(August 30, 2019): Kentucky Retirement Systems (KRS) won a major legal victory yesterday in its ongoing litigation with Seven Counties Services, Inc. Seven Counties filed for Chapter 11 bankruptcy protection in April 2013 for the purpose of ending their participation in the Kentucky Employees Retirement System (KERS) and avoiding payment of their ongoing statutory employer contributions.
In an Opinion issued Thursday, the Supreme Court of Kentucky ruled in favor of KRS on an important question of Kentucky law certified to it by the United States Court of Appeals for the Sixth Circuit. The Supreme Court of Kentucky held that Seven Counties’ participation in, and its contributions to, KERS are based on a statutory obligation, not a contractual obligation.
The distinction between the two is vitally important in order to determine the proper resolution for the case.
Seven Counties had asserted that the relationship was contractual, and therefore, its participation in KERS and its multi-million dollar statutory obligations to KERS could be rejected and discharged in bankruptcy court, notwithstanding state law. However, because the Supreme Court ruled in favor of KRS’ position that the relationship is “purely statutory,” Seven Counties is now unable to reject its obligations to participate in KERS as an executory contract under the Bankruptcy Code.
Although today’s ruling is a significant victory for KRS, the litigation is not final. The case now returns to the Sixth Circuit Court of Appeals for resolution of the remaining issues on appeal, which had been put on hold pending the Supreme Court of Kentucky’s decision.