On a Path to Autonomy: Death With Dignity Paves the Way

Article | 104 KY. L. J. ONLINE 35 | November 12, 2015

Joseph J. Sherman [1]

Introduction

In early October 2014, Brittany Maynard made headlines when she announced her intention to end her own life in response to her cancer diagnosis.[2] Maynard was a California woman who was diagnosed with terminal glioblastoma,[3] which is a type of highly malignant brain tumor.[4] But because California prohibits physician-assisted death (“PAD”), she and her family made the difficult decision to move to Oregon, where she could legally seek such medical care.[5] On November 1, 2014, Maynard carried out her plan to end her own life by taking a lethal dose of barbiturates prescribed by her doctor.[6] Her choice to end her own life, rather than to let her illness take its natural course, has generated a great deal of controversy.[7] Is it beneficent to promote an early death for the terminally ill to prevent pain and suffering? Do we overextend our role in medicine when death becomes a prescription? What implications does PAD have on the future of end-of-life care?This controversy may be partially fueled by a misunderstanding of the legal framework surrounding PAD. “Physician-assisted [death] occurs when a physician facilitates a patient’s death by providing the necessary means and/or information to enable the patient to perform the life-ending act . . . .”[8] This definition is distinct from the refusal of life-saving medical care, which the United States Supreme Court has recognized as a liberty interest protected by the Constitution.[9] The Court has declined to recognize suicide as a liberty interest, holding state bans on PAD to be constitutional as long as they neither infringe on citizens’ fundamental rights nor involve suspect classifications under the Equal Protection Clause of the Fourteenth Amendment.[10]Jurisprudence around the issue of PAD has left the states to decide for themselves whether to legalize the practice. However, many people, even medical experts, do not have a clear enough grasp of jurisprudence on this subject to make an informed argument in favor of or against legalization of PAD. This note elucidates the major jurisprudence surrounding the right to refuse medical treatment, physician-assisted death, and the Oregon Death With Dignity Act. First, it will provide background on Supreme Court rulings on end-of-life issues, noting the contrived distinction between the Court’s understanding of refusal of medical treatment and its understanding of PAD. Second, it will discuss the different paths some states have taken to legalize PAD and objections others have had to its application. Third, it will analyze annually collected data on the Oregon Death With Dignity Act and demonstrate that both the Supreme Court’s analysis and other popular criticisms of PAD are misguided. Finally, this note will conclude by suggesting ways the states could encourage development in this area of the law.

I. Supreme Court Foundation: the Right to Refuse Medical Treatment and Physician-Assisted Death

There is a significant difference between the Supreme Court’s discussion of the right to refuse medical treatment and its discussion of PAD. Broadly speaking, in the case of the right to refuse medical treatment, the patient is allowed to die of whatever disease from which they suffer; medicine is not the cause of death. However, in the case of PAD, the medicine is actually the cause of death. In grappling with the distinction the Court draws, it will become clear that the distinction lacks coherence.

A. SCOTUS and the Right to Refuse Medical Treatment

The Supreme Court began addressing the right to refuse medical treatment in 1905 when it decided Jacobson v. Massachusetts.[11] In that case, a man challenged a Cambridge ordinance that mandated vaccination against smallpox in response to the growing threat of epidemic.[12] He argued that the ordinance violated his Fourteenth Amendment liberty interest.[13] The Supreme Court held that the ordinance fell within the state’s police power to protect public health.[14]The most significant decision on the right to refuse medical treatment came in 1990 in Cruzan v. Director, Missouri Department of Health.[15] The case involved a young woman, Nancy Cruzan, whose brain was without oxygen for twelve to fourteen minutes while she waited for paramedics after an automobile accident.[16] She entered a persistent vegetative state, and it soon became clear that she would never regain full mental capacity.[17] Cruzan’s family sought to have the feeding and hydration procedures terminated, but hospital employees would not honor their request without a court order.[18] The trial court granted their request on the basis that Cruzan had a fundamental right to refuse the withdrawal of “death prolonging procedures.”[19] However, the Missouri Attorney General appealed the decision, and the Missouri Supreme Court reversed the trial court decision, denying the family’s request.[20] The court required Cruzan’s family to show by “clear and convincing evidence” that removal of feeding and hydration procedures would have been consistent with Cruzan’s wishes.[21] On appeal to the U.S. Supreme Court, the issue was whether the Constitution forbade Missouri from imposing the “clear and convincing evidence” standard.[22] Because Cruzan was an incompetent patient,[23] the Court was comfortable affirming the Missouri Supreme Court’s requirement of clear and convincing evidence that Nancy Cruzan would have wished to cease medical treatment.[24] A living will or even testimony as to conversations the patient has had about end-of-life care can suffice to establish clear and convincing evidence.[25] This requirement is a way of ensuring individual autonomy, an aspect of respect for persons embodied in the set of medical standards known as the Belmont Report.[26]Ironically, the notion of autonomy undergirding the Court’s ultimate position on the right to refuse medical treatment is undermined in states that do not allow a path for some patients to seek physician-assisted death.[27] This result will be explored in Part III.

B. Physician-Assisted Death

Since Cruzan, the Supreme Court has had the chance to hear cases on PAD. Recall that the American Medical Association said “[p]hysician-assisted [death] occurs when a physician facilitates a patient’s death by providing the necessary means and/or information to enable the patient to perform the life-ending act . . . .”[28] This concept is slightly different from the issue in Cruzan, because it involves actually providing the patient with the substance that causes death, rather than removing medical treatment and allowing the patient to die naturally.[29]In Washington v. Glucksberg, the Supreme Court addressed a general Washington statute that prohibited anyone from “knowingly caus[ing] or aid[ing] another person to attempt suicide.”[30] The statute also had the effect of preventing physicians from assisting three terminally ill patients in ending their lives.[31] The patients and physicians were challenging the statute on the grounds that it violated the Due Process Clause of the Fourteenth Amendment.[32] However, the Supreme Court held that the statute did not violate the Constitution.[33] The case was inextricably tied to suicide, and although the Court acknowledged that it assumed a right of competent patients to refuse medical treatment, it was uncomfortable with the idea of granting constitutional protection to suicide under any circumstance.[34] Chief Justice Rehnquist articulated several state interests in opposition to a policy recognizing a right to suicide:

These interests include . . . preserving human life; preventing the serious public-health problem of suicide, especially among [vulnerable populations]; protecting the medical profession’s integrity and ethics and maintaining physicians’ role as their patients’ healers; protecting [vulnerable populations] from indifference, prejudice, and psychological and financial pressure to end their lives; and avoiding a possible slide toward voluntary and perhaps even involuntary euthanasia.[35]

However, this decision does not mean that PAD is unconstitutional. By refusing to strike down Washington’s ban on this practice, this decision recognizes suicide as a public health concern but provides states with the discretion to determine how to address PAD.[36]In Vacco v. Quill, the Supreme Court addressed a New York statute that made it illegal to aid a person in committing suicide or attempting to commit suicide.[37] A group of patients challenged the statute on the grounds that it violated the Equal Protection Clause of the Fourteenth Amendment.[38] They argued that the statute banning assisted suicide had the effect of classifying people into two groups with unequal protection under the law.[39] The Second Circuit found that patients who were attached to life support machines had the option to refuse additional medical treatment to end their lives, while patients who were not attached to life support machines lacked the option to end their lives.[40] The Supreme Court ruled that the classification they described was not suspect, and that it deserved rational basis review.[41] Applying that standard, the Court held that there was a legitimate interest in distinguishing between suicide and refusal of medical treatment.[42] That distinction was based on the causal factor: does the patient die from the disease or the medicine?[43] This decision protects the integrity of the medical profession, one of the state interests mentioned in Glucksberg as well.[44]In upholding two state bans on PAD, the Supreme Court did not decide that the practice was unconstitutional. It merely left the question open for states to decide for themselves whether to ban PAD or to legalize it. Now that the Supreme Court has made these distinctions, states must ask themselves where to go from here.

II. Different Paths to the Same Destination: Legalizing PAD

A. States That Have Legalized PAD

There are two states that legalized PAD through voter initiatives. In 1994, Oregon voters passed an initiative, the Oregon Death With Dignity Act (“ODWDA”), making it the first state in the United States to legalize PAD.[45] In 2008, Washington became the second state to endorse PAD by voter initiative.[46] The ODWDA has a number of safeguards in place to protect against abuse. Those who use the law must be at least eighteen years old;[47] they must be terminally ill, which means they have less than six months to live;[48] they must be capable of communication;[49] and they must not be suffering from any psychiatric disorder, including depression.[50] In addition, they must meet residency requirements.[51] Notably, they must also be able to administer and swallow the lethal medication themselves.[52] The physician is not permitted to administer the medication.[53] At the time of Brittany Maynard’s decision, only one state had legalized PAD by legislative act: in 2013, the Vermont legislature passed a bill to protect patient choices at the end of life.[54]In addition, two states have legalized PAD by court ruling. In the 2009 case of Baxter v. Montana, the Montana Supreme Court heard the case of a truck driver with leukemia who wanted a prescription for medication that would end his life.[55] Montana’s homicide statute forbade “knowingly caus[ing] the death of another human being,” and there was concern that the physician would be implicated for knowing the patient would use the medication for the purpose of ending his life.[56] However, Montana also has a consent statute on the books that allows the use of a consent defense if the victim consented to whatever the charged offense may be.[57] The court ruled that the consent statute should apply rather than permitting an exception to the consent statute on the basis that PAD ran afoul of public policy concerns.[58] Montana’s road to legalizing PAD was unique; not every state could arrive there in the same manner.Finally, a New Mexico state court recently issued an injunction preventing the prosecution of physicians who facilitate the end of life in competent, terminally ill patients.[59] The court based its decision on a state constitutional provision guaranteeing its citizens the rights of “enjoying . . . life and liberty . . . and of seeking and obtaining safety and happiness.”[60] The court “[could not] envision a right more fundamental, more private or more integral to the liberty, safety and happiness of . . . New Mexican[s] than the right of a competent, terminally ill patient to choose aid in dying.”[61] After declaring aid in dying a fundamental right under the state constitution, the court subjected the statutory ban on assisted suicide to strict scrutiny, ultimately striking it down.[62]

B. SCOTUS Inadvertently Provides a Shield Against Popular Criticisms

Shortly after the Glucksberg and Vacco cases, and after the passage of the ODWDA, a flurry of law review articles were written criticizing autonomy as a justification for allowing physicians to assist the terminally ill in dying.[63] In essence, they argued (1) that Americans were so invested in the value of individual autonomy that no state could ever hope to regulate PAD,[64] (2) that physicians and family members would coerce the vulnerable populations into availing themselves of Death With Dignity laws,[65] and (3) that those vulnerable populations would disproportionately avail themselves of Death With Dignity laws because of inadequate medical care, in addition to many other pressures.[66]The American Medical Association expressly disapproves of PAD, arguing that it is “fundamentally incompatible with the physician’s role as healer . . . .”[67] But the physician’s role as a healer is ethically complex. The basic ethical principles of respect for persons,[68] beneficence,[69] and justice[70] articulated in the Belmont Report are not blackletter legal rules, but abstract concepts that bend and conflict with one another. Some medical professionals argue that the Death With Dignity movement is a “slippery slope,” pointing to other developed nations where they say the movement has gone awry.[71] In Holland and Belgium, for example, certain organizations apparently provide euthanasia to patients with clinical depression and no terminal physical illness.[72]It is erroneous to suggest that outright euthanasia programs could exist in the legal framework of the United States. The Supreme Court has time and again recognized the interest of states in preserving human life.[73] When weighing a citizen’s liberty interests, courts are also likely to recognize a state’s “legitimate interest[] in . . . protecting vulnerable persons.”[74] These government interests can only be overcome when there is a terminal illness and medical care is futile. The United States has only been willing to allow PAD in cases where death is already imminent, and that reality is unlikely to change soon. Fears of a slippery slope associated with legalizing PAD may be keeping states from joining the company of Oregon, Washington, and Vermont. Americans sometimes have extremely negative reactions to depression-related suicide.[75] The prospect of a state law unintentionally leading to depression-related PAD might sound like playing with political fire, but those fears are unfounded.

III. Experimenting with State Policies

A. Can Refusal of Treatment and PAD Be Addressed at the Federal Level?

Amici curiae in the Glucksberg and Vacco cases argued fervently against the Supreme Court’s ultimate decision. A plethora of arguments was given. One such argument was that terminally ill patients denied the choice of physician-assisted dying may be forced to endure horrific pain and suffering and loss of dignity.[76] Another argument was that terminally ill patients denied the option of physician-assisted dying are sometimes forced to experience a violent, lonely, at times gruesome death.[77] This was the basic situation facing Brittany Maynard after her diagnosis with terminal glioblastoma. She faced painful treatments that would have destroyed her quality of life.[78] Since she was young and healthy, she also faced the prospect that her body would linger on while her glioblastoma destroyed her mind, and her family would have to watch that happen.[79] Amici for respondents in Glucksberg and Vacco also argued that terminally ill patients denied the option of physician-assisted dying may be forced to rely on family members to assist in hastening death.[80] In addition, amici were concerned that terminally ill patients denied the option of physician-assisted dying sometimes fail in their attempts to hasten death, with tragic results.[81] Maynard’s family found an alternative, though not painless, solution. To show respect for Maynard’s autonomy, they uprooted themselves from their California home and navigated an unfamiliar state legal system to secure the care Maynard needed, all the while grappling with Maynard’s prognosis.[82]Amici also argued that the distinction between refusal of medical treatment and PAD was without meaning and irrational.[83] They pointed to the Second Circuit’s reasoning on the matter:

Withdrawal of life support requires physicians or those acting at their direction physically to remove equipment and, often, to administer palliative drugs which may themselves contribute to death. The ending of life by these means is nothing more nor less than assisted suicide. It simply cannot be said that those mentally competent, terminally-ill persons who seek to hasten death but whose treatment does not include life support are treated equally.[84]

In this passage, Judge Calabresi emphasizes the deliberate actions a physician must take in order to carry out a patient’s wishes to remove life-sustaining medical treatment. At best, the argument that removal of treatment allows a patient’s condition to cause death, and thus, that the physician has nothing to do with the patient’s death, is very weak. Indeed, the Supreme Court proposes that a physician is not acting to bring about the death of the patient in the case of refusal of life-saving treatment, and that only the patient’s condition actually causes death. “[D]eath which occurs after the removal of life sustaining systems is from natural causes . . . .”[85] But is a causation-based distinction between these two doctrines a good distinction to make? Are there other ways to conceive of the distinction? If so, do we have enough information to do it?The Supreme Court’s distinction between these two doctrines is based on causation. It places importance on the fact that refusal of medical treatment places cause of death by the patient’s disease, but PAD makes the physician’s act the cause of death.[86] However, the Court could have chosen to place larger emphasis on the issue of certainty. Based on the annual report published by the Oregon Public Health Division, it appears that, while death by disease is certain to occur when terminal patients on life support choose to remove life support, death by medication is not certain to occur when doctors prescribe lethal medication to terminal patients.[87]It remains unclear exactly what the Supreme Court would do with PAD jurisprudence if it abandoned the distinction between PAD and the right to refuse medical treatment. Indeed, doing away with the distinction might actually prove unfavorable to PAD advocates. Recall what Judge Calabresi said about the two practices: “[t]he ending of life by these means is nothing more nor less than assisted suicide.”[88] If the Supreme Court conceived of both practices as suicide, its prior precedents suggest that it would find no constitutionally protected interest even in the right to refuse medical treatment. However, that would only be true if the Supreme Court also continued to use a rather broad conception of “suicide” as well.A Gallup poll indicates that Americans’ conception of PAD changes drastically depending on the language used to discuss it.[89] When described as “[a]ssist[ing] the patient to commit suicide,” only 51% of Americans think it should be allowed, and 45% of Americans think it should not be allowed.[90] However, when described as “[e]nd[ing] the patient’s life by some painless means,” 70% of Americans think it should be allowed.[91] The lenses we use to view the concept of PAD, including the lens of language, drastically affect the way we perceive this issue, and the Justices of the Supreme Court are no exception. Something about our conception of “suicide” has to change if the Supreme Court can become capable of addressing the issue in a more nuanced way. Blackletter rules make for a brute force approach to nuanced problems. But, it seems unlikely that the Supreme Court would be willing to revise its approach on these issues anytime soon. The Court’s concerns about coercion against vulnerable populations are not going anywhere, and the Court is probably also concerned about appearing brazen on the matter. In effect, the PAD issue really has been left to the states, and the states must look to one another for guidance. They would be well advised to look to Oregon.

B. Policy Indicators in Oregon

Courts have expressed some concern that PAD will lead to unseemly results for vulnerable populations, including the elderly and the disabled.[92] The ODWDA has been on the books for seventeen years,[93] which is enough time for some meaningful things to begin to be drawn from a policy analysis on the law. The Oregon Public Health Division (“OPHD”) compiles an annual report about the administration of the law,[94] and some of its findings can directly address the concerns that courts continue to articulate. While the OPHD would do well to collect more information on patient vulnerability, such as the patient's disability status, relationships, medical care, and whether someone has to make medical decisions on behalf of the patient, the OPHD has collected data on a number of factors that demonstrate what kind of patients avail themselves of the ODWDA.[95] The majority of people using the ODWDA law reported end-of-life concerns such as loss of autonomy (91.5%), being less able to engage in activities that make life enjoyable (88.7%), and loss of dignity (79.3%).[96] Fewer people reported concerns about being a burden on family (40.0%), and very few reported concerns about the financial implications of treatment (only 3.2%).[97] These data do not seem to be representative of an exploited population. Most of the people who seem to avail themselves of the ODWDA are well educated, not undereducated.[98] It is also persuasive that, out of the 1327 people who have used the ODWDA, only 859, or 64.7%, have ended their lives using the prescribed medication.[99] This may be one of the more unintuitive results of ODWDA: the number of people who have actually used barbiturates to end their lives under the ODWDA represent a surprisingly low percentage of the law’s beneficiaries. It decreases the credibility of the suggestion that PAD entails physicians causing the death of their patients.With these statistics in mind, the concerns legal scholars had about PAD in 1998 no longer pose much cause for concern. Vulnerable populations did not disproportionately avail themselves of the ODWDA; rather, the exact opposite happened.[100] Since vulnerable populations did not disproportionately avail themselves of the ODWDA, the argument that physicians and family members will coerce vulnerable populations into utilizing the ODWDA also seems less convincing.[101] Critics also argued that Americans’ preference for individual autonomy would make it impossible to regulate PAD in any meaningful way.[102] To the contrary, Oregon has been doing it successfully for more than a decade.The Supreme Court reasons that PAD cases are distinguishable from cases about refusing medical treatment because when patients refuse life-saving treatment, their disease kills them, but when a physician prescribes medication to assist patients in committing suicide, prescribed medication kills them. Yet, in more than one-third of Oregon cases, when a physician prescribes lethal medication to a patient, the patient’s disease is still the cause of death. This result is illustrative of a realization that the American justice system contemplates end-of-life issues in fundamentally the wrong way.When terminally ill patients seek a prescription of lethal medication, they are not merely receiving the assurance of a peaceful end of life. Rather, these patients are being given something precious that they lost when they were first diagnosed with their terminal illness—their autonomy. In their amicus brief in Vacco, Americans for Death With Dignity and the Death With Dignity Education Center said, “When we enter a hospital for the last time, we may have the strength, and technically, the legal right to end our lives if we wish. But once in the medical system, we often lose the ability to help ourselves.”[103]

C. Lessons Learned in California

California’s absence of Death With Dignity laws led to Brittany Maynard’s difficult choice to leave her home state and resettle in Oregon.[104] After international attention was focused on the process she underwent to end her life in the manner she chose, California appears to have learned its lesson. A bill originating in the California Senate, called the End of Life Option Act,[105] reached the desk of Gov. Jerry Brown and was signed on October 5, 2015.[106] In his letter to the members of the California legislature, he invoked Brittany Maynard’s memory.[107] He also noted that, in making his decision to sign the bill into law, he considered “heartfelt pleas” from Maynard’s family and Archbishop Desmond Tutu, as well as advice from a Catholic Bishop, two of his own doctors, former classmates, and friends.[108] Clearly, PAD is an uncomfortable issue to think about deeply, but we can make the right decision as a community when we have sufficient information at our disposal.

Conclusion

The Supreme Court is not impervious to a simple shortage of available information. Everyday Americans are not the only ones confused about the legal issues surrounding end-of-life care. For now, the Supreme Court has drawn a causation-based distinction between the refusal of medical treatment and PAD, which has the effect of allowing patients who rely on life-sustaining care to die, but barring terminally ill patients from doing the same, even when they are in great pain. However, statistical information about the utilization of PAD across different states might provide invaluable quantitative information about causation. If Oregonians are not unique, and the rest of the country presents a similar pattern with regard to patient choices, the Supreme Court may have to revisit its distinction between PAD and refusal of medical treatment. In cases involving the removal of life-sustaining care, the Supreme Court has emphasized autonomy. The next time a PAD case reaches the Supreme Court, we should hope that there is enough quantitative evidence to show that the same emphasis on autonomy is due for the terminally ill. In the wake of Brittany Maynard’s decision, states would be wise to reconsider the benefits of PAD. Currently, most states inadvertently send a grim message to their terminally ill residents: “leave or you will suffer the consequences.” California has learned the hard way that no state should send that message.

---

[1] J.D. Candidate 2016, University of Kentucky College of Law. Joseph Sherman also serves on the Kentucky Law Journal Editorial Board as the Online Content Editor.

[2] See, e.g., Brandon Griggs, Dying Young: Why Brittany Maynard’s Story Resonates, CNN (Oct. 14, 2014, 4:28 PM), http://www.cnn.com/2014/10/08/living/death-dignity-brittany-maynard/.

[3] Id.; Nicole Weisensee Egan, Terminally Ill Woman Brittany Maynard Has Ended Her Own Life, People (Nov. 2, 2014, 7:35 PM), http://www.people.com/article/brittany-maynard-died-terminal-brain-cancer.

[4] Brain Tumor Information, Am. Brain Tumor Ass’n, http://www.abta.org/brain-tumor-information/types-of-tumors/glioblastoma.html (last visited Mar. 20, 2015).

[5] Video: Brittany Maynard’s Legacy: One Year Later, The Brittany Maynard Fund, http://www.thebrittanyfund.org/.

[6] Egan, supra note 3; Eyder Peralta, As Planned, Right-to-Die Advocate Brittany Maynard Ends Her Life, NPR: The Two-Way (Nov. 3, 2014, 8:27 AM), http://www.npr.org/blogs/thetwo-way/2014/11/03/361094919/as-planned-right-to-die-advocate-brittany-maynard-ends-her-life.

[7] See Egan, supra note 3; Peralta, supra note 6.

[8] AMA Council on Ethical and Judicial Affairs, Formal Op. 2.211 (1994), http://www.ama-assn.org/ama/pub/physician-resources/medical-ethics/code-medical-ethics/opinion2211.page (discussing Physician-Assisted Death).

[9] See Cruzan v. Dir., Mo. Dep’t of Health, 497 U.S. 261, 279 (1990).

[10] Vacco v. Quill, 521 U.S. 793, 799 (1997); Washington v. Glucksberg, 521 U.S. 702, 728 (1997).

[11] See Jacobson v. Massachusetts, 197 U.S. 11, 26 (1905).

[12] Id. at 12-14.

[13] Id. at 14.

[14] Id. at 35, 39.

[15] See Cruzan v. Dir., Mo. Dep’t of Health, 497 U.S. 261, 279 (1990).

[16] See id. at 266.

[17] Id. at 266-67. At this point, the Cruzan’s situation could be referred to as a case of “scientific futility”: treatment cannot achieve the medical result expected by the family, which is a full recovery. See Barbara A. Noah, Politicizing the End of Life: Lessons from the Schiavo Controversy, 59 U. Miami L. Rev. 107, 128 (2004). “Ethical futility” occurs when treatment actually no longer serves the underlying interests of the patient. The latter of these situations is more difficult to identify and address when the patient in incompetent. Id. For a discussion of the differences between scientific and ethical futility in the case of end-of-life case for Terry Schiavo, see id. at 126-31 (2004).

[18] Cruzan, 497 U.S. at 267.

[19] Id. at 268 (internal quotation marks omitted).

[20] See id. at 261, 268, 336.

[21] Id. at 285.

[22] Id. at 269.

[23] Id. at 265. The Supreme Court assumed without deciding that there was a constitutionally protected liberty interest in the refusal of medical treatment in cases involving competent patients. Id. at 279. However, the Court did not decide that incompetent patients had a similar unqualified right. Because the wishes of incompetent patients cannot readily be determined absent some outside evidence, it is difficult to respect the autonomy of an incompetent patient.

[24] See id. at 282.

[25] See id. at 268-69.

[26] See Nat’l Comm’n for the Prot. of Human Subjects of Biomedical and Behavioral Research, The Belmont Report: Ethical Principles and Guidelines for the Protection of Human Subjects of Research 4 (1978) (finding that respect for a person’s autonomy is a basic ethical conviction), http://videocast.nih.gov/pdf/ohrp_belmont_report.pdf [hereinafter “The Belmont Report”]. The Belmont Report was developed in 1974 by the National Commission for the Protection of Human Subjects of Biomedical and Behavioral Research to identify basic ethical principles that should guide the conduct of research involving human subjects. Mary Bernadette Ott & Gary Yingling, Guide to Good Clinical Practice ¶ 840 (2013), Westlaw CLINPRAC. It relied, in part, on the Nuremberg Code, which was written by Nuremberg Trial judges after World War II in response to Nazi atrocities committed during the war. See id. Although the Belmont Report was written to address ethical principles with respect to research on human subjects, modern medical practitioners hold its ethical principles dear even in general practice, even where practice might not connote “research” in the minds of most laypersons. Perhaps this is because the federal definition of “research” is quite broad. According to the Code of Federal Regulations, “[r]esearch means a systematic investigation, including research development, testing and evaluation, designed to develop or contribute to generalizable knowledge.” 45 C.F.R. § 46.102(d) (2015). “Activities which meet this definition constitute research for purposes of this policy, whether or not they are conducted or supported under a program which is considered research for other purposes. For example, some demonstration and service programs may include research activities.” Id. Indeed, regardless of whether the American Medical Association considers general practice to be “research,” it clearly and explicitly respects the concept of informed consent, which is an aspect of respect for persons, one of the three ethical principles articulated in the Belmont Report. See Ott & Yingling, supra. The Belmont Report is not blackletter law, but rather is a set of professional standards, originally intended only for research, but given broader application professionally. See id.

[27] See The Belmont Report, supra note 26, at 4-6.; infra Part III.B.

[28] AMA Council on Ethical and Judicial Affairs, Formal Op. 2.211 (1994), http://www.ama-assn.org/ama/pub/physician-resources/medical-ethics/code-medical-ethics/opinion2211.page.

[29] Compare id., with Cruzan v. Dir., Mo. Dep’t of Health, 497 U.S. 261, 279 (1990).

[30] Washington v. Glucksberg, 521 U.S. 702, 706-07 (1997).

[31] Id. at 707.

[32] Id. at 708-09.

[33] Id. at 709.

[34] See id. at 723 (citing Cruzan, 497 U.S. at 279).

[35] Glucksberg, 521 U.S. at 703-704. Vulnerable populations in this case include “the young, the elderly, and those suffering from untreated pain or from depression or other mental disorders,” as well as “the poor, . . . disabled persons, [and] the terminally ill . . . .” Id.

[36] See id. at 730, 735.

[37] Vacco v. Quill, 521 U.S. 793, 796 (1997).

[38] Id. at 793.

[39] See id. at 798, 800.

[40] Id. at 798.

[41] Id. at 800-01.

[42] Id.

[43] Id. at 801.

[44] Id. at 808-09 (citing Washington v. Glucksberg, 521 U.S. 702, 703-04 (1997)).

[45] See Or. Rev. Stat. §§ 127.800-890, 127.895, 127.897 (Westlaw, current with 2015 Reg. Sess. legislation effective through Oct. 5, 2015), https://public.health.oregon.gov/ProviderPartnerResources/EvaluationResearch/DeathwithDignityAct/Pages/ors.aspx.

[46] Wash. Rev. Code Ann. §§ 70.245.010-220, 70.245.901-904 (Westlaw, current with all laws from the 2015 Regular Session and 2015 1st, 2nd, and 3rd Special Sessions), http://apps.leg.wa.gov/rcw/default.aspx?cite=70.245&full=true. Washington’s Death With Dignity statute was written to be substantially similar to the ODWDA. Anne Marie Su, Physician Assisted Suicide: Debunking the Myths Surrounding the Elderly, Poor, and Disabled, 10 Hastings Race & Poverty L.J. 145, 155-56 (2013).

[47] Or. Rev. Stat. § 127.805.

[48] Id. at § 127.800-805.

[49] Id. Communication does not necessarily entail speaking. As long as the patients can communicate in some way, the law is satisfied. Id.

[50] Id. at § 127.825.

[51] Id. at § 127.860. Only Oregon residents can avail themselves of the ODWDA. Residency does not require living in Oregon for any particular duration but does entail verification by driver’s license, lease of apartment or proof of home ownership, voter registration, or payment of taxes. Id.

[52] See id. at §§ 127.815, 127.880.

[53] Id. at § 127.880.

[54] Vt. Stat. Ann. tit. 18, §§ 5281-92 (Westlaw, current through the First Session of the 2015-2016 Vermont General Assembly), http://legislature.vermont.gov/assets/Documents/2014/Docs/BILLS/S-0077/S-0077%20As%20Passed%20by%20Both%20House%20and%20Senate%20(Unofficial).pdf. The bill was signed into law on May 20, 2013, but many substantive portions of the law will not take effect until July 1, 2016. Id. Vermont’s PAD law was also written to be similar to the ODWDA; however, its statutory mandates are set to expire after three years, leaving in their place professional medical standards. Kathryn L. Tucker, Vermont’s Patient Choice at End of Life Act: A Historic “Next Generation” Law Governing Aid in Dying, 38 Vt. L. Rev. 687, 688 (2014). California has now also legalized PAD by legislative act. See infra Part III.C.

[55] Baxter v. Montana, 224 P.3d 1211, 1214 (Mont. 2009).

[56] Id. at 1215 (quoting Mont. Code Ann. § 45-5-102 (Westlaw, current through chapters effective July 1, 2015, 2015 session)).

[57] Id.

[58] Id. at 1218-22. Although the majority opinion based its decision on statutory interpretation, the concurrence also made an argument based on a state constitutional law provision that respects the right of all humans to individual dignity. Id. at 1227-33 (Nelson, J., concurring).

[59] Morris v. Brandenberg, 2014 N.M. Dist. Ct. 2909U, ¶ PP, http://agoodgoodbye.com/wp-content/uploads/2014/01/199446010-Physician-aid-in-dying-Ruling.pdf; see also Phil Milford, Right to Die with Doctor’s Help Affirmed in New Mexico, Bloomberg Business (Jan. 14, 2014, 1:33 PM), http://www.bloomberg.com/news/articles/2014-01-14/right-to-die-with-doctor-s-help-affirmed-in-new-mexico.

[60] Morris, 2014 N.M. Dist. Ct., ¶ EE.

[61] Id. ¶ HH.

[62] Id. ¶¶ KK, NN, PP.

[63] See, e.g., Patrick M. Curran, Jr., Note, Regulating Death: Oregon’s Death With Dignity Act and the Legalization of Physician-Assisted Suicide, 86 Geo. L.J. 725, 725 (1998).

[64] Id. at 734-36.

[65] Id. at 739-41.

[66] Id. at 741-42.

[67] AMA Council on Ethical and Judicial Affairs, supra note 8.

[68] The Belmont Report, supra note 26, at 4-6.

[69] Id. at 6-8.

[70] Id. at 8-10.

[71] See, e.g., Ira Byock, Doctor-Assisted Suicide Is Unethical and Dangerous, N.Y. Times: Room for Debate (Sept. 4, 2015, 2:25 PM), http://www.nytimes.com/roomfordebate/2014/10/06/expanding-the-right-to-die/doctor-assisted-suicide-is-unethical-and-dangerous.

[72] Id.

[73] E.g., Cruzan v. Dir., Mo. Dep’t of Health, 497 U.S. 261, 280 (1990); Gonzales v. Carhart, 550 U.S. 124, 146 (2007) (reaffirming the state’s interest in the preservation of fetal life articulated in Planned Parenthood of Se. Pa. v. Casey, 505 U.S. 833, 838 (1992), and Roe v. Wade, 410 U.S. 113, 163-64 (1973)).

[74] E.g., Vacco, 521 U.S. at 798. The Supreme Court has found that individuals in this class include the elderly or the mentally or physically disabled. Washington v. Glucksberg, 521 U.S. 702, 704 (1997).

[75] See, e.g., Henry Rollins, Henry Rollins: Fuck Suicide, L.A. Weekly Music (Aug. 21, 2014), http://www.laweekly.com/music/henry-rollins-fuck-suicide-5016770. (responding to the suicide death of Robin Williams).

[76] Brief for Surviving Family Members in Support of Physician-Assisted Dying as Amici Curiae Supporting Respondents at 9-11, Washington v. Glucksberg, 521 U.S. 702 (1997) (Nos. 96-110, 95-1858), 1996 WL 722032.

[77] Id. at 12-15.

[78] Brittany Maynard, My Right to Death With Dignity at 29, CNN Opinion (Nov. 2, 2014, 10:44 PM), http://www.cnn.com/2014/10/07/opinion/maynard-assisted-suicide-cancer-dignity/.

[79] Id.

[80] Brief for Surviving Family Members in Support of Physician-Assisted Dying, supra note 77, at 16-22.

[81] Id. at 22-24.

[82] See About Brittany Maynard, The Brittany Maynard Fund, http://www.thebrittanyfund.org/about/ (last visited Mar. 23, 2015).

[83] Brief for Surviving Family Members in Support of Physician-Assisted Dying, supra note 77, at 28-29.

[84] Quill v. Vacco, 80 F.3d 716, 729 (2d Cir. 1996), rev’d, 521 U.S. 793 (1997) (emphasis added).

[85] Vacco, 521 U.S. at 801 (quoting In re Colyer, 660 P.2d 738, 743 (Wash. 1983)).

[86] Physicians are not allowed to help patients take the lethal medication. Patients must be capable of doing it themselves. See infra, Part III.B.

[87] See infra, Part III.B.

[88] Vacco, 80 F.3d at 729.

[89] Lydia Saad, U.S. Support for Euthanasia Hinges on How It’s Described, Gallup: Politics (May 29, 2013), http://www.gallup.com/poll/162815/support-euthanasia-hinges-described.aspx.

[90] Id.

[91] Id.

[92] See, e.g., Washington v. Glucksberg, 521 U.S. 702, 731-32 (1997).

[93] Or. Pub. Health Div., Oregon’s Death With Dignity Act--2014 (2015), https://public.health.oregon.gov/ProviderPartnerResources/EvaluationResearch/DeathwithDignityAct/Documents/year17.pdf.

[94] Id.

[95] See generally Or. Pub. Health Div., supra note 94. In 2014, 105 people ended their lives using the ODWDA. Id. at 1. Of those people, 95.2% were white, 45.7% were married at their time of death, and 47.6% had a baccalaureate degree or higher, compared with 5.7% who had less than a high school diploma. Id. at 4. Since ODWDA was enacted, 859 people ended their lives using the law. Id. at 2. Of those people, 97.1% were white and 46.1% were married at their time of death. Id. at 4. Moreover, 45.9% had a baccalaureate degree or higher, compared with 6.0% who had less than a high school diploma, and 72.1% had at least some college education. See id. These demographics do not seem to disproportionately represent a vulnerable population. In fact, the demographics seems to indicate a certain degree of affluence among those availing themselves of the law.

[96] Id. at 5.

[97] Id.

[98] See id. (reporting that, since the ODWDA went into effect, of the patients who used the law, 45.9% had a baccalaureate degree or higher, compared with 6.0% who had less than a high school diploma, and 72.1% had at least some college education.).

[99] See id. at 2.

[100] Compare Curran, supra note 64, at 741-42 (expressing concern that the ODWDA would disproportionately impact minorities, the disabled, and women), with Or. Pub. Health Div., supra note 94, at 4-5 (suggesting that the majority of those taking advantage of the law are well-educated and white).

[101] See Curran, supra note 64, at 739-40.

[102] Id. at 734-36.

[103] Brief for Americans for Death With Dignity and the Death With Dignity Education Center as Amici Curiae Supporting Respondents at 18-19, Vacco v. Quill, 521 U.S. 793 (1997) (No. 95-1858, 96-110), 1996 WL 709335.

[104] About Brittany Maynard, supra note 83.

[105] S.B. 128, 2015 Gen. Assemb., Reg. Sess. (Cal. 2015), https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160SB128.

[106] See Letter from Edmund G. Brown, Jr., Governor of Cal., to the Members of the Cal. State Assemb. (Oct. 5, 2015), https://www.gov.ca.gov/docs/ABX2_15_Signing_Message.pdf.

[107] Id.

[108] Id.

A Fare Deal: The Reasonable Regulation of Ridesharing

Note | 104 KY. L. J. ONLINE 17 | Sept. 28, 2015

Dylan Merrill[1]

Introduction

On New Year’s Eve 2013, Sayad Muzzafar was driving for the ridesharing company Uber when he struck a mother and her two children while they were crossing the street. That night, one of the children, a six year-old girl, died from her injuries.[2] The Liu family later sued the company, but Uber distanced itself from the accident, arguing it was not liable because Mr. Muzzafar did not have an Uber passenger in his vehicle when he struck the pedestrians.[3] At the time of the accident, policymakers had not implemented regulations for the new rideshare industry, further frustrating the goal of determining who in fact is liable in these circumstances.[4]This sad situation is only one example of how legal grey areas are cloaking ridesharing in uncertainty, creating a dire need for legal and regulatory certainty. However, since the law has historically struggled to keep pace with technological advances, these kinds of legal grey areas and the problems they pose are not anything new. For example, in 1863, the Supreme Court of the United States was faced with the issue of how to regulate steam engines and railroads according to laws that were passed long before the inventions became ubiquitous.[5] Justice Samuel Freeman Miller, writing for the majority, marveled at the complexity of bringing new technologies into the fold:Perhaps the most remarkable invention of modern times, in the influence which it has had, and is yet to have, on the affairs of the world . . . is the railroad system. It is not strange, then, that when we are called to construe a statute relating to this class of subjects, passed before a steam engine or railroad was thought of . . . we should be met by difficulties of the gravest character.[6]Implicit in the Court’s opinion is an insight into the dilemma posed by the creation of transformative technologies. On one hand, technological innovations carry an enormous promise: the potential to transform society for the better. At the same time, even the most promising inventions can bring with them serious threats to the safety of the community. Therefore, there is danger in not regulating a new technology to ensure its safe operation, just as there is danger in regulating it so much that the regulation restricts economic growth.While this language was written decades before the invention of the automobile, the words still ring true today. In the ridesharing context, there are two weighty public policy interests at play. First and foremost, as demonstrated above, there are legitimate public safety concerns inherent in a transportation service like ridesharing. Yet, this must be viewed through an economic lens as well. After all, ridesharing companies offer an innovative service that helps distribute scarce resources by providing a low-cost alternative to traditional taxis. This service benefits customers, and it also creates jobs. Therefore, the fairest and most effective regulatory scheme will carefully balance these two competing policy objectives.This balancing, however, is not easily done. Should ridesharing companies like Uber and Lyft be subject to the same standards as taxicab companies, such as Yellow Cab? How can regulators and legislators put in place rules that promote public safety without undermining the competitive advantage enjoyed by ridesharing? This Note proposes an answer to these difficult questions. Part I asks the question of whether ridesharing should be regulated, and submits that doing so would not only better protect the public, but also shore up the ridesharing business model. Part II lays out the regulatory landscape of ridesharing, focusing on the pressing issue of insurance liability. Ultimately, Part III proposes a roadmap for regulating ridesharing services—one that is fair, practical, and tailored to fit the needs of ridesharing companies, its customers, and the general public.

I. The Need for Ridesharing Regulation

Ridesharing closely resembles the services provided by traditional taxicab companies, although there are important distinctions between the two services. At its most basic, the ridesharing routine is the same as with taxicabs: a customer requests a ride, the driver takes the customer to the destination, and the customer pays for the ride.[7] However, unlike traditional cab services, ridesharing companies do not dispatch drivers, nor do they own the vehicles used to give rides.[8] Furthermore, companies like Uber and Lyft do not employ their drivers or dictate their work schedules, allowing drivers to choose to provide rides as frequently or infrequently as they wish.[9] In essence, these companies self-identify as smartphone application developers that merely license their technology to independent drivers.[10]But the question remains as to whether ridesharing poses risks to consumers and the general public, and if so, how to ensure regulation does not restrict the economic potential of ridesharing. To determine whether ridesharing companies should be regulated, it is useful to examine the impact of such companies, both positive and negative. The foremost benefit such companies provide is a dependable, convenient, and low-cost alternative to traditional taxicabs.[11] Although the competitive advantage of ridesharing has led, at least in part, to a decline in the taxicab industry, ridesharing undeniably gives consumers access to more transportation options.[12] Furthermore, ridesharing has the potential to benefit the general public by combatting widespread transportation and environmental issues such as traffic congestion and pollution.[13]But these economic and social improvements must be considered in light of the potentially harmful effect ridesharing could have on consumers and the general public.[14] Several public policy problems stem from the regulation—or lack thereof—of ridesharing companies, including but not limited to taxation, worker’s rights, licensing, background checks, distracted driving and other safety issues.[15] But perhaps the most pressing issue concerns insurance coverage. There is significant ambiguity regarding who is liable when an accident occurs—the driver or the ridesharing company.[16] If companies like Uber and Lyft are merely smartphone application providers and truly have an indirect involvement in the provision of ridesharing, then their liability for their drivers’ accidents should be minimal.[17] Jurisdictions that have not regulated ridesharing tacitly agree with this argument by allowing ridesharing companies to determine how much insurance—if any—they wish to provide for their drivers. The result is that ridesharing drivers’ liability in the event of an accident depends largely on the whims of their affiliated ridesharing company rather than a standardized and enforceable framework.This regulatory vacuum is dangerous, particularly in the insurance context. A ridesharing company’s commercial insurance covers a driver when the driver’s smartphone application is turned on and there is a customer in the vehicle.[18] However, its insurance does not cover a driver when the application is turned off.[19] In that situation, ridesharing companies argue that the driver is supposed to be covered by his or her personal car insurance.[20] Insurance providers, however, tend to disagree.[21] They consider ridesharing drivers to be involved in commercial activity and thus refuse to let ridesharing drivers use their personal insurance to cover accidents that happen on the job.[22] Insurers have clearly stated that “vehicles used for transporting passengers for a charge” are not covered by personal car insurance policies.[23] Consequently, some insurance providers have actually canceled the policies of customers who drive for Uber and Lyft.[24] And in some instances, insurers have even denied insurance applications based on an applicant’s intent to drive for a ridesharing company.[25] Thus, although ridesharing companies maintain that their drivers are covered by personal car insurance when their smart phone application is turned off, that is often not true.Furthermore, ridesharing drivers run the risk of liability even when their smartphone application is activated.[26] As noted above, drivers are covered by commercial insurance when their smart phone application is on and they are driving customers, but they are not covered by the commercial policy when the application is on and they are not carrying any passengers.[27] Therefore, since personal car insurance does not cover such commercial activity, drivers who are merely seeking customers run the risk of falling into an “insurance gap” in the event of an accident. Such was the case of Syad Muzzafar, the Uber driver who struck and killed Sophia Liu in San Francisco.[28] At the time, the driver was in between passengers but had not yet picked up another customer.[29] As a result, the driver’s insurance policy only provided a maximum of $15,000 to the victim’s family.[30] The company denied any liability for the accident, stating that “[t]he driver in question was not providing services on the Uber system during the time of the accident.”[31] This is only one example of the dire need for insurance standards in the ridesharing industry.Instituting such standards would protect drivers, passengers, and the general public as a whole, and it also has the potential to actually improve the bottom line of ridesharing businesses like Uber and Lyft. The enactment of ridesharing standards will provide regulatory certainty for ridesharing companies, allowing them to continue to grow their companies with less fear of how the government might intervene in the future.[32] This incentive had been demonstrated when ridesharing companies welcome the opportunity to work with local governments toward the regulation of their industry.[33] In turn, such third-party oversight will in theory inspire greater consumer confidence in the safety of ridesharing services.[34] Therefore, the prospect of a win-win-win outcome will incentivize regulators to promptly put in place standards that protect ridesharing companies and those affected by them.

II. Potential Regulatory Frameworks: California and Colorado Case Studies

The law has struggled to keep pace with rapid advance of the ridesharing economy. One reason for this is ridesharing is difficult to regulate, as it exists in a legal gray area.[35] As mentioned above, ridesharing providers are situated somewhere between traditional taxicab companies and smartphone application developers, and thus they have tended to disregard existing laws that are not specifically tailored to ridesharing.[36] Moreover, ridesharing services defy categorization into traditional regulatory frameworks, preventing many governments from developing tailored policy approaches to ridesharing.[37]Some states and municipalities, nevertheless, have begun regulating ridesharing companies. Although Congress has yet to legislate on the issue, some state and local governments have passed legislation or promulgated rules regarding services like Uber and Lyft.[38] The approaches differ greatly. For instance, some jurisdictions have banned most ridesharing services outright.[39] In the Commonwealth of Virginia, for example, ridesharing companies until recently were subject to civil penalties if they continued operating there.[40] In doing so, the state was adhering to its law that requires state authorization for passenger vehicles that are for-hire and it issued cease-and-desist orders to ridesharing companies that continued operations in Virginia.[41] The Department of Motor Vehicles found that, since drivers for companies like Uber get compensation for their services, they are more than just casual carpoolers.[42] Similarly, other state and local governments have suspended the operation of ridesharing services while they devise an appropriate regulatory framework.[43] Several states on the forefront, however, have taken the initiative and passed legislation regulating ridesharing services.[44]

A. California

In 2013, California became the first jurisdiction to legalize ridesharing.[45] Before regulations were put in place, the policy of the California Public Utilities Commission ("CPUC") was to issue fines and cease-and-desist letters to ridesharing companies, but it later allowed the companies to operate on an interim basis while draft regulations were considered.[46] The CPUC ruled that ridesharing services did not accord with any of the three existing regulatory categories: taxicab companies, charter-party carrier services (i.e., livery vehicles), or passenger-stage companies (e.g., airport shuttles).[47] Nevertheless, standards regulating the ridesharing industry were put in place, but they were promulgated under a completely new classification of transportation services called “Transportation Network Companies” (or “TNCs”).[48] According to the CPUC, this new category of services consists of “companies that provide prearranged transportation services for compensation using an online-enabled application (app) or platform to connect passengers with drivers using their personal vehicles.”[49] Ridesharing companies like Uber and Lyft fall under this definition, but traditional taxis and casual carpoolers do not.[50]Under California law, TNCs are subject to five key insurance-related provisions in the new regulations.[51] Perhaps the most important is the requirement that ridesharing companies provide insurance from the moment a driver turns on his or her smartphone application.[52] As noted above, this cuts against the general practice of ridesharing companies, which is to cover their drivers with commercial insurance only when their application is in use and there are passengers in the car.[53] In addition to being responsible for closing this insurance gap, TNCs are required to provide, at a minimum, $1 million in coverage.[54] This requirement lasts from the time a customer is picked up until the passenger has left the vehicle.[55] Drivers for TNCs, however, are also subject to additional insurance regulations. Drivers are responsible for maintaining primary commercial liability insurance coverage of at least $50,000 per person and $100,000 per occurrence of death and personal injury, as well as $30,000 for property damage.[56] In addition, drivers are also required to carry proof of their personal and commercial insurance coverage, and they must be at least twenty-one years of age a year or more of driving experience.[57] Lastly, the regulations call for the expedited review of new insurance policies that are tailored to the needs of TNC drivers.[58] Enforcement of these new regulations was delayed for one year and became subject to review by the CPUC after they were in place for the first year.[59] Although not all ridesharing companies were initially supportive of such regulations, the tide has begun to turn.[60] Notably, ridesharing companies have formed a coalition with insurance providers and government regulators, in order to collaborate on how to best comply with the new ridesharing rules.[61]

B. Colorado

Additionally, the State of Colorado has passed legislation enacting insurance regulations for ridesharing companies.[62] Like the California rules, the legislation puts in place new provisions that are unique to ridesharing companies and also classifies the provisions as “Transportation Network Companies.”[63] The Colorado legislation, however, defined TNCs differently than California’s regulations. Under the Colorado statute, a TNC is a company that “uses a digital network to connect riders to transportation network company drivers for the purpose of providing transportation” and “does not provide taxi service, transportation service arranged through a transportation broker, ridesharing arrangements, . . . or any transportation service over fixed routes at regular intervals.”[64] This definition nevertheless still subjects companies like Uber and Lyft to TNC rules and regulations. At the same time, the legislation exempts TNCs from the regulations imposed on common carriers, contract carriers, and motor carriers.[65] TNCs are also exempt from much of the Colorado Public Utilities Commission’s authority, including its ability to regulate rates.[66] The new legislation, however, does put in place a key regulation: it closes the insurance gap by requiring TNCs to provide commercial insurance coverage once the application is turned on, regardless of whether the driver is carrying a passenger.[67] This emphasis on commercial insurance rather than the driver’s personal policy is notable because, absent such a requirement, insurers would have had to raise rates for all vehicle policies in the state, regardless of whether they were used for ridesharing services.[68]Like California, Colorado requires TNCs to provide a minimum of $1 million in liability coverage.[69] Notably, Uber voluntarily provides $1 million in liability coverage beginning when a driver accepts a trip request.[70] Colorado’s legislation, however, goes further. It requires such coverage whenever the smartphone application is activated, irrespective of whether the driver has been matched with a passenger or is in route to pick one up.[71] This covers a larger portion of the insurance gap than either California’s insurance requirement or Uber’s voluntary commitment, neither of which mandate liability coverage until a passenger is assigned to the driver.[72] In addition, in Colorado, personal insurance policies must cover at least $50,000 per person and $100,000 per occurrence of death and personal injury, as well as $30,000 for property damage.[73] This amount, however, will be the subject of a required state agency study and could be increased in the future.[74] The ridesharing industry reaction to the passage of the legislation was overwhelmingly positive.[75]Although there are differences between California and Colorado’s insurance regulations, both have reclassified ridesharing as a wholly unique service, treating it differently from traditional taxicab providers. Furthermore, both regulatory frameworks agree that ridesharing companies should be responsible for closing the insurance gap. This consensus should not be overlooked as policymakers in other jurisdictions contemplate putting in place ridesharing regulations.

III. Which Regulations Work Best For Ridesharing?

As discussed above, the need for ridesharing standards is clear. Regulation not only protects drivers, passengers, and the general public as a whole, but it also has the potential to actually help the bottom line of ridesharing companies. The more difficult determination is what these regulations should look like.Effective regulation requires legally classifying ridesharing companies as their own unique category of transportation. As understood by states like California and Colorado, it does not make sense to try to regulate ridesharing drivers as if they were taxicabs or livery vehicles.[76] This square-peg-round-hole problem is best solved by developing a completely new classification (i.e., “Transportation Network Companies”) for ridesharing. The definition of a TNC should emphasize that TNCs are neither taxicab companies nor involved in traditional/informal ridesharing, as the Colorado legislature has specifically stated.[77]Furthermore, regulators must close the insurance gap for ridesharing drivers. The surest way of doing so entails, for one, requiring TNCs to provide a minimum amount of $1 million in liability coverage for their drivers.[78] Crucially, this coverage should mirror Colorado’s framework and kick in whenever the smartphone application is activated, irrespective of whether the driver has been matched with a passenger or is in route to pick one up. This will prevent drivers from having to shoulder too much financial risk. Furthermore, by placing more responsibility on TNCs (and therefore less on drivers’ personal policies), it prevents insurers from raising rates for all vehicle policies, regardless of whether they were used for ridesharing services.[79] That said, this arrangement does not work without baseline requirements for ridesharing drivers’ personal insurance policies. State and local governments should follow California’s example and hold drivers responsible for maintaining substantial primary liability insurance coverage.[80] Regulators can help ridesharing drivers comply with this requirement by ensuring expedited review of new insurance policies that are tailored to the needs of TNC drivers.[81] In sum, these insurance fixes will help create a more even distribution of financial risk among ridesharing companies and their drivers. More importantly, these regulations will help ensure that claimants in ridesharing-related actions have a better chance of obtaining full recovery.

IV. Conclusion

By expanding consumer choice and providing an efficient, dependable, and inexpensive alternative to other modes of transportation, ridesharing companies provide a net-benefit to society. At the same time, there are nevertheless dangers that come along with the rise of ridesharing. Governments, then, should not only put in place new ridesharing standards, but also ensure that such regulation does not come at the expense of the viability of the industry. To help achieve this goal, legislators and regulators should focus their efforts on solving pressing policy problems. As a first step, the ridesharing should be classified as a unique service and treated differently than traditional taxicab companies. Other jurisdictions should strongly consider California’s definition of Transportation Network Companies: companies “that provide[] prearranged transportation services for compensation using an online-enabled application (app) or platform to connect passengers with drivers using their personal vehicles.”[82] Furthermore, minimum insurance coverage baselines for companies and their drivers will provide a stronger safety net for those involved in ridesharing-related accidents. Specifically, states should require TNCs to provide at least $1 million in liability coverage for their drivers, and drivers should also need substantial primary liability insurance coverage—at least $50,000 per person and $100,000 per occurrence of death and personal injury. Lastly, ridesharing companies must be required to provide insurance coverage from the moment the smartphone application is turned on so that drivers and accident victims have much fuller legal and financial protection in the event of an accident. With these vital protections in place, we can help the ridesharing industry continue to provide its innovative services while also ensuring they shoulder a fair share of the risk they create. Legislators and policymakers would be wise to adopt this approach as a first—but crucial—step toward the reasonable regulation of ridesharing.

---

[1] J.D. expected, May 2016, University of Kentucky College of Law.

[2] Josh Constine, Uber’s Denial of Liability in Girl’s Death Raises Accident Accountability Question, TechCrunch (Jan. 2, 2014), http://techcrunch.com/2014/01/02/should-car-services-provide-insurance-whenever-their-driver-app-is-open/.

[3] Patrick Hoge, California May Expand Insurance Rules for Uber, Lyft et al., San Francisco Business Times (Mar. 25, 2014, 10:38 AM), http://www.bizjournals.com/sanfrancisco/blog/2014/03/california-insurance-rules-uber-lyft.html?page=all.

[4] Id.

[5] Bridge Proprietors v. Hoboken Co., 68 U.S. 116, 118 (1864).

[6] Id. at 146-47.

[7] Odette Yousef, Ridesharing vs. Taxicabs: The Inside Story, WBEZ (June 5, 2014), http://www.wbez.org/news/rideshare-vs-taxicabs-inside-story-110296.

[8] Id.

[9] Id.

[10] Adam Cecilon, The Insurance Secret that Uber Doesn’t Want You to Know, PolicyGenius Blog (Oct. 8, 2014), http://www.policygenius.com/blog/insurance-secret-uber-doesnt-want-know/.

[11] Peter Schworm, Passengers in the Middle of Ride-sharing Dispute, Boston Globe (Dec. 2, 2014), http://www.bostonglobe.com/metro/2014/12/02/city-council-hearing-discuss-potential-uber-lyft-regulation/a02o5C5DmnSc2LOarCpC9N/story.html.

[12] See, e.g., Megan Garber, After Uber, San Francisco Has Seen a 65% Decline in Cab Use, The Atlantic (Sept. 17, 2014), http://www.theatlantic.com/technology/archive/2014/09/what-uber-is-doing-to-cabs-in-san-francisco-in-1-crazy-chart/380378/.

[13] The Power of Connection: Peer-to-Peer Businesses: Hearing Before H. Comm. On Small Bus., 113th Cong. 6 (2014) (“Th[e] adoption of ride-sharing has the potential to produce large-scale public benefits, including easing traffic congestion and the strain on existing infrastructure, reducing pollution, and fostering a sense of community, all while providing car owners an opportunity to offset the cost of car ownership.”). These benefits are generated simply by people riding together who would otherwise be in separate vehicles. But ridesharing companies also augment these benefits, especially in the context of traffic congestion. For example, Uber developed a smartphone application that draws on a wealth of traffic-related data to help drivers find the most efficient route. Ryan Lawler, Uber Adds Turn-By-Turn Directions to Its Driver App, TechCrunch (Aug. 13, 2014), http://techcrunch.com/2014/08/13/uber-turn-by-turn-directions/.

[14] See generally Molly Cohen & Corey Zehngebot, What’s Old Becomes New: Regulating the Sharing Economy, 58 Boston Bar J. 34 (2014).

[15] Id.; Cecilon, supra note 10.

[16] Cecilon, supra note 10.

[17] Id.

[18] See, e.g., Nairi Hourdajian, Insurance for UberX with Ridesharing, Uber Blog (Feb. 10, 2014), http://blog.uber.com/ridesharinginsurance (detailing Uber’s insurance policy).

[19] Id.

[20] Id.

[21] Cecilon, supra note 10.

[22] Id.

[23] Jon Brooks, Confusion Over Insurance For “Ride-Sharing” Drivers, KQED.org: News Fix (Nov. 19. 2013), http://ww2.kqed.org/news/2013/11/14/who-pays-when-ride-share-driver-crashes.

[24] Jon Brooks, How Many Ride-Share Drivers Are Hiding Status From Insurers?, KQED.org: News Fix (Jan. 21, 2014), http://ww2.kqed.org/news/2014/01/20/ride-sharing-insurance-lyft-uberx-sidecar/.

[25] Id.

[26] Cecilon, supra note 10.

[27] Id.

[28] Marcus Wohlsen, Why Uber’s Fate Could Hinge on This Tragic Accident, Wired.com (Jan. 29, 2014, 6:30 AM), http://wired.com/2014/01/uber-wrongful-death. Uber and Sophia Liu’s family have since settled the lawsuit. Zach Miners, Uber Settles Suit over Girl Killed by Driver, PC World (July 14, 2015, 5:50 PM), http://www.pcworld.com/article/2948492/uber-settles-suit-over-girl-killed-by-driver.html.

[29] Id.

[30] Alexa Vaughn, Uber, Lyft Expanding Driver Insurance Coverage, Seattle Times (Mar. 14, 2014, 3:00 AM), http://seattletimes.com/html/localnews/2023125386_uberinsurancexml.html.

[31] Wohlson, supra note 28.

[32] The Power of Connection: Peer-to-Peer Businesses, supra note 13 at 6.

[33] Johana Bhuiyan, Here Is Where Uber and Lyft Are Facing Regulation Battles in the United States, BuzzFeed, (Dec. 15, 2014, 4:29 PM), http://www.buzzfeed.com/johanabhuiyan/here-is-where-uber-and-lyft-are-facing-regulation-battles-in#.ftEkba0vVA.

[34] Deven R. Desai, The New Steam: On Digitization, Decentralization, and Disruption, 65 Hastings L.J. 1469, 1477-80 (2013).

[35] Cohen & Zehngebot, supra note 14.

[36] Desai, supra note 34, at 1478.

[37] Id.

[38] Curtis Skinner, New Orleans Authorizes Uber—But Not UberX, Business Insider (Sept. 5, 2014, 8:02 AM), http://www.businessinsider.com/r-new-orleans-council-clears-uber-others-to-offer-luxury-online-taxi-service-2014-9.

[39] Sam Frizell, 5 Places Where Uber Is Fighting for Its Life Right Now, Time.com (Dec. 8, 2014), http://time.com/3623241/uber-battles (discussing locales which have banned or severely constrained Uber operations, including Portland, Oregon, and the State of Nevada).

[40] Paul Frisman, Uber's On-demand Car Service, Conn. Office of Legislative Research 4 (June 19, 2014), http://cga.ct.gov/2014/rpt/pdf/2014-R-0173.pdf (discussing different state approaches, including Virginia). Virginia legalized ridesharing earlier this year. Luz Lazo, Uber and Lyft Are Now Legal in Virginia, Washington Post (Feb. 18, 2015), http://www.washingtonpost.com/blogs/dr-gridlock/wp/2015/02/18/uber-and-lyft-are-now-legal-in-virginia/.

[41] Paul Frisman, Uber's On-demand Car Service, Conn. Office of Legislative Research 4 (June 19, 2014), http://cga.ct.gov/2014/rpt/pdf/2014-R-0173.pdf; Lazo, supra note 40.

[42] Paul Frisman, Uber's On-demand Car Service, Conn. Office of Legislative Research 4 (June 19, 2014), http://cga.ct.gov/2014/rpt/pdf/2014-R-0173.pdf.

[43] Paul Frisman, Uber's On-demand Car Service, Conn. Office of Legislative Research 4 (June 19, 2014), http://cga.ct.gov/2014/rpt/pdf/2014-R-0173.pdf; Lazo, supra note 40.

[44] Josh Richman, Uber, Lyft, Sidecar: New Insurance Requirements Approved by California Legislature (Aug. 28, 2014, 6:55 PM PDT), http://www.mercurynews.com/california/ci_26428057/california-senate-approves-new-insurance-requirements-uber-lyft; Andy Vuong, Colorado First to Authorize Lyft and Uber’s Ridesharing Services, Denver Post (June 5, 2014, 5:06:32 PM MDT), http://www.denverpost.com/business/ci_25907057/colorado-first-authorize-lyft-and-ubers-ridesharing-services?source=infinite.

[45] Tomio Geron, California Becomes First State to Regulate Ridesharing Services Lyft, Sidecar, Uber, Forbes (Sept. 19, 2013, 3:40 PM), http://www.forbes.com/sites/tomiogeron/2013/09/19/california-becomes-first-state-to-regulate-ridesharing-services-lyft-sidecar-uberx/.

[46] Id.

[47] Decision 13-09-045 Adopting Rules and Regulations to Protect Safety While Allowing New Entrants to the Transportation Industry, Cal. Pub. Utilities Comm’n 11 (Sept. 23, 2013), http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M077/K192/77192335.PDF.

[48] Geron, supra note 45.

[49] Press Release, California Public Utilities Commission, CPUC Establishes Rules For Transportation Network Companies (Sept. 19, 2013), http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M077/K132/77132276.PDF.

[50] Geron, supra note 45.

[51] Assemb. B. 2293, 2013-2014 Assemb., Reg. Sess. (Cal. 2014), available at http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB2293.

[52] See id.

[54] Id.

[55] Id.

[56] Assemb. 2293 §5433(c)(1), 2013-2014 Assemb., Reg. Sess. (Cal. 2014), available at http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB2293.

[57] Decision 13-09-045 Adopting Rules and Regulations to Protect Safety While Allowing New Entrants to the Transportation Industry, Cal. Pub. Utilities Comm’n 26-27 (Sept. 23, 2013), http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M077/K192/77192335.PDF.

[58] Id. § 5438.

[59] Geron, supra note 45.

[60] California Welcomes Insurance Coalition for Ride Sharing, Uber Joins In, GovTech.com, (Feb. 10, 2014), http://www.govtech.com/state/California-Welcomes-Insurance-Coalition-for-Ride-Sharing-Uber-Joins-In.html.

[61] Id.

[62] S.B. 14-125, 69th Gen. Assemb., Reg. Sess. (Colo. 2014), available at http://www.leg.state.co.us/clics/clics2014a/csl.nsf/fsbillcont2/70364091166B28FC87257C4300636F6B/$FILE/125_01.pdf.

[63] Id. at 2, 6.

[64] Id. at 6.

[65] Id. at 2.

[66] Id.

[67] Niraj Chokshi, Colorado Passes Nation’s First Law Regulating UberX, Lyft, Washington Post (June 6, 2014), http://www.washingtonpost.com/blogs/govbeat/wp/2014/06/06/colorado-passes-nations-first-law-regulating-uberx-lyft/.

[68] See Vuong, supra note 44.

[69] Kelli Kelty, Colo. Legislative Counsel Staff, Transportation Network Companies, Gen. Assemb. 14-07, Reg. Sess. (2014), available at http://cdn.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1252019169757&ssbinary=true.

[70] Nairi Hourdajian, Eliminating Ridesharing Insurance Ambiguity, Ins. Note (Mar. 14, 2014), http://insurancenote.net/warranty-entitling-the-holder-to-care-at-home/eliminating-ridesharing-insurance-ambiguity/.

[71] Norma B. Levy & Louis H. Kozloff, Ridesharing Presents Challenges and Opportunities for Insurers, Property Casualty 360º, (Oct. 21, 2014), http://www.propertycasualty360.com/2014/10/21/ridesharing-presents-challenges-and-opportunities?page=2.

[72] See id.

[73]Insurance Designed with Uber in Mind, Uber, http://uberxcolorado.com/drive/?page_id=483 (last visited Sept. 17, 2015).

[74] Chokshi, supra note 67.

[75] See Colorado Makes Uber History, Uber Newsroom, (June 5, 2014), available at http://newsroom.uber.com/denver/2014/06/colorado-makes-uber-history-2/ (Uber calling the regulations “stringent” yet “sensible.”). Kathleen Lavine, Colorado Passes Bill Legalizing UberX, Lyft, Denver Bus. J. (Apr. 29, 2014, 5:46 PM MDT), available at http://www.bizjournals.com/denver/blog/boosters_bits/2014/04/colorado-passes-bill-legalizing-uberx-lyft.html (Lyft saying were “thrilled” by the “rigorous set of safety standards.”).

[76] See Decision 13-09-045 Adopting Rules and Regulations to Protect Safety While Allowing New Entrants to the Transportation Industry, Cal. Pub. Utilities Comm’n 2 (Sept. 23, 2013), http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M077/K192/77192335.PDF.

[77] S.B. 14-125, 69th Gen. Assemb., Reg. Sess. (Colo. 2014), http://www.leg.state.co.us/clics/clics2014a/csl.nsf/fsbillcont2/70364091166B28FC87257C4300636F6B/$FILE/125_01.pdf.

[78] Hourdajian, supra note 70.

[79] Andy Vuong, Colorado Lawmakers Still Wrangling Insurance for Lyft, UberX, Denver Post (Apr. 2, 2014, 6:41:13 PM MDT), http://www.denverpost.com/business/ci_25480333/colorado-lawmakers-still-wrangling-insurance-lyft-uberx.

[80] See Assemb. B. 2293 § 5433, 2013-2014 Assemb., Reg. Sess. (Cal. 2014), available at http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB2293.

[81] See id. § 5438.

[82] See Decision 13-09-045 Adopting Rules and Regulations to Protect Safety While Allowing New Entrants to the Transportation Industry, Cal. Pub. Utilities Comm’n 2 (Sept. 23, 2013), http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M077/K192/77192335.PDF.

More Coverage, More Problems: No Private Remedies for Kentuckians Hurt by HIPAA Violations After Adoption of the Affordable Care Act

Note | 103 KY. L. J. ONLINE 7 | Aug. 7, 2015

Chelsea N. Hayes[1]

Introduction

Kentucky is leading the way in America’s first state-based exchange to implement the Affordable Care Act (hereinafter “ACA”).[2] While this presumably will assist the one in six Kentuckians who are uninsured,[3] doctors and medical facilities may mistakenly disclose private documents with the high influx of new patients. Therefore, Kentucky citizens may question how to resolve violations of privacy mandated by the Health Insurance Portability and Accountability Act (hereinafter “HIPAA”).[4]HIPAA does not create a state-based private cause of action for violations of its privacy provisions.[5] Kentucky also has no state statute or common law right allowing state private causes of action for HIPAA violations.[6] While Kentucky has legislated a statute allowing private causes of action for other state statute violations, this right does not extend to federal statutes (e.g. HIPAA), regulations, or local ordinances.[7] Because HIPAA does not provide a plaintiff a federal private cause of action,[8] Kentucky refuses to infer a right where Congress has not.[9] Currently, the only way a person may pursue HIPAA violations is by filing a complaint with the Federal Office of Civil Rights (hereinafter “OCR”),[10] yet the individual receives no personal compensation.This note will first explore the interplay between the ACA and HIPAA in Section I, elaborating on Kentucky’s adoption of the ACA and expansion of its medical landscape. Section II explains existing precedent regarding state remedies for HIPAA violations and emphasizes aggrieved Kentuckians’ lack of recovery. Section III illuminates how Kentucky’s medical landscape is not unique from other states’, which allow state based causes of action. As a result, Kentucky should enact a statutory private cause of action to develop its medical landscape alongside the expansion of healthcare similar to West Virginia’s legislative scheme.

I. Background: Interaction between The Affordable Care Act and HIPAA

The implementation of the ACA allows millions of Americans the opportunity to receive affordable healthcare. Kentucky quickly adopted the ACA on a state level to provide statewide coverage and accessibility to Kentuckians.[11] As the number of individuals accessing healthcare increases, providers may become overwhelmed, and some protected health information may be unintentionally disclosed to the public. HIPAA governs these disclosures via regulations, violations, fines, and incarcerations,[12] incentivizing doctors and other health professionals to proceed carefully and diligently with the influx of patients. HIPAA alone, however, is insufficient to adequately address privacy because enforcement wavers at best, and individuals cannot receive adequate compensation because no federal private cause of action exists.

A. The Affordable Care Act

The ACA, enacted in 2010, employed a patient’s “Bill of Rights,” allowing “the American people the stability and flexibility [needed] to make informed decisions about their health.”[13] As of January 1, 2014, an estimated 14 million Americans will gain health insurance coverage via the Medicaid expansion or individual and/or small business tax reimbursements to lower healthcare costs via the federal and participating state exchanges.[14]These implementations provide individuals minimum health coverage that was once too costly to afford. More particularly, the Medicaid expansion[15] allows more vulnerable individuals 65 years or younger with an annual income below 133 percent of the federal poverty line to gain coverage despite pre-existing conditions or the inability to pay.[16] This means great benefits for the 7.8 million rural Americans who the United States Department of Health and Human Services (hereinafter “HHS”) predicts gained access to medical coverage under the ACA expansion.[17] Kentuckians are among these Americans who will benefit greatly.

B. Kentucky’s Adoption of the ACA

In 2013, 640,000 Kentuckians were uninsured, entailing approximately 15 percent of the state’s population.[18] Prompted by the ACA, Kentucky created Kynect, its state healthcare exchange.[19] According to the Washington Post, “56,422 [Kentuckians] have signed up for new health-care coverage, with 45,622 of them enrolled in Medicaid and the rest in private health plans, according to figures released by the governor’s office . . . .”[20]Of the estimated 640,000 Kentuckians covered, 308,000 could become insured after expansion of the Medicaid eligibility guidelines in accordance with the ACA.[21] This number forecasts that many Kentuckians can seek once unobtainable medical care for untreated conditions stemming from smoking, cancer, preventable hospitalizations, heart disease, etc.[22]When Kentucky welcomed the ACA, however, officials may not have anticipated increasing HIPAA violations. Healthcare reform has allowed Kentuckians to seek healthcare with lower financial cost, but a potentially more significant one: possible loss of personal privacy with no compensation. According to the HHS, “[a]s of December 31, 2013, [the Office of Civil Rights] had 258 open complaints and compliance reviews” for HIPAA violations.[23] While this is a national statistic, one can only imagine the increase in complaints upon adoption of the ACA within Kentucky. Each of the 258 disclosures represents a person, who if he or she lived in Kentucky, would have no private cause of action to recover despite federal legislation.

C. HIPAA Governs Personal Health Information Leaks

Congress enacted HIPAA on August 21, 1996.[24] HIPAA’s main purpose is to encourage uniform standards and requirements for storing protected health information (hereinafter “PHI”) and to reduce clerical burdens on all involved parties.[25] Accordingly, those who maintain PHIs adopt “administrative, technical, and physical safeguards . . . to ensure the integrity and confidentiality of the information, to protect against any reasonably anticipated threats or hazards to the security or integrity of the information and unauthorized uses or disclosures of the information, and otherwise to ensure compliance with this part by the officers and employees of such person.”[26]HIPAA forms are the norm in all offices handling PHI because legislation covers health care providers, health care clearing houses, and health plans (all considered “covered entities”).[27] In 2009, the Health Information Technology for Economic and Clinical Health Act[28] (hereinafter “HITECH”) required modification and strengthening of the HIPAA’s rules by mandating the inclusion of business associates[29] in conjunction with covered entities. HITECH also added levels of culpability for PHI violations.[30]A covered entity breaches HIPAA when it discloses PHI without permission or for an inappropriate purpose.[31] This violation does not have to be intentional, but instead may be inadvertent.[32] In order to seek redress for a suspected HIPPA violation, an individual must file a complaint with the Secretary of the HHS.[33] The OCR, a subdivision under the HHS, manages and investigates violation complaints or suspicion of HIPAA violations.[34] After a covered entity violates HIPAA, the OCR allows a time frame in which the covered entity may take a “satisfactory” action to correct the breach and mitigate the damages.[35] If corrective action is taken, the OCR will simply fine the covered entity via civil penalties,[36] and if the violation is criminal in nature, the OCR may instruct the Department of Justice to investigate.[37]When civil monetary damages are sought for HIPAA violations, complainants or aggrieved persons themselves do not receive money compensation.[38] Instead, recoveries are deposited into the U.S. Treasury to further assist HIPAA investigations.[39] The aggrieved person merely receives notifications regarding the resolution of the violations.[40] While HIPAA clearly defines what constitutes a violation, the Act omits any express private cause of action for individuals to seek compensation for the dissemination of their PHI.[41] Consequently, complainants are merely left with filing a complaint to the OCR, with few states providing additional redress.[42]

II. Case Law: Few State Causes of Action for HIPAA Violations

HIPAA violations have increased throughout the years, but aggrieved persons are left with no federal remedies because HIPAA does not generate a private cause of action.[43] Some states, however, allow recovery in state court via common law tort claims and/or statutory recoveries.[44] States such as West Virginia recognize both, whereas Kentucky recognizes neither.[45]

A. Aggrieved Persons Harmed by HIPAA Violations Cannot Recover in Federal Court

The Supreme Court iterated in 1979 that despite a person violating a federal statute and harming another individual, a violation does not automatically prompt a private cause of action.[46] As a result, harmed persons do not individually benefit from HIPAA protections.[47] In fact, the Supreme Court in 2001 stated that HIPAA will never provide a cause of action for wronged individuals unless amended with the intent to establish that right.[48] This results in summary judgment for the defendant covered entity,[49] and the OCR provides the singular remedy.[50]

B. States Allowing HIPAA Violations to Establish the Standard of Care in Tort Claims

Recently few states have allowed HIPAA guidelines to provide the standard of care for common law claims in state court litigation. In these jurisdictions, HIPAA rules supply the baseline for what a medical professional should do regarding privacy and security of PHI in negligence claims. This allows plaintiffs to claim that the covered entity was negligent according to the statutory regulations of HIPAA without need for expert testimony, establishing negligence per se.[51] A negligence per se claim statutorily establishes the standard of care[52] and permits aggrieved individuals to recover tort damages where no compensatory remedy is available through the OCR.[53] Additionally, this method allows plaintiffs to stand in court without immediately granting the defendant summary judgment.[54] The small number of state cases, indicates that this recovery has not yet picked up steam, but serves as a reminder that states surrounding Kentucky have implemented repercussions for breaches of HIPAA whether through negligence per se or other common law torts.[55]

C. State Statutory Recoveries for HIPAA Violations

Apart from common law tort claims, fourteen states have created a statutory cause of action for HIPAA violations.[56] For example, West Virginia is a model state to explore the effect of both common law and statutory recoveries for HIPAA violations,[57] and will provide the exemplars for this discussion.[58] The West Virginia statute was enacted in 1983,[59] and the state’s highest court further elaborated on this statute by reaffirming a patient’s ongoing right to sue over a HIPAA violation because both a well-recognized common law and statutory right existed under state law.[60] As a result, these states[61] protect privacy by allowing individuals a private cause of action as long as the statute mandates more privacy provisions than HIPAA to avoid federal preemption issues. HIPAA contains a preemption provision mandating that HIPAA supersede any contrary provision of state law.[62] Some courts have grappled with the idea of HIPAA preemption if the states were to create common law or statutory causes of action.West Virginia’s highest court has led the way in litigation and explanation of HIPAA preemption, iterating that HIPPA does not preempt state statutory causes of action for the wrongful disclosure of PHI.[63] In order for HIPAA to preempt any state statute, the state law must be contrary to HIPAA.[64] A law is not contrary if the state law is more stringent than a HIPAA standard, requirement, or implementation.[65] In R.K. v. St. Mary’s Medical Center, Inc., the West Virginia court held “such state-law claims compliment [sic] HIPAA by enhancing the penalties for its violation and thereby encouraging HIPAA compliance.”[66] The plaintiff, R.K., filed state law claims after disclosing otherwise-undisclosed personal information to hospital employees in order to seek treatment.[67] While hospitalized, hospital employees accessed R.K.’s record without permission and relayed PHI to his estranged wife and her divorce lawyer.[68] R.K. initiated state law claims including, but not limited to, breach of confidentiality and invasion of privacy.[69]While the circuit court stated HIPAA preempted these claims, [70] the higher court disagreed, analyzing Yath v. Fairview Clinics, N.P.,[71] involving a state statutory cause of action. Here, the defendant’s clinic tested the plaintiff, Yath, for a sexually-transmitted disease.[72] A clinic assistant accessed his records and disclosed the information to Yath’s husband. Yath sued for wrongful disclosure of medical information in violation of the Minnesota statute by improperly releasing PHI.[73] While lower courts determined HIPAA preempted the state statute, the Minnesota Court of Appeals held that the statute was not preempted because it is not “contrary” to HIPAA.[74] The defendants could comply with both HIPAA and the statute since both laws are “complementary,” not “contradictory” as the laws obtained the same goal of safeguarding patient PHI.[75] The West Virginia Supreme Court of Appeals elaborates that though the remedies in Minnesota Statute § 144.335 and HIPAA are not identical, [76] the differences are merely functional. [77] Both statutes primarily prohibit mishandling of PHI, but HIPAA focuses on criminal liability and civil fines while § 144.335 permits compensatory damages. As such, states like West Virginia allow HIPAA to establish the privacy protection floor, and states may enforce more stringent laws without preemption.As a result, states like West Virginia approve both complementary statutory and common law claims for HIPAA breaches. At the end of the day, however, each individual state must make this decision. “Raising up causes of action where a statute has not created them may be a proper function for common-law courts, but not for federal tribunals.”[78]

D. Kentucky Does Not Recognize a State Common Law or Statutory Cause of Action for HIPAA Violations

Kentucky has yet to recognize any common law private cause of action for HIPAA violations using HIPAA regulations as the standard of care.[79] Alternatively, Kentucky appears to statutorily provide recovery for individuals injured by violations of any statute via KRS § 446.070.[80] This statute allows an aggrieved party to recover for a violation of another statute if that particular statute provides no civil remedy, and the aggrieved person is within the class of persons the statute is meant to protect.[81]In Yeager v. Dickerson, the court addresses whether the plaintiff has a cause of action via KRS § 446.070 against her attorneys for disclosure of medical information.[82] Yeager, executrix of her daughter’s estate, alleged a violation of HIPAA when her daughter died from a drug overdose after release of her PHI at her child’s custody hearing.[83] Because Congress has not expressly intended a private right under HIPAA, the Kentucky Court of Appeals held that KRS § 446.070 does not confer a private civil remedy for such violations.[84] According to the court, the “any statute” language appearing in KRS § 446.070 is limited to state statutes only and exempts federal statutes in which Congress has not intended a remedy to be conferred.[85] The court further stated that even if the General Assembly had intended a right under the state statute where Congress had not, HIPAA would preempt Kentucky state law.[86] The court also has not recognized any common law tort claims for plaintiffs since the claims are grounded in HIPPA.[87] This leaves Kentuckians wondering what rights they can exercise after a HIPAA violation occurs.

III. Solution: Kentucky Should Implement a State Statutory Cause of Action for HIPAA Violations

As it exists, Kentucky provides no private cause of action through KRS § 446.070 for persons harmed by PHI disclosure.[88] This legislative void can only be fully remedied by the Kentucky Legislature enacting a statute specifically allowing a private cause of action for HIPAA violations. For guidance, Kentucky should look to neighboring states, particularly West Virginia, due to similarities between the two states’ medical landscapes. Although Kentucky is more populous and has had different jurisprudence on the subject than West Virginia, these should not stand in the way of Kentucky’s recognition of privacy rights.

A. Proposed Legislation for Recovery under a Kentucky State Statute

Private litigation on a federal scale might overwhelm the effectiveness of HIPAA, but other states have taken charge of regulating medical privacy. In fact, prior to HIPAA, states were the primary regulators of privacy concerns via the common law, statutes, and regulations.[89] The Yeager Court rationalized correctly that even if a private right of action existed, it would be preempted.[90] This is accurate because HIPAA establishes the floor for privacy protection and Kentucky has not yet expanded it further.[91] To circumvent preemption and better protect Kentuckians, legislators must be willing to enact “strong health privacy laws”[92] to redress those harmed.Even after HIPAA’s adoption, HHS explained, “[w]e believed then, and still believe, that there is an urgent need for legislation to establish comprehensive privacy standards for all those who pay and provide for health care, and those who receive information from them.”[93] This concept illuminates the idea that all fifty states should enact legislation to heighten privacy laws to better protect citizens rather than wholly relying on HIPAA to restore justice to aggrieved plaintiffs.[94]This is an alarming problem after the ACA because persons may already distrust the healthcare system due to previously limited access.[95] By enacting a state statutory provision in which KRS § 446.070 will allow recovery, rural Kentuckians may be more apt to trust and seek out healthcare they once could not afford. These persons must not live in fear of Kentucky forgoing individual privacy protection because redress is unavailable.While Kentucky courts have rebuked a private cause of action,[96] implementing a state statute would allow the courts to analyze it as a matter of first impression and partake in shaping the common law associated with the statute. Kentucky can look to West Virginia, its neighbor, for guidance since West Virginia implemented higher safeguards to protect its residents.[97] Little case law exists in Kentucky and West Virginia regarding state rights of action for HIPAA violations. However, in the available case law, Kentucky and West Virginia rationalize the subject comparably.[98] In fact, the only difference between the two states is solely the existing precedent, as the two states have strikingly similar medical landscapes. Precedent is the only barrier that stands between Kentucky and a state private cause of action—a barrier that the ACA will inevitably break down.

B. Comparison: The Kentucky and West Virginia Courts Rationalize Similarly

In Kentucky, Yeager held that the state statute regarding privacy for health care recipients did not confer a private right of action for HIPAA violations.[99] Authority in neighboring West Virginia from the Supreme Court of Appeals, however, is contrary to the Kentucky holding.[100] The courts’ rationale is quite similar, but the respective precedent is distinctive: West Virginia reaffirmed a patient’s ongoing right to sue where Kentucky has not yet initially recognized a patient’s right to sue.First, both courts recognize that HIPAA does not create a federal private right of action for aggrieved persons.[101] Second, neither Kentucky nor West Virginia specifically held that HIPAA preempts a state from recognizing a cause of action for disclosure of PHI.[102] Instead, the courts address whether HIPAA preempts particular statutes. As discussed in West Virginia, HIPAA would preempt state law, including statutory and common law, only if the state law would disallow compliance with both state and federal requirements or if the state law is contrary[103] and stands as an obstacle to HIPAA’s execution.[104]If the courts have already rationalized similarly, Kentucky should consider consulting other jurisdictions in at least allowing a statutory right of recovery in combination with KRS § 446.070 for aggrieved individuals. Preemption would also not be an obstacle, despite Kentucky courts’ rationale, because it is entirely possible for both the OCR to enforce HIPAA through civil and criminal fines and Kentucky to recognize a private cause of action focusing on individual recovery. Both proceedings could occur autonomously without affecting the other. Further, a state right of action would complement HIPAA’s floor by assisting and strengthening incentives to protect PHI with the expansion of the ACA.As one court stated, “[i]t is, to say the least, difficult to believe that Congress would, without comment, remove all means of judicial recourse for those injured by illegal conduct.”[105] While Kentucky has already taken strides to protect its own residents through adoption of the first state-based exchange for the ACA, it has fallen behind West Virginia and other states that have recognized a common law cause of action and others with statutory causes of action due to the toothless fear of preemption and outdated precedent in the time of the ACA.

C. Comparison: Kentucky and West Virginia have Comparable Medical Landscapes

Similar medical landscapes are important when advocating for one state government to adopt another’s remedies. This section statistically compares West Virginia and Kentucky to illustrate few differences exist between them. Kentucky conclusively has more uninsured individuals and more Medicaid recipients yet has no state cause of action like West Virginia. These statistics support Kentucky adopting West Virginia’s approach to redressing breaches.The implementation of the ACA has the potential to extend coverage to as many as 285,931 uninsured West Virginians.[106] West Virginia’s estimated 2013 population was 1,854,304, with 714,605 of those individuals living in rural areas.[107] Through the ACA Marketplace, 42% of adults (about 112,000) and 11% of children (roughly 30,000) will receive Medicaid, 23% of individuals will be eligible for tax credits (62,000), and 23% may gain coverage without financial assistance.[108] Of those uninsured individuals eligible for coverage, 259,000 (91%) are White, 16,461 (6%) are African-American, 2,850 (1%) are Latino or Hispanic, and 1,208 (0.4%) are Asian American or Pacific Islander.[109] At least 799,000 non-elderly individuals, including 91,098 children, have pre-existing health conditions who may now receive healthcare because of the ACA.[110]In comparison, Kentucky, with 647,000 uninsured, was the first state to adopt a state-based exchange for the ACA.[111] As of 2013, Kentucky had an estimated population of 4,395,295, of which 1,837,294 living in rural areas.[112] Through the ACA Marketplace, 45% of adults (about 291,000) and 9% of children (roughly 59,000) will receive Medicaid, 22% of individuals will be eligible for tax credits (145,000), and 24% may gain coverage without financial assistance.[113] Of those uninsured individuals eligible for coverage, 513,688 (83%) are White, 77,280 (12%) are African American, 18,272 (3%) are Latino or Hispanic, and 4,158 (1%) are Asian American or Pacific Islander.[114] At least 1,894,874 non-elderly Kentuckians, including 241,403 children, have pre-existing conditions.[115]The above statistics illuminate that Kentucky has more individuals, more uninsured, and a greater number of Medicaid expansion recipients than West Virginia. Both have high rural populations where poverty can be a perpetual cycle and healthcare a commodity. The majority of uninsured are Caucasian, suggesting this is not a racial discrepancy, but rather a rampant, non-discriminatory issue. This prompts the question why Kentucky has not led the way in protecting Kentuckians from privacy violations like its very similar neighbor, West Virginia? After West Virginia’s adoption of both a common law and statutory cause of action protecting its citizens, Kentucky has few arguments for first implementing the ACA yet refusing to fully protect Kentuckians from HIPAA violations that may increase due to the state’s adoption of the ACA.

IV. Conclusion

While Kentucky is an advocate for providing healthcare via the ACA, Kentucky continues to ignore each person’s individual privacy rights within the medical sphere by providing no redress to Kentuckians hurt by PHI disclosures. As a result, Kentucky lacks the self-interest to fully protect its citizens because citizens desire redress when Kentucky recognizes no right. Neighboring state courts have begun utilizing HIPAA as evidence of the standard of care for other common law torts while others allow statutory causes of actions for HIPAA violations. Kentucky offers neither. This note advocates for Kentucky to implement legislation to strengthen HIPAA regulations by allowing a state private cause of action for Kentuckians hurt or affected by PHI disclosures. Kentucky should look to other states with private causes of action, such as West Virginia, for guidance. This private cause of action will more uniformly protect and guarantee Kentuckians’ privacy via state redress.

[1] J.D., May 2015, University of Kentucky College of Law.

[2] See Mary Branham, State Success & Federal Missteps, The Council of State Governments, http://www.csg.org/pubs/capitolideas/2014_jan_feb/healthcareexchanges.aspx (last visited Jan. 19, 2014). For information regarding the exchange, see Patient Protection and Affordable Care Act (ACA), Pub. L. No. 111-148, 124 Stat. 119 (2010).

[3] Steve Beshear, My State Needs ObamaCare. Now., Ny Times (Sept. 26, 2013), http://www.nytimes.com/2013/09/27/opinion/my-state-needs-obamacare-now.html.

[4] Health Insurance Portability and Accountability Act (HIPAA), Pub. L. No. 104-191, 110 Stat. 1936 (codified as scattered sections of 18, 26, 29, 42 U.S.C. (2000)).

[5] McMillen v. Ky. Dep’t. of Corr., 233 S.W.3d 203, 205 (Ky. Ct. App. 2007).

[6] Young v. Carran, 289 S.W.3d 586, 589 (Ky. Ct. App. 2008) (articulating Kentucky’s lack of common law or statutory private cause of action for HIPAA violations).

[7] See Ky. Rev. Stat. Ann. § 446.070 (2013); T & M Jewelry, Inc. v. Hicks ex rel. Hicks, 189 S.W.3d 526, 530 (Ky. 2006); Alderman v. Bradley, 957 S.W.2d 264, 266-67 (Ky. 1997); Yeager v. Dickerson, 391 S.W.3d 388, 393 (Ky. Ct. App. 2013).

[8] See Alexander v. Sandoval, 532 U.S. 275, 275 (2001) (holding that there is no private right of action to enforce disparate-impact regulations promulgated under Title VI of Civil Rights Act of 1964.”); Acara v. Banks, 470 F.3d 569, 571 (5th Cir. 2006) (holding no private cause of action for disclosure of PHI during a deposition); Johnson v. Quander, 370 F. Supp. 2d 79, 100 (D.D.C. 2005) (holding that a convicted robber had no private cause of action under HIPAA when challenging the DNA Act because the Secretary of HHS only had that right); Univ. of Colo. Hosp. v. Denver Pub. Co., 340 F. Supp. 2d 1142, 1145 (D. Colo. 2004) (finding no HIPAA private cause of action because the statute created enforcement means for aggrieved persons); O'Donnell v. Blue Cross Blue Shield of Wyo., 173 F. Supp. 2d 1176, 1179-80 (D. Wyo. 2001) (holding no express or implied private cause of action exists in HIPAA).

[9] Yeager, 391 S.W.3d at 394.

[10] Bob Herman, HIPAA May Form Basis for State Law Private Cause of Action, Becker’s Hosp. Review (June 24, 2011), http://www.beckershospitalreview.com/healthcare-information-technology/hipaa-may-form-basis-for-state-law-private-cause-of-action.html.

[11] Beshear, supra note 2.

[12] See supra notes 18-23 and accompanying text.

[13] About the Law, U.S. Dep’t of Health and Human Serv., http://www.hhs.gov/healthcare/rights/ (last visited Jan. 20, 2014).

[14] Individual Health Insurance Coverage, AHIP Coverage (Oct. 12, 2010), http://www.ahipcoverage.com/2010/10/12/individual-health-insurance-coverage/; Small Business Health Care Tax Credit for Small Employers, IRS (Dec. 19, 2013), http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-for-Small-Employers.

[15] While tax reimbursement participants will also comprise a large number of individuals the ACA will help, this paper will primarily focus on Medicaid recipients as this individuals are most likely gaining access for the first time.

[16] Nat'l Fed'n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2575, (2012); Key Features of the Affordable Care Act by Year, U.S. Dep’t of Health and Human Serv., http://www.hhs.gov/healthcare/facts/timeline/timeline-text.html (last visited Jan. 20, 2014).

[17] See The Affordable Care Act-What It Means in Rural America, U.S. Dep’t of Health and Human Serv., http://www.hhs.gov/healthcare/facts/factsheets/2013/09/rural09202013.html (last visited Jan. 20, 2014).

[18] A Healthier Kentucky: Health Insurance Coverage for Every Kentuckian, Governor of Kentucky Steve Beshear, http://governor.ky.gov/healthierky/Pages/default.aspx (last visited Jan. 20, 2014) [hereinafter A Healthier Kentucky].

[19] Id.

[20] Stephanie McCrummen, In Rural Kentucky, Health-Care Debate Takes Back Seat as the Long-Uninsured Line Up, The Washington Post, (Nov. 23, 2013), http://www.washingtonpost.com/national/in-rural-kentucky-health-care-debate-takes-back-seat-as-people-sign-up-for-insurance/2013/11/23/449dc6e0-5465-11e3-9e2c-e1d01116fd98_story.html. Furthermore, as of March 20, 2014, 321,932 Kentuckians had enrolled through Kynect and 257,477 of these individuals qualified under the Medicaid expansion. More than 321,000 Now Enrolled Through Kynect as March 31 Deadline Approaches, Kentucky.gov (Mar. 21, 2014), http://kentucky.gov/Pages/Activity-Stream.aspx?viewMode=ViewDetailInNewPage&eventID=&activityType=PressRelease.

[21] Beshear, supra note 2.

[22] Id. (“[Kentucky] ranks among the worst, if not the worst, in almost every major health category, including smoking, cancer deaths, preventable hospitalizations, premature death, heart disease and diabetes.”).

[23] Enforcement Highlights, U.S. Dep’t of Health and Human Serv. (Dec. 31, 2013), http://www.hhs.gov/ocr/privacy/hipaa/enforcement/highlights/12312013.html.

[24] HIPAA, Pub. L. No. 104-191, 110 Stat. 1936 (codified as scattered sections of 18, 26, 29, 42 U.S.C. (2000)).

[25] See id. § 261.

[26] 42 U.S.C. § 1320d-2(d)(2)(A-C) (2014).

[27] See 45 C.F.R. § 160.103(4)(iv)(1-3) (2014).

[28] American Recovery and Reinvestment Act of 2009 (ARRA), Pub. L. No. 111-5, 123 Stat. 226 (Feb. 17, 2009), codified at 42 U.S.C. §§300jj et seq.; §17901 et seq.

[29] Business associate: (1) Except as provided in paragraph (4) of this definition, business associate means, with respect to a covered entity, a person who: (i) On behalf of such covered entity or of an organized health care arrangement (as defined in § 164.501 of this subchapter) in which the covered entity participates, but other than in the capacity of a member of the workforce of such covered entity or arrangement, performs, or assists in the performance of: (A) a function or activity regulated by this subchapter, including claims processing or administration, data analysis, processing or administration, utilization review, quality assurance, patient safety activities listed at 42 CFR 3.20, billing, benefit management, practice management, and repricing; or (B) Any other function or activity regulated by this subchapter; or (ii) Provides, other than in the capacity of a member of the workforce of such covered entity, legal, actuarial, accounting, consulting, data aggregation (as defined in § 164.501 of this subchapter), management, administrative, accreditation, or financial services to or for such covered entity, or to or for an organized health care arrangement in which the covered entity participates, where the provision of the service involves the disclosure of protected health information from such covered entity or arrangement, or from another business associate of such covered entity or arrangement, to the person. 45 C.F.R. § 160.103(1)(i-ii) (2014).

[30] It also expanded the maximum fine to $50,000 per violation depending on the culpability level, capping maximum amounts for repeated offenses at $1,500,000 per year for aggregate violations. See HIPAA Enforcement after the Recovery Act, Hall, Render, Killian, Heath & Lyman (March 30, 2009), http://www.hallrender.com/library/articles/1085/033009___Enforcement_after_the_Recovery_Act.pdf. However, HIPAA allows an exception to fines if the violation was due to reasonable cause. 42 USC § 1320d-5(a)(1)(B) (2014). HITECH also proposed allowing individuals to share a percentage of recovery or settlement; HHS had until 2012 to issue the regulation, but this does not appear to have occurred yet. Chris Dimick, HIPAA Violation? Sue me, J. of AHIMA (Mar. 1, 2011), http://journal.ahima.org/2011/03/01/hipaa-violation-sue-me/.

[31] See 45 C.F.R. § 164.502(a) (2014) (explaining general rules on violations and permitted uses of PHI). A “breach” is defined by HHS as “an impermissible use or disclosure under the Privacy Rule that compromises the security or privacy of the protected health information.” Breach Notification Rule, U.S. Dep’t of Health and Human Serv., http://www.hhs.gov/ocr/privacy/hipaa/administrative/breachnotificationrule/index.html (last visited Mar. 19, 2014).

[32] See, e.g., 42 U.S.C. § 1320d-5(a)(1)(A), (B) (2014).

[33] How OCR Enforces the HIPAA Privacy & Security Rules, U.S. Dep’t of Health and Human Serv., http://www.hhs.gov/ocr/privacy/hipaa/enforcement/process/howocrenforces.html (last visited Jan. 17, 2014) [hereinafter How OCR Enforces].

[34] See 42 U.S.C. § 1320d-5(c)(2) (2014); How OCR Enforces, supra note 32.

[35] How OCR Enforces, supra note 32.

[36] 42 U.S.C. § 1320d-5(a)(2)-(3) (2014).

[37] Id. § 1320d-6; How OCR Enforces, supra note 32.

[38] How OCR Enforces, supra note 32.

[39] Id.

[40] Id. Further, in 2012, HHS reported that 10,454 individuals filed complaints to the OCR, indicating that complaints are not at a minimum. See Health Information Privacy Complaints Received by Calendar Year, U.S. Dep’t of Health and Human Serv., http://www.hhs.gov/ocr/privacy/hipaa/enforcement/data/complaintsyear.html (last visited Jan. 17, 2014) [hereinafter Privacy Complaints] (providing a bar graph to show increasing numbers of HIPAA complaints each year).

[41] Instead, Congress limited enforcement to the Secretary of Health and Human Services, which indicates it did not intend to create private rights of action in individuals aggrieved by HIPAA breaches. Social Security Act, § 1171, 42 U.S.C. § 1320d); Acara v. Banks, 470 F.3d 569, 571 (5th Cir. 2006).

[42] After the HITECH expansion, state attorney generals are now allowed to bring civil damage claims against entities that breach HIPAA, but this does not affect an individual’s right to sue. Dimick, supra note 29. Even then, the attorney generals may be overwhelmed as well and only choose to take the most devastating and detrimental cases.

[43] See, e.g., Acara, 470 F.3d at 569.

[44] See infra Sections II.B-C.

[45] See Individual Right of Action for Medical Records Access: 50 State Comparison, Robert Wood Johnson Found. (Jan. 20, 2014), http://www.healthinfolaw.org/comparative-analysis/individual-right-action-medical-records-access-50-state-comparison [hereinafter 50 State Comparison].

[46] Touche Ross & Co. v. Redington, 442 U.S. 560, 568 (1979) (citation omitted).

[47] See Alexander v. Sandoval, 532 U.S. 275, 275 (2001) (holding that there is no private right of action to enforce disparate-impact regulations promulgated under Title VI of Civil Rights Act of 1964.”); Acara, 470 F.3d at 570 (holding no private cause of action for disclosure of PHI during a deposition); Johnson v. Quander, 370 F. Supp. 2d 79, 100 (D.D.C. 2005) (holding that a convicted robber had no private cause of action under HIPAA when challenging the DNA Act because the Secretary of HHS only had that right); Univ. of Colo. Hosp. v. Denver Pub. Co., 340 F. Supp. 2d 1142, 1145 (D. Colo. 2004) (finding no HIPAA private cause of action because the statute created enforcement means for aggrieved persons); O'Donnell v. Blue Cross Blue Shield of Wyo., 173 F. Supp. 2d 1176, 1179-80 (D. Wyo. 2001) (holding no express or implied private cause of action exists in HIPAA).

[48] Alexander, 532 U.S. at 286-87 ("Without [statutory intent], a cause of action does not exist and courts may not create one, no matter how desirable that might be as a policy matter, or how compatible with the statute.").

[49] See Acara, 470 F.3d at 572.

[50] HIPAA enforcement has consistently been at a minimum. For example, between 2003 and 2011, the OCR received over 25,000 complaints, but only imposed a formal civil fine in one of these cases. The OCR settled six of these cases. HHS referred 495 cases to the Department of Justice, resulting in only sixteen prosecutions. Rachel Grunberger, Senate Hearings Focus on Lack of HIPAA Enforcement, Final HITECH Rule, Inside Privacy (Dec. 22, 2011), http://www.insideprivacy.com/senate-hearings-focus-on-lack-of-hipaa-enforcement-final-hitech-rule/.

[51] See, e.g., Byrne v. Avery Ctr. for Obstetrics & Gynecology, P.C., 102 A.3d 32, 42 (Conn. Super. Ct. 2014) (holding HIPAA may be used as the standard of care for a negligence claim and HIPAA does not preempt this type of claim); Doe 1631 v. Quest Diagnostics, Inc., 395 S.W.3d 8, 18-19 (Mo. 2013) (allowing a breach of fiduciary claim against defendant after its phlebotomist faxed HIV results without the patient’s permission); R.K. v. St. Mary's Med. Ctr., Inc., 735 S.E.2d 715, 723 (W. Va. 2012) (holding HIPAA may be used as the standard of care for a negligence claim); Sorensen v. Barbuto, 143 P.3d 295, 299 n.2 (Utah Ct. App. 2006) (holding plaintiff established an action for negligent breach of confidentiality by relying on standards within HIPAA); I.S. v. Washington Univ., No. 4:11CV235SNLJ, 2011 WL 2433585, at *2 (E.D. Mo. June 14, 2011) (“[T]he Court finds that Count III may stand as a state claim for negligence per se despite its exclusive reliance upon HIPAA.”); K.V. v. Women's Healthcare Network, LLC, 07-0228-CV-W-DW, 2007 WL 1655734, at *1 (W.D. Mo. June 6, 2007) (explaining that the negligence per se claim based on HIPAA violation was a state-law claim); Acosta v. Byrum, 638 S.E.2d 246, 253 (N.C. Ct. App. 2006) (allowing plaintiff to reference HIPAA as baseline evidence of appropriate medical standard of care needed as an element of negligence); Harmon v. Maury Cnty., Tenn., No. 1:05 CV 0026, 2005 WL 2133697, at *3 (M.D. Tenn. Aug. 31, 2005).

[52] Young v. Carran, 289 S.W.3d 586, 588-89 (Ky. Ct. App. 2008) (citation omitted).

[53] State supreme courts wrote two of these notable decisions, demonstrating that at least two states’ highest courts have recognized HIPAA as proof of the standard of care for common law tort claims. See, e.g., Sorensen, 143 P.3d at 299 n.2; R.K., 735 S.E.2d at 723.

[54] It appears that plaintiffs must still prove damages proximately caused by the defendant’s actions, and damages must be legally cognizable. See Alagia, Day, Trautwein & Smith v. Broadbent, 882 S.W.2d 121, 126 (Ky. 1994).

[55] For example, Ohio’s Supreme Court in 1999 held that “an independent tort exists for the unauthorized, unprivileged disclosure to a third party of nonpublic medical information that a physician or hospital has learned within a physician-patient relationship" and "a third party can be held liable for inducing the unauthorized, unprivileged disclosure.” Biddle v. Warren Gen. Hosp., 715 N.E.2d 518, 523, 528 (Ohio 1999). This tort only applied to the confidential relationship between the physician and the patient, however. Recognizing the shortcomings of this tort and the growing problem of inadvertent disclosure with other entities before HITECH, the same court created a separate tort solely related to medical records that applies to a broader range of persons not limited to physicians. See Hageman v. Sw. Gen. Health Ctr., 893 N.E.2d 153, 157-58 (Ohio 2008).

[56] See 50 State Comparison, supra note 44 (illustrating California, Delaware, Illinois, Louisiana, Maryland, Massachusetts, Montana, New Hampshire, New York, Tennessee, Washington, West Virginia, Wisconsin, and Wyoming have private causes of action).

[57] See R.K., 735 S.E.2d at 715.

[58] See infra notes 83-109 and accompanying text (explaining the similarities between West Virginia and Kentucky).

[59] The statute explains that “[t]he provisions of this article may be enforced by a patient, authorized agent or authorized representative, and any health care provider found to be in violation of this article shall pay any attorney fees and costs, including court costs incurred in the course of such enforcement.” W. Va. Code § 16-29-1(d) (2011 & Supp. 2014); W. Va. Code § 29B-1-6 (2012) (“Any custodian of any public records who willfully violates the provisions of this article is guilty of a misdemeanor and, upon conviction thereof, shall be fined not less than two hundred dollars nor more than one thousand dollars, or be imprisoned in the county jail for not more than twenty days, or, in the discretion of the court, by both fine and imprisonment.”).

[60] See R.K., 735 S.E.2d at 724.

[61] See 50 State Comparison, supra note 44.[62] 42 U.S.C. § 1320d-7 (2014), which states in part: (1) General rule, Except as provided in paragraph (2), a provision or requirement under this part, or a standard or implementation specification adopted or established under sections 1320d-1 through 1320d-3 of this title, shall supersede any contrary provision of State law, including a provision of State law that requires medical or health plan records (including billing information) to be maintained or transmitted in written rather than electronic form. (2) Exceptions, A provision or requirement under this part, or a standard or implementation specification adopted or established under sections 1320d-1 through 1320d-3 of this title, shall not supersede a contrary provision of State law, if the provision of State law... (B) subject to section 264(c)(2) of the Health Insurance Portability and Accountability Act of 1996 [42 USCS § 1320d-2 note], relates to the privacy of individually identifiable health information (emphasis added).

[63] See R.K., 735 S.E.2d at 724.

[64] See 45 C.F.R. § 160.203(a) (2014).

[65] See id. § 160.203(b).

[66] R.K., 735 S.E.2d at 724.

[67] Id. at 717.

[68] Id.

[69] Id. at 718 (iterating claims for outrageous conduct, intentional infliction of emotional distress, negligent infliction of emotional distress, negligent entrustment, breach of confidentiality, invasion of privacy, and punitive damages).

[70] Id. at 719.

[71] 767 N.W.2d 34 (Minn. Ct. App. 2009).

[72] Id. at 38.

[73] Minn. Stat. § 144.335 (2006) (repealed 2007), available at https://www.revisor.mn.gov/statutes/?year=2006&id=144.335 (providing for a private cause of action for the wrongful disclosure of an individual’s medical records); Yath v. Fairview Clinics, 767 N.W.2d 34, 39 (Minn. Ct. App. 2009).

[74] 45 C.F.R § 160.202 (2014); R.K. v. St. Mary's Med. Ctr., Inc., 735 S.E.2d 715, 721 (W. Va. 2012) (“Just because a distinction exists does not make [a state statute] ‘contrary’ to HIPAA. A state law is ‘contrary’ to HIPAA if a health care provider ‘would find it impossible to comply with both the State and federal requirements’ or if the state law is ‘an obstacle to the accomplishment and execution of the full purposes’ of HIPAA.’”).

[75] R.K., 735 S.E.2d at 722-23 (“The stated purpose of HIPAA is to improve the Medicare and Medicaid programs and ‘the efficiency and effectiveness of the health care system, by encouraging the development of a health information system through the establishment of standards and requirements for the electronic transmission of certain health information.’ . . . Rather than creating an ‘obstacle’ to HIPAA, [Minn. Stat. § 144.334] supports at least one of HIPAA’s goals by establishing another disincentive to wrongfully disclose a patient’s health care record.”).

[76] See 45 U.S.C. §1320d-5 (2014) (imposing criminal penalties); Minn. Stat. § 144.335(3a(e)) (2006) (imposing compensatory damages in a civil action).

[77] See R.K., 735 S.E.2d at 722 (“The difference in remedy is functional only, in that a HIPAA violation subjects a person to criminal penalties.”).

[78] Lampf v. Gilbertson, 501 U.S. 350, 365 (1991) (Scalia, J., concurring in part and concurring in judgment).

[79] See, e.g., Young v. Carran, 289 S.W.3d 586, 589 (Ky. Ct. App. 2008).

[80] See Ky. Rev. Stat. Ann. § 446.070 (2013).

[81] See Yeager v. Dickerson, 391 S.W.3d 388, 393 (Ky. Ct. App. 2013).

[82] Id. at 390.

[83] Id. at 391.

[84] Id. at 394.

[85] Id. “[T]he General Assembly did not intend [KRS § 466.070] ‘to embrace the whole of federal laws and the laws of other states and thereby confer a private civil remedy for such a vast array of violations.’” (citation omitted).

[86] Id.

[87] 50 State Comparison, supra note 44 (utilizing a nationwide map to explain Kentucky has not allowed tort claims).

[88] See supra notes 78-86 and accompanying text.

[89] See Joy L. Pritts, Altered States: State Health Privacy Laws and the Impact of the Federal Health Privacy Rule, 2 Yale J. Health Pol’y L. & Ethics 327(2002) [hereinafter Altered States]. Further, “there is still room for states to protect their own citizens by retaining or enacting health privacy protections that mirror and improve upon those in the [federal legislation].” Id. at 328.

[90] See Yeager v. Dickerson, 391 S.W.3d 388, 394 (Ky. Ct. App. 2013).

[91] See generally id. at 388 (articulating no private recovery for plaintiffs in Kentucky).

[92] Altered States, supra note 88, at 345.

[93] Standards for Privacy of Individually Identifiable Health Information, 64 Fed. Reg. 59,923 (Nov. 3, 1999) (to be codified at 45 C.F.R. pts. 160-64).

[94] Altered States, supra note 88, at 347 (“This approach, endorsed by the Privacy Protection Study Commission in the 1970s, ensures that the states will be able to enforce the law and protect their citizens.”) (citing Personal Privacy in an Information Society: The Report of the Privacy Protection Study Commission, U.S. Privacy Prot. Study Comm’n 276-90 (July 1977), available at http://epic.org/privacy/ppsc1977report).

[95] As an example, distrust for the state was so extreme that some rural Kentuckians thought that enrolling in the state-health insurance coverage involved implanting microchips into their arms. McCrummen, supra note 19.

[96] See generally Yeager, 391 S.W.3d at 388 (illustrating Kentucky case law against a private cause of action).

[97] See supra section II.C (articulating West Virginia common law and statutory scheme allowing individuals rights of recovery for disclosures of PHI).

[98] See Yeager, 391 S.W.3d at 388; R.K. v. St. Mary's Med. Ctr., Inc., 735 S.E.2d 715 (W. Va. 2012).

[99] See Yeager, 391 S.W.3d. at 394.

[100] See R.K., 735 S.E.2d at 724.

[101] Id. at 718; Yeager, 391 S.W.3d at 393.

[102] See R.K., 735 S.E.2d at 721; Yeager, 391 S.W.3d at 394.

[103] See 45 C.F.R § 160.202-.203 (2013).

[104] See R.K., 735 S.E.2d at 721-24 (discussing HIPAA preempting contrary state laws and disallowing any laws impeding HIPAA enforcement).

[105] Wash. Mut. Bank v. Superior Court, 75 Cal. App. 4th 773, 783 (1999) (citation omitted).

[106] The Uninsured in West Virginia, Addiction Tech. Transfer Ctr. Network, http://attcnetwork.org/regcenters/generalContent.asp?rcid=2&content=PARTCUSTOM (last visited Jan 20, 2014) [hereinafter The Uninsured in West Virginia].

[107] Living in rural areas increased the possibilities of being uninsured. See West Virginia, Rural Assistance Ctr. (Dec. 29, 2014), http://www.raconline.org/states/west-virginia.

[108] See How Will the Uninsured in West Virginia Fare Under the Affordable Care Act?, Kaiser Family Found., http://kff.org/health-reform/fact-sheet/state-profiles-uninsured-under-aca-west-virginia/ (last visited Jan. 20, 2014); Interactive: A State-by-State Look at How the Uninsured Fare Under the ACA, Kaiser Family Found., http://kff.org/interactive/uninsured-gap/ (last visited Jan. 19, 2014) (hereinafter Interactive).

[109] The Uninsured in West Virginia, supra note 105.

[110] 5 Years Later: How the Affordable Care Act is Working for West Virginia, U.S. DEP’T OF HEALTH AND HUMAN SERV., http://www.hhs.gov/healthcare/facts/bystate/wv.html (last visited Jan. 20, 2014).

[111] How Will the Uninsured in Kentucky Fare Under the Affordable Care Act?, Kaiser Family Foundation, http://kff.org/health-reform/fact-sheet/state-profiles-uninsured-under-aca-kentucky/ (last visited Jan. 19, 2014) (hereinafter Kaiser Kentucky).

[112] Kentucky, Rural Assistance Ctr. (Sept. 12, 2014), http://www.raconline.org/states/kentucky.

[113] Kaiser Kentucky, supra note 110; Interactive, supra note 107.

[114] How the Health Care Law is Making a Difference for the People in Kentucky, KY and Appalachia Public Health Training Ctr., http://www.uky.edu/kaphtc/resources/policy-development-and-program-planning/how-health-care-law-making-difference-people (last visited Jan. 20, 2014).

[115] 5 Years Later: How the Affordable Care Act is Working for Kentucky, U.S. DEP’T OF HEALTH AND HUMAN SERV., http://www.hhs.gov/healthcare/facts/bystate/wv.html (last visited Jan. 20, 2014).

Eldred & the New Rationality

This Online Original is available for download (PDF) here.

Article | 104 KY. L. J. ONLINE 1 | July 17, 2015

Brian L. Frye[1]

Abstract

Historically, the rational basis test has been a constitutional rubber stamp. In Eldred v. Ashcroft and Golan v. Holder, the Supreme Court applied the rational basis test and respectively held that Congress could extend the copyright term of existing works and restore copyright protection of public domain works, despite evidence that Congress intended to benefit copyright owners at the expense of the public.But in Lawrence v. Texas and United States v. Windsor, the Supreme Court seems to have applied the rational basis test and held that state and federal laws were unconstitutional because they were motivated by animosity, and in Obergefell v. Hodges, it held that states must license marriages between two people of the same sex, because there is no legitimate basis to refuse.This essay argues that Lawrence, Windsor, and Obergefell may reflect the emergence of a “new rationality” that authorizes courts to consider legislative intent when evaluating the constitutionality of legislation. If so, perhaps the Court should reconsider Eldred and Golan.

Introduction

Rational basis review is famously forgiving. It provides that most legislation is constitutional, so long as it is conceivably related to any legitimate government interest, even if that interest did not actually motivate the legislation.[2] Accordingly, in Eldred v. Ashcroft (2003), the Court applied rational basis review and held that Congress could constitutionally extend the copyright term of existing works of authorship, because it could have believed that doing so would promote their creation and dissemination.[3]But rational basis review seems to have changed since Eldred. In Lawrence v. Texas (2003), the Court seemingly applied rational basis review and held that a Texas law prohibiting homosexual conduct was unconstitutional because it was motivated by animosity toward homosexuals.[4] In United States v. Windsor (2013), it held that a federal law prohibiting the recognition of same-sex marriages was unconstitutional for the same reason.[5] And, most recently, in Obergefell v. Hodges (2015), it held that the Fourteenth Amendment requires states to license marriages between two people of the same sex, apparently because there is no legitimate basis to refuse.[6] So, this “new rationality” apparently provides that legislation cannot be motivated by animosity, even if it is conceivably related to a legitimate government interest.This change in rational basis review presents an obvious question: Can Eldred survive Lawrence, Windsor, Obergefell and the new rationality? In practice, of course, the answer is obviously “yes.” The Court has long adhered to the maxim that “foolish consistency is the hobgoblin of little minds.”[7] Or rather, as Justice Holmes more gently observed, “The life of the law has not been logic; it has been experience.”[8]In fact, it already has. In Golan v. Holder (2012), the Supreme Court relied on Eldred to hold that Congress could constitutionally restore the copyright in certain works that had fallen into the public domain, because it could rationally believe that doing so could “encourage the dissemination of existing and future works” and induce “greater investment in the creative process.”[9]But the more interesting question is whether Eldred, Golan, and other cases decided under the rational basis test should survive the new rationality. If the standard of review has changed, why has it changed, why is that change legitimate, and how should it affect the way the court reviews cases under the rational basis test, if at all?

A Potted History of Constitutional Review

The Court has always assumed its authority to review the constitutionality of federal and state legislation.[10] Most famously, in Marbury v. Madison (1803), it held that a federal law was unconstitutional.[11] But the antebellum Court was reluctant to exercise the power of judicial review.[12] While it occasionally held that state laws were unconstitutional, it did not hold another federal law unconstitutional until Dred Scott v. Sandford (1857).[13]Notably, the antebellum Court held that its authority to review the constitutionality of state legislation was limited, especially in the case of legislation affecting individual rights. In Barron v. Baltimore (1833), it held that the Bill of Rights did not apply to the states.[14] And it assumed that it lacked the authority to review the constitutionality of state legislation based on the state “police power” to promote health, safety, morals, and general welfare.The ratification of the Fourteenth Amendment in 1868 changed the scope of judicial review. Initially, the Court was reluctant to expand its authority.[15] But eventually, it held that it was authorized to review the constitutionality of all legislation, state and federal, based on the police power.[16] And it assumed that its authority to review the constitutionality of legislation extended to economic legislation.[17]The stringency of the Court’s constitutional review of economic legislation reached its zenith in Lochner v. New York (1905), in which it held that the New York Bakeshop Act, which prohibited most bakery employees from working more than ten hours per day or sixty hours per week, was unconstitutional because it impeded the liberty of contract without a legitimate purpose.[18] Specifically, the Court held that a police power claim cannot be “a mere pretext,” and concluded that the Bakeshop Act was not a valid exercise of the state police power because its “real object and purpose were simply to regulate the hours of labor . . . in a private business, not dangerous in any degree to morals, or in any real and substantial degree to the health of the employees.”[19] In other words, the Court held that constitutional review obligated it to consider whether legislation was intended to achieve a legitimate purpose, and likely to actually achieve that purpose: “When assertions such as we have adverted to become necessary in order to give, if possible, a plausible foundation for the contention that the law is a ‘health law,’ it gives rise to at least a suspicion that there was some other motive dominating the legislature than the purpose to subserve the public health or welfare.”[20]Lochner immediately became the bete noire of progressives, who argued that courts should defer to legislators, especially in the case of economic legislation. Eventually, it became synonymous with judicial overreaching.[21] Commentators even coined the term “Lochnering” to describe illegitimate judicial review of economic legislation.[22] Notably, Lochner was initially an outlier, although the Court eventually began to apply its strict standard of review in other cases.[23]In any case, Lochner didn’t last long. In Nebbia v. New York (1934), the Court held that a New York law creating a Milk Control Board to establish the retail price of milk was constitutional because the liberty of contract was not “absolute” and could be regulated in order to promote the general welfare, so long as the regulations were not “unreasonable, arbitrary, or capricious, and that the means selected shall have a real and substantial relation to the object sought to be attained.”[24] And in West Coast Hotel Co. v. Parrish (1937), the Court held that a Washington minimum wage law was constitutional because Washington “was entitled to adopt measures to reduce the evils of the 'sweating system,'” and “had the right to consider that its minimum wage requirements would be an important aid in carrying out its policy of protection.”[25]Finally, in United States v. Carolene Products Company (1938), the Court held that a federal law prohibiting the “shipment in interstate commerce” of skimmed milk compounded with “any fat or oil other than milk fat” was constitutional because Congress could rationally believe that it was “‘an adulterated article of food, injurious to the public health.’"[26] Specifically, the Court held:

[T]he existence of facts supporting the legislative judgment is to be presumed, for regulatory legislation affecting ordinary commercial transactions is not to be pronounced unconstitutional unless in the light of the facts made known or generally assumed it is of such a character as to preclude the assumption that it rests upon some rational basis within the knowledge and experience of the legislators.[27]

And then, in the most famous footnote in constitutional history, the Court noted that this “presumption of constitutionality” may not apply to fundamental rights protected by the Constitution, or to laws that affect minority groups:

There may be narrower scope for operation of the presumption of constitutionality when legislation appears on its face to be within a specific prohibition of the Constitution, such as those of the first ten Amendments, which are deemed equally specific when held to be embraced within the Fourteenth. . . .

It is unnecessary to consider now whether legislation which restricts those political processes which can ordinarily be expected to bring about repeal of undesirable legislation, is to be subjected to more exacting judicial scrutiny under the general prohibitions of the Fourteenth Amendment than are most other types of legislation. . . .

Nor need we enquire whether similar considerations enter into the review of statutes directed at particular religious . . . or national . . . or racial minorities . . . : whether prejudice against discrete and insular minorities may be a special condition, which tends seriously to curtail the operation of those political processes ordinarily to be relied upon to protect minorities, and which may call for a correspondingly more searching judicial inquiry.[28]

Footnote four of Carolene Products eventually became the basis for modern constitutional review, which requires courts to apply three levels of judicial scrutiny when reviewing the constitutionality of government action, depending on the nature of the claim: strict scrutiny, intermediate scrutiny, and rational basis.[29]Strict scrutiny review applies to government action that affects fundamental rights and certain “suspect classes,” like race, religion, and national origin.[30] In order to survive strict scrutiny review, a government action must be justified by a compelling governmental interest, narrowly tailored to achieve that goal or interest, and the least restrictive means for achieving that interest.[31] It has become a truism that strict scrutiny is “‘strict’ in theory and fatal in fact,” because government action subject to strict scrutiny review is almost always held unconstitutional.[32]Intermediate scrutiny review applies to government action that affects other “suspect classes,” including gender. In order to survive intermediate scrutiny review, a government action must be “substantially related” to the achievement of “important governmental objectives.”[33] Scholars have argued that the Court developed intermediate scrutiny in order to protect groups that lack power in the political process.[34] In any case, while intermediate scrutiny is theoretically less stringent than strict scrutiny, it tends to produce similar results.Rational basis review applies to government action that does not affect a fundamental right or suspect class. In order to survive rational basis review, a government action must only be “rationally related” to a “legitimate government interest.”[35] Rational basis review is famously lenient. Any conceivable reason for the action is deemed rational, even if it is not the government’s actual reason for the action, and any conceivable interest is deemed legitimate, even if it is not the government’s actual interest.[36] Under rational basis review, courts must assume that the government’s motives are legitimate, even in the face of evidence to the contrary.[37] Scholars have long observed that rational basis review is “virtually none in fact.”[38]For example, in Williamson v. Lee Optical, the Court applied rational basis review to an Oklahoma statute that, inter alia, prohibited the manufacture of eyeglasses without a prescription and held that the statute did not violate due process or equal protection, because the legislature could have had a legitimate reason for enacting it. Moreover, the Court explicitly stated:

The day is gone when this Court uses the Due Process Clause of the Fourteenth Amendment to strike down state laws, regulatory of business and industrial conditions, because they may be unwise, improvident, or out of harmony with a particular school of thought. . . . For protection against abuses by legislatures the people must resort to the polls, not to the courts.[39]

As a consequence, challenging the constitutionality of economic legislation on due process or equal protection grounds soon became seen as quixotic, at best. For example, the Onion Futures Act of 1958 prohibited the sale of futures contracts in onions.[40] Initially, the Chicago Mercantile Exchange filed an action arguing that the Act was unconstitutional and requesting an injunction prohibiting its enforcement.[41] But when the district court applied the rational basis test and upheld the constitutionality of the Act, the Chicago Mercantile Exchange did not appeal because it considered the action hopeless.[42]

Eldred v. Ashcroft

The Court has also applied the rational basis test to actions challenging the constitutionality of copyright legislation. For example, the Sonny Bono Copyright Term Extension Act (“CTEA”) extended the copyright term of existing works of authorship by twenty years.[43]In Eldred v. Ashcroft (2003), petitioners argued, inter alia, that this retroactive extension exceeded Congress’s authority under the Intellectual Property Clause, because extending the copyright term of existing works does not and cannot “promote the Progress of Science.”[44] The Court has uniformly held that the purpose of copyright is to encourage the production of works of authorship.[45] Petitioners argued that extending the copyright term of an existing work cannot encourage its production.[46]The Court applied the rational basis test and unsurprisingly held that the CTEA was constitutional. Writing for the majority, Justice Ginsburg stated, “The CTEA reflects judgments of a kind Congress typically makes, judgments we cannot dismiss as outside the Legislature's domain.”[47] She observed that Congress intended the CTEA to “ensure that American authors would receive the same copyright protection in Europe as their European counterparts,” “provide greater incentive for American and other authors to create and disseminate their work in the United States,” and “encourage copyright holders to invest in the restoration and public distribution of their works.”[48] And she concluded, “In sum, we find that the CTEA is a rational enactment; we are not at liberty to second-guess congressional determinations and policy judgments of this order, however debatable or arguably unwise they may be.”[49]However, as Justices Stevens and Breyer pointed out in their dissents, the justifications provided by Congress are not credible and almost certainly pretextual. As Justice Stevens observed, the retroactive extension of the copyright term “will not even arguably promote any new works by authors or inventors,” and equitable concerns are “a classic non sequitur” because the “reason for increasing the inducement to create something new simply does not apply to an already-created work.”[50] Moreover, as Justice Breyer observed, “no one could reasonably conclude that copyright's traditional economic rationale applies here,” because the value of the copyright extension is too small to affect the incentives of marginal authors.[51] The claim that retroactive copyright extension provides incentives to republish and redistribute existing works is totally inconsistent with both the purpose of copyright and actual experience, which shows that public domain works are more readily available at lower prices than copyrighted works.[52]Finally, Justice Breyer pointed out that the actual reason that Congress retroactively extended the copyright term, as reflected in the legislative history of the CTEA, was to provide financial assistance to the entertainment industry, a purpose that is not consistent with the justification for copyright protection:

I can find nothing in the Copyright Clause that would authorize Congress to enhance the copyright grant's monopoly power, likely leading to higher prices both at home and abroad, solely in order to produce higher foreign earnings. That objective is not a copyright objective. Nor, standing alone, is it related to any other objective more closely tied to the Clause itself. Neither can higher corporate profits alone justify the grant's enhancement. The Clause seeks public, not private, benefits.[53]

Indeed, as many scholars have observed, the true purpose of the CTEA was to prevent certain iconic copyrighted works from falling into the public domain, and thereby enable their owners to continue to collect monopoly rents on their use.[54] As a result, the CTEA is often pejoratively referred to as the “Mickey Mouse Protection Act.”[55] In fact, a scholarly consensus has emerged that rent-seeking legislation of this kind is improper and ought to be unconstitutional.[56] However, this position is obviously inconsistent with traditional rational basis review of economic legislation.[57] As the Court implicitly observed in Eldred, if rational basis review does not permit examination of the actual motives for a government action, then any conceivably legitimate motive will do, no matter how implausible. 

The “New Rationality”

Under traditional rational basis review, Eldred was a foregone conclusion. But what if rational basis review changed to permit consideration of the actual motives for a government action? Can Eldred survive more searching review? And should it?It appears that rational basis review may have undergone just such a change. In Lawrence v. Texas (2003),[58] United States v. Windsor (2013),[59] and Obergefell v. Hodges (2015), the Court seems to have applied rational basis review, but considered the actual motive for a government action or omission, rather than searching for a conceivably legitimate motive.[60]In Lawrence v. Texas, the Court held that a Texas law prohibiting homosexual conduct was unconstitutional, because it violated due process.[61] The basis for the Court’s ruling is surprisingly unclear, because it did not specify the standard of constitutional review.[62] However, Lawrence explicitly overruled Bowers v. Hardwick (1986), which applied rational basis review to hold that “the presumed belief of a majority of the electorate in Georgia that homosexual sodomy is immoral and unacceptable” was a legitimate government interest.[63] In Romer v. Evans (1996), the Court applied rational basis review to hold that an amendment to the Colorado Constitution violated equal protection, because it was “born of animosity toward the class of persons affected,” which is not a legitimate government interest.[64] The Lawrence Court relied on Romer, holding that there is no legitimate government interest in prohibiting homosexual conduct: “The Texas statute furthers no legitimate state interest which can justify its intrusion into the personal and private life of the individual.”[65]Moreover, Justice O’Connor’s concurrence explicitly applied rational basis review and concluded that the Texas law violated equal protection because it was intended to harm homosexuals, and “some objectives, such as a bare desire to harm a politically unpopular group, are not legitimate state interests.”[66] And Justice Scalia’s dissent explicitly pointed out that the majority can only be applying rational basis review:

I turn now to the ground on which the Court squarely rests its holding: the contention that there is no rational basis for the law here under attack. This proposition is so out of accord with our jurisprudence—indeed, with the jurisprudence of any society we know—that it requires little discussion.[67]

Accordingly, it appears that the Lawrence Court applied rational basis review and held that the Texas law was unconstitutional because animosity toward a politically unpopular group is not a legitimate government interest: “[T]he fact that the governing majority in a State has traditionally viewed a particular practice as immoral is not a sufficient reason for upholding a law prohibiting the practice.”[68]Then, in United States v. Windsor, the Court held that a federal law prohibiting the federal recognition of same-sex marriages was unconstitutional because it violated the Equal Protection clause of the Fourteenth Amendment.[69] As in Lawrence, the basis for the Court’s ruling in Windsor is unclear, because it did not specify the standard of constitutional review. However, it seems that the Court once again applied rational basis review and held that the federal law failed to advance a legitimate public interest because it was motivated by animosity:

The federal statute is invalid, for no legitimate purpose overcomes the purpose and effect to disparage and to injure those whom the State, by its marriage laws, sought to protect in personhood and dignity. By seeking to displace this protection and treating those persons as living in marriages less respected than others, the federal statute is in violation of the Fifth Amendment.[70]

Moreover, in his dissent, Justice Scalia once again observed that the majority must have been applying rational basis review, albeit of a form considerably more stringent than historically applied:

In accord with my previously expressed skepticism about the Court's “tiers of scrutiny” approach, I would review this classification only for its rationality. As nearly as I can tell, the Court agrees with that; its opinion does not apply strict scrutiny, and its central propositions are taken from rational-basis cases like Moreno. But the Court certainly does not apply anything that resembles that deferential framework.[71]

Finally, in Obergefell v. Hodges, the Court held that the Fourteenth Amendment requires states to license marriages between two people of the same sex.[72] Again, the basis for the Court’s holding is unclear, because it did not specify the standard of constitutional review. But it appears to have applied rational basis review, and held that there is no legitimate basis to refuse to license marriages between two people of the same sex. The Court did not hold that gay people are a suspect class, which would have required the application of strict scrutiny. Instead, it observed that marriage is fundamental right protected by due process, and held that the refusal to license marriages between two people of the same sex violates equal protection by preventing gays and lesbians from exercising that right:

It is now clear that the challenged laws burden the liberty of same-sex couples, and it must be further acknowledged that they abridge central precepts of equality. Here the marriage laws enforced by the respondents are in essence unequal: same-sex couples are denied all the benefits afforded to opposite-sex couples and are barred from exercising a fundamental right. Especially against a long history of disapproval of their relationships, this denial to same-sex couples of the right to marry works a grave and continuing harm. The imposition of this disability on gays and lesbians serves to disrespect and subordinate them. And the Equal Protection Clause, like the Due Process Clause, prohibits this unjustified infringement of the fundamental right to marry.[73]

Indeed, Chief Justice Roberts’s dissent explicitly accused the majority of “Lochnering,” or constitutionalizing its policy preferences: “Ultimately, only one precedent offers any support for the majority’s methodology: Lochner v. New York, 198 U.S. 45.”[74] Roberts argued that the fundamental right of marriage provides only a right to marry “as traditionally defined,” which has never included a right to marry a person of the same sex, and that the majority’s decision was based only on its own policy preferences:

The truth is that today’s decision rests on nothing more than the majority’s own conviction that same-sex couples should be allowed to marry because they want to, and that “it would disparage their choices and diminish their personhood to deny them this right.” . . . Whatever force that belief may have as a matter of moral philosophy, it has no more basis in the Constitution than did the naked policy preferences adopted in Lochner.[75]

So, it appears that Lawrence, Windsor, and Obergefell may all have applied a new form of rational basis review, based on Romer and other cases, under which courts must consider the actual motivation for a government action in determining whether it advances a legitimate state interest, which cannot include animosity. Many commentators have argued that this development should be understood as the gradual emergence of a new level of judicial scrutiny, “rational basis review with bite,” which is limited to government actions that affect particular suspect classes.[76] Curiously, this new level of scrutiny seems indistinguishable in practice from intermediate scrutiny.[77] Others have argued that the Court actually created, sub silentio, a fundamental right to engage in homosexual conduct.[78] And some federal courts have agreed with this reading.[79]But why not take Lawrence, Windsor, and Obergefell at face value and assume that the Court actually intended to change rational basis review, by authorizing courts to consider the actual motivation for government action when determining whether it was intended to advance a legitimate government interest? I will refer to this apparent change in the application of the rational basis test as the “new rationality.” But the terms of the new rationality remain unclear.If the new rationality requires courts applying the rational basis doctrine to consider the actual motives for a government action, rather than hunting for any conceivably legitimate motive, which motives are legitimate and which are not? In Lawrence, Windsor, and Obergefell, the court held that animosity is not a legitimate motive, and explicitly rejected religious justifications for legislative decisions. That stands to reason, although as Justice White observed in Bowers, “if all laws representing essentially moral choices are to be invalidated under the Due Process Clause, the courts will be very busy indeed.”[80]Are any other motives illegitimate under the rational basis test? Several scholars have argued that the new rationality should also extend to rational basis review of economic legislation. For example, David Bernstein has argued that Lawrence and other substantive due process cases reflect a gradual return to the form of judicial review applied in Lochner.[81] And Randy Barnett has argued that Lawrence reflects the wholesale importation of libertarian values into constitutional review.[82]Some federal judges seem to agree. Several courts have held that economic legislation failed the rational basis test because its actual purpose was economic protectionism. For example, in Craigmiles v. Giles (2002), the Sixth Circuit held that rational basis review does not require courts to accept pretextual justifications for government actions, and that economic protectionism is not a legitimate government interest.[83] In Merrifield v. Lockyer (2008), the Ninth Circuit held that rational basis review does not require courts to accept irrational justifications, and that economic protectionism is not a legitimate government interest.[84] In St. Joseph Abbey v. Castille (2013), the Fifth Circuit held that rational basis review requires courts to identify an actual rational basis for believing that a government action would advance a legitimate government interest, and that economic protectionism is not legitimate.[85] And in Wildcat Moving v. Zawacki (2013), the United States District Court for the Eastern District of Kentucky applied Craigmiles and held that a Kentucky law regulating intrastate moving failed the rational basis test because its sole purpose was “to protect existing moving companies from outside economic competition.”[86]Of course, these cases appear to be facially inconsistent with Supreme Court precedent. Specifically, in New Orleans v. Dukes (1976), the Supreme Court held that a New Orleans ordinance prohibiting pushcart food vendors in the French Quarter, with a “grandfather clause” that provided an exception for certain long-time vendors, passed the rational basis test, because:

The city could reasonably decide that newer businesses were less likely to have built up substantial reliance interests in continued operation in the Vieux Carre and that the two vendors who qualified under the "grandfather clause"—both of whom had operated in the area for over 20 years rather than only eight—had themselves become part of the distinctive character and charm that distinguishes the Vieux Carre. We cannot say that these judgments so lack rationality that they constitute a constitutionally impermissible denial of equal protection.[87]

Essentially, the Dukes Court held that courts should not question the rationality of economic legislation explicitly overruling Morey v. Doud (1957), the last case in which it had overruled economic legislation as irrational.[88]And yet, the Supreme Court seems newly concerned by government action based on economic protectionism. For example, in North Carolina Board of Dental Examiners v. Federal Trade Commission (2015), the Court held that the North Carolina State Board of Dental Examiners was not entitled to state-action antitrust immunity because it was not actively supervised by the state.[89] The Board of Dental Examiners was a state regulatory body composed primarily of practicing dentists, which prohibited non-dentists from offering teeth-whitening services that do not require medical skill. The FTC argued that the Board’s action violated federal antitrust law, but the Board responded that it was entitled to state-action antitrust immunity. While the Court did not actually apply the rational basis test, it was clearly concerned about the legitimacy of the Board’s action. Indeed, Justice Alito’s dissent explicitly argued that the majority’s opinion was motivated by opposition to economic protectionism:

When the Court asks whether market participants control the North Carolina Board, the Court in essence is asking whether this regulatory body has been captured by the entities that it is supposed to regulate. Regulatory capture can occur in many ways. So why ask only whether the members of a board are active market participants? The answer may be that determining when regulatory capture has occurred is no simple task. That answer provides a reason for relieving courts from the obligation to make such determinations at all. It does not explain why it is appropriate for the Court to adopt the rather crude test for capture that constitutes the holding of today's decision.[90]

Eldred & the New Rationality

If the new rationality prohibits economic protectionism—or rather, corruption—an Eldred survive the new rationality? In practice, of course it can. The Court can do whatever it likes, and it is perfectly capable of turning a blind eye to corruption, if it so chooses. In fact, Eldred has already survived the new rationality. In Golan v. Holder (2012), it relied on Eldred to hold that Congress could restore copyright protection of works that had fallen into the public domain.[91] In particular, the Court held that the Copyright Clause empowers Congress to grant copyright protection in order to promote both the creation of new works and the dissemination of existing works, and Congress could have believed that restoring copyright protection of existing works could encourage their dissemination.[92] In other words, the Court applied the traditional rational basis test, rather than the new rationality.The more interesting question is, should Eldred and Golan survive the new rationality? And that is a question that has been percolating for quite some time. Ever since Eldred was decided, scholars have recognized that requiring courts to consider the actual motives for copyright legislation would inevitably invoke the spectre of Lochner.[93] As a consequence, they have argued that courts should defer to Congress when reviewing copyright legislation, and by extension, that courts should defer to legislatures when reviewing economic legislation.[94]And yet, perhaps they overstate their case. The traditional reason for rejecting Lochner and its more stringent review of economic legislation is that courts should respect the democratic process, even if it results in government action unlikely to achieve welfare-maximizing ends.[95] Or rather, as Justice Holmes put it, “if my fellow citizens want to go to Hell I will help them. It’s my job.”[96]But what if economic legislation is not the result of the democratic process? What if it is the result of corruption? Should courts defer to all economic legislation, even in the face of evidence of corruption? The justification for judicial deference is that courts should respect government actions based on majority opinion. As Justice Stevens observed:

I think it appropriate to emphasize the distinction between constitutionality and wise policy . . . [A]s I recall my esteemed former colleague, Thurgood Marshall, remarking on numerous occasions: “The Constitution does not prohibit legislatures from enacting stupid laws.”[97]

But Lawrence, Windsor, and Obergefell held that courts should not respect government actions based on animosity, because animosity is not a legitimate basis for government action. Neither should courts respect government actions based on corruption, because it is not even an expression of majority opinion, it is just a means of rent-seeking. As other commentators have noted, “[w]ith the appearance in the circuits of a new series of cases applying ‘rational basis with bite,’ one might ask whether underlying them is another normative change, one of growing public disapproval of rent-seeking and special-interest legislation.”[98]In other words, perhaps the “new rationality” should be understood to provide that courts may consider legislative intent, but not legislative wisdom. Of course, legislative intent may be diffuse and difficult to discern. And yet, courts routinely consider the intent of non-economic legislation. Indeed, the purpose of strict and intermediate scrutiny is essentially to enable courts to review the intentions motivating government action that affects fundamental rights and minority groups. While the stakes are high, because the protecting fundamental rights and minority groups is of paramount importance, there is also room for legitimate disagreement on normative grounds as to what counts as a fundamental right and how minority groups ought to be protected. By contrast, corruption and rent-seeking are considerably easier to identify.So, perhaps the new rationality provides that government action can be foolish, but cannot have improper motives, like animosity or corruption. Courts can and do review the motives for government action. There is no reason for them not to review for both animosity and corruption. And there is no reason to believe that the public will object. In fact, it is far more likely that the public will object to invalidation of government action based on animosity than that it will object to the invalidation of government action based on corruption.It goes without saying that Eldred and Golan would not fare well under this “new rationality.” No one seriously believes that the CTEA was intended to do anything but benefit the owners of valuable copyrights that were nearing the end of their term. Any degree of scrutiny more searching than the Court’s credulous acceptance of Congress’s absurd justifications would require reversal. But it remains to be seen whether the Court will follow this new line of doctrine to its logical conclusion.

---

[1] Assistant Professor of Law, University of Kentucky College of Law. J.D., New York University School of Law, 2005; M.F.A., San Francisco Art Institute, 1997; B.A., University of California, Berkeley, 1995. Thanks to Paul Salamanca for his helpful comments.

[2] See Williamson v. Lee Optical of Okla., Inc., 348 U.S. 483, 487-88 (1955).

[3] See generally Eldred v. Ashcroft, 537 U.S. 186 (2003).

[4] Lawrence v. Texas, 539 U.S. 558, 583 (2003).

[5] United States v. Windsor, 133 S.Ct. 2675, 2696 (2013).

[6] Obergefell v. Hodges, Nos. 14–556, 14–562, 14–571, 14–574, 2015 WL 2473451 (U.S. June 26, 2015).

[7] Ralph Waldo Emerson, Self-Reliance, in Essays by Ralph Waldo Emerson: First and Second Series Complete in One Volume 31, 41 (Thomas Y. Crowell Company, Inc. 1951) (1926). Also available at http://en.wikisource.org/wiki/Essays:_First_Series/Self-Reliance.

[8] Oliver Wendell Holmes, Jr., The Common Law 1 (1881).

[9] Golan v. Holder, 132 S. Ct. 873, 876 (2012).

[10] See generally Hylton v. United States, 3 U.S. (3 Dall.) 171 (1796) (reviewing the constitutionality of a federal tax under the Taxation Clause); Fletcher v. Peck, 10 U.S. (6 Cranch) 87 (1810) (reviewing the constitutionality of a state law under the Contract Clause).

[11] Marbury v. Madison, 5 U.S. (1 Cranch) 137, 138 (1803).

[12] See, e.g., Ogden v. Saunders, 25 U.S. (12 Wheat.) 213, 270 (1827) (“It is but a decent respect due to the wisdom, the integrity, and the patriotism of the legislative body, by which any law is passed, to presume in favour of its validity, until its violation of the constitution is proved beyond all reasonable doubt.”).

[13] Dred Scott v. Sandford, 60 U.S. (19 How.) 393, 395-96 (1857).

[14] Barron v. Baltimore, 32 U.S. (7 Pet.) 243, 248 (1833).

[15] See generally The Civil Rights Cases, 109 U.S. 3 (1883); The Slaughterhouse Cases, 83 U.S. (16 Wall.) 36, (1873).

[16] Mugler v. Kansas, 8 S. Ct. 273, 291-92 (1887).

[17] See generally Allgeyer v. Louisiana, 165 U.S. 578 (1897) (holding unconstitutional under the Fourteenth Amendment's guarantee of liberty a Louisiana law which penalized a citizen of that state for contracting for insurance in New York).

[18] Lochner v. New York, 198 U.S. 45, 64 (1905).

[19] Id. at 56, 64.

[20] Id. at 62-63.

[21] David E. Bernstein, Lochner's Legacy's Legacy, 82 Tex. L. Rev. 1, 2 n.4 (2003).

[22] See generally Cass R. Sunstein, Reply—Lochnering, 82 Tex. L. Rev. 65 (2003) (discussing judicial and scholarly treatment of the regulation of economic legislation).

[23] Bernstein, supra note 21.

[24] Nebbia v. New York, 291 U.S. 502, 525 (1934).

[25] W. Coast Hotel v. Parrish, 300 U.S. 379, 398-99 (1937).

[26] United States v. Carolene Prods. Co., 304 U.S. 144, at 146, 146 n.1 (1938).

[27] Id. at 152.

[28] Id. at 152 n.4.

[29] See Adam Winkler, Fatal in Theory and Strict in Fact: An Empirical Analysis of Strict Scrutiny in the Federal Courts, 59 Vand. L. Rev. 793, 798 (2006) (“As a mode of judicial review in constitutional law cases, the strict scrutiny standard was first suggested by implication in the famous footnote four of United States v. Carolene Products.”).

[30] See Skinner v. Okla. ex rel. Williamson, 316 U.S. 535, 541 (1942) (“We mention these matters not to reexamine the scope of the police power of the States. We advert to them merely in emphasis of our view that strict scrutiny of the classification which a State makes in a sterilization law is essential, lest unwittingly or otherwise invidious discriminations are made against groups or types of individuals in violation of the constitutional guaranty of just and equal laws.”).

[31] E.g., Winkler, supra note 29, at 800-01.

[32] Gerald Gunther, The Supreme Court, 1971 Term - Foreword: In Search of Evolving Doctrine on a Changing Court: A Model for a Newer Equal Protection, 86 Harv. L. Rev. 1, 8 (1972). But see Adarand Constructors v. Pena, 515 U.S. 200, 237 (1995) (expressing the “wish to dispel the notion that strict scrutiny is ‘strict in theory, but fatal in fact’”). See also Winkler, supra note 29, at 796 (observing that “30 percent of all applications of strict scrutiny--nearly one in three--result in the challenged law being upheld”).

[33] Craig v. Boren, 429 U.S. 190, 197 (1976).

[34] Gayle Lynn Pettinga, Rational Basis with Bite: Intermediate Scrutiny by Any Other Name, 62 Ind. L. J. 779, 784 (1987).

[36] See, e.g., Williamson v. Lee Optical, 348 U.S. at 487-88 (“But the law need not be in every respect logically consistent with its aims to be constitutional. It is enough that there is an evil at hand for correction, and that it might be thought that the particular legislative measure was a rational way to correct it.”).

[37] See, e.g., City of New Orleans v. Dukes, 427 U.S. 297, 303-04 (1976) (“When local economic regulation is challenged solely as violating the Equal Protection Clause, this Court consistently defers to legislative determinations as to the desirability of particular statutory discriminations. . . . Unless a classification trammels fundamental personal rights or is drawn upon inherently suspect distinctions such as race, religion, or alienage, our decisions presume the constitutionality of the statutory discriminations and require only that the classification challenged be rationally related to a legitimate state interest. States are accorded wide latitude in the regulation of their local economies under their police powers, and rational distinctions may be made with substantially less than mathematical exactitude. Legislatures may implement their program step by step . . . , in such economic areas, adopting regulations that only partially ameliorate a perceived evil and deferring complete elimination of the evil to future regulations. . . . In short, the judiciary may not sit as a superlegislature to judge the wisdom or desirability of legislative policy determinations made in areas that neither affect fundamental rights nor proceed along suspect lines . . . in the local economic sphere, it is only the invidious discrimination, the wholly arbitrary act, which cannot stand consistently with the Fourteenth Amendment.”).

[38] Gunther, supra at note 32, at 8.

[39] Williamson v. Lee Optical, 348 U.S. at 488-89.

[40] 7 U.S.C.A. § 13-1(a) (West, current through P.L. 114-9 approved Apr. 7, 2015).

[41] Chicago Mercantile Exch. v. Tieken, 178 F. Supp. 779, 780 (N.D. Ill. 1959).

[42] See Russell Wasendorf, Sr., Interview with Leo Melamed, Innovation Deserves More Than 15 Minutes of Fame, SFO Magazine, June 2003, at 20, 22.

[43] Pub. L. 105-298, §102(b), (d), 112 Stat. 2827-28 (codified as amended in scattered sections of 17 U.S.C.). Under the Copyright Act of 1976, the copyright term was the life of the author plus fifty years. The CTEA extended the copyright term to the life of the author plus seventy years. See id.; 17 U.S.C. 302(a) (West, current through P.L. 114-25 (excluding P.L. 114-18) approved June 15, 2015).

[44] U.S. Const. art. I, § 8, cl. 8; Eldred v. Ashcroft, 537 U.S. 186, 189 (2003). Petitioners also argued that the extension of the copyright term violated the “limited Times” requirement of the Intellectual Property Clause and the First Amendment, but these claims were not decided under the rational basis test. Eldred, 537 U.S. at 199-204.

[45] See, e.g., Mazer v. Stein, 347 U.S. 201, 219 (1954) (“The economic philosophy behind the clause empowering Congress to grant patents and copyrights is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in ‘Science and useful Arts.’”). See also Fox Film Corp. v. Doyal, 286 U.S. 123, 127-28 (1932). (“The sole interest of the United States and the primary object in conferring the monopoly lie in the general benefits derived by the public from the labors of authors. A copyright, like a patent, is at once the equivalent given by the public for benefits bestowed by the genius and meditations and skill of individuals, and the incentive to further efforts for the same important objects.”) (internal quotations omitted).

[46] Eldred, 537 U.S. at 196 n.3.

[47] Id. at 205-08.

[48] Id. at 205-207.

[49] Id. at 208.

[50] Id. at 239-40 (Stevens, J., dissenting).

[51] Id. at 254-55 (Breyer, J., dissenting) (“Using assumptions about the time value of money provided us by a group of economists (including five Nobel prize winners), it seems fair to say that, for example, a 1% likelihood of earning $100 annually for 20 years, starting 75 years into the future, is worth less than seven cents today.”) (citation omitted); id. at 267 (estimating “the economic value of 1998 Act copyrights relative to the economic value of a perpetual copyright, as well as the incremental value of a 20–year extension of a 75–year term”) (citation omitted).

[52] Eldred, 537 U.S. at 261 (Breyer, J., dissenting) (“[N]ew, cheaper editions can be expected when works come out of copyright”) (quoting Edward Rappaport, Cong. Research Serv., Copyright Term Extension: Estimating the Economic Values 3 (1998)).

[53] Id. at 262-63.

[54] Paul M. Schwartz & William Michael Treanor, Eldred and Lochner: Copyright Term Extension and Intellectual Property As Constitutional Property, 112 Yale L. J. 2331, 2333 (2003) (“At the time of the statute's passage, a number of iconic works were on the cusp of entering the public domain, the most prominent being early films starring Mickey Mouse.”).

[55] Lawrence Lessig, Copyright's First Amendment, 48 UCLA L. Rev. 1057, 1065 (2001).

[56] Schwartz & Treanor, supra note 54, at 2332 (“With striking unanimity, scholars have called for aggressive judicial review of the constitutionality of congressional legislation in this area.”).

[57] Id. at 2332-34.

[58] See generally 539 U.S. 558 (2003) (appearing to apply rational basis to Texas’ actual interest in promoting morality).

[59] See generally 133 S. Ct. 2675 (2013) (appearing to apply rational basis to the Texas’ actual interest in promoting morality).

[60] E.g., Lawrence, 539 U.S. at 582 (O’Connor, J., concurring) (“Texas attempts to justify its law, and the effects of the law, by arguing that the statute satisfies rational basis review because it furthers the legitimate governmental interest of the promotion of morality.”); Windsor, 133 S. Ct. at 2693 (“The House concluded that DOMA expresses ‘both moral disapproval of homosexuality, and a moral conviction that heterosexuality better comports with traditional (especially Judeo–Christian) morality.’”) (quoting H.R. Rep. No. 104-664, 12-13 (1996)).

[61] Lawrence, 539 U.S. at 578-79.

[62] See, e.g., Cass R. Sunstein, What Did Lawrence Hold? Of Autonomy, Desuetude, Sexuality, and Marriage, 55 Sup. Ct. Rev. 27, 45 (2003) (“Was Lawrence based on rational basis review, or instead on something else? It is astonishing but true that this question is exceedingly difficult to answer.”).

[63] Bowers v. Hardwick, 478 U.S. 186, 196 (1986), overruled by Lawrence, 539 U.S. at 560.

[64] 517 U.S. 620, 634 (1996).

[65] Lawrence, 539 U.S. at 559-60.

[66] Id. at 580 (O’Connor, J., concurring) (internal quotation marks omitted).

[67] Id. at 599 (Scalia, J., dissenting).

[68] Id. at 560 (quoting Bowers v. Hardwick, 478 U.S. at 216 (Stevens, J., dissenting)).

[69] United States v. Windsor, 133 S. Ct. 2675, 2696 (2013).

[70] Id. at 2696.

[71] Id. at 2706 (Scalia, J., dissenting) (citation omitted).

[72] Obergefell v. Hodges, Nos. 14–556, 14–562, 14–571, 14–574, 2015 WL 2473451 (U.S. June 26, 2015).

[73] Id.

[74] Id. (Roberts, C.J., dissenting). See John Hart Ely, The Wages of Crying Wolf: A Comment on Roe v. Wade, 82 Yale L. J. 920, 944 (1973) (coining the term “Lochnering” to describe the constitutionalization of judicial policy preferences).

[75] Obergefell, 2015 WL 2473451 (Roberts, C.J., dissenting).

[76] See, e.g., Ian Bartrum, The Ninth Circuit's Treatment of Sexual Orientation: Defining "Rational Basis Review with Bite," 112 Mich. L. Rev. First Impressions 142, 145-46 (2014). See also Gunther, supra at note 32, at 18-19 (arguing that several “minimal scrutiny” cases applied a standard with “bite”).

[77] See Pettinga, supra note 34, at 779-80.

[78] Laurence H. Tribe, Lawrence v. Texas: The "Fundamental Right" That Dare Not Speak Its Name, 117 Harv. L. Rev. 1893 (2004).

[79] See, e.g., Witt v. Dep't of Air Force, 527 F.3d 806, 816 (9th Cir. 2008) (“We cannot reconcile what the Supreme Court did in Lawrence with the minimal protections afforded by traditional rational basis review.”).

[80] Bowers v. Hardwick, 478 U.S. 186, 196 (1986), overruled by Lawrence v. Texas, 539 U.S. 558 (2003).

[81] David E. Bernstein, Lochner Era Revisionism, Revised: Lochner and the Origins of Fundamental Rights Constitutionalism, 92 Geo. L. J. 1, 52 (2003).

[82] Randy E. Barnett, Justice Kennedy's Libertarian Revolution: Lawrence v. Texas, 2003 Cato Sup. Ct. Rev. 21 (2002-2003). See also Joseph F. Morrissey, Lochner, Lawrence, and Liberty, 27 Ga. St. U. L. Rev. 609, 652 (2011).

[83] Craigmiles v. Giles, 312 F.3d 220, 229 (6th Cir. 2002) (“No sophisticated economic analysis is required to see the pretextual nature of the state's proffered explanations for the 1972 amendment. We are not imposing our view of a well-functioning market on the people of Tennessee. Instead, we invalidate only the General Assembly's naked attempt to raise a fortress protecting the monopoly rents that funeral directors extract from consumers. This measure to privilege certain businessmen over others at the expense of consumers is not animated by a legitimate governmental purpose and cannot survive even rational basis review.”).

[84] Merrifield v. Lockyer, 547 F.3d 978, 991 (9th Cir. 2008) (“Indeed, the record highlights that the irrational singling out of three types of vertebrate pests from all other vertebrate animals was designed to favor economically certain constituents at the expense of others similarly situated, such as Merrifield.”).

[85] St. Joseph Abbey v. Castille, 712 F.3d 215, 223 (5th Cir. 2013), cert. denied, 134 S. Ct. 423, (2013) (“Mindful that a hypothetical rationale, even post hoc, cannot be fantasy, and that the State Board's chosen means must rationally relate to the state interests it articulates, we turn to the State Board's proffered rational bases for the challenged law. Our analysis does not proceed with abstraction for hypothesized ends and means do not include post hoc hypothesized facts.”).

[86] Bruner v. Zawacki, No. 3:12-57-DCR, 2013 WL 2903241 (E.D. Ky. June 13, 2013).

[87] New Orleans v. Dukes, 427 U.S. 297, 305 (1976).

[88] Id. at 306 (“Actually, the reliance on the statute's potential irrationality in Morey v. Doud, as the dissenters in that case correctly pointed out, . . . was a needlessly intrusive judicial infringement on the State's legislative powers, and we have concluded that the equal protection analysis employed in that opinion should no longer be followed. Morey was the only case in the last half century to invalidate a wholly economic regulation solely on equal protection grounds, and we are now satisfied that the decision was erroneous. Morey is, as appellee and the Court of Appeals properly recognized, essentially indistinguishable from this case, but the decision so far departs from proper equal protection analysis in cases of exclusively economic regulation that it should be, and it is, overruled.”) (citing Morey v. Doud, 354 U.S. 457, 474-75 (1957) (citation omitted)).

[89] N. Carolina State Bd. of Dental Exam’rs v. F.T.C., 135 S. Ct. 1101, 1104 (2015).

[90] Id. at 1123.

[91] Golan v. Holder, 132 S. Ct. 873, 875 (2012).

[92] Id.

[93] See generally Schwartz & Treanor, supra note 54.

[94] Id.

[95] See, e.g., Cass R. Sunstein, Lochner's Legacy, 87 Colum. L. Rev. 873, 874 (1987) (“The received wisdom is that Lochner was wrong because it involved ‘judicial activism’: an illegitimate intrusion by the courts into a realm properly reserved to the political branches of government.”).

[96] Letter from Oliver Wendell Holmes, Jr., to Harold J. Laski (Mar. 4, 1920), in 1 Holmes-Laski Letters: The Correspondence of Mr. Justice Holmes and Harold J. Laski 1916-1935, 248, 249 (Mark DeWolfe Howe ed., Harvard University Press 1953).

[97] N.Y. State Bd. of Elections v. Lopez Torres, 552 U.S. 196, 209 (2008) (Stevens, J., concurring).

[98] Steven Menashi & Douglas H. Ginsburg, Rational Basis With Economic Bite, 8 N.Y.U. J. L. & Liberty 1055, 1086 (2014).

Will Kentucky Fall Victim to the EPA's War on Coal? Examining the Commonwealth's Options Under the Newest Power Plant Emission Standards

Note | 103 KY. L. J. ONLINE 6 | Apr. 28, 2015

Matthew Hlinka[1]

Introduction

Coal continues to play an integral part in the development of modern society. Coal keeps our families warm, fuels our trains, and provides electricity for our homes, factories, and cities.[2] The United States is currently the second largest consumer of electricity in the world.[3] In order to satisfy this veracious demand for energy, the United States has long relied on its extensive coal reserves, the largest in the world.[4] In fact, approximately half of the electricity generated in the United States over the last fifty years has come from coal.[5]

[Coal’s benefits, however, are accompanied by several serious drawbacks. For instance, the list of undesirable pollutants released by the burning of coal includes mercury, sulfur dioxide, particulate matter, and carbon dioxide.[6] Balancing these issues has been a constant challenge for the industry.The most recent attempt to balance came from the Environmental Protection Agency (EPA), who at the urging of President Barrack Obama, published its two newest proposed regulations for power plant emissions in 2014.[7] These regulations would cap the emissions of carbon dioxide for new coal-fired power plants at 1,100 pounds per megawatt-hour (MW-h),[8] while also reducing the emissions from existing plants by 30% by 2030.[9] Observers speculate that these new emission standards will be so stringent as to render new coal-fired power plants financially impractical to build.[10]Additionally, these new regulations will have a profound impact on the coal industry in Kentucky. A nationwide decrease in demand for coal will directly harm an industry that employs thousands of people. Without the cheap energy that Kentucky residents currently enjoy from coal, it will be difficult to attract new manufacturing employers, indirectly curtailing the economic prosperity of hundreds of thousands of Kentuckians. This is a serious problem because Kentucky’s coal producing counties are already financially depressed.[11] Severe restraints on the coal industry could cripple those areas beyond repair.This note seeks to address the issues caused by the new regulations. Section I of this Note analyzes the history of the Clean Air Act and the EPA’s proposed regulations for new and existing emission sources. Section II examines Kentucky’s political, legal, and technological options in dealing with these regulations in both the short and long term. Section III argues that Kentucky must fight the standards through a combined approach of using both legal and political channels in order to buy the state additional time for researching and implementing new technologies.

I. Background

A. History of the Clean Air Act

In response to growing concerns over poor air quality in industrial areas, Congress passed the Clean Air Act of 1963, the first federal legislation concerning air pollution control.[12] This version of the Act provided funding for air pollution research and cleanup but did not set up a federal regulating authority.[13] Seeking more federal oversight, Congress passed a much stronger version in 1970 creating the EPA and giving it the primary authority in carrying out the Clean Air Act.[14]The 1970 amendments to the Clean Air Act required the EPA to identify air pollutants, determine air pollution criteria, and issue air pollution goals to the states.[15] The EPA must also issue recommended techniques for the states to meet those goals.[16] After receiving the EPA’s national recommendations, each state is required to create and adopt a plan to meet the EPA’s standards by certain statutory deadlines.[17]One exception to this national-state arrangement is that the EPA was required to create federal standards to regulate “new sources.”[18] The statute defines new sources as “any stationary source, the construction or modification of which is commenced after the publication of regulations.”[19] In addition to dividing up the regulatory power over stationary sources among federal and state governments, this exception effectively creates newer, stricter requirements for new plants while allowing existing sources to remain “grandfathered in” and subject to less restrictive standards.[20] In doing so, Congress recognized that it is cheaper to incorporate new technology into the design and construction of new units than to squeeze more efficiency out of existing units. Additionally, industrial facilities do not last forever. As units become obsolete and are replaced, new units will automatically increase in efficiency as they meet the new standards.However, when the grandfathering policy was created, Congress was operating under an erroneous assumption that coal-fired power plants would have a usable life of only thirty years.[21] Yet as statistics show, 74% of coal power plants in existence in 2012 were already more than thirty years old.[22] Some states and environmental groups have criticized the grandfathering policy, arguing that it encourages owners of older, obsolete plants to continue their plants’ operation well beyond their normal lifetimes in order to avoid meeting the stricter requirements.[23]As the pollution standards for coal plants become more and more restrictive, it becomes even less enticing for owners to shut down existing plants and sink large amounts of capital into new, expensive power plants that must meet the New Source benchmarks. This stubborn refusal to submit to the plant turnover once thought to be inevitable has kept the New Source regulations from being as effective as many had hoped. With environmental issues like air pollution and global climate change receiving increased attention from the public, lawmakers have been forced to balance the advantages of having access to an economical, abundant energy source independent of foreign government’s control against coal’s environmental drawbacks.

B. President Obama’s Climate Action Plan

In 2013, President Obama’s announced his Climate Action Plan.[24] One of the goals of the Climate Action plan was to reduce power plant pollution.[25] Power plants account for roughly one-third of all greenhouse gas emissions in the United States, the largest source of emissions in the country.[26]In line with the president’s directive, the EPA proposed new carbon pollution standards for new power plants under 42 U.S.C. § 7411(b) on September 20, 2013.[27] Existing coal-fired power plants currently emit, on average, 1768 pounds of carbon dioxide per MW-h.[28] Under these proposed rules, large natural gas-fired turbines must emit less than 1,000 pounds of carbon dioxide per MW-h, while new, small natural gas-fired turbines must emit less than 1,100 pounds of carbon dioxide per MW-h.[29] New coal-fired units must emit less than 1,100 pounds of carbon dioxide per MW-h or, to provide plants the flexibility and time to optimize technologies, between 1,000 and 1,050 pounds of carbon dioxide per MW-h on average over eighty-four months of operation.[30] If met, these new standards would constitute a massive improvement over current pollution levels.However, critics question whether it is possible to meet these standards with existing coal technology.[31] In order to reach these New Source requirements, utilities would most likely have to utilize carbon capture and sequestration technology, a process in which a portion of the carbon dioxide emitted is captured and stored underground in deep-lying geological layers.[32] Under the right temperature and pressure, the carbon dioxide is maintained in the liquid phase and can be isolated from the Earth’s atmosphere for an extend period of time.[33] Nonetheless, carbon capture technology has not yet advanced to the point where it is commercially feasible and development of this technology has slowed in recent years.[34] Many advocates for coal believe this attempt by Congress to force new plants to use technology that is not feasible is designed to halt new coal plant construction altogether.[35]On June 2, 2014, the EPA unveiled the Clean Power Plan, a proposed regulation intended to cut nationwide carbon emissions by existing power plants 30% by 2030.[36] Rather than achieve this goal through a uniform standard, the EPA issued state-specific targets allowing each state considerable flexibility in determining how they will reach this objective.[37] States that rely significantly on coal, such as Kentucky, are not required to reduce their emission rates as much as the other states. For example, Kentucky would need to reduce its carbon emissions from 2,158 pounds of carbon dioxide per MW-h in 2012 to 1,763 pounds per MW-h in 2030, a decrease of approximately 18%.[38] This goal may not be as difficult to reach as many have feared. State officials estimate that Kentucky has already decreased its emissions to 1,951 pounds per MW-h in 2014, which would put Kentucky slightly more than halfway to meeting its target.[39]

II. Kentucky’s Options

With poverty levels in coal country already at high levels,[40] changes in the coal industry regulations may be overwhelming. Kentucky does, however, have a few options. Kentucky’s first option is to fight, through the political and legal systems, to keep the regulatory standards from being adopted. If the largest coal-producing states can get the proposed regulations weakened or delay the propagation of the regulations until a more coal-friendly administration is in place, the damage could be mitigated. The second option is to focus on researching cleaner energy sources. This includes examining alternative energy sources and searching for technological breakthroughs that would allow coal-fired power plants to meet the EPA standards while remaining economically feasible. Regardless of the choice, Kentucky must act quickly to position itself for long-term success.

A. Fighting the Standards Through the Adequate Technology Requirement

If Kentucky chooses to fight the EPA’s standards, they can make a strong argument that existing technology is not adequate to reach the proposed limits. Under the Clean Air Act, the EPA is required to impose regulations that are achievable based on current technology.[41] If the Administrator does not believe that the standards can be reached with technology that has been “adequately demonstrated,” she can promulgate an alternative that has been adequately demonstrated to be both economically and technically feasible.[42]In the proposed regulation published in January 2014, the EPA references a state-of-the-art coal power plant being built in Kemper County, Mississippi to support the feasibility of carbon capture and sequestration technology.[43] This reference is not without flaws. Although the Kemper County plant is scheduled to begin operations later this year, construction has been repeatedly delayed and the project is already projected to be $2 billion over budget.[44] One could make a strong argument that a plant that is not even generating electricity yet cannot adequately demonstrate the technology. Additionally, even if the plant is able to perform as planned, that does not demonstrate that the technology is feasible nationwide, as the Kemper County plant has certain advantages that other locations may not enjoy, such as a local oil field that can be used for storing the captured carbon.[45]There is evidence that even some internal factions of the EPA feel the agency is going too far. In November 2013, shortly after the proposed standards for existing power plants were released, the EPA’s Science Advisory Board (SAB), whose principle mission is to advise the EPA on scientific and technical matters,[46]released a memorandum discussing the proposal.[47] In that memorandum, the SAB challenges the adequacy of the EPA’s research on the matter calling the studies relied on by the EPA “inadequate” and stating that the “scientific and technical basis for carbon storage provisions is new science and the rulemaking would benefit from additional review.”[48]Interestingly enough, the SAB reversed course on this recommendation two months later in a subsequent memorandum.[49] Citing a fact-finding teleconference, the SAB recommended that it should not review the scientific basis for the proposed rule because the rule does not explicitly require carbon capture and sequestration technology and allows for utilities to reach the standards through other means, if they can.[50] This statement is baseless. In the published proposed standards themselves, the EPA discusses three ways for coal-fired power plants to meet the requirements.[51] Two of these alternatives involve carbon capture and sequestration, and the third involves super-critical or ultra-critical boilers or Integrated Gasification Combined Cycle units.[52] Moreover, the EPA essentially writes off this last option a few sentences later because “they do not provide meaningful reductions in CO2 emissions.”[53] By stating this, the EPA is essentially saying that it has no idea how power plants are going to meet these new standards and little desire to find out. Thus, a strong case can be made that the EPA is failing to meet the Clean Air Act’s “current technology” requirement.

B. Federal Authority to Regulate Existing Sources

Kentucky can also argue that the federal government does not have the power to directly regulate existing power plants under the Clean Air Act. The Clean Air Act only authorizes the EPA to promulgate standards for new emission sources.[54] While the Clean Air Act does allow the EPA to require states to issue standards for existing power plants, the EPA is only allowed to guide states procedurally in the endeavor, such as requiring states to apply the factors under 42 U.S.C. § 7411(a)(1).[55] Furthermore, § 7411(d) does not give the EPA the authority to reject a state plan that contains a standard of performance as defined by the statute.[56] States have the ultimate authority to define the substantive standards.Although the June 2014 Clean Power Plan gives more deference to the states than most anticipated, the EPA may have still overstepped its bounds under the Clean Air Act. An argument can be made that its actions violate public policy and the principles of cooperative federalism clearly defined by § 7411(d). Intuitively, the states are generally in a better position to determine the feasibility of any proposed changes and can more accurately measure how those changes will affect local communities.The EPA’s failure to follow the Clean Air Act’s requirements for issuing standards based on existing technology and allowing states to promulgate regulations for existing emission sources can be challenged in court. A lawsuit can be expected whenever a more concrete proposal is in place. In fact, the attorneys general of seventeen states, including Kentucky, submitted a letter to the EPA in September of 2013 detailing their concerns with the EPA’s actions.[57] This letter contends that the “EPA, if left unchecked, will continue to implement regulations which far exceed its statutory authority to the detriment of the states, in whom Congress has vested authority under the Clean Air Act, and whose citizenry and industries will ultimately pay the price of these costly and ineffective regulations.”[58] This letter is clearly an announcement that the states will challenge the EPA’s authority.Locally, United States Senator Mitch McConnell (R-Ky.) has already taken steps to challenge the EPA standards. After the EPA published its rule for new power plants in January, 2014, McConnell announced his plans to force a vote to stop the regulations.[59] McConnell aims to stop the regulations through the Congressional Review Act, which allows Congress to review new federal regulations issued by agencies and overrule them through a joint regulation.[60] Although the Review Act can usually only be applied to final rules, McConnell argues that the mere publication of the new rules are enough to immediately impact any plans for the construction of new power plants and, therefore, the Review Act can be utilized now.[61]Regardless of the outcome of these attempts to impede the EPA’s regulations, it is encouraging to see Kentucky’s leaders at the forefront of the effort. At the very least, these efforts at slowing down the rulemaking process buys the state time. Considering the large differences in policy between the Bush administration and the Obama administration in regards to coal, Kentucky’s solution may be as simple as stalling until the 2016 presidential election in hopes that a more coal-friendly candidate is elected. Alternatively, if the states succeed in their argument that the EPA does not have the authority to regulate existing power plants under the Clean Air Act, the states can procrastinate issuing their own standards in hopes that either a technological breakthrough is made or the EPA decides to soften their stance on coal. For these reasons, Kentucky’s current plan of action appears to be a step in the right direction for the short term. However, with the current political focus on global climate change, stricter emission standards are inevitable. To best position itself for the future, Kentucky needs to investigate both technological improvements in clean-coal usage and alternative energy sources.

III. Kentucky’s Best Approach

As the EPA finalizes its carbon regulations for existing and new emission sources, Kentucky must be proactive in seeking solutions to Kentucky’s future energy issues. Although fighting the proposed standards in court and through the political and rulemaking processes is a short-term strategy that should be pursued in order to buy the state time, it has become abundantly clear that large emitters of greenhouse gases are becoming less and less politically acceptable. It is only a matter of time before existing coal technology is no longer feasible in this country. Kentucky needs to prepare itself for that day.Kentucky’s immediate short-term strategy should be to fight the standards in court. There are at least two main arguments that can be used to attack the EPA’s actions. The first is the “adequately demonstrated” technology requirement. As it currently stands, carbon capture and sequestration is the only way that coal plants can meet these emissions standards, but that technology is not yet feasible and may not be for decades.[62] The EPA is presenting the Kemper County plant as a model of carbon capture and sequestration technology, but that project is extremely over budget, still under construction, and that technology may not even be compatible with Kentucky’s natural geographical and geological characteristics.[63] Thus, Kentucky should argue that the EPA must be forced to follow the statutory requirements of § 7411 so that Kentucky has a fighting chance to succeed.Kentucky’s second legal option is to attack the EPA’s attempts to directly regulate existing sources because this power belongs to the states. Although this argument will not help Kentucky deal with the New Sources requirements that have already been published, attempting to retrofit existing coal plants or being forced to shut down non-compliant plants altogether may be catastrophically expensive and burdensome. The EPA must be forced to operate within the limits of its statutory authority.Regardless of whether coal remains a feasible source of electricity, Kentucky needs to start moving towards alternative energy sources. If the EPA’s standards are successful, this shift will be out of necessity, but even if the EPA’s standards are not allowed in their current form this time around, it certainly appears that it is only a matter of time before a major crackdown on carbon emissions is promulgated. Considering the political climate, it is too risky to continue depending on coal for over 90% of the state’s electricity.

IV. Conclusion

This Note has explored the effect that the EPA’s proposed New Source emission requirements, and its forthcoming existing source emission requirements, will have on Kentucky. These standards have the potential to devastate Kentucky’s coal mining industry and the affordable electricity rates Kentuckians currently enjoy.This Note proposes that Kentucky’s leadership continue to fight the EPA’s standards politically and legally. It is in Kentucky’s best interests to do everything possible to keep the standard from being adopted or, at the very least, delay their implementation for as long as possible in order to give the state more time to prepare. This Note advocates for Kentucky’s vigilance in seeking out viable alternative energy sources. It is unwise to be so heavily reliant on coal in this current political climate and Kentucky must work to reduce this dependence. Natural gas is the most attractive option in the short term, but it may be only a matter of time before carbon emission standards strangle that option as well. Kentucky would be wise to maintain a diverse energy portfolio, fully examining the local feasibility of nuclear, biomass, and solar energy resource.

---

[1] University of Kentucky College of Law, J.D. May 2015.

[2] Roberta Mann, Another Day Older and Deeper in Debt: How Tax Incentives Encourage Burning Coal and the Consequences for Global Warming, 20 Pac. McGeorge Global Bus. & Dev. L.J. 111, 111 (2007).

[3] The United States ranks second only to China. CIA, The World Factbook: Country Comparison: Electricity – Consumption, CIA, https://www.cia.gov/library/publications/the-world-factbook/rankorder/22… (last visited April 14, 2015).

[4] See Coal Proved Reserves by end of 2011, Europe’s Energy Portal, http://www.energy.eu/stats/energy-coal-proved-reserves-total.html (last visited April 14, 2015).

[5] Approximately 46% of all electricity nationwide in 1970 was generated from coal. See U.S. Energy Info. Admin., Monthly Energy Review: Electricity Net Generation, (March 2015), available at http://www.eia.gov/totalenergy/data/monthly/pdf/sec7_5.pdf. This number rose to 57% in 1985, and 52% in 2000. Id.

[6] Patricia Glick, The Toll from Coal: Power Plants, Emissions, Wildlife, and Human Health, 21 Bull. of Sci., Tech. & Soc’y 482, 482 (2001); Thomas O. McGarity, When Strong Enforcement Works Better Than Weak Regulation: The EPA/DOJ New Source Review Enforcement Initiative, 72 Md. L. Rev. 1204, 1209–10 (2013).

[7] See Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg. 34, 830 (June 18, 2014) (to be codified at 40 C.F.R. pt. 60); Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg. 1430 (Jan. 8, 2014) (to be codified at 40 C.F.R. pt. 60).

[8] Standards of Performance, 79 Fed. Reg. at 1448.

[9] Press Release, EPA, EPA Proposes First Guidelines to Cut Carbon Pollution from Existing Power Plants (June 2, 2014), available at http://yosemite.epa.gov/opa/admpress.nsf/bd4379a92ceceeac8525735900400c2.

[10] Keith Johnson & Tennille Tracy, EPA Plan to Curb New Coal-Fired Power Plants, Wall St. J. (Sept. 11, 2013, 9:00 PM), http://online.wsj.com/article/SB1000142412788732386460457906955091602126.

[11] Office of Press Secretary, Fact Sheet, The White House (Jan. 8, 2014), https://www.whitehouse.gov/the-press-office/2014/01/08/fact-sheet-presid.

[12] EPA, Understanding the Clean Air Act, EPA.gov, http://www.epa.gov/airquality/peg_caa/understand.html (last updated Oct. 28, 2014).

[13] Id.

[14] Id.

[15] 42 U.S.C. § 7408 (2013).

[16] Id.

[17] Id. § 7410 (2013).

[18] Id. § 7411(b) (2013).

[19] Id. § 7411(a)(2).

[20] Jonathan R. Nash & Richard L. Revesz, Grandfathering and Environmental Regulation: The Law and Economics of New Source Review, 101 Nw. U. L. Rev. 1677, 1678 (2007).

[21] Shi-Ling Hsu, Reducing Emissions from the Electricity Generation Industry: Can We Finally Do It?, 14 Tul. Envtl. L.J. 427, 435 (2001).

[22] Todd Woody, Hitting the Gas: Most coal-fired power plants in the US are nearing retirement age, Quartz (Mar. 12, 2013), http://qz.com/61423.

[23] Nash & Revesz, supra note 20, at 1678.

[24] Executive Office of the President, The President’s Climate Action Plan (2013), available at http://www.whitehouse.gov/sites/default/files/image/president27sclimatea.

[25] Id. at 6.

[26] Id.

[27] Jeff Postelwait, Gina McCarthy Introduces EPA’s Revised Rules for New Power Plants, Electric Lights & Power (Sept. 20, 2013), http://www.elp.com/articles/2013/09/gina-mccarthy-introduces-epa-s-revis…].

[28] Id.

[29] Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg. 1430, 1446 (Jan. 8, 2014) (to be codified at 40 C.F.R. pt. 60).

[30] Id. at 1448.

[31] See Joanna M. Foster, EPA Publishes First Rule Limiting Carbon Pollution From New Power Plants, Think Progress (Jan. 9, 2014, 12:48 PM), http://thinkprogress.org/climate/2014/01/09/3139921/epa-carbon-rule-powe.

[32] Id. The three main types of geological formations that are being considered for carbon sequestration include: oil and gas reserves, deep saline reservoirs, and unmineable coal seams. Peter Folger, Cong. Research Serv., Carbon Capture and Sequestration (CCS): A Primer 4 (2013), available at https://www.fas.org/sgp/crs/misc/R42532.pdf. It is also theoretically possible to store large amounts of carbon deep beneath the ocean’s surface. Id. at 13. Deep ocean sequestration involves injecting the captured carbon dioxide at depths around 3000 meters. Id. At these depths, carbon dioxide is a liquid denser than seawater, so the injected carbon dioxide would remain at the bottom. Id. However, there are a number of environmental concerns associated with deep ocean sequestration because large-scale implementation could cause the ocean to become more acidic. Id. at 14.

[33] In Clean Coal We Trust – or Do We?, ParisTech Rev. (Oct. 15, 2013), http://www.paristechreview.com/2013/10/15/clean-coal-trust.

[34] Matthew L. Wald, Despite Climate Concern, Global Study Finds Fewer Carbon Capture Projects, N.Y. Times (Oct. 10, 2013), http://www.nytimes.com/2013/10/11/science/earth/study-finds-setbacks-in-.

[35] Foster, supra note 31.

[36] The 30% reduction is from 2005 levels. Using 2005 as the baseline is beneficial for carbon emitters, as the EPA’s proposal is actually only a 17% decrease from 2012 levels. David Doniger & Derek Murrow, The Clean Power Plan: NRDC’s Initial Analysis of EPA’s Landmark Proposal to Curb Carbon Pollution from the Nation’s Power Plants, Switchboard (June 7, 2014), http://switchboard.nrdc.org/blogs/ddoniger/the_clean_power_plan_nrdcs_in.

[37] Press Release, EPA, supra note 9.

[38] James Bruggers, Kentucky, Indiana Get Head Start on Global Warming Regs, Courier J. (June 13, 2014, 4:55 AM), http://www.courier-journal.com/story/tech/science/environment/2014/06/12…. Some environmentalists had been pushing for a 45% decrease in Kentucky’s carbon dioxide emission rate. Id. Other states face much larger reductions. Washington state, for example, has been called upon to reduce reductions by 84% by 2030. Coral Davenport & Peter Baker, Taking Page From Health Care Act, Obama Climate Plan Relies on States, N.Y. Times (June 2, 2014), http://www.nytimes.com/2014/06/03/us/politics/obama-epa-rule-coal-carbon.

[39] Bruggars, supra note 38.

[40] Annie Lowrey, What’s the Matter with Eastern Kentucky?, N.Y. Times Mag. (June 26, 2014), http://www.nytimes.com/2014/06/29/magazine/whats-the-matter-with-eastern.

[41] See 42 U.S.C. § 7411(h) (2013).

[42] Id.

[43] Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg. 1430, 1435 (Jan. 8, 2014) (to be codified at 40 C.F.R. pt. 60).

[44] Reality vs. EPA’s Carbon Capture Dreams, Inst. for Energy Research (Jan. 8, 2014), http://www.instituteforenergyresearch.org/2014/01/08/reality-vs-epas-car.

[45] Southern Cautions on Kemper Coal Unit as EPA Carbon Model, Reuters (Sept. 20, 2013, 5:01 PM), http://www.reuters.com/article/2013/09/20/us-usa-energy-emissions-kemper.

[46] EPA Science Advisory Board (SAB), EPA.gov, http://yosemite.epa.gov/sab/sabpeople.nsf/webcommittees/BOARD (last visited Aug. 21, 2014).

[47] Memorandum from James R. Mihelcic, Chair, SAB Work Group on EPA Planned Actions for SAB Consideration of the Underlying Science, (Nov. 12, 2013), available at http://yosemite.epa.gov/sab/sabproduct.nsf/18B19D36D88DDA1685257C220067A…$File/SAB+Wk+GRP+Memo+Spring+2013+Reg+Rev+131213.pdf.

[48] Id. at 3.

[49] See Memorandum from James R. Mihelcic, Chair, SAB Work Group on EPA Planned Actions for SAB Consideration of the Underlying Science (Jan. 7, 2014), available at http://yosemite.epa.gov/sab/sabproduct.nsf/F43D89070E89893485257C5A007AF…$File/SAB+work+grp+memo+w+attach+20140107.pdf.

[50] Id. at 2–3.

[51] Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg. 1430, 1435 (Jan. 8, 2014) (to be codified at 40 C.F.R. pt. 60).

[52] Id.

[53] Id.

[54] 42 U.S.C. § 7411(b) (2013).

[55] Id. § 7411(d). One of the main reasons that Congress made this distinction between new and existing sources was to protect states that were ahead of the curve in enacting stringent pollution controls. See H.R. Rep. No. 95-294, at 184 (1977), reprinted in U.S.C.C.A.N. 1079, 1263. Congress was concerned that industries would avoid the states with stricter standards and primarily build new plants in states that are more lenient or take longer to implement new standards. Id. By giving the EPA the authority to enact uniform national standards for new plants, this concern was significantly mitigated. See id. However, because industry has fewer incentives to leave a state where a plant has already been constructed, and in some cases fully capitalized, the states retained the power to regulate existing sources. See id.

[56] Id. § 7411(d).

[57] Letter from Jon Bruning, Attorney Gen., Neb., to Gina McCarthy, Adm’r, EPA 1, 12 (Sept. 11, 2013), available at http://energycommerce.house.gov/sites/republicans.energycommerce.house.g.

[58] Id. at 1.

[59] Laura Barron-Lopez, McConnell to Force Vote on EPA Carbon Regs, The Hill (Jan. 16, 2014, 11:19 AM), http://thehill.com/blogs/e2-wire/e2-wire/195669-mcconnell-to-push-vote-b.

[60] Id.

[61] Id.

[62] See Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units, 79 Fed. Reg. 1430, 1435 (Jan. 8, 2014) (to be codified at 40 C.F.R. pt. 60); Southern Cautions on Kemper Coal Unit as EPA Carbon Model, supra note 45.

[63] Reality vs. EPA’s Carbon Capture Dreams, supra note 44; Southern Cautions on Kemper Coal Unit as EPA Carbon Model, supra note 45.

Knowledge is Power: Understanding Kentucky's Human Trafficking Laws

Note | 103 KY. L. J. ONLINE 5 | Apr. 24, 2015

Katie Smith[1]

Introduction

“Human trafficking”—these two words are increasingly onthe radar of political leaders, celebrities, and average citizens across the nation. Over the past decade and a half, leaders and activist groups have begun to decry this “modern day slavery” as a growing evil that must be stopped; however, celebrities who speak out against trafficking or legislatures that unanimously push to pass bills condemning the practice often do little, in reality, to actually prosecute traffickers or to aid victims.[2] The state of Kentucky, however, is somewhat unique. Although it remains unrecognized by many, human trafficking does, in fact, exist in the Commonwealth. Instead of settling for mediocre laws that condemn the evil of trafficking but do little to combat it, the Kentucky legislature has passed some of the strongest legislation in the country to actually take a stand against sex and labor trafficking within our state’s borders.[3]In the spring of 2013, the Kentucky General Assembly successfully passed House Bill 3, the Human Trafficking Victims Rights Act (“HTVRA”).[4] The HTVRA builds upon Kentucky’s existing human trafficking legislation[5] and provides for increased protections for trafficking victims, stronger penalties and prison sentences for traffickers, training for law enforcement, and funding to help victims.[6] The HTVRA passed unanimously through both the Kentucky House and Senate, and its provisions are admirably proactive.[7] In fact, certain provisions of the law are among the most proactive in the country.[8] The passage of legislation, however, is just the beginning. Two years later, the HTVRA continues to be implemented on the ground level throughout the state, and, after early success, leaders expect the law’s effects to continue to be felt in the months and years ahead.[9]Although trafficking victims are often hidden in plain sight, anyone can identify a trafficking victim.[10] Therefore, as law enforcement officers, prosecutors, judges, and the like become increasingly equipped to handle human trafficking cases, it is crucial that all Kentuckians—both lawyers and non-attorneys alike—also become familiar with the protections available to victims, as well as the penalties in place for perpetrators. In the fight against human trafficking, knowledge is power; this brief note, then, seeks to inform both practitioners and the general Commonwealth population of the state of human trafficking in Kentucky, so that everyone can stay informed and help the implementation of the HTVRA continue to succeed.Part I of this note will offer a brief explanation of the global problem of human trafficking and the current federal law on the issue. Part II will describe the trafficking problem specifically in Kentucky. Part III will then explain the recently implemented Kentucky law on human trafficking, walking through key provisions of the Human Trafficking Victims Rights Act, explaining how these new provisions improve upon pre-existing Kentucky law, and describing why Kentucky’s law is unique among the legislation of other states. While much anti-trafficking legislation is toothless, expressive legislation unable to accomplish its goals,[11] Kentucky’s law has some real strengths. We, the lawyers and citizens of the Commonwealth, should now do our part in the fight against human trafficking, arming ourselves with knowledge and awareness and pushing for the continued implementation and support of the HTVRA.

Part I: The Human Trafficking Problem on the Global and Federal Levels

A. What is Human Trafficking?

Human trafficking, or trafficking in persons, essentially refers to the exploitation of an individual through the use of force, fraud, or coercion for the purposes of either commercial sex or labor.[12] Sex trafficking is statutorily defined as “trafficking in which a commercial sex act is induced by force, fraud, or coercion, or in which the person induced to perform such an act has not attained 18 years of age,” while labor trafficking is defined as “the recruitment, harboring, transportation, provision, or obtaining of a person for labor or services, through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude, peonage, debt bondage, or slavery.”[13]Accurate statistics, as well as a thorough understanding of the extent of the human trafficking problem across the globe, are elusive. Many organizations report that both sex and labor trafficking are increasing dramatically; other scholars note that this may not exactly be the case.[14] Regardless of the exact number of victims throughout the nation or the world, however, it is clear that human trafficking does exist, just about everywhere, in some capacity. And where it does exist, it can be extremely difficult to detect. There is a unique, largely psychological nature to the crime, and traffickers frequently—arguably, primarily—take advantage of vulnerable populations.[15] Many victims from these vulnerable populations are resistant to help from authorities, making it difficult for authorities to obtain information about the trafficking scheme that would aid prosecution and to provide victims with needed assistance and rehabilitation.[16]

B. Trafficking Law at the Federal Level

The United States is considered a Tier I country by the U.S. Department of State because our government fully complies with federally delineated minimum standards for human trafficking elimination.[17] Despite its Tier I status, the United States remains a source, transit, and destination country for both labor and sex trafficking.[18] One national advocacy group suggests that an estimated 100,000 children are victims of sex trafficking in the United States each year and that the aggregate number of child and adult sex and labor trafficking victims reaches well into the hundreds of thousands.[19]The main federal law on human trafficking is the Trafficking Victims Protection Act (“TVPA”), which was passed in 2000.[20] Through the passage of the TVPA, Congress sought to combat trafficking in persons, to ensure punishment of traffickers, and to protect victims.[21] Congress updated and expanded the protections of the TVPA through the 2008 William Wilberforce Trafficking Victims Reauthorization Act.[22] This federal legislation is crucial, but not all-sufficient, in the fight against trafficking. Federal trafficking legislation has often proved ineffective, or at least limited, at the local level, and the federal government itself has called upon states to act to fill in the gaps of existing federal efforts.[23]States have responded to the federal government’s call, but the success of state anti-trafficking efforts has not been immediate. After the passage of the 2000 TVPA, many states— including Kentucky—jumped at the chance to pass emotionally charged, bipartisan legislation that would criminalize and condemn trafficking.[24] These early state efforts were admirable; however, ample evidence shows that these bipartisan acts tended to be merely expressive legislation that were rarely as effective as hoped.[25] Since the 2008 William Wilberforce Trafficking Victims Reauthorization Act, proactive states across the nation are in the process of updating their trafficking laws to make them more effective. Kentucky is one of those states that has passed a second round of legislation.

Part II: The Human Trafficking Problem in Kentucky

Just like the United States on the whole, Kentucky is described by government reports to be a source, transit, and destination state for human trafficking.[26] Throughout Kentucky, there is no single face of a trafficker. Kentucky traffickers to date include, among others, a woman forcing another to work as her maid;[27] parents selling their two daughters for sex;[28] and pimps setting up prostitution rings during Keeneland meets and the Kentucky Derby, advertising women and possibly children as “fillies” for men to pay to sleep with.[29] Similarly, there is no single face of a Kentucky trafficking victim. While some victims are trafficked in to Kentucky from surrounding states or other countries,[30] trafficking does not always involve transportation across a border.[31] Recent statistics indicate that 35% of victims in Kentucky were identified as foreign nationals, with 64% domestic victims. 59% of victims were identified as children and 41% adults, with 86% of all victims being female and 14% male.[32] Trafficking may seem like an evil that only exists far away or in the shadows, but average Kentuckians can easily encounter it. A quick Google search for “escorts in Eastern Kentucky” reveals numerous websites advertising women all over the state; any woman advertised as twenty-four or younger is likely a minor and a trafficking victim.[33] Further, traffickers consistently target vulnerable populations, and the demographics of the Commonwealth suggest that many Kentucky citizens themselves are at risk for becoming trafficking victims.[34]Compiling accurate information about the extent of human trafficking is a problem on the global, domestic, and state levels, so quantifying the number of human trafficking cases in Kentucky has been no small task.[35] A crucial starting step in understanding the extent of human trafficking in Kentucky came in 2007 thanks to Dr. TK Logan, a University of Kentucky professor.[36] Logan’s study, released in July 2007, provided Kentucky with one of the first quantitative measures of its human trafficking problem.[37]In response to growing awareness of existing trafficking problems, Kentucky adopted its first human trafficking legislation in 2007.[38] Kentucky was the twenty-eighth state in the nation to pass an anti-trafficking law.[39] This legislation, Senate Bill 43, made participation in human trafficking a felony offense and provided certain protections for trafficking victims, such as freedom from incarceration, the right to counseling, and the right to an interpreter.[40] Passage of the 2007 legislation was a success. However, Kentucky legislators soon realized the law lacked the teeth needed to actually combat trafficking. Many people claimed that, among other problems, law enforcement lacked adequate training to handle the crimes the 2007 legislation set out to establish.[41] Overall, the 2007 legislation helped get human trafficking on the Commonwealth’s radar but remained little more than expressive legislation. Legal changes were clearly needed for Kentucky to actually combat the sex and labor trafficking within our state.In response to the recognized shortcomings of the 2007 legislation, human trafficking victims’ rights advocates and legislators joined together to push for the passage of House Bill 3, the Human Trafficking Victims Rights Act, in the spring of 2013.[42] The HTVRA successfully passed both the House and the Senate and was signed into law by Governor Beshear that March.[43] The HTVRA saw early success and continues to be implemented on the ground level throughout the state.[44] To keep up this positive trajectory, each and every Kentuckian should be informed on the basic structure of the state’s human trafficking law, particularly on a few key provisions of the HTVRA.

Part III: Understanding the Human Trafficking Victims Rights Act

While the HTVRA made various changes to existing civil and criminal statutes and has a wide range of implications for human trafficking law in Kentucky, the Act can essentially be described as having four main components. The Act (1) mandates human trafficking education for law enforcement and prosecutors likely to encounter trafficking; (2) calls for trauma-informed care for victims and establishes a specific victim’s assistance fund; (3) creates new financial disincentives for traffickers; and (4) establishes a uniquely comprehensive safe harbor law to ensure victims are given treatment rather than jail time.[45] Having a basic grasp on these four provisions and continuing to push for their implementation can help us as the collective Commonwealth of Kentucky see a decrease in the evils of human trafficking throughout our state.

A. Training and Education for Trafficking Identifiers

A first key provision of the HTVRA focuses on increased education about the existence of human trafficking and victim identification. The HTVRA requires that those most likely to encounter trafficking cases and victims be given specific training regarding trafficking.[46] Prior to the HTVRA, Kentucky law enforcement officials already received specific training for situations involving abuse against the elderly, domestic violence and child abuse, HIV/AIDS, and bias-related crime.[47] Now after the HTVRA, law enforcement officers will be given specific training regarding the characteristics and dynamics of human trafficking and will be instructed in both state and federal trafficking law.[48] Law enforcement will also be trained to investigate potential trafficking cases, with instruction regarding how to screen potential trafficking victims and what resources are available to those victims.[49] The HTVRA further calls for the Attorney General to provide similar training for Commonwealth’s attorneys, county attorneys, and their staffs.[50] These “educational provisions” are designed to ensure that those people in Kentucky most likely to encounter trafficking are able to successfully recognize the crime when they see it. Ideally, these provisions will contribute to an increase in positive identification of traffickers, so that they can be prosecuted for their crimes, and of victims, so that they can be treated according to their specific trauma and needs.

B. Trauma-Informed Care for Victims

Another main emphasis of the HTVRA is trauma-informed care for victims. Victims of human trafficking undergo particular psychological and emotional harm that is distinct from the harm many other crime victims experience.[51] Many believe that, in order to bring holistic healing to human trafficking victims, they must be treated specifically as trafficking victims rather than victims of other forms of abuse or neglect.[52] Accordingly, the HTVRA establishes the Human Trafficking Victims Fund to provide better trauma-informed care. The Fund is to be comprised in part of monies from grants, contributions, and donations.[53] It will also be made up of monies collected as a result of successful state trafficking prosecutions—a portion of all assets seized and forfeited from traffickers will go to the Fund,[54] as well as a $10,000 fee that all trafficking convicts must now pay into the Fund.[55] Often, anti-trafficking legislation does not provide any financial support for achieving its desired outcomes;[56] the HTVRA, however, does provide a mechanism for financially achieving the goal of treating victims—and treating them in the ways they need to be treated—through this Victims Fund.[57]

C. Financial Disincentives for Traffickers

A third emphasis of the HTVRA is the financial disincentives it creates for traffickers through its newly imposed $10,000 fine and asset forfeiture provision. The HTVRA allows law enforcement to seize the assets of traffickers used in connection with the trafficking offense. All property used in connection with or acquired from trafficking will be seized, forfeited, and distributed among the Human Trafficking Victims Fund, the related law enforcement agency, and the attorney’s office responsible for handling the forfeiture.[58] Also, all convicted traffickers must now automatically pay $10,000 into the Victims Fund, regardless of any other charges or fines involved with their convictions.[59]Ideally, these provisions will be a financial disincentive for traffickers above and beyond the disincentive of potential convictions. The $10,000 fee that traffickers must pay into the victims’ assistance fund upon conviction is no small sum. This fee may be little deterrence to a powerful pimp leading multiple, well-established prostitution rings, but it may deter an individual who engages in trafficking simply for a little extra cash.[60] The asset seizure provision, on the other hand, should deter both the small-scale and the large-scale trafficker. Individuals with no history of trafficking who operate out of their homes may not want to risk their homes, and traffickers exploiting on a larger scale would, in turn, have larger amounts of property subject to seizure and forfeiture. The value of forfeitable property – defined as “all property used in connection with or acquired as a result of . . .” the trafficking – could be quite large for any one trafficker, making this HTVRA provision a notable financial disincentive for all potential traffickers.[61]Importantly, these financial disincentive provisions will also help maintain the Human Trafficking Victims Fund, so that victims can receive the trauma-informed treatment that they need.[62]

D. Safe Harbor Protection for Minors

While the HTVRA involves various additional changes to Kentucky law,[63] a final and particularly crucial piece of the legislation is its safe harbor provision, designed to ensure that human trafficking victims are in fact treated as victims rather than criminals. While federal law recognizes the prostitution of a child as human trafficking, many states still do not have legal protections for minor victims; in such states, child victims are often treated as “criminals or delinquents.”[64] Leading anti-trafficking advocates recognize this as an important problem and have called on states to pass so-called “safe harbor” bills, legislation protecting minor victims from criminal charges.[65] Kentucky’s HTVRA includes a comprehensive safe harbor provision. The law prohibits prosecution of anyone under the age of eighteen for prostitution or loitering for prostitution.[66] The law also ensures that victims will not be charged with any status offenses, such as runaway or truancy, related to their trafficking.[67] At the time of its passage, this provision was the most protective safe harbor law of any state in the United States.[68]

Part IV: Conclusion

Although determining the extent of sex and labor trafficking throughout Kentucky is difficult, human trafficking clearly exists throughout the Commonwealth, sometimes in the shadows of a private household[69] and sometimes right in the midst of the public spotlight at Keeneland or at Churchill Downs.[70] Kentucky is in a good place, however, in the global fight against human trafficking. Where Kentucky’s original anti-trafficking legislation was too weak to effectuate actual results, the HTVRA contains comprehensive provisions and fundraising mechanisms that bode well for the law’s continued success. Both lawyers and non-lawyers alike throughout the Commonwealth help ensure the success of the law by staying informed. Understanding some general information about trafficking in Kentucky as well as the key provisions of the HTVRA is one small step we can take to help protect all people within our state’s borders from sex and labor slavery.

---

[1] University of Kentucky College of Law, J.D. May 2015.

[2] See Dina Haynes, When Human Trafficking Becomes a Cause Celebre, Open Democracy (Oct. 6, 2014), https://www.opendemocracy.net/beyondslavery/dina-haynes/when-human-traff… (explaining the drawbacks of celebrity trafficking activism); Priscila A. Rocha, Our Backyard Slave Trade: The Result of Ohio’s Failure to Enact Comprehensive State-Level Human Sex-Trafficking Legislation, 25 J.L. & Health 381, 407 (2012) (explaining how human-rights legislation that is quickly and emotionally passed with bipartisan support often succeeds in criminalizing a particular abuse but lacks a real plan for funding and implementation).

[3] Polaris Project, 2013 Analysis of State Human Trafficking Laws 1-3 (2013), available at http://www.polarisproject.org/storage/2013-Analysis-Category-6-Safe-Harb… (noting that Kentucky is one of twelve states that comply with the full recommendations for the safe harbor and that Kentucky also has a funding provision in place, allowing it to serve as a model for other states).

[4] Human Trafficking Victims Rights Act, 2013 Ky. Acts 25, available at http://www.lrc.ky.gov/record/13rs/HB3.htm.

[5] See Ky. Justice & Safety Ctr., Human Trafficking in the Commonwealth of Kentucky 8 (2007), available athttp://justice.ky.gov/Documents/Statistical%20Analysis/HumanTrafficking2.

[6] See, e.g., Press Release, Governor Steve Beshear’s Commc’ns Office, Governor Beshear Signs Human Trafficking Bill (Mar. 26, 2013), available athttp://migration.kentucky.gov/newsroom/governor/20130326hb3.htm.

[7] See Human Trafficking Victims Rights Act, 2013 Ky. Acts 25.

[8] See Analysis of State Human Trafficking Laws, supra note 3, at 1-3. See also discussion of the HTVRA’s safe harbor, infra Part III.B.

[9] See Rescue & Restore, Module 003 LAW, https://vimeo.com/99576107.

[10] Ky. Rescue & Restore Coal., Identifying Victims of Human Trafficking Fact Sheet 1 (“Everyone can play a role in identifying victims of human trafficking . . . One chance encounter could be a victim’s best hope for rescue.”), available at http://www.rescueandrestoreky.org/wp-content/uploads/2014/06/KY-Rescue-R.

[11] For an explanation of the problem of expressive human trafficking legislation, see Mark Sidel, Richard B. Lillich Memorial Lecture: New Directions in the Struggle Against Human Trafficking, 17 J. Transnat’l L. & Pol’y 187, 201-03 (2008); Rocha, supra note 2, at 440.

[12] Gretchen M. Hunt, Human Trafficking: A Primer for Kentucky Lawyers, Bench & Bar, July 2009, at 17.

[13] Trafficking Victims Protection Act of 2000, 18 U.S.C. §§ 1589-1594, 22 U.S.C. §§ 7101-7110 (West, Westlaw through P.L. 113-182). See also U.S. Dep’t of State, Trafficking in Persons Report 8 (2013) (Introductory Material) [hereinafter “Trafficking Report Introductory Material”], available athttp://www.state.gov/documents/organization/210737.pdf.

[14] See Ronald Weitzer, Sex Trafficking and the Sex Industry: The Need for Evidence-Based Theory and Legislation, 101 J. Crim. L. & Criminology 1337, 1347-1356 (2012).

[15] See, e.g., Rescue & Restore, Module 003 LAW, https://vimeo.com/99576107.

[16] Trafficking Report Introductory Material, supra note 13, at 8-9.

[17] The Trafficking Victims Protection Act, supra note 13, sets forth federal standards for the elimination of human trafficking. The United States meets Tier I standards, but trafficking throughout the country still exists. U.S. Dept. of State, Trafficking in Persons Report 44, 381 (2013) (Country Narratives T-Z) [hereinafter “Trafficking Report Country Narratives”], available at http://www.state.gov/documents/organization/210742.pdf.

[18] Id. at 381.

[19] Polaris Project, Human Trafficking, http://www.polarisproject.org/human-trafficking/overview (last visited Apr. 16, 2015). But see Weitzer, supra note 14 (explaining that many advocacy organizations’ statistics appear inflated).

[20] Polaris Project, Human Trafficking Cheat Sheet 1 (2012); Trafficking Victims Protection Act of 2000, 18 U.S.C. §§ 1589-1594, 22 U.S.C. §§ 7101-7110 (West, Westlaw through P.L. 113-182).

[21] 22 U.S.C. § 7101 (West, Westlaw through P.L. 113-296).

[22] William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008, Pub. L. No. 110-457, 122 Stat. 5044 (codified as amended in scattered sections of 22 U.S.C.).

[23] Rocha, supra note 2, at 428-30. See also Stephanie L. Mariconda, Breaking the Chains: Combating Trafficking at the State Level, 29 B.C. Third World L.J. 151, 174-77 (2009).

[24] Rocha, supra note 2, at 441.

[25] Mark Sidel, Richard B. Lillich Memorial Lecture: New Directions in the Struggle Against Human Trafficking, 17 J. Transnat’l L. & Pol’y 187, 201-03 (2008).

[26] Trafficking Report Country Narratives, supra note 17, at 381; Ky. Justice & Safety Ctr., supra note 5, at 10.

[27] Maria Castellanos & Gretchen Hunt, Family Court Presentation: Human Trafficking in Kentucky 45 (2013).

[28] Castellanos & Hunt, supra note 27, at 49.

[29] Joe Arnold, LMPD: Prostitution Triples, Sex Trafficking a Concern at Derby Time, WHAS11 Louisville (Apr. 29, 2013, 11:11 PM EDT), http://www.whas11.com/story/news/local/2014/10/14/15755392/.

[30] Kentucky Rescue & Restore Coalition, Victims of Human Trafficking March 2014 Fact Sheet 1 (2014) [hereinafter March 2014 Fact Sheet], available athttp://www.rescueandrestoreky.org/wp-content/uploads/2014/06/KY-Rescue-R.

[31] Polaris Project, Human Trafficking Cheat Sheet 1 (2012). Human trafficking and human smuggling are two different things. Smuggling involves an individual paying a fee to willingly be transported illegally across the United States border. Human trafficking may begin with a smuggling situation; an individual may pay to be transported into the United States, and, upon arrival, the smuggler may hold the individual captive or require him to work. But human trafficking does not require that an individual cross a border or that any movement take place at all. Hunt, supra note 12, at 18.

[32] March 2014 Fact Sheet, supra note 30, at 1.

[33] See Jack Latta, Conference on Human Trafficking Opens Eyes, The Floyd County Times, (July 18, 2013, 7:19 PM), http://www.floydcountytimes.com/view/full_story/20762482/article-confere.

[34] Castellanos & Hunt, supra note 27, at 10. For general information about poverty in Kentucky, see Valarie Honeycutt Spears & Linda J. Johnson, Kentucky’s 2012 Poverty Rate Increased to 19.4 Percent, Lexington Herald-Leader (Sept. 19, 2013), http://www.kentucky.com/2013/09/19/2831627/kentuckys-2012-poverty-rate-i…. The Commonwealth’s overall poverty rate increased from 17.6% in 2011 to 18.3 in 2012, and child poverty increased from 23.5% in 2008 to 26.5% in 2012.

[35] Human trafficking can be extremely difficult to detect, largely because of the unique nature of the crime. Traffickers constantly adapt their tactics and take advantage of excluded, vulnerable populations. Many victims from these vulnerable populations are resistant to help from authorities, making it difficult for authorities to provide victims with needed assistance and rehabilitation and also difficult to obtain information about the trafficking scheme that could be useful for identification and prosecution. See Trafficking Report Introductory Material, supra note 13, at 8-9.

[36] See generally TK Logan, Human Trafficking in Kentucky (2007), available at http://www.cdar.uky.edu/coercivecontrol/docs/hands%20presentation%20fina…) (describing the existence of human trafficking in Kentucky via PowerPoint presentation on June 2007).

[37] Ky. Justice & Safety Ctr., supra note 5, at 12 (2007).

[38] Id. at 8.

[39] Id.

[40] Id.

[41] Rae Hodge, Human Trafficking by the Numbers, Louisville Cardinal (Jan. 23, 2013), http://www.louisvillecardinal.com/2013/01/human-trafficking-numbers-kent.

[42] Human Trafficking Victims Rights Act, 2013 Ky. Acts 25.

[43] See, e.g., Press Release, Governor Steve Beshear’s Commc’n Office, Governor Beshear Signs Human Trafficking Bill (Mar. 26, 2013), available athttp://migration.kentucky.gov/newsroom/governor/20130326hb3.htm.

[44] See, e.g., Rescue & Restore, Module 003 LAW (July 2014), https://vimeo.com/99576107; Valarie Honeycutt Spears, Report: Kentucky Authorities Investigated 20 Allegations of Child Human Trafficking, Lexington Herald-Leader (Dec. 8, 2013), http://www.kentucky.com/2013/12/08/2978313_report-kentucky-authorities-i.

[45] Human Trafficking Victims Rights Act, 2013 Ky. Acts 25.

[46] Id.

[47] Ky. Rev. Stat. Ann. § 15.334(1)(a)-(d) (West, Westlaw through 2014 legislation).

[48] Ky. Rev. Stat. Ann. § 15.334(1)(e) (West, Westlaw through 2014 legislation).

[49] Id.

[50] Ky. Rev. Stat. Ann. § 15.718(1) (West, Westlaw through 2014 legislation).

[51] Ky. Rescue & Restore Coal., Identifying Victims of Human Trafficking Fact Sheet 2.

[52] See Polaris Project, Human Trafficking Legislative Issue Brief: Sex Trafficking of Minors and “Safe Harbor” 1, available athttp://www.polarisproject.org/storage/documents/policy_documents/model%2… (last visited Apr.. 17, 2015) (“Experienced practitioners have found that mainstream programs of the child abuse and neglect system routinely fail these children. The law should require specialized protection and recovery programs for child victims . . . .”).

[53] Ky. Rev. Stat. Ann. § 529.140(2) (West, Westlaw through 2014 legislation).

[54] Id. See also Ky Rev. Stat. Ann. § 529.150(1) (West, Westlaw through 2014 legislation) (articulating asset seizure and forfeiture). The HTVRA’s asset forfeiture provision will be explained in greater detail below. See infra Part III.C.

[55] Ky. Rev. Stat. Ann. § 529.130 (West, Westlaw through 2014 legislation).

[56] See Rocha, supra note 2, at 406-07.

[57] Because Kentucky’s anti-trafficking legislation has a funding mechanism, the Polaris Project advocacy group has indicated that Kentucky’s legislation serves as a good model for other states. See Analysis of State Human Trafficking Laws, supra note 3, at 1-3.

[58] Ky. Rev. Stat. Ann. § 529.150(2)(a)-(c) (West, Westlaw through 2014 legislation).

[59] Ky. Rev. Stat. Ann. § 529.130 (West, Westlaw through 2014 legislation).

[60] In Hodgenville, Kentucky, in December 2010, a woman sold her fifteen year old foster daughter to a man “in exchange for money, and buying items for her house.” The case involved two human trafficking indictments that were later amended down. Castellanos & Hunt, supra note 27, at 48.

[61] Ky. Rev. Stat. Ann. § 529.150(1) (West, Westlaw through 2014 legislation).

[62] Ky. Rev. Stat. Ann. § 529.150(2)(a) (West, Westlaw through 2014 legislation).

[63] For a more detailed summary of the HTVRA, see Kentucky Association of Sexual Assault Programs, Summary of HB 3 Human Trafficking Victims Rights Act (2013), available at http://www.kasap.org/images/files/News/HouseBill%203_KentuckyHumanTraffi…. For a complete understanding of the 2013 legislation’s amendments to previous human trafficking law, see the legislation itself. Human Trafficking Victims Rights Act, 2013 Ky. Acts 25.

[64] Human Trafficking Legislative Issue Brief: Sex Trafficking of Minors and “Safe Harbor”, supra note 52 at 1.

[65] Id.

[66] Ky Rev. Stat. Ann. § 29.120(1) (West, Westlaw through 2014 legislation); Castellanos & Hunt, supra note 27, at 27.

[67] Ky Rev. Stat. Ann. § 630.125 (West, Westlaw through 2014 legislation).

[68] New York was the first state to enact a safe harbor law in 2008. New York’s original watershed law guaranteed there could be no prosecution of anyone under the age of sixteen for prostitution; Kentucky’s law goes further to raise the age to eighteen and to prohibit prosecution for status offenses in addition to prostitution. SeeKaren Wigle Weiss, End Child Prostitution And Trafficking USA, A Review of the New York State Safe Harbor Law 2 (2013), available athttps://d2jug8yyubo3yl.cloudfront.net/26999B2F-7C10-4962-918C-E964709E74…. “Kentucky is the only state to ensure that all child victims of human trafficking are not charged with prostitution or status offenses committed in connection to being trafficked.” Commonwealth of KY. Cabinet for Health and Family Serv., Annual Report of Kentucky Child Victims of Human Trafficking 5 (2013), available at http://chfs.ky.gov/NR/rdonlyres/E5D47613-6922-44C6-8B14-0668374ADD93/0/H.

[69] Castellanos & Hunt, supra note 27, at 45.

[70] Arnold, supra note 29.

Who Will Watch the Watchers?: Derivative Actions in Nonprofit Corporations

Article | 103 KY. L. J. ONLINE 4 | Apr. 22, 2015

Thomas E. Rutledge[1]

Introduction

Quis custodiet ipsos custodes?

- Juvenal, Satire VI, lines 347–8(“Who will watch the watchers?”)

Unlike the Kentucky statutes governing business corporations, limited partnerships and statutory trusts, both the Kentucky Limited Liability Company Act[2] and the Kentucky Nonprofit Corporation Acts[3] are silent as to the requirements for “derivative actions”[4] brought on behalf of the LLC or corporation by a member or other constituent thereof.[5] Some have suggested that this absence indicates that derivative actions do not exist in those organizational forms, positing, it would seem, that it is the statute governing derivative actions that gives rise to the actions. This assessment is incorrect, and, presumably, arises out of a misunderstanding of the basis for derivative actions. In fact, the derivative action is a question of equitable standing that was later, in certain contexts, reduced to statute. It does not follow, therefore, that there are not derivative actions in LLCs and nonprofit corporations consequent to the failure of the statute to provide for them.[6] Rather, equity will provide the rules applicable when the organizational statute does not specify the rules governing derivative actions.[7]While the analysis here explicated is equally applicable in the context of any business entity organizational statute lacking an express derivative action enabling statute, this presentation will focus upon the nonprofit corporation. That said, there appears to be implicit acceptance in Kentucky of LLC derivative actions.[8]This article will begin by reviewing a New York Court of Appeals case which held that derivative actions exists with respect to LLCs organized in New York notwithstanding the silence of the state’s LLC Act as to derivative actions. This article will then turn to a series of Kentucky decisions as to derivative actions in corporations at a time when the related corporate statutes were silent as to derivative actions. Collectively, these decisions stand for the proposition that derivative actions both pre-exist and exist independently of a statute authorizing derivative actions. From there, the article will discuss a pair of issues as to the necessity of affording derivative actions even where statutes are silent. The first of these is the necessity of a mechanism by which the venture’s rights may be enforced over the contrary actions of those then exercising control over it. Second, as a federal court in diversity may entertain a derivative action pursuant to its equitable jurisdiction, the point is made that it would be curious to deprive those who cannot act on a derivative basis the same rights. The next portion of the article will review a number of decisions of foreign courts that have considered the question of derivative actions in nonprofit corporations absent a statute thereon. The discussion will then review seriatim various aspects of derivative actions as they now exist in statute and ascertain whether or not similar requirements exists under Kentucky’s equity-based derivative action precedents. Last, this article considers who may exercise equitable standing in nonprofit corporations to initiate a derivative action.

The Equity Basis of the “Derivative Action”

The ability to enforce fiduciary obligations (and to recover damages for failure in their discharge) has its roots in trust law and the later treatment of the assets of a venture as a cestui que trust for the benefit of the owners.[9] As such, the ability to enforce fiduciary obligations has its basis in equity rather than in positive statutory law.[10] A derivative action recognizes that persons other than the entity have standing to initiate an investigation of management and the propriety of its actions, an important mechanism of enforcement of fiduciary duties. The Connecticut Supreme Court described this mechanism, stating that:

[i]f the duties of care and loyalty which directors owe to their corporations could be enforced only in suits by the corporation, many wrongs done by directors would never be remedied.[11]

As such, the derivative action serves an important policing function in providing a mechanism by which those charged with management and control of a venture may be called upon to demonstrate that they are in fact discharging the obligations they have voluntarily undertaken. Ergo, in response to Juvenal’s famous query, “Who will watch the watchers?,”[12] it will be the court acting at the instigation of those with a relationship with the venture other than through control.The New York Court of Appeals decision in Tzolis v. Wolff, before considering whether a derivative action may be brought in a New York organized LLC notwithstanding that a derivative action provision had been deleted from that state’s draft LLC Act, addressed the history of the derivative action:

The derivative suit has been part of the general corporate law of this state at least since 1832. It was not created by statute, but by case law. Chancellor Walworth recognized the remedy in Robinson v Smith, because he thought it essential for shareholders to have recourse when those in control of a corporation betrayed their duty. Chancellor Walworth applied to a joint stock corporation — then a fairly new kind of entity — a familiar principle of the law of trusts: that a beneficiary (or “cestui que trust”) could bring suit on behalf of a trust when a faithless trustee refused to do so. Ruling that shareholders could sue on behalf of a corporation under similar circumstances, the Chancellor explained:

“The directors are the trustees or managing partners, and the stockholders are the cestui que trusts, and have a joint interest in all the property and effects of the corporation. . . . And no injury the stockholders may sustain by a fraudulent breach of trust, can, upon the general principles of equity, be suffered to pass without a remedy. In the language of Lord Hardwicke, in a similar case [Charitable Corp. v. Sutton], ‘I will never determine that a court of equity cannot lay hold of every such breach of trust. I will never determine that frauds of this kind are out of the reach of courts of law or equity; for an intolerable grievance would follow from such a determination.’”

Eventually, the rule that derivative suits could be brought on behalf of ordinary business corporations was codified by statute. But until relatively recently, no similar statutory provision was made for another kind of entity, the limited partnership; again, the absence of a statute did not prevent courts from recognizing the remedy. In Klebanow v. New York Produce Exch., the Second Circuit Court of Appeals held that limited partners could sue on a partnership’s behalf. For the Second Circuit, the absence of a statutory provision was not decisive because the court found no “clear mandate againstlimited partners’ capacity to bring an action like this.” We agreed with the holding of Klebanow in Riviera Congress Assoc. v. Yassky, relying, as had Chancellor Walworth long before, on an analogy with the law of trusts:

“There can be no question that a managing or general partner of a limited partnership is bound in a fiduciary relationship with the limited partners . . . and the latter are, therefore, cestuis que trustent. . . . It is fundamental to the law of trusts that cestuis have the right, ‘upon the general principles of equity’ and ‘independently of [statutory] provisions,’ to sue for the benefit of the trust on a cause of action which belongs to the trust if ‘the trustees refuse to perform their duty in that respect.’”

After Klebanow and Riviera were decided, the Partnership Law was amended to provide for derivative actions by limited partners (see Partnership Law § 115-a [1]).[13]

From this foundation, the Court of Appeals found that derivative actions exist in New York LLCs notwithstanding the deletion of the derivative action provisions from the draft New York LLC Act.[14]A similar basis for the derivative action, although sadly not so direct, can be found in Kentucky law. At least a quartet of cases, all decided when there was no “derivative action” statute in the law of corporations, demonstrate that the courts of equity would entertain such an action.[15] In Jones v. Johnson, responding to an effort by certain shareholders, in their individual capacity, to bring suit against corporate officers for malfeasance, the court rejected those actions, requiring rather that the shareholders proceed in equity on the corporation’s behalf, stating that:

The error in this view consists, as we think, in regarding the injuries complained of as done to the shareholders and not to the corporation. The funds lost did not belong to the shareholders, but to the ideal person called “The Traders’ Bank and Warehouse Company.” It was the sufferer of the losses sustained; and as every actionable wrong gives to the person injured a cause of action, the right to sue these officers was primarily in the corporation. If the corporation or its assignee had sued, the shareholders could not have maintained either a joint or separate action; but the corporation being still under the control of the alleged unfaithful officers, it would be unreasonable to expect them to sue themselves; and the trustee who might have sued them as the representative of the corporation having refused to do so, the shareholders, as the beneficiaries of the assets of the company, have a right in equity to sue in its name and stead. And we here remark that, suing as they do as a substitute for the injured corporation, they can only sue in equity, because their rights are in this respect equitable only. It does not matter if the action be founded upon a tort; the shareholders, not having a legal right to sue, must either come into equity or they will be without remedy.[16]

In Collier v. Deering Camp Ground Ass’n, addressing an effort by a shareholder to recover rents on lands owned by the corporation, the court wrote:

The pleadings admit that the title to the land was in the Washington Mining and Manufacturing Company, and never in the appellant. The interest of appellant in the land was only that of a stockholder in the corporation. He had no right or title in the land that he could sell or convey. Nor was he entitled to rents for its use. Under the facts stated, recovery for rents would be by the Washington Company; and if that company, after proper demand refuses to sue, appellant might maintain an action for the benefit of the corporation.[17]

Next in this quartet of cases is Pittsburg, C., C. & St. L. Ry. Co. v. Dodd, in which the court addressed contracts between corporations with overlapping directors but dissimilar shareholders:

It will not be questioned that if the bridge company directors, through a fraudulent purpose, refused to bring the suit against the Louisville & Nashville Railroad Company to enforce its liability under the contract, the minority stockholders of the bridge company might maintain the suit on its behalf, although the Louisville & Nashville Railroad Company was not a part to the fraud.[18]

Expanding, so it would seem, on Collier’s requirement that suit on the cooperation’s behalf is predicated on a demand upon the corporation to so act, in Reinecke v. Bailey the court directed: “[t]here being no averment that the corporation declined to institute the action, the right to institute it was in the corporations, and not appellant, who was merely a stockholder.”[19]Clearly the shareholders of a corporation have long enjoyed, even absent a statute, the capacity, on the corporation’s behalf, to initiate a derivative action. It follows that a member, even in the absence of a statute to that effect, on behalf and in the name of an LLC, has the capacity, after demand is made on management,[20] to initiate an action to address an injury to the LLC.[21] Likewise, a member (and perhaps other constituents) of a nonprofit corporation has the capacity, after demand, to initiate a derivative action by which there may be addressed a potential an injury to the corporation. This right, arising out of equity, exists independently of any statutory authorization to do so. Therefore:

• statutes such KRS §§ 271B.7-400 and 362.511 et seq., while serving to both confirm and supplement the equitable right to bring derivative action, cannot be identified as the basis of the right to bring a derivative action;[22] and

• with respect to those organizational forms that do not provide by statute for derivative actions, the right to bring such action exists in equity.[23]

For Every Injury There is a Remedy

A principal of equity is that for every wrong there is a provided remedy.[24] The Kentucky Nonprofit Corporation Acts specifies in great detail the fiduciary obligations of corporate directors and officers.[25] The Act specifies to whom these obligations are owed, namely the corporation.[26] When these obligations are violated, the entity has a claim for damages to remedy the injury it has suffered.[27] The corporation may, through its board of directors, determine to bring suit to seek recompense for the injury suffered.[28] At times, however, due to any number of factors, the board may elect to not pursue redress for the injury suffered by the corporation. In that situation the corporation has been doubly injured in that it has suffered both the initial injury and the failure of the board to protect its legal rights.A derivative action protects the corporation from this latter circumstance, namely not being able to pursue recourse for its injury. For example, while claims against the directors for breach of duty may be tolled while those directors remain in control of the corporation, claims against non-directors (e.g. the embezzling bookkeeper) may be lost if not promptly brought.[29] Even as to claims that are not time barred until a new majority of the board is seated and able to make, on the corporation’s behalf, a disinterested judgment, by then evidence may be stale or lost. There is even the possibility the culpable parties will be deceased. Absent the ability of someone other than those in control of the corporation to initiate an action to vindicate its rights, the express fiduciary duties undertaken by the directors are a toothless tiger that are in effect only aspirational and lack the likelihood of effective enforcement. Furthermore, it would indeed be curious that the members of a nonprofit corporation are afforded a nearly unlimited right to inspect the corporation’s books and records but then may not use that information to vindicate the corporation’s rights nor seek remedy for the wrongs it has suffered.[30]

The Federal Loophole

As a practical matter, if derivate actions may not be brought absent an affirmative statute to that effect, that limitation would apply only in suits brought in state court; they could still be brought in federal court. Under Federal Rule of Civil Procedure 23.1, a derivative action may be entertained in federal court on the basis of diversity jurisdiction.[31] A constituent of a nonprofit corporation who is not a citizen of the state where the corporation has its principal place of business or where the corporation is incorporated may initiate the action.[32] The federal court’s jurisdiction over the matter is not subject to the substantive law of the jurisdiction of organization.[33]As observed in Berg, in reviewing a derivative action brought in federal court on the basis of diversity jurisdiction, “a Federal District Court may, under its general equity powers independently of state statute, entertain a bill of a stockholder for the appointment of at least a temporary receiver to prevent diversion or loss of assets through gross fraud and mismanagement of its officers.”[34] If a derivative action may not be initiated by a corporate constituent in the jurisdiction of organization because of the view that the organic organizational law does not authorize such a suit (for reasons already reviewed as false conclusion), it could be brought by a constituent domiciled in a foreign jurisdiction pursuant to the federal court’s diversity jurisdiction.[35] It would indeed be a strange circumstance if a constituent domiciled in the jurisdiction of organization did not have the capacity to bring a derivative action by which to protect the corporation from potentially disloyal directors even as a constituent domiciled in a foreign jurisdiction could do so.

“Shareholder” Status is NOT a Sine Qua Non to Bringing a Derivative Action

The suggestion that there are not derivative actions in either LLC's or nonprofit corporations on the basis that neither has “shareholders” is, for all intents and purposes, an infantile position. This argument proceeds from the flawed syllogism that derivative actions are brought by shareholders, nonprofit corporations and LLCs do not have shareholders, and therefore there cannot be derivative actions in either nonprofit corporations or LLCs. In the business corporation context, “shareholders” are specifically authorized to bring derivative actions.[36] This does not define, however, the maximum reach of the universe of persons enabled to bring derivative actions. For example, limited partners, who clearly are not “shareholders,” may bring derivative actions.[37] To provide another example, members, who are clearly not “shareholders,” in a limited cooperative association may bring derivative actions.[38] Likewise, in a statutory trust, a beneficial owner, who is not a “shareholder,” may bring a derivative action.[39] Although not yet clearly addressed in Kentucky law, it has been recognized that a creditor may bring a derivative action with respect to a corporation, a capacity that exists irrespective of the fact that the creditor is not a “shareholder.”[40] In Bernfield v. Kurilenko, the widow and heir of a shareholder in a professional corporation in which she could not be a shareholder[41] was permitted to maintain a derivative action on behalf of the corporation in which her husband had been a shareholder.[42] Partners in a general partnership have been permitted to bring a derivative action.[43] The assertion that only “shareholders” may bring derivative actions does not stand up to even minimal scrutiny.Slightly (but only barely so) more sophisticated is the assertion that shareholder or similar “ownership” status, i.e., the capacity to receive interim or liquidating distributions, is a necessary precondition to the capacity to bring a derivative action as only a person with such an interest has an interest to protect through the derivative action. This assertion fails on its own terms. A derivative action exists not to enforce a right of a shareholder or other potential participant in the economics of the venture, but rather to protect the venture’s interest in its own assets. For this reason various actions seeking only injunctive (and no monetary) relief are structured as derivative actions. For example, an action to compel the corporation to produce records or hold a meeting is derivative in nature. Regardless, “shareholder” status is not a sine qua non to bringing a derivative action.

Numerous Courts That Have Expressly Considered the Question Have Found There to Be Derivative Actions Absent a Statute

In addition to the decision rendered by the New York Court of Appeals in Tzolis v. Wolff,[44] although decided in the context of an LLC,[45] numerous courts have squarely addressed the question of whether, ab initio, derivative actions exist in a nonprofit corporation absent a statute to the effect.Addressing who should have standing to bring a derivative action in a nonprofit organization, the Arkansas Court of Appeals, in Morgan v. Robertson, observed:

It should be recognized, however, that Morgan's standing to bring this suit need not rest alone on his status as a member of the Foundation, as he professes to be an officer and a director of the Foundation and assuming that to be so, he has the necessary standing to complain against the sort of acts charged in the complaint. We believe an officer, director and a member of a non-profit corporation is not without standing to question the management and conduct of other officers and directors which are alleged to be in violation of the By-Laws and Articles and against the purposes of the corporation. If such an individual lacks standing, who would have it? We regard the public as having a clear interest in non-profit corporations from the standpoint of the faithful administration of the affairs of the corporation. The standing of one or more directors of non-profit corporations to act derivatively in behalf of the corporation does not seem open to question.[46]

In Kirtley v. McClelland, the court addressed the question of whether, in the context of a nonprofit corporation organized under a statute that did not address derivative actions, could such an action be brought.[47] The court held that it could:

Nonetheless, we are convinced that equitable redress would have been available at common law for members of a nonprofit corporation or an incorporated voluntary association had such plaintiffs sought to utilize it.

First, there is nothing about the remedy itself which warrants distinctive treatment based upon corporate purpose, for a derivative action by nature has as its aim the non-pecuniary benefit of the corporation, not the individual stockholder or member. A stockholder is permitted to sue on behalf of the corporation, not because his rights have been violated, but simply as a means of setting in motion the judicial machinery of the court. The stockholder commences the action and prosecutes it, but in every other respect the action is brought by the corporation; it is maintained directly for the benefit of the corporation and final relief when obtained belongs to the corporation. . . .

The absence of a statutory procedure for initiating a derivative action by a not-for-profit corporation when one has been affirmatively provided for for-profit corporations does not require the conclusion that statutory authorization is a necessity either. A court of general jurisdiction has inherent equitable power unless a statute either explicitly or by necessary implication provides otherwise. The Not-for-Profit Corporation Act does not expressly bar derivative actions by members of a nonprofit corporation.[48]

In the Tennessee case of Bourne v. Williams, it was held that a derivative action could be brought on behalf of a nonprofit corporation notwithstanding statutory language that could be read to restrict derivative actions to for-profit ventures.[49] In the course of its decision, the Bourne Court cited with approval Fletcher’s Cyclopedia for the proposition: “[t]he right of a stockholder to sue is not affected by the nature or kind of the corporation, and the law pertaining to derivative suits applies to a non-profit corporation exactly the same as if it were a business corporation….”[50] Explaining the need for derivative actions in nonprofit corporations, the court wrote:

[i]t would be unconscionable for this Court to say, that in a case such as this, simply because the corporate entity was organized as a corporation not for profit as opposed to a corporation for profit, that there would be no forum available to members of the corporation who believe that the Corporation was being harmed and damaged by alleged illegal and unauthorized acts by its officers and/or directors.

But for being members of a corporation not for profit, as opposed to being stock-holders of a corporation for profit, the plaintiffs have stated a cause of action in their complaint.[51]

A decision of a Florida intermediate appellate court, Fox v. Professional Wrecker Operators of Florida, Inc., addressed the question of derivative actions in a nonprofit corporation where the statute was silent as to the issue.[52] Prior to 1993 the Florida Nonprofit Corporation Act incorporated by reference the Florida Business Corporation Act, the latter providing for derivative actions, but in a 1993 amendment that linkage was eliminated.[53] In this decision the court determined that notwithstanding the severing of the linkage to the business corporation act and its provisions on derivative actions, there is no basis for depriving members in a nonprofit corporation of standing to protect its rights through a derivative action.[54] A similar ruling was issued in Larsen v. Island Developers, Ltd., where the court noted that the derivative action exists “as relief from ‘faithless directors and managers,’” that arose in equity “long before the legislature countenanced such suits by inclusion of statutory references to derivative actions.”[55]The only contrary holding in Kentucky is that rendered in Porter v. Shelbyville Cemetery Co., wherein a former trustee was denied the right, as a trustee, to on behalf of a de facto (but not de jure) corporation, bring a derivative action challenging certain actions alleged to be ultra vires.[56] For a variety of reasons this decision should not be followed. Initially, it is unpublished and therefore by its terms without precedential value. Second, it deals with a former corporation that had forfeited its charter for failure to satisfy express legal requirements imposed at the time the new constitution was adopted, rather than with a nonprofit corporation incorporated under KRS chapter 273.[57] Third, the de facto trustee (i.e., director) who sought to bring the action had been removed from that office prior to bringing the action, eliminating application of the rule that directors are at times permitted to initiate derivative actions.[58] Fourth and most telling, notwithstanding excellent briefing to the court, neither side identified to it the express provisions of the Nonprofit Corporation Acts to the effect that any other variety of persons affiliated with a nonprofit corporation may bring an action to preclude to from engaging in ultra vires conduct.[59] Fifth, the Kentucky Court of Appeals, in Fenley v. Kamp Kaintuck, Inc., clearly thought the questions of derivative actions in nonprofit corporations to be open even as it applied derivative action rules.[60] Simply put, the Porter v. Shelbyville Cemetery decision is in conflict with the current statute governing nonprofit corporations. Alternatively, if Shelbyville Cemetery was at most a de facto corporation or some other extra-statutory form, then the decision is not about nonprofit corporations. Either way, this decision does not merit being afforded precedential value.

The Equity Requirements of the Demand and Contemporaneous Ownership Requirements

In Hawes v. City of Oakland, the U.S. Supreme Court required that the plaintiff in a derivative action have sought redress through direct action by the corporation (the “demand requirement”) and have owned the shares in the corporation at the time of the asserted injury (“or that [the] shares had since devolved [to him or her] since by operation of law”).[61] This contemporaneous ownership requirement has been repeated in Kentucky, both in statutory and case law,[62] but the existence of the requirement long predated its reduction to statute.[63] It has well been applied in the context of Kentucky nonprofit corporations. In Fernley v. Kamp Kaintuck, Inc., a derivative complaint brought by former members of a nonprofit corporation was dismissed on the basis that the plaintiffs were not current members.[64]In a derivative action brought on behalf of a nonprofit corporation, the plaintiff must be expected to either make a demand or plead futility. If it is a membership organization, the plaintiff must also plead that they are a member and are able to represent the interests of similarity situated members in representing the interests of the corporation. Other possible positions granting appropriate standing are discussed below.[65]

The Direct vs. Derivative Distinction

Kentucky courts are vigilant in preserving the direct versus derivative distinction, thereby preserving for the corporation any damages that flow from the breach of duty to the corporation and precluding an individual shareholder from directly receiving that recovery. In doing so, the courts have shown no inclination to adopt the rule set forth in section 7.01(d) of the ALI Principles of Corporate Governance.[66]To place a pair of bookends on a consistent string of rulings, begin with the 1908 decision rendered in Reinecke v. Bailey.[67] In that case, one of the company’s three shareholders embezzled a significant amount of money.[68] The majority shareholder sought to settle the claim on terms that included the embezzling shareholder transferring to the majority shareholder his shares in the corporation.[69] In response to the argument that due to the few number of shareholders it should be permissible to settle the matter between them, the court wrote:

But this argument is not sound, nor is it supported by any authority. There is no escape from the proposition that the wrong, if any, committed by appellee, was against the corporations; that the money he embezzled, if any, was the property of the corporation. This seems conclusive of the question that any settlement concerning the wrongful acts of appellee upon which an action could be maintained must have been made by and with the corporations, and that a suit to enforce the settlement must be in the name of the corporations. No matter how many shares of stock Reinecke and Bailey owned, they were merely shareholders in the corporation. . .

This controversy is not an individual matter between Reinecke and Bailey. Nor does the fact that Reinecke owns the principal interest in the stock of the corporations confer upon him the right to make the corporate business a personal matter. . .

It is well settled that an action to recover corporate property must be brought in the name of the corporation, and that such an action cannot be maintained by one or more stockholders unless it….[70]Thus there is a dual nature of the stockholder’s action: first the plaintiff’s right to sue on behalf of the corporation and, second, the merits of the corporation’s claim itself.[71]Of more recent vintage is Sahni v. Hock, a 2010 decision of the Court of Appeals.[72] That dispute involved allegations by a minority shareholder that the majority shareholder, through his domination of the Board of Directors, caused the company to engage in certain transactions that had the net effect of reducing the value of her shares.[73] Ultimately, even if true, the effect of the allegedly improper conduct was to divert funds from the corporation, only indirectly reducing the value of each shareholder’s stock. Since the corporation was the only entity to suffer direct injury, the claim was derivative, and therefore the plaintiff’s efforts to bring the claim individually were rejected.[74]Typically, the direct versus derivative distinction will not be as complicated an issue in the nonprofit realm as it is in the for-profit ventures. That is not to say, however, that it will be absent. While in a traditional charity there is no expectation of personal inurement, many organizations do not have such strict limits. A person who purchases a membership in a country club has obvious (and entirely proper) expectations as to the use of the facilities; deprivation of that use may raise mixed direct and derivative claims.

Alignment

Any recovery in a derivative action will be for the benefit of the venture on whose behalf the action is brought; it is its rights that are being vindicated. Even so, as the action is brought against the wishes of those with management control of the venture, typically it will be aligned as a defendant in the action.[75] As observed by the U.S. Supreme Court in Ross v. Bernhard, “[t]he corporation is a necessary party to the action; without it the case cannot proceed. Although named a defendant, it is the real party in interest, the stockholder being at best the nominal plaintiff.”[76]

A Jury Trial for Derivative Actions

Notwithstanding that the derivative action arose in equity, the Supreme Court has held that derivative actions may be tried by a jury.[77] While the ability of the shareholder to initiate the action on the corporation’s behalf may have arisen in equity, the corporation’s claim for redress is legal in nature – hence, a jury trial.

Settlement Requires Court Approval

Settlement of a derivative action requires court approval, even if not mandated by statute.[78] For example, in Denicke v. Anglo California Nat. Bank of San Francisco, it was observed that the task of the shareholder initiating a derivative action is to “set in motion the judicial machinery of the court”[79] to the effect that: “his position in the litigation is assimilated to that of a guardian ad litem with power in the court, not in the stockholder, to compromise the rights of the real party in interest, which is the corporation itself.”[80]Predating this decision by almost forty years is a Kentucky decision utilizing similar language. In Louisville Bridge Co. v. Dodd,[81] the court addressed the respective roles of the plaintiff minority shareholders and the court:

[The plaintiff shareholders are] always subject to the control of the court. It is at last the judgment of the latter, in the application of principles of equity, that obtains in lieu of the discretion of the board of directors. The minority stockholder merely sets in motion the action, and presents the facts upon which the court can act.[82]

Recovery of Attorney Fees by a Successful Plaintiff

As noted above, Louisville Bridge Co. was decided at a time when Kentucky’s corporate law did not address or authorize derivative actions. As such, statutes were silent concerning the ability of the shareholder plaintiff to recover attorney fees. With respect to that capacity, the Louisville Bridge Court wrote: “[a] necessary incident of the power and right to maintain such an action is the power to employ counsel to prosecute it, and to incur other necessary expenses in the litigation.”[83]From there, the court explained that plaintiff’s counsel’s fee should be paid by the corporation: “[s]o far as the causes of action set up in this suit have succeeded, counsel representing the plaintiffs are to be deemed as representing the corporation, upon like principles as the plaintiffs themselves are deemed its representatives.”[84]Consequently, while the right of a plaintiff to recover attorney fees expended on behalf of the corporation has in Kentucky been often reduced to statute,[85] the right exists even absent a statute.[86]

Recovery of Attorney Fees from an Unsuccessful Plaintiff

It does not appear, based upon a review of Kentucky law, that the entity and other defendants have a right in common law to seek recovery of attorney fees from a plaintiff whose claim is unsuccessful.[87] As such, while the directors named as defendants may have rights of advancement and indemnification from the corporation’s assets,[88] the corporation appears to lack a basis for making a claim against the persons that on the corporation’s basis initiated the suit.[89]

Special Litigation Committee

It does not appear, based upon a review of Kentucky law, that the entity and the other defendants have the right in common law to appoint a special litigation committee and to thereby effect a dismissal of the action. Therefore, a special litigation committee may not be available unless provided for by statute or in the organic documents such as the Articles of Incorporation and Bylaws.[90]

Non-Profit Status is Not a Bar to Derivative Actions, But it Raises Questions of Standing

Some may assert that non-profit status should preclude derivative actions as there is no pecuniary interest to protect. There are at least two failures in this proposition. First, it fails to account for the broad range of activities undertaken by nonprofit organizations. Second, it ignores the fact that a derivative action exists not to protect the plaintiff’s interest in the organization, but rather the organization’s interest in the proper application of its assets.The range of activities undertaken in nonprofit organizations[91] is broad and includes charitable ventures such as the United Way,[92] the American Red Cross[93]and USA Harvest,[94] benevolent organizations such as the Elks,[95] religious organizations such as the Little Sisters of the Poor[96] and the Abbey of Gethsemani,[97] athletic organizations,[98] residential condominium associations,[99] and private country clubs.[100] It is beyond contravention that each of these classes of organizations serves different constituencies and none of these classes of organizations are exempt from the ravages of poor management. It is likewise true that some or all of these organizations are subject to pressures that may limit or preclude the bringing of suit in order to make the corporation whole for losses suffered at the hands of those in management.[101] While some may lament and caterwaul that bringing to light breakdowns in oversight in nonprofit organizations will reduce if not eliminate the likelihood of further support,[102] it must be acknowledged that such organizations should not be supported and that the public who invests in nonprofit organizations through the contribution of time and money (irrespective of charitable status) should be made aware that those particular bodies are not good stewards. Furthermore, publication of failures serves to advise other organizations of the need to police their inner workings as a means of protecting their respective reputational bonds.[103]While federal tax law may impose limitations that address certain violations of fiduciary duties,[104] these penalties cannot be seen as the exclusive means of policing fiduciary conduct in the nonprofit realm. First, many nonprofit organizations, such as benevolent and athletic organizations, are not within the scope of Code section 501(c)(3) and are therefore not subject to those limitations. Second, the limitations imposed by the federal tax law are not co-extensive with the fiduciary obligations imposed by state law upon those who agree to manage nonprofit organizations. For example, while it may be questioned whether the board of a corporation that has suffered systematic embezzlement has satisfied its duty to act in good faith as exemplified by the Caremark decision,[105] limitations imposed by the federal tax law on self-dealing, excess personal benefit and similar transactions do not address or provide a means of remedying that failure.All of which explain why derivative actions are necessary in nonprofit corporations, but without addressing who should have the capacity to initiate such an action. In light of the many ways in which a nonprofit corporation may be structured, courts should be afforded significant leeway in determining that particular actors have a sufficient interest in the venture to initiate the court’s investigation of management’s discharge of its obligations. Clearly, ab initio members of a membership corporation should be afforded the capacity to initiate a derivative action.[106] As observed by leading commentators in the field of corporate governance:

Nonprofits do not have shareholders, but there may still be constituencies who arguably should be able to bring derivative suits. For example, in a membership nonprofit, the ability to bring a derivative suit could be conferred on members. Directors, as members of the governing board, could also be given the ability to sue derivatively on the organization’s behalf.[107]

Also, irrespective of whether the corporation has members, individual directors should be able to initiate a derivative action.[108] Often directors will have the most immediate knowledge of the need to bring a derivative action and they are therefore in the best position to protect the corporation’s interest. The ability of a director to initiate a derivative action on the corporation’s behalf has precedent in the law of trusts wherein a co-trustee may bring suit against another trustee to challenge the latter’s conduct violating the trust’s terms.[109]While some may lament that such an open policy to bringing derivative actions invites ill-conceived and even abusive suits, the protections of the demand rule will remain in place, as does the ability of the court to determine that a constituent seeking to initiate a suit does not adequately represent the corporation’s interests. Simply put, the absence of a significant member of nonprofit derivative actions even in those states where they are expressly recognized by statute evidence that fears of abuse are unjustified. Likewise, the rarity of nonprofit derivative suits even where they are by statute expressly allowed demonstrates the fallacy of the argument that they may limit the pool of available directors. At the same time, it should be acknowledged that the risk of enforcement of the fiduciary duties undertaken by directors of nonprofit corporations[110] serves to focus attention and enhances the possibility of real oversight. Simply put, individuals who are not willing to become informed as to the activities of a nonprofit corporation and who are not willing to attend and actively participate in board oversight[111] should not stand for election to boards. In that manner, fiduciary exposure is ab initio avoided.Persons who would lament the very existence of derivative actions in a nonprofit corporation and the potential diversion of assets away from charitable purposes towards the defense of perhaps ill-conceived derivative suits should recognize the capability, by statute, of minimizing such possible disruption. As observed in Fletcher’s Cyclopedia:

A nonprofit corporation statue may impose more stringent standards for bringing a derivative proceeding [in the context of a nonprofit corporation] than those imposed in the context of a for profit corporation, such as requiring the action be supported by a stated minimum percentage of the corporation's members. The purpose of such a requirement is to prevent a nonprofit corporation from having to incur legal expenses when there is not a showing at a minimum number of members support the suit.[112]

Again, these limitations must arise by affirmative statute; they do not exist at common law. At the same time, the barriers to bringing a derivative action and thereby bringing to light potential misconduct by those in control of the venture should not be set so high as to preclude the likelihood of appropriate policing of fiduciary obligations.

Conclusion

Derivative actions provide a powerful tool for ensuring that those charged with control of a venture properly see to its management. Answering the question of “who will watch the watchers?,” the derivative action provides a means by which the discharge of the managerial function may be policed, giving true effect to the fiduciary and other obligations imposed on (and voluntarily undertaken by) those entrusted with oversight and control of the venture.Where the statute governing an organizational form lacks an express provision addressing derivative actions, equity will supply the rules for actions in that context. There is no justification for the view that in the absence of a statute on derivative actions they do not exist, just as there is no justification for the view that the capacity to bring a derivative action is dependent upon shareholder status.For purposes of clarity, assuming there can be agreement as to the terms thereof, it would be of benefit that all organizational forms expressly address the requirements for derivative actions; there exists as well the question as to whether a single statutory provision common to all organizational forms would be the best means of addressing the question. Until that day, where the statute is silent, reference needs to be made to equity to ascertain the mechanism by which the watchers will be watched.

---

[1] Thomas E. Rutledge is a member of Stoll Keenon Ogden PLLC resident in the Louisville, Kentucky, office. A frequent speaker and writer on business organization law, he has published in journals including The Business Lawyer, the Delaware Journal of Corporate Law, the American Business Law Journal and the Journal of Taxation, and is an elected member of the American Law Institute.

[2] Ky. Rev. Stat. Ann. §§ 275.001–.540 (West, Westlaw through 2014 Legislation).

[3] Id. §§ 273.161–.390 (West, Westlaw through 2014 Legislation).

[4] A “derivative action” is subject to at least two definitions. The first is that it is an action brought in the name and for the benefit of a business entity, other than by the business entity, to enforce its rights. The second, that it is an action brought in the name and for the benefit of a business entity against the wishes of those otherwise in control of the entity, in the name and for the benefit of the entity to enforce its rights.

[5] Derivative actions are provided for in Ky. Rev. Stat. Ann. § 271B.7–400 (West, Westlaw through 2014 Legislation) (relating to business corporations); id. §§ 362.511 to .517, 362.2-932 to -935 (relating to limited partnerships); Ky. Rev. Stat. Ann. § 386A.6-110(2) (relating to statutory trusts). See also id. §§ 272A.13-010 to -050 (relating to derivative actions in limited cooperative associations). The first Kentucky statute recognizing the right to bring some form of derivative action was not adopted until 1946, significantly subsequent to the clear appearance of the “derivative action” in Kentucky law. See Act of March 21, 1946, ch. 141 §§ 381, 425, 1946 Ky. Acts, repealed by Act of March 17, 1972, ch. 274 §§ 1195, 1308, 1972 Ky. Acts.

[6] Ky. Rev. Stat. Ann. §§ 275.001–.540 (West, Westlaw through 2014 Legislation); id. §§ 273.161–.390. The statement that the Kentucky Nonprofit Corporation Acts is silent as to “derivative actions” sould be clarified. While the label “derivative” is not therein employed, and while the statute does not have a detailed procedural provision equivalent to that found in other acts, see, e.g., id. §§ 272A.13-010 to -050, suits on behalf of the entity initiated by other than the board of directors are clearly contemplated. In response to actions that may be ultra vires, the statute contemplates “a proceeding by a member or a director against the corporation to enjoin” the improper action. Id. § 273.173(1). Further, the statute contemplates a “proceeding by the corporation” acting “through members in a representative suit, against the officers or directors of the corporation for exceeding their authority.” Id. § 273.173(2). Working from the supposition that actions of the board of directors that do not satisfy the aspirational standard of conduct fall within “exceeding their authority,” then the Kentucky Nonprofit Corporation Acts does by statute authorize derivative actions on behalf of a nonprofit corporation. Furthermore, Ky. Rev. Stat. Ann. § 273.215(6) refers to a “person bringing an action for monetary damages” based upon a director’s failure to discharge their fiduciary obligations. Accord id. § 273.229(6) (detailing an equivalent provision as to officers of a nonprofit corporation). In neither instance is “the person” bringing an action to vindicate the rights of the corporation (and bearing the defined burden of proof) restricted to the corporate entity itself. See also id. § 273.161(14) (defining a person as including an individual and an entity). Further, it is provided that each director consents to the jurisdiction of the Kentucky courts with respect to “any action by, in the name of, or on behalf of the corporation.” Id. § 273.211(5). A suit “in the name” or “on behalf” of the corporation in which a director is named as a defendant is clearly derivative in nature. See also Thomas E. Rutledge, The 2012 Amendments to Kentucky’s Business Entity Statutes, 101 Ky. L.J. Online 1, 7 (2012) (describing the provision as applying “when a derivative action is filed against [a] director.”).

[7] See also Ky. Rev. Stat. Ann. § 275.003(1) (West, Westlaw through 2014 Legislation).

[8] See, e.g., Pixler v. Huff, No. 3:11-CF-00207-JHM, 2012 WL 3109492, *3 (W.D. Ky. July 31, 2012) (applying in the context of an LLC the test traditionally applied in corporations as to the direct versus derivative distinction and determined whether certain claims brought by a member could be brought only on a derivative basis); id. (“Therefore, Plaintiff may maintain her claims against the Defendants only where she has suffered an injury that is separate and distinct from that which would be suffered by other members or the LLC as an entity.”); R.C. Tway Co. v. High Tech Performance Trailers, LLC, No. 3:12-CV-122, 2013 WL 842577, *3 (W.D. Ky. Mar. 6, 2013) (“Each of the claims identified above clearly alleges that High Tech or Hanusosky violated some duty it owed directly to [Performance Trailers], thus causing [Performance Trailers] injury. As [Performance Trailers] is the allegedly injured party for each of these claims, it is the one that is entitled to enforce the rights granted by substantive law. Accordingly, [Performance Trailers] is not a nominal party, but instead is a real party in interest as to those claims.”); Chou v. Chilton, Nos. 2009-CA-002198-MR, 2009-CA-002284-MR, 2014 WL 2154087, *4 (Ky. Ct. App. May 23, 2014) (“[The LLC] and not Chou himself would benefit from any recovery for the misappropriation of funds and opportunities. . . . While Chou may or may not receive funds from [the LLC] on dissolution of that company, any wrongs for misappropriation perpetrated by any of the [defendants] would be wrongs against [the LLC] and not Chou individually.”); Turner v. Andrews, 413 S.W.3d 272, 277–78 (Ky. 2013) (rejecting effort by the sole member of an LLC to bring a claim for lost profits on his own behalf rather than on behalf of the LLC.). See also Carter G. Bishop & Daniel S. Kleinberger, Limited Liability Companies: Tax and Business Law ¶ 10.07[2] (2012 and 2014–2 cum. supp.) (“Many LLC statutes expressly authorize derivative actions, but some do not. This distinction should make little difference. Derivative litigation began in the corporate context over 150 years ago without the benefit of statutes, and remains essentially equitable in nature.”) (citation omitted).

[9] See James B. Ames, The Origin of Uses and Trusts, 21 Harv. L. Rev. 261, 265 (1908). While the trust, the separation of legal and beneficial title, may have had its structural genesis in German law, the advance of the English courts of equity was to convert the “‘trustee’s’ obligations from those based upon honor to those enforceable in equity.” See generally Joseph Willard, Illustrations on the Origin of Cy Pres, 8 Harv. L. Rev. 10 (1894). As to the treatment under Kentucky law of the assets of a firm as a “trust fund to be used for the benefit of creditors and shareholders,” see Metropolitan Fire Ins. Co. v. Middendorf, 188 S.W. 790, 794 (Ky. 1916) (citation omitted). The first recognition of the derivative action in American law has been traced to the decision rendered by Chancellor Kent in Attorney General v. Utica Ins. Co., 2 Johns. Ch. *371, *389–90 (N.Y. Ch. 1817), namely:

[b]ut, at the same time, I admit, that the persons who, from time to time, exercise the corporate powers, may, in their character of trustees, be accountable to this Court for a fraudulent breach of trust; and to this plain and ordinary head of equity, the jurisdiction of this Court over corporations ought to be confined.

***

Nor does the case, as charged, amount to a breach of trust, of which I am to take notice. There is no complaint, on the part of the stockholders, of misconduct, nor is the information founded on anything of that kind. If there had been a prosecution instituted for a breach of trust, it would have been by bill, and against individuals by name, calling them to account for the use and benefit of the company at large.

See also Bert S. Prunty, Jr., The Shareholders’ Derivative Suit: Notes on its Derivation, 32 N.Y.U. L. Rev. 980, 987 (1957).

[10] See, e.g., Tzolis v. Wolff, 884 N.E.2d 1005, 1006 (2008) (“[The derivative action] was not created by statute, but by case law.”); Ross v. Bernhard, 396 U.S. 531, 534 (1970) (“The remedy made available in equity was the derivative suit, viewed in this country as a suit to enforce a corporate cause of action against officers, directors, and third parties.”) (emphasis in original). See Prunty, supra note 9, for a further review of the parallel development of the derivative action in English and American law.

[11] Barrett v. S. Conn. Gas Co., 374 A.2d 1051, 1055 (Conn. 1977) (citation omitted).

[12] Juvenal, Satire IX, lines 347–48.

[13] Tzolis, 884 N.E.2d at 1006–07 (citations omitted) (emphasis in original).

[14] See also Weber v. King, 110 F. Supp. 2d 124, 131 (E.D. N.Y. 2000).

[15] While it is certainly difficult to prove a statutory negative, the absence of derivative action provisions in the corporate statute of this era can be confirmed. See generally Gardner K. Byers, Byers on Kentucky Corporations (The W.H. Anderson Company) (1923).

[16] Jones v. Johnson, 73 Ky. (10 Bush) 649, 660 (Ky. 1874).

[17] Collier v. Deering Camp Ground Ass’n., 66 S.W. 183, 183 (Ky. 1902); see also Gregory v. Bryan-Hunt Co., 174 S.W.2d 510, 512–13 (Ky. 1943) (holding that a 50% shareholder could not for himself bring an action based upon injury to corporation and its property).

[18] Pittsburg, C., C. & St. L. Ry. Co. v. Dodd, 72 S.W. 822, 828 (Ky. 1903) (citation omitted).

[19] Reinecke v. Bailey, 112 S.W. 569, 570 (Ky. 1908). The court went on to state that:

It is well settled that an action to recover corporate property must be brought in the name of the corporation, and such an action cannot be maintained by one or more stockholders unless it should be shown that the corporation or its directors declined to bring the action, and that the interests of the stockholders may it necessary that one should be instituted. When this state of case is presented, and action to recover corporate property or to protect the interests of the corporation may be brought by the stockholders.

Id. at 571 (citation omitted). See also Shawhan v. Zinn, 79 Ky. 300, 304 (Ky. 1881); Gilman v. German Lithographic Stone Co., 153 S.W. 996, 997 (Ky. 1913) (setting forth the demand requirement). The futility defense to not having made a demand was seen as early as 1913. See Chilton v. Bell County Coke & Improvement Co., 156 S.W. 889, 890 (Ky. 1913); Lebus v. Stansifer, 157 S.W. 727, 729 (Ky. 1913). In Butler Tobacco Co. v. Vest, the court stated:

The demand may be dispensed with, if the officers have such relations to the acts complained of, or bear such relations to the adversary party, as to show their interests to be antagonistic to the corporation, or that it would be improper for the action to proceed in the name of the corporation while it should remain under their control, in which state of circumstances an action may be maintained or a defense made for the corporation by a stockholder.

178 S.W. 1102, 1105 (Ky. 1915).

[20] Butler Tobacco Co., 178 S.W. at 1104; Lebus, 157 S.W. at 729; Chilton, 156 S.W. at 890; Gilman, 153 S.W. at 997 (demonstrating the requirement in equity to have made demand or be able to plead the futility hereof).

[21] See Ky. Rev. Stat. Ann. § 273.187(2) (West, Westlaw through 2014 Legislation); id. § 275.150(1); id. § 275.240(1) (showing that both the LLC and the nonprofit corporation utilize the same rules of affirmative and negative asset partitioning as does the business corporation, rules that create the cestui que trust equivalency that initially gave rise to the derivative action.).

[22] See also Charles Kerr, Responsibilities of Officers and Directors of Private Corporations, Proceedings of the 11th Annual Meeting of the Kentucky State Bar Association, 136, 139–40 (1912), reprinted in Charles Kerr, Responsibilities of Officers and Directors of Private Corporations, 47 Am. L. Rev. 561, 563–64 (1913).

[23] Examples include LLCs, nonprofit corporations, limited partnerships governed by the pre-1970 law, and limited partnerships governed by the 1970 limited partnership act. See Act of March 20, 1970, ch. 97 §§ 1-27, 1970 Ky. Acts. While it is entirely accurate that much of the law of corporations and other business organizations has been reduced to statute, and for that reason the first reference needs to be to the organizational act, see Pannell v. Shannon, 56 S.W.3d 58, 79 (Ky. 2014), it remains true that not every rule governing business organizations has been reduced to statute. For example, while it is uncontroverted that corporate directors may not vote by proxy, that rule is not set forth in the Kentucky statutes governing corporations. See, e.g., Haldeman v. Haldeman, 197 S.W. 376, 381 (Ky. 1917); 2 Arthur W. Machen, Jr., A Treatise on the Modern Law of Corporations §§ 1455, 1458 (Little, Brown & Co. 1908).

[24] See, e.g., Marbury v. Madison, 5 U.S. 137, 163 (1803); Leo Feist, Inc. v. Young, 138 F.2d 972, 974 (7th Cir. 1943); see also 1 Fred E. Lawrence, A Treatise as to the Substantive Law of Equity Jurisprudence § 38 (1929).

[25] See Ky. Rev. Stat. Ann. § 273.215 (West, Westlaw through 2014 legislation) (regarding directors); id. § 273.227 (regarding officers). Of themselves these standards are the same as those applied to directors and officers of business corporations. See id. §§ 271B.8-300, -420. All of those provisions were adopted in 1988. See Act of April 15, 1988, ch. 23 §§ 85, 89–90, 133, 149, 1988 Ky. Acts. Likewise the LLC Act specifies the fiduciary obligation of the members, if the LLC is member managed, and of the managers, if the LLC is manager managed. See Ky. Rev. Stat. Ann. §§ 275.170(1)-(2), (4).

[26] Ky. Rev. Stat. Ann. § 273.215(1)(c) (West, Westlaw through 2014 legislation); Ballard v. 1400 Willow Council of Co-Owners, Inc., 430 S.W.3d 229, 241 (Ky. 2013) (stating that fiduciary duties of directors are owed to the corporation and not to the individual members thereof). In the context of the LLC the duty of care is owed to the LLC and the other members while the duty of loyalty is owed only to the LLC. See Ky. Rev. Stat. Ann. § 275.170(1)–(2). See also Thomas E. Rutledge, Limited Liability Company Operations, Limited Liability Companies in Kentucky 1, 48–67 (2014-1 Supp.), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=212920. [hereinafter Limited Liability Company Operations].

[27] Ky. Rev. Stat. Ann § 273.215(5) (West, Westlaw through 2014 legislation).

[28] See id. § 273.207 (West, Westlaw through 2014 legislation) (“The affairs of a corporation shall be managed by a board of directors.”). The management structure of an LLC is determined by private ordering in the operating agreement. Even where the LLC is managed by managers, there is a statutory option by which the members may cause the LLC to initiate a legal action, including against a manager. See id. § 275.335(1). Such a suit is not, however, a derivative action. Limited Liability Company Operations, supra note 26, at 109.

[29] See Wilson v. Payne, 288 S.W.3d 284 (Ky. 2009); see also Mary C. Garris, “Adverse Domination” – Tolling the Statute of Limitations in Kentucky Business Organizations, 99 Ky. L. J. Online 36 (2011).

[30] See Ky. Rev. Stat. Ann. § 273.233 (West, Westlaw through 2014 Legislation) (“All books and records of a corporation may be inspected and copied by any member . . . for any proper purpose at any reasonable time.”). In American Saddlebred Horse Association, Inc. v. Bennett, No. 09-CI-5292, at *5–7 (Ky. Cir. Ct. Dec. 2, 2010), Judge Ishmael of the Fayette Circuit Court held that this statute should be read broadly, and that the “All books and records” would not be limited to the list enumerated in the preceding sentence of the statute.

[31] Fed. R. Civ. P. 23.1.

[32] 28 U.S.C. § 1332(c)(1) (West, Westlaw through 2014 Legislation) (stating that a corporation is a citizen of its jurisdiction of incorporation and that in which it maintains its principal place of business).

[33] See, e.g., Berg v. Cincinnati, Newport & Covington Ry. Co., 56 F. Supp. 842, 847 (E.D. Ky. 1944).

[34] Id. at 846–47.

[35] 28 U.S.C. § 1332(a)(4).

[36] Model Bus. Corp. Act § 7.41 (2002); Ky. Rev. Stat. Ann. § 271B.7-400(1) (West, Westlaw through 2014 Legislation).

[37] See, e.g., Ky. Rev. Stat. Ann. §§ 362.511–.517. (West, Westlaw through 2014 Legislation); id. §§ 362.2-932– .935; Revised Unif. Ltd. P’ship Act §§ 1001–04 (amended 1985), 6B U.L.A. 370–85 (Supp. 2008); Unif. Ltd. P’ship Act §§ 1002–05, 6A U.L.A. 500–02.

[38] See Ky. Rev. Stat. Ann. § 272A.13-010 (West, Westlaw through 2014 Legislation); Unif. Ltd. Coop. Ass’n Act §§ 1301–05, 6A U.L.A. 295–98 (Supp. 2008).

[39] Ky. Rev. Stat. Ann. § 386A.6-110(2) (West, Westlaw through 2014 Legislation).

[40] See, e.g., N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92, 101 (Del. 2007); In re Trailer Source, Inc., 555 F.3d 231, 240 (6th Cir. 2009); Sanford v. Waugh & Co., Inc., 328 S.W.3d 836, 839 (Tenn. 2010).

[41] See N.Y. Bus. Corp. Law § 1507 (McKinney 2014).

[42] Bernfield v. Kurilenko, 937 N.Y.S.2d 314, 314 (N.Y. App. Div. 2012).

[43] See, e.g., George Wasserman & Janice Wasserman Goldsten Family L.L.C. v. Kay, 14 A.3d 1197, 1215–16 (Md. Ct. Spec. App. 2011) (stating the partner’s “ability to act on behalf of the partnership” may be ineffective when those with the controlling interests are unwilling to cause the partnership to sue those in control for alleged misconduct, in which case the “partnership claim may be enforced by all of the disinterested partners.”) (emphasis supplied); Cates v. Int’l Tel. & Tel. Corp., 756 F.2d 1161, 1179 (5th Cir. 1985) (“[w]here the controlling partners, for improper, ulterior motives and not because of what they in good faith believe to be the best interests of the partnership, decline to sue on a valid, valuable partnership cause of action which it is advantageous to the partnership to pursue.” the minority partners must have a right to initiate the action).

[44] See supra notes 10–12 and accompanying text.

[45] Tzolis v. Wolff, 884 N.E.2d 1005, 1006 (N.Y. Ct. App. 2008).

[46] Morgan v. Robertson, 609 S.W.2d 662, 664–65 (Ark. Ct. App. 1980).

[47] Kirtley v. McClelland, 562 N.E.2d 27, 29 (Ind. Ct. App. 1990) (identifying the issue raised on appeal as “[w]hether the court erred in denying defendant’s motion to dismiss the second amended complaint where no Indiana statutory or common law authority exists for a shareholder’s derivative suit against a non-profit corporation.”). See also id. (“The directors emphasize the absence of express statutory authorization in the Indiana Not-for-Profit Corporation Act of 1971 . . . and case law addressing use of the derivative remedy by members of nonprofit corporation.”).

[48] Id. at 30-31 (citation omitted); see also Brenner v. Powers, 584 N.E.2d 569, 574 (Ind. Ct. App. 1992).

[49] Bourne v. Williams, 633 S.W.2d 469, 471–72 (Tenn. Ct. App. 1981).

[50] Id. at 472 (citation omitted). Since then, the source the court relied on has been rewritten and now provides: “[t]he preconditions for a derivative proceeding may not be affected by the kind of corporation; the procedural requirements governing such actions may apply to a nonprofit corporation exactly as if it were a business corporation.” 13 William Meade Fletcher, et al., Fletcher’s Cyclopedia of the Law of Private Corporations § 5972.60 (2004) (citation omitted). In Leeds v. Harrison, the court stated that:

[u]nlike most corporations for profit, a corporation not for pecuniary profit normally has no stockholders, but in place thereof it has members. The same rights and liabilities exist between the trustees of a non-profit corporation and the members as exist between the directors and stockholders of a corporation for profit. The suit here brought may be likened to a derivative or representative suit brought in connection with a stock corporation. The law applicable to such suits is, so far as is here pertinent, applicable to this suit.

72 A.2d 371, 377 (N.J. Super. Ct. Ch. Div. 1950).

[51] Bourne, 633 S.W.2d at 473.

[52] Fox v. Prof’l Wrecker Operators of Fla., 801 So. 2d 175, 179 (Fla. Dist. Ct. App. 2001).

[53] Id.

[54] Id. at 180.

[55] Larsen v. Island Developers, Ltd., 769 So. 2d 1071, 1072 (Fla. Dist. Ct. App. 2000) (citation omitted); see also Nonprofit Corporation Act Task Force, Official Commentary to the Revised Oregon Nonprofit Corporation Act, 71 Or. L. Rev. (Special Issue) 1, 69 (1992) (“While Oregon has no general statutory provision for members’ derivative actions in a nonprofit corporation, a court would likely recognize such an action.”). Further, the article stated that:

[c]ommentators recommend extending the remedy of a derivative action to members of nonprofit corporations. They indicate that while statutes may regulate and occasionally preempt the common law action, a statute has never been thought necessary in order to authorize a derivative action. Indeed, the derivative suit predated derivative suit statutes.

Id. at 70.

[56] Porter v. Shelbyville Cemetery Co., No. 2007-CA-002545-MR, 2009 WL 722995, at *4 (Ky. Ct. App. Mar. 20, 2009).

[57] Id. at *1 (“Grove Hill failed to comply with any of the requirements of Chapter 32 and accordingly suffered the revocation of its corporate charter in 1897.”).

[58] Id. at * 2–3.

[59] See Ky. Rev. Stat. Ann. § 273.173 (West, Westlaw through 2014 Legislation). See also supra textual discussion in note 6.

[60] Fenley v. Kamp Kaintuck, Inc., No. 2010-CA-001926-MR, 2011 WL 5443440, at * 3 (Ky. Ct. App. Nov. 10, 2011). Further, in Ballard v. 1400 Willow Council of Co-Owners, Inc., 430 S.W.3d 229, 243–45 (Ky. 2013) Justice Noble’s dissent (joined by Justice Scott) discussed claims that may be brought only on a derivative basis. 1400 Willow was a nonprofit corporation. Id.

[61] Hawes v. City of Oakland, 104 U.S. 450, 460–61 (1882). The court describes this procedure in the following passage:

[H]e [the shareholder] should show to the satisfaction of the court that he has exhausted all the means within his reach to obtain, within the corporation itself, the redress of his grievances, or action in conformity to his wishes. He must make an earnest, not a simulated effort, with the managing body of the corporation, to induce remedial action on their part, and this must be made apparent to the court. If time permits or has permitted, he must show, if he fails with the directors, that he has made an honest effort to obtain action by the stockholders as a body, in the matter of which he complains. And he must show a case, if this is not done, where it could not be done, or it was not reasonable to require it.

The efforts to induce such action as complainant desires on the part of the directors, and of the shareholders when that is necessary, and the cause of failure in these efforts should be stated with particularity, and an allegation that complainant was a shareholder at the time of the transactions of which he complains, or that his shares have devolved on him since by operation of law, and that the suit is not a collusive one to confer on a court of the United States jurisdiction in a case of which it could otherwise have no cognizance, should be in the bill, which should be verified by affidavit.

Id.

[62] See, e.g., Ky. Rev. Stat. Ann. § 271B.7-400(1) (West, Westlaw through 2014 Legislation); id. § 362.513 (West 2007); id. § 362.2-933; id. § 386A.6-110(3); Bacigalupe v. Kohlhopp, 240 S.W.3d 155, 157 (Ky. Ct. App. 2007).

[63] See, e.g., Collier v. Deering Camp Ground Ass’n, 66 S.W. 183, 183 (Ky. 1902) (“and if the company, after proper demand refuses to sue, appellant might maintain an action for the benefit of the corporation.”); Reinecke v. Bailey, 112 S.W. 569, 571 (Ky. 1908). See also Flint v. Jackson, No. 2014-CA-000426-MR, 2014 WL 7206835, at *1, *4 (Ky. App. Dec. 19, 2014) (derivative action dismissed on the basis that shareholder had not plead demand made upon the board and failure to adequately represent the “interests of the similarly situated shareholders in representing the rights of the corporation. . .”).

[64] Fernley v. Kamp Kaintuck, Inc., No. 2010-CA-001926-MR, 2011 WL 5443440, at *3 (Ky. App. Nov. 10, 2011) at *3 (“We are convinced that continuing membership in a nonprofit corporation is an absolute requisite to maintaining a derivative action.”). Curiously, at footnote 2, the Court of Appeals expressly reserved the question of whether a member in good standing may on behalf of a nonprofit corporation bring a derivative action, characterizing the question as moot in light of its resolution of the dispute. See id. at n.2. This explanation is curious in that the claims were dismissed based upon the application of the law of derivative actions. If the derivative action does not exist in the context of a nonprofit corporation, how could the rules of that type of action be applied? One is reminded of the disclaimer for South Park: “All characters and events in this show – even those based on real people – are entirely fictional.”

[65] See infra text accompanying notes 109–112.

[66] See Snyder v. Baumgardner, No. 09-CI-04445, at *3 (Ky. Cir. Ct. Aug. 15, 2010) (rejecting the suggestion that pursuant to Section 7.01(d) of the Principles of Corporate Governance, the plaintiffs be permitted to proceed on an individual, rather than a derivative basis, writing that the Principles had not been adopted by Kentucky courts).

[67] Reinecke v. Bailey, 112 S.W. 569 (Ky. 1908).

[68] Id. at 570.

[69] Id.

[70] Id. at 570–71.

[71] See id. at 571.

[72] Sahni v. Hock, 369 S.W.3d 39 (Ky. Ct. App. 2010).

[73] See id. at 42–44.

[74] Id. at 47. See also NBD Bank, N.A. v. Fulmer, 109 F.3d 229, 229 (6th Cir. 1997); Vinson v. Koerner, No. 2000-CA-001217-MR, at 6 (Ky. Ct. App. Nov. 9, 2001), available at http://law.justia.com/cases/kentucky/court-of-appeals/2001/2000-ca-00121.

[75] See, e.g., Smith v. Sparling, 354 U.S. 91, 92–97 (1957); Doctor v. Harrington, 196 U.S. 579, 585–587 (1905); Gabriel v. Pruble, 396 F.3d 10, 13 (1st Cir. 2005). See also 7C Charles Alan Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure § 1822 (3d. ed. 2007); 19 Am. Jur 2d. Corporations § 2071.

[76] Ross v. Bernhard, 396 U.S. 531, 538 (1970).

[77] See id. at 542–543. See also Right to Jury Trial in Shareholder Derivative Suits, 1970 Duke L.J. 1015, 1031 (1970).

[78] See, e.g., Ky. Rev. Stat. Ann. § 271B.7-400(3) (West, Westlaw through 2014 Legislation); id. § 386A.6-110(6); id. § 272A.13-040.

[79] Denicke v. Anglo California Nat. Bank of San Francisco, 141 F.2d 285, 288 (9th Cir. 1944) (quoting Whitten v. Dabney, 154 P. 312, 316 (Cal. 1915)) (citation omitted).

[80] Id. at 288 (citations omitted). See also Morgan v. Robertson, 609 S.W.2d 662, 663 (Tenn. Ct. App. 1980) (“in derivative suits the corporation is the real party in interest, although the real parties in litigation were the stockholders.”) (citing Breswick & Co. v. O Henry Briggs, 135 F. Supp. 397 (S.D.N.Y. 1955)).

[81] Louisville Bridge Co. v. Dodd, 85 S.W. 683 (Ky. 1905).

[82] Id. at 684; see also Burley Tobacco Co. v. Vest, 178 S.W. 1102, 1105 (Ky. 1915).

[83] Louisville Bridge Co., 85 S.W. at 684.

[84] Id.

[85] See, e.g., Ky. Rev. Stat. Ann. §§ 362.517 & 362.2-935 (West, Westlaw through 2014 Legislation); id. § 386A.6-110(9)(6); id. § 272A.13-050(2)(6). No equivalent provision exists in the Business Corporation Act, although the ability of the prevailing plaintiff to recover attorney fees is not contested.

[86] See Ky. Rev. Stat. Ann. § 412.070 (West, Westlaw through 2014 Legislation); see also Ky. State Bank v. AG Services, Inc., 663 S.W.2d 754, 755 (Ky. Ct. App. 1984) (acknowledging the common fund doctrine).

[87] Compare Ky. Rev. Stat. Ann. § 271B.7-400(4) (West, Westlaw through 2014 Legislation) (subjecting plaintiff to liability for defendant’s attorney fees if the “proceeding was commenced without reasonable cause”), with id. § 386A.6-110(9)(a) (subjecting plaintiff to liability for defendant’s expense and reasonable attorney fees if the “proceeding or any portion thereof was commenced without reasonable cause or for an improper purpose.”). See also id. § 272A.13-050(2)(a). The limited partnership acts are silent as to fee-shifting against the plaintiff.

[88] See Ky. Rev. Stat. Ann. § 273.171(14) (West, Westlaw through 2014 Legislation) (power to indemnify directors and officers). Often corporations will purchase directors and officers insurance as a mechanism of satisfying these obligations. Care needs to be taken to ensure sure that the coverage is effective. See, e.g., Lake Cumberland Report Cmty. Ass’n, Inc. v. Auto Owners Ins. Co., No. 2010-CA-001725-MR, 2012 WL 1758108, at *3 (Ky. Ct. App. May 18, 2012) (finding that coverage should be denied on the basis that the corporation had agreed to indemnify directors from claims asserted).

[89] Rule 11 sanctions will serve to protect the corporation from truly frivolous claims. See Flint v. Jackson, No. 2014-CA-000426-MR, 2014 WL 7206835, at *5–6 (Ky. Ct. App. Dec. 19, 2014) (concurring opinion); see also Sahni v. Hock, 369 S.W.3d 39, 48 (Ky. Ct. App. 2010).

[90] But see Janssen v. Best & Flanigan, 662 N.W.2d 876, 887–88 (Minn. 2003) (allowing use of special litigation committee in context of derivative action brought on behalf of nonprofit corporation). In an LLC, it should be possible to provide for a special litigation committee in the operating agreement.

[91] See generally Ky. Rev. Stat. Ann. § 273.167 (West, Westlaw through 2014 Legislation).

[92] See Deborah A. DeMott, Self-Dealing Transactions in Nonprofit Corporations, 59 Brook. L. Rev. 131, 133 (1993) (“Highly-publicized incidents of self-dealing by directors and executive officers have afflicted several well-known nonprofits in recent years. In the most visible incident, the United Way of America lent $2.1 million in 1990 to a for-profit spinoff headed by the son of United Way's executive director. With the board’s support, the executive director, who received $463,000 annually in compensation, had previously created three for-profit spinoffs that performed services for the United Way and staffed them with friends and family members.”) (citation omitted).

[93] See Kathryn Varn, Police: Woman Embezzled $200k from Red Cross, The Independent Fla. Alligator (Nov. 1, 2013), http://www.alligator.org/news/crime/article_89b2c264-42ac-11e3-8232-001a... see also Former New York Red Cross Financial Director Sentenced for Stealing More than $274,000 from the Humanitarian Organization, N.Y. Daily News (Feb. 27, 2013), http://www.nydailynews.com/new-york/ny-red-cross-worker-sentenced-theft-.

[94] See Andrew Wolfson, Louisville Man Sentenced for Theft from his Charity, The Courier-Journal (Sept, 5, 2014), http://www.cincinnati.com/story/news/2014/09/05/usa-harvest-stan-curtis-sentenced/15136199/.

[95] See Man Accused of Embezzling Money from Elks Lodge, WIVB (June 16, 2014), http://wivb.com/2014/06/16/man-accused-of-embezzling-money-from-elks-lod... see also Thomas Dimopoulos, Saratoga-Wilton Elks Club Fraud Amount Continues to Rise, PostStar.com (Feb. 3, 2011), http://poststar.com/news/local/saratoga-wilton-elks-club-fraud-amount-co.

[96] See Women Pleads Guilty to Embezzling $360,000 from Nuns, N.Y. Daily News (April 3, 2012), available at http://www.nydailynews.com/news/national/women-pleads-guilty-embezzling-... Chicagoan Charged with Stealing from Nuns, Chicago Tribune (April 17, 2010), available at http://articles.chicagotribune.com/2010-04-17/news/ct-met-little-sisters.

[97] See Women Pleads Guilty to Embezzling $360,000 from Nuns, N.Y. Daily News (April 3, 2012), available at http://www.nydailynews.com/news/national/women-pleads-guilty-embezzling-... Chicagoan Charged with Stealing from Nuns, Chicago Tribune (April 17, 2010), available at http://articles.chicagotribune.com/2010-04-17/news/ct-met-little-sisters.

[98] See Christina Hall & Olivia Lewis, Ex-Treasurer Accused of Stealing $300K from Clinton Twp. Little League, Detroit Free Press (Sept. 10, 2014, 8:37 PM), http://www.freep.com/story/news/local/michigan/macomb/2014/09/10/woman-a... Rex Hall Jr., Former Three Rivers Little League President Charged with Embezzling Thousands, MLive (Nov. 27, 2012, 2:26 PM), http://www.mlive.com/news/kalamazoo/index.ssf/2012/11/little_league_pres.

[99] See Ky. Rev. Stat. Ann. § 381.9165 (West, Westlaw through 2014 Legislation) (explaining that condominium associations may be organized as nonprofit corporations); McMillan v. Ryan Jackson Properties, LLC, 753 S.E.2d 373, 375 (N.C. Ct. App. 2014) (derivative action brought on behalf of condominium association organized as a nonprofit corporation); Marucci v. Southwark Realty Co., 2002 Ct. Com. Pl., at *1 (Pa. C.P. Phila. Cnty. May 15, 2002) (on file with author) (derivative action brought on behalf of nonprofit corporation); George Gombossy, Milford Resident Admits Embezzling from Ct Condo Associations, Ct Condo News (May 18, 2014), http://www.ctcondonews.com/2014/05/18/milford-resident-admits-embezzling... Aleese Kopf, Ex-Condo Association President, 82, Arrested on Embezzlement Charges in West Palm Beach, PalmBeachPost.com (July 11, 2014, 6:28 PM), http://www.palmbeachpost.com/news/news/crime-law/former-condo-assn-presi.

[100] John Jimison, Woman Accused of Embezzling from Country Club, The Wilson Times (Dec. 16, 2014, 3:23 PM), http://www.wilsontimes.com/News/Feature/Story/embezzlement-story; Press Release, supra note 29.

[101] See, e.g., Paul L. Davies, The Board of Directors: Composition, Structure, Duties and Powers, Organization for Economic Co-operation and Development, at *6 (Dec. 7–8, 2000), http://www.oecd.org/corporate/ca/corporategovernanceprinciples/1857291.pdf (pointing out that in the absence of strong shareholders, boards are likely to be “captured” by management and become “expressions” of their will even as they are unaccountable to shareholders); see also Richard P. Chait, William P. Ryan & Barbara E. Taylor, Governance as Leadership: Reframing the work of Nonprofit Boards 3 (2005) (discussing capture of management by CEO with board abdication of oversight).

[102] See, e.g., Peter Pitegoff & Dan Boxer, Maine Voices: Lack of Oversight Will Cost Midcoast Charity, Portland Press Herald (Oct. 19, 2014), http://www.pressherald.com/2014/10/19/maine-voices-lack-of-oversight-wil.

[103] See, e.g., Evelyn Brody, Agents Without Principals: The Economic Convergence of the Nonprofit and For-Profit Organizational Forms, 40 N.Y.L. Sch. L. Rev. 457, 461 (1996) (“In the end, the same economic force motivates nonprofit firms as for-profit firms: the desire for a reputation as a worthy recipient of future trade, be it donations, purchase of services, government contracts, or labor.”).

[104] See generally Carter G. Bishop, The Deontological Significance of Nonprofit Corporate Governance Standards: A Fiduciary Duty of Care Without a Remedy, 57 Cath. U. L. Rev. 701, 757–75 (2008) (explaining the policing of the fiduciary duties of loyalty and care through federal tax governance of nonprofit self-dealing and excess transactions).

[105] See In re Caremark Int'l Inc., 698 A.2d 959, 967 (Del. Ch. 1996); see also David B. Shaev Profit Sharing Account v. Armstrong, No. Civ. A. 1449-N, 2006 WL 391931, at *5 (Del. Ch. Feb. 13, 2006); Guttman v. Huang, 823 A.2d 492, 505–06 (Del. Ch. 2003).

[106] Under current Kentucky law, the default is that a nonprofit corporation has members; the absence of members requires an affirmative statement in the articles of incorporation or the bylaws. See Ky. Rev. Stat. Ann. § 273.187(1) (West, Westlaw through 2014 Legislation).

[107] Thomas Lee Hazen & Lisa Love Hazen, Punctilios and Nonprofit Corporate Governance—A Comprehensive Look at Nonprofit Directors’ Fiduciary Duties, 14 U. Pa. J. Bus. L. 347, 411 (2012); see generally Howard L. Oleck & Martha E. Stewart, Derivative Actions and Class Actions, in Nonprofit Corporations, Organizations, & Associations 1364, 1364–67 (6th ed. 1994) (discussing derivative actions in nonprofit corporations, including standing, and offering no suggestion that such actions are improper).

[108] See Fletcher, supra note 50, § 5972.60 (2004) (“Members or directors of nonprofit corporations may have standing to bring derivative proceedings. The plaintiff does not lose standing even though the plaintiff's voting rights may be restricted.”).

[109] See Restatement (Second) of Trusts § 200, cmt. e (1959) (“If there are several trustees, one or more of them can maintain a suit against another to compel him to perform his duties under the trust, or to enjoin him from committing a breach of trust, or to compel him to redress a breach of trust committed by him.”); see also Holt v. Coll. of Osteopathic Physicians and Surgeons, 394 P.2d 932, 937 (Cal. 1964); 19 Am. Jur. 2d Corporations § 2007 (“in the case of membership or nonprofit corporations, a member, may maintain a corporate derivative suit.”); accord Restatement (Third) of Trusts § 94 (2012).

[110] See generally Ky. Rev. Stat. Ann. § 273.215 (West, Westlaw through 2014 Legislation).

[111] See Chait, supra note 101, at 13 (“[Board members] are faulted for not knowing what is going on in their organizations and not demonstrating much desire to find out. Attendance at board meetings is often spotty and participation perfunctory.”).

[112] Fletcher, supra note 50, § 5972.60 (citations omitted); see also, e.g., Minn. Stat. Ann. § 317A.467 (West, Westlaw through 2014 Legislation). The statute states that:

If a corporation or an officer or director of the corporation violates this chapter, a court in this state, in an action brought by at least 50 members with voting rights or ten percent of the members with voting rights, whichever is less, or by the attorney general, may grant equitable relief it considers just and reasonable in the circumstances and award expenses, including attorney fees and disbursements, to the members.

Id.; Wyo. Stat. Ann. § 17-19-630 (“A proceeding may be brought in the right of a domestic or foreign corporation to procure a judgment in its favor by: (i) Any member or members having five percent (5%) or more of the voting power or by fifty (50) members, whichever is less . . .”); Model Nonprofit Corp. Act (Second) § 6.3 (1997); Model Nonprofit Corp. Act (Third) § 13.02 (2008); accord Principles of the Law of Charitable Nonprofit Organizations §§ 550, 560 (Tentative Draft No. 4, 2013).

Not for Human Consumption: How Inept Legislative Policy Proliferates the Synthetic Drug Problem

Note | 103 KY. L. J. ONLINE 3 | Feb. 22, 2015

Todd J. Weatherholt[1]

The "war on drugs"[2] is facing a new opponent, one that is sophisticated and dynamic, but unfortunately whose dangers go widely undocumented.[3] As if there were not enough problems with other classes of drugs for authorities, a new "underappreciated" category - synthetic drugs - has gained tremendous momentum within the last few years in the United States and around the world.[4] These substances, although widely eradicated in neighborhood gas stations and head shops, remain easily obtainable over the internet.[5] The industry, which targets drug-naïve teenagers and young adults through the combination of shiny packaging with familiar cartoon characters and vibrant names such as Ivory Wave, Spice, and Cloud Nine, generates an estimated $5 billion dollars annually.[6] Unfortunately, the synthetic drug enigma facing our nation is not merely the result of these products’ accessibility, but likewise due to their easily manipulative characteristics, which help manufacturers circumvent existing laws.[7] As authorities identify specific chemical components to outlaw, rudimentary chemists simply modify existing drug compositions slightly to escape the law.[8]This note focuses on the two-tier problem of controlling synthetic drugs, from the existing loophole in the federal drug policy, to the difficulty of prosecuting synthetic drug offenders. Synthetic drugs pose an increasingly severe threat in need of an updated 21st century drug policy, instead of a continued reliance on deficient existing laws based on regulating opium, heroin, and cocaine from plants.[9] Part I of this Note discusses two common types of synthetic drugs and the current overall drug policy landscape in the United States. Part II focuses on the rise in popularity of these substances and their potentially disastrous effects on users. Part III, utilizing a recent federal court case and textual uncertainties of the statute, identifies the difficulties surrounding prosecuting manufacturers of synthetic drugs under the existing drug policy. Lastly, Part IV advocates for two promising bills and provides additional modifications that will further assist in improving the synthetic drug problem facing our nation.

I. Background: the Composition, Existing Policy, and Recent Trends of Synthetic Drugs

A. Categories of Synthetic Drugs

In terms of regulation, synthetic drugs fall into two prohibited categories: Cannabinoids and Cathinoes.[10] Although different in effects and chemical formations, problems with these synthetic drugs are similar; therefore, after an initial discussion of each, these categories are synthesized for purposes of this Note. The first category, Synthetic Cannabinoids, initially detected in the U.S. in 2008,[11] are chemicals that mimic the effects of delta-9-tetrahydrocannabinol (THC), the primary psychoactive active ingredient in marijuana.[12] The popularity of these substances was fueled by not only their desired effects, but also the mistaken assumption that they were "legal,"[13] yet the composition of these drugs may be anywhere from two to more than 500 times stronger than regular THC.[14] The second category, Synthetic Cathinoes, commonly referred to as "bath salts" have also risen in popularity in American culture and are dangerous for consumers of the drugs, as well as the authorities regulating their use.[15] Most of these stimulants contain the chemical compounds MDPV (3, 4-methylenedioxypyrovalerone), mephedrone (4-methylmethcathinone), or methylone (3, 4-methylenedioxymethcathinone),[16] which mimic the effects of cocaine, LSD, and methamphetamine.[17] Both synthetic substances can have severe adverse effects, including panic attacks, agitation, tachycardia, elevated blood pressure, anxiety, pallor, numbness and tingling, vomiting, hallucinations, and even death.[18] At least in part, both categories of "designer drugs" remain obtainable in today’s global marketplace.[19] These substances mimic the effects of perceived "harder drugs," yet their effects go widely undocumented due to their manipulative characteristics.[20] For example, the pharmacology, toxicology, and safety knowledge of the compounds used to form synthetic marijuana are practically unknown.[21] Recent studies suggest that components of bath salts are even more addictive than methamphetamine.[22]

B. Existing Drug Policy

1. Scheduling of Drugs-- Under the Controlled Substance Act of 1970 (CSA), drugs and certain chemicals that are considered to be controlled substances are divided into categories of scheduling.[23] In order to determine the placement of a controlled substance, a number of factors are considered including: its actual or relative potential for abuse, pharmacological effects, history and current pattern for abuse, risks to the public health, dependence issues, and whether it is an immediate precursor of a substance already controlled.[24] The CSA recognizes five schedules, with Schedule I being the most restrictive.[25] Considered the most dangerous class of drugs, a controlled substance placed into Schedule I has no acceptable medical usage and possesses a high potential for abuse and dependence.[26] Examples of Schedule I substances are LSD, Heroin, and Ecstasy.[27] On the other hand, a Schedule V substance has a lower potential for abuse.[28] Once scheduled, it is illegal "to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance."[29] However, as authorities soon discovered, slightly modifying a substance, even by a couple of molecules, theoretically circumvents the scheduling process altogether because it creates a new substance with different properties and effects.[30]2. Federal Analogue Act-- In 1986, Congress enacted the Controlled Substance Analogue Enforcement Act ("Analogue Act")[31] in response to drug manufacturer’s ability to produce and distribute designer drugs.[32] This Act amended part of the CSA which failed to account for minor alterations to the molecular structure of controlled substances – by outlawing their analogues.[33] However, by incorporating imprecise and overly broad standards, this law created confusion for prosecutors and presented many unnecessary challenges.[34] Unfortunately, as cases and textual discussion will show, this law has presented interpretive and evidentiary problems causing divisions throughout the courts. Revisions to this Act are necessary to enable prosecutors to successfully put procedures in place that combat the proliferating synthetic drug problem.3. Synthetic Drug Abuse Prevention Act-- Due to newfound synthetic drug popularity and ineffective solutions, President Barack Obama signed the Synthetic Drug Abuse Prevention Act (SDAPA) into law on July 9, 2013, as part of the Food and Drug Administration Safety and Innovation Act.[35] Although this law permanently placed twenty-six types of synthetic drugs into Schedule I of the CSA, expanded the timeframe of temporary scheduling, and, in theory, banned substances containing "any quantity of cannabimimetic agents,"[36] it was far too narrow to have any meaningful impact. Like other inept drug policies, this law anticipates that all substances will be "cannabimimetic agents" of scheduled substances. However, this presumption is erroneous due to the rapid evolution of synthetic drugs. As it stands now, synthetic drug production is a never-ending game of cat and mouse – where manufacturers make, and purchasers consume, substances that mimic the effects of a Schedule I or II drug, lawmakers ban the specific substance, and manufacturers slightly modify its chemical structure in order to circumvent the law.[37] In essence, the SDAPA and other similarly worded statutes banning specific chemical substances are, and will always be, one-step behind the chemists who create these menacing substances, until the necessary changes in policy and legislation occur.

II. The Menace of Synthetic Drugs

Synthetic drugs have exploded onto the scene in recent years, with new chemically altered forms arriving practically on a daily basis.[38] According to the American Association of Poison Control Centers, in the last four years alone over 27,500 cases of human exposure to forms of synthetic drugs have been reported.[39] These substances are extremely tempting for those who want to try marijuana or other banned substances, but are afraid of the related legal consequences.[40] Yet, as these next few stories illustrate, synthetic drugs are anything but safe, and their effects can lead to dangerous situations, including death. Even in states that have enacted tough legislative policies on synthetic drugs, manufacturers are still reaching their targeted audiences. In Florida, where a severe crackdown on synthetic drugs has occurred,[41] one story in particular exhibits the potentially severe side effects of bath salts. One night, Mr. Dubois and his friends snorted bath salts in an effort to experience a legal "trip".[42] However, their decision went terribly wrong – ending in a fatality and an eight-year prison sentence. When police showed up to Mr. Dubois’ house, they saw one "young man in the front yard reaching for objects in the air that weren't there, grunting, convulsing, and seemed to be in a zombie state of mind," while another person was found wrapped up so tightly in a cord that she could not move and was convulsing.[43] This situation is one of many that law enforcement agents have encountered over the past few years in response to incidents involving synthetic drugs. Two other separate, yet extreme examples display that any number of absurd events are possible after using synthetic drugs. In each case, the individual is believed to have ingested a type of synthetic substance and then exhibited zombie-like actions: one man ate his forty-pound dog[44] and another chewed the face off of a homeless man.[45] While these tales of terror seem to make daily headlines, the fact remains that existing drug policies impede efforts to prosecute synthetic drug manufacturers, allowing their products to remain available.

III. Textual and Case Analysis Highlighting the Difficulties of Prosecuting Under the Analogue Act

A. Analogue Act Textual Uncertainties

The Analogue Act was intended to fix the problems associated with the rule-based CSA, but, instead, has become an obstacle for prosecutors. Typically, drug convictions are procured through lab reports that show the purported substance is scheduled.[46] But, as recent years have shown, simply altering one molecule of a controlled substance moves it out of the dominion of the CSA and into the purview of the analogue statute.[47] The Analogue Act at first blush seems to provide a reliable solution for the manipulation of controlled substances through the implementation of standard-based methods defining a controlled substances analogue as:

(i) the chemical structure of which is substantially similar to the chemical structure of a controlled substance in schedule I or II;

(ii) which has a stimulant, depressant, or hallucinogenic effect on the central nervous system that is substantially similar to or greater than the stimulant, depressant, or hallucinogenic effect on the central nervous system of a controlled substance in schedule I or II; or

(iii) with respect to a particular person, which such person represents or intends to have a stimulant, depressant, or hallucinogenic effect on the central nervous system that is substantially similar to or greater than the stimulant, depressant, or hallucinogenic effect on the central nervous system of a controlled substance in schedule I or II.[48]

But, as the Court of Appeals for the Seventh Circuit stated in United States v. Turcotte, "the devil is in the details — the relevant detail here being the single word ‘or’ between clauses (ii) and (iii) of the definition," allowing for a disjunctive or conjunctive reading of the statute.[49] Under the disjunctive approach, "a substance that satisfies any one" of the clauses "qualifies as a controlled substances analogue."[50] Alternately, in the conjunctive approach, clause I is required, while either clause II or clause III must also be present.[51] Although this language of the statute seems ambiguous, a majority of courts have adopted the conjunctive approach, reasoning that ridiculous results might arise under the disjunctive approach.[52] If the disjunctive versus conjunctive reading was the only uncertainty of the statute, it would seem salvageable, but other imprecisions and broad terminology show the inherit flaws of the Analogue Act. The definition of a controlled substance analogue states in clause I that the substance’s chemical structure must be "substantially similar" to that of a controlled substance,[53] begging the question, what does "substantially similar" actually mean? Courts have wrestled with how much similarity must be present; some requiring either a "core arrangement of atoms,"[54] similar pharmacological effects on the central nervous system,[55] or looking at the overall chain of the structure.[56] This discrepancy in how courts approach what constitutes "substantially similar", along with the inexcusable continued reliance on the phrase "not for human consumption" from § 813,[57] displays the problems associated with the text of the statute that must be corrected.

B. Prosecutorial Impediments Involved During Analogue Cases

In addition to textual imperfections, prosecutors can also have a difficult time establishing expert testimony in analogue cases. In the recent case United States v. Nasir, the defendant was charged with possession with intent to distribute synthetic marijuana containing the chemical AM 2201, an alleged analogue of JWH-018, a scheduled substance.[58] The prosecution offered expert testimony from Dr. Michelle Walker, a DEA pharmacologist, who assessed several studies to conclude "AM 2201 was substantially similar pharmacologically and in physiological effect to JWH-018."[59] The defense attacked her conclusion using their own expert testimony which stated that the comparisons between AM 2201 and JWH-018 had not been properly peer-reviewed and were conducted on rodents, not humans.[60] The court, noting its gatekeeping authority, stated that it was the jury’s responsibility to determine the weight of this evidence, and that the court merely determined the admissibility of the evidence.[61] The court concluded that the expert’s findings were admissible, stating that "[p]ublication in a peer-reviewed journal is not required,"[62] and criticisms of the reliance on studies performed on rodents were not sufficient to warrant the exclusion of Dr. Walker’s testimony.[63] Other courts have not been so receptive to offered expert testimony on the issue,[64] partly due to the limited scientific knowledge available to establish concrete evidence of analogues, as well as the textual imprecisions of the statute, which leaves prosecutors fighting a losing battle.

IV. Bringing Drug Policy Into the 21st century

A. Proposed Bills and Lingering Problems

This past year, two proposed bills, the Synthetic Abuse and Labeling of Toxic Substances Act of 2013 (SALTS Act)[65] and Protecting Our Youth from Dangerous Synthetic Drugs Act of 2013,[66] took progressive steps towards controlling the synthetic drug problem facing our nation. These bills examine the overly broad and imprecise language of the CSA, striking and adding portions of the existing law, in essence closing the loophole for synthetic drug manufacturers. However, these two bills are analogous to merely warning shots against the synthetic drug industry and further reform is necessary. In its definition section, the CSA specifically states that a controlled substance analogue of a scheduled drug does not include any substances that are "not intended for human consumption."[67] As expected, synthetic drugs intentionally are mislabeled with a warning that they are not for human consumption, sidestepping the law, even though all parties involved know the intended purpose of these products is for human consumption. The proposed SALTS Act amends this portion, making it clear that evidence of a product not being marketed, advertised, or labeled for human consumption, by itself, is not sufficient to establish that the substance was not intended for human consumption.[68] Additionally, the bill mentions several factors that should be considered in determining whether an analogue was intended for human consumption.[69] The SALTS Act’s sister bill, the Protecting Our Youth from Dangerous Synthetic Drugs Act of 2013, likewise would re-work portions of the CSA.[70] This bill proposes creating a Controlled Substance Analogue Committee (CSAC) comprised of a panel of scientists headed by the Administrator of the DEA, including experts from multiple health and drug agencies,[71] bearing the responsibility to compile and maintain a list of all emerging synthetic drugs and designate substances as analogues.[72] This bill also implores the U.S. Sentencing Commission to review current federal sentencing guidelines and to amend them appropriately by providing adequate penalties for offenses related to controlled substance analogues.[73] Utilizing appropriate care and foresight, these remedial bills provide an important step in the fight against synthetic drugs, yet further efforts are needed to tackle other glaring issues of existing drug policy. Even if conclusive evidence is produced that a synthetic drug was intended for human consumption, a prosecutor still must prove that the chemical and pharmacological characteristics of the analogue are "substantially similar" to that of a controlled substance.[74] If prosecutors can only bring cases on substances that the CSAC has already identified as "substantially similar" to a scheduled substance, this will severely limit their ability to bring cases on unknown or untested substances. A clear and concise definition of what exactly "substantially similar" means is vital, considering the interpretational vagueness of the CSA, not only for prosecutors’ sake, but also for jurors who are expected to understand cases involving complex synthetic drugs without sufficient guidance from the law. Courts have struggled to determine what exactly "substantially similar" means, having applied different definitions across jurisdictions.[75] Additionally, as one expert stated in Brown, "the definition of ‘similar chemical structure’ depends on the judgment of a chemist," and if "six chemists were asked . . . then six different answers may be offered."[76] In dealing with this peculiar term, the court in Washam offered an important point, stating that:

The term "substantially similar," as used in the statute, does not mean "exactly the same." There obviously will be differences in chemical structures between an "analogue" chemical and a schedule I or II chemical. If two chemicals' structures are exactly the same, the chemical in question would no longer be an "analogue," but, instead, it would be the same chemical as the listed chemical. Thus, some level of difference is acceptable between an analogue's chemical structure and a proscribed chemical's structure.[77]

The specific meaning of the definition appears unanswered by the courts, with at least one court believing that "’substantially similar’ is flexible enough to change with the circumstances."[78] However, the most promising and best-suited definition looks not at the visual assessment of chemical structures – such as with a chain or assortment of atoms - but, rather, at the actual effects of the substance on the central nervous system.[79] As the court in Fisher described, to ingest a substance considered an analogue would have a detrimental and visible effect on the central nervous system and "[p]eople of ordinary intelligence would easily be able to determine" if such a substance met "the definition of a controlled substance analogue."[80] This definition makes sense considering manufacturers want to reproduce the effects of desired scheduled substances without facing the legal consequences. Prosecutors of synthetic drug cases, not to mention jurors, need a concise definition of "substantially similar." They should look no further than a substance’s effects on the central nervous system instead of a substance’s atomic structure, which explains little on how substances are related. These recommendations would not single-handedly remove every hurdle prosecutors face in synthetic drug cases because expert testimony is often limited by the amount of scientific literature available on the composition of a synthetic drug. It is therefore imperative that lax standards for expert testimony be allowed due to the highly sensitive and dynamic characteristics associated with these cases. In Daubert, the United States Supreme Court gave a non-exhaustive list of factors a judge may consider in determining the reliability of an expert witness’ testimony that includes, but is not limited to:

(1) whether the theory or technique in question can be and has been tested;

(2) whether the theory or technique has been subjected to peer review and publication;

(3) in the case of a particular scientific technique, ... the known or potential rate of error;

(4) the existence and maintenance of standards controlling its operation; and

(5) whether the theory or technique has attracted widespread acceptance within a relevant scientific community.[81]

Given the flexibility of the Daubert test and the inability to conduct studies on the effects on humans of these chemical substances, courts should move to establish precedence that in synthetic drug cases, expert witnesses should be given the benefit of the doubt when reviewing non-conflicting, yet limited supporting material, in order to allow the experts to make generalized findings due to time restraints, cost associated with, and availability of testing procedures.

Conclusion

Synthetic drugs are a complex topic that legislators must respond to in a comprehensive way. Ultimately, as with any category of narcotics, authorities cannot completely eradicate the use of synthetic drugs; however, minimizing their impact is attainable with appropriate policy modifications. An updated twenty-first century drug policy is necessary, which must define the terms and provisions of the CSA more precisely to enable prosecutors to bring these types of cases more easily. Existing drug law is flawed and continuing down this same path will almost certainly allow manufacturers to continue to circumvent the law through molecular modifications.

[1] J.D. May 2015, University of Kentucky College of Law.[2] President Richard Nixon originally coined this term during June of 1971, increasing the size and presence of federal drug control agencies. A Brief History of the Drug War, Drug Policy Alliance, http://www.drugpolicy.org/new-solutions-drug-policy/brief-history-drug-war (last visited March 3, 2014).[3] See generally Lisa N. Sacco & Kristin Finklea, Cong. Research Serv., R42066, Synthetic Drugs: Overview and Issues for Congress 1 (Sept. 16, 2013), available at http://fas.org/sgp/crs/misc/R42066.pdf (explaining the recent trend to document dangers stemming from drug use especially in younger populations).[4] Synthetic Drugs (a.k.a. K2, Spice, Bath Salts, etc.), Office of Nat’l Drug Control Pol’y, http://www.whitehouse.gov/ondcp/ondcp-fact-sheets/synthetic-drugs-k2-spice-bath-salts (last visited March 3, 2014) [hereinafter Synthetic Drugs].[5] Stephen Stock & David Paredes, The Law has Trouble Keeping Up with Synthetic Drugs, NBC Bay Area (Feb. 15, 2014, 10:33 PM), http://www.nbcbayarea.com/investigations/The-Law-Cant-Keep-Up-with-Synthetic-Drugs-244805391.html; Synthetic Drugs: Myths, Facts, and Strategies: A Symposium, Substance Abuse Treatment and Mental Health Services Integration Taskforce 9-10 (Feb. 19, 2013), http://cjcc.dc.gov/sites/default/files/dc/sites/cjcc/page_content/attachments/SD-MFS%20Symposium%20Materials_Part1.pdf [hereinafter Symposium].[6] See Spice, Salvia, and Bath Salts, Nat’l Inst. on Drug Abuse, http://teens.drugabuse.gov/facts-drugs/spice-salvia-and-bath-salts (last visited March 3, 2014); See also Ben Paynter, The Big Business of Synthetic Highs, Bloomberg Bus. Week (June 16, 2011), http://www.businessweek.com/magazine/content/11_26/b4234058348635.htm (noting that the sale of "incense" generates close to $5 billion annually as based on self-reported statistics from members of the North American Herbal Incense Trade Association).[7] See, e.g., Sacco & Finklea, supra note 3, at 1.[8] Id. [9] Howard B. Owens, From China White to Bath Salts, Designer Drugs Ongoing Public Safety Challenge, Batavian (July 24, 2012, 9:59 AM), http://thebatavian.com/howard-owens/china-white-bath-salts-designer-drugs-ongoing-public-safety-challenge/32950.[10] Synthetic Drug Threats, Nat'l Conference of State Legislatures, http://www.ncsl.org/research/civil-and-criminal-justice/synthetic-drug-threats.aspx (last updated Nov. 28, 2012).[11] Synthetic Drugs, supra note 4.[12] Sacco & Finklea, supra note 3, at 5.[13] See Stock & Paredes, supra note 5.[14] Paynter, supra note 6.[15] See Melanie Haiken, ‘Bath Salts’ A Deadly New Drug with a Deceptively Innocent Name, Forbes (June 4, 2012, 4:13 PM), http://www.forbes.com/sites/melaniehaiken/2012/06/04/bath-salts-a-deadly-new-drug-with-a-deceptively-innocent-name/ (discussing the danger bath salts pose and highlighting stories of individual’s psychotic episodes after ingesting the substance).[16] Id.; Drugs of Abuse, U.S. Dept. of Justice. , Drug Enforcement Admin. 74 (2011), available at http://www.justice.gov/dea/pr/multimedia-library/publications/drug_of_abuse.pdf. [hereinafter Drugs of Abuse]; Haiken, supra note 15. .[17] Drugs of Abuse, supra note 16, at 75.[18] DrugFacts: Spice (Synthetic Marijuana), Nat’l Inst. of Drug Abuse, http://www.drugabuse.gov/publications/drugfacts/spice-synthetic-marijuana (last modified Dec. 2012); Drugs of Abuse, supra note 16, at 75; Use of Synthetic Cannabinoid Products by Teens and Young Adults Increasing, U.S. Dept. of Justice Nat’l Drug Intelligence Ctr. (May 18, 2010), http://www.justice.gov/archive/ndic/pubs41/41193/sw0006p.pdf[19] See Nicolas Christin, Traveling the Silk Road: A Measurement Analysis of a Large Anonymous Online Marketplace 2 (Carnegie Mellon INI/Cylab, Working Paper, 2012), available at http://www.andrew.cmu.edu/user/nicolasc/publications/TR-CMU-CyLab-12-018.pdf (noting that sites such as Black Market Reloaded, the Armory, and the General Store are online marketplaces for synthetic drugs).[20] See Dangerous Synthetic Drugs: Testimony Before the Caucus on Int’l Narcotics Control, U.S. Senate, 113th Cong. 1 (2013) (statement by Dr. Nora D. Volkow, Director National Institute on Drug Abuse), available at http://www.drugcaucus.senate.gov/hearing-9-25-13/AMV075-NIH%20synthetic%20testimony%20gl%20gjd%20final.pdf.[21] See Liana Fattore & Walter Fratta, Beyond THC: The New Generation of Cannabinoid Designer Drugs, 5 Frontiers in Behavioral Neuroscience 3, 5 (Sept. 2011), available at http://www.frontiersin.org/behavioral_neuroscience/10.3389/fnbeh.2011.00060/full.[22] Ruth Brown, Bath Salts: More Addictive than Meth, Newser (July 14, 2013, 5:05 PM), http://www.newser.com/story/170924/bath-salts-more-addictive-than-meth.html.[23] Controlled Substance Act, 21 U.S.C. § 812(a) (2012). See also Controlled Substance Schedules, U.S. Dept. of Justice Drug Enforcement Admin., Office of Diversion Control, http://www.deadiversion.usdoj.gov/schedules/#list (last visited Mar. 7, 2014) (identifying a list of currently scheduled drugs).[24] 21 U.S.C. § 811(c) (2012).[25] See id. § 812(b). See also Drug Scheduling, U.S. Drug Enforcement Admin., http://www.justice.gov/dea/druginfo/ds.shtml (last visited Mar. 7, 2014) [hereinafter Drug Scheduling].[26] Drug Scheduling, supra note 25.[27] Id.[28] Id.[29] 21 U.S.C. § 841(a)(1) (2012). See also 21 U.S.C. § 811(h) (2012) (noting that the Attorney General may temporary schedule substances as a Schedule I if is "necessary to avoid an imminent hazard to the public safety").[30] Andreas Digens, A Young Chemist Explains How Legal Highs Work, Vice Canada (Oct. 6, 2014), http://www.vice.com/en_ca/read/research-drugs-and-the-grey-market.[31]Controlled Substance Analogue Enforcement Act of 1986, Pub. L. No. 99-570, §§1201-1204, 100 Stat. 3207, 3207-13 to 3207-14 (codified as amended in scattered sections of §21 U.S.C.).[32] See e.g., United States v. Nasir, No. 5:12–CR–102—JMH, 2013 WL 5373619, at *1 (E.D. Ky. Sept. 25, 2013) (citing United States v. Washam, 312 F.3d 926, 933 (8th Cir. 2002)).[33] Controlled Substance Analogue Act, §1202, 100 Stat. at 3207-13. .[34] See, e.g., Dangerous Synthetic Drugs: Caucus on Int’l Narcotics Control U.S. Senate, 113th Cong. 2–4 (2013) (statement by Timothy J. Heaphy, U.S. Attorney for the Western District of Virginia), available at http://www.drugcaucus.senate.gov/hearing-9-25-13/Heaphy_Dangerous%20Synthetic%20Drugs%20Testimony%20(SCINC).pdf[35] Synthetic Drug Abuse Prevention Act of 2012, Pub. L. No. 112-44, §§ 1152-1153, 126 Stat. 1130, 1130–32 (2012) (to be codified at 21 U.S.C. § 811-12).[36] Id. at § 1152(d)(1).[37] See Stock & Paredes, supra note 5 ("[I]t takes a chemist in Asia only a couple of week to change a molecule and get new synthetic drugs on our streets, starting the entire cycle, all over again.").[38] See Symposium, supra note 5, at 43, 48, 53 (noting that since Jan. 31, 2013, law enforcement agents have identified over 150 synthetic compounds – while in nearly two-thirds of all states, including Kentucky, there have been over 400 reports of Synthetic Cathinones and Cannabinoids compounds). See also Stock & Paredes, supra note 5 (according to the DEA five new synthetic drug compounds are introduced into the U.S. markets every month).[39] See Bath Salts Data, Am. Ass’n of Poison Control Centers 1 (Nov. 30, 2013), available at https://aapcc.s3.amazonaws.com/files/library/Bath_Salts_Web_Data_through_Nov2013.pdf; Synthetic Marijuana Data, Am. Ass’n of Poison Control Centers 1 (Nov. 30, 2013), available at https://aapcc.s3.amazonaws.com/files/library/Synthetic_Marijuana_Web_Data_through_11.2013.pdf.[40] In a recent Gallup poll, 58% of Americans supported the legalization of marijuana. See Art Swift, For First Time, Americans Favor Legalizing Marijuana, Gallup (Oct. 22, 2013), http://www.gallup.com/poll/165539/first-time-americans-favor-legalizing-marijuana.aspx; see also Stock & Paredes, supra note 5 (according to the DEA’s Bruce Goldberg "[k]ids are playing Russian roulette with their lives by ingesting things they are not aware of how dangerous they are.").[41] See Susannah Bryan, Florida Synthetic Drug Ban Mostly Successful, Experts Say, Huffington Post (Aug. 5, 2013, 2:50 AM), http://www.huffingtonpost.com/2013/08/05/synthetic-drugs-florida_n_3705519.html.[42] Amy Pavuk, Man Sentenced to Prison for Drugs After Several Overdosed on Bath Salts, Orlando Sentinel (Feb. 19, 2014), http://articles.orlandosentinel.com/2014-02-19/news/os-bath-salts-death-drugs-in-house-sentence-20140219_1_bath-salts-synthetic-drugs-krystopher-sansone.[43] Id. [44] Michael Daniel Accused of Killing, Eating Dog on K-2-Fueled Rampage, Huffington Post (June 26, 2012, 1:18 PM), http://www.huffingtonpost.com/2012/06/26/michael-daniel-eating-dog_n_1627786.html.[45] Seni Tienabeso, Face-Eating Attack Possibly Prompted by 'Bath Salts,' Authorities Suspect, ABC News (May 29, 2012), http://abcnews.go.com/US/face-eating-attack-possibly-linked-bath-salts-miami/story?id=16451452. But see Rudy Eugene: No Bath Salts, Only Marijuana Found in Face-Eater Toxicology Tests, Huffington Post (June 27, 2012, 4:47 PM), http://www.huffingtonpost.com/2012/06/27/rudy-eugene-face-marijuana-medical-examiner-results_n_1632253.html (noting that within the limits of current technology by both laboratories, marijuana was the only drug identified in the body of the attacker). This presents an interesting point which previously has not been discussed that "[a]lthough tests exist to detect synthetic drugs, they are costly and are not widely available. As with legislation, changes to the composition of synthetic drugs are currently outpacing advances in detection." Symposium, supra note 5, at 11.[46] See Nat’l Forensic Sci. Tech. Ctr., A Simplified Guide to Drug Chemistry, available at http://www.crime-scene-investigator.net/SimplifiedGuideDrugChemistry.pdf[47] See 21 U.S.C. § 813 (2012); see also 21 U.S.C. § 842 (2012).[48] U.S.C. § 802(32)(A) (2012).[49] United States v. Turcotte, 405 F.3d 515, 521 (7th Cir. 2005).[50] Id. at 521.[51] Id. [52] See Turcotte, 405 F.3d at 522–23; see also United States v. Hodge, 321 F.3d 429, 436 (3d Cir. 2003) (analyzing the plain meaning and legislative history of § 802(32)(A)); United States v. Klecker, 348 F.3d 69, 71 (4th Cir. 2003) (adopting the conjunctive approach); United States v. Washam, 312 F.3d 926, 930 n.2 (8th Cir. 2002) (same); United States v. McKinney, 79 F.3d 105, 107–08 (8th Cir. 1996) (discussing the conjunctive approach), vacated on other grounds, 520 U.S. 1226 (1997); United States v. Brown, 279 F. Supp. 2d 1238, 1240 (S.D. Ala. 2003) (adopting the conjunctive reading of statute); United States v. Vickery, 199 F. Supp. 2d 1363, 1371 (N.D. Ga. 2002) (same); United States v. Clifford, 197 F. Supp. 2d 516, 522 (E.D. Va. 2002) (same); United States v. Forbes, 806 F. Supp. 232, 235-36 (D. Colo. 1992) (reviewing the Act's legislative history and asserting that the conjunctive approach is required in order to prevent absurd results); but see United States v. Fedida, 942 F. Supp. 2d 1270, 1275-76 (M.D. Fla. 2013) (concluding that the statute is ambiguous, but applying the rule of leniency requires the court to read the definition in the conjunctive).[53] 21 U.S.C. § 802(32)(A)(i) (2012).[54] Kleckler, 348 F.3d at 73.[55] United States v. Fisher, 289 F.3d 1329, 1338–39 (11th Cir. 2002).[56] Fedida, 942 F. Supp. 2d at 1277-79.[57] 21 U.S.C. § 813 (1988).[58] United States v. Nasir, No. 5:12-CR-102-JMH, 2013 WL 5373619, at *1 (E.D. Ky. Sept. 25, 2013).[59] Id.[60] Id. at *2.[61] Id. at *3.[62]Id. In performing this function, the court focuses only on the "principles and methodology, not on the conclusions that they generate." (quoting United States v. Daubert, 509 U.S. 579, 595 (1993)).[63] Id.[64]See e.g., United States v. Fedida, 942 F. Supp. 2d 1270, 1281 (stating that it was "not inclined to permit an expert to testify to a jury where the basis of his opinions rests only on broad scientific principles" supported by minimum scientific literature, not subjected to peer review, and potential error rate unknown).[65] Synthetic Abuse and Labeling of Toxic Substances Act of 2013, S. 1322, 113th Cong. (2013) [hereinafter SALTS Act].[66] Protecting Our Youth from Dangerous Synthetic Drugs Act of 2013, S. 1323, 113th Cong. (2013).[67] 21 U.S.C. § 802(32)(C)(iv) (2012).[68] SALTS Act, S. 1322 § 2.[69] Id.[70] S. 1323 § 2(a)(1).[71] Id. § 2(a)(2).[72] Id.[73] Id. § 4.[74] 21 U.S.C. § 802(32(A)(i) (2012).[75] See supra notes 54–56 and accompanying text.[76] United States v. Brown, 279 F. Supp. 2d 1238, 1245 (S.D. Ala. 2003).[77] United States v. Washam, 312 F.3d 926, 930-31 (8th Cir. 2002).[78] Brown, 279 F Supp. 2d. at 1243.[79] United States v. Fisher, 289 F.3d 1329, 1338–39 (11th Cir. 2002) (emphasis added).[80] Id.[81] Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 592–94 (1993).

Limits to the Class Action Device: The Kentucky Wages and Hours Act Does Not Permit a Class Action

Article | 103 KY. L. J. ONLINE 2 | July 17, 2015

Jeffrey A. Savarise and Timothy J. Weatherholt[1]

I. Introduction

Class action claims for unpaid wages have become pervasive in both state and federal courts. Plaintiff employment attorneys and the ever burgeoning class action law firms are filing these cases throughout the country, including in Kentucky. A wage and hour class action can be extremely lucrative from a financial standpoint for plaintiffs’ counsel. Many of these classes include hundreds, if not thousands, of class members. Assuming a one-third contingency fee, a plaintiff counsel who settles a typical wage and hour class action could easily earn a seven-figure fee.The federal wage and hour law, the Fair Labor Standards Act (“FLSA”), provides for a class mechanism for wage claims – collective actions. However, individuals must “opt in” to the “class,” as opposed to the more traditional “opt out” class actions. Under 29 U.S.C. § 216(b) of the FLSA, a member of the class who is not named in the complaint is not a party unless he or she affirmatively “opts in” by filing a written consent-to-join with the court.[2] This has the obvious effect of limiting the recovery pool. Recent statistics show only around fifteen percent of litigants in federal collective actions actually “opt in” to the litigation.[3] The incentive for a plaintiff counsel to proceed in a state law class action – as opposed to a collective action under the federal law that requires litigants to affirmatively “opt in” to the case – is extremely high.Fortunately, for many members of the plaintiffs’ bar who practice wage and hour cases, most states supplement the basic protections of the FLSA with their own wage and hour laws. Some, but not all of these state laws, permit the class action device. For instance, several state wage and hour statutes explicitly permit an action to be brought on behalf of others.[4] The wage and hour statutes in other states provide more general language that does not authorize, nor preclude, the use of the class action device.[5] In this situation, state courts will typically approve of the class action device.[6] In those cases, plaintiffs are basically limited to the remedy provided under the FLSA.While this issue is settled in practically every state, either by clear statutory text or case law, the question of whether a Kentucky plaintiff can pursue a class action under Kentucky’s Wages and Hours Act (the “Kentucky Act”) remains unresolved.[7] The Kentucky Act is unique in that, on its face, for the reasons explained below, it does not appear to permit class actions. Yet, until recently, courts have taken no issue with plaintiffs pursuing class actions under the Kentucky Act.[8] In fact, it appears no employer/defendant had ever raised the issue prior to the authors of this note. This issue has serious potential consequences, not only due to the differences between “opt in” and “opt out” actions, but also because the statute of limitations under the Kentucky Act is five years[9] and the statute of limitations under the FLSA is only two years for non-willful violations.[10]This note argues Kentucky courts should adhere to the plain language and other extrinsic sources that support the position that class actions are not viable under the Kentucky Act. In Part II, this note will discuss the brief history of KRS 337.385 of the Kentucky Act and a few of the relevant cases discussing how wage and hour claims may proceed. The note will then review the Kentucky Act’s plain language and compare Kentucky’s statutory language to language in similar, but distinct statutes – the FLSA and Kentucky’s statutes prohibiting wage discrimination based on sex. The note will then discuss the opposing view for why the Kentucky Act might not bar class actions. In Part III, this note will discuss the recent decision by the Kentucky Court of Appeals in which it stated, albeit in dicta, the Kentucky Act precludes class actions. In Part IV, the note will discuss why the Court of Appeals was correct, but why a more comprehensive opinion is needed. In Part V, the note will highlight another opinion which provides a roadmap for how this dispute can be resolved. The note will conclude by discussing how the Kentucky General Assembly, not the courts, provides the best opportunity to enable the plaintiffs’ bar to bring class actions under the Kentucky Act.

II. The Kentucky Act: Its History and Text, As Well As Its Similarities and Differences as Compared to Like Statutes

A.The Language of KRS 337.385 Has Remained Remarkably Consistent Over Time

KRS 337.385(1) was first adopted in 1974 and has changed remarkably little over time. The 1974 version provided as follows:

(1) Any employer who pays any employee less than wages and overtime compensation to which such employee is entitled under or by virtue of this Act shall be liable to such employee affected for the full amount of such wages and overtime compensation, less any amount actually paid to such employee by the employer, for an additional equal amount as liquidated damages, and for costs and such reasonable attorney’s fees as may be allowed by the court. Provided, that if, in any action commenced to recover such unpaid wages or liquidated damages, the employer shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of this Act, the court may, in its sound discretion, award no liquidated damages, or award any amount thereof not to exceed the amount specified in this section. Any agreement between such employee and the employer to work for less than the applicable wage rate shall be no defense to such action. Such action may be maintained in any court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves.[11]

In 1978, KRS 337.385(1) was revised to read:

(1) Any employer who pays any employee less than wages and overtime compensation to which such employee is entitled under or by virtue of KRS 337.020 to [337.275 and] 337.285 shall be liable to such employee affected for the full amount of such wages and overtime compensation, less any amount actually paid to such employee by the employer, for an additional equal amount as liquidated damages, and for costs and such reasonable attorney’s fees as may be allowed by the court. Provided, that if, in any action commenced to recover such unpaid wages or liquidated damages, the employer shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of KRS 337.020 to [337.275 and] 337.385, the court may, in its sound discretion, award no liquidated damages, or award any amount thereof not to exceed the amount specified in this section. Any agreement between such employee and the employer to work for less than the applicable wage rate shall be no defense to such action. Such action may be maintained in any court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves.[12]

In 2010, the language was modified to be gender neutral:

(1) Any employer who pays any employee less than wages and overtime compensation to which such employee is entitled under or by virtue of KRS 337.020 to 337.285 shall be liable to such employee affected for the full amount of such wages and overtime compensation, less any amount actually paid to such employee by the employer, for an additional equal amount as liquidated damages, and for costs and such reasonable attorney’s fees as may be allowed by the court. Provided, that if, in any action commenced to recover such unpaid wages or liquidated damages, the employer shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he or she had reasonable grounds for believing that his or her act or omission was not a violation of KRS 337.020 to 337.285, the court may, in its sound discretion, award no liquidated damages, or award any amount thereof not to exceed the amount specified in this section. Any agreement between such employee and the employer to work for less than the applicable wage rate shall be no defense to such action. Such action may be maintained in any court of competent jurisdiction by any one (1) or more employees for and in behalf of himself, herself, or themselves.[13]

Finally, in 2013, KRS 337.385 was again revised, primarily to address forced labor, and subsection (1) was split into two sections:

(1) Except as provided in subsection (3) of this section, any employer who pays any employee less than wages and overtime compensation to which such employee is entitled under or by virtue of KRS 337.020 to 337.285 shall be liable to such employee affected for the full amount of such wages and overtime compensation, less any amount actually paid to such employee by the employer, for an additional equal amount as liquidated damages, and for costs and such reasonable attorney's fees as may be allowed by the court.

(2) If, in any action commenced to recover such unpaid wages or liquidated damages, the employer shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he or she had reasonable grounds for believing that his or her act or omission was not a violation of KRS 337.020 to 337.285, the court may, in its sound discretion, award no liquidated damages, or award any amount thereof not to exceed the amount specified in this section. Any agreement between such employee and the employer to work for less than the applicable wage rate shall be no defense to such action. Such action may be maintained in any court of competent jurisdiction by any one (1) or more employees for and in behalf of himself, herself, or themselves.[14]

Throughout these revisions, the essential substance of the last sentence – which now reads, “[s]uch action may be maintained in any court of competent jurisdiction by any one (1) or more employees for and in behalf of himself, herself, or themselves” – remained the same.Between 1974 and 1986, there were only a few occasions where putative class actions reached the appellate level in published decisions. In Orms v. City of Louisville,[15] the issue on appeal concerned the application of Kentucky’s overtime compensation statute, KRS 337.285, to a City of Louisville policy that required its police officers to report fifteen minutes before they began their daily tour of duty.[16] The police officers sought to recover, in a class action, compensation for this time.[17] The Jefferson Circuit Court entered summary judgment for the City, and the Court of Appeals agreed, finding that the collective bargaining agreement at issue was controlling.[18]In City of Louisville v. Gnagie,[19] the plaintiffs/employers, individually and as representatives of the Louisville Firefighters’ Association, sought compensation in a class action suit against the City, pursuant to KRS 337.285, for their fifteen-minute “roll call” prior to each shift.[20 ]Both the City and the employees moved for summary judgment in Jefferson Circuit Court on the issue of liability.[21] The trial court entered summary judgment for the City, holding that the “roll call” period was de minimis,[22] and therefore, non-compensable, but the Court of Appeals reversed the Jefferson Circuit Court and remanded the case for an evidentiary hearing to resolve perceived factual disputes regarding the nature of the work performed during “roll call” and to determine whether the firefighters were customarily released from duty prior to the end of their shifts to compensate for the “roll call” period.[23] The Kentucky Supreme Court reversed the Court of Appeals and affirmed the trial court.[24]Given the procedural postures of Orms and Gnagie, each presented obvious issues tailor-made for the City of Louisville’s attempt at a swift resolution. While the City could have raised the argument that class actions are not viable under the Kentucky Act, it clearly had even stronger arguments at its disposal. Unfortunately for the advancement of the law, a pair of Kentucky Court of Appeals cases decided around the same time as Orms and Gnagie obviated the need to address the statutory language. Collectively, Early v. Campbell Fiscal Court[25] and Noel v. Season-Sash, Inc.[26] stand for the general proposition that the Kentucky Labor Cabinet had original and exclusive jurisdiction over claims brought for the recovery of minimum wage and overtime payments, i.e., there was no right to an original action in the circuit court.[27] The Supreme Court did not overrule these cases until 20 years later in Parts Depot, Inc. v. Beiswenger.[28] Only then were litigants permitted to pursue their wage claims either at the Kentucky Labor Cabinet or in a circuit court.[29]Subsequent to the Supreme Court’s decision in Parts Depot, plaintiffs have brought class actions under the Kentucky Act in a number of cases.[30] This note contends that they lack the authority to do so, and defense practitioners, and to a lesser extent the courts, have missed the mark (at least, that is, until November 2013)[31] in failing to properly consider the meaning of the statutory language.

B. An Analysis Of The Plain Language Of KRS 337.385

1. How Kentucky Courts Analyze Statutes

The Kentucky Supreme Court has set forth the following rubric for how statutory language should be reviewed:

The seminal duty of a court in construing a statute is to effectuate the intent of the legislature. A fundamental canon of statutory construction is that, unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning. Thus, we are “to ascertain the intention of the legislature for words used in enacting statutes rather than surmising what may have been intended but was not expressed.

Thus, if a statute is clear and unambiguous and expresses the legislature’s intent, the statute must be applied as written. And absent an ambiguity, there is no need to resort to the rules of statutory construction in interpreting it. Statutes, of course, must be read as a whole and in context with other parts of the law.[32]

In Revenue Cabinet v. O’Daniel,[33] the Supreme Court similarly noted, ‘“[t]he plain meaning of the statutory language is presumed to be what the legislature intended, and if the meaning is plain, then the court cannot base its interpretation on any other method or source.”’[34] Furthermore, in Lichtenstein v. Barbanel,[35] the Supreme Court remarked, “[i]f the statutory language is ambiguous, we will look to other sources to ascertain the legislature’s meaning, including legislative history.”[36]

2. Is KRS 337.385(1) of The Kentucky Act Ambiguous?

KRS 337.385 now provides that an employee or employees may sue “for and in behalf of himself, herself, or themselves.”[37] On its face, this language permits multiple individuals to pursue their claims in one proceeding, but not in a representative capacity – an employee or employees may sue only “for and in behalf of himself, herself, or themselves.”[38] The pronouns “himself,” “herself,” and “themselves” are reflexive pronouns, which always refer to, and are identical with, the subject of the sentence or clause.The subject of the statutory text at issue is the “one (1) or more employees” who are maintaining an action in court.[39] The pronouns “himself,” “herself,” and “themselves” refer to the “one (1) or more employees” who are maintaining such an action. A grammatical reading of the passage is:

(i) any one employee may maintain an action for and in behalf of himself;

(ii) any one employee may maintain an action for and in behalf of herself; and

(iii) any two or more employees may maintain an action for and in behalf of themselves.

Of course, it is fair to wonder why the General Assembly chose this particular language. After all, the General Assembly could have simply said something akin to “class actions are not permitted under this statute.” The General Assembly’s choice of words makes sense, however, in light of the federal statute on which it was modeled.

C. A Comparison To Like Statutes

1. The FLSA’s Remedy Mechanism

Kentucky courts have recognized the similarities between the remedy mechanism of the Kentucky Act and that of the FLSA.[40] The Kentucky Act’s remedy mechanism is similar to that of the FLSA, but with one major distinction, as noted below:

(Kentucky Act):

“Such action may be maintained in any court of competent jurisdiction by any one (1) or more employees for and in behalf of himself, herself, or themselves.”[41]

(FLSA):

“An action . . . may be maintained against any employer . . . by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.”[42]

2. Kentucky’s Wage Discrimination Because Of Sex Statute

In addition to the FLSA inference, there is an infrequently utilized section in KRS Chapter 337 that addresses wage discrimination based on sex.[43] In principal part, the anti-discrimination provision provides, “[n]o employer shall discriminate between employees in the same establishment on the basis of sex, by paying wages to any employee in any occupation in this state at a rate less than the rate at which he or she pays any employee of the opposite sex for comparable work on jobs which have comparable requirements relating to skill, effort and responsibility.”[44] The anti-discrimination provision is enforced by a subsequent provision providing, “[a]ction to recover the liability may be maintained in any court of competent jurisdiction by any one (1) or more employees for and in behalf of himself, herself, or themselves and other employees similarly situated.”[45]

D. The Opposing View

Perhaps the most potent argument is that the language of the statute does not, in ordinary words, preclude class relief, e.g., “class actions may not be maintained under this section.” In Califano v. Yamasaki,[46] the U.S. Supreme Court considered whether a statute that provided, “[a]ny individual, after any final decision of the Secretary made after a hearing to which he was a party . . . may obtain a review of such decision by a civil action . . . .”[47] The court found the use of the ambiguous phrase “any individual” did not express the clear congressional intent to preclude class actions.[48]Another argument focused on the potential interplay between Kentucky Rule of Civil Procedure Rule (CR) 1 and 23. Rule 1 provides that the civil rules “govern procedure and practice in all actions of a civil nature . . . .”[49] In other words, there is a potential conflict between the judiciary’s adoption of civil rules permitting class actions and the legislature’s enactment of a statute that takes away the right to class actions. A number of other states have similar civil rules yet practically every state legislature, including Kentucky’s, has placed some form of a substantive restriction on the class action device.[50]Finally, the fact that a number of Kentucky courts, primarily Kentucky federal courts, have considered claims under the Act without taking issue with the ability to pursue a class action under the Act lends support, however small, to the position that the Act permits class actions.[51]

III. The Kentucky Court of Appeals Weighs in, Albeit in Dicta

In 2013, the Kentucky Court of Appeals had occasion to consider the argument that the Kentucky Act precludes class actions.[52] It did so in the context of litigation that had spanned fifteen years between Toyota Motor Manufacturing, Inc. (”TMMK”), represented by the authors of this piece,[53] and employees/former employees of its paint and bumper paint departments who claimed they were not compensated for time spent putting on and taking off a paint suit and walking to and from their work processes.[54] The Plaintiffs pursued their case as a class action, and millions of dollars in damages were potentially at issue given that the class could number over 1,000 members of TMMK’s paint and bumper paint departments.[55] This potential exposure only increased in 2007 when the Scott Circuit Court reopened the judicial case that had been final since 2003, in light of Parts Depot.[56]After a lengthy appellate process, the case returned to the Scott Circuit Court.[57] There, TMMK asserted the argument that the Kentucky Act does not provide for class actions, and, after the Scott Circuit Court denied its motion to dismiss on those grounds, re-asserted the argument in opposition to the Plaintiffs’ motion for class certification.[58] Once Plaintiffs’ motion was granted, TMMK was able to avail itself of a recent change in the civil rules that permitted litigants to make an interlocutory appeal of a grant or denial of class certification.[59]The Kentucky Court of Appeals primarily addressed the point that it agreed with TMMK that the Scott Circuit Court should not have reopened the case.[60] In dicta, though, the Court of Appeals stated:

However, were we to reach the merits of this argument, we would agree with TMMK that the text of KRS 337.385(1) provides a clear expression of intent that class actions are not permitted . . . The statute permits more than one person to bring a cause of action under KRS 337.385(1) in the same case, but they may not do so in a representative capacity. Further, the effect of the “for and in behalf of” language is to limit the individuals who may participate in an action under the Act to those who actually bring the action. Thus, even if the trial court had properly reopened the case under CR 60.02(f), KRS 337.385(1) does not permit class actions and the trial court improperly certified a class.[61]

The very next month, the Jefferson Circuit Court likewise found in favor of Humana Inc., also represented by Fisher & Phillips, who argued the same position regarding the statutory language.[62] That opinion, however, is not binding on any other Kentucky court and did not substantively address the arguments outlined above.

IV. The Kentucky Court of Appeals Was Correct, But a More Comprehensive Opinion is Needed

While the opinions of the Court of Appeals and the Jefferson Circuit Court reached the correct result, neither opinion thoroughly reviewed all of the arguments supporting the position that the Kentucky Act does not permit class actions. The most critical argument is, of course, the plain text. None of the readings of KRS 337.385(1) outlined above supports a conclusion that employees may sue for and in behalf of anyone else, that is, for and in behalf of anyone who has not also commenced an “action” to assert his or her own rights under the Act. While more than one person may bring a cause of action under the Kentucky Act, the language of KRS 337.385(1), on its face, bars them from doing so in a representative capacity. Given Kentucky law holding that the plain text controls absent ambiguity, this should resolve the issue.But given the support from extrinsic sources, it makes sense for a court to consider those sources as well. The Kentucky Act’s phrasing negating the class action device makes perfect sense when read in conjunction with the FLSA. Moreover, the Kentucky General Assembly adopted KRS 337.427, a section of the Kentucky Wage Discrimination Because of Sex statute, in 1966, eight years prior to its adoption of KRS 337.385.[63] Thus, it cannot be said the Kentucky General Assembly was unaware of the “for and in behalf of” language when it adopted KRS 337.385(1) in 1974.It is fair to wonder, however, whether the 1974 General Assembly somehow inadvertently omitted the “and other employees similarly situated” language included in the FLSA. Of course, Kentucky has long-recognized the “primary rule of statutory construction that the enumeration of particular things excludes the idea of something else not mentioned.”[64] In Fox v. Grayson,[65] the Kentucky Supreme Court noted, “[w]e cannot dismiss the notable omission of language . . . as a mere accidental oversight. It is well settled law that a court may not add language to the written law to achieve a desired result.”[66] Similarly, in Rue v. Ky. Ret. Sys.,[67] the Kentucky Court of Appeals stated, “[w]e are not free to add words to statutory enactments in order to enlarge their scope beyond that which can be gleaned from a reading of the words used by the legislature.”[68]The Kentucky Supreme Court has a history of adhering to the slight differences in language in related statutes – a point that could easily be highlighted in any opinion on the Kentucky Act. In Kentucky Department of Corrections v. McCullough,[69] the Kentucky Supreme Court considered two different provisions of the Kentucky Civil Rights Act. At issue was the availability of punitive damages, specified in one provision but not the other:

(Kentucky Civil Rights Act – Employment Discrimination):

In the employment discrimination context, permitting recovery for “actual damages sustained.”[70]

(Kentucky Civil Rights Act – Housing Discrimination):

In the housing discrimination context, permitting recovery for “punitive damages.”[71]

When faced with this obvious disparity in language, the Kentucky Supreme Court rejected the Court of Appeals’ “policy-oriented approach,” which allowed for recovery of punitive damages under the employment discrimination remedy provision of KRS 344.[72] Instead, the Court reversed and found, inter alia, that “in construing statutes it must be presumed that the Legislature intended something by what it attempted to do.”[73]A more recent case provides another compelling example of the power of precise statutory language. In Griffin v. Rice,[74] the issue was who would receive the deceased’s estate, his mother or his wife.[75] The answer turned on the Kentucky Supreme Court’s interpretation of KRS 392.090(2), which provided that a spouse who voluntarily leaves the other and “lives in adultery” forfeits his or her right to an interest in the other’s estate of property.[76] The proof at trial showed that the deceased’s wife engaged in one act of sexual intercourse with another man, which happened to be the night prior to the deceased’s death.[77]In concluding that the phrase “lives in adultery” requires proof of more than one sexual act, the Court noted Kentucky’s former fault-based divorce statute contained different phrasing depending upon the party seeking the divorce.[78] According to the prior statute – which while concededly dated and sexist is nevertheless instructive for this limited purpose – a husband or a wife could obtain a divorce on the grounds that the other was “living in adultery with another man or woman,” but, according to another provision, a husband could also obtain a divorce on the grounds of “adultery by the wife.”[79] In finding for the wife, Griffin focused on the difference in language and stated:

Had the General Assembly considered one instance of adultery sufficient to bar a husband or wife from his or her interest in the other spouse’s estate and property, it would have made this clear by employing different wording in the statute, such as “commits adultery” or “engages in adultery.” Another statute, in effect at the same time as the statute at issue, indicates the General Assembly was aware of the import of its phrasing and knew exactly how to distinguish between one adulterous act and multiple acts of adultery. . . . The language chosen by the General Assembly in the contemporaneous divorce statute makes clear the legislature was aware of the significance of its phrasing and was able, had it meant to do so, to employ language that indicated one act of adultery would be sufficient to bar a husband or wife from his or her interest in the other spouse’s estate and property.[80]

Taken together, McCullough and Griffin stand for the proposition that different word choices in closely related statutes must be given effect. The General Assembly clearly understands the import of even slight word changes, and the Supreme Court has read those words literally, regardless of the outcome. In Griffin, that approach arguably had real and negative consequences – rewarding the unfaithful wife at the expense of the deceased’s mother.By contrast, there are no such negative consequences to the General Assembly’s choice to omit the critical and dispositive phrase “and other employees similarly situated.” Any individual who wants to pursue a claim under the Kentucky Act may do so, regardless of whether class actions are permitted. That has been, and will always be, the case. Employees simply will be unable to do so in any type of representative action.In other words, the only individuals truly harmed by this argument are the plaintiffs’ bar. Ultimately, though, the plaintiffs’ bar could have the opportunity to alter this outcome, despite the plain language of the Kentucky Act.

V. The Court of Appeals Provided a Roadmap for How This Issue Should Be Resolved in an Earlier Case

In 2005, the Court of Appeals in City of Somerset v. Bell[81] correctly read a statute as providing for class actions, and later that same year, the General Assembly, disagreeing with that conclusion, amended the statute. In City of Somerset, the Court of Appeals cited a line of precedent spanning more than 70 years which interpreted the statute at issue in that case, KRS 134.590(6), and its predecessor statute, as not allowing for class relief because it provided “[n]o refund shall be made unless application is made in each case within two (2) years from the date payment was made.”[82]City of Somerset noted that line of precedent was called into question due to a 1996 statutory amendment to KRS 134.590(6) which deleted the words “in each case.”[83] This amendment allowed the plaintiff taxpayers to argue the statute now permitted class actions.[84] The Court agreed with the taxpayers, citing Kentucky law providing, “[w]here a statute is amended or re-enacted in different language, it will not be presumed that the difference between the two statutes was due to oversight or inadvertence on the part of the Legislature. On the contrary, it will be presumed that the language was intentionally changed for the purpose of effecting a change in the law itself.”[85] Given this guidance, the court concluded:

Considering the historical significance of that phrase [in each case], beginning in the Swiss Oil case, we must conclude that the intent of the legislature was to amend that portion of the statute limiting refunds for ad valorem taxes to individual claims. Even if the change was unintentional, its effect was to alter key language of a statute, which, for some seventy years before the amendment, had been interpreted by the courts to limit tax refunds to individual claims.[86]

The General Assembly became aware of this result, and, later that very same year (2005), enacted new language to make clear its intent that class actions are not permissible.[87] The statute now reads, “[n]o refund shall be made unless each taxpayer individually applies . . .”[88]City of Somerset provides a model for how statutes should be reviewed. The absence of the phrase “in each case” was critical and dispositive in that case. It would have been more than a little odd for the Court to deny the availability of the class action mechanism to the taxpayers in 2005, given how the statute read at that time. But the General Assembly did not want taxpayers to be able to proceed as a class, so it took away that ability through an amendment to the statute’s text. If the General Assembly believes class actions are appropriate under the Kentucky Act, it will presumably do likewise here, once a Kentucky court definitively decides this issue. Absent that, it would be inappropriate for the judiciary to read into the Kentucky Act what is not there – either by consideration of the plain language or from the context of similar statutes.

[1] Jeff Savarise and Tim Weatherholt are partners in the Louisville office of Fisher & Phillips LLP, a national labor and employment law firm representing employers. Jeff is a 1982 graduate of John Carroll University and a 1985 graduate of the University of Akron School of Law. Tim is a 2001 graduate of Transylvania University and a 2004 graduate of Vanderbilt Law School.[2] Kinney Shoe Corp. v. Vorhes, 564 F.2d 859, 862 (9th Cir. 1977); 29 U.S.C. § 216(b) (2008).[3] See, e.g., Andrew C. Brunsden, Hybrid Class Actions, Dual Certification, and Wage Law Enforcement in the Federal Courts, 29 Berkeley J. Emp. & Lab. L. 269, 292–94 (2008).[4] See, e.g., Alaska Stat. § 23.10.110(b) (2012) (“An action to recover from the employer the wages and damages for which the employer is liable may be maintained in a competent court by an employee personally and for other employees similarly situated, or an employee may individually designate in writing an agent or representative to maintain an action for the employee.”); Haw. Rev. Stat. § 387-12(c) (2008) (“Action to recover such liability may be maintained in any court of competent jurisdiction by any one or more employees for and in behalf of oneself or themselves and other employees similarly situated, or the employee or employees may designate an agent or representative to maintain action for and in behalf of all employees similarly situated.”); N.H. Rev. Stat. Ann. 275:53(1) (2008) (“Action by an employee to recover unpaid wages and/or liquidated damages may be maintained in any court of competent jurisdiction by any one or more employees for and in behalf or himself, or themselves, or such employee or employees may designate an agent or representative to maintain such action.”).[5] See, e.g., Minn. Stat. § 177.27(8) (2006) (“An employee may bring a civil action seeking redress . . . .”).[6] See, e.g., Braun v. Wal-Mart, Inc., No. 19-CO-01-9790, 2003 WL 22990114, at *3 (D. Minn. 2003) (certifying class in connection with working off the clock and through break and meal periods on breach of contract and other theories).[7] The Kentucky Act provides in pertinent part: “Such action may be maintained in any court of competent jurisdiction by any one (1) or more employees for and in behalf of himself, herself, or themselves.” Ky. Rev. Stat. Ann. § 337.385(2) (West Supp. 2014).[8] See. e.g., Whitlock v. FSL Mgt., LLC, No. 3:10CV-00562-JHM, 2012 WL 3274973, at *14 (W.D. Ky. 2012), Hughes, v. UPS Supply Chain Solutions, Inc., Nos. 2012-CA-001353-ME, 2012-CA-001757-ME, 2013 WL 4779746, at *7 (Ky. Ct. App. 2013); England v. Adv. Stores Co., Inc., 263 F.R.D. 423, 458 (W.D. Ky. 2009); Barker v. Family Dollar, Inc., No. 3:10-CV-00170-H, 2012 WL 5305335, at *1 (W.D. Ky. 2012); McCauley v. Family Dollar, Inc., No. 3:10-CV-363-S, 2010 WL 3221880, at *1 (W.D. Ky. 2010).[9] Ky. Rev. Stat. Ann. § 413.120(2) (2006).[10] 29 U.S.C. § 255 (2011).[11] Ky. Rev. Stat. Ann. § 337.385 (1974) (current version at Ky. Rev. Stat. Ann. § 337.385 (West Supp. 2014)).[12] Ky. Rev. Stat. Ann. § 337.385 (1978) (current version at Ky. Rev. Stat. Ann. § 337.385 (West Supp. 2014)).[13] Ky. Rev. Stat. Ann. § 337.385 (2010) (current version at Ky. Rev. Stat. Ann. § 337.385 (West Supp. 2014)).[14] Ky. Rev. Stat. Ann. § 337.385 (West Supp. 2014).[15] Orms v. City of Louisville, 686 S.W.2d 464 (Ky. Ct. App. 1984).[16] Id. at 465.[17] Id.[18 ] Id.[19] City of Louisville v. Gnagie, 716 S.W.2d 236 (Ky. 1986).[20] Id. at 237.[21] Id. at 236–37.[22] De minimis is a Latin expression meaning about minimal things. It is commonly used by courts as a basis to not count certain small increments of time and the beginning and end of a workday that may otherwise be compensable.[23] Gnagie, 716 S.W.2d at 237.[24] Id.[25 ]Early v. Campbell Cnty. Fiscal Court, 690 S.W.2d 398 (Ky. Ct. App. 1985).[26] Noel v. Season-Sash, Inc., 722 S.W.2d 901 (Ky. Ct. App. 1986).[27] See id. at 903 (To reiterate, the Commissioner of Labor has original jurisdiction, as held in the Early case, only in those wage and hour disputes in which the duty to provide the benefits sought by the claimant derives solely from the statute . . . .”).[28] Parts Depot, Inc. v. Beiswenger, 170 S.W.3d 354, 356 (Ky. 2005).[29] See id. at 361–62.[30] See, e.g., Barker v. Family Dollar, Inc., No. 3:10-CV-00170-H, 2012 WL 5305335, at *1 (W.D. Ky. Oct. 25, 2012); Whitlock v. FSL Mgmt., LLC, No. 3:10-CV-00562-JHM, 2012 WL 3274973, at *1 (W.D. Ky. Aug. 10, 2012); McCauley v. Family Dollar, Inc., No. 3:10-CV-363-S, 2010 WL 3221880, at *1 (W.D. Ky. Aug. 12, 2010); England v. Advance Stores Co., 263 F.R.D. 423 (W.D. Ky. 2009); Hughes v. UPS Supply Chain Solutions, Inc., Nos. 2012-CA-001353-ME, 2012-CA-001757-ME, 2013 WL 4779746, at *1 (Ky. Ct. App. Sept. 6, 2013).[31] See infra notes 52–63 and accompanying text.[32 ]Hall v. Hospitality Res., 276 S.W.3d 775, 784 (Ky. 2008) (citations omitted).[33] Revenue Cabinet v. O’Daniel, 153 S.W.3d 815 (Ky. 2005).[34] Id. at 819 (citing Ronald Benton Brown & Sharon Jacobs Brown, Statutory Interpretation: The Search for Legislative Intent § 4.2, at 38 (2002)).[35] Lichtenstein v. Barbanel, 322 S.W.3d 27 (Ky. 2010).[36] Id. at 34–35 (citing MPM Financial Group Inc. v. Morton, 289 S.W.3d 193, 198 (Ky. 2009)).[37] Ky. Rev. Stat. Ann. § 337.385 (West Supp. 2014).[38] Id.[39] Id.[40] See Parts Depot, Inc. v. Beiswenger, 170 S.W.3d 354, 358 (Ky. 2005).[41] Ky. Rev. Stat. Ann. § 337.385 (West 2014).[42] 29 U.S.C. § 216 (2012) (emphasis added).[43] Kentucky’s Wage Discrimination Because of Sex provisions are located at Ky. Rev. Stat. Ann §§ 337.420—337.433 (West 2014).[44] Ky. Rev. Stat. Ann §§ 337.423(1) (West 2014).[45] Ky. Rev. Stat. Ann §§ 337.427(2) (West 2014) (emphasis added).[46] Califano v. Yamasaki, 442 U.S. 682 (1979).[47] Id. at 698 n. 12.[48] Id. at 700.[49] Ky. R. Civ. P. 1(2).[50] (Class Action not permitted—31 states) See, e.g., Ala. Code § 8-19-10(f) (2014); Ariz. Rev. Stat. Ann. § 33-712(C) (2014); Ark. Code Ann. § 4-87-103 (West 2014); Conn. Gen. Stat. § 36a-740 (West 2014); Fla. Stat. § 624.155(6) (West 2014); Ga. Code. Ann. § 7-4-21 (West 2014); Haw. Rev. Stat. § 477E-4(b) (West 2014); Idaho Code Ann. § 28-45-201(1) and (3) (West 2014); 740 Ill. Comp. Stat. 10/7(2) (West 2014); Iowa Code § 537.5203(1) (West 2014); Kan. Stat. Ann. § 50-634(b) (West 2014); Ky. Rev. Stat. 134.590(6) (West 2014); La. Rev. Stat. Ann. § 51:1409(A) (2014); Mich. Comp. Laws § 445.1611(1) (2014); Minn. Stat. § 325M.07 (2014); Miss. Code Ann. § 75-24-15(4) (West 2014); Mont. Code Ann. § 30-14-133(1) (West 2013); Neb. Rev. Stat. § 77-2793(1) (2014); N.H. Rev. Stat. Ann. § 359-H:4 (2014); N.J. Stat. Ann. § 46:10B-29(a)(2) (West 2014); N.C. Gen. Stat. § 75C-5 (2014); Okla. Stat. tit. 36 § 6595; Or. Rev. Stat. § 238.362(4)(a) (2014); 73 Pa. Cons. Stat. § 2208(d) (2014); R.I. Gen Laws § 15-7.2-5(b) (2014); S.C. Code Ann. § 40-39-160(1) (2013); S.D. Codified Laws § 10-47B-131.2 (2014); Tenn. Code Ann. § 56-47-108(a)(2) (West 2014); Tex. Bus. & Com. Code Ann. § 605.005 (West 2013); Utah Code Ann. § 13-37-203(3) (West 2014); Wash. Rev. Code § 63.60.070(3) (2014). (Class Action Limited – 15 states) See, e.g., Cal. Civ. Code § 1787.3(b) (West 2014); Col. Rev. Stat. § 6-1-113(2) (2014); Ind. Code 9-32-12-4(c) (2014); Me. Rev. Stat. tit. 32, § 11054(c)(2) (2014); Md. Code Ann. § 12-707(c) (West 2014); Mass. Gen. Laws ch. 140D, § 32(a)(2)(b) (2014); Mo. Rev. Stat. § 71.675(2) (2014); Nev. Rev. Stat. § 38.255(3)(b) (2014); N.M. Stat. Ann. § 58-16-15(B) (West 2014); N.Y. Gen. Oblig. Law § 5-702(a)(2) (McKinney 2014); Ohio Rev. Code Ann. § 1351.08(A)(2)(b)(ii) (West 2014); Va. Code Ann. § 8.01-316(A)(2) (West 2014); W. Va. Code § 6C-2-3(e)(2) (2014); Wis. Stat. § 426.110(3) (2013); Wyo. Stat. Ann. § 40-19-119(a)(iii) (2014).[51] See Ky. Rev. Stat. Ann. § 413.120(2) (West 2014).[52] Toyota Motor Mfg, Kentucky, Inc. v. Kelley, et al., No. 2012-CA-001508-ME, 2013 WL 6046079 (Ky. Ct. App. Nov. 15, 2013).[53] As co-author Jeff Savarise tells the story, he locked himself in his office, determined to develop an argument that would allow TMMK to prevail in this case. When he emerged, he posited the heretofore novel theory that that Kentucky Act does not permit class actions. Just as in Orms and Gnagie, there were other arguments to present on appeal, but this novel argument provided an extra layer of security in the correctness of our position.[54] TMMK, 2013 WL 6046079, at *1.[55] Id.[56] Id. at *2.[57] Id. at *2.[58] Id. at *3–4.[59] Ky. R. Civ. P. 23.06, which became effective on January 1, 2011, provides, “[a]n order granting or denying class action certification is appealable within 10 days after the order is entered. . .”[60] TMMK, 2013 WL 6046079, at *8–9.[61] Id. at *9.[62] See Brown v. Humana Inc. and Humana Ins. Co., No. 13-CI-002422 (Ky. Cir. Ct. Dec. 5, 2013).[63] Ky. Rev. Stat. Ann. § 337.427 (West 1966).[64] Smith v. Wedding, 303 S.W.2d 322, 323 (Ky. 1957) (citation omitted).[65] Fox v. Grayson, 317 S.W.3d 1 (Ky. 2010).[66] Id. at 8.[67] Rue v. Ky. Ret. Sys., 32 S.W.3d 87 (Ky. Ct. App. 2000).[68] Id. at 89.[69] Kentucky Department of Corrections v. McCullough, 123 S.W.3d 130 (Ky. 2003).[70] Ky. Rev. Stat. Ann. § 344.450 (West 1974).[71] Ky. Rev. Stat. Ann. § 344.660 (West 1991); Ky. Rev. Stat. Ann. § 344.665 (West 1992).[72] McCullough, 123 S.W.3d at 139.[73] Id. at 140 (emphasis added).[74] Griffin v. Rice, 381 S.W.3d 198 (Ky. 2012).[75] Id.at 200.[76] Id. at 201.[77] Id. at 199.[78] Id. at 202–03.[79] Id. at 202.[80] Id. at 202–03.[81] City of Somerset v. Bell, 156 S.W.3d 321 (Ky. Ct. App. 2005).[82] Id. at 326 (citing Swiss Oil Corp. v. Shanks, 270 S.W. 478 (Ky. 1925); Bd. of Educ. of Fayette County v. Taulbee, 706 S.W.2d 827 (Ky. 1986); Bischoff v. City of Newport, 733 S.W.2d 762 (Ky. Ct. App. 1987)) (emphasis in original).[83] Id. at 326.[84] Id. [85] Id. at 327 (citing Eversole v. Eversole, 185 S.W. 487, 489 (1916)).[86] Id. at 326–27.[87] Ky. Rev. Stat. Ann. § 134.590(6) (West 1992).[88] Id. (Emphasis added).

United States v. Kentucky Bar Association: In a Case Drawing National Attention, the Kentucky Supreme Court Addresses the Ethics of Waivers of Ineffective Assistance of Counsel in Plea Bargains

Article | 103 KY. L. J. ONLINE 1 | Feb 2, 2015

B. Scott West1

I.  Introduction 

In an opinion that is creating ripples throughout the country with respect to the ethics of criminal plea bargaining, the Kentucky Supreme Court in United States v. Kentucky Bar Association2 affirmed Kentucky Bar Association (“KBA”) Advisory Ethics Opinion E-4353 to be a correct statement of the Kentucky Rules of Professional Conduct.4 That advisory opinion stated that it was a concurrent conflict of interest for a criminal defense attorney to advise a client whether to accept a plea bargain which contained a prospective waiver of a claim of ineffective assistance of counsel (IAC) against that attorney, and that likewise it was a violation of the rules for a prosecutor to induce or assist an attorney to violate the Rules of Professional Conduct by including such a waiver in an offer on a plea of guilty.5The outcome of the case is significant, given the events of the last couple of decades, where federal substantive law on the validity of waivers of constitutional rights found itself juxtaposed against the ethical requirements placed upon the attorneys involved in the plea bargain, the prosecutor and the criminal defense attorney. Specifically, the substance of KBA E-435 arguably conflicted with the federal circuit courts that had one by one applied traditional waiver analysis to the issue of IAC claims and had affirmed their validity. As more circuit courts affirmed the constitutional validity of the waivers, they began to become more prevalent in plea bargains on both state and federal levels. And as the use of such waivers became more popular with prosecutors, so grew the opportunities for various state bar ethics authorities to address the issue of the ethics of including such waivers in plea bargains. Almost as quickly as the circuit courts were affirming waivers, the vast majority of state ethics authorities found the inclusion of an IAC waiver into a plea offer to place the criminal defense attorney into an irreconcilable conflict of interest. The question necessarily arose, which interpretation takes precedence: the federal circuits that have found such waivers to be valid, or the ethics opinions that proscribe the inclusion of such waivers into plea bargains?It was against this backdrop that KBA E-435 originated. With its publication by the Kentucky Board of Governors, and a state supreme court rule which allows any person “aggrieved” by an ethics opinion to challenge the opinion directly in the Kentucky Supreme Court,6 a forum was presented with which to have the issue decided. For the first time a court would decide on the merits of whether a state ethics rule would take precedence over circuit court waiver analysis. While a Kentucky opinion would not be binding on other states’ courts or United States federal courts outside of Kentucky, the outcome would nevertheless be persuasive.This past August, the Kentucky Supreme Court became the first court to pronounce that prospective IAC waivers included within plea bargains did, in fact, present a conflict of interest for the criminal defense attorney.7 In so doing, the Court drew a sharp line of distinction between federal substantive law, which had discussed in a vacuum the issue of whether the right to file an IAC was waivable, and the behavior of the attorneys involved in advising a client about a waiver or conditioning an offer on entry of a waiver. Shortly after the issuance of the opinion, federal prosecutors indicated that they “no longer will ask criminal defendants who plead guilty to waive their right to appeal over bad legal advice,”8 and as expected, Attorney General Eric Holder officially announced this development on October 14, 2014.9 This change signals an about-face of a practice that has been prevalent within the federal court system for the last decade or so—the reversal of a position to which the United States had steadfastly clung even as late as a year ago, when the United States decided to challenge the validity of KBA E-435. More importantly, the case stands as a beacon of continuing hope to those who plead guilty to a crime due to the ineffective advice of their attorneys, only later to find out that they should not have accepted their plea bargains, or even pled guilty at all.

II.  Ineffective Assistance of Counsel Claims and the Proliferation of Waivers

Any discussion about the ethical propriety of advising a client whether to waive a potential IAC claim necessarily must start with a description of the claim being waived. An IAC claim is essentially a claim filed in the trial court10 urging the court to vacate the conviction on the ground that the client’s Sixth Amendment Right to counsel has been abrogated.11 The right to counsel has been construed to mean the right to effective assistance of counsel,12 and in Strickland v. Washington,13 the Supreme Court expounded that effective counsel means that counsel’s performance meets “an objective standard of reasonableness.”14 This effectiveness extends to an attorney’s role in advising a client whether to plead guilty pursuant to a plea bargain.15 However, “[j]udicial scrutiny of counsel’s performance must be highly deferential.”16 In order to establish ineffective assistance of counsel:

First, the defendant must show that counsel's performance was deficient. This requires showing that counsel made errors so serious that counsel was not functioning as the “counsel” guaranteed the defendant by the Sixth Amendment. Second, the defendant must show that the deficient performance prejudiced the defense. This requires showing that counsel's errors were so serious as to deprive the defendant of a fair trial, a trial whose result is reliable. Unless a defendant makes both showings, it cannot be said that the conviction or death sentence resulted from a breakdown in the adversary process that renders the result unreliable.17

This standard can prove to be a difficult one for a claimant to meet, and in fact, has been criticized as being too deferential of attorneys’ performances, leading to courts not finding deficient performances often enough.18 According to a paper published by The Innocence Project, relying on a study by the National Center for State Courts, IAC claims are the “most commonly raised issues,” being raised in nearly half of all state post-conviction appeals, with only about eight percent of them being successful.19 On the other hand, it is true also that many post-conviction IAC claims are not well grounded in fact, and are often just another step in the appeal process and part of the job of being a criminal defense lawyer. “Attorneys who try criminal cases should not be surprised by challenges to their competency and integrity, for the claim of ineffective assistance of counsel is often a last appeal for the disappointed client.”20No wonder, then, that federal prosecutors – out of honorable desires of promoting finality of decisions, deterring waste of court resources, and avoiding having to respond to spurious IAC claims21 – began to require waivers of IAC claims in cases where the plea bargain being offered was exceptionally good, at least in the eyes of the prosecutors. Whereas before, prosecutors have required waivers of the right to direct appeal of convictions and sentences during plea colloquies, “increasingly . . . prosecutors have enlarged the scope of such waivers to include waiving all constitutional and procedural errors, even unknown ineffective assistance of counsel claims . . . .”22 At some point, however, the insertion of IAC waivers into federal plea bargains became routine.23 One study looked at the “boilerplate” plea agreements used in every federal jurisdiction – 114 in all, including at least one plea agreement from each of the 94 federal districts – and concluded that roughly a quarter of them contain language that waives all forms of collateral attacks, including claims of ineffective assistance of counsel.24Challenges to the validity of the waivers themselves arose in virtually every circuit, and in turn, between 1991 and 2005 virtually every circuit applied traditional waiver analysis and came to the conclusion that prospective waivers of IAC could be valid.25 As the Sixth Circuit Court of Appeals observed in Davila v. United States, “[w]hen a defendant knowingly, intelligently, and voluntarily waives the right to collaterally attack his or her sentence, he or she is precluded from bringing a claim of ineffective assistance of counsel . . . .”26 However, none of the circuits up to this point addressed the issue of the ethics involved when a client waives a potential IAC against the very defense attorney advising the client on the plea agreement in which the waiver was contained. Simply put, the issue before the courts was only about whether the right to file an IAC – a right grounded in the Sixth Amendment right to counsel – was waivable.

III. State Bar Ethics Committees – Including Kentucky – Address the Ethics of IAC Waivers, and a Trend Starts Reversing 

Almost co-incident with the publication of the circuit opinions approving the validity of IAC waivers in plea bargains, various state bar ethics committees began to address the issue of whether it was a violation of the rules of professional conduct for a defense attorney to advise his or her client to enter a plea bargain which contained a waiver of future potential IAC claims against the attorney.27 The earliest states to consider the issue were North Carolina,28 Tennessee,29 Vermont,30 Arizona,31 and Ohio,32 which decided the issues between 1993 and 2001. North Carolina, who had adopted a version of the Model Rules of Professional Responsibility, opined that “the waiver of rights arising from the ineffective assistance of counsel . . . appears to be, and shall prospectively be deemed to be, in conflict with the ethical duties expressed or implied in the rules.”33 Tennessee, Vermont, and Ohio all referenced their state’s versions of the Model Code of Professional Responsibility’s Disciplinary Rule 6-102, which generally provide that “[a] lawyer shall not attempt to exonerate himself from or limit his liability to his client for personal malpractice.”34 Only Arizona, which also was decided under the Model Code of Professional Responsibility, failed to find an ethical breach, finding instead that there was a distinction between a malpractice claim and an IAC, and therefore, the Code did not prohibit the activity.35Then, between 2006 and 2013 – perhaps due to what Ellis and Bussert refer to as a “tide of postconviction waivers” appearing routinely in federal plea agreements36 – seven other states, including Kentucky, began to address the issue.In 2006, Texas interpreted Rule 1.7 of the Texas Disciplinary Rules of Professional Conduct, which is worded substantively differently from the version contained in the ABA’s Model Rules of Professional Conduct (RPC), to read that no conflict of interest is created when an attorney recommends a waiver of a potential IAC claim unless the attorney’s representation reasonably appears to be or becomes adversely limited.37 In short, the Texas rule appears to focus not on a risk of limitation of representation, as is true in the versions of Model Rules decided by the other states, but on something closer to actual limitation.Missouri,38 Alabama,39 Nevada,40 Virginia,41 Florida,42 and Kentucky43 decided the issue under their respective, but substantively similar, versions of the RPC and came to substantially identical conclusions. The opinions relied principally upon interpretations of RPC 1.7, 1.8(h), 8.4(a)44 and in the case of Kentucky, 3.8(b).45Kentucky’s KBA E-435’s opinion arose, as do all Kentucky informal ethics opinion, as a response to a request of a practitioner who raises an issue that the Committee believes is pertinent to attorneys in general.  After the committee agrees to address a question via an opinion, a member drafts the opinion (in this case, the KBA Ethics Committee Chair Grace M. Giesel),46 who – after robust discussion and vetting by the other members of the Committee – edits the opinion and submits it to the Kentucky Bar Board of Governors for their own discussion and subsequent approval or disapproval. If approved, the advisory opinion is ordered officially published in Kentucky Bench & Bar. KBA E-43547 was approved, and is summarized as follows:

• RPC 1.7 prohibits an attorney from advising a client about a plea agreement which contains a waiver of a prospective IAC against that attorney because there is a concurrent conflict of interest with the client.48 RPC 1.7(a) provides in pertinent part that:

Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: . . . (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.49

KBA E-435 opined that “[t]he lawyer has a clear interest in not having his or her representation of the client challenged on the basis of ineffective assistance of counsel. The lawyer certainly has a personal interest in not having his or her representation of the client found to be constitutionally ineffective.”50

• By analogy to RPC 1.8(h), which limits prospective waivers of malpractice but which is not directly applicable to IAC’s, a lawyer cannot ethically advise a client about an IAC waiver because it is the attorney’s own professional conduct which stands as the underlying basis for the claim.51 In fact, comment 14 to Rule 1.8 provides:

Agreements prospectively limiting a lawyer’s liability for malpractice are prohibited unless the client is independently represented in making the agreement because they are likely to undermine competent and diligent representation. Also, many clients are unable to evaluate the desirability of making such an agreement before a dispute has arisen, particularly if they are then represented by the lawyer seeking the agreement.52

• RPC 3.8(b) provides that a prosecutor must “make reasonable efforts to assure that the accused has been advised of the right to, and the procedure for obtaining, counsel and has been given reasonable opportunity to obtain counsel.”53 Comment 1 to RPC 3.8 states that “[a] prosecutor has the responsibility of a minister of justice and not simply that of an advocate. This responsibility carries with it specific obligations to see that the defendant is accorded procedural justice . . . .”54

KBA E-435 opined that it was “inconsistent with the prosecutor’s role as a minister of justice and the spirit of SCR(3.8(b)) for a prosecutor to propose a plea agreement that requires the individual to waive his or her right to pursue a claim of ineffective assistance of counsel.”55

• Finally, RPC 8.4(a) provides that “[i]t is professional misconduct for a lawyer to: (a) violate or attempt to violate the Rules of Professional conduct, knowingly assist or induce another to do so, or do so through the acts of another.”56 KBA E-435 opined that “[i]n making such a proposal, a prosecutor is assisting or inducing another lawyer, defense counsel, to violate the Rules of Professional Conduct, conduct proscribed by Rule 8.4(a).”57

With the adoption of KBA E-435 by the Kentucky Board of Governors, and its publication in Kentucky Bench & Bar magazine, Kentucky in 2013 joined the growing list of jurisdictions that found the practice of inclusion of IAC waivers to be unethical. It was a trend that did not escape the notice of at least one circuit court, which only a decade earlier had approved the validity of IAC waivers.58In Watson, the Eighth Circuit Court of Appeals revisited the issue of IAC waivers when a defendant brought an action pursuant to 28 U.S.C. § 2255 to vacate a sentence he received for pleading guilty to a drug conspiracy charge.59  The district court had denied the motion because his plea agreement contained a waiver of ineffective assistance of counsel claims.60 The Court of Appeals stated that the “[d]ismissal of a section 2255 motion on the basis of a waiver in the plea agreement is appropriate when the defendant’s claims of ineffective assistance relate to the negotiation of, and entry into, the plea agreement and waiver.”61However, the Court then noted that in a previous decision, it had been suggested that DeRoo should be refined to mean that a general waiver of the right to bring post-conviction claims under 28 U.S.C. § 2255 would not be sufficient to waive such a claim of ineffective assistance of counsel, absent an explicit waiver of the Sixth Amendment right to counsel which explained the concept of ineffective assistance of counsel.62 Such a waiver would be considered “knowing and voluntary” under the law of that Circuit provided that such a waiver of the Sixth Amendment right to counsel did not result in a “miscarriage of justice.”63 However, Chesney did not adopt such a refinement of DeRoo, since in that case the defendant’s waiver did not specifically mention the Sixth Amendment.64Then, the Court declined to adopt the Chesney refinement of DeRoo in the Watson case, and it did so for a very interesting reason:

We are not inclined to decide whether to adopt Chesney's refinement of DeRoo in this particular case, however, because the parties failed to address an issue we find difficult to ignore in determining whether Watson knowingly and voluntarily waived his right to bring an ineffective assistance claim with respect to matters directly related to the plea agreement. Ethics opinions from various states have addressed whether a defendant's attorney labors under a conflict of interest when advising a client to waive an ineffective assistance of counsel claim, with conflicting results. Watson does not claim his counsel labored under a conflict of interest when advising him to enter the plea agreement, and the parties did not brief this issue. We therefore believe it prudent to forego the issue of whether DeRoo should be refined by Chesney's suggestions until this related issue on a potential conflict of interest is fully aired by the adversarial process.

Instead, we accept the government's invitation to determine whether the district court should be affirmed in any event because Watson's ineffective assistance claim fails on the merits.65

Thereafter, persuaded by Watson, the Eastern District of Pennsylvania, in United States v. Deluca, decided against enforcement of a waiver of an IAC contained in the plea bargain before it.66 In Deluca, the court took note of state ethics opinions from the various states:

Although the Pennsylvania Bar has not addressed this issue,67 there appears to be an emerging trend among state bar ethics committees to recognize a criminal defense lawyer's personal interest in avoiding ineffective assistance of counsel claims may create a conflict of interest for the lawyer in advising his client regarding a plea agreement that would waive such claims. These ethics opinions do not purport to address the legality or enforceability of waivers of ineffective assistance of counsel claims, in some instances recognizing these issues are for the courts . . . . Although the Government urges this Court to likewise hold any conflict of interest in this case was merely speculative, the weight of ethics opinions to the contrary gives this Court pause in doing so.68

If nothing else, Watson and Deluca signaled that federal courts were no longer going to merely consider the validity of IAC waivers contained in plea agreements in a vacuum; the growing trend of ethics opinions denouncing the behavior of including such waivers in plea agreements were sufficient to give pause in enforcing the waivers. Both the Watson and Deluca courts declined to enforce the waivers, instead deciding the IAC issues on their merits.69 Nevertheless, the courts stopped short of addressing the ethical implications of inclusion of IAC waivers in plea agreements, in the case of Watson, because the parties had not addressed the issue in the briefing,70 and in the case of Deluca, because the Pennsylvania Bar had not opined on the ethics.71Something had to give; either the practice of placing waivers of IAC claims into plea agreements would have to be curtailed for ethical reasons (at least in those cases where the state’s ethic authorities found the practice to be barred under the state’s ethical code or rules), or, alternatively, at least in the federal courts, state ethical decisions would have to be subordinate to federal circuit case decisions which found such waivers to be valid after applying traditional waiver analysis. It was in this environment that the United States, acting through its United States Attorneys for both Eastern and Western Districts of Kentucky, filed suit against the Kentucky Bar Association,72 urging the Kentucky Supreme Court to strike down KBA E-435 either as violating federal law under the supremacy clause,73 or as misinterpreting the Kentucky Rules of Professional Conduct.

IV.  United States v. Kentucky Bar Association 

Pursuant to Kentucky Supreme Court Rule 3.530(12), any party or entity aggrieved or affected by a formal opinion of the Kentucky Board of Governors may file within thirty days of the opinion’s publication in Kentucky Bench & Bar magazine for a review of the opinion by the Kentucky Supreme Court.74 Thereafter, the Director of the Kentucky Bar Association may file a response within thirty days.75On April 29, 2013, the United States petitioned the Kentucky Supreme Court for review. The United States urged the court to vacate KBA E-435, arguing that the advisory opinion conflicted with controlling federal law,76 and that “[s]imply, the Board lack[ed] ‘the power, in the guise of regulating ethics, to impose strictures that are inconsistent with federal law.’”77 The United States also argued that the KBA “wrongfully conclude[d] that an ineffective assistance of counsel waiver creates an automatic conflict of interest for defense counsel that cannot be waived and that a prosecutor who makes a plea offer containing such a waiver violates the Rules of Professional Conduct.”78 The government explained: “If lawyers are presumed to provide competent representation and, by the time of the plea, a defense attorney is not aware of, or has not otherwise been accused of providing, ineffective representation, there is no ‘significant risk’ that counsel’s plea representation will be materially compromised by the possibility that, sometime in the future, counsel’s representation might be deemed ineffective.”79The impact of a holding in favor of the United States’ arguments would be clear: ineffective assistance of counsel claims could be waived out of existence, at least in the state of Kentucky. While not every plea bargain currently contains an IAC waiver, a Kentucky Supreme Court opinion upholding the practice of including and advising about such waivers could inevitably lead to a proliferation of their use. Moreover, with Kentucky being the first state to address the issues of “waiver v. ethics” on the merits, the case drew national attention.80 The National Association of Criminal Defense Attorneys81 (along with eighteen Legal Ethics Professors82 and sixteen Legal Ethics Practitioners83 located throughout the country) filed an amicus brief 84 in favor of the respondent, Kentucky Bar Association, as did Western Kentucky Community Defender, Inc.85 in Louisville, Kentucky, and the Innocence Network.86While the case was pending, the American Bar Association Criminal Justice Section proposed Resolution 113E. The resolution was introduced by George Washington University Law School’s Stephen A. Saltzburg and unanimously adopted by the ABA House of Delegates at their annual meeting on August 12-13, 2013.87 The resolution stated that the ABA opposed “plea or sentencing agreements that waive a criminal defendant’s post-conviction claims addressing ineffective assistance of counsel, prosecutorial misconduct or destruction of evidence unless based upon past instances of such conduct that that are specifically identified in the plea or sentencing agreement or transcript of the proceeding.”88In August 2014, the Kentucky Supreme Court handed down its opinion, addressing all of the issues raised by the United States, the KBA, and the Amicus parties.89 In a unanimous opinion authored by Chief Justice John D. Minton, Jr., the Court held that there was no conflict between Kentucky’s ethics rules and federal law, and that KBA E-435 accurately stated Kentucky’s ethical rules.90

A.  KBA E-435 Held Not to Violate the Supremacy Clause or Conflict with Federal Law

The court first addressed what it called an “issue of weighty concern,” that the ethics opinion violated the Supremacy Clause “because it stands in direct conflict with federal case law, statutes, and regulations.”91 The court recognized that to accept this argument, it would be “compelled to vacate E-435 as applied to the United States.”92 However, the court declined to agree with what it referred to as the United States’ “remarkable" notion.93First, the court noted that 28 U.S.C. § 530B provided that all government attorneys are bound by ‘“[s]tate laws and rules, and local Federal court rules, governing attorneys in each State where such attorney engages in that attorney’s duties, to the same extent and in the same manner as other attorneys in that State.’”94 Clarifying the previous statute, the Attorney General issued 28 C.F.R § 77.1(b), requiring ‘“[d]epartment attorneys to comply with state and local federal rules of professional responsibility.’”95However, the court stated that “[28 U.S.C. § 530B] should not ‘be construed in any way to alter federal substantive, procedural, or evidentiary law.’”96 The primary issue(s) before the court, then, was the “perplexing question whether Congress has precluded state action or by the choice of selective regulatory measures has left the police power of the States undisturbed except as the state and federal regulations collide,”97 and whether “the Supremacy Clause demands E-435’s lurking constitutional concerns be resolved.”98 In a footnote, the court found that “[i]n this particular case, the perplexity is increased by the fact that the Executive Branch, through the Office of Attorney General, is attempting to dictate to the Judicial Branch the standards for which attorneys, i.e., officers of the courts, should uphold.”99The court acknowledged that the vast majority of federal circuit courts had upheld the validity of IAC waivers in plea agreements, but then firmly drew the line between the waivers themselves and the acts of the attorneys involved:

We concede that federal jurisprudential support for the waivers at issue here is nearly unanimous. Our research indicates that every federal circuit to consider the validity of an IAC waiver—ten out of twelve—has explicitly permitted defendants to plead guilty and waive collateral review, including IAC. Undoubtedly, this case law is substantial and persuasive, if we were deciding, on its merits, whether a defendant could waive an IAC claim. But we are not deciding that issue. The obligations of attorneys are the real focus of this appeal. The KBA Ethics Committee, in any event, is without jurisdiction to issue opinions on such questions of law. So this Court's review of an IAC waiver's validity in the context of a plea agreement waits for another day.100

In our view, E-435 survives scrutiny under § 530B and the Supremacy Clause because it is simply an ethical rule and does not affect federal substantive, procedural, or evidentiary law. There is no subterfuge in E-435. It is not a procedural or substantive rule disguised as an ethics rule. E-435 also survives because, as we mention below, there is no contrary federal law.101

Thereafter, the court discussed why there was no other controlling federal law that would mandate vacation of E-435 under the Supremacy Clause.102

B.  KBA E-435 Held to be the Correct Interpretation of Kentucky’s Rules of Professional Conduct

Having decided that KBA E-435 was not precluded by the Supremacy Clause – and therefore, if accurate, binding upon all attorneys practicing within state and federal courts within Kentucky – the court turned its attention to whether the ethics opinion accurately articulated the ethical concerns associated with allowing IAC waivers in plea agreements.103 The court recognized that E-435 did “not express a novel position,”104 and that it was “align[ed] with the vast majority of state ethics decisions.”105 Further, the court stated that, “[t]he soundness of E-435’s reasoning aside, as former Justice Robert Jackson famously remarked, ‘the mere fact that a path is a beaten one is a persuasive reason for following it.’ We choose the beaten path today.”106Point by point, the court affirmed the reasoning of E-435.

• RPC 1.7: With regard to whether waivers present a conflict of interest for the defense attorney, the court found that:

The goal of [RPC 1.7] is to lessen the possibility of a ‘lawyer’s own interests . . . hav[ing] an adverse effect on [the] representation of a client. . . .’107 When defense counsel is forced, through the introduction of an IAC waiver in a plea agreement, to advise a client on the attorney's own conduct, a personal interest certainly exists. An IAC claim is time consuming for an attorney, may tarnish the attorney's professional reputation, may subject the attorney to discipline by the bar or courts, and may even have serious financial consequences for the attorney's practice.108

The court rejected the United States’ notion that an attorney’s personal interest will not “ordinarily” create a significant risk that a client’s representation will be materially limited.109 “This leaves open the possibility that ethical violations may occur and clients’ interests may be compromised. Instead of reactive, our ethics rules are intended to be proactive and operate preventively.”110

• RPC 1.8(h), to which E-435 had analogized and which the United States had argued was irrelevant and inapplicable to an IAC waiver, was found to be more than an analogy by the court. The court found a link between an IAC claim and a potential claim for malpractice.111 “In Kentucky, to claim malpractice in a criminal case, just the same as a civil case, a defendant must show proximate cause. . . . [S]uffice it to say that without having his conviction overturned, a defendant's attempt at proving proximate cause becomes extraordinarily difficult, virtually impossible.”112

[P]ublic policy supports our conclusion that advising on an IAC waiver in a plea agreement is prohibited under [RPC] 1.8(h). Criminal defendants, of course, seldom bring malpractice actions.  Instead, the usual course of action is via an action under [RCr] 11.42 or, federally speaking, a writ of habeas corpus under 28 U.S.C. § 2255. “[C]riminal defendants should not suffer from lesser protections simply because they usually seek habeas corpus relief rather than malpractice damage[s.]"113

• RPC 3.8(b) was held to be applicable to prosecutors who would impose a waiver of an IAC claim as a condition of a plea offer:

Despite any notion of horse trading, plea agreements are often essentially contracts of adhesion. Indeed, in the context of appellate waivers, they have been labeled as such. The plea agreement often comes with a take-it-or-leave-it tone. And defense counsel is forced to deal with the provision if offered. Because the prosecutor is aware of our ethical rules, we see little reason why offering a contract of adhesion that requires a fellow attorney to perform unethically in order to comply with other ethical or constitutional obligations would not be "influencing or persuading" a fellow attorney to violate our ethical rules.114

• Finally, the Supreme Court agreed with E-435 that plea bargains conditioned upon IAC waivers violate the spirit of RPC 3.8, which describe a prosecutor’s role to be a “minister of justice.”115 A prosecutor is charged with “‘see[ing] that the defendant is accorded procedural justice,’ and we simply do not believe the use of IAC waivers lives up to that lofty expectation.”116

The Kentucky Supreme Court concluded its opinion succinctly and firmly:

We are duty-bound to regulate the legal profession within our borders. Today, we are proactive in that role. Attorneys practicing in this Commonwealth, whether state or federal, must comply with our ethics rules. Accordingly, either defense counsel or prosecutors inserting into plea agreements waivers of collateral attack, including IAC, violates our Rules of Professional Conduct.117

V.  What Happens Next? 

Immediately following the issuance of United States v. Kentucky Bar Association, the opinion was applauded as being the first to address the merits of whether a state ethics rule prohibiting waivers would take precedence over the established federal practice of allowing IAC waivers in plea bargains. John Wesley Hall, who argued the case on behalf of amicus participant NACDL and the ethics professors and practitioners, stated “[n]ow we have an appellate court, in a lengthy and compelling opinion, joining many ethics opinions on the subject.”118 Daniel Goyette, Executive Director of the Louisville-Jefferson County Public Defender Corporation, stated “[t]he much anticipated decision by the Supreme Court of Kentucky is certain to have a broad national impact on the practice of criminal cases, both in terms of law and ethics.”119As previously stated, Attorney General Eric Holder issued a shift in policy under which United States Attorneys “should no longer seek in plea agreements to have a defendant waive claims of ineffective assistance of counsel.”120 The memorandum to federal prosecutors stated that, while a “majority of United States Attorney’s offices do not seek a waiver,” the Department of Justice has a “strong interest in ensuring that individuals facing criminal charges receive effective assistance of counsel.”121 Further, while a majority of prosecutors “do not seek a waiver,” the Department was interested in bringing “consistency” in the practice of making plea bargains, and in supporting the “underlying Sixth Amendment right.”122It is unknown whether the Attorney General’s decision was based, in part, on the decision in United States v. Kentucky Bar Association; the memorandum stated that the Department was “confident” that a waiver of ineffective assistance of counsel was both legal and ethical.123 Nevertheless, as can be inferred from the Wall Street Journal Online article, the timing of the issuance of the memorandum announcing the policy change suggests that the outcome of the opinion may have had some persuasive value.124 In this sense, the United States Attorneys who brought the challenge to the Kentucky Supreme Court should be commended for courageously bringing to a head an issue that perhaps ought to have been decided by some court, somewhere, a long time ago. By appealing E-435, the long-standing tension between federal court decisions which have upheld waivers of IAC claims, and the ethics decisions of most of the state bars who have decided the issue, are resolved.

1 B. Scott West is the General Counsel of the Kentucky Department of Public Advocacy, and a member of the KBA Ethics Committee. He, along with KBA Executive Director John Downing Meyers and KBA Bar Counsel Thomas H. Glover, represented the KBA in U.S. v. Ky. Bar Ass’n. Thanks to Thomas H. Glover for his editing and insight of this article prior to submission. Thanks also to Edward C. Monahan, Kentucky’s Public Advocate, for allowing his General Counsel to participate and represent the KBA in this case and to write this article.

2 U.S., ex rel. U.S. Attorneys for the E. & W. Dists. of Ky. v. Ky. Bar Ass’n,, 439 S.W.3d 136 (Ky. 2014).3 Ky. Bar Ass’n, Advisory Op. KBA E-435 (2012) (As found in Bench and Bar, March 2013, at 34–35).4 Ky. Rev. Stat. Ann. S. Ct. Rule 3.130 (West 2014) [hereinafter SCR].5 Ky. Bar Ass'n, supra note 3.6 SCR 3.520(12) (West 2014). In the event of an inquiry of the Kentucky Bar Association, under the interpretation of KBA E-435 a United States Attorney could possibly be found to be in violation of the Rules of Professional Conduct by including waivers in plea agreements. Thus, the United States would be an “aggrieved” person for purposes of a challenge.7 See U.S., ex rel. U.S. Attorneys for the E. & W. Dists. of Ky. v. Ky. Bar Ass’n,, 439 S.W.3d 136 (Ky. 2014); Joe Palazzolo, Government Rethinks Waivers With Guilty Pleas: Defense Lawyers Say Giving Up Right to Appeal Presents Conflicts of Interest, Wall St. J. (Sept. 26, 2014, 12:19 PM), http://online.wsj.com/articles/u-s-government-seeks-to-curb-appeals-over-bad-legal-advice-1411745218.8 Palazzolo, supra note 7.9 Eric Tucker, US Sets New Policy on Ineffective Lawyer Claims, Associated Press (Oct. 14, 2014 4:39 PM), http://hosted.ap.org/dynamic/stories/U/US_JUSTICE_INEFFECTIVE_COUNSEL?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2014-10-14-13-31-40.10 In Kentucky state courts, the procedure for asserting ineffective assistance of counsel is codified in Ky. R. Crim. P. 11.42. In the federal system, the procedure is codified at 28 U.S.C. § 2255 (2008) .11 The Sixth Amendment of the Constitution of the United States provides in pertinent part that “In all criminal prosecutions, the accused shall enjoy the right . . . to have the Assistance of Counsel for his defense.” U.S. Const. amend. VI.12 McMann v. Richardson, 397 U. S. 759, 771, n.14 (1970) (emphasis added).13 Strickland v. Washington, 466 U.S. 668, 688 (1984).14 Id.15 See, e.g., Padilla v. Kentucky, 559 U.S. 356, 364 (2010) (“Before deciding whether to plead guilty, a defendant is entitled to ‘the effective assistance of competent counsel.’”).16 Strickland, at 689.17 Id. at 687.18 See, e.g., Conference Addresses Inadequate Counsel for Poor, Equal Justice Initiative, (Nov. 15, 2007), www.eji.org/node/96.19 Dr. Emily M. West, Director of Research, Court Findings of Ineffective Assistance of Counsel Claims in Post-Conviction Appeals Among the First 255 DNA Exoneration Cases, The Innocence Project 1  (Sept. 2010), www.innocenceproject.org/docs/Innocence_Project_IAC_Report.pdf (citing Brandon Garrett, Judging Innocence, 108 Colum. L. Rev. 107 (2008); Victor E. Flango, Habeas Corpus in State and Federal Courts, NCJRS 45 (1994) , https://www.ncjrs.gov/pdffiles1/Digitization/149658-149664NCJRS.pdf.  Dr. West is no relation to the author.20 Richard H. Underwood & William H. Fortune, Trial Ethics 383 (1988).21 Allan Ellis & Todd Bussert, Stemming the Tide of Postconviction Waivers, 25 CRIMINAL JUSTICE 1 (2010) (“While we recognize there exists a systemic interest in finality and minimizing meritless claims, the appeal and post-conviction waivers that have crept into the federal plea negotiation process require diligent attention.” Mr. Ellis is a past president of the National Association of Criminal Defense Lawyers and a contributing editor to Criminal Justice magazine . Mr. Bussert is a past chair of the ABA Criminal Justice Section’s Corrections & Sentencing Committee.22 Peter A. Joy & Rodney J. Uphoff, Systemic Barriers to Effective Assistance of Counsel in Plea Bargaining, 99 Iowa L. Rev. 2103, 2106 (2014), reprinted in Washington University in St. Louis School of Law Legal Studies Research Paper Series, Paper No. 14-08-03 (Aug. 2014) . Mr. Joy is the Henry Hitchcock Professor of Law and the Director of the Criminal Justice Clinic at Washington University School of Law in St. Louis; Mr. Uphoff is the Elwood Thomas Missouri Endowed Professor of Law at the University of Missouri School of Law.23 Ellis & Bussert, supra note 21.24 Susan R. Klein et al., Waiving the Criminal Justice System: An Empirical and Constitutional Analysis 18 (University of Texas Sch. of Law, Pub. Law & Legal Theory Working Paper No.556, 2014), available at http://ssrn.com/abstract=2422545. The study found that sixty-seven and a half percent (67.5) of the form agreements contain a waiver of collateral attack, and of these, sixty-four percent (64%) accepted IAC claims from waiver . Applying the math, this means that twenty-four and three-tenths percent (24.3%) contained waivers of collateral attacks which included IACs.25 United States v. Lemaster, 403 F.3d 216, 220 (4th Cir. 2005); Williams v. United States, 396 F.3d 1340, 1341–42 (11th Cir. 2005); United States v. White, 307 F.3d 336, 343-44 (5th Cir. 2002); Davila v. United States, 258 F.3d 448, 451 (6th Cir. 2001); United States v. Cockerham, 237 F.3d 1179, 1190–91 (10th Cir. 2001); DeRoo v. United States, 223 F.3d 919, 923 (8th Cir. 2000); Jones v. United States, 167 F.3d 1142, 1145 (7th Cir. 1999); Watson v. United States, 165 F.3d 486, 489 (6th Cir. 1999); United States v. Rosa, 123 F.3d 94, 101 (2nd Cir. 1997); United States v. Wilkes, 20 F.3d 651, 653 (5th Cir. 1994); United States v. Abarca, 985 F.2d 1012, 1014 (9th Cir. 1993).26 Davila, 258 F.3d at 451.27 Every state bar ethics authority that considered this issue had adopted some version of the ABA’s Model Rules of Professional Conduct, with the exception of Ohio, Tennessee and Vermont, whose ethics at the time of decision were governed by the Ethical Canons and Disciplinary Rules of the Model Code of Professional Responsibility. See infra notes 28–45 and accompanying text.28 N.C. State Bar Ethics Comm’n., Formal Op. RPC 129 (2d revision)(1993).29 Tenn. Bd. Prof’l Resp., Advisory Op. 94-A-549 (1994).  30 Vt. Bar Ass’n. Advisory Ethics Op. 95-04 (1995) .31 Ariz. State Bar Comm. on the Rules of Professional Conduct, Op. 95-08 (1995).32 Ohio Bd. of Comm’rs on Grievances and Discipline, Op. 2001-6 (2001).33 N.C. State Bar Ethics Comm’n, supra note 26.34 Ohio Bd. of Comm’rs on Grievances and Discipline, supra note 32, at 1; Tenn. Bd. Prof’l Responsibility, supra note 29; Vt. Bar Ass’n, supra note 30, at 1.35 Ariz. State Bar Comm., supra note 31.36 Ellis & Bussert, supra note 21.37 Supreme Court of Tex. Prof’l Ethics Comm., Op. 571 (2006).38 Advisory Comm. of the Supreme Court of Mo., Formal Op. 126 (2009).39 Ala. State Bar, Formal Ethics Op. 2011-02 (2011).40 State Bar of Nev. Standing Comm. on Ethics and Prof’l Responsibility, Formal Op. 48 (2011).41 Va. State Bar, Op. 1857 (2011).42 Prof’l Ethics of the Fla. Bar, Op.12-1 (2013).43 Ky. Bar Ass'n, supra note 3.44 See Ala. State Bar, supra note 39; Prof'l Ethics of the Florida Bar, supra note 42; Advisory Comm. of the Supreme Court of Mo., supra note 38; State Bar of Nev. Standing Comm. on Ethics and Prof'l Responsibility, supra note 40; Va. State Bar, supra note 41.45 See Ky. Bar Ass'n, supra note 3.46 Grace M. Giesel is the Bernard Flexner Professor at the University of Louisville Louis D. Brandeis School of Law where she teaches ethics courses to law students. Grace M. Giesel, University of Louisville Brandeis School of Law, http://www.law.louisville.edu/faculty/grace_giesel (last visited Oct. 14, 2014).47 Ky. Bar Ass’n, supra note 3.48 Id. (citing SCR 3.130(1.7) (West 2014)49 SCR 3.130(1.7(a)) (West 2014).50 Ky. Bar Ass'n, supra note 3.51 Id. (citing SCR 3.130(1.8(h)) (West 2014)).52 SCR 3.130(1.8) cmt. 14 (West 2014).53 SCR 3.130(3.8(b)) (West 2014).54 SCR 3.130(3.8) cmt. 1 (West 2014).55 Ky. Bar Ass’n, supra note 3.56 SCR 3.130(8.4(a)) (West 2014).57 Ky. Bar Ass’n, supra note 3.58 See Watson v. United States, 682 F.3d 740 (8th Cir. 2012); DeRoo v. United States, 223 F.3d 919 (8th Cir. 2000).59 See generally Watson, 682 F.3d at 740.60 Id. at 741.61 Watson, 682 F.3d at 743 (citing DeRoo, 223 F.3d at 924).62 Chesney v. United States, 367 F.3d 1055, 1058 (8th Cir. 2004).63 Watson, 682 F.3d at 744.64 Id. (citing Chesney, 367 F.3d at 1059).65 Id. at 744–45 (emphasis added) (citation omitted).66 See United States v. Deluca, No. 08-108, 2012 WL 5902555 (E.D. Pa. 2012).67 While the Pennsylvania Bar had not addressed the issue at the time of the Deluca opinion, it did so in 2014 in Pa. Bar Ass’n. Formal Ethics Op. 2014-100, and it concluded that IAC waivers in plea agreements are unethical. Josh J.T. Byrne, Roundup of Bar Associations’ Ethics Advisory Opinions, The Legal Intelligencer (Aug. 25, 2014), http://www.thelegalintelligencer.com/id=1202667804874/Roundup-of-Bar-Associations-Ethics-Advisory-Opinions.68 Deluca, No. 08-108, 2012 WL 5902555, at *10 (E.D. Pa. 2012) (emphasis added).69 Watson, 682 F.3d at 744–45; Deluca, 2012 WL 5902555, at *10.70 Watson, 682 F.3d at 744.71 Deluca, 2012 WL 5902555, at *10.72 Brief of U.S. in Support of Motion for Review of Ethics Opinion at 1–2, U.S., ex rel. U.S. Attorneys for the E. & W. Dists. of Ky. v. Ky. Bar Ass’n,, 439 S.W.3d 136 (Ky. 2014).73 U.S. Const. art. VI, cl. 2 (“This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”).74 SCR 3.530(12).75 Id.76 Brief of the U.S. in Support of Motion for Review of Ethics Opinion, at 1, U.S., ex rel. U.S. Attorneys for the E. & W. Dists. of Ky. v. Ky. Bar Ass’n,, 439 S.W.3d 136 (Ky. 2014).77 Id. at 9 (citing Stern v. U.S. Dist. Ct., 214 F.3d 4, 20 (1st Cir. 2000)).78 Id. at 1.79 Id. at 13.80 See, e.g., Palazzolo, supra note 7.81 “[The] NACDL, organized in 1958, is the preeminent bar association for criminal defense lawyers in the United States, representing 9,500 direct members and 32,000 members through its 85 affiliate organizations.” Brief for Nat’l Ass’n of Crim. Def. Lawyers et al. as Amici Curiae Supporting Respondent, at i, U.S., ex rel. U.S. Attorneys for the E. & W. Dists. of Ky. v. Ky. Bar Ass’n,, 439 S.W.3d 136 (Ky. 2014).82 Professor Janet Ainsworth, Seattle University School of Law, Seattle, Washington; Professor Gabriel J. Chin, University of California, Davis School of Law, Davis, California; Professor Liz Ryan Cole, Vermont Law School, S. Royalton, Vermont; Associate Professor Tigran Eldred, New England School of Law, Boston, Massachusetts; Professor Andrew Guthrie Ferguson, David A. Clarke School of Law, University of the District of Columbia, Washington, D.C.; Professor Lawrence Fox, Yale Law School, New Haven, Connecticut; Professor Monroe Freedman, Hofstra University School of Law, Hempstead, New York; Professor Babe Howell, CUNY School of Law, Long Island City, New York; Professor Peter Joy, Washington University School of Law, St. Louis, Missouri; Professor Susan Klein, University of Texas Law School, Austin, Texas; Professor Carol Langford, University of San Francisco Law School, San Francisco, California; Professor Richard A. Leo, University of San Francisco, San Francisco, California; Professor Michael J. Zydney Mannheimer, Salmon P. Chase College of Law, Highland Heights, Kentucky; Professor Milan Markovic, Texas Wesleyan University School of LaFayette, Fort Worth, Texas; Professor Kevin Mohr, Western State College of Law, Fullerton, California; Professor Ellen Podgor, Stetson University College of Law, Gulfport, Florida; Associate Professor Keith Swisher, Phoenix School of Law, Phoenix, Arizona; and, Professor Richard Zitrin, Hastings College of the Law, San Francisco, California. Id. at iv.83 James Ellis Arden, Law Offices of James Ellis Arden, North Hollywood, California; David M. Bigeleisen, San Franscisco, California; James Bolan, Brecher, Wyner, Simons, Fox and Bolan, LLP, Boston, Massachusetts; Darren R. Cantor, Darren R. Cantor, P.C., Denver, Colorado; David J. Chapman, DJ Chapman Law, P.C., Fargo, North Dakota; Edward X. Clinton, Jr., The Clinton Law Firm, Chicago, Illinois; Richard A. Greenberg, Rumberger, Kirk & Caldwell, P.A., Tallahassee, Florida; Harry H. Harkins, Jr., Atlanta, Georgia; Williams Hodes, The William Hodes Law Firm, Indianapolis, Indiana; John J. Mueller, John J. Mueller LLC, Cincinnati, Ohio; Arden Olson, Harrang Long Gary Rudnick P.C., Eugene, Oregon; Seth Rosner, Saratoga Springs, New York; Evan Shirley, Shirley and Associates, Honolulu, Hawaii; Neal R. Sonnett, Neal R. Sonnett, P.A., Miami, Florida; Brian Tannenbaum, Tannenbaum Weiss, P.L., Miami, Florida; and, Donald Wilson, Jr., Broening Oberg Woods & Wilson, Phoenix, Arizona. Id. at vi.84 Counsel on the brief for all amicus parties (NACDL, Legal Ethics Professors, and Legal Ethics Practitioners) were Jerry Cox, Mount Vernon, KY, then-president and now past-president of NACDL, and Chair of the Kentucky Public Advocacy Commission; John Wesley Hall, Little Rock, AR, counsel of record; J. Vincent Aprile II, Lynch, Cox, Gilman & Goodman, P.S.C., Louisville, KY, counsel of record; Ellen Yaroshefsky, Cardozo School of Law, Yeshiva University New York, NY; and David Eldridge, Eldridge & Blakney, PC, Knoxville, TN. Id. All amicus briefs can be searched and found on the Kentucky Court of Justice website at http://apps.courts.ky.gov/supreme/sc_dockets.shtm, case number 2013-SC-000270.85 “Western Kentucky Federal Community Defender, Inc. . . . is the designated Federal Community Defender Organization for the United States District Court for the Western District of Kentucky pursuant to [the Criminal Justice Act,] 18 U.S.C. §3006A(g)(B).” In such capacity, the organization “represents the majority of defendants charged with felony and misdemeanor offenses in the United States District Court for the Western District of Kentucky.” Counsel on the brief were Scott T. Wendelsdorf and Frank W. Heft, Jr., Office of the Federal Defender, Louisville, KY. Brief for W. Ky. Cmty. Defender, Inc. as Amici Curiae Supporting Respondent, at i, U.S., ex rel. U.S. Attorneys for the E. & W. Dists. of Ky. v. Ky. Bar Ass’n,, 439 S.W.3d 136 (Ky. 2014).86 “The Innocence Network is an association of organizations dedicated to providing pro bono legal and investigative services to prisoners for whom post-conviction evidence can provide conclusive proof of innocence. The 63 current members of the Innocence Network represent hundreds of prisoners with innocence claims in all 50 states and the District of Columbia, as well as Canada, the United Kingdom, Australia, and New Zealand.” Counsel on the brief were Larry D. Simon, Louisville, KY, Thomas H. Golden, James C. Dugan and Jill K. Grant, Wiillkie Farr & Gallagher LLP, New York, NY, and Barry Scheck, Co-Director, The Innocence Project, Benjamin N. Cardozo School of Law, New York, NY. Brief of The Innocence Network as Amici Curiae Supporting Respondent, at 2. U.S., ex rel. U.S. Attorneys for the E. & W. Dists. of Ky. v. Ky. Bar Ass’n,, 439 S.W.3d 136 (Ky. 2014).87 ABA Resolution 113E, Adopted by the House of Delegates (Aug. 12-13, 2013), available at http://www.americanbar.org/groups/criminal_justice/policy/annual_2013.html.88 Id. Resolution 113E also contained an eight page report submitted by Criminal Justice Chair William Shepherd, which described and explained the history and purpose of the ABA’s adoption of this resolution. Resolution 113E and the attached report of the ABA Criminal Justice Section were filed by the KBA in the case as supplemental authority.89 See generally U.S., ex rel. U.S. Attorneys for the E. & W. Dists. of Ky. v. Ky. Bar Ass’n,, 439 S.W.3d 136 (Ky. 2014).90 See id.91 Id. at 141.92 Id.93 Id. at 142. (borrowing the term “remarkable” from Arizonans for Official English v. Ariz., 520 U.S. 43, 58 n.11 (1997)).94 Id.95 Id.96 Id. at 143 (citing 28 C.F.R. § 77.1(b)).97 Id.  (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230–31 (1947)).98 Id.99 Id. at 143 n.27 (emphasis in original).100 Id. at 144 (emphasis in original).101 Id. at 146.102 See id. at 146–51.103 Id. at 151.104 Id.105 Id.106 Id. (citing Robert H. Jackson, Full Faith and Credit—The Lawyer's Clause of the Constitution, 45 Colum. L. Rev. 1 (1945), available at http://www.roberthjackson.org/the-man/speeches-articles/speeches/speeches-by-robert-h-jackson/full-faith-and-credit//.107 Id. at 152 (quoting SCR 3.130-1.7 Cmt. 10).108 Id. (citations omitted).109 Id. at 151.110 Id. at 152 (emphasis in original). In so holding, the Supreme Court remained consistent with its earlier holding in Am. Ins. Ass’n v. Ky. Bar Ass’n, 917 S.W.2d 568, 573 (Ky. 1996), another case where a KBA advisory opinion was challenged. In that case, the court upheld KBA E-368 and stated that “the mere appearance of impropriety is just as egregious as any actual or real conflict.” Id. KBA E-368 advised that a lawyer may not ethically enter into a contract with a liability insurer in which the lawyer agrees to do all of the insurer’s defense work for a set fee. Ky. Bar Ass’n, Advisory Op. KBA E-368 (1994). KBA E-368 and the rules it interpreted acted as a “prophylactic device to eliminate the potential for a conflict of interest or the compromise of an attorney’s ethical and professional duties.” Am. Ins. Ass’n, 917 S.W.2d at 573. Am. Ins. Ass’n v. Ky. Bar Ass’n was decided after adoption of Kentucky’s version of the Model Rules of Professional Conduct (1990); therefore, “appearance of impropriety,” which was a bastion concept within the Model Code of Professional Responsibility, remains a valid ethical concern.111 See U.S., ex rel. U.S. Attorneys for the E. & W. Dists. of Ky. v. Ky. Bar Ass’n,, 439 S.W.3d 136, 155 (Ky. 2014).112 Id. at 156. (citation omitted).113 Id. (quoting J. Peter Voloski, Bargain for Justice or Face the Prison of Privileges? The Ethical Dilemma in Plea Bargain Waivers of Collateral Relief , 86 Temp. L. Rev. 429, 447 (2014).114 Id. at 157 (citation omitted).115 Id.116 Id. (citation omitted).117 Id. at 157–58.118 Lance Rogers, Court Decisions: Federal Prosecutors Bound by Ethics Rule Forbidding IAC Waivers in Plea Agreements, 95 Crim. L. Rep. (BNA) 613, (U.S. Aug. 27, 2014).119 Daniel Goyette, Kentucky Supreme Court Upholds Ethics Opinion that Prohibits Waiver of IAC as a Condition in Plea Agreements, Ky. Ass’n of Crim. Def. Lawyers Newsletter (KACDL), Sept. 2014, reprinted in National Association for Public Defense (NAPD) website, available at http://www.publicdefenders.us/?q=node/512.120 The policy change was announced via a “Memorandum for all Federal Prosecutors” issued on October 14, 2014 from James M. Cole, Deputy Attorney General. James M. Cole, Memorandum for All Federal Prosecutors, Wall St. J. (2014), http://online.wsj.com/public/resources/documents/IACmemo.pdf.121 Id.122 Id.123 Id.124 See Joe Palazzolo, Government Rethinks Waivers With Guilty Pleas: Defense Lawyers Say Giving Up Right to Appeal Presents Conflicts of Interest, Wall St. J. (Sept. 26, 2014, 12:19 PM), http://online.wsj.com/articles/u-s-government-seeks-to-curb-appeals-over-bad-legal-advice-1411745218.