WILLIAM FOLEY AND PAULINE FOLEY, HIS WIFE; AND PAUL FOLEY AND JENNIFER FOLEY, HIS WIFE v. FIRST COMMONWEALTH BANK OF PRESTONSBURG, KENTUCKY
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RENDERED: JUNE 8, 2001; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2000-CA-000375-MR
WILLIAM FOLEY AND PAULINE
FOLEY, HIS WIFE; AND PAUL
FOLEY AND JENNIFER FOLEY,
HIS WIFE
APPELLANTS
APPEAL FROM FLOYD CIRCUIT COURT
HONORABLE JOHN DAVID CAUDILL, JUDGE
ACTION NO. 95-CI-00956
v.
FIRST COMMONWEALTH BANK OF
PRESTONSBURG, KENTUCKY
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
GUDGEL, CHIEF JUDGE; DYCHE AND MILLER, JUDGES.
DYCHE, JUDGE:
William Foley and his wife Pauline Foley, and
Paul Foley and his wife, Jennifer Foley, appeal from a judgment
of the Floyd Circuit Court granting summary judgment to First
Commonwealth Bank [hereinafter FCB] on their claims involving
alleged misapplication of the remaining proceeds from the sale of
a residence obtained by FCB following default on a mortgage loan.
After reviewing the record and the arguments of counsel, we
affirm.
Paul Foley, Jennifer Foley, and William Foley, Paul’s
father, were the officers, directors, and shareholders of Foley
Lumber Company.
On February 25, 1994, FCB loaned Foley Lumber
Company $103,570.67, with Paul, as President of the company,
executing a promissory note to FCB.
Paul and Jennifer also
signed the note as personal guarantors and executed two mortgages
to four tracts of realty, which included the couple’s personal
residence, in favor of FCB as security for the note.
William and
his wife, Pauline, joined in execution of one of the mortgages
because they retained a life estate in two of the tracts.
On
March 3, 1994, FCB loaned Foley Lumber Company $35,010.50 with
Paul signing a second promissory note on behalf of the company
and as personal guarantor.
This note was secured by certain
heavy equipment.
In addition to the above business loans, Paul and
Jennifer obtained a personal loan from FCB in May 1994 for
$23,075 that was secured by a second mortgage on their personal
residence.
At some point, the Foleys failed to make the required
payments on all three loans and they fell into default.
Rather
than proceed with foreclosure on the realty, Paul and Jennifer
sold their residential property in August 1995 and a check for
the sale amount of $61,336.87 was made out to Paul, Jennifer, and
FCB.
The Foleys then endorsed the check to FCB, which took
possession of the entire proceeds.
However, FCB refused the
Foleys’ demand to return to them approximately $41,000, which
represented the excess amount left after payment of the remaining
balance due on the personal mortgage loan.
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At that time, both
the February and March 1994 notes were in default, so FCB applied
the $41,000 to reduce the balance owing on the February 1994
note, which exceeded $100,000 and was secured in part by the
realty that generated the proceeds.
FCB also obtained possession
of the heavy equipment securing the March 1994 note and applied
the proceeds from a sale of the equipment to reduce the $35,000
balance due on that note.
In December 1995, Paul, Jennifer, and William Foley
filed a complaint alleging that FCB had acted illegally in its
handling of the $41,000 and asserting claims of fraud,
conversion, intentional infliction of emotional distress, breach
of duty to act in good faith, breach of fiduciary duty, and
negligent supervision of employees.
an answer and counterclaim.
In January 1996, FCB filed
In the answer, FCB denied acting
improperly in applying the proceeds of the sale of the residence
or dealing unfairly with the Foleys.
The counterclaim alleged
that the two promissory notes were in default and sought sale of
the remaining realty covered by the mortgages securing the notes
and a judgment against Paul and Jennifer Foley on their personal
guaranties.1
In March 1996, the Foleys filed an answer to the
counterclaim asserting the allegations in their complaint and a
violation of federal lending laws as defenses to the
counterclaim.
In June 1996, FCB filed a motion for summary judgment
on its counterclaim stating that there was no genuine issue in
1
Pauline Foley was later added as a party through an amended
counterclaim filed by FCB.
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dispute that the February and March 1994 notes of Foley Lumber
Company were in default, and that Paul and Jennifer Foley were
liable for the debts on their personal guaranties.
In their
response to the summary judgment motion, the Foleys argued that
FCB had breached its fiduciary duty to act in good faith in
handling the $41,000 proceeds from the property sale and again
raised the issues in their complaint as a defense.
In September 1996, the trial court granted the motion
and entered an interlocutory summary judgment for FCB on its
counterclaim pending updated calculation of the amounts owed on
the two promissory notes.
In November 1996, the court entered a
final summary judgment finding Paul and Jennifer Foley liable on
the remaining balance of the two notes plus attorney fees,
recognizing that FCB had a superior mortgage lien on the three
remaining tracts of realty securing the notes, and ordering
public sale of the property.2
In December 1996, the Foleys filed a CR 59.05 motion to
alter, amend or vacate the summary judgment arguing that material
issues of fact remained concerning FCB’s actions involving the
loans on the February 1994 and March 1994 notes, and the handling
of the $41,000 proceeds from the sale of their residence.
They
maintained that the facts surrounding the actions of FCB were
inextricably linked to both their complaint and FCB’s
counterclaim.
They asserted that application of the proceeds to
both of the business loans would have satisfied the existing past
2
The trial court also subsequently granted a separate
summary judgment against Pauline Foley on the same grounds as
that granted against the other Foleys.
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due amounts and averted the defaults.
They stated that summary
judgment on the counterclaim “effectively renders impossible a
full and fair investigation and trial upon the Complaint, which
covers the same loans and behavior as the Counterclaim.”
After a
hearing, the trial court denied the CR 59.05 motion.
In March 1997, the Foleys filed an appeal of the
summary judgment granted on FCB’s counterclaim.
On July 2, 1999,
this Court rendered an opinion affirming the trial court’s grant
of summary judgment to FCB on its counterclaim.
Foley v. First
Commonwealth Bank of Prestonsburg, Kentucky, 1997-CA-000806-MR.
On January 5, 2000, FCB filed a motion for summary
judgment on the Foleys’ original complaint contending that this
Court’s opinion on the counterclaim had effectively decided the
issues raised in the complaint.
In a response, the Foleys argued
that the appellate decision only involved FCB’s counterclaim and
that disputed issues of material fact remained on the claims in
their complaint.
On January 20, 2000, the trial court granted
FCB’s motion for summary judgment based on the previous appellate
decision.
This appeal followed.
The Foleys contend that the trial court erred in
granting summary judgment on its complaint.
First, they claim
the court incorrectly found that this Court’s prior opinion
determined the issues raised in the complaint.
The Foleys
maintain that the Court of Appeals lacked jurisdiction to decide
the issues in the complaint because the appeal concerned only
FCB’s counterclaim and the trial court had not rendered a
decision on the issues in the complaint.
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They argue that the
prior appellate decision would not preclude further litigation of
the complaint under the principles of res judicata or issue
preclusion.
Second, the Foleys argue that summary judgment was
premature on substantive grounds.
They contend that FCB violated
a fiduciary duty of good faith in handling the personal funds of
Paul and Jennifer Foley consisting of the $41,000 proceeds from
the sale of their residence.
They assert that genuine issues of
material fact exist concerning FCB’s actions and its dealings
with the Foleys as debtors.
After reviewing the record in both the current appeal
and the prior appeal, we agree with the trial court that this
Court’s opinion in the prior appeal effectively decided the
issues raised in the complaint.
Under the principles of the law
of the case, the Foleys are precluded from relitigating those
issues.
Under the law of the case doctrine, a decision of the
appellate court, unless properly set aside, is controlling at all
subsequent stages of the litigation and is binding on the
parties, the trial court and the Court of Appeals.
See Inman v.
Inman, Ky., 648 S.W.2d 847, 849 (1982); Ellis v. Jasmin, Ky., 968
S.W.2d 669 (1998).
A final decision of an appellate court is
conclusive of questions resolved therein and may not be
reconsidered or reopened again by prosecuting appeals from
further proceedings in that case or other related cases.
Newman
v. Newman, Ky., 451 S.W.2d 417, 420 (1970); McHargue v. Sizemore,
Ky., 438 S.W.2d 338 (1969).
The law of the case doctrine,
however, generally applies to the determination of questions of
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law and not questions of fact.
See Hardaway Management Co. v.
Southerland, Ky., 977 S.W.2d 910, 915 (1998).
When an appellate court decides a question
concerning evidence or instructions, the
question of law settled by the opinion is
final upon a retrial in which the evidence is
substantially the same and precludes the
reconsideration of the claimed error on a
second appeal.
H.R. v. Revlett, Ky. App., 998 S.W.2d 778, 780 (1999)(quoting
Siler v. Williford, Ky., 375 S.W.2d 262, 263 (1964)).
In the present case, the Foleys presented the issues
raised in their complaint as defenses to FCB’s summary judgment
on its counterclaim in both the trial court and the Court of
Appeals.
In the prior appeal, they argued that summary judgment
on the counterclaim was premature because it would effectively
prevent a full and fair investigation and trial on the complaint.
They consistently asserted that FCB’s actions with respect to the
$41,000 proceeds, which represented the basis for the claims in
the complaint, was inextricably linked to FCB’s rights on the two
promissory notes and the associated mortgages, which in turn also
formed the basis of FCB’s counterclaim.
In their appellate brief
in the prior appeal, the Foleys stated:
Contrary to Appellee’s repeated assertions,
the complaint and the counterclaim deal with
exactly the same issue, that being whether
the Bank acted lawfully in dealing with the
business loans, and the proceeds of a sale of
personally owned realty. This issue was
presented to the trial court for review in
the memorandum of law filed in support of the
motion to alter, amend or vacate entry of
summary judgment.
Brief for Appellant at 6, 1997-CA-000806-MR.
They maintained
that summary judgment on the counterclaim was improper because of
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evidence showing that FCB seized and converted proceeds of a
consumer credit loan and applied the proceeds contrary to the
Foleys’ stated directions.
See Reply Brief for Appellant at 2,
1997-CA-000806-MR.
In affirming the trial court’s grant of summary
judgment on the counterclaim, this Court addressed the Foleys’
contention that FCB acted improperly in dealing with the $41,000
proceeds.
We are not persuaded by appellants’
contention that genuine issues of material
fact exist as to whether the bank violated
federal banking regulations or otherwise
acted wrongfully in its application of the
sale proceeds to outstanding debts. In the
first place, the regulations cited by
appellants apply to consumer loans rather
than to the business loans at issue here.
Moreover, as noted above, the parties
specifically agreed in writing that the
mortgages and promissory notes would secure
all of appellants’ obligations to the bank.
Thus, contrary to appellants’ contention, KRS
431.065 does not bar the bank’s counterclaim.
Further, the promissory notes specified that
if the bank in good faith either deemed
itself insecure as to repayment or believed
that prospects of repayment were impaired, it
could make any and all of appellants’
obligations to the bank immediately “due and
payable without demand or notice.” If such
events occurred, the bank was entitled to an
immediate public or private sale of the
property securing the note.
The record contains no probative
evidence, and no indication that such
evidence could be adduced with or without
additional time for discovery, to counter the
bank’s showing that the mortgages and
promissory notes were in default. Moreover,
regardless of whether evidence could be
adduced at a trial to support appellants’
contention that they never received copies of
the numerous past due notices which the bank
allegedly sent to the lumber company and to
them, such evidence would not warrant a
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different outcome herein since the mortgages
and notes specifically provided that the
property in question was subject to sale
without demand or notice. Further, there is
no merit to appellants’ argument that the
bank somehow exceeded its authority by
refusing to comply with appellants’ demands
regarding the disposal of the proceeds from
the sale of the property which secured the
personal loan, since the mortgages and
promissory notes specifically secured all of
appellants’ debts to the bank and the bank
was entitled thereunder to apply the sale
proceeds against other obligations as it
deemed proper.
Slip op. at 5-6 (emphasis added).
Given the Foleys’ interjection of the issues raised in the
complaint in opposition to FCB’s counterclaim and this Court’s
resolution of those issues in the prior appellate opinion, we
believe that under the law of the case doctrine, the Foleys were
precluded from attempting to relitigate these issues.
essentially presented the
The Foleys
same arguments in this appeal that
they presented in the first appeal.
Consequently, we hold that
the trial court did not err in granting FCB’s summary judgment on
the Foleys’ complaint.
We affirm the judgment of the Floyd Circuit Court.
ALL CONCUR.
BRIEF FOR APPELLANTS:
BRIEF FOR APPELLEE:
E. Martin McGuire
Prestonsburg, Kentucky
Richard E. Fitzpatrick
Prestonsburg, Kentucky
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