Steptoe & Johnson PLLC v. Lycan

• Docket Number: 2022-CA-1181-MR
• Decision Date: 21 July 2023
• Parties: STEPTOE & JOHNSON PLLC APPELLANT v. D. ERIC LYCAN APPELLEE
• Court: Kentucky Court of Appeals

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STEPTOE & JOHNSON PLLC APPELLANT v. D. ERIC LYCAN APPELLEE

No. 2022-CA-1181-MR

Court of Appeals of Kentucky

July 21, 2023

NOT TO BE PUBLISHED

APPEAL FROM FRANKLIN CIRCUIT COURT HONORABLE THOMAS D. WINGATE JUDGE ACTION NO. 10-CI-00505

BRIEFS FOR APPELLANT: Jeffrey K. Phillips Lexington, Kentucky.

BRIEF FOR APPELLEE: Stephanie Tew Campbell Christine Trout Van Tatenhove Lexington, Kentucky

BEFORE: CALDWELL, COMBS, AND KAREM, JUDGES.

OPINION

KAREM JUDGE.

This matter involves contractual disputes between the law firm of Steptoe &Johnson PLLC ("Steptoe") and a former employee, attorney D. Eric Lycan. The issue before us is whether the parties were properly before the circuit court when it entered an order that: 1) joined Steptoe as a party to ongoing litigation between the Commonwealth of Kentucky Justice and Public Safety Cabinet ("the Commonwealth") and numerous online gambling entities ("the Gambling Case") pursuant to CR^[1] 20.01; 2) ruled the circuit court is the proper forum for Steptoe and Lycan to resolve any fee-splitting dispute related to the Gambling Case; and 3) stayed arbitration proceedings initiated by Steptoe. We hold the circuit court lacked personal jurisdiction over the parties and, therefore, the order of the Franklin Circuit Court was void ab initio. We make no holdings related to the merits of the underlying contractual disputes and whether an arbitration agreement exists between the parties.

In 2007, the Commonwealth entered into a service contract with Lycan's then-employer, Hurt, Deckard, and May, PLLC ("HDM"), to pursue civil action against various entities offering illegal online gambling in Kentucky (i.e., the Gambling Case). HDM was to receive a 25% contingency fee for any recovery by the Commonwealth. In 2009, Lycan left HDM and began employment at Steptoe. He continued to work on the Gambling Case, but his initial employment agreement provided Steptoe was not entitled to any portion of the fees Lycan received in the Gambling Case. About a year later, Steptoe and Lycan amended the employment agreement because Lycan's continued work on the Gambling Case was affecting his billable hours requirement with Steptoe. The amended agreement provides Steptoe would receive 10% of the fees earned by Lycan in the gambling case in 2010 and then increased 5% each year thereafter.

Lycan's employment with Steptoe terminated in November 2014. Upon his exit, Lycan tendered $533,335.40 to Steptoe for its share of fees received from the Gambling Case since the parties entered into the amended employment agreement. The parties also entered into a practice transition agreement upon Lycan's 2014 exit. The current underlying dispute between the parties is whether the 2014 practice transition agreement contains an arbitration provision that specifically addresses fee-splitting between Steptoe and Lycan in the Gambling Case.^[2]

On June 3, 2021, the circuit court approved fees of $13,501,626.60 to Lycan from a settlement between the Commonwealth and one of the defendants in the Gambling Case, PokerStars. On July 25, 2022, Steptoe filed for arbitration in West Virginia, demanding approximately $4.7 million, or 35%, of the fees Lycan received. On August 10, 2022, Lycan filed a response objecting to arbitration, but also filed counterclaims against Steptoe. On the same date, he also filed a motion in the Gambling Case. Lycan moved the circuit court for a declaratory judgment that Steptoe was not entitled to any portion of the fees he received in the Gambling Case and for an order staying the arbitration proceedings. Steptoe filed a limited response as a non-party arguing the circuit court lacked personal and subject matter jurisdiction.

The circuit court conducted a hearing on Lycan's motion. Notably, at the outset, the Court stated

Court: This is a temporary injunction, right?

Attorney: Yes.

Court: Well now, here's the problem. I don't have a complaint, so what am I supposed to do? I mean, I just threw one out because it didn't have a complaint.

At this point, Lycan argued the circuit court has jurisdiction over all attorneys in the case, but also offered to file a separate complaint. He also argued the court could bring Steptoe in by permissive joinder. Steptoe continued to argue lack of jurisdiction. Despite the circuit court's initial misgivings, it entered an order joining Steptoe as a party pursuant to CR 20.01. However, the circuit court did not stop there. It went on to rule that an arbitration agreement did not exist between Steptoe and Lycan related to fee-splitting in the Gambling Case and also stayed the arbitration proceedings. This appeal followed.

CR 20.01 states

[a]ll persons may join in one action as plaintiffs if they assert any right to relief jointly, severally, or in the alternative in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action. All persons may be joined in one action as defendants if there is asserted against them jointly, severally, or in the alternative, any right to relief in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all defendants will arise in the action. A plaintiff or defendant need not be interested in obtaining or defending against all the relief demanded. Judgment may be given for one or more of the plaintiffs according to their respective rights to relief, and against one or more defendants according to their respective liabilities.

(Emphasis added.)

It is unclear from the circuit court's order if Steptoe was to be brought into the Gambling Case as a plaintiff or a defendant. We assume, due to the nature of relief requested in Lycan's motion, Steptoe would be a defendant. However, this assumption is problematic because Lycan is not a plaintiff, or a party at all, in the Gambling Case. Even assuming, arguendo, that it was permissible to join Steptoe as a defendant pursuant to CR 20.01, the circuit court should have stopped there until Steptoe was served with process. This begs the question: What, exactly, would have been served upon Steptoe? The most recent amended complaint between the Commonwealth and the various defendants is wholly unrelated to the contractual disputes between Steptoe and Lycan.^[3] Stated differently, the instant contractual disputes do not arise "out of the same transaction, occurrence, or series of transactions or occurrences" or a "question of law or fact common to all defendants" in the Gambling Case. Further, CR 3.01 provides, "[a] civil action is commenced by the filing of a complaint with the court and the issuance of a summons or warning order thereon in good faith." Lycan's motion filed in the Gambling Case fails to meet this requirement.

"It is fundamental that a court must have jurisdiction before it has authority to decide a case. Jurisdiction is the ubiquitous procedural threshold through which all cases and controversies must pass prior to having their substance examined." Wilson v. Russell, 162 S.W.3d 911 913 (Ky. 2005). Three separate categories ofjurisdiction exist: (1) personal jurisdiction over specific persons or entities; (2) subject matter over the nature of the case and type of controversy; and (3) particular case jurisdiction over the specific case. Hisle v. Lexington-Fayette Urban County Government, 258 S.W.3d 422, 429 (Ky. App. 2008). In the instant action, because CR 20.01 is inapplicable to the disputes between Steptoe and Lycan in the Gambling Case, and because Lycan failed to commence a separate action with a complaint and issuance of summons pursuant to CR 3.01, the circuit court lacked personal jurisdiction over Steptoe. "[A] personal judgment without such jurisdiction is void." Hill v. Walker, 180 S.W.2d 93, 95 (Ky. 1944) (citations omitted).^[4]

We note that there may be some confusion...