Stanley M. Chesley v. Mildred Abbott (Plaintiffs Before the Boone Circuit Court in 2005-Ci-00436) ( 2016 )

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2015-SC-000599-I nu Liu. HFL
STANLEY M. CHESLEY
DATEicoi, pert, Dc
MOVANT
ON REVIEW FROM COURT OF APPEALS
V. CASE NO. 2015-CA-001066-I
BOONE CIRCUIT COURT NO. 05-CI-00436
MILDRED ABBOTT, ET AL. RESPONDENTS
OPINION AND ORDER
DENYING INTERLOCUTORY RELIEF
Stanley M. Chesley, pursuant to Kentucky Rule of Civil Procedure (CR)
65.09, moves this Court to vacate or modify the October 7, 2015, order entered
by the Court of Appeals, which denied Chesley's Motion for Interlocutory Relief
under CR 65.07. As the order entered by the Boone Circuit Court was not an
injunction, temporary or otherwise, it is not properly the subject of an
interlocutory relief motion. Therefore, we affirm the judgment of the Court of
Appeals.
FACTUAL AND PROCEDURAL BACKGROUND
In the mid-1990s, the popular weight-loss drug fen-phen was removed
from the market after being linked to heart damage and other dangerous side-
effects. In 1998, attorneys Shirley A. Cunningham, Jr., William J. Gallion, and
Melbourne Mills, Jr., filed a prospective class action lawsuit against the
manufacturer of fen-phen, American Home Products (American Home) on
behalf of Kentucky plaintiffs who alleged injuries caused by their use of the
drug. While the three attorneys operated separate law practices, they pooled
their resources in a collective effort to pursue the case. The case they filed,
Darla S. Guard, et al. v. American Home Products, Inc., et al., Boone Circuit
Court Case No. 98-CI-795 (Guard) was certified as a class action in May 1999.
While the Kentucky litigation was pending, American Home was also the
defendant in a multi-district class-action lawsuit in Pennsylvania. That federal
litigation resulted in a nationwide class-action settlement in August 2000.
However, on the advice of counsel, the Kentucky plaintiffs opted out of the
nationwide settlement to pursue their claims in state court. Subsequently,
Chesley, who had been involved in the national settlement, initiated a fen-phen
lawsuit on behalf of a few clients in Boone Circuit Court. Despite their initial
opposition, Cunningham, Gallion, and Mills eventually agreed to consolidate
Chesley's case with the Guard case. This was agreed to by the Guard attorneys
due to Chesley's national reputation and his experience in the national fen-
phen settlement.
With the claims merged, the attorneys entered into an arrangement
outlining the role each attorney would perform in the litigation. It was agreed
that Gallion would serve as lead trial counsel, Cunningham and Mills would
enroll clients and maintain client contact information, and Chesley would serve
as lead negotiator in the effort to secure a settlement with American Home.
Additionally, if Chesley succeeded in reaching a settlement with American
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Home, he would receive a share - initially 27 percent, but later reduced to 21
percent - of the attorney fees owed to Cunningham, Gallion, and Mills under
their respective retainer agreements.
On May 1, 2001, a settlement was reached with American Home. The
settlement agreement required the decertification of the Guard case as a class
action and the dismissal of all individual claims. In exchange for this,
American Home agreed to pay the aggregate sum of $200 million which was to
be disbursed to the 431 clients for whom Mills, Cunningham, and Gallion had
fee contracts. The claims of the 143 other individuals who had joined the class
action, but who had not personally retained any of the class attorneys, were to
be dismissed without prejudice. Additionally, American Home left it to Mills,
Cunningham, and Gallion to determine how much of the $200 million fund
would be allocated to each client.
Contrary to the terms of the settlement agreement, Mills, Cunningham,
and Gallion failed to inform their clients about the total settlement amount.
Nor were the clients made aware of the provision that American Home could
terminate the settlement if less than 95% of the claimants accepted the
settlement agreement by September 1, 2001. While Mills, Cunningham, and
Gallion obtained the necessary releases, they did so by failing to reveal
essential information and making misleading statements to their clients.
After the class action was decertified by the circuit court, the Guard
attorneys distributed approximately $73 million to their clients. A further $20
million was diverted to the creation of the Kentucky Fund for Healthy Living
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(KFHL). The balance of the money, approximately $106 million, was divided
among the attorneys for the class.
A subsequent investigation by the Kentucky Bar Association (KBA)
uncovered the excessive payments to the Guard attorneys. After the
investigation became public, the Respondents filed a law suit requesting an
accounting of the settlement money, disgorgement of misappropriated funds,
and a judgment against the class attorneys for monies paid in excess of the
contingent fee contracts.
The circuit court granted partial summary judgment to the Respondents
after determining that Cunningham, Gallion, and Mills had breached their
fiduciary duty by violating their contingent fee agreements. On the issue of
compensatory damages for the breach of fiduciary duty, the trial court
concluded that Cunningham, Gallion, and Mills owed their clients
approximately $42 million. Additionally, Cunningham, Gallion, and Mills were
adjudged to be jointly and severally liable. As to Chesley, the circuit court
concluded that genuine issues of material fact remained regarding his liability
and denied the motion for summary judgment against him.
On appeal to the Court of Appeals, Cunningham, Gallion, and Mills
challenged the summary judgment determination on the breach of fiduciary
duty claim and the assessment of joint and several liability. The Court of
Appeals reversed the circuit court's award of summary judgment determining
that genuine issues of material fact remained unresolved. The denial of
summary judgment against Chesley was deemed not appealable and
accordingly was not reviewed by the Court of Appeals.
Subsequently, this Court granted discretionary review. In Abbott v.
Chesley, 413 S.W.3d 589 (Ky. 2013), we determined that the circuit court
properly entered summary judgment against Cunningham, Gallion, and Mills
on the breach of fiduciary duty claim. Further, we agreed with the circuit court
that Cunningham, Gallion, and Mills are subject to joint and several liability.
As to the summary judgment determination against Chesley, we agreed with
the Court of Appeals that the circuit court's order denying summary judgment
was not appealable. The case was then remanded to the circuit court.
In August 2014, the circuit court granted the Respondents' motion for
summary judgment against Chesley. 1 The circuit court concluded that
summary judgment was appropriate on the Respondents' breach of fiduciary
duty claims through the doctrine of issue preclusion or collateral estoppel. In
reaching its decision, the circuit court reasoned that Chesley had a full and fair
opportunity to present his case with respect to these claims during the
proceedings in Kentucky Bar Ass'n v. Chesley, 393 S.W.3d 584 (Ky. 2013).
Finding that no genuine issues of material fact existed, the circuit court
determined that Chesley was jointly and severally liable with Cunningham,
Gallion, and Mills to the Respondents for $42 million. Subsequently, Chesley
1 The circuit court later entered two amended orders dated September 19, 2014,
and October 22, 2015, which modified the wording of the order as to the calculation
date for and the collection of annual interest. Additionally, both amended orders
noted that "[t]his Order is Final and Appealable. There is no just cause for delay."
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appealed the circuit court's judgment and rulings, but did not post a
supersedeas bond to guarantee enforcement of the judgment would be tolled
during his appeal. 2
Due to his actions during the Guard settlement, Chesley was
permanently disbarred from the practice of law in Kentucky. 3 Afterwards,
Chesley retired from the practice of law in Ohio. Chesley's former law firm,
Waite, Schneider, Bayless, & Chesley Co., L.P.A. (WSBC) is an Ohio legal
professional association formed under Chapter 1785 of the Ohio Revised Code.
Under Section 1785.05, a professional organization may only issue its capital
stock to those individuals legally authorized to render the same professional
service for which that association was organized. With Chesley's retirement
from the practice of law, he was no longer permitted to be a shareholder of
WSBC. 4
As such, Chesley transferred his ownership interest in WSBC to his Ohio
lawyer, Thomas Rehme, to be held in trust during the winding up period of
WSBC. Both prior to and after Chesley's Kentucky disbarment and his
2 Chesley's appeals of the circuit court's judgment and rulings are each styled
as Chesley v. Abbott, 2014-CA-001725, 2014-CA-001900, and 2014-CA-001984, and
are currently pending before the Court of Appeals.
3 Chesley, 393 S.W.3d at 602. Additionally, due to their improper use of the
Guard case settlement fund Cunningham, Gallion, and Mills were also permanently
disbarred from the practice of law in Kentucky. See Cunningham v. Kentucky Bar
Ass'n, 266 S.W.3d 808 (Ky. 2008); Gallion v. Kentucky Bar Ass'n, 266 S.W.3d 802 (Ky.
2008); and Kentucky Bar Ass'n v. Mills, 318 S.W.3d 89 (Ky. 2010). Further, an
associate of Gallion and the circuit court judge who presided over the Guard
settlement were disbarred for their actions in the case. See Kentucky Bar Ass'n v.
Helmers, 353 S.W.3d 599 (Ky. 2011) and Kentucky Bar Ass'n v. Bamberger, 354
S.W.3d 576 (Ky. 2011).
4 It is noteworthy that Chesley was the sole shareholder of WSBC.
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retirement from the Ohio bar, he transferred a total of $59 million from his
personal accounts to WSBC.
On June 9, 2015, the circuit court conducted a hearing on Respondents'
motion to transfer Chesley's beneficial interest in the trust to satisfy the $42
million judgment. The circuit court acknowledged that it had personal
jurisdiction over Chesley and that there had been a valid judgment entered
against him. As such, the circuit court viewed the Respondents' motion as
legitimate effort to secure the circuit court's assistance in collecting an
outstanding judgment. Accordingly, the circuit court ordered Chesley on June
23, 2015, to direct Rehme to make all payments derived from Chesley's
holdings in the shares of WSBC payable to the Respondents through their
counsel.
In response, Chesley requested relief from the Court of Appeals under CR
65.07. The Court of Appeals denied the motion, and his appeal to this Court
followed.
ANALYSIS
CR 65.01 authorizes a party to request injunctive relief from the circuit
court in the form of a restraining order, temporary injunction, or permanent
injunction in a final judgment. When the circuit court by interlocutory order
has denied, dissolved, modified, or granted a temporary injunction, the
adversely affected party is able to seek relief from the Court of Appeals
pursuant to CR 65.07. After an adverse decision in that court, a party may
move this Court pursuant to CR 65.09 to review the judgment of the Court of
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Appeals. However, the decision as to whether or not to review the order of the
Court of Appeals is discretionary with the Court. CR 65.09.
While discretionary, the Court's review is "limited to those cases which
demonstrate extraordinary cause." Nat'l Collegiate Athletic Ass'n v. Lasege, 53
S.W.3d 77, 84 (Ky. 2001); CR 65.09 ("Such a motion will be entertained only for
extraordinary cause shown in the motion."). Demonstrating extraordinary
cause is not an easy task - in fact we have recognized that the movant faces an
"enormous burden" when requesting relief pursuant to CR 65.09. Courier-
Journal, Inc. v. Lawson, 307 S.W.3d 617, 620 (2010) (quoting Kindred Hosps.
Ltd. P'ship v. Lutrell, 190 S.W.3d 916, 919 (Ky. 2006)). However, an abuse of
discretion by the courts below can constitute extraordinary cause. Lasege, 53
S.W.3d at 84.
Chesley contends that the Court of Appeals and the circuit court
committed an abuse of discretion. With regard to the circuit court, Chesley
claims that it exceeded its authority by ordering Chesley to transfer funds
being held in a foreign jurisdiction. Additionally, Chesley argues that the
judgment of the Court of Appeals deprived him of his right to appellate review
from the circuit court's order, which he labels a "mandatory injunction."
However, in reviewing Chesley's motion, we conclude that his request for relief
under CR 65.09 is procedurally improper.
As a prerequisite for obtaining interlocutory relief from an order of the
circuit court under CR 65.07 or CR 65.09, the order at issue must be an
injunction. Chesley argues that the circuit court's June 23, 2015, order
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granted mandatory injunctive relief and was entered prior to the adjudication
of all outstanding claims. As such, Chesley concludes that the order was a
temporary injunction and subject to appellate review under CR 65.07 and CR
65.09. 5 However, Chesley is mistaken in his characterization of the circuit
court's June 23, 2015 order.
On August 1, 2014, the circuit court granted summary judgment against
Chesley for Respondents' breach of fiduciary duty claims. In the final amended
version of the order, entered October 22, 2014, Chesley was also held to be
jointly and severally liable with Cunningham, Gallion, and Mills for the existing
judgment amount of $42 million. Additionally, the October 22, 2014, order
expressly noted that it was a final and appealable order. Subsequently,
Chesley filed a motion for the circuit court to reconsider its order and a motion
to vacate the judgment pursuant to CR 60.02. Both motions were denied.
Afterwards, Chesley appealed the circuit court's summary judgment order to
the Court of Appeals.
However, Chesley declined to post a supersedeas bond to stay
enforcement of the judgment pending his appeal. Subsequently, the circuit
court entered its June 23, 2015, order requiring Chesley to transfer his
beneficial interest in his Ohio trust to the Respondents to satisfy the $42
5 In support of his argument, Chesley directs the Court to review Bahar v. Lyon
Fin. Servs. Inc., 330 S.W.3d 379, 386 (Tex. Ct. App. 2010). In Bahar, the Court of
Appeals of Texas, concluded that a turnover order issued pursuant to a default
judgment in a foreign jurisdiction, acted as a mandatory injunction against the
judgment debtor. Id. However, that determination was rooted in an analysis of
Texas's turnover statute. Bahar, is not dispositive in the case at bar. Rather, the
outcome of this case is governed by the application of the Kentucky Rules of Civil
Procedure.
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million judgment. Chesley maintains that the circuit court's order is a
temporary injunction as it occurred prior to a final judgment adjudicating all
the claims against him.
A temporary injunction generally functions to hold the status quo until
the merits of an action can be decided. Curry v. Farmers Livestock Mkt., 343
S.W.2d 134, 135 (Ky. 1961). Although the circuit court may grant a temporary
injunction, it is only empowered to do so during the pendency of the action.
Price v. Paintsville TourisM Comm'n, 261 S.W.3d 482, 484 (Ky. 2008). While all
the claims against Chesley have yet to be resolved, the circuit court has
entered a final judgment on the breach of fiduciary duty claims.
Under CR 54.02, where a case involves multiple claims, the circuit court
is permitted to "grant a final judgment as to fewer than all the claims, and
hence to make possible an immediate appeal, upon a determination that there
is no just reason for delay." Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d
542, 549 (Ky. 2011) (citing Watson v. Best Fin. Servs., Inc. 245 S.W.3d 722 (Ky.
2008)). "Where the judgment truly disposes of a distinct and separable aspect
of the litigation, the trial court's determination that there is no just reason for
delay will only be disturbed if that discretion was abused." Id.
In the case at bar, the circuit court under CR 54.02 entered a final
judgment on Respondents' breach of fiduciary duty claims. The circuit court
was empowered to enter a valid final judgment on the breach of fiduciary duty
claims despite the fact that there were other collateral claims outstanding. The
circuit court's order did not concern those issues and they remain to be
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adjudicated. Rather, the circuit court by entering a final judgment under CR
54.02, permitted the judgment on the central issue to be appealed to avoid
unnecessary delay. As such, there was a final judgment regarding the breach
of fiduciary duty claims upon the entry of the circuit court's October 22, 2014,
order.
The entry of a final judgment on the breach of fiduciary duty claims is
critical in evaluating the character of the circuit court's subsequent June 23,
2015, order. That order, which required Chesley to comply with an unpaid
judgment, did not occur during the pendency of the case and therefore cannot
be viewed as being a temporary injunction. The circuit court's order did not
seek to maintain the status quo until there was an adjudication of the breach
of fiduciary duty claims (or any other claims), rather it was entered to give force
to that nearly one year-old judgment, a judgment for which Chesley had not
sought a stay by filing a supersedeas bond pursuant to CR 62.03. Instead of
being an injunction, the June 23, 2015, order was a post-judgment order in
furtherance of Respondents' efforts to collect on the outstanding judgment
against Chesley. As the order was not an injunction, we agree with the Court
of Appeals that the circuit court's June 23, 2015, order is not subject to review
under CR 65.07. Accordingly, Chesley is not entitled to relief under CR 65.09.
Due to this determination, Chesley's claims that the circuit court
exceeded the scope of its jurisdiction in ordering him to transfer his interest in
the Ohio trust to the Respondents are not properly before this Court. Whether
the circuit court has the authority, under Kentucky Revised Statute (KRS)
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426.384, to compel a defendant to transfer property held in a foreign
jurisdiction in payment of a judgment is an issue that has yet to be addressed
by Kentucky's appellate courts. However, as that issue is not properly before
the Court on this CR 65.09 motion, we decline to address it.
As the Boone Circuit Court's order was not an injunction, it is not
subject to interlocutory relief. Therefore, Chesley's motion for interlocutory
relief pursuant to CR 65.09 from the order of the Court of Appeals is DENIED.
All sitting. All concur.
ENTERED: June 16, 2016.
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oSujartntr Court of Ifittifurkv
2015-SC-000599-I
STANLEY M. CHESLEY MOVANT
ON REVIEW FROM COURT OF APPEALS
CASE NO. 2015-CA-001066-I
V. BOONE CIRCUIT COURT NO. 05-CI-00436
MILDRED ABBOTT, ET AL. RESPONDENTS
ORDER DENYING MOTION FOR RECONSIDERATION
The Motion for Reconsideration, filed by the Movant, Stanley M. Chesley,
of the Opinion and Order of the Court, entered June 16, 2016, is DENIED.
All sitting. All concur.
ENTERED: October 20, 2016.
CI JUSTICE