INDIAN CREEK RESORTS, INC v. BANK OF DANVILLE AND TRUST COMPANY
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RENDERED:
September 7, 2001; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2000-CA-001555-MR
INDIAN CREEK RESORTS, INC
APPELLANT
APPEAL FROM PULASKI CIRCUIT COURT
HONORABLE WILLIAM T. CAIN, JUDGE
ACTION NO. 92-CI-00676
v.
BANK OF DANVILLE AND TRUST COMPANY
APPELLEE
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
HUDDLESTON, KNOPF AND TACKETT, JUDGES.
KNOPF, JUDGE:
Indian Creek Resorts, Inc. (ICR), appeals from an
order of Pulaski Circuit Court dismissing its cross-claim against
Bank of Danville and Trust Company.
Following resolution of the
primary foreclosure action, the trial court suspended the entire
action.
Subsequently, the trial court denied ICR’s motion to
reinstate its cross-claim, and it dismissed the action in its
entirety.
ICR argues that the order dismissing the foreclosure
action did not clearly apply to its cross-claim.
As a result,
ICR argues that the trial court erred when it refused to
reinstate its cross-claim.
We find that the trial court abused
its discretion when it refused to reinstate and then dismissed
the action.
Hence, we reverse and remand for further
proceedings.
The underlying facts of this action are not in dispute.
On August 1, 1991, ICR’s president Robert Gardiner (Gardiner)
executed a promissory note in favor of First and Farmers Bank of
Somerset, Kentucky (FFB), in the amount of $226,022.50.
The note
was secured by real property in Keno, Kentucky, which ICR owned.
In addition to the real property, the note was personally
guaranteed by Berry Kessler (Kessler).
At that time, Kessler was
a business associate of Gardiner’s and a principal in ICR.
A short time after the note was executed, Kenneth
Germain (Germain) went to the Bank of Danville & Trust Company
(BDTC) seeking a loan.
Germain represented to BDTC that ICR had
authorized him to obtain the loan.
However, Germain was never
employed by ICR, nor was he authorized to act on its behalf.
December of 1991, BDTC loaned Germain $100,000.00.
In
The loan was
secured by a second mortgage on the Keno property.
In the next few months, ICR became delinquent on its
promissory note with FFB.
On September 1, 1992, FFB filed a
foreclosure action against ICR, BDTC, Gardiner, Kessler, and
several others.
During the foreclosure action, Kessler contacted
BDTC and told them that ICR did not authorize Germain to use the
Keno property as security for his loan.
After filing its amended
answer to FFB’s foreclosure action, ICR filed a cross-claim
against BDTC and a third-party claim against Germain.
Both
claims alleged fraud, slander of title and negligence arising out
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of transactions between Germain and BDTC for the second mortgage
on the Keno property.
On August 6, 1993, BDTC filed its answers to ICR’s
cross-claim.
Germain filed his answer to the third-party
complaint on September 23, 1993.
During this period, FFB began
to file discovery requests and notices for depositions.
In
November 1994, Germain filed a motion to dismiss ICR’s thirdparty claim against him for failure to prosecute.
Both ICR’s
counsel and substitute counsel failed to appear at the hearing on
the motion, and the trial court dismissed the third-party
complaint.
On December 16, 1994,
order of dismissal.
ICR moved to set aside the
ICR’s counsel explained that his absence was
due to a family emergency and a mistake by substitute counsel.
In an order entered on January 12, 1995, the trial court set
aside its prior order dismissing.
However, the trial court made
its order reinstating the third-party complaint contingent upon
ICR’s payment of Germain’s attorney’s fees and costs associated
with the motion.
Also in early 1995, Frances Del Spina (Del Spina)
purchased all the interests of FFB and negotiated settlements
with several defendants in the foreclosure action.
The trial
court permitted Del Spina to intervene in the action.
Eventually, BDTC released its mortgage in the Keno property,
allowing the Master Commissioner to sell the property to Del
Spina.
9, 1995.
The court entered an order confirming the sale on March
On March 15, the court entered an additional order
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distributing the proceeds of the sale.
On April 6, 1995, it
entered another order, which provided in part as follows:
IT IS HEREBY ORDERED AND ADJUDGED that the
above-styled action be stricken from the
docket of this Court, unless the Court is
advised in writing within ten (10) days of
the date of this order of reasons showing
good cause why it should remain on the
docket.
Although all counsel of record received notice of the
order, no party filed a response to the order.
Nevertheless,
additional proceedings continued in the action.
In particular,
on July 24, 1995, ICR filed a motion requesting that the trial
court set the amount of attorney’s fees incurred by Germain as
set out in the court’s January 12 order.
Shortly thereafter,
Germain’s counsel withdrew from the litigation, and the trial
court directed him to obtain new counsel within 60 days.
On November 27, 1995, ICR filed a motion for default
judgment on its cross-claim against Germain.
tendered interrogatories to BDTC.
Simultaneously, ICR
In response, BDTC argued that
the trial court’s April 6, 1995, order dismissed all pending
claims in the action, including ICR’s cross-claim.
ICR filed a
response to BDTC’s argument and requested a hearing on the
matter.
On April 9, 1996, ICR filed a renewed motion for a
hearing on the issue and on its request for a default judgment
against Germain.
The court scheduled a hearing, but once again
it declined to enter any orders.
No further pleadings were filed
until April 14, 1997, when ICR re-filed the motion that it had
submitted a year earlier.
Since Germain had not responded to any
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of the motions, the trial court granted ICR’s motion for a
default judgment against him on April 3, 1998.
Finally, on March
8, 2000, the trial court entered an order finding as follows:
The order of this Court dated April 6, 1995,
striking this matter from the docket of this
Court has not been modified, and the claim of
Indian Creek Resorts, Inc., against the Bank
of Danville and Trust Company have [sic] not
been reinstated.
Accordingly, the trial court overruled ICR’s motion to
reinstate its claim against BDTC and dismissed the action.
Thereafter, the trial court denied ICR’s motion to reconsider,1
and this appeal followed.
The nature and purpose of the trial court’s April 6,
1995, order present some unusual questions for review.
BDTC
argues that the April 6, 1995, order resolved the entire action
and effectively amounted to a dismissal of ICR’s cross-claim.
do not agree.
We
First, a judgment of the court must be interpreted
and read in the light of what was before it.2
With regard to the
cross-claim and third-party claim, no party had a pending motion
to dismiss and the trial court did not give notice to the parties
that it was considering the issue sua sponte.
Indeed, the trial
court had reinstated ICR’s claims just three months earlier.
Furthermore, the April 6 order on its face does not
address any of the other claims pending in the action.
specifically refers only to the foreclosure action.
The order
The style of
the order refers only to FFB (as the original plaintiff), Del
1
CR 59.05
2
Hays v. Madison Co., 274 Ky., 116, 118 S.W.2d 197, 199 (1938).
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Spina (as the intervening plaintiff), and ICR (as the defendant).
By its own terms, the April 6 order did not purport to resolve
the issues raised in ICR’s cross-claim and third-party claim.
In addition, the April 6 order does not actually
dismiss any portion of the action.
Rather, the order states that
the action “will be stricken from the docket” in ten days.
Even
had the trial court intended the order to resolve all of the
pending claims in the action, it never took the required step of
issuing a final order doing so.
Indeed, the trial court
recognized that the April 6, 1995, order was not a final and
appealable judgment when it formally dismissed the action in its
order of March 8, 2000.
Consequently, the April 6 order was not
a final and appealable judgment, and the action remained pending
before the circuit court.
Finally, the terminology used in the April 6 order does
not support an inference that the trial court intended to dismiss
the action.
Indeed, the practice of “striking” a case from the
docket is not recognized under the Civil Rules.3
Even in older
cases where the practice was followed, our courts recognized that
an order striking a case from the docket was not the equivalent
3
Under CR 77.02, the trial court shall review all pending actions at least once a year. The
court shall provide notice to each counsel of record in every case in which no pretrial step has
been taken within the last year that the case will be dismissed in thirty days for want of
prosecution except for good cause shown. Similarly, CR 41.02 permits the trial court to dismiss
an action for failure to prosecute. The purpose of these rules is to allow the trial court to remove
stale cases from its docket. Hertz Commercial Leasing Corp. v. Joseph, Ky. App., 641 S.W.2d
753, 755 (1982) (citing 7 W. Clay, Kentucky Practice, CR 77.02, Comment (3rd ed.,1981)). The
practice of indefinitely suspending stale cases from the docket without dismissal is at odds with
the purpose of these rules.
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of a dismissal.
Rather, such an order merely removed the case
from the active docket, and thereafter it could be reinstated and
further proceedings in the case could be seasonably taken.4
At most, the April 6 order merely suspended ICR’s
cross-claim and third-party claim until further notice of the
court.
CR 60.02 was not implicated because the April 6 order was
not a final judgment.
Therefore, when ICR attempted to resume
its prosecution of the action in November 1995, it did not bear
the burden to show good cause.
BDTC also argues that the trial court had the
discretion to dismiss ICR’s cross-claim for failure to prosecute.
A court may dismiss an action for failure of a plaintiff to
prosecute or to comply with the civil rules or with any order of
the court.5
Application of this rule is a matter for the
discretion of the court.6
However, because of the grave
consequences of a dismissal with prejudice, a dismissal pursuant
to CR 41.02 should be resorted to only in the most extreme cases,
and this Court should carefully scrutinize the trial court's
exercise of discretion in doing so.7
Each case must be
considered in the light of the particular circumstances involved
4
Van Arsdale v. Caswell, Ky., 311 S.W.2d 404, 407 (1958); Taylor v. Commonwealth,
Ky., 246 S.W.2d 981, 984 (1951); Goff v. National Rubber & Leather Co., 249 Ky. 363, 60
S.W.2d 944, 945 (1933).
5
CR 41.02(1).
6
Thompson v. Kentucky Power Co., Ky. App., 551 S.W.2d 815, 816 (1977).
7
Polk v. Wimsatt, Ky. App., 689 S.W.2d 363, 364-65 (1985).
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and length of time is not alone the test of diligence.8
The
trial court must take care in analyzing the circumstances and
must justify the extreme action of depriving the parties of their
trial.9
In this case, the trial court gave no grounds for
dismissing ICR’s complaint.
Although ICR was not particularly
diligent in pursuing its claim, there is no indication in the
record that the trial court considered the extent of ICR’s
responsibility for the delay, its history of dilatoriness,
whether its conduct was willful and in bad faith, the
meritoriousness of its claim, the prejudice to BDTC, or the
availability of alternative sanctions.10
Furthermore, after BDTC
objected to ICR’s discovery requests in November 1994, the trial
court failed to rule for more than four years.
The record shows
that IRC renewed its motions for a ruling on the issue in April
of 1996 and 1997.
ICR is not responsible for any delay during
this period because the trial court would not allow discovery to
go forward.
The test for abuse of discretion is whether the trial
judge's decision was arbitrary, unreasonable, unfair, or
unsupported by sound legal principles.11
The trial court’s order
of March 8, 2000, simply says that the April 6 order has not been
8
Gill v. Gill, Ky., 455 S.W.2d 545, 546 (1970).
9
Ward v. Housman, Ky. App., 809 S.W.2d 717, 719 (1991).
10
Id. (citing Scarborough v. Eubanks, 747 F.2d 871 (3rd Cir. 1984)).
11
Goodyear Tire and Rubber Co. v. Thompson, Ky., 11 S.W.3d 575, 581 (2000);
Commonwealth v. English, Ky., 993 S.W.2d 941, 945 (1999).
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modified and the cross-claim has not been reinstated.
The court
gave no reasons for its refusal to reinstate the claim or for its
decision to dismiss the action entirely.
A dismissal of an
action under these circumstances should be accompanied by some
articulation on the record of the trial court's resolution of the
factual, legal, and discretionary issues presented.
When such a
severe sanction is imposed, values of consistency and
predictability, reviewability, and deterrence, outweigh the
values of economy and efficiency that may be promoted by allowing
unexplained decisions.12
Given the lack of any findings on this
issue, we conclude that the trial court’s refusal to allow ICR to
resume the prosecution of its cross-claim against BDTC was not
supported by the record or by sound legal principles.
Although
we do not condone ICR’s less-than-diligent approach to the
prosecution of its cross-claim, the trial court made no findings
which would justify dismissal of the action.
Accordingly, the order of the Pulaski Circuit Court
dismissing the cross-claim is reversed and the case remanded back
for further proceedings on the merits of ICR’s claim.
HUDDLESTON, JUDGE, CONCURS.
TACKETT, JUDGE, DISSENTS.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Ralph D. Gibson
Burnside, Kentucky
Medrith Lee Norman
Frost, Brown, Todd LLC
Lexington, Kentucky
John G. Prather, Jr.
Somerset, Kentucky
12
Greathouse v. American National Bank and Trust Co., Ky. App., 796 S.W.2d 868, 870
(1990); citing Taylor v. Medtronics, Inc., 861 F.2d 980, 986 (6th Cir.1988).
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