Rosenbalm v. Commercial Bank of Middlesboro, s. 90-CA-002546-M

• Decision Date: 29 May 1992
• Docket Number: Nos. 90-CA-002546-M,90-CA-002652-MR,s. 90-CA-002546-M
• Citation: 838 S.W.2d 423
• Parties: Kenny ROSENBALM; Will Ed Kirk; Viola Hurst; Sylvia Williams; Larry Wilson; and William Mason, Appellants, v. COMMERCIAL BANK OF MIDDLESBORO; Bell County Garbage and Refuse Disposal District; Blakeman & Sons, Inc.; City of Middlesboro; City of Pineville; Joan Asher Cawood, Bell County Court Clerk; and Bell County Fiscal Court, Appellees. COMMERCIAL BANK OF MIDDLESBORO, Cross-Appellant, v. Kenny ROSENBALM; Will Ed Kirk; Viola Hurst; Sylvia Williams; Larry Wilson; William Mason; and W. Henry Graddy IV, Cross-Appellees.
• Court: Kentucky Court of Appeals

Page 423

838 S.W.2d 423

Kenny ROSENBALM; Will Ed Kirk; Viola Hurst; Sylvia

Williams; Larry Wilson; and William Mason, Appellants, v. COMMERCIAL BANK OF MIDDLESBORO; Bell County Garbage and Refuse Disposal District; Blakeman & Sons, Inc.; City of

Middlesboro; City of Pineville; Joan Asher Cawood, Bell

County Court Clerk; and Bell County Fiscal Court, Appellees.

COMMERCIAL BANK OF MIDDLESBORO, Cross-Appellant, v. Kenny ROSENBALM; Will Ed Kirk; Viola Hurst; Sylvia

Williams; Larry Wilson; William Mason; and W.

Henry Graddy IV, Cross-Appellees.

Nos. 90-CA-002546-MR, 90-CA-002652-MR.

Court of Appeals of Kentucky.

May 29, 1992.

Discretionary Review Denied by

Supreme Court Nov. 11, 1992.

W. Henry Graddy IV, Todd Evan Leatherman, Reeves & Graddy, Versailles, for appellants.

William A. Watson, Middlesboro, for Commercial Bank of Middlesboro.

Frank A. Atkins, Scoville, Cessna, Crawford & Atkins, London, for Bell County Garbage and Refuse Disposal Dist.

Lloyd R. Edens, Cline & Edens, Middlesboro, for Blakeman & Sons, Inc.

Charles E. Sigmon, Jr., Middlesboro, for City of Middlesboro.

Stephen C. Cawood, Barbourville, for City of Pineville.

Lowell W. Lundy, Pineville, for Joan Asher Cawood, Bell County Court Clerk.

Before GUDGEL, HUDDLESTON and McDONALD, JJ.

HUDDLESTON, Judge.

Appellants, taxpayers of Bell County, appeal from an order and judgment rendered by Bell Circuit Court dismissing, for lack of timeliness, their motion to intervene in a long-pending lawsuit which has ultimately resulted in the imposition of a tax on the County's citizens to pay the debts of the Bell County Garbage and Refuse Disposal District. Because we determine that the record will not support this ruling, we reverse.

The Commercial Bank of Middlesboro cross-appeals from the denial of its motion for sanctions. Because we believe that the record supports the view that sanctions are inappropriate in the matter before us, we affirm on this issue.

This case features a lengthy factual and procedural history. The pertinent facts are as follows: The Bell County Garbage and Refuse Disposal District was created by Bell County Fiscal Court in 1971. During the 1970's the District enjoyed substantial federal assistance to underwrite its cost of operation. This assistance was provided in order that the District might quickly become a self-sustaining entity. Lamentably, self-sustenance was slow in coming, and as federal funding became non-existent in the twilight of the 1970's, the District found itself in dire financial straits. At this point the District's Board of Commissioners determined to embark upon a "Resource Recovery Project" utilizing a grant from the Environmental Protection Agency. The Project involved the building of a waste-to-energy incinerator, which would produce electricity that could then be sold to provide revenue to operate the District. One William Yeary was retained to administer the Recovery Project. The District's financial problems notwithstanding, Mr. Yeary set about to modernize its operations, incurring approximately $400,000.00 in debt by way of loans from the Commercial Bank of Middlesboro (hereinafter "Bank") from May, 1980, through August, 1982. Although the District and the Recovery Project were ostensibly to be operated as separate entities, the distinction between the two quickly became blurred, evidenced notably by the fact that the Project was allowed by the Bank to borrow on the District's credit.

Mr. Yeary and the District's board members may have intended to use the income anticipated to be generated by the Recovery Project to satisfy the District's debts. Whatever the case, by 1982 the District had become wholly unable to meet its operating obligations. On September 14, 1982, Blakeman and Sons, Inc., an appellee in this action, sued the District on a fuel account, seeking judgment for $10,984.70. After obtaining judgment by default and issuing execution, Blakeman learned that the Bank held liens upon most District Property. Blakeman amended its complaint to join the Bank as a party defendant. The Bank immediately cross-claimed against the District and Bell County seeking satisfaction on notes issued in 1980 through 1982.

By early 1983 the Board had totally defaulted in its management of the District, resulting in all District services being terminated. In July, 1983, Bell Circuit Court issued a "declaratory judgment" in the District litigation. This judgment, advisory in tone, essentially detailed the court's opinion as to the manner in which the parties ought to resolve their disputes. The court did, however, conclude that the county was not liable for the District's debts, that the District should activate itself again or dissolve, and that the District was not responsible for proceeds of loans which had been recklessly spent or wasted by Mr. Yeary. (The court was particularly scathing in its assessment of Mr. Yeary's character and administrative skills.) The Bank appealed this declaratory judgment, but the appeal was dismissed by agreement of the parties as being premature in view of the fact that the court had not disposed of all issues before it.

The District's "orphan status" continued throughout 1983 and into 1984, its Board having "fled for the hills," its operations ceased. In June, 1984, a receiver was appointed for the District on the Bank's motion. The Bank then renewed its motion for summary judgment against the District, to which the District filed no affirmative response. The receiver advised the court that, "in his judgment," ¹ no defense existed against the Bank's claim. The court agreed in a summary fashion and on October 11, 1984, granted a default judgment in the Bank's favor.

The record details in predictably haphazard fashion the on-going dialogue in Bell County concerning the manner in which the District might satisfy its debts. One option appears to have been consistently and categorically rejected by the county leaders, often in the most strident and bellicose terms: the imposition of a tax. The 1983 declaratory judgment mentions the tax option in an advisory fashion, but it orders no tax levy and no steps toward such end were undertaken by the county. The 1984 default judgment avoids mentioning the tax issue entirely. With a newly-appointed board, the District investigated in late 1984 and early 1985 the possibility of implementing a new garbage collection system which could fund a debt repayment plan. When this option proved untenable, the District sought bankruptcy protection without, evidently, even considering utilizing the taxing power to fund debt repayment.

The District filed a Chapter 9 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of Kentucky in the summer of 1985. The case was held in abeyance for over three years until the bankruptcy court ruled, in February, 1989, that the District's petition would be rejected on the ground that it possessed the taxing authority to satisfy its debts--an authority, again, whose utilization the District continued to vehemently reject.

On the Bank's motion the case was redocketed in Bell Circuit Court in March, 1989. On June 5, 1989, the circuit court ordered the county to satisfy the Bank's 1984 default judgment through a tax levy, bond issue, or some combination of the two. During the remainder of the year the county went to extraordinary lengths to resist the imposition of the tax, resulting in the Bank seeking to have District and County executives held in contempt. On November 29, 1989, the circuit court ordered that county officials cease all efforts to resist the imposition of the tax and proceed to collect it, under penalty of contempt. At this point the county relented, and the tax was placed on the county's 1989 tax bills. Taxpayers received notice of the tax levy in December, 1989.

On February 27, 1990, six Bell County taxpayers, the appellants, attempted to intervene as of right in the case under consideration pursuant to CR 24.01. The taxpayers contended, inter alia, that the debt accumulated by the District between 1980 and 1982, violated the "pay as you go" plan of public financing memorialized in Section 157 of the Kentucky Constitution. ² The taxpayers further sought a declaration of rights pursuant to Chapter 418 of the Kentucky Revised Statutes. ³ The circuit court ordered all issues briefed. On April 3, 1990, the Bank moved for sanctions against the taxpayers, contending that their intervention was being pursued in bad faith. The Bank also sought dismissal of the taxpayers' intervening petition. On April 23, 1990, the taxpayers moved for summary judgment, then, in June, moved to certify their cause as a class action under CR 23.01.

Oral argument regarding all issues was heard on August 28, 1990. On September 13, 1990, the taxpayers moved to amend their complaint "to conform to oral argument." At the same time, the taxpayers withdrew their motion for summary judgment against Blakeman & Sons, and restated their motion for summary judgment against the Bank. On September 14, 1990, the court overruled the taxpayers' motion for summary judgment, granted the Bank's motion to dismiss the intervening complaint with prejudice, and overruled the Bank's motion for sanctions. In doing so, the court said:

It appears from the record the intervenors' [taxpayers'] interests were represented by [the receiver] for the district. The intervenors were aware of the litigation. This action was the subject of extensive publicity by the local newspaper. Many articles, usually on the front page, were written in detail about this litigation. The intervenors had every opportunity to join in this litigation years ago and chose not to do so. The attempt to join now is not timely, and is unfairly prejudicial to the other litigants.

The taxpayers moved for reconsideration and made various other motions. By final order and judgment, on November 7, 1990, the circuit court overruled the taxpayers' ...