APPEAL FROM FAYETTE CIRCUIT COURT HONORABLE PAMELA R. GOODWINE, JUDGE ACTION NO. 06-CI-03998
The opinion of the court was delivered by: Maze, Judge:
RENDERED: MARCH 1, 2013; 10:00 A.M.
BEFORE: KELLER, MAZE, AND MOORE, JUDGES.
Lexington Investment Company, Inc. and Mathew Stockham (collectively, "the Brokers") appeal*fn1 from an order and judgment by the Fayette Circuit Court denying their motion for sanctions and attorney fees against Randy
Willeroy (Willeroy) and his attorneys Cliff and Lynn Stidham (Stidham). The Brokers assert that Willeroy and Stidham brought an action against them without adequately researching the factual and legal basis for the claims. Consequently, they argue that the trial court abused its discretion by denying their motion for sanctions pursuant to Kentucky Rule of Civil Procedure ("CR") 11. But while Willeroy's claims against the Brokers were not successful, we conclude that he and Stidham had a reasonable basis for the claims at the time the action was filed. Hence, we affirm the trial court's denial of the Brokers' motion for sanctions.
The claims underlying this appeal arise from the management of the estate of Nancy Willeroy, who died on February 7, 2004. Her estate of $3,920,455 was left to her sons, Randy Willeroy and Jeff Willeroy. Her attorney, Gerry Calvert, and mother, Maxine Campbell, were appointed as the co-administrators of the estate. However, Calvert primarily managed the estate.
Shortly after Nancy Willeroy's death, Calvert opened an investment account with Morgan Keegan through its registered representative broker, Matthew Stockham. In April 2004, Stockham left Morgan Keegan and joined Lexington Investment Company. At Stockham's request, Calvert transferred the account to the new company. The account remained with the brokers through 2006 pending final settlement of Nancy Willeroy's estate.
During the course of conducting periodic settlements, Willeroy consulted with outside counsel, Cliff Stidham, who raised issues regarding management of the estate assets by the co-administrators, the Brokers and other professional advisors. In particular, he raised issues regarding payment of excessive compensation, improperly filed tax returns resulting in tax overpayments and penalties, and improperly invested estate assets resulting in substantial losses.
Stidham raised additional concerns about the management of the estate after the filing of the second periodic settlement in August of 2006. On August 30, 2006, Stidham sent a letter to Calvert raising these concerns. Stidham also noted that the applicable one-year statute of limitations period would run out on September 19, 2006. Stidham proposed that the parties enter into an agreement tolling the statute of limitations to allow further investigation. Stidham sent a similar proposal to the Brokers on September 12, 2006.*fn2
On September 14, 2006, the Brokers executed a tolling agreement and returned it to Stidham. However, Calvert did not execute an agreement. Consequently, on September 18, 2006, Willeroy brought this action against Calvert for professional negligence. Willeroy also asserted claims against the Brokers for unsuitable trading, failure to properly advise Calvert, and churning of the estate account.
Willeroy filed an amended complaint on November 1, 2006, adding additional parties and raising additional claims. Thereafter, the Brokers filed a motion to dismiss, arguing that Willeroy had failed to state a factual basis for his claims against them. The trial court denied the motion to dismiss on January 18, 2007, but indicated that summary judgment would be appropriate if the evidence established ...