Case Title: Bingham Greenebaum Doll, LLP v. Lawrence

Citation: 

Docket Number: 2017-SC-000105-DG

State: kentucky

Court: Kentucky Supreme Court

Date: 2018-12-13T00:00:00Z

Document:
RENDERED: DECEMBER 13, 2018 TO BE PUBLISHED 2017-SC-000105-DG BINGHAM GREENEBAUM DOLL, LLP V. ON REVIEW FROM COURT OF APPEALS CASE NO. 2016-CA-000102-MR KENTON CIRCUIT COURT NO. 13-CI-01620 MEREDITH L. LAWRENCE APPELLANT APPELLEE OPINION OF THE COURT BY JUSTICE VANMETER REVERSING AND REMANDING Under Kent ucky law, an act io n seeking enfo rcement o f a pro misso ry no t e t hat is payable o n a cert ain dat e in t he fut ure is generally no t just iciable no r ripe fo r det erminat io n. In t his case, t he issue we must reso lve is whet her t he Kent o n Circuit Co urt erred in set t ing aside a default judgment previo usly grant ed t o Bingham Greenbaum Do ll, LLP and J. Richard Kiefer (co llect ively “Bingham”) against Meredit h Lawrence o n it s co unt erclaim t o enfo rce a pro misso ry no t e made by Lawrence in part ial payment o f at t o rney’s fees o wed by Lawrence t o Bingham. Because Bingham’s co unt erclaim was a co mpulso ry co unt erclaim t o Lawrence’s act io n against Bingham fo r pro fessio nal negligence and because Lawrence’s co mplaint necessarily called int o quest io n t he validit y o f t he pro misso ry no t e, Bingham’s co unt erclaim seeking enfo rcement o f t he pro misso ry no t e was just iciable no t wit hst anding t hat it was filed appro ximat ely 3 1/2 mo nt hs prio r t o t he pro misso ry no t e’s due dat e. We t herefo re ho ld t hat t he t rial co urt erred in set t ing aside t he default judgment and t hat t he Co urt o f Appeals similarly erred in affirming t hat Order. Thus, t his mat t er is remanded t o t he Kent o n Circuit Co urt wit h direct io ns t o reinst at e t he default judgment in favo r o f Bingham. I. Background. In 2008, Lawrence ret ained Bingham t o defend him against federal t ax evasio n charges. As Lawrence’s 2012 t rial dat e appro ached, he fell behind in his payment s fo r legal fees o wed, causing t he part ies t o renego t iat e t heir fee agreement . To secure t he unpaid fee, in June 2012, Lawrence execut ed a pro misso ry no t e evidencing his o bligat io n t o pay an amo unt no t exceeding $650,000, wit h t he no t e bearing a mat urit y dat e o f December 31, 2013. In July 2012, Lawrence was co nvict ed and sent enced in federal co urt .1 Thereaft er, Lawrence decided he was dissat isfied wit h his co unsel’s represent at io n and in August 2013 bro ught t his act io n fo r pro fessio nal negligence against Kiefer; Bingham; Ro bert Carran; and Taliaferro , Carran & Keys, PLLC.2 In respo nse, Bingham filed an answer, denying negligence, and a co unt erclaim, alleging Lawrence’s indebt edness pursuant t o t he t erms o f t he 1 United States v. Lawrence, 557 F. App’x 520 (6t h Cir. 2014). 2 Kiefer, a part ner wit h Bingham, is a lawyer who pract ices in Indiana and who was admit t ed t o pract ice in Kent ucky pro ho c vice. Carran and Taliaferro served as lo cal co unsel fo r Lawrence. no t e. When Lawrence did no t answer o r o t herwise respo nd t o t he co unt erclaim, Bingham mo ved fo r default judgment . In Sept ember 2014, aft er t he no t e’s dat e o f mat urit y had passed, t he t rial co urt ent ered an o rder reso lving all o ut st anding mo t io ns and dismissing Lawrence’s lawsuit wit ho ut prejudice. The co urt grant ed default judgment t o Bingham o n it s co unt erclaim and awarded judgment against Lawrence in t he amo unt o f $472,504.86, wit h int erest and co st s. The co urt also grant ed t he mo t io ns o f Carran and t he Taliaferro firm fo r summary judgment and dismissed Lawrence’s pro fessio nal negligence claim as premat ure, since he had yet t o o bt ain po st -co nvict io n relief fro m his criminal co nvict io n as required under t he so -called exo nerat io n rule. See, e.g., Stephens v. Denison, 150 S.W.Sd 80, 83-84 (Ky. App. 2004) (ho lding t hat criminal defendant may no t maint ain a cause o f act io n against co unsel fo r legal malpract ice absent exo nerat io n fro m his co nvict io n and sent ence t hro ugh po st co nvict io n relief).3 Thereaft er, Lawrence filed a plet ho ra o f po st -judgment mo t io ns, including a mo t io n fo r CR 60.02 relief t o have t he default judgment set aside as vo id o n t he basis t hat t he no t e had no t yet mat ured when Bingham filed it s co unt erclaim. In January 2016, t he Kent o n Circuit Co urt (under a new presiding judge) grant ed Lawrence’s CR 60.02 mo t io n, finding t hat since t he no t e had no t yet mat ured when Bingham filed it s co unt erclaim, no just iciable 3 This dat e we have rendered ano t her o pinio n invo lving t hese part ies, 2017-SC- 000531-DG, affirming dismissal o f Lawrence’s malpract ice claim t hat he subsequent ly filed in t he Gallat in Circuit Co urt aft er t he inst ant act io n dismissed his malpract ice claim wit ho ut prejudice. claim exist ed. Wit ho ut a just iciable claim, t he t rial co urt held t hat it never had subject mat t er jurisdict io n t o rule o n t he co unt erclaim, t hus rendering t he default judgment vo id. On appeal, t he Co urt o f Appeals affirmed, co ncluding t hat while t he t rial co urt had general jurisdict io n o ver claims such as t ho se set fo rt h in Bingham’s co unt erclaim, t he part icular co unt erclaim at issue was no t ripe when filed, and t herefo re no t just iciable, because Lawrence st ill had “t ime o n t he clo ck” in which t o pay t he no t e. Wit ho ut a just iciable claim, t he Co urt o f Appeals held t hat t he t rial co urt lacked subject mat t er jurisdict io n, t hereby rendering t he default judgment vo id. This Co urt grant ed discret io nary review, and we hereby reverse and remand. IL Standard of Review. While t he Co urt o f Appeals co rrect ly no t ed t hat t he st andard o f review fo r a CR 60.02 mo t io n is generally abuse o f discret io n, since t he o nly det erminat io n made by t he Co urt o f Appeals was regarding t he exist ence o f subject mat t er jurisdict io n, a quest io n o f law, we review t he ent ire pro ceeding de no vo . See S. Fin. Life Ins. Co. v. Combs, 413 S.W.3d 921, 926 (Ky. 2013); see also Grange Mut. Ins. Co. v. Trade, 151 S.W.3d 803, 810 (Ky. 2004) (whet her t he co urt has act ed o ut side it s jurisdict io n is a quest io n o f law, and t he st andard o f review o n appeal is t herefo re de no vo ). HI. Analysis. Ripeness under federal law is a jurisdict io nal requirement under Art icle III o f t he Unit ed St at es Co nst it ut io n. Nat’I Park Hosp. Ass’n v. Dep’t of Interior, 538 U.S. 803, 807-08, 123 S. Ct . 2026, 2030, 155 L. Ed. 2d 1017 (2003). This requirement similarly appears under t he Kent ucky Co nst it ut io n in t hat circuit co urt s have “o riginal jurisdict io n o f all justiciable causes no t vest ed in so me o t her co urt .” Ky. Const. § 112(5) (emphasis added). Fo r a claim t o be just iciable, it must be ripe. Nordike v. Nordike, 231 S.W.3d 733, 739 (Ky. 2007). As t his Co urt has reco gnized, “[t ]he basic rat io nale o f t he ripeness requirement is ‘t o prevent t he co urt s, t hro ugh t he avo idance o f premat ure adjudicat io n, fro m ent angling t hemselves in abst ract disagreement s [.]'" ) Barber V. Bradley, 505 S.W.3d 749, 760 n.5 (Ky. 2016) (quo t ing W.B. v. Cab. for Health & Family Servs., 388 S.W.Sd 108, 114 (Ky. 2012)). “[A] fundament al t enet o f Kent ucky jurisprudence [is] t hat co urt s canno t decide mat t ers t hat have no t yet ripened int o co ncret e disput es. Co urt s are no t permit t ed t o render adviso ry o pinio ns.” Nordike, 231 S.W.Sd at 739 (cit at io ns o mit t ed). In Daugherty v. Telek, 366 S.W.3d 463 (Ky. 2012), we discussed, at lengt h, when subject mat t er jurisdict io n is co nferred o n o ur co urt s: Subject mat t er jurisdict io n o f each Co urt wit hin t he Co urt o f Just ice is est ablished by t he co nst it ut io nal pro visio ns and st at ut es assigning t o t he co urt s specific t ypes o f claims and causes o f act io n (“kinds o f cases”). See Hisle v. Lexington-Fayette Urban County Gov’t, 258 S.W.3d 422, 429-30 (Ky. App. 2008). We have o ft en no t ed, mo st recent ly in Harrison v. Leach, 323 S.W.3d 702, 705-06 (Ky. 2010) (quo t ing Duncan v. O’Nan, 451 S.W.2d 626, 631 (Ky. 1970)), t hat “subject mat t er jurisdict io n do es no t mean ‘t his case’ but ‘this kind of case.’” We also quo t ed Duncan in Gordon v. NKC Hospitals, Inc., 887 S.W.2d 360 (Ky. 1994), in which we explained t hat a co urt is deprived o f subject mat t er jurisdict io n o nly where t hat co urt has no t been given, by co nst it ut io nal pro visio n o r st at ut e, t he po wer t o do anyt hing at all. To det ermine subject mat t er jurisdict io n, t he pleadings sho uld be examined and t aken at face value. The co urt has subject mat t er jurisdict io n when t he “kind o f case” ident ified in t he pleadings is o ne which t he co urt has been empo wered, by st at ut e o r co nst it ut io nal pro visio n, t o adjudicat e. Id. at 362. Once filed, a co urt has subject mat t er jurisdict io n o f t he case so lo ng as t he pleadings reveal t hat it is t he kind o f case assigned t o t hat co urt by a st at ut e o r co nst it ut io nal pro visio n. A co urt , o nce vest ed wit h subject mat t er jurisdict io n o ver a case, do es no t suddenly lo se subject mat t er jurisdict io n by misco nst ruing o r erro neo usly o verlo o king a st at ut e o r rule go verning t he lit igat io n. Id. at 465-67 (int ernal fo o t no t e o mit t ed). As previo usly no t ed, an act io n seeking enfo rcement o f a pro misso ry no t e t hat is payable o n a cert ain dat e in t he fut ure is generally no t just iciable no r ripe fo r det erminat io n. See Huffman v. Martin, 226 Ky. 137, 140-41, 10 S.W.2d 636, 638 (1928) (ho lding t hat payees o f pro misso ry no t e had no cause o f act io n against makers prio r t o due dat e o f no t e, no t wit hst anding makers’ act io ns and st at ement s o f int ent io n no t t o make furt her payment s o n t he no t e); see also Gould V. Bank of Independence, 264 Ky. 511, 515, 94 S.W.2d 991, 993 (1936) (ho lding t hat “when t he dat e o f mat urit y is definit ely fixed in a no t e and t he payo r fails t o discharge his o bligat io n, t he payee’s right o f act io n t hen accrues ”). No t wit hst anding t hat a payee’s act io n t o enfo rce a pro misso ry no t e o nly accrues at t he no t e’s due dat e, we kno w o f no rule o f law t hat a maker o f no t e may no t bring an act io n quest io ning t he validit y o r enfo rceabilit y o f t hat inst rument at any t ime.4 In fact , t his Co urt ’s precedent suggest s t hat a maker 4 Mo st cases invo lving pro misso ry no t es arise when t he payee o r a ho lder in due co urse sues t o co llect fo r no npayment . But cases do arise in which a maker init iat es t he act io n. See, e.g., Greene v. Cotton, 457 S.W.2d 493 (Ky. 1970) (makers o f no t e may bring an act io n fo r cancellat io n o f a no t e eit her befo re o r aft er it s due dat e. Head v. Oglesby, 175 Ky. 613, 619-20, 194 S.W. 793, 795-96 (1917). By filing an act io n fo r pro fessio nal negligence and making his general demand fo r damages, Lawrence, upo n prevailing o n t he merit s, wo uld have been ent it led t o “all damages and co st s sust ained” and a “refund [o f] t he fee.” KRS5 411.165. At t he t ime o f filing, August 2013, Lawrence had paid a po rt io n o f t he fees, and “[f]o r value received” had execut ed a pro misso ry no t e fo r t he unpaid balance.6 Lawrence, by his co mplaint , t hereby placed t he quest io n o f enfo rceabilit y o f t he no t e in play since a judgment in Lawrence’s favo r wo uld have undo ubt edly result ed in cancellat io n o f t he no t e. See KRS 355.3-305 (pro viding defense and claims in reco upment ); see also Shepherd v. Hill, 243 S.W.2d 1016, 1016 (Ky. 1951) (st at ing t hat “as bet ween t he o riginal part ies, t he co nsiderat io n o f a pro misso ry no t e may be impeached and an absence o r failure o f co nsiderat io n will bar a reco very[]”). sued execut o rs o f payee’s est at e fo r declarat io n t hat no t e had been released by decedent ). 5 Kent ucky Revised St at ut es. 6 The first paragraph o f t he no t e st at ed: FOR VALUE RECEIVED, t he undersigned, MEREDITH L. LAWRENCE, unmarried (t he “Bo rro wer”), hereby pro mises t o pay t o t he o rder o f BINGHAM GREENBAUM DOLL L.L.P., a Delaware limit ed liabilit y part nership (t he “Lender”), o r it s assignee, t he principal sum o f up t o (and no t t o exceed) SIX HUNDRED FIFTY THOUSAND DOLLARS ($650,000.00), t o get her wit h int erest t hereo n as hereinaft er pro vided. Such amo unt includes amo unt s o wed by Bo rro wer t o Lender as o f t he dat e hereo f, as well as t he agreed-upo n fee t o be paid by Bo rro wer t o Lender in co nnect io n wit h Lender’s legal represent at io n o f Bo rro wer[.] 7 In o t her wo rds, t he enfo rceabilit y o f t he no t e was ripe fo r det erminat io n as o f August 1, 2013, no t wit hst anding t hat it may no t have been due unt il December 31, 2013. As st at ed abo ve, subject mat t er jurisdict io n is det ermined fro m t he pleadings, which are t o be examined and t aken at face value. Daugherty, 366 S.W.3d at 467. By rule, t he pleadings are limit ed t o t he co mplaint , answer (including any co unt erclaim o r cro ss claim), reply t o a co unt erclaim, t hird-part y co mplaint , and t hird-part y answer. CR 7.01, 13. Lawrence’s co mplaint rendered Bingham’s co unt erclaim wit h respect t o t he no t e, i.e., Bingham’s claim t hat t he no t e is valid and enfo rceable, just iciable wit hin t he meaning o f KY. Const. § 112(5). Bingham’s co unt erclaim, t hus, was ripe fo r adjudicat io n, and t he Co urt o f Appeals erred by affirming t he t rial co urt ’s o rder ho lding o t herwise.7 IV. Conclusion. Fo r t he fo rego ing reaso ns, we reverse t he Co urt o f Appeals and remand t his case t o t he Kent o n Circuit Co urt wit h direct io n t o reinst at e t he default judgment in favo r o f Bingham and t o ent er t he award, including int erest and co st s, acco rdingly. All sit t ing. Mint o n, C.J.; Cunningham, Hughes, VanMet er, Vent ers, and Wright , JJ., co ncur. Keller, J., dissent s by separat e o pinio n. 7 The unique circumst ances o f t his case co mpel t his result and ho lding. In t he o rdinary case in which a payee o r ho lder in due co urse seeks t o enfo rce a pro misso ry no t e, Huffman and Gould remain go o d law. 8 KELLER, J., DISSENTING; I respect fully dissent fro m t he majo rit y o pinio n. The majo rit y here ho lds t hat , because Bingham’s co unt erclaim was co mpulso ry under Kent ucky Rule o f Civil Pro cedure (CR) 13.01, it was t hus just iciable. The majo rit y also st at es t hat Lawrence’s legal malpract ice claim against Bingham called int o quest io n t he validit y o f t he pro misso ry no t e, t hereby also creat ing a just iciable claim o n Bingham’s part . Ho wever, because I do no t find eit her o f t hese ho ldings persuasive, I must respect fully dissent . As t he majo rit y no t es, ripeness is a jurisdict io nal requirement t o creat e a just iciable claim in t he co urt s. Fo r subject mat t er jurisdict io n t o vest in a co urt , t he claim must be a just iciable o ne. Thus, if t he claim was no t ripe, it was no t just iciable, and t he Kent o n Circuit Co urt lacked t he jurisdict io n t o adjudicat e Bingham’s co unt erclaim. Addit io nally, t he majo rit y also reco gnizes t hat an act io n seeking enfo rcement o f a no t e, payable o n a dat e cert ain in t he fut ure, is no t generally ripe fo r det erminat io n—t he claim is no t just iciable. Yet , despit e t hese rat her unco nt ro versial legal principles, t he majo rit y st ill finds t hat Bingham’s co unt erclaim was so meho w except ed fro m t hese principles by reaso n o f (1) CR 13.01 and (2) t he fact ual disput es raised in Lawrence’s co mplaint . The majo rit y briefly ment io ns CR 13.01 but I must delve furt her int o t he language o f t he rule. Under CR 13.01, a part y “shall st at e as a co unt erclaim any claim which at the time of serving the pleading t he pleader has against any o ppo sing part y, if it arises o ut o f t he t ransact io n o r o ccurrence t hat is t he subject mat t er o f t he o ppo sing part y’s claim and do es no t require fo r it s adjudicat io n t he presence o f t hird part ies o f who m t he co urt 9 canno t acquire jurisdict io n.” (emphasis added). The plain language o f CR 13.01 requires t hat a co mpulso ry co unt erclaim be o ne t hat t he part y has at t he t ime o f t he pleading. If Bingham had filed it s o wn co mplaint , seeking enfo rcement o f a pro misso ry no t e t hat was no t due yet , it wo uld clearly be unripe. Simply because Bingham had been sued based o n t he same set o f fact s do es no t make t his co unt erclaim co mpulso ry. It must st ill be just iciable and meet t he requirement s o f CR 13.01 t o be co nsidered “co mpulso ry.” A claim must be just iciable t o be co mpulso ry; being “co mpulso ry” do es no t , ipso facto, make t he claim just iciable. The claim was no t yet ripe; it was no t o ne t hat Bingham had “at t he t ime o f pleading.” As such, it canno t be co nsidered a co mpulso ry co unt erclaim. The majo rit y also argues t hat t he fact s Lawrence pleaded in his co mplaint made Bingham’s no t e so meho w enfo rceable befo re t he due dat e. “Lawrence, by his co mplaint , t hereby placed t he quest io n o f enfo rceabilit y o f t he no t e in play since a judgment in Lawrence’s favo r wo uld have undo ubt edly result ed in cancellat io n o f t he no t e.” Fro m my reading o f t he majo rit y o pinio n, t he Co urt has creat ed an except io n t o ripeness in a just iciabilit y analysis. If t he claim is unripe, but t he plaint iff has bro ught a claim o ut o f t he same circumst ances, t hen ripeness no lo nger mat t ers. The claim is t hereby just iciable. Such a ho lding o blit erat es decades o f well-est ablished and respect ed law o n just iciabilit y and ripeness. Ripeness is always a requirement o f just iciabilit y. It canno t be waived. It canno t be simply igno red. Thus, we sho uld no t creat e an except io n t o t he rule. 10 The majo rit y st at es: “In o t her wo rds, t he enfo rceabilit y o f t he no t e was ripe fo r det erminat io n as o f August 1, 2013, no t wit hst anding t hat it may no t have been due unt il December 31, 2013.” I may be able t o agree wit h t his st at ement had Bingham merely inst it ut ed a declarat o ry act io n, request ing a / det erminat io n o f t he enfo rceabilit y o f t he no t e. But , Bingham did no t request an o pinio n o n enforceability, it request ed enforcement. Bingham did no t want t o kno w if t he no t e wo uld ult imat ely be co llect ed upo n but want ed a co llect io n, based upo n t he evidence o f t he no t e. I am lo at h t o be repet it ive, but I must st at e again: t he pro misso iy no t e had no t mat ured and t hus, Bingham’s claim was no t ripe. It had no just iciable claim at t he t ime o f pleading. Bingham argues t hat it s co unt erclaim was no t so lely based upo n t his pro misso ry no t e wit h it s fut ure mat urit y dat e but was seeking payment o f all t he legal fees Lawrence had already incurred. Because t ho se legal fees were due upo n invo ice, t he claim was ripe. Ho wever, as t he Co urt o f Appeals apt ly no t ed, “Lawrence do es appear t o have incurred legal fees prio r t o t he No t e’s mat urat io n, ho wever, t he No t e expressly subsumed all o f t ho se prio r due legal fees int o o ne No t e t hat was no t due unt il December 31, 2013.” Thus, fro m t he face o f t he no t e, t here was no cause o f act io n t hat had accrued at t he t ime Bingham filed it s co unt erclaim. I must also no t e t hat t he Kent o n Circuit Co urt dismissed Bingham’s claim without prejudice. Bingham had a legit imat e avenue fo r relief: bring it s claim again aft er t he no t e had mat ured. It is bewildering why Bingham cho se t o begin a lengt hy, appeal pro cess rat her t han simply reinst at ing it s claim. 11 especially given t he fact t hat t he no t e had mat ured by t he t ime t he o riginal co unt erclaim was dismissed wit ho ut prejudice. The Kent o n Circuit Co urt made no fact ual findings barring Bingham’s bringing a co mplaint ; t he claim was dismissed wit ho ut prejudice o n t he so le gro unds o f lack o f ripeness. In fact , because t he st at ut e o f limit at io ns fo r co nt ract ual claims is t en years pursuant t o KRS 413.160, it wo uld seem Bingham st ill has t his reco urse. I hesit at e t o make much ado abo ut no t hing. As I previo usly st at ed, by t he end o f t his part icular case in t he circuit co urt , t he no t e had mat ured. It is t empt ing t o simply say t hat t he init ial un-ripeness do es no t mat t er. Ho wever, just iciabilit y is no t an analysis in which we can undert ake harmless erro r review o r t ake similar sidest eps t o avo id t he harshness o f lack o f subject mat t er jurisdict io n. It is plain and simple; co urt s o nly have subject mat t er jurisdict io n o ver just iciable claims. Just iciable claims must be ripe at t he t ime o f filing. Bingham’s claim was no t . Therefo re, I wo uld affirm t he Kent o n Circuit Co urt and t he Co urt o f Appeals. 12 COUNSEL FOR APPELLANT: Beverly Rut h St o rm Frank Kern Tremper Arnzen, St o rm & Turner, P.S.C, COUNSEL FOR APPELLEE: Meredit h L. Lawrence 13