Opinion
NO. 2016-CA-000103-MR NO. 2016-CA-000440-MR
05-05-2017
MEREDITH LAWRENCE, P.S.C. AND MEREDITH LAWRENCE APPELLANTS v. ROBERT RYAN, C.P.A. AND ROBERT RYAN APPELLEES
BRIEFS FOR APPELLANTS: B. Katy Lawrence Warsaw, Kentucky Meredith L. Lawrence, pro se Warsaw, Kentucky BRIEF FOR APPELLEES: Marc S. Murphy Michael M. Denbow Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM GALLATIN CIRCUIT COURT
HONORABLE JAMES R. SCHRAND, II, JUDGE
ACTION NO. 15-CI-00114 OPINION
AFFIRMING
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BEFORE: KRAMER, CHIEF JUDGE; MAZE AND STUMBO, JUDGES. STUMBO, JUDGE: Meredith Lawrence and Meredith Lawrence P.S.C. appeal from an order dismissing their case against Robert Ryan and Robert Ryan, C.P.A. Appellants also appeal from an order denying their motion to alter or amend the order dismissing. We find no error and affirm.
On July 6, 2012, Meredith Lawrence, individually, was convicted in federal court of three counts of filing a false tax return. Appellants then filed the underlying lawsuit against Appellees on April 8, 2013.
28 U.S.C. § 7206(1).
[Appellants] alleged in their complaint that Ryan had improperly handled Lawrence's 2004, 2005 and 2006 personal tax returns, and that Ryan's improper handling of those tax returns was the cause of Lawrence's criminal convictions, accompanying liabilities to the IRS, and the consequent fallout that ensued (i.e., damage to Lawrence's professional reputation and the losses of his law license, legal practice, and associated revenues). Stated differently, Lawrence had taken an unsuccessful theory he had put forth as a defense in his criminal proceedings (i.e., that he had relied in good faith upon his accountant, Ryan, to prepare accurate tax returns for these tax years), and had repackaged it as three civil causes of action against Ryan sounding in negligence, breach of fiduciary duty, and breach of contract.Lawrence v. Ryan, No. 2013-CA-001632-MR, 2015 WL 5223585, at 2-3 (Ky. App. Sept. 4, 2015) (footnotes omitted).
Ryan moved to dismiss pursuant to [Kentucky Rule of Civil Procedure (CR)] 12.02(f). Three bases of his motion were as follows: (1) Lawrence's conviction for three counts of violating 26 U.S.C. § 7206(1) had a preclusive, collateral estoppel effect upon each of the claims he had asserted; (2) public policy estopped Lawrence from founding civil claims upon, and thus profiting from, his own criminal misconduct; and (3) Lawrence's claims were barred by the applicable statute of limitations.
Thereafter, the circuit court granted Ryan's motion based upon grounds (1) and (2), enumerated above.
Appellants then appealed to a different panel of this Court. The Court of Appeals reversed the trial court's dismissal pursuant to CR 12.02(f) and ordered that the case be dismissed without prejudice. The Court found that when Appellants filed their case, it was not yet ripe because Lawrence had not exhausted his appeals at the federal level. Only after the United States Supreme Court denied his petition for writ of certiorari did Lawrence's damages become ripe.
The United States Supreme Court denied Lawrence's petition for writ of certiorari on October 6, 2014.
On October 5, 2015, Appellants filed another, nearly identical, complaint against Appellees. Appellees filed another CR 12.02(f) motion alleging "failure to state a claim upon which relief can be granted". The trial court then again dismissed Appellants' cause of action based on issue preclusion and public policy grounds. This appeal followed.
A trial court should not grant a motion to dismiss a complaint for failure to state a claim "unless it appears the pleading party would not be entitled to relief under any set of facts which could be proved in support of his claim." Pari-Mutuel Clerks' Union of Kentucky, Local 541, SEIU, AFL-CIO v. Kentucky Jockey Club, 551 S.W.2d 801, 803 (Ky. 1977). The Court of Appeals reviews de novo. Fox v. Grayson, 317 S.W.3d 1, 7 (Ky. 2010).
Appellants ask that we review the issues on appeal using the summary judgment standard. We believe using the summary judgment standard would not alter our holding in this case. This case is being decided on issues of law and any facts that could be revealed during discovery would have no impact. Lawrence's conviction of an intention criminal act is dispositive of the issues in this case. --------
The trial court dismissed Appellants' complaint based on issue preclusion and public policy. We will begin our analysis with issue preclusion. The trial court found that Lawrence's conviction in federal court triggered issue preclusion.
The doctrine of issue preclusion is properly asserted by "a person who was not a party to the former action nor in privity with such a party." Such a non-party
may assert res judicata against a party to that [former] action, so as to preclude the relitigation of an issue determined in the prior action. The rule contemplates that the court in which the plea of res judicata is asserted shall inquire whether the judgment in the former action was in fact rendered under such conditions that the party against whom res judicata is pleaded had a realistically full and fair opportunity to present his case.
Miller v. Admin. Office of Courts, 361 S.W.3d 867, 872 (Ky. 2011) (citations omitted). "[U]nder proper circumstances, a criminal conviction may be used for purposes of collateral estoppel in later civil proceedings, but it is also clear that to be so utilized the criminal judgment must of necessity finally dispose of the matters in controversy." Gossage v. Roberts, 904 S.W.2d 246, 248 (Ky. App. 1995) (citation omitted).
In order for issue preclusion to operate as a bar to further litigation, certain elements must be met: (1) at least one party to be bound in the second case must have been a party in the first case; (2) "the issue in the second case must be the same as the issue in the first case"; (3) "the issue must have been actually litigated"; (4) "the issue was actually decided in that action"; and (5) "the decision on the issue in the prior action must have been necessary to the court's judgment" and adverse to the party to be bound.
We agree with the trial court that issue preclusion prevents Lawrence from further litigation. The five issue preclusion factors listed above are all present in this case. Lawrence is a party to the current case and his criminal case. The issue in the case at hand is that Ryan was negligent in his accounting services, that this negligence caused Lawrence's arrest and conviction, and that Lawrence did not intentionally file false tax returns. These issues are the same as those litigated in the criminal trial. Part of Lawrence's defense in the criminal trial was that he relied on Ryan to correctly file his tax returns, that he did not intentionally file false returns, and that Ryan negligently filed incorrect returns. These issues were litigated and a judgment was entered which found Lawrence intentionally caused false tax returns to be filed. This also indicates that the jury did not believe Lawrence's defense that the false returns were caused by Ryan's negligent accounting practices. The trial court correctly found that issue preclusion prohibited further litigation in the underlying cause of action.
As to the public policy issue, the trial court cited to Ray v. Stone, 952 S.W.2d 220 (Ky. App. 1997), for the proposition that public policy "prohibits financial gain resulting, directly or indirectly, from criminal acts." Id. at 224. Appellants are trying to collect a judgment from Ryan based on Lawrence's criminal activity. This would be an impermissible financial gain; therefore, the trial court correctly utilized this policy as another reason for dismissing Appellants' cause of action.
Appellants raise other issues on appeal, but these are without merit and will only be briefly discussed. Appellants' argue that the claims brought on behalf of Meredith Lawrence P.S.C. are not subject to collateral estoppel or public policy considerations; therefore, those claims should move forward. We disagree. Ryan was only hired to complete Lawrence's personal tax returns; therefore, any alleged negligence on Ryan's part had no bearing on the P.S.C.
Appellants' also claim that the case should be returned to the trial court because Appellants were not permitted to begin discovery before the case was dismissed. Again we disagree. As stated previously, the outcome of this case relies solely on issues of law and no facts that could be discoverable would change the outcome.
Finally, Appellants argue that Lawrence was innocent of the crime of which he was convicted. This allegation is based on a new expert opinion, rendered during Lawrence's incarceration, which found that Lawrence paid too much in taxes during the years for which he was prosecuted, not too little as argued by the prosecution. This argument does not entitle Appellants to continue their cause of action against Appellees. At most, this alleged evidence of actual innocence is nothing more than the opinion of another expert, not evidence of factual innocence. Lawrence was convicted of intentionally filing fraudulent tax returns. Experts were utilized during the criminal trial by both sides and the jury ultimately found Lawrence guilty.
Based on the foregoing, we affirm the judgment of the trial court.
ALL CONCUR BRIEFS FOR APPELLANTS: B. Katy Lawrence
Warsaw, Kentucky Meredith L. Lawrence, pro se
Warsaw, Kentucky BRIEF FOR APPELLEES: Marc S. Murphy
Michael M. Denbow
Louisville, Kentucky