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Standard Retirement Services, Inc. v. Kentucky Bancshares, Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

September 24, 2014



DANNY C. REEVES, District Judge.

This declaratory judgment action is pending for consideration of the motions to dismiss filed by defendants Kentucky Bancshares, Inc. ("Kentucky Bank"), Stoll Keenon Ogden PLLC ("SKO"), and Sharon Mattingly. [Record Nos. 4, 6] Plaintiff Standard Retirement Services, Inc. ("Standard") opposes the motions. [Record Nos. 8-9] Standard also moves the Court to disqualify defense counsel due to an alleged conflict of interest and to suspend the Court's summary judgment determination until the motion to disqualify has been considered. [Record Nos. 20, 21] For the reasons discussed below, the defendants' motions will be granted and the plaintiff's motions will be denied.


The controversy arises following the termination of the Kentucky Bancshares, Inc. Retirement Plan and Trust (the "Plan"). [Record No. 1, p. 5] Standard provided retirement, ministerial, and actuarial services for Kentucky Bank, including those concerning the Plan. [ Id. ] Standard also assisted Kentucky Bank and its legal counsel, SKO, when Kentucky Bank endeavored to terminate the Plan. [ Id. ] The Plan terminated on December 31, 2008. [Record No. 4-1, p. 2]

In its capacity as federal regulatory agency, the Pension Benefit Guaranty Corporation ("PBGC") audited Kentucky Bank's Plan termination. [Record No. 4-1, p. 2] On April 8, 2011, following an administrative proceeding, PBGC issued a determination letter summarizing its findings and identifying several problems with the termination method. [Record No. 1, p. 3] Kentucky Bank was directed to distribute approximately $1.3 million in additional assets to Plan participants. [Record No. 4-1, p. 2] At that time, Kentucky Bank and Standard agreed to toll any potential claims regarding the Plan termination. [Record No. 1, p. 6] Kentucky Bank requested that PBGC reconsider its decision; however, on May 9, 2012, PBGC issued a final determination affirming its initial findings. [ Id. at p. 4] On May 23, 2013, PBGC filed suit against Kentucky Bank in this Court, demanding that Kentucky Bank distribute the additional assets. [ Id. ] See Pension Benefit Guar. Corp. v. Ky. Bancshares, Inc., 2014 U.S. Dist. LEXIS 34224 (E.D. Ky. 2014). SKO represented Kentucky Bank in the action, which has been dismissed on summary judgment and affirms PBGC's determination. [Record No. 4-1, p. 3] Pension Benefit, 2014 U.S. Dist. LEXIS 34224 at *30. Standard was not made a party to the action between PBGC and Kentucky Bank. [ Id. ]

On January 27, 2014, Standard initiated this action under 28 U.S.C. § 2201. [Record No. 1, p. 1] The plaintiff seeks a declaration that it is not liable to Kentucky Bank for defense costs or judgment imposed in the earlier action or, in the alternative, that Standard is entitled to indemnification from SKO and Mattingly for any liability. [ Id. at p. 7] Thus, the declarations require a determination of liability and indemnity.[1] Because an indemnity adjudication would derive from a finding of liability, the Court will consider the issues together. The defendants assert that a declaratory judgment action to litigate non-liability is impermissible under federal law. As a result, they have moved the Court to dismiss this matter for lack of subject-matter jurisdiction. [Record No. 4-1, p. 4] The defendants also argue that the issues are not ripe, pending a determination by this Court in the PBGC action. [Record No. 4-1, p. 6] However, as the earlier action was dismissed on summary judgment grounds in May, 2014, this argument is moot.[2] Pension Benefit, 2014 U.S. Dist. LEXIS 34224.


Kentucky Bank and SKO move this Court to dismiss for lack of subject matter jurisdiction. This case unquestionably meets the basic standard for diversity jurisdiction under 28 U.S.C. § 1332. Each defendant is a citizen of the Commonwealth of Kentucky and the plaintiff is a citizen of Oregon. [Record No. 1, p. 3] Further, the amount in controversy exceeds $1.3 million. [ Id. ]

However, even when a claim otherwise satisfies subject matter prerequisites, district courts retain discretion to determine "whether and when to entertain an action under the Declaratory Judgment Act." Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995). The Declaratory Judgment Act, 28 U.S.C. §§ 2201 et seq. (the "Act"), provides that "any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a). The Act "confers discretion on courts, not rights on litigants, " and the "propriety of issuing a declaratory judgment may depend on equitable considerations." American Home Assurance Co. v. Evans, 791 F.2d 61, 64 (6th Cir. 1986) (citing Green v. Mansour, 474 U.S. 64 (1985)). Thus, this Court is under no compulsion to exercise jurisdiction.

The Sixth Circuit has articulated five factors to guide a district court in determining whether to exercise jurisdiction under the Act. Those factors are whether:

1. the declaratory action would settle the controversy;
2. the declaratory action would serve a useful purpose in clarifying the legal relations in issue;
3. the declaratory remedy is being used merely for the purpose of procedural fencing' or to provide an arena for a race for res judicata; '
4. the use of a declaratory action would increase friction between our federal and state courts and improperly ...

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