Feb. 1, 2008 -  KENTUCKY COURT OF APPEALS DECISIONS (2008:06)

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• 39 rendered decisions
  • Nos. 102-140
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PUBLISHED (COA).

COM. V. THE PUBLIC SERVICE COMMISSION OF KY
ADMINISTRATIVE LAW:  Jurisdiction, utility regulation
2006-CA-001652
PUBLISHED: REVERSING AND REMANDING
PANEL: NICKELL, PJ;  COMBS, WINE CONCUR
COUNTY: FRANKLIN
DATE: 02/01/2008

This appeal started with the state filing an action to vacate or set aside orders by the Public Service Commission (PSC) that authorized establishment of economic development riders to electric utility's general tariff.  The Franklin Circuit Court affirmed. State appealed, and the COA reversed and remanded the circuit court holding the orders were unlawful under statute setting forth permissible considerations for free or reduced-rate services; and the state authorizing a public utility to employ suitable and reasonable customer classifications in the conduct of its business did not confer alternative basis of jurisdiction to issue orders in question.

Michael Stevens

Edwin A. Hisle and Olive Sue Hisle Cook appealed from an Opinion and Order of the Fayette Circuit Court that denied their motion for relief brought pursuant to Kentucky Rules of Civil Procedure (CR) 60 .02, which sought to set aside as void two judgments entered in 1966 partitioning several parcels of real property. Appellants maintain that the circuit court lacked subject matter jurisdiction to entertain the original partition action in 1965-66 and, thus, that the judgments should be set aside and they should be granted fee simple title pursuant to the wills of their grandparents. COA affirmed.

If as requested the judgments are set aside, the appellants would then claim fee simple ownership of the two tracts of realty at issue as the surviving remaindermen under the wills of their grandparents following the deaths of their own parents. The COA disagreed with the appellants' position on jurisdiction finding the circuit court did have jurisdiction and further held that the appellants are precluded from challenging the 1966 judgments at this late date.

Although modern partition proceedings generally involve statutory provisions, the jurisdiction of equity courts to partition real property is very ancient and has existed in common law both in England and this country since its founding.  The statutes supplement, or are supplemented by, the traditional jurisdiction of equity courts to decree partition.  With the merger of the historical court of law and court of equity, courts of general jurisdiction are empowered with jurisdiction over partition actions by the state constitutions. 

In this case, the appellants acknowledge that in the 1965 partition action, the Fayette Circuit Court had in personam jurisdiction over the parties, all of whom were residents of the county and entered appearances in the suit, and in rem jurisdiction over the five tracts of realty involved in the suit, which were physically located within the geographical boundaries of the county. The appellants contend the court lacked authority to divide or partition the realty because the grandparents' deeds did not devise equal estates to the grandchildren as remaindermen as arguably required for application of KRS 381.136.

While there is a legitimate question concerning whether the provisions of the grandparents' wills strictly complied with the factors set forth in KRS 381.136, that issue concerns the specific facts of the case and does not concern the circuit court's subject matter jurisdiction. As a court of general jurisdiction, the Fayette Circuit Court had subject matter jurisdiction derived from the Kentucky Constitution to decide “this type” of case, that being, a partition action.  The General Assembly does not have authority to limit or control the circuit court's subject matter jurisdiction.  Furthermore, grandchildren either consented, waived, or were estopped from challenging any error in judgments partitioning family property.

Michael Stevens

Ex-Husband appealed TC’s orders classifying his Tobacco Transition Payment Program (TTPP) payments and a portion of the increase in value of his life estate as marital and awarding maintenance and attorney’s fees to Ex-Wife in divorce proceeding.

Prior to the parties’ 18 year marriage, Ex-Husband inherited from his grandfather a life estate in a farm consisting of 215 acres. During the marriage, the parties resided in a residence located on the farm, and Ex-Husband conducted farming operations thereupon. The parties entered into a prenuptial agreement prior to marriage.

In its orders regarding division of property, TC treated future TTPP payments to be made to Ex-Husband as owner of the life estate as marital property in order to effectuate an equitable division of property. CA found that TC erred as a matter of law by classifying the TTPP payments as marital property in order to effectuate a fair distribution of property. The classification of property as marital or nonmarital is not discretionary. CA further found that TTPP owner payments should have been classified as Ex-Husband’s nonmarital property. The TTPP owner payments represent compensation from the government for the taking of the property interest in the tobacco grower’s tobacco quotas. As Ex-Husband inherited the tobacco quotas from his grandfather, they were nonmarital, and the compensation received for them is also nonmarital.

CA also found that future TTPP payments to be made to Ex-Husband as a grower of tobacco should also be classified as Ex-Husband’s nonmarital property. Finding that these TTPP payments supplant income traditionally received from the sale of tobacco, CA found these payments to be properly classified as income. As the income from the sale of tobacco would have been classified as Ex-Husband’s nonmarital property pursuant to the parties’ prenuptial agreement, the grower TTPP payments were also his nonmarital property.

TC found that the parties made substantial improvements to the farm with marital assets, thus the life estate in the farm had a marital component. TC found the actual cost of improvements to the farm totaled $67,000.00, that these improvements were paid for with marital assets, and then adjusted the $67,000 by Ex-Husband's “life estate valuation formula” and concluded the marital property interest was $44,648.00. CA noted that under KRS 403.190(2)(e), any increase in value of property acquired before marriage is nonmarital unless the increase in value is attributed to “the efforts of the parties during marriage.” CA found that TC clearly erred when it equated actual cost of improvements to the life estate in the farm with increase in value to the life estate in the farm. To properly calculate the increase in value attributed to marital improvements upon property acquired before marriage, CA provided that the court must subtract the fair market value of the property at the time of dissolution without marital improvements from the fair market value of the property at the time of dissolution with marital improvements. The difference between such fair market values yields the increase in value attributed to marital improvements upon the property. As to a life estate acquired before marriage, a party may be compensated for the increased value attributed to marital improvements thereon, not to exceed the value of the improvements. Furthermore, when determining the fair market value (FMV) of real property with improvements and without improvements, expert opinion is ordinarily necessary. To be qualified to express an opinion upon FMV of real property, a witness, including the owner thereof, must possess some basis for knowledge of market values. The mere ownership of property does not qualify a lay person to give an opinion upon market value. The actual cost of improvements may be considered as evidence bearing upon FMV but should not be the sole factor. CA noted that if the parties come to the end of their proof with grossly insufficient evidence on the value of the property involved, TC should either order this proof to be obtained, appoint his own experts to furnish this value, at the cost of the parties, or direct that the property be sold. CA directed TC, upon remand, to calculate the marital increase in value of the life estate in the farm by subtracting FMV of the farm at the time of dissolution without marital improvements from the FMV of the farm at the time of dissolution with marital improvements, then, adjust this amount by a life estate valuation formula, but in no event shall the compensation for the marital increase in value to a life estate exceed the value of the improvements thereon.

Ex-Husband also contends TC erred by awarding maintenance to Ex-Wife. As entitlement and amount of maintenance are dependent upon the marital and nonmarital property allocated to the party for a determination of whether the claimant has sufficient resources for her support, CA ruled that Ex-Wife’s maintenance award must also be vacated for reconsideration as part of the underlying property award was reversed on appeal.

Ex-Husband finally contends TC abused its discretion by awarding attorney’s fees to Ex-Wife. Based upon the apparent imbalance of financial resources between the parties, CA found no abuse of discretion in TC’s award to Ex-Wife of a portion of her attorney’s fees.

Affirmed in part, reversed in part, and remanded.
Digested by Michelle Eisenmenger Mapes, Diana L. Skaggs + Associates.

CLAXON V. KENTUCKY RETIREMENT SYSTEMS
EMPLOYMENT: STATE RETIREMENTS BENEFITS: SUFFICIENCY OF MEDICAL EVIDENCE