RENDERED: APRIL 11, 2014; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2013-CA-000466-MR
KATHERINE A. MCCORMICK
APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE JAMES M. SHAKE, JUDGE
ACTION NO. 12-CI-005071
v.
GEORGE M. BECKER
APPELLEE
OPINION
VACATING AND REMANDING
** ** ** ** **
BEFORE: COMBS, DIXON, AND VANMETER, JUDGES.
COMBS, JUDGE: Katherine McCormick appeals the order of the Jefferson
Circuit Court which dismissed her complaint. After our review, we vacate and
remand.
On January 18, 2006, Mildred Becker granted her son, George Becker,
power of attorney over her affairs. On the same day, Mrs. Becker executed her
will bequeathing one-third of her estate to her daughter, Katherine McCormick. In
2009, George sold Mrs. Becker’s real estate in New York. George contends that at
the express direction of his mother, he placed the proceeds of that sale -- $400,000
-- in a joint account that he held with his mother. George had a right to
survivorship in the account.
Mrs. Becker died on October 18, 2011. According to the provisions of her
will, George was appointed executor of her estate. The estate was opened for
probate in Jefferson District Court. When he filed the inventory, George did not
include the bank account that held the proceeds of the real estate sale. It reverted
to him automatically by virtue of its survivorship status without the legal necessity
of recourse to probate. Nonetheless, McCormick filed a motion with the district
court requesting an accounting of the estate. While no order is in the record,1 the
district court apparently denied McCormick’s motion for lack of jurisdiction.
Instead of filing an appeal in the Jefferson Circuit Court, on September 21,
2012, McCormick filed a complaint initiating an original action in Jefferson
Circuit Court to demand an accounting of George’s stewardship of the estate.
George filed a motion to dismiss the complaint. The court granted his motion,
finding that the complaint had not stated a claim that warranted relief. This appeal
follows.
Becker’s motion to dismiss was based on Kentucky Rule[s] of Civil
Procedure (CR) 12.03, which provides for a party to make a motion for a
1
George cites to the district court record many times throughout his brief, but it is not included
in the record that is before this court.
-2-
“judgment on the pleadings.” As construed by our Supreme Court, CR 12.03 is
intended:
to expedite the termination of a controversy where the
ultimate and controlling facts are not in dispute. It is
designed to provide a method of disposing of cases where
the allegations of the pleadings are admitted and only a
question of law is to be decided. . . . The judgment
should be granted if it appears beyond doubt that the
nonmoving party cannot prove any set of facts that would
entitle him/her to relief.
City of Pioneer Village v. Bullitt County, 104 S.W.3d 757, 759 (Ky. 2003).
Whether the dismissal was proper is a question of law. Therefore, our review is de
novo. Benningfield v. Pettit Environmental, Inc., 183 S.W.3d 567, 570 (Ky. App.
2005).
In her complaint, McCormick sought to require George to make an
accounting of his transactions in his capacity as attorney-in-fact, impliedly
asserting her right to demand an accounting. The circuit court indirectly addressed
this issue in its discussion of her lack of standing, holding that McCormick had no
justiciably cognizable interest in real estate that had ceased to exist before her
mother’s death.
We note that in her brief, McCormick has not disputed that the proceeds of
the sale of the New York property were placed into a joint account held by Mrs.
Becker and George with a right of survivorship. Again, the funds of such a joint
account pass automatically to the surviving party unless “(1) there is clear and
convincing evidence of a different intention at the time the account was created, or
-3-
(2) . . . the depositor was not legally entitled to make such a disposition of the
funds.” Harris v. Rock, 799 S.W.2d 10, 12 (Ky. 1990). And again, such assets are
not subject to probate. Kentucky Revised Statute[s] (KRS) 391.315; Spencer v.
Estate of Spencer, 313 S.W.3d 534 (Ky. 2010). Thus, George argues that neither
the district court nor the circuit court has jurisdiction to review the status of this
non-probate asset. We will re-visit this issue later in the opinion.
McCormick’s complaint and response to George’s motion to dismiss both
focus on the $400,000 proceeds of the sale of the real estate. However, throughout
her appellate brief, McCormick argues that George intentionally committed
conversion and the crime of misapplication of entrusted property pursuant to KRS
517.110. In her CR 59 motion heard on February 4, 2013, she reiterated her
contention that George’s actions amounted “to a misapplication of entrusted
property which is a crime under KRS 517.110.” In that same motion, she alleged
error on the part of the circuit court in relying on KRS 395.515.
McCormick also contends that the court erred in determining that her action
was barred by a two-year statute of limitations. The circuit court applied KRS
413.125, which provides that actions for the taking of personal property must be
filed within two years of accrual. Because the real property was sold in April
2009, the court held that the statutory deadline for filing a lawsuit accrued in April
2011 – earlier than her filing of September 21, 2012.
Countering the holding of the circuit court as to the two-year statute of
limitations, McCormick contends that the court should have applied KRS
-4-
413.120(7), which provides a five-year limit for actions not arising out of contract
or not otherwise enumerated. In Ingram v. Cates, 74 S.W.3d 783 (Ky.App. 2002),
this Court applied KRS 413.120(7) to actions alleging breach of a fiduciary duty.
We agree with McCormick that the precedent of Ingram is more substantively
pertinent to the case before us and that, therefore, the five-year statute of
limitations of KRS 413.120(7) should govern. Although inartfully pled initially,
her claim is essentially that of a breach of fiduciary duty.
The circuit court ultimately determined that it did not have jurisdiction
because McCormick was proceeding pursuant to KRS 395.515 (which statute, as
noted earlier, she challenged as error in her CR 59 motion). This statute was not
referenced anywhere in McCormick’s complaint (although she did acknowledge it
in her response to George’s motion to dismiss). However, in her CR 59 motion,
she noted:
There was an error of law used by the Court. The
Complaint was not based on KRS 395.515 and was not a
suit to settle an estate. The Complaint does not ask for a
settlement of the estate. The Plaintiff has alleged
conversion of the money the Defendant got as a
fiduciary.
KRS 395.515 was first raised by George in seeking a dismissal of the case in
district court. George was correct in asserting that KRS 395.515 does empower a
circuit court to hear cases – but only in settlement disputes. It also is specifically
utilized for disputes in which estate assets are insufficient to satisfy its debts.
Since no such allegation of insufficiency of funds existed here, the circuit court
-5-
failed to find jurisdiction on this basis and accordingly dismissed the case.
However, McCormick reminded the court in her CR 59 motion that her suit was
not a settlement dispute.
Admittedly, confusion abounds as to the basis of the complaint, creating
further confusion as to the jurisdiction of either district or circuit court in this
matter. Nonetheless, we have attempted to sort through the various bases, statutes,
and arguments -- either directly alleged or indirectly intimated.
At the threshold, we must address the issue of jurisdiction. KRS 24A.120(2)
provides that a probate court enjoys exclusive jurisdiction in:
[m]atters involving probate, except matters contested in
an adversary proceeding. Such adversary proceeding
shall be filed in Circuit Court . . . and shall not be
considered an appeal . . . .
When McCormick first sought an accounting in district court, George
persuaded the district court that it lacked jurisdiction by contending that KRS
395.515 was the basis of the complaint. KRS 395.515 can only be litigated in
Circuit Court. Based on that reasoning, McCormick should have filed an appeal to
circuit court pursuant to KRS 23A.080, which provides:
A direct appeal may be taken from District Court to
Circuit Court from any final action of the District Court.
Instead of invoking the appellate jurisdiction of the circuit court,
McCormick opted to file an original adversarial proceeding in circuit court which,
as noted in KRS 24A.120(2), “shall not be considered an appeal ….” As noted
earlier, KRS 24A.120(2) and (3) allude to the fact that various probate-related
-6-
matters that are adversarial in nature are expressly permitted by various statutes to
be filed in circuit court. Among these is the filing of action alleging fraud or
mismanagement of an estate as contemplated by KRS 395.510. In Priestley v.
Priestley, 949 S.W.2d 594, 597 (Ky. 1997), our Supreme Court reasoned as
follows:
. . . upon the filing of a claim pursuant to KRS 395.510
where acts of mismanagement, fraud or deception are
alleged, the circuit court has jurisdiction to settle the
estate and adjudicate all claims associated therewith.
KRS 24A.120.
In the case before us, the circuit court was correct in holding that it did not
have jurisdiction pursuant to an appeal. Nor did it have original jurisdiction
pursuant to KRS 395.515, which pertains only to settlement disputes – as noted
above. Again and significantly, George – not McCormick – raised this statute as
the basis for dismissal in probate court by asserting it as a proper course of action
that could only be filed in circuit court. Thus, the circuit court was correct in
holding that it lacked jurisdiction pursuant to KRS 395.515. This was not a
settlement controversy.
However, pursuant to Priestley, supra, the subject matter alleged in the
complaint did come within the purview of KRS 395.510, a statutory matter in
which the circuit court would indeed have jurisdiction.
This issue was not well pled in the complaint. However, as we have
discussed, it was certainly intimated – albeit with a lack of specificity. Priestley
discussed this very kind of failure to file a specific complaint pursuant to KRS
-7-
395.510 and held that strict compliance with statutory language was not fatal to the
claim. Priestley scrutinized whether the essence of the claim was “consistent with
statutory language and the relevant decisions.” Finding such substantive and
substantial compliance, Priestley held that the inarticulately stated claim should not
fail.
Therefore, finding the reasoning of Priestley persuasive and pertinent, we
hold that the court erred in declining to exercise jurisdiction in this matter alleging
mismanagement and demanding an accounting. It may well be that it will dismiss
on other grounds – such as failure to state a claim – once it has examined the
matter without reference to KRS 395.515. However, we hold that the circuit court
does have jurisdiction to entertain and adjudicate this original adversarial matter.
We vacate and remand for additional proceedings consistent with this
opinion.
DIXON, JUDGE, CONCURS.
VANMETER, JUDGE, CONCURS AND FILES SEPARATE
OPINION.
VANMETER, JUDGE, CONCURRING. I concur in the result
reached by the majority opinion that this case is to be vacated and remanded to the
circuit court to adjudicate McCormick’s claim of breach of fiduciary duty. But I
write separately to address two items.
First, in my view, KRS 395.510 and 395.515 should be read together,
not separately as intimated by the majority opinion. KRS 395.510(1) establishes
-8-
jurisdiction in the circuit court for a settlement action of a decedent’s estate. Then,
KRS 395.515 sets forth the requirements for the petition contents: “[i]n such an
action the petition must state. . . . ” As noted in the majority opinion, under
circumstances very similar to those in the present case, the Kentucky Supreme
Court held that these statutes permit the circuit court’s exercise of jurisdiction
when beneficiaries contest the actions of an attorney-in-fact who subsequently
serves as fiduciary of the decedent’s estate. Priestley v. Priestley, 949 S.W.2d 594
(Ky. 1997). The court stated:
Herein, appellants' claims are entirely consistent with
statutory language and the relevant decisions. The
decedent died intestate and appellants are his heirs at law.
Their claims were brought against the decedent's
administratrix asserting that she breached duties as a
testamentary fiduciary by failing to recover for benefit of
the estate sums which she herself had wasted or
improperly diverted during her tenure as inter vivos
fiduciary. Unlike appellee, we discern no fatal flaw by
the absence of a judgment which declared that she
defaulted as testamentary fiduciary. The determination
that appellee breached inter vivos fiduciary duties is
sufficient if sustained by the evidence and otherwise.
...
In the circumstances which prevailed here, appellee's
interests were hopelessly in conflict. . . . While it was her
duty as administratrix to marshal the assets of the estate
and collect sums which might have been due the
decedent for benefit of the estate (KRS 395.195), it was
in her personal interest to ignore her own possible
defalcation. . . . In our view, this question was
sufficiently answered when the jury returned a verdict
and the court entered judgment requiring appellee to
repay substantial sums to the decedent's estate[.]
-9-
Id. at 597-98 (citations omitted). The only difference between this case and
Priestley is that Mrs. Becker died testate. As residuary beneficiary of one-third of
her mother’s estate, McCormick certainly has standing under KRS 395.510 to
bring this action.
Second, the majority opinion appears to accept the circuit court’s
conclusion of law that a “settlement suit” is “only appropriate in Circuit Court
where there are insufficient funds in the estate to pay the debts of the decedent,”
citing Smith v. Louisville Trust Co., 237 S.W.2d 836 (Ky. 1951). Smith was one of
a series of three reported cases, decided over a four-year period: (1) Smith v.
Louisville Trust Co., 308 Ky. 189, 213 S.W.2d 987 (1948) (“Smith I”); (2)
Louisville Trust Co. v. Smith, 313 Ky. 15, 230 S.W.2d 64 (1950) (“Smith II”); and
(3) Smith v. Louisville Trust Co., 237 S.W.2d 836 (Ky. 1951) (“Smith III”).
Smith I set forth the basic facts of the case: corporate fiduciaries,
serving as administrators with will annexed, had essentially completed
administration of the estate, marshaled the decedent’s assets, paid all debts and
taxes, and were ready to distribute the balance of the estate. Instead of making
distribution, and filing a final settlement in the county court as then required, they
withheld the payment of two charitable pecuniary bequests and requested the
circuit court to settle the estate pursuant to Civil Code (“CC”) § 428, subsequently
codified as KRS 395.510.2 Based on the undisputed facts, and reading CC § 4293
2
1952 Ky. Acts ch. 84, §1. CC § 428 and KRS 395.510 are virtually identical.
3
CC § 429, the predecessor code provision to KRS 395.515, 1952 Ky. Acts ch. 84, §1, provided:
-10-
together with CC § 428, the court noted that the technical requirements of the code
sections had not been met: the petition did “not state the amount of the debts, if
any, the nature or value of the property, real or personal, of the decedent; neither
does it aver that the personal estate is insufficient for the payment of all or any
debts.” Smith I, 308 Ky. at 193, 213 S.W.2d at 989. The court then proceeded to
note the lack of any apparent controversy concerning the estate and that the
fiduciaries “had only to file their settlement with the Judge of the Jefferson County
Court.” Id., 213 S.W.2d at 990.
Smith II then filled in a few of the blanks after the fiduciaries
attempted to amend their petition to set up their controversy with the beneficiary,
who was the decedent’s surviving spouse. The court again affirmed the lack of
circuit court jurisdiction, stating:
We have carefully considered the tendered
amendment and find that it contains nothing additional
which would justifiably bring it within the provisions of
the Code. There does seem to be an attempt to set up the
existence of a controversy between the parties, in that
[administrators] had tendered to [the beneficiary] a
proposed settlement of the estate which they intended to
make, to which she registered some objections. We only
ask, where would we be going, if, in the settlement of
estates properly to be made in the county court, we
should follow a rule for administrators to submit a
proposed settlement to those interested, and merely
In such an action the petition must state the amount of the debts
and the nature and value of the property, real and personal, of the
decedent, so far as known to the plaintiff; and, if it shall appear
that the personal estate is insufficient for the payment of all debts,
and court may order the real property descended or devised to the
heirs or devisees who may be parties to the action, or so much
thereof as shall be necessary, to be sold for the payment of the
residue of such debts.
-11-
because of disapproval thereof, permit action to be
brought in circuit court.[4] It is the duty of the
administrator to settle. One of the purposes of settlement
in the county court is to give the parties interested an
opportunity to file objections seasonably and properly.
There is no reason why an exception should prevail in
Jefferson County. This matter has been unreasonably
prolonged. The settlement should be made as per the
opinion in the former appeal.
Smith II, 313 Ky. at 16, 230 S.W.2d at 64-65 (emphasis added).
Notwithstanding the court’s obvious impatience with the fiduciaries,
and no doubt their counsel, they again attempted to file a settlement suit in the
circuit court based on the “disputed questions” with the beneficiary. Smith III was
the appellate decision resulting from the beneficiary’s petition to enjoin the
fiduciaries from filing further “settlement suits” in the circuit court. Reading the
three Smith cases together makes clear the Court of Appeals’ weariness with the
matter, as indicated by its concluding passage:
Again we say this matter has been unreasonably
prolonged.
The way has been opened and is now open for the
final settlement in county court. Under two former
opinions of this court appellees have been directed to
make final settlement in the county court. Further
unnecessary delay will be inexcusable.
The court below should have permanently enjoined
the further prosecution of this second settlement suit.
4
Under KRS 395.617, enacted in 1992, a fiduciary may now file a proposed settlement in the
district court. See generally Maratty v. Pruitt, 334 S.W.3d 107, 110-11 (Ky. App. 2011)
(discussing the four ways in which a probate estate may be settled: circuit court action, informal
final settlement, proposed settlement, district court periodic or final settlement). At the time of
the Smith decisions, informal final settlements and proposed settlements were not authorized by
statute or Civil Code.
-12-
Smith III, 237 S.W.2d at 837.
Smith III is unique in Kentucky jurisprudence in that no other reported
Kentucky case appears to hold that “[o]ne of the basic requirements for such suit is
that there be not sufficient personal estate for payment of the debts.” Id. While
Smith III seems to impose that requirement, reading the three Smith cases together
reveals the court’s frustration and leads to the conclusion that the statement in
Smith III is merely dicta resulting from that frustration.
A plain reading of KRS 395.510 and 395.515 does not contain a filing
requirement based on insufficiency of personal property. KRS 395.515, rather,
provides “and, if it shall appear that the personal estate is insufficient for the
payment of all debts, the court may order” real property to be sold (emphasis
added). In 1964, furthermore, the legislature added language to the statute:
In such an action the petition must state the
amount of the debts and the nature and value of the
property, real and personal, of the decedent, so far as
known to the plaintiff; if it appears that there is a
genuine issue concerning the right of any creditor,
beneficiary or heir-at-law to receive payment or
distribution, or if it appears that there is a genuine issue
as to what constitutes a correct and lawful settlement of
the estate, or a correct and lawful distribution of the
assets, such issues may be adjudicated by the court; and,
if it shall appear that the personal estate is insufficient for
the payment of all debts, the court may order the real
property descended or devised to the heirs or devisees
who may be parties to the action, or so much thereof as
shall be necessary, to be sold for the payment of the
residue of such debts.
1964 Ky. Acts ch. 105, § 1 (added provision italicized).
-13-
This addition, as well as more recent case law, e.g., Priestley, supra;
Myers v. State Bank & Trust Co., 307 S.W.2d 933 (Ky. 1957), clearly give the
circuit court jurisdiction to settle an estate when fraud, waste, and mismanagement
are alleged, irrespective of the solvency of the estate. The continued viability of
Smith III as a correct interpretation of KRS 395.515 must therefore be questioned.
In conclusion, I agree that this matter is to be vacated and remanded to
the circuit court, because McCormick is entitled to attempt to prove her claims and
not have her action dismissed for (a) lack of jurisdiction; (b) lack of standing; or
(c) failure to file within the requisite statute of limitations.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Bert M. Edwards
Louisville, Kentucky
Perry Adanick
Kristin M. Lomond
Louisville, Kentucky
-14-