Mammoth Medical, Inc. v. Bunnell, No. 2008-SC-000048-MR.

• Decision Date: 18 September 2008
• Docket Number: No. 2008-SC-000048-MR.
• Citation: Mammoth Medical, Inc. v. Bunnell, 265 S.W.3d 205 (Ky. 2008)
• Parties: MAMMOTH MEDICAL, INC., Appellant, v. Hon. Kimberly BUNNELL (Judge, Fayette Circuit Court), et al., Appellees.
• Court: Supreme Court of Kentucky

265 S.W.3d 205

MAMMOTH MEDICAL, INC., Appellant, v.Hon. Kimberly BUNNELL (Judge, Fayette Circuit Court), et al., Appellees.

No. 2008-SC-000048-MR.

Supreme Court of Kentucky.

September 18, 2008.

As Modified to Designate Opinion for Publication September 26, 2008.

Charles A. Goodman, III, Garmon & Goodman, Glasgow, Joe B. Campbell, Campbell Law Office, Bowling Green, John Lewis Tate, Stites & Harbison, PLLC, Louisville, KY, Counsel for Appellant.

James E. Keller, Gess Mattingly & Atchison, PSC, Lexington, Kenneth Gregory Haynes, Wyatt, Tarrant & Combs, LLP, Rania Marie Basha, Sara Christine Veeneman, Virginia Hamilton Snell, Wyatt, Tarrant & Combs, LLP, Kimberly Nell Bunnell, Fayette County Circuit Court Judge, Lexington, KY, Counsel for Appellee.

Richard Wayne Hay, Sarah Hay Knight, Somerset, KY, Amicus Curiae.

Opinion of the Court by Justice SCOTT.

The Court of Appeals denied CR 76.36 relief to Mammoth Medical, Inc.("Mammoth"), a medical supply distributor who petitioned for a writ of prohibition, seeking dismissal of a declaratory judgment action brought against it by the law firm Stoll Keenon Ogden PLLC ("SKO").The writ was filed after SKO took preemptive action by seeking a declaration of non-liability for Mammoth's potential legal malpractice claim, asserting lack of causation as a defense.Mammoth appeals the denial of the writ as a matter of right pursuant to CR 76.36(7).

The principal issue before us is whether a Kentucky circuit court can adjudicate in a declaratory judgment action a potential tort defendant's defenses to an allegedly injured party's prospective negligence claim.We hold that the circuit court had jurisdiction but, under these circumstances, declaratory judgment is nonetheless not a proper procedure to seek a determination of nonliability for past conduct.Therefore, we conclude that the Fayette Circuit Court, although having jurisdiction, acted erroneously in allowing the declaratory judgment action to proceed, and that the Court of Appeals erred when it denied the writ.

I.Facts

Joe Alexander, a former Mammoth salesman, voluntarily resigned his employment in February 2005 and shortly thereafter, allegedly sold information about Mammoth to at least one medical equipment manufacturer.Mammoth subsequently retained an attorney, who was not associated with SKO, to represent it against Alexander.After receiving a letter accusing him of misusing confidential information, Alexander contacted an attorney at SKO in May 2005.

Unbeknownst to that attorney, other attorneys at SKO had been performing legal services for Mammoth on unrelated business matters since 2004.The SKO attorney performed a conflicts check, which failed to reveal that his law firm represented Mammoth.He then agreed to represent Alexander in his dispute with Mammoth.

Thereafter, from May 2005 until February 2006, SKO performed legal services for Alexander on certain matters, including his dispute with Mammoth.Included among those services were multiple letters from the SKO attorney on SKO firm letterhead to attorneys representing Mammoth in its claims against Alexander.

Mammoth learned of the conflicting representations in early 2006.SKO received, from a law firm representing Mammoth, a letter advising SKO of Mammoth's position that SKO should cease representing Alexander due to its representation of Mammoth on other matters.SKO ceased its representation of both Mammoth and Alexander by February 2006, when an investigation confirmed the conflicting representations.

II.Procedural History

On February 10, 2006, Mammoth brought an action for injunctive relief and damages in the Barren Circuit Court against Alexander.Alexander filed a bankruptcy petition two months later.Mammoth successfully moved to dismiss or convert the bankruptcy action into an adversary proceeding.In response, Alexander asserted as a defense the legal advice he received from SKO.

Mammoth did not join SKO as a defendant when it sued Alexander.Mammoth nonetheless demanded that SKO reimburse it for the financial losses allegedly suffered as a result of Alexander's conduct.

On May 1, 2006, Mammoth and SKO entered into a tolling agreement.The agreement gave the parties time to pursue negotiations about SKO's potential liability to Mammoth for advising Alexander.Tolling applied only to Mammoth's alleged claims; it did not bar SKO from taking steps to protect its interests.

The parties' communications in the following months progressed to scheduling a formal mediation on November 13, 2006.On November 3, 2006, however, SKO informed Mammoth that it would not participate in the mediation and, that same day, filed a complaint for declaratory relief in the Fayette Circuit Court.SKO's complaint was a preemptive action seeking summary adjudication of liability and damages in a potential legal malpractice lawsuit by Mammoth.

On November 20, 2006, Mammoth filed a motion to dismiss, arguing that declaratory judgment is not the proper method for resolving a legal malpractice claim, and the Fayette Circuit Court is not the correct forum for adjudicating the parties' dispute.The circuit court initially granted the motion to dismiss, but later, in response to SKO's motion to reconsider, vacated the dismissal order and reinstated SKO's action.The circuit court subsequently denied Mammoth's motion to reconsider and motion to dismiss for improper venue and lack of personal jurisdiction.

On July 2, 2007, Mammoth filed an original proceeding in the Court of Appeals pursuant to CR 76.36 requesting a writ of prohibition to direct the dismissal of the Fayette Circuit Court action filed by SKO.The Court of Appeals, in a 2-1 decision, denied the writ on December 23, 2007.

III.Analysis

The issue in this case, as framed by this Court, is as follows: Can the Fayette Circuit Court adjudicate in a declaratory judgment action SKO's defenses to Mammoth's prospective legal malpractice claim?Mammoth argues that the circuit court is acting without subject matter jurisdiction because actions for declaratory relief are designed to determine prospective rights and duties, not liability for past conduct.Mammoth further contends that venue is improper in Fayette County and that the circuit court does not have personal jurisdiction over it.

Mammoth asserts that a writ should issue because it has no adequate remedy by appeal if SKO is permitted to go forward with its declaratory judgment action in circuit court, as Mammoth has more claims against SKO than those outlined in SKO's complaint for declaratory relief.In the alternative, Mammoth asserts this is a special case where allowing the declaratory judgment action to proceed would be detrimental to the orderly administration of justice.

SKO responds that the practical outcome of the writ proceeding will only determine whether venue lies in Fayette County or Barren County.SKO asserts that a writ should not issue because Mammoth has an adequate remedy by appeal.SeeFritsch v. Caudill,146 S.W.3d 926, 928(Ky.2004).SKO believes that Mammoth has not shown irreparable harm because it has the same rights in the Fayette County action as it enjoys in its Barren County action.

SKO further contends that the circuit court acted properly within its jurisdiction pursuant to KRS 418.045.SKO asserts that the Kentucky Declaratory Judgment Act ("DJA") is unique and not an adoption of either the Uniform DJA or the Federal DJA.SKO points out that, unlike the Federal DJA or any other state law, the Kentucky DJA does not preclude it from seeking declaratory relief under these circumstances.

A.Standard of Review

Relief by way of a writ of prohibition is an "extraordinary remedy and we have always been cautious and conservative both in entertaining petitions for and in granting such relief."Grange Mut. Ins. Co. v. Trude,151 S.W.3d 803, 808(Ky.2004)(quotingBender v. Eaton,343 S.W.2d 799, 800(Ky.1961)).This Court has divided writ cases into two classes, which are distinguished by "whether the inferior court allegedly is (1) acting without jurisdiction (which includes `beyond its jurisdiction'), or (2) acting erroneously within its jurisdiction."Id.The second class of writs includes a subclass for "certain special cases."Independent Order of Foresters v. Chauvin,175 S.W.3d 610, 616(Ky.2005).Mammoth claims that the Fayette Circuit Court either is acting outside its jurisdiction or, alternatively, that this is a special case involving misuse of the Kentucky DJA.

The proper standard of review of a decision to deny a writ of prohibition depends on the class of writ case.Grange Mut. Ins. Co.,151 S.W.3d at 810.De novo review is generally the proper standard, where the lower court is alleged to be acting outside its jurisdiction, because jurisdiction is generally only a question of law, where the alleged error invokes the "certain special cases" exception, or where the error involves a question of law.Id.(emphasis added.)Thus, we review the denial of the writ de novo, giving no deference to the judgment below.

B.The Kentucky Declaratory Judgment Act

The Kentucky DJA is codified in KRS Chapter 418.The Kentucky DJA is intended to be remedial in nature, and its purpose is to make courts more serviceable to the people by way of settling controversies and affording relief from uncertainty and insecurity with respect to rights, duties and relations.KRS 418.080.We liberally interpret and administer the Kentucky DJA to accomplish its broad purpose.Id.

KRS 418.040 provides that in any action in a court of record wherein it is made to appear that an actual controversy exists, the plaintiff may ask for a declaration of rights, either alone or with other relief, and the court may make a binding judgment.As a rule, the court has broad discretion to grant declaratory relief.The party seeking relief must show that an actual, justiciable controversy exists; proceedings for a declaratory judgment must not merely...