Court Opinion

ID: 6344797
Source: CourtListenerOpinion
Date Created: 2022-05-27 14:05:22.422672+00
Date Added: 2024-06-11T09:02:54.261749
License: Public Domain

RENDERED: MAY 20, 2022; 10:00 A.M.
                   NOT TO BE PUBLISHED

           Commonwealth of Kentucky
                   Court of Appeals

                     NO. 2021-CA-0927-MR

MEREDITH L. LAWRENCE, P.S.C.,
CREDITOR; LAW WAL, LLC;
MEREDITH L. LAWRENCE,
CREDITOR; MEREDITH L.
LAWRENCE, INDIVIDUALLY, LLC
MEMBER; AND RACERS PITSTOP
GRILLE, LLC                                        APPELLANTS

             APPEAL FROM GRANT CIRCUIT COURT
v.           HONORABLE R. LESLIE KNIGHT, JUDGE
                   ACTION NO. 20-CI-00130

THE ESTATE OF ROBERT R.
WALLACE; AMBER WALLACE
HOWELL, CO-EXECUTOR; AND
ROBERT JASON WALLACE, CO-
EXECUTOR                                            APPELLEES

                          OPINION
                         AFFIRMING

                         ** ** ** ** **

BEFORE: GOODWINE, MAZE, AND MCNEILL, JUDGES.
GOODWINE, JUDGE: LAW WAL, LLC; Racers Pitstop Grille, LLC; and

Meredith L. Lawrence (collectively “Lawrence”) appeal from the summary

judgment entered by the Grant Circuit Court dismissing his claims against the

Estate of Robert R. Wallace and its executors (collectively “Wallace”). After

careful review, we affirm.

                                BACKGROUND

            Facts relevant to this matter were set forth as follows in a prior appeal:

                  In September of 1998, Meredith L. Lawrence and
            Robert R. Wallace formed a limited liability company
            (“LLC”) together. They named the company
            LAW/WAL LLC. In February of 2000, they formed a
            second LLC, Racers Pitstop Grill, LLC (“Racers”).
            Pursuant to the operating agreements, Lawrence and
            Wallace were the only members of the LLCs with each
            owning a fifty percent interest in each LLC.

                   Racers operated a gentlemen’s club and a
            restaurant out of a building it leased from LAW/WAL.
            LAW/WAL operated a hotel in an adjacent building.
            LAW/WAL leased both buildings from Lawrence. In the
            early 2000s, the LLCs secured two loans from First
            Farmers Bank of Owenton (“Bank”). The first loan was
            in the amount of $1.2 million. Wallace and Lawrence
            provided personal guarantees on this loan. The second
            loan was in the amount of $100,000.

                   In 2004, Lawrence and Wallace decided to cease
            doing business together because they could not agree on
            what type of businesses would be successful at their
            locations moving forward. Ultimately, Lawrence agreed
            to buy out Wallace’s interests in both LLCs. On
            November 1, 2004, Wallace and Lawrence executed a
            written agreement titled “Contract for Sale and Purchase

                                        -2-
of All Interests of Robert R. Wallace in LAW/WAL,
LLC and Racers Pit Stop, LLC” (“Sales Agreement”).
Under the terms of the Sales Agreement, Lawrence
agreed to pay Wallace $400,000 for his interests in the
businesses. Payment was to be made as follows: 1)
$40,000 upon execution of the Sales Agreement; and 2)
the remaining $360,000 payable in nine equal
installments of $40,000 plus interest at the then-current
prime interest rate. The first installment for principal and
interest was to be paid on November 1, 2005, with
additional payments to be made each succeeding year
until paid in full. Section 3 of the Sales Agreement
contained a contingency provision. Under this provision,
the agreement would become “null and void” if the Bank
would not release Wallace’s personal guarantees.

      Lawrence made the initial $40,000 payment on
November 1, 2004, the same day the parties executed the
Sales Agreement. At the same time, he executed a
promissory note in favor of Wallace for the balance of
the purchase price. After receiving the initial payment
and promissory note, Wallace relinquished all his
ownership interests in the businesses to Lawrence.

       Thereafter, Lawrence approached the Bank about
releasing Wallace’s personal guarantee; it refused to do
so. Lawrence told Wallace about the Bank’s decision
approximately a week after they had signed the Sales
Agreement. Wallace allegedly told Lawrence that he
trusted Lawrence to make the payments to the Bank and
would go through with the sales even without a release
from the Bank.

      Pursuant to the terms of the Sales Agreement,
Lawrence was supposed to make the first of the nine
$40,000 installment payments to Wallace on November
1, 2005. He failed to do so. As a result, in February of
2006, Wallace filed a civil lawsuit for breach of contract
against Lawrence in Gallatin Circuit Court (“2006 Civil
Action”). Lawrence filed an answer and counterclaim.

                            -3-
In his counterclaim, Lawrence alleged that Wallace
committed fraud in connection with the Sales Agreement
by concealing business debts and fabricating assets. He
also alleged that Wallace was aware that the manager of
the two businesses was going to quit after the businesses
were sold to Lawrence, but hid this fact from Lawrence.
Lawrence further alleged that Wallace breached the
contract by engaging in activities that harmed the two
businesses contrary to a specific agreement and
understanding between the parties at the time the
businesses were organized. Several years of litigation
ensued.

       In 2007, while the 2006 Civil Action was still
ongoing, the larger of the two notes to the Bank came
due. Lawrence requested Wallace to assist in refinancing
or otherwise renewing the note. Wallace refused on the
basis that he no longer had an interest in the LLCs.
Lawrence ultimately purchased both notes from the
Bank. However, the Bank would not assign Wallace’s
personal guaranty to Lawrence. This had the practical
effect of extinguishing Wallace’s personal guarantee.

       In March of 2009, as part of the 2006 Civil Action,
Lawrence filed an amended counterclaim against
Wallace. The amended counterclaim alleged tortious and
intentional violation of Wallace’s duty of good faith and
fair dealing and intentional breach of fiduciary duty,
related to Wallace’s refusal to remain obligated on the
LLCs’ loans. The next month, on April 27, 2009, the
parties and their counsel conducted a settlement
conference at the office of Lawrence’s then-attorney.
Following day-long talks, the parties and their counsel
ultimately executed a document styled “Memorandum of
Full and Final Settlement” (“Settlement Agreement”).
Therein, the parties agreed to resolve the 2006 Civil
Action and modify their prior Sales Agreement. As part
of the Settlement Agreement, Lawrence agreed to pay
Wallace a total $175,000. The agreement set forth a
payment schedule: 1) $100,000 was due by May 7,

                           -4-
2009; and (2) the remaining $75,000 by May 1, 2010. In
return, Wallace again agreed to convey all of his interest
in the two LLCs to Lawrence, effective November 1,
2004, and Lawrence again agreed to hold Wallace
harmless and blameless for any of the businesses’ debts.
The Settlement Agreement further provided that the
parties would file an agreed judgment and agreed order
of dismissal in the 2006 Civil Action within sixty days.
This clause specified that the agreed judgment “shall
contain a full release by Wallace and Lawrence to the
other for all claims related to these LLCs, which have
been asserted or that could have been asserted by either
party against each other.”

      Lawrence made the first payment of $100,000 as
agreed. However, the parties did not file the agreed order
of judgment and dismissal in a timely manner. Instead,
according to Wallace, the parties agreed to leave the
2006 Civil Action open so that Lawrence’s counsel could
move to compel a fact witness, Donna Bond, Lawrence’s
former employee and bookkeeper, to provide additional
deposition testimony. While Ms. Bond had previously
been deposed, she had refused to answer some questions.
Allegedly, Lawrence wanted the deposition completed
with answers to these discreet questions because Ms.
Bond had previously testified before a federal grand jury
in connection with a criminal investigation of Lawrence’s
federal income taxes.

       Even though the 2006 Civil Action had not been
formally dismissed as specified by the Settlement
Agreement, on May 1, 2010, Lawrence sent Wallace and
his attorney a check for $75,000. The memo line of the
check contained the following handwritten notation:
“Settlement of Litigation Dispute C/A 06-CI00029
ONLY, Full & Final Payment.” Even though Lawrence
made the final payment pursuant to the terms of the
Settlement Agreement, for reasons that are not entirely
clear from the record, the parties failed to seek an agreed
judgment and order of dismissal from the trial court.

                            -5-
                        Although the 2006 Civil Action was technically
                still on the trial court’s active docket, the parties did not
                make any additional filings. In April of 2011, the 2006
                Civil Action came up for review pursuant to CR[1]
                77.02(2). As required by the Rule, the trial court sent
                notices to the parties that the 2006 Civil Action would
                “be dismissed in thirty days for want of prosecution
                except for good cause shown.” Id. The parties did not
                respond to the trial court’s CR 77.02(2) notice.
                Accordingly, by order entered July 21, 2011, the trial
                court dismissed the 2006 Civil Action without prejudice;
                its only option under CR 77.02(2).

                       Following execution of the Settlement Agreement,
                Lawrence operated the LLCs without Wallace’s
                involvement or financial assistance. During this time
                period, Lawrence repeatedly represented that he was the
                sole owner of the LLCs. This is confirmed in various
                filings with the Kentucky Secretary of State. Ultimately,
                Lawrence dissolved Racers in June of 2011. Later that
                same year, he sold LAW/WAL to Scott Vogeler.
                Documents associated with sale denote Lawrence as the
                sole owner. Subsequently, Vogeler filed bankruptcy on
                behalf of LAW/WAL. Lawrence repurchased
                LAW/WAL and its remaining assets out of bankruptcy.

                       Almost a full five years after execution of the
                Settlement Agreement, on or about April 22, 2014,
                Lawrence filed a new civil action against Wallace in
                Gallatin Circuit Court (“2014 Civil Action”). The new
                action, like the prior one, involved the sale of Wallace’s
                interests in the LLCs to Lawrence. In his complaint,
                Lawrence took the position that Wallace was still a part
                owner of the LLCs. Even though Lawrence
                acknowledged the existence of the Settlement
                Agreement, he averred that it ended with only the
                “interests of Wallace’s LLC personal property being
                purchased” by Lawrence. He further alleged that “no

1
    Kentucky Rules of Civil Procedure.

                                             -6-
final accounting, settlement, dismissal of the civil suit or
full and final releases were ever accomplished.” To this
end, Lawrence alleged that Wallace breached the LLCs’
operating agreements because he failed to make capital
contributions to the LLCs. Lawrence also alleged that
Wallace was liable for fraud in the inducement,
misrepresentation, unjust enrichment, breach of the
covenant of good faith and fair dealing, and intentional
infliction of emotional distress.

       Citing the parties’ prior Settlement Agreement,
Wallace filed an answer in which he denied that he was
liable to Lawrence. Wallace asserted that by virtue of the
Settlement Agreement, he sold all his interest in the
LLCs to Wallace and was not liable for any of the LLCs
expenses or debts. Wallace also asserted a number of
affirmative defenses. He also filed counterclaims against
Lawrence seeking a declaratory judgment that the
Settlement Agreement is an enforceable written
document binding on both Wallace and Lawrence that
barred Lawrence’s new complaint against him. In the
alternative, Wallace alleged related claims grounded in
equitable estoppel, fraud, and breach of contract.

         On the motion of counsel, the LLCs were
permitted to join the 2014 Civil Action as intervening
plaintiffs on the basis that their interests could be affected
by the outcome of the litigation between Lawrence and
Wallace. See CR 24.01. At that time, the LLCs did not
allege any independent claims against Wallace.

       On December 1, 2015, Wallace filed what was
styled as a “motion to enforce settlement agreement.”
Wallace asserted in his motion that the Settlement
Agreement was a legally binding contract that precluded
Lawrence from pursuing the claims set forth in the 2014
Civil Action. In his response, Lawrence countered that
the Settlement Agreement was not enforceable and noted
that the 2006 Civil Action was dismissed without
prejudice. Lawrence also noted that “[i]nsofar as the

                             -7-
            motion to enforce may be considered a motion for
            summary judgment then CR 56 applies and discovery
            must be permitted.” Even though Lawrence represented
            in his response that additional discovery was necessary
            before the trial court could treat Wallace’s motion to
            enforce as one for summary judgment, Lawrence filed his
            own motion for summary judgment on December 30,
            2015. Therein, Lawrence requested the trial court to
            grant him summary judgment on his claims against
            Wallace on the basis that there were no disputed issues of
            material fact.

                   Ultimately, the trial court construed Wallace’s
            motion to enforce the Settlement Agreement as a motion
            for summary judgment. After reviewing the record, the
            court determined that there were no material issues of
            disputed fact with respect to the validity of the Settlement
            Agreement. The court pointed out that it was undisputed
            that Lawrence made the two payments required by the
            Settlement Agreement to Wallace who accepted them,
            and that Lawrence subsequently represented that he was
            the sole owner of the LLCs on a purchase contract and on
            a bankruptcy petition. As a matter of law, the trial court
            concluded that Lawrence waived any and all claims he
            could have brought against Wallace in connection with
            Wallace’s ownership and sale of his interests in the
            LLCs. As a result, the trial court entered a final and
            appealable summary judgment order in favor of Wallace.

LAW/WAL LLC v. Wallace, No. 2016-CA-000358-MR, 2019 WL 103960, *1-4

(Ky. App. Jan. 4, 2019) (footnotes omitted). On appeal in the 2014 Civil Action,

this Court upheld the summary judgment.

            While that appeal was pending, Lawrence filed a third civil action

(hereinafter “the 2017 Civil Action”) against Wallace. Therein, Wallace moved

                                        -8-
for summary judgment arguing Lawrence’s claims were barred by res judicata.

The trial court agreed and granted summary judgment. Lawrence again appealed.

              This Court affirmed the trial court’s grant of summary judgment

because Lawrence’s claims were barred by res judicata. This Court held

              [t]he current action clearly arises from the same
              transactional nucleus as the 2014 Civil Action. The bank
              loans and guaranty raised in the current action are the
              same as those addressed in the prior action. As the trial
              court noted, the issues raised in the current action were
              actually litigated and decided on the merits in the 2014
              Civil Action. Both Lawrence and the LLCs had the
              opportunity to fully litigate those issues in that action.
LAW-WAL, LLC v. Howell, No. 2018-CA-000934-MR, 2020 WL 4557860, *5

(Ky. App. Jul. 17, 2020).

              While the appeal of the 2017 Civil Action remained pending,

Lawrence filed this action in the Grant Circuit Court (hereinafter “the 2020 Civil

Action”).2 In his complaint, Lawrence claimed breach of contract, violations of

Kentucky LLC statutes, breach of fiduciary duties, breach of good faith,

contribution, and requested an accounting. Record (“R.”) at 9-10. Lawrence’s

arguments are premised on his assertion that Wallace is liable to him for the debts

and obligations of the LLCs even though Wallace’s ownership in the LLCs was

terminated on November 1, 2004 and, under the terms of the Settlement

2
 While the 2017 Civil Action was on appeal, Wallace died, and his estate and its executors were
substituted as parties to the appeal. They are now parties to this action.

                                              -9-
Agreement, he ceased to have any managerial, fiduciary, or financial past, present,

or future obligations to them. LAW/WAL LLC, 2019 WL 103960, at *6.

            Again, Wallace moved for summary judgment arguing the

applicability of res judicata. The trial court granted summary judgment, finding

both claim and issue preclusion applied to this matter. The court explained

                    [Lawrence has] failed to show how [his] claims in
            this case are in any way distinct from those that the
            Gallatin Circuit Court and the Court of Appeals have
            already twice rejected. Simply put, the Settlement
            Agreement is binding and enforceable, and it
            extinguished Wallace’s liability to Lawrence as of
            November 1, 2004. That issue has been fully litigated
            and actually decided in prior litigation, and this [c]ourt
            must follow those decisions. Furthermore, all of the civil
            actions discussed above “ar[o]se from the same
            transactional nucleus of facts,” and therefore “every
            matter which was or which could have been brought in
            support of the cause of action” must be deemed to have
            been adjudicated and therefore precluded from further
            litigation.
R. at 1066-67. The trial court subsequently denied Lawrence’s motion to alter,

amend, or vacate the summary judgment. This appeal followed.

                           STANDARD OF REVIEW

            Summary judgment is proper only where, “as a matter of law, it

appears that it would be impossible for the respondent to produce evidence at the

trial warranting a judgment in his favor against the movant.” Isaacs v. Sentinel

Insurance Company Limited, 607 S.W.3d 678, 680 (Ky. 2020) (citation omitted).

                                        -10-
“The record must be viewed in a light most favorable to the party opposing the

motion for summary judgment and all doubts are to be resolved in his favor.”

Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991)

(citations omitted). “Because summary judgments involve no fact finding, this

Court will review the [trial] court’s decision de novo.” Isaacs, 607 S.W.3d at 681

(citation omitted).

                                    ANALYSIS

                     The rule of res judicata is an affirmative defense
             which operates to bar repetitious suits involving the same
             cause of action. The doctrine of res judicata is formed by
             two subparts: 1) claim preclusion and 2) issue
             preclusion. Claim preclusion bars a party from re-
             litigating a previously adjudicated cause of action and
             entirely bars a new lawsuit on the same cause of action.
             Issue preclusion bars the parties from relitigating any
             issue actually litigated and finally decided in an earlier
             action. The issues in the former and latter actions must
             be identical. The key inquiry in deciding whether the
             lawsuits concern the same controversy is whether they
             both arise from the same transactional nucleus of facts.
             If the two suits concern the same controversy, then the
             previous suit is deemed to have adjudicated every matter
             which was or could have been brought in support of the
             cause of action.

Yeoman v. Commonwealth, 983 S.W.2d 459, 464-65 (Ky. 1998) (emphasis added)

(internal citations and footnote omitted).

             This action undoubtedly arises for the same transactional nucleus of

facts as the 2014 and 2017 Civil Actions. As in his appeal in the 2017 Civil

                                         -11-
Action, Lawrence now argues against the enforceability of the Settlement

Agreement and claims Wallace defaulted on his obligations under the Settlement

Agreement. These issues were raised, fully litigated, and decided on their merits in

the 2014 Civil Action.

             Like in the 2014 Civil Action, here, “[t]he validity and enforceability

of the Settlement Agreement [is] dispositive of the pending claims.” LAW/WAL

LLC, 2019 WL 103960, at *5.

             Under the terms of the Settlement Agreement, Wallace
             sold all his interests in both LLCs to Lawrence effective
             November 1, 2004. Wallace ceased all ownership in the
             LLCs as of that date, and pursuant to the terms of the
             Settlement Agreement had no managerial, fiduciary or
             financial past, present or future obligations with respect
             to the LLCs. Additionally, Wallace and Lawrence
             agreed to settle and/or waive all claims associated with
             the 2006 Civil Action and the LLCs that were brought or
             could have been brought. Those claims sounded in tort
             and contract and arose out of Wallace’s involvement with
             and sale of his interests in the LLCs.

Id. at *6. Because the facts on which this action is premised are identical to those

in the prior civil actions, Lawrence’s claims herein are clearly barred by both claim

and issue preclusion.

             Furthermore, Lawrence’s argument that res judicata does not bar his

claim for contribution because it had not yet accrued when the 2014 Civil Action

was decided is meritless. He made an identical claim in the 2017 Civil Action.

Therein, the Gallatin Circuit Court found the claim would have accrued no later

                                        -12-
than February 29, 2008, well before the 2014 Civil Action was filed, and was

barred because it arose from the same transactional nucleus of facts which formed

the basis of the prior civil actions. R. at 211-12. This Court subsequently affirmed

the trial court’s determination that res judicata barred Lawrence’s claim for

contribution. LAW-WAL, LLC, 2020 WL 4557860, at *5. On this basis,

Lawrence’s claim for contribution in this action is barred by res judicata.

                Lawrence’s remaining arguments against application of res judicata

are without basis in law. His repeated claims regarding various sections of KRS3

Chapter 275 relating to formation, operation, and winding-up of LLCs are barred.

Kentucky’s LLC statutes do not allow for successive claims based on the same

issues. Id. Additionally, in the 2006 Civil Action, as part of the Settlement

Agreement, the parties agreed to settle or waive all claims related to the LLCs

which had been or could have been brought. LAW/WAL LLC, 2019 WL 103960, at

*6.

                Furthermore, despite Lawrence’s argument to the contrary, no

material issues of fact remain in this matter. Where res judicata bars claims, there

are no material issues of fact to resolve. By the same reasoning, additional

discovery is not necessary to determine any issue in this matter. See Id. at *5.

3
    Kentucky Revised Statutes.

                                          -13-
             Finally, Lawrence’s argument that the claims raised herein are

somehow distinct from those made in the prior actions because they were brought

against Wallace’s estate rather than Wallace as an individual is without basis in

law. This action could only be brought against the estate because Wallace is now

deceased. However, Lawrence’s claims are identical to those raised in the 2014

and 2017 Civil Actions and relate to the same transactional nucleus of facts from

which those actions, as well as the 2006 Civil Action and Settlement Agreement

arose. The fact that Wallace’s death necessitated that the suit be brought against

his estate does not prevent application of res judicata.

                                  CONCLUSION

             Based on the foregoing, we affirm the summary judgment of the Grant

Circuit Court.

             ALL CONCUR.

 BRIEFS FOR APPELLANTS:                    BRIEF FOR APPELLEES:

 B. Katy Lawrence                          Aaron A. Vanderlaan
 Warsaw, Kentucky                          Frank K. Tremper
                                           Covington, Kentucky

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