STEWART TITLE GUARANTY COMPANY VS. HAYDEN & BUTLER, P.S.C.
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RENDERED: AUGUST 6, 2010; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2009-CA-000878-MR
STEWART TITLE GUARANTY
COMPANY
v.
APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE JAMES D. ISHMAEL, JR., JUDGE
ACTION NO. 08-CI-06291
HAYDEN & BUTLER, P.S.C.
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: MOORE AND THOMPSON, JUDGES; WHITE, SENIOR JUDGE.1
MOORE, JUDGE: Stewart Title Guaranty Company appeals from the Fayette
Circuit Court’s order dismissing its breach of contract claim against Hayden and
Butler, P.S.C. (H&B). After a careful review of the record, we affirm.
1
Senior Judge Edwin M. White sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky Revised Statute (KRS)
21.580.
To begin, we adopt the trial court’s succinct statement of the facts
relevant to this matter, as stated in its order:
[O]n or about September 8, 1999, the parties entered into
an Agreement whereby H & B was authorized to act as
an agent for Stewart Title for the purpose of issuing title
policies. At a certain closing that occurred on or about
January 19, 2000, H & B issued a title insurance policy
on a certain property with an existing mortgage. On or
about July 14, 2004 the couple involved in the January
19, 2000 closing filed a Petition pursuant to Chapter 7 in
Bankruptcy Court. On or about December 1, 2004 the
Bankruptcy Trustee filed an adversary proceeding against
the Mortgage Company in the January 19, 2000 closing
alleging that the Mortgage Company Lien should be
voided for various claimed deficiencies. On or about
January 5, 2005 the Bankruptcy Court voided the
Mortgage Company Lien at issue reducing the Mortgage
Company from a secured creditor with a superior lien on
the property in question to that of an unsecured creditor.
Thereafter, the Mortgage Company presented a
claim to Stewart Title under the title insurance policy
issued by H & B on the subject property. Stewart Title
eventually paid the claim of the Mortgage Company in
the amount of $55,387.68. Stewart Title’s attorney
stipulated to the Court at Oral Arguments that Stewart
Title paid the Mortgage Company as aforesaid in
November 2006. The Court also learned at Oral
Arguments from Stewart Title’s Counsel that it was first
notified by the Mortgage Company in December 2004 of
the potential claim. Stewart Title first notified H & B on
or about November 21, 2005 of the potential claim
against it. This law suit was filed on December 11, 2008.
Subsequent to the filing of this complaint, H&B made a special
appearance in this matter solely for the purpose of moving to dismiss it. H&B’s
motion was based upon the same agreement that Stewart was seeking to enforce
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against it. Of particular note, its motion relied upon the same provision in that
contract which Stewart cited as the basis of H&B’s liability:
7. RELATIONSHIPS BETWEEN STEWART AND
[H&B]:
DIVISION OF LOSS AND EXPENSE: The term
“Loss” shall include the amount paid to or for the benefit
of the insured, as well as loss adjustment expense
including any cost of defending the claim resulting in the
loss.
...
(b) The relationship between [H&B] and
STEWART under this Agreement is that of
Attorney and Client, and the responsibility
and liability of each party to the other shall
be governed by the law relating to Attorney
and Client; however, without limiting
liability of [H&B], [H&B] shall be liable to
STEWART for any loss which STEWART
may sustain or incur under any policy issued
pursuant to this Agreement occasioned by
any fraud, intentional act, or omission or
negligence of [H&B] in the performing of
his undertaking hereunder, including but
without limiting the generality of the
foregoing, any loss resulting from any error
in abstracting, any loss resulting from an
error in the examination of the title, any loss
resulting from any error in closing of the
transaction, or any loss resulting from a
violation of this Agreement, or a violation of
the instructions given by STEWART.
[H&B] does not and shall not represent that
[H&B] is closing the transaction on behalf
of STEWART.
Citing to the phrase, “The relationship between [H&B] and
STEWART under this Agreement is that of Attorney and Client, and the
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responsibility and liability of each party to the other shall be governed by the law
relating to Attorney and Client,” H&B interpreted Stewart’s claim as one for
professional malpractice. Consequently, H&B invoked Kentucky Revised Statute
(KRS) 413.245, which mandates that actions for professional service malpractice
be filed within one year from the date of occurrence or from the date when the
cause of action was, or reasonably should have been, discovered by the party
injured. Pursuant to this statute, H&B argued that the date of discovery ran no
later than January 5, 2005, making Stewart’s December 11, 2008 complaint
untimely.
Stewart argued that its complaint did not assert a breach of contract
for professional services. Rather, Stewart argued that its complaint asserted causes
of action for a breach of contract for non-professional services, a breach of a
contractual indemnity provision, and a cause of action for common-law indemnity.
If H&B breached a contract for non-professional services, Stewart urged that the
proper statute of limitations is fifteen years per KRS 413.090(2). Alternatively,
Stewart argued that if H&B breached an indemnity provision contained in a
contract or if H&B owed Stewart indemnity under the common law, Stewart urged
that the proper statute of limitations is five years per KRS 413.120(7). In any
event, Stewart argued that all of its claims against H&B were timely.
In an April 13, 2009 opinion and order, the trial court reviewed the
contract between Stewart and H&B and dismissed Stewart’s complaint,
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interpreting it as an untimely action for professional malpractice. The trial court
also held that KRS 413.120 was inapplicable to Stewart’s indemnity claims. It is
from this order that Stewart appeals.
STANDARD OF LAW
The subject of our analysis is the trial court’s decision to dismiss
Stewart’s action pursuant to Civil Rule (CR) 12.02(f), i.e., failure to state a claim.
In that respect,
[i]t is well established that a court should not dismiss an
action for failure to state a claim unless the pleading
party appears not to be entitled to relief under any set of
facts which could be proven in support of his claim. In
ruling on a motion to dismiss, the pleadings should be
liberally construed in the light most favorable to the
plaintiff, all allegations being taken as true. Therefore,
the question is purely a matter of law. Accordingly, the
trial court's decision will be reviewed de novo.
Morgan v. Bird, 289 S.W.3d 222, 226 (Ky. App. 2009) (internal citations and
quotations omitted).
ANALYSIS
On appeal, Stewart does not contest that a suit for professional
malpractice based upon the agreement at issue in this matter would be untimely.
Nor does Stewart renew its contention that a fifteen-year statute of limitations
would be appropriate for any action based upon this contract. Instead, Stewart’s
sole contention is that it had a total of five years, following its settlement with the
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mortgage company, to file its action for indemnity against H&B pursuant to KRS
413.120(7) based upon either section 7(b) of its contract with H&B or under the
common law. We disagree.
To begin, KRS 413.120(7) does not provide a five-year limitations
period for contractual indemnity claims; it only governs the applicable limitations
period for indemnity actions asserted under common law. See Degener v. Hall
Contracting Corp., 27 S.W.3d 775, 782 (Ky. 2000). Indeed, that statute explicitly
provides a five-year limitations period for “[a]n action for an injury to the rights of
the plaintiff, not arising on contract and not otherwise enumerated.” KRS
413.120(7) (emphasis added).
As such, Stewart’s argument that KRS 413.120(7) allowed it five
years to assert its contractual indemnity action against H&B based upon section
7(b) of their retainer agreement is untenable. The language of that very provision,
which both Stewart and H&B agreed upon, recites that their rights against each
other pursuant to that contract are governed by “the law relating to Attorney and
Client.” The law relating to attorney and client, in turn, mandates that actions
based upon contract in that context be brought “within one (1) year from the date
of the occurrence or from the date when the cause of action was, or reasonably
should have been, discovered by the party injured.” KRS 413.245. In this regard,
Stewart’s action for contractual indemnity was untimely.
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For similar reasons, section 7(b) of the retainer agreement between
Stewart and H&B also precludes Stewart from stating a claim for indemnity under
the common law.
As a preliminary matter, the right to common-law indemnity stands
entirely upon principles of equity. Brown Hotel Co. v. Pittsburgh Fuel Co., 311
Ky. 396, 224 S.W.2d 165, 168 (1949). And, as opposed to contractual indemnity,
“common law indemnity is an equitable cause of action that is subject to particular
limitations and requires a party invoking it to meet certain standards.” Electric
Ins. Co. v. Freudenberg-Nok, General Partnership, 487 F.Supp.2d 894, 903 (W.D.
Ky. 2007).2
However,
[w]hile the circuit court has broad powers in equity to
fashion a remedy out of general considerations of right
and justice as applied to the relation of the parties and the
circumstances of their dealings, see Gabbard v. Watkins,
280 Ky. 257, 133 S.W.2d 54 (Ky. 1939), a court should
not resort to equitable remedies when adequate legal
remedies are available. See Wunderlich v. Scott, 242 Ky.
481, 486, 46 S.W.2d 753, 755 (1932) (court stating that
“so long as the law provides an adequate remedy, equity
has no right to interfere. It must therefore appear that the
legal remedy is inadequate before a court of equity will
afford relief . . .”).
2
An action for common law indemnity arises “(1) Where the party claiming indemnity has not
been guilty of any fault, except technically, or constructively, as where an innocent master was
held to respond for the tort of his servant acting within the scope of his employment; or (2)
where both parties have been in fault, but not in the same fault, towards the party injured, and the
fault of the party from whom indemnity is claimed was the primary and efficient cause of the
injury.” Degener, 27 S.W.3d at 780.
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Bolen v. Bolen, 169 S.W.3d 59, 65 n. 14 (Ky. App. 2005).
This principle, as stated in Bolen, applies equally to a situation in
which there is an explicit contract which has been performed. See Codell Const.
Co. v. Commonwealth, 566 S.W.2d 161, 165 (Ky. App. 1977) (holding unjust
enrichment, an equitable cause of action, inapplicable where an explicit contract
which has been performed dictated the rights and liabilities of the parties). In that
event, the rights of the parties are measured solely by the contract. Damron v.
Stewart & Weir, 253 Ky. 394, 69 S.W.2d 685, 687 (1934). And, “when the parties
have made an express contract which will admit of but one interpretation, the court
must give effect to it, since courts cannot make a new contract between the parties
but must enforce the one the parties have made.” Schwartz Amusement Co. v.
Independent Order of Odd Fellows, Howard Lodge, No. 15, 278 Ky. 563, 128
S.W.2d 965, 968 (1939); see also U.S. Fidelity & Guaranty Co. v. Napier Elec. &
Const. Co., Inc., 571 S.W.2d 644, 646 (Ky. App. 1978) (holding that where the
nature of the indemnitor’s liability is specified by express contract, the nature of
the indemnitor’s liability will be determined by the provisions of that express
contract).
These principles apply to the case at bar because this matter 1)
involves an express contract that has been performed between Stewart and H&B;
and 2) involves the assertion of an equitable cause of action, i.e., common law
indemnity. Stewart does not argue that its legal right of indemnification provided
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under that contract is somehow inadequate. Rather, Stewart simply wishes to
assert an equitable cause of action in the alternative based upon exactly the same
facts giving rise to its contractual indemnity claim. However, the contract between
Stewart and H&B obviated any right to recover under the common law theory of
indemnity because their contract was enforceable; it was performed; and, under
their contract, Stewart and H&B had already agreed upon how and under what
circumstances losses should be allocated and liability for indemnity would arise:
not under the common law theory of equitable indemnity, but under “the law
relating to Attorney and Client.” See section 7(b), above. Indeed, section 7(b)
explicitly defines “any loss resulting from any error in closing of the transaction”
as an event of liability and loss under the agreement, which is exactly what Stewart
alleges to form the basis of its complaint.
CONCLUSION
For these reasons, the opinion and order of the Fayette Circuit Court is
affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Jennifer Hatcher
Louisville, Kentucky
Calvin R. Fulkerson
David A. Trevey
Lexington, Kentucky
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