Johnson v. Smith

• Decision Date: 27 October 1994
• Docket Number: Nos. 93-CA-110,93-SC-665-DG,s. 93-CA-110
• Citation: 885 S.W.2d 944
• Parties: Lawrence T. JOHNSON (Executor of Frank Johnson Estate); Lawrence T. Johnson; Kerry S. Britt; Lisa R. Morgan; Dennis S. Britt; Sonja L. Britt; John B. Johnson, II; and Regina Johnson Britt, Movants, v. Margaret Johanne SMITH; Suzanne Smith; Sloan Smith; Ian Smith; Pamela Smith Dye; Jack Daniels Smith; and Johan C. Smith, Respondents
• Court: United States State Supreme Court — District of Kentucky

Page 944

885 S.W.2d 944

Lawrence T. JOHNSON (Executor of Frank Johnson Estate) Lawrence T. Johnson; Kerry S. Britt; Lisa R. Morgan Dennis S. Britt; Sonja L. Britt; John B. Johnson, II; and Regina Johnson Britt, Movants, v. Margaret Johanne SMITH; Suzanne Smith; Sloan Smith; Ian Smith; Pamela Smith Dye; Jack Daniels Smith and Johan C. Smith, Respondents.

Nos. 93-CA-110, 93-SC-665-DG.

Supreme Court of Kentucky

Oct. 27, 1994.

Diana L. Skaggs, Carey, Rosenbaum, Niemi, Skaggs & McKinley, Louisville, for movant, Lawrence T. Johnson, Exec., et al.

Homer Parrent, III, Parrent, Vish & Smither, Wallace Spalding, Jr., Wallace Spalding, III, Louisville, for movant, John B. Johnson, II.

Stanley W. Whetzel, Jr., Maria A. Fernandez, Taustine, Post, Sotsky, Berman, Fineman & Kohn, Louisville, for movant, Regina Britt.

Joseph E. Stopher, Robert E. Stopher, Boehl, Stopher & Graves, Louisville, for respondents.

LEIBSON, Justice.

This case is a problem of appellate procedure generated in the aftermath of a declaratory judgment action. The question is whether the notices of appeal filed by the movants were filed prematurely and therefore defectively, and, if so, whether such defect renders their appeals a nullity.

John B. Johnson, II and Regina Johnson Britt, two of a number of beneficiaries of an inter vivos trust executed by John B. Johnson, now deceased, filed a declaratory judgment action in Jefferson Circuit Court, seeking cancellation or reformation of a clause in the trust instrument on grounds this clause was executed "through mistake and misapprehension." The trust instrument provided that the corpus, which eventually exceeded $7.2 million, was to be divided and distributed in differing, specified percentages among the grantor's three children, a daughter and two sons, and their issue. The trust corpus was divided 50% to daughter, Margaret, 30% to son, Thomas, and 20% to son, Frank. Regina Britt is a daughter of the grantor's son Frank, and John Johnson, II, is a son of the grantor's son Thomas. The declaratory judgment action put in issue the "tax allocation provision" in the trust which specified that "all ... estate and inheritance taxes incurred by the Grantor's death" would be paid from the portions of the trust set up for sons Frank and Thomas and their issue. The result is the trust set up for daughter Margaret and her issue, from which no taxes are to be paid, will receive nearly $3.5 million of the net estate (96.7%), while Thomas' trust would receive about $70,000 (1.9%), and Frank's trust about $50,000 (1.4%) of the trust estate.

The declaratory judgment action was filed against the trustee, Liberty National Bank and Trust Co., and daughter Margaret and her children, the persons benefiting from the tax allocation provision. Those beneficiaries of the separate trusts for sons Frank and Thomas and their issue aside from the two named plaintiffs were named as additional defendants. Some (but not all) of these beneficiaries named as defendants then joined in questioning the tax allocation clause.

By counterclaim against the plaintiffs and cross-claims against other beneficiaries who joined in challenging the validity of the tax allocation clause, trustee Liberty Bank and daughter Margaret and her issue then put in issue a further clause in the trust instrument, called the "in terrorem clause." This clause, by its terms, divests the trust interest of "any beneficiary hereunder [who] shall contest the validity of this Trust Agreement or any provision thereof, or [who] shall institute or join (except as a party defendant) any proceeding to contest the validity of this Trust Agreement or to prevent any provision hereof from being carried out in accordance with its terms...." This forfeiture provision is referred to as an "in terrorem " clause because its purpose is to strike fear into the heart of a beneficiary who might wish to consider contesting the provisions of the trust.

On April 15, 1992, the trial court disposed of the attack on the tax allocation clause by summary judgment in favor of the defendants, trustee Liberty Bank and daughter Margaret and her issue, reciting that this was a "final and appealable order, there being no just cause for delay." This ruling was then appealed to the Kentucky Court of Appeals, which affirmed in an opinion rendered May 6, 1994 (Case No. 92-CA-1283). This Court of Appeals opinion is now final. Discretionary review was denied August 24, 1994.

In this same April 15, 1992 order making a final disposition by summary judgment of the tax allocation clause issue, the trial court denied summary judgment as to the in terrorem clause. After a bench trial in September, the trial court disposed of it in a final order entered December 22, 1992. This order upheld applying the in terrorem clause to this case. In three separate paragraphs of a single order the trial court held: (1) "Plaintiffs, Regina Britt and John B. Johnson, II, have forfeited their trust entitlement"; (2) "Defendants, Frank Johnson, Larry Johnson, the four children of Regina Britt, Thomas Johnson, Sr., and Thomas Johnson, Jr., have forfeited their trust entitlement"; and (3) "the children of Thomas Johnson, Jr. and John Johnson, II, [who did not contest the tax allocation clause] are the true recipients of any Trust C entitlement." This order forfeited the entitlement of those beneficiaries who contested the tax allocation clause, whether as original plaintiffs or as original defendants filing cross-claims, and passed the trust corpus to Margaret Smith and her issue and to the portion of the issue of brother Thomas who did not contest the tax allocation clause.

The present procedural dilemma arises because the attorney representing one of the trust beneficiaries, son Thomas and two of his issue (but not the rest), filed a timely CR 59 motion seeking both a new trial and an order to alter or amend the judgment. Such a motion must be "served not later than ten days after entry of the final judgment" (CR 59.05). CR 73.02(1)(e) specifies that the thirty day time limit in CR 73.02(1)(a) within which to file a notice of appeal is "terminated by a timely motion pursuant to" Rule 59 and "the full time for appeal ... commences to run upon entry of" an order "granting or denying" the motion. CR 73.02(1)(e). The parties filing the Rule 59 motion later, when it was denied, filed a timely appeal (93-CA-0577) and their appeal was consolidated with the previous appeal of the tax allocation clause (92-CA-1283) which was still pending. In the same Court of Appeals' opinion rendered May 6, 1994 (discussed supra ) affirming the trial court's ruling on the tax allocation clause, the Court of Appeals also addressed and reversed the trial court's ruling on the in terrorem clause, "conclud[ing] the circuit court misapplied the forfeiture clause as to these appellants." "These appellants" did not include the movants in the present case. The movants in the present case already had appealed separately and severally from the trial court's final order entered December 22, 1992 (93-CA-110 and 93-CA-172), rather than seeking post-judgment relief. Their appeals had been consolidated with the appeals decided on May 6, 1994, but had been dismissed by the Court of Appeals for procedural default before reaching the merits.

The trust beneficiaries (the movants in the present case) whose interest was ordered forfeited because of the in terrorem clause in the trial court's final order of December 22, 1992 who elected to appeal forthwith rather than to pursue a post-judgment motion under CR 59 are: (1) brother Frank (now deceased, through his estate) and some of his heirs, who filed a notice of appeal on January 11, 1993; and (2) grandchildren, Regina Britt and John Johnson, II (plaintiffs in the original declaratory judgment action) who filed a notice of appeal on January 19, 1993. These two notices of appeal were filed within thirty days of the final judgment entered against these parties on December 22, 1992, as provided for by CR 73.02(1)(a), but were premature if, when a CR 59 motion was filed by other parties (on December 29, 1992), time for filing notices of appeal was suspended for all parties and not just those several parties who filed the CR 59 motion. The trial court overruled the CR 59 motion of February 12, 1993, and movants filed no new notices of appeal after this occurred, relying on their previously filed notices of appeal to perfect their appeals. These appeals filed by the movants were consolidated with the separate appeals filed later in time by those beneficiaries who had pursued a CR 59 motion.

After these cases had been consolidated, briefed and were under submission, the appellees, trustee Liberty Bank and daughter Margaret and her issue, moved to dismiss movants' appeals of the in terrorem clause in 93-CA-110 and 93-CA-172, wherein no CR 59 motion had been made. The grounds were that the CR 59 motion made in the trial court by other beneficiaries suspended finality of the order of December 22, 1992 as to all parties, rendering a nullity the two notices of appeal filed in the interim before the trial court denied CR 59 relief on February 12, 1993. The argument was that the movants needed to file new notices within the thirty day period commencing with the order of February 12, 1993 overruling the CR 59 motion.

The Court of Appeals sustained the motions to dismiss these appeals, stating that the Rule 59 "motion converted the final judgment to an interlocutory judgment until it was adjudicated," that "[a]ppellants' notices of appeal were filed during the pendency of that [CR 59] motion while the finality of the judgment was temporarily suspended," and that "[c]onsequently, these appeals were prematurely taken and this Court [of Appeals] has no jurisdiction to review them." We granted discretionary review, and for reasons that will be stated, we reverse.

There are three problems raised by the Court of Appeals'...