Opinion
NO. 2015-CA-001273-MR NO. 2016-CA-000026-MR
02-23-2018
WILLIAM F. LENNON JR.; LAURIE LENNON; BAG OF BONES IRREVOCABLE TRUST AND PRIVATEER TRADING, LLC APPELLANTS v. JENNIE S. KEMP APPELLEE
BRIEFS FOR APPELLANTS: John E. Davis Lexington, Kentucky BRIEF FOR APPELLEE: Robert M. Pfeiffer Lexington, Kentucky
NOT TO BE PUBLISHED APPEAL FROM MADISON CIRCUIT COURT
HONORABLE JEAN CHENAULT LOGUE, JUDGE
ACTION NO. 12-CI-00126 OPINION
AFFIRMING AND ORDER DISMISSING
** ** ** ** **
BEFORE: ACREE, JOHNSON AND TAYLOR, JUDGES. ACREE, JUDGE: William and Laurie Lennon, Bag of Bones Irrevocable Trust, and Privateer Trading, LLC, seek this Court's review of a summary judgment (Appeal No. 2015-CA-001273-MR) and an order denying their motion for the trial judge to recuse and vacate all previously entered orders (Appeal No. 2016-CA-000026-MR). For the following reasons, we affirm Appeal No. 2015-CA-001273-MR. For reasons set forth below, we will dismiss Appeal No. 2016-CA-000026-MR.
When final disposition of an appeal is made by an "Opinion and Order," as in this case, the party adversely affected may move for reconsideration as provided by CR 76.38(2) within ten days of entry, but a petition for rehearing is unauthorized. CR 76.32(1).
This action arises from Jennie Kemp's allegation that between January and April 2006, her son, William Lennon, acting pursuant to a power of attorney, transferred funds in an amount exceeding $452,100.00 from various accounts in which Jennie held legal or equitable interests to accounts in the names of William and his wife, Laurie. In November 2006, Jennie filed a complaint against William in the Supreme Court, County of Oneida, State of New York. She sought an injunction and the return of the funds allegedly taken. The New York court subsequently entered a temporary restraining order enjoining William from transferring or otherwise disposing of any funds in specified accounts totaling $519,000.00.
All parties to the litigation were, at the time, residents of New York.
Jennie then sought to add Laurie Lennon, William's wife, to the action after she discovered that the funds may have been transferred to an account or accounts in which Laurie claimed an interest. The New York court followed up with a temporary restraining order enjoining Laurie from transferring or otherwise disposing of any funds in the principal amount of $452,120.00. An order was also issued and a hearing scheduled for William and Laurie to show cause why the restraining order should not be extended and why they should not be compelled to reveal the location of their bank accounts and security holdings.
While the court's restraining order was in effect, $767,000.00 was wire-transferred from an account maintained at Fidelity Investments in Laurie's name to a joint account maintained at the Rome Savings Bank. Also, $100,000.00 each day on four separate days was transferred from the Fidelity account in Laurie's name to the Rome Savings Bank joint account. The total amount transferred from the Fidelity accounts in April 2007, shortly after the restraining order was in effect, was $1,167,000.00. On April 17, 2007, $770,020.00 was wire-transferred from William's and Laurie's joint account at Rome Savings Bank to an unknown account. Ten days later, Laurie drafted and negotiated a check drawn on the Rome Savings Bank account in the amount of $400,000.00, payable to cash.
Laurie appeared at the May 9, 2007 show cause hearing. William was not present. The court questioned Laurie as to the location of the disputed funds. However, Laurie stated she would rather not answer until she had an attorney with her. The court agreed to schedule a hearing on June 6, 2007. The court ordered William to comply with outstanding discovery requests before June 1, 2007, and kept the temporary restraining order in place against William and Laurie. The court's orders were reduced to writing and served upon William and Laurie.
Neither Laurie nor William appeared, either personally or by counsel, at the June 6, 2007 hearing. Laurie was ordered to appear later that month, but failed to so, either personally or by counsel. William and Laurie were then ordered to appear on July 18, 2007 and show cause why judgment should not be entered against them. Counsel for each made an appearance, but neither filed any opposition or response to the court's show cause order.
On September 20, 2007, the New York court entered judgment against William Lennon for the principal sum of $452,120.00, and a judgment against Laurie Lennon for the principal sum of $431,000.00. The judgment provided that the $431,000.00 shall be enforceable jointly and severally.
While the New York litigation was progressing, a series of other transactions were taking place.
On May 31, 2007, a deed was executed by a third party conveying a house and lot located at 704 Sovereign Drive, Richmond, Kentucky, to Minnie Lennon, by and through her power of attorney, William Lennon. Minnie Lennon was William's paternal grandmother. She was 93 years old at the time the house was purchased. William attended the closing and signed the deed on behalf of Minnie. The deed reflects the consideration for the transfer was $380,000.00. William testified that the funds used to purchase the home were Minnie's funds. William and Laurie have resided at the house at Sovereign Drive since May 31, 2007. Minnie also resided there until her death in 2010.
One day prior to the closing on the Sovereign Drive property, Minnie executed a preprinted form trust conveying her interest in the Sovereign Drive property in trust to William, for the use and benefit of his children.
On July 16, 2007, Laurie established Bag of Bones Trust and named William the sole trustee. On that same date, Laurie organized Privateer Trading, LLC, as a Kentucky limited liability company. William was named as its agent for service of process. The sole member of the LLC was Bag of Bones Trust.
On July 26, 2007, Minnie executed a deed conveying the Sovereign Drive property to William, trustee, under the Bag of Bones Irrevocable Trust Agreement. The deed reflects a consideration of $380,000.00; however, in July 2007, the Trust did not have any assets with which it could have paid this amount.
In August 2007, William established a trading account with TD Ameritrade in the name of Privateer Trading, LLC. The initial cash deposit was $300,000.00. A short time later, an additional $935,000.00 was deposited into the Ameritrade account.
On October 15, 2007, William, acting as trustee of the Bag of Bones Trust, executed a promissory note and mortgage purporting to grant a first mortgage in the Sovereign Drive property to Privateer Trading, LLC. No payments were ever made by the Trust to the LLC under the promissory note.
The Ameritrade account held in the name of Privateer Trading, LLC, is William's and Laurie's sole source of income. They use numerous credit cards for bills, personal expenses, and cash advances. Payments of the credit card bills are made from the Ameritrade account. William and Laurie each drive a leased Mercedes automobile; however, neither William nor Laurie would disclose who or what entity makes the lease payments on their vehicles.
The New York judgment was domesticated in Kentucky in Madison Circuit Court, Civil Action No. 10-CI-1928, on November 24, 2010.
Jennie then filed a complaint in Madison Circuit Court on February 21, 2012. She described the transfers that occurred above to be fraudulent and sought to have the property at Sovereign Drive, which she believed was purchased with her funds, sold pursuant to court order as well as have her judgment lien be declared a valid first lien on the property. She later amended her complaint in January 2014 to account for certain transfers not included in her original complaint that were discovered after further investigation.
Not much occurred on the official court record until William and Laurie filed a motion to dismiss for lack of prosecution pursuant to CR 41.02 and CR 77.02(2) as well as a request to vacate the domesticated New York Judgment on May 7, 2015. The motion alleged that after they answered Jennie's first amended complaint on January 21, 2014, there followed a sixteen-month period of inactivity on the case. William and Laurie further urged that the New York judgment be set aside because it was essentially a default judgment, and they were deprived of the opportunity to defend themselves in the action.
Kentucky Rules of Civil Procedure.
Jennie responded to this motion, but also filed a motion for summary judgment, on May 14, 2015. Jennie argued that the motion to dismiss for failure to prosecute should be denied because delays in the proceedings were the result of the dilatory tactics of William and Laurie and their failure to cooperate with Jennie's discovery requests. Jennie detailed William's and Laurie's approach to the litigation in a memorandum attached to her motion for summary judgment. Jennie argued that the transfers from the Fidelity accounts were made with an intent to delay, hinder, or defraud her, and therefore, are void as to her pursuant to KRS 378.010.
Kentucky Revised Statutes.
The circuit court denied William's and Laurie's motion, but took the summary judgment motion under advisement. The court issued an opinion and summary judgment in favor of Jennie. The circuit court found that the badges of fraud noted in Russell County Feed Mill, Inc. v. Kimber, 520 S.W.2d 309 (Ky. 1975) were present in this case. The circuit court further noted that despite their testimony and production of certain documents, William and Laurie failed to produce any fundamental documentation or provide any explanation for the fate of the money missing from the Fidelity accounts. The circuit court found the transfer of a total sum of $1,167,000.00 out of the Fidelity accounts in April 2007 were transferred with an intent to defraud Jennie and, ultimately, that those funds were used to acquire the Sovereign Drive property and fund the TD Ameritrade account. The circuit court ordered that the Sovereign Drive property be sold and the proceeds distributed to Jennie in satisfaction of the New York judgment domesticated in Kentucky. Also, the court ordered garnishment of the funds in the TD Ameritrade account sufficient to satisfy Jennie's judgment.
William and Jennie then filed a CR 59.05 motion. They asked the court to vacate, in part, its previous order denying their motions as well as to vacate the opinion and summary judgment. The circuit court denied both of William's and Jennie's requests, although it did amend two paragraphs in the summary judgment. Appeal No. 2015-CA-001273-MR followed.
Motion to Recuse
Following Appeal No. 2015-CA-001273-MR, William and Laurie filed a motion for the circuit court judge to recuse from the case and vacate all previously entered judgments and orders. The motion, filed September 28, 2015, stated it was made pursuant to KRS 26A.015(2); it alleged that William and Laurie had just discovered that the circuit court judge was Facebook friends with persons involved in a criminal matter involving William Lennon. There was concern that the circuit court had seen a Facebook post made by the mutual friend in which the accused, William Lennon, was named. William and Laurie contend the circuit court must have seen the post, which was not favorable to William, and as a result, generated adverse feelings toward both William and Laurie, thereby explaining the ruling in favor of Jennie. The circuit court verbally denied the motion to recuse on October 1, 2015, and stated an order would follow.
KRS 26A.015(2)(a) mandates that a judge recuse if "he had personal bias or prejudice concerning a party, or personal knowledge of disputed evidentiary facts concerning the proceedings, or has expressed an opinion concerning the merits of the proceeding." KRS 26A.015(2)(a). The statute also demands recusal if the judge "has knowledge of any other circumstances in which his impartiality might reasonably be questioned." KRS 26A.015(2)(e).
William and Laurie filed an amended notice of appeal on November 17, 2015, stating that they were also appealing the circuit court judge's denial of their motion to recuse in addition to those orders named in their previous notice of appeal. However, a written order denying the motion to recuse had yet to appear on the circuit court record. The circuit court did eventually enter that written order on December 18, 2015. William and Laurie filed another notice of appeal resulting in Appeal No. 2016-CA-000026-MR, on January 6, 2016, identifying the December 18, 2015 order denying their motion to recuse as the order being appealed. William and Laurie argue to this Court that the circuit court judge should have retroactively recused and vacated all previously entered orders based upon the Kentucky Supreme Court's reasoning in Petzold v. Kessler Homes, Inc., 303 S.W.3d 467 (Ky. 2010).
In Petzold, the Kentucky Supreme Court adopted the retroactive recusal principles described in Liljeberg v. Health Services Acquisition Corp., 486 U.S. 847, 108 S.Ct. 2194, 100 L.Ed.2d 855 (1988), due to the virtually identical standards of judicial conduct regarding disqualification and recusal and nearly identical civil rules for vacating judgments between the state and federal systems. Liljeberg established a three-part test to address the issue of when a potentially disqualifying condition is discovered after entry of a judgment:
We conclude that in determining whether a judgment should be vacated for a violation of § 455(a), it is appropriate to consider the risk of injustice to the parties in the particular case, the risk that the denial of relief will produce injustice in other cases, and the risk of undermining the public's confidence in the judicial process.Petzold, 303 S.W.3d at 473 (quoting Liljeberg, 486 U.S. at 864, 108 S.Ct. at 2205).
The federal disqualification statute similar to KRS 26A.015.
As noted in Petzold, the disqualification statute and judicial canons guide judges and litigants prospectively regarding recusal on future proceedings. Consequently, because the unsuccessful parties in Petzold and Liljeberg were seeking retroactive recusals, they filed CR 60.02 motions (or in the case of Liljeberg, the federal equivalent of a CR 60.02 motion, Federal Rule of Civil Procedure, Rule 60(b)). CR 60.02 is the tried and true vehicle used to afford a party relief from a final judgment. However, William's and Laurie's motion to recuse was not filed pursuant to CR 60.02. In this case, William and Laurie simply filed a motion pursuant to KRS 26A.015(2) after an adverse, final judgment had been entered against them and after they had already filed a Notice of Appeal to this Court.
"First, we note that this court is required to raise a jurisdictional issue on its own motion if the underlying order lacks finality." Tax Ease Lien Investments 1, LLC v. Brown, 340 S.W.3d 99, 101 (Ky. App. 2011) (citation omitted). The order from which Appeal No. 2016-CA-000026-MR is taken lacks finality. Pursuant to CR 54.02, an interlocutory order such as one denying recusal only becomes appealable after a final judgment "adjudicating all the rights of all the parties in an action[.]" CR 54.01. The final judgment is "deemed to readjudicate finally as of that date and in the same terms all prior interlocutory orders . . . ." CR 54.02(2). A decision regarding recusal is interlocutory until a final judgment is entered. The issue then becomes merged with the final judgment, and then it is appealable.
"A notice of appeal, when filed, transfers jurisdiction of the case from the circuit court to the appellate court." City of Devondale v. Stallings, 795 S.W.2d 954, 957 (Ky. 1990). The civil procedural rules also require the notice of appeal to identify the final order or judgment being appealed. CR 73.03(1) ("The notice of appeal shall [. . .] identify the judgment, order or part thereof appealed from."). At the time William and Laurie filed their first notice of appeal on August 21, 2015, the final judgment identified was the summary judgment in favor of Jennie. A notice of appeal, like William and Laurie's January 6, 2016 filing, naming only an order denying a motion to recuse, a purely interlocutory, i.e. non-final and non-appealable, order, fails to invoke the jurisdiction of the appellate court. "Simply put, a notice of appeal naming only an order denying a motion to recuse, and not a final judgment, is fatally defective." Cassetty v. Commonwealth, 495 S.W.3d 129, 135 (Ky. 2016). The Notice of Appeal in this case named only the order denying a motion to recuse. Accordingly, we dismiss Appeal No. 2016-CA-00026-MR for lack of this Court's appellate jurisdiction.
The August 21, 2015 notice of appeal, 2015-CA-1273, also named orders denying William and Laurie's CR 59.05 post-judgment motions. When a party erroneously designates an order denying CR 59.05 relief as the order from which the appeal is taken in their notice of appeal, this Court considers the appeal properly taken from the final judgment that was the subject of the CR 59.05 motion. Tax Ease Lien Investments 1, LLC v. Brown, 340 S.W.3d 99, 103 n.5 (Ky. App. 2011).
We now turn to the remaining issues presented in Appeal No. 2015-CA-001273-MR.
William and Laurie argue that the circuit court erred in: (1) failing to grant their CR 41.02 and CR 77.02(2) motion for failure to prosecute; (2) refusing to vacate or set aside the September 2007 New York judgment domesticated in Kentucky in Madison Circuit Court, Civil Action No. 10-CI-1928; and (3) granting summary judgment in favor of Jennie.
Lack of Prosecution
William and Laurie filed their motion to dismiss for lack of prosecution pursuant to CR 41.02 and CR 77.02(2). The motion alleged that after they answered Jennie's first amended complaint on January 21, 2014, there followed a sixteen-month period of inactivity on the case. William and Laurie further maintain that CR 77.02(2) is instructive as to when it became appropriate for them to file their CR 41.02 motion. They argue that because CR 77.02(2) requires courts to review their dockets annually, sixteen months of inactivity is more than sufficient to warrant a dismissal for failure to prosecute. William and Laurie additionally assert there were earlier periods of inaction on the part of Jennie after her initial complaint was filed in February 2012. Furthermore, as to Jennie's assertion that William and Laurie frustrated her discovery efforts, they claim to have responded to the best of their abilities.
CR 41.02(1) provides: "For failure of the plaintiff to prosecute or to comply with these rules or any order of the court, a defendant may move for dismissal of an action or of any claim against him."
CR 77.02(2) provides: "At least once each year trial courts shall review all pending actions on their dockets. Notice shall be given to each attorney of record of every case in which no pretrial step has been taken within the last year, that the case will be dismissed in thirty days for want of prosecution except for good cause shown. The court shall enter an order dismissing without prejudice each case in which no answer or an insufficient answer to the notice is made."
In denying William's and Laurie's motion, the circuit court found that William's and Laurie's failure to disclose certain financial accounts and cooperate during discovery was at least part of the reason for the inactivity. The circuit court noted numerous motions filed by Jennie in the action to compel discovery as well as two separate orders requiring William and Laurie to comply with Jennie's discovery requests. Additionally, the circuit court found that the earlier period of inactivity complained of by William and Laurie from roughly September 2012 until July 2013 was not unreasonable and was followed by a delay caused solely by William's and Laurie's counsel. Their counsel had moved his office without filing a change of address notification in the record. Because their counsel had not received notices at his new address, William and Laurie failed to appear at scheduled depositions and failed to respond to a subsequent motion for sanctions. The circuit court even entered a default judgment in August 2013, which was later vacated upon William and Laurie showing they had not received the notices of the depositions or the motion.
Additionally, the circuit court found unconvincing William's and Laurie's contention that the delay in prosecuting the case made it more difficult for them to obtain the appropriate financial records. The circuit court observed that, at least since filing of the initial document requests in June 2012, William and Laurie should have known that the undisclosed financial records later uncovered by Jennie were relevant to the litigation.
The circuit court also recognized that dismissal of the complaint for failure to prosecute under CR 41.02 is an extreme sanction as it operates as an adjudication on the merits. It appeared to the court that dismissing Jennie's case without considering the motion for summary judgment that was filed simultaneously with her response to William's and Laurie's motion would be unfair. Based on the foregoing, the circuit court denied the motion to dismiss for failure to prosecute as well as their subsequent motion to vacate the order.
We review an appeal for dismissal pursuant to CR 41.02 for abuse of discretion. Jaroszewski v. Flege, 297 S.W.3d 24, 32 (Ky. 2009). A circuit court has abused its discretion if it has acted in a way which was arbitrary, unreasonable or unfair, or its decision is not supported by sound legal principles. Wildcat Property Management, LLC v. Reuss, 302 S.W.3d 89, 93 (Ky. App. 2009).
In their appeal, William and Laurie make arguments similar to those made in the circuit court. They again assert that the annual review process timeline for CR 77.02(2) provides support for their argument that sixteen months is long enough to justify granting a CR 41.02 motion. They assert a pattern of lengthy delays that can be traced back to the New York case. They claim to have provided the requested discovery information as promptly and as accurately as possible given that the information sought was rather dated.
When considering a CR 41.02(1) motion, all or some of the Ward factors may be instructive, but they are not mandatory where they are irrelevant to the particular case before the circuit court. Jaroszewski, 297 S.W.3d at 33 ("[W]e hold that the propriety of the trial court's ruling does not necessarily hinge on its discussing the six particular factors listed in Ward."). The circuit court, instead, need only "consider[ ] all relevant facts and circumstances [ ]" to determine whether the totality of the circumstances warrants dismissal with prejudice. Id. at 32-33. It is imperative then that the circuit court articulate its reasoning for its ruling so that "the parties and appellate courts will be properly apprised for the basis for" it. Id. at 36.
In Ward v. Houseman, 809 S.W.2d 717 (Ky. App. 1991), this Court articulated several factors to aid courts in determining when dismissal for lack of prosecution is appropriate. Those factors include: the extent of the party's personal responsibility for noncompliance; the history of dilatoriness; whether the attorney's noncompliance was willful and in bad faith; the merit of the claim; prejudice to the other party; and alternative sanctions. Id. at 719.
William's and Laurie's suggestion that CR 77.02(2) support the argument for a CR 41.02 order is immaterial to our review. "CR 41.02 and CR 77.02 serve different functions and thus have different and distinct requirements." Manning v. Wilkinson, 264 S.W.3d 620, 624 (Ky. App. 2007). Additionally, under CR 41.02, "[e]ach case must be considered in the light of the particular circumstances involved and length of time is not alone the test of diligence." Gill v. Gill, 455 S.W.2d 545, 546 (Ky. 1970).
Prosecution within the context of CR 41.02 "entails 'pursu[ing] the case diligently toward completion' or, in other words, actually working to get the case resolved—not just keeping it on a court's docket or occasionally working on the file without actively attempting to resolve the matters in dispute." Jaroszewski, 297 S.W.3d at 32 (footnote omitted). So, it is entirely plausible for the official court record to experience no activity while behind-the-scenes investigations or other events take place. Furthermore, "pursuing the case diligently until completion - involves, not only preparing one's own case, but also reasonably cooperating with the opponent's active attempts to prepare its case, such as responding timely to discovery requests." Id.
In this case, the record indicates that Jennie was pursuing her case despite William's and Laurie's history of repeated failure to provide the requested discovery. During this time of alleged inactivity, Jennie asserted that she was attempting to trace funds removed from the Fidelity Investment accounts. Jennie's memorandum attached to her motion for summary judgment provided a letter from William's and Laurie's counsel identifying certain bank accounts provided during discovery. However, missing from the list was Rome Savings Bank (and its successor-in-interest Berkshire Bank), an institution at which William and Laurie maintained financial accounts relevant to the case. Jennie also attached to her memorandum and motion an affidavit and bank statement showing that funds from the Fidelity account were transferred to William's and Laurie's account at Rome Savings Bank and almost immediately transferred out. As the circuit court observed, Jennie had filed numerous motions in the action to compel discovery resulting in two separate orders requiring William and Laurie to comply. Litigation involving their financial accounts with Jennie had been ongoing since 2006 in New York. The financial information sought during discovery was no surprise to either party. These circumstances support the circuit court's findings of absence of prejudice in addition to dilatoriness on the part of William and Laurie.
The court also recognized the severity of the sanction imposed by dismissal under CR 41.02 as well as Jennie's simultaneous motion for summary judgment filed in addition to her response to the CR 41.02 motion. In the interest of fairness to all parties, the court deemed it inappropriate to dismiss the case pursuant to CR 41.02 where there is potential merit to the underlying claim. This is a view we share.
Upon review of the record, the circuit court clearly considered the totality of the circumstances and set forth its reasoning for declining to dismiss Jennie's claims with prejudice for failure to prosecute. We cannot say the circuit court abused its discretion.
The New York Judgment
Next, William and Laurie contend that the judgment entered in New York in September 2007, then domesticated in Kentucky in 2010, should be set aside because they were deprived of the opportunity to defend themselves in the action. They characterize the New York judgment as a default judgment. William and Laurie further claim they retained counsel in New York and relied on their respective counsel to keep them informed and to fully respond to any filings in the action, but they were never informed of the various motions or show cause orders or their obligations thereunder.
Despite recognizing that William and Laurie had appeared in the New York court so that the judgment was not in the traditional sense a default judgment, the circuit court applied Sunrise Turquoise, Inc. v. Chemical Design Co., Inc., 899 S.W.2d 856 (Ky. App. 1995), and ultimately determined William and Laurie did not make the required showing under the law to set it aside. William and Laurie assert to this Court that the circuit court erred in its application of Sunrise Turquoise to the evidence. We disagree.
The New York court records that have been made a part of the certified record in this case on review show that Laurie personally appeared before Judge Anthony Shaheen of the New York Supreme Court (New York's court of general jurisdiction). Later, she is shown to have been represented before Judge Shaheen by Attorney Donald R. Gerace and William was being represented before that court by Attorney Leon R. Koziol. The New York judgment states that was entered "upon all of the prior pleadings and proceedings" including the appearances of the parties personally or by counsel. (R. 51). Further inference can be drawn that this was not a default judgment from the fact that New York rules of procedure allow that: "The court which rendered a judgment or order may relieve a party from it upon such terms as may be just, on motion of any interested person with such notice as the court may direct, upon the ground of: 1. excusable default, if such motion is made within one year after service of a copy of the judgment or order with written notice of its entry upon the moving party, or, if the moving party has entered the judgment or order, within one year after such entry . . . ." N.Y. C.P.L.R. 5015 (McKinney). If this was a default judgment, William and Laurie, nor their lawyers, took advantage of this year-long window to challenge it.
While a foreign judgment is subject to the same proceedings for vacating as any judgment of a court of this state, the judgment of a sister state is entitled to full faith and credit if the foreign judgment is valid under the laws of the sister state. Id. at 857-58 (Ky. App. 1995); Morrel & West, Inc. v. Yazel, 711 S.W.2d 501 (Ky. App. 1986). Trial courts possess broad discretion in considering motions to set them aside and we will not disturb the exercise of that discretion absent abuse. Howard v. Fountain, 749 S.W.2d 690, 692 (Ky. App. 1988) (citing Kidd v. B. Perini & Sons, 313 Ky. 727, 233 S.W.2d 255 (1950)).
For a party to have a foreign judgment set aside, it bears the burden to show that there is good cause to do so. Dant v. Progress Paint Mfg. Co., 309 S.W.2d 187 (Ky. 1958). "To show good cause requires the moving party to make a timely showing of the circumstances under which the default judgment was procured. Specifically, the moving party must show: (1) a valid excuse for the default; (2) a meritorious defense to the claim; and (3) absence of prejudice to the non-defaulting party." Sunrise Turquoise, 899 S.W.2d at 859 (emphasis added) (citing Perry v. Central Bank & Trust Co., 812 S.W.2d 166, 170 (Ky. App. 1991)). Should any element be lacking, the default judgment will not be set aside. Sunrise Turquoise, 899 S.W.2d at 859.
William and Laurie assert that they provided sworn testimony that their excuse for their default was that they hired counsel in New York and followed the advice of that counsel. They also claim a meritorious defense through documentary evidence. And lastly, William and Laurie argue that because Jennie has had ample opportunity to provide proof of her claims, but has failed to do so, they are the only parties who have been prejudiced.
The circuit court found that William's and Laurie's assertions regarding communication with their attorneys in New York to be contradicted by the record in those proceedings. The circuit court found that Laurie had attended a hearing in May 2007 at which the court ordered her to return in June and provide information regarding funds transferred out of her account. At the same hearing, in Laurie's presence, the court stated a deadline for William to provide discovery. The New York judgment provided that William's counsel represented to the court that he had moved from his New York residence and his whereabouts were unknown. Additionally, counsel for William and Laurie appeared in response to an order to show cause why judgment should not be entered against them and filed no opposition to it. Furthermore, they provided no documentation in support of their arrangement with their attorneys in New York. Based on the foregoing, the circuit court concluded that a bare assertion that William and Laurie thought their counsel was handling the New York litigation does not constitute a valid excuse under Sunrise Turquoise. We agree, and therefore, cannot say that this determination constitutes an abuse of discretion.
The circuit court also concluded William and Laurie did not demonstrate a meritorious defense to the New York action with documentary evidence. They failed to comply with discovery in the New York action and have never requested that the New York court set aside or vacate its judgment. The circuit court declined to consider any alleged documentary evidence that could have been presented, but never was presented, to the New York court.
William and Laurie, again, have essentially made the same arguments to this Court as they made to the circuit court. They have made the one general assertion: "The documentary evidence clearly shows that the funds allegedly taken were never deposited as claimed by Appellee and the only funds deposited into the designated account were voluntarily placed there by Appellee." (Appellants' brief, p. 15-16). This lack of specificity and failure to direct us to the record fails to convince us that the circuit court abused its discretion in concluding William and Laurie did not establish a meritorious defense to the New York lawsuit.
The final element under the Sunrise Turquoise analysis is absence of prejudice to the non-defaulting party. The circuit court found that it would be extremely prejudicial to Jennie to force her to re-litigate her claim eight years after entry of a judgment in her favor. We agree, and add that Sunrise Turquoise requires a timely showing of the three elements. William and Laurie continue to assert that Jennie has been the sole cause of any delay in the case resulting in prejudice to them; however, the record indicates otherwise. Accordingly, it was proper for the circuit court to deny the motion to set aside or vacate the judgment from the New York action.
Summary Judgment
Finally, William and Laurie assert the circuit court erred in granting summary judgment in favor of Jennie. Summary judgment serves to terminate litigation where "the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR 56.03. Our standard of review considers whether the circuit court made such a determination correctly. Carter v. Smith, 366 S.W.3d 414, 419 (Ky. 2012).
We must "view the evidence in the light most favorable to the nonmoving party," and we will only sustain the circuit court's grant of summary judgment "if it appears impossible that the nonmoving party will be able to produce evidence at trial warranting a judgment in his favor." Lewis v. B & R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001). "[S]ummary judgments involve no fact finding[.]" Associated Ins. Serv., Inc. v. Garcia, 307 S.W.3d 58, 61 (Ky. 2010). Our review is de novo. Id.
Before the circuit court, "[t]he moving party bears the initial burden of showing that no genuine issue of material fact exists, and then the burden shifts to the party opposing summary judgment to present" evidence establishing a triable issue of material fact. Lewis, 56 S.W.3d at 436. That is, "[t]he party opposing a properly presented summary judgment motion cannot defeat it without presenting at least some affirmative evidence showing the existence of a genuine issue of material fact for trial." City of Florence, Kentucky v. Chipman, 38 S.W.3d 387, 390 (Ky. 2001).
William and Laurie generally assert that Jennie's allegations are unsupported by the evidence, especially when viewed against the documentation and sworn testimony provided by them. We disagree.
William and Laurie argue that Jennie never demonstrated any funds were taken from her by them. They contend they provided documentary proof in their responses to Jennie's interrogatories of gifts of large sums of money made by Jennie to William and Laurie during the relevant time frame. They assert the money Jennie claims they stole were actually gifts. From 2002 through 2006, William testified that the monetary gifts from Jennie totaled more than $800,000.00. Of particular import are two letters attached as exhibits to William and Laurie's interrogatories. (R. 379-80). The letters are dated April 10, 2006 and April 21, 2006, and request transfers by Jennie of $20,000.00 and $375,000.00, respectively, into William and Laurie's Fidelity investment account. While these two documents do create a genuine issue of fact, it is not material to the matter now before us. We will only overturn a grant of summary judgment if we find the existence of a genuine issue of material fact. Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996). A material fact is one "that is significant or essential to the issue or matter at hand[.]" Black's Law Dictionary (10th ed. 2014).
This evidence is especially interesting in light of the testimony provided by William regarding his relationship with his mother. He explained that his mother was abusive to him when he was child, and after his parents divorced, he was raised by his grandparents. He did not see Jennie for several years. William testified that when his son was born, Jennie started coming around, calling, wanting to visit. He testified they had contact from 1996 until 2006. During this time, William testified that Jennie had given him gifts of large sums of money, furniture, vacations, and the like. But after an incident and confrontation that occurred on vacation between Jennie and William's son, William received a letter threatening a lawsuit from Jennie's attorney. Ultimately, Jennie filed suit in New York at the end of 2006.
It would have been in William's and Laurie's interest to present this documentation to the Supreme Court of New York to possibly prevent Jennie from obtaining a judgment against them. Having previously discussed why that judgment should not now be set aside, this Court, like the circuit court, will not consider evidence that could and should have been presented to the New York court, but was not. "[A] sister state's judgment is entitled to full faith and credit and to registration if the judgment is valid under that state's own laws." Sunrise Turquoise, 899 S.W.2d at 857-58 (citing Morrel & West v. Yazel, 711 S.W.2d 501, 502 (Ky. App. 1986)). Because Jennie obtained a valid judgment in New York against William and Jennie for the sums Jennie alleged they stole from her, whether the money was a gift from Jennie is immaterial to this review.
Again, if the New York judgment was a judgment by default as William and Laurie allege, they (or their attorneys) had a year from the entry of default judgment to inform the court and challenge the judgment under N.Y. C.P.L.R. 5015 (McKinney), as cited in footnote 10, supra.
The New York judgment found specifically that "the transfer of any liquid assets and/or accounts formerly held and maintained by or on behalf of [William and Laurie] at Fidelity Investments are null and void as to [Jennie], as such conveyance(s) and/or transfer(s) were made with the intent to defraud [Jennie] as potential creditor under the Debtor and Creditor Law of the State of New York[.]" (R. 52). This conclusion was based upon William's and Laurie's failure to comply with Jennie's discovery requests as well as their transferring or otherwise disposing of monies in their Fidelity Investment accounts in violation of the court's orders. By this time, William and Laurie had vacated their New York residence.
Jennie properly had the New York judgment domesticated in Kentucky in 2010. She recorded her judgment lien in Madison County on December 28, 2010, affecting all real estate in the county in which William and Laurie had any ownership interest. In her complaint and first amended complaint filed in Madison Circuit Court, Jennie detailed the transactions conducted by William and Laurie relevant to her claim and alleged such actions were void as to her pursuant to KRS 378.010. She requested her lien be declared a valid first lien on the Sovereign Drive property and that the property be sold in order to satisfy her judgment against William and Laurie. As Jennie pursued her case, despite William's and Laurie's dilatory conduct in response to discovery, she filed her motion for summary judgment, with a lengthy memorandum and relevant exhibits attached.
The motion alleged that the funds transferred from the Fidelity accounts were used to purchase 704 Sovereign Drive in Richmond, Kentucky, transferred to Bag of Bones Irrevocable Trust, and the remaining funds deposited into an Ameritrade stock trading account held in the name of Privateer Trading, LLC. Jennie maintained that these transactions were void as to her pursuant to KRS 378.010. The statute provides:
Kentucky's General Assembly enacted legislation which repealed and replaced the statute relating to fraudulent conveyances effective January 1, 2016. See FRAUDULENT TRANSFERS—DEBTORS AND CREDITORS, 2015 Kentucky Laws Ch. 37 (SB 204). The statute in effect at the time of the conveyance in this case, KRS 378.010, et seq., controls.
Every gift, conveyance, assignment or transfer of, or charge upon, any estate, real or personal, or right or thing in action, or any rent or profit thereof, made with the intent to delay, hinder or defraud creditors, purchasers or other persons, and every bond or other evidence of debt given, action commenced or judgment suffered, with like intent, shall be void as against such creditors, purchasers and other persons. This section shall not affect the title of a purchaser for a valuable consideration, unless it appears that he had notice of the fraudulent intent of his immediate grantor or of the fraud rendering void the title of such grantor.The law has identified a number of "badges" that indicate this fraud, including:
(1) where the transfer or conveyance is between persons who are related or occupy a confidential relationship.Russell County Feed Mill, Inc. v. Kimbler, 520 S.W.2d 309, 311-12 (Ky. 1975) (internal citations omitted).
(2) where the transfer or conveyance contains false statements and recitals as to consideration.
(3) where the transfer or conveyance is made by a debtor in anticipation of a suit against him or after a suit has begun or is pending against him. [A]nd
(4) where the transfer or conveyance is made by a debtor who transfers all or any appreciable part of his property when he is insolvent or financially embarrassed.
The badges of fraud are certainly present in this case. "Fraud may be inferred; circumstances may be shown of such character as to create inferences making peremptory demand for explanation." Commonwealth v. Filiatreau, 161 Ky. 434, 170 S.W. 1182, 1183 (1914). It is undisputed that the transfers from the Fidelity accounts were made when it was known to William and Laurie that Jennie, William's mother, was claiming an interest in those funds. The New York litigation had been ongoing for several months by the time the transfers occurred in April 2007, and William and Laurie ignored the court's restraining orders in effect at that time. In all, William and Laurie moved $1,167,000.00, unquestionably a substantial amount of money, from their Fidelity accounts in April 2007. In view of the litigation at the time, there would have been nothing to satisfy a judgment should Jennie have been able to obtain one.
William and Laurie continually assert that Laurie was unaware of the restraining order in effect at the time the April 2007 transfers occurred due to defective service. However, the record indicates that the order was served on her husband at her home when she happened to be out of town. In any event, William and Laurie were aware at the time that Jennie was claiming an interest in funds held in their accounts. The New York court determined the service was proper substituted service. (R. 23).
Additionally, Jennie attached to her summary judgment motion an affidavit from Rome Savings Bank indicating the Fidelity funds were initially transferred before they were removed to an unknown location. The affidavit provided that William and Laurie had a joint checking account at the Bank from March 9, 2007 through May 1, 2007. (R. 262). The Bank records indicated an incoming wire transfer on April 16, 2007, of $766,990.00, and an outgoing wire transfer of $770,020.00 on April 17, 2007, to an unknown destination; and Laurie wrote and negotiated a check for $400,000.00 made to cash on April 27, 2007. (Id.). The account was closed just a few days later. Jennie also attached to her motion a letter from William's and Laurie's counsel provided during discovery on January 22, 2014, listing financial institutions at which William and Laurie held accounts. (R. 267-69). Rome Savings Bank was not included on the list or ever disclosed by William and Laurie during the litigation.
Not long after the funds were transferred from the Fidelity accounts, William and Laurie purchased the home on Sovereign Drive through the guise of William's grandmother. The residence was then transferred to a trust, Bag of Bones Trust, of which William is the sole trustee. Bag of Bones Trust then executed a promissory note and mortgage purporting to grant a first mortgage in the Sovereign Drive property to Privateer Trading, LLC, of which it is the sole member. Accordingly, it can be inferred from these circumstances that William was in control of each of these transactions.
Moreover, the recitations of consideration for the transactions transferring the Sovereign Drive property from Minnie Lennon to the Trust to Privateer Trading have been shown to be suspect because William stated in his deposition that at the time the property was conveyed to the Trust it had no assets. There is also no evidence that any funds ever changed hands when the Trust executed the note and mortgage to Privateer Trading, LLC. The circumstances shown here by Jennie and the manner in which the transactions occurred raise an inference of fraud perpetrated by William and Laurie.
The deed indicates the transfer was made by gift, but that the estimated fair cash value of the gifted real estate was $380,000.00. Neither party indicates that the property was, in fact, a gift from Minnie Lennon to the Trust.
Based on the foregoing, William and Laurie were required to demonstrate that the transfers were fairly made without the intent to defraud Jennie. Magic City Coal & Feed Co. v. Lewis, 164 Ky. 454, 175 S.W. 992, 994 (1915) ("It was incumbent upon them, by reason of the attendance of badges of fraud, to meet and overcome them by proof, in order to uphold the conveyances sought to be set aside; and especially is this true where the transactions are inter familia.") (citations omitted). However, they have made no attempt to satisfy this burden.
William and Laurie failed to provide any explanation for what happened to the funds transferred from the Fidelity accounts. They do not dispute that the transfers occurred, but simply claim they do not know what happened to essentially all of their assets at the time. William testified in his deposition that he did not authorize any of the transactions and had no knowledge of the withdrawals, even though he apparently had no other accounts at the time. (William's Deposition p.61, 65-66). Laurie stated she made the withdrawals in April 2007, but she could not remember what she did with them. (Laurie's Deposition p. 4).
With regard to the transactions involving Minnie Lennon and the Sovereign Drive property, William's and Laurie's testimony reiterates their alleged ignorance. William testified that the funds used to purchase the residence on Sovereign Drive were his grandmother's. (William's deposition, p.36). And despite being present at the closing and operating as her power of attorney and executor of her estate, he had no knowledge of the source of the funds being used to purchase the home. (Id. at 37-38). He could not recall whether $380,000.00 was paid by Bag of Bones Trust under the deed from Minnie to the Trust, but also testified that at the time of the transaction in July 2007, he was not aware that the Trust had any assets. (Id. at 40-43). When questioned about the transactions involving Bag of Bones Trust and Privateer Trading, LLC, William stated he was only acting at the direction of his grandmother's attorney who drafted the documents in order to carry out her wishes. (Id. at 45-46). To his knowledge, there were never any payments made by Bag of Bones Trust to Privateer Trading, LLC, two entities of which he exercises control, on the mortgage loan. (Id. at 56- 57). William maintained he had no idea from where the money used to fund the Ameritrade account held by Privateer Trading, LLC, came. (Id. at 63-64). He later stated that it was possible that the $300,000.00 deposit into the Ameritrade account was the balance of his grandmother's inheritance after she purchased the Sovereign Drive property. (Id. at 89).
Again, the deed indicates that the land was a gift and no monetary consideration was given for the property.
William also speculated in his testimony that Jennie waited to have the action domesticated in Kentucky until after the death of Minnie in 2010 because Minnie would have been able to provide an explanation for transactions related to Sovereign Drive. William testified he no longer had any documentation or other evidence of his grandmother relating to the transactions.
In sum, William and Laurie are unable to overcome the inference of fraud with this evidence, even viewed in a light most favorable to them. "Such things as these occurring inter familia at such a time and under such circumstances as are here shown, call for more satisfactory explanations, for more candid testimony by the principals, and for a greater elaboration of the details of the transactions [ ... ] than was exhibited in this case." Commonwealth v. Filiatreau, 161 Ky. 434, 170 S.W. 1182, 1183 (1914). They are simply unable to explain or account for any of the approximately $1,167,000.00 that was removed from their Fidelity accounts in April 2007 when a court order prohibited them from doing so. They explain the series of transactions relating to Sovereign Drive as the wishes of William's deceased grandmother, but provide nothing further. Therefore, summary judgment in favor of Jennie was proper in "the absence of countervailing proof that the transfer or conveyance was made fairly and without intent to defraud the creditor." Russell County Feed Mill, Inc., 520 S.W.2d at 311. We find no genuine issue of material fact that would have prevented the Madison Circuit Court from granting summary judgment in favor of Jennie.
For the foregoing reasons, Appeal No. 2016-CA-000026-MR is dismissed and Appeal No. 2015-CA-001273-MR is affirmed.
ALL CONCUR. ENTERED: February 23, 2018
/s/_________
JUDGE, COURT OF APPEALS BRIEFS FOR APPELLANTS: John E. Davis
Lexington, Kentucky BRIEF FOR APPELLEE: Robert M. Pfeiffer
Lexington, Kentucky