CHARLES R. SIMPSON, III, Senior District Judge.
This matter is before the Court on remand from the United States Court of Appeals for the Sixth Circuit to determine whether claim preclusion bars Plaintiffs Bruce and Les Kepley's ("Plaintiffs") breach of contract action. For the reasons set forth below, the Court concludes that claim preclusion bars Plaintiffs' action and will therefore grant the motion to dismiss.
The following facts are undisputed. Plaintiffs are former shareholders of A Technological Advantage, Inc. ("ATA"), a closely-held corporation incorporated in Kentucky. In 2004, while Plaintiffs were still shareholders, Defendant purchased one share of "Series A Convertible Preferred Stock" in ATA, and shortly thereafter executed an Investors Rights Agreement ("Agreement"). Among other things, the Agreement prohibited the sale of certain "Restricted Shares, " such as his Series A Convertible Preferred Stock, to any "person or entity acting as or owning an interest in any company licensed or operating... as a postsecondary or proprietary education school..." (Agreement, DN 18-1, at 3).
Nevertheless, in 2010, Defendant notified Plaintiffs that he intended to sell his share to Crimson Aero Holdings Corporation, a company operating as a postsecondary education school. In response, Plaintiffs filed a declaratory judgment action against Defendant in Jefferson County Circuit Court seeking a declaration that Defendant's proposed sale would violate the terms of the Agreement. Ultimately, however, Plaintiffs voluntarily dismissed the declaratory judgment action with prejudice, choosing instead to file the present action asserting a breach of contract claim based on Defendant's alleged anticipatory repudiation.
On December 17, 2010, Defendant filed a motion to dismiss based on lack of personal jurisdiction, forum non conveniens, and claim preclusion. (DN 10). On September 30, 2011, we granted the motion to dismiss on the ground that Plaintiffs' claim was derivative in nature such that they lacked standing under the "shareholder standing rule." (DN 24). On appeal, the Sixth Circuit reversed our decision and remanded for consideration of the limited issue of whether Plaintiffs' claim should be barred under the doctrine of claim preclusion. (DN 33). On July 1, 2013, we issued an order allowing the parties to supplement their briefs in light of the Sixth Circuit's recent decision in Ventas, Inc. v. HCP, Inc., 647 F.3d 291 (6th Cir. 2011). Having reviewed the parties' supplemental briefs and being otherwise sufficiently advised, the Court will now consider whether claim preclusion bars Plaintiffs' breach of contract action.
Defendant argues that Plaintiffs' anticipatory repudiation claim is barred under the doctrine of claim preclusion because Plaintiffs were required to raise it, if at all, in their voluntarily dismissed declaratory judgment action. In response, Plaintiffs have advanced three separate arguments. First, Plaintiffs argue that their anticipatory repudiation claim had not yet accrued at the time they filed the declaratory judgment action and that, because claim preclusion only bars causes of action which could have been brought in an earlier action, the declaratory judgment action should not be accorded preclusive effect with respect to their anticipatory repudiation claim. Second, Plaintiffs argue that, even if their anticipatory repudiation claim accrued prior to the filing of their declaratory judgment action, the so-called "declaratory judgment exception" to the doctrine of claim preclusion negates any preclusive effect that might otherwise be accorded the declaratory judgment action. Finally, Plaintiffs argue that, even if the declaratory judgment exception does not apply, the previous declaratory judgment action must not be accorded preclusive effect because it was dismissed with prejudice before factual findings had been made. In evaluating the merit of these arguments, the Court will address them each in turn.
i. Time of Accrual
According to Plaintiffs, their anticipatory breach claim did not accrue until after they had filed the declaratory judgment action when they suffered actual damages from selling their stock in anticipation of Defendant's proposed sale. Because claim preclusion only bars claims which could have been brought in an earlier action, Plaintiffs argue that the declaratory judgment action should not be accorded preclusive effect with respect to their anticipatory repudiation claim. As explained by Plaintiffs:
A claim does not accrue until the plaintiff suffers an actual harm. At the time of the filing of the [declaratory judgment] action, the [Plaintiffs] had not suffered any harm. The sole purpose of that action was to prevent the sale of the Share to Crimson, in an effort to avoid harm. Without having suffered any harm, the claims made in the present litigation not only should not have been brought in the prior litigation, they were precluded.
(Resp. to Mot. to Dismiss, DN 18, at 18).
Defendant responds by arguing that Plaintiffs' anticipatory repudiation claim accrued at the time of the repudiation, rather than at the time Plaintiffs sold their stock. Because he notified Plaintiffs of his intent to sell his stock on May 14, 2010, Defendant argues that Plaintiffs' anticipatory repudiation claim accrued well before the filing of Plaintiffs' declaratory judgment action on May 21, 2010.
Kentucky case law provides strong support for Defendant's position. In Royster v. A. Waller & Co., 217 S.W. 684 (Ky. 1920), the plaintiff recovered damages based on the defendant's anticipatory breach of his promise to sell and deliver corn to the plaintiff. Id. at 685. On appeal, the Kentucky Supreme Court considered whether the plaintiff could recover despite his failure to plead that he was ready, able, and willing to perform his part of the contract. Id. Ultimately, the court concluded that, because the plaintiff's action was based on anticipatory repudiation, which itself "amount[s] to a breach of the contract which ...