Kerbaugh & Rodes v. Whitaker Bank, Inc.
| Decision Date | 21 June 2013 |
| Docket Number | NO. 2011-CA-002112-MR,2011-CA-002112-MR |
| Court | Kentucky Court of Appeals |
| Parties | KERBAUGH & RODES, A KENTUCKY GENERAL PARTNERSHIP; AND CLARK LAW FIRM, PLLC APPELLANTS v. WHITAKER BANK, INC.; ACH FARMS, LTD; ALAN HILL; CLAUNCH CONSTRUCTION, LLC; AND CITY OF DANVILLE APPELLEES |
NOT TO BE PUBLISHED
APPEAL FROM BOYLE CIRCUIT COURT
This litigation began on September 27, 2010, when Whitaker Bank filed a foreclosure action against Alan Hill and ACH Farms.2 Whitaker Bank's complaint of record specifically alleged that the subject property "cannot be divided without materially impairing its value and the interest of the parties thereto and the [p]roperty should therefore be sold in its entirety. . . ." On January 3, 2011, Whitaker Bank filed a motion for default judgment and tendered a proposed default judgment and order of sale to the court.3
Kerbaugh filed a motion to intervene on June 29, 2011. As an aside, Kerbaugh did not file any answer, objection, or responsive pleading with regard to the divisibility of the subject property; rather, the purpose of its motion was to assert a judgment lien on the property and file a complaint to contest the issue of priorities. At a July 6, 2011 hearing, the circuit court granted Kerbaugh's motion to intervene, but also determined through an order entered that same day that Whitaker Bank's lien was entitled to first priority. Kerbaugh did not appeal or contest this determination.
Also at the July 6, 2011 hearing, the circuit court heard Whitaker Bank's motion for default judgment and an order of sale. The circuit court specifically asked Kerbaugh's counsel whether Kerbaugh's intervention in any way precluded the entry of default judgment and order of sale. Counsel for Kerbaugh indicated that there was no objection to the entry of default judgment and order of sale. Moreover, Kerbaugh's counsel made no inquiry regarding the relief sought in the motion, nor did its counsel request additional time to review Whitaker's motion or formulate a response. Thereafter, the circuit court indicated that it would grant Whitaker's motion for default judgment after approval of the order by the Master Commissioner.
On July 18, 2011, the circuit court entered the default judgment and order of sale. The order stated that the "[p]roperty is not susceptible of division without materially impairing the value thereof and the [p]roperty shall be sold as awhole for the purpose of enforcing the judgment awarded herein" and that the order was "final and appealable . . .[and] there is no just cause for delay." Kerbaugh did not receive a copy of the default judgment and notice of sale but did receive a copy of the Master Commissioner's report of sale indicating that the property had been sold as one indivisible tract on August 16, 2011.
On September 2, 2011, Kerbaugh filed exceptions to the report of sale seeking to set aside the judgment and order of sale due to the fact that it was not served with a copy of either document and therefore did not have notice prior to the sale that the circuit court had ordered that the property be sold as one indivisible tract. Kerbaugh alleged that the judgment and order of sale was also erroneous in its conclusion that the property was not susceptible to division without materially impairing its value and that it was prejudiced due to lack of notice of the sale because it was not afforded the opportunity to bid on individual parcels at the sale.
On October 21, 2011, the circuit court denied Kerbaugh's motion to set aside the July 18, 2011 order and judgment, finding that Kerbaugh had failed to demonstrate that it was seriously prejudiced and that the sale price of the property was grossly inadequate. The circuit court also noted that, pursuant to Kentucky Rules of Civil Procedure (CR) 77.04, failure to serve Kerbaugh with notice of entry of the judgment and order of sale was not fatal to the judgment; Kerbaugh had notice of the sale because it was advertised in the local newspaper for threeconsecutive weeks;4 and, Kerbaugh had not raised any objection regarding the divisibility of the property in any of its pleadings. Accordingly, the circuit court entered an order confirming the sale. Kerbaugh now appeals.
As it did below, Kerbaugh argues that the circuit court's July 18, 2011 order and judgment, which contains the finding that the property was incapable of being divided and sold without materially affecting its value, should be set aside or invalidated because Kerbaugh was not given notice of its entry. Alternatively, Kerbaugh argues that the circuit court erred as a matter of law or abused its discretion when it made this finding.
Kerbaugh largely relies upon CR 77.04(1) in support of its former argument. That rule provides:
Immediately upon the entry in the trial court of a judgment, a final order, an order which affects the running of time for taking an appeal, or an order which by its terms is required to be served, the clerk shall serve a notice of the entry by mail in the manner provided in Rule 5 upon every party who is not in default for failure to appear. Service of notice of entry of any judgment or order under this rule may be waived by the filing of a writing signed by the party or his attorney of record.
In spite of this mandatory language, however, CR 77.04(4) also provides that a circuit court's failure to send any party such notice or any party's failure to receive such notice "shall not affect the validity of the judgment or order,and does not affect the time to appeal or relieve or authorize the court to relieve a party for failure to appeal within the time allowed except as permitted in Rule 73.02(1)."
In that regard, a judgment and order of sale establishing a debt, a valid lien, and otherwise settling the controversy between the parties—such as the circuit court's July 18, 2011 order and judgment in this matter—is a final judgment for purposes of appeal regardless of the reservation for further proceedings in order to effectuate the manner of sale to satisfy the debt. Security Federal Sav. & Loan Ass'n of Mayfield v. Nesler, 697 S.W.2d 136, 138 (Ky. 1985); Adkins v. Carol Min. Co., 281 Ky. 328, 136 S.W.2d 32, 36 (1940). One of the questions that the circuit court was required to resolve prior to entering its July 18, 2011 order and judgment was whether the property at issue was capable of being divided without materially impairing its value. See KRS 426.685(1). Whitaker's complaint in this matter described the property and alleged that it could not be so divided. No other party in this matter raised any argument to the contrary prior to when the circuit court entered default judgment in favor of Whitaker. The circuit court's default judgment explicitly held that the property in question could not be divided without materially affecting its value. Therefore, pursuant to CR 77.04(4), the circuit court's failure to notify Kerbaugh upon entering its July 18, 2011 order and judgment did not render its judgment void. Unless Kerbaugh's failure to receive notice supplies some other basis for setting it aside, the circuit court's order and judgment—along with its adjudication with regard to the issue of the property'sdivisibility, whether erroneous or not—is now final and the law of the case. See Harris v. Louisville Trust Co., 181 Ky. 659, 205 S.W. 772, 773 (1918).
With that said, the Civil Rules specify only two circumstances in which a circuit court is authorized, beyond the 10-day periods specified in CR 59.05 and CR 52.02, to grant some form of relief from the effect of its judgment in the event that a party failed to receive notice of the judgment.5 The first of these, CR 73.02(1)(d), allows a circuit court "[u]pon a showing of excusable neglect based on a failure of a party to learn of the entry of the judgment or an order which affects the running of the time for taking an appeal . . . [to] extend the time for appeal, not exceeding 10 days from the expiration of the original time." However, even if Kerbaugh's September 2, 2011 motion had asked for this relief (which it did not) it was filed beyond the 40-day deadline and, thus, would have been untimely in any event. See James v. James, 313 S.W.3d 17, 23 (Ky. 2010).
The second circumstance would have been pursuant to a CR 60.02 motion and under the circumstances described in Kurtsinger v. Bd. of Trustees of Kentucky Retirement Systems, 90 S.W.3d 454 (Ky. 2002). In Kurtsinger, the circuit court admittedly made an error which prevented timely service of its judgment upon the appellants, and the appellants consequently learned of thejudgment after the time for appealing it had already expired. For that reason, the appellants filed a CR 60.02 motion asking the circuit court to vacate its judgment and then re-enter it to enable them to file a timely appeal. Upon finding that the appellants had "acted with due diligence and acted promptly," the trial court...
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