BRIEF FOR APPELLANT: Bert M. Edwards Louisville, Kentucky BRIEF FOR APPELLEE: Perry Adanick Kristin M. Lomond Louisville, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE JAMES M. SHAKE, JUDGE
ACTION NO. 12-CI-005071
VACATING AND REMANDING
BEFORE: COMBS, DIXON, AND VANMETER, JUDGES. COMBS, JUDGE: Katherine McCormick appeals the order of the Jefferson Circuit Court which dismissed her complaint. After our review, we vacate and remand.
On January 18, 2006, Mildred Becker granted her son, George Becker, power of attorney over her affairs. On the same day, Mrs. Becker executed her will bequeathing one-third of her estate to her daughter, Katherine McCormick. In 2009, George sold Mrs. Becker's real estate in New York. George contends that at the express direction of his mother, he placed the proceeds of that sale -- $400,000 -- in a joint account that he held with his mother. George had a right to survivorship in the account.
Mrs. Becker died on October 18, 2011. According to the provisions of her will, George was appointed executor of her estate. The estate was opened for probate in Jefferson District Court. When he filed the inventory, George did not include the bank account that held the proceeds of the real estate sale. It reverted to him automatically by virtue of its survivorship status without the legal necessity of recourse to probate. Nonetheless, McCormick filed a motion with the district court requesting an accounting of the estate. While no order is in the record, the district court apparently denied McCormick's motion for lack of jurisdiction.
George cites to the district court record many times throughout his brief, but it is not included in the record that is before this court.
Instead of filing an appeal in the Jefferson Circuit Court, on September 21, 2012, McCormick filed a complaint initiating an original action in Jefferson Circuit Court to demand an accounting of George's stewardship of the estate. George filed a motion to dismiss the complaint. The court granted his motion, finding that the complaint had not stated a claim that warranted relief. This appeal follows.
Becker's motion to dismiss was based on Kentucky Rule[s] of Civil Procedure (CR) 12.03, which provides for a party to make a motion for a "judgment on the pleadings." As construed by our Supreme Court, CR 12.03 is intended:
to expedite the termination of a controversy where the ultimate and controlling facts are not in dispute. It is designed to provide a method of disposing of cases where the allegations of the pleadings are admitted and only a question of law is to be decided. . . . The judgment should be granted if it appears beyond doubt that the nonmoving party cannot prove any set of facts that would entitle him/her to relief.
City of Pioneer Village v. Bullitt County, 104 S.W.3d 757, 759 (Ky. 2003). Whether the dismissal was proper is a question of law. Therefore, our review is de novo. Benningfield v. Pettit Environmental, Inc., 183 S.W.3d 567, 570 (Ky. App. 2005).
In her complaint, McCormick sought to require George to make an accounting of his transactions in his capacity as attorney-in-fact, impliedly asserting her right to demand an accounting. The circuit court indirectly addressed this issue in its discussion of her lack of standing, holding that McCormick had no justiciably cognizable interest in real estate that had ceased to exist before her mother's death.
We note that in her brief, McCormick has not disputed that the proceeds of the sale of the New York property were placed into a joint account held by Mrs. Becker and George with a right of survivorship. Again, the funds of such a joint account pass automatically to the surviving party unless "(1) there is clear and convincing evidence of a different intention at the time the account was created, or (2) . . . the depositor was not legally entitled to make such a disposition of the funds." Harris v. Rock, 799 S.W.2d 10, 12 (Ky. 1990). And again, such assets are not subject to probate. Kentucky Revised Statute[s] (KRS) 391.315; Spencer v. Estate of Spencer, 313 S.W.3d 534 (Ky. 2010). Thus, George argues that neither the district court nor the circuit court has jurisdiction to review the status of this non-probate asset. We will re-visit this issue later in the opinion.
McCormick's complaint and response to George's motion to dismiss both focus on the $400,000 proceeds of the sale of the real estate. However, throughout her appellate brief, McCormick argues that George intentionally committed conversion and the crime of misapplication of entrusted property pursuant to KRS 517.110. In her CR 59 motion heard on February 4, 2013, she reiterated her contention that George's actions amounted "to a misapplication of entrusted property which is a crime under KRS 517.110." In that same motion, she alleged error on the part of the circuit court in relying on KRS 395.515.
McCormick also contends that the court erred in determining that her action was barred by a two-year statute of limitations. The circuit court applied KRS 413.125, which provides that actions for the taking of personal property must be filed within two years of accrual. Because the real property was sold in April 2009, the court held that the statutory deadline for filing a lawsuit accrued in April 2011 - earlier than her filing of September 21, 2012.
Countering the holding of the circuit court as to the two-year statute of limitations, McCormick contends that the court should have applied KRS 413.120(7), which provides a five-year limit for actions not arising out of contract or not otherwise enumerated. In Ingram v. Cates, 74 S.W.3d 783 (Ky.App. 2002), this Court applied KRS 413.120(7) to actions alleging breach of a fiduciary duty. We agree with McCormick that the precedent of Ingram is more substantively pertinent to the case before us and that, therefore, the five-year statute of limitations of KRS 413.120(7) should govern. Although inartfully pled initially, her claim is essentially that of a breach of fiduciary duty.
The circuit court ultimately determined that it did not have jurisdiction because McCormick was proceeding pursuant to KRS 395.515 (which statute, as noted earlier, she challenged as error in her CR 59 motion). This statute was not referenced anywhere in McCormick's complaint (although she did acknowledge it in her response to George's motion to dismiss). However, in her CR 59 motion, she noted:
There was an error of law used by the Court. The Complaint was not based on KRS 395.515 and was not a suit to settle an estate. The Complaint does not ask for a settlement of the estate. The Plaintiff has alleged conversion of the money the Defendant got as a fiduciary.
KRS 395.515 was first raised by George in seeking a dismissal of the case in district court. George was correct in asserting that KRS 395.515 does empower a circuit court to hear cases - but only in settlement disputes. It also is specifically utilized for disputes in which estate assets are insufficient to satisfy its debts. Since no such allegation of insufficiency of funds existed here, the circuit court failed to find jurisdiction on this basis and accordingly dismissed the case. However, McCormick reminded the court in her CR 59 motion that her suit was not a settlement dispute.
Admittedly, confusion abounds as to the basis of the complaint, creating further confusion as to the jurisdiction of either district or circuit court in this matter. Nonetheless, we have attempted to sort through the various bases, statutes, and arguments -- either directly alleged or indirectly intimated.
At the threshold, we must address the issue of jurisdiction. KRS 24A.120(2) provides that a probate court enjoys exclusive jurisdiction in:
[m]atters involving probate, except matters contested in an adversary proceeding. Such adversary proceeding shall be filed in Circuit Court . . . and shall not be considered an appeal . . . .
When McCormick first sought an accounting in district court, George persuaded the district court that it lacked jurisdiction by contending that KRS 395.515 was the basis of the complaint. KRS 395.515 can only be litigated in Circuit Court. Based on that reasoning, McCormick should have filed an appeal to circuit court pursuant to KRS 23A.080, which provides:
A direct appeal may be taken from District Court to Circuit Court from any final action of the District Court.
Instead of invoking the appellate jurisdiction of the circuit court, McCormick opted to file an original adversarial proceeding in circuit court which, as noted in KRS 24A.120(2), "shall not be considered an appeal ...." As noted earlier, KRS 24A.120(2) and (3) allude to the fact that various probate-related matters that are adversarial in nature are expressly permitted by various statutes to be filed in circuit court. Among these is the filing of action alleging fraud or mismanagement of an estate as contemplated by KRS 395.510. In Priestley v. Priestley, 949 S.W.2d 594, 597 (Ky. 1997), our Supreme Court reasoned as follows:
. . . upon the filing of a claim pursuant to KRS 395.510 where acts of mismanagement, fraud or deception are alleged, the circuit court has jurisdiction to settle the estate and adjudicate all claims associated therewith. KRS 24A.120.
In the case before us, the circuit court was correct in holding that it did not have jurisdiction pursuant to an appeal. Nor did it have original jurisdiction pursuant to KRS 395.515, which pertains only to settlement disputes - as noted above. Again and significantly, George - not McCormick - raised this statute as the basis for dismissal in probate court by asserting it as a proper course of action that could only be filed in circuit court. Thus, the circuit court was correct in holding that it lacked jurisdiction pursuant to KRS 395.515. This was not a settlement controversy.
However, pursuant to Priestley, supra, the subject matter alleged in the complaint did come within the purview of KRS 395.510, a statutory matter in which the circuit court would indeed have jurisdiction.
This issue was not well pled in the complaint. However, as we have discussed, it was certainly intimated - albeit with a lack of specificity. Priestley discussed this very kind of failure to file a specific complaint pursuant to KRS 395.510 and held that strict compliance with statutory language was not fatal to the claim. Priestley scrutinized whether the essence of the claim was "consistent with statutory language and the relevant decisions." Finding such substantive and substantial compliance, Priestley held that the inarticulately stated claim should not fail.
Therefore, finding the reasoning of Priestley persuasive and pertinent, we hold that the court erred in declining to exercise jurisdiction in this matter alleging mismanagement and demanding an accounting. It may well be that it will dismiss on other grounds - such as failure to state a claim - once it has examined the matter without reference to KRS 395.515. However, we hold that the circuit court does have jurisdiction to entertain and adjudicate this original adversarial matter.
We vacate and remand for additional proceedings consistent with this opinion.
DIXON, JUDGE, CONCURS.
VANMETER, JUDGE, CONCURS AND FILES SEPARATE OPINION.
VANMETER, JUDGE, CONCURRING. I concur in the result reached by the majority opinion that this case is to be vacated and remanded to the circuit court to adjudicate McCormick's claim of breach of fiduciary duty. But I write separately to address two items.
First, in my view, KRS 395.510 and 395.515 should be read together, not separately as intimated by the majority opinion. KRS 395.510(1) establishes jurisdiction in the circuit court for a settlement action of a decedent's estate. Then, KRS 395.515 sets forth the requirements for the petition contents: "[i]n such an action the petition must state. . . . " As noted in the majority opinion, under circumstances very similar to those in the present case, the Kentucky Supreme Court held that these statutes permit the circuit court's exercise of jurisdiction when beneficiaries contest the actions of an attorney-in-fact who subsequently serves as fiduciary of the decedent's estate. Priestley v. Priestley, 949 S.W.2d 594 (Ky. 1997). The court stated:
Herein, appellants' claims are entirely consistent with statutory language and the relevant decisions. The decedent died intestate and appellants are his heirs at law. Their claims were brought against the decedent's administratrix asserting that she breached duties as a testamentary fiduciary by failing to recover for benefit of the estate sums which she herself had wasted or improperly diverted during her tenure as inter vivos fiduciary. Unlike appellee, we discern no fatal flaw by the absence of a judgment which declared that she defaulted as testamentary fiduciary. The determination that appellee breached inter vivos fiduciary duties is sufficient if sustained by the evidence and otherwise.
. . .
In the circumstances which prevailed here, appellee's interests were hopelessly in conflict. . . . While it was her duty as administratrix to marshal the assets of the estate and collect sums which might have been due the decedent for benefit of the estate (KRS 395.195), it was in her personal interest to ignore her own possible defalcation. . . . In our view, this question was sufficiently answered when the jury returned a verdict and the court entered judgment requiring appellee to repay substantial sums to the decedent's estate[.]
Id. at 597-98 (citations omitted). The only difference between this case and Priestley is that Mrs. Becker died testate. As residuary beneficiary of one-third of her mother's estate, McCormick certainly has standing under KRS 395.510 to bring this action.
Second, the majority opinion appears to accept the circuit court's conclusion of law that a "settlement suit" is "only appropriate in Circuit Court where there are insufficient funds in the estate to pay the debts of the decedent," citing Smith v. Louisville Trust Co., 237 S.W.2d 836 (Ky. 1951). Smith was one of a series of three reported cases, decided over a four-year period: (1) Smith v. Louisville Trust Co., 308 Ky. 189, 213 S.W.2d 987 (1948) ("Smith I"); (2) Louisville Trust Co. v. Smith, 313 Ky. 15, 230 S.W.2d 64 (1950) ("Smith II"); and (3) Smith v. Louisville Trust Co., 237 S.W.2d 836 (Ky. 1951) ("Smith III").
Smith I set forth the basic facts of the case: corporate fiduciaries, serving as administrators with will annexed, had essentially completed administration of the estate, marshaled the decedent's assets, paid all debts and taxes, and were ready to distribute the balance of the estate. Instead of making distribution, and filing a final settlement in the county court as then required, they withheld the payment of two charitable pecuniary bequests and requested the circuit court to settle the estate pursuant to Civil Code ("CC") § 428, subsequently codified as KRS 395.510. Based on the undisputed facts, and reading CC § 429 together with CC § 428, the court noted that the technical requirements of the code sections had not been met: the petition did "not state the amount of the debts, if any, the nature or value of the property, real or personal, of the decedent; neither does it aver that the personal estate is insufficient for the payment of all or any debts." Smith I, 308 Ky. at 193, 213 S.W.2d at 989. The court then proceeded to note the lack of any apparent controversy concerning the estate and that the fiduciaries "had only to file their settlement with the Judge of the Jefferson County Court." Id., 213 S.W.2d at 990.
1952 Ky. Acts ch. 84, §1. CC § 428 and KRS 395.510 are virtually identical.
CC § 429, the predecessor code provision to KRS 395.515, 1952 Ky. Acts ch. 84, §1, provided:
In such an action the petition must state the amount of the debts and the nature and value of the property, real and personal, of the decedent, so far as known to the plaintiff; and, if it shall appear that the personal estate is insufficient for the payment of all debts, and court may order the real property descended or devised to the heirs or devisees who may be parties to the action, or so much thereof as shall be necessary, to be sold for the payment of the residue of such debts.
Smith II then filled in a few of the blanks after the fiduciaries attempted to amend their petition to set up their controversy with the beneficiary, who was the decedent's surviving spouse. The court again affirmed the lack of circuit court jurisdiction, stating:
We have carefully considered the tendered amendment and find that it contains nothing additional which would justifiably bring it within the provisions of the Code. There does seem to be an attempt to set up the existence of a controversy between the parties, in that [administrators] had tendered to [the beneficiary] a proposed settlement of the estate which they intended to make, to which she registered some objections. We only ask, where would we be going, if, in the settlement of estates properly to be made in the county court, we should follow a rule for administrators to submit a proposed settlement to those interested, and merely
because of disapproval thereof, permit action to be brought in circuit court.[ ] It is the duty of the administrator to settle. One of the purposes of settlement in the county court is to give the parties interested an opportunity to file objections seasonably and properly. There is no reason why an exception should prevail in Jefferson County. This matter has been unreasonably prolonged. The settlement should be made as per the opinion in the former appeal.
Smith II, 313 Ky. at 16, 230 S.W.2d at 64-65 (emphasis added).
Under KRS 395.617, enacted in 1992, a fiduciary may now file a proposed settlement in the district court. See generally Maratty v. Pruitt, 334 S.W.3d 107, 110-11 (Ky. App. 2011) (discussing the four ways in which a probate estate may be settled: circuit court action, informal final settlement, proposed settlement, district court periodic or final settlement). At the time of the Smith decisions, informal final settlements and proposed settlements were not authorized by statute or Civil Code.
Notwithstanding the court's obvious impatience with the fiduciaries, and no doubt their counsel, they again attempted to file a settlement suit in the circuit court based on the "disputed questions" with the beneficiary. Smith III was the appellate decision resulting from the beneficiary's petition to enjoin the fiduciaries from filing further "settlement suits" in the circuit court. Reading the three Smith cases together makes clear the Court of Appeals' weariness with the matter, as indicated by its concluding passage:
Again we say this matter has been unreasonably prolonged.
The way has been opened and is now open for the final settlement in county court. Under two former opinions of this court appellees have been directed to make final settlement in the county court. Further unnecessary delay will be inexcusable.
The court below should have permanently enjoined the further prosecution of this second settlement suit.
Smith III, 237 S.W.2d at 837.
Smith III is unique in Kentucky jurisprudence in that no other reported Kentucky case appears to hold that "[o]ne of the basic requirements for such suit is that there be not sufficient personal estate for payment of the debts." Id. While Smith III seems to impose that requirement, reading the three Smith cases together reveals the court's frustration and leads to the conclusion that the statement in Smith III is merely dicta resulting from that frustration.
A plain reading of KRS 395.510 and 395.515 does not contain a filing requirement based on insufficiency of personal property. KRS 395.515, rather, provides "and, if it shall appear that the personal estate is insufficient for the payment of all debts, the court may order" real property to be sold (emphasis added). In 1964, furthermore, the legislature added language to the statute:
In such an action the petition must state the amount of the debts and the nature and value of the property, real and personal, of the decedent, so far as known to the plaintiff; if it appears that there is a genuine issue concerning the right of any creditor, beneficiary or heir-at-law to receive payment or distribution, or if it appears that there is a genuine issue as to what constitutes a correct and lawful settlement of the estate, or a correct and lawful distribution of the assets, such issues may be adjudicated by the court; and, if it shall appear that the personal estate is insufficient for the payment of all debts, the court may order the real property descended or devised to the heirs or devisees who may be parties to the action, or so much thereof as shall be necessary, to be sold for the payment of the residue of such debts.
1964 Ky. Acts ch. 105, § 1 (added provision italicized).
This addition, as well as more recent case law, e.g., Priestley., supra; Myers v. State Bank & Trust Co., 307 S.W.2d 933 (Ky. 1957), clearly give the circuit court jurisdiction to settle an estate when fraud, waste, and mismanagement are alleged, irrespective of the solvency of the estate. The continued viability of Smith III as a correct interpretation of KRS 395.515 must therefore be questioned.
In conclusion, I agree that this matter is to be vacated and remanded to the circuit court, because McCormick is entitled to attempt to prove her claims and not have her action dismissed for (a) lack of jurisdiction; (b) lack of standing; or (c) failure to file within the requisite statute of limitations. BRIEF FOR APPELLANT: Bert M. Edwards
BRIEF FOR APPELLEE: Perry Adanick
Kristin M. Lomond