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Kirkley v. Phillips
Citations: 197 So. 3d 464; 2015 WL 7356363Docket: 1130812 and 1130850
Court: Supreme Court of Alabama; November 19, 2015; Alabama; State Supreme Court
Karen Ann Kribel Kirkley, representing the estate of B.J. Kirkley, alongside Holly S. Muncie and J. Alexander Muncie III, appealed a March 7, 2014 order from the Lee Circuit Court that granted a new trial to Donna Jo Kirkley Phillips and Kirkley LLC. Donna Jo and Kirkley LLC cross-appealed, seeking to dismiss the estate plaintiffs' appeal on grounds that the order was not final and that the monetary judgment had been satisfied. The court determined that the March 7, 2014 order was indeed not final, leading to the dismissal of both appeals. The disputes arose from family disagreements following Mr. Kirkley’s death on July 9, 2011, particularly concerning his will and his interest in Kirkley LLC, which was established on November 7, 1995. Mr. Kirkley held a 74.11968% interest, while Donna Jo and her husband, Keith Phillips, held 13.44016% and 12.44016% interests, respectively. Kirkley LLC's sole asset is a one-third interest in Ridgewood Village Mobile Home Park. Mr. Kirkley’s will, admitted to probate on October 20, 2011, bequeathed his interest in Kirkley LLC to several beneficiaries, with provisions for testamentary trusts for some. The operating agreement of Kirkley LLC allowed surviving members the option to buy the deceased member’s interest at fair market value within 90 days of death, contingent upon unanimous consent among the surviving members. This provision includes a requirement for an independent appraisal and audit to determine the value of the deceased member's interest. After Mr. Kirkley’s death, Donna Jo and Keith Phillips (the "Phillipses") exercised their option to purchase Mr. Kirkley’s interest in Kirkley LLC by submitting a "Notice of Exercise of Option to Purchase" to the estate. They commissioned an appraisal which valued Mr. Kirkley’s interest at $540,000 and filed a "Petition to Receive Tender of Option Price" in the Lee County Probate Court, providing a cashier’s check for this amount while awaiting the appointment of a personal representative for the estate. Subsequently, Karen, acting as the estate's personal representative, filed a complaint to determine the fair market value of Mr. Kirkley’s interest, naming the Phillipses and others as defendants. The Phillipses responded with an answer and counterclaims, including breach of contract, timely payment of the purchase price, and specific performance regarding the operating agreement, along with a claim for attorney fees under the Alabama Litigation Accountability Act (ALAA). On December 4, 2012, the estate plaintiffs amended their complaint to include additional defendants and claims, seeking a declaration of rights and duties under Mr. Kirkley’s will versus the operating agreement. On October 31, 2013, the trial court outlined the equitable claims in the case, which included various claims for declaratory judgment and specific performance, as well as a counterclaim for fees under the ALAA. The case went to trial on November 5, 2013, where the trial court focused on separating legal claims from equitable claims. Before the jury addressed the legal claims, the estate plaintiffs opted to proceed solely on behalf of Karen and dismissed claims against Keith. The trial court ruled in favor of the estate plaintiffs regarding the breach-of-contract claim from the Phillipses. The trial court instructed the jury on claims of breach of fiduciary duty and wantonness but erroneously included a breach-of-contract claim that was never pleaded by the estate plaintiffs. On November 8, 2013, the jury awarded the estate $277,500 in compensatory damages and $700,000 in punitive damages. Post-verdict, the estate sought to tax costs, prejudgment interest, and attorney fees, while Donna Jo and Kirkley LLC filed motions for a new trial. A hearing was held on these motions, including a Hammond/Green Oil hearing. On March 7, 2014, the trial court issued an order concerning the motion for a new trial, noting the presence of multiple attorneys and the complexity of the case, which involved numerous litigants and claims. The court recognized that the jury's verdict might have been negatively impacted by the erroneous breach-of-contract instruction, as no such claim was included in the final complaint and lacked evidentiary support. The court agreed that the evidence did not support a finding of wanton conduct by Donna Jo Phillips and noted that the defense's motion for judgment as a matter of law should have been granted. The general nature of the verdict left the court unable to determine if damages were awarded based on valid or invalid claims. A question from the jury indicated confusion regarding the inclusion of the breach of contract issue. Consequently, the court concluded that a new trial was warranted due to the confusion and errors in the jury instructions. The court reserved several equitable issues for resolution after the jury trial, which proved problematic as the jury was exposed to evidence irrelevant to the specific issues they were to decide. Notably, the court did not rule pretrial on the clarity of Section 12.4 of the Kirkley LLC operating agreement, leading to extensive testimony regarding Mr. Kirkley’s will, which was ultimately irrelevant to the claims of wanton acts or breach of fiduciary duty. This misstep prompted the court to grant a new trial due to: 1) the verdict failing to fairly adjudicate the parties' rights; 2) the verdict being excessively biased; and 3) the verdict contradicting the law and evidence. In terms of equitable issues, prior rulings affirmed the validity of Mr. Kirkley’s assignment of his one-third interest in Ridgewood Village to Kirkley LLC, clarifying that the Estate holds no interest in Ridgewood Village, which has fulfilled its financial obligations to Kirkley LLC. The court also validated the transfers made by Mr. Kirkley to the Phillipses during his lifetime. Addressing the Kirkley LLC operating agreement, the court ruled it unambiguous. Regarding the option to purchase, the court found that written notice was properly delivered to Karen Kirkley within the stipulated 60-day period following Mr. Kirkley’s death, confirming that the Phillipses effectively exercised their option to purchase as per the agreement's requirements. Finally, the court noted an unresolved issue concerning the timing of the transfer of Mr. Kirkley’s membership distribution rights from his estate to the Phillipses. Subsection 12.4(C)(i) of the operating agreement mandates the surviving Members to pay the fair market value of a deceased Member’s interest to their estate within 90 days. In this case, a check for $540,000 was submitted to the Probate Court within the specified timeframe, but there is a dispute regarding whether this amount reflects a full membership interest or merely an economic interest. The court determined that Mr. Kirkley's full membership interest of 74.11968%, which included both voting rights and economic distributions, vested in the surviving Members upon their written notice. This conclusion led to the decision to set aside the jury verdict and grant a new trial, as the damages awarded to the estate were based on a lack of distributions from Kirkley LLC, which the estate had no right to post-option exercise. The court clarified that the interest to be valued was Mr. Kirkley’s full membership interest, not an economic interest, as the operating agreement specifies that the interest existing immediately before his death constitutes the entire interest. Consequently, the fair market value of Mr. Kirkley’s membership interest was determined to be $1,102,639, which the Phillipses are obligated to pay. The estate is not entitled to additional interest on the judgment due to the absence of a breach of contract claim. Any garnishment actions must be re-filed, and motions regarding exemptions or stays must also be amended. The court ordered that the $540,000 check held by the probate court be released to the estate, although execution on any unsatisfied portion of the judgment is stayed for 90 days. The plaintiff has initiated a declaratory judgment action seeking clarification on the rights and obligations related to Mr. Kirkley’s will. The main issue is whether the will or the operating agreement of Kirkley LLC governs the disposition of Mr. Kirkley’s Membership Interest. Testimony from various witnesses indicates that Mr. Kirkley mistakenly believed he could gift his LLC interests without encumbrances. The court finds that any bequest of Mr. Kirkley’s interest in Kirkley LLC is subject to the Phillipses' right to purchase under the operating agreement, which has already been exercised. Consequently, will beneficiaries are entitled to the sale proceeds as per the will's terms. Even without the option being exercised, beneficiaries' rights would still be limited by specific provisions of the operating agreement. Regarding post-judgment motions, those not addressed by a new trial are denied. The parties can file a restated complaint or counterclaim within 60 days, provided no new claims or parties are added. A renewed jury demand is required if applicable. The trial court did not initially certify its March 7, 2014, order as final, and following a remand for clarification on the order's finality, Judge Fuller ultimately certified it as final on July 16, 2015. The appeals concerning the merits of the March 7, 2014, order are dismissed due to the improper certification under Rule 54(b), which outlines conditions for final judgments involving multiple claims or parties. In Loachapoka Water Authority, Inc. v. Water Works Board of Auburn, the court established that an appeal can be made from a trial court's final judgment certified under Rule 54(b), but it will not consider such appeals if the trial court has exceeded its discretion in determining that there is "no just reason for delay." The determination of "no just reason for delay" is within the trial court's discretion, and it exceeds that discretion if the issues in the certified claim are closely related to those remaining pending, posing a risk of inconsistent results. Additionally, in the context of the March 7, 2014 order, the court notes two aspects: the new trial addressing legal claims and the declaratory-judgment addressing equitable claims, focusing only on the latter. There is ambiguity regarding whether Keith is a party to the declaratory-judgment aspect; the estate plaintiffs claim they dismissed only legal claims against him, while Keith argues that all claims, legal and equitable, were dismissed. The trial court did not provide a definitive ruling on this matter, stating it would not rule on the issue in this order. Furthermore, disputes exist about whether Holly and Karen’s testamentary trust are parties in the declaratory-judgment part of the order, with counsel for the estate plaintiffs indicating they proceeded solely on behalf of Karen as the personal representative of the estate. Any resolution of these issues is reserved for the trial court. Karen, acting as personal representative, asserts that both Holly and Alex, as trustee of Karen's testamentary trust, are appropriate parties to appeal the declaratory-judgment portion of the March 7, 2014, order, which affirms that will beneficiaries are entitled to proceeds from a sale according to the will's terms. The court agrees, noting that both were beneficiaries under Mr. Kirkley’s will—Karen through a testamentary trust managed by Alex and Holly outright. The trial court's declaration concerning will beneficiaries grants them the right to appeal. Subsequent to the appeals, the trial court retained jurisdiction, exemplified by Judge Walker's June 5, 2014, order allowing Donna Jo and Kirkley LLC to receive a $562,689 check, pending the estate's fulfillment of obligations to fund the testamentary trusts. On June 6, 2014, Karen filed a notice disputing Judge Walker's jurisdiction over this order and sought to compel post-judgment discovery. Donna Jo and Kirkley LLC also sought to quash garnishment processes. Judge Walker scheduled a hearing for July 7, 2014, to address issues related to the garnishments and the nature of the March 7, 2014 order but recused himself before the hearing occurred. On February 3, 2015, Donna Jo and Kirkley LLC filed a "Motion For Temporary Remand," indicating that Judge Fuller had allowed discovery in the trial court that could provide documentation relevant to the satisfaction of the monetary judgment, requesting a remand for the trial court to determine if the record on appeal should be supplemented. Judge Fuller has certified the March 7, 2014, order as final, yet he retains jurisdiction over certain aspects, suggesting that the order is not entirely final. The Lisa Kirkley Thompson Testamentary Trust and the Steven Randall Kirkley Testamentary Trust, although not parties to the appeals, previously filed a counterclaim asserting that the estate plaintiffs' claims violated the in terrorem clause of Mr. Kirkley’s will. This clause specifies that any beneficiary contesting the will forfeits their benefits to non-contesting beneficiaries. The trial court acknowledged the pending status of the trusts’ in terrorem claim in its October 31, 2013, pretrial order and recognized it as an equitable claim at the close of evidence, but the March 7, 2014, order does not explicitly address this claim. Donna Jo and Kirkley LLC argue that the claim is still pending, while the estate plaintiffs believe it has been resolved. The court noted that the estate had sought a declaratory judgment regarding the rights under Mr. Kirkley’s will, primarily focusing on whether the operating agreement or the will governs the disposition of Mr. Kirkley’s membership interest in Kirkley LLC. The trial court emphasized that a testator cannot devise property they do not own outright and indicated that the beneficiaries would have rights to the sale proceeds according to the will's terms, contingent on the Phillipses exercising their purchase option. The estate plaintiffs argue that this finding implies a resolution of the trusts' in terrorem claim, but the court refrains from ruling on this matter, acknowledging the dispute and reserving any decisions for the trial court. If the trusts succeed in their claim, Karen and Holly would be denied proceeds from the sale, conflicting with the trial court’s ruling on the beneficiaries' rights. Proceeds from the trusts may be distributed before resolving the in terrorem clause claim, potentially granting Karen and Holly unauthorized benefits. The ongoing counterclaim, which is closely related to the appeal and cross-appeal, could result in repeated appellate reviews, which is discouraged by Alabama law. Citing relevant case law, the court emphasizes that piecemeal appellate reviews are inefficient and advises that interrelated claims should be adjudicated together to avoid this issue. During trial, the court indicated a need for a limited accounting of the trust accounts and estate transfers, which remains unresolved. The March 7, 2014, order allowed for the filing of a restated complaint or counterclaim for issues still pending. Following this, on May 6, 2014, Keith filed a restated counterclaim to preserve his claims while an appeal is underway. This includes a renewal of claims for breach of contract, seeking legally allowable interest, costs, and attorney's fees, as well as a declaratory judgment to affirm the satisfaction of obligations under the Operating Agreement of Kirkley LLC and to establish Keith as the owner of a specified percentage of the estate's interest in the LLC. The fair market value and option price for the interest in question are undisputed. Keith William Phillips asserts that his entitlement to attorneys’ fees and costs, as outlined in Sections 12.3 and 14.7 of the operating agreement, has not yet been adjudicated by the court. He renews Count Three of his Counterclaim from November 7, 2011, seeking specific performance, including costs, expenses, and reasonable attorney’s fees, and requests that the Court retain jurisdiction for enforcing a declaratory judgment. Additionally, he renews Count Eight of his Third Counterclaim from May 15, 2013, related to an Alabama Litigation Accountability Act (ALAA) claim. The ALAA claim regarding attorney fees remains pending in the trial court, which must assess fees against a party whose claims lack substantial justification. The ALAA does not create a standalone cause of action; it allows for attorney fees to be awarded as part of the judgment on the merits. A trial court may conduct a separate hearing on ALAA claims after a final judgment, provided it explicitly reserves jurisdiction. In this case, the initial trial judge did not rule on the ALAA claim in a March 7, 2014, order and did not reserve jurisdiction for future consideration. However, the order allowed parties to file restated pleadings, and Keith reasserted the ALAA claim. Given that the request for attorney fees was made before the March 7 order, and considering the judge's failure to certify the order as final, it is concluded that the judge impliedly reserved jurisdiction over the ALAA claim prior to recusal. Donna Jo and Kirkley LLC argue that while the March 7, 2014, order addressed the Phillipses' obligations under the operating agreement, it did not resolve their claim for specific performance regarding attorney fees and costs, which they contend the estate is obligated to pay as the losing party. Section 14.7 of the operating agreement stipulates that the prevailing party in any litigation related to the agreement is entitled to recover reasonable attorney fees and costs from the losing party. The trial court acknowledged that the claim for attorney fees and costs was "reserved for another day," implying it remains pending. The document notes that the parties have not discussed how this unresolved claim affects the finality of the judgment. Citing State Board of Education v. Waldrop and Budinich v. Becton Dickinson Co., the text explains that a decision on the merits is final for appeal purposes, regardless of pending requests for attorney fees, which are traditionally viewed as part of costs rather than merits. However, some courts distinguish this rule when attorney fees are awarded based on a contract, suggesting that if such fees are integral to the merits, the decision is not considered final until resolved. Thus, in this Circuit, a request for attorney fees derived from a contractual clause is a substantive issue, and a pending substantive fee issue precludes a judgment from being deemed final. The Court refrains from ruling on whether attorney fees in the operating agreement are central to the case or collateral, due to insufficient briefing on the matter. It determines that the case does not meet the criteria set by Rule 54(b) for certifying final judgments, as the trial court has certified claims that remain unresolved. Furthermore, the trial court did not clarify whether Keith Phillips is still a party to the equitable claims, despite certifying the order as final. The trial court has also continued to manage the case by addressing motions and conducting additional discovery, indicating ongoing jurisdiction over the matter. Consequently, the March 7, 2014, order is deemed not final and not appealable, with the appeals dismissed on these grounds. The trusts involved, which have filed counterclaims regarding the enforcement of Mr. Kirkley’s will and other fiduciary issues, are not parties to these appeals. The operating agreement includes a provision for recovering attorney fees for the prevailing party in disputes. The trial court noted that Keith Phillips was sued in his capacity as a Member of Kirkley LLC, but made no ruling on claims against him. The trial court also conducted its own valuation of Mr. Kirkley’s membership interest based on expert testimony, and it is implied that Keith filed a counterclaim on behalf of all counterclaim plaintiffs.