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State Pension System Picks Up $50,000 Tab To Sue Bevin

KRS headquarters in Frankfort
KRS headquarters in Frankfort

A decision by Kentucky Retirement Systems to pay the legal fees of its former chairman as he sues Gov. Matt Bevin is drawing sharp criticism from the governor’s office.

KRS, which manages pensions for state workers, is paying Louisville banker Tommy Elliott’s $50,000 legal bill from the lawsuit he filed against Bevin after he removed Elliott from the agency’s Board of Trustees. The suit was filed June 17 and was joined by KRS trustee Mary Helen Peter.

The legal bills were obtained by the Kentucky Center for Investigative Reporting through a public records request to KRS. The reimbursement, ultimately borne by KRS’ roughly 355,000 pension holders, drew a rebuke from the Bevin administration.

“This is a prime example of why there needed to be a leadership change at the Kentucky Retirement Systems,” said Steve Pitt, the governor’s general counsel.

Bevin fired Elliott in April, almost three years before the Democratic appointee’s term was scheduled to expire. That prompted Elliott and Peter to hire the Louisville law firm Middleton Reutlinger and file the suit in Franklin County Circuit Court.

On the following Monday, June 20, KRS Executive Director Bill Thielen wrote letters to Elliott and Peter, saying their legal costs would be paid by KRS. He cited a state law calling for KRS to reimburse trustees for the cost of legal action “arising out of the performance” of their official duties.

Elliott and Peter submitted two Middleton Reutlinger payment invoices to KRS in late June. The first, for $40,019, included a $10,000 retainer fee that Thielen rejected. The second, for $19,972, was paid in full.

Pitt said KRS stakeholders -- current and retired state and county employees -- should demand that Elliott and Peter repay KRS for “wrongful expenditures.” He said the lawsuit is self-serving.

“It’s purely a lawsuit filed by Mr. Elliott to try to regain his seat on the board, from which he was removed,” Pitt said. “It has nothing to do with his performance of his duties as a trustee. These statutes for reimbursement of legal fees are primarily on the books to reimburse a trustee or another employee for situations in which they are sued as part of the performance of their duties.”

After this article was posted, state Sen. Joe Bowen, R-Owensboro, called KRS' payment of the legal bill an "abuse of power."

"I am appalled by the actions both the former chair, Mr. Elliott, and the executive director, Mr. Thielen, have taken by using taxpayer retirement funds as a means of footing a bill for a lawsuit for Mr. Elliott's personal benefit."

Thielen, however, argued that the lawsuit did arise as a result of Elliott’s performance as KRS chairman.

“How else would it otherwise arise?” Thielen asked. “He was trying to do his duty as an appointed trustee and as an elected chair of the board, and he was removed from that. So the only way this action can arise is out of the attempted performance of his duties.

“I think Gov. Bevin is clearly plowing new ground, if you will,” he said.

The lawsuit is no simple dispute over a board seat. For one, Elliott and Peter named the entire 13-member KRS Board of Trustees as a defendant, which means they’ll need legal representation, too. It also names KRS trustee Thomas Stephens as an individual defendant in his capacity as state Personnel Cabinet secretary. KRS agreed to pay his legal expenses as well.

Complicating the lawsuit further was Bevin’s reconstitution of the KRS Board of Trustees as a board of directors on June 17, with four additional nominees joining the original trustees -- minus Elliott. Elliott and Peter amended their lawsuit to challenge that executive order, too.

Finally, on June 22, Kentucky Attorney General Andy Beshear filed a motion to intervene in the lawsuit. If the motion is granted, which it might be in a hearing later this month in Frankfort, he will ask the court to void Bevin’s makeover of the KRS board and to restore Elliott as chairman.

Russell Weaver, a law professor at the University of Louisville, said the question of Elliott and Peter’s entitlement to legal fees is “very unclear.”

“If [the court] concludes that Bevin’s actions in abolishing the board were wrong, then you go to the secondary question of whether they had cause to remove him,” Weaver said. “If Bevin didn’t have cause, then the removal could be invalid, and the retirement system could reimburse him.”

Defending the ouster last month, Bevin Communications Director Jessica Ditto saidElliott had a “history of ethical violations and political favoritism” and demonstrated a “lack of transparency and poor leadership” of a pension system underfunded by about $35 billion.

No one interviewed for this article was aware of any legal precedents or attorney general opinions covering the reimbursement of legal expenses to someone disputing removal from a state board. Thielen called it a “fairly unique situation,” albeit one that could recur.

“You have a legal dispute that needs to be resolved, not only for this board but for numerous other boards throughout the state,” he said. “The limit of the governor’s power is a very significant issue here.”

Bevin named Louisville accountant Mark Lattis in May to fill Elliott’s seat on the KRS board. As of June 7, KRS’ website still showed Elliott as a board member and chairman.

This story has been updated to include comments from State Sen. Joe Bowen.

Reporter James McNair can be reached at  jmcnair@kycir.org and (502) 814.6543.
[documentcloud url="http://www.documentcloud.org/documents/2941628-TTEE-Elliott-16-CI-0656-Legal-Expense.html"]

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