CATHY J. WILLIAMS and WAVERLY M. TOWNES v. LARRY K. WILLIAMS
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RENDERED: December 10, 1999; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1996-CA-002987-MR (DIRECT APPEAL)
AND
NO. 1996-CA-002990-MR (CROSS-APPEAL)
CATHY J. WILLIAMS
APPELLANT/CROSS-APPELLEE
and
WAVERLY M. TOWNES
APPELLANT
APPEAL FROM BULLITT CIRCUIT COURT
HONORABLE THOMAS L. WALLER, JUDGE
ACTION NO. 92-CI-00660
v.
LARRY K. WILLIAMS
APPELLEE/CROSS-APPELLANT
OPINION
AFFIRMING IN PART,
REVERSING IN PART and REMANDING
** ** ** ** **
BEFORE:
DYCHE, EMBERTON AND JOHNSON, JUDGES.
EMBERTON, JUDGE: This appeal and cross-appeal arise from the
dissolution decree which also divided the marital property,
assigned debt, and awarded child support, maintenance and
attorney’s fees.
Although each party advances numerous arguments
for reversal, the specific areas of dispute focus upon: (1) both
parties’ dissatisfaction with the valuation and distribution of
marital property and the allocation of debt; (2) appellant Cathy
Williams’ contention that the awards of child support and
maintenance are insufficient and appellee Larry Williams’
countervailing contention that the amounts awarded are excessive;
(3) the complaints of both parties concerning the failure to
restore various nonmarital interests in the marital property; and
(4) Cathy’s allegation that the trial court erred in awarding her
only $3,000 in attorney’s fees.
The parties were married in 1981 and had two children
who were ages 7 and 5 at the time of the dissolution.
Following
their marriage, the family resided in Sheperdsville, Kentucky,
where Larry had recently established a dental practice, and Cathy
was employed by the Bullitt County Department of Health.
When
the parties separated in October 1992, they had only two major
assets: the marital residence and Larry’s dental practice which
includes the office building.
The largest debt of the parties is
the amount owed on the marital residence.
The trial court, in an
expressed attempt to reach an equal division of the property and
permit Larry to retain the dental practice and Cathy the marital
residence, credited both with their nonmarital interests, and
ordered Larry to pay an amount which would evenly divide the
marital equity of the assets.
Although we find no error in the
objective of equal distribution of the limited assets to each
party, we believe the trial court erred in various respects
regarding the nonmarital and marital interests of the parties and
in the amount of the maintenance and child support awards.
Mindful of the dictates of Kentucky Revised Statutes (KRS)
403.190(1), which requires that each party first be restored
nonmarital property and each be allocated nonmarital debt prior
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to the division of marital property, we will first discuss each
asset in the context of its marital and nonmarital interests and
liabilities.
THE MARITAL RESIDENCE
The trial court found the value of the marital
residence to be $251,500.
There is sufficient evidence in the
record to support such finding and it will not be disturbed.1
Shortly before the parties’ separation, the indebtedness on the
residence was refinanced.
The residence was mortgaged, securing
a promissory note in the amount of $195,000.
The loan proceeds
paid the existing debt against the residence in the amount of
$121,835 and a pre-marital debt of Larry’s on his dental office
building in the amount of $49,298.58.
The balance of the loan
proceeds, $21,346.93, was deposited into Larry’s office building
account.2
The trial court awarded Cathy the marital residence and
assigned to her the obligation for payment of the $195,000
promissory note.
The $21,346.93 was held to be marital property
from which each party would receive one-half.
We agree with
Cathy that the trial court erred in assigning to her the entire
amount of the note, and we agree that Larry should be ordered to
pay $49,298.58 on the loan representing his nonmarital debt.
Furthermore, we see no benefit to dividing the $21,346.93 left
1
Underwood v. Underwood, Ky. App., 836 S.W.2d 439 (1992).
2
The sum of these amounts is $192,480.51. There is no
dispute between the parties, however, as to the remainder of the
$195,000 loan.
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from the loan as a marital asset.
It is, in reality, a debt
which in order to most simply accomplish a just division of the
property should be ordered paid by Larry to further reduce the
mortgage.
Further complicating an equitable and equal division of
the property, both parties claim a nonmarital interest in the
residence.
Shortly before the marriage, Larry purchased a house
on Old Mill Stream Lane which was placed in his name and
purchased in part with $17,000 of his nonmarital funds.
The
trial court found this to be his nonmarital interest in the
residence, which we affirm.3
When the Mill Stream lot was subsequently sold, the
proceeds were used in the construction of the marital residence.
Cathy’s father, Harold, was the real estate broker in the sale of
the lot and waived his commission in the amount of $4,200 which
Cathy maintains was a gift to her.
Additionally, when the
marital residence was built, Harold claimed to have waived a
builder’s fee which Cathy also argues was a gift to her.
trial court denied both claims.
The
A gift of labor or “sweat
equity” has been held not to be a nonmarital asset.4
A waiver of
a real estate commission or a builder’s fee is also a gift of
labor.
Harold gave his labor to aid in the financial burden of
the purchase of the property the same as if he had physically
aided in the construction of the residence.
We see no difference
and therefore affirm the trial court’s denial of Cathy’s
3
Underwood, supra.
4
West v. West, Ky., 736 S.W.2d 31 (1987).
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nonmarital claims.
For the same reason, we hold that the trial
court erred in holding the waiver of a $2,625 real estate
commission by Harold when the Old Mill Stream property was sold
to be Cathy’s nonmarital property.
On the other hand, the lots on which the residence was
constructed were purchased from Cathy’s father which he testified
were sold for $25,000 less than the market value, as a gift to
Cathy which the trial court found was Cathy’s nonmarital
interest.
Unlike the gift of labor, the lots are tangible assets
which are easily valued.
Larry argues that under Calloway v.
Calloway,5 the gift was for the benefit of the entire family and
cannot be claimed exclusively by Cathy.
We agree.
The lots were
sold to Larry and Cathy during their marriage for the
construction of the marital residence which not only Cathy would
enjoy and use but also the entire family.
Upon remand, the trial
court is instructed to treat the price reduction as marital
equity in the residence.
However, as stated in Calloway, in the
division of marital property the court must consider the factors
set forth in KRS 403.190, including the contribution of each
spouse to the acquisition of the property.6
In so doing, the
court here is to consider the source of the gift and that the
gift was due to Cathy’s familial relationship with her father.
Although Larry had a pre-marital interest in the
residence, which arguably appreciated in value during the
5
Ky. App., 832 S.W.2d 890 (1992).
6
Id. at 893.
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marriage, neither party presented sufficient evidence to apply
the formula set forth in Brandenburg v. Brandenburg.7
In summary, we hold there is no error in the trial
court’s finding that the house is valued at $251,500 and that the
unpaid mortgage is $195,000. However, the more helpful values in
equitable disposition of the property are the marital values of
each.
Therefore, after payment on the mortgage by Larry of his
$49,298.58 nonmarital debt and the repayment by him of the
$21,346.93 loan proceeds residue the mortgage is reduced to
$124,354.49.
That amount is a marital debt.
Then, by deducting
from the $251,500 house value the current mortgage obligation and
Larry’s $17,000 nonmarital interest we find the marital equity in
the residence to be $110,145.51.
THE DENTAL PRACTICE AND BUILDING
Larry’s dental practice is located in an office
building which the trial court found to have marital equity of
$171,199.
For reasons previously discussed, Larry’s claim that
he has an additional $32,000 nonmarital interest in the building
as a result of labor performed by his family is rejected.8
We
affirm the trial court on the marital valuation of the building
except that on remand Larry must be given credit for the
$49,298.58 paid as his nonmarital debt reducing the marital
equity in the building to $121,900.42.
There is sufficient
evidence to support the trial court’s findings as to the marital
7
Ky. App., 617 S.W.2d 871 (1991).
8
West, supra.
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value of the office account at $20,440.13; accounts receivable of
$12,400; and the equipment valued at $9,982.14.
We do not
disturb those findings.9
The major area of disagreement concerning the dental
practice is the inclusion of $50,000 in goodwill in the valuation
of the solo practice.
Although Larry argues that his solo dental
practice has no recognizable goodwill, in Heller v. Heller,10 the
court recognized that the goodwill of a solo professional
practice is a divisible marital asset.
Therefore, based on the
evidence we find no error in the trial court’s inclusion of
$50,000 goodwill in the valuation of Larry’s practice.
Although Larry did have pre-marital interest in the
dental practice, he again failed to present sufficient evidence
of its value at the time of the marriage rendering the
Brandenburg formula inapplicable.
We affirm the values given the dental practice assets.
However, on remand, the trial court is instructed to reduce the
marital equity by $49,298.58, leaving the equity in the dental
practice and office building at $214,722.69.
MISCELLANEOUS
Shortly before the marriage, having received his
license to practice dentistry, Larry began his practice.
receive his education, he had obtained a student loan for
To
$4,876.20 and borrowed funds from his grandparents.
9
10
Underwood, supra.
Ky., 672 S.W.2d 945, 947 (1984).
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Cathy
presented evidence that during the marriage $12,578 of marital
funds were used to repay these loans.
In Van Bussum v. Van
Bussum,11 we held, that since a professional degree cannot be
considered marital property, the debt incurred for its
acquisition must be borne by the party who will reap the benefit
from it, in this case Larry.12
Although in Van Bussum, the
professional license was obtained during the marriage, we believe
the reasoning of the court is equally applicable to the present
case.
To the extent payments were made during the marriage
toward Larry’s nonmarital professional degree, Cathy is entitled
to reimbursement of her marital share.
Both parties object to the division of the personal
property.
Larry received $36,880 in marital personalty and Cathy
$18,325; the trial court, however, compensated Cathy for the
disparity and we find no error.
It is not the role of the
appellate court to revisit the specific property awarded each
party but to determine whether the trial court reached a just
division.
We find that it did and affirm.
Although each party
is dissatisfied with the division of other assets, which we have
not addressed, we see no purpose in further lengthening this
opinion by a discussion of these issues, only to affirm them on
the basis that the evidence supports the trial court’s findings.
MARITAL DEBTS
11
Ky., 728 S.W.2d 538 (1987).
12
Id. at 538.
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We have previously discussed the largest of the
parties’ marital debt, the marital residence.
Cathy argues that
from October 1992, when the parties separated, until May 1993,
when the pendent lite order became effective Larry paid only the
mortgage payment on the house and did not provide for her’s and
the children’s living expenses.
As a result, she was forced to
borrow $20,000 from the Peoples Bank of Bullitt County and
withdraw $9,000 from her credit savings account.
While the
$9,000 is not a debt for which credit can be given to Cathy, the
$20,000 loan was taken out to meet the living expenses of the
family during the marriage and is properly classified as marital
debt.13
We find that the trial court erred in awarding that debt
solely to Cathy.
PROPERTY DIVISION
The result reached by the trial court was an equal
division of the property with Cathy retaining the marital
residence and Larry the dental practice.
The disparity in the
property awarded was supposedly resolved by Larry making a cash
payment to Cathy.
Although KRS 403.190(1) does not require the court to
make an equal division of the assets, we believe an equal
division was appropriate.
On remand, we direct the court to make
a similar division of the marital assets unless it finds, that
under KRS 403.190, Cathy is entitled to the amount representing
13
Underwood, supra.
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the reduction in price on the Somber Way lots as a result of her
sole contribution to that asset.
Cathy was assigned the entire debt on the marital
residence.
Because of the desire to permit the custodial parent
to reside in the marital residence, we find no error in the
assignment of this debt to Cathy.
Should she desire to continue
to reside in the residence her payments will, of course, increase
her equity in the property, and because we find that a certain
portion of that debt is to be paid by Larry, her payments will be
reduced.
The issue however, is whether Cathy, on her income and
the property awarded to her, can continue to maintain the
lifestyle which she enjoyed during the marriage.
If not, then
she is entitled to maintenance and the issue becomes one of
amount.
MAINTENANCE
We preface our discussion on the issues presented with
a citation of the statutory underpinnings of maintenance awards.
In KRS 403.200, the General Assembly provided the following
guidelines for determining eligibility for maintenance and for
setting an appropriate amount:
(1) In a proceeding for dissolution of
marriage or legal separation . . . the court
may grant a maintenance order for either
spouse only if it finds that the spouse
seeking maintenance:
(a) Lacks sufficient property, including
marital property apportioned to him to
provide for his reasonable needs; and
(b) Is unable to support himself through
appropriate employment or is custodian
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of a child whose condition or
circumstance make it appropriate that
the custodian not be required to seek
employment outside the home.
(2) The maintenance order shall be in such
amounts and for such periods of time as the
court deems just, and after considering all
relevant factors including:
(a) The financial resources of the party
seeking maintenance, including marital
property apportioned to him, and his
ability to meet his needs independently,
including the extent to which a
provision for support of a child living
with the party includes a sum for that
party as custodian;
(b) The time necessary to acquire
sufficient education or training to
enable the party seeking maintenance to
find appropriate employment;
(c) The standard of living established
during the marriage;
(d) The duration of the marriage;
(e) The age, and the physical and
emotional condition of the spouse
seeking maintenance; and
(f) The ability of the spouse from whom
maintenance is sought to meet his needs
while meeting those of the spouse
seeking maintenance.
Contrary to Larry’s assertion that Cathy failed to meet
the criteria set out in subsection (1), we note that those
requirements have been interpreted as providing a relative,
rather than an absolute, test and must be construed to include a
spouse “unable to support himself through appropriate employment
according to the standard established during the marriage.”14
14
Casper v. Casper, Ky., 510 S.W.2d 253, 255 (1974).
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Like the trial court, we believe Cathy “has met her burden in
showing her entitlement to maintenance.”
It is clear that
Cathy’s income is insufficient to allow her to maintain for
herself and the parties’ children the standard of living
established during the marriage.
While Larry received the
primary income-producing asset, his dental practice, Cathy
received only the marital residence and personalty with little or
no income-producing potential.
In light of these factors, we
cannot say that the trial court abused its discretion in
determining that Cathy was entitled to maintenance.15
We are convinced, however, that the amount of
maintenance awarded to Cathy is so clearly insufficient that it
constitutes an abuse of discretion.
The “unable to support
himself” component of the statutory standard for entitlement to
maintenance must be measured by the standard of living
established during the marriage.16
The fact that a spouse is
capable of contributing to her support through employment does
not relegate her to a lower standard than she enjoyed during the
marriage, nor does it disqualify her from receiving maintenance
in an appropriate amount.
As the Casper court notes, “[w]e
cannot believe the law intended the anomaly that one who cannot
work at all may have the benefit of a better standard of living
than one who is able to eke out the bare necessities of life.”17
15
Calloway, supra.
16
Casper, supra.
17
510 S.W.2d at 255.
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It is apparent that the parties enjoyed a very
comfortable and substantial lifestyle prior to separation.
The
trial court initially set maintenance at $2,000 per month based
in part upon the requirement that Cathy pay the refinanced
mortgage payment of $1,864 per month.
In addition, Cathy
testified to child care expenses of $854 per month and health
insurance expenses in the amount of $144.
Although we have
ordered that Cathy’s obligation for the mortgage payment be
reduced, subtracting the total of just these three items from
Cathy’s income (her salary, maintenance and support) her net
income is insufficient to provide for her ordinary living
expenses (food, clothing, utilities, etc.), as well as taxes,
insurance and upkeep on the marital residence.
Since there is
nothing in the record to suggest that any of these expenses have
been exaggerated or are excessive, we can conclude only that the
amount of the maintenance award is grossly insufficient.
Nor does the fact that Cathy was awarded a cash payment
from Larry to equalize the division of marital property support
such a substantial reduction in maintenance from the pendent lite
award to the final judgment award.
Although it would be expected
that Cathy would properly utilize these funds to help provide for
her reasonable needs, it would be clearly inequitable to impose
upon her a duty to exhaust those resources in order to preserve
for herself and the parties’ children the lifestyle enjoyed prior
to separation.18
18
See Atwood v. Atwood, Ky. App., 643 S.W.2d 263 (1982).
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Though the record is not clear, the low maintenance
award seems to be premised in large part on the perceived
inability of Larry to meet his own needs if ordered to pay a
higher maintenance award.
The trial court, in a continuing
effort to equalize the positions of the parties, added to Cathy’s
income her child support payments, then added an amount of
maintenance per month which apparently was intended to equalize
the parties’ monthly incomes.
If this is the method employed by
the trial court it has not achieved equity for Cathy.
We believe it would be helpful toward reaching
equitable results in setting both maintenance payments and child
support payments for the trial court to revisit the matter of
Larry’s income.
KRS 403.212(2)(c) requires that self-employment
income be carefully scrutinized.19
The statute offers specific
guidance as to the methodology to be employed in establishing a
parent’s income from self-employment:
For income from self-employment, rent,
royalties, proprietorship of a business, or
joint ownership of a partnership or closely
held corporation, “gross income” means gross
receipts minus ordinary and necessary
expenses required for self-employment or
business operation. Straight-line
depreciation, using Internal Revenue Service
(IRS) guidelines, shall be the only allowable
method of calculating depreciation expense in
determining gross income. Specifically
excluded from ordinary and necessary expenses
for purposes of this guideline shall be
investment tax credits or any other business
expenses inappropriate for determining gross
income for purposes of calculating child
support. Income and expenses from selfemployment or operation of a business shall
19
Petrilli, Kentucky Family Law, §27.3, 1999 cumulative
supplement, at 90.
-14-
be carefully reviewed to determine an
appropriate level of gross income available
to the parent to satisfy a child support
obligation. In most cases, this amount will
differ from a determination of business
income for tax purposes. Expense
reimbursement or in-kind payments received by
a parent in the course of employment, selfemployment, or operation of a business or
personal use of business property or payments
of expenses by a business, shall be counted
as income if they are significant and reduce
personal living expenses such as a company or
business car, free housing, reimbursed meals,
or club dues. (Emphasis added).
In order to satisfy the statutory mandate of close scrutiny of
expenses, it is incumbent upon the trial court to enter specific
findings as to what constitutes “ordinary and necessary expenses’
deducted from the gross receipts of Larry’s practice.
Here, the trial court set maintenance and child support
based solely upon Larry’s testimony that his “actual income” for
1993 amounted to $76,377 while reporting a gross income of
$177,283.
We find this testimony plainly insufficient in light
of the acknowledgment by both Larry and Cathy of regular payment
of household and other expenses from Larry’s office account.
It
seems clear that such a practice serves to artificially reduce
the true amount of Larry’s income in prior years, giving rise to
the need for particularly close scrutiny of his income for 1993.
There can be no meaningful review of the trial court’s adherence
to the statutory mandate without specific findings as to the
“ordinary and necessary” nature of the deductions from the gross
receipts of Larry’s practice.
We, therefore, direct the trial
court upon remand to carefully examine Larry’s income in light of
the factors set out in the statute and enter specific findings as
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to whether deductions from his gross receipts were appropriate.
We find it inconceivable that Larry does not have the ability to
pay an amount substantially higher than the $50 per week awarded.
That portion of the decree setting maintenance in the amount of
$50 per week is reversed and remanded to the trial court for
entry of an award in an appropriate amount.
The final point of disagreement over the maintenance
award centers upon the date the permanent award is to commence.
Cathy asserts that permanent maintenance begins as of September
12, 1996, the date of the trial court’s opinion, while Larry
insists that the amount of permanent maintenance became fixed as
of the date of the commissioner’s original report.
In his July
11, 1994, report on the parties’ motions to alter or amend the
findings of the initial report, the Commissioner recommended that
the permanent maintenance award should become effective on May
23, 1994, the date of his initial recommendations.
Although the
trial court adopted, with limited exceptions not pertinent here,
both of the commissioner’s reports, he also included in his
opinion dated September 12, 1996, the following specific
holdings:
3. The parties’ property and debts shall be
divided as set forth in the Commissioner’s
Reports of May 23, 1994 and July 11, 1994.
4. The Petitioner shall pay to the
Respondent the sum of $50.00 per week in
maintenance until her death, remarriage, or
further order of this Court.
We are convinced that in entering these specific directives the
trial court acknowledged the fact that it would be clearly
inequitable and at odds with the statutory mandate to award
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maintenance based upon the amount of property assigned the party
seeking maintenance and then to commence the award prior to the
date the party became entitled to the property.
In our opinion,
fairness and equity, as well as adherence to the intent of the
General Assembly spelled out in KRS 403.190, requires that the
award of permanent maintenance commence no sooner than the date
of Cathy’s entitlement to the property assigned her in the
decree, the date on which the trial court adopted the
commissioner’s recommendations.
There would be little point in
instructing the trial court to consider the amount of property
assigned in setting an appropriate amount of maintenance if the
award were to commence almost two years before the spouse
entitled to maintenance had access to the property.
CHILD SUPPORT
The primary issues regarding the amount of child
support awarded are Larry’s complaint about the amount Cathy
expends on work-related child care and Cathy’s contention that
the trial court erred in determining Larry’s income.
While we
perceive no error in the amount of child care expense, we have
previously stated in this opinion that we are persuaded that the
question of Larry’s income should be re-examined.
One factor to be considered in setting child support is
the standard of living the children enjoyed during the marriage.
Their lives after the divorce should, as far as possible, reflect
their lives prior to the divorce including the material aspects.
In his recommendations, the commissioner acknowledged, that while
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the amount of child care expenses appeared to be high, there was
no evidence that they were any different than they had been
during their marriage.
Since there is sufficient evidence to
support this determination, it cannot be disturbed on appeal.
Previously in our discussion of maintenance we have
directed the trial court to re-examine Larry’s report of his 1993
income.
If the trial court concludes that his income is greater
than the amount previously determined, child support shall be
adjusted accordingly.
ATTORNEY’S FEES
Finally, Cathy maintains that the $3,000 she was
awarded in attorney’s fees is clearly insufficient given the
nature of the property assigned to her and the fact that many of
her legal expenses were incurred as a direct result of Larry’s
actions or inaction.
Although the allocation of court costs and
attorney’s fees is a matter entrusted almost entirely to the
discretion of the trial court, we agree with Cathy that the
amount awarded is grossly insufficient under the circumstances of
this case.
A review of the record discloses protracted
litigation, evidence that Cathy incurred legal fees and expenses
exceeding $30,000, and significant disparity in the allocation of
income-producing assets.
We are thus convinced that the trial
court should reconsider the award of attorney’s fees in
conjunction with the reassessment of Larry’s income and the
setting of an appropriate maintenance award.
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CONCLUSION
Those portions of the decree relating to allocation of
marital assets and debt, maintenance, child support and
attorney’s fees are reversed and remanded for entry of a judgment
consistent with this opinion.
In all other respects the judgment
of the Bullitt Circuit Court is affirmed.
DYCHE, JUDGE, CONCURS.
JOHNSON, JUDGE, CONCURS IN PART, DISSENTS IN PART AND
FILES SEPARATE OPINION.
JOHNSON, JUDGE, CONCURRING IN PART AND DISSENTING IN
PART: I concur with the Majority Opinion as to its disposition of
all issues except the discussion on page 9 concerning Cathy being
entitled to reimbursement for her marital share of payments made
during the marriage toward Larry’s non-marital professional
degree, to which I respectfully dissent.
I do not believe Van
Bussum v. Van Bussum is appropriate authority for the Majority’s
holding.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
W. Waverly Townes
Louisville, Kentucky
David B. Mour
Louisville, Kentucky
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