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Reynolds v. Randolph

Court of Appeals of Kentucky

October 26, 2018



          BRIEFS FOR APPELLANTS: Michael S. Bailey Barboursville, West Virginia.

          BRIEF FOR APPELLEE SUSAN RANDOLPH: John F. Vincent Ashland, Kentucky.

          BRIEF FOR APPELLEE PAMELA POTTER: W. Mitchell Hall, Jr. Alexis O. Gonzalez Ashland, Kentucky.

          BRIEF FOR APPELLEE GARIS PRUITT: David Latherow Ashland, Kentucky.



          JONES, JUDGE.

         The Appellants, David T. Reynolds II, Whitney Rose Reynolds, Amanda Kathryn Reynolds Harper, Terry Clayton Reynolds, and Elysha Marie Reynolds, bring this appeal as a matter of right. Having reviewed the record in conjunction with all applicable legal authority, we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

         I. Background

         Tragically, on December 15, 2003, David T. Reynolds was killed in a trucking accident. Reynolds died intestate. He was survived by his wife, Susan D. Randolph, and the Appellants, his five children.[1] The Boyd District Court appointed Randolph as the fiduciary of Reynolds's Estate. Randolph hired Pamela Potter ("Attorney Potter") to represent her in administering Reynolds's Estate. Randolph also hired Garis Pruitt ("Attorney Pruitt") to pursue a wrongful death action on behalf of Reynolds's statutory beneficiaries, Randolph and the five Appellants.

         Attorney Pruitt filed a wrongful death claim against: (1) the seatbelt manufacturer, Indiana Mills & Manufacturing, Inc. ("Indiana Mills"), and (2) Freightliner, LLC ("Freightliner"), the truck manufacturer. The claim against Indiana Mills was settled before the claim against Freightliner. Even though the wrongful death statute is clear that wrongful death proceeds are not part of the decedent's estate, Attorney Pruitt sought and obtained approval from the district court to settle the Indiana Mills action for $325, 000 and to distribute the proceeds of that settlement.[2] The settlement proceeds were forwarded to Attorney Pruitt. Attorney Pruitt deposited the funds into his IOLTA[3] account. He then set about distributing the funds. He did so as follows: $108, 333.33 to himself for attorney's fees; $75, 000 to satisfy a workers' compensation subrogation lien; $16, 029.70 to Reynolds's Estate for litigation expenses it advanced for the wrongful death action; and $3, 342.94 for outstanding litigation costs owed to counsel. Before making a distribution to the statutory beneficiaries, Attorney Pruitt withheld $50, 000 for future litigation expenses he expected to incur in connection with the wrongful death claim pending against Freightliner. From the original $325, 000 settlement, Attorney Pruitt calculated that a total of $72, 293.99 was left for distribution to Randolph and the five Appellants. In accordance with Kentucky's wrongful death statute, KRS[4] 411.130(2)(b), Randolph was entitled to one-half of that amount, $36, 146.98, and the Appellants were entitled to a pro-rata share of the other one-half, which amounted to approximately $7, 229.40 each.

         Attorney Pruitt avers that he instructed his bookkeeper/paralegal, Ronda Nixon, to prepare the checks for distribution. On or about April 22, 2005, Nixon sent Attorney Potter an email attaching images of six checks from Attorney Pruitt ready for distribution to Randolph and the five Appellants. It is unclear why Attorney Pruitt's office directed the email to Attorney Potter. She was only hired to represent Randolph in her capacity as administrator of Reynolds's Estate. She did not represent any of the statutory beneficiaries. It is likewise unclear how Attorney Pruitt planned to actually deliver the checks to the beneficiaries. In any event, in the end, only Randolph received a distribution from the Indiana Mills settlement.

         Instead of dispersing the funds to the Appellants, Nixon converted them for her own use. It appears that after Nixon sent the email to Attorney Potter, she altered the checks made out to Appellants to make herself the payee and then cashed them. Nixon was apparently able to accomplish her subterfuge due, in part, to the considerable responsibility Attorney Pruitt gave her over the firm's finances. Nixon was Attorney Pruitt's only employee. She served as both a paralegal and a bookkeeper. Attorney Pruitt allowed Nixon access to the firm's bank accounts, and she was also responsible for balancing the firm's books. Over a period of time, Nixon embezzled approximately $100, 000 from Attorney Pruitt and his law firm.[5]

         In early October 2006, Attorney Pruitt reached an agreement to settle the wrongful death claim against Freightliner for $165, 000. While Appellants never received their share of the wrongful death settlement obtained from Indiana Mills, they eventually received a portion of the Freightliner settlement. However, the process through which this was accomplished is confounding to say the least. Even though KRS 411.130 requires wrongful death proceeds to be paid directly to the statutory beneficiaries, it took over six years for the Appellants to receive their share of the Freightliner settlement. This delay was largely created because Attorney Pruitt treated the wrongful death proceeds as assets of Reynolds's Estate.

         On October 18, 2006, Attorney Pruitt filed a motion with the district court. Therein, Attorney Pruitt represented that after paying his attorney fees, $54, 112.50, and case expenses owed to his firm and others, a total of $41, 319.41 from the Freightliner settlement remained available for distribution. Instead of paying this amount directly to the statutory beneficiaries as clearly required by the wrongful death statute, Attorney Pruitt paid the entire sum to Reynolds's Estate for division "among the heirs as required by law when final settlement is accomplished with creditors."[6]

         For reasons that are not entirely clear from the record, no action was taken for the next three years. At some point, Appellants retained counsel to represent their individual interests. In the summer of 2009, Appellants moved the district court to hold a status conference. The purpose of their motion was to determine why Appellants had never received any distribution from the wrongful death settlements. At this point, Attorney Pruitt finally revealed that Nixon had stolen the Indiana Mills settlement funds from his trust account before they were delivered to Appellants. In pertinent part, Attorney Pruitt stated:

I believed at the time that all of the money was sent to the heirs, but it now appears except for that amount sent to Susan Reynolds [Randolph], none was. The evidence is Nixon took it all. I have filed suit against her on behalf of my firm and my clients who were harmed. So far she refuses to appear at a deposition although she did file a general denial. We continue to attempt to prosecute that case. Even when we obtain a judgment it is likely to be a very long shot at being collectible. We stand ready to provide anything the Court may want or need in terms of such records we have. Although legally we do not have liability for her theft we will continue to attempt to recover anything we can for our clients and will cooperate in any manner the Court requires.

         Following a hearing on the motion for a status conference, the district court entered an order directing Randolph to record the missing funds from the wrongful death settlement as "debt against the Estate." It then ordered the probate matter "to be held in abeyance pending outcome of any civil/criminal action." This order was entered on July 13, 2009. The pending actions referred to by the district court were apparently the federal criminal action pending against Nixon in the United States District Court for the Eastern District of Kentucky and Attorney Pruitt's civil action against Nixon.[7]

         Shortly thereafter, following additional research, Attorney Potter realized that Attorney Pruitt should not have made the proceeds from the Freightliner wrongful death settlement payable to Reynolds's Estate. Attorney Potter acknowledged that Reynolds's Estate had to turn over the wrongful death proceeds Attorney Pruitt incorrectly transferred to it. To this end, in correspondence to Appellants' counsel, Attorney Potter indicated that she was going to seek guidance from the district court as to how the Freightliner proceeds should be distributed.[8] However, Attorney Potter resisted Appellants' efforts to make Reynolds's Estate liable for Appellants' portion of the Indiana Mills settlement. Attorney Potter explained to Appellants' counsel several times that the Estate had not received any funds from the Indiana Mills settlement, had no right to the funds, and was not responsible for making sure Appellants received their statutory share of the Indiana Mills settlement. Nevertheless, over the course of the next three years, it appears that Appellants, through their retained counsel, continually attempted to recoup the wrongful death proceeds owed to them from Reynolds's Estate.[9]

         Eventually, Attorney Potter, acting on behalf of Randolph in her capacity as administrator, sought approval from the district court to distribute the remaining assets in Reynolds's Estate, including the Freightliner wrongful death settlement proceeds Attorney Pruitt paid into the Estate. Confusingly, the proposed settlement and accounting listed the Indiana Mills settlement as a "receivable distributed to the children" from the Estate. This filing also stated that "except the account receivable due from Garis Pruitt to the children[, ]" all the Estate's debts had been satisfied. Several months later, on October 31, 2012, the district court entered an order regarding final settlement of Reynolds's Estate. As part of that order, the district court clarified that the wrongful death proceeds were not a part of the Estate, but that a portion of the proceeds had been incorrectly made payable to the Estate by Attorney Pruitt. The district court reviewed the proposed distributions to Randolph and Appellants. Those distributions included the wrongful death proceeds from the Freightliner settlement in addition to the net probate assets due to them. After having done so, the district court directed distributions in accordance with the proposed settlement. Ultimately, four of the five Appellants received distributions of $7, 096.77 each.[10] No appeal was taken from this order.

         Instead, exactly two years later, on October 31, 2014, the Appellants filed suit in Boyd Circuit Court against Attorney Pruitt, Attorney Potter, and Randolph. While the complaint cited KRS 394.240, a statute allowing an original action in circuit court after the district court has rendered a decision to either admit or reject a will, the substance of the complaint alleged that Appellants were seeking to hold Attorney Pruitt, Attorney Potter, and Randolph liable for breach of their professional and/or fiduciary duties. Following some initial discovery, each of the three defendants moved for summary judgment. Ultimately, the circuit court entered separate judgments in favor of each defendant. This appeal followed.

         II. Preliminary Procedural Issues

         Before we address the merits of this action, we must briefly consider several alleged procedural deficiencies that Appellees contend merit dismissal. The first alleged deficiency concerns Appellants' notice of appeal. Appellees argue that the notice of appeal is ineffective because it does not identify the judgments being appealed with enough specificity. CR[11] 73.03(1) provides: "The notice of appeal . . . shall identify the judgment, order or part thereof appealed from." In their notice of appeal, Appellants identified the judgments as "three (3) summary judgments of the Boyd Circuit Court, Division 1 . . . entered herein on July 11, 2016, copies of which are attached hereto." While Appellants should have identified each appeal separately and specified the defendant it related to, their description substantially complied with the rule. We are able to ascertain the judgments being appealed without any difficulty. This deficiency does not warrant dismissal of the appeal.

         The other procedural deficiencies concern late filings by Appellants. These issues have already been called to the Court's attention by way of motions to dismiss. Those motions were denied by motions panels of the Court. While we are not bound by those determinations, we do not see any reason to depart from them. Each late filing was eventually tendered and accepted by the Court. Moreover, the accompanying delays were relatively short and did not prejudice Appellees. They do not merit dismissal.

         III. Standard of Review

         Summary judgment shall be granted only if "the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR 56.03. The trial court must view the record "in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor." Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 480 (Ky. 1991). Further, "a party opposing a properly supported summary judgment motion cannot defeat it without presenting at least some affirmative evidence showing that there is a genuine issue of material fact for trial." Id. at 482. On review, the appellate court must determine "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).

         IV. Analysis

         This case is tragic on a number of different levels. It began, over fifteen years ago, with the tragic death of a husband and father. Even though Reynolds's Estate was relatively modest, almost ten years passed before an order was entered by the district court approving a final settlement of the Estate. This delay was not caused by the parties' inaction. To the contrary, it is apparent from the record that the parties labored over the probate matter. Unfortunately, for much of the time, the parties, their counsel, and the district court were laboring under a false assumption; to wit, that wrongful death proceeds are part of a decedent's estate to be approved and distributed by the district court as part of the probate matter. From the beginning, this misunderstanding plagued virtually every aspect of the litigation leading up to (and, to some extent, including) this appeal. It created confusion, caused delay, and prevented the attorneys from fully appreciating the scope of their fiduciary duties and responsibilities.

         While this case is extreme in many ways, the misunderstanding involving wrongful death proceeds and how they interact with probate matters is relatively commonplace. Attorneys and parties often incorrectly assume that a wrongful death claim (and any recovery related thereto) belongs to the decedent's probate estate. Before we delve into the exact questions presented by this appeal, it is incumbent on us to review the scope and nature of wrongful death claims vis-à-vis the decedent's estate. We hope that this review will not only place the issues at hand in the proper context, but also dispel any lingering notion that a wrongful death action is pursued on behalf of the estate and for its benefit.

         A. Wrongful Death Claims

         There is no common law right to recover for the wrongful death of another. Smith's Adm'r v. Nat'l Coal & Iron Co., 135 Ky. 671, 117 S.W. 280, 281 (1909). A cause of action for wrongful death exists only so far and in favor of such persons as the General Assembly may declare. See Clements v. Moore, 55 S.W.3d 838, 840-41 (Ky. App. 2000) (internal citations omitted).

         Kentucky's modern-day statutory right of action for the wrongful death of another is codified in KRS 411.130.[12] It provides:

(1) Whenever the death of a person results from an injury inflicted by the negligence or wrongful act of another, damages may be recovered for the death from the person who caused it, or whose agent or servant caused it. If the act was willful or the negligence gross, punitive damages may be recovered. The action shall be prosecuted by the personal representative of the deceased.
(2) The amount recovered, less funeral expenses and the cost of administration and costs of recovery including attorney fees, not included in the recovery from the defendant, shall be for the benefit of and go to the kindred of the deceased in the following order:
(a) If the deceased leaves a widow or husband, and no children or their descendants, then the whole to the widow or husband.
(b) If the deceased leaves a widow and children or a husband and children, then one-half (1/2) to the widow or husband and the other one-half ...

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