Kentucky Tort Report (SCOKY) for Nov. 1 , 2007 (2007:52 )

Kentucky Tort Report (SCOKY) for Nov. 1 , 2007 (2007:52 )

Published Decisions

QUEENSWAY FINANCIAL HOLDINGS LTD V. COTTON & ALLEN
CIVIL PROCEDURE:  STATUTE OF LIMITATIONS, PROFESSIONAL NEGLIGENCE
2004-SC-000254-DG.pdf
PUBLISHED: AFFIRMING; OPINION WRITTEN BY -  NOBLE
DATE RENDERED:  11/01/2007

The Supreme Court affirms grant of summary judgment to Cotton & Allen, PSC, on statute-of-limitations grounds in this case of professional (accounting) negligence.

Queensway agreed to buy Paradigm Insurance. Under the agreement, Paradigm was to produce an audited financial statement as of 9/30/97, to be performed by CPA firm Collon & Allen. As part of the audit, Cotton & Allen was to review Paradigm's reserves. Before the purchase was concluded and before Cotton & Allen's report was delivered, Paradigm's general counsel and head of claims sent a memo to Queensway, in short, detailing changes needed in Paradigm's reserves. Cotton & Allen delivered its report thereafter on 12/16/97 (showing no problem with the reserves) and the deal was completed 12/31/97. When Queensway took over operations, Paradigm's reserves were adjusted upward by approximately $3.3 million as reflected in a memo from the general counsel dated 12/31/97. The Indiana Department of Insurance conducted an evaluation in 1998 questioning Paradigm's reserves and in 1999 ordered an upward adjustment of $6 million. On 2/11/00, Queensway filed suit against Cotton & Allen, alleging breach of contract and negligence in auditing the financial statements and asking for damages both as of the time of the purchase of Paradim and afterward. The issues at bar involve the accrual and discovery of the potential cause of action under KRS 413.245.

The Supreme Court holds that the action was, indeed, time-barred, but for different reasons than the lower courts held, i.e., the cause of action accrued at the time of purchase when Queensway overpaid for Paradigm. If the reserves were set too low, then the price paid for the company was too high. Also, that Queensway had to make a significant adjustment, and in essence suffered losses after havintg had the benefit of Cotton & Allen's audit report, should have put them on notice that something was wrong with the report. Cotton & Allen's report showed no problem with the reserves, yet within weeks of its delivery, Paradigm had to make significant adjustments to those reserves. Judgment affirmed.  

Digested by John Hamlet
Sitlinger, McGlincy, Theiler & Karem

DOLLAR GENERAL STORES, LTC V. SMITH
CIVIL PROCEDURE:  VENUE AND STATUTE OF LIMITATIONS AND SAVINGS PROVISION
2005-SC-000867-DG.pdf
PUBLISHED: 1051 AFFIRMING; OPINION WRITTEN BY -  LAMBERT
DATE RENDERED:  10/31/2007 

If you're the kind of person who can get excited about civil procedure, this case is for you. The SC addresses the issue of whether the savings provision in KRS 413.270 applies where the original forum dismissed a case on ground of forum non conveniens (FNC) and the claim was re-brought in another proper venue within the extended time allowed. On April 28, 2002, Ms. Smith was injured in a slip-and-fall on Dollar General's (DG) premises in Casey County. She filed suit on the last day of the one-year SOL in Jefferson County; there was no contention that Jeff. Co. lacked jurisdiction (JD) or was an improper venue, but the Jeff. Circuit Court dismissed the claim under FNC because the accident and injury occurred, and most of the witnesses resided in, Casey Co. Fifteen days after the dismissal, Ms. Smith filed in Casey Circuit Court, but by that time the SOL had run. She pled that the SOL was tolled under KRS 413.270, but the Casey Court held that statute was inapplicable and dismissed the case as time-barred. The Court of Appeals reversed, holding that KRS 413.270 was applicable to a case timely brought but previously dismissed on grounds of FNC. The majority of the SC affirmed this decision, with Justice Abramson concurring and Justice Minton dissenting.

KRS 413.270 provides for a 90-day savings period where claims are brought in a court having no JD and applies to claims brought "in due time and good faith" which are adjudged to have abeen brought in a court with "no JD." The SC notes that while the statutory language speaks to JD, it has long held that dismissal for improper venue also triggers the saving statute. D & J Leasing, Inc. v. Hercules Galion Prods., Inc., 429 S.W.2d 854; Shircliff v. Elliott, 284 F.2d 947 (6th Cir.). Shircliff held that in view of the remedial purpose of the saving statute and the frequent confusion of JD and venue, "JD" in KRS 413.270 should be broadly construed to achieve its remedial purpose.

DG argued that KRS 413.270 should be read literally, but the SC held that there is no reasonable explanation for the legislature to have acted to save claims brought in an improper JD, but denied the saving provision to claims brought in an improper venue. It concluded with the Shircliff court that the legislature used the term "JD" broadly to include the concept of place as well as the concept of power.

The SC then reviewed the Casey Co. order of dismissal with due regard for the basis of the Jefferson Co. order of dismissal, FNC. FNC was thoroughly considered in Beaven v. McAnulty, 980 S.W. 2d 284, where the SC granted a writ of prohibition holding that the trial court acted beyond its JD in transferring a civil action from the Jeff. Cir. Ct. to the Marion Cir. Ct. on grounds of FNC. Beavens held that Kentucky's doctrine of FNC only empowered a trial court to dismiss or stay an action before it, not to transfer it. Shortly after that case, the legislature adopted KRS 452.105, a statute mandating that a trial court transfer a case upon a determination that the venue selected was improper. The SC noted that this statute has been construed as requiring transfer rather than dismissal. The question remains, though, as to whether transfer is available upon a determination of FNC, and the SC held that it is. It noted that there is no fundamental distinction between venue and FNC: venue derives from a statutory mandate as to which county (or counties) is the proper place for a claim to be heard. FNC presupposes proper venue but posits that another county where venue would also be proper is a more convenient forum and calls for a discretionary ruling by a trial court to that effect. FNC is a subdivision of venue requiring the exercise of trial court discretion; the SC ruled that it must follow that a dismissal on the grounds of FNC would necessarily be a venue based dismissal resulting in applicability of the savings statute, KRS 413.270.

HERE'S THE BIG IDEA IN THIS CASE, AND I QUOTE: "Notwithstading language of Beaven to the contrary, in the future, cases should not be dismissed on the grounds of FNC." Remember it, write it down, take a picture.

Justice Minton dissented, noting that the proper role of the courts in interpreting statutes is to determine the intent of the legislature as expressed in "plain language" without resort to guessing about what the legislature intended. He therefore could not agree with the majority's assumption that when the legislature used the words "no JD" in KRS 413.270, it intended to conflate three distinct legal concepts--JD, venue, and FNC. He stated he felt it was time to clean up loose language by overruling certain precedents to the extent that imprecise use of those three legal terms has distorted the saving statute well beyond is express provisions. He finds no reason to assume the legislature meant FNC when it used the legal terms of "improper venue" in KRS 452.105 and "no JD" in KRS 413.270. He would construe the savings statute at issue, as well as the closely related transfer statute, according to the legal meanings of the terms used in the statutes and would overrule ambiguous authority to the contrary. He noted that the majority freely mixed legal concepts by equating JD with venue and improper venue with FNC, and he argued that the result contravenes the legislature's directive in KRS 446.080(4) that legal terms in statutes be construed by their "peculiar and appropriate meaning in the law." Finally, he noted that while some argue expanding the grace granted by the saving statute is good because more cases get "saved" from dismissal on SOL grounds, he would contend if the legislature wants to broaden the protection of KRS 413.270 to cases initially filed with the SOL in a court that ultimately declined to hear the case on FNC grounds, then the legislature can amend the statute or provide for it.

Justice Abramson concurred with the majority, in that she did not feel Ms. Smith should be punished for her counsel's reliance on the overly broad reading of the saving statute, but she stated that she felt the dissent reflects what she believes is the correct interpretation of the two statutes.

Digested by Cherry Guarnieri

COMMONWEALTH V. YAMAHA MOTOR MANUFACTURING CORP OF AMERICAN
CIVIL PROCEDURE: STANDING (GOVERNMENT CONTRACTS)
2005-SC-000979-DG.pdf
PUBLISHED: 395 AFFIRMING; OPINION WRITTEN BY -  LAMBERT
DATE RENDERED:  10/31/2007 

Held that participants in a bidding process for public contracts have sufficient interest to seek relief where the process is infected with fraud or dishonesty. To that end, a disappointed bidder or competitor may challenge the award of a public contract to another bidder upon a showing of fraud, collusion or dishonesty.  Standing requires that a party have "a judicially recognizable interest in the subject matter of the suit."  Enactment of the Kentucky Model Procurement Code (KMPC) effected substantial change. As recognized by this Court in the KMPC has changed the rules of the game, providing access not previously available to challenge and investigate the propriety of government purchasing contracts.

Digested by Michael Stevens

WITTEN, M.D.  VS. BONNIE PACK, ADMINISTRATRIX
MEDICAL NEGLIGENCE
2005-SC-000414-DG.pdf
PUBLISHED: REVERSING; OPINION WRITTEN BY -  SCOTT
DATE RENDERED:  10/31/2007 

The Supreme Court denies Edwards' petition for writ of prohibition that sought to bar the enforcement of the trial court's Order compelling Edwards to disclose proprietary business records of both his company that is a named party as well as non-party companies he also owned as sole partner, the Court ruling that such documents were discoverable from Edwards under CR 34.01 for both the party and non-party companies since all requested records were undeniably in the possession, custody or control of the party upon whom the request was served (Edwards).

Digested by Paul O'Bryan
O'Bryan and Denbow

Not Published Decisions

UNIVERSITY OF KY MEDICAL CENTER V. HON. GARY PAYNE
WRIT OF PROHIBITION; DISCOVERY
2007-SC-000256-MR.pdf
NOT TO BE PUBLISHED:
DATE RENDERED:  11/01/2007

SCHLAGEL V. SCHLAGEL
WRIT OF MANDAMUS; APPEAL SUPERSEDEAS BOND
2006-SC-000430-MR.pdf
NOT TO BE PUBLISHED
DATE RENDERED:  11/01/2007