Summary
In Kerbaugh, this Court faced the issue of "whether the circuit court erred when it refused to set aside a finding that it made in its July 18, 2011 order and judgment... solely because Kerbaugh was not given any notice of the entry of that judgment."
Summary of this case from C.M.B. v. K.R.Opinion
NO. 2011-CA-002112-MR
06-21-2013
KERBAUGH & RODES, A KENTUCKY GENERAL PARTNERSHIP; AND CLARK LAW FIRM, PLLC APPELLANTS v. WHITAKER BANK, INC.; ACH FARMS, LTD; ALAN HILL; CLAUNCH CONSTRUCTION, LLC; AND CITY OF DANVILLE APPELLEES
BRIEF FOR APPELLANT: Merle C. Clark Danville, Kentucky BRIEF FOR APPELLEE WHITAKER BANK, INC.: Gregory D. Pavey Lisa D. Morgan Lexington, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM BOYLE CIRCUIT COURT
HONORABLE DARREN W. PECKLER, JUDGE
ACTION NO. 10-CI-00517
OPINION
AFFIRMING
BEFORE: MOORE, NICKELL, AND TAYLOR, JUDGES. MOORE, JUDGE: Kerbaugh & Rodes and the Clark Law Firm (hereinafter Kerbaugh) appeal three orders of the Boyle Circuit Court. The first is a July 18, 2011 default judgment in favor of appellee, Whitaker Bank, Inc., and an order of sale regarding the property at issue in this matter; the second is an October 21, 2011 order denying Kerbaugh's motion to set aside the July 18, 2011 default judgment and order of sale; and, the third is a November 7, 2011 order which confirmed the sale of the subject property over Kerbaugh's objection. Boiled down, the issue presented in this matter is whether the circuit court erred when it refused to set aside a finding that it made in its July 18, 2011 order and judgment (i.e., that the subject property could not be divided without impairing its value) solely because Kerbaugh was not given any notice of the entry of that judgment. Finding no error, we affirm.
Pursuant to order of this Court, Kerbaugh is precluded from appealing issues arising directly from this order.
FACTUAL AND PROCEDURAL HISTORY
This litigation began on September 27, 2010, when Whitaker Bank filed a foreclosure action against Alan Hill and ACH Farms. Whitaker Bank's complaint of record specifically alleged that the subject property "cannot be divided without materially impairing its value and the interest of the parties thereto and the [p]roperty should therefore be sold in its entirety. . . ." On January 3, 2011, Whitaker Bank filed a motion for default judgment and tendered a proposed default judgment and order of sale to the court.
Claunch Construction and the City of Danville were joined as parties to the action in their capacities as judgment lienholders regarding the subject property.
Although Kerbaugh concedes in its brief that the order was tendered to the Court on January 3, 2011, it is unclear whether it was made a part of the record available to Kerbaugh for review when it sought to intervene. Furthermore, Whitaker Bank's motion for default judgment does not make any specific request regarding the divisibility issue.
Kerbaugh filed a motion to intervene on June 29, 2011. As an aside, Kerbaugh did not file any answer, objection, or responsive pleading with regard to the divisibility of the subject property; rather, the purpose of its motion was to assert a judgment lien on the property and file a complaint to contest the issue of priorities. At a July 6, 2011 hearing, the circuit court granted Kerbaugh's motion to intervene, but also determined through an order entered that same day that Whitaker Bank's lien was entitled to first priority. Kerbaugh did not appeal or contest this determination.
Also at the July 6, 2011 hearing, the circuit court heard Whitaker Bank's motion for default judgment and an order of sale. The circuit court specifically asked Kerbaugh's counsel whether Kerbaugh's intervention in any way precluded the entry of default judgment and order of sale. Counsel for Kerbaugh indicated that there was no objection to the entry of default judgment and order of sale. Moreover, Kerbaugh's counsel made no inquiry regarding the relief sought in the motion, nor did its counsel request additional time to review Whitaker's motion or formulate a response. Thereafter, the circuit court indicated that it would grant Whitaker's motion for default judgment after approval of the order by the Master Commissioner.
On July 18, 2011, the circuit court entered the default judgment and order of sale. The order stated that the "[p]roperty is not susceptible of division without materially impairing the value thereof and the [p]roperty shall be sold as a whole for the purpose of enforcing the judgment awarded herein" and that the order was "final and appealable . . .[and] there is no just cause for delay." Kerbaugh did not receive a copy of the default judgment and notice of sale but did receive a copy of the Master Commissioner's report of sale indicating that the property had been sold as one indivisible tract on August 16, 2011.
On September 2, 2011, Kerbaugh filed exceptions to the report of sale seeking to set aside the judgment and order of sale due to the fact that it was not served with a copy of either document and therefore did not have notice prior to the sale that the circuit court had ordered that the property be sold as one indivisible tract. Kerbaugh alleged that the judgment and order of sale was also erroneous in its conclusion that the property was not susceptible to division without materially impairing its value and that it was prejudiced due to lack of notice of the sale because it was not afforded the opportunity to bid on individual parcels at the sale.
On October 21, 2011, the circuit court denied Kerbaugh's motion to set aside the July 18, 2011 order and judgment, finding that Kerbaugh had failed to demonstrate that it was seriously prejudiced and that the sale price of the property was grossly inadequate. The circuit court also noted that, pursuant to Kentucky Rules of Civil Procedure (CR) 77.04, failure to serve Kerbaugh with notice of entry of the judgment and order of sale was not fatal to the judgment; Kerbaugh had notice of the sale because it was advertised in the local newspaper for three consecutive weeks; and, Kerbaugh had not raised any objection regarding the divisibility of the property in any of its pleadings. Accordingly, the circuit court entered an order confirming the sale. Kerbaugh now appeals.
Kerbaugh does not contest that the sale was advertised in the local newspaper for three consecutive weeks.
ANALYSIS
As it did below, Kerbaugh argues that the circuit court's July 18, 2011 order and judgment, which contains the finding that the property was incapable of being divided and sold without materially affecting its value, should be set aside or invalidated because Kerbaugh was not given notice of its entry. Alternatively, Kerbaugh argues that the circuit court erred as a matter of law or abused its discretion when it made this finding.
Kerbaugh largely relies upon CR 77.04(1) in support of its former argument. That rule provides:
Immediately upon the entry in the trial court of a judgment, a final order, an order which affects the running of time for taking an appeal, or an order which by its terms is required to be served, the clerk shall serve a notice of the entry by mail in the manner provided in Rule 5 upon every party who is not in default for failure to appear. Service of notice of entry of any judgment or order under this rule may be waived by the filing of a writing signed by the party or his attorney of record.
In spite of this mandatory language, however, CR 77.04(4) also provides that a circuit court's failure to send any party such notice or any party's failure to receive such notice "shall not affect the validity of the judgment or order, and does not affect the time to appeal or relieve or authorize the court to relieve a party for failure to appeal within the time allowed except as permitted in Rule 73.02(1)."
In that regard, a judgment and order of sale establishing a debt, a valid lien, and otherwise settling the controversy between the parties—such as the circuit court's July 18, 2011 order and judgment in this matter—is a final judgment for purposes of appeal regardless of the reservation for further proceedings in order to effectuate the manner of sale to satisfy the debt. Security Federal Sav. & Loan Ass'n of Mayfield v. Nesler, 697 S.W.2d 136, 138 (Ky. 1985); Adkins v. Carol Min. Co., 281 Ky. 328, 136 S.W.2d 32, 36 (1940). One of the questions that the circuit court was required to resolve prior to entering its July 18, 2011 order and judgment was whether the property at issue was capable of being divided without materially impairing its value. See KRS 426.685(1). Whitaker's complaint in this matter described the property and alleged that it could not be so divided. No other party in this matter raised any argument to the contrary prior to when the circuit court entered default judgment in favor of Whitaker. The circuit court's default judgment explicitly held that the property in question could not be divided without materially affecting its value. Therefore, pursuant to CR 77.04(4), the circuit court's failure to notify Kerbaugh upon entering its July 18, 2011 order and judgment did not render its judgment void. Unless Kerbaugh's failure to receive notice supplies some other basis for setting it aside, the circuit court's order and judgment—along with its adjudication with regard to the issue of the property's divisibility, whether erroneous or not—is now final and the law of the case. See Harris v. Louisville Trust Co., 181 Ky. 659, 205 S.W. 772, 773 (1918).
With that said, the Civil Rules specify only two circumstances in which a circuit court is authorized, beyond the 10-day periods specified in CR 59.05 and CR 52.02, to grant some form of relief from the effect of its judgment in the event that a party failed to receive notice of the judgment. The first of these, CR 73.02(1)(d), allows a circuit court "[u]pon a showing of excusable neglect based on a failure of a party to learn of the entry of the judgment or an order which affects the running of the time for taking an appeal . . . [to] extend the time for appeal, not exceeding 10 days from the expiration of the original time." However, even if Kerbaugh's September 2, 2011 motion had asked for this relief (which it did not) it was filed beyond the 40-day deadline and, thus, would have been untimely in any event. See James v. James, 313 S.W.3d 17, 23 (Ky. 2010).
As noted previously, Kerbaugh attempted to preserve its arguments in this matter (i.e., its failure to receive notice and the circuit court's asserted errors regarding the divisibility of the property) through filing a bill of exceptions to the commissioner's report of sale, pursuant to CR 53.06, on September 2, 2011. As noted in Harris, 205 S.W. at 773, if a valid order of sale has already resolved the question of whether certain property is divisible, the procedure for contesting that finding is through an appeal of the order of sale, not through a bill of exceptions to a subsequent report of sale. See also Stokes v. Commonwealth, 286 Ky. 391, 150 S.W.2d 892, 893 (Ky. 1941) ("[e]xceptions to a report of sale do not raise the question as to whether or not the judgment ordering the sale is erroneous.")
The second circumstance would have been pursuant to a CR 60.02 motion and under the circumstances described in Kurtsinger v. Bd. of Trustees of Kentucky Retirement Systems, 90 S.W.3d 454 (Ky. 2002). In Kurtsinger, the circuit court admittedly made an error which prevented timely service of its judgment upon the appellants, and the appellants consequently learned of the judgment after the time for appealing it had already expired. For that reason, the appellants filed a CR 60.02 motion asking the circuit court to vacate its judgment and then re-enter it to enable them to file a timely appeal. Upon finding that the appellants had "acted with due diligence and acted promptly," the trial court vacated its judgment pursuant to CR 60.02 on the basis of "mistake, inadvertence, excusable neglect and reasons of an extraordinary nature justifying relief," and reentered its previous order. Id. at 455. In its subsequent review, the Kentucky Supreme Court approved of this practice.
As a caveat, however, when the Kurtsinger appellants moved for CR 60.02 relief, they were not attempting to use their motion as a vehicle for raising an argument that could and should have been raised prior to the entry of the offending judgment; they therefore acted consistently with the purpose of that rule. See id. at 455 (noting that "Thirteen weeks following oral argument on the [summary judgment] motion, the trial court entered summary judgment in favor of appellees." (emphasis added.)); see also Davis v. Home Indem. Co., 659 S.W.2d 185, 188 (Ky. 1983),
The purpose of [a CR 60.02 motion is] to bring before the court that pronounced judgment errors in matters of fact which (1) had not been put into issue or passed on, and (2) were unknown and could not have been known to the party by the exercise of reasonable diligence and in time to have been otherwise presented to the court.(Internal cites and quotes omitted).
Moreover, the Kentucky Supreme Court's decision in Kurtsinger does not abrogate the circuit court's discretion to deny a CR 60.02 motion; nor, for that matter, does Kurtsinger change the more general rule stated in CR 61.02, which provides:
No error in either the admission or the exclusion of evidence and no error or defect in any ruling or order or in anything done or omitted by the court or by any of the parties is ground for granting a new trial or for setting aside a verdict or for vacating, modifying, or otherwise disturbing a judgment or order, unless refusal to take such action appears to the court inconsistent with substantial justice. The court at every state of the proceeding must disregard any error or defect in the proceeding which does not affect the substantial rights of the parties.
Here, even if Kerbaugh had attempted to file a CR 60.02 motion under the holding of Kurtsinger, the similarities between Kurtsinger and this case begin and end with the circuit court's undisputed failure to serve its judgment upon Kerbaugh.
Unlike the Kurtsinger appellants, the motion that Kerbaugh filed did attempt to raise an argument that could and should have been raised prior to the entry of the July 18, 2011 order and judgment. Fully one year prior to Kerbaugh's intervention, Whitaker filed a complaint representing that the property at issue was not susceptible of division and asking the circuit court to sell it as a whole; the law presumes that Kerbaugh was aware of it. Six months prior to Kerbaugh's intervention, Whitaker moved for default judgment and an order of sale; the law presumes Kerbaugh knew that before the circuit court could enter an order of sale the circuit court was first required to determine, per Kentucky Revised Statutes (KRS) 426.685(1), whether the property at issue was susceptible of division. Kerbaugh had an opportunity to contest the matter of divisibility in its pleadings, but failed to do so. It also had an opportunity to contest this matter when it attended the July 6, 2011 hearing on Whitaker's motion for default judgment, when the circuit court specifically asked Kerbaugh's counsel whether Kerbaugh's intervention in any way precluded the entry of default judgment and order of sale. Kerbaugh's counsel made no inquiry regarding the relief sought in Whitaker's default judgment motion; its counsel did not request additional time to review the motion or formulate a response; and, only after Kerbaugh's counsel indicated that there was no objection to the entry of default judgment and order of sale, the circuit court indicated that it would grant the judgment after approval of the order by the Master Commissioner.
See Brown v. Harris, 321 S.W.2d 781, 783 (Ky. 1959) (holding that all parties have a continuing duty to check the progress of their cases and to keep current on the status of the various motions presented); see also Mussman v. Pepples, 243 Ky. 674, 49 S.W.2d 592, 593 (1932) ("a party is chargeable with notice of what the court does-not necessarily limited to what he legally does-and of all subsequent steps taken in his case, although he is in fact not present in person or by counsel when the orders are entered, and he has no actual knowledge thereof.").
See Midwest Mut. Ins. Co. v. Wireman, 54 S.W.3d 177, 181-82 (Ky. App. 2001) ("It is axiomatic that all persons are presumed to know the law.")
Aside from the above, Kerbaugh has failed to demonstrate how its substantial rights have been affected by the circuit court's failure to serve it with notice of the default judgment. Kerbaugh does not argue that it desired to purchase any specific part of that property; Kerbaugh does not deny that it was on constructive notice of the sale date due to the fact that the sale date was advertised in newspapers beforehand for a period of three weeks; and, Kerbaugh points to nothing beyond its own speculation and conjecture to support that selling divided portions of the property, rather than the property as a whole, would have yielded a sale price high enough to satisfy the entirety of Whitaker's first-in-priority lien in addition to all or part of its own junior lien.
As a whole, the property was appraised at $720,000. Whitaker purchased it for the full value of its lien, which was $1,359,764.
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CONCLUSION
In short, Kerbaugh has not demonstrated that the circuit court's July 18, 2011 order and judgment is invalid or should be set aside, or that the circuit court's failure to serve it with notice of the July 18, 2011 order and judgment prejudiced any of its substantial rights. For these reasons, we affirm.
ALL CONCUR. BRIEF FOR APPELLANT: Merle C. Clark
Danville, Kentucky
BRIEF FOR APPELLEE
WHITAKER BANK, INC.:
Gregory D. Pavey
Lisa D. Morgan
Lexington, Kentucky