Louisville LawWire 2007:37 COA Decisions

This legal malpractice case, initiated in 1994, was thrice subjected to the trial court's sua sponte 77.02 notice to dismiss for lack of prosecution. After exercising an abundance of patience, the trial court dismissed the case without prejudice on the third go-around in 2005. On appeal from that ruling, the CAs discussed the two different rules, 77.02 and 41.02, by which courts may dismiss cases for lack of prosecution, noting that the former is a "housekeeping rule" that results in a dismissal without prejudice. Conversely, 41.02 dismissals operate to dismiss with prejudice and operate as an adjudication upon the merits.

In making a 41.02 ruling, which effectively deprives a litigant of an opportunity to pursue a claim, the trial court is bound to consider the factors in Ward v. Housman, 809 S.W.2d 717 (Ky. App., 1991), and should only so rule in the most extreme cases. Both rulings are reviewed under an abuse of discretion standard, and the CAs noted that a 77.02 dismissal serves a different function than a 41.02 dismissal and has its own distinct requirements. After considering the facts of this case, the CA held that 77.02 dismissal was proper, in that no work had been done on the case for over ten years, despite the issuance of three separate 77.02 notices. It refused to consider the appellant's arguments concerning a years-old ruling granting partial summary judgment, stating that its determination that dismissal was proper rendered any prior rulings by the trial court moot.

Defendant is not entitled to a new sentencing hearing following the United States Supreme Court decision in Roper v. Simmons, 543 U.S. 551, 125 S.Ct. 1183, 161 L.Ed.2d 1 (2005), which held that execution of persons who were under the age of eighteen at the time of their offenses is unconstitutional. Denton's plea agreement for life without possibility of parole for 25 years for capital murder was valid. A subsequent interpretation of the law which renders an earlier plea agreement less favorable to a defendant does not entitle the defendant to a new sentencing hearing, as “[p]lea agreements, the Supreme Court has long instructed, may waive constitutional or statutory rights then in existence as well as those that courts may recognize in the future.” United States v. Bradley, 400 F.3d 459, 463 (6th Cir. 2005).

TC properly denied Washington's motion to suppress evidence from warrantless search due to existence of exigent circumstances. Here, officers were pursuing a suspected felony drug dealer into an apartment building when they heard a door slam in the direction that he had been running. Upon approaching the vicinity of where they believed the door had been slammed, they believed they smelled a strong odor of burnt marijuana emanating underneath Washington’s door. They announced that they were police and requested that the door be opened. Receiving no response and hearing movement within the apartment, the officer believed that the destruction of evidence of a felony might be imminent and decided to make a warrantless entry into the apartment to prevent the possible destruction of such evidence.

While we conclude that an odor of burnt marijuana emanating from a residence standing alone does not justify the warrantless entry of that residence, officer's entry into Washington's residence under the facts of this case was justified as an exigent circumstance. From officer’s testimony, he was in hot pursuit of a felony suspect; he had a good-faith belief that the suspect had entered the apartment; he believed that drugs and buy money would be found inside the apartment; no one answered the door; he heard people moving around inside the apartment; and, ultimately, he believed that felony evidence might be destroyed if immediate action was not taken. Because these officers were in a situation where they reasonably believed that evidence of a serious crime might be destroyed, they properly disregarded the warrant requirement to prevent the possible destruction of evidence. U.S. v. Banks, 540 U.S. 31, 36-38, 124 S.Ct. 521, 157 L.Ed.2d 343 (2003).

Appeal by both sides stemming from a claim filed with the Dept of Labor by Louisville firefighters union over the City's methods used to calculate overtime pay - specifically, that certain elements of pay were wrongfully excluded from the "total remuneration" used to calculate overtime pay. The Dept concluded that all amounts received by the firefighters other than the clothing allowance was indeed remuneration that should have been included in the calculation, and also concluded that KRS 413.120 precluded claims for overtime pay older than 5 years. The firefighters appealed to the KY Attorney General's Office whose hearing officer adopted the Dept's findings except for the formula used to calculate the overtime pay. Back to the Dept of Labor, its Secretary reinstated its officer's initial determination in full. Both sides appealed to the Jefferson CC, which found the Secretary's regulation interpretation to be arbitrary and capricious and remanded the matter to the Dept for reinstatement of its first hearing officer's determination in full.

The COA affirmed the TC's ruling in full, finding its interpretation of the regulation governing the formula to use in calculating the overtime pay to be correct, which ultimately benefited the firefighters. The COA also upheld the TC's conclusion that the clothing allowance was not remuneration and that the City's allegedly deceptive acts in concealing the formula and categories of pay it had used to calculate the overtime pay did not toll the 5 years statute of limitations for back overtime pay.

CALFEE V. COMMONWEALTH
FAMILY LAW: PATERNITY (EQUITABLE ESTOPPEL, CHILD SUPPORT, VOIDABILITY)
2006-CA-001446
PUBLISHED: REVERSING AND REMANDING
PANEL: COMBS, PRESIDING; ACREE AND TAYLOR CONCUR
COUNTY: JEFFERSON
DATE RENDERED: 8/3/2007

This matter started out with an effort by the Commonwealth to enforce and collect child support arrearages against Calfee. COA examined the applicability of "equitable estoppel" to a father who had been determined to owe child support but was later determined by genetic testing not to be the father. On remand, the family court must examine the evidence to determine whether the mother Aquilina's actions amounted to fraud or misrepresentation. If so, Calfee is entitled to the relief he seeks, and the arrearage should be set aside.

David Calfee appeals family court's denial of his request for modification of a portion of a court-ordered child support obligation that had already accrued.

A default judgment of paternity and an order of support had previously been entered against Calfee who then had failed to make many of the scheduled child support payments. Several years later, genetic testing determined conclusively that Calfee was not the child's father.

Nevertheless, the Commonwealth argued that Calfee owed a duty of support the child. pursuant to the default judgment and computed Calfee’s arrearages at more than $37,000.00. The lower court in reliance of the COA decision in Crowder v. Commonwealth, 745 S.W.2d 149 (Ky.App. 1988) later set aside the default judgment of paternity and terminated Calfee’s support obligation with respect to this child. The lower court determined that Calfee was financially responsible for the child until the time that the judgment of paternity had been set aside. The court concluded that if Calfee had timely undergone genetic testing, then the state and the mother could have been seeking another possible father of the child and obtaining child support from him for that child.

COA stated that it had recently applied the principles of equitable estoppel to prevent a former husband from denying paternity and the resulting duty of support. See S.R.D. v. T.L.B., 174 S.W.3d 502 (Ky.App. 2005). However, this COA was not persuaded that those principles should govern in this case.

A legal presumption that Calfee was the child's biological father was never at issue; the child was neither conceived nor born during lawful wedlock; Calfee never took any action to represent that he was the natural father. Although Calfee’s name appeared on the birth certificate (per Aquilina’s request), there is nothing in the record to indicate that anyone ever regarded him as the biological father. Therefore, Calfee's conduct did not establish a basis to estop him from asserting: (1) that he is not L.K.C.’s legal father and (2) that he should never have been obligated (either on legal or equitable grounds) to provide for the child’s support.

The COA concluded that past child support obligations are voidable in some instances and that the circumstances of this case constitute proper grounds for voiding Calfee's support obligation.

The opinion in Denzik v. Denzik, 197 S.W.3d 108 (Ky. 2006) sets out the factors that must be shown to establish fraud or misrepresentation: 1) a material isrepresentation; 2) which is false; 3) that is known to be false or made recklessly; 4) that is made with inducement to be acted upon; and 5) that is acted upon, causing injury.

It is clear from the evidence that the child's mother (Aqualine) had no legitimate reason to assume that Calfee was L.K.C.’s father. On the contrary, she had ample cause to believe that Calfee may not have fathered the child. The evidence suggests that Aquilina did not in fact believe that Calfee was the child’s father and admitted that L.K.C. did not resemble Calfee; and told others that he was not L.K.C.’s father. Nonetheless, she initiated legal action against Calfee for support.

Husband and wife were married for 17 years. No children were born of the marriage. Husband appealed property division. COA affirmed.

Wife's earnings were relatively stable during the marriage, ranging from $22,531.00 to $38,171.00. Husband's income varied widely. In three different years he reported no W-2 earnings. On the other hand, in 1999, when People's Bank sold, Husband's W-2 earnings were $4,167,011.00. Excluding that one exceptional year, Husband averaged approximately $100,000 in income per year throughout the course of the marriage.

The family court valued the total property of the parties at $6,489,719.00, with $1,906,977.40 set aside as husband's nonmarital property and $20,000 as wife's nonmarital property. However, the court credited Husband's award of marital property with $2,052,297.00, an amount the court found that Husband had dissipated the marital estate. In other words, $2,052,297.00 of the $2,509,507.80 awarded to Husband consisted of moneys that he had given away and that no longer existed, at least in the possession of these parties. The court also credited Husband's marital property award with $90,000 for his interest in a condominium in Florida which it found that he owned jointly with his sister and brother-in-law. The net result is that Wife was awarded approximately 80% of the marital assets actually in the possession of the parties at the time of the divorce.

Husband appealed circuit court order awarding wife 80% of marital assets actually in the possession of the parties at the time of the divorce raising four major claims.

First, he claimed the court erred in not awarding him his non-marital assets and holding that he had failed to meet his burden of proving those assets were non-marital. Although the husband produced some documentation for his non-marital assets, the family found he had selectively produced documents and claimed not to be able to produce other documents. The CJO concluded this finding was not clearly erroneous and also upheld the circuit court’s finding that husband’s expert witness’ testimony was flawed as the expert did not attempt to do a traditional tracing. Husband's attempted tracing consisted of testimony and reports by another certified public accountant who did not attempt to do a traditional tracing of any specific premarital asset into any currently existing asset. She testified that she did not follow the formula set out in Brandenburg v. Brandenburg, 617 S.W.2d 871 (Ky. App. 1981), at all (she felt it was “inapplicable”). Rather, she used an approximate growth rate, the parties' joint tax returns, depositions of each party, interviews with Husband and Husband's statements to produce a "forensic tracing" model the family court refused to accept Husband's tracing method, so as to entitle him to any increase in the value of the exchanged assets. While it may be very likely that some portion of this increase was due to general economic conditions, COA agreed with the trial court that Husband did not provide clear and convincing evidence of how much of the increase was due to these conditions, as opposed to the parties' joint efforts. There is no presumption that general economic conditions caused the increase in value.

Second, husband claimed it was error to find that he had dissipated marital assets. Husband gave two million dollars to his sister, brother-in-law, and accountant. Husband claimed he had always given monetary gifts and this was not dissipation. Dissipation may be found when marital funds are expended for a nonmarital purpose, “(1) during a period when there is a separation or dissolution impending; and (2) where there is a clear showing of intent to deprive one's spouse of her proportionate share of the marital property." The standard of proving dissipation is preponderance of the evidence. Gifts to family members can constitute dissipation of marital assets.

The family court found that Husband made the gifts “during a period that the Husband was contemplating dissolving the marriage.” The finding that Husband made these gifts to deprive Wife of her share of the marital estate is not clearly erroneous. While COA stated it may have decided differently on the division of marital property, it could not say that the award of 55% of the marital property to Husband and 45% to Wife was an abuse of discretion. COA, however, found that husband was aware that there was a real possibility divorce was eminent and that he never informed wife of the gifts. Additionally, husband did not report the gifts on his gift tax return until after discovery. There was substantial evidence that husband tried to hide the gifts from wife.

Third, husband claimed the family court erred in dividing the property. With regard to the husband's claims that that his wife was unsupportive and did not contribute to the marital home, the CJOA held the family court was in the best position to judge the evidence as to these facts and even though it might have reached a different conclusion it would not find the lower courts holding to be clearly erroneous.

Finally, husband claim that the family court failed to credit him monies paid to wife during litigation would found by COA not to constitute error as trial court did not abuse its discretion in dividing the assets.

Property acquired during the marriage and before a decree of legal separation is presumed to be marital property, "regardless of whether title is held individually or by the spouses in some form of co-ownership[.]" KRS 403.190(3). Kentucky uses the "source of funds" rule to characterize property or to determine the parties' nonmarital and marital interests. The source of funds rule "simply means that the character of the property, i.e., whether it is marital, nonmarital, or both, is determined by the source of the funds used to acquire property." If nonmarital property increases in value during the marriage, the trial court must determine the reason for the increase. If the increase is attributable to general economic conditions, it is nonmarital; where the parties' joint efforts cause the increase, it is marital property. However, the burden of proof is on the party claiming the increase in value to be nonmarital, and he must satisfy that burden by clear and convincing evidence. When nonmarital property is not in existence at the time of dissolution, the party claiming a nonmarital interest in a presently owned asset must "trace" the previously owned asset into an existing asset.

Tracing to a mathematical certainty is not always possible, and a claimant cannot meet the tracing requirement simply by showing that he or she brought nonmarital property into the marriage without also showing that he or she has spent his or her nonmarital assets in a traceable manner during the marriage.

The employee was fired the day after his injury, and the ALJ found based on conflicting testimony that he did not report the injury to his employer. Instead, he contacted the insurance carrier for his employer and filled out a first report of injury form the next day. The Administrative Law Judge dismissed the claim on the basis of failing to give notice to the employer, and the Workers' Compensation Board affirmed. The Court of Appeals reversed, holding on an issue of first impression that notice to the insurer satisfied the purposes of the notice statute, being to allow an investigation of the injury and the provision of prompt medical attention in order to mitigate disability. Notice to the insurer was constructive notice to the employer, given that the employer was contacted by the insurer in order to investigate the claim.

The well-established rule under CR 56.03 is that the denial of a motion for summary judgment is interlocutory and not appealable. Ford Motor Credit Co. v. Hall, 879 S.W.2d 487 (Ky.App. 1994).

There is an exception to this general rule that applies where: "(1) the facts are not in dispute, (2) the only basis of the ruling is a matter of law, (3) there is a denial of the motion, and (4) there is an entry of a final judgment with an appeal therefrom." Transportation Cabinet, Bureau of Highways, Com. of Ky. v. Leneave, 751 S.W.2d 36, 37 (Ky.App. 1988);

However, the exception does not apply herein because the trial court has never entered a final judgment. “A final or appealable judgment is a final order adjudicating all the rights of all the parties in an action or proceeding, or a judgment made final under Rule 54.02.”2 CR 54.01.

The mere recitation of finality language will not make an order appealable when it is interlocutory by its very nature. Preferred Risk Mutual Insurance Co. v. Kentucky Farm Bureau Mutual Insurance Co., 872 S.W.2d 469 (Ky. 1994); see also Hook v. Hook, 563 S.W.2d 716, 717 (Ky. 1978).

NORTHERN KY ELECTRIC SERVICE, INC. V. STONE
BUSINESS LAW: COVENANT NOT TO COMPETE
2006-CA-000306
NOT PUBLISHED: 112
DATE RENDERED: 8/3/2007

FYI: Here are some black letter rules that do not come up often. Consider this a short one-minute CLE -

In order to prosecute a claim, “a party must have a judicially recognizable interest in the subject matter of the suit.” Healthamerica Corp. of Kentucky v. Humana Health Plan, Inc., 697 S.W.2d 946, 947 (Ky. 1985)

“An ‘actual controversy’ is not one which involves a question which is academic or hypothetical or which calls for nothing more than an advisory opinion. Rather, it is a controversy over present rights, duties, and liabilities [citations omitted].” Bischoff v. City of Newport, 733 S.W.2d 762, 764 (Ky.App. 1987).

Further, a court “‘will not decide speculative rights or duties which may or may not arise in the future, but only rights and duties about which there is a present actual controversy presented by adversary parties, and in which a binding judgment concluding the controversy may be entered.’” Veith v. City of Louisville, 335 S.W.2d 295, 297 (Ky. 1962) (quoting Black v. Elkhorn Coal Corp., 233 Ky. 588, 26 S.W.2d 481, 483 (Ky. 1930)).

Under negligence law, in order to prevail the plaintiff must prove (1) the defendant owed him a duty of care, (2) a breach of that duty, and (3) a causal connection between the breach and the plaintiff's consequent injury.

The existence of a duty is a question of law, a duty voluntarily assumed cannot be carelessly abandoned without incurring liability for injury resulting from the abandonment.”

Assuming that there may arise circumstances when the duty would be imposed upon a host to summon emergency medical aid when a houseguest is in need of such aid, those circumstances are not present here.

The existence of a duty is a question of law, Lewis v. B & R Corporation, 56 S.W.3d at 438, and is accordingly reviewed de novo. Brewick v. Brewick, 121 S.W.3d 524, 526 (Ky.App. 2003).

"The most important factor in determining whether a duty exists is foreseeability." Pathways, Inc. v. Hammons, 113 S.W.3d at 89. Foreseeable risks are determined in part on what the defendant knew at the time of the alleged negligence. (Holding that liability for negligence is based on what the defendant was aware of at the time of the alleged negligent act and not on what the defendant should have known in hindsight); Pathways, Inc. v. Hammons, 113 S.W.3d at 90. Moreover, “a duty voluntarily assumed cannot be carelessly abandoned without incurring liability for injury resulting from the abandonment.” Johnson v. Brey, 438 S.W.2d 535, 536 (Ky. 1968).

Assuming that there may arise circumstances when the duty would be imposed upon a host to summon emergency medical aid when a houseguest is in need of such aid, those circumstances are not present here.

Hamilton has failed to plead facts or adduce evidence through discovery that Seals was aware of his perilous brain injury during the relevant time and thus could foresee the need to summon medical aid.

DOBSON V. COM.
CRIMINAL: PROVING VALUE OF STOLEN ITEMS
2006-CA-000236
NOT PUBLISHED: 127
DATE RENDERED: 8/3/2007

SHROYER V. GRIMM
FAMILY LAW: APPELLATE BRIEFS AND PRESERVING ERROR NOTED; CONTEMPT
2006-CA-000695
NOT PUBLISHED: 92
DATE RENDERED: 8/3/2007

NIXON V. NIXON
FAMILY LAW: PROPERTY DIVISION; NO PRESUMPTION DIVIDED EQUALLY
2006-CA-001161
NOT PUBLISHED: 76
DATE RENDERED: 8/3/2007

FULLER V. FULLER
FAMILY LAW: MODIFICATION OF MAINTENANCE; TERMINATION WHEN SON 18
2006-CA-001463
NOT PUBLISHED: 87
DATE RENDERED: 8/3/2007

ROGERS V. ROGERS
FAMILY LAW: DOMESTIC VIOLENCE; RENEWING
2006-CA-001836
NOT PUBLISHED: 88
DATE RENDERED: 8/3/2007

KELLEY V. NATIONWIDE AUTO RESTORATION, LLC
JURISDICTION: CIVIL; DISTRICT COURT NOT HAVE EQUITABLE JURISDICTION
TORTS: ABANDONMENT OF PROPERTY AND OWNERSHIP
2006-CA-001343
NOT PUBLISHED: 89
DATE RENDERED: 8/3/2007

District courts are prohibited from entertaining “matters of equity.” However, the Jefferson District Court did not violate this prohibition when it found that Kelley had abandoned the Jaguar parts at issue because in so ruling it did not exercise equitable powers.

“Abandonment” is the relinquishment of property with the intention of not reclaiming it or reassuming its ownership or enjoyment.

More specifically, under Kentucky law abandonment consists of a voluntary relinquishment of possession along with an intent to repudiate ownership.

The intent to repudiate ownership may be inferred when the facts justify it, and the lapse of a long period of time following relinquishment of possession constitutes significant evidence of the intention to abandon property.

Equitable issues are clearly not triable by juries.

Property which is abandoned becomes subject to appropriation by the first taker or finder who reduces it to possession.

H. (J.) V. COM.
EVIDENCE: OUT OF COURT SOCIAL WORKER'S STATEMENTS INADMISSIBILITY; RELAXED STANDARDS AT REMOVAL HEARING NOT APPLICABLE AT ADJUDICATION
CIVIL PROCEDURE: AVOWALS (WITHOUT ONE, NO WAY TO DETERMINE PROFFERED TESTIMONY)
2006-CA-002525
NOT PUBLISHED: 112
DATE RENDERED: 8/3/2007

MILLS V. FRESENIUS MEDICAL CARE HOLDING
WORKERS COMP: SUBSTANTIAL EVIDENCE
2006-CA-001975
NOT PUBLISHED: 95
DATE RENDERED: 8/3/2007

Estoppel is appropriate because Hitachi’s insurer, Liberty, violated regulations intended to promote the fair settlement of workers' compensation claims and because the violations led him to believe that his claim would be settled without litigation.

Agreeing with Craig that Liberty engaged in conduct proscribed as unfair claims settlement practices under Kentucky statutes and regulations, COA reversed and remanded so that Craig’s claim may proceed.

As Craig notes, KRS 342.267 incorporates within the Workers’ Compensation Act the provisions of KRS 304.12-230, which outlaws certain acts and omissions by insurers or their adjusters as “unfair claims settlement practice[s],” including the insurer’s “fail[ure] to affirm or deny coverage of claims within a reasonable time.” KRS 304.12-230(5).

Pursuant to those statutes and to KRS 342.260(1), the Department of Workers’ Claims promulgated 803 KAR 25:240, which imposes duties on workers’ compensation carriers with respect to the fair settlement of compensation claims.

Carriers are obliged to “diligently investigate a claim for facts warranting the extension or denial of benefits.” Section 4. They must “attempt in good faith to promptly pay a claim in which liability is clear.” Section 6. And, under Section 5 of 803 KAR 25:240:

The adjuster did not inform Craig that she needed additional information, nor did she thereafter provide him with written notice specifying reasons for denying his claim.

Clearly, the adjuster violated her statutory and regulatory duties (1) to inform Craig that additional information was needed to process his claim; (2) to affirm or deny his claim as soon as reasonably practicable; and (3) to provide written reasons for a denial if that was Liberty's position. Arguably she also failed to investigate the claim diligently, when she failed to follow-up her unanswered May 2005 letter to the surgeon, and perhaps, as Craig insists, she improperly denied Craig’s entire claim where at least some liability was reasonably clear.

As the Ky Supreme Court has observed, estoppel is an equitable remedy often invoked to prevent a party from benefiting from its own misconduct. Akers v. Pike County Board of Education, 171 S.W.3d 740 (Ky. 2005).

SOUTH AKERS MINING V. CHARLES
WORKERS COMP: Reopening claim; res judicata in context of awards
2007-CA-000534
NOT PUBLISHED: 86
DATE RENDERED: 8/3/2007