Opinion
NO. 2016-CA-000237-MR
04-06-2018
SHERRY C. HUMPHREY APPELLANT v. COMMONWEALTH BANK AND TRUST COMPANY APPELLEE
BRIEFS FOR APPELLANT: Harley N. Blankenship Louisville, Kentucky BRIEF FOR APPELLEE: John David Dyche Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE JAMES M. SHAKE, JUDGE
ACTION NO. 15-CI-001712 OPINION
AFFIRMING
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BEFORE: COMBS, D. LAMBERT AND NICKELL, JUDGES. LAMBERT, D., JUDGE: This is an appeal from a Jefferson Circuit Court order dismissing fiduciary claims against a bank trustee. The appellant is a disinherited daughter. The order determined that the claims were procedurally improper. After our review, we affirm.
I. BACKGROUND
Eloise Cissell Lentz established a revocable trust in 1999. The trust included certain bank accounts with Commonwealth Bank and Trust Company (Commonwealth). Her daughter, Sherry C. Humphrey, was a beneficiary of the trust. Commonwealth was the designated trustee.
In 2007, Eloise married James B. Lentz. She also amended the trust that year to effectively disinherit Sherry. In fact, by the time of her death in 2010, Eloise had consolidated her Commonwealth accounts into one jointly-owned account with her husband. James enjoyed survivorship rights in the consolidated account.
After her mother's death, Sherry requested documents from Commonwealth relating to the trust and the joint account. Commonwealth provided some of the documents, but not all. Commonwealth then filed an action in another circuit court division seeking guidance as to its duty to disclose the remaining information. Sherry and James were included as defending parties in the action.
Sherry responded to Commonwealth's action. She also filed a cross-claim against James. The cross-claim initially requested an accounting. However, once Commonwealth disclosed some additional documents, Sherry amended the cross-claim to add, inter alia, allegations of undue influence, fraud, and breach of fiduciary duty. Sherry did not file a counterclaim against Commonwealth.
After considering the parties' arguments, the court entered an order clarifying Commonwealth's obligations to Sherry. Simply, the court found under then-existing trust law, and particularly KRS 386.715(4), Commonwealth owed no duty to inform Sherry of Eloise's trust amendments. And because the trust was revocable, the court also found that KRS 386.715 only imposed a duty on the trustee to inform the settlor if material changes occurred with respect to the trust. No appeal was taken from this order. In fact, the action was re-captioned in the style of the amended cross-claim against Lentz and continued without Commonwealth as a party.
Kentucky Revised Statutes.
Three years after the initial court order clarifying Commonwealth's responsibilities, Sherry filed a new, separate lawsuit against Commonwealth for breach of fiduciary duty, negligence, and fraud. In her complaint, Sherry alleged many of the same facts asserted in the Lentz cross-claim. Commonwealth responded with a motion to dismiss.
In its motion to dismiss, Commonwealth argued that Sherry's newly filed action was procedurally barred both because her claims were compulsory counterclaims under CR 13.01 and because the previous action finally resolved all disputes arising from Commonwealth's former fiduciary relationship with Sherry. After denying the motion at first, the circuit court ultimately accepted Commonwealth's argument that Sherry's newest lawsuit contravened CR 13.01. The circuit court dismissed the complaint and entered an order to that effect. This appeal followed.
Kentucky Rules of Civil Procedure.
II. STANDARD OF REVIEW
Kentucky appellate courts review a motion to dismiss under an exacting standard. The material facts of the complaint are taken as true, and the pleadings are liberally viewed in a light that favors the plaintiff. Fox v. Grayson, 317 S.W.3d 1, 7 (Ky. 2010). Essentially, the motion should not be granted "unless it appears the pleading party would not be entitled to relief under any set of facts." Pari-Mutuel Clerks' Union of Kentucky, Local 541, SEIU, AFL-CIO v. Kentucky Jockey Club, 551 S.W.2d 801, 803 (Ky. 1977). Whether to grant the demurrer is a legal issue, reviewed de novo and without deference to the trial court. Unifund CCR Partners v. Harrell, 509 S.W.3d 25, 28 (Ky. 2017).
III. DISCUSSION
On appeal, Sherry first argues that the initial action regarding Commonwealth's responsibilities was a declaratory judgment action under KRS 418.040. From there, she contends she was not required to file a CR 13.01 counterclaim during the declaratory judgment action. She ends by claiming that the declaratory judgment action was not a final judgment because it did not resolve all of the claims she could have reasonably presented during the declaratory judgment action. For the following reasons, we agree with Sherry that the initial action was one for declaratory judgment but nevertheless hold her subsequent lawsuit barred by res judicata.
In Kentucky, a pleading's subject matter determines its character—not its title or label. Padgett v. Steinbrecher, 355 S.W.3d 457, 460 (Ky. App. 2011). And when a party to an actual controversy requests binding guidance as to its rights under the law, the request is one for declaratory judgment under KRS 418.040. Commonwealth v. Kentucky Retirement Systems, 396 S.W.3d 833, 838 (Ky. 2013). Unlike most former judgments, which are conclusive as to any issues actually adjudicated or that could have been adjudicated, declaratory judgments do not always carry the same conclusive effect. Cooke v. Gaidry, 309 Ky. 727, 731, 218 S.W.2d 960, 962 (1949). KRS 418.055, for instance, allows litigants to seek relief from a declaratory judgment in a subsequent proceeding, as long as the relief sought is based on—and not inconsistent with—the declaratory judgment. Harris v. Wallace, 474 S.W.2d 878, 881 (Ky. 1971). Naturally, this statutory exception does not apply when inconsistent relief is sought, "because that would destroy the very purpose of declaratory proceedings." Id. Instead, litigants alleging error by the trial judge must follow the proper channels to correct that perceived error. Id.; see also Mid-Southern Toyota, Limited v. Pennington, 458 S.W.2d 776, 777 (Ky. 1970)("We are unable to perceive wherein the regular avenue of appeal would be inadequate as a channel for relief from alleged error of the trial judge.").
Here, although we recognize that KRS 418.055 articulates a broader test than CR 13.01 in the declaratory judgment context (i.e., because the statute authorizes an independent action based on a declaratory judgment whenever necessary or appropriate), Sherry's independent action was nevertheless procedurally flawed. It was based neither on the declaratory judgment nor on newly discovered evidence. On the contrary, the subsequent lawsuit was an attempt to obtain relief inconsistent with the declaratory judgment. The declaratory judgment action centered on Commonwealth's duty as trustee to inform Sherry of the changes her mother made to the trust, and the court's final judgment concluded that Commonwealth owed Sherry no duty whatsoever under then-applicable trust law. Accordingly, if Sherry wanted to preserve a claim against Commonwealth for fiduciary misfeasance, her available remedy was to challenge the judgment—not file an independent action three years later. Accordingly, the Jefferson Circuit Court's order is affirmed.
We thereby reject Commonwealth's reliance on Holbrook v. Shelter Ins. Co., 186 Fed. App'x. 618, 621-22 (6th Cir. 2006), to the extent that it argued every independent claim based on a final declaratory judgment action is barred by CR 13.01. Citing both Cook v. Gaidry and KRS 418.055, Holbrook acknowledges "subsequent actions for specific relief based on the [declaratory] judgment" are excepted from the compulsory counter claim rule. 186 Fed. App'x. at 622.
ALL CONCUR. BRIEFS FOR APPELLANT: Harley N. Blankenship
Louisville, Kentucky BRIEF FOR APPELLEE: John David Dyche
Louisville, Kentucky