Kentucky Court Report - SCOKY & COAKY

Jail time credit waived by defendant in guilty plea agreement: PROPES V. COM. (COA 6/6/2008)

PROPES V. COM
CRIMINAL:  Jail Time Credit
2007-CA-001440
PUBLISHED: THOMPSON PRESIDING; CAPERTON, LAMBERT CONCUR
MONROE COUNTY
DATE RENDERED: 6/6/2008

CA affirmed TC's order denying Propes' motion for additional jail time credit for the 352 days he served prior to pleading guilty to Assault 2nd. Propes accepted and signed a plea agreement which specifically provided that he was waiving any jail time credit accumulated prior to accepting the Commonwealth’s plea offer. While Propes contends he was illegally sentenced, the Commonwealth agreed to amend his first-degree assault charge, a Class B felony with a maximum term of twenty years, to second-degree assault, and to dismiss his first-degree wanton endangerment charge. Therefore, we conclude that Propes’ guilty plea waived the operation of KRS 532.120(3). Furthermore, because the waiver of the statute does not constitute a constitutional waiver, there is no constitutional prohibition against presuming that Probes’ waiver was valid.

Digested by Scott C. Byrd
www.OlginandByrd.com

Jury's determination of testamentary capacity when voiding will was res judicata on capacity (but not on undue influence) for will executed 16 days earlier: ROTHWELL V. SINGLETON (COA 6/6/2008)

ROTHWELL V. SINGLETON
WILLS AND ESTATES:  Testamentary capacity and res judicata
2007-CA-001348
PUBLISHED:  REVERSING AND REMANDING
PANEL:  THOMPSON PRESIDING; KELLER, GRAVES CONCUR
LINCOLN COUNTY
DATE RENDERED: 6/6/2008

This published Court of Appeals will contest case involves the usual issues of capacity and undue influence. What makes this one of some interest is the fact that it involved a Will dated December 12, 1999 and that, in an earlier action, a jury was asked to consider a will dated December 28, 1999. The jury determined and the court held that the decedent had capacity on December 28th but that will was void because it was the result of undue influence. The question before the court in the case at bar was whether the determination of capacity as of December 28th was res judicata as to the question of capacity on December 12th of the same year. The trial court held that it was, but the Court of Appeals reversed and held that the only issue at hand was capacity as of December 12. The Court of Appeals indicated that “[on remand, the appellant will have an onerous burden.” The Court did not indicate whether the will’s proponent would be able to inform the about the testator’s capacity on December 28th.

Digested by Jim Worthington

Punitive damage issue found in professional negligence claim; breach of fiduciary duty and professional negligence claim by accounting firm: PEOPLES BANK OF NORTHERN KENTUCKY V. CROWE CHIZEK AND CO. LLC (COA 6/6/2008)

PEOPLES BANK OF NORTHERN KENTUCKY V. CROWE CHIZEK AND CO. LLC
TORTS: PROFESSIONAL NEGLIGENCE: BREACH OF FIDUCIARY DUTY IN ACCOUNTING AND AUDITING SERVICES
2007-CA-001174
PUBLISHED: AFFIRMING PART, REVERSING IN PART, AND REMANDING
PANEL:  WINE PRESIDING; COMBS, ACREE CONCUR
BOONE COUNTY
DATE RENDERED: 6/6/2008

Peoples Bank (PBNK) appeals entry of summary judgment in favor of Crowe Chizek and its employee on PBNK's professional negligence and breach of fiduciary duty claims, which were dismissed by the TC as barred by the statute of limitations and the release clause in the party's contracts. The relevant facts to this action are as follows: PBNK's largest loan customer was real estate developer Erpenbeck whose accounts were supervised by two of the bank's internal officers (Finnan and Menne). The officers and Erpenbeck develop a close relationship and begin vacationing together. The officers then form a business (JAMS) to purchase properties from Erpenbeck at cost only to create fictitous purchase contracts to reflect a much higher price in order to obtain loans (not from PBNK) for the false amount. The excess loan proceeds were then divided between Erpebeck and JAMS, and Erpenbeck would rent the properties from JAMS while the rental payments were then used to pay the mortgages. Three years later, JAMS has received over half a million in excess loan proceeds on almost $4 million in total loans and was financially dependent on Erpenbeck.

This entire time the two JAMS owners remained officers at PBNK, and during this time they hired Crowe to perform tax services for JAMS (all of its accounts being held at PBNK) although the same Crowe partner was also still overseeing the independent auditing and accounting services for PBNK. Some two years later in 2002, one of the JAMS owner and still officer with PBNK informed the Crowe partner overseeing of Erpenbeck's check diversion and check kiting schemes for which the officers had authorized additional loans through PBNK to cover the the overdraft fees. The Crowe partner advised the officer to inform the bank's board of the officers' and JAMS' relationship with Erpenbeck and potential conflict of interest, which was done. PBNK then notified authorities and hired an independent law firm to conduct an investigation of the matter, which led to both officers' resignation. The adverse publicity essentially forced the bank to close and sell its assets at a substantial loss. Both Erpenbeck and the officers were found guilty of numerous bank fraud charges. PBNK then filed suit against Crowe and the partner asserting a number of causes of action for which it sought compensatory and punitive damages. Four years later, Crowe files a number of motions most notably relying on the release in the contracts and the statute of limitations. The TC agreed and granted each of the motions effectively dismissing all claims.

On appeal, the COA began by affirming the TC's dismissal of PBNK's claim for aiding and abetting the two officers in breaching their fiduciary duty, noting that Kentucky law as never recognized a civil cause of action for this type of claim. The court also found no proof that the Crowe or its partner were active, knowing participants in the officers' misconduct. Next, the COA turned to PBNK's argument that the release clauses in Crowe's engagement letters did not bar its claims since they only released Crowe for any opinion it offered attributable to misrepresentations made by PBNK during the audit. Instead, PBNK argued that its claims were based on Crowe having actual knowledge of the officers' misconduct through its work for JAMS, and thus its losses were due to Crowe's independent negligence. The COA agreed, and held that at a minimum PBNK had offered sufficient proof to create a genuine issue of fact on the matter since any evidence of the bank's misrepresentations would be relevant as comparative fault rather than barring the claims altogether.

The COA then addresses PBNK's argument that the one-year statute of limitations applicable to professional negligence and breach of fiduciary duty claims (KRS 413.245) had not expired by the time suit was filed. The court goes through a fairly detailed analysis of the two different limitations periods contained in this statute, the date of occurrence (accrual rule) and date of discovery (common law discovery rule). Crowe argued that the discovery rule applied to bar the claims since PBNK knew or should have known of the misconduct long before one year prior to suit being filed while PBNK argues that the limitations was tolled during the period of Crowe's continuous representation of the bank. The COA, in reliance on the Supreme Court's recent decision in Queensway v. Cotton & Allen, 237 S.W.3d 141 (Ky. 2007), noted that the discovery limitations period cannot begin to run until the accrual period begins (when negligence and resulting damages have both occurred). The court held that while the alleged negligence in this case occurred with the completion and delivery if each annual audit report, the damage from the officers' breach of fiduciary duty did not become fixed and non-speculative until April 2002 when the Crowe partner compelled the officers to disclose the relationship with Erpenbeck to the bank board. The complaint filed in late March 2003 was therefore timely.

Turning to PBNK's punitive damages claim, the COA ultimately determines that the bank had offered enough evidence to create a jury issue. The court acknowledged PBNK's argument that Crowe should have discovered the conflict of interest during its auditing work for JAMS, and that Crowe's failure to discover and disclose the wrongdoing amounted to concealment causing damage to the bank independent of those due to the wrongful acts themselves. While the COA held that Crowe did not intend to give assistance in the officers' misconduct, the court found that PBNK had met its burden of offering sufficient proof of gross negligence to withstand a motion for summary judgment.

In conclusion, the COA ruled in favor of PBNK as follows: summary judgment was not appropriate on its professional negligence and breach of fiduciary duty claims as neither barred by the statute of limitations or the releases in the contracts between the parties; and these contracts did not bar PBNK's damage claims arising from Crowe's negligence prior to the auditing period covered by the contracts. But, the COA found summary judgment was appropriate on PBNK's aiding and abetting claim, and the bank's alleged damages arising from Erpenbeck's conversion of checks not payable to him (since the check diversion scheme was not a foreseeable consequence of Crowe's alleged negligence and Erpenbeck's criminal conduct as well as bank's own negligence in cashing the checks were superseding causes of the injury).


Digested By Chad Kessinger
Schiller Osbourn Barnes & Maloney

Dismissal remanded on school personnel's duty to report due to failure to include lower court's reasoning in summary judgment: NELSON V. TURNER (COA 6/6/2008)

NELSON V. TURNER
TORTS:  Dismissal remanded on school personnel's duty to report due to failure to include lower court's reasoning in summary judgment
2007-CA-000489
PUBLISHED: VACATING AND REMANDING
PANEL: CLAYTON PRESIDING; MOORE CONCURS; COMBS CONCURS IN PART, DISSENTS IN PART
FAYETTE COUNTY
DATE RENDERED: 6/6/2008

CA affirms in part and vacates and remands in part entry of SJ against parent regarding claims of negligent supervision and failure to report sexual assault.

Nelson's 5-year-old daughter was in kindergarten at a public elementary school in Fayette County; her teacher was Turner. The child reported to her mother a sexual assault against her by another female kindergarten student during regular school hours. Nelson reported the incident to Turner, who took steps to advise the teaching assistant to keep the children separated; to admonish the other child; to assign the children seats; and to prevent them from attending the restroom at the same time. Turner made no report to local law enforcement officials. That same day, the child reported another assault; the teacher questioned the other child, who admitted the contact. Turner unsuccessfully sought out a school administrator for advice as to how to handle the situation. No report was made to local law enforcement. Nelson spoke to the principal the following day. The principal immediately investigated and believed the contact had occurred "by accident" and did not report the incident to authorities. At the end of that same school day, the child reported another, more extensive, sexual assault against her by the same student, which allegedly occurred in the classroom. Nelson to the child to a hospital for an exam where some small irritation of the vagina was noted. Medical personnel reported the incident to police. The child did not return to school and an internal investigation followed.

Nelson filed suit against KSBIT alleging unfair claims settlement practices; failure to timely respond and complete an investigation; unfair or deceptive acts; and several other claims, including intention infliction of emotional distress. This action was dismissed, but Nelson immediately filed an amended complaint renewing these claims and also alleging failure to supervise and report the abuse against Turner and the Board. Nelson also alleged outrageous conduct. Defendants alleged governmental and qualified official immunity. Turner contended her supervision was a discretionary act and she was not required to report under KRS 620.030.

As to Turner's duty to report, CA remands to the TC because, though the court found the duty to report to be discretionary, the opinion did not include the court's reasoning for the CA to review. CA affirms as to the dismissal of the outrage claim. CA cannot affirm the dismissal of bad faith against KSBIT until Turner's liability is established.

Digested by John Hamlet


Digested by John Hamlet

Judge's direction to defendant to answer prosecutor's question did not violate Fifth Amendment and opening door by defendant did not require notice per KRE 404(c): DILLMAN V. COM (COA 6/6/2008)

DILLMAN V. COM
CRIMINAL:  Fifth Amendment; KRE 404(b)
2007-CA-000455
PUBLISHED: AFFIRMING
PANEL: THOMPSON PRESIDING; KELLER, GRAVES CONCUR
PULASKI COUNTY
DATE RENDERED: 6/6/2008

Defendant's Fifth Amendment privilege against self-incrimination was not violated when the TC ordered him to respond to the prosecutor's question while testifying. In this drug trafficking prosecution, Dilman testified that he was merely an uncompensated middleman for a friend. When asked who was the supplier, Dilman invoked the Fifth Amendment. Given that Dillman’s own testimony placed the prosecutor’s question within the scope of relevancy, TC properly ordered him to respond.

Dillman’s assertion of an entrapment defense was not sufficient to support the introduction of his prior unsworn out-of-court statement. Dillman’s prior statement was made several years prior to the dates he committed the charged offenses. The introduction of the prejudicial prior statement substantially outweighed its probative value. However, CA concluded that Dillman “opened the door” for the introduction of his prior statement, and therefore, affirmed the trial court. Under the circumstances, the Commonwealth did not violate the notice requirement of KRE 404(c). As demonstrated to the trial court, the Commonwealth acted in as prudent a manner as possible under the circumstances. The Commonwealth disclosed the prior statement at the earliest feasible time in which it believed the evidence was relevant. Finally, Defendant was not entitled to a facilitation instruction.

Digested by Scott C. Byrd
www.OlginandByrd.com

Polling jury requires audible response on the record; four seconds did not make it: MILES V. COM. (COA 6/6/2008)

MILES V. COM.
CRIMINAL:  Jury Polling
2006-CA-002150
PUBLISHED: REVERSING
PANEL:  ACREE PRESIDING; DIXON, TAYLOR CONCUR
GALLATIN COUNTY
DATE RENDERED: 6/6/2008

Miles' conviction for DUI reversed because the manner in which the trial court polled the jury did not comply with Kentucky Rule of Criminal Procedure (RCr) 9.88. Polling is “done by the clerk's or court's asking each juror if it is his or her verdict.” It is clear from the videotape that the trial court did not “ask[] each juror” if this was his or her verdict. The court’s method of polling the six jurors took exactly four seconds. None of the jurors responded audibly. It is possible that all six jurors individually responded in a non-verbal way to the court’s four queries. While a non-verbal response to the court’s queries can be sufficient, the response must be to a question specifically posed to that responding juror and to him alone.

Digested by Scott C. Byrd
www.OlginandByrd.com

No time limitations for appealing open records denial to attorney general: WYRICK V. DEPARTMENT OF REVENUE, FINANCE, AND ADMINISTRATION CABINET (COA 5/30/2008)

WYRICK V. DEPARTMENT OF REVENUE, FINANCE, AND ADMINISTRATION CABINET
GOVERNMENT:  Open Records Request
2007-CA-000089
PUBLISHED: REVERSING IN PART, VACATING IN PART, AND REMANDING
PANEL: KELLER PRESIDING; THOMPSON, GRAVES CONCUR
FRANKLIN COUNTY
DATE RENDERED: 5/30/2008

In this open records request case, the Department of Revenue sought review of the Attorney General's decision, requiring disclosure of certain records requested by taxpayer's attorney, Mitzi D. Wyrick, who appealed the circuit court order which barred her from inspecting the documents.

COA held there was no time limitation to appeal open records denial to the attorney general and declined the DOR’s request there be a 30-day time limitation for seeking review before the Attorney General and hold that pursuant to the plain language of the statute, Wyrick’s appeal to the Attorney General would have been timely whenever she chose to file it.

With regard to the records requested, the DOR cannot on the one hand argue, successfully, that the material sought in the tax appeal case is irrelevant to that litigation to defeat the discovery request, and then on the other hand argue in the Open Records proceeding that it is pertaining to that litigation and therefore subject to the limitation. The DOR is not “permitted to feed one can of worms” to the Board of Tax Appeals and another to the circuit court in the Open Records action.  COA then rejected the DOR’s argument that just because a record requested in discovery is deemed irrelevant, does not mean that it is not related to that litigation. The public agency bears the burden of establishing that a requested record is exempt from release. When ruling on party litigation defense to Open Records Act request, trial court was required to first determine whether a listed exemption applied.  However, the party litigation limitation was inapplicable because underlying litigation  in this was case was a tax appeal and was administrative, not civil.

Digested by Michael Stevens

 

Father required to pay child's funeral expenses: JEWELL V. JEWELL (COA 5/22/2008)

JEWELL V. JEWELL
FAMILY LAW:  Funeral Expenses For Child, Doctrine Of Necessaries
2007-CA-000420
PUBLISHED: REVERSING AND REMANDING
PANEL: LAMBERT PRESIDING; MOORE, WINE CONCUR
COUNTY: HARDIN
DATE RENDERED: 5/22/2008

Mother appealed from a judgment which found that the father was not liable for any portion of their son’s funeral expenses. Parties divorced in 1990 and the mother was granted sole custody of the parties’ only child. Their son was diagnosed with cancer in 2005 and died in 2006. The total funeral costs were $8,538.93. Upon their son’s death, the father received $10,000 in proceeds from a death benefit policy. Trial court found that the father had no obligation to pay any portion of the funeral expenses since the mother had sole custody. COA reversed based on KRS 406.011 and the doctrine of necessaries. The Court likened the non-religion-specific funeral expenses to costs related to pregnancy and child birth, which the father is required to contribute to under KRS 406.011. COA also cited to KRS 403.211, because it viewed the action as a proceeding to modify or interpret the support order. COA found it unjust for the father to collect $10,000 on a death benefits policy, but not require the father to pay half of the child’s funeral expenses.
REVERSED.

Digested by Sarah Jost Nielsen, Diana L. Skaggs + Associates

Family court award of permanent custody reversed for failure to have evidentiary hearing: BEARDEN V. MAULDIN (COA 5/22/2008)

BEARDEN V. MAULDIN
FAMILY LAW:  Permanent custody and grandparents required evidentiary hearing so mother could produce evidence
2007-CA-001888
PUBLISHED: REVERSING IN PART, VACATING IN PART, AND REMANDING
PANEL: LAMBERT PRESIDING; MOORE,BUCKINGHAM CONCUR
COUNTY: JEFFERSON
DATE RENDERED: 5/22/2008

Mom appealed from TC’s order denying her motion to set aside TC's judgment awarding permanent custody of Daughter to Paternal Grandparents. Mom further appealed from TC’s order denying her motion for visitation, where TC found that it lacked jurisdiction to consider visitation.

FACTS:
Paternal Grandparents filed a petition for custody and an emergency motion for temporary custody of Daughter four days after birth of Daughter due to the abuse of alcohol by and mutual domestic violence between Mom and Dad. TC entered temporary custody order that day and referred the matter to CFC for investigation. CFC subsequently filed DNA action a few days later, and the following day, a hearing was held in which both Mom and Dad appeared drunk and were taken into custody. TC awarded temporary custody to Paternal Grandparents in the custody action and reaffirmed that decision in the dependency action. Mom and Dad were allowed supervised visitation and were ordered to participate in a course of rehabilitative treatment and testing.

Paternal Grandparents filed an amended petition for custody seeking permanent custody of Daughter, which was served on Mom and Dad. Neither filed a response, and Paternal Grandparents filed a motion asking the court to enter a default judgment granting them permanent custody of Daughter. Neither Mom nor Dad appeared at the hearing or filed anything to object to the entry of the order granting permanent custody of Daughter to Paternal Grandparents. TC entered an order granting Paternal Grandparents permanent custody. Paternal Grandparents then initiated proceedings in Alabama, their home state, to formally adopt Daughter. Those proceedings were still pending when this Opinion was rendered.

Almost one year after the default hearing, Mom filed a motion to set aside the default custody decree entered against her pursuant to CR 60.02(d) and (f). In support of her motion, Mom filed affidavits signed by herself and Dad. Dad's affidavit indicated that he told Mom if she intervened in the custody case, she would suffer further bodily harm, including death. Dad also stated that he had access to the only vehicle and telephone and that he prevented Mom from using either during this period. Further, Dad explained that Paternal Grandparents colluded with him to prevent Mom from protecting herself in any way during the custody case. Mom's affidavit listed the same facts but also admitted that she and Dad were alcoholics but that she was presently clean and sober.

TC denied Mom an evidentiary hearing on the merits of her motion and issued an order finding that Mom failed to allege fraud or other improper conduct by Paternal Grandparents and had not documented collusion occurring between Dad and Paternal Grandparents to prevent her from attending or participating in the custody proceedings. TC further found that there was no basis pursuant to CR 60.02 to set aside the judgment granting permanent custody to Paternal Grandparents.

Mom filed a motion for visitation and a motion to alter, amend or vacate its order denying her relief under CR 60.02. TC denied Mom's motion to alter, amend or vacate, but stated no grounds for the denial, and declined to exercise jurisdiction concerning the visitation issue, finding that Kentucky was no longer the home state of the child. This appeal followed.

Analysis:
Mom argued that TC improperly denied her 60.02 motion without an evidentiary hearing. CA held that a 60.02 movant is entitled to an evidentiary hearing if she affirmatively alleges facts, which if true, justify vacating the judgment and further alleges special circumstances that justify 60.02 relief. CA found that the contents of the affidavits in support of Mom’s motion are clear examples of Mom's allegations of fraud on the proceedings and collusion on the part of Dad and Paternal Grandparents and thus are allegations of facts, which if true, would justify vacating the judgment under CR 60.02(f) and possibly (d). CA recognized that affidavits can be a useful tool in the service of judicial economy, but on such a critical matter as fraud and collusion involving the custody of a child they are simply insufficient to form the basis of a decision. CA found that TC should have held an evidentiary hearing to allow Mom to present her claims through testimony rather than basing its decision on the affidavits presented by Mom.

Mom also argued that TC improperly found that it lacked jurisdiction to modify her visitation rights. Paternal Grandparents argued that TC properly declined to exercise jurisdiction over the issue of modification of Mom’s visitation rights pursuant to KRS 403.824. CA stated that under KRS 403.824, the state having original jurisdiction over custody maintains exclusive continuing jurisdiction though the child has acquired a new home state if the general requirement of the substantial connection jurisdictional provisions are met, and that since Kentucky’s adoption of the UCCJEA, continuing jurisdiction trumps home state jurisdiction. In the instant case, Kentucky had original jurisdiction over custody. Despite the fact that Daughter had acquired a new home state, Kentucky is still the home state of Daughter’s mother, Mom, who is alleging that Paternal Grandparents obtained custody by fraud and then transported Daughter to their home state, which subsequently asserted jurisdiction. Accordingly, despite the Alabama court’s finding that Kentucky was no longer the home state of Daughter, Mom, a contestant, still resided in Kentucky and Kentucky was the initial state to make the custody determination. CA found that Kentucky therefore has continuing jurisdiction under the UCCJEA to determine visitation.

Vacated and remanded TC’s order denying CR 60.02 motion with instruction that TC conduct an evidentiary hearing, and reversed the portion of TC’s order indicating that it does not have exclusive and continuing jurisdiction and remand for proceedings consistent with Mom’s motion for visitation.

Digested by Michelle Eisenmenger Mapes, DIana L. Skaggs + Associates.

Burdens required for terminating parental rights include child's injury with parent: C.(M.E.) v. CABINET FOR HEALTH AND FAMILY SERVICES (COA 5/16/2008)

C.(M.E.)  v. CABINET FOR HEALTH AND FAMILY SERVICES
FAMILY LAW:  Termination of parental rights and proving injury with the parent
2007-CA-001904
PUBLISHED: VACATING AND REMANDING
PANEL: CLAYTON PRESIDING; NICKELL, TAYLOR CONCUR
WARREN COUNTY
DATE RENDERED: 5/16/2008

Mother appealed judgment terminating her parental rights to two children. KRS 625.090 provides that parental rights may be involuntarily terminated if the court finds from the pleadings and clear and convincing evidence that the child has been adjudged to be an abused and neglected child, as defined under KRS 600.020(1), and that the termination would be in the best interests of the child. The court must also find by clear and convincing evidence one of the grounds under KRS 625.090(2). COA found that the Cabinet did not meet its burden. First, the Cabinet did not present substantial evidence under KRS 625.090(1). There was no evidence that the children suffered any direct, emotional or physical injury with the mother. Second, the Cabinet failed to provide reasonable services to reunite the family. Third, there was no substantial evidence to support a finding of no reasonable expectation of improvement in the mother's condition. Finally, the Cabinet failed to prove that the mother is incapable of rendering care in the future. Due to the lack of substantial evidence to support the trial court's termination judgment, the COA REVERSED AND REMANDED.

Digested by Sarah Jost Nielsen, Diana L. Skaggs + Associates