Opinion
NO. 2019-CA-000248-MR
04-03-2020
THE UNIVERSITY OF LOUISVILLE AND THE UNIVERSITY OF LOUISVILLE FOUNDATION APPELLANTS v. STITES & HARBISON, PLLC APPELLEE
BRIEFS FOR APPELLANTS: Andrew P. Campbell A. Todd Campbell Cason M. Kirby Birmingham, Alabama R. Kenyon Meyer Jeremy S. Rogers Louisville, Kentucky BRIEFS FOR APPELLEE: Edward H. Stopher Raymond G. Smith Michelle L. Duncan Louisville, Kentucky Mary Nold Larimore Adam Arceneaux Indianapolis, Indiana
NOT TO BE PUBLISHED APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE JUDITH E. MCDONALD-BURKMAN, JUDGE
ACTION NO. 18-CI-002385 OPINION
AFFIRMING
** ** ** ** **
BEFORE: DIXON AND KRAMER, JUDGES; BUCKINGHAM, SPECIAL JUDGE. DIXON, JUDGE: The University of Louisville ("UL") and the University of Louisville Foundation ("ULF") appeal the grant of the motion to dismiss their claims against Stites & Harbison, PLLC, ("Stites") entered on January 7, 2019, by the Jefferson Circuit Court. Following review of the record, briefs, and law, we affirm.
Retired Judge David C. Buckingham sitting as Special Judge by assignment of the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution.
FACTS AND PROCEDURAL BACKGROUND
This action began on April 25, 2018, when UL and ULF sued Stites and five other defendants: (1) James Ramsey, president of UL and ULF; (2) Kathleen Smith, Ramsey's chief of staff and assistant secretary for UL and ULF; (3) Burt Deutsch, a member of ULF's board of directors and executive committee; (4) Michael Curtin, ULF's assistant treasurer; and (5) Jason Tomlinson, the assistant treasurer succeeding Curtin. Of the eight counts in the complaint, only two were against Stites—one for aiding and abetting breaches of fiduciary duty and one for legal malpractice. On May 6, 2018, the complaint was amended to contain more specific allegations against the defendants, including Stites.
On July 11, 2018, Stites moved the trial court to dismiss the action against it claiming it was time-barred under the statute of limitations for professional service malpractice under KRS 413.245. After the matter was fully briefed and oral arguments held, the trial court entered its order granting Stites' motion to dismiss on January 7, 2019, finding the action against Stites was time-barred. This appeal followed.
Kentucky Revised Statutes.
COMPLIANCE WITH RULES OF APPELLATE PRACTICE
We begin by commenting on the proper structure of an appellate brief and the importance of preservation. UL's and ULF's briefs contain no statement of preservation for any issue raised. UL's and ULF's briefs contain many references to the record as required by CR 76.12(4)(c)(iv); however, those references do not tell us where the trial court was given the opportunity to correct the errors of which they now complain, a critical piece of information because "a party may not raise an issue for the first time on appeal." Taylor v. Kentucky Unemployment Ins. Comm'n, 382 S.W.3d 826, 835 (Ky. 2012) (citation omitted). It is dangerous for counsel to ignore the rules of appellate procedure. "It goes without saying that errors to be considered for appellate review must be precisely preserved and identified in the lower court." Skaggs v. Assad, By and Through Assad, 712 S.W.2d 947, 950 (Ky. 1986) (citing Combs v. Knott County Fiscal Court, 283 Ky. 456, 141 S.W.2d 859 (1940)). It is not the obligation of appellate courts to comb through the record to confirm that an issue has been preserved. Phelps v. Louisville Water Co., 103 S.W.3d 46, 53 (Ky. 2003). Rather, our Rules of Civil Procedure require that appellants' briefs "shall contain at the beginning of the argument a statement with reference to the record showing whether the issue was properly preserved for review and, if so, in what manner." CR 76.12(4)(c)(v). Unfortunately, this issue has become widespread in appellate practice in the Commonwealth. Our civil rules enable meaningful review of alleged errors in the trial court. As aptly noted in Petrie v. Brackett, 590 S.W.3d 830, 834 (Ky. App. 2019) (quoting Oakley v. Oakley, 391 S.W.3d 377, 380 (Ky. App. 2012)):
Kentucky Rules of Civil Procedure.
We require a statement of preservation:
so that we, the reviewing Court, can be confident the issue was properly presented to the trial court and therefore, is appropriate for our consideration. It also has a bearing on whether we employ the recognized standard of review, or in the case of an unpreserved error, whether palpable error review is being requested and may be granted.
We have three options: "(1) to ignore the deficiency and proceed with the review; (2) to strike the brief or its offending portions, CR 76.12(8)(a); or (3) to review the issues raised in the brief for manifest injustice only, Elwell v. Stone, 799 S.W.2d 46, 47 (Ky. App. 1990)." Hallis v. Hallis, 328 S.W.3d 694, 696 (Ky. App. 2010). Because these errors were made by counsel, we will not punish the client. We will review the alleged deficiencies but will not search the record on appeal for evidence to support Appellants' position. Phelps, 103 S.W.3d at 53. However, we stress that this Court may not be as lenient in future appeals.
LEGAL ANALYSIS
The standard of review for a grant of a motion to dismiss for failure to state a claim upon which relief may be granted is well-settled.
A motion to dismiss for failure to state a claim upon which relief may be granted admits as true the material facts of the complaint. So a court should not grant such a motion unless it appears the pleading party would not be entitled to relief under any set of facts which could be proved . . . . Stated another way, the court must ask if the facts alleged in the complaint can be proved, would the plaintiff be entitled to relief? Since a motion to dismiss for failure to state a claim upon which relief may be granted is a pure question of law, a reviewing court owes no deference to a trial court's determination; instead, an appellate court reviews the issue de novo.Fox v. Grayson, 317 S.W.3d 1, 7 (Ky. 2010) (internal quotation marks and citations omitted).
In the instant case, the trial court granted the motion to dismiss finding the statute of limitations had expired. The trial court cited Abel v. Austin, 411 S.W.3d 728 (Ky. 2013), in its opinion and order. In Abel, the Supreme Court of Kentucky held:
We disagree with Appellants' contention that genuine issues of fact existed regarding the effective date of the discovery of their claim, to which they were entitled to a jury's resolution. It cannot reasonably be doubted that as of October 13, 2006, one year and fifteen days before the filing of the lawsuit, Appellants through their attorney knew with mathematical certainty that they had each been shorted by more than $18,000.00 by their former lawyers in the Fen-Phen case. They may not have
understood why they were shorted or where the money went, but as of that date, they knew or should have known that they had a cause of action, and they then had one full year to investigate further, to resolve their doubts, to satisfy themselves that there was no innocent explanation for the shortfall, or to undertake whatever preparatory measures they felt were necessary before filing suit. The action was not commenced within one year of that date and, therefore, it was barred, as the trial court correctly determined.Id. at 739.
In the case herein, relying on Abel, the trial court further stated:
This pronouncement by the Court applies with equal force to the case at bar. Throughout 2015 and well into 2016, the media reported on allegations of financial misconduct at ULF. Moyers v. Roman Catholic Bishop of Louisville, [No. 2004-CA-001886-MR, 2005 WL 3116116 (Ky. App. Nov. 23, 2005)]. Suspicion is sufficient to require a "prompt, independent investigation." [Fluke Corp. v. LeMaster, 306 S.W.3d 55 (Ky. 2010).] On 9/9/16, UL's Board of Trustees met and resolved that an investigation was necessary since, "significant questions have arisen with respect to the use of funds held for the benefit of the University by the Foundation." The Board also resolved that UL was authorized to bring "legal action" for wrongs including "breaches of fiduciary duty." Obviously, as of that date, UL was aware or should have been aware that it had a claim and it had one year in which to investigate and file its claim. The Report of Alvarez & Marsal Disputes and Investigations, LLC [("A&M")] was tendered on June 6, 2017 and realizing that it might need additional time to conduct its research and file its claim, UL sought and received a Tolling Agreement from Stites until 1/15/18. ULF sought no such agreement. On 9/9/17 the statute of limitations ran. On 4/25/18 this action was filed. Thus,
the Complaints of both UL and ULF against Stites were filed beyond the statute of limitations.
The first argument raised by UL and ULF on appeal is that the application of the statute of limitations is a question of fact for the jury rather than a legal question to be determined on a motion to dismiss. This action is, indisputably, one for professional malpractice. Therefore, the applicable limitations period is set out in KRS 413.245. Under this statute, "a civil action . . . arising out of any act or omission in rendering, or failing to render, professional services for others shall be brought within one (1) year from the date of the occurrence or from the date when the cause of action was, or reasonably should have been, discovered[.]"
Construing KRS 413.245, the Kentucky Supreme Court noted that it encompasses two separate statutes of limitation: the occurrence limitation period and the discovery limitation period. Queensway Fin. Holdings Ltd. v. Cotton & Allen, P.S.C., 237 S.W.3d 141, 147 (Ky. 2007). See also Pedigo v. Breen, 169 S.W.3d 831, 833 (Ky. 2004) ("The first is the date of the occurrence, and the second is the date of discovery, if it is later in time."). "Occurrence," as used in KRS 413.245, is synonymous with "cause of action[.]" Doe v. Golden & Walters, PLLC, 173 S.W.3d 260, 271 (Ky. App. 2005). "[T]he use of the word 'occurrence' in KRS 413.245 indicates a legislative policy that there should be some definable, readily ascertainable event which triggers the statute." Michels v. Sklavos, 869 S.W.2d 728, 730 (Ky. 1994) (Quoting Northwestern Nat'l Ins. Co. v. Osborne, 610 F.Supp. 126, 128 (D.C. Ky. 1985)). The so-called "triggering event" is "the date of 'irrevocable non-speculative injury.'" Id. (citation omitted). An
"occurrence" legal malpractice claim is ripe, and a cause of action has accrued, when both negligence and "reasonably ascertainable" damages have occurred. Pedigo, 169 S.W.3d at 833; See also Michels, 869 S.W.2d at 730.Saalwaechter v. Carroll, 525 S.W.3d 100, 105 (Ky. App. 2017).
The second or "discovery" limitation period begins to run when the cause of action was discovered or, in the exercise of reasonable diligence, should have been discovered. Id. at 730. This rule is a codification of the common law discovery rule, Id. at 732, and often functions as a "savings" clause or "second bite at the apple" for tolling purposes. Queensway Fin. Holdings Ltd. 237 S.W.3d at 148.
UL and ULF first cite to Zapp v. CSX Transportation, Inc., 300 S.W.3d 219, 221 (Ky. App. 2009). In Zapp, another panel of our Court held:
under [the Federal Employers' Liability Act], the three-year statute of limitations is triggered or the cause of action accrues when a claimant knows or reasonably should have known of both the injury and its cause. And, the issue of when the statute of limitations is triggered or the cause accrues normally presents a question of fact for the jury. [Lipsteuer v. CSX Transp., Inc., 37 S.W.3d 732 (Ky. 2000).] Once this question of fact is determined (the accrual date), the ultimate issue of whether the action was timely filed then becomes a question of law for the court. Id.However, this case is not a workers' compensation or physical injury case. In the case before us, there can be no doubt that UL and ULF were injured and knew, or should have known, of their injuries on or before September 9, 2016. UL's and ULF's arguments that their injuries did not occur and/or were not discovered until the A&M report was produced on June 6, 2017, are disingenuous and unavailing. Consequently, this allegation is insufficient to create a genuine dispute as to the material fact of the date of discovery. Therefore, the trial court's finding that the applicable statute of limitations concerning Stites ran on September 9, 2017, was not erroneous, nor was its subsequent dismissal of the action against Stites.
UL and ULF further cite to American Premier Underwriters, Inc. v. National R.R. Passenger Corp., 839 F.3d 458 (6th Cir. 2016). However, the court in that case applied Ohio law, which has little or no relevance here. UL and ULF also cite to Stallins v. Hinton, No. 2013-CA-001891-MR, 2015 WL 5316700, at *1 (Ky. App. Sept. 11, 2015) to support their proposition that Kentucky law prohibits a statute of limitations defense from being raised at the pleadings stage unless the complaint, on its face, shows an action is barred by time. As an unpublished opinion, we will not address its application herein further.
UL's and ULF's second argument is that the trial court improperly considered facts beyond the pleadings when ruling on Stites' motion to dismiss. Again, UL and ULF cite to the unpublished case Stallins. Once again, as an unpublished opinion, we will not address its application further. UL and ULF compare this case to Abel, as the trial court did in its opinion and order granting the motion to dismiss. However, UL and ULF also attempt to contrast this case to Abel by contending that case was decided on a motion for summary judgment after the opportunity for discovery. This case, however, is not treated as a motion for summary judgment, even though information and materials not provided with the complaints have been considered.
Generally, a trial court's reliance on matters outside of the pleadings converts a motion to dismiss to a motion for summary judgment:
Although the trial court styled its order as one granting the Board's motion to dismiss, it appears that the order actually granted summary judgment because the trial court's order did not recite that it had excluded the exhibits attached to Baker's response to the Board's motion to dismiss (which consisted of portions of the record in Baker's previously decided federal action). See, e.g., Vigue v. Underwood, 139 S.W.3d 168, 169-170 (Ky. App. 2004). ("Since the trial court apparently considered matters outside of the pleadings . . . in arriving at its decision to dismiss Vigue's petition for declaration of rights, we must treat the ruling as a summary judgment.")
Baker v. Campbell Cty. Bd. of Educ., 180 S.W.3d 479, 480 n.1 (Ky. App. 2005). Fifth Third, however, directs our attention to Dean v. Louisville Metro Police Dep't, No. 3:09CV-P244-S, 2010 WL 3341111, at *3 n.1 (W.D. Ky. Aug. 20, 2010):
The examination of this public record does not convert the motion to dismiss into one for summary judgment. Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008) ("When a court is presented with a Rule 12(b)(6) motion [failure to state a claim upon which relief can be granted], it
Netherwood v. Fifth Third Bank, Inc., 514 S.W.3d 558, 563 (Ky. App. 2017).may consider the Complaint and any exhibits attached thereto, public records, items appearing in the record of the case and exhibits attached to defendant's motion to dismiss so long as they are referred to in the Complaint and are central to the claims contained therein.").
The trial court considered the A&M report referred to in the complaint; the September 9, 2016, UL Board Resolution; and news articles addressing events involving UL and ULF. The trial court did not err in reviewing those materials because they were attached to the motion to dismiss and were either referred to in the complaint and central to the claims contained therein or of the type of which a judge may take judicial notice at any stage of the proceeding under KRE 201. "A court may properly take judicial notice of public records and government documents, including public records and government documents available from reliable sources on the internet." Polley v. Allen, 132 S.W.3d 223, 226 (Ky. App. 2004) (footnote omitted). The Supreme Court of Kentucky has held "[w]e may . . . properly sua sponte consider documents available to the general public." Fox, 317 S.W.3d at 18 n.82. Herein, this includes both the UL Board Resolution and the newspaper articles attached to Stites' motion to dismiss. The UL Board resolution from September 9, 2016, leaves no doubt as to when the discovery of injury was or should have been made. Just as in Abel,
Kentucky Rules of Evidence.
They may not have understood why they were shorted or where the money went, but as of that date, they knew or should have known that they had a cause of action, and they then had one full year to investigate further, to resolve their doubts, to satisfy themselves that there was no innocent explanation for the shortfall, or to undertake whatever preparatory measures they felt were necessary before filing suit. The action was not commenced within one year of that date and, therefore, it was barred, as the trial court correctly determined.411 S.W.3d at 739. Therefore, in the instant case, the court was able to determine, as a matter of law, that UL's and ULF's claims against Stites were time-barred.
UL's and ULF's third argument is that the trial court incorrectly analyzed the commencement of the statute of limitations period under KRS 413.245. UL and ULF maintain they complied with both the occurrence and discovery statute of limitations.
Concerning their compliance with the occurrence rule, UL and ULF cite to Alagia, Day, Trautwein & Smith v. Broadbent, 882 S.W.2d 121 (Ky. 1994), which held, "[u]ntil the legal harm became fixed and non-speculative, the statute did not begin to run. As such, the statute was tolled until the subsequent law firm and the IRS settled the claim." Id. at 125-26. In the case herein, the harm was fixed and non-speculative on or before September 9, 2016.
To determine the accrual date for a legal-malpractice claim, Kentucky law draws a distinction between "malpractice cases in which the underlying negligence occurred during the course of formal litigation" and cases where "the malpractice arose from legal work that was not part of formal litigation." Faris v. Stone, 103 S.W.3d 1, 5 (Ky. 2003). "When a claim for legal malpractice is based on litigation negligence, whether the attorney's negligence has caused any injury or damages necessarily is contingent on the final outcome of the underlying case" and "[a]ny alleged injury is merely speculative until . . . the underlying litigation is final." Doe, 173 S.W.3d at 71. For that reason, Kentucky courts have "consistently held that the injury becomes definite and non-speculative when the underlying case is final." Faris, 103 S.W.3d at 5. Therefore, if EQT's legal-malpractice claims were based on litigation negligence, August 5, 2015—the date the Journey Litigation became final—would supply the accrual date.EQT Prod. Co. v. Vorys, Sater, Seymour and Pease, LLP, No. 15-146-DLB-EBA, 2018 WL 1996797, at *9 (E.D. Ky. Apr. 27, 2018), aff'd sub nom. EQT Prod. Co. v. Phillips, 767 F. App'x 626 (6th Cir. 2019) (footnote omitted). Likewise, the claims alleged here do not arise from litigation negligence. No later than September 9, 2016, even if UL and ULF may not have known the full extent of their damages in terms of the precise dollar amount, the fact of injury was certainly "irrevocable" and "non-speculative." See Saalwaechter, 525 S.W.3d at 107. UL's and ULF's argument that their damages were not fixed until A&M forced ULF to recategorize certain transactions as losses following their June 8, 2017, report follows the same logic that has been expressly denied by our courts. Id.
EQT's legal-malpractice claims, however, are not based on litigation negligence. They are premised on "legal work that was not part of formal litigation"—the Vorys Defendants' drafting of transaction documents and the Phillips Defendants' preparation of title opinions. Id. And so, EQT's alleged injury may have become fixed and non-speculative before the underlying Journey Litigation was finalized.
Concerning their compliance with the discovery rule, UL and ULF maintain they did not discover the "numerous examples of fraud, suppression, and breaches of fiduciary duty committed by the Defendants until the release of the A&M Report on June 8, 2017." UL and ULF contend they did not discover Stites' substantial involvement in the fraud and breaches of fiduciary duty until that time either. UL and ULF maintain that Stites was not mentioned in the Board resolution or newspaper articles.
See also McLain v. Dana Corp., 16 S.W.3d 320, 326 (Ky. App. 2000) (refusing to apply discovery rule to delay running of statute of limitations in a products liability action until plaintiff discovered identity of product manufacturer where product's role in causing injury (machinery hitting plaintiff's head) was immediately apparent: "Under Kentucky law, the discovery rule provides that a cause of action accrues when the injury is, or should have been, discovered. However, the discovery rule does not operate to toll the statute of limitations to allow an injured plaintiff to discover the identity of the wrongdoer unless there is fraudulent concealment or a misrepresentation by the defendant of his role in causing the plaintiff's injuries. A person who has knowledge of an injury is put on 'notice to investigate' and discover, within the statutory time constraints, the identity of the tortfeasor. Application of the discovery rule under circumstances as in the case sub
judice would defeat the very purpose of the limitations. As one court observed, 'logic dictates that such an exception is capable of swallowing the rule.'") (footnotes omitted).Fluke Corp., 306 S.W.3d at 60 n.7. In the case herein, because UL and ULF knew of their injury on or before September 9, 2016, they had a duty to identify the cause and extent of their injury within the time provided by the applicable statute of limitations.
UL's and ULF's final argument is that the individual defendants' adverse domination of UL and ULF tolls the statute of limitations. The trial court correctly rejected this argument because UL and ULF never alleged there was intentional wrongdoing by a majority of the trustees or directors. At the times relevant to the complaint, the UL Board of Trustees had between 15 and 25 trustees, while ULF had 12 directors. Smith, Curtin, and Tomlinson were neither UL trustees nor ULF directors. Thus, this claim clearly fails as a matter of law and was properly dismissed.
Therefore, and for the foregoing reasons, the order dismissing appellants' claims against Stites entered by the Jefferson Circuit Court is AFFIRMED.
ALL CONCUR. BRIEFS FOR APPELLANTS: Andrew P. Campbell
A. Todd Campbell
Cason M. Kirby
Birmingham, Alabama R. Kenyon Meyer
Jeremy S. Rogers
Louisville, Kentucky BRIEFS FOR APPELLEE: Edward H. Stopher
Raymond G. Smith
Michelle L. Duncan
Louisville, Kentucky Mary Nold Larimore
Adam Arceneaux
Indianapolis, Indiana