FLAG DRILLING COMPANY, INC. v. ERCO, INC., AND COMMONWEALTH OF KENTUCKY, REVENUE CABINET
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RENDERED:
JANUARY 28, 2005; 2:00 p.m.
TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2003-CA-002244-MR
AND
NO. 2003-CA-002521-MR
FLAG DRILLING COMPANY, INC.
APPELLANT
APPEALS FROM CHRISTIAN CIRCUIT COURT
HONORABLE JOHN L. ATKINS, JUDGE
CIVIL ACTION NO. 03-CI-00166
v.
ERCO, INC., AND
COMMONWEALTH OF KENTUCKY,
REVENUE CABINET
APPELLEES
OPINION
AFFIRMING IN PART,
REVERSING IN PART, AND REMANDING
** ** ** ** **
BEFORE:
COMBS, CHIEF JUDGE; JOHNSON AND MINTON, JUDGES.
MINTON, JUDGE:
Unpaid property tax bills may be sold by the
county sheriff to become certificates of delinquency in the
hands of the purchaser.
The holder of a certificate of
delinquency may, after a one-year period, institute a collection
action or a tax lien foreclosure action, or both, against the
delinquent taxpayer.
Between 1995 and 2000, Erco, Inc. failed
to pay property taxes; and its delinquent tax bills were sold.
Flag Drilling Company, Inc., one of the owners of Erco’s
certificates of delinquency, filed suit in the circuit court to
recover the amount of certificates it had purchased and to
foreclose the tax liens associated with the certificates.
Following a judicial sale of the assessed property, the circuit
court awarded Flag Drilling the principal amount of its
certificate and interest.
attorney’s fees.
But the court declined to award
Flag Drilling appeals, claiming that it is due
attorney’s fees under KRS1 134.420(1) and KRS 134.490 or,
alternatively, under KRS 421.070, the codification of the common
fund doctrine and the substantial benefit principle.
Because we
believe Flag Drilling’s reliance on KRS 134.420(1) is proper and
that it should have recovered reasonable attorney’s fees, we
reverse, in part, and remand.
In 1990 Erco, a Kentucky corporation, became the owner
of 122 acres in Christian County that it used primarily for oil
and gas production.
The county annually assessed ad valorem
property taxes against Erco for state, county, school taxes, and
special taxing district assessments based upon the value of the
oil and gas production and the real estate.
In 1997, the
Kentucky Revenue Cabinet filed a state tax lien affecting Erco’s
real property for its failure to file state corporate income and
1
Kentucky Revised Statutes.
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state license taxes.
About that same time, Erco also fell
behind in its property tax payments.
As authorized by
KRS 134.450, the Christian County Sheriff offered those
delinquent property tax claims for sale to the public.
On November 17, 1999, Kelly Williams, the president of
Flag Drilling Company, Inc., bought one of the delinquent tax
claims.
He later assigned his ownership of this certificate to
Flag Drilling.
Flag Drilling itself bought another delinquent
tax claim in its own name on May 16, 2000.
The total of the two
certificates of delinquency at the time of payoff was $784.97.
On February 11, 2003, Flag Drilling filed suit in
circuit court to recover on its certificates of delinquency,
with interest, and to enforce the tax liens on the Erco
property.
The company also requested attorney’s fees under
KRS 134.420(1).
Flag Drilling’s complaint also named other
lienholders, Christian County, Kentucky, and the Commonwealth of
Kentucky, Revenue Cabinet as defendants.
The Revenue Cabinet filed an answer and cross-claim to
Flag Drilling’s complaint asserting its lien rights against
Erco’s property.
The cross-claim stated that Erco owed the
Revenue Cabinet $69,230.36 as of March 8, 2003, plus additional
interest thereafter.
After Erco filed its answer, Flag Drilling moved for
summary judgment.
But before its motion could be heard, Jeffery
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Major, another private individual owning a certificate of
delinquency for Erco’s tax claims, moved to intervene to assert
a cross-claim under his own certificate of delinquency.
On
April 16, 2003, the court allowed Major to intervene to assert
his cross-claim.
Three months later, judgment was entered awarding Flag
Drilling $784.97 for its certificates of delinquency, along with
court costs in the amount of $157.76.
The Revenue Cabinet was
awarded judgment in the sum of $69,718.58.
The court ordered
that Erco’s interest in the 122-acre tract be sold at a judicial
sale to satisfy the judgments.
The parties were directed to
file proof of claims and objections prior to the sale.
Thereafter, Flag Drilling filed a claim for
reimbursement of its attorney’s fees and Erco objected.
Specifically, Erco claimed that Flag Drilling’s reliance on
KRS 134.420(1) was misplaced.
On September 18, 2003, an order
was entered denying Flag Drilling’s claims to reimbursement and
providing judgment for Major in the amount of $1,588.94.
The
property was ordered to be sold by a special commissioner of the
circuit court.
Flag Drilling then filed its first Notice of
Appeal.
Approximately one month later, the commissioner made
his report of sale.
The report stated that Kelly Williams had
purchased the property for $87,000.
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After payment of the
commissioner’s fee and the costs associated with the sale, the
total amount remaining in the hands of the commissioner to
satisfy the judgment against Erco was $84,220.84.
Since this
amount was more than enough to satisfy the judgment debt owed to
Flag Drilling, Major, and the Revenue Cabinet, Erco was to be
awarded the surplus.
On November 5, 2003, the court entered an order
confirming the commissioner’s report of sale.
The commissioner
was ordered to execute and deliver a deed to the property to
Williams.
In response to this order, Flag Drilling filed a
second Notice of Appeal.
On January 8, 2004, the two appeals
were consolidated.
Flag Drilling makes three arguments:
first that the
trial court erroneously denied its claim for reimbursement of
attorney’s fees; second, that the trial court erroneously
awarded the Revenue Cabinet $69,230.76 “based only upon annual
estimates of taxes due the Cabinet, which were arbitrary and
speculative”; and third that the provisions of KRS 426.705
requiring a purchaser of property to pay interest at 12 percent
per annum from the date of purchase until the deed is
transferred violates sections 2, 3, 27, and 28 of the Kentucky
Constitution and conflicts with CR2 53.
2
Kentucky Rules of Civil Procedure.
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We acknowledge that Erco, one of the appellees in this
consolidated appeal, did not file a brief.
Flag Drilling argues
that this failure automatically sustains its positions with
regard to its first and third arguments; therefore, it claims
that “this Court would be proper in reversing either of those
portions of the Christian Circuit Court’s Orders and Judgments
based upon either §(i)(ii) or (iii) of CR 76.12(8)(c).”
Those
sections state that an appellee that fails to file a brief may
be penalized in three distinct ways.
Although Flag Drilling would have us read the penalty
provisions of CR 76.12(8)(c) as mandatory, we are confident that
“[t]his rule merely provides penalty options which an appellate
court may, in its discretion, impose for failure to file a
brief.”3
We do not believe that reversal is warranted based
solely upon Erco’s failure to respond in this case; so we will
address the merits of each of Flag Drilling’s arguments.
REIMBURSEMENT OF ATTORNEY’S FEES
As its first argument, Flag Drilling claims that it
should have been awarded attorney’s fees based on the provisions
of KRS 134.420(1) and KRS 134.490 or, alternatively, under the
terms of KRS 421.070, the common fund doctrine and the
substantial benefit principle.
3
Kupper v. Kentucky Board of Pharmacy, 666 S.W.2d 729, 730 (Ky. 1983)
(emphasis added).
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We note that there is no evidence in the record that
the issue of attorney’s fees pursuant to KRS 134.490,
KRS 421.070, the common fund doctrine or the special benefits
principle were actually presented to the trial court for a
ruling.
Thus, these arguments are not preserved for appeal.
But since we agree that Flag Drilling is owed reasonable
attorney’s fees under KRS 134.420(1), Flag Drilling’s failure to
preserve its other arguments is harmless error.
Therefore, our
reversal is based solely on the reimbursement of attorney’s fees
under KRS 134.420(1).
When a claim for reimbursement of attorney’s fees is
made, our courts adhere to what is referred to as the “American
Rule.”
This rule provides that “the prevailing litigant is
ordinarily not entitled to collect a reasonable attorneys’ fee
from the loser.”4
“Under our law, attorney’s fees are not
allowable as costs in absence of statute or contract expressly
providing therefore.”5
Although attorney’s fees may be awarded
in equity, these awards are “largely within the discretion of
4
Alyeska Pipeline Service Company v. The Wilderness Society, 421 U.S.
240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975); see also, Dulworth &
Burress Tobacco Warehouse Company v. Burress, 369 S.W.2d 129, 130
(Ky. 1963).
5
Kentucky State Bank v. Ag Services, Inc., 663 S.W.2d 754, 755
(Ky.App. 1984).
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the court” and are dependent upon “the facts and circumstances
of each particular case.”6
Flag Drilling argued before the trial court and
reasserts on appeal that the language of KRS 134.420(1),
entitled “Lien for taxes,” provides a claim for reimbursement of
its attorney’s fees.
Reliance on this statute stems from
KRS 134.490(2)(b), which states that a private owner of a
certificate of delinquency may “[i]nstitute an action to enforce
the lien provided in subsection (1) of KRS 134.420 . . . .”
applicable portion of KRS 134.420(1) reads:
The state and each county, city, or other
taxing district shall have a lien on the
property assessed for taxes due them
respectively for ten (10) years following
the date when the taxes become delinquent,
and also on any real property owned by a
delinquent taxpayer at the date when the
sheriff offers the tax claims for sale as
provided in KRS 134.430 and 134.440. This
lien shall not be defeated by gift, devise,
sale, alienation, or any means except by
sale to a bona fide purchaser, but no
purchase of property made before final
settlement for taxes for a particular
assessment date has been made by the sheriff
shall preclude the lien covering the taxes.
The lien shall include all interest,
penalties, fees, commissions, charges,
costs, reasonable attorney fees, and other
expenses incurred by reason of delinquency
in payment of the tax bill or certificate of
delinquency or in the process of collecting
either, and shall have priority over any
other obligation or liability for which the
property is liable.
6
Dorman v. Baumlisberger, 113 S.W.2d 432, 433 (Ky. 1938).
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The
We agree with Flag Drilling’s contention that this
statute provides for the reimbursement of its attorney’s fees.
KRS 134.490(2)(b) states that a private owner of a certificate
of delinquency may enforce the lien provided for by
KRS 134.420(1).
KRS 134.420(1) automatically grants a state,
county, city, or taxing district a lien on property when a
taxpayer fails to pay taxes.
When a private party acquires a
certificate of delinquency that party essentially purchases the
right to claim the lien that has been imposed by KRS 134.420(1).
We believe that by giving a private purchaser of a
delinquent tax claim a means to enforce the lien,
KRS 134.490(2)(b) allows that purchaser to stand in the shoes of
the state, county, city, or taxing district in whose name the
lien has been imposed.
By doing so, the statute gives the
private owner of a certificate of delinquency a feasible means
of recovering its tax claims.
KRS 134.420(1) states that a lien imposed by the
state, county, city, or taxing district shall include
“reasonable attorney’s fees.”
Because KRS 134.490(2)(b) permits
a private purchaser to enforce the lien imposed under
KRS 134.420(1), we hold that a purchaser necessarily has the
right to collect its reasonably expended attorney’s fees.
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Flag Drilling, as a private purchaser of several
certificates of delinquency, had the right to enforce the lien
that was created when Erco failed to pay its taxes to the
Sheriff of Christian County.
Based on our analysis, Flag
Drilling also had the statutory right to be reimbursed for its
reasonable attorney’s fees to collect the certificate of
delinquency.
Because Flag Drilling had a proper claim to
reimbursement under KRS 134.420(1), we must reverse the circuit
court’s denial of its request for attorney’s fees and remand the
case to the circuit court for it to determine a reasonable
attorney’s fee for Flag Drilling.
THE REVENUE CABINET’S $69,230.76 JUDGMENT
Flag Drilling’s second argument is that the circuit
court erroneously awarded the Revenue Cabinet $69,230.76 without
any actual proof of the amount owed by Erco.
Specifically, Flag
Drilling alleges that the amounts claimed by the Revenue Cabinet
were “arbitrary” and “speculative.”
In its original brief before this Court, Flag Drilling
erroneously argued “that those monies distributed to the Revenue
Cabinet by the Clerk” should “be ordered repaid to the Clerk by
the Revenue Cabinet for the purposes of the payment of the
Appellant’s attorney’s fees from the ‘common fund’ . . . .”
However, in its reply brief, Flag Drilling retracted this
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portion of its argument after it was advised that no monies had
yet been paid out to the Revenue Cabinet from the Clerk.
Thus,
alternatively, Flag Drilling argued that its attorney’s fees
should be paid from the surplus funds awarded to Erco.
We again note that regardless of the approach taken to
this argument, Flag Drilling did not preserve this issue before
the trial court.
It is well settled that “a question not raised
or adjudicated in the court below cannot be considered when
raised for the first time in this court.”7
This Court will only
address such issues if they constitute “a palpable error which
affects the substantial rights of a party. . . .”8
There is no evidence in the record that Flag Drilling
ever challenged the alleged “arbitrary and speculative” nature
of the Revenue Cabinet’s figures.
Although Erco did state in
its answer to the Revenue Cabinet’s cross-claim that it believed
the amounts lacked specificity, this response had no effect upon
Flag Drilling.
Nor was there an argument raised before the
trial court that Flag Drilling’s fees should be paid out of the
surplus amount awarded to Erco.
Since Flag Drilling failed to
preserve these issues, we may only review for palpable error.
There is no indication that Flag Drilling’s rights
were affected by the trial court’s award to the Revenue Cabinet.
7
Combs v. Knott County Fiscal Court, 141 S.W.2d 859, 860 (Ky. 1940).
8
CR 61.02.
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In fact, we fail to see how Flag Drilling has any standing to
argue against the judgment obtained by the Revenue Cabinet.
As
the United States Supreme Court stated in Warth v. Seldin, “[i]n
its constitutional dimension, standing imports justiciability:
whether the plaintiff has made out a ‘case or controversy’
between himself and the defendant within the meaning of Article
III.”9
Flag Drilling has not established a “case or controversy”
between itself and the Revenue Cabinet. The amount of money
recovered by the Revenue Cabinet had absolutely no effect upon
the amount of recovery received by Flag Drilling.
Flag Drilling
received the entirety of the $784.97 it was due, plus additional
court costs.
The judgment in favor of the Revenue Cabinet did
not preclude Flag Drilling from full recovery, nor were its
interests negatively affected by the Revenue Cabinet’s receipt
of Erco’s delinquent taxes.
Therefore, since Flag Drilling
lacks standing, we decline to disturb the trial court’s
determination of this matter.
With regard to Flag Drilling’s claim that attorney’s
fees should be paid solely out of Erco’s surplus funds, we
believe this matter is better left for a determination by the
trial court on remand.
Since it is within the trial court’s
discretion to determine how the funds collected from the sale of
9
422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975).
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the property are to be distributed, we decline to address how
Flag Drilling’s fees should be disbursed.
CONSTITUTIONALITY OF THE 12 PERCENT PER ANNUM INTEREST
Finally, Flag Drilling asks us to determine whether
the provisions of KRS 426.705 that require an individual
purchaser of property to pay interest at 12 percent per annum
from the date of purchase until the deed is transferred violates
sections 2, 3, 27, and 28 of the Kentucky Constitution and
conflicts with CR 53.
Once again, Flag Drilling failed to preserve this
issue in the trial court.
We also question whether Flag
Drilling has standing to challenge this statute.
The brief
filed on behalf of Flag Drilling does not mention how the
company has suffered or will suffer an injury based on the
alleged unconstitutional application of KRS 426.705.
While the
record reflects that Kelly Williams bought the property at the
judicial sale, the record does not disclose whether Williams
then transferred the property to Flag Drilling.
Since Williams,
in his individual capacity as the purchaser of the Erco
property, is not a party to this action, we fail to see how Flag
Drilling, in its corporate capacity, has standing to argue the
unconstitutionality of the 12 percent per annum interest.
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Because Flag Drilling lacks standing, our discussion
of this issue would be tantamount to issuing an advisory
opinion; and since this Court does not render purely advisory
opinions,10 we again decline to disturb the trial court’s
decision.
DISPOSITION
For the reasons given in this opinion, we reverse the
Christian Circuit Court’s order on its refusal to allow a
reasonable attorney’s fee to Flag Drilling for the foreclosure
of the liens associated with the delinquency certificates it
owned.
Accordingly, this matter is remanded to the circuit
court for it to determine the amount of a fee to be awarded to
Flag Drilling for prosecuting its claim on its delinquency
certificates.
Because the other arguments raised by Flag
Drilling were not properly preserved for appellate review, we
affirm the trial court in all other respects.
ALL CONCUR.
BRIEFS FOR APPELLANT:
Daniel N. Thomas
Hopkinsville, Kentucky
BRIEF FOR APPELLEE
COMMONWEALTH OF KENTUCKY,
REVENUE CABINET:
John E. Swain, Jr.
Hopkinsville, Kentucky
10
Kentucky High School Athletic Ass’n v. Davis, 77 S.W.3d 596, 599
(Ky.App. 2002).
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