Osborne v. Keeney

• Decision Date: 20 June 2013
• Docket Number: Nos. 2010–SC–000397–DG, 2010–SC–000430–DG.,s. 2010–SC–000397–DG, 2010–SC–000430–DG.
• Parties: Brenda C. OSBORNE, Appellant v. Steven H. KEENEY; Carolina Casualty Insurance Company; and Monitor Liability Managers, Inc., Appellees and Steven H. Keeney, Appellant v. Brenda C. Osborne; Carolina Casualty Insurance Company; and Monitor Liability Managers, Inc., Appellees.
• Court: United States State Supreme Court — District of Kentucky

399 S.W.3d 1

Brenda C. OSBORNE, Appellant

v.Steven H. KEENEY; Carolina Casualty Insurance Company; and Monitor Liability Managers, Inc., AppelleesandSteven H. Keeney, Appellant

v.Brenda C. Osborne; Carolina Casualty Insurance Company; and Monitor Liability Managers, Inc., Appellees.

Nos. 2010–SC–000397–DG, 2010–SC–000430–DG.

Supreme Court of Kentucky.

Dec. 20, 2012.

Rehearing Denied June 20, 2013.

Leroy E. Sitlinger, Jr., Sitlinger, McGlincy, Theiler, Louisville, KY, for appellant/appellee Brenda C. Osborne.

Andrew Graham Beshear, Matthew W. Breetz, Stites & Harbison, PLLC, Sheryl G. Snyder, Griffin Terry Sumner, Frost, Brown, Todd LLC, Louisville, KY, for appellee/appellant Steven H. Keeney.

Douglas Cain Ballantine, Amy Olive Wheeler, Stoll, Keenon, Ogden, PLLC, Louisville, KY, for appellees Carolina Casualty Insurance Company and Monitor Liability Managers, Inc.

Opinion of the Court by Chief Justice MINTON.

Brenda Osborne sued her attorney, Steven H. Keeney, claiming he breached his professional duty to her by failing to file suit against Clifford Quesenberry before the statute of limitations expired. Because of Keeney's breach, Osborne alleged she lost the ability to recover from Quesenberry for losses she suffered as a result of Quesenberry's crashing his airplane into her home. A circuit court jury decided this legal malpractice case in Osborne's favor, resulting in a judgment against Keeney in excess of $5 million. The Court of Appeals affirmed the judgment, in part, but vacated a large portion of the damage award.¹

We granted Osborne's and Keeney's separate petitions for discretionary review to consider three important issues presented in this case: first, whether the suit-within-a-suit procedure as approved by Kentucky precedent remains the proper method for litigating legal malpractice under the circumstances presented in this case; second, whether the physical impact rule—a rule. firmly embedded in Kentucky tort law—remains the proper threshold standard for claims involving emotional distress; and third, whether lost punitive damages should be recoverable in legal malpractice actions, an issue of first impression in Kentucky.

As to the first issue, we reaffirm our precedent holding the proper method for trying legal malpractice claims is the suit-within-a-suit, which requires the trial court to instruct the jury as if it were trying the underlying tort case before instructing the same jury on the legal malpractice claim. The trial court in the case at hand properly tried the case using the suit-within-a-suit method but erred when it failed to instruct the jury on Quesenberry's negligence. Lacking a jury determination on this issue, Osborne failed to establish that Keeney's malpractice proximately caused her loss. And the Court of Appeals erred by upholding the trial court's instruction on this issue. So we reverse the decision of the Court of Appeals and remand the case to the trial court for further proceedings consistent with this opinion.

Because the second issue is likely to recur in the event of a retrial on remand, we take this opportunity to address the physical impact rule and hold that it is no longer the threshold standard in Kentucky law for claims involving emotional distress. Today, we clarify the rule and now require that emotional-distress plaintiffs first satisfy the elements of a general negligence claim. Further, a plaintiff will not be allowed to recover without showing, by expert or scientific proof, that the claimed emotional injury is severe or serious. Put simply, a plaintiff must show that the defendant was negligent and that the plaintiff suffered mental stress or an emotional injury, acknowledged by medical or scientific experts, that is greater than a reasonable person could be expected to endure given the circumstances.

Because the third issue is also likely to recur in the event of a retrial on remand, we hold that lost punitive damages are not recoverable against an attorney in a legal malpractice case. The purpose for punitive damages is clear in this jurisdiction, and transposing them into a form of compensatory damages to allow a legal malpractice plaintiff to recover thwarts that purpose. By disallowing recovery for lost punitive damages, we align the jurisprudence in this jurisdiction with a growing number of states.

I. FACTUAL AND PROCEDURAL BACKGROUND.

A. The Airplane Crash.

In October of 2002, while Osborne was sitting alone at home watching TV, an airplane crashed through her roof, resulting in significant damage to the home and its contents. The plane had just departed from a nearby airport. The pilot, Quesenberry, experienced mechanical difficulties with the plane before takeoff. By his estimation, the engine drive-pump had lost its prime. An airport mechanic offered to help, but Quesenberry declined and said he had encountered the problem a few times before. Attempting a quick fix to return home, Quesenberry squirted fuel into the air-intake of the left engine. The engine backfired, catching fire. Quesenberry extinguished the flames and again squirted fuel into the engine in order to get it to start. Finally, the engine started and Quesenberry took off.

Shortly after leaving the runway, at an altitude of approximately fifty feet, Quesenberry lost power to the left engine and began a rapid descent. He was able to steer the plane to avoid potentially greater damage on the ground below, but he did not avoid hitting Osborne's home. The plane sliced through her chimney, inflicted significant damage to the second story, and set the house afire before coming to rest in the adjacent street. Osborne said she heard a “sonic boom” and ran outside to discover her home on fire. No debris from the airplane or the house struck Osborne in any manner, and she suffered no physical injury as a result of the crash.

B. Osborne's Emotional Distress Claim.

Shortly after the crash, Osborne was transported to a local hospital where Dr. Rhonda Sively, an internist, treated her. Osborne had suffered for years from anxiety, depression, hypertension, insomnia, and diabetes. Dr. Sively testified that Osborne was in obvious shock, and her preexisting ailments were exacerbated. According to the doctor, Osborne was emotionally unstable as a result of the destruction of her home and her personal belongings. For an extended period of time after the crash, Osborne received treatment.

C. Keeney's Representation and Malpractice Trial.

Osborne retained Keeney approximately six months after the crash. Shortly after being hired, Keeney arranged a meeting with an adjuster for Osborne's homeowner's insurance carrier. Keeney continued discussions that Osborne initiated with her carrier regarding her homeowner's claims. Ultimately, Osborne received a series of checks from her homeowner's insurance carrier. And, under the terms of the engagement contract she signed with Keeney, Keeney took 20 percent of these insurance proceeds.² According to Keeney, this was a “front-loaded” fee arrangement; and Osborne would receive more from the claims to be asserted against Quesenberry. Payments totaling over $234,000 came from Osborne's homeowner's insurance.

In August of 2004—nearly two years after the crash—Keeney attempted to dissuade Osborne from proceeding with litigation against Quesenberry. By this time, the applicable one-year statute of limitations had expired. But Osborne insisted on going forward with litigation in hopes of receiving a substantial damages award. So Keeney filed a lawsuit against Quesenberry in state court in October 2004.

Quesenberry removed the case to federal court and claimed the action was barred by the applicable statute of limitations. Osborne claimed that she was unaware that the statute of limitations had expired.³ Keeney, in an attempt to avoid summary dismissal, filed a motion requesting the federal court hold the case in abeyance because Osborne was mentally incapacitated. Keeney had evidence that Osborne was still suffering the emotional effects, not only of the airplane crash, but also from her preceding divorce and bankruptcy. After allowing Quesenberry to depose Dr. Sively and Osborne, the federal court denied the motion for abeyance and entered summary judgment for Quesenberry because the action was barred by limitations.

Keeney did not respond to Quesenberry's motion for summary judgment. And Keeney did not inform Osborne that a motion for summary judgment had been filed. Furthermore, Keeney did not answer interrogatories or participate in discovery leading up to the dismissal. The federal court went so far as to observe in a written order that Keeney had acted with “willfulness, bad faith [,] or fault”; was warned several times regarding his conduct; and that his conduct alone was sufficient to warrant a dismissal of Osborne's claim.

It was January of 2006 before Osborne became aware that her federal lawsuit against Quesenberry was dismissed. Dr. Sively, not Keeney, told Osborne. Dr. Sively had become aware of the dismissal through a conversation with Quesenberry's counsel. Without Osborne's knowledge, the federal court entered judgment against her for the cost of the dismissed action.

Osborne later filed this action against Keeney asserting breach of contract, legal malpractice, and fraud and deceit. The jury returned a verdict in Osborne's favor on all claims. The jury awarded Osborne the following damages: (1) $54,924.04 for loss of her personal property; (2) $500,000 for pain and suffering from the airplane crash; (3) $750,000 as punitive damages against Quesenberry; (4) $53,025.39 for legal fees paid to Keeney; (5) $250,000 for mental anguish resulting from Keeney's representation. And the jury awarded Osborne $3,500,000 in punitive damages against Keeney.

D. The Decision of the Court of Appeals.

The Court of Appeals affirmed the judgment, in part, but reversed several aspects of the jury's verdict. The damages Osborne received for pain and...