville Medical School Fund, Inc.; The College Heights Foundation; KFEC Research and Development Foundation, Inc.; Kentucky Export Resources Authority, Inc. and all similar nonprofit fiduciaries for the benefit of any form of state organization and their successors. (Emphasis supplied). *4 This statute is saying that although state university foundations do not have to deposit their funds per KRS 41.290, the foundations nevertheless are going to be required to make a report of all the money it has received showing “receipts, expenditures, depositories, rates of interest paid by depositories, investments, and rates of return in investments.” (Emphasis supplied). If a university foundation was required to deposit its money in a state depository, then this part of the reporting requirement would be meaningless. We trust the above will be of assistance regarding the construction and application of House Bill 622 and Senate Bill 243. Sincerely, Steven L. Beshear Attorney General By: Robert L. Chenoweth Assistant Deputy Attorney General and Chief Counsel 1982 Ky. Op. Atty. Gen. 2-537 (Ky.A.G.), Ky. OAG 82-521, 1982 WL 177291 End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works. 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