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Everest Stables, Inc. v. Rambicure

United States District Court, W.D. Kentucky, Louisville Division

June 6, 2018



          Greg N. Stivers, Judge

         This matter is before the Court on Defendants Rambicure and Rambicure Law Group's Motion for Summary Judgment (DN 33), Defendant Miller & Wells, PLLC's Motion for Judgment on the Pleadings (DN 34), Defendant Zurich American Insurance Company's Motion to Dismiss (DN 98), Plaintiff's Objection to Magistrate Judge's Ruling (DN 60), Plaintiff's Renewed Motion to Compel (DN 61), Plaintiff's Motion for Summary Judgment (DN 77), Defendant Rambicure and Rambicure Law Group's Motions for Leave (DN 82, 84), and Plaintiff's Motion in Limine (DN 116). For the following reasons, Defendants Rambicure and Rambicure Law Group's Motion for Summary Judgment is GRANTED, Defendant Miller & Wells, PLLC's Motion for Judgment on the Pleadings is GRANTED, Defendant Zurich Insurance Company's Motion to Dismiss is GRANTED, Plaintiff's Objection is OVERRULED AS MOOT, Plaintiff's Renewed Motion to Compel is DENIED AS MOOT, Plaintiff's Motion for Summary Judgment is DENIED, Defendants' Motion for Leave to Amend is DENIED AS MOOT, Defendants' Motion for Leave to Seal is GRANTED, and Plaintiff's Motion in Limine is DENIED AS MOOT.

         I. BACKGROUND

         This action follows a dispute between Plaintiff Everest Stables, Inc. (“Everest” or “Plaintiff”) and Crestwood Farm Bloodstock, LLC (“Crestwood”) resulting in litigation (“Crestwood litigation”) which both the Eastern District of Kentucky and Sixth Circuit resolved in Crestwood's favor. See Crestwood Farm Bloodstock, LLC v. Everest Stables, Inc., 864 F.Supp.2d 629 (E.D. Ky. 2012) (Crestwood I); Crestwood Farm Bloodstock, LLC v. Everest Stables, Inc., 751 F.3d 434 (6th Cir. 2014) (Crestwood II). The Crestwood litigation centered upon a Purchase and Sale Agreement (“Agreement”) executed on November 4, 2008, to govern Crestwood's management of a series of sales in Kentucky of thoroughbred horses owned by Everest. (Second Am. Compl. ¶¶ 12-15, DN 87). The contested thoroughbred sales began in January 2009 and continued through September 2009, including the sale of one horse over Everest's objection and another sale that was blocked by a separate Everest agent. (Second Am. Compl. ¶¶ 27-34). Everest sought legal advice during this period from its Kentucky attorney, Defendant William Rambicure (“Rambicure”), who participated in drafting the Agreement. (Second Am. Compl. ¶ 30). Everest and its owner, Jeffrey Nielsen (“Nielsen”), allegedly believed at the time that the Agreement created a fiduciary and/or agency relationship between Crestwood and Everest. (Second Am. Compl. ¶¶ 15-16).

         In the Crestwood litigation, the U.S. District Court for the Eastern District of Kentucky held that the Agreement failed to create a fiduciary relationship, dismissed Everest's various tort law claims against Crestwood, and ruled in Crestwood's favor on the breach of contract claims. See Crestwood I, 864 F.Supp.2d at 634, 639-42; see also Crestwood II, 751 F.3d at 439-44 (affirming the decision in Crestwood I). Following Judge Caldwell's decision in Crestwood I, and before Everest's appeal to the Sixth Circuit, Everest fired Rambicure in April 2012. (Second Am. Compl. ¶ 35). Shortly after the Sixth Circuit affirmed Crestwood I, Everest and Rambicure signed a tolling agreement on September 11, 2014. (Defs.' Mem. Supp. Mot. Summ. J. 23, DN 33-1 [hereinafter Defs.' Mot. Summ. J.]). Everest filed this suit against Rambicure, Rambicure Law Group (jointly, “Rambicure Defendants”), and Miller & Wells, PLLC (“Miller Wells”)[1] on July 1, 2015.

         In the present action, Everest asserts against Rambicure Defendants claims of legal malpractice, negligent representation, breach of fiduciary duty, and breach of contract. (Second Am. Compl. ¶¶ 63-88). Everest claims that Rambicure advised that Everest could set a minimum bid[2] for a filly named Chase the Storm, [3] which Crestwood presented for auction on behalf of Everest at Keeneland's September 2009 Yearling Sales. Rambicure admits that he told Everest that it had the legal right to RNA Chase the Storm, which it did by setting a minimum price of $1.5 million. When auction bidding topped out at $875, 000, Everest cancelled the sale and retained the horse. Crestwood, however, maintained that it was entitled to a commission of $219, 000[4] based on the highest auction bid and prevailed on this claim in the Crestwood litigation. See Crestwood I, 864 F.Supp.2d at 636, 642. Everest now asserts that it should recover the commission amount from Rambicure due to his professional negligence, in addition to the net sales price Everest would have received from the cancelled sale, and $272, 000 for attorneys' fees Everest was required to pay to Crestwood in the prior action. Everest further maintains that Rambicure negligently drafted the Agreement so that it failed to impose fiduciary duties on Crestwood in the marketing of Everest's horses. (Second Am. Compl. ¶¶ 69, 72).

         Everest has also asserted a claim for breach of contract against Miller Wells under the theory that the law firm agreed to provide Rambicure insurance coverage for Everest's malpractice claim when Rambicure associated with the firm and that Everest was a third-party beneficiary of that agreement, in addition to claims for fraud and negligent misrepresentation. (Second Am. Compl. ¶¶ 89-109, 117-21).[5] Further, Everest asserts claims against Zurich for breach of its insurance contract with Miller Wells, bad faith, fraud, conspiracy to commit fraud, and negligent misrepresentation. (Second Am. Compl. ¶¶ 110-16, 122-40).

         In the present motions, Rambicure Defendants move for summary judgment on Plaintiff's claims, Miller Wells moves for judgment on the pleadings, Zurich has moved to dismiss for failure to state a claim, and Plaintiff moves for summary judgment on its claims against Rambicure Defendants. (Defs.' Mot. Summ. J., DN 33; Def.'s Mot. J. Pleadings, DN 34; DN 98; Pl.'s Mot. Summ. J., DN 77). In addition, Everest objects to the Magistrate Judge's ruling regarding documents which Zurich has claimed as privileged and moves to compel discovery. (Pl.'s Obj., DN 60; Pl.'s Mot. Compel Disc., DN 61). All matters are ripe for decision.


         The Court has subject matter jurisdiction over this action under 28 U.S.C. § 1332 as there is complete diversity between the parties and the amount in controversy exceeds the sum of $75, 000.00.


         A. Rambicure Defendants' Motion for Summary Judgment (DN 33)

         Rambicure Defendants seek summary judgment on Plaintiff's claims against them on various bases including, inter alia, that the claims are barred by the applicable statute of limitations. (Defs.' Mot. Summ. J. 19-25). Of course, in ruling on a motion for summary judgment the Court must determine whether there is any genuine issue of material fact that would preclude entry of judgment for the moving party as a matter of law. See Fed.R.Civ.P. 56(a). The moving party bears the initial burden of stating the basis for the motion and identifying evidence in the record that demonstrates an absence of any material factual dispute. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If the moving party satisfies its burden, the non-moving party must then produce specific evidence establishing the existence of a genuine issue of fact for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).

         While the Court must view the evidence in light most favorable to the non-moving party, the non-moving party must do more than merely show the existence of some “metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (citation omitted). Rather, the non-moving party must present specific facts proving that a genuine factual issue exists by “citing to particular parts of the materials in the record” or by “showing that the materials cited do not establish the absence . . . of a genuine dispute.” Fed.R.Civ.P. 56(c)(1). “The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party].” Anderson, 477 U.S. at 252.

         1. Statute of Limitations

         First, Rambicure Defendants assert that the Court should dismiss Everest's legal malpractice claim based on the applicable statute of limitations, KRS 413.245.[6] (Defs.' Mot. Summ. J. 19). Everest maintains that its malpractice claim did not accrue until the Sixth Circuit's ruling in Crestwood II became final and was tolled by the subsequent tolling agreement. (Pl.'s Resp. Defs.' Mot. Summ. J. 26-32, DN 55 [hereinafter Pl.'s Resp.]).

         “To determine when or if a cause of action for legal malpractice accrued, ” courts “look to the relevant statute of limitations, KRS 413.245.” Doe v. Golden & Walters, PLLC, 173 S.W.3d 260, 270 (Ky. App. 2005). KRS 413.245 provides that an action for professional services negligence “shall be brought within one (1) year from the date of the occurrence or from the date when the cause of action was, or reasonably should have been, discovered by the party injured.” In a recent decision, the Kentucky Court of Appeals explained:

“Occurrence, ” as used in KRS 413.245, is synonymous with “cause of action[.]” “[T]he use of the word ‘occurrence' in KRS 413.245 indicates a legislative policy that there should be some definable, readily ascertainable event which triggers the statute.” The so-called “triggering event” is “the date of ‘irrevocable non-speculative injury.'” An “occurrence” legal malpractice claim is ripe, and a cause of action has accrued, when both negligence and “reasonably ascertainable” damages have occurred.

Saalwaechter v. Carroll, No. 2015-CA-001799-MR, 2017 WL 1290620, at *4 (Ky. App. Apr. 7, 2017) (alteration in original) (internal citations omitted) (citation omitted).

         With regard to the “occurrence” statute of limitations, Rambicure Defendants note that the allegedly negligent drafting of the Agreement occurred in 2008. (See Defs.' Mot. Summ. J. 2-3; Defs.' Reply Supp. Mot. Summ. J. 8, DN 59). Rambicure Defendants further posit that Everest's claimed damages from the handling of the horse sales by Crestwood in 2009. (Defs.' Mot. Summ. J. 6-7). At that point, they argue, Rambicure's supposed malpractice had occurred and the damages were fixed and non-speculative. See Michels v. Sklavos, 869 S.W.2d 728, 730 (Ky. 1994) (stating that a cause of action for legal malpractice accrues “where negligence and damages have both occurred . . . .” (internal quotation marks omitted) (quoting Nw. Nat'l Ins. Co. v. Osborne, 610 F.Supp. 126, 128 (E.D. Ky. 1985))); Queensway Fin. Holdings Ltd. v. Cotton & Allen, P.S.C., 237 S.W.3d 141, 147 (Ky. 2007) (holding that the occurrence limitations period is triggered by an “irrevocable non-speculative injury . . . .” (internal quotation marks omitted) (citing Michels, 869 S.W.2d at 730)). Thus, according to Rambicure Defendants, the statute of limitations began to run upon completion of the horse sales in 2009, but in any case no later than the Crestwood I decision in March 2012, and would have expired long before the present action was filed in 2015. (Defs.' Mot. Summ. J. 6-8).

         Rambicure Defendants' argument ignores the triggering event which fixed the damages arising from the drafting of the Agreement and the horse sales. In this regard, there is a crucial distinction between Everest's claims against Crestwood and its claims against Rambicure Defendants. Everest's losses attributed to Crestwood were triggered by the horse sales in 2009-at that time any damages from improperly marketing the horses could have been calculated. By contrast, Everest's claims against Rambicure are that his poor drafting of the Agreement prevented Everest from recovering from Crestwood-an outcome that was not evident until the finality of the Crestwood litigation. At that point, Everest was foreclosed from recouping its claimed losses from Crestwood, which established for the first time the damage suffered by Everest from the failure of the Agreement to impose fiduciary duties upon Crestwood. These are the losses Everest now blames on Rambicure, losses which became irrevocable and non-speculative only at the close of the prior litigation. See Queensway Fin. Holdings Ltd., 237 S.W.3d at 147 (citation omitted). As a result, the statute of limitations did not begin running on the malpractice claim until the Crestwood litigation became final.[7] See Michels, 869 S.W.2d at 728 (legal malpractice claim arising from the attorney's representation in a wrongful discharge lawsuit did not accrue until the termination of the underlying suit); Alagia, 882 S.W.2d at 125-26 (legal malpractice claim did not accrue until the amount owed to the IRS was determined through negotiations, which fixed the damages); Meade Cty. Bank v. Wheatley, 910 S.W.2d 233, 235 (Ky. 1995) (attorney's failure to disclose an outstanding mortgage in a title opinion constituted malpractice which loss “was not realized as damages until the sale of the property . . . .”).

         This Court is mindful of the Kentucky Supreme Court's closing remarks in Pedigo v. Breen, 169 S.W.3d 831 (Ky. 2004), where it stated:

This case well illustrates the desirability of strictly construing the occurrence rule and requiring that all tort elements be fully developed. As in Alagia, Trautwein & Smith v. Broadbent, Hibbard v. Taylor, and Michels v. Sklavos, sound public policy is best served by allowing parties an opportunity to seek mitigation of damages by pursuit of the underlying claim, and by leaving the professional negligence claim open until the underlying claim is concluded.

Id. at 834; see also Taracido v. Perez-Abreu, Zamora & De La Fe, P.A., 705 So.2d 41, 43 (Fla. Dist. Ct. App. 1997) (“The existence of legal malpractice is often difficult to ascertain. A client should not be placed in the position of having to file a potentially baseless claim prematurely fearing that otherwise an action will be precluded by the statute of limitations. Thus we hold that a cause of action for legal malpractice based upon a prior transaction accrues at the conclusion of subsequent litigation between the client and a third party.” (citations omitted)). Consistent with the Kentucky Supreme Court's directive, the statute of limitations on Everest's legal malpractice claim did not begin to run until the Sixth Circuit's decision in Crestwood II became final-i.e., when the mandate issued on June 5, 2014. Everest and Rambicure entered into a tolling agreement on September 11, 2014, which was within the one-year statute of limitation and stayed further passage of the limitations period. Accordingly, Everest's assertion of its legal malpractice claim was timely when filed on July 1, 2015. The motion for summary judgment based on the statute of limitations will therefore be denied.

         2. Collateral Estoppel

         Rambicure Defendants also assert that they are entitled to summary judgment based on collateral estoppel.[8] (Defs.' Mot. Summ. J. 10-19). Ordinarily, federal law governs the preclusive effect of a prior federal-court judgment. Taylor v. Sturgell, 553 U.S. 880, 891 (2008) (citation omitted); J.Z.G. Res., Inc. v. Shelby Ins. Co., 84 F.3d 211, 213-14 (6th Cir. 1996). But where, as here, the prior case comes to federal court under diversity jurisdiction “federal law incorporates the rules of preclusion applied by the State in which the rendering court sits.” Taylor, 553 U.S. at 891 n.4 (citing Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001)). Accordingly, Kentucky's collateral estoppel law is incorporated with federal common law.

         “Under collateral estoppel, once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation.” Montana v. United States, 440 U.S. 147, 153 (1979) (citations omitted). For collateral estoppel to operate as a bar, the movant must show that: (1) the issue in the second case is the same as the issue in the first case; (2) the issue was actually litigated; (3) the issue was actually decided in the prior action; and (4) the decision on the issue in the prior action was necessary to the court's judgment. Yeoman v. Commonwealth Health Policy Bd., 983 S.W.2d 459, 465 (Ky. 1998) (citing Restatement (Second) of Judgments § 27 (1982)); see also Ga.-Pac. Consumer Prods. LP v. Four-U-Packaging, Inc., 701 F.3d 1093, 1098 (6th Cir. 2012) (citations omitted). Further, Kentucky law holds that collateral estoppel “applies only if the party against whom it is sought to be applied had a realistically full and fair opportunity to litigate the issue . . . and if principles of justice and fairness would be served by its application.” Berrier v. Bizer, 57 S.W.3d 271, 281 (Ky. 2001) (citations omitted).

         Rambicure Defendants argue that Everest cannot prove the causation element of its malpractice claim because the Crestwood litigation effectively resolved the matter of damages and liability. (Defs.' Mot. Summ. J. 10, 12-19). They assert that collateral estoppel prevents Everest from re-litigating previously adjudicated claims of third-party liability under Kentucky's “suit within a suit” approach to legal malpractice cases. (Defs.' Mot. Summ. J. 10-19). Everest contends in opposition that collateral estoppel does not apply because this case differs from Crestwood I, as the case at bar focuses on Rambicure's negligent legal work, and does not require a showing of “third-party liability, ” nor does it require overruling the Crestwood litigation decisions. (Pl.'s Resp. 20-23). Everest explains that a “suit within a suit” is unnecessary because the claimed ...

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