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Middleton v. Sampey

Court of Appeals of Kentucky

June 16, 2017

EDWIN G. MIDDLETON, JR.; CHARLES G. MIDDLETON, III, AS CO-EXECUTOR OF THE ESTATE OF HUNTLEY L. MIDDLETON; AND CATHY REAGAN, AS CO-EXECUTOR OF THE ESTATE OF HUNTLEY L. MIDDLETON APPELLANTS
v.
JAMES J. SAMPEY; NANCY LAMPTON; HARDSCUFFLE INC., AND ITS SUBSIDIARY AMERICAN LIFE AND ACCIDENT INSURANCE COMPANY OF KENTUCKY APPELLEES

         APPEAL FROM JEFFERSON CIRCUIT COURT HONORABLE OLU A. STEVENS, JUDGE ACTION NO. 14-CI-006587

          BRIEFS FOR APPELLANTS: Charles G. Middleton, III Louisville, Kentucky

          BRIEF FOR APPELLEE Nancy Lampton: John S. Reed Michael W. Oyler Louisville, Kentucky.

          BRIEF FOR APPELLEE James J. Sampey: Donald J. Kelly Michelle D. Wyrick Louisville, Kentucky.

          BRIEF FOR APPELLEES Hardscuffle, Inc. and American Life and Accident Insurance Company of Kentucky: Jessica P. Corley Charles W. Cox Atlanta, Georgia.

          BEFORE: CLAYTON, DIXON, AND D. LAMBERT, JUDGES.

          OPINION

          DIXON, JUDGE.

         Edwin G. Middleton, Jr., and the estate of Huntley L. Middleton[1] appeal from an order of the Jefferson Circuit Court dismissing their claims against James J. Sampey, Nancy Lampton, Hardscuffle, Inc., and its subsidiary American Life and Accident Insurance Company of Kentucky. We affirm.

         Hardscuffle and American Life are closely held family corporations. American Life was incorporated in 1906 and engaged in the business of writing insurance policies. In 1990, American Life acquired Hardscuffle, which owned and operated a 313-acre farm in Oldham County, Kentucky. Lampton, the granddaughter of American Life's founder, has been the chairman and a director of both companies for many years. Appellants and Lampton are first-cousins, and Appellants are the remaindermen beneficiaries of four trusts ("Middleton Trusts") that own stock in the companies.[2] Sampey was a long-time officer and director in the companies, and he was the trustee of the Middleton Trusts from 1992-2009.

         In August 1999, American Life and Hardscuffle entered into a share exchange agreement, wherein American Life would become the wholly owned subsidiary of Hardscuffle. Appellants' mother, Mary Jane Lampton Peabody, was a member of the American Life board of directors, and she remained on the board after the share exchange. A private placement memorandum was distributed to American Life's shareholders detailing the terms of the agreement, indicating the board of directors supported the exchange, and advising shareholders of their dissenters' rights. The memorandum further advised shareholders that all stock options previously granted to executive officers, including Lampton and Sampey, would be converted into options for Hardscuffle stock.[3] In January 2000, Lampton and Sampey executed a shareholders' voting agreement to vote their personal shares as a block.

         Several years after the share exchange, Appellants filed a shareholder derivative action against Lampton and other board members alleging mismanagement of the companies. In July 2013, the Jefferson Circuit Court dismissed the derivative action without prejudice due to Appellants' failure to establish they made a pre-suit demand on the board of directors or that a demand would have been futile. In December 2014, Appellants filed a second lawsuit asserting direct claims against Lampton alleging she violated her fiduciary duties as a director of the companies. Appellants also asserted a claim against Sampey for breach of trust, contending he failed to disclose his voting agreement with Lampton, which was a conflict of interest and detrimental to the Middleton Trusts.

         Each of the Appellees moved to dismiss pursuant to CR 12.02(f), alleging Appellants' claims were time-barred, Appellants lacked standing, and the claims were precluded by collateral estoppel. The circuit court granted dismissal, and this appeal followed.

         A review of the court's order indicates it considered matters outside the pleadings in reaching its decision on the motion to dismiss. A trial court is free to consider matters outside the pleadings; however, doing so converts the request for dismissal into a motion for summary judgment. CR 12.02; McCray v. City of Lake Louisvilla, 332 S.W.2d 837, 840 (Ky. 1960). Accordingly, "[t]he standard of review on appeal of a summary judgment is whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law." Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996).

         "In instances where a trial court is correct in its ruling, an appellate court, which has de novo review on questions of law, can affirm, even though it may cite other legal reasons than those stated by the trial court. The trial court in that instance reached the correct result, and thus will not be reversed." Fischer v. Fischer, 348 S.W.3d 582, 589-90 (Ky. 2011). In the case at bar, the court's order addressed the issues of standing and collateral ...


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