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Dickson v. Shook

Court of Appeals of Kentucky

March 29, 2019



          BRIEFS FOR APPELLANTS/CROSS-APPELLEES: William W. Allen Donald M. Wakefield Lexington, Kentucky

          ORAL ARGUMENT FOR APPELLANTS/CROSS-APPELLEES: William W. Allen Lexington, Kentucky

          BRIEF FOR APPELLEE CROSS-APPELLANTS: Carl D. Edwards, Jr. David A. Cohen Lexington, Kentucky

          ORAL ARGUMENT FOR APPELLEES/CROSS-APPELLANTS: Carl D. Edwards, Jr. Lexington, Kentucky



          ACREE, JUDGE.

         This intra-family dispute began with Appellee Mary Louise (Mollie) Dickson Shook's allegations of wrongdoing by her mother, Appellant Roberta M. Dickson, and her brother, William Dickson (Bill), regarding Bill's management of a closely held family business entity, and allegations of Roberta's interference with Mollie's expectancy interest in the estate of her father, Stanley Dickson.

         A Jefferson County jury sided with Mollie. For the various reasons set forth below, we reverse, in part, vacate, in part, and remand.


         In 2000, Stanley and Roberta began estate planning together. That December, each executed separate wills and revocable trusts. As part of their plans, they sheltered real property in a limited liability company, Glen Oak, LLC, named after their farm which became the LLC's capital.

         Glen Oak was somewhat informally divided into two tracts. A larger tract was known as "Bill's Farm" and a smaller tract was known as "Mollie's Farm." Glen Oak, LLC, had four members: Stanley; Roberta; Sulphur Gum, LLC (created by Stanley for Bill's benefit); and Dickson Oaks, LLC (created by Stanley for Mollie's benefit).[1] Although not a member of Glen Oak, LLC, Bill was the farm's manager. In accordance with the operating agreement for Glen Oak, LLC, only Stanley and Roberta had a say in governance, with each holding 50% of the LLC's "Governance Units"; Sulphur Gum and Dickson Oaks were passive beneficial participants in Glen Oak's profits and losses.

         Other parts of Stanley's and Roberta's December 2000 estate planning - i.e., Stanley's will, his revocable living trust, and his power of attorney in favor of Roberta - are at the center of this litigation and appeal. Stanley's will bequeathed to Roberta certain tangible personal property. The residue of his estate, including such intangible property as his Governance Unit in Glen Oak, LLC, was to be conveyed at his death to a revocable living trust he executed as the trust's grantor and initial trustee ("Stanley's trust").

         Stanley's trust provided that, upon his death, the successor trustee (Roberta, if she survived him) would divide his interest in Glen Oak, LLC (i.e., his Governance Unit) equally between Mollie and Bill. The trustee was then to divide the remaining estate into two separate, but not equal, shares denominated the Marital Share and the Trust "B" Estate.

         Stanley's trust was designed to minimize the tax impact on the Marital Share by requiring taxes to be paid from the Trust "B" Estate. In addition to other language intended to preserve the Marital Share, the trust provided that: "The Trustee shall have the sole discretion to select the assets which shall constitute the Marital Share. . . . Trust 'B' shall be the balance of the Trust Estate after the assets have been selected for the Marital Share . . . ." The trust even contemplated the possibility that "the assets constituting Trust 'B' [could] be exhausted, or [that] Trust 'B' [could] not be established . . . ."[2]

         After minimizing taxes, the priority for use of the Trust "B" Estate assets was to benefit Roberta. The trust granted Roberta an annual "right, at her discretion, to withdraw up to a maximum of five percent (5%) of the net fair market value of the Trust 'B' Estate . . . ." Furthermore, "until the death of [Roberta], the Trustee shall pay to or for the benefit of [Roberta] such sums from the remaining net income and/or principal of the Trust 'B' Estate as in the Trustee's reasonable discretion shall be necessary or advisable from time to time for the health, education, support and maintenance of [Roberta] according to the accustomed standard of living" she had come to enjoy while Stanley was alive. Once Roberta passes away, whatever remains of Trust "B" Estate assets, if anything, is to be divided equally between Bill and Mollie.

         A few years after this round of estate planning, in 2006, Stanley and Roberta engaged in a second round. Because Bill's Farm was worth more than Mollie's Farm, Stanley amended his trust to add an "equalizing payment" to Mollie. In substance, after Roberta's death the trustee would first distribute to Mollie from any remaining Trust "B" Estate assets the difference in value between the two farms before dividing the remainder between Mollie and Bill. Significantly, Stanley did not amend the provision of his original estate plan that permitted Roberta to use as much of the funds in the Trust "B" Estate for her own support as she deemed proper, nor did he designate or restrict any of the Trust "B" Estate to be set aside solely to make the equalizing payment.

         At the same time, Roberta, too, amended her revocable living trust to add a "pour over" clause whereby her assets, including whatever remained of the Marital Share, would be conveyed upon her death to Stanley's Trust "B" Estate. Significantly, Stanley's and Roberta's estate planning, although coordinated, did not include a joint will. Nor did their planning include reciprocal provisions, either in their wills or their trusts, that would have the effect of a joint will or otherwise prohibit either from later amending any part of his or her respective estate plan.

         The year 2009 brought a decline in Stanley's health, owing largely to Alzheimer's disease. It also brought a decline in Mollie's bond-trader husband's income from approximately $1.75M in 2008 to $340, 000 in 2009. By September 2009, Mollie was pursuing a buyout of her interest in Glen Oak farm.[3] She sought approximately one-fourth of its assets which she valued at a little more than one-and-a-half million dollars ($1.5M).[4]

         During this time, Mollie first told Roberta that Bill sexually abused her when she was fifteen years old, some thirty years earlier. Increasing levels of family strife ensued. Believing it best to retain control of Glen Oak, Roberta used her authority as Stanley's attorney-in-fact to sell his Governance Unit in Glen Oak to herself for $26, 634.00. Stanley died the following day.

         Mollie engaged counsel to accelerate her efforts toward a buyout. In a letter dated January 4, 2010, from her attorney to Roberta's attorney, Mollie claimed Bill mismanaged the farm and reiterated her assertion that Bill sexually assaulted her when she was fifteen requiring "years of therapy" for Mollie.[5] She said she was "prepared to initiate a complete accounting and investigation into Bill's conduct [and was] ready to take this and all other information public . . . . [She ] strongly prefer[red] however, to informally resolve this as quickly as possible so that she can finally move on with her life."[6]

         A week later, Roberta amended her will and bequeathed most of her estate to a new revocable trust. As stated in paragraph 3.3.1 of her new trust:

The trustee shall set aside the sum of $1, 500, 000 reduced, however, by any amount payable at my death to [Mollie] pursuant to paragraph 5.a. of the Amendment to Trust Agreement executed by Stanley . . . referred to as "Mollie's Equalization Amount" [provided that Mollie, ] subsequent to the date of this instrument and prior to [Roberta's] death . . . has not made public allegations of wrongdoing by [Bill] for the purpose of humiliating him or his wife, seeking revenge against him for injuries done to her (whether such allegations are true or untrue) or for some other malicious purpose . . . .

         Roberta's estate planning after Stanley's death did not affect Stanley's trust. Although Mollie claims otherwise - that Roberta's new will and trust "interfered with the Equalizing Payment" - Mollie did not allege that Roberta failed to comply with the terms of Stanley's trust itself.[7] Stanley's trust and its component parts, the Marital Share and the Trust "B" Estate, remain unchanged to this day. To the extent the Trust "B" Estate has sufficient assets to fund the equalizing payment on the date of Roberta's death, Mollie still will receive the equalizing payment. This explains why Roberta's new trust provided for a reduction of the $1.5M set aside for Mollie to the extent remaining Trust "B" Estate assets are available to fund the equalizing payment.

         However, Roberta's lawful access to Trust "B" Estate assets from which the equalizing payment is to be made still makes it possible, just as Stanley's trust always recognized, that "the assets constituting Trust 'B' [could] be exhausted." Reading together the surviving provisions of Stanley's trust and its amendment shows that the equalizing payment will be made only to the extent there are assets in the Trust "B" Estate to fund it. Stanley's trust does not guarantee Mollie will ever receive the equalizing payment. The fact is that Mollie's compliance with the condition in Roberta's new trust would guarantee (to the extent of the value of Roberta's estate upon her death) that Mollie would receive $1.5M even if Trust "B" Estate assets were diminished or exhausted.

         Mollie did not interpret Roberta's actions after Stanley's death this same way. She and Dickson Oaks filed suit in circuit court against Roberta, Bill, and Sulphur Gum. The court allowed a first amendment to the complaint after which Mollie's and Dickson Oaks' causes of action were as follows:

• Breach of fiduciary duty against Bill as manager of Glen Oak.
• Aiding and abetting Bill's breach of fiduciary duty, against Roberta.
• Breach of fiduciary duty against Roberta in her role as Stanley's attorney-in-fact.
• Aiding and abetting Roberta's breach of fiduciary duties, against Bill.
• Breach of contract against Roberta, Bill, and Sulphur Gum for sundry violations of the Glen Oak operating agreement.
• Tortious interference with devise against Roberta for conditioning the "equalizing payment" on Mollie's "silence regarding the incestuous rape by her brother . . . ." (R. at 622).
• Aiding and abetting Roberta's tortious interference with devise, against Bill.
• Intentional infliction of emotional distress/outrage (IIED)[8]against Roberta for executing what Mollie termed the "blackmail trust" in 2010 which attempted to "threaten, intimidate, and harass Mollie into remaining silent regarding Bill's incestuous rape of Mollie . . . ." (R. at 628).

         Mollie moved to amend the complaint a second time to add claims that Roberta breached her fiduciary duties as trustee of Stanley's trust. Unwilling to allow those claims to be added, the circuit court denied the motion.[9]

         After extensive pretrial proceedings, the Jefferson Circuit Court conducted a multi-day jury trial in August 2016. The circuit court granted defendants' motion to dismiss the claim against Roberta individually for breaching fiduciary duties in operating/dissolving Glen Oak, after which the jury found for Mollie on all claims submitted to it.

         The circuit court entered a judgment in November 2016, after which Appellants filed a lengthy motion for judgment notwithstanding the verdict, for a new trial, or to amend judgment; Mollie filed a motion for attorney fees. In May 2017, the circuit court denied all post-trial motions. These appeals followed.


         I. Issues Presented

         Appellants allege a host of errors. First, they contend the circuit court should have dismissed the tortious interference with devise claim or granted a directed verdict on that claim. They next contend the circuit court should have done the same regarding the IIED claim. Third, they argue the circuit court should not have given a punitive damages instruction. Fourth, they argue the circuit court should have dismissed the claim for breach of fiduciary duty against Roberta in her role as Stanley's attorney-in-fact. Fifth, they assert the judgment does not conform to the jury's verdict. Sixth, they claim the circuit court erred by instructing the jury on breach of fiduciary duty against Roberta in her role as trustee of Stanley's trust after the court rejected Mollie's motion to amend the complaint addressing that claim. Seventh, they argue the jury instruction on the claim against Bill for breach of fiduciary duty in his role as manager of Glen Oak was erroneous. Eighth, they assert the circuit court should not have entered judgment against Bill for breach of contract and, relatedly, that the jury instruction on that claim should not have included Roberta. Ninth, they assert the $165, 000.00 damage award aggregated for five (5) separate causes of action was improper. Finally, they argue that various evidentiary rulings by the circuit court were erroneous. The sole issue in the cross-appeal is the denial of attorney fees. We will consider these arguments, although not always in the order presented.

         II. Tortious/Wrongful Interference with Devise/Expectation of Inheritance Is Not a Cause of Action Recognized in Kentucky

         Some scholars erroneously assert that Allen v. Lovell 's Adm x , 303 Ky. 238, 197 S.W.2d 424 (1946) recognized tortious interference with an expectation of inheritance as a sustainable cause of action in Kentucky.[10] A closer reading reveals that Allen recognizes nothing more than what several other "courts in the early twentieth century recognized [-] a tort for the improper destruction of wills." Virginia L.H. Nesbitt, A Thoughtless Act of A Single Day: Should Tennessee Recognize Spoliation of Evidence As an Independent Tort?, 37 U. Mem. L. Rev. 555, 580 n.134 (2007). Specifically, Allen says, "KRS[11] 434.280 [repealed 1974, Ky. Acts ch. 406, § 336, eff. 1-1-75] penalizes any person who destroys a will, and [KRS] 446.070 permits a person injured by the violation of a statute to recover damages by reason of the violation . . . ." Allen, 197 S.W.2d at 426.

         There is no Kentucky Supreme Court opinion regarding the tort of interference with an expectation of inheritance. However, since 2003, this Court has explicitly stated in several unpublished opinions that Kentucky does not recognize such a tort.[12] "On all questions of law the circuit and district courts are bound by and shall follow applicable precedents established in the opinions of the Supreme Court and its predecessor court and, when there are no such precedents, those established in the opinions of the Court of Appeals." SCR[13] 1.040(5). Although not binding precedent, "unpublished Kentucky appellate decisions, rendered after January 1, 2003, may be cited for consideration by the court if there is no published opinion that would adequately address the issue before the court." CR[14] 76.28(4)(c).

         Appellants took every available opportunity to point out to the circuit court that this cause of action has not been recognized in Kentucky, often citing the unpublished cases in footnote 12, supra. Nevertheless, the circuit judge instructed the jury as though the tort had been recognized. That constitutes reversible error. See Sandy River Cannel Coal Co. v. Caudill, 22 Ky. L. Rptr. 1175, 60 S.W. 180 (1901) (error to instruct jury on comparative negligence because rule was not yet recognized in Kentucky). In essence, Mollie has two responses: first, any such error by the circuit court would be nullified if this Court, in this opinion, recognized the tort; and, second, the error is harmless anyway because there is no reasonable possibility that the error affected the judgment. We address both.

         Mollie acknowledges that the tort has not been recognized explicitly here and, implicitly, urges this Court to do so now. She suggests we adopt the articulation of the tort found in Restatement (Second) of Torts § 774B because Kentucky appellate courts have been persuaded by that treatise frequently. We are not persuaded by that generalization.

         The previous occasions afforded this Court to recognize the tort were teed up as cases in which the circuit court appropriately refused to instruct the jury on the cause of action. This case presents the opposite situation and, therefore, more directly presents the question. We recognize the need to express clearer precedent, at least until our Supreme Court can address it. And so, we will.

         This Court has not hesitated, on occasion, to recognize torts for the first time, and the Supreme Court indicates that doing so is within our authority. See, e.g., Presnell Const. Managers, Inc. v. EH Const., LLC, 134 S.W.3d 575, 581 (Ky. 2004) (noting the Court of Appeals first recognized the tort of negligent misrepresentation in Chernick v. Fasig-Tipton Kentucky, Inc., 703 S.W.2d 885 (Ky. App. 1986)); MV Transp., Inc. v. Allgeier, 433 S.W.3d 324, 336 n.10 (Ky. 2014) (citing two Court of Appeals opinions each recognizing a tort for the first time: "McDonald's Corp. v. Ogborn, 309 S.W.3d 274, 291 (Ky. App. 2009) (recognizing negligent supervision); Oakley v. Flor-Shin, Inc., 964 S.W.2d 438, 441-42 (Ky. App. 1998) (recognizing negligent hiring and retention)."). But being possessed of authority and exercising it are separate matters.

         In this case, we choose to resist the "temptation . . . to draw expansive conclusions about the state of tortious interference [with inheritance] from the decisions in [sister] jurisdictions, b[ecause] it is a messy landscape that does not lend itself to neatly packaged principles of law." Rebecca M. Murphy and Samantha M. Clarke, A New Hope: Tortious Interference with an Expected Inheritance in Rhode Island, 22 Roger Williams U.L. Rev. 531, 551 (2017).[15] That is especially true for Kentucky where our jurisprudence somehow causes scholars to "disagree about whether Kentucky [currently] recognizes tortious interference [with inheritance]." Id. at 545 n.94.

         We expressly hold that Kentucky does not recognize the cause of action known as tortious interference with inheritance or gift, or as Mollie expresses it in this litigation, wrongful interference with devise. The circuit court's erroneous Instruction No. 9 on a nonexistent cause of action is presumed to be prejudicial. Osborne v. Keeney, 399 S.W.3d 1, 13 (Ky. 2012) ("[E]rroneous instructions to the jury are presumed to be prejudicial." (quoting McKinney v. Heisel, 947 S.W.2d 32, 35 (Ky. 1997))). For that reason, we must reverse the portion of the verdict responsive to Instruction No. 9.

         There is an additional reason for declining recognition of the tort based on the allegations Mollie presents. Nonrecognition does not risk offending the "maxim of the law . . . that, 'There is no wrong without a remedy.'" Cornett's Ex 'r v. Rice, 299 Ky. 256, 261, 187 S.W.2d 454, 456 (1945). As we discuss in Section V, below, the legislative scheme of KRS Chapter 395[16] already provides a remedy, and a forum, for the wrong Mollie alleges. Granting her plea to save this verdict by fashioning a new remedy when one already exists would invite just criticism for basing our decision on sympathy, not necessity.

         We thus reject Mollie's first reason for affirming the verdict - recognizing a new cause of action. That leads us to the second reason Mollie urges us to affirm the judgment notwithstanding the circuit court's instruction error - that such error was harmless.

         III. Circuit Court's Error in Instructing Jury on Unrecognized Tort Was Not Harmless Error

         The presumption of prejudice is rebuttable, but the party claiming the erroneous instruction was harmless bears the burden of affirmatively showing that no prejudice resulted from the error - that means proving "there was 'no reasonable possibility' the erroneous jury instruction affected the verdict." Osborne, 399 S.W.3d at 13 (quoting Emerson v. Commonwealth, 230 S.W.3d 563, 570 (Ky. 2007)). Mollie attempts such proof by arguing "it is not necessary that this Court even reach the question of Roberta['s] tortious interference with Stanley's estate plan . . . because Roberta breached the fiduciary duties she owed to Mollie as Stanley's trustee [which] Roberta became . . . at his death." (Appellees' brief, p. 13).

         The first and obvious flaw in Mollie's argument is that the circuit court rejected her attempt to add this charge that Roberta breached her fiduciary duty as Stanley's trustee. That the circuit court nevertheless instructed the jury on that claim after rejecting it perplexes this Court. But that perplexity does not prevent us from recognizing the second and certainly fatal flaw - there was no evidence to support such a claim. No matter how generously we read Mollie's allegations that Roberta engaged in wrongful, unlawful, or unauthorized conduct to prevent Mollie's receipt of the "equalizing payment," there is no way to construe the instruments constituting the estate planning of Stanley and Roberta other than that they did not prohibit Roberta's conduct following Stanley's death, nor did Roberta's estate planning impact the operation of Stanley's trust.

         For these reasons, and as further explained below, the circuit court's instruction on a cause of action not recognized in this jurisdiction, Instruction No. 9, constitutes reversible error.

         IV. Roberta's Estate Planning Conduct Is Not Actionable

         Mollie attempts to salvage the verdict and judgment on an unrecognized cause of action by characterizing Roberta's estate planning as actionable misconduct. Her conflation of the equalizing payment in Stanley's trust and the $1.5M conditional bequest in Roberta's new trust contributes to the confusion of these already complex facts.

         However, we previously explained that Roberta's personal estate planning leaves Stanley's estate planning, including the equalizing payment, intact. Stanley's trust authorizes Roberta, as trustee, to identify what trust assets make up her Marital Share and what assets make up the Trust "B" Estate. It authorized Roberta, as trustee, to determine what Trust "B" Estate assets she deemed necessary to maintain her accustomed standard of living. As previously noted, Stanley's trust contemplated the possibility that Roberta might deplete Trust "B" Estate assets before she ...

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