Opinion
NO. 2011-CA-001494-MR
01-17-2014
JULIANNE MAY YOUNG, INDIVIDUALLY AND AS C0-TRUSTEE OF THE SAM C. MAY AND JULIA C. MAY TRUSTS; AND MENEESE WALL APPELLANTS v. LOU MAY RICHARDSON; CHARLES M. ORR; CHRISTIE L. ORR; CLAYTON P. ORR; PHIL M. ORR, JR.; BUENA VISTA, LLC; AND THE ESTATE OF SAM C. MAY, DECEASED APPELLEES
BRIEFS FOR APPELLANTS: Julianne May Young, Pro Se Bryan, Texas BRIEF FOR APPELLEES: D. Kevin Ryan Louisville, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM MARION CIRCUIT COURT
HONORABLE ALLAN RAY BERTRAM, JUDGE
ACTION NO. 02-CI-00057
OPINION
AFFIRMING
BEFORE: CAPERTON, MAZE, AND VANMETER, JUDGES. CAPERTON, JUDGE: The Appellants, Julia May Young and Meneese Wall, appeal the April 12, 2011, Agreed Order Dismissing Settled of the Marion Circuit Court, issued following the recommendation of the arbitrators appointed by the circuit court dismissing this suit between Appellants and Appellees Lou May Richardson; Christie L. Orr; Clayton P. Orr; Charles M. Orr; Phil M. Orr, Jr.; Buena Vista, LLC; and the estate of Sam C. May, deceased (hereinafter "Appellees") involving the estates and trusts of Julia C. May and Sam C. May. Upon review of the record, the arguments of the parties, and the applicable law, we affirm.
The Mays were husband and wife, and the parents of Young and Richardson. The Mays' third daughter, Martiele May Orr, died in April of 2000, and was survived by her husband, Phil M. Orr (one of the Appellees herein), and their four children, Charles Orr, Christie Orr, Clayton Orr, and Appellant Wall. Julia May died on March 28, 1998, and Sam May died on November 8, 2005.
In 1991, Sam and Julia May each created revocable living (inter vivos) trusts, with provisions which were essentially identical. Although revocable and amendable by the settlor, amendments effecting the powers and duties of the trustee(s) had to be approved in writing by the trustee(s). Each trust provided for two separate funds. Fund A was what is commonly known as a "marital trust" for the benefit of the surviving spouse during his or her lifetime. Fund B was a "credit shelter trust," which was intended to contain a sum equal to the largest amount that could pass free of federal estate tax by reason of the unified credit, subject to certain adjustments.
When the marital trusts were created, Sam and Julia May were identified as the trustees of their respective trusts. Thus, Sam May was the initial trustee of his trust, and Julia May was the trustee of her trust. The trusts provided that upon the death of the trustee, the surviving spouse would become the successor trustee. The Mays' three daughters, Lou Richardson, Julianne Young, and Martiele Orr, were appointed as successor trustees, in the event of their parents' inability or desire not to act as trustee.
The beneficiary of Fund A was the surviving spouse during his or her lifetime, with the power to consume both the income and the principal. The surviving spouse also had a power of appointment that permitted him or her to transfer any or all assets of Fund A to anyone, including his or her estate. Upon the death of the surviving spouse, the trust properties (A and B) passed to the three daughters, per capita, or to their heirs, per stirpes. One half of each beneficiary's share was to be distributed in fee, and the other half remained in trust, with income benefits payable quarterly, and with the power to consume the principal for the health or education of said children or their children per stirpes, upon the death of the settlors' children.
Following the creation of the May Trusts, the following events occurred:
(1) On November 30, 1993, Sam and Julia May each amended their respective trusts to provide that if their three daughters were called upon to act as their successor co-trustees, approval of two of the three of
them was required for the successor co-trustees to act on any matter;
(2) On December 29-30, 1994, Sam and Julia May each amended their respective trust so as to name their three daughters, rather than each other, as their immediate successor co-trustees. In the same instruments, Sam and Julia May resigned as trustees of their respective trusts. Although these amendments were signed by both Martiele Orr and Lou Richardson, Julianne Young did not sign either amendment;
(3) On March 9, 1995, Sam and Julia May amended their respective trusts again, once again noting their resignation and naming their three daughters as their immediate successor co-trustees. The effect of this amendment was to delete the requirement of the November 30, 1993 amendment that allowed two of the three co-trustees to act, thereby requiring the consent of all three trustees in order to exercise a power. Julianne Young agreed to this March 1995 amendment, and agreed to serve as a trustee. However, Martiele Orr and Lou Richardson never signed the March 1995 amendment. Thereafter, none of the daughters exercised any control over the trusts, or the assets of the trusts.
(4) Julia May died on March 24, 1998, and Sam May became the executor of her estate.
(5) In September of 1998, Sam May signed a disclaimer of all his rights to Julia May's Trust Fund A, and disclaimed his general power of appointment. Said disclaimer was filed with the probate court. Within two weeks thereafter, Sam May and his counsel decided that the first disclaimer contained fundamental errors which essentially defeated the entire intent of Sam and Julia Mays' estate planning efforts. As a result, Sam May executed a second disclaimer on October 9, 1998. The second disclaimer differed from the first in that Sam May did not "specifically disclaim either the remaining principal of Fund A of the Julia C. May Trust or his
general power to appoint any assets of Fund A remaining at his death." This second disclaimer was filed in the probate court on October 13, 1998.
(6) Subsequently, on October 27, 1999, Sam May created a limited liability company, Buena Vista, LLC. The operating agreement of that company, which was executed on the day that the company was formed, identified Sam May as the sole member, and named Martiele Orr and Lou Richardson as the managers. Two days later, on October 29, 1999, pursuant to a power of appointment, Sam May transferred the assets within the Julia C. May Trust, and particularly an Advest brokerage account which was in Fund A of the Julia C. May Trust, to Buena Vista, LLC. On that same day, Sam May also transferred title to two farms which were held in the Sam C. May Trust to Buena Vista, LLC. Five days later, on November 4, 1999, Sam May transferred his entire interest in Buena Vista, LLC, to his three daughters in equal shares.
(7) Martiele Orr passed away in April 2000, and Phil Orr was appointed as her executor. Sam May's health also began to fail, and on October 26, 2001, Phil S. George, Jr. was appointed as Sam May's conservator.
(8) Two months later, in December 2001, Julia Young attempted to act as a trustee with respect to her parents' assets, specifically attempting to get the Advest accounts transferred to her mother's trust. Those efforts caused Phillip Orr and Lou Richardson to file a declaratory judgment action against Julie Young, and Buena Vista, LLC was joined as a third party defendant. The heart of that controversy was whether or not Sam May had the right to direct the transfer of assets from Fund A of the Julia C. May Trust by power of appointment to Buena Vista, LLC, on October 29, 1999, which he did as trustee of the Julia C. May Trust on October 30, 1999, and whether he was the trustee of the Sam C. May Trust when he executed the deed conveying real property to Buena Vista, LLC on October 29, 1999.
(9) Richardson then filed an action with the Marion Circuit Court, styled Richardson, et. al. v. Young, et. al., Civil Action No. 02-CI-00057, on March 1, 2002. Richardson filed that action in an attempt to validate the transfer of assets from the Mays' trusts to the LLC, to the 1994 and 1995 Trust Amendments and trustee resignations "ineffectual", and requesting that Richardson be appointed the sole trustee of the Sam C. May Trust. Young counterclaimed and filed a third-party action against the LLC, requesting a declaration that the transfers from the two trusts to the LLC were void, and that Young and Richardson were co-trustees of the Mays' trusts pursuant to the 1994 and 1995 amendments. In that claim, Young filed a motion for partial summary judgment based upon her declaratory claims, which was granted in her favor on April 11, 2003. In granting the partial summary judgment, the trial court determined that the May
family assets should be managed through trusts, rather than through a limited liability company.
(10)Having concluded that Sam May was acting as a trustee without authority, the trial court attempted to undo each of the transfers made since his resignation as trustee, and to void the transfers pursuant to his testamentary power of appointment. The trial court imposed a constructive trust on the assets in order to transfer all of the assets back to their respective trusts.
(11)Richardson, the Orrs (Phil, Charles, Christie and Clayton), and the LLC appealed, asserting that the trial court erred in deciding that the attempted resignations of the parents were effective, even
though the successor trustees did not accept the appointments, that Sam May's first disclaimer of interest could not be amended in the face of a clear mistake, and that the various transfers of assets to Buena Vista, LLC were invalid. Those appeals were consolidated under Richardson v. Young, 2003-CA-0001818-MR. This Court affirmed the trial court's ruling in an unpublished opinion on May 6, 2005. In so doing, this Court agreed with the trial court that Sam and Julia May effectively resigned with their written notice to themselves and the successor trustees in December of 1994. This court held that the resignations of Sam and Julia May were not contingent upon whether or not the daughters signed the amendments or accepted the trustee provisions, and were effective according to the terms of the trust, and that Sam May's disclaimer of his power of appointment was irrevocable. This Court also agreed with the trial court that Sam May was without authority to transfer the assets at issue to Buena Vista, LLC, because (1) Sam May was acting as a trustee, though he was no longer a trustee; and (2) Because the attempted transfer was not to himself as a beneficiary, but to a third person - Buena Vista, LLC. This Court held that Sam's attempt to transfer the assets directly to Buena Vista, LLC, as a trustee, did not revoke the trust, and that accordingly, the assets still remained in the trust.
That action was dismissed pursuant to the April 6, 2011, order and judgment entered in this case, and an appeal from that dismissal order is currently pending before this Court as Case No. 2011-CA-1494.
Young's counterclaim and third party action also included claims of fraud, conversion, tortuous interference with inheritance rights, and fiduciary breach claims. Additionally, Young alleged that the 92-year-old Mr. May was not competent at the time that the LLC documents were purportedly signed. These claims were ultimately never tried, in light of developments which occurred during the ongoing litigation.
More specifically, the trial court found that the power of appointment granted to Sam May did not permit inter vivos exercise thereof, and was to be exercised only through his will. Thus, the court held that Sam's purported exercise thereof on October 29, 1999, and October 30, 1999, to transfer all of the securities from Fund A of the Julia May Trust to Buena Vista, LLC was unauthorized and without legal effect. The court also found that Sam May's effort to make an inter vivos exercise of that power of appointment also failed because he specifically and irrevocably disclaimed his right to exercise that power of appointment under his first disclaimer. The court found that upon the filing of that first disclaimer, Sam May no longer had the right to withdraw from Fund A of the Julia C. May Trust or to testamentarily appoint assets of Fund A at his death. While acknowledging that Sam May had filed a second disclaimer approximately twenty (20) days after the first, which did not include the revocations contained in the first, the second disclaimer nevertheless did not have the effect of revising, revoking, or amending the first disclaimer.
The court further found that Sam May was not the trustee of the Sam C. May Trust, and had not been the Trustee since his resignation as trustee on December 30, 1994, at which time he substituted his three daughters as successor cotrustees. The court acknowledged that it is fundamental trust law that the settlor may amend the trust which he or she created, as long as the trust agreement expressly reserved to the settlor the power of amendment. Thus, the court found that where pursuant to Paragraph 2.1 of the Trust Agreements, Sam and Julia May expressly reserved the right to amend the agreements, they were well within their rights to do so without the approval of their daughters. Accordingly, the court held that there was no question that the 1993 Amendments were fully effective. However, the court found that after his resignation as Trustee of the Sam C. May Trust on December 30, 1994, Sam May was wholly lacking in authority to thereafter execute the duties of trustee, and thus had no legal authority to execute a deed on October 29, 1999, purporting to transfer his farms from the Sam May Trust to Buena Vista, LLC.
Concerning the acceptance of appointments by the successor trustees, the court found that acceptance is presumed unless the trustee expressly declines the position. Accordingly, the court found that the lack of Young's signature on the 1994 written resignation by Sam and Julia May did not render the resignations ineffective. To the contrary, the court found that the signatures of Richardson and Orr on the 1994 amendments, and that of Young on the 1995 amendments, were clear evidence that all three daughters knew of their parents' resignations, and that each willingly accepted their position as successor cotrustee.
Richardson and the Orrs then filed a timely petition for rehearing on June 6, 2005, which was ultimately denied by this Court. At that point, the procedural history of this matter became increasingly convoluted, primarily because on June 7, 2005, the parties attended mediation in the "2002" case and the "2004" cases. The parties ultimately signed a "mediation memorandum" in which they agreed to enter into a settlement agreement. The memorandum contained sixteen provisions.
The court had referred to the "2002" action and the "2004" cases to mediation in March of 2005. The parties also mediated a partition suit filed by Richardson and Orr in a different circuit court to partition land inherited under Julia C. May's will, and the will of Betty Avritt, Julia's aunt, which case had not been referred to mediation.
Appellants now maintain that the prefatory "subject to" language in the memorandum makes the agreement unenforceable, because no settlement agreement was signed subsequently, or, alternatively, that it makes the agreement incomplete or ambiguous and in combination with other provisions puts into issue the intent of the parties, which requires an evidentiary hearing to ascertain. We discuss this argument in more detail herein, infra.
Two of those provisions which came to be of significant import stated: (1)"All pending cases will be resolved in such a fashion to preserve the tax advantages attendant to utilizing Buena Vista, LLC," and (2)"Any dispute arising out of the estates, this agreement or the definitive settlement agreement shall be settled by binding arbitration."
Thereafter, on August 9, 2005, Richardson, et, al. filed a motion for discretionary review of the "2002" action, requesting review of this Court's affirmance of the April 11, 2003, summary judgment order. Discretionary review was denied by our Kentucky Supreme Court on November 15, 2006. No further appeal was taken, and the April 11, 2003, partial summary judgment order became final.
The second and third cases, mediated on June 7, 2006, were 2004 CI-00315 and 2004-CI-00316 (jointly the "2004" cases). The first of those cases, filed by Young, sought administration of the Sam C. May estate by the circuit court due to what Young asserted were certain defalcations by Richardson and Barbara Buckman (the Mays' bookkeeper), which included their alleged failure to timely file the estate tax returns, an inventory or periodic settlements, or to take other actions to properly administer the estate. The second of those cases sought administration of the Julia C. May estate by the circuit court, as Young asserted that Richardson had failed and refused to cooperate with Young in any way or to provide any documents pertaining to the estate which were in the possession of her and Buckman. Those cases were dismissed by the trial court, and are also currently before this Court on appeal.
On December 15, 2005, the court heard Young's motion to remove fiduciaries in the "2004" cases. The court also heard Young's motion in the "2002" case, requesting an order to distribute the income and corpus of the Sam C. May trust. The trial court ultimately found that the parties had settled the "2004" cases and the "2002" action in mediation, and had agreed to arbitrate any disputes under the terms of the mediation memorandum. The court requested the parties to agree upon a distribution from the Sam C. May estate for the payment of taxes, a distribution of corpus to beneficiaries, and an arbitrator, all of which were included in the Agreed Order signed by the trial court on December 15, 2005, and filed in the "2002" and "2004" cases.
See 2011-CA-001494 and 2011-CA-001495.
Contemporaneously with the foregoing litigation, on December 7, 2005, Richardson filed Civil Action No. 2005-CI-000419 (the "2005" action), pursuant to Kentucky Rules of Civil Procedure (CR) 60.02 and 60.03, requesting that the April 11, 2003, summary judgment be vacated, and that the property transfers from the Mays' trusts to the LLC be validated. In that petition, Richardson, the Orrs, and Buena Vista, LLC asserted that there were documents relating to Sam May's transfer of the trust assets that had not been submitted for consideration to the trial court, and which would have resulted in a dramatically different conclusion to the litigation - namely that the transfer of the assets was proper. Young and Wall maintain that this action was both without merit and time-barred.
A week after that petition was filed, on December 15, 2005, the parties signed an Agreed Order which apparently represented an attempt to resolve the outstanding issues in all three actions. The order was signed and entered by the Marion Circuit Court that same day, and provided as follows:
The Memorandum, executed by the parties on June 7, 2004, is hereby accepted as the settlement agreement of the parties and they shall follow its provisions. John L. Smith, retired attorney [of] Lebanon, Kentucky shall arbitrate disputes or other issues mentioned in said memorandum, subject to his agreement to accept said appointment. Otherwise, if the parties cannot agree to another arbitrator the court shall designate another arbitrator.Thereafter, on January 17, 2006, Young moved the trial court to abate the proceedings in the CR 60.02 and 60.03 actions and moved for an extension of time to file a responsive pleading until further order of the court and pending the decision of the arbitrator as agreed by the parties in the December 15, 2005, order. The trial court denied the motion, and the parties proceeded to brief the action.
Subsequently, on June 1, 2006, the trial court entered an order which indicated that it had designated an arbitration team with expertise in estates, trusts, and taxation, and granting Young's motion to abate the action pending arbitration. By order dated June 26, 2006, entered in the "2002" action and the "2004" cases, the trial court appointed the same arbitration team for resolution of those issues. That order stated that the arbitrators were appointed "in order to resolve all the disputes or other issues of the parties in these cases as contemplated by the parties in the June 7, 2005, [mediation] memorandum (the parties' settlement agreement) as incorporated by the December 15, 2005, Agreed Order in these actions." On June 29, 2006, the arbitrators requested that the parties submit a list of issues, and on August 18, 2006, notified the parties by e-mail that they would like to schedule an initial conference with the attorneys to get a thorough understanding of the issues and to be able to prioritize their actions.
The parties met with the arbitrators on September 15, 2006. On September 26, 2006, the arbitrators presented a proposed order to the trial court to vacate the April 11, 2003, order of partial summary judgment. The trial court did so on September 27, 2006. In its order, the court made four pertinent findings:
(1) The pleadings filed by the Respondents herein in response to Petitioner's motion for relief pursuant to CR 60 are violative of the obligations of the respondents, Julianne May Young and Meneese Wall, under the Settlement Agreement entered into by the parties on June 7, 2005, as affirmed by Agreed Order signed by the parties and entered in this Court on December 15, 2005.Young v. Richardson, 267 S.W.3d 690, 693-94 (Ky. App. 2008).
(2) The Court finds that there are sufficient grounds under CR 60.02 and 60.03 for the granting of relief from the Court's prior entry of partial summary judgment herein on April 11, 2003, which grounds include, but are not limited to, the agreement of the parties as to the proper resolution of this matter, as set forth in the Settlement Agreement referenced above. Therefore the Court's prior partial summary judgment herein is hereby set aside in its entirety.
(3) Further, as noted by the Petitioners in their briefs, this Court has substantial power to grant general equitable relief under CR 60, and the Court hereby exercises its discretion to utilize its inherent equitable powers to grant the relief requested in this case. It seems clear that Sam May intended to fund and then give away Buena Vista, LLC so that his heirs could have the advantage of the preferential tax treatment of the assets transferred thereto, although (in Petitioner's words) he may have been clumsy in his attempts to do so. Given the agreement of the parties that all pending cases should be resolved in "such a fashion to preserve the tax advantages attendant to utilizing Buena Vista, LLC," it is appropriate for the Court to exercise its equitable powers of discretion to fulfill the intent of Mr. May in making these transfers to
Buena Vista, LLC, as well as the intent of the parties in reaching their undeniably arms' length settlement of their dispute.
(4) Therefore, the Court rules that the transfer of real estate and securities to Buena Vista, LLC in October 1999 .... Are valid and binding upon all of the parties in all respects for the reasons set forth in the petition herein, which Petition is unopposed in light of the Court's ruling striking the pleadings of the Respondents that are violative of the Respondents' obligations under the settlement agreement.
Young then filed a motion to alter, amend, or vacate the September 27, 2006, order, arguing that it was signed less than ninety days from date of issuance, contrary to the terms of Kentucky Revised Statutes (KRS) 417.160. That motion was denied. The Supreme Court subsequently entered an order denying discretionary review of the May 6, 2005, opinion affirming the April 11, 2003, partial summary judgment, and this Court heard Young's appeal of the September 27, 2006, order of the Marion Circuit Court, which vacated the partial summary judgment entered in April of 2003.
On appeal to this Court, Young argued that the trial court lacked subject matter jurisdiction to enter the September 27, 2006, order because the motion of discretionary review of the Court of Appeals opinion affirming the judgment was then pending before the Kentucky Supreme Court, which did not enter its order denying discretionary review until November 15, 2006.
We agreed, and issued an opinion on June 25, 2008. Therein, this Court held that despite the pendency of the motion for discretionary review before the Supreme Court, the trial court retained narrow jurisdiction to rule on the CR 60.02(f) and CR 60.03 motions. However, because the trial court's September 27, 2006, order failed to substantively address the equitable grounds advanced under CR 60.02(f) and CR 60.03, and instead concerned the equitable power of the court to effectuate the settlement agreement of the parties, under reasons which this court determined were neither "extraordinary" as required by CR 60.02(f) nor "appropriate" within the meaning of CR 60.03, this court held that the requirements of CR 60.02(f) and CR 60.03 were not met and remanded the case to the trial court for further proceedings. See Young v. Richardson, 267 S.W.3d 690 (Ky. App. 2008).
A second arbitration order was also issued in this matter on October 6, 2006. That order was issued to "implement" the parties' mediation memorandum. After the notice of appeal in Richardson v. Young was filed, the arbitrators issued a series of orders. Young asserts that none of these orders were designated as "awards." One of these orders directed the parties to sign mutual releases of all claims in the "2002" action and the "2004" cases through June 8, 2005, and dismiss the three suits with prejudice, as settled. Young and Wall refused to sign mutual releases in light of the pending appeal in the "2005" CR 60 action. Accordingly, the arbitrators held that neither Young nor Wall was entitled to any distributions under the mediation memorandum until such releases were signed.,
See eleventh order of arbitrators.
The basis for this order was the "doctrine of disentitlement," which the order stated, "stands for the proposition that a party cannot ask a tribunal for relief while simultaneously disobeying an outstanding order of the tribunal."
Richardson and the other Appellees filed a motion to dismiss the "2004" cases and the "2002" action, and Young and Wall filed motions to vacate the sixth order in the "2005" action, and to vacate the eleventh order in all cases. Pursuant to an arbitration order, Richardson filed the estate tax returns for the Sam C. May estate in July of 2007. The thirteenth order of the arbitrators determined the issues for trial. Young asserts that this thirteenth order precluded all of the issues raised by Appellants as to enforceability of the "mediation memorandum," fraud in the inducement, unconscionability, failure of consideration, and other issues and defenses as "already decided."
The twenty-fourth order of the arbitrators provided that no evidence could be introduced at trial that would contradict any prior orders of the arbitrators or the circuit court. In the twenty-eighth order of the arbitrators, the only order to contain an award, the arbitrators ordered Young to pay $100,000 and Wall to pay $25,000 of the arbitration fees and costs for breaching the first paragraph of the mediation memorandum by contesting the "2005" CR 60 action, and by contesting the motion for discretionary review in the "2002" action. The arbitrators refused to make any distributions of the trust assets held by the LLC, based upon their prior orders requiring Appellants to sign the releases. The arbitrators also attempted to reserve jurisdiction to order distributions in the future.
On May 7, 2007, Appellees filed Civil Action No. 07-CI-00147 (the "2007" action) to confirm the arbitration orders and award and enter judgment thereon. Wall and Young filed their respective answers in June of 2007, in which they raised the affirmative defenses of collateral estoppel, res judicata, estoppel, improper splitting of causes of action and/or claims for relief and fraud, among other defenses. On May 16, 2008, Appellants also filed their motion to vacate portions of the twenty-eighth order of arbitrators in all five cases. Young's motion to consolidate this case and the "2005" action was filed on April 10, 2010, but was denied on November 30, 2010. Young also filed a motion to stay the instant action on which was granted by the trial court on September 24, 2008. In January of 2009, Young filed a motion for distribution of funds and a memorandum in support thereof, and Wall filed two similar motions on January 29, 2009. Those motions were denied on the basis that any distributions were to be determined by the arbitrators.
On February 19, 2010, pursuant to the remand ordered by this Court in Young v. Richardson, the trial court again vacated the April 11, 2003, partial summary judgment and order pursuant to CR 60.02(f) and 60.03 in the "2005" action, and filed same in the "2002" action on February 23, 2010. The February 19, 2010, order was modified by orders entered on November 30, 2010, in the "2005" action. Young appealed, claiming that the trial court abused its discretion by vacating its April 11, 2003, judgment pursuant to CR 60.02(f) and CR 60.03 since Appellees' claims of "mistake" and "newly discovered evidence" fall under CR 60.02(a) or (b) and were required to have been asserted within one year after entry of the judgment, which Appellees failed to do. Appellants further claimed that Appellees did not satisfy the requirements for relief under CR 60.02(f) and CR 60.03. That appeal was also decided by this Court, wherein we held that the failure to present documents granting trustee authority warranted grant of motion for relief from judgment for reasons of extraordinary nature pursuant to CR 60.02(f) and 60.03.
Court of Appeals No. 2010-CA-002209, 2012 WL 3136770.
The trial in this matter was held on October 9 and 10, 2007. On April 6, 2011, the Marion Circuit Court entered an order and judgment confirming all portions of the second, third, fourth, fifth, sixth, ninth, tenth, eleventh and thirteenth arbitration orders and the twenty-eighth order which was the final arbitration award, and ordering dismissal of three of the four cases in which the arbitrator appointments were made. A judgment was entered against Young for $100,000, and against Wall for $25,000, which amounts were to be paid from their share of the Mays' estates, Mrs. May's trust, and Young's interest in Buena Vista, LLC if distributed, plus costs of court. The judgment provided for no distributions to Young or Wall from the estates, trusts, or the LLC. It subsequently entered the aforementioned April 12, 2011, Agreed Order Dismissing Settled, in which it dismissed this action, with prejudice, and with all parties to pay their own costs. It is from the order that Appellants now appeal to this Court.
Appellants make seven arguments on appeal: (1) The Marion Circuit Court erred in dismissing this case because the underlying orders upon which the dismissal is based were rendered without jurisdiction and are void; (2) The Marion Circuit Court lacked jurisdiction to dismiss this case while the February 19, 2010, order vacating pursuant to CR 60.02(f) and 60.03 is pending on appeal; (3) Assuming arguendo that the Marion Circuit Court had jurisdiction to dismiss this case pursuant to the arbitrator orders, it exceeded its subject matter jurisdiction under the Kentucky Uniform Arbitration Act; (4) Assuming arguendo that the Marion Circuit Court had jurisdiction to dismiss this case pursuant to the arbitrator orders, the trial court erred by dismissing this case prematurely in light of the Court of Appeals opinion in Young v. Richardson; (5) Dismissal of this case as settled was in error because the underlying agreement providing for dismissal was void due to illegality and against the public policy of this Commonwealth; (6) The trial court erred in dismissing this case contrary to Appellants' rights of due process or equal protection under the Fifth and Fourteenth Amendments to the United States Constitution, Section 2 of the Kentucky Constitution and other applicable law; and (7) The trial court erred in dismissing this action based upon enforcement of an unconscionable contract by the arbitrators.
In response, Appellees argue that: (1) The trial court properly complied with the Kentucky Arbitration Act and applicable law when it confirmed the arbitrators' award and subsequently entered the Agreed Order Dismissing Settled in wording substantially similar to that agreed to previously by counsel for Appellants as part of the agreed-upon arbitration proceedings; (2) Appellants' arguments are restatements of issues already raised in appeal of the CR 60.03 action and the appeal of the Arbitration Award Confirmation Action; (3) The circuit court had legal jurisdiction to dismiss the declaration of rights action following its previous confirmation of the arbitration award; (4) The circuit court did not have to wait for the appellate court to decide CR 60.03 action issues before dismissing the declaration of rights action because dismissal was an integral consideration in settlement agreements; (5) The sixth order of the arbitrators was part of the arbitration award which was properly confirmed and thus dismissal was proper; (6) The entire arbitration procedure was valid because Appellants willingly complied with all arbitration proceedings and eagerly accepted all benefits due them per the settlement agreements and arbitration orders; (7) Appellants' obligation to comply with the death tax savings provision included within the settlement agreements are not illegal and do not violate public policy; (8) Appellants cite no authority for the claim that dismissal violated their due process or equal protection rights; and (9) The unconscionability arguments advanced by Appellants with respect to the settlement agreements are unpersuasive. We address these arguments in turn.
As their first basis for appeal, Appellants assert that the circuit court erred in dismissing this case because the underlying orders upon which it was based were rendered without jurisdiction and are void. Specifically, they assert that the June 26, 2006, order appointing arbitrators whose rulings resulted in the dismissal of this suit was entered without jurisdiction, and was a "nullity" under this Court's holding in Young v. Richardson, 267 S.W.3d 690 (Ky. App. 2008). Appellants assert that the circuit court's appointment of an "arbitration team" to determine issues in this case was entered while this case was pending before the Kentucky Supreme Court on motion for discretionary review, despite the fact that it was without residual jurisdiction to take any action affecting matters then on appeal. Likewise, they argue that the order of December 15, 2005, upon which the appointment was based, was also entered without jurisdiction and is a "nullity," and that all subsequent actions and orders taken by the arbitrators based on what they assert was a void June 26, 2006, order appointing them were taken and rendered without jurisdiction. Appellants assert that the trial court only had narrow jurisdiction under CR 60.04 to grant or deny the CR 60 action, which did not include the appointment of arbitrators to act on matters pending on appeal in this action. In their second and related basis for appeal, Appellants assert that the circuit court lacked jurisdiction to dismiss the case while the February 19, 2010, order vacating pursuant to CR 60.02(f) and 60.03 is pending on appeal.
In response to these arguments, we note first, that the issues relating to the appeal of the CR 60.03 action included a challenge to the legality of the April 11, 2003, partial summary judgment, which dealt with original issues pled in this declaration of rights action. As previously explained herein, this Court has recently considered Appellants' appeal of the February 2010, order vacating pursuant to CR 60.02, and we have affirmed the trial court in that regard.
See Young v. Richardson, 2010-CA-002209, 2012 WL 3136770 (To be published).
Moreover, our law is abundantly clear that the parties can settle a dispute at any time, even after a case is up on appeal. Indeed, in Jones v. Conner, 915 S.W.2d 756, 757 (Ky. App. 1996), this Court stated:
It has long been recognized in this jurisdiction that the parties to a suit have the absolute right to settle their dispute at any time, even after "the litigation has been brought to the Court of Appeals and there has been a final judgment by that court, determining the rights of the parties ..." Bernheim v. Wallace, 186 Ky. 459, 217 S.W. 916, 921 (1920). By appropriate motion, the settling parties may demand that a trial court to which a case has been remanded by an appellate court enter an order comporting with their agreement even though the order would not comport with the decision of the appellate court. Id. Settlements are favored by the courts, and the parties are always free to make whatever settlement they wish even after an appellate court has finally decided their controversy.
Further, we note that a written settlement agreement between the parties is a contract, and is governed by contract law. Frear v. P.T.A. Industries, Inc., 103 S.W.3d 99, 105 (Ky. 2003). The construction and interpretation of a contract is a matter of law for the court. See Morganfield National Bank v. Damien Elder & Sons, 836 S.W.2d 893 (Ky. 1992). A settlement agreement that satisfies the requirements associated with contracts, including an offer and acceptance, full and complete terms, and consideration, is generally enforceable. Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 384 (Ky. App. 2002). Thus, the trial court did not need to retain jurisdiction in the 2002 declaration of rights action in order to appoint the replacement arbitrators, because it was merely following the terms of the December 15, 2005, contract agreed to by the parties.,
Moreover, we note that the trial court's entry of a follow-up order on December 4, 2006, subsequent to the Supreme Court's November 15, 2006, denial of discretionary review regarding the declaration of rights action specifically referred to and thus revalidated and confirmed the June 26, 2006, order in each of those three cases.
In so finding, we note that the settlement agreement was a contract which was certainly supported by adequate legal consideration, in light of the fact that: (1)Young and Meneese Wall, immediately received $200,000 and $50,000, respectively, in direct transfers of marketable securities from the Sam C. May Trust (as required under the specifically negotiated provisions of Section 1 of the December 15, 2005, agreement); (2)Young received direct cash distributions of all of the taxable income earned by the Sam C. May Trust for trust calendar year 2005, (as required under the negotiated provisions of Section 2 of the December 15, 2005, agreement); and (3) Payments were made to the IRS and the Kentucky Department of Revenue toward death taxes (as required under the negotiated provisions of Section 3 of the December 15, 2005, agreement).
We simply cannot agree with the assertion made by Young that the trial court's mistaken entry of the December 15, 2005, Written Settlement Contract as an "Agreed Order" in the formal court records of the declaration of rights action in some manner made the contract, and by extension, the Mediation Settlement Agreement, a "nullity." To the contrary, we are in agreement with the court below that contract law clearly governs the enforceability of the Settlement Agreement and that, accordingly, the court's entry of the Agreed Order did not render either the Mediation Settlement Memorandum or the Written Settlement Contract unenforceable. Section 4 of the December 15, 2005, Written Settlement Contract clearly states: "The Memorandum executed by the parties on June 7, 2005, is hereby accepted as the settlement agreement of the parties, and that shall follow its provisions."
We believe that the parties clearly and unambiguously agreed to settle all of the outstanding issues based upon the June 7, 2005, Mediation Settlement Memorandum, which included an agreement to utilize arbitration, and to abide by the orders resulting therefrom. Ultimately, we find no authority to support the argument that the court lacked jurisdiction to dismiss this declaration of rights action following confirmation of the arbitration award where the language of the Agreed Order Dismissing Settled was not only previously agreed to by Appellants, but actually part of the arbitration award itself. Accordingly, we affirm.
Having so found, we turn to the third argument raised by Appellants on appeal, namely that if the circuit court had jurisdiction to dismiss this case pursuant to the arbitrator orders, it exceeded its subject matter jurisdiction under the Kentucky Uniform Arbitration Act. In making this argument, Appellants assert that though this case was ordered to be dismissed by the sixth order of the arbitrators, that order was not an award and was not issued after an evidentiary trial as required by KRS 417.090. They assert that the circuit court's jurisdiction to confirm an award is derived from KRS 417.200, which provides in pertinent part that jurisdiction is "conferred ... on the court to enter judgment on an award ...." They argue that the Kentucky Uniform Arbitration Act does not contemplate that the trial court will confirm and act on orders which do not constitute an award, and that the lower court exceeded its jurisdiction by so doing and by dismissing the case pursuant thereto.
Our review of the record reveals that the sixth order of the arbitrators was clearly part of the arbitration award confirmed by the court below as clearly evidenced by the April 6, 2011, order and judgment in the Arbitration Award Confirmation Action. The record reveals that the award was described in the twenty-eighth order of the arbitrators, and was delivered after the final October 2007 arbitration hearing. We agree with the court below that to the extent that the twenty-eighth order of the arbitrators referred to and discussed previous orders of which the sixth order is included, those orders were appropriately incorporated by reference into the final award and were appropriately before the court. Accordingly, we decline to reverse on this basis.
As their fourth basis for appeal, Appellants argue that if the court did have jurisdiction to dismiss this matter pursuant to the orders of the arbitrators, it did so prematurely in light of this Court's opinion in Young v. Richardson, supra. Again, we disagree. As we have previously discussed in detail herein, though the court lacked jurisdiction to enter the December 15, 2005, Written Settlement Contract as an "Agreed Order" in the declaration of rights action, this did not in and of itself make the Settlement Agreement invalid and unenforceable. We reiterate that the December 15, 2005, Written Settlement Contract was binding and enforceable under applicable contract law. Accordingly, we decline to reverse on this basis.
Having so found, we turn to the fifth issue raised by Appellants, namely that dismissal of this case as settled was in error because the underlying agreement providing for dismissal was void due to illegality and against the public policy of the Commonwealth. Our review of the record and applicable law simply does not indicate that such was the case. Specifically, Young takes issue with the first paragraph of the mediation memorandum, which provides that all pending litigation "be resolved in such a fashion as to preserve the tax advantages attendant to utilizing Buena Vista, LLC." Young seems to assert that this constituted an agreement by the parties to change tax consequences by virtue of the first paragraph of the mediation memorandum, which she asserts is illegal.
In response to this argument, we note that Young had ample opportunity at the September 15, 2006, hearing held before the arbitrators to challenge the validity of the Settlement Agreements, including this provision. Moreover, we note that a review of the record includes the arbitration hearing testimony presented on October 8-9, 2007, which included testimony from tax law expert Sheldon G. Gilman, Esq., the deposition testimony of Young's own prior attorney, and Young herself, all of which contradict these claims. Moreover, we note that as Appellees indicate in their brief, the IRS conducted a comprehensive audit of the Sam C. May estate federal estate tax return and found that May's transfer of assets to the LLC were valid and that the estate was entitled to valuation discounts to reduce the death taxes. Accordingly, we find nothing illegal about the agreement of the parties, or the actions taken in conformity therewith.
See Appendix H to Appellees' brief.
Turning to the sixth argument made by Appellants on appeal, we disagree with their assertion that the court's dismissal of this case was contrary to their due process or equal protection rights under either the United States or Kentucky Constitutions. Appellants argue that they were already entitled to a distribution of their respective shares of the trust assets at the time of mediation, and that they have been divested of these property rights. They assert that they received no evidentiary hearing on the CR 60 action, nor on their defenses regarding the mediation memorandum. They note that no stipulation of dismissal was signed as required by CR 41.01, and assert that no motion to dismiss was filed or served on Appellants as required by CR 41.01(2). Thus, they assert that the dismissal was not voluntary on their part, and that the acts of the trial court and the arbitrators deprived Appellants of their substantive and procedural due process right and rights to equal protection under the law. We disagree.
A review of the record in fact reveals that the exact format of this Agreed Order Dismissing Settled was agreed to previously by Young's attorneys during the course of the arbitration proceedings. Indeed, Section 7 of the Mediation Settlement Memorandum reads in pertinent part, "Young will dismiss the Counterclaim against Richardson and all other claims against Richardson, Orr, and Buckman pending in the Marion Circuit Court with prejudice, as well as any and all claims, it being the intent of the parties that all claims, litigations, suits, and disputes between them be settled."
Moreover, as the court below noted, in making these arguments, Appellants ignore their own prior counsel's written and oral objections raised to the Appellees' prior motions requesting that the court enter the Agreed Order Dismissing Settled, and the court's prior verbal ruling to hold off on any entry of the Agreed Order Dismissing Settled until it had decided the merits of the Arbitration Award Confirmation Action. Thus, we are in agreement with the court below that it had the authority to dismiss this action based both upon the two prior motions requesting it to do so and the specific directives given by the arbitrators in their sixth order., Accordingly, we find no violation of Appellant's constitutional rights, and we affirm
Indeed, in its April 6, 2011, opinion and judgment entered in the Arbitration Award Confirmation Act, the court ruled that the Mediation Settlement Memorandum and the December 15, 2005, Settlement Agreement were binding upon the parties. It also ruled that the sixth order of the arbitrators was part of the arbitration award, which was confirmed. Section 5 of that sixth order reads:
In furtherance of the provisions of numerical Paragraph 7 of the Settlement Agreement, the Agreed Orders Dismissing Settled as submitted by Mrs. Richardson's counsel shall be properly submitted to the Courts for entry. The parties shall take any and all further action, including Motions and Petitions, in order to have the Agreed Orders properly submitted to the respective Courts within 10 days after the date of this Order. Copies of the signed Orders shall be sent to all parties and the arbitrators.
Moreover, we note that Appellants certainly had notice of the September 15, 2006, hearing by the arbitrators, and had notice that the arbitrators intended to honor the validity of the Settlement Agreements (as evidenced by their notification letter to the parties dated June 26, 2006). While Appellants could certainly have presented witnesses and contrary documentation at the September 2006 hearing in an attempt to rebut the validity of the Settlement Agreements, they did not. Accordingly, we simply do not agree with their assertion that they were denied due process or equal protection under the law.
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Finally, concerning the seventh argument raised by Appellants, that the construction of the mediation memorandum by the arbitrators at the urging of Appellees rendered it unconscionable, we simply fail to see how the agreement entered into by the parties meets that definition. "An unconscionable contract has been characterized as one which no man in his senses would make on the one hand, and no fair and honest man would accept on the other." Hathaway v. Eckerle, 336 S.W.3d 83, 88 (Ky. 2011), quoting Conseco Financing Servicing Corp. v. Wedler, 47 S.W.3d 335, 342 (Ky. App. 2001). We simply do not find that the Settlement Agreements in question meet this standard, and we decline to reverse on this basis. Moreover, we note that Appellants fail to direct our attention to where they preserved this issue below in accordance with CR 76.12. We find that this argument fails for this reason as well.
Wherefore, for the foregoing reasons, we hereby affirm the April 12, 2011, Agreed Order Dismissing as Settled of the Marion Circuit Court which was issued following the recommendation of the arbitrators appointed by the circuit court dismissing this matter, the Honorable Allan Ray Bertram, presiding.
ALL CONCUR. BRIEFS FOR APPELLANTS: Julianne May Young, Pro Se
Bryan, Texas
BRIEF FOR APPELLEES: D. Kevin Ryan
Louisville, Kentucky
Thus, the court below held, and we agree, that Appellants' reliance upon CR 41 is misplaced, and that any demand for a new trial should have been made before the arbitrators.