Court Opinion

ID: 9411886
Source: CourtListenerOpinion
Date Created: 2023-07-28 14:05:52.137634+00
Date Added: 2024-06-11T16:41:16.659084
License: Public Domain

RENDERED: JULY 21, 2023; 10:00 A.M.
                         NOT TO BE PUBLISHED

                Commonwealth of Kentucky
                          Court of Appeals
                             NO. 2022-CA-1181-MR

STEPTOE & JOHNSON PLLC                                               APPELLANT

                APPEAL FROM FRANKLIN CIRCUIT COURT
v.              HONORABLE THOMAS D. WINGATE, JUDGE
                        ACTION NO. 10-CI-00505

D. ERIC LYCAN                                                          APPELLEE

                                    OPINION
                                   VACATING

                                  ** ** ** ** **

BEFORE: CALDWELL, COMBS, AND KAREM, JUDGES.

KAREM, JUDGE: This matter involves contractual disputes between the law firm

of Steptoe & Johnson PLLC (“Steptoe”) and a former employee, attorney D. Eric

Lycan. The issue before us is whether the parties were properly before the circuit

court when it entered an order that: 1) joined Steptoe as a party to ongoing

litigation between the Commonwealth of Kentucky, Justice and Public Safety

Cabinet (“the Commonwealth”) and numerous online gambling entities (“the
Gambling Case”) pursuant to CR1 20.01; 2) ruled the circuit court is the proper

forum for Steptoe and Lycan to resolve any fee-splitting dispute related to the

Gambling Case; and 3) stayed arbitration proceedings initiated by Steptoe. We

hold the circuit court lacked personal jurisdiction over the parties and, therefore,

the order of the Franklin Circuit Court was void ab initio. We make no holdings

related to the merits of the underlying contractual disputes and whether an

arbitration agreement exists between the parties.

                In 2007, the Commonwealth entered into a service contract with

Lycan’s then-employer, Hurt, Deckard, and May, PLLC (“HDM”), to pursue civil

action against various entities offering illegal online gambling in Kentucky (i.e.,

the Gambling Case). HDM was to receive a 25% contingency fee for any recovery

by the Commonwealth. In 2009, Lycan left HDM and began employment at

Steptoe. He continued to work on the Gambling Case, but his initial employment

agreement provided Steptoe was not entitled to any portion of the fees Lycan

received in the Gambling Case. About a year later, Steptoe and Lycan amended

the employment agreement because Lycan’s continued work on the Gambling

Case was affecting his billable hours requirement with Steptoe. The amended

agreement provides Steptoe would receive 10% of the fees earned by Lycan in the

gambling case in 2010 and then increased 5% each year thereafter.

1
    Kentucky Rule of Civil Procedure.

                                          -2-
               Lycan’s employment with Steptoe terminated in November 2014.

Upon his exit, Lycan tendered $533,335.40 to Steptoe for its share of fees received

from the Gambling Case since the parties entered into the amended employment

agreement. The parties also entered into a practice transition agreement upon

Lycan’s 2014 exit. The current underlying dispute between the parties is whether

the 2014 practice transition agreement contains an arbitration provision that

specifically addresses fee-splitting between Steptoe and Lycan in the Gambling

Case.2

               On June 3, 2021, the circuit court approved fees of $13,501,626.60 to

Lycan from a settlement between the Commonwealth and one of the defendants in

the Gambling Case, PokerStars. On July 25, 2022, Steptoe filed for arbitration in

West Virginia, demanding approximately $4.7 million, or 35%, of the fees Lycan

received. On August 10, 2022, Lycan filed a response objecting to arbitration, but

also filed counterclaims against Steptoe. On the same date, he also filed a motion

in the Gambling Case. Lycan moved the circuit court for a declaratory judgment

that Steptoe was not entitled to any portion of the fees he received in the Gambling

Case and for an order staying the arbitration proceedings. Steptoe filed a limited

2
 Because we are vacating the circuit court’s order for other reasons, we decline to address the
substance of the various contractual provisions at issue.

                                               -3-
response as a non-party arguing the circuit court lacked personal and subject matter

jurisdiction.

                The circuit court conducted a hearing on Lycan’s motion. Notably, at

the outset, the Court stated

                Court: This is a temporary injunction, right?

                Attorney: Yes.

                Court: Well now, here’s the problem. I don’t have a
                complaint, so what am I supposed to do? I mean, I just
                threw one out because it didn’t have a complaint.

                At this point, Lycan argued the circuit court has jurisdiction over all

attorneys in the case, but also offered to file a separate complaint. He also argued

the court could bring Steptoe in by permissive joinder. Steptoe continued to argue

lack of jurisdiction. Despite the circuit court’s initial misgivings, it entered an

order joining Steptoe as a party pursuant to CR 20.01. However, the circuit court

did not stop there. It went on to rule that an arbitration agreement did not exist

between Steptoe and Lycan related to fee-splitting in the Gambling Case and also

stayed the arbitration proceedings. This appeal followed.

                CR 20.01 states

                [a]ll persons may join in one action as plaintiffs if they
                assert any right to relief jointly, severally, or in the
                alternative in respect of or arising out of the same
                transaction, occurrence, or series of transactions or
                occurrences and if any question of law or fact common to
                all these persons will arise in the action. All persons

                                            -4-
              may be joined in one action as defendants if there is
              asserted against them jointly, severally, or in the
              alternative, any right to relief in respect of or arising
              out of the same transaction, occurrence, or series of
              transactions or occurrences and if any question of law
              or fact common to all defendants will arise in the
              action. A plaintiff or defendant need not be interested in
              obtaining or defending against all the relief demanded.
              Judgment may be given for one or more of the plaintiffs
              according to their respective rights to relief, and against
              one or more defendants according to their respective
              liabilities.

(Emphasis added.)

              It is unclear from the circuit court’s order if Steptoe was to be brought

into the Gambling Case as a plaintiff or a defendant. We assume, due to the nature

of relief requested in Lycan’s motion, Steptoe would be a defendant. However,

this assumption is problematic because Lycan is not a plaintiff, or a party at all, in

the Gambling Case. Even assuming, arguendo, that it was permissible to join

Steptoe as a defendant pursuant to CR 20.01, the circuit court should have stopped

there until Steptoe was served with process. This begs the question: What,

exactly, would have been served upon Steptoe? The most recent amended

complaint between the Commonwealth and the various defendants is wholly

unrelated to the contractual disputes between Steptoe and Lycan.3 Stated

3
  Although we do not have the entire record of the Gambling Case before us, it appears from the
certified case history that the most recent was the Commonwealth’s seventh amended complaint,
filed on January 10, 2014.

                                              -5-
differently, the instant contractual disputes do not arise “out of the same

transaction, occurrence, or series of transactions or occurrences” or a “question of

law or fact common to all defendants” in the Gambling Case. Further, CR 3.01

provides, “[a] civil action is commenced by the filing of a complaint with the court

and the issuance of a summons or warning order thereon in good faith.” Lycan’s

motion filed in the Gambling Case fails to meet this requirement.

             “It is fundamental that a court must have jurisdiction before it has

authority to decide a case. Jurisdiction is the ubiquitous procedural threshold

through which all cases and controversies must pass prior to having their substance

examined.” Wilson v. Russell, 162 S.W.3d 911, 913 (Ky. 2005). Three separate

categories of jurisdiction exist: (1) personal jurisdiction over specific persons or

entities; (2) subject matter over the nature of the case and type of controversy; and

(3) particular case jurisdiction over the specific case. Hisle v. Lexington-Fayette

Urban County Government, 258 S.W.3d 422, 429 (Ky. App. 2008). In the instant

action, because CR 20.01 is inapplicable to the disputes between Steptoe and

Lycan in the Gambling Case, and because Lycan failed to commence a separate

action with a complaint and issuance of summons pursuant to CR 3.01, the circuit

court lacked personal jurisdiction over Steptoe. “[A] personal judgment without

                                          -6-
such jurisdiction is void.” Hill v. Walker, 180 S.W.2d 93, 95 (Ky. 1944) (citations

omitted).4

                 We note that there may be some confusion reconciling the Rules of

Civil Procedure with the mandates of Kentucky’s Uniform Arbitration Act. For

example, KRS 417.060 provides, in relevant part,

             (1) On application of a party showing an agreement described in
                 KRS 417.050, and the opposing party’s refusal to arbitrate, the
                 court shall order the parties to proceed with arbitration. If the
                 opposing party denies the existence of the agreement to
                 arbitrate, the court shall proceed summarily to the
                 determination of the issue so raised. The court shall order
                 arbitration if found for the moving party; otherwise, the
                 application shall be denied.

             (2) On application, the court may stay an arbitration
                 proceeding commenced or threatened on a showing that
                 there is no agreement to arbitrate. Such an issue, when in
                 substantial and bona fide dispute, shall be forthwith and
                 summarily tried and the stay ordered if found for the
                 moving party. If found for the opposing party, the court
                 shall order the parties to proceed to arbitration.

4
    Steptoe also argues the circuit court lacks subject matter jurisdiction. We disagree.

          The authority to determine a type of case, such as the dissolution of a marriage, is
          subject-matter jurisdiction. See, e.g., Gordon v. NKC Hosp., Inc., Ky., 887
          S.W.2d 360 (1994); Duncan v. O’Nan, Ky., 451 S.W.2d 626, 631 (1970). As a
          general matter a court is deprived of subject-matter jurisdiction only in cases
          “where the court has not been given any power to do anything at all in such a
          case, as where a tribunal vested with civil competence attempts to convict a
          citizen of a crime.” Duncan, supra, at 631 (quoting In re Estate of Rougeron, 17
          N.Y.2d 264, 271, 270 N.Y.S.2d 578, 583, 217 N.E.2d 639, 643 (N.Y. 1966)).

Milby v. Wright, 952 S.W.2d 202, 205 (Ky. 1997).

                                                  -7-
         (3) If an issue referable to arbitration under the alleged
             agreement is involved in an action or proceeding pending
             in a court having jurisdiction to hear applications under
             subsection (1) of this section, the application shall be
             made therein. Otherwise and subject to KRS 417.210,
             the application may be made in any court of competent
             jurisdiction.

             KRS 417.190 governs said “applications” to the circuit court and

provides, in relevant part, that

             an application to the court under this chapter shall be by
             motion and shall be heard in the manner and upon the
             notice provided by law or rule of court for the making
             and hearing of motions in civil cases. Unless the parties
             have agreed otherwise, notice of an initial application
             for an order shall be served in the manner provided
             by law for the service of a summons in civil cases.

(Emphasis added.)

             This Court has previously addressed the confusion created by the

word “motion” in KRS 417.190 if a circuit court does not already have jurisdiction.

To wit, “[w]hile the use of the term ‘motion’ in the statute is somewhat confusing,

we believe an initial application for the purpose of vacating an arbitrator’s award

requires the party seeking to vacate the award to invoke the circuit court’s

jurisdiction by commencing an action and issuing summons.” Pavkovich v.

Shenouda, 280 S.W.3d 584, 588 (Ky. App. 2009). Similarly, we believe Lycan’s

challenge to the existence of an arbitration agreement required him to invoke the

circuit court’s jurisdiction by commencing an action and issuing summons. Or,

                                         -8-
upon receiving notice of Lycan’s objection to arbitration, Steptoe could have

commenced its own action in circuit court.

               Upon receipt of [an] objection and refusal to arbitrate, it
               [is] incumbent under KRS 417.060(1) to obtain a court
               order to proceed with the arbitration. In fact, this statute
               explicitly provides that if the opposing party denies the
               existence of the agreement to arbitrate, the court shall
               proceed summarily to determine whether an agreement
               exists. If a written agreement does exist, the court shall
               order arbitration – otherwise a moving party’s application
               to arbitrate would be denied.

Fischer v. MBNA America Bank, N.A., 248 S.W.3d 567, 571 (Ky. App. 2007).

               In other words, there were numerous correct procedures available to

either party that would have provided the circuit court jurisdiction to resolve the

initial issue of whether an arbitration agreement exists with respect to fee-sharing

between Steptoe and Lycan in the Gambling Case.5 Common between said correct

procedures is the commencement of a separate action and the service of summons

– neither of which happened in the instant action.

               Accordingly, the circuit court lacked personal jurisdiction over

Steptoe and its order is void ab initio. The order of the Franklin Circuit Court is

therefore VACATED.

5
  Despite arguments of Steptoe to the contrary, the existence of a valid arbitration agreement as a
threshold matter must first be resolved by the court, not the arbitrator. First Options of Chicago,
Inc. v. Kaplan, 514 U.S. 938, 115 S. Ct. 1920, 131 L. Ed. 2d 985 (1995).

                                                -9-
          ALL CONCUR.

BRIEFS FOR APPELLANT:     BRIEF FOR APPELLEE:

Jeffrey K. Phillips       Stephanie Tew Campbell
Lexington, Kentucky       Christine Trout Van Tatenhove
                          Lexington, Kentucky

                        -10-