Opinion
NO. 2013-CA-002115-MR
06-05-2015
EDWARD AND JOHANNA MEIMAN APPELLANTS v. KENTON COUNTY, KENTUCKY APPELLEES
BRIEFS FOR APPELLANTS: Ron R. Parry Cincinnati, Ohio BRIEF FOR APPELLEE: Roger N. Braden Luann Devine Florence, Kentucky
NOT TO BE PUBLISHED APPEAL FROM KENTON CIRCUIT COURT
HONORABLE MARTIN J. SHEEHAN, JUDGE
ACTION NO. 08-CI-01961
OPINION
AFFIRMING
BEFORE: ACREE, CHIEF JUDGE; DIXON AND J. LAMBERT, JUDGES. DIXON, JUDGE: Appellants, Edward and Johanna Meiman, appeal from an order of the Kenton Circuit Court dismissing their proposed class action for failure to join indispensable parties. For the reasons set forth herein, we affirm.
This matter stems from the implementation of KRS 91A.080, which authorizes local governments to impose and collect taxes and fees on the insurance premiums charged by insurance companies for the privilege of engaging in business in the Commonwealth. Although the statute provides that the tax may be imposed by the local government on the insurance companies, in practice such is typically passed along by the insurance companies to the policyholders. The insurance companies, therefore, essentially act as collection agents for the local governments that have enacted ordinances imposing a tax pursuant to KRS 91A.080. However, KRS 91A.080(4) authorizes insurance companies to retain a "reasonable collection fee" as compensation for collecting the taxes that are then remitted to the particular local government authority.
KRS 91A.080(4) provides in pertinent part: "The Department of Insurance shall, by administrative regulation, provide for a reasonable collection fee to be retained by the insurance company or its agent as compensation for collecting the tax, except that the collection fee shall not be more than fifteen percent (15%) of the fee or tax collected and remitted to the local government or two percent (2%) of the premiums subject to the tax, whichever is less."
On February 27, 2007, Kenton County adopted Ordinance 225.45 pursuant to KRS 91A.080, imposing a "license fee for the privilege of engaging in the business of insurance in Kenton County." The Ordinance further provides, in pertinent part:
The license fee imposed upon each company that issues any insurance policy shall be 8% of the premiums collected within each calendar year by reason of the issuance of such policies on risks located in Kenton County, specifically excluding the incorporated areas of [various cities]. . . .
On June 19, 2008, the Meimans, on behalf of themselves and a similarly situated class of plaintiffs, filed a complaint in the Kenton Circuit Court, alleging that Kenton County, as representative of a class of municipal defendants, improperly received insurance taxes under KRS §91A.080 from persons and entities who did not reside in or did not have insured risks in the unincorporated areas of the county as designated in the ordinance. The Meimans did not challenge the validity of Kenton County's ordinance but rather the manner in which the tax was being imposed and collected. The Complaint specifically alleged:
The defendant class was specifically defined as "those Kentucky Counties that have enacted an insurance premium tax pursuant to K.R.S. 91A.080 and which have located within their boundaries one or more incorporated areas that have not enacted an insurance premium tax."
14. Ordinances enacted by the Members of the Defendant Class impose the tax on the basis of the location of the risk. In other words, the tax can only be collected if the insured risk is located in the unincorporated area of the county that has imposed the tax. The tax is NOT imposed based upon the mailing address of the person billed for the insurance premium.The Meimans sought a declaration that Kenton County had no authority to receive and retain the tax on insurance risks not located in the unincorporated areas of such counties, as well as a mandatory injunction directing the county to invoke the audit provisions of KRS 91A.080(7).
15. When collecting the tax for the Defendant Class counties, pursuant to the provisions of K.R.S. 91A.080(4), many insurance companies (perhaps all insurance companies) collect the tax based upon the address to which the bill is sent rather than the location of the insured risk. If the bill is sent to a mailing address that is located within a Kentucky city that has NOT enacted its own tax, then the insurance company incorrectly assumes that the recipient of the bill must be required to pay the county tax.
KRS 91A.080(7) (a) provides:
Upon written request of the legislative body of any local government, at the expense of the requesting local government, which shall be paid in advance by the local government to the Department of Insurance, the Department of Insurance shall audit, or cause to be audited by contract with qualified auditors, the books or records of the insurance companies or agents subject to the fee or tax to determine whether the fee or tax is being properly collected and remitted, and the findings of the audit shall be reported to the local government and the insurance company subject to the audit. An insurance company may appeal the findings of the audit conducted under this subsection and any assessment issued pursuant to the audit findings in accordance with the provisions of KRS 91A.0804(5).
On August 26, 2008, the Meimans filed an amended class complaint adding Franklin County as an additional named defendant. The allegations mirrored those contained in the first complaint.
Nearly one year later, the Meimans moved to file a second amended class complaint. Therein, they alleged that KRS 91A.080 only authorizes the counties to impose a tax on the insurance companies, not on the policyholders. Thus, the Meimans claimed that the counties and the insurance companies were violating the statute by collecting the tax directly from the policyholders as a surcharge on their premiums. The Meimans sought a declaratory judgment and injunction prohibiting the collection from the policyholders of any taxes imposed pursuant to KRS 91A.080. Alternatively, the Meimans sought a declaratory judgment and injunction requiring the counties to provide an accounting of all insurance premium surcharges that had been collected based on insurance risks located outside of the unincorporated areas of each county.
Kenton and Franklin Counties thereafter filed motions opposing the second amended class complaint arguing, in part, that the insurance companies collecting the tax premiums were indispensable parties. On January 20, 2010, the trial court granted the Meimans' motion for leave to file their second amended complaint citing its long standing tradition "to liberally and freely grant parties leave to amend their pleadings[.]" Significantly, however, the trial court observed:
Both counties had previously raised the issue in their answers to the Meimans' complaints.
[A]t this juncture, it is the preliminary opinion of this Court that Plaintiffs' efforts to obtain the full measure of relief requested are hindered by the fact that the insurance companies have not been joined as parties to this action. The audit which Plaintiffs seek will ultimately place a huge and expensive burden on these insurance companies. . . . Is it just or equitable, or legal for that matter, to enter an order which has the effect of imposing such expense without first affording these companies an opportunity to be heard? That is a question which this Court must likely answer in the future.
Thereafter, the Meimans filed motions for class certification and for summary judgment. The parties did not brief the motion for class certification, agreeing that it should be held in abeyance pending the trial court's disposition of the Meimans' summary judgment motion. On May 13, 2010, the trial court entered an order wherein instead of ruling on the Meimans' motion, it held that the insurance companies, which collected and retained a percentage of the disputed taxes, were indispensable parties to the action:
[T]he Meimans seek declaratory relief which would prevent the insurance companies of this state from passing along to their policy holders various locally enacted insurance premium taxes. A ruling in
[Appellants'] favor would, in effect, require these insurance companies to deduct such taxes from their corporate bottom lines. The fiscal impact of such a ruling to these companies would be dramatic. Yet under the current posture of this case, these companies could be required to shoulder this burden without ever having been provided the opportunity to argue otherwise. That simply would not be fair.The trial court further recognized that while CR 21 authorized it to order joinder of the insurance companies on its own initiative, it did not have the "practical ability of identifying such parties to be named." The trial court explained:
Similarly, a ruling on [Appellants'] current motion could have the effect of denying the insurance companies of this state a source of income which is no doubt significant, i.e. the stipend they receive pursuant to statutes and regulations for collecting such taxes. In these circumstances, it is clear to this court that the insurance companies doing business within the Commonwealth who collected various insurance premiums enacted by local units of government are in fact indispensible parties to this action.
Plaintiffs, through discovery or otherwise, [are] far better equipped to identify such companies. At the same time, the Court does not believe it should thrust additional Defendants upon a party (the Meimans) who, for one reason or another, are unwilling to assert a claim against such Defendants. Thus, by this order, the ball will be placed squarely in the Meimans' court. They may continue to refuse to name the insurance companies as parties to this action. In such event, having decided that these companies are indispensable parties, this Court will have no recourse but to dismiss the herein action. Conversely, the Meimans can re-evaluate their position in this regard and join all parties necessary for a full adjudication herein.
On June 10, 2010, Appellants filed their third amended class complaint naming Allstate and Travelers Insurance Companies as representatives of a defendant class of insurance companies. By agreed order, AIC-Hartford and Standard Fire were substituted for Travelers. Thereafter, on July 16, 2010, Allstate Insurance Company removed the case to the United States District Court for the Eastern District of Kentucky. Allstate, AIC-Hartford, Standard Fire, and Franklin County then filed motions to dismiss, arguing that because the Meimans had not exhausted the administrative remedies provisions of KRS 91A.0804, the federal court did not have subject matter jurisdiction. The federal court agreed and, by opinion and order entered on February 21, 2011, granted all motions to dismiss. Subsequently, by order entered on August 8, 2011, the federal court ruled that with the dismissal of the defendants who had removed the action to federal court, it did not have jurisdiction to adjudicate the claims between the Meimans and Kenton County. Accordingly, the action was remanded to the Kenton Circuit Court. The Meimans did not appeal the federal court's rulings.
The July 15, 2008 amendments to KRS 91A.080 included the provision, "No legal action shall be filed by any party prior to the exhaustion of all administrative remedies provided under this section." KRS 91A.0804(8). Even though the Meimans' original complaint was filed in June 2008, the federal court ruled that the new claims against the insurance companies did not relate back to the date of the original complaint. As such, KRS 91A.804(2), which provides that "[t]he provisions of this subsection shall not apply to any refund or credit to an insurance company or policyholder or assessment by a local government that is affected by litigation pending on July 15, 2008[,]" was not applicable to the newly asserted claims.
On May 20, 2013, Kenton County filed a CR 12.02 motion to dismiss arguing that no justiciable controversy existed between the parties in the absence of the insurance companies and, as such, the Meimans' complaint failed to state a claim for which relief could be granted. On November 20, 2013, the trial court adopted and incorporated the federal court's ruling, and thereafter dismissed all claims with prejudice. In so doing, the Court noted:
[T]he Meimans find themselves in an impossible situation. The Court has previously determined that the action cannot go forward in the absence of the insurance companies, entities which it found to be indispensable in the herein action. The Court now finds that the insurance companies cannot be joined as defendants to the action because the Meimans failed to exhaust their administrative remedies as required by KRS 91A.0804. Likewise, and contrary to the Meimans' assertion, Kenton County cannot simply implead the insurance companies under CR 14.01. Kenton County is precluded from initiating a civil claim against the insurance companies for the same reason that the Meimans cannot join such companies, i.e. the July 15, 2008 amendments to KRS 91A.080 preclude such claims prior to the exhaustion of administrative remedies.
. . .
[G]ranting the relief sought by the Meimans would greatly prejudice the interests of the non-party insurance companies. Contrary to the Meimans' bare assertion, this Court simply cannot envision any means of avoiding such prejudice by crafting protective measures into the judgment. . . . Thus the Meimans find themselves stuck between a rock and a hard place. They cannot go forward in the absence of the insurance companies. They cannot now bring the insurance companies into this action. . . . Thus the Meimans are in fact left without a remedy for their asserted grievances.
At first blush this would appear to be an unduly harsh application of the law. Let us not forget, however, that no bar existed at the time the Meimans filed their original complaint in June 2008 against naming the insurance companies as defendants to this action. The Meimans consciously chose not to do so. As the U.S. District Court noted, the Meimans made a "calculated and firmly held decision not to name defendant insurers until forced
to do so by the state court." Likewise, the Meimans apparently have not availed themselves of the opportunity to challenge the actions of the insurance companies through the administrative procedures available to them under KRS Chapter 91A. Such circumstances tend to mitigate the harshness of this court's decision.The Meimans thereafter appealed to this Court.
On appeal, the Meimans argue that (1) the trial court erroneously relied upon CR 21 to force joinder of the insurance companies; (2) Kenton County did not properly raise the issue of failure to name indispensable parties; (3) the insurance companies were neither necessary nor indispensable parties to the litigation; and (4) KRS 91A.080(4) was inapplicable to their request for declaratory relief.
The Meimans first argue that the trial court erroneously relied upon CR 21 in ruling that it had the authority to join the insurance companies as parties on its own initiative. The Meimans contend that CR 21 seeks to prevent the dismissal of actions, but the trial court's reliance upon the rule to force the joinder of the insurance companies had the opposite effect, ultimately resulting in the dismissal of the action with prejudice.
CR 21, entitled "Misjoinder and nonjoinder of parties" provides:
Misjoinder of parties is not ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or of its own initiative at any stage of the action and on such terms as are just. Any claim against a party may be severed and proceeded with separately, in the discretion of the court.By its unambiguous terms, CR 21 vests discretion in the trial court to order, on its own initiative the joinder of parties at any stage. The rule is designed to maintain an action when a mistake has been made in misjoinder or nonjoinder of a party. See generally Marr v. Falls City Stone Co., 353 S.W.2d 390 (Ky. 1962). However, it does not apply if there is a failure to join a party under CR 19.01, since by definition no proper judgment could be entered in his or her absence. Kentucky Practice Series Rules of Civil Procedure, 6 Ky. Prac. R. Civ. Proc. Ann. Rule 21 (2014); see George v. Kentucky Alcoholic Beverage Control Bd., 403 S.W.2d 24 (Ky. 1966). To be clear, the trial court herein did not on its own initiative join the insurance companies, rather it placed the ball "squarely in the Meimans' court" to decide how to proceed. Nevertheless, the fact that the Meimans' action was ultimately dismissed does not undermine the trial court's exercise of its discretion on this issue.
The Meimans next argue that Kenton County failed to timely or properly raise the issue of whether the insurance companies were indispensable parties. The Meimans contend that they were not required to join the insurance companies because it was Kenton County, not the insurance companies, that enacted the ordinance imposing the tax, thus it was the county's burden to move the trial court for joinder if it wished the insurance companies to be parties to the action. In support of that position, Appellants rely upon Cabinet for Human Resources v. Kentucky State Personnel Bd., 846 S.W.2d 711, 714 (Ky. App. 1992), wherein a panel of this Court stated, "[w]hen one litigant believes there to be an indispensable party it should request the court to order joinder by the simple expedient of filing a motion. If the court concurs then service of process shall issue, but in any event, it should be accomplished by a pleading or motion and a brief is neither. CR 7.01." See also Tri-County National Bank v. Greenpoint Credit, LLC, 190 S.W.3d 360, 362 (Ky. App. 2006) ("[T]he party who believes an indispensable party should be joined has the obligation of filing the appropriate motion or other pleading with the trial court in an attempt to join that party.").
There is no dispute that neither Kenton nor Franklin County attempted to join the insurance companies. Further, it was not until the action was remanded from the federal court that Kenton County moved to dismiss for failure to join indispensable parties. However, in virtually every pleading beginning with the answer to the Meimans' original complaint, the counties argued that the insurance companies were indispensable parties. Contrary to the Meimans' position, the burden was not solely upon the counties to join the insurance companies or file a motion to dismiss for failure to name an indispensable party. As such, the trial court properly rejected the Meimans' argument that the only process recognized under Kentucky law placed the burden on the counties to formally move for joinder. Clearly, Kenton and Franklin Counties' pleadings sufficiently placed the Meimans and the trial court on notice of their position with respect to the insurance companies. Kentucky State Personnel Bd., 846 S.W.2d at 714.
In its May 13, 2010 order, the trial court pointed out that Franklin County, in settling other actions against it on the same issue, had agreed not to subject some insurers to further litigation concerning the tax. The trial court noted, "To adopt the Meimans' position in this area would thrust Franklin County into an untenable situation, requiring it to either allow this action to proceed without necessary parties or violate the terms of prior settlements by seeking joinder of the various insurance companies. The law does not require placing Franklin County in such a vexatious position."
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The Meimans next contend that the insurance companies were not necessary or indispensable parties under CR 19.01. The rule provides:
A person who is subject to service of process, either personal or constructive, shall be joined as a party in the action if (a) in his absence complete relief cannot be accorded among those already parties, or (b) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party. If he should join as a plaintiff but refuses to do so, he may be made a defendant, or, in a proper case an involuntary plaintiff. If the joined party objects to venue and his joinder would render the venue of the action improper, he shall be dismissed from the action.
A necessary or indispensable party that must be joined as a party to the action is "'one whose absence prevents the Court from granting complete relief among those already parties'" or "one whose interest would be divested by an adverse judgment." Liquor Outlet, LLC v. Alcoholic Beverage Control Board, 141 S.W.3d 378, 387 (Ky. App. 2004) (Quoting Milligan v. Schenley Distillers, Inc., 584 S.W.2d 751, 753 (Ky. App. 1979)); see also West v. Goldstein, 830 S.W.2d 379, 382 (Ky. 1992) ("The true meaning of 'all necessary parties,' [is] those persons whose interest would be divested by an adverse judgment."). In a similar vein, KRS 418.075, which governs declaratory judgment actions such as the instant matter, provides, "When declaratory relief is sought, all persons shall be made parties who have or claim any interest which would be affected by the declaration, and no declaration shall prejudice the rights of persons not parties to the proceeding."
The Meimans maintain that they are only challenging the imposition and retention of the tax by Kenton County. In fact, they contend it is Kenton County that directly imposes the tax upon the policyholders, and that the insurance companies act as mere conduits by collecting the tax from policyholders and remitting such. However, we find nothing in the language of KRS 91A.080 or Kenton County's ordinance to support such an interpretation. Moreover, it is evident from the Meimans' pleadings that they are, in fact, challenging the legality of the insurance companies passing the tax along to policyholders and/or improperly collecting the tax based on policyholder's zip codes rather than the location of the insured risk.
As the trial court noted, the Meimans seek declaratory and injunctive relief that would prohibit insurance companies doing business in Kentucky from passing along to their policyholders various locally-enacted insurance premium taxes. They further seek to require Kenton County to provide an accounting of all premium surcharges collected pursuant to KRS 91A.080 based on insured risks located outside the designated geographic boundaries. The purpose of that accounting is to calculate the amount of improperly collected tax and make "appropriate adjustments" among the policyholders, Kenton County, and the insurance companies that retained fifteen percent of those monies. As such, for the trial court to properly adjudicate the Meimans' claims, it would have to determine the validity of the insurance companies' collection practices. Furthermore, to grant the Meimans' request for a prospective injunction would necessarily be an exercise in futility as any order of the trial court would not be enforceable against the insurance companies in future litigation. Board of Education of Fayette County v. Taulbee, 706 S.W.2d 827, 829 (Ky. 1986). As such, we must conclude that the trial court properly found the insurance companies to be indispensable parties under CR 19.01. See Mills v. Buell, 685 S.W.2d 561 (Ky. App. 1985) (Association's presence [was] required for a fair adjudication of the appellees' claim).
Similarly, we find no merit in the Meimans' claim that the trial court failed to consider the factors set forth in CR 19.02, which provides:
If a person as described in Rule 19.01 cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensible. The factors to be considered by the court include: (a) to what extent a judgment rendered in the person's absence might be prejudicial to him or those already parties; (b) the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; (c) whether a judgment rendered in the person's absence will be adequate; (d) whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.When it is not feasible to join a party under CR 19.01, a trial court must analyze joinder under CR 19.02, which grants the trial court discretion in deciding "whether in equity and good conscience the action should proceed among the parties before it . . . absent [an indispensable party]."
Although the trial court did not specifically cite to this rule, it is evident that it did, in fact, consider the factors set forth therein. The trial court noted in its May 10, 2010, and November 20, 2013, orders that granting the relief sought by the Meimans would greatly prejudice the non-party insurance companies. The Meimans' characterization of the insurance companies as mere tax collectors simply ignores the fact that they retain fifteen percent of the monies collected. As noted by the trial court, the fiscal impact of requiring the insurance companies to deduct such from their corporate bottom lines would be significant. Further, the trial court specifically determined that there were no protective measures that would avoid such prejudice to the insurance companies. Even more significant is the fact the trial court recognized that any judgment entered in the absence of the insurance companies would not adequately afford relief to the existing parties. Clearly, any ruling prohibiting the insurance companies from continuing to pass along the tax to their policyholders would be wholly unenforceable. Finally, the trial court acknowledged that the Meimans were essentially without a remedy. However, for whatever reason the Meimans remained steadfastly against joining the insurance companies as parties, even after the trial court in its January 2010 order granting leave to file the second amended complaint indicated that the absence of the insurance companies was a concern. Accordingly, we conclude that the trial court did not err in finding the insurance companies to be indispensable parties and that their absence required dismissal of the Meimans' cause of action.
Finally, the Meimans argue that KRS 91A.0804 was inapplicable to their request for declaratory relief. Specifically, they contend that the exhaustion of administrative remedies should not have been addressed by the federal court or by the trial court because the insurance companies were not indispensable parties. Furthermore, the Meimans assert that KRS 91A.0804 is not even applicable because it merely sets forth the mechanism by which a claim for nonpayment, underpayment, or overpayment of fees can be resolved. The Meimans point out that nothing within KRS 91A.0804 addresses whether KRS 91A.080 permits local governments to impose a tax on policyholders.
Kenton County argues, and we must agree, that the Meimans have failed to preserve this issue for review. Clearly, they did not appeal the federal court's ruling that they failed to comply with the exhaustion of remedies provisions of KRS 91A.0804. Further, a review of the record confirms that the Meimans did not challenge the applicability of KRS 91A.0804 in this regard in opposing Kenton County's motion to dismiss. It is well settled that a trial court must be given the opportunity to rule in order for an issue to be preserved for appellate review. See Grundy v. Commonwealth, 25 S.W.3d 76, 84 (Ky. 2000). Because the Meimans did not preserve this argument for appellate review, we shall not address it herein.
For the reasons set forth herein, the order of the Kenton Circuit Court dismissing this matter for the failure to join indispensable parties is affirmed.
ALL CONCUR. BRIEFS FOR APPELLANTS: Ron R. Parry
Cincinnati, Ohio
BRIEF FOR APPELLEE: Roger N. Braden
Luann Devine
Florence, Kentucky