Debtor/Creditor Relations in Kentucky

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University of KentuckyOffice of Continuing Legal Education

Debtor/Creditor Relations

in KentuckyFourth Edition

Volume I

Aida AlmasalkhiT. Kent Barber

Thomas L. Canary, Jr.Christopher Coffman

Taylor M. HamiltonJohn E. Hinkel, Jr.

Zachary A. HornKevin L. Johns

Michael D. KalinyakJames M. Lloyd

John T. McGarveyJan C. MorrisMark R. OverstreetNelson D. RodesMark J. SandlinTimothy A. SchenkStephen E. SmithM. Deane StewartW. Scott StinnettMelinda T. Sunderland

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USE OF THIS VOLUME

Seminars and publications of the University of Kentucky Rosenberg College of Law Office of Continuing Legal Education (UK/CLE) are designed to assist lawyers in maintaining their professional competence. The Office of Con-tinuing Legal Education and its volunteer authors and speakers are not, by their participation in this publication, giving legal advice concerning any specific legal issue or problem, and their professional opinion with regard to legal or practical aspects of handling a specific issue or problem may change depending on the specific circumstances presented. Attorneys and others using information from UK/CLE publications or seminars must also fully research original and current sources of authority to properly serve their clients’ legal interests. The forms and sample documents contained in continuing legal education publications are intended for use only in conjunction with the professional services and advice of licensed attorneys. The legal research discussed herein is believed to be accurate, but is not warranted to be so. All parties must cautiously consider whether a particular form or document is suited to specific needs. These materials may contain expressions of opinion which do not necessarily reflect the views of the Office of Continuing Legal Education, the University of Kentucky, the Commonwealth of Kentucky, or other governmental authorities.

Copyright 2020 by the University of Kentucky Rosenberg College of Law

Office of Continuing Legal Education All rights reserved.

This Handbook may be cited as:

Debtor/Creditor Relations in Kentucky, 4th ed. § ________ (UK/CLE) (2020).

Printed in the United States of America.

ISBN 978-1-58757-204-4

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ABOUT UK/CLE

The University of Kentucky Rosenberg College of Law, Office of Con-tinuing Legal Education (UK/CLE) was organized in 1973 as the first permanently staffed, full time continuing legal education program in the Commonwealth of Kentucky. It endures with the threefold purpose: 1) to assist lawyers in keeping abreast of changes in the law; 2) to develop and sustain practical lawyering skills; and; 3) to maintain a high degree of professionalism in the practice of law. Reve-nues from seminar registrations and publication sales allow the Office to operate as a separately budgeted, self-supporting program of the College. No tax dollars or public funds are used in the operation of UK/CLE.

Live Programs

UK/CLE provides a variety of convenient, practical seminars to satisfy the continuing legal education needs of lawyers. Seminars range from half-day programs in selected areas to in-depth programs extending over several days. While many seminars are conducted at the Rosenberg College of Law in Lexing-ton, UK/CLE has a long-standing statewide commitment. Since its first year of operation, beginning with a criminal law seminar in Madisonville, Kentucky, the Office has continued to bring high-quality continuing legal education to attorneys in every region of Kentucky.

Publications

Each seminar is accompanied by extensive speaker-prepared course materials. These bound course materials are offered for sale following seminars and are consistently regarded as valuable, affordable references for lawyers. Since 1987, UK/CLE has produced a series of Practice Handbooks and Monographs. Each Practice Handbook is an extensively referenced, fully-indexed practice guide consisting of separately authored chapters, allowing for the comprehensive coverage of a distinct body of law. Each Monograph is a concisely written practice guide, often prepared by a single author, designed to cover a topic of narrower scope than the Handbooks. They are convenient references on topics often not treated elsewhere. In 1995, UK/CLE began publication of its highly popular Compendium Series. Each Compendium volume gathers several hundred pages of forms, charts, statistical data, case summaries, or other reference material useful in all aspects of drafting, case evaluation, case management, and litigation. In 2008, UK/CLE began the task of converting its full publications catalog into a searchable PDF format.

Self-Study Programs

Kentucky Supreme Court Rules allow attorneys to receive their annual mandatory 12 credit hours of continuing legal education credit through the use of accredited technologically-delivered products. UK/CLE has been offering an array

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of accredited self-study programs since 2002. These accredited CLE products are offered on audio CD or as on-demand streaming video.

Professional Management

UK/CLE serves the needs of the bar from its offices on the University of Kentucky campus in Lexington. Its staff manages course registrations, publica-tion planning and editing, publication sales, seminar and publication marketing, publication composition and printing, and seminar content planning, as well as budgeting, accounting, and financial reporting. As an “income based” program, UK/CLE’s seminar tuitions and publication sales are budgeted to generate sufficient revenues for self support.

Commitment to Quality and Creativity

UK/CLE is a member of the Association for Continuing Legal Education (ACLEA). As such, UK/CLE subscribes to the ACLEA Standards in Continuing Le-gal Education and the Standards of Fair Conduct and Voluntary Cooperation, admin-istered under the auspices of the American Law Institute-American Bar Association Committee on Continuing Professional Education. Throughout its existence UK/CLE has been actively involved in the activities and services provided by ACLEA. UK/CLE’s association with national and international CLE professionals has af-forded it the opportunity to continually reassess instructional methods, quality in publications, and effective means of delivering CLE services at consistently high levels of creativity and quality.

An Integral Part of the Legal Profession’s Tradition of Service

An enormous debt is owed to the judges, law professors, and practitioners who generously donate their time and talent to continuing legal education. Their knowledge and experience are the fundamental ingredients for our seminars and publications. Without their motivation and freely given assistance and dedication to a distinguished profession, high quality continuing legal education would not exist.

As a non-profit organization, UK/CLE relies upon the traditional spirit of service to the profession that attorneys have long demonstrated. We are constantly striving to increase attorney involvement in the continuing education process. If you would like to participate as a volunteer speaker or writer, please contact us and indicate your areas of interest and experience.

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UNIVERSITY OF KENTUCKYROSENBERG COLLEGE OF LAW

OFFICE OF CONTINUING LEGAL EDUCATION

660 South LimestoneLexington, Kentucky 40506-0048

Phone (859) 257-2921Fax (859) 323-9790

https://law.uky.edu/CLE

PRESIDENT, UNIVERSITY OF KENTUCKY Eli Capilouto

IINTERIM DEAN, ROSENBERG COLLEGE OF LAW Mary J. Davis

DIRECTOR OF CLE Kevin P. Bucknam

ASSISTANT DIRECTOR OF CLE Tracy J. Taylor

ADMINISTRATIVE/BUSINESS MANAGER Melinda Rawlings

TECHNICAL SERVICES MANAGER Benjamin J. Distler

EDITORIAL/MARKETING ASSISTANT Elizabeth M. Stewart

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UK/CLE: A SELF-SUPPORTING ENTITY

The University of Kentucky Office of Continuing Legal Education (UK/CLE) is an income-based office of the University of Kentucky Rosenberg College of Law. As such, it is separately budgeted and financially self-supporting. UK/CLE operations are similar to not-for-profit organizations, paying all direct expenses, salaries, and overhead solely from revenues. No public funds or tax dollars are allocated to its budget. Revenues are obtained from registrant enrollment fees and the sale of publications. Our sole function is to provide professional development services. In the event surplus funds become available, they are utilized to offset deficits or retained in our budget to improve the quality and variety of services we provide.

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PREFACE AND ACKNOWLEDGMENTS

Producing a quality publication requires a sequence of distinct activities. Conceiving, financing, structuring, writing, editing, indexing and proof-reading list only a few of them. Each activity involves thoughtful work and dedication on the part of many individuals. Their efforts in developing an accurate, well-organized book belie the conventional wisdom that producing a publication of this type is a mere mechanical pursuit.

UK/CLE wishes to extend sincere appreciation and gratitude to the new and returning update authors who have joined us in the preparation of the fourth edition of this work. Their volunteer contribution of legal research, analyses, writing and scholarship is the foundation of this book. If you benefit from their scholarship, I encourage you to express your appreciation to them. The authors’ work on this publication is a testament to the Kentucky Bar’s commitment to high quality continuing legal education.

Over a period of many months, countless hours were dedicated to the production of this handbook. A large portion of those hours were devoted to ed-iting and formatting by Editorial Assistant, Elizabeth M. Stewart, without whose diligence, patience, and perseverance this Handbook would not have been possi-ble. Her skills have helped UK/CLE maintain its position as one of the top legal publishers in the Commonwealth.

Editor: Tracy J. Taylor Assistant Director/Director of Publications Office of Continuing Legal Education University of Kentucky Rosenberg College of Law

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ABOUT THE AUTHORS

AIDA ALMASALKHI is an Associate with Goldberg Simpson LLC in Louisville, Kentucky, where her practice primarily includes tort litigation and defense, insur-ance coverage and bad faith claims, and general civil litigation.She received her B.A. from the University of Kentucky and earned her J.D. from the University of Louisville Brandeis School of Law, where she served as a member of the University of Louisville Law Review, a Pupil Member of the Brandeis Inn of Court, and a Brandeis Diversity Ambassador. She is a member of the Kentucky Bar Association.

T. KENT BARBER is the Managing Member of Barber Law PLLC, where he focuses on bankruptcy and bankruptcy litigation on behalf of debtors, debt-ors-in-possession, trustees, creditors, and creditor committees. He has served as the President of the Bankruptcy Section of the Fayette County Bar Association and has previously served on the Board of Directors for the Makenna Foundation and God’s Pantry Food Bank. Kent is a graduate of the University of Kentucky College of Law and Morehead State University.

THOMAS L. CANARY, JR. is a Senior Attorney in the Louisville office of Reimer Law Co., where he concentrates his practice in the areas of bankruptcy, replevin and creditors’ rights. He received his B.S. (with Honors) from the University of Kentucky in 1981 and was awarded his J.D. degree from the University of Kentucky College of Law in 1984. He is admitted to practice law in the states of Kentucky, Indiana West Virginia and Ohio, the federal district courts in all those states, as well as the Sixth Circuit Court of Appeals. He is a frequent writer and lecturer on bankruptcy and collections. He has also served as a contributing author for the UK/CLE Consumer Bankruptcy Practice in Kentucky: Chapter 7 Practice Monograph, 2d ed. (2012).

CHRISTOPHER COFFMAN is a Member in the Louisville office of Frost Brown Todd LLC, where he concentrates his practice on civil and criminal tax contro-versies. He has represented clients in administrative proceedings before local and state taxing authorities and the Internal Revenue Service. He also has significant experience in representing clients in criminal matters at both the state and federal level. He earned his B.A.(cum laude) from Lipscomb University and his J.D. from Vanderbilt University Law School. He is a member of the Louisville, Kentucky, and American Bar Associations.

TAYLOR M. HAMILTON is a Shareholder in the Louisville office of Morgan Pottinger McGarvey, where his areas of practice include commercial litigation, commercial and residential foreclosure, business disputes and litigation, and resi-dential and commercial real estate. He received his B.A. (summa cum laude) from the University of Kentucky and his J.D. from the University of Kentucky College of Law, where he was a member and staff writer for the Kentucky Law Journal and graduated Order of the Coif. He is a member of the Louisville, Kentucky, and Indiana Bar Associations.

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JOHN E. HINKEL, JR. is a Member in the Lexington law firm of Fowler Bell PLLC, where he is a Member of the firm’s Bankruptcy and Creditors’ Rights, Collections, Commercial Litigation, and Alternative Dispute Resolutions Groups. He holds a B.A. and a J.D. from the University of Kentucky. He is a member of the Fayette County and Kentucky Bar Associations.

ZACHARY A. HORN is a Member in the Frankfort, Kentucky law firm of Kirkland, Cain & Horn, PLLC, where his areas of practice include business law, civil litigation, banking, creditors’ rights, and bankruptcy. He is an honors gradu-ate of Transylvania University, and earned his J.D. degree from the University of Kentucky College of Law, where he served on both the Moot Court Board and the Bankruptcy Moot Court Board. He has also served on the Executive Board of the Young Lawyers Division of the Kentucky Bar Association from 2011 to the present and is a frequent speaker and writer on issues ranging from attorney wellness and mindfulness in the law, to more nuts and bolts matters relating to civil litigation and creditors’ rights.

KEVIN L. JOHNS is a Partner in the Lexington office of Wyatt Tarrant & Combs LLP, where he counsels clients on estate planning matters, estate administration, federal estate and state inheritance tax issues, special needs trusts, charitable plan-ning techniques, business succession planning, and general business matters. He received his B.B.A. (magna cum laude) from Morehead State University and his J.D. (Order of Curia) from Capital University. He also holds an M.B.A. magna cum laude from Eastern Kentucky University. He is a member of the Faytee County, Kentucky, and Florida Bar Associations.

MICHAEL D. KALINYAK is a Member of Hurt, Deckard & May, PLLC in Lexington, Kentucky. He received his B.S. in Accounting from the University of Kentucky, College of Business and Economics and his J.D. from the University of Louisville Louis D. Brandeis School of Law, where he served as Treasurer of the Student Bar Association and as a member of the Honor Council. He also holds an LL.M. in Taxation from Boston University. He has served as the Executive Director of the Finance and Administration Cabinet’s Office of General Counsel and prior to that, he spent eight years as an attorney in the Kentucky Revenue Cabinet’s (now the Department of Revenue) Division of Legal Services and as the Director of the Division of Protest Resolution. He is a member of the Kentucky Bar Association.

JAMES M. LLOYD is a Member in the Louisville office of Lloyd & McDaniel, where he concentrates his practice in commercial and retail collections and creditors’ rights. He received his B.A. from the University of Kentucky and his J.D. from the University of Louisville Louis D. Brandeis School of Law. He is a member of the Louisville and Kentucky Bar Associations as well as the Commercial Law League of America and the National Association of Retail Collection Attorneys. He has also served as President of the Kentucky Creditors’ Rights Bar Association, a private bar association dedicated to the interests of creditors’ rights. Mr. Lloyd is a frequent speaker on creditors’ rights topics for various creditor groups and professional business associations.

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JOHN T. McGARVEY is a Shareholder in the Louisville office of Morgan Pottinger McGarvey, where he concentrates his practice on secured transactions, municipal law, the representation of banks and other lenders in litigation, and matters under the Uniform Commercial Code. John received his B.A. from the University of Kentucky and was awarded his J.D. degree from the University of Kentucky College of Law. He is a member of numerous legal organizations, including multiple Uniform Commercial Code task forces and advisory committees and has held a position on the UCC’s Permanent Editorial Board since 2015. He is also an adjunct secured transactions professor at the University of Kentucky Rosenberg College of Law, and has taught hundreds of seminars on legal issues involving financial institutions and other lenders. He has been a speaker at UK/CLE’s annual conference on Legal Issues for Financial Institutions since it began in 1987.

JAN C. MORRIS is a Partner in the Louisville law firm of Lowen & Morris, PLLC, where he concentrates his practice in consumer bankruptcy. He received his B.A. degree from Miami University and his J.D. from the University of Louisville School of Law.He is a member of the Louisville and Kentucky Bar Associations as well as the National Association of Consumer Bankruptcy Attorneys. He served as a contributing author for the UK/CLE Consumer Bankruptcy Practice in Kentucky: Chapter 13 Practice Monograph, 2d ed. (2015) and has spoken at numerous continuing legal education programs in the area of bankruptcy law.

MARK R. OVERSTREET is an Office Executive Member in the Frankfort office of Stites & Harbison PLLC, where he represents businesses and individuals in their relations with and regulation by state and local governments. He received his B.A. (with high distinction) from the University of Kentucky and his J.D. from the Uni-versity of Kentucky College of Law, where he was Order of the Coif and Survey Editor of the Kentucky Law Journal. He is a member of the Franklin County, Kentucky, and American Bar Associations. He has also served as a contributing author for the UK/CLE Kentucky Administrative Law Handbook, 2d ed. (2006), UK/CLE Kentucky Civil Practice After Trial Handbook, 3d ed. (2010), and UK/CLE Kentucky Civil Practice At Trial Handbook, 4th ed. (2017).

NELSON D. RODES s an Associate in the Louisville office of Frost Brown Todd LLC, where his practice focuses on civil and criminal tax litigation matters. He received his B.A. from Centre College and his J.D. from the University of Kentucky College of Law. He also holds an LL.M. in Taxation from Georgetown University. He is a member of the Kentucky Bar Association.

MARK J. SANDLIN is a Partner in the Louisville law firm of Goldberg Simpson, LLC, where he concentrates his practice in the areas of commercial litigation, com-munity association law, bankruptcy, foreclosures, and real estate matters including title defense and salvage litigation. He has been lead counsel for debtors as well as creditors in large Chapter 11 bankruptcy cases and in state court cases. He received his B.A. from Indiana University and his J.D. from the University of Louisville Brandeis School of Law. He is a member of the Louisville, Kentucky, and Indiana Bar Associations. He is presently serving as one of the Kentucky Commissioners

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to the Uniform Law Commission and recently served on one of its drafting com-mittees for commercial real estate receiverships.

TIMOTHY A. SCHENK is Assistant General Counsel to the Kentucky Bankers Association in Louisville, Kentucky. Prior to joining the Kentucky Bankers Associ-ation, he spent 12 years representing banks as a Partner with Morgan and Pottinger, P.S.C. (now Morgan Pottinger McGarvey) and Wyatt Tarrant & Combs LLP in Louisville, Kentucky. He received his B.A. (summa cum laude) from the University of Kentucky and his J.D. from the University of Kentucky College of Law.

STEPHEN E. SMITH is a Partner in the Louisville law firm of Goldberg Simp-son, LLC, where his primary areas of practice are construction, public contracting, corporate law, and litigation. He earned both his undergraduate and law degrees from the University of Louisville. He is a frequent lecturer and instructor in all areas of construction project management, federal acquisition, and construction claims administration. He is a member of the Federal, Kentucky, and Louisville Bar Associations, the ABA Forum on The Construction Industry, and a founding member of the Kentucky Bar Association Construction Practice Section.

M. DEANE STEWART is Of Counsel in the Louisville office of Morgan Pottinger McGarvey, where he focuses his practice on finance and lending transactions and retail and commercial real estate matters. He represents banks, and other institutional lenders in senior debt financing, floor plan and dealer finance and commercial real estate loans. He received his B.A. from Eastern Washington State College and his J.D. from the University of Kentucky College of Law. He has spoken and written frequently in the area of real estate foreclosures and has also served as a contributing author for the UK/CLE Kentucky Real Estate Law and Practice Handbook, 4th ed. (2013). He is a member of the Louisville and Kentucky Bar Associations.

W. SCOTT STINNETT is an Attorney in the Louisville law firm of Lloyd & McDaniel, where he focuses his practice on commercial litigation and bankruptcy. He received his B.A. from Centre College and his J.D. from the University of Ken-tucky, where he was a member of the National Moot Court Team. Prior to joining Lloyd & McDaniel, he practiced for a large regional law firm and then served as a law clerk for United States District Court Judge Joseph H. McKinley, Jr., of the Western District of Kentucky. He is a member of the Louisville, Kentucky, and West Virginia State Bar Associations.

MELINDA T. SUNDERLAND is a Shareholder and Managing Director in the Louisville office of Morgan Pottinger McGarvey, where she concentrates her prac-tice on banking and finance law, loan workouts, bankruptcy, commercial litigation, commercial real estate, including foreclosure, and matters under the Uniform Com-mercial Code. She also serves on the firm’s Executive Committee and is Chair of the firm’s Marketing Committee She received her B.A. from Transylvania University and her J.D. (cum laude) from the University of Kentucky. She is a member of the Louisville and Kentucky Bar Associations. She is a contributing author for the UK/CLE publication Kentucky Civil Practice Before Trial Handbook,

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(4th ed. 2017) and has been a presenter at various seminars including the Annual Conference on Legal Issues for Financial Institutions held by the University of Kentucky Rosenberg College of Law, is widely published, and serves as the first and only Chair of UK/CLE’s Biennial Collection Law Conference.

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TABLE OF CONTENTS

Volume IChapter 1 Handling the Collection Case: Creditors’ Viewpoint

John E. Hinkel, Jr.Chapter 2 Handling the Collection Case: Debtors’ Viewpoint

Jan C. Morris*Ellen G. Friedman**Robert F. Smith**Joseph S. Elder II**

Chapter 3 Commercial Collection Cases: Special Issues and ConcernsW. Scott StinnettJames M. Lloyd

Chapter 4 General Theories for Recovery and RemediesMark R. Overstreet

Chapter 5 Prejudgment RemediesJohn T. McGarveyMelinda T. Sunderland

Chapter 6 Post-Judgment RemediesTimothy A. Schenk

Chapter 7 Enforcement of Statutory Liens and Bond ClaimsStephen E. SmithAida Almasalkhi

Chapter 8 Default and Enforcement in Secured Transactions Under Revised Article 9John T. McGarveyMelinda T. Sunderland

IndexVolume II

Chapter 9 Creditors’ Rights and BankruptcyThomas L. Canary, Jr.T. Kent BarberZachary A. Horn

Chapter 10 Federal and State Consumer Protection Laws and Claims: Regulations and Limitations on Creditors’ Rights and RemediesOran (Scotty) McFarlan, III**Jeffrey A. Cross**James C. Shackelford**David B. Mour**

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Chapter 11 State Tax ConsiderationsMichael D. Kalinyak

Chapter 12 Federal Tax Lien ConsiderationsChristopher CoffmanNelson D. Rodes

Chapter 13 Claims Against Decedents’ EstatesKevin L. Johns

Chapter 14 Collecting from Military Personnel and Other Specially Situated DefendantsTaylor M. Hamilton

Chapter 15 Remedies for Real Estate Mortgages in DefaultMark J. SandlinM. Deane Stewart

Index

* 2020 Update Author**2020 Update by UK/CLE.

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Handling the Collection Case: Creditors’ Viewpoint

Copyright 2020. UK/CLE. All Rights Reserved.

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HANDLING THE COLLECTION CASE: CREDITORS’ VIEWPOINT

JOHN E. HINKEL, JR.Fowler Bell PLLC

Lexington, Kentucky

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Debtor/Creditor Relations in Kentucky

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I. [1.1] Representing a Creditor in a Collection Case...................1-5A. [1.2] Fair Debt Collection Practices Act .........................1-5B. [1.3] Agreeing with Your Client

Regarding Fees and Costs .......................................1-5C. [1.4] Organizing Your Practice ........................................1-6D. [1.5] Information Needed from the Client .......................1-7E. [1.6] Pre-LitigationEffortstoCollect .............................1-8

1. [1.7] Contacting the Debtor ..............................1-82. [1.8] Securing the Client’s Lien

Rights .....................................................1-10F. [1.9] Statutes of Limitation ...........................................1-10

1. [1.10] Oral or Written Agreements ...................1-102. [1.11] Accounts .................................................1-103. [1.12] Subrogation Actions ...............................1-104. [1.13] Judgments ...............................................1-105. [1.14] Fraudulent or Preferential

Transactions ............................................1-116. [1.15] Promissory Notes ...................................1-117. [1.16] Contracts of Sale ....................................1-118. [1.17] Retail Installment

Contracts of Motor Vehicles ...................1-11G. [1.18] Jurisdiction and Venue ..........................................1-11

1. [1.19] Jurisdiction .............................................1-11a. [1.20] Federal Courts ..........................1-11b. [1.21] State Circuit Courts ..................1-12c. [1.22] State District Courts .................1-12d. [1.23] Small Claims Courts ................1-12

2. [1.24] Venue ......................................................1-12a. [1.25] Transitory Actions ....................1-12b. [1.26] Consumer Debts

and FDCPA ..............................1-12c. [1.27] Real Estate ...............................1-13d. [1.28] Cases Against

Non-Residents ..........................1-13e. [1.29] Corporations .............................1-13f. [1.30] Foreign Judgments ...................1-13

H. [1.31] Commencing the Action .......................................1-141. [1.32] Proper Parties .........................................1-142. [1.33] Form of Complaint .................................1-143. [1.34] Relief Requested.....................................1-14

a. [1.35] Interest ......................................1-14b. [1.36] Interest on Charged

OffCreditCardAccounts .........1-15

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c. [1.37] Finance Charges Permitted in a Retail Installment Contract for Sale of a Motor Vehicle ......................................1-15

d. [1.38] Attorney Fees ...........................1-15e. [1.39] Joint and Several

Liability ....................................1-16f. [1.40] Real Property ...........................1-16

4. [1.41] Service of Process ..................................1-16I. [1.42] Discovery ..............................................................1-17

1. [1.43] Requests for Admission ..........................1-172. [1.44] Interrogatories ........................................1-173. [1.45] Depositions .............................................1-17

J. [1.46] Negotiation and Settlement ...................................1-17K. [1.47] Moving for Judgment ...........................................1-18

1. [1.48] Default Judgment ...................................1-182. [1.49] Summary Judgment ................................1-19

L. [1.50] Specially Situated Defendants ..............................1-20M. [1.51] Preparing for Trial .................................................1-20N. [1.52] Collecting the Judgment .......................................1-21

1. [1.53] Post-Judgment Procedures .....................1-21a. [1.54] Wording of Judgment ...............1-21b. [1.55] Collecting Court Costs .............1-21c. [1.56] Notice of Judgment

Lien ..........................................1-21d. [1.57] Bank Garnishments ..................1-21e. [1.58] Wage Garnishments .................1-22f. [1.59] Executions ................................1-22

2. [1.60] Post-Judgment Discovery .......................1-223. [1.61] Continuing Negotiations ........................1-224. [1.62] Uniform Enforcement of

Foreign Judgments Act ...........................1-225. [1.63] Criminal Enforcement of Claims ...........1-23

O. [1.64] Closing the File .....................................................1-23

II. [1.65] Appendix ............................................................................1-25A. [1.66] Initial Demand Letter ............................................1-25B. [1.67] Subsequent Letter to a Debtor ..............................1-26C. [1.68] Cover Letter for Agreement to Pay

Before a Judgment ................................................1-27D. [1.69] Agreement to Pay Before Judgment .....................1-28E. [1.70] Cover Letter for Agreed Judgment .......................1-29F. [1.71] Agreed Judgment ..................................................1-30G. [1.72] Cover Letter for Agreement to Pay

After Judgment .....................................................1-32H. [1.73] Agreement to Pay After Judgment ........................1-33

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I. [1.1] Representing a Creditor in a Collection Case

This chapter discusses issues to consider if one is retained by a client to collect money to which the client is entitled.

A. [1.2] Fair Debt Collection Practices Act

An attorney should not practice a collections matter until he or she has a firmgraspoftheFairDebtCollectionPracticesAct(“FDCPA”),15USC§1692et seq., which governs how a debt collector may collect a consumer debt. The attorney mustknowwhethersheisa“debtcollector”andwhethertheclient’sclaimisa“consumerdebt”(asthosetermsaredefinedintheFDCPA).WhilethischapterwillnotcovertheFDCPAindetail,itwillmentionhowtheFDCPAaffectshowacreditor’s counsel should handle a collection matter. Such an attorney must also train anyone assisting him regarding the FDCPA and ensure that the lawyer’s procedures and forms comply with the FDCPA. In general, the FDCPA directs what one can say to the consumer debtor, when the consumer debtor may be contacted, whom one can talk to about the consumer debtor, what remedies can be demanded, and where a creditor can sue the consumer debtor. The FDCPA is discussed in further detail in this Handbook in Section [2.12] in Chapter 2 and in Sections and [10.140] through [10.148] of Chapter 10.

B. [1.3] Agreeing with Your Client Regarding Fees and Costs

A collection case may present issues about the fee and expenses the at-torney will charge a client that are not encountered in other cases. Of course, this is a matter negotiated and documented in writing with the client when the case isaccepted.SCR3.130(1.5)(c)requiresacontingentfeeagreementtobewrittenandsignedbytheclient.LawyersMutualofferssamplesat:<http://www.lmick.com/resources>.

Many clients are not interested in investing additional money by paying attorneys to collect money they already lost to the debtor. Usually, a contingency fee, calculated as a percentage of the amount the attorney collects from the debtor, appealstosuchaclient.However,issuestodiscusswiththeclientinclude:

1. What is the fee if the debtor immediately pays the client after the attorney contacts the debtor?

2. Willtheattorneyincreasehisfeeifhefilessuit,andwillthat fee include an amount that is not contingent on the amount of the debt he collects?

3. Will the attorney charge the client for his expenses?

4. Will the client advance the attorney the amounts payable to thecourtclerkandsheriffforfilingandservingthecom-

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plaint and summons and for post-judgment executions, at-tachments, and judgment liens?

5. Will the contingency fee be calculated on the court costs the attorney recovers from the debtor?

6. Will the contingency fee be calculated on any attorney fees the lawyer collects from the debtor?

7. How often will the attorney send the client the amounts collectedfromthedebtor,andwilltheattorneyfirstdeductany fees or expenses to which s/he is entitled?

The attorney must be diligent in satisfying the ethical obligation to safe-guard money held for the client. Escrow accounts, into which all of the client’s money should be deposited, should be carefully monitored. The attorney cannot relyon staff todo this since the lawyer is responsible to theclient.Theclientshould be provided with a detailed accounting on how money is distributed from the funds received from the client or recovered from the debtor. Counsel must be carefultoavoidexpendingmoneybelongingtooneclientforthebenefitofanotherclient.Manylawyersfindtheyrepresentnumerousclientswithmanyclaimsincollection cases; therefore, they face accounting challenges that lawyers handling other matters, even on contingency fees, do not face. The Kentucky Bar Associa-tion publishes an excellent guide for properly protecting clients’ money. Also see resourcespublishedbyLawyersMutualat:<http://www.kypa.org/resources/CKP/CKP%20EXAM%20STUDY%20MATERIALS/iolta_booklet.pdf>.

C. [1.4] Organizing Your Practice

Since most clients prefer to pay a contingency fee and will expect their attorneys to pursue claims which are either relatively small or for which the prospect ofcollectionisslight,mostattorneysfinditnecessarytohandleahighvolumeofcollectionclaimstohaveaprofitablepractice.Therefore,efficiency,organization,andawell-managedandtrainedstaffarethekeystoprofitability.

While a large caseload volume provides the attorney with the opportunity to collect a lot of money from debtors and a nice fee, he or she must always evaluate howprofitablethecasesareforeachclient.Alargevolumeofcasesalsorequiresthe attorney to buy computers and software and hire more people to assist. This requires time and money for training, supervision, and computer support. Building acollectionpracticeandhandlingmanyprofitableclaimswithawell-trainedandmanagedstaffusingstateoftheartcomputersoftwarecanbefinanciallyandper-sonally rewarding, but it requires excellent management and legal skills.

Most letters and pleadings are repetitive and suitable for forms generated from specialized computer software. Software can generate documents for the rou-tine collection case with little human intervention. Many clients send their counsel information about their cases over the Internet or by electronic mail. Scanners are

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available for scanning the relevant documents into the attorney’s computer sys-temtolimitoreliminatethehandlingofpaperfiles.Collectionattorneysshoulddevelop standardized forms and add to them as new situations arise. Some useful forms appear in the Appendix to this chapter at Sections [1.65] through [1.73]. Many additional forms are available from the clerk of the relevant circuit or district court. Attorneys should keep the forms simple, include no more information than necessary, and keep them as generic as possible.

The author recommends The Commercial Law League of America, whose website is located at:<http://www.clla.org>, andTheNationalAssociation ofRetailCollectionAttorneys,whosewebsiteislocatedat:<http://www.narca.org>,as two organizations that can provide the resources and contacts an attorney needs to organize a collections practice.

Supportstaffskilledinaccounting,wordprocessing,managingcomputerdatabases, and keeping track of details can be invaluable when properly trained. Suchstaffcancommunicatewiththeclientandthedebtors,preparemostpleadings,account for receipts and disbursements, and track and calendar follow-up dates for all routine matters, allowing the attorney to reserve his/her time for the unusual or complicatedsituationandsupervisingofthestaff.

D. [1.5] Information Needed from the Client

Certain information will be needed from the client to evaluate whether it has a valid and collectable claim. If the client is charged a contingency fee, the attorney will not want to accept uncollectible claims. The FDCPA requires the attorney to verify the client has an enforceable consumer claim against a debtor.

The client should be asked to send its counsel legible copies of all written agreements,creditapplications,accountstatements,notesabouttheclient’seffortstocollectthedebtandthemostcurrentinformationtheclienthasaboutthedebtor:

1. Where does the debtor live and work?

2. Is the debtor disputing the debt?

3. Did an individual personally guarantee a corporation’s debt and is the guaranty enforceable in Kentucky?

4. Did the debtor agree in writing to pay the creditor client’s attorney fees, late fees, or interest?

5. Did the client regularly send the debtor a bill for the debt and did the debtor object to the bill?

6. Does the client know the debtor’s Social Security number?

7. What is the name, address, and telephone number of the person(s)workingfortheclientwithpersonalknowledge

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about the debtor and this claim?

Theattorneyshouldreviewnotesandlettersshowingtheclient’seffortsto collect the claim and any promises, admissions, or defenses asserted by the debtor. The client should be telephoned to discuss the claim and to discover any other information that might have been overlooked when reviewing the documents. The client might not want to send this information, especially if the client sends a lot of claims to be collected. However, the attorney should at least get enough information to verify that the client has a valid claim and to locate the debtor. Counsel should be comfortable that the client can and will supply him with addi-tional information if needed.

All new claims should be reviewed for bankruptcy before contacting the debtorandagainbeforefilingsuit.

Beforefilingsuit,thedebtormustbelocated,anditmustbedeterminedwhether there is a reasonable prospect to collect a judgment against him. In lo-cating a consumer debtor, the FDCPA limits communication with the debtor and third parties to obtain location information. Within the parameters permitted by the FDCPA or when collecting a claim not covered by the FDCPA, counsel should contact the debtor’s relatives, credit references, neighbors, and former employers, who often reveal helpful information.

Other information about the debtor may be found from sources other than the client. For instance, Kentucky’s Secretary of State has a web page on which the searcher can see whether the debtor is a corporation, and if so, obtain the name and address of its process agent. Many of the sources listed in Chapter 6 of this Handbookforfindingassetspost-judgmentarealsohelpfulforlocatingthedebtorand evaluating whether a claim can be collected.

Other sourcesof helpful information include records in the officesofthe county clerk, court clerk, and property valuation administrator. Some of these records are available online.

E. [1.6] Pre-LitigationEffortstoCollect

1. [1.7] Contacting the Debtor

Counsel should contact the debtor upon accepting the case to determine whether the debtor raises a meritorious defense or is clearly judgment-proof. For instance, is the claim against a validly-formed corporation no longer in business?

Usually,contactwiththedebtorbyletterorbytelephonebeforefilingsuitwillnotinterferewithlatercollectioneffortsandcanresultinimmediatepaymentof the claim, arrangements to pay the claim, a compromise settlement, or discovery ofavaliddefense.Attheveryleast,contactingthedebtorverifiesthatthecreditor’scounsel has located him or her, which is recommended before advising the client to

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filesuit.Advisingtheclienttoexpendcourtcoststofilesuitandthenbeingunableto serve summons upon the debtor may cause the client to question its attorney’s judgment in pursuing the claim against a debtor who cannot be located.

The creditor’s attorney should document in writing any admission by the debtor that he or she owes the debt or any promises of payment. This avoids the debtor later raising defenses based upon alleged promises by the attorney on behalf of the creditor client and precludes the debtor from later denying the obligation if suit is required.

Pre-litigation agreements can also correct shortcomings in the client’s documentation, such as obtaining the debtor’s written agreement to pay the creditor client’s attorney fees if the debtor does not comply with payment promises and se-curing the claim with whatever collateral that can be obtained on behalf of the client.

However, it is important to impose deadlines upon the debtor during presuit discussions. Many debtors try to delay the inevitable lawsuit, with no real intention of honoring promised payments.

If the FDCPA applies, the creditor’s counsel must give the debtor writ-tennoticeofcertainmatterswithin5daysafterthefirstcommunicationwiththedebtor, if not contained in the initial communication. Neither a formal pleading in a civil action nor any form or notice which does not relate to the collection of the debt and is expressly required by the IRS or any provision of federal or state lawrelatingtonoticeofdatasecurityorprivacyshallbesufficienttoconstitutethe required initial communication. A sample letter with the necessary disclosure is in the Appendix to this chapter at Section [1.66]. All subsequent written com-munication must state that the attorney is a debt collector. Counsel must also tell the debtor that he is a debt collector every time he talks to the debtor. However, if the attorney talks to anyone other than the debtor, the attorney may conceal that he is a debt collector. Certain private entities that were established by or answer to astateordistrictattorneyandoperateaspretrialdiversionprogramsforspecifiedcategoriesofallegedbadcheckoffendersdonotfallunderthedefinitionof“debtcollector”inthisAct.

Counsel is restricted from talking to anyone other than the debtor about anything other than trying to locate the debtor. If the debtor so requests, the attorney must stop communicating with the debtor about the debt. The creditor’s counsel should not tell the debtor that he will take any action unless the attorney can and intendstodoso.Thisincludesfalselyimplyingtheattorneywillfilesuit.

Further,ifthedebtornotifiestheattorneyinwriting(withinthirtydaysofreceiptoftheattorney’swrittencommunicationtothedebtor)thatthedebtisdisputed,theattorneyshallceasecollectionofthedebtuntilheobtainsverificationof the debt or a copy of a judgment. If the debtor does not notify the attorney with-in thirty days that the debt is disputed, the attorney may continue with collection

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activities and communications with the debtor so long as they are not inconsistent with the debtor’s right to dispute the debt.

2. [1.8] Securing the Client’s Lien Rights

While the client’s claim is evaluated, counsel should remember to correct any problems with perfecting a security interest or statutory lien and be aware of deadlines for enforcing those liens.

Immediatelydeterminewhethertheclienthasthebenefitofastatutorylien. If so, immediately perfect that lien according to the statute and make sure theclientisawareofapplicabledeadlinesforenforcingthelienbyfilingswithdesignatedcourtclerksorbyfilingacivilaction.

F. [1.9] Statutes of Limitation

Immediately upon being contacted by the client, the creditor’s counsel should determine the date the applicable statute of limitations will expire.

1. [1.10] Oral or Written Agreements

An action upon a written contract executed after July 15, 2014, unless otherwise provided by statute, and an action for relief not provided for by statute canonlybecommencedwithinten(10)yearsafterthecauseofactionaccrued.KRS413.160.Actionstoenforceearlierwrittenagreementsmustbefiledwithin15 years from the date of default. KRS 413.090. The statute of limitations for en-forcingoralagreementsisfiveyears.KRS413.120.Thereareexceptionssetforthin the statute to these general limitations.

2. [1.11] Accounts

Anactiontorecoveronanaccountmustbefiledwithinfiveyears.KRS413.120.

3. [1.12] Subrogation Actions

The limitations period for a subrogation action for injury to personal prop-ertyisfiveyears.KRS413.120(6).However,thepartiestoinsurancecontractsmaylimit the time for bringing actions on those contracts to one year. KRS 304.14-370; Webb v. Ky. Farm Bureau Co.,577S.W.2d17(Ky.Ct.App.1978).

4. [1.13] Judgments

An action to enforce a judgment entered in Kentucky or a sister state maybebroughtwithin15yearsfromthedateoflastexecution.KRS413.090(1).However,underKentucky’s“borrowingstatute,”KRS413.330,anactiononaforeign judgment is barred if that action would be barred by a statute of limitations

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in the rendering state. Thus, if a six-year-old foreign judgment would be barred by afive-yearstatuteintherenderingstate,itwillbebarredinKentuckyeventhoughit falls well within Kentucky’s 15 year statute. See also Section [1.62], infra, on the Uniform Enforcement of Foreign Judgments Act.

5. [1.14] Fraudulent or Preferential Transactions

Time limits to bring actions to set aside fraudulent or preferential transfers are stated in KRS 378A.090. For the time limits for voiding such conveyances in a bankruptcy context, see Sections [9.146] through [9.172], infra.

6. [1.15] Promissory Notes

An action to enforce a promissory note that has been negotiated by the original holder, thus being placed upon the standing of a bill of exchange, must be broughtwithinfiveyears.KRS413.120.

7. [1.16] Contracts of Sale

An action to enforce a contract of sale is four years, but it can be reduced by agreement to as little as one year after breach. KRS 355.2-725.

8. [1.17] Retail Installment Contracts of Motor Vehicles

Theearlieroffour(4)yearsafter(a)thematuritydateoftheretailinstall-mentcontract;(b)thedatethemotorvehiclewassoldorotherwisedisposedofbytherepossessingretailseller,salesfinancecompany,orotherowneroftheretailinstallmentcontract;or(c)theacceleratedmaturitydate.KRS190.124.

G. [1.18] Jurisdiction and Venue

1. [1.19] Jurisdiction

The creditor’s counsel should consider whether subject matter jurisdiction over the case lies in federal, circuit, district, or small claims court.

a. [1.20] Federal Courts

United States district courts have diversity jurisdiction over claims exceeding$75,000,exclusiveofinterestandcosts,pursuantto28USC§1332.

United States bankruptcy courts have subject matter jurisdiction over civil proceedings arising under, arising in, or related to a bankruptcy case. 28USC§1334(b).

There may be other grounds for invoking federal court jurisdiction de-pending upon the facts of the case. Federal jurisdiction could be preferred over state

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jurisdiction to avoid bias of a local court against a party, to secure a more conve-nientclerk’sofficeorlocationforhearings,andtoaidinpursuingandcollectingajudgment throughout the United States by registering the judgment in each judicial district where assets belonging to the debtor are located.

b. [1.21] State Circuit Courts

The state circuit court has exclusive subject matter jurisdiction over ac-tions to collect claims exceeding $5,000 and actions to enforce an interest in real estate.KRS23A.010(l).

c. [1.22] State District Courts

State district courts have subject matter jurisdiction over cases to collect claims not exceeding $5,000, excluding interest and costs. KRS 24A.120.

d. [1.23] Small Claims Courts

Actions to collect claims not exceeding $2,500, exclusive of interest and costs, may be brought in the small claims division of district court. KRS 24A.230. Usually, a trial is scheduled to resolve a dispute promptly, without ex-tended discovery or motion practice. Fayette County, and maybe others, order mediation beforetrial.Thecreditorclientislimitedtofiling25casesperyearinsmallclaimscourt. KRS 24A 250. Assignees of claims and anyone engaged primarily in lending moneyatinterestmaynotfileclaimsinsmallclaimscourt.KRS24A.240.However,if the creditor’s counsel does not anticipate the debtor raising a defense, the more formal procedures before the district court may be preferred because judgment may be obtained through motions without the inconvenience of a hearing requiring the presence of the creditor client and witnesses.

2. [1.24] Venue

a. [1.25] Transitory Actions

Collection cases are usually transitory actions, which must be brought where at least one of the defendants re-sides. KRS 452.480. A transitory action may also be brought in any county where the defendant or any one defendant may be served with summons. KRS 452.480.

b. [1.26] Consumer Debts and FDCPA

TheFairDebtCollectionPracticesAct,15USC§1692,et seq.(“FDC-PA”),limitswhereanactiontocollectaconsumerdebtmaybefiledtothecountywhere each defendant resides or, to enforce a written contract, where that contract wassignedbythedebtor.15USC§1692.Thiscanrequireacreditortofiletwo

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separate suits on one jointly owed debt, one against each debtor if they reside in separate counties.

For example, Dl, a Fayette County resident, and D2, a Jessamine County resident, sign a purchase contract in Scott County. Under KRS 452.480, a suit couldbefiledinFayetteCountyorJessamineCountysinceatleastonedefendantresides in each of those counties. However, suing Dl in Jessamine County violates the FDCPA, as would a suit against D2 in Fayette County. Separate suits must be filed,oneagainstDlinFayetteCountyandtheotheragainstD2inJessamineCoun-ty. Although the FDCPA would permit a suit against Dl and D2 in Scott County, where they each signed the purchase contract, Scott County is not proper venue under KRS 452.480. If Dl and D2 signed the purchase contract in either Fayette CountyorJessamineCounty,suitcouldbefiledinthecountywheretheysignedthe contract, thereby complying with the FDCPA and with KRS 451.480 as being the county where one of the two defendants resides.

c. [1.27] Real Estate

An action to enforce an interest in real estate must be brought in the county where the land is located, pursuant to KRS 452.400 and the FDCPA at 15 USC§1692(i).

d. [1.28] Cases Against Non-Residents

For cases against non-residents, venue under Kentucky’s long arm statute isinthecountywheretheplaintiffresidesorwherethecauseofactionoranypartthereof arose. KRS 454.210.

e. [1.29] Corporations

Proper venue for a case against a corporation is in any county where it has anofficeorplaceofbusinessorwhereitschiefofficeroragentresides.Anactionto enforce a contract against a corporation may be brought in the aforesaid counties or in the county where the contract was made or to be performed. KRS 452.450.

f. [1.30] Foreign Judgments

Under the Uniform Enforcement of Judgments Act as adopted in Kentucky at KRS 426.950, actions to enforce a foreign judgment pursuant to the act may be filedinanycourtofcompetentjurisdictionwithinKentucky.See Section [1.62], infra.Thisactdoesnotprecludeenforcementofajudgmentbyfilingacivilactionin Kentucky, the procedure required prior to Kentucky’s adoption of said act.

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H. [1.31] Commencing the Action

1. [1.32] Proper Parties

The creditor’s counsel must know the proper parties and verify the identity oftheplaintiffanddefendant.ThecorporatestatusofanyentitiesshouldbeverifiedthroughtheKentuckySecretaryofState’scorporaterecordsoffice.

An action by or against a general partnership may not be in the name of the partnership; it must be in the name of each general partner. Telemarketing Communications, Inc. v. Liberty Partners,798S.W.2d462(Ky.1990).

Before filing suit, the creditor’s attorney should carefully review alldocuments setting forth the agreement be-tween the client and the debtor and complywithanyrequirementsimposedpriortofilingsuit,suchasgivingnoticeofdefaultandrighttocurethedefaulttothosepersonsspecifiedinthedocuments.See Section [1.8], supra.

2. [1.33] Form of Complaint

Forms for complaints should be developed to cover as many circumstances and containing as few variables as possible. This will save the creditor’s counsel time and reduce the potential for mistakes in preparing many complaints in a volume collection practice. Rather than reciting provisions of written documents governingtherightsoftheplaintiffandthedefendant,thosedocumentsshouldbeattached as exhibits to the complaint. The contents of the exhibits are incorporated byreferenceintothecomplaintunderKentuckyRuleofCivilProcedure(“CivilRule(s)”or“CR”)10.03.OfficialformsundertheCivilRulescanbeusedasmodelsfor simple claims. All required elements of the cause of action must be alleged.

Complaintsfiledinfederalcourtmustallegesufficientfactstosupportthe cause of action. Ascroft v. Iqbal,129S.Ct.1937,1949(2009).

If more than one attorney will work on the case, each attorney should be listed as counsel of record. This permits either attorney to sign the complaint and gives opposing counsel, court personnel, or the debtor more opportunity to contact someoneinthecreditor’scounsel’sofficetodiscussthecase.

3. [1.34] Relief Requested

a. [1.35] Interest

Prejudgment interest is recoverable on a liquidated claim as a matter of right at the legal rate of interest, currently 8% from the date the claim became due. City of Henderson Police and Fireman’s Pension Board v. Riley, 674 S.W.2d 27 (Ky.1984);Atlantic Painting and Contracting, Inc. v. Nashville Bridge Co., 670 S.W.2d841(Ky.1984);American Bank & Trust Company v. Spouse & Burus, 648

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S.W.2d540(Ky.1989);KRS360.010.Adisputedclaimisstillliquidatedifitarisesfrom a contract. Hale v. Life Insurance Co. of North America,795F.2d22(6thCir.1986);Cooper v. Hobbard,434S.W.2d655(Ky.1968).Thecourthasdiscretionto award prejudgment interest on a non-liquidated claim.

Prejudgment interest may be added to the principal amount of the debt in arriving at the judgment amount, upon which the judgment rate of interest accrues until paid. Borden v. Martin,765S.W.2d34(Ky.Ct.App.1989).

b. [1.36] InterestonChargedOffCreditCardAccounts

Stratton v Portfolio Recovery Associates, LLC,770F.3d.443(6thCir.2014)dealtwithadebtfromachargedoffcreditcard.Theoriginalcreditgrantorelected to stop accruing interest so it could stop sending monthly statements to the debtor, who was in default. The credit card company sold the account to a debt buyer who sued the debtor and tried to collect statutory interest. The Court held no interest could accrue on the account once the original creditor elected to stop accruing interest. Statutory interest could not be substituted for contract interest and the creditor waived its right to collect contract interest.

c. [1.37] Finance Charges Permitted in a Retail Installment Contract for Sale of a Motor Vehicle

Finance charges permitted in a retail installment contract for sale of a motor vehicle are not to be considered interest. Service Financial Company v. Ware, 473 S.W.3d98(Ky.Ct.App.2015).Thiscanaffecttheinterestrateappliedtothedebtafter the creditor accelerates the balance upon default.

d. [1.38] Attorney Fees

Attorney fees are recoverable to the extent the debtor agreed in writing to pay them. KRS 411.195. The court has discretion in setting the amount of fees recoverable from the debtor. However, the creditor’s counsel should be sure to call the court’s attention to the prospect that his work may have just began at the point judgment is obtained. It is possible that the court will award attorney fees in the amount incurred to the point of judgment plus additional fees approved by the courtuponmotionbytheplaintiff.

Kentucky courts have held that a judgment that reserves awarding future attorney’sfeesisstillconsideredfinalandappealableunderCR54.02iftheat-torneys’ fees were collateral to the merits of the action. If, however, the fees are partoftheclaimoftheoriginalaction,thejudgmentwillnotbeconsideredfinaland appealable under CR 54.02. Mitchell v. Mitchell,360S.W.3d220(Ky.2012).Federalcircuitcourtsaresplitontheissuewhetherarulingonthemeritswasfinalfor purposes of appeal when the amount of attorneys’ fees was yet to be decided. Unlike the Kentucky state courts, the Sixth Circuit has decided that a judgment

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isfinalforpurposesofappealeveniftheamountofattorneyfeeshavenotbeendetermined,findingthatasageneralmatter,requestsforattorneys’feesraisele-gal issues that are collateral to the main cause of action. Morgan v. Union Metal Mfg.,757F.2d792(6thCir.1985);White v. New Hampshire Dep’t of Employment Security,102S.Ct.1162(1982).

Even if attorney fees and interest are not eventually recovered from the debtor, they often provide the debtor an incentive to voluntarily pay the judgment in return for the creditor waiving recovery of attorney fees or interest. Of course, if the entire judgment is collectable, the client can truly be made whole by recovering its claim against the debtor, plus interest to reimburse it for the delay in collecting its debt and reimbursement for the expenditure of attorney fees and costs.

e. [1.39] Joint and Several Liability

Joint and several judgment should be requested against multiple clients so thatcollectioneffortsmaybedirectedtowardanyoneormoreofthedefendants’assets.

f. [1.40] Real Property

If theactionaffects an interest in realproperty, anoticeof theactionshouldbefiledinthecountyclerk’sofficeforthecountywheretherealpropertyis located. Otherwise, non-parties are not bound by orders and judgments entered in the case. KRS 382.440.

4. [1.41] Service of Process

Service of the summons and complaint may be through personal service bythesherifforconstableunderKRS454.140orbyaspeciallyappointedprocessserver for good cause shown if the requirements of KRS 454.145 are met.

Serviceofthesummonsandcomplaintmayalsobebycertifiedmail.CR4.01.Ithasbeentheauthors’experiencethatthisrarelyiseffectiveinservingadebtor who is not represented by counsel.

Constructive service through warning order attorneys is available un-der Civil Rule 4.05, but it is not practical when the creditor must obtain an in personam judgment, which cannot be obtained upon constructive service. KRS 454.165. Constructive service is helpful where the creditor is attempting to subject the property rights of the defendant to the court’s orders, such as in a real estate foreclosure action.

Service of process under Kentucky’s long arm statute is obtained by certifiedmailthroughtheKentuckySecretaryofState’sofficetotheaddressofthe debtor as set forth in the complaint, or by other statutory modes of service. See KRS 454.210. The creditor’s attorney must include the debtor’s address in the

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complaint and allege the basis for the court to assert long arm jurisdiction over the debtor. The court has long arm jurisdiction over non-residents of Kentucky as well as former residents. Conley v. Sousa,554S.W.2d87(Ky.1977).

The creditor’s counsel should provide the process server with all the known information on the debtor to increase the chance of obtaining service with minimaleffort.

I. [1.42] Discovery

Often, any of the following methods will force the debtor to settle the case by either agreeing to a judgment for the full amount or a compromise amount. Most debtors without a meritorious defense will not continue their defense when it requires paying an attorney to respond to discovery or appearing before the court. However, it is important to continue aggressive prosecution of the case during discovery. The creditor client will appreciate a prompt resolution of the claim.

1. [1.43] Requests for Admission

Requests for admissions may be served under Civil Rule 36, setting forth each element of the case. If the debtor does not respond within 30 days, each element is deemed admitted and the creditor’s counsel is in a position to move for summary judgment. If the debtor responds to the requests without making the admissions, thedebtorisresponsibleforthecostsinprovingsuchelementsattrial(assumingtheyareproven).CR37.03.

2. [1.44] Interrogatories

Interrogatories may be served under Civil Rule 33, requesting the details of any defenses raised. These can be served along with requests for admissions. CR 26.

3. [1.45] Depositions

The debtor may also be deposed. Upon obtaining testimony that there are no meritorious defenses or factual questions, one can move for summary judgment. CR 56. Counsel might decide to promptly move for a trial date if the creditor client can readily provide witnesses for trial.

J. [1.46] Negotiation and Settlement

Frequently,thedebtorwillagreetopaytheclaimaftersuithasbeenfiledbut prior to judgment. The debtor often agrees to pay the claim over time in the full amount or at a compromise amount. The variables are limited only by what the client and the debtor can agree upon.

The author recommends that all compromise agreements entered after suit isfiledbedocumentedbyanagreedjudgmentgrantingthecreditorclientjudgment

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for the full amount of the claim but providing that the debtor can fully satisfy that judgment by complying with the settlement agreement.

For example, the creditor has a claim against the debtor for $10,000 plus interestandattorneyfees.Aftersuitisfiled,thedebtoroffers,andtheclientagreesto accept, $8,000 payable at $500 per month. Counsel for the creditor should insist the debtor enter into an agreed judgment for the full $10,000, plus attorney fees and interest. The agreed judgment should provide that the debtor can fully satisfy that debt by paying $8,000 at the rate of $500 per month. It should further provide that the client may not execute upon the judgment so long as the debtor makes those payments,excepttheclientmayimmediatelyfilenoticeofitsjudgmentlien.See Section [1.71], infra. This secures the judgment ahead of other creditors. If the debtor does not want a judgment of record against him, the creditor and its counsel shouldconsidercompromisingbyagreeingtokeeptheagreedjudgmentinthefilewith the right to record the judgment upon the debtor’s default.

The debtor should have no grounds to object to such a compromise po-sition; he or she merely needs to live up to the agreement and obtain exactly what they bargained for. If the debtor does not pay as agreed, the creditor client does not wanttocompromisetheclaiminreturnforunfulfilledpromisestopay.

Agreements calling for periodic payments by the debtor reached after the judgment is entered should be reduced to writing. If possible, collateral should be obtained to secure payment of the judgment pursuant to the agreement.

K. [1.47] Moving for Judgment

1. [1.48] Default Judgment

Most complaints in collection cases are not answered by the debtor, per-mitting the creditor’s counsel to move for default judgment 20 days after service of thesummonsandcomplaint.Thedefaultjudgmentmustreflectthereliefrequestedin the complaint. Some courts require notice of the motion for default judgment to be served upon the debtor. An advantage to serving the debtor notice of the motion for default judgment is that if the debtor later complains it was not served with summons,orthatthecreditor’scounselverballyagreedtowaivethefilingofananswer, such counsel can respond that the debtor received notice of the intention to take a default judgment but did not appear in opposition. However, a disadvantage to noticing the debtor on a motion for default judgment is that the debtor might appear in court, raise a defense, and delay entry of judgment.

If the debtor has contacted the creditor’s counsel concerning the claim, that counsel should not move for default judgment without revealing the contact to the court. It might be appropriate to move for default judgment while notifying the courtbyaffidavitthatnoanswerwasfiledbutthatthedebtordidcontactcounsel,setting forth the details of the contact, or one might appropriately be able to move for judgment on the pleadings, treating the debtor’s contact as a pleading which did

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not raise a defense. It also may be appropriate to move for summary judgment based upon the debtor’s communication. In any event, the attorney will gain credibility and avoid disciplinary problems and a potential motion to set aside the judgment by proceeding with full disclosure.

PromptlytalktotheattorneywhofilesanAnswerfortheDefendant.Youwill often discover the Defendant’s objectives and reach a settlement agreement without the delay and expense of discovery, summary judgment, mediation, or trial.

2. [1.49] Summary Judgment

If the debtorfiled an answer containingnothingmore than a generaldenial of the allegations in the complaint, there are several options for proceeding to judgment. Summary judgment may be sought based upon the creditor client’s affidavitortheverifiedcomplaint,arguingthatthedebtorhastheburdentocomeforth under oath to dispute the client’s sworn testimony and cannot merely rely upon its answer to defeat the motion for summary judgment. See CR 56. Some courts recognize that there are seldom valid defenses raised to collection cases and will be inclined to grant the motion for summary judgment, notwithstanding Kentucky Supreme Court cases stating that summary judgments should be granted cautiously. See Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476 (Ky.1991);Stafford v. Cross Country Bank,No.3:01CV-534-H,2203U.S.Dist.LEXIS8215(W.D.Ky.May9,2003);Rowan County v. Sloas, 201 S.W.3d 469 (Ky.2006);Glaser v. Ky. Commer. Servs.,No.3:06-CV-458-R,2008U.S.Dist.LEXIS512(W.D.Ky.Jan.2,2008);Haney v. Monskey,311S.W.3d235(Ky.2010).

For example, it has long been recognized that a party opposing a properly supportedsummaryjudgmentmotionhastheresponsibilityofspecificallyshowing,andcannotdefeatthatmotionwithoutpresenting,atleastsomeaffirmativeevidencedemonstrating that there is a genuine issue of material fact requiring trial. Hubbell v. Johnson,841S.W.2d169,171(Ky.1992)(citing Steelvest,807S.W.2dat482).Iftheopposingpartydoesnotmeetthisburdenandpresentaffirmativeevidenceof a genuine issue of material fact, summary judgment is properly granted as a matter of law.

While many practitioners focus on that part of the Steelvest holding that seemstoindicatethatsummaryjudgmentisonlyproperifthecourtfindsthatitwould be impossible for the party opposing the summary judgment motion to prevail,thatholdinghasbeenclarifiedbyamorerecentKentuckycasedealingwith the summary judgment standard. In Welch v. American Publishing Company of Kentucky,3S.W.3d724(Ky.1999),theKentuckySupremeCourtstatedthatalthoughmuchattentionhadbeengiventotheword“impossible”sinceSteelvest, the appropriate inquiry for the court is whether, from the record at the time of pre-sentation of the motion, facts exist which would make it possible for the non-moving party to prevail at trial. In analysis, according to the Kentucky Supreme Court, the focus should be on what is of record rather than what might be presented at trial.

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Therefore,seekingsummaryjudgmentinacollectioncase(whichwillprobablyturnonreviewofacontractbetweentheparties)isstillausefulmechanism.Moreover,many attorneys and litigants, when faced with such a motion, will be more inclined to negotiate or may even fall back and let judgment be entered.

L. [1.50] Specially Situated Defendants

Collection attorneys should be aware of the Servicemembers’ Civil Relief Act,50USC§501,whichsuspendscivilliabilitiesincertaincasesagainstmilitarypersonnel. See Chapter 14, infra, for a complete discussion of this act.

Consideration should be given to whether the debtor is incarcerated, of unsound mind, or an infant. Judgment cannot be taken without providing such debt-ors the protection provided under Civil Rules 17.03 and 17.04. Unmarried infants or persons of unsound mind are to be defended by their guardian or committee. Otherwise, the court shall appoint a guardian ad litem for the defendant, and no judgment may be taken against them until the guardian, committee, or guardian adlitemhasmadeadefenseorfiledareportstatingthataftercarefulexaminationit is unable to make a defense. Prisoners may defend an action, but if they choose not to or are unable to, the court shall appoint a guardian ad litem. In such cases, no judgment may be rendered until the guardian ad litem has made a defense or filedareportstatingthataftercarefulexaminationofthecaseitisunabletomakea defense. Fees for a guardian ad litem are to be paid by the creditor and added to court costs. Discuss this with your creditor client before suing a debtor who is in prison. Suit might not be worth the costs.

M. [1.51] Preparing for Trial

If thedebtordefeatsall efforts inobtaining judgment shortofanevi-dentiary hearing, counsel naturally must prepare the creditor client to testify, as one would in any other case. Sometimes the client is not willing to send a witness to trial. Before giving up, consider subpoenaing the debtor or other witnesses to appear in court. Counsel can test whether the debtor is willing to deny the client’s claim under oath. Often, the debtor expects that the creditor client will be at trial prepared to testify, and the debtor will settle rather than go to trial.

If the collection attorney must try the case, s/he should try to obtain stipulations as to the authenticity and admissibility of documents supporting the claim. This saves the court’s time, avoids a surprise by a nervous witness at trial, and is more convenient to those who otherwise would be required to appear at the hearing to authenticate the documents. If the adversary will not cooperate, one may establish the authenticity of the documents through requests for admissions.

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N. [1.52] Collecting the Judgment

1. [1.53] Post-Judgment Procedures

Attempting to collect the judgment is when most collection cases really beginandiswhythecreditorclienthiresattorneys.Officeroutinesshouldbede-veloped for proceeding after judgment.

a. [1.54] Wording of Judgment

One must wait 10 days after entry of the judgment to execute upon that judgment. KRS 426.030; see Section [6.2], infra, in Chapter 6. However, the Court may permit immediate execution on the judgment if appropriate.

b. [1.55] Collecting Court Costs

The Kentucky Rules of Civil Procedure provide costs shall be allowed onajudgmentifthepartyentitledtorecovercostsfilesaBillofCostswiththeCourt.CR54.04.Ajudgmentoftenstates“pluscosts”.ApastpracticewasforthejudgmentholdertoaddcourtcoststothebalanceofthejudgmentwithoutfilingaBillofCosts.ThebetterpracticeistofiletheBillofCostsbeforeaddingthemtothe balance of the judgment.

c. [1.56] Notice of Judgment Lien

The judgment lien should befiled immediately in the county clerk’sofficewherethedefendantresidesandinanyothercountywhereonesuspectsheor she may own real estate. KRS 426.720. One does not have to locate real estate inthenameofthedebtortofilethenoticeofjudgmentlien.Thestatutegrantingthe judgment lien right must be strictly complied with by the judgment creditor. Thefilingpartyshouldrequesttheclerktoreturntheoriginalafteritisfiled.Ininforming the court of the amount necessary to pay the judgment, the counsel for the creditor should remember that a nominal amount will have to be paid to release thisjudgmentlienwhenthejudgmentissatisfied.

d. [1.57] Bank Garnishments

These types of garnishment must be repeated if it is later found that funds have been deposited since the last garnishment because each garnishment only attaches funds on hand the moment the garnishment is served. Bank garnishments may be served by mail or through process servers. CR 69. A nominal processing fee payable to the garnishee must be delivered with the garnishment. KRS 425.501.

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e. [1.58] Wage Garnishments

A wage garnishment should be immediately served upon the debtor’s employer. See Sections [6.15] through [6.17] in Chapter 6. The employer must pay the judgment creditor a statutory percentage of non-exempt wages until the judgmentissatisfied.Wagegarnishmentsarehonoredintheordertheyareservedupon the employer. KRS 425.506; see also CR 69.02. A nominal processing fee is payable to the garnishee with the garnishment. KRS 425.501.

f. [1.59] Executions

Anexecutiondirectedtothesheriffofthedebtor’shomecountymaybeobtainedrequestingthesherifflevyuponallnonexemptpersonalpropertyownedbythedebtor.KRS426.010.Thesheriffmustbeprovidedwithallinformationonassetsknowntothecreditor.Itshouldbediscussedwiththesheriffwhetherthecreditororitscounselwantsthesherifftotakepossessionofthepropertyandarrangementsshouldbemadeforstorageofseizedproperty.Thesheriffwhofailsto return an execution before its expiration can be liable for satisfying the judgment. KRS 426.350. In the author’s experience, execution is rarely productive due to liberal exemptions and liens held by other creditors.

2. [1.60] Post-Judgment Discovery

The judgment creditor may take discovery of the judgment debtor by the same means available before judgment. CR 69.03. The debtor and those with information on the debtor’s assets may be deposed. If the debtor fails to answer interrogatoriesorappearforadeposition,amotionmaybefiledtorequestthecourttoorderthedebtortorespondtothediscoveryefforts.Uponthedebtor’sfailureto obey the court’s order, he may be held in contempt of court and be subject to fineorimprisonment.

3. [1.61] Continuing Negotiations

Each contact with the debtor through discovery, attachment, or execution presents an opportunity for the debtor to make voluntary arrangements to satisfy thejudgment.Thecollectionattorney’seffortswillfurthershowhisclientthatheis working hard to collect the claim. Even if the particular claim is uncollectible, the client may remember such an attorney when there is another claim to collect.

4. [1.62] Uniform Enforcement of Foreign Judgments Act

As discussed previously in Section [1.30], Kentucky has adopted the Uniform Enforcement of Foreign Judgments Act. See KRS 426.950 et seq. The ActprovidesforthefilingofanauthenticcopyoftwoforeignjudgmentsinanyKentucky court of competent jurisdiction. The judgment is then enforceable by the same mechanisms for judgments rendered in Kentucky. See KRS 426.955.

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Of course, the foreign creditor’s rights to bring an action to enforce the judgment rather than using the provisions of the act is unimpaired. KRS 426.975. For the appropriateform,seeKentuckyAdministrativeOfficeofCourts(“AOC”)Form160,“NoticeandAffidavitofForeignJudgmentRegistration,”acopyofwhichisincluded in the Appendix to Chapter 6 at Section [6.36], infra.

5. [1.63] Criminal Enforcement of Claims

Although creditors have certain protections under Kentucky and federal penal statutes, threatening the debtor with criminal prosecution to collect a debt can be unethical and subject the creditor client to liability for abuse of process. Therefore, one must proceed with caution in relying upon these penal statutes. Counsel should proceed through complaints to state or federal law enforcement agencies but pursue the client’s civil cause of action separately. The creditor’s at-torney should not agree to request dismissal of the criminal proceedings in return for payment. Instead, the debtor should be advised that the creditor will raise no objection to dismissal of the criminal action and will inform the law enforcement agency the debtor has agreed to make restitution to the creditor.

The following statutes imposing criminal sanctions are relevant to col-lectioncases:

• Defraudingofsecuredcreditors(KRS517.060);

• Defraudingofjudgmentcreditors(KRS517.070);

• Theftandrelatedoffenses(KRS514.010et seq.);

• Theftbydeception(KRS514.040);

• Theftofpropertydeliveredbymistake(KRS514.050);

• Theftofservices(KRS514.060);

• Theft by failure to make required disposition of property (KRS514.070);

• Misapplication of proceeds from mortgage for building or improvementpurposes(KRS376.050);

• Saleormortgageofpropertysubjecttolien(KRS376.060);and

• Failure of contractor or architect to apply payments to claims(KRS376.070).

O. [1.64] Closing the File

When the claim is collected, a satisfaction of judgment in the court record shouldbeenteredandareleaseanyjudgmentliensofrecordshouldbefiled.

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Iftheattorney’sfileisclosedbeforetheclaimissatisfied,theinformationgathered on the debtor should be kept for future reference in case the attorney receives another claim against the debtor. This information will alert the attorney nottoacceptanotherclaimifthefirstclaimproveduncollectible,ortheattorneymaylaterobtainadditionalinformationonthedebtorcausinghimtoreopenthefile.

Ifanoticeofjudgmentlienhasbeenfiled,paymentmayeventuallyoccurwhenthedebtortriestosellorrefinancerealpropertythatwaspreviouslylackingequity,undiscovered,orwhichwaspurchasedafterthefilewasclosed.Asystemkeeping track of the unpaid balance of the claim should be developed even though thefilehasbeenclosed.

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II. [1.65] Appendix

A. [1.66] Initial Demand Letter

INITIAL DEMAND LETTER [date]

[Debtor’s Name] [Debtor’s Address]

RE: CREDITOR: [Creditor] DEBTOR(S): [Debtor]

PRINCIPAL: $_______ INTERESTTODATEAT___%FROM:[date] $_______ ATTORNEYFEE: $_______ TOTALAMOUNTOFTHEDEBTTODATE: $_______

We represent [Creditor] in collecting the above debt.

Unless you dispute the validity of the above debt, or any portion thereof, within thirty(30)daysafterreceiptofthisletter,itwillbeassumedbyusthattheabovedebt is valid and due and owing our client. Should you notify us in writing within thirty(30)daysafterreceiptofthisletterthattheabovedebt,oranyportionthere-of,isdisputed,wewillobtainverificationofthedebtandacopythereofwillbemailed to you by us.

Also,uponyourwrittenrequestwithinthirty(30)days,wewillprovideyouwiththenameandaddressoftheoriginalcreditorifdifferentfromthecurrentcreditor.

THIS IS TO COLLECT A DEBT. ANY INFORMATION OBTAINED WILL BE USED TO COLLECT THE ABOVE DEBT.

The Attorney Fees requested, if any, are subject to approval by the court if a lawsuit is filed and judgment is entered. The amount inserted above, if any, is our fee if we collect the full amount of your claim according to our agreement with our client. If your obligation for our fee is limited by your contract with our client, that amount, if any, is inserted above even though our client might be paying us a larger fee.

Very truly yours,

____________________________________ [Attorney]

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B. [1.67] Subsequent Letter to a Debtor

SUBSEQUENT LETTER TO A DEBTOR [date]


RE: [Creditor] [Debtor] OURFILE: _____________

Thisisourfinalrequestforvoluntarypayment.Thebalancedueasoftoday’sdateis $___________.

Unlesswe receiveapayment fromyouwithinfive (5)days,wemustproceedon behalf of our client to recover the balance in full. Please avoid this action by forwarding your payment today.

Very truly yours,

____________________________________ [Attorney]

THIS IS FROM A DEBT COLLECTOR.

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C. [1.68] Cover Letter for Agreement to Pay Before a Judgment

COVER LETTER FOR AGREEMENT TO PAY BEFORE JUDGMENT1

[date]


RE: [Creditor] [Debtor] OURFILE: _____________

EnclosedpleasefindaRepaymentAgreementintheabove-styledcasewhichsetsforth your proposed monthly payments. Please sign where indicated and return the original to this office(thecopyisforyourrecords)within ten (10) days.

Please forward payments to this office and mark your check or money order with thefilenumbershownaboveinordertoassurepromptandpropercredit.Thankyou for your cooperation in this matter.

Very truly yours,

____________________________________ [Attorney]

Enclosure


1 Practitioners might consider whether it is necessary or appropriate to send more information to debtors, such as this letter and the proposed agreement that follows, than that required by the Fair Debt Collection Practices Act.

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D. [1.69] Agreement to Pay Before Judgment

AGREEMENT TO PAY BEFORE JUDGMENT2

CREDITOR: [Creditor] DEBTOR(S): [Debtor]

AMOUNTDUE:$__________plus___%interestfrom[date],andattorneyfeesif applicable.

The undersigned Debtor, whether one or more, hereby acknowledges the above amount is now due and payable to Creditor and, in consideration of the Creditor acceptingthepaymentssetforthbelowinlieuoffurthercollectionefforts,herebywaives all defenses, if any, to payment of the amounts due and further agrees to pay Creditor, through its counsel, [Attorney name and Attorney address], the amount dueinthefollowingmanner:__________________.IntheeventtheDebtorbe-comesten(10)daysdelinquentinanypaymentassetforthabove,thentheentirebalance shall be immediately due and payable. Upon default under this agreement, the undersigned will reimburse Creditor’s attorney fees to enforce this agreement in the amount of 33.33% of the amount due, plus court costs.

Therewillbea$15.00servicechargeforanychecksreturnedforinsufficientfunds.

This the ________ day of ______________________, 20___.

BY:______________________________ [Debtor]

PREPAREDBY:

___________________________________ [Attorney’s name] [Attorney’s address]


2 Practitioners might consider whether it is necessary or appropriate to send more notices and information to debtors, such as this agreement and the preceding cover letter, than that required by the Fair Debt Collection Practices Act.

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E. [1.70] Cover Letter for Agreed Judgment

COVER LETTER FOR AGREEMENT JUDGMENT [date]


RE: [Creditor] [Debtor] OURFILE: _____________ CASE NO. _____________

Enclosed is an Agreed Judgment in the above-styled case that sets forth our agree-ment. Please sign and return the original to this office (thecopy is foryourrecords)within ten (10) days.

Please mail payments to this office before the due dates as set forth in the Agreement andmarkthecheckormoneyorderwiththefilenumbershownabovein order to assure proper credit. Thank you for your cooperation in this matter.

Sincerely yours,

____________________________________ [Attorney]

Enclosure


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F. [1.71] Agreed Judgment

COMMONWEALTH OF KENTUCKY [County] [Court] COURT

CIVIL BRANCH CASE NO.________

[Creditor] PLAINTIFF

vs.

[Debtor] DEFENDANT(S)

AGREED JUDGMENT

Byagreementoftheundersigned,andtheCourtbeingsufficientlyadvised;

ITISHEREBYAGREED,ORDERED,ANDADJUDGEDthat thePlaintiffisawarded judgment against [Debtor] in the amount of [$____________], plus 8 percent interest per annum from [date] until date of this Judgment and interest thereafter on the judgment amount at the rate of 6 percent per annum until paid in full. The Defendant shall pay all costs.

ThePlaintiffwillnotexecuteonthisJudgment,otherthantofileaNoticeofJudicialLien,ifpaymentsaremadeasfollows:[$_____]DUEBYORBEFORE[DATE]AND [$______] THE [_____]TH DAY OF EACH MONTH THEREAFTER UN-TIL THIS JUDGMENT IS PAID IN FULL. If the Defendant fails to timely make any payment when due, the entire balance shall be due and payable.

Payments shall be tendered to [Attorney’s name and address].

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ItisdeterminedunderCR54.02thatthereisnoreasontodelaygrantingthisfinaljudgment. Execution may not be issued on this judgment until after ten days from the date it is entered.

DATED:____________________________________

____________________________________ JUDGE, [County] [Court] COURT

AGREED; TO BE ENTERED; NOTICEOFENTRYWAIVED:

___________________________________ [Attorney’s name] [Attorney’s address] COUNSEL FOR PLAINTIFF

___________________________________ [Debtor] DEFENDANT


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G. [1.72] Cover Letter for Agreement to Pay After Judgment

COVER LETTER FOR AGREEMENT TO PAY AFTER JUDGMENT3

[date]

[Debtor] or [Debtor’s Attorney]

RE: [Creditor] [Debtor] OURFILE: _____________ CASE NO. _____________

EnclosedpleasefindanAgreementtoSatisfyJudgmentfortheabove-styledcasewhich sets forth the proposed monthly payments. Please return the signed original tothisoffice(thecopyisforyourrecords)withinten(10)days.

Allpaymentsshouldbeforwardedtothisofficewiththefilenumberlistedonthecheck or money order in order to assure prompt and proper credit. Thank you for your cooperation in this matter.

Very truly yours,

____________________________________ [Attorney]

Enclosure


3 Practitioners might consider whether it is necessary or appropriate to send more notices and information to debtors, such as this letter and the proposed agreement that follows, than that required by the Fair Debt Collection Practices Act.

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H. [1.73] Agreement to Pay After Judgment

AGREEMENT TO PAY AFTER JUDGMENT4

AGREEMENT TO SATISFY JUDGMENT

CREDITOR: [Creditor] DEBTOR(S): [Debtor]

AMOUNTDUE:$__________plusanyunpaidinterest,attorneyfeesandcostsas set forth in the Judgment.

COURT: [County][Court]COURT,DIVISION[], CASE NO. ________________ JUDGMENTDATE: ________________

The undersigned Debtor, whether one or more, hereby acknowledges the above amount is now due and payable to Creditor by virtue of the above Judgment, and in consideration of the Creditor’s forbearance in accepting the payments set forth below, hereby waives all defenses, if any, to payment of the Amount Due and fur-ther agrees to pay Creditor, through its counsel, [Attorney’s name and address], theAmountDueinthefollowingmanner:[_______________].IntheeventtheDebtor fails to timely make any payment as set forth herein, then the Amount Due, less credit for payments received, shall be immediately due and payable.

This Agreement is secured by all methods of Execution against the Judgment undertaken by Creditor to this date, including Notice of Judgment Lien heretofore orhereafterfiledbyCreditor.

This the ________ day of ______________________, 20___.

BY:______________________________ [Debtor]

PREPAREDBY:

___________________________________ [Attorney’s name] [Attorney’s address] COUNSEL FOR CREDITOR

4 Practitioners might consider whether it is necessary or appropriate to send more notices and information to debtors, such as this agreement and the preceeding letter, than that required by the Fair Debt Collection Practices Act.

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2-1

Handling the Collection Case: Debtors’ Viewpoint

*Jan C. Morris served as the 2020 update author for Sections [2.31-.33], the remainder of the chapter was updated by UK/CLE. Other attorneys listed provided original content on prior updates but were not involved in the 2020 update.


2

HANDLING THE COLLECTION CASE: DEBTORS’ VIEWPOINT

JAN C. MORRIS*Lowen & Morris PLLC

Louisville, Kentucky

ELLEN G. FRIEDMANLouisville, Kentucky

ROBERT F. SMITHLouisville, Kentucky

JOSEPH S. ELDER IILouisville, Kentucky

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I. [2.1] Introduction .........................................................................2-5

II. [2.2] Default Judgments ..............................................................2-6

III. [2.3] Venue ....................................................................................2-8

IV. [2.4] Statutes of Limitation .........................................................2-9

V. [2.5] Exemptions...........................................................................2-9

VI. [2.6] Consumer Remedies .......................................................... 2-11A. [2.7] Equal Credit Opportunity Act ...............................2-11B. [2.8] Dodd-Frank Wall Street Reform

and Consumer Protection Act ...............................2-111. [2.9] Consumer Financial

Protection Bureau ...................................2-12C. [2.10] Fair Credit Reporting Act .....................................2-12D. [2.11] Credit Repair Organizations Act ...........................2-13E. [2.12] Fair Debt Collection Practices Act .......................2-13F. [2.13] Credit Practice Rule ..............................................2-15G. [2.14] Door-to-Door Sales Rule ......................................2-15H. [2.15] Odometer Statutes .................................................2-15I. [2.16] Federal Truth in Lending Act ................................2-16J. [2.17] Consumer Leasing Act ..........................................2-17K. [2.18] Magnuson-Moss Warranty Act .............................2-17L. [2.19] Kentucky Consumer Protection Act .....................2-18

1. [2.20] Right of Action .......................................2-182. [2.21] Prohibited Acts .......................................2-193. [2.22] Scope ......................................................2-194. [2.23] Damages and Fees ..................................2-205. [2.24] Buying Club Memberships .....................2-206. [2.25] Home Solicitation Sales .........................2-207. [2.26] Recreation and Retirement

Land Sales ..............................................2-218. [2.27] Mobile Home Sales ................................2-219. [2.28] Defective New Cars

(“Lemon Law”) ......................................2-2110. [2.29] Rental-Purchase Agreements ..................2-2111. [2.30] Others .....................................................2-22

M. [2.31] Check Cashing ......................................................2-22N. [2.32] Uniform Commercial Code – Article 9 ................2-22

VII. [2.33] Bankruptcy ........................................................................2-23A. [2.34] Chapter 7 ...............................................................2-23B. [2.35] Chapter 13 .............................................................2-24

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I. [2.1] Introduction

This chapter will focus on presenting a general overview of various de-fenses and potential counterclaims available to a debtor’s lawyer and strategies to litigate collection cases. Many of the topics discussed below are treated in more detail in other chapters. See, e.g., infra, Chapter 10. This chapter is meant to fa-miliarize the debtor’s attorney with some useful tools in representing the debtor.

Representing the defendant in collection cases presents special challenges. First and foremost it is important to remember that the plaintiff bears the burden of proving the elements of its case. In an action to collect upon an alleged debt, plaintiff must prove the existence of the debt, the amount of the debt, the terms of the debt (including any agreement to pay interest), and its right to collect the debt. Cf. Hickey v. Glass, 285 Ky. 848, 149 S.W.2d 535, 536 (1941). Basic dis-covery should be done to ascertain this information. Requests for Production of Documents requesting copies of the original agreement, assignments of the debt, and forward-flow agreements are essential. Assignments should be scrutinized carefully for gaps as it is the plaintiff’s burden to prove an unbroken chain of title.

In addition, debtors may have a variety of legal defenses to collection actions. It is essential that the attorney for the debtor conduct an in depth interview with the client and review all the documents related to the case in a search for a defense or counterclaim. It is especially important for the private practitioner to review those claims and defenses that allow for payment of fees to the prevailing party. Most of the federal consumer protection legislation contains provisions for mandatory payment of attorney fees to the prevailing consumer. There is generally a bad faith component to awarding fees against the consumer. Some of the federal laws and the Kentucky Consumer Protection Act give the court discretion to award fees.

Attorney fees may even be available where statute of limitations on the debtor’s claim has passed when the claim is raised only as a set-off under the doc-trine of equitable recoupment. Empire Finance Co. of Louisville, Inc. v. Ewing, 558 S.W.2d 619 (Ky. Ct. App. 1977); see also In re Tolliver, 464 B.R. 720, 741 (E.D. Ky. 2012) (“Furthermore, to the extent that the Plaintiff has asserted a counterclaim pursuant to K.R.S. § 360.010 and § 360.020 in order to offset the claim made by the Defendants as a mere defense, the statute of limitations does not apply. See Empire Fin. Co. of Louisville, Inc. v. Ewing, 558 S.W.2d 619 (Ky. Ct. App. 1977).

In addition to consumer protection statutes, unconscionability is still a viable common law defense. Unconscionability is a doctrine that exists as a narrow exception to the rule that, absent fraud in the inducement, a written agreement duly executed by the party to be held, who had an opportunity to read it, will be enforced according to its terms, Conseco Finance Servicing Cmp. v. Wilder, 47 S.W.3d 335, 341 (Ky. Ct. App. 2001). It is not infrequent in a debtor’s attorney’s practice to find individuals who are being sued for debts arising from high pres-sure sales tactics, such as time-share resort interests, health spa memberships, and

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unscrupulous home remodeling contractors. All too often, elderly, low-income, or uneducated debtors who have one asset – their home – run afoul of the “blue suede shoe” men and women of the home remodeling industry. Some contractors will use such high-pressure sales tactics as blank contracts and then launder the contracts by sale to an unrelated lender. The contract price may be grossly disproportionate to the work done, or the work is shoddy or sometimes not even performed. The debtors may refuse to make payments or not be able to afford payments and thus find themselves embroiled in a foreclosure suit.

“The doctrine of unconscionability is used by the courts to police the excesses of certain parties who abuse their right to contract freely. It is directed against one-sided, oppressive and unfairly surprising contracts, and not against the consequences per se of uneven bargaining power or even a simple old-fashioned bad bargain...” Louisville Bear Safety Service, Inc. v. South Central Bell Telephone Company, 571 S.W.2d 438, 440 (Ky. Ct. App. 1978). Unconscionability deter-minations are fact specific and (addressed) on a case-by-case basis. United Serv. Auto Assoc. v. ADT Sec. Serv., Inc., 241 S.W.3d 335 (Ky. Ct. App. 2006); see also Diversicare Leasing Corp v. Workman, Case No. 15-cv-596, Memorandum Opinion and Order denying Motion to Enforce Arbitration at p. 6 (E.D. Ky. March 1, 2016).

There has been an increase in the number of foreclosures resulting from an array of predatory lending practices and the wide-spread use of securitization – the pooling of loans and selling off interests in them to investors. This topic is beyond the scope of this chapter. For additional reading in this area, see Eggert, The Great Collapse: How Securitization Caused the Subprime Meltdown, 41 Conn. L. Rev. 1257 (2009), and Whitman, How Negotiability Has Fouled Up the Secondary Mortgage Market, and What to Do About It, 37 Pepp. L. Rev. 737 (2010).

Another large source of consumer debt is the deficiency suit brought by automobile dealers or their financing arms. Typically, the lowest income group must purchase cars at inflated costs and high interest rates. When the vehicle breaks down prior to full payment of the installment loan, as so often occurs, the vehicle is repossessed and sold at auction for a minuscule amount that does not begin to cover the debt. Article Nine of the Uniform Commercial Code may also provide some relief. See Section [2.32], infra.

Class actions, pursuant to Rule 23 of the Kentucky and Federal Rules of Civil Procedure, are another means of allowing low-income debtors to assert their rights if the creditor’s actions are systemic, but this topic is outside of the scope of this Handbook.

II. [2.2] Default Judgments

The debtor’s attorney should not automatically be deterred by a recently entered default judgment. Unfortunately, many of these clients do not understand

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the legal significance of the lawsuit, or there are other crises in their lives (e.g., illness, divorce, loss of transportation, etc.) that cause them to disregard the lawsuit until their wages are garnished or a lien is placed on their home. Often, this is the spur to seeking legal assistance.

Kentucky law permits setting aside a default judgment. Default judgments are not favored in Kentucky. See Childress v. Childress, 335 S.W.2d 351, 354 (Ky. 1960) (“Since every cause of action should be tried upon the merits, the rendering of judgments by default ought to be withheld where seasonable objection is made unless a persuasive reason to the contrary is submitted.”); Dressler v. Barlow, 729 S.W.2d 464, 465 (Ky. Ct. App. 1987) (“[D]efault judgments are not looked upon with favor as it is the policy of the law to have every case decided on its merits.”). Kentucky Rule of Civil Procedure (“Civil Rule” or “CR”) 55.02 allows a default judgment to be set aside “(f)or good cause shown” in accordance with Civil Rule 60.02. Civil Rule 60.02 permits the court to relieve a party from final judgment upon the finding of one of the following grounds: (a) mistake, inadvertence, sur-prise or excusable neglect; (b) newly discovered evidence; (c) perjury or falsified evidence; (d) fraud affecting the proceedings; (e) the judgment is void; or (f) any other reason of an extraordinary nature justifying relief. Civil Rule 60.02 requires that the motion to set aside a default judgment be made within a reasonable time and provides a one year limit on bringing a motion based upon grounds (a), (b), or (c).

The court in S.R. Blanton Dev. Co. v. Investors Realty and Management Co., 819 S.W.2d 727 (Ky. Ct. App. 1991), set out the factors to consider in deciding whether to set aside a default judgment: “(1) valid excuse for default, (2) meritorious defense, and (3) absence of prejudice to the other party.” See also PNC Bank, N.A. v. Citizens Bank of Northern Kentucky, Inc., 139 S.W.3d 527 (Ky. Ct. App. 2003). A valid excuse is generally along the lines of illness or a family crisis or because the client is limited in some way as to deprive him from understanding the significance of the summons. A meritorious defense does not require a probability of success but rather “facts alleged by the defendant (which) would constitute a meritorious defense if true.” In re Park Nursing Ctr., Inc. v. Creditors Comm. of Park Nursing Ctr., Inc., 766 F.2d 261, 264 (6th Cir. 1985). Prejudice to Plaintiff must be more than simply the prejudice of having opposition to its complaint, and it must be more than mere delay in obtaining a judgment. “To establish prejudice, the plaintiff must show that the delay will result in the loss of evidence, increased difficulties in discovery, or greater opportunities for fraud and collusion.” Berthelsen v. Kane, 907 F.2d 617 (6th Cir. 1990); see also Thompson v. American Home Assur. Co., 95 F.3d 429, 433-34 (6th Cir. 1996) (“[F]or the setting aside of a default judgment to be considered prejudicial, it must result in more than delay. Rather, the delay must result in tangible harm such as loss of evidence, increased difficulties of discovery, or greater opportunity for fraud or collusion”)

Many defendants will claim that they were never served with a summons, but generally speaking, a review of the court file will indicate that service was made. This is not to say that occasionally there is insufficient service – where,

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for instance, the summons is delivered to the wrong family member. “Kentucky follows a strict adherence to the rule of ‘in-hand service of process.’” R.F. Burton and Burton Tower Company v. Dowell Division of Dow Chemical Company, 471 S.W.2d 708, 710 (Ky. 1971) (citation omitted). In addition to insufficient service, a defendant may claim he or she never received the mailed notice but Kentucky law creates a rebuttable presumption that mailed notices have always been received. See Goodin v. General Acc. Fire & Life Issur. Corp., 450 S.W.2d 252, 255 (Ky. 1970) (“[P]roof of mailing from the office of the insurer is sufficient to sustain a finding that the notice was effective without proof that such notice was received by the insured and even though the insured denies receipt of the communication” if the insurance contract contains this standard provision related to cancellation notices.”) Mere knowledge of the suit is insufficient without proper service (Mill-er v. McGinity, 234 S.W.3d 371 (Ky. Ct. App. 2007)); however, the debtor must present clear and convincing evidence to overcome the record of a properly served summons. Nicholson v. Thomas, 277 Ky. 760, 127 S.W.2d 155 (1939).

The trial court has great discretion is determining whether the judgment should be set-aside for good cause. From a practical point of view, the attorney, in determining whether it is worthwhile attempting this motion, should have a sym-pathetic client with a strong defense, and the judgment should be fairly recent. If the judgment cannot be set-aside, a bankruptcy may be the only alternative to stop a garnishment or foreclosure.

III. [2.3] Venue

Generally speaking, a collection action should be brought where the de-fendant resides. KRS 452.480 states that transitory actions not specifically covered by another section are to be filed in the county where the defendant resides. In Cash v. E’town Furniture, 363 S.W.2d 102 (Ky. Ct. App. 1962), the court held that a default judgment is void where the defendant is not a resident of the county nor served in the county of the action. The court in Winkler v. Germann, 329 S.W.3d 349 (Ky. Ct. App. 2010) agreed. In Goodwin Brothers v. Preferred Risk Mut. Ins. Co., 410 S.W.2d 714 (Ky. 1967), the court upheld a default judgment against an impleaded non-resident third party. “Under CR 14.01, a third party against whom contribution or indemnification is sought may be joined regardless of whether the venue provisions of KRS 452.480 are met as to the third party.” American Collec-tors Exchange, Inc. v. Kentucky State Dem. Central Exec. Committee, 566 S.W.2d 759, 761 (Ky. Ct. App. 1978), citing Goodwin.

The Fair Debt Collection Practices Act requires that a debt collector must bring suit in the place where the contract was signed or where the debtor resides at the commencement of the action. 15 USC § 1692(i).

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IV. [2.4] Statutes of Limitation

The limitations period is fifteen years on a written contract (KRS 413.090(2)), five years on an unwritten contract (KRS 413.120(1)), and four years on a contract for the sale of goods. (KRS 355.2-725). Barnes v. Community Trust Bank, 121 S.W.3d 520 (Ky. Ct. App. 2003).

There is case law in Kentucky that strictly defines a written contract for statute of limitations purposes. In order to apply the fifteen year statute of limita-tions, the contract must be “all in writing, so that all its terms and provisions can be ascertained from the instrument itself.” Mills v. McGaffee, 254 S.W.2d 716 (Ky. 1953). See also Williams ex rel. Regular Veterans Ass’n v. Ford, 2002 WL 1808721 (W.D. Ky. Aug. 1, 2002). In suits over old credit card debt, it is highly unlikely that the plaintiff has a document that can meet this test.

KRS 413.320 – Kentucky’s borrowing statute applies a shorter limita-tions period of another state if the cause of action arose there. Many credit card applications adopt the law of the state where the issuer is located, and many of those states have shorter limitations periods. For example, Delaware’s limitation period is three years.

At times the issues may arise as to when the limitations period begins to run. KRS 413.090 states that an action (on a written contract) must be filed within fifteen (15) years after the cause of action first accrued. Sometimes the Plaintiff argues that the limitations period does not begin to run until repossession has oc-curred or until the debt was “written off”; however, the debtor’s attorney should argue that the cause of action accrues immediately upon default – usually after the first payment is missed.

V. [2.5] Exemptions

There may be occasions when the debtor is likely to be permanently “judg-ment proof,” and there may be little reason to contest the debt or file bankruptcy. Some of the more important debtor assets from which judgment creditors may not seek to satisfy their judgment are the following exemptions:

• household furnishings;

• jewelry;

• personal clothing and ornaments up to $3,000;

• one motor vehicle and its necessary accessories, including one spare tire up to $2,500 (KRS 427.010(1));

• a homestead or burial plot worth up to $5,000 (KRS 427.060);

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• insurance payments (KRS 427.110);

• retirement benefits and individual retirement accounts (KRS 61.690, KRS 161.700, KRS 427.125);

• unlimited public assistance payments (KRS 205.220);

• Social Security benefits (42 USC § 407); and

• Supplemental Security Income (42 USC § 1383(d)(1)).

Debtors may choose federal exemptions for bankruptcy proceedings only. KRS 427.170. See Section [2.33], infra, on Bankruptcy. In addition, KRS 427.010(2) and 15 USC § 1673 limit the garnishment of wages to the extent of 30 times minimum wage or 75% (net), whichever leaves the debtor with more.

Pensions and Social Security may be used, with some limitations, for child support and maintenance obligations. The same exception does not apply to SSI, although the amount of the SSI payment can be used to calculate the amount of child support due from the non-custodial parent. KRS 403.212.

The Earned Income Tax Credit (“EITC”), codified at 26 USC § 32 of the Internal Revenue Code, is exempt pursuant to KRS 205.220(3). “The fact that Congress chose this mechanism as a way to deliver the assistance does not negate the fact that the EITC is a form of relief for low-income families hurt by rising food and energy prices.” Flanery v. Mathison, 289 B.R. 624, 628 (W.D. Ky. 2003); In re Goldsberry, 142 B.R. 158 (Bankr. E.D. Ky. 1992).

The Federal Child Tax Credit (“FCTC”), codified at 26 USC § 24, was found not to be exempt except on a case-by-case basis for needy families. In re Beltz, 263 B.R. 525 (Bankr. E.D. Ky. 2001). The Beltz court distinguished the EITC and the FCTC, reasoning that, unlike the EITC, the primary purpose of the FCTC is not to provide tax relief to low income families but primarily to benefit middle class Americans.

In spite of the exemptions, debtors may find that their bank accounts have been frozen following a garnishment order and that they will need to go to court to have the money returned. A simple procedure has been established for the debtor to fill out an affidavit with the circuit clerk and be given a court date to bring in proof that the funds are exempt. Even this process may be beyond the capabilities of a number of elderly, disabled, or unsophisticated debtors such that legal assistance is required to reclaim these crucial funds. When contacted by the debtor’s attorney, some collection attorneys will return the funds if provided with proof of the exemption. Otherwise, the debtor will need to appear at the court date that is assigned by the clerk to prove to the court that the funds taken are exempt.

Federal regulations that went into effect May 1, 2011, provide protection for electronically deposited federal benefit payments. A bank must protect two months of those payments from seizure to satisfy garnishment orders. The process

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for challenging garnishments described above will still be required to protect funds deposited before the two-month time period, or deposited by check. 31 CFR pt. 212.

The regulations require most benefit recipients to have funds either di-rect deposited or paid to a pre-paid card. The debtor should still be advised not to mix money from any other source in the same account. This simplifies the proof process, although the Kentucky Supreme Court has held that the exemption is not lost when mixed with other money if it can be traced. Matthews v. Lewis, 617 S.W.2d 43 (Ky. 1981).

Whether a bank set off of exempt funds is prohibited to the same extent as a garnishment or attachment has not been decided in this jurisdiction. The issue is whether set-offs are included in the 42 USC § 407 prohibition against taking benefits by “other legal process.” For different analyses from other jurisdictions, see Tom v. First American Credit Union, 151 F.3d 1289 (10th Cir. 1998); and Lopez v. Wash. Mut. Bank, 302 F.3d 900 (9th Cir. 2002). As a safety precaution, debtors may wish to keep these funds in a different financial institution than one to which they owe money.

VI. [2.6] Consumer Remedies

During the 1970s and 1980s, consumer activism gave rise to a host of state and federal laws that provide consumers with potential counterclaims and defenses.

A. [2.7] Equal Credit Opportunity Act

The Equal Credit Opportunity Act (“ECOA”), codified at 15 USC §§ 1691-1691x and Part 202 of the Code of Federal Regulations, applies specifically to the right to consumer credit and the procedural safeguards involved in preserving these rights and prohibits discrimination in the extension of credit based on race, color, religion, national origin, gender, marital status, or age. One particularly helpful provision of the ECOA is the requirement that the creditor (as that term is defined in the ECOA, which can include arrangers of credit) must provide specific written reasons for the denial of credit within 30 days. Of course, there are exceptions, and the attorney must review the ECOA in its entirety. This situation may arise where the debtor’s credit application (usually involving a car purchase) has been shopped to a number of different creditors. Punitive damages are available for violations even in the absence of actual damages.

B. [2.8] Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) was enacted on July 21, 2010 in response to the actions that sparked the 2008 financial crisis. One of the primary purposes of the Act was to

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protect American consumers from abusive practices by financial service provid-ers.15 USC § 1601 et seq.

1. [2.9] Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (“CFPB”), established under Dodd-Frank, was given the job of preventing predatory mortgage lending and make it easier for consumers to understand the terms of a mortgage before agreeing to them. It deters mortgage brokers from earning higher commissions for closing loans with higher fees and/or higher interest rates and requires that mortgage originators not steer potential borrowers to the loan that will result in the highest payment for the originator.

The CFPB also governs other types of consumer lending, including credit and debit cards, and addresses consumer complaints. It requires lenders, excluding automobile lenders, to disclose information in a form that is easy for consumers to read and understand; an example is the simplified terms now on credit card applications.

C. [2.10] Fair Credit Reporting Act

The Fair Credit Reporting Act (“FCRA”), codified at 15 USC §§ 1681- 1681x, prohibits reporting of inaccurate or obsolete credit information and provides an individual the right to dispute the accuracy of a credit report. Inaccurate infor-mation can give rise to damage actions by consumers against consumer reporting agencies and furnishers of information.

Under the FCRA, the furnisher of information has a duty to correct and update the information and also must note when that information was disputed. Furnishers must also participate in reinvestigation of disputed information. The liability of furnishers is generally not for providing the bad information but for failing to correct it following a consumer dispute. The FCRA requires the creditor to follow-up an original report with notice that the debt is disputed, and it must note that the information has been disputed in all future reports. Attorneys should have their clients review their credit reports for compliance with this section, especially where the consumer has legally cancelled a transaction and stopped payment because of a seller’s breach.

The FCRA also protects consumers from the unauthorized use of their credit reports. The FCRA enumerates the permissible purposes to obtain a credit report. If not specifically permitted, it is prohibited. For example, it is not permis-sible to obtain a credit report on the debtor’s spouse or another third person unless the consumer is relying on the third party’s income and the third party is also liable on the account. A car dealer is not entitled to obtain a credit report of a potential buyer unless it is to be a credit sale. Smith v. Bob Smith Chevrolet, Inc., 275 F. Supp. 2d 808 (W.D. Ky. 2003).

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Collecting judgments is a permissible use, but litigation itself is not a permissible purpose. In Duncan v. Handmaker, 149 F.3d 424 (6th Cir. 1998), the attorney defending a mortgage company in a negligence suit brought by consumers had no permissible purpose in accessing the plaintiffs’ report; the business trans-action underlying the suit did not extend to the litigation of the negligence claim.

Identity theft has become an increasingly common and significant prob-lem. In response, Congress passed the Fair and Accurate Credit Transactions Act of 2003 (“FACTA”), as an amendment to the FCRA. Under this new legislation, every consumer is entitled to free copies of their credit reports every twelve months. The act also contains provisions to help reduce identity theft, such as the ability for individuals to place alerts on their credit histories if identity theft is suspected, or if deploying overseas in the military, thereby making fraudulent applications for credit more difficult. Further, it requires secure disposal of consumer information.

D. [2.11] Credit Repair Organizations Act

The Credit Repair Organizations Act (“CROA”) was also signed into law in 1996. (15 USC § 1679, et seq.) The CROA was enacted to regulate the activities of credit repair clinics that promise, for a fee, to improve a consumer’s credit record. It applies to contracts entered into beginning on March 30, 1997.

Under this act, no credit repair services can be provided until three days after a written contract is signed. The contract must disclose certain information, including the total of all fees due, the timing and nature of all services and the three-day right to cancel. The credit repair organization must also provide, on a separate document, disclosure of consumer rights to self-help. Misleading statements or advice is prohibited. The repair organization is prohibited from receiving payment until service is fully performed. Creative consumer attorneys have successfully used the CROA against car dealers and others who make promises of improving the plaintiff’s credit record by purchasing with credit. Consumers can sue to recover the greater of the amount paid or actual damages, punitive damages, costs, and attorney fees for violations.

E. [2.12] Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (“FDCPA”) (15 USC § 1692, et seq.) applies only to debt collectors: any person whose principal business is col-lecting debts or any person who regularly collects debts owed to another.

The FDCPA does not exclude attorneys, although the nature and amount of collection activities required for an attorney to be considered a debt collector has been the subject of much litigation. In Schroyer v. Frankel, 197 F.3d 1170 (6th Cir. 1999), the Sixth Circuit Court of Appeals held that “for a court to find that an attorney or law firm ‘regularly’ collects debts for purposes of the FDCPA, a plaintiff must show that the attorney or law firm collects debts as a matter of course for its clients or for some clients, or collects debts as a substantial, but not principal, part

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of his or its general law practice.” Id. at 1176. In that case, the court found that the firm was not a debt collector because collection cases made up only two percent of the firm’s business and it did not employ individuals full-time for the purpose of collecting debts.

The practitioner must specifically plead that the attorney regularly collects debts or that collecting debts is a substantial part of the attorney’s practice. Merely alleging that the attorney is a debt collector is insufficient. Wade v. George, 2010 U.S. Dist. LEXIS 55422 (W.D. Ky. June 4, 2010).

Although the FDCPA generally excludes creditors collecting their own debts, the debtor’s attorney may be able to pursue an action through tort law or the Kentucky Consumer Protection Act. A Kentucky Attorney General opinion states, “although the FDCPA applies only to third-party debt collectors, it serves as a guideline for determining what is an unfair, false, misleading, or deceptive practice in violation of the Kentucky Consumer Protection Act, KRS 367.170.” 1983 Ky. Op. Att’y Gen. 2-161, Ky. OAG 83-121, 1983 WL 166379 (Ky. A.G.).

A federal court has found that the Kentucky Consumer Protection Act does not apply to a third-party debt collector because there is no privity of contract. Tallon v. Lloyd & McDaniel, 497 F. Supp. 2d 847 (W.D. Ky. 2007).

The FDCPA prohibits a number of specific activities, such as: commu-nications at unusual or inconvenient times; contacts with consumers following a letter to cease collection attempts; communication with third parties, such as friends, neighbors, boss, etc.; harassing, oppressive and abusive conduct; and a number of other acts.

The FDCPA also provides debt collectors with various statutory obligations as well. The initial communication sent to a consumer must contain:

• the amount of the debt;

• the creditor’s name;

• a statement that unless the consumer disputes the validity of the debt within thirty days of receipt of the notice, the debt collector will assume the debt to be valid;

• a statement that if the consumer does dispute the debt in writing within thirty days, the debt collector will obtain verification of the debt or a copy of the judgment; and

• a statement that, upon the consumer’s written request, the debt collector will provide the consumer with the name and address of the original creditor, if different from that of the current creditor.

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15 USC § 1692g. The debt collector must also disclose on all communications that it is for the purpose of collecting a debt and all information will be used for that purpose. The debtor’s attorney should obtain a detailed history from the client and, if possible, copies of all communications with the debtor.

F. [2.13] Credit Practice Rule

The Federal Trade Commission’s (“FTC”) credit practice rule, found at 16 CFR pt. 444, states that it is an unfair act or practice for a lender or retail install-ment seller directly or indirectly to take or receive from a consumer an obligation that contains a cognovit or confession of judgment, waives or limits exemptions, contains an assignment of wages (with exceptions), or contains a nonpossessory security interest in household goods other than a purchase money security interest. Although there is no private right of action to enforce violations of this rule, the practitioner can allege that these prohibited acts also violate the Kentucky Con-sumer Protection Act’s prohibition of unfair acts and practices. KRS Chapter 367.

G. [2.14] Door-to-Door Sales Rule

The FTC’s home solicitation rule, located at 16 CFR pt. 429, requires disclosure in written form of a three-day right of rescission in the event of a home door-to-door transaction involving goods or services costing more than $25. Sundays and federal holidays are not counted in calculating the three days. The Kentucky law concerning door-to-door sales, KRS 367.410, also gives an individ-ual three days to cancel the purchase of an item costing more than $25. There is an exemption for individuals or companies that sell insurance or goods provided in an emergency at the request of the buyer. If the consumer agrees to purchase a good at the seller’s place of business and the completion of the business transaction occurs in the buyer’s home, the three-day right of rescission evaporates. Notably, if a buyer requests that a seller appear at his home, this request will not necessar-ily relieve the seller of any obligation under this statute. Moreover, the buyer’s three (3) day right to cancel will not begin to run until after receipt of a copy of the completed and signed credit contract and the accompanying Truth-in-Lending disclosures. OAG 92-41.

H. [2.15] Odometer Statutes

The Motor Vehicle Information and Cost Savings Act, often referred to as the Federal Odometer Act, 49 USC §§ 32701-32711, was recodified in 1994 and additional changes were made in 1996 and 1998. The governing regulations can be found at 49 CFR §§ 580.1-580.17. The Act prohibits odometer tampering and, with certain exceptions, mandates the disclosure of mileage on the title document at the time of transfer. Automobile dealers rarely show the purchasers the actual title document as required, and if the purchasers can prove intent to defraud, they have a cause of action for which they can receive three times actual damages or $10,000, whichever is the greater, plus costs and attorney fees. The title document

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can provide important information to the purchaser, such as the identity of the previous owner and notice of title brands, such as flood damage and prior wrecks. The Act also requires dealers to retain copies of titles and powers of attorney in their primary place of business for at least five years.

Kentucky’s odometer statute is found at KRS 190.260 to 190.320 and KRS 190.990(4). It also entitles the buyer to three times the actual damage or $1,500, whichever is greater, plus attorney fees and court costs for tampering or knowingly giving a false disclosure with intent to defraud. A willful violation carries a $5,000 fine.

I. [2.16] Federal Truth in Lending Act

The Federal Truth in Lending Act (“TILA”), 15 USC §§ 1601-1615, pri-marily regulates the disclosure of information, and not the amount of interest that may be charged. The purpose of TILA is to require that disclosures be made in a way that allows for intelligent comparison. For this reason, the consumer must be provided with a copy of the disclosures to review prior to signing. The Official Staff Commentary to § 1026.17(b) states “it is not sufficient for the creditor merely to show the consumer the document containing the disclosures before the consumer signs and becomes obligated. The consumer must be free to take possession of and review the document in its entirety before signing.” The disclosures must be given prior to consummation in a form that the consumer may keep.

TILA provides for damages, costs, and attorney fees for certain violations and, in some situations, rescission of the transaction – a very powerful tool. The accompanying regulations, known as Regulation Z, are found at 12 CFR pt. 1026. The Act regulates both open-end credit, such as revolving credit cards, and closed-end credit (e.g., the typical car loan).

In this day of computers, large creditors rarely make mathematical errors. Most mistakes that occur will be from the small “buy-here, pay-here” car dealers and from creditors failing to include certain extra charges (hidden interest) as part of the finance charge. TILA and the regulations thereunder are quite specific about what may be excluded from the finance charge. Creditors’ motivation for keeping as many charges as possible out of the finance charge is to make the annual percentage rate appear as low as possible. The debtor’s attorney should check the math and carefully scrutinize credit insurance and other fees and costs charged to the consumer.

TILA allows rescission where the creditor takes a security interest in the debtor’s residence. The debtor can rescind for any reason within three business days of entering the transaction. The debtor can also rescind for up to three years if a material TILA violation is discovered.

In 1994 Congress passed the Home Ownership and Equity Protection Act (“HOEPA”), which gives additional protection to debtors entering into certain

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closed-end home equity loans. HOEPA kicks in if the annual percentage rate is over an amount based upon Treasury bond rates or if the fees and costs are over 8% of the amount of the loan. HOEPA violations also provide the debtor with enhanced damages and attorney fees.

J. [2.17] Consumer Leasing Act

The Consumer Leasing Act (“CLA”) is part of the Truth in Lending Act. The accompanying regulations are known as Regulation M and are found at 12 CFR pt. 213. The CLA only applies to leases longer than four months and where the contract obligation does not exceed $50,000. 15 USC § 1667(1). The Act re-quires that certain lease disclosures be made in a particular way. More consumers are obtaining vehicles by lease, and they are often shocked to learn that when they return the vehicle prior to the end of the lease there are enormous charges. The CLA, in addition to the disclosure requirements, also includes substantive regula-tion of the early termination charge, which must not be “unreasonable”. 15 USC §§ 1667a, 1667b. Consumers are entitled to statutory damages, actual damages, and attorney fees for violations.

K. [2.18] Magnuson-Moss Warranty Act

The Magnuson-Moss Warranty Act (“Magnuson-Moss”) applies to con-sumer products – normally but not exclusively used for personal, family, or house-hold purposes. The Act does not require that warranties be given, but it regulates the content, the disclosure, and the duties of those who choose to sell or provide warranties and extended service contracts. The act is found at 15 USC §§ 2301-2312, and the FTC’s governing regulations are located at 16 CFR Subchapter G, pts. 700-703. There is concurrent state and federal jurisdiction, but there is a $50,000 amount in controversy required for an independent federal cause of action. 15 USC § 2310. The Sixth Circuit Court of Appeals increased the jurisdictional hurdle by calculating the $50,000 not on the contract amount but by subtracting the value of the defective vehicle from the cost of a replacement vehicle. Schultz v. General R.V. Ctr., 512 F.3d 754 (6th Cir. 2008).

Of particular significance to the consumer’s attorney in an auto deficiency case is Magnuson-Moss’ prohibition of disclaimers of implied warranties when the dealer sells an extended service contract. The seller may limit but may not com-pletely disclaim implied warranties. Therefore, the dealer may not sell the vehicle “AS IS”, which, in addition to a possible Magnuson-Moss violation, restores the purchaser’s rights to assert a breach of the implied warranty claim. The question remains unresolved as to whether a dealer who sells the service contract of another is subject to this restriction, but a Tennessee court held that the statutory language was broad enough to include third-party service contracts made available by the dealer as part of the sale of the vehicle. Patton v. McHone, 822 S.W.2d 608 (Tenn. Ct. App. 1991). A violation entitles the consumer to actual damages; there are no statutory damages. Attorney fees to the prevailing consumer are discretionary and

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not mandatory. The Act can be an additional enforcement mechanism for breach of implied warranties as well as written warranties. The practitioner should bring an action under Magnuson-Moss in addition to state law breach of warranty claims as a way to obtain attorney’s fees.

L. [2.19] Kentucky Consumer Protection Act

The expanded consumer activism of the 1970s and 1980s has also giv-en rise to a plethora of remedies under the Kentucky Consumer Protection Act (“KCPA”), found at KRS 367.110 through KRS 367.993. This chapter of the Kentucky statutes was passed to protect the public interest and well being of both the consumer and the ethical vendors in the state.

1. [2.20] Right of Action

KRS 367.220 gives the consumer the right to bring an action in circuit court for relief. The KCPA provides, in part:

Any person who purchases or leases goods or services primarily for personal, family or household purposes and thereby suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment by another person of a method, act or practice declared unlawful by KRS 367.170, may bring an action under the Rules of Civil Procedure in the Circuit Court in which the seller or lessor resides or has his principal place of business or is doing business, or in the Circuit Court in which the purchaser or lessee of goods or services resides, or where the transaction in question occurred, to recover actual damages. The court may, in its discretion, award actual damages and may provide such equitable relief, as it deems necessary or proper. Nothing in this subsection shall be construed to limit a person’s right to seek punitive damages where appropriate.

KRS 367.220(1). The consumer’s lawyer should note that the jurisdiction for orig-inal cases lies in circuit court, although a counterclaim or defense may also lie in district court. The statute of limitations on claims under the KCPA is two years, but Kentucky recognizes the right to bring a counterclaim for equitable recoupment, which would limit damages to a set-off against any award for the plaintiff. Empire Finance Co. of Louisville, Inc. v. Ewing, 558 S.W.2d 619 (Ky. Ct. App. 1977).

The Kentucky Attorney General also has the authority to bring actions on behalf of defrauded consumers to seek restitution on their behalf. Com. ex rel. Beshear v. ABC Pest Control, 621 S.W.2d 705 (Ky. Ct. App. 1981). The utility of an Attorney General’s action that results in a permanent injunction or judgment is made evident under KRS 367.220, which provides:

(4) Any permanent injunction, judgment or order of the court

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made under KRS 367.190 shall be prima facie evidence in an action brought under this section that the respondent used or employed a method, act or practice declared un-lawful by KRS 367.170.

(5) Any person bringing an action under this section must bring such action within one (1) year after any action of the Attorney General has been terminated or within two (2) years after the violation of KRS 367.170, whichever is later.

Therefore, it follows that the debtor would have a defense to collection activity if the Kentucky Attorney General has been granted an injunction. In defend-ing any collection case against a “regulated” plaintiff (health spas, buying clubs, etc.), it would behoove the debtor’s lawyer to check with the Kentucky Attorney General’s Consumer Protection Division to see if the Commonwealth may have brought, or is contemplating, an action.

2. [2.21] Prohibited Acts

KRS 367.170 declares unlawful, “unfair, false, misleading, or deceptive acts or practices in the conduct of any trade or commerce.” The definition of “unfair” is “unconscionable.” The consumer’s attorney should review the acts and practices found wrongful by the FTC and by analogy argue that they also violate the KCPA.

3. [2.22] Scope

The definition of “trade” and “commerce” is very broad: “the advertis-ing, offering for sale, or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value, and shall include any trade or commerce directly or indirectly affecting the people of this Commonwealth.” KRS 367.110(2). Since there are no statutory exclusions as to the scope of coverage, insurance, banking, and other credit activ-ities are covered as well, although the courts have limited the KCPA’s application in certain circumstances. Capitol Cadillac Olds. Inc. v. Roberts, 813 S.W.2d 287, 291 (Ky. 1991) (not every failure to perform a contract is necessarily a violation of the KCPA; there must be something unfair, false, misleading or deceptive or an element of intentional or gross negligence); Miles v. Shauntee, 664 S.W.2d 512 (Ky. 1983) (a violation of the housing code by itself did not constitute a violation of the KCPA); Craig v. Keene, 32 S.W.3d 90 (Ky. Ct. App. 2000) (KCPA does not apply to individual real estate transactions); Curry v. Cincinnati Equitable Insur-ance Co., 834 S.W.2d 701 (Ky. Ct. App. 1992) (KCPA is preempted by ERISA). It is not necessary that the purchase be consummated for the Act to apply. Craig & Bishop, Inc. v. Piles, 247 S.W.3d 897 (Ky. 2008).

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4. [2.23] Damages and Fees

The successful plaintiff is entitled to actual damages – including damages for inconvenience, and in some cases punitive damages. KRS 367.220(1).

Although the courts have placed a due process ceiling on the amount of damages, consumer cases fall within a special category of cases in which it may be necessary to permit a larger ratio of actual damages to punitive damages to act as a deterrent to wrong-doers. Craig & Bishop, Inc. v. Piles, 247 S.W.3d 897 (Ky. 2008).

The award of attorney fees to the prevailing plaintiff is essential to ef-fectuate the purposes of the Act, although the court in Alexander v. S & M Motors, Inc., 28 S.W.3d 303 (Ky. 2000) upheld the denial of fees where a large amount of punitive damages were awarded. The practitioner should note that the Kentucky Consumer Protection Act allows for fees to a prevailing “party”; however, the Court of Appeals applied the standard set in federal fee-shifting statutes so that a prevailing defendant should not be awarded fees unless the suit was frivolous. Aesthetics in Jewelry, Inc. v. Estate of Robinson S. Brown, Jr., 339 S.W.3d 489 (Ky. Ct. App. 2011).

5. [2.24] Buying Club Memberships

Under KRS 367.397 a customer may cancel buying club memberships by giving written notice at any time before midnight of the third business day fol-lowing the date on which membership was attained. In addition, the same statute provides, in pertinent part, that:

(1) ...Such cancellation shall be without liability on the part of the member and shall entitle the member to a refund of the entire consideration paid for the contract.

KRS 367.397(1).

Cancellation rights are non-waivable. The members’ right to cancel must be disclosed in 14-point type. Until the club complies with this notice requirement, the customer may cancel and receive a full refund. KRS 367.399(2).

6. [2.25] Home Solicitation Sales

KRS 367.410 through 367.450 regulates home solicitation sales and largely tracks the FTC regulation on home solicitation sales, 16 CFR § 429.1. The seller must give to the buyer a notice of right to cancel.

Until the seller complies with the statute, the buyer may cancel. KRS 367.430(3). Former Attorney General Chris Gorman stated in an opinion that in home solicitation sales that are a combined sales/credit transaction, “the three-day right to cancel does not begin to run until the date that the credit contract is signed and the consumer is given the credit disclosures required by the federal Truth-in-

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Lending Act.” 1992-1993 Ky. Op. Atty. Gen. 2-63, Ky. OAG 92-41, 1992 WL 540962 (Ky. A.G.).

7. [2.26] Recreation and Retirement Land Sales

KRS 367.470 through 367.486 regulates recreation and retirement land sales. The seller must post a bond (KRS 367.474(1)) or escrow 50% of the sales receipts (KRS 367.474(3)). The buyer has five days to cancel the agreement, cal-culated from receipt of a mandatory notice. KRS 367.477.

8. [2.27] Mobile Home Sales

KRS 367.710 through 367.775 regulates the sale of mobile homes. KRS 367.715 creates a presumption of nonmerchantability when:

Any mobile home that, within the first twelve (12) months after delivery to the owner has a defect which cost the owner at least four percent (4%) of the purchase price to repair and which requires repair or replacement on three (3) separate occasions....

KRS 367.725 requires notice to the manufacturer and dealer within ten (10) days of the defect by certified mail, return receipt requested. If there is non-compliance by the manufacturer, the consumer has an action for the price of the mobile home. KRS 367.750.

9. [2.28] Defective New Cars (“Lemon Law”)

Kentucky’s “lemon law” coverage is found at KRS 367.840 through 367.846, and gives the purchaser (for purchases after July 15, 1986) or lessee (for leases after July 15, 1998) of a new car the right to replacement or refund at the consumer’s option if, after a reasonable number of attempts, the manufacturer is unable to repair a defect that “substantially impairs the use, value, or safety of the motor vehicle.” The manufacturer is entitled to “a reasonable allowance for the buyer’s use of the vehicle” when the refund remedy is chosen. The cut-off period is 12,000 miles or twelve months from delivery, whichever is earlier. The purchaser must send written notification of the defect to the manufacturer. The statute also requires the use of an informal dispute resolution system prior to litigation. A pre-vailing plaintiff is entitled to an award of attorney fees. KRS 367.842

10. [2.29] Rental-Purchase Agreements

KRS 367.976 through 367.985 regulates the rent-to-own business. Many low income consumers pay exorbitant amounts of money to acquire goods in this manner. The KCPA primarily provides for specific disclosures of cost and payment information to the consumer, but it also substantively regulates some areas, such as termination and reinstatement.

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11. [2.30] Others

There are additional specific Kentucky statutes related to health spas, telephone solicitations, subscriptions, negative option plans, charitable solicitations, sales of business opportunities, pyramid sales, cremation, and pre-need funeral services and burial contracts. If any of these sections are applicable, the debtor’s attorney should check the statute for details.

M. [2.31] Check Cashing

KRS 286.9 addresses check cashing. The statutes now protect the check-cashing company if it stays within the still very high allowable limits: $15 per $100 check per fourteen days. However, there are certain protections for the consumer – the most important of which may be the prohibition on convicting or threatening to prosecute a borrower under the “cold check” laws. This information must be conspicuously displayed at the business site. KRS 286.9-100(17).

Congress has limited interest on loans to military borrowers to a maxi-mum of 36%.

N. [2.32] Uniform Commercial Code – Article 9

One source of aid for debtors facing a large deficiency following the re-possession of a vehicle is found in the notice and resale requirements of Article 9 of the Uniform Commercial Code. The debtor’s attorney must check the statutory requirements of KRS 355.9-611, KRS 355.9-613, and 355.9-614 to determine if the client received all the proper notices. For instance, the secured party must provide consumers a notice prior to disposition that, in addition to the specifics of the proposed sale of the collateral, also informs the consumer how surpluses or deficiencies are handled and provides contact information on how to obtain additional information. KRS 355.9-613.

KRS 355.9-610(2) is of particular importance; it mandates that “(e)very aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable.” The burden is on the secured party to prove commercial reasonableness and reasonable notice. Holt v. Peoples Bank of Mt. Washington, 814 S.W.2d 568, 571 (Ky. 1991). A great disproportionate difference between the value of collateral and the amount realized at the sale of the collateral creates a presumption of commercial unreasonableness. School Supply Co., Inc. v. First National Bank of Louisville, 685 S.W.2d 200 (Ky. Ct. App. 1985). “(A)s a general rule the question of what is ‘commercially reasonable’ is a question of fact, not a question of law.” McCoy v. American Fidelity Bank & Trust Co., 715 S.W.2d 228 (Ky. 1986) (this case questioned that aspect of the School Supply Co., where it was found that this issue was a question of law).

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VII. [2.33] Bankruptcy1

Bankruptcy can be used by a debtor’s attorney as leverage to settle a case. Leverage exists both before and after judgment.

A bankruptcy can discharge the creditors’ claims. A potential bankruptcy can also demonstrate the ability of a creditor to actually collect a judgment.

Even after judgment, a potential bankruptcy offers the debtor leverage to settle. Not only will a bankruptcy discharge a debt but it may allow the recovery of already collected money as a preference pursuant to 11 USC 547.

When all else fails to protect the consumer from loss of home or garnish-ment of wages, a bankruptcy may be necessary.

There are two kinds of bankruptcy that the average consumer debtor will normally consider, Chapter 7 (a liquidation) and Chapter 13 (a repayment plan). However, a Chapter 11 filing may also be relevant for an individual debtor who is in business or has debts exceeding the statutory limit for a Chapter 13. See 11 USC § 109(e). A Chapter 11 also may offer an advantage over Chapter 13 such as the lack of a five-year limit to repay debt.

The choice of which Chapter to file may be determined by statute or by the advantages of each Chapter. Certain debtors who want to file Chapter 7 find they are not eligible to file or are not eligible to obtain a discharge. A debtor wanting to file Chapter 13 may not be eligible due to lack of income to fund a plan.

Each Chapter offers a debtor a set of advantages and disadvantages.

A. [2.34] Chapter 7

Eligibility to file Chapter 7 has become complicated. Chapter 7 now has an income eligibility test called the Means Test found at 11 USC §707(b). Debtors whose gross income is below the state median will qualify for Chapter 7. Those over the median will have their expenses analyzed to determine if they have suf-ficient income to fund a Chapter 13. If they have sufficient income they will not qualify for Chapter 7.

Debtors eligible for Chapter 7 will be interested in two questions: 1) can I discharge my debts? and 2) will I be able to keep my property?

Certain debts, listed at 11 USC § 523(a), cannot be discharged. These debts include:

• certain taxes (11 USC § 523(a)(1));

• debts based on fraud or false financial statements (11 USC

1 This section was updated by Jan C. Morris.

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§ 523(a)(2));

• debts based on fraud of a fiduciary or embezzlement (11 USC § 523(a)(4));

• debts arising from a divorce and domestic support obliga-tions (11 USC § 523(a)(5)(15));

• debts arising from willful and malicious injuries (11 USC § 523(a)(6));

• most student loan obligations unless the debtor can show an undue hardship (11 USC § 523(a)(8));

• debts for death or personal injury caused by intoxication (11 USC § 523(a)(9)).

Creditors wishing their debts excepted from discharge as debt based on fraud or false financial statement (§ 523(a)(2)), embezzlement (§ 523(a)(4)), or willful and malicious injury (§ 523(a)(6)) are required to file an adversary pro-ceeding for a court determination.

In addition, creditors could file an adversary proceeding to have a discharge denied the debtor as to all debt. 11 USC § 727.

Debtors can lose property either to a creditor exercising lien rights or to a trustee liquidating property of the bankruptcy estate.

A trustee would liquidate any property owned by a debtor that was not exempt. Kentucky debtors may chose to use exemptions under either state or federal law. Debtors will generally choose the federal exemptions.

Debtors may keep property with a lien through a number of actions. Debtors may reaffirm by entering into an agreement with the creditor that is filed with the court. Debtors may wish to redeem personal property pursuant to 11 USC § 722. Redemption allows a debtor to discharge a lien by paying, in a lump sum, the actual value of the collateral.

Debtors can avoid certain liens to the extent they impair the exemptions pursuant to 11 USC § 522(f). Debtors can avoid judicial liens on any property and nonpossessory, nonpurchase-money liens on household goods and other property.

B. [2.35] Chapter 13

A Chapter 13 allows a debtor to pay debt out of future income while preserving the debtor’s assets. The debtor must have a regular source of income to fund a plan. This income may come from any source including Social Security, pensions, child support, and public assistance benefits.

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A debtor may want to file Chapter 13 for a number of reasons. Chapter 13 may be the only available option because the debtor is time barred from filing Chapter 7 or barred from filing a Chapter 7 due to the Means Test. A Chapter 13 allows debtors to keep property they would lose in a Chapter 7. There are also a number of advantages to debtors offered by Chapter 13. Debtors can generally modify the rights of secured creditors, including modifying interest rates. Debtors can cure defaults through their plan. They can “strip off” wholly unsecured mort-gages. Finally, the Chapter 13 discharge pursuant to 11 USC § 1328(a) is broader than in a Chapter 7.

The plan will last for three to five years. The plan period is determined by the Means Test. A plan cannot last more than five years.

A debtor not entitled to a discharge may still file a Chapter 13, obtain a stay, and confirm a plan. This course of action would allow such a debtor to stop a foreclosure, resume mortgage payments, and force a plan to cure a mortgage arrearage.

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3-1

Commercial Collection Cases: Special Issues and Concerns


3

COMMERCIAL COLLECTION CASES: SPECIAL ISSUES AND CONCERNS

W. SCOTT STINNETTJAMES M. LLOYD

Lloyd & McDaniel Louisville, Kentucky

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I. [3.1] Introduction .........................................................................3-5

II. [3.2] IdentificationoftheCommercialClaim ............................3-5

III. [3.3] EthicalConsiderations ........................................................3-6A. [3.4] PotentialConflictsofInterest .................................3-6B. [3.5] UnauthorizedPracticeofLaw ................................3-8C. [3.6] Fees .........................................................................3-8

IV. [3.7] ReviewandAnalysisoftheCommercialClaim ...............3-9

V. [3.8] IdentifyingSpecialRemedies ........................................... 3-11A. [3.9] RightofRepossessionPursuantto

a Security Agreement ............................................3-11B. [3.10] Reclamation ..........................................................3-11C. [3.11] Mechanic’s Liens/Payment Bonds ........................3-12D. [3.12] Attorney Fees ........................................................3-13E. [3.13] Guaranties .............................................................3-14

VI. [3.14] PiercingtheCorporateVeil:Extraordinary Remedy ...............................................................................3-15

A. [3.15] ChecklistofFactsandCircumstances to Consider When Attempting to Pierce the Corporate Veil ...............3-18

VII. [3.16] TheNutsandBoltsofPre-litigationWorkout Attempts .............................................................................3-20

A. [3.17] InitialDemand ......................................................3-20B. [3.18] DeterminationoftheProperLegal

IdentityoftheDebtor ............................................3-20C. [3.19] ServiceofProcessUponaCorporate

EntityorLimitedLiabilityCompany ...................3-21D. [3.20] DetermineWhytheDebtorIsNotPaying ............3-22E. [3.21] SpecificWorkoutTechniques/Tools ......................3-22

1. [3.22] Securing a Written AcknowledgmentandPromiseofPayment ...............................3-22

2. [3.23] ExecutionofaPromissory Note ........................................................3-23

3. [3.24] Agreed Judgments ..................................3-24

VIII. [3.25] CollectionLitigation..........................................................3-25A. [3.26] Filing the Action ...................................................3-25

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1. [3.27] AssimilationofNecessaryDocumentation .......................................3-25

2. [3.28] Choosing the Proper Court .....................3-26B. [3.29] Contested Cases and Discovery ............................3-28C. [3.30] Protective Orders ..................................................3-29D. [3.31] Attempting Summary Judgment ...........................3-30E. [3.32] PreparationforTrial ..............................................3-31F. [3.33] EvidentiaryIssuesDuringTrial ............................3-32

IX. [3.34] Appendix ............................................................................3-35A. [3.35] SampleInitialAcknowledgmentLetter ................3-35B. [3.36] Sample Contingent Fee Agreement ......................3-37C. [3.37] SampleComplaintandAffidavitin

SupportofanOpenAccountDebt ........................3-39D. [3.38] SampleSetofStandardizedWritten

DiscoveryRequests ..............................................3-41E. [3.39] SampleMotionforSummaryJudgment

BasedUpontheDefendant’sFailure toDenyRequestsAdmissionsandthe DeemedAdmissionThereof .................................3-51

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Ascomparedtoconsumerdebts,therearesignificantdifferencesinthepro-ceduresemployedandtheapplicablelawsgoverningthecollectionofcommercialdebts.Thischapterwilladdressmanyofthepracticalandlegalissuesthatconfrontthepractitionerinthecollectionofcommercialobligations.Inparticular,itwilladdressthefollowingtopics:(1)properidentificationofthecommercialclaim;(2)ethicalconsiderationswhichmayariseincommercialcollection;(3)properreviewandanalysisofthecommercialclaim;(4)specialremediesthatmaybeavailableinacommercialtransaction;(5)theextraordinaryremedyof“piercingthecorporateveil”ofacorporationorlimitedliabilitycompany;(6)suggestedprocedurestobeemployedbeforefilingsuit;and(7)thecommercialcollectionlawsuit.

Thechapterisnotintendedtoprovideanexhaustiveanalysisofthissub-ject.Rather,itisdesignedtoassistintheproperrecognitionandidentificationofimportantlegalandproceduralissueswithinthecontextofcommercialcollections.Inaddition,thechapterisintendedtoassistthecommercialcollectionpractitionerinthedevelopmentandimprovementofstreamlinedhandlingproceduresand“fasttrack”litigationtechniques.Asignificantpercentageofcommercialcollectionsareperformedonacontingentfeeagreement.Inordertooperateavolumecontingentcollectionpracticeprofitably,itisincumbentuponthecollectionpractitionertoestablishstandardoperatingprocedurestoensuretheconsistentandefficienthan-dlingofcollectionreferrals.Periodicreviewofthevariousprocessesbetterensuresoverheadminimizationandprofitmaximizationpercollectionmatter.

II. [3.2] IdentificationoftheCommercialClaim

Uponreceiptofacollectionmatter,counselshoulddeterminewhetherthecase is a commercial collection case as opposed to a consumer or retail collection case.Giventhepotentialliabilitiesassociatedwiththecollectionofretaildebt,itisincumbentuponthecollectionpractitionertoproperlydifferentiatebetweenthesetwotypesofcollectioncases.Whilethedifferencesmayseemobvious,andtheintentofthecreditorextendingthecreditmayseemclear,ambiguitiesarecommon.Black’sLawDictionarydefines“commercial”asfollows:

Relatestoorisconnectedwithtradeandtrafficorcommerceingeneral;isoccupiedwithbusinessandcommerce.

While there is no specific definition for commercial debt, “consumerdebt”isdefinedas:

Debtincurredbyanindividualprimarilyforapersonal,family,or household purpose.

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The collection practitioner should adopt a conservative approach inascertainingthenatureofthedebtinanygivencase.Probablythesafestmeansofdistinguishingcommercialdebtfromconsumerdebt is tousetheprocessofeliminationinordertodeterminewhetherthedebtcould notbeconstruedasaconsumertransaction.TheprovisionsoftheFairDebtCollectionPracticesAct,15USC§1692(1977),et seq.,(“FDCPA”),applytoconsumertransactionsbutnottocommercialtransactions.Themajorityandprevailingviewofreportedde-cisionsconstruingthenatureofadebtundertheFDCPAistoexaminethenatureoftheunderlyingtransaction.Ifthenatureoftheunderlyingtransactionisforapersonal,family,orhouseholdpurpose,theobligationtopayisaconsumerdebtgovernedbytheFDCPA.

TherehavebeensomeaberrantopinionsincludingSluys v. Hand, 831 F.Supp.321(S.D.N.Y.1993),whereinthecourtcitedtheFDCPA’sdefinitionof“consumer”asmeaning“anynaturalpersonobligatedorallegedlyobligatedtopayanydebt.”Thecourtheld“thisdefinitioncoversbusiness debtsifincurredbyasoleproprietor.”Inanothersimilardecision,Moore v. Principal Credit Corp., No. 4:96CV338-S, 1998WL378387 (N.D.Miss.March 31, 1998), the courtdeterminedthataproprietorcanbeconsideredaconsumerwhencontactedbyacollector at home.

TheSluysdecisionhasbeensharplycriticizedbycourtsandacademiccommentatorsduetoitsabandonmentoftheFDCPA’sdefinitionofaconsumerdebt.ThemajorityviewremainsthatabusinessobligationincurredbyanaturalpersonisnotsubjecttotheFDCPA.Forexample,inBeaton v. Reynolds, Ridings, Vogt & Morgan,986F.Supp.1360(W.D.Okla.1998),thecourtfoundthatmaterialsorderedbythedebtor(aself-employedcertifiedpublicaccountant)wereforuseinherbusiness.Thecourtusedthe“underlyingtransaction”analysisanddeterminedthedebttobecommercial.Thecourtfoundirrelevantthedebtor’sclaimthatthematerialswerenotactuallyusedinherbusiness.Today,mostcourtswouldfindthe logic in Moore and SluyscompletelyantitheticaltothetenantsoftheFDCPA.

III. [3.3] EthicalConsiderations

A. [3.4] PotentialConflictsofInterest

Itisnotuncommonforthecommercialpractitionertoreceivemultiplecollectionreferralsagainstthesamedebtor.Potentialconflictsofinterestcanarise.Whenaddressingpossibleconflicts,thepractitionershouldlooktotheKentuckyRules of ProfessionalConduct found at SupremeCourtRule (“SCR”) 3.130.Withregardtoconflictsofinterest,theRulesofProfessionalConductprovidethefollowing:

(a) Exceptasprovidedinparagraph(b),alawyershallnotrep-resentaclient if therepresentationinvolvesaconcurrent

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conflictofinterest.Aconcurrentconflictofinterestexistsif:

(1) therepresentationofoneclientwillbedirectlyadversetoanotherclient;or

(2) thereisasignificantriskthattherepresentationofoneormoreclientswillbemateriallylimitedbythelaw-yer’sresponsibilitiestoanotherclient,aformerclientorathirdpersonorbyapersonalinterestofthelaw-yer.

(b) Notwithstandingparagraph(a),a lawyermayrepresentaclientif:

(1) thelawyerreasonablybelievesthatthelawyerwillbeabletoprovidecompetentanddiligentrepresentationtoeachaffectedclient;

(2) therepresentationisnotprohibitedbylaw;

(3) therepresentationdoesnotinvolvetheassertionofaclaimbyoneclientagainstanotherclientrepresentedbythelawyerinthesamelitigationorotherproceed-ingbeforeatribunal;and

(4) eachaffectedclientgivesinformedconsent,confirmedinwriting.Theconsultationshallincludeanexplana-tionoftheimplicationsofthecommonrepresentationand the advantages and risks involved.

SCR3.130(1.7).

Thereareobviouslyaninfinitenumberofexampleswherethespecificfactsofanygivencasecouldimpairthelawyer’sabilitytorepresentmultipleclientsagainstthesamedebtor.Ofcourse,therewillbetimes,afterproperdisclosureandconsultationwitheachclient,thatcommonrepresentationmaybeadvantageoustotherespectiveclients.However,onecannotoverstatetheimportanceofmakingthisdeterminationonacase-by-casebasis.Theremaybeoccasionswheremerelyseekingconsentcouldbeaviolationofconfidencesoftheinitialexistingclient.Forexample,seeSupremeCourtRule3.130(1.6),whichstatesinpertinentpart:

(a) Alawyershallnotrevealinformationrelatingtotherepre-sentationofaclientunlesstheclientgivesinformedcon-sent, the disclosure is impliedly authorized in order to carry out the representation....

Onepossiblescenariocouldincludealawyerbeingconsultedbyacreditoraboutthepossibilityoffilinganinvoluntarypetitioninbankruptcyagainstadebtor

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fromwhomthelawyerhasrecentlygarnishedfundsonbehalfofanotherclient.Inthisinstance,representationofthesecondclientcouldjeopardizetherightsoftheoriginalclient’srecovery.Inaddition,attemptingtoseekconsentcouldresultinpos-sibleviolationofconfidentialinformation.Accordingly,thecollectionpractitionermayoftenfindthatthebestandsafestalternativeistosimplydeclineemployment.

B. [3.5] UnauthorizedPracticeofLaw

SupremeCourtRule3.020statesinpertinentpart:

The practice of law is any service rendered involving legalknowledgeorlegaladvice,whetherofrepresentation,counseloradvocacyinoroutofcourt,renderedinrespecttotherights,duties,obligations, liabilities,orbusiness relationsofone re-quiringtheservices.

Itiscommontoemploynon-lawyersinacollectionpracticeinvariouscapacities,includingparalegalsandcollectors.Frequently,theseindividualsareactivelyinvolvedinthepre-litigationcollectionphaseofthecase,suchassettle-mentandworkoutagreements,aswellasduringthelitigationandpost-judgmentcollectionprocess.Careshouldbeexercisedinensuringthatnon-lawyersarenotrendering serviceswhichmaybe considered the unauthorizedpractice of law.SupremeCourtRule3.130(5.3)setsforththedutytomakereasonableeffortstosuperviseandoverseethenon-lawyer’sconduct.Inaddition,SupremeCourtRule3.700isacomprehensiveruleoutliningtherights,duties,andresponsibilitiesofthe lawyer in regard toparalegals.Subsection2ofSupremeCourtRule3.700recognizes the practical necessity of allowingparalegals to perform importantfunctionswhicharespecificallyexcludedfromtheunauthorizedpracticeoflawsolongastheclientunderstandstheparalegalisnotalawyerandthelawyersu-pervisestheparalegalinperformingsaidduties.Paralegalsandothernon-lawyersshouldbeclearlyidentifiedasnon-lawyersinallcommunicationswithclientsandother third parties.

C. [3.6] Fees

While the collectionpractitionermaybe retainedon anhourly basis,contingentfeeagreementsbetweencreditorsandtheircollectioncounselaremorecommon.Contingencyfeeagreementsmustbespecificandmustbeinwriting.SupremeCourtRule3.130(1.5)statesinpertinentpart:

(c) …acontingentfeeagreementshallbeinwritingandshouldstatethemethodbywhichthefeeistobedetermined,in-cluding the percentage or percentages that shall accrue to thelawyerintheeventofsettlement,trialorappeal;litiga-tionandotherexpensestobedeductedfromtherecovery;andwhether such expenses are tobedeductedbeforeorafterthecontingentfeeiscalculated...Uponconclusionof

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acontingentfeematter,thelawyershallprovidetheclientwithawrittenstatementstatingtheoutcomeofthematterand,ifthereisrecovery,showingtheremittancetothecli-entandthemethodofitsdetermination.

Needlesstosay,contingentfeeagreementsshouldbeclearandconcise,thusreducingthepossibilityofanymisunderstanding.Noattorneywantstobecomethesubjectofafeecontroversywhichcouldresultintime-consuming,aswellasexpensive,legalfeearbitrationpursuanttoSupremeCourtRule3.810.

Once counsel has agreed to accept employment, an acknowledgmentshouldbesenttotheclientconfirmingreceiptofthematter,thefeeagreement,andanyotherspecifictermsunderwhichemploymentisbeingaccepted.AsampleinitialacknowledgmentletterisincludedintheAppendixtothischapteratSec-tion[3.35].AsamplecontingentfeeagreementisalsoincludedintheAppendixat Section [3.36].

Importantconsiderationsforthecollectionpractitionerincludeadditionalorsupplementalfeearrangementsintheeventofaffirmativedefensesorcounter-claims.Additionalconsiderationshouldbegivenintheeventofanappealorintheeventapreferenceclaimmaydevelopmonthsafterthefact.

IV. [3.7] ReviewandAnalysisoftheCommercialClaim

Withoutintendingtooversimplifythenatureofretailcollectionmatters,thetypicalretailcollectionmatterisa“pointandshoot”collectionmission.Inthetypicalcase,theattorneyiscollectingadebtbaseduponaninstallmentnoteorcreditcardagreement,foraspecificliquidatedbalancedue,fromaspecificdebtororco-debtors.Theretailcaseisgenerallysupportedwithsubstantivedetailedin-formationaboutthedebtor(s),whichmayincludename,address,phonenumber,employment,SocialSecurityinformation,andothernon-publicinformation.

Incontrast,theattorneyinacommercialcasemaybesuppliedwithlittlemorethanthenameofabusiness(whichmaybeatradestyleorassumedname),abalancedue,andperhapsastatementofaccount.Thenatureofopenaccountcom-mercialtradedebtissuchthatitiscommonforacreditgrantortoextendthousandsofdollarsofcredittoabusinessentitywithlittle,ifany,specificinformationaboutthecorrectlegalidentityofthebusiness,itsownership,oritsfinancialstability.

Initialreviewofthecommercialreferralshouldincludeanexaminationoftheclient’sfileandalldocumentaryevidenceinsupportoftheclaim.Anearlydeterminationofthestrengthsandweaknessesofthecreditor’sclaimwillensureamoreefficientandprofitablehandlingofthecase.Theinitialconsultationwiththecreditoraswellasareviewofthecreditor’sdocumentaryevidenceshouldreveal

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ifthefollowingareavailable:

(a) awritten contract between the parties.Thismay consistofavarietyofpurchaseordersand/ororderacknowledg-ments.Itmaybeassimpleasaninvoiceandstatementofaccount;

(b) asignedcreditapplication;

(c) personalguarantiesexecutedbytheprincipalsofacorpo-rationorotherthird-partyguarantors;

(d) promissorynotes;

(e) paymentand/orperformancebonds;

(f) leaseagreement;

(g) itemizedinvoices;

(h) itemizedstatementsreflectingdebitsandcredits;

(i) proofsofdelivery;

(j) copies of checks for prior partial payments received, in-cludinginsufficientfundschecks;

(k) writtenacknowledgmentsofthedebtfromthedebtor,in-cludingpromisesofpayment;

(l) correspondencesentbythecreditorconfirmingpriorprom-isesofpayment,disputes,andattemptedresolution;or

(m) recordsofcollectionattemptsandcollectornotesmadebythe credit grantor or any other third-party collecting agent.

Inreviewingthedocumentaryevidenceavailabletosupportthecreditor’sclaim,counselshouldbebetterabletoevaluateanddeterminethefollowing:

(a) theprospects of collectionof the claim (withorwithoutsuit),takingintoaccountanypriorexperienceagainstthedebtor;

(b) thetermsofthecontractbetweentheparties;

(c) the existence of known disputes or threatened counter-claims;

(d) the quantity and quality of supporting documentary evi-dence,aswellasavailabilityofpotentialwitnessesintheeventalawsuitshouldbecomecontested;

(e) thepossibilityoflitigatinginahostilevenue;and

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(f) thecreditor’sexpectation.Doestheclientwantmoneyora“poundofflesh?”

V. [3.8] IdentifyingSpecialRemedies

While thevastmajorityofcommercialcollectionreferrals involvethecollectionofadebtonanopenaccountforgoodssoldanddelivered,thespecificfactsofanygivencasemayentitlethecreditortospecialremediesthatmayenablegreaterleverage.SomeofthefollowingremediesmaybecoveredinmoredetailinotherchaptersofthisHandbook.Theremediesbelowaresomeofthemorecommonconfrontedbythecommercialpractitioner.Theintentinlistingtheremediesistopromote recognition, rather than provide a detailed analysis.

A. [3.9] RightofRepossessionPursuanttoaSecurityAgreement

Assumingthecreditorpossessesavalidandenforceablesecurityagree-ment against specific collateral pursuant toKRS355.9-203 and has properlyperfectedthatinterest,thecreditorisentitledtothevariousremediesprovidedtoaUniformCommercialCodeArticle9securedparty,including,butnotlimitedto,therighttotakepossessionafterdefaultasprovidedinKRS355.9-609.

B. [3.10] Reclamation

Thereisapotentiallyeffective,andoftenoverlooked,remedyavailabletotheseller/creditorwhohasrecentlyshippedgoodstoabuyerwhoissoonthereafterdiscoveredtobeinsolvent.KRS355.2-702providesinpertinentpart:

(2) Where the seller discovers that the buyer has receivedgoodsoncreditwhileinsolventhemayreclaimthegoodsupondemandmadewithinten(10)daysafterthereceipt,butifmisrepresentationofsolvencyhasbeenmadetotheparticularsellerinwritingwithinthree(3)monthsbeforedeliverytheten(10)daylimitationdoesnotapply.Exceptas provided in this subsection the sellermay not base aright toreclaimgoodsonthebuyer’sfraudulentor inno-centmisrepresentationofsolvencyorofintenttopay.

(3) Theseller’srighttoreclaimundersubsection(2)issubjectto the rightsofabuyer inordinarycourseorothergoodfaith purchaser under this article (KRS355.2-403). Suc-cessful reclamationofgoodsexcludesallother remedieswithrespecttothem.

However,thisremedyislimitedinanumberofways.First,thereistheissueofwhether thebuyeris trulyinsolvent.KRS355.1-201(23)providesthat

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thepersonisinsolventwhenhe“eitherhasceasedtopayhisdebtsintheordinarycourseofbusinessorcannotpayhisdebtsastheybecomedueorisinsolventwithinthemeaningofthefederalbankruptcylaw.”

Furthermore,thesellermustmakeademandforreturnofthegoodswithintendaysafterthebuyerreceivesthem.Theten-daylimitationdoesnotapplyifmisrepresentationsofsolvencyhavebeenmadetotheparticularsellerinwritingwithinthreemonthsbeforedelivery.Intheeventthedebtorshouldfilebankruptcy,11USC§546(c)allowsasellerofgoodstoreclaimsuchgoodsifthedebtorhasreceivedthemwithinforty-fivedaysbeforethedateofbankruptcyfilingifwrittendemandismadeafterthecommencementofthebankruptcycase.Ifnowrittennoticeissent,thenthesellerofgoodsisentitledtoanadministrativepriorityclaimunder11USC§503(b)(9)equaltothevalueofanygoodsreceivedbythedebtorwithintwentydaysbeforethedateofbankruptcyfiling.

Finally,itshouldbeunderstoodthattherightsofthereclaimingselleraresubject totherightsofbuyersintheordinarycourseofbusinessorothergoodfaithpurchasers.Inparticular,thereclaimingsellermayfinditselfcompetingwiththedebtor’slendinginstitution,whichcommonlyholdsapreviouslyperfectedsecu-rityinterestinallgoodsofthedebtor,includinginventory.Whilethecaselawismixedonthisissue,mostcourtsseemtofavortherightsofthesecuredlender.AdetailedanalysisoftherightsandlimitationsofthereclaimingsellercanbefoundinthereferencebooktitledTheUniformCommercialCodeofKentucky. David J.Leibson&RichardH.Nowka,TheUniformCommercialCodeofKentucky, §2.6(F)(5)(2ded.1992).

C. [3.11] Mechanic’s Liens/Payment Bonds

Ifavailable,mechanic’sliensandpossiblepaymentbondrightscanofferanexcellentsourceofleverageininstanceswherethecreditorhasprovidedlabororfurnishedmaterialsforerection,alterationorrepair,andotherimprovementsuponrealestate.Foradetailedanalysisofmechanic’sliensandbondrights,see Chapter7 herein.

Mechanic’sliens,whileeffective,aresubjecttoveryspecificandstringentlimitation.Carefulanalysisshouldbemadetodeterminewhetherpre-liennoticeisrequired.Inadditiontothepossibilityofrequiredpre-liennotice,carefuleffortshouldbemadenottomisstheappropriateliendeadlinespursuanttoKRS376.010and KRS 376.080.

Mechanic’sliens,beingcreaturesofstatute,arestrictlyconstruedbythecourts. For example, in Laferty v. Wickes Lumber Co.,708S.W.2d107(Ky.Ct.App.1986), theKentuckyCourtofAppealsfoundthatstatutoryprovisionsforperfectingthelienmustbestrictlyfollowedorthelienclaimislost.InLaferty, Wickesarguedthatthetimelyfilingoflitigationwithinthemechanic’sliennoticeperiodconstitutedcompliancewithplacingthedebtoronwrittennotice.ThecourtrejectedWickes’argumentandheldthatacomplaint,althoughwrittenandserved,

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doesnotsubstitutefororconstitutethewrittennoticerequiredbythestatuteandthereforedidnotserve toperfect theWickes’ lien.Morerecently, theCourtofAppealsrejectedalienbecausetheaffiantlanguagedidnothavetheprecisewords“subscribedandswornto”asrequiredinKRS376.080.3D Enterprises Contracting Corp. v. Louisville & Jefferson Cty. Metro. Sewer Dist., 174 S.W.3d 440, 445-46 (Ky.Ct.App.2005).

Additionally,counselshouldbeawarethatthereisacompletelydifferentsetofstatutesrelatingtoliensforlaborand/ormaterialsprovidedonpublicprop-ertythatrepresentpublicimprovements.Ratherthanacquiringalienagainsttherealestate,theclaimantacquiresalienagainstfundsduethecontractor.Pertinentstatutes includeKRS376.210,whichdefinesthecreationof thelien,andKRS376.230,whichdetailsthenecessarystepsandextremelystringenttimedeadlinestoproperlyperfectandenforceapublicimprovementlien.Shouldthepropertyonwhichtheimprovementoccurredbe“publicwork”fortheuseandbenefitoftheUnitedStatesgovernment,counselwillneedtoreview“TheMillerAct,”foundat40USC§§270a-270d-1.TheMillerActprovidesbondrightsfortheprotectionofpersonsfurnishinglaborandmaterials.

Finally, even if counsel determines that anypossiblemechanic’s lienrightshaveexpired,inquiriesshouldbemadetodeterminethepossibleexistenceofanypaymentbonds.Thistypeofbondmayinuretothebenefitoftheclientasacontemplatedandintendedthird-partybeneficiaryofthebondcontract.Paymentbondsmayofferthecreditorandcreditor’scounselyetanothersourceofpossiblecollection.Likeanyothercontract,paymentbondsarenotwithoutlimitation,andeffortsshouldbemadetoobtainacopyofanypaymentbondasquicklyaspossi-bletoensurecompliancewithanypre-suitnoticerequirementsandtoensurethattheclaimantiswithinthescopeoftheintendedprotectionprovidedbythebond.

D. [3.12] Attorney Fees

Attorney fees and collection costs are recoverable pursuant toKRS411.195,whichprovidesasfollows:

Anyprovisionsinawritingwhichcreateadebt,orcreatealienonrealproperty,requiringthedebtor,obligor,lienorormortgagortopayreasonableattorneyfeesincurredbythecreditor,obligeeorlienholderintheeventofdefault,shallbeenforceable,provided,however,suchfeesshallonlybeallowedtotheextentactuallypaidoragreedtobepaid,andshallnotbeallowedtoasalariedemployeeofsuchcreditor,obligororlienholder.

Inaddition toprovidingadditional leverageduringpre-suitcollection,agreementsthatprovideforthepaymentofattorneyfeescanbehelpfulinconjunc-tionwithsettlementnegotiationsafterthesuithasbeenfiledandduringpost-judg-ment collection.Terms incorporating payment of attorney collection fees cansometimesbeincorporatedintopre-suitworkoutagreements(aswillbediscussed

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ingreaterdetailbelowinregardtoworkouttechniquesinSection[3.22])intheeventtheclientdoesnothavethebenefitofacreditagreementorothercontractprovidingforpaymentoftheseexpenses.

However,thecollectionofattorneyfeesandcollectioncostsarenotwith-outlimitation.InbothCapitol Cadillac Olds, Inc. v. Roberts,813S.W.2d287(Ky.1991)andDingus vs. FADA Service Co., Inc.,856S.W.2d45(Ky.Ct.App.1993),thecourtslimitedtheattorneyfeesandbasedtheawardon“thetimeinvolved,thetaskassigned,andthedegreeofdifficultyofworkunderthecircumstances”inobtainingjudgmentagainstthedefendants.Thepracticalproblemwithusingtheseguidelinestoawardattorneyfeesisthattheassumptionmustbemadethatthe losingdefendantswillpromptlypayany judgment rendered, includinganycourt-awardedfees.Inthevastmajorityofcases,moretimeisexpendedeffectingcollection subsequenttotheentryofjudgmentthanpriorthereto.

Whatabout in those instanceswhere thecase isnotcontested?Manycourtswillstillconsiderthecircumstancesofthecaseinawardingrequestedfees.JeffersonCircuitCourtLocalRule404requiresanyrequestforattorneyfeestoincludeanitemizationoftimeexpendedby:date;servicerendered;thenatureoftheservicerendered;thenameoftheperson(s)performingsaidserviceandthetimetheyexpended;totaltime;andareasonableamountofcompensationperhour.Thisistobeintheformofanaffidavit,andiftherequestispursuanttoKRS411.195,itshouldbesupportedwithashowingthattherequestedfeeshavebeenpaid,orhavebeenagreedtobepaid,bythepartyseekingenforcement.

Court-awardedcollectioncostsand/orattorneyfeescanbeasourceofgreatconfusiontotheclient.Educatingtheclientabouttheenforceabilityofagreementsforthepaymentoftheseexpensesisrecommended.

E. [3.13] Guaranties

Personalcontinuingguarantiesofpaymentarecommonlyusedbycom-mercialcreditorstoobtainaguarantyofpaymentfromtheprincipalsandownersof corporations and limited liability entities.Kentucky has a stringent statuteregardingtheenforceabilityofguaranties.KRS371.065providesthefollowing:

(1) Noguarantyofan indebtednesswhich iseithernotwrit-ten on, or does not expressly refer to, the instrument orinstrumentsbeingguaranteedshallbevalidorenforceableunlessitisinwritingsignedbytheguarantorandcontainsprovisionsspecifyingtheamountofthemaximumaggre-gateliabilityoftheguarantorthereunder,andthedateonwhichtheguarantyterminates.Terminationoftheguarantyon thatdate shallnot affect the liabilityof theguarantorwithrespectto:

(a) Obligationscreatedorincurredpriortothedate;or

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(b) Extensions or renewals of, interest accruing on, orfees, costs or expenses incurredwith respect to, theobligationsonorafterthedate.

Certainly, the statute makes it clear that guaranties represent an extraordi-naryremedyinKentucky.Giventhefactthatstatutesaresupposedtobeinterpretedaccordingtotheplainmeaningofthewords,inanarrowandconservativemanner,anyguarantyofanindebtednessnotwrittenonanegotiableinstrument,oronewhichdoesnotexpresslyrefertotheinstrument(s)beingguaranteed,mustcontainthestatutorilyrequiredmaximumamountandterminationdate.

ThereareonlyafewpublishedKentuckycasesthatinterpretKRS371.065.See Wheeler & Clevenger Oil Co., Inc. v. Washburn,127S.W.3d609(Ky.2004)(findingaguarantythatwas“writtenon”thecreditapplicationwasnotrequiredtostateeitherthemaximumaggregateliabilityoraterminationdate).Mostoftenthecaselawrelatestodefensesraisedbytheguarantor.Forexample,theguarantorwilloftenarguethattheguarantyisunenforceableashesignedtheguarantyonlyinhisofficialcapacityasthecorporation’sofficer.However,whenacontractissignedbyanindividualwithsuchwordsas“Vice-President”or“President”im-mediatelyfollowingthesignature,suchwordsareconsideredasmeredescriptiopersonae–wordsusedmerelyforthepurposeofidentifyingorpointingoutthepersonintendedtobeobligated.Thewordsdonotintimatetheobligationistoapplytothesignoronlyinanofficialcapacity.See, e.g., Curtas v. Stephens Pipe & Steel, LLC,No.2007-CA-001769-MR,2009WL1636277(Ky.Ct.App.June12,2009).Additionally,theguarantorwillsometimesallegethattheguarantyisunenforceablebecausetheguarantordidnotsigntheguarantyatthebottomofthedocument pursuant to KRS 446.060. Guaranties incorporated into credit agreements sometimes runafoulofKRS446.060’s requirement thataparty’s signaturebesignedattheendorcloseofthedocument.

VI. [3.14] PiercingtheCorporateVeil:ExtraordinaryRemedy

Frequently, the commercial collection practitionerwill be facedwithattemptingtocollectadebtfromacorporationthathasbecomeinsolvent.Ifthefactsofthecasewarrantfurtherinquiry,thepractitionershouldexplorethepossi-bilityof“piercingthecorporateveil”andattemptingcollectionoftheoutstandingdebtfromthecorporation’sofficersandshareholders.However,thisiscertainlynot a simple task.

TheKentuckySupremeCourthasfound,“[i]tisfundamentalcorporatelawthatashareholderisnotliableforthedebtofthecorporationunlessextraordinarycircumstancesexisttoimposeliability.”Morgan v. O’Neil,652S.W.2d83,85(Ky.1983).Thereasonthelawimposessuchashieldisthatthe“[s]tockholder’simmu-nityfromcorporateobligationisfundamentaltotheveryconceptofthecorporationas a separate legal entity.” Lowendahl v. Baltimore & Ohio R.R. Co.,287N.Y.S.62

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(N.Y.App.Div.1936),aff’d,6N.E.2d56(1936).Consequently,acourtwillimposeliabilityonashareholderonlyifthereisastatuteimposingpersonalliabilityforacorporateoffenseorby“piercingthecorporateveil.”Morgan, 652 S.W.2d at 85.

Black’sLawDictionarydefines the phrase “piercing the corporateveil”asthejudicialprocesswherebyacourtwilldisregardtheusualimmunityofcorporateofficersorshareholdersfromliabilityforwrongfulcorporateactivities.Black’sLawDictionary1147-48 (6thed.1990).TheapproachofKentuckycourtstothisprocesshasbeendescribedasevincing“ageneralaversionforanydisregardofthecorporateentity.”See Poyner v. Lear Siegler, Inc., 542 F.2d 955 (6thCir.1976)(citingRuthefordBCampbell,Jr.,Limited Liability for Corporate Shareholders: Myth or Matter-of-Fact, 63 Ky.L.J.23,48(1975)).Nevertheless,thecourtsdonotviewthecorporatepersonaasentirelyinvulnerable.“Whenaseparatelegalentityisusedtojustifywrong,protectfraud,orsubvertpublicpolicy,thenthecorporateveilshouldbepiercedandtheassociationofpersonsmakingupthecorporationshouldbeheldresponsibleforthecorporation’sfinancialliabilities.”United States v. WRW Corp.,778F.Supp.919,922(E.D.Ky.1991),aff’d, 986 F.2d138,143-44(6thCir.1993).

TheleadingKentuckycaseonpiercingthecorporateveilwasWhite v. Winchester Land Dev. Corp.,584S.W.2d56(Ky.Ct.App.1979).InWhite, the plaintiffwasattemptingtocollectontwocorporatepromissorynotes.Id.at59.Thedebtorcorporationhadbecomeinsolventandhaddefaultedonthenotes.Id.Theplaintiffsoughttocollectthenotesfromthetwoshareholdersofthecorporation.Inattemptingtocollectfromtheshareholders,theplaintiffarguedthatthecorporateveilshouldbepiercedbecausethecorporationwasa“sham”andmerelythealteregooftheshareholders.Id.at60.Indecidingthatitwasnotappropriatetopiercethecorporateveil,theKentuckyCourtofAppealsoutlinedthreebasictheoriestoutilizeindeterminingwhethertopiercethecorporateveil:(1)theinstrumentalitytheory;(2)thealteregotheory;and(3)theequitytheory.

InInter–Tel Techs., Inc. v. Linn Station Props., LLC,360S.W.3d152(Ky.2012),theSupremeCourtclarifiedKentucky’sveilpiercinglawandheldthattrialcourtmayproceedunderanytheorybecausethetestsareessentiallyinterchange-able.“Eachresolvesontwodispositiveelements:(1)dominationofthecorporationresultinginalossofcorporateseparatenessand(2)circumstancesunderwhichcontinuedrecognitionofthecorporationwouldsanctionfraudorpromoteinjustice.”Id.at165.Inassessingthefirstelementofcorporateseparateness,courtsshouldconsiderthefollowingfactors:

(1)inadequatecapitalization;

(2)failuretoissuestock;

(3)failuretoobservecorporateformalities;

(4)nonpaymentofdividends;

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(5)insolvencyofthedebtorcorporation;

(6)nonfunctioningoftheotherofficersordirectors;

(7)absenceofcorporaterecords;

(8)comminglingoffunds;

(9)diversionofassets fromthecorporationbyor toastock-holderorotherpersonorentity to thedetrimentofcred-itors;

(10)failuretomaintainarm’s-lengthrelationshipsamongrelat-edentities;and

(11)whether,infact, thecorporationisamerefaçadefortheoperationofthedominantstockholders.

TheCourtalsoidentifiedanothersetoffactorsapplicabletosituationsinvolvingaparentcorporationsandtheirsubsidiary.TheCourtstatedthataCourtmayconsiderthefollowinglist:

(1)Doestheparentownallormostofthestockofthesubsid-iary?

(2)Do the parent and subsidiary corporations have commondirectorsorofficers?

(3)Doestheparentcorporationfinancethesubsidiary?

(4)Did the parent corporation subscribe to all of the capitalstock of the subsidiary or otherwise cause its incorpora-tion?

(5)Doesthesubsidiaryhavegrosslyinadequatecapital?

(6)Doestheparentpaythesalariesandotherexpensesorlossesofthesubsidiary?

(7)Doesthesubsidiarydonobusinessexceptwiththeparentordoesthesubsidiaryhavenoassetsexceptthoseconveyedtoitbytheparent?

(8)Isthesubsidiarydescribedbytheparent(inpapersorstate-ments)asadepartmentordivisionoftheparentoristhebusiness or financial responsibility of the subsidiary re-ferredtoastheparentcorporation’sown?

(9)Does the parent use the property of the subsidiary as itsown?

(10)Dothedirectorsorexecutivesfailtoactindependentlyin

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theinterestofthesubsidiary,anddotheyinsteadtakeor-dersfromtheparent,andactintheparent’sinterest?

(11)Aretheformallegalrequirementsofthesubsidiarynotob-served?

Toassess thesecondelement,“the trialcourtshouldstatespecificallythefraudorinjusticethatwouldbesanctionedifthecourtdeclinedtopiercethecorporate veil.” Id.at165.Evidenceofactualfraudisnotrequiredtomeetthiselement,but“theinjusticemustbesomethingbeyondthemereinabilitytocollectadebtfromthecorporation.”Id.

A. [3.15] Checklist of Facts and Circumstances to ConsiderWhenAttempting to Pierce the Corporate Veil

Beforefilinganaction topierce thecorporateveil, apractitionerwillhavetodecidewhetherthefactsandcircumstancesofhisorhercasewarrantpur-suingsuchanaction.Forthepractitionerwrestlingwiththisaction,theAmericanJurisprudenceProofofFactsseriescontainsanexcellentchecklistofthefactsandcircumstancesapractitionershouldlookforindeterminingwhetheranactiontopiercethecorporateveiliswarranted.Listedbelowarebutafewofthefactorssuggested:

1. undercapitalization;

2. failuretoobservecorporateformalities;

3. absenceofcorporaterecords;

4. nonpaymentofdividends;

5. overpaymentofdividends;

6. insolvencyofcorporationattimeoftransaction;

7. siphoningoffoffundsbythedominantshareholders;

8. shareholdersguaranteeingcorporateliabilitiesintheirin-dividualcapacities;

9. non-functioningofficersordirectors;

10. lackofofficersordirectors;

11. failuretoissuestock;

12. absenceofconsiderationforstock;

13. thecorporationisafacadeoftheoperationofthedominantshareholders;

14. thecorporationhasaninabilitytomeetpayrollandother

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obligations;

15. comminglingoffundsorassets;

16. strippingthecorporationofassetsinanticipationoflitiga-tion;

17. useofcorporateshelltoadvancepurelypersonalends;

18. treatmentofcorporateassetsaspersonalassets;

19. cashadvancestoshareholders,officers,directors;

20. advancestothecorporationbyshareholders;

21. undocumentedloans;

22. thecorporation’sfailuretoownorleaserealproperty;

23. thecorporation’sfailuretomaintainbankaccounts;

24. useofmultiplecorporationsasshieldsforpersonaldeal-ings;

25. use of multiple corporations to circumvent statutory re-quirements;

26. contractinginindividualratherthancorporatename;

27. useofindividualratherthancorporatechecks;

28. violationofstatuteorpublicpolicy;

29. misrepresentationsbycorporationand/oritsshareholders,officersand/ordirectors;

30. actualfraud;

31. constructivefraud;

32. preferencestoshareholders,officers,ordirectorswhoarealsocreditorsofthecorporation.

114 Am.Jur.ProofofFacts 3d 403, Grounds for Disregarding the Corporate Entity and Piercing the Corporate Veil,NeilA.Helfman(2020).

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VII. [3.16] TheNutsandBoltsofPre-litigationWorkoutAttempts

A. [3.17] InitialDemand

Whenpossible,collectionwithoutasuitisimmenselymoreprofitable.Initialwrittendemand,followedbydemandbytelephoneseekinganamicableandvoluntarypaymentofthedebt,iscertainlyrecommended.

Collectionoftheaccountisthedesiredresult,andwhencollectioncanbeeffectedwithoutresortingtolitigation,anumberofrisksandexpensescanbeavoided.Inadditiontoprovidinganopportunityforamicableresolution,writtendemandand telephone follow-upwill enable counsel tomake someadditionalinvestigations and determinations.

B. [3.18] DeterminationoftheProperLegalIdentityoftheDebtor

Ifthereisanyquestionastothedebtor’scorrectidentity,initialeffortsshouldincludeacheckwiththeKentuckySecretaryofState’sofficetodetermineifthedebtorisalegallyincorporatedentityorlimitedliabilitycompany.Thein-formationcanbeobtainedonlineat:<http://www.sos.ky.gov/>.

TheSecretaryofState’sofficealsomaintainslistingsofgeneralandlimitedpartnerships,whichcanbeofvaluableassistanceindeterminingthecorrectlegalidentityofabusinessthatisnotalegallyincorporatedentityoralimitedliabilitycompany.Carefuleffortshouldbetakentodetermineapropermatchbetweensuchentitiesandthecreditor’saccountdebtor.InitialcomplicationsmayariseshouldthedebtorutilizeatradestyleorassumednamethatmaynotbelistedwiththeKentuckySecretaryofState’sofficeor thecountyclerk’sofficeasrequiredbyKRS365.015.Ifthedebtorisanincorporatedentityofalimitedliabilitycompany,carefulnoteshouldbemadeastothedatethattheentitybecameincorporatedaswellasadeterminationastowhethertheentityisingoodstandingorpossiblyhashaditscharterrevokedforanynumberofreasons,whichwouldprincipallyincludethefailuretofileannualreports.

Fordebtsincurredpriortoincorporation,KRS271B.2-040providesthat“allpersonspurportingtoactasoronbehalfofacorporation,knowingtherewasno incorporationunder thischapter, shallbe jointlyandseverally liable forallliabilitiescreatedwhilesoacting.”Moreover,afteranentityhasbeensuspendedanditscharterrevoked,theowners/shareholdersofthebusinessmaybepersonallyresponsibleforthecharges.KRS271B.6-220statesinpertinentpartthat“[u]nlessotherwiseprovidedinthearticlesofincorporation,ashareholderofacorporationshallnotbepersonallyliablefortheactsordebtsofthecorporationexceptthathemaybecomepersonallyliablebyreasonofhisownactsorconduct.”According-ly,ifthereisnolongeracorporationbyvirtueofdissolutionorrevocationofthecharter,theowners/shareholdersmaybeliableassuccessorstothecorporateentity,in their individual capacities. Kentucky courts have addressed this situation and

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haveheldthatshareholdersofacorporationthathasbeendissolvedaretreatedaspartnersandheldindividuallyliableforactionstakeninthenameofthecorporationbeyondthoseactionsnecessarytowindupthecorporation’saffairs.1 See Steele v. Stanley,35S.W.2d867(Ky.1931);see also Ewald Iron Co. v. Commonwealth, 131S.W.774(Ky.1910).Prudentcollectionpractitionerswouldcertainlywanttonametheseindividualsaswellasnamingtheentityitselfasdefendants,whichcanstillbesuedpursuanttoKRS271B.14-050(2)(e).Onelimitationistheabilityofanentity to reinstate its charter retroactivelypursuant toKRS271B.14-220andthereforeavoidthepossibilityofpersonalliabilitytoanyowners.However,thisrequiresanaffirmativeresponsefromthedebtor,andtheleverageofpossiblepersonalliabilitymaybesufficienttoeffectcollectionoftheunderlyingbalance.

C. [3.19] ServiceofProcessUponaCorporateEntityorLimitedLiabilityCompany

WhenconfirminginformationfromtheofficeoftheKentuckySecretaryofState,thenameandaddressoftheprocessagentfortheentityaswellastheentity’sprincipalofficeaddressshouldbenoted.KentuckyRuleofCivilProcedure(“CivilRule”)4.04(5)provides:

Serviceshallbemadeuponacorporationbyservinganofficerormanagingagentthereof,orthechiefagentinthecountywheretheactionisbrought,oranyotheragentauthorizedbyappointmentorbylawtoreceiveserviceonitsbehalf.

However,whereserviceforanyreasoncannotbeobtainedupontheres-identagentoramanagingagent,thereisanalternatemethodofserviceavailable.KRS14A.4-040providesinpertinentpartasfollows:

(2) If an entity or foreign entity has no registered agent, ortheagentcannotwithreasonablediligencebeserved,theentityorforeignentitymaybeservedwithprocess,oranynoticeordemandmaybeservedbyregisteredorcertifiedmail, return receipt requested, addressed to the entity orforeignentityatitsprincipalofficeandtotheattentionofthepersonorofficeappropriateforgivingnoticetotheen-tityorforeignentity.Serviceshallbeperfectedunderthissubsectionattheearliestof:

(a) Thedatetheentityorforeignentityreceivesthemail;

(b) Thedateshownonthereturnreceipt,ifsignedonbe-halfoftheentityorforeignentity;or

1 KRS271B.14-050allowsdissolvedcorporationstocontinuetheircorporateexistencetotheextentthattheyneedtowindupandliquidatetheirbusinesses.Theymaynotconductbusinessthatextendsbeyondthislimitedrole.

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(c) Five(5)daysafteritsdepositintheUnitedStatesmail,asevidencedbythepostmark,ifmailedpostagepaidand correctly addressed.

(3) Thissectiondoesnotprescribetheonlymeans,orneces-sarily therequiredmeans,ofservinganentityorforeignentity.

Theimportantpointisthatthestatutedoesnotseeminglyrequireactual accep-tance,includingasigneddeliveryreceiptasisthecasewithnormalserviceviacertifiedmail.

Finally,anobviousmeansofattemptingtodetermine theproper legalidentityofthedebtoristosimplyaskthedebtorduringthecourseofmakingatelephonicdemandforpayment.Itcannotbeoverstatedthatinspiteofthenumeroustechnologicaladvancementsthathaveimprovedtheefficiencyofinformation-gath-eringtechniquesforthelegalcollectionprocess,thetelephoneremainsthemostpowerfulcollectiontool.

D. [3.20] DetermineWhytheDebtorIsNotPaying

Carefulreviewoftheclient’sfileaswellaspersonalcontactwiththedebtorshouldassistcounselindeterminingwhytheaccounthasnotbeenpaid.Isthereanyrecordofadispute?Hasthedebtortimelyraisedalegitimatedisputeorpossibledefense?Shouldalawsuitbefiled?Effectivetelephonedemandandnegotiationcanhelppinpointtheexistenceofrealversusimagineddisputesfornonpayment.

Itiscommontoperiodicallyreceivecasesagainstthesamecommercialdebtors.Thecreditors’counselthathandlesanyvolumeofcommercialcollectionworkwillrecognizethe“earmarks”oftheperpetualstallingdebtor.Manycommer-cialdebtorsaresophisticatedoperatorswhomaywellunderstandthenatureofthelegalcollectionprocess.Alldebtorswouldliketohavemoretimetopayofftheirdebt.Grantingmoretimemaymakesense,particularlyifcounselcanimprovetheprospectsofcollectioninreturnbysecuringadditionalleverage.

Thesoonercounselcandeterminethespecificreasonsfornonpayment,themoreexpeditiouslyandefficientlycounselcanmakeaninformedlegalrec-ommendationtotheclientastowhetheralawsuitmayberequiredasameansofeffectingquickercollection.

E. [3.21] SpecificWorkoutTechniques/Tools

1. [3.22] SecuringaWrittenAcknowledgmentandPromiseofPayment

Oncecounseldetermines that thedebtor issimplysufferingcashflowproblemsandneedstimetopay,everyeffortshouldbemadetoobtainawrittenacknowledgment fromthedebtorof thedebtandapromise topay.Preferably,

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thereshouldbealetterorotherdocumentsignedbythedebtoracknowledgingtheoutstandingbalanceandmakingaspecificpromiseofpayment.Obviousbenefitsincludethepossibilityofextractingvoluntarypaymentsfromthedebtorand,ataminimum,posturingthecaseforamuchspeedierresolutionshouldalawsuitultimatelyneedtobefiled.Adebtorwhohasacknowledgedinwritingthevalidityofthedebtandwhohasmadeawrittencommitmentforpaymentismuchmoreinclined to follow throughwithvoluntarypayment.Adebtorwho isunwillingtoprovideawrittenacknowledgmentofanobligationinreturnformoretimetopayis,atbest,arecalcitrantdebtorwhohasnointentionofmakingpaymentonavoluntarybasisandmayperhapsbeattemptingtopreservetherighttocreateabelateddefenseordisputefornonpaymentshouldasuitbefiled.

While a signedwriting from the debtor is preferred, electronicmail(“email”)isanadditionalmethodofextractinganacknowledgmentandpromiseofpayment.Additionally,shouldthedebtorpromisetoprovideawrittenacknowledg-mentandpromiseofpaymentandfailtofollowthrough,itisagoodideatosendthedebtoraletterconfirminganytelephoneconversationswhereinthedebtorhasacknowledgedtheobligation,requestingthattheletterbesignedandeitherfaxedormailedbacktocounsel.

2. [3.23] ExecutionofaPromissoryNote

Wherepossible,executionofapromissorynotebyadebtorispreferredforanumberofreasonsoverandaboveasimplewrittenacknowledgmentandpromiseforpaymentofthedebt.Thepromissorynote,inadditiontorepresentinganabsolute,unconditionalpromiseofpaymentonasetdateoroveraspecificinter-val,alsoofferscreditor’scounseltheopportunitytoobtainadditionalremediesandleverageforthecreditorclient.Forinstance,shouldthecreditornothavethebenefitofasignedcreditapplicationorotherwrittencontractprovidingforaspecificrateofinterest,thepromissorynoteofferscounseltheopportunitytoenhancenotonlyultimatecollectionofthecreditor’sclaimbutensuresthatthecreditorisobtainingadditionalvaluefortheconsiderationofadditionaltimeandtheforbearanceofsuit.Thenotealsooffersanopportunitytoobtainacommitmentforthepaymentofcollectioncosts,includingattorneyfees,intheeventthatthecreditordoesnotalreadypossessasignedwritingforthepaymentofsuchexpenses.

Theextensionofadditionaltimeandforbearanceofsuitrepresentvaluableconsiderationtosupportinterestandattorneyfeesprovisionsinapromissorynote.InMurphy v. Henry,225S.W.2d662(Ky.1950),thecourtheld,“[i]tiswellsettledinthisstate,asinothers,thatforbearancetoprosecuteadoubtfulclaimassertedingoodfaithwillconstituteadequateconsiderationforacompromiseagreement.”InHall v. Fuller,352S.W.2d559(Ky.1962),afterreviewingthethreestandardsfordeterminationofforbearanceasvalidconsideration,thecourtheld“[w]ebelievethesoundviewpointtobethatgoodfaithisenoughunlesstheclaimissoobviouslyunfoundedthat theassertionofgoodfaithwouldaffront theintelligenceof theordinaryandreasonablelayman.”

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Additionally,thepromissorynotemayofferthecreditortheopportunitytoobtainexecutionofthenotebytheindividualowner(s)(assumingtheentityisacorporationorlimitedliabilitycompany)intheeventthatthecreditordoesnototherwiseenjoythebenefitofapersonalguaranty.Thisissomethingthatmustbenegotiatedonacase-by-casebasisandwill,inmostcases,bedeterminedbythedebtor’sdesiretoremaininthecreditor’sgoodgraces.Thismaybemorelikelyininstanceswherethecreditoroffersgoods,merchandise,orservicesthatthedebtorcannotreadilyobtainelsewhere.

3. [3.24] Agreed Judgments

Probablythemostpowerfulpre-suitcollectiontoolavailabletocollec-tion counsel is securing a pre-suitagreedjudgmentfromthecommercialdebtor.Betterthanawrittenacknowledgmentofthedebtorapromissorynote,theagreedjudgmentrepresentsanimmediate,absolute,andseeminglyindefensiblerightofcollection,withallofthepowerofajudgment,includingtherighttoexecute.

Whiletheconceptofobtainingexecutionofanagreedjudgmentpriortofilingsuitmayseemextraordinary,thereisKentuckylawupholdingandsupport-ingsuchajudgment.InAshland Armco Employees Credit Union v. Cantrell, 685 S.W.2d559(Ky.Ct.App.1985),thecreditor’scounselsecuredanagreedjudgmentfromthedebtorprovidingforaspecificpaymentarrangement.Whenthedebtordefaulted,suitwasfiledandfourdayslaterthepreviouslyobtainedagreedjudgmentwassubmittedtothecourtandenteredtwodayslater.ThedebtorsuccessfullyfiledamotiontovacatetheagreedjudgmentasallegedlyinviolationofKRS372.140,whichprovidesinpertinentpart:

(1) Any power of attorney to confess judgment or to sufferjudgment topassbydefault orotherwise, any releaseoferrors,givenbeforeanactionisinstituted,isvoid.

The court of appeals reinstated the agreed judgment,finding that theagreemententeredintobetweenthepartieswas,inessence,aconsentjudgmenttherebydistinguishingthejudgmentfromanotherwiseunenforceableandvoidcognovit note or judgment.

Theimportantdistinctionisthatatthetimetheagreedjudgmentisob-tained,thereisanexistingrightofactionbyvirtueofthefactthatthereisadebtforaliquidatedamountforwhichthecreditorisentitledtoimmediatepayment.This isdistinguishable from theprohibitedcognovit clausewherein thedebtorconfessesjudgmentprior toanydefaultinpaymentandessentiallywaivesanyrighttolaterdefend.

However,carefulattentionshouldbepaidtotheideathatthecasesal-lowingpre-suitagreed judgmentseemingly involvedconsumerdebtsandweredecidedpriortothelossofexemptionundertheFairDebtCollectionPracticesAct(“FDCPA”)forattorneysasthird-partycollectors.Itisthisauthor’sopinion

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thateffortstosecurepre-suitagreedjudgmentsonconsumerobligationsmaybehazardous.Giventhe“leastsophisticatedconsumer”standardundertheFDPCA,thisoftypecollectionstrategycouldbeallegedanunfair,misleading,and/orpos-siblyadeceptivecollectionpractice.

VIII. [3.25] CollectionLitigation

A. [3.26] Filing the Action

1. [3.27] AssimilationofNecessaryDocumentation

Onceithasbeendeterminedthatlitigationwillbenecessary,itisrecom-mendedthatcounselhaveavailablethenecessarydocumentaryevidencetoestablishaprimafaciecaseforcollection.However,notallofthedocumentationisrequiredtobeattachedasexhibitstothecomplaintwhenfilingtheaction.Generally,asinglesheetstatementofaccountwillsufficetosetforththecreditor’sclaimpursuanttoCivil Rule 8.012,whichinpertinentpartprovides:

(1) Apleadingwhichsetsforthaclaimforrelief…shallcon-tain(a)ashortandplainstatementof theclaimshowingthat thepleader isentitled toreliefand(b)ademandforjudgmentfortherelieftowhichhedeemshimselfentitled.Reliefinthealternativeorinseveraldifferenttypesmaybedemanded.

Furthermore,CivilRule8.05providesinpertinentpart:

(1) Eachavermentofapleadingshallbesimple,concise,anddirect.Notechnicalformsofpleadingsormotionsarere-quired.

Paragraph(2)ofCivilRule8.05alsoprovidesthatclaimsmaybemadealternativelyorhypothetically,andseparateclaimsmaybestatedregardlessofconsistencyandwhetherbasedonlegaloronequitablegroundsorboth.AllclaimsandfilingsaresubjecttoCivilRule11,whichprovides,amongotherthings,thatthefilingmaynotbemadefor“anyimproperpurpose,suchastoharassortocauseunnecessarydelayorneedlessincreaseinthecostoflitigation.”

WhilenotspecificallyrequiredbyKentuckylaw,affidavitsofaccountcanbehelpful,particularlyincertainKentuckycourtswhereswornproofofadebtmayresultinthespeedierentryofadefaultjudgmentshouldtherebenodefensetotheclaim.Generallyspeaking,themoreconciselypledthecauseofactionthe

2 Although Kentucky remains a strictly notice pleading state, counsel should take into considerationthepleadingsstandardssetforthinAshcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)ifthereisapossibilityofremovaltofederalcourt.

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better,keepinginmindthatcounselshouldpleadthecauseofactionwithenoughparticularitytoavoidthepossibilityofamotiontodismisspursuanttoCivilRule12.02,includingbutnotlimitedtosubpart(f)–failuretostateaclaimuponwhichreliefcanbegranted.AsamplecomplaintandaffidavitinsupportofanopenaccountdebtareincludedintheAppendixtothischapteratSection[3.37].

2. [3.28] Choosing the Proper Court

Pursuant toKRS24A.120(1)(a), the jurisdiction of a district court islimitedtocausesofactionwhichdonotexceed$5,000exclusiveofinterestandcosts,exceptmattersaffectingtitletorealestateandmattersofequity.Formattersinexcessof$5,000exclusiveofinterestandcosts,ormattersinvolvingtitletorealestateorequity,suitshouldbefiledinthecircuitcourtpursuanttoKRS23A.010.

Propervenueisequalinimportancetojurisdiction.Suitshouldbefiledintheappropriatevenuetoavoidtheentryofajudgmentthatwouldotherwisebevoidandunenforceable.Kentuckystatutorylawaddressesoriginalvenueincivilactions at KRS 452.400 et seq.Thiscompilationofstatutesdesignatesspecifictypesofactionsandwheretheirvenueisappropriate.OneoftheprimaryvenuerulesisKRS452.450.Exceptforcertainactions,KRS452.450dictatesthat“anactionagainstacorporationwhichhasanofficeorplaceofbusinessinthisstate,orachiefofficeroragentresidinginthisstate,mustbebroughtinthecountyinwhichsuchofficeorplaceofbusinessissituated,orinwhichsuchofficeroragentresides.”Alternatively,thestatutecontinuesbystatingthatif“[t]heactionbeuponacontract,[theactionmustbebrought]intheabovenamedcounty,orinthecountyinwhichthecontractismadeortobeperformed;orifitbeforatort,inthefirstnamedcountyorthecountyinwhichthetortiscommitted.”

KRS452.450hasbeeninterpretedbyKentuckycourtstoindicatethatappropriatevenueliesinacountywherethedesignatedregisteredofficeandagentarepresent,asspecifiedbythecorporation.Alternatively,iftheactioninvolvesasecurityagreementandpromissorynote,theactioncanbebroughtinthecountywherethepaymentsaretobemade.Kem Manufacturing Corp. v. Kentucky Gem Coal Co.,601S.W.2d913(Ky.Ct.App.1980).Additionally,thisstatutepermitsanactionagainstacorporationtobemaintainedinthecountyinwhichacontractistobecreated.American Oil Co. v. Brooks,424S.W.2d831(Ky.1967).

Kentuckystatutory lawalsodictateswherea transitoryactionmaybebrought.IfsuchatransitoryactionisnotrequiredtobebroughtinaspecificvenueundertheprovisionsofKRS452.400toKRS452.475,KRS452.480providesthattheaction,“...maybebroughtinanycountyinwhichthedefendant,orinwhichone(1)ofseveraldefendants,whomaybeproperlyjoinedassuchintheaction,resides or is summoned.”

Ofparticularinteresttocollectionattorneysishowapreferredvenueiswaivedtopermitjurisdictioninamoreconvenientforum.Kentuckycasesthatdate

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to 1869, as in Baker v. Louisville and N.R. Co.,67Ky.619(Ky.1869),acknowledgeandholdoneofthemostbasicpositionsofcivilprocedure,namely:

[A]pleatothejurisdictionofacourtafteradefensetothemeritsofanactionhasbeenmade,unlessforwantofjurisdictionoverthesubjectmatteroftheaction,comestoolatesinceadefensetothemeritsofanactionconstitutesawaiveroftheobjectiontothejurisdictionoverthepersonofthedefendant.

AnotherwaythatadefendantmaywaivethevenuerequirementsoftheKentuckyRevisedStatutesistoexecuteacontractcontainingachoiceofforumclause.Providedthechoiceofforumisfairandreasonable,Kentuckycourtshaveheldthatsuchclausesareenforceablesolongasthereisnofraudintheinduce-ment. Cline v. Allis-Chalmers Corp.,690S.W.2d764(Ky.Ct.App.1985).OneissuethatKentuckycourtswillevaluateindecidingwhethertohonorachoiceofforumprovisioniswhetherKentuckyhasaminimalinterestintheparticularlawsuit.ThecaseofPrudential Resources Corp. v. Plunkett,583S.W.2d97(Ky.Ct.App.1979),analyzedthisissueinlightofachoiceofforumprovisionselectingtheStateofTexas.Inupholdingthelowercourt’sdecisiontohonorthechoiceofforumclause,thecourtofappealsstated:

[A]ssumingthatKentuckyhasasubstantialinteresttoprotectbecauseofasignificantrelationshiptothetransactionandtotheparties,theJacksonCircuitCourtwouldhavebeenwarrantedinrefusingtoenforcetheforumselectionagreementiftheapplica-tionofTexaslawwouldhavesubvertedanimportantpolicyofKentuckyandthechoiceoflawruleofTexaswouldhavebeeninfavorofitsownlaws.

Thecollectionattorneymayalsofacethedecisionofchoosingthepropercourtwhenconfrontedwithanon-residentdefendant.Foravarietyofreasons,itmaymakemoresensetofilesuitinthecreditor’shomestatewhere“minimum contacts”canbeestablished.Whensuchaninstanceoccurs,thecreditor’sattor-neywillnormallyrelyonKRS454.210(the“long-armstatute”)forpurposesofjurisdiction,serviceofprocess,andvenuerequirements.KRS454.210(4)states,inpertinentpart,that“whentheexerciseofpersonaljurisdictionisauthorizedbythissection,anyactionorsuitmaybebroughtinthecountywhereintheplaintiffresidesorwherethecauseofactionoranypartthereofarose.”Collectioncounselwillgenerallyberelyinguponsubsection2(a)(1),“TransactinganybusinessinthisCommonwealth,”tomakeeffectiveuseofthislong-armstatute.

Adistinctioncanbedrawnbetweenresidentpurchasersattemptingtoas-sert jurisdiction over a non-resident seller as opposed to resident sellers attempting toassertjurisdictionovernon-residentbuyers.InFirst National Bank of Louisville v. Shore Tire Co., Inc.,651S.W.2d472(Ky.Ct.App.1983),theKentuckyCourtofAppealsconsideredthreeseparatecaseswithverysimilarquestionsoflaw.Inaconsolidatedopinion,thecourtmadeitclearthatnon-residentsellerswhoare

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activelypromotingthesalesoftheirproductswithintheforumstateKentuckyareinvokingthebenefitsofthatstate.Assuch,theyshouldbesubjecttothejurisdictionofKentucky’scourts.Thissituationisdistinguishedfromthenon-residentbuyerwhoenjoysnoparticularprivilegeinpurchasingfromtheresidentsellerinanisolat-edtransaction.Thecourtfoundthatwhennon-residentbuyersengageininterstatetransactionswithresidentsellers,eachhastransactedbusinessinbothstates.Themoresubstantialtheinteraction,intermsoffrequencyoftransactions,timeoverwhicheachhasdonebusinesswithoneanother,andtheamountofmoneyinvolved,determinesiftheminimumcontactstestestablishedbyInternational Shoe Co. v. Washington,326U.S.310,66S.Ct.15,90L.Ed.95(1945),hasbeensatisfied.

AnimportantpointnottobeoverlookedisthatserviceviaKRS454.210doesnotrequireasigneddeliveryreceipt.InHaven Point Enterprises v. United Kentucky Bank, Inc.,690S.W.2d393(Ky.1985),thecourtfound:“Thestatutesays in part that the Secretary shall attach to the return the registry receipt, if any. Thewords‘ifany’emphasizethefactthatrecoveryofasigned,returnedreceiptisnotvitaltothecompletionofservicepursuanttothelong-armstatute.”Id. at 395. AnotherimportantpointtobegleanedfromHaven Pointisthefactthatserviceon theKentuckySecretaryofStateunder the long-armstatute (KRS454.210)is just asvalidas serviceupon thedesignated in-stateprocessagent (formerlyKRS271A.565,nowKRS271B.5-040)asanalternatemethodofservice.Haven Point,690S.W.2dat395.ThefactthatthelattermightarguablyresultinabetterchanceofactualnoticewasfoundunconvincingbythecourtwhenreviewingamotionforrelieffromthejudgmentpursuanttoCivilRule60.02.Id. Finally, the courtshavegoneasfarasholdingservicethroughtheSecretaryofStatewhichisreturned“unclaimed”isstilleffectiveservice.Davis v. Wilson, 619 S.W.2d 709 (Ky.Ct.App.1980).

B. [3.29] Contested Cases and Discovery

Oncethecomplaintisserved,thedefendant,pursuanttoCivilRules4.02and12.01,has20daystofilearesponsivepleading.Inadditiontothestandardgeneraldenial, counterclaimsseem tobe increasinglyutilizedby sophisticateddebtor’scounseltostallanddelaywhatmayotherwiseappeartobeavalidclaim.Thecounterclaimalsohasthechillingeffectofexposingthecreditortoadditionaldefensecosts,includingdiscoveryexpenses.Thisisparticularlytruewherethecounterclaimseeksaffirmativereliefagainstthecreditoraboveset-offofthecred-itor’sstatedclaim.Aggressiveandeffectivepre-litigationcollectioneffortsandinvestigationwillhelpreducetheoddsofanuisanceanswerandcounterclaimthatisassertedforthepurposeofdelay.

Intheeventofeitherageneraldenialoracounterclaim,creditor’scoun-seliswelladvisedtopromptlyserveinitialwrittendiscoverytohelpdistinguishbetween real and frivolousdefenses.Effectivewrittendiscoverymayhave thedesirableeffectofforcingthedebtortoexpendtimeandexpense,therebyposturing

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thecaseforsettlement.Whiledepositionsmaybemoreeffective,theyarecertainlymore expensive and may lead to additional time delays.

Thecollectioncounselhandlinglargevolumesofcollectionworkshouldpreparewell-writtenstandardizedinterrogatories,requestsforadmissionsandre-questsforproductionofdocuments,pursuanttoCivilRule33,“InterrogatoriestoParties,”CivilRule36,“RequestsforAdmissions,”andCivilRule34,“ProductionofDocumentsandThingsandEntryUponLandforInspectionandOtherPurposes.”AsamplesetofstandardizedwrittendiscoveryrequestsisincludedintheAppendixtothischapteratSection[3.38].Standardizeddiscoveryrequestscanbeaquickandeffectivemeansofmovingthecaseclosertosettlementortrialandshouldbeediteddependinguponthefactsofeachcase.AlthoughadepositioncannotbetakenbytheplaintiffpursuanttoCivilRule30.01until30daysafterserviceofthesummonsuponanydefendant,interrogatories,requestsforadmissionsandrequestsforproductionofdocumentsmaybeserveduponanypartywithorafterserviceofthesummonsuponthatparty.Accordingly,counselwhoanticipatesdefenseofanactionmaywishtoservewrittendiscoveryuponthedebtortogetherwiththesummons and complaint.

Thesoonerthatcounselinitiatesdiscoverythebetter.Timedelaysbenefitonlythedebtor.Delayhindersthecreditorfortheobviousreasonthatthecreditorbearstheburdenofproofinestablishingitsclaimtocollect.Collectioncounselhandlinganyvolumeofworkwillsoonbecomefamiliarwiththecommonproblemsassociatedwithpursuingadisputedcollectioncase.Problemsinclude:

(a) witnesses becoming unavailable, includingwitnesses fortheplaintiffleavingtheplaintiff’semploy;

(b) inefficient file and/or document retention systems by thecreditor,includingmissingormisplacedproofsofdelivery,original invoice copies, or other important documentary evidencetoprovetheclaim;and

(c) creditor fatigue and/or loss of interest by the creditor inpursuingacollectionclaim.Itiscommonforclientstoloseinterestwhen the timecomes toproducewitnesses for adeposition or trial or incur the time and expense associated withthecontinuedprosecutionofthecontestedcollectionsuit.

C. [3.30] Protective Orders

Occasionally,acreditor’scounselwillbeconfrontedwithanaggressiveand overzealous debtor’s attorney.An example is a debtor’s counsel seekingdepositionsfromnumerousrepresentativesoftheplaintifffortheexpresspurposeofcausingthecreditortoexpendsubstantialcosts.CivilRule26.03,“Protective

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Orders,”mayoffersomereliefinthissituation.SomeoftheKentuckycasesof-feringguidanceinclude:

• Hoffman v. Dow Chemical Co.,413S.W.2d332(Ky.1967)(protectiveordershouldbe issuedwhere the informationcanbeobtainedbyinterrogatories);

• Gevedon v. Grigsby, 303 S.W.2d 282 (Ky. 1957) (trialjudge exercised a sounddiscretion in refusing to requiretheappearanceofanonresidentwitnesstogivehisdeposi-tion);and

• Wilson v. Lamb, 125F.R.D. 142 (E.D.Ky. 1989) (depo-sitionsoftheofficersofacivildefendantcorporationaretobetakenat thedefendant’sprincipalplaceofbusinessinMichiganwhereitwouldbeveryinconvenientfortheofficerstotraveltoKentuckytobedeposed,astheyhaveno occasion to travel to the area regularly, or even sporadi-callyonbusiness,andwheretheplaintiffhasnotrespondedtothedefendant’smotionforaprotectiveordertorequirethedepositionstobetakeninMichigan).

OneofthebestcasesonthispointisWal-Mart Stores, Inc. v. Dickinson, 29S.W.3d796(Ky.2000).InreferencingprotectiveordersissuedunderCivilRule26.03, the Wal-Martcourtadvisedthat,ifapartybelievesnumerousrequestsfordepositionsareundulyburdensomeorrequestedforthepurposeofannoyance,suchpartycanseekaprotectiveordercitingthereasonswhysuchrequestsfordepositionsand/orinterrogatoriesareredundant,repetitive,oppressive,orundulyburdensome.

D. [3.31] Attempting Summary Judgment

Asmostcreditors’attorneysaretoopainfullyaware,summaryjudgmenthasbecomeelusive in theCommonwealthofKentucky.Since1991,when theKentucky Supreme Court decided Steelvest, Inc. v. Scansteel Service Center, 807 S.W.2d476(Ky.1991),attorneyshavebeenhard-pressed tomeet therequiredburdenofprooftoobtainsummaryjudgment.Inpart, thiscaseprovidesthatasummaryjudgmentshouldbegrantedwhen“asamatteroflaw,itappearsthatitwouldbeimpossiblefortherespondenttoproduceevidenceatthetrialwarrantingajudgmentinhisfavoragainstthemovant.”

Nevertheless,sinceSteelvestwasdecidedin1991,theKentuckySupremeCourthasslowlystartedtosoftenthestandardforgrantingsummaryjudgment.As the court held in Welch v. American Publ’g Co. of Kentucky, 3 S.W.3d 724 (Ky.1999),summaryjudgmentshouldbedeniedonlywhen“fromtheevidenceofrecord,factsexistwhichwouldmakeitpossibleforthenonmovingpartytoprevail.” Id.at730.Inthecourt’sanalysis,thefocusshouldbeonwhatisintherecordratherthanwhatevidencemightorcouldbepresentedattrial.Id. When

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therearenofactsofrecordwhichwouldmakeitpossibleforthenonmovingpartytoprevail,thecourt’sdutyisto“renderajudgmentforthwith[as]thereisnogen-uineissueastoanymaterialfactandthemovingpartyisentitledtojudgmentasamatteroflaw.”Bennett v. Southern Bell Telephone & Telegraph Co., 407 S.W.2d 403,405(Ky.1966).

Despitethecourt’sdiscernibleretreatfromSteelvest, most trial judges stillrefusetoentersummaryjudgmentanddepriveadebtorofhisdayincourtsolongaseventheslightestissueindisputeexists.Counsel’sbestchanceofobtain-ingsummaryjudgmentmaylieinthoseinstanceswherethedefendanthasfailedtoproperlyrespondtodiscoveryorhasfailedtodenyrequestsforadmissionsasprovidedinCivilRule36.02,“EffectofAdmission.”Inaddition,wherethedebtorhasfailedtorespondtodiscovery,CivilRule37mayenablecounseltoseekanordertocompeland/oranordertostrikethedebtor’sanswerandenterjudgment.Asamplemotionforsummaryjudgmentbaseduponadefendant’sfailuretodenyrequests for admissions, and the deemed admission thereof, is included in theAppendix to this chapter at Section [3.39].

E. [3.32] PreparationforTrial

Assumingallpre-trialsettlementeffortshavebeenexhausted,discoveryhasbeencompleted,andsummaryjudgmenthasbeenattempted,itistimetocom-pleteallpre-trialproceduressothecasecanbesetfortrial.CivilRule16,“Pre-TrialProcedures;FormulatingtheIssues,”providesinpertinentpart:

(1) Inanyaction,thecourtmayinitsdiscretiondirecttheat-torneysforthepartiestoappearbeforeitforaconferencetoconsider:

(a) thesimplificationoftheissues;

(b) the necessity or desirability of amendments to thepleadings;

(c) thepossibilityofobtainingadmissionsoffactanddoc-umentswhichwillavoidunnecessaryproof;

(d) thelimitationofthenumberofexpertwitnesses;

(e) theadvisabilityofapreliminaryreferenceofissuestoaCommissioner;

(f) suchothermattersasmayaidinthedispositionoftheaction.

Counselshouldinquireofthecourtinwhichtheactionispendingastoanylocalrulesorotherlocalproceduralrequirementsregardingpre-trialprocedure.Assumingthecreditorispreparedtoproceedtotrial,apre-trialconferencenototherwiserequiredbythepresidingjudgemaysimplyleadtoadditionaltimedelays.

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However,therearesomepossiblebenefitsofpre-trialconferences,whichinclude:(1)additionalpressureuponthedebtortoresolvethependinglitigationthroughsettlement;(2)pressurefromthecourtforasettlementifitappearsobvioustothecourtthattherearenogenuinedefenses;and(3)afinaldeterminationbythetrialjudgeastothetotalnumberofwitnessesfortrialaswellastherelevantfactstobetriedandanygoverninglaw.Thishelpsassurethattherewillbenosurprisesattrial.

F. [3.33] EvidentiaryIssuesDuringTrial

Ascounselpreparesthematterfortrial,theparticularstrengthsandweak-nessesofthecaseshouldbereviewedagain.Factorswillincludetheavailabilityofwitnesseswithfirsthandknowledgewhoareableto:(1)provethenecessaryelementsofthecreditor’sclaim;(2)refutethedebtor’sallegationsanddefenses;and(3)authenticatethedocumentaryevidenceinsupportofthecreditor’sclaim.

Counselshouldbefamiliarwiththevariousevidentiaryrulesthatwillundoubtedly come into play during the course of a contested collection suit.Pertinentportionsof theKentuckyRulesofEvidence(“KRE”) includeArticleVI-Witnesses,whichstatesatRule602thatpersonalknowledgeofeachwitnessmust be shown (experts excepted).Most commercial collection caseswill notrequireexperttestimony.Witnessesforthecreditorshouldbepreparedtotestifyabouteventsofwhichtheyhavefirsthandknowledge.Counselshouldprepareanyprospectivewitnessessothatanappropriatefoundationcanbemadetoestablishthecompetencyofthewitnesstoproperlytestifyastothefactsinsupportoftheplaintiff’sclaim.Witnessesshouldtestifyastospecificfactsratherthanastoopin-ion.Generally,opiniontestimonyofalaywitnesswillbeextremelylimitedandwillresultinamultitudeofobjectionsthattendtoflusterthewitness.

Counselshouldanticipatetheprobabilityofhavingtoattempttoestablishfactsfromwitnesseswhoaresalespersons,creditmanagers,orcontrollerswithlimitedorincompletefirsthandknowledgeofallunderlyingfacts.Somecollectionpractitionersattempttoutilizethedebtorastheprincipalwitness.Mostwouldagreethatattemptingtomakethecreditor’scaseutilizingthedebtorasthecreditor’sprimarywitnesstoprovetheessentialelementsofthecaseisriskyatbest.

Whileanexhaustivereviewofalloftherulesofevidenceisbeyondthescopeofthischapter,creditor’scounselcanbeassuredthattherewillbeobjectionsduringthecourseofthecasebaseduponhearsay.Oneoftheprincipalexceptionstothehearsayrulethatthecreditor’scounselwillrelyonisprovidedatKREArticleVIII-Hearsay,Rule803(6)and(7),relatingtobusinessrecords.Inpertinentpart,theruleprovides:

Thefollowingarenotexcludedbythehearsayrules,eventhoughthedeclarantisavailableasawitness:

...

(6) Recordsofregularlyconductedactivity. A memorandum,

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report, record, or data compilation, in any form, of acts,events, conditions, opinions, or diagnoses, made at or near thetimeby,orfrominformationtransmittedby,apersonwithknowledge, ifkeptinthecourseofaregularlycon-ductedbusinessactivity,andifitwastheregularpracticeofthatbusinessactivitytomakethememorandum,report,record,ordatacompilation,allasshownby the testimo-nyof thecustodianorotherqualifiedwitness,unless thesourceof informationor themethodorcircumstancesofpreparation indicate lack of trustworthiness. The term“business”asusedinthisparagraphincludesbusiness,in-stitution, association, profession, occupation, and callingofeverykind,whetherornotconductedforprofit.

(A)Foundation exemptions.Acustodianorotherqualifiedwitness, as required above, is unnecessarywhen theevidence offered under this provision consists of…business records which satisfy the requirements ofKRE902(11),orsomeotherrecordwhichissubjecttoastatutoryexemptionfromnormalfoundationre-quirements.

(B) Opinion. No evidence in the form of an opinion isadmissibleunder thisparagraphunless suchopinionwouldbeadmissibleunderArticleVIIoftheserulesifthepersonwhoseopinionisrecordedweretotestifytothe opinion directly.

(7) Absenceof entry in recordskept in accordancewith theprovisionsofparagraph(6). Evidence that a matter is not included in the memoranda, reports, records, or data com-pilations,inanyform,keptinaccordancewiththeprovi-sionsofparagraph(6),toprovethenonoccurrenceornon-existenceofthematter,ifthematterwasofakindofwhicha memorandum, report, record, or other data compilation was regularlymadeandpreserved,unless the sourcesofinformationorothercircumstancesindicatelackoftrust-worthiness.

In order to be admissible, records (with limited exceptions)must beidentifiedandauthenticatedpursuanttoArticleIX,AuthenticationandIdentifica-tion.Authenticationissatisfiedbyevidencesufficienttosupportafindingthatthematteriswhatitsproponentclaims.Illustrationsprovidedintheruleinclude,butarenotlimitedto,authenticationoridentificationbytestimonyofthewitnesswhoacknowledgedthatthematteriswhatitisclaimedtobe.

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Counselshouldbepreparedtointroducethebusinessrecords,includingstatements,invoices,andanyotherdocumentaryevidenceinsupportofthecredi-tor’sclaim,throughtestimonyofacustodianorotherqualifiedwitness.Self-authen-ticationispossibleincertaininstancesassetforthatArticleIX,Rule902(11).Thisrulerequirescertifiedoriginalsorduplicatesofbusinessrecordstobesubmittedinadvance,withnoticetotheadverseparty,andmadeavailabletotheadversepartyforinspectionintimefortheadversepartytoreviewandchallenge.Forpurposesoftherule,certifyingforadomesticrecordmeansawrittendeclarationunderoathsubjecttopenaltyofperjury.

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IX. [3.34] Appendix

A. [3.35] SampleInitialAcknowledgmentLetter

LAWOFFICES LAWYER&ATTORNEY,PLC APROFESSIONALLIMITEDLIABILITYCOMPANY

111ContractRoad,Suite100 Phone:(502)555-1234 P.O.Box55555 Facsimile:(502)555-9876 Louisville,Kentucky99999 Email:[email protected] Website:www.lawfirm.com

__________ ___, 20___

VIA FAX AND FIRST CLASS MAIL

Honest John Creditor 1234 Main Street Anywhere,USA

Re: YourFileNo.KY39253 OurFileNo.1732013 HonestJohnCreditorServices,Inc. vs: DonDeadbeat $19,500.00

DearJohn:

Theabove-captionedclaimhasbeenreceived.Demandwasmadeim-mediatelyuponreceiptofthetransmittalpapers.Weareattemptingtoestablishpersonalcontactwiththedebtortoobtainpaymentinfull.Thematterisacceptedasacontingentcollectioncasefortherecoveryofthebalancedue,onthetermssetforthonthecontingentfeeagreementattachedhereto.Pleasesignandreturntheagreementassoonaspossible.Ifthereisawrittencontract,orotherpertinentdocumentationnotyetprovided,pleasesendanyotherinformationinsupportofyour claim.

If you are seeking any special remedies, includingbut not limited tomechanic’slienfilings,noticesofintent,reclamationofproperty,possessionofproperty,oranyotherspecialremedies,wereservetherighttonegotiateseparatefeesfortheseservices.Wewillnotattemptenforcementofanyoftheenumeratedspecialremedies,andwilllimitoureffortstotherecoveryofthebalancedue,unlessanduntilspecificallyrequestedandauthorizedtodoso.

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Pleaseadvanceyourfileatthistime30daysinanticipationofaninitialreport.Thiswillenableussufficienttimetoattemptpersonalcontactwiththedebt-orsothatwemaymakeaninformedlegalrecommendationforfurtherhandling.

Sincerely,

LAWYER&ATTORNEY,PLC

By:______________________ JohnM.Lawyer

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B. [3.36] Sample Contingent Fee Agreement

CONTINGENT FEE CONTRACT

YourfirmhaschosenLawyer&Attorney,PLCforthecollectionofanaccountbalancedue.Lawyer&Attorney,PLC,uponbeginningwork,hasavestedinterestintheunderlyingcollectionclaimpursuanttothiscontingencyfeeagree-ment.Ourfeeswillbecomputedattherateof____%againstallrecoveries,withtheexceptionofanycostsyouadvance.Costswhichyouhaveadvancedwillbereturneduponfullrecoveryofthematterorattheconclusionofanysettlement.Intheeventwehaveadvancedanycourtcostsorotherexpendituresauthorizedbyyourfirm,wewilldeductthosecostsfromfirstrecoveriesmade.Shouldyoubeentitledtospecialinterest,collectioncosts,orattorneyfees,everyeffortwillbemadetomakeafullrecoveryonyourbehalf.Pleaseunderstandthatwhileyoumayhaveanagreementforthepaymentofcollectioncostsandattorneyfees,ourfeeswillbecalculateduponallrecoveriesmade,regardlessofwhetherwearesuccessfulincollectingallcollectioncostsorattorneyfees.Ourfeeswillbeassessedagainstanyrecoveriesmadesubsequenttoourinvolvement,whetherpaiddirectlytoyourofficeorthroughthisoffice.Asfundsarerecovered,wewillremitthenetamount,lessourfee,togetherwithavoucheroutliningtherecoveryaswellascalculationofourfeesandanyexpenseswithheld.

Carefuleffortshouldbemadetoreferanycontactsbyyourcustomertothisoffice.Continuedcontactwithyourcustomerwilltendtodiluteoureffortsonyourbehalfandcouldimpederecovery.Everyeffortwillbemadetoestablishcontactwithyourcustomertoattempttoeffectvoluntarypayment,unlessyouhaveinstructedotherwise.Wewillattempttodetermineifthereisanydisputetotheclaimwhichcouldresultinadefenseshouldalawsuitbefiled.Inaddition,shouldwedeterminethepossibilityofacounterclaim,orthethreatofacounterclaim,wewillnotifyyouinadvanceforreviewandinvestigation.

Shouldacounterclaimbeassertedafterasuithasbeenfiled,youmayelecttoemploythisfirmforthedefenseofthecounterclaimorretaindefensecounselofyourownchoosing.Ournormalhourlydefenserateis$________perhour.Pleasebeawarethatthisincludestraveltimeintheeventthatwearerequiredtoattendout-of-towndepositionsorcourtproceedingsrelatingtothecounterclaim.Thesechargeswouldbebilledtoyourfirmonamonthlybasis.Yourfirmwillbebilledonatimebasisfortimeexpendedinthecourseofthedefenseofthecounterclaim.Youwillnotbechargedfortimeexpendedwiththeprosecutionoftheunderlyingcollection suit.

______________________ (FirmSignature)

______________________ Date

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C. [3.37] SampleComplaintandAffidavitinSupportofanOpenAccountDebt

NO. 11-CI-000789 BOONECIRCUITCOURT

HONESTJOHNCREDITORSERVICES,INC. PLAINTIFF vs. DONDEADBEAT DEFENDANT

COMPLAINT

ComesthePlaintiff,bycounsel,andforitscauseofactionagainsttheDefendantstatesasfollows:

1. The Defendant is indebted to the Plaintiff in the amount of$19,500.00, as evidenced by the attachment hereto referenced asExhibit“A.”

WHEREFORE,Plaintiffdemands:

1. JudgmentagainsttheDefendantinthesumof$19,500.00;

2. Interest thereon at the rate of 19.8% per annum fromMarch 25,2018 and19.8%per annum from thedate of Judgment, until theJudgmentissatisfied;

3. ForPlaintiff’scostshereinexpended,includingareasonableattor-neyfeeastheproofmayallow;and

4. ForallotherrelieftowhichthePlaintiffmayappearentitled.

______________________ JOHNM.LAWYER LAWYER&ATTORNEY,PLC AttorneysforPlaintiff 111 Contract Road, Suite 100 P.O. Box 55555 Louisville,KY99999 (502)555-1234

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Exhibit“A”

AFFIDAVIT OF CLAIM

Theundersigned,beingdulysworn,statesthat:

1. The unpaid balance due Honest John Creditor Services, Inc. is$19,500.00asofMarch25,2018ataninterestrateof19.8%.

2. Demandhasbeenmade,butpaymenthasnotbeenreceived.

3. Therearenoset-offsorcreditsforwhichcredithasnotalreadybeengiven.

4. Iamanemployeeand/oragentofthePlaintiffandamaqualifiedpersonwhoisfamiliarwiththebusinessrecordsofthePlaintiff.Thesaidbusinessrecordsaremadeatthetimeofoccurrence,arekeptintheregularcourseofbusiness,anditispartoftheregularcourseofbusinessofthePlaintifftokeepsuchrecords.

5. IhavepersonalknowledgeofthefactsstatedhereinonmyreviewofthebusinessrecordsofthePlaintiff.

Signed: ______________________

Subscribed,swornto,andacknowledgedbeforemebyJohnM.Lawyerthis_____dayof_______________,20____.

MyCommissionExpires:________________________________________

______________________

NOTARYPUBLICSTATEATLARGE

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D. [3.38] SampleSetofStandardizedWrittenDiscoveryRequests



PLAINTIFF’S FIRST SET OF INTERROGATORIES REQUEST FOR ADMISSIONS AND

REQUEST FOR PRODUCTION OF DOCUMENTS

ThePlaintiffrequeststhefollowingdiscoveryofDefendant,DonDead-beat,pursuanttoKentuckyRulesofCivilProcedure33,34,and36.Defendantisdirectedtoserveitsverifiedanswers,andtoproducetherequesteddocumentsinconformancewiththeabove-citedrules,onorbeforethirty(30)daysfromthedatecertifiedbelow,atthelawofficesofLawyer&Attorney,PLC,111ContractRoad, Suite 100, P.O. Box 55555, Louisville, Kentucky 99999.

ThePlaintiffrequeststhefollowingdiscoveryofDefendant,pursuanttoKentuckyRulesofCivilProcedure33,34,and36.Defendantisdirectedtoserveitsverifiedanswers,andtoproducetherequesteddocumentsinconformancewiththeabove-citedrules,onorbeforethirty(30)daysfromthedatecertifiedbelow,atthelawofficesofLawyer&Attorney,PLC,111ContractRoad,Suite100,P.O.Box 55555, Louisville, Kentucky 99999.

DEFINITIONS

ThefollowingdefinitionsapplytotheWrittenDiscoveryRequests:

(a) Thewords“you”,“your”,and“Defendant”meansDonDeadbeatandanyofhisagentsandrepresentatives,includingbutnotlimitedto, legal counsel.

(b) “Documents”isusedinitsbroadestpossiblesenseandmeansanywriting or record of any type or descriptionwhatsoever,whethersentorreceivedornot,andwhethercreatedbyyouornot,includ-ing, but not limited to, agreements, correspondence, letters, tele-grams, cables, e-mails, messages, tapes, films, photographs, in-teroffice communications,memoranda, reports, records, accounts,ledgers, journals, balance sheets, income statements, financial re-cords,billsofsale,purchaseorders,invoices,billsoflading,checks,receipts,minutes,minutesofmeetings,instructions,specifications,notes, notations,workpapers, notebooks, diaries, papers, appoint-ment books, telephone logs, photocopies, plats, plans, drawings,

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sketches, maps, models, charts, surveys, blueprints, descriptions,motionpictures,recordings,publishedorunpublishedspeechesorarticles,publications,transcriptsoftelephoneconversations,inter-views,statementsoranyotherretrievabledata(whetherencarded,tapedorcoded,electrostatically,electromagneticallyorotherwise)–inyourpossession,custodyorcontrolorknowntoyou–whereverlocated,howeverproducedorreproduced,whetheranoriginal,copyorreproduction,orfacsimile(including,butnotlimitedtocarbon,handwritten, typewritten, microfilmed, photostatic, or xerograph-iccopies),andincludinganynonidenticalcopy(whetherdifferentfrom theoriginalbecauseof anyalterations,notes, comments,orothermaterialcontainedthereonorattachedthereto,orotherwise),regardless of its author or origin – togetherwith any attachmenttheretoorenclosuretherewith.

(c) “Identify,”whenusedwithrespecttoadocument,meanstodescribethetypeofdocument(e.g.,“letter”),date,author,andaddressee,andtostatethelocationofthedocumentsandthename,address,andre-lationshiptoeachpartyinthisactionofeachandeverypersonwhohas such document in his or her possession, custody, or control.

(d) “Identify,”whenusedwithrespecttoanindividualorentity,meanstostate theperson’sorentity’s fullname,and ifapplicable,pres-ent occupation or position, professional qualifications, employer,present home address and business address, and present and pastbusinessaffiliationswithorrelationshipstoanyofthepartiesinthisaction.

(e) “Describe”,“Identify”or“statethesubstanceof...”,whenusedinconnectionwithorrespecttoanyoralcommunicationorstatement,means to identifyeachandeverypersonwhowaspresentduringorengaged in thecommunication,orwho receivedsuchcommu-nication,andtostatethesubstanceofwhateachpersonsaid,withthedateandtimeoftheoralcommunicationorstatements,andthelocationofeachidentifiedpersonwhentheoralcommunicationorstatementwasmade.

(f) AWrittenDiscovery Request asking you to “describe in detail,”“explainindetail,”“stateeachandeveryfact,”or“stateallfacts”seeks disclosure of each and every fact, circumstance, condition,omission, incident, circumstance, and thing known to you aboutthesubjectoftheinterrogatoryandseeksfullidentificationandde-scriptionofthesourcesofsuchfacts,circumstances,conditions,andthings, including but not limited to, identification of each personhavingknowledgeofsuchfacts,circumstance,conditionorthing.

(g) Theuseofthewords“and”and“or”shallinclude“and/or”.Thus,

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thewordseachshallbeconstruedeitherdisjunctivelyorconjunc-tivelyasnecessarytobringwithinthescopeofthediscoveryrequestallresponsesthatmightotherwisebeconstruedtobeoutsideofitsscope.

(h) “Communication”shallmeanthetransmittalofinformation(intheformoffacts,ideas,inquiries,orotherwise).

(i) Theuseofthesingularshall includethepluralandtheuseoftheplural shall include the singular.

(j) “Concerning”meansrelatingto,referringto,describing,evidencingor constituting.

(k) Masculineformsofanynounorpronounshallembraceandbereadtoincludethefeminineorneuter,asthecontextmaymakeappropri-ate.

(l) “Plaintiff”meansHonestJohnCreditorServices,Inc.and/oranyofitsofficers,agents,employees,representatives,oraffiliates.

INSTRUCTIONS

(a) Plaintiffrequeststhatallinformationwithintheknowledge,posses-sion,orcontrolofyouoryouragents,orwhichmaybereasonablyascertainedbyyouoryouragents,bedivulgedwhenyouanswertheseWrittenDiscoveryRequests.

(b) Withrespecttoeachrequest,inadditiontosupplyingtheinforma-tionrequested,pleaseidentifyalldocumentsthatsupport,referto,orevidencethesubjectmatterofeachinformationrequestandyouranswertoit.

(c) Theseinformationrequestsshallbecontinuing,andyouarerequest-edandcalledupontosupplementyourinitialresponses, ifsubse-quent to your response, you ascertain or acquire any informationthatfallswithinthescopeoftheseWrittenDiscoveryRequestsorifeventswithinthescopeoftheseWrittenDiscoveryRequestsoccurafterserviceofyourresponses.

(d) Nopartofarequestshouldbeleftunansweredmerelybecauseanobjectionisinterposedtoanotherpartoftherequest.Whereaclaimofprivilegeisassertedinobjectingtoanyrequestorpartthereof,anddocumentsormaterialthingsarenotprovidedonthebasisofsuchassertion,furnishalistthatidentifieseachdocumentforwhichthe privilege is claimed at the timeofproduction, including the followinginformation:

i. date;

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ii. sender;

iii. addressee(s);

iv. recipient;

v. persontowhomcopieswerefurnished,togetherwiththeirjobtitleorposition;

vi. subjectmatterofthedocument;and

vii. basisonwhichaprivilegeisclaimed.

(e) Theseinterrogatoriesandrequestsforproductionofdocumentsandthingsaretobeconstruedasbroadlyasanyreasonableconstructionmayallow.Ifthereisanyambiguityinanyinterrogatoryorrequestfor documents and things, the ambiguity shall be resolved in themanner thatwouldprovide for thebroadestpossiblescopeof thediscoveryrequest.Theuseofthesingularformofanywordshallincludethepluralandviceversa.Thespecificityofthescopeofanydiscoveryrequestshallnotbeconstruedaslimitingoraffectingthegeneralityofthescopeofanyotherdiscoveryrequest.

(f) Ifanydocumentorthingrequestedhereinwasatonetimeinexis-tence,buthasbeenlost,discarded,ordestroyed(includingthede-letionfromanycomputerofanyresponsivedocument),thensuchdocumentorthingshallbeidentified,andthecircumstancesresult-ingintheloss,discarding,ordestructionofsuchdocumentorthingshallbeexplainedinaccordancewithdefinition(d).

(g) TheseinterrogatoriesandrequestsforproductionofdocumentsandthingsarecontinuinginnatureandshallbepromptlysupplementedwhenneworadditionalinformationbecomesavailabletoanyoftheDefendant(s).

INTERROGATORIES

InterrogatoryNo.1

Pleaseidentifyallpersonswhomyouconsultedorwhosuppliedinforma-tionorparticipatedinthedraftingofthesediscoveryresponses,listingwithrespecttoeachpersonthenumber(s)ofinterrogatoriesforwhichheorshewasconsulted,suppliedinformation,orotherwiseassistedyouinresponding.

ANSWER:

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InterrogatoryNo.2

Identifyeverypersonyoubelievehasormayhaveknowledgeorinfor-mationaboutthefactssupportingeachandeverydefensesetoutinyourAnswer.DescribeeachandeverydocumentusedtosupportyourAnswer.

ANSWER:

InterrogatoryNo.3

WithrespecttoeachpersonthattheDefendantwillormaycallasawitnessinthismatter,state:thenameandaddressofeachperson;adetailedsummaryofthetestimonyexpectedtobeofferedbyeachperson;andtheconnectionorrelationshiptotheDefendantofeachperson.

ANSWER:

InterrogatoryNo.4

Pleaseprovideadescription,bycategoryandlocation,ofalldocuments,datacompilation,andtangiblethingsthatareinthepossession,custody,orcontroloftheDefendant,whichtheDefendantmayusetosupportthefacts,claims,anddefensessetforthinitsAnswer.

ANSWER:

InterrogatoryNo.5

TotheextentthatanyofyourresponsestoDefendant’sAnswertoPlain-tiff’sRequestsforAdmissionsNumber4isotherthananunqualifiedadmission,listallfactsonwhichyoubasedanypartofyourresponsethatisnotanunqualifiedadmission,identifyalldocumentsmemorializingeachsuchfact,andidentifyallpersonswithknowledgeofeachsuchfact.

ANSWER:

InterrogatoryNo.6

Identify,inconformitywiththeinstructionsabove,eachcommunicationbetweenyouandPlaintiffthatreferredorrelatedto,directlyorindirectly,tothecreditapplicationattachedtotheComplaintwhichisthesubjectofthisdispute.Please identify all documents that refer or relate to said communications, andidentify all personswhohavepersonal knowledgeof said communications. Ifdocumentsexistthatarenotinyourpossession,pleaseidentifythenatureofthedocuments and their location.

ANSWER:

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InterrogatoryNo.7

DescribeindetailanycommunicationssinceJanuary1,2018between(a)youand/oranyofyouragentsand/orrepresentativesand(b)anyemployeeand/orrepresentativeofPlaintiff,concerningthecreditapplicationwhichisthesubjectofthisdispute,andidentifyanydocumentsreferencingorrelatingtoanyofthecommunicationsdescribedinyourresponsetothisInterrogatory.

ANSWER:

InterrogatoryNo.8

Pleaseidentifyeverydocumentorothertangiblethingyouwillormayuseasanexhibitattrialorinahearinginthismatter.

ANSWER:

InterrogatoryNo.9

TotheextentthatanyofyourresponsestoDefendant’sAnswertoPlain-tiff’sRequestsforAdmissionsNumber5isotherthananunqualifiedadmission,listallfactsonwhichyoubasedanypartofyourresponsethatisnotanunqualifiedadmission,identifyalldocumentsmemorializingeachsuchfact,andidentifyallpersonswithknowledgeofeachsuchfact.

ANSWER:

InterrogatoryNo.10

Pleaseidentifyallpayments,ifany,madetoPlaintiffinthelastyear,andwithregardtoeachsuchpaymentidentified,pleasespecifytheamount,thedate,theformofpayment,andthecheckorwiretransfernumber.

ANSWER:

InterrogatoryNo.11

Withregardtoyourdefenseofaccordandsatisfaction,pleasestateallfactsrelatingtoyourdefenseandidentifyallpersonswithknowledgeofthosefacts.

ANSWER:

REQUESTS TO ADMIT FACTS

ThePlaintiffrequeststhattheDefendantanswerthefollowingrequeststoadmitfactspursuantto,andinaccordancewith,KentuckyRulesofCivilProcedure36.IftheDefendantobjectstoanyrequestedadmission,thereasonsthereforeshallbestated.TheDefendant’sanswershallspecificallyadmitordenytherequestedadmission,orsetforthindetailthereasonswhytheDefendantcannottruthfully

3-47


admitordenytherequestedadmission.Adenialshallfairlymeetthesubstanceoftherequestedadmission,andwhengoodfaithrequiresthattheDefendantqualifyananswerordenyonlyapartofthematterofwhichanadmissionisrequested,theDefendantshallspecifysomuchofitasistrueandqualifyordenytheremainder,againdetailingthespecificityofthedenialorthepartthereof.

RequestforAdmissionNo.1: AdmitthatyouareindebtedtoPlaintiff.

RESPONSE:

RequestforAdmissionNo.2: AdmitthatyoufailedtopaythePlaintiffforthe material provided to you.

RESPONSE:

RequestforAdmissionNo.3: AdmitthatyoufailedtopayforthematerialsprovidedtoyouasreflectedinthestatementofaccountattachedheretoasExhibitB.

RESPONSE:

RequestforAdmissionNo.4: Admitthetotalchargesofthesubjectinvoices,asshownontheattachedstatementofaccount,wereinthesumof$19,500.00.

RESPONSE:

RequestforAdmissionNo.5: AdmitthatyousignedExhibitA.

RESPONSE:

RequestforAdmissionNo.6: Admitthatyouarenotentitledtoanyoffsetsor deductions.

RESPONSE:

REQUESTS FOR PRODUCTION

(1) Alldocumentsreviewed,reliedupon,orusedinthepreparationofresponsestotheforegoingdiscoveryrequests.

(2) AlldocumentswhichtheDefendantintendsand/ormayintroduceatany trial or hearing in this matter.

(3) All reports, summaries, analyses,memoranda, or documents pre-paredbyanywitnessretainedbyorfortheDefendantinanticipationoftrialofthisaction.

(4) Allbooks,records,internalmemoranda,orotherdocumentswhichreflectorrelatetotheDefendant’saccountbalancetothePlaintiff,

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and/orreferenceoutstandingchargesduethePlaintiff,aswellasanyitemizationof anypayments to thePlaintiff,orwhich reflect anycreditsorotheroffsets towhich theDefendantmayclaimentitle-ment.

(5) Allwritten,recorded,orsignedstatementsofanyparty,includingthePlaintiff,Defendant,witnesses,investigators,and/oragent,rep-resentative and/or employeeof the parties concerning the subjectmatterofthisaction.

(6) Pleaseprovide,andunlesswithheld(inwhichcase,pleasedescribewith the particularity requested above) any and all copies of anycommunicationsbetween(a)youand/oranyofyouragentsand/oremployees,and(b)Plaintiff,itsemployees,managers,oranyotherrepresentative,concerningtheCreditApplicationwhichisthesub-jectofthisaction.

(7) Pleaseidentify,andunlesswithheld(inwhichcase,pleasedescribewiththeparticularityrequestedabove)pleaseprovidecopiesofallstatementsofapartyorstatementsmadeonbehalfofapartygiventosomepersonorentityotherthantheparty’sattorneythatrefersorinanywayrelatestoanyclaimsmadeinthisaction.

(8) Produceanyandalldocumentsreflectingamountspaidbyyoutothe Plaintiff, including without limitation, all checks, remittanceadvices, invoices, account ledgers, memoranda, or correspondence madewithinthelasttwoyears.

(9) Pleaseprovide,andunlesswithheld(inwhichcase,pleasedescribewith the particularity requested above) any and all copies of anystatementofanypersonother thantheparties thatreferor inanywayrelatetoanyclaimsmadeinthisaction.

(10)Any and all documents, letters, notes, records of telephone con-versations,orrecordsofanyothercommunicationsDefendant,oranyoneactingonitsbehalf,hashadwithanyotherpersonorentityconcerninganyof thematters alleged inPlaintiff’sComplaint, inDefendant’sAnswer,inDefendant’sAffirmativeDefenses,andre-gardinganydefenseDefendantmayhaveagainstPlaintiff’sclaims.

(11)Produceallwrittencommunicationsandrecordingsofverbalcom-municationsbetweenyouandanyotherpersonconcerninganyoftheclaimsorallegationsmadeinthislawsuit.

(12)Produceall documentsnotpreviously identifiedor requested thatotherwiserelatetoorconcernanyoftheclaimsorallegationsmadeinthislawsuit.

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CERTIFICATE OF SERVICE

Iherebycertifythatacopyoftheforegoingwasmailedon____________,20__ to Joe Attorney, 1234 Main Street, Louisville, Kentucky 40202.

______________________ JOHNM.LAWYER

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E. [3.39] SampleMotion for Summary Judgment BasedUpon theDefendant’s Failure toDenyRequestsAdmissions and theDeemedAdmissionThereof



PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT

MOTION

ComesthePlaintiff,bycounsel,pursuanttoKentuckyRuleofCivilPro-cedure 56.01, and moves the Court to grant it a Summary Judgment against the Defendant.InsupportofitsMotion,PlaintiffattachesheretoandfilesherewithitsMemorandumofLaw.AsgroundsforsaidMotion,Plaintiffstatesthatthereisnogenuineissueastoanymaterialfact,andtherefore,asamatteroflawPlaintiffisentitled to Judgment.




______________________ JOHNM.LAWYER

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MEMORANDUM IN SUPPORT OF PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT

Thismatterstandsbefore theCourtonPlaintiff’sMotionforSumma-ry JudgmentonPlaintiff’s claim for collectionof abalancedue in the sumof$19,500.00.ThePlaintiffsupportsitscauseofactionwithanaffidavitofclaimsubstantiatingabalanceof$19,500.00.

InresponsetoPlaintiff’sComplaint,theDefendantfiledanAnswerthatismerely a general denial. Following receipt ofDefendant’sAnswer,PlaintiffcertifieddiscoveryrequeststoDefendantonMay6,2018,towhichtherehasbeennoresponse.Defendant’sfailuretorespondtoPlaintiff’sdiscoveryrequests,spe-cificallyRequesttoAdmitFactNo.7,representsanadmissionofsaiddiscoveryrequestspursuanttoCivilRule36,andineffectprecludesDefendantestablishingtheexistenceofagenuineissueastoanymaterialfact.

ARGUMENT

I. Defendant’sdeemedadmissionofPlaintiff’sdiscoveryrequests,includingRequesttoAdmitFactNo.7,precludestheexistenceofanygenuineissueastoanymaterialfact.

Kentuckylawhaslongheldthatapartywhoisservedwitharequestforadmission towhich itdoesnot respondadmits theallegationsasserted therein.ThisprovisionisclearlysetforthinCivilRule36.01whichprovidesinpertinentpartasfollows:

Apartymayserveuponanyotherpartyawrittenrequestforadmission...eachmatterforwhichanadmissionisrequested...isdeemedadmittedunless,withinthirtydaysafterserviceofthatrequest,...thepartytowhomtherequestisdirectedservesuponthepartyrequestingtheadmissionawrittenanswerorobjection...

Thisrulehasbeenupheldinnumerousdecisionswhichhavebeenhandeddownbythiscourt.Further,thecourtinCommonwealth v. Rice, 415 S.W.2d 618, 620(Ky.1966),heldthat“[f]ailuretorespondproperlyto[CivilRule]36.01mayconstituteanadmissionjustifyingthegrantingofasummaryjudgmentorverdict.”(citingSmather v. May,379S.W.2d230(Ky.1964)).

PlaintiffproperlyserveditsRequestsforAdmissionsontheDefendantbyplacingsameintheUnitedStatesMailonMay6,2018.NeitherthePlaintiff

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noritscounselhasreceivedtheDefendant’sresponsetothesubjectRequestsforAdmissions.Therefore,pursuant toCivilRule36.01, theDefendant isdeemedtohaveadmittedeachadmissionservedupon itby thePlaintiff.Further, theseadmissionsmaybeusedasthebasisforgrantingaSummaryJudgmentinfavorofthePlaintiffandagainsttheDefendant.

II. PlaintiffisentitledtoSummaryJudgmentasamatteroflaw.

ThisactionisfiledbyPlaintiffforthecollectionofanunpaidbalancepursuanttocontract.ThePlaintiff’sclaimissupportedbyitsstatementofaccountaswellasanaffidavit. Inresponse, theDefendanthasfiledanAnswerbuthasfailedtorespondtoPlaintiff’sdiscoveryrequests,therebybeingdeemedtohaveadmittedPlaintiff’sRequestsforAdmissions,whichincludestheadmissionofthebalanceoutstanding.

TheDefendanthasfailedtopresentanyaffirmativeevidencethatwouldcreateagenuineissueofmaterialfactfortrial.Therefore,PlaintiffisentitledtoaJudgmentasamatteroflaw.

Thepurposeoftheruleprovidingforsummaryjudgmentistopromotetheexpeditiousdispositionofcasesandtoavoidunnecessarytrialswhennogenuineissuesofmaterialfactsareraised.Steelvest, Inc. v. Scansteel Service Center, 807 S.W.2d476,480(Ky.1991).Moreover,amotionforsummaryjudgmentmaybebasedsolelyuponthepleadingsandaffidavitssubmittedbytheparties,anditisnotprecludedbyadenialcontainedintheanswerofthedefendant.Smith v. Hilliard, 408S.W.2d440,442(Ky.1966).

WhenamotionforsummaryjudgmentismadeandsupportedasprovidedforinCivilRule56,anadversepartymaynotrestuponthemereallegationsanddenialsofitspleadings;hisresponsemustsetforthspecificfactsshowingthereisnogenuineissuefortrial.Oncethemovanthasestablishedhisrighttorecovery,byaffidavitorotherwise,theopposingpartymust“presentatleastsomeaffirmativeevidenceshowingthatthereisagenuineissueofmaterialfactfortrial.”Steelvest, 807S.W.2dat483(citationsomitted).

Asummary judgment shouldbegrantedwhen,“asamatterof law, itappearsthatitwouldbeimpossiblefortherespondenttoproduceevidenceatthetrialwarrantinga judgment inhis favoragainst themovant.”Id.at483(citingPaintsville Hospital v. Rose,683S.W.2d255(Ky.1985)).Furthermore,whentheadversepartycannotprevail,thecourt’sdutyisto“renderajudgmentforthwith[as]thereisnogenuineissueastoanymaterialfactandthemovingpartyisentitledtojudgmentasamatteroflaw.”Bennett v. Southern Bell Telephone & Telegraph, 407S.W.2d403,405(Ky.Ct.App.1966).

CONCLUSION

Thisisasimplecollectionactionforthepaymentofanunpaidbalancedue.ThePlaintiffstatesthatthereisnogenuineissueastoanymaterialfact.Further,

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thePlaintiffsubmitsthatitisimpossiblefortheDefendanttoproduceanyevidencewhichwillcreateanissueofmaterialfact,whichwouldwarrantaJudgmentinfavoroftheDefendantorwhichwillpreventtheentryofaJudgmentinfavorofthePlaintiff.Therefore,PlaintiffmovestheCourttoenteraJudgmentinitsfavorgrantingallreliefsoughtinitsComplaint.

Respectfullysubmitted,




______________________ JOHNM.LAWYER

3-55




SUMMARY JUDGMENT

ThismattercomingbeforetheCourtonPlaintiff’sMotionforSummaryJudgment,andtheCourthavingreviewedthepleadingsandbeingotherwisedulyandsufficientlyadvised,

ITISHEREBYORDEREDANDADJUDGEDthattherearenogenuineissuesastoanymaterialfactandthatPlaintiffisentitledtoJudgmentasamatteroflawforthesumof$19,500.00,withinterestthereonattherateof19.8%perannumfromMarch25,2018and19.8%perannumfromthedateofJudgmentanduntilthisJudgmentissatisfied,foranattorneyfeeequalto25%ofthisJudgmentbalance,forallcostsexpendedbyPlaintiff,forallofwhichexecutionmayissueforthwith.

Therebeingnojustreasonfordelay,thisJudgmentisfinalandappealable.

______________________ JUDGE

______________________ DATE

TENDEREDBY:


3-56


AFFIDAVIT

ComestheAffiant,andafterhavingbeendulysworn,statesasfollows:

1. ThattheundersignedisamemberofthelawfirmservingascounselofrecordforthePlaintiffherein.

2. ThatthefirmofLawyer&Attorney,PLCwasretainedbythePlain-tiffforrepresentationofthePlaintiffinthismatterandisnotother-wisearegularlysalariedemployeeofthePlaintiff’sfirm.

3. ThatthePlaintiffisentitledtoarecoveryofareasonableattorneyfeepursuanttotheagreement,acopyofwhichisattachedasExhibit“A”toPlaintiff’sMemoranduminSupportofPlaintiff’sMotionforSummary Judgment.

4. ThatthePlaintiffhasagreedtopaytheundersignedfirmacontin-gentattorneyfeeequalto25%ofthebalance.

FURTHER,theAffiantsayethnot.

______________________ JOHNM.LAWYER

STATEOFKENTUCKY ) )SS COUNTYOFJEFFERSON )

The foregoingAffidavitwas subscribed, sworn to, and acknowledgedbeforemebyJohnM.Lawyerthis_____dayof_______________,20____.

MyCommissionExpires:________________________________________

______________________

NOTARYPUBLICSTATEATLARGE

4-1

General Theories for Recovery and Remedies


4

GENERAL THEORIES FOR RECOVERY AND REMEDIES

MARK R. OVERSTREETStites & Harbison PLLC

Frankfort, Kentucky

4-2


4-3


I. [4.1] Scope ...................................................................................4-13

II. [4.2] Account Stated ...................................................................4-13A. [4.3] Definition ..............................................................4-13B. [4.4] Elements of an Action on an Account

Stated ....................................................................4-131. [4.5] Pre-existing Debtor-Creditor

Relationship ............................................4-132. [4.6] Agreement as to the Balance

Due .........................................................4-143. [4.7] Agreement to Pay the Balance ...............4-14

C. [4.8] Nature of an Action for an Account Stated ....................................................................4-14

III. [4.9] Action for an Accounting ..................................................4-15A. [4.10] Types of Actions for an Accounting .....................4-15B. [4.11] Nature of Remedy .................................................4-15C. [4.12] Mutual Accounts ...................................................4-16D. [4.13] ConfidentialandFiduciaryRelationships .............4-16

1. [4.14] Types of Relationships Giving Rise to an Accounting.............................4-16

2. [4.15] Elements of a Cause of Action for an Accounting with Respect toaFiduciaryorConfidential Relationship ............................................4-17

a. [4.16] Existence of a Fiduciary Relationship .............................4-17

b. [4.17] Defendant’s Possession of Money or Other PropertyofPlaintiff ..................4-17

c. [4.18] Inadequacy of a Remedy at Law ........................4-18

E. [4.19] Procedure ..............................................................4-191. [4.20] State Court ..............................................4-19

a. [4.21] Generally ..................................4-19b. [4.22] Referral to a

Commissioner ..........................4-192. [4.23] Federal Court ..........................................4-20

a. [4.24] Generally ..................................4-20b. [4.25] Referral to a Master .................4-20

i. [4.26] Proceedings ................4-21ii. [4.27] Master’s Report .........4-21

F. [4.28] Shared Burden of Proof ........................................4-21

4-4


IV. [4.29] Declaratory Judgments .....................................................4-22A. [4.30] Kentucky Declaratory Judgment Act ....................4-22B. [4.31] Elements of an Action for Declaratory

Relief .....................................................................4-231. [4.32] Actual Controversy.................................4-23

a. [4.33] Actual Controversy – Existence of a Right, Duty, or Liability ......................4-24

b. [4.34] Actual Controversy – Right, Duty, or Liability Must Presently Exist or Be Presently Determinable ............................4-24

2. [4.35] Justiciable Issue ......................................4-253. [4.36] Adversarial Parties .................................4-254. [4.37] Capable of Being Resolved

by a Binding Judgment ...........................4-26C. [4.38] Matters Appropriate for Declaratory

Judgment ...............................................................4-26D. [4.39] Parties ...................................................................4-28

1. [4.40] Generally ................................................4-282. [4.41] Attorney General ....................................4-293. [4.42] Associational Standing ...........................4-31

E. [4.43] Jurisdiction ............................................................4-31

V. [4.44] Writ of Mandamus – Generally .......................................4-32A. [4.45] Nature of Remedy .................................................4-32B. [4.46] Requirements for Issuance of Writ

of Mandamus ........................................................4-331. [4.47] Lack of an Adequate Remedy

at Law .....................................................4-342. [4.48] Great and Irreparable Injury ...................4-35

C. [4.49] Standard of Review ...............................................4-35

VI. [4.50] Writ of Prohibition ............................................................4-36A. [4.51] Nature of Remedy .................................................4-36B. [4.52] “JudicialOfficer”Defined.....................................4-37C. [4.53] Requirements for Issuance of a Writ

of Prohibition ........................................................4-371. [4.54] Lack of an Adequate Remedy ................4-39

a. [4.55] Lack of an Adequate Remedy – Where the Court Is Acting Outside Its Jurisdiction ............4-39

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b. [4.56] Lack of an Adequate Remedy – Where the Court Is Acting Within Its Jurisdiction ..............4-39

2. [4.57] Irreparable Injury or Miscarriage of Justice .................................................4-40

D. [4.58] Record ...................................................................4-42E. [4.59] Standard of Review ...............................................4-42

1. [4.60] In the Court in Which the Application Is Filed ................................4-42

2. [4.61] On Review of the Decision of the Court to Grant or Deny the Writ .........................................4-43

VII. [4.62] Quo Warranto ....................................................................4-43

VIII. [4.63] Compensatory Damages ...................................................4-44A. [4.64] Generally ...............................................................4-44B. [4.65] Contract vs. Tort ...................................................4-45C. [4.66] Types of Compensatory Damages ........................4-45

1. [4.67] General Damages ...................................4-452. [4.68] Special Damages ....................................4-46

D. [4.69] “Damage”DistinguishedfromInjury ...................4-46E. [4.70] Requirement of Certainty .....................................4-46

1. [4.71] Certainty as to Fact of Damage ..............4-462. [4.72] Certainty as to Amount of

Damage ...................................................4-48F. [4.73] Attorney Fees and Prejudgment Interest ...............4-48G. [4.74] Standard of Review ...............................................4-49

IX. [4.75] Non-compensatory Damages ............................................4-49A. [4.76] Nominal Damages ................................................4-50

1. [4.77] Definition ................................................4-502. [4.78] Circumstances Justifying

Grant of Nominal Damages ....................4-503. [4.79] Amount ...................................................4-504. [4.80] EffectofFailuretoGrant

WhenJustified ........................................4-50B. [4.81] Punitive or Exemplary Damages ..........................4-51

1. [4.82] Definition ................................................4-512. [4.83] Purpose ...................................................4-523. [4.84] Elements of a Claim for

Punitive Damages ...................................4-52a. [4.85] At Common Law ......................4-52

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b. [4.86] By Statute .................................4-56i. [4.87] Oppression .................4-56ii. [4.88] Fraud ..........................4-56iii. [4.89] Malice ........................4-56

c. [4.90] Statutory and Common Law Bases for Punitive Damages Compared .................4-57

4. [4.91] Necessity of Compensatory or Nominal Damages or Entitlement to Equitable Relief ......................................................4-59

a. [4.92] Compensatory or Nominal Damages ....................4-59

b. [4.93] Equitable Relief .......................4-595. [4.94] Amount of Punitive Damages ................4-59

a. [4.95] Common Law ...........................4-59b. [4.96] Statutory Law ...........................4-60

6. [4.97] Availability of Punitive Damages in Contract Actions .................4-61


7. [4.100] Award of Punitive Damages Against Principal Based on Agency Principles...................................4-61


8. [4.103] Award of Punitive Damages Against an Estate Based Upon the Conduct of the Estate’s Decedent ...................................4-62

9. [4.104] Review of Amount of Punitive Damages .................................................4-63

a. [4.105] Trial Court ................................4-63b. [4.106] Appellate Review .....................4-64c. [4.107] Due Process ..............................4-64

X. [4.108] Liquidated Damages .........................................................4-66A. [4.109] Liquidated Damages vs. Penalty at

Common Law .......................................................4-67B. [4.110] Liquidated Damages vs. Penalty in

the Sale of Goods ..................................................4-68

XI. [4.111] Injunctive Relief ................................................................4-69A. [4.112] Generally ...............................................................4-69

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B. [4.113] Types of Injunctive Relief.....................................4-691. [4.114] Three Types of Injunctions .....................4-692. [4.115] Mandatory and Prohibitory

Relief ......................................................4-70C. [4.116] OfficersWhoMayGrantorDissolve

Injunctive Relief ...................................................4-701. [4.117] Restraining Order ...................................4-702. [4.118] Temporary Injunction .............................4-71

D. [4.119] Temporary Injunctions ..........................................4-711. [4.120] Purpose ...................................................4-722. [4.121] Prerequisites to Issuance of

a Temporary Injunction ..........................4-72a. [4.122] A Pending Action .....................4-73b. [4.123] The Absence of an

Adequate Remedy at Law .......................................4-73

i. [4.124] Meaning of Inadequate Remedy at Law ............................4-74

ii. [4.125] Adequate Remedies at Law ........................4-75

iii. [4.126] When a Remedy at Law Is Inadequate ..................4-76

c. [4.127] A Substantial Question on the Merits .............4-77

d. [4.128] Immediate and Irreparable Injury .....................4-79

i. [4.129] Requirement of Civil Rule ............................4-79

ii. [4.130] Standard of Proof ......................4-80

iii. [4.131] Existing or Threatened Violation of Movant’s Rights .........................4-81

iv. [4.132] Immediacy of the Injury, Loss, or Damage ......................4-82

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v. [4.133] Irreparable Injury or Rendering Final Judgment Ineffectual ..................4-83

(a) [4.134] Irreparable Injury ...........4-83

(b) [4.135] Rendering Final Judgment Ineffectual ....4-87

e. [4.136] Balancing the Equities .............4-89i. [4.137] Equities

Considered .................4-90ii. [4.138] Status Quo .................4-91

3. [4.139] Procedure ................................................4-91a. [4.140] When Available ........................4-92b. [4.141] Notice and Hearing ..................4-92c. [4.142] Order on Motion

for Temporary Injunction .................................4-94

i. [4.143] The Order Must SpecificallyDescribethe Acts Enjoined or Restrained ..................4-95

ii. [4.144] Persons Bound ...........4-964. [4.145] Injunction Bond ......................................4-98

a. [4.146] Requirements of Rule ..............4-98b. [4.147] Damages and Costs ..................4-99c. [4.148] Action Against the

Surety .....................................4-1005. [4.149] Appeal ..................................................4-100

a. [4.150] Kentucky Court of Appeals ..................................4-100

i. [4.151] Generally .................4-100ii. [4.152] Emergency

Relief .......................4-101iii. [4.153] Standard

of Review .................4-101b. [4.154] Kentucky Supreme

Court ......................................4-102E. [4.155] Restraining Order ................................................4-104

1. [4.156] Comparison of Restraining Orders and Temporary Injunctions .......4-104

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2. [4.157] Procedure ..............................................4-107a. [4.158] In the Absence of

Notice .....................................4-107b. [4.159] A Restraining Order

with Notice .............................4-108c. [4.160] Proceedings Under

Civil Rule 65.03 .....................4-1093. [4.161] Order .....................................................4-1104. [4.162] Service ..................................................4-1105. [4.163] BindingEffectandPersons

Bound ...................................................4-1106. [4.164] Duration ................................................4-1107. [4.165] Bond ..................................................... 4-1118. [4.166] Appeal ..................................................4-112

F. [4.167] Permanent Injunction ..........................................4-1121. [4.168] Bases .....................................................4-1132. [4.169] Bond .....................................................4-1133. [4.170] Relief Pending an Appeal

from a Final Judgment Disposing of a Claim for Injunctive Relief ...................................4-113

a. [4.171] In the Trial Court ....................4-113b. [4.172] In the Court of

Appeals ..................................4-114c. [4.173] In the Supreme

Court ......................................4-114

XII. [4.174] Receivership ..................................................................... 4-115A. [4.175] Definition ............................................................4-115B. [4.176] Appointment of a Receiver .................................4-115

1. [4.177] Generally – Elements ...........................4-115a. [4.178] Interest in or a Lien

Upon the Property ..................4-116b. [4.179] Danger of Loss,

Removal, or Injury .................4-1162. [4.180] Powers of Receiver ...............................4-1163. [4.181] Persons Who May Be

Appointed Receiver ..............................4-117C. [4.182] Other Statutory Provisions for the

Appointment of a Receiver .................................4-117

XIII. [4.183] Contempt .......................................................................... 4-117A. [4.184] Generally .............................................................4-117

1. [4.185] Nature of Contempt Authority ..............4-117

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2. [4.186] Definition ..............................................4-118B. [4.187] Civil vs. Criminal Contempt ...............................4-119

1. [4.188] The Distinction .....................................4-119a. [4.189] Federal Law ...........................4-119b. [4.190] Kentucky Law ........................4-120c. [4.191] Direct vs. Indirect

Criminal Contempt .................4-1222. [4.192] Proceedings and Protections

Required ...............................................4-122a. [4.193] Protections and

Proceedings Required for Civil Contempt ................................4-122

b. [4.194] Direct vs. Indirect Contempt ................................4-123

c. [4.195] Petty vs. Serious Contempt – the Right to a Jury Trial .........................4-124

C. [4.196] Impossibility as a Defense ..................................4-125D. [4.197] Appeal .................................................................4-126

XIV. [4.198] SpecificPerformance ......................................................4-126A. [4.199] Generally .............................................................4-126B. [4.200] Principles Governing a Claim for

SpecificPerformance ..........................................4-1261. [4.201] Inadequacy of a Common

Law Action for Damages ......................4-1262. [4.202] Existence of a Contract.........................4-1273. [4.203] Readiness to Perform and

Mutuality of Obligation ........................4-1284. [4.204] Defenses ...............................................4-128

C. [4.205] AvailabilityofSpecificPerformance and Damages .......................................................4-129

XV. [4.206] Restitution ........................................................................4-130A. [4.207] Generally .............................................................4-130

1. [4.208] Definition ..............................................4-1302. [4.209] Unjust Enrichment ................................4-1303. [4.210] Restitution at Law and in

Equity ...................................................4-131B. [4.211] Restitutionary Remedies at Law .........................4-131

1. [4.212] Generally ..............................................4-1312. [4.213] Quantum Meruit ...................................4-1323. [4.214] Money Paid ..........................................4-133

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C. [4.215] Restitutionary Remedies in Equity .....................4-1331. [4.216] Generally ..............................................4-1332. [4.217] Constructive Trusts ...............................4-133

a. [4.218] Basis for Establishing a Constructive Trust ...............4-133

b. [4.219] Evidence Required .................4-134c. [4.220] Nature of Remedy ..................4-135

3. [4.221] Equitable Subrogation ..........................4-136a. [4.222] Definition ...............................4-136

D. [4.223] Elements .............................................................4-1371. [4.224] Equitable Liens .....................................4-137

XVI. [4.225] Equitable Principles in Current Practice ......................4-138A. [4.226] Generally .............................................................4-138B. [4.227] Commonly Used Principles ................................4-139

1. [4.228] Requirement That Party Seeking to Invoke Protection of Equity Act with Reasonable Diligence ..............................................4-139

2. [4.229] Laches ...................................................4-1393. [4.230] “CleanHands”Doctrine .......................4-1404. [4.231] Equity Will Retain Jurisdiction

for All Purposes Connected to the Principal Controversy .................4-141

5. [4.232] He Who Seeks Equity Must Do Equity .............................................4-141

XVII. [4.233] Reformation and Rescission ...........................................4-142A. [4.234] Reformation ........................................................4-142

1. [4.235] Elements of an Action to Reform an Instrument ...........................4-142

2. [4.236] Mutuality of Mistake ............................4-1423. [4.237] Quantum of Proof .................................4-1434. [4.238] Bona Fide Purchasers ...........................4-143

B. [4.239] Rescission ...........................................................4-1431. [4.240] Grounds for Rescission ........................4-143

a. [4.241] Breach or Default in Performance .......................4-144

b. [4.242] Failure of Consideration .........................4-144

c. [4.243] Unilateral Mistake ..................4-144d. [4.244] Fraud ......................................4-145

2. [4.245] Notice ...................................................4-145

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XVIII. [4.246] Administrative Review....................................................4-145A. [4.247] IntheAbsenceofaSpecificStatutory

Grant ...................................................................4-1451. [4.248] Generally ..............................................4-1452. [4.249] Areas of Non-Statutory

Right to Judicial Review of Administrative Decisions .................4-146

B. [4.250] Review Pursuant to a Statute ..............................4-146

XIX. [4.251] Bibliography ....................................................................4-147A. [4.252] Declaratory Judgments .......................................4-147B. [4.253] Writs of Mandamus and Prohibition ...................4-147C. [4.254] Compensatory and Punitive Damages ................4-148D. [4.255] Liquidated Damages ...........................................4-149E. [4.256] Receivers .............................................................4-150F. [4.257] Contempt .............................................................4-150G. [4.258] SpecificPerformance ..........................................4-151H. [4.259] Restitution and Restitutionary

Remedies .............................................................4-151

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I. [4.1] Scope

This chapter provides an overview of both the general principles gov-erning remedies and particular remedial procedures under Kentucky law. It is not intended as an exhaustive primer on the law of remedies. Many of the topics are treated more completely in other chapters of this Handbook and other publications.

II. [4.2] Account Stated

A. [4.3] Definition

“[A]n account stated is an agreed balance of accounts; an account which hasbeenexaminedandacceptedbytheparties.”Buckner v. Tucker, 281 S.W. 987, 988 (Ky. 1926). Although an account stated may arise from an open or running account,itisindependentofanddifferentfromanopenaccount.Harris v. Edward J. Miller & Son, Inc., 453 S.W.2d 739, 740 (Ky. 1970). The account stated merges the pre-existing obligations of the debtor. Mattingly v. Shortell, 85 S.W. 215, 216 (Ky. 1905); see also Car Center, Inc. v. Home Indemnity Company, Inc., 519 So. 2d 1319, 1322-1323 (Ala. 1988) (“‘An account stated is a post-transaction agreement. It is not founded upon the original liability but is a new agreement between the parties to an original account that the statement of account with the balance struck is correct and the debtor will pay that amount…. It is as if a promissory note had beengivenforthebalancedue.’”)(internalcitationsomitted).

Most commonly, an account stated arises in a commercial context where a creditor renders periodic statements of amounts due on account. If the debtor fails to object to the amount set out in the billing within a reasonable period, an account stated arises.

B. [4.4] Elements of an Action on an Account Stated

An action on an account stated requires: (1) a pre-existing debtor-creditor relationship; (2) an agreement as to the balance due; and (3) an agreement to pay the balance. Little & Hays Investment Company v. Pigg, 96 S.W. 455, 456 (Ky. 1906). The agreements as to the correctness of the amount and the debtor’s liability for the amount may be expressed or implied. Car Center, Inc. v. Home Indemnity Company, Inc., 519 So. 2d 1319, 1323 (Ala. 1988).

1. [4.5] Pre-existing Debtor-Creditor Relationship

The pre-existing debtor-creditor relationship typically is evidenced by a mutual or running account between the parties. Little & Hays Investment Company v. Pigg, 96 S.W. 455, 456 (Ky. 1906).

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2. [4.6] Agreement as to the Balance Due

An agreement as to the balance due may take the form of an express agreement by the parties, or more commonly, by the creditor providing the debtor a statement detailing the transactions making up the account and the amount claimed and the debtor failing to object to the statement within a reasonable period. Hen-derson Cotton Manufacturing Company v. Lowell Machine-Shops, 7 S.W. 142, 145 (Ky. 1888); see also Little & Hays Investment Company v. Pigg, 96 S.W. 455, 456 (Ky. 1906). An agreement also will be implied where the debtor makes a partial payment. LeBoeuf, Lamb, Greene & MacRae, L.L.P. v. Worsham, 185 F.3d 61, 64 (2d Cir. 1999) (applying New York law).

What constitutes the outside limits of a reasonable period for objecting to thestatementoftheaccounthasnotbeendefinedwithprecisionbytheKentuckycourts. Certainly, four and a half years is not a reasonable period of time to delay objecting. J.S. Phelps & Co. v. Plum, 32 S.W. 753, 754 (Ky. 1895). Other courts have found much shorter periods to be unreasonable. See Saul, Ewing, Remick & Saul v. LaRosa, 60 F.3d 824, 1995 WL 420012, 1995 U.S. App. LEXIS 19195 (4th Cir. 1995) (unpublished decision) (22 months unreasonable); Navimex SA v. S.S. Northern Ice,617F.Supp.103,106(S.D.N.Y.1984)(delayoffivemonthsunreasonable); Shea & Gould v. Burr, 598 N.Y.S.2d 261, 262 (N.Y. App. Div. 1993) (fivemonthsunreasonable).ThereisnoreasontoexpectthattheKentuckycourtswould not follow this authority.

3. [4.7] Agreement to Pay the Balance

As with an agreement concerning the amount, an agreement to pay the balance may be inferred from the debtor’s silence following presentation of the account. Henderson Cotton Manufacturing Company v. Lowell Machine-Shops, 7 S.W. 142, 145 (Ky. 1888). In such instances, the debtor’s assent is implied. Id. (by failing objection to an account “within a reasonable time[,]…[t]he assent of both partiestoit,asstated,istherebyimplied”).

C. [4.8] Nature of an Action for an Account Stated

Both the fact and amount of the liability represented by the account stated isconclusivebetweentheparties“absentfraud,mistakeorplainerror….”Buckner v. Tucker, 281 S.W. 987, 988 (Ky. 1926); see Louisville Banking Company v. Asher, 65 S.W. 133, 135 (Ky. 1901) (“account stated does not create an estoppel…but simplyaffordsstrongpresumptiveevidence,whichmayberebuttedbyshowingfraudormistake”);see also First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1011 (7th Cir. 1985) (“A court will not open an account stated absentashowingoffraud,omissionormistake.”).

The cause of action is premised upon the account stated and not the un-derlying transactions giving rise to the account, and thus, absent amendment of

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the complaint, the amount claimed must be proven. Mattingly v. Shortell, 85 S.W. 215, 216 (Ky. 1905). As a result, recovery in quantum meruit is not available. Id.

III. [4.9] Action for an Accounting

A. [4.10] Types of Actions for an Accounting

Although an accounting is a frequently sought remedy, the courts seldom discuss the nature of the relief available or the basis for obtaining it. In essence, an accounting involves a review by the court of the transactions that are the subject of theclaim,thetakingofevidenceconcerningthetransactions,andthe“assignment”to each party of a sum representing the amount due or owed. See, e.g., Clark v. Isaacs, 206 S.W. 606, 607 (Ky. 1918); Macauley v. Elrod, 28 S.W. 782, 783 (Ky. 1894)(accountingrenderedfollowingreviewofbooksandproofofferedbytheparties). In partnership law, an accounting is a similar procedure, involving the completesettlementofallpartnershipaffairs.Holcomb v. Davis, 431 S.W.2d 881, 883 (Ky. 1968).

At least two separate, but not always distinguished, causes of action for an accountingexist.First,“‘[a]n‘accounting’isdefinedasanadjustmentofaccountsof the parties and a rendering of a judgment for the balance ascertained to be due.’”Privett v. Clendenin, 52 S.W.3d 530, 532 (Ky. 2001). This typically arises in the case of complex or mutual accounts. Second, an accounting is an “action for equitablereliefagainstoneinafiduciaryrelationtorecoverprofitstakeninbreachofrelation.”Black’sLawDictionary20 (6th ed. 1990). Thus, an accounting is available: (1) to reconcile and reduce mutual or complex accounts; and (2) to determine the amount of, and to recover, property or money improperly held by a fiduciaryorinconnectionwithaconfidentialrelationship.

Althoughnotanactionforanaccounting,certainfiduciariesarerequiredto make periodic accountings to the courts. See, e.g., KRS 395.610(1) (requiring accountingbycertainfiduciariestwoyearsafterappointmentandeveryyearthere-after); KRS 387.175 (guardian or conservator); CR 53.08 (Master Commissioner).

B. [4.11] Nature of Remedy

An accounting is an equitable remedy. Peter v. Gibson, 2010 Ky. LEXIS 297 *7 (Ky. 2010); Conley v. Hall, 395 S.W.2d 575, 578 (Ky. 1965). Accordingly, the court has broad discretion in determining whether an accounting is an appro-priate remedy. First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1011 (7th Cir. 1985).

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C. [4.12] Mutual Accounts

[A mutual account is an] account usually and properly kept in writing, wherein are set down by express or implied agreement of the parties concerned a connected series of debit and credit entries of reciprocal charges and allowances, and where the parties intend that the individual items of the account shall not be considered independently, but as a continuation of a related series, and that the account shall be kept open and subject to a shifting balance as additional related entries of debits or credits are made thereto, until it shall suit the convenience of either party to settle and close the account, and where, pursuant to the original, express, or implied intention, there is to be but one single and indivisible liability arising from such series of related and reciprocal debits andcredits,whichliabilityistobefixedontheonepartyortheother, as the balance shall indicate at the time of settlement or following the last pertinent entry of the account.

Gentry v. Gentry, 285 P.2d 503, 505-506 (N.M. 1955). In essence, a mutual ac-count involves a series of related transactions giving rise to debits and credits that areintendedtobe“setoff”againsttheamountowedtoorbyeachpartytotheaccount. Thus, although similar to an open account, mutual accounts exist “where eachofthepartieshasanaccountwiththeotherandtherearemutualdemands.”Joel Eichengrun, Remedying the Remedy of Accounting, 60 Ind.L.J.463, 473 (1985). The purpose of an accounting involving mutual accounts is to reduce the credits and debits to a liquidated amount and to determine by whom and to whom the amount is owed.

Without addressing the existence of mutual accounts between the parties, more recent decisions indicate that an accounting may be available in actions involving complex or extensive transactions. See Hinsdale Women’s Clinic, S.C. v. Women’s Health Care of Hinsdale, 690 F. Supp. 658, 664 (N.D. Ill. 1988) (“An equitable accounting is proper when the accounts between the parties are so com-plicatedthataspecialmasterandjurycannotadequatelyassessdamages.”).

An action for an accounting with respect to mutual accounts is available evenintheabsenceofafiduciaryorconfidentialrelationship.JoelEichengrun,Remedying the Remedy of Accounting, 60 Ind.L.J. 463, 474 (1985).

D. [4.13] ConfidentialandFiduciaryRelationships

1. [4.14] Types of Relationships Giving Rise to an Accounting

Thetypesofrelationshipsdeemedfiduciaryorconfidentialandthatmaygive rise to the right to an accounting include partnerships (Holcomb v. Davis, 431 S.W.2d 881 (Ky. 1968)), agency (Thomas v. Hodge, 897 F. Supp. 980, 984 (W.D.

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Ky. 1995) (“The duty [to account] arises because the principal has no other means ofdeterminingtheproperuseofhispropertyheldintrust[bytheagent]”)),jointventures (Polychronis Liaros v. Vaillant, 1996 U.S. Dist. LEXIS 2292 (S.D.N.Y. 1996)), trusts (Privett v. Clendenin, 52 S.W.3d 530 (Ky. 2001)), joint ownership of property (Harris v. Harris, 209 S.W.2d 314 (Ky. 1948)), and continued control of property after the termination of the defendant’s present possessory interest (Nunn v. Justice, 129 S.W.2d 564 (Ky. 1939)). Other types of situations that may give rise to an accounting, at least under the circumstances of particular cases, are stock-broker-clientandcorporateofficerordirectorrelationships.See Joel Eichengrun, Remedying the Remedy of Accounting, 60 Ind.L.J. 463, 469 (1985).

2. [4.15] Elements of a Cause of Action for an Accounting with Respect toaFiduciaryorConfidentialRelationship

a. [4.16] Existence of a Fiduciary Relationship

Not surprisingly, the courts consistently hold that where a party is seeking anaccountingonthebasisofaconfidentialorfiduciaryrelationship,theexistenceof the relationship must be proven. Leveraged Leasing Administration Corporation v. PacifiCorp Capital, Inc., 87 F.3d 44, 49 (2d Cir. 1996) (“In order to sustain an equitableactionforaccountingunderNewYorklaw,aplaintiffmustshoweitherafiduciaryoraconfidentialrelationshipwiththedefendant.”);Government Guaran-tee Fund of the Republic of Finland v. Hyatt Corporation, 5 F. Supp. 2d 324, 332 (D. V.I. 1998); Thomas v. Hodge, 897 F. Supp. 980, 982 (W.D. Ky. 1995) (“Once agency is established, and proof is introduced showing the principal’s property was in the hands of the agent, the agent must render an accounting to explain the disposition of any and all property, real or personal, that is received by the agent fromorforhisprincipal.”).Moreover,wherethepartiesstandinbothfiduciaryandnon-fiduciaryrelationships,anaccountingmaybeobtainedonlywithrespecttothosetransactionsarisinginthecourseofthefiduciaryrelationship.Thomas v. Hodge, 897 F. Supp. 980, 983 (W.D. Ky. 1995) (where defendant acted both as agent and seller, an accounting was required only with respect to those trans-actions undertaken by defendant in his capacity as agent). An allegation of fraud intheabsenceofafiduciaryrelationshipisnotenoughtoestablisharighttoanaccounting. Polychronis Liaros v. Vaillant, 1996 U.S. Dist. LEXIS 2292, 1996 WL 88559 (S.D.N.Y. 1996).

b. [4.17] Defendant’sPossessionofMoneyorOtherPropertyofPlaintiff

A party seeking an accounting must also demonstrate that, as a result of the fiduciaryrelationship,thepartyfromwhomtheaccountingissoughtpossessesorformerly possessed property of the party seeking the accounting. Peter v. Gibson, 2010 Ky. LEXIS 297 *7 (Ky. 2010) (“The right to an equitable accounting arises generally from the defendant’s possession of money or property, which, because of someparticularrelationshipwiththeplaintiff,thedefendantisobligatedtosurren-

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der.); Government Guarantee Fund of the Republic of Finland v. Hyatt Corporation, 5F.Supp.2d324,332(D.V.I.1998)(“Hyattbreachedthat[fiduciary]dutybynotturningoveranyofthesefundsto…[theplaintiff].”);Thomas v. Hodge, 897 F. Supp. 980, 983 (W.D. Ky. 1995) (agent must introduce proof showing “principal’s propertywasinthehandsoftheagent…”).

c. [4.18] Inadequacy of a Remedy at Law

As with any equitable remedy, an accounting is available only where the party seeking it does not have an adequate remedy at law. Lefkowitz v. Citi-Equity Group, Inc., 146 F.3d 609, 611 (8th Cir. 1998); Kee v. National Reserve Life Insur-ance Company, 918 F.2d 1538, 1540 (11th Cir. 1990) (“a party seeking an equitable accounting…mustdemonstratethattheremedyatlawisinadequate”).Anumberof courts have held that an adequate remedy at law exists where the party seeking the accounting can determine the amount due by means of discovery under the civil rules. Lefkowitz v. Citi-Equity Group, Inc., 146 F.3d 609, 611 (8th Cir. 1998); Childress v. Midamerican Long Distance Company, 1990 U.S. Dist. LEXIS 19533 (E.D. Mo. 1990). But cf. Peter v. Gibson, 2010 Ky. LEXIS 297 *7 (Ky. 2010) (The righttoanaccountingoftentimesis“predicatedupontheplaintiff’slegalinabilitytodeterminehowmuchmoney,ifany,isdue.”)Likewise,anadequateremedyatlaw exists where money damages are sought. Talcott Communications Corporation v. Coles, 1993 U.S. Dist. LEXIS 1983, 1993 WL 50717 (N.D. Ill. 1993).

The party seeking the accounting bears the burden of demonstrating the inadequacy of any legal remedy. Wilson v. Continental Development Company, 112 F. Supp. 2d 648, 663 (W.D. Mich. 1999).

On its face, Thomas v. Hodge, 897 F. Supp. 980, 983 (W.D. Ky. 1995), appears to do away with the requirement that the party seeking an accounting demonstrate the absence of an adequate legal remedy, at least in the case of a principal seeking an accounting from its agent. The court in that case noted:

Once agency is established, and proof is introduced showing that the principal’s property was in the hands of the agent, the agent must render an accounting to explain the disposition of any and all property, real or personal, that is received by the agent from or for his principal…. The right of a principal to require an accounting of his agent is elementary, and absent a contrary agreement, there is no discretion as to whether an accounting may be required.

Id. (citing Deaton v. Hale, 592 S.W.2d 127, 130 (Ky. 1979). However, both the Thomas and Deaton cases are better understood as not having addressed the issue. Certainly, neither court addressed the issue head on. Further, neither of the courts in these two cases purported to expressly reject the long-standing rule that equitable remedies are available only in the absence of an adequate remedy at law. See Shatz v. American Surety Company of New York, 295 S.W.2d 809, 812 (Ky. 1955) (“the

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basis for trying a suit in equity is that it is one of an equitable nature wherein the remedyatlaw(trialbyjury)isinadequateandwillnotaffordjustice”).

E. [4.19] Procedure

1. [4.20] State Court

a. [4.21] Generally

Except where a statute provides to the contrary, an action for an accounting must be brought in the circuit court. Peter v. Gibson, 2010 Ky. LEXIS 297 **8-11 (Ky. 2010). Thus, while KRS 385.192(1)(a) requires that an action for accounting under the Uniform Transfers to Minors Act by a minor or his or her representative be brought in district court, Privett v. Clendenin, 52 S.W.3d 530, 531-532 (Ky. 2001), the action must be brought in the circuit court once the transferee is no longer a minor because the statute no longer is applicable. Peter v. Gibson, 2010 Ky. LEXIS 297 **8-11 (Ky. 2010).

An action for an accounting is a two-step proceeding. Gentry v. Cremeens, 2009 Ky. App. Unpub. LEXIS 139 **5-6 (Ky. Ct. App. 2009). The court must firstdeterminewhethertheclaimantisentitledtoanaccounting.Id. If the right to an accounting is established, then the court conducts the accounting and enters finaljudgment.Id. The decree determining that a right to an accounting exists is interlocutory. Id. at *6 (dicta) (quoting 1 Am.Jur.2d, Accounts and Accounting § 66 (1994)).

Absent a court order to the contrary, an action for an accounting in a Kentucky state court is to be tried to the court on depositions. Ky. R. Civ. P. (here-inafter“CivilRule”or“CR”)43.04(1).Accordingtothenotestoinitialdraftsofthe Kentucky Rules of Civil Procedure, Civil Rule 43.04 “represents a compromise between the policy of federal rule 43(a) and the system of trial by depositions in equitycasesundertheCivilCode.”Notes,Tentative Draft of the Rules of Civil Procedure of Kentucky 142 (1952). Underlying the compromise was the belief “that our circuit courts would not have the time to hear oral proof in the many equity actionsfiledinstatecourt….Thenamedexceptionsweretofacilitatethetakingofdepositions in cases in which the committee felt should in most instances be heard bydeposition.”Id. at 142-143. Because an accounting is tried without intervention ofajury,thetrialcourtisrequiredtomakeseparatefindingsoffactandconclusionsof law in connection with its orders. Gentry v. Cremeens, 2009 Ky. App. Unpub. LEXIS 139 **3-4 (Ky. Ct. App. 2009).

b. [4.22] Referral to a Commissioner

Alternatively, in the case of “matters of account involving complex or nu-meroustransactions,orsimilarexceptionalcircumstances”thecourtmayreferthematter to a commissioner for resolution. CR 53.02(3). The commissioner’s powers

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are set out in Civil Rule 53.04. In the typical case, the commissioner is required to convene a meeting of the parties and their attorneys within 20 days of the date of the order referring the matter to the commissioner. Either party may apply to the courtforanorderrequiringthecommissionerto“speed”theproceedingsandhisreport. CR 53.05(1). Civil Rule 53.05(3) permits the commissioner to prescribe the form in which accounts are to be submitted to him and to receive evidence fromcertifiedpublicaccountants.Thecommissionermakesareporttothecourt,andallpartieshave10daysafterservicetofileexceptions.CR53.05(2).Failuretofileexceptionstothecommissioner’sreportpreventsapartyfromchallengingthe court’s acceptance of the report on appeal. Eiland v. Ferrell, 937 S.W.2d 713, 716(Ky.1997).Latefiledexceptionsmay,butarenotrequiredtobe,consideredby the trial court. Id.

2. [4.23] Federal Court

a. [4.24] Generally

In contrast to the Kentucky Rules of Civil Procedure, the federal rules lack any requirement that actions for an accounting be tried to the court on depositions. See Fed. R. Civ. P. 43. In fact, the Seventh Amendment to the U.S. Constitution provides to the contrary. As the Supreme Court explained in Dairy Queen, Inc. v. Wood, 369 U.S. 469, 477-478, 82 S. Ct. 894, 899 (1962):

In view of the powers given the District Courts by Federal Rule of Civil Procedure 53(b) to appoint masters in those exceptional cases where the legal issues are too complicated for the jury adequately to handle alone, the burden of such a showing [that “‘the accounts between the parties’ are of such a ‘complicated nature’ that only a court of equity can satisfactorily unravel them’”]isconsiderablyincreasedanditwill indeedbeararecaseinwhichitcanbemet.”

Id. (reversing refusal to grant jury trial in an action for an accounting).

b. [4.25] Referral to a Master

Fed. R. Civ. P. 53 permits the use of a master to perform an accounting or otherwiseresolvedifficultcomputationsofdamages.Fed.R.Civ.P.53(a)(1)(B)(ii).Thisprovisionisanexceptiontothe“exceptionalcondition”requirementapplicableto other claims not to be tried to a jury. Fed. R. Civ. P. 53 Advisory Committee’s note. In determining whether to appoint a master the court is required in connection with all referrals, including accountings, to “consider the fairness of imposing the likely expenses on the parties and must protect against unreasonable expense or delay.”Fed.R.Civ.P.53(a)(3).The2003amendmentstoFed.R.Civ.P.53alsomade explicit the court’s ability to appoint a master in all cases, including actions foranaccounting,to“addresspretrialandposttrialmattersthatcannotbeeffectively

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andtimelyresolvedbyanavailabledistrictjudgeormagistratejudge.”Fed.R.Civ. P. 53(a)(1)(C); Fed. R. Civ. P. 53 Advisory Committee’s note.

Although no longer expressly stated in the rule, the referral to a master under the federal rule, unlike CR 53, remains the exception and not the rule. Fed. R. Civ. P. 53 Advisory Committee’s note.

i. [4.26] Proceedings

Themasterisrequiredtoactwith“allreasonablediligence.”Fed.R.Civ.P. 53(b)(2).

The master is authorized, unless the appointing order provides to the contrary, to“regulateallproceedings,” toconductevidentiaryhearings, and totakeallappropriatemeasurestoperformthereferral“fairlyandefficiently.”Fed.R. Civ. P. 53(c). The master also is authorized to impose sanctions under Fed. R. Civ. P. 37 and Fed. R. Civ. P. 45, and to recommend contempt sanctions. Fed. R. Civ. P. 53(c)(2).

ii. [4.27] Master’s Report

At the conclusion of the proceedings before the master, the master makes a report in conformity with the order appointing the master. Fed. R. Civ. P. 53(e). Thereportisfiledwiththecourtandservedonallparties.Id.

Unless otherwise provided by order, any objections to the master’s re-port or recommendations, or to adopt or modify the report or recommendations, mustbefiledwithin21daysofserviceofthereport.Fed.R.Civ.P.53(f)(2).Themaster’sfindingsoffact,unlessthepartiesstipulatetothecontraryandthecourtconcurs, are reviewed de novo. Fed. R. Civ. P. 53(f)(3). All legal conclusions are also reviewed de novo. Fed. R. Civ. P. 53(f)(4). In acting on the master’s report the court must give the parties notice and an opportunity to be heard. Fed. R. Civ. P. 53(f)(1). The court may receive evidence in connection with its review. Id. The court may adopt, reject, or modify the master’s report in whole or part, and may resubmit the matter to the master with further instructions. Id.

F. [4.28] Shared Burden of Proof

The party seeking an accounting is obligated, at a minimum, to demonstrate her right to an accounting. Gentry v. Cremeens, 2009 Ky. App. Unpub. LEXIS 139 *6 (Ky. Ct. App. 2009); Government Guarantee Fund of the Republic of Finland v. Hyatt Corporation, 5 F. Supp. 2d 324, 332 (D. V.I. 1998). Moreover, most author-ities also require the party seeking an accounting to prove the gross amount due. See Thomas v. Hodge, 897 F. Supp. 980, 983 (W.D. Ky. 1995) (“Once agency is established, and proof is introduced showing that the principal’s property was in the hands of the agent, the agent must render an accounting to explain the disposition of any and all property, real or personal, that is received by the agent from or for

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hisprincipal.”);JoelEichengrun,Remedying the Remedy of Accounting, 60 Ind.L.J. 463, 477 (1985) (“The defendant must establish the right to an accounting andprovethegrossamountclaimed….”).Theburdenthenshiftstothepartyfromwhom the accounting is sought:

to establish expenses, losses or other deductions which it is claimedreducetheamountduetheplaintiff.Itwillbepresumedthat funds or property unaccounted for were misappropriated, and expenses unexplained were not incurred, with all inferences resolved against the defendant on these issues.

Government Guarantee Fund of the Republic of Finland v. Hyatt Corporation, 5 F. Supp. 2d 324, 332 (D. V.I. 1998); Thomas v. Hodge, 897 F. Supp. 980, 983 (W.D. Ky. 1995) (“If…[the agent] has no written records to back his claim due to his own faulty system of keeping accounts, the court will be strongly inclined to chargehimwiththesumheisallegedtohavereceived.”).

Under Kentucky law, the party from whom an accounting is sought must establish her right to deductions and offsets and any other accounting entries“whenever possible, [through] receipts from persons other than the agent…[and thus] more than the agent’s own, unsubstantiated records of transactions involving thepropertyisrequired.”Thomas v. Hodge, 897 F. Supp. 980, 983 (W.D. Ky. 1995).

IV. [4.29] Declaratory Judgments

A. [4.30] Kentucky Declaratory Judgment Act

The Declaratory Judgment Act of Kentucky, found at KRS 418.040 through 418.090, was enacted by the 1922 General Assembly. 1922 Ky. Acts 83. Its purpose was “to relieve litigants of the common law rule that no declaration of rights may be judicially adjudged unless a right has been violated, for the violation ofwhichreliefmaybegranted.”De Charete v. St. Matthews Bank & Trust Co., 283 S.W. 410, 413 (Ky. 1926). As such, it is intended:

to make courts more serviceable in the settlement of controversies andaffordrelief fromuncertaintyand insecuritywith respectto rights. It is to be liberally interpreted and administered, and should not be used as a technical bar to the administration of justice.

Weiand v. Board of Trustees of the Kentucky Retirement Systems, 936 S.W.2d 778, 780 (Ky. Ct. App. 1997). “Declaratory judgments are widely used to establish certainfundamentalrightsinongoingdisputes.”Bank One, N.A. v. Murphy, 52 S.W.3d 540, 546 (Ky. 2001). Nevertheless, an action for declaratory relief is not available to resolve hypothetical, moot, or academic issues, or in matters that will

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yield only an advisory opinion. Bischoff v. City of Newport, 733 S.W.2d 762, 763-64 (Ky. Ct. App. 1987).

An action for declaratory relief is not available “‘where another statutory remedyhasbeenespeciallyprovidedforthecharacterofthecasepresented….’”White v. Shepherd, 940 S.W.2d 909, 910 (Ky. Ct. App. 1997). See also City of Pikeville v. Pike County, 297 S.W.3d 47, 52 (Ky. 2009).

The Declaratory Judgment Act, although drawn in an archaic if not cum-bersome fashion, is a remedial statute and should be construed liberally. Continental Insurance Co. v. Riggs, 126 S.W.2d 853, 855 (Ky. 1939).

B. [4.31] Elements of an Action for Declaratory Relief

The requirements for a declaratory judgment action are enumerated at KRS 418.040-418.090. The statutes, as interpreted in Black v. Elkhorn Coal Co., 26 S.W.2d 481, 483 (Ky. 1930), require “the existence of an actual controversy respectingjusticiablequestions.”Moreover,“thecourtwillnotdecidespeculativerights or duties which may or may not arise in the future but only rights and duties about which there is a present actual controversy presented by adversary parties, andinwhichabindingjudgmentconcludingthecontroversymaybeentered.”Id. Tomaintainanactionfordeclaratoryrelief,theplaintiffmustthusdemonstratefourelements: (1) an actual controversy; (2) a justiciable issue; (3) adversarial parties; and (4) an issue capable of being resolved by the entry of a binding judgment.

1. [4.32] Actual Controversy

Kentuckycourtshaveyettoofferaprecisedefinitionofwhatconstitutesan actual controversy for purposes of the Declaratory Judgment Act. The term obviously embraces a disputed legal question. An actual controversy at its crux involvesaquestionconcerning“presentrights,duties,orliabilities.”Dravo v. Lib-erty National Bank & Trust Co., 267 S.W.2d 95, 97 (Ky. 1954). A dispute involving only speculative rights or duties that may arise in the future will not support a declaratory judgment action. Nichols v. Rogers, 166 S.W.2d 867, 868 (Ky. 1942).

Unless it is capable of repetition, yet evading review, a moot question will not be reviewed by courts in a declaratory judgment action. Philpot v. Patton, 837 S.W.2d 491, 493 (Ky. 1992); General Drivers, Warehousemen & Helpers Local Union No. 89 v. Chandler, 968 S.W.2d 680, 684 (Ky. Ct. App. 1998) (court would hear case where “a controversy would never be present to allow for judicial review”).Aquestionissoreviewablewhere“‘(1)thechallengedactionistooshortin duration to be fully litigated prior to its cessation or expiration and (2) there is a reasonable expectation that the same complaining party would be subject to the sameactionagain.’”Philpot v. Patton, 837 S.W.2d 491, 493 (Ky. 1992).

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The“actualcontroversy”requirementembodiestwosub-elements:(a)aright, liability, or duty belonging to the parties; and (b) that presently exists or is presently determinable.

a. [4.33] Actual Controversy – Existence of a Right, Duty, or Liability

The nature of the requirement of a right, duty, or liability is well illustrated by two court of appeals decisions. In Bischoff v. City of Newport, 733 S.W.2d 762 (Ky.Ct.App.1987),theplaintiffssoughtadeclarationthatthecityadvaloremtax rate was excessive, and they sought a refund of taxes paid in excess of the legal rate. Although an administrative procedure for obtaining refunds of legally collectedtaxesexisted,theplaintiffsdidnotutilizeitandthusfailedtoexhausttheir administrative remedies. On appeal from the trial court decision dismissing theplaintiffs’declaratoryjudgmentaction(aswellastheirclaimforarefund),thecourt of appeals held that an actual controversy did not exist: “[w]ithout a timely application for refund of the tax paid, the taxpayer has no right to a refund and without a right of refund, his interest in the rate upon which the tax was based is nomorethanacademic.”Id. at 764; accord Greer v. Kentucky Health & Geriatric Authority,467S.W.2d340,343(Ky.1971)(admittednon-final,non-enforceableagreement did not create actual controversy).

Similarly, in Curry v. Coyne, 992 S.W.2d 858, 860 (Ky. Ct. App. 1998), the court of appeals held that there was not an actual controversy presented by an actionforajudgmentdeclaringthecoronererredinfindingtheplaintiff’sdece-dent died as a result of a suicide and not an accident. As explained by the court, thecoroner’sconclusionastocauseofdeathwas“amereexpressionofopinion”,and thus, no legal rights were at issue. By contrast, presumably there would have been an actual controversy if the same question was presented in an action by a lifeinsurancecompanytodeclareitwasnotobligatedtopaydeathbenefitsundera policy that excepted suicides.

“Ordinarily, a litigant must assert his own constitutional rights or immu-nities.”Associated Industries of Kentucky v. Commonwealth, 912 S.W.2d 947, 951 (Ky. 1995). Although the parties’ rights or duties must be at issue for there to be an actual controversy, the determination of whether there is an actual controversy isseparatefromthequestionoftheplaintiff’sstanding.Id.

b. [4.34] Actual Controversy – Right, Duty, or Liability Must Presently Exist or Be Presently Determinable

The presently existing or determinable requirement is illustrated by the Kentucky Court of Appeals’ (then the state’s highest court) decisions in two cases. In Freeman v. Danville Tobacco Board of Trade. Inc., 380 S.W.2d 215, 216 (Ky. 1964), the court held that an actual controversy was not presented by the appellant’s action challenging the appellee’s regulation governing tobacco warehouses because the appellant did not own a tobacco warehouse but instead only had an option on

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landandwasintheprocessof“makingarrangements”tobuildawarehouse.Incontrast to Freeman is the case of Dravo v. Liberty National Bank & Trust Co., 267 S.W.2d 95 (Ky. 1954). In Dravo, the appellant sought a declaratory judgment that an action to construe his rights under an existing spendthrift trust, of which he was thepresentincomebeneficiary,wouldnotviolatetheforfeitureclauseofthetrust.Id.at98.Distinguishingthetwodecisions,althoughmoreofadifferenceindegreethan kind, is that in Freeman the appellant sought a declaration concerning rights which he would not acquire until he exercised the option and built the warehouse, while in Dravothequestioninvolvedtheplaintiff’srightsunderanexistingtrust,which rights were extant at the time of the decision.

Anactualcontroversyexistswhereaplaintiffchallengestheapplicabilityof a regulatory scheme to an existing business even in the absence of threatened prosecution. Heyser v. Brown, 184 S.W.2d 893, 894 (Ky. 1945) (“[A] licensee under the Alcoholic Beverage Control Act may…seek a declaration of his rights previous to conducting his business in a manner prohibited by a regulation of the Department”).Similarly,anactualcontroversyexistsconcerning“futurerights”where the determination is based upon presently existing facts. Veith v. City of Louisville, 355 S.W.2d 295, 297 (Ky. 1961).

2. [4.35] Justiciable Issue

In determining whether an issue is justiciable, the courts purport to con-sider two factors: (1) the hardship of denying judicial relief; and (2) the appropri-ateness of the issues for decision. Combs v. Matthews, 364 S.W.2d 647, 648 (Ky. 1963).Typically,thecourtsseldomgobeyondthefirstfactor,thehardshipontheplaintiffifjudicialreliefisdenied.Thus,inCommonwealth v. Carroll County Fiscal Court, 633 S.W.2d 720, 721 (Ky. Ct. App. 1982), the court of appeals held that the county’s action seeking a declaration of whether it was obligated to maintain a jail presentedajusticiableissuebecauseintheabsenceofadecision“thefiscalcourt…would be placed in the untenable position of acting in good faith in deciding not to constructajailandfacinganindictmentformalfeasanceormisfeasanceofoffice.”

When considering the appropriateness of the question for decision the courts weigh: (1) whether the issue is likely to recur (Kentucky State Board of Medical Licensure v. Courier-Journal and Louisville Times Co., 663 S.W.2d 953, 956 (Ky. Ct. App. 1983)); (2) whether an important or useful public purpose would be advanced (Hammond v. Smith, 930 S.W.2d 408, 409 (Ky. Ct. App. 1996); Combs v. Matthews, 364 S.W.2d 647, 648 (Ky. 1963)); and (3) whether a decision would eliminate or minimize the risk of wrong action or mistake (Hammond v. Smith, 930 S.W.2d 408, 409 (Ky. Ct. App. 1996).

3. [4.36] Adversarial Parties

The requirement for adversarial parties guards against friendly lawsuits. “The adversarial system promotes sound judicial reasoning by assuring that the

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courtsarefullyandfairlyinformed.” Appalachian Racing, LLC v. Family Trust Found. of Ky., Inc., 423 S.W.3d 726, 734 (Ky. 2014). Absent adversarial interests a cause is not justiciable. Id. at 734-35. The urgency of the need for a judicial resolution, the great public interest in the issue, and the utility of such a resolution are not substitutes for adversarial interests. Id. See also Fraley v. Beaver-Elkhorn Water Dist., 257 S.W.2d 536, 538-39 (Ky. 1953), overruled on other grounds, McClellan v. Louisville Water Co., 351 S.W.2d 197, 199 (Ky. 1961) (refusing to consider whether ordinance was valid when neither party claimed it was invalid); Commonwealth v. Winchester Water Works, 197 S.W.2d 771, 772-73 (Ky. 1946) (dismissing action where opposing party failed to take position contrary to that oftheplaintiff).

Although KRS 418.020 permits parties, with antagonistic interests and positions to present the controversy to a court for judicial resolution, “[i]t does not allowpartieswithnocontroversybetweenthemtoseekajudicialaffirmationoftheirmutually-heldposition.”Appalachian Racing, 423 S.W3d at 735.

The existence of adversarial parties is essential to the constitutionality of the Declaratory Judgment Act as well as the courts’ power to grant declaratory relief. Black v. Elkhorn Coal Corp., 26 S.W.2d 481, 483 (Ky. 1930).

4. [4.37] Capable of Being Resolved by a Binding Judgment

By statute, the courts enjoy the discretion to decline to entertain a declar-atory judgment action where the judgment would not terminate the “uncertainty or controversy.”KRS418.065.Thereisnorequirementthatthedeclaratoryjudgmentaction terminate all litigation or controversy between the parties. Mid-Southern Toyota, Ltd. v. Bug’s Imports, Inc., 453 S.W.2d 544, 548 (Ky. 1970); Bank One Kentucky NA v. Woodfield Financial Consortium LP, 957 S.W.2d 276, 281 (Ky. Ct. App. 1997) (“the mere fact that litigation may not be terminated by the declaration is not grounds for denying declaratory relief because the statute itself contemplates thatfurtherlitigationmayresult”).Rather,allthatisrequiredisthattheissueraisediscapableofbeingfinallyresolvedbydeclaratoryjudgment.Mid-Southern Toyota, Ltd. v. Bug’s Imports, Inc., 453 S.W.2d 544, 548 (Ky. 1970). This is particularly true where the “advance determination of the rights duties or liabilities of the parties will‘eliminateorminimizetheriskofwrongactionormistakes….’”Bank One Kentucky NA v. Woodfield Financial Consortium LP, 957 S.W.2d 276, 281 (Ky. Ct. App. 1997).

C. [4.38] Matters Appropriate for Declaratory Judgment

KRS418.045detailsfiveareasappropriatefordeclaratoryjudgment:

(a) matters arising out of a deed, will, or other written instru-ment;

(b) matters involving written or parol contracts;

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(c) matters involving statutes, municipal ordinances, or other governmental regulations;

(d) matters involving title to property, office, status or rela-tions;

(e) mattersinvolvingtherightsorobligationsoffiduciariesorbeneficiariesinterestedinanyestate.

The list is not all-inclusive, and the courts have entertained all manner of issues otherwise meeting the requirements of the Declaratory Judgment Act. KRS 418.045. (“The enumeration herein contained does not exclude other instances wherein a declaratoryjudgmentmaybeprayedandgrantedunderKRS418.040.”);Mammoth Medical, Inc. v. Bunnell, 265 S.W.3d 205, 210 (Ky. 2008).

Although the right to declaratory relief is broadly construed, it does not extend to determining the validity of a prior judgment, nor is a declaratory judg-ment action a means of collaterally attacking an earlier judgment. Ferree v. Ferree, 149 S.W.2d 719, 720 (Ky. 1941) (“the purpose of the Declaratory Judgment Act was to have a declaration of rights not heretofore determined, not to determine whetherrightstheretoforeadjudicatedhavebeenproperlyadjudicated…”).Ken-tucky’s highest court has carved out a limited exception where the validity of the earlier judgment is admitted but the parties seek guidance as to its applicability or construction of the judgment. Stavros v. Bradley, 232 S.W.2d 1004, 1005-06 (Ky. 1950).Theexceptionissubjecttoabusebypartiesseekinga“construction”ofapriorjudgment,whichineffectreversestheearlierdetermination.

A declaratory judgment action “is not suitable for the determination of the procedural rules, or the declaration of the substantive rights involved in a pending suit.…”Travelers Insurance Co. v. Carter, 235 S.W.2d 1003, 1004 (Ky. 1951) (dismissing declaratory judgment action seeking review of refusal of Workers’ Compensation Board to turn over written statement). See also Mammoth Medical, Inc. v. Bunnell, 265 S.W.3d 205, 210 (Ky. 2008) (“an action for a declaratory judg-ment cannot be instituted to secure a determination of substantive rights involved inapendingsuit.”)

Mammoth Medicalalsoansweredaquestionoffirst impression in theCommonwealth, concluding that a potential defendant in a tort action may not bring a declaratory judgment to establish its non-liability with respect to past acts or failures to act. Id. at 210, 213. Although Mammoth Medical involved a tort claim, and the court was careful to exclude insurance coverage declaratory judgment actions from the reach of its holding, the court characterized its holding as apply-ing more broadly than tort claims: “[i]n so holding, we express our disapproval of potential defendants initiating declaratory judgment actions for the purpose of establishing their non-liability with respect to unsued claims, except under narrow circumstances.”Id. at 213. Likewise, the reasons given by the court for its decision

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seem equally applicable to contract actions:

The orderly administration of justice requires that Mammoth, as theallegedlyinjuredparty,beallowedtodecideinthefirstin-stance whether, when, and where to bring an action against SKO in tort for damages…. Permitting SKO’s declaratory judgment action to proceed could potentially open the courthouse doors to preemptive actions by prospective tort defendants seeking forum-favorable, summary disposition of not-yet-filed tort claims, or lead to multiple claims in separate courts involving similar subject matter.

Id.

D. [4.39] Parties

1. [4.40] Generally

By statute, all persons “who have or who claim any interest which would beaffectedby”thedeclaratoryjudgmentmustbemadepartiestotheactioneitherindividually (Coke v. Shanks, 273 S.W. 552, 553 (Ky. 1925)) or by means of a class representative (Selle v. City of Henderson, 218 S.W.2d 645, 650-51 (Ky. 1949)). The requirement is mandatory. Lewis v. Board of Councilmen, 204 S.W.2d 813, 814 (Ky. 1947). Although KRS 418.075 provides that “no declaration shall prejudice therightsofpersonsnotpartiestotheproceeding,”theKentuckyappellatecourtsarguablytwicehaveelectednottogiveeffecttothelanguageofthestatutewheretheadverselyaffectednon-partywasawareofthedeclaratoryjudgmentaction,apparently chose not to intervene prior to judgment, and sought to intervene only after an adverse judgment. Murphy v. Lexington-Fayette County Airport Board, 472 S.W.2d 688, 689-690 (Ky. 1971); Uninsured Employers’ Fund v. Bradley, 244 S.W.3d 741, 745 (Ky. Ct. App. 2007). Although a third party who is aware of ongoinglitigationthatmayaffectitsinterestsignoresMurphy and Bradley at its own peril, neither decision expressly addressed the issue of whether the third-party wouldbeboundbythedecisioninthefirstcaseinlaterlitigationinwhichitisaparty. In fact, in Murphy the court was careful to note that “Avis [the party seeking tointervene]wasnot“represented”bytheairportboardinthesenseemployedinthedoctrineofresjudicata.”472S.W.2dat690.

The party bringing the action for declaratory relief must have standing to assert the claims advanced. General Drivers, Warehousemen & Helpers Local Union No. 89 v. Chandler, 968 S.W.2d 680, 684 (Ky. Ct. App. 1998). “In order for standing to exist, a party must show a legally ‘recognizable interest in the subject matter of the suit’…[and] the party’s interest must be determined to be present andsubstantialasopposedtomereexpectancy.”Id. Standing is determined on an individualized basis based on the facts of the case before the court. Rose v. Council for Better Educ., Inc., 790 S.W2.d 186, 202 (Ky. 1989).

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Standingservestoensurethatapartyhasasufficient,real,andsubstantialinterest in the controversy to ensure the party will litigate the matter vigorously andeffectivelytovindicatethoseinterests.Interactive Gaming Council v. Com-monwealth ex rel. Brown, 425 S.W3d 107, 112 (Ky. Ct. App. 2014).

The members of the Kentucky General Assembly are not immune under Section 43 of the Kentucky Constitution to declaratory judgment actions testing whether the General Assembly has carried out a constitutional mandate, including the failure to enact statutes required by the Constitution. Philpot v. Patton, 837 S.W.2d 491, 493-94 (Ky. 1992). Similarly, the Commonwealth and its agencies are proper parties to a claim for declaratory judgment notwithstanding the immunity provided by Section 231 of the Kentucky Constitution. Commonwealth v. Kentucky Ret. Sys., 396 S.W.3d 833, 839 (Ky. 2013) (“When the interest at issue is a question of the governance of the Commonwealth, only the Commonwealth, in some form, canbethedefendant.”)Conversely,theabilitytoobtainadeclarationofrightsonan issue does not preclude the Commonwealth from successfully raising sovereign immunity in an action to enforce the rights declared “if the revenue or property of thestatewouldbeaffected.”Id.

2. [4.41] Attorney General

KRS 418.075(1) provides that in any proceeding in which the validity of a statute is challenged, or in which an ordinance or franchise is attacked as un-constitutional, the Kentucky Attorney General must be served with a copy of the petition and be permitted to be heard. Civil Rule 24.03 in turn places a burden on a movantchallengingtheconstitutionalityofastatuteaffectingthepublicinteresttonotify the Attorney General by service of “a copy of the pleading, motion or other paperfirstraisingthechallenge….”Theapplicabilityofthestatuteandrule,andtheeffectofalitigant’sfailuretonotifytheAttorneyGeneral,wasformerlythesubject of considerable confusion. See, e.g., Dewey v. Allinder, 469 S.W.2d 548, 550 (Ky. 1971) (remanding judgment declaring act unconstitutional because litigant failed to notify the Attorney General); Stewart v. William H. Jolly Plumbing Co., 743 S.W.2d 861, 864 (Ky. Ct. App. 1988) (holding that failure to notify Attorney General may be cured by permitting Attorney General to intervene on appeal).

Much of the confusion was dispelled by the Kentucky Supreme Court’s decision in Maney v. Mary Chiles Hospital, 785 S.W.2d 480, 481-82 (Ky. 1990), in which the court held:

(a) It is the duty of all parties to ensure that the Attorney Gen-eral is given the required notice. The notice must be given at the trial court level. Id. at 481.

(b) Judgment may not be entered by the trial court until notice is given. Id.

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(c) The notice must be evident upon the record of the case. Id.

(d) Any judgment deciding the constitutionality of a statute in the absence of the required notice is void even if the action is not brought pursuant to the Declaratory Judgment Act. Id. at 482, 484.

(e) Thereisastrongpublicpolicyinfavorofnotificationofthe Attorney General whenever the constitutionality of a statute is placed in issue. “It is in the interest of the people toaffordtheAttorney General an opportunity to participate on their behalf, whether it is to argue for or against the va-lidityofastatute.”Id. at 481.

(f) The requirements will be strictly enforced. Id. at 482; see also Adventist Health Systems, Inc. v. Trude, 880 S.W.2d 539, 542 (Ky. 1994) (provisions of KRS 418.075 are man-datory and will be strictly enforced), overruled in part on other grounds by Leanhart v. Humana, Inc., 933 S.W.2d 820, 821 (Ky. 1996) and Sisters of Charity Health Systems, Inc. v. Raikes, 984 S.W.2d 464, 471 (Ky. 1998). See also Hinkle v. Commonwealth, 104 S.W.3d 778, 780 (Ky. Ct. App. 2002) (suggesting it would have declined to consider constitutional challenge because of appellant’s failure to provide the required notice.)

Civil Rule 24.03 subsequently was amended to require the party raising the chal-lenge to notify the Attorney General. Brashars v. Commonwealth, 25 S.W.3d 58, 65-66 (Ky. 2000).

Strict compliance with the notice requirement is mandatory in both fa-cialand“as-applied”challengestostatutes.Benet v. Commonwealth, 253 S.W.3d 528,532-33 (Ky. 2008).

The decision in Maney is silent as to when notice should be given during the trial court proceedings but KRS 418.075(1) requires that notice be given prior to the entry of judgment. Further, the subsequent amendment of Civil Rule 24.03 to requireserviceofthepaperwherethefirstchallengeisraised,aswellasprudenceandjudicialeconomy,dictatethatnoticebegivenwiththefirstchallengetothevalidity of the statute. Both the statute and the civil rule are designed to give the Attorney General a reasonable amount of time to move to intervene to defend the statutesubsequenttonotification.Hinkle v. Commonwealth, 104 S.W.3d 778, 780 (Ky. Ct. App. 2002) (in the absence of demonstrated prejudice one week notice to theAttorneyGeneralpriortoentryofjudgmentwassufficient.)

Wheretheoriginalactionisfiledinthecourtofappeals,itisthe“trialcourt”forpurposesofthenotificationrequirement.Adventist Health Systems, Inc. v. Trude, 880 S.W.2d 539, 542 (Ky. 1994), overruled in part on other grounds by

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Leanhart v. Humana, Inc., 933 S.W.2d 820, 821 (Ky. 1996) and Sisters of Charity Health Systems, Inc. v. Raikes, 984 S.W.2d 464, 471 (Ky. 1998).

In 1996, KRS 418.075 was amended to add subsection (2). It extends the notificationrequirementstoanyappealtotheKentuckyCourtofAppeals,Ken-tucky Supreme Court, or federal appellate court. The new subsection requires that, priortotheappellantfilinghisbrief,acopyofthepaperthatinitiatestheappealmust be served on the Attorney General. KRS 418.075(2). Although on its face the subsection is limited to appeals and appellants, it is likely the courts will read the statute to apply to discretionary review and to appellees who on cross-appeal are challenging the constitutionality of a statute. The Kentucky appellate courts have not addressed whether subsection (2) is mandatory. However, in a concurring opinion Justice Keller makes clear his strong inclination to do so. Preston v. John-son County Fiscal Court, 27 S.W.3d 790, 796 (Ky. 2000) (Keller, J., concurring).

KRS 418.075 is not applicable to challenges to the rules of the Court of Justice. Glenn v. Commonwealth, 486 S.W.3d 186, 188 (Ky. 2014).

The Attorney General has standing to bring an action for declaratory and injunctive relief challenging the constitutionality of a statute or the actions of the Executive Branch and to enforce the laws of the Commonwealth. Commonwealth ex rel. Beshear, 498 S.W.3d 355, 362-364 (Ky. 2016). The Attorney General cannot be required by a court to defend the constitutionality of a statute. Commonwealth v. Hamilton, 411 S.W.3d 741, 751 (Ky. 2013).

Absent a personal and particularized injury, individual members of the General Assembly lack standing in their capacity as legislators to challenge the constitutionality of a statute or Executive Branch action. Id. at 367-68.

3. [4.42] Associational Standing

An association enjoys standing to bring an action upon demonstrating three elements: (i) one or more of its members have standing to bring the action in their own name; (ii) the interests to be litigated are germane to the association’s purpose; and (iii) neither the claim nor the relief sought require the participation of the individual members. Bluegrass Pipeline Co., LLC v. Kentuckians United to Restrain Eminent Domain,478S.W.3d386,391(Ky.Ct.App.2015).Thefirsttwoelements are constitutional; the third element is prudential and need not be rigidly appliedwheretodosowouldtakeawaytheflexibilityitisdesignedtoprovide.Interactive Gaming Council v. Commonwealth ex rel. Brown, 425 S.W3d 107, 113-14 (Ky. Ct. App. 2014).

E. [4.43] Jurisdiction

KRS 418.040 vests subject matter jurisdiction to hear declaratory judgment actions in any “court of record of this Commonwealth having general jurisdiction whereinitismadetoappearthatanactualcontroversyexists…”Thecircuitcourts

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are courts of general jurisdiction. Ky.Const. § 109 (“The judicial power of the Commonwealth shall be vested exclusively in one Court of Justice which shall be dividedinto…atrialcourtofgeneraljurisdictionknownastheCircuitCourt….”);Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 163 (Ky. 2009). Because there is a single circuit court “‘and all circuit judges are members of thatcourt…[they]enjoyequalcapacitytoactthroughoutthestate.”Id. (quoting Baze v. Commonwealth, 276 S.W.3d 261, 267 (Ky. 2008). Thus, absent legislative prescription or proscription to the contrary, a declaratory judgment action may be brought in any circuit court “wherein it is made to appear that an actual controversy exists.”Thefamilycourtsareadivisionofthecircuitcourtsandhavesubjectmatterjurisdictiontoheardeclaratoryjudgmentactionsinvolvingmattersnotspecificallyenumerated at KRS 23A.100(1). Uninsured Employers’ Fund v. Bradley, 244 S.W.3d 741, 745 (Ky. Ct. App. 2007) (construing Ky.Const. § 112(6)).

The circuit courts lack subject matter jurisdiction over declaratory judg-mentactionsagainsttheCourtofJustice,itsmembers,administrativestaffintheirofficialcapacities,anditsagencies.Jones v. Commonwealth, Administrative Office Of The Courts, 171 S.W.3d 53, 54-55 (Ky. 2005). To the extent such an action lies, it must be brought in the Kentucky Supreme Court or in accordance with the Court’s policies. Id. at 55.

V. [4.44] Writ of Mandamus – Generally

A. [4.45] Nature of Remedy

TheKentucky’shighest courthasdefinedawritofmandamusas “anorder of a court of competent and original jurisdiction, commanding an executive orministerialofficertoperformanact,ortoomittodoanact,theperformanceoromissionofwhichisenjoinedbylaw.”Fiscal Court v. Board of Education, 230 S.W. 57, 60 (Ky. 1921). In essence, a mandamus is a judicial order compelling an inferiorcourt,officer,oradministrativebodytocarryoutaduty.

Where the action or duty involves a discretionary act by the defendant, the mandamus will issue only to compel that the action be taken, not to determine its result. Kaufman v. Humphrey, 329 S.W.2d 575, 576 (Ky. 1959). As explained in Kaufman, “[m]andamus will issue to compel the exercise of a discretionary duty, notthatitbeexercisedinaparticularway.”Id.; see also Owens v. Williams, 955 S.W.2d 196, 197 (Ky. Ct. App. 1997) (“Mandamus is a proper remedy to compel an inferior court to adjudicate on a subject within its jurisdiction where it neglects orrefusestodoso,butwillnotlietoreviseorcorrectadecision.”).Thisgeneralrule does not apply “in a situation in which litigation is likely to be repeated…or wheretheissueis‘capableofrepetitionyetevadingreview.’”May v. Coleman, 945 S.W.2d 426, 427 (Ky. 1997) (claim that inmate was entitled to appointment of lay legal assistant).

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A mandamus is particularly appropriate to compel an administrative body to act where the body is charged with a duty but delays or refuses to carry out the duty. Ratliff v. Phillips, 746 S.W.2d 405, 406 (Ky. 1988) (mandamus available to require board of adjustments to render decision after expiration of statutory period for doing so); Hargis v. Swope, 114 S.W.2d 75, 77 (Ky. 1938).

A mandamus is an extraordinary remedy. Gilbert v. McDonald-Burkman, 320 S.W.3d 79, 84 (Ky. 2010); Cape Publications, Inc. v. Braden, 39 S.W.3d 823, 828 (Ky. 2001); Humco, Inc. v. Noble, 31 S.W.3d 916, 920 (Ky. 2000); Bender v. Eaton, 343 S.W.2d 799, 800 (Ky. 1961). “Granting a writ of mandamus is a rare and extraordinarymeasurewithadifficultstandardtomeet.”Foster v. Overstreet, 905 S.W.2d 504, 505 (Ky. 1995). Normally, mandamus may not be used as a substitute for appeal. National Gypsum Co. v. Corns, 736 S.W.2d 325, 326 (Ky. 1987); see also Garrard County Board of Education v. Jackson, 12 S.W.3d 686, 689 (Ky. 2000) (“We do not use mandamus as a corollary to our ‘error correction power’ to reviseorcorrectthediscretionofaninferiorcourt.”);Goldman v. Eichenholz, 851 S.W.2d 463, 465 (Ky. 1993) (mandamus will not be issued “where it appears to do sowouldbeasubstituteforanappealwheresuchrighthasbeenextinguished”).These limitations are required “to prevent short-circuiting normal appeal procedure andtolimitsofaraspossibleinterferencewiththeproperandefficientoperationofourcircuitandothercourts.”Garrard County Board of Education v. Jackson, 12 S.W.3d 686, 689 (Ky. 2000).

Theobjectofthewritmustbeapublicofficer,andtheproceedingsmustbebroughtagainsttheindividualofficer,nottheofficeoragency.Bruner v. City of Danville, 394 S.W.2d 939 (Ky. 1965). Similar limitations exist with respect to theissuanceofawritofmandamustoajudicialofficer.Commonwealth v. Wilson, 622 S.W.2d 912, 913 (Ky. 1981); see also Courier Journal & Louisville Times Co. v. Peers, 747 S.W.2d 125, 127 (Ky. 1988) (“Mandamus will lie to set a court in motion,althoughitcannotbeusedtocontroltheresult.”).

B. [4.46] Requirements for Issuance of Writ of Mandamus

Where an inferior court is proceeding or threatens to proceed erroneously within its jurisdiction, a petitioner seeking a writ of mandamus must demonstrate the absence of an adequate remedy at law, and that the refusal to grant the writ will result in great and irreparable injury. Hoskins v. Maricle, 150 S.W.3d 1, 10 (Ky. 2004); see also Humco, Inc. v. Noble, 31 S.W.3d 916, 920 (Ky. 2000); City of Lex-ington v. Cox, 481 S.W.2d 645, 646 (Ky. 1972); Bender v. Eaton, 343 S.W.2d 799, 801 (Ky. 1961); National Gypsum Co. v. Corns, 736 S.W.2d 325, 326 (Ky. 1987) (“To obtain relief by writ of mandamus, a petitioner must show that great injustice orirreparableinjuryresultandthatappealdoesnotprovideanadequateremedy.”).

Where the inferior court is acting or threatening to act outside its juris-diction, a lesser showing is required, but there was substantial confusion in earlier decisions concerning what must be demonstrated. Cf. City of Lexington v. Cox, 481

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S.W.2d 645, 646 (Ky. 1972) (“must demonstrate that there is no adequate remedy throughapplicationtoaninferiorcourt.…”);Chamblee v. Rose, 249 S.W.2d 775, 777 (Ky. 1952) (“[Availability of a] remedy by way of appeal is not the controlling considerationwheretheinferiorcourtiswithoutjurisdiction.”).Now,itisclearthatwhere the court’s action is challenged as being outside its jurisdiction an applicant is required to demonstrate that it lacks an adequate remedy through application to a lower court. Marshall v. Goodwine, 332 S.W.3d 51, 54 (Ky. 2010); see also Hoskins v. Maricle, 150 S.W.3d 1 (Ky. 2004).

The requirements for a writ of mandamus and a writ of prohibition are identical. Id.

Withoutregardtowhethertheofficerisactingwithinoroutsideherjuris-diction,awritisavailableonlywherethereisaclearanddefinitelegaldutyowedbythejudicialofficertothepetitioner.See Fiscal Court v. Board of Education, 230 S.W. 57, 60 (Ky. 1921); Louisville Home Telephone Co. v. City of Louisville, 113 S.W. 855, 858 (Ky. 1908) (petitioner’s interest in duty must be “independent of and distinguishable from that which obtains to him in common with the general public or to the mass of the community, though it may not be necessary that such particularinterestbedifferentinkindfromthatofthegeneralpublic,orparticulartotheindividualalone”).

1. [4.47] Lack of an Adequate Remedy at Law

Because mandamus is an extraordinary remedy, and in light of the prob-lems inherent in piecemeal or interlocutory appeals, mandamus is not available wheretheofficerisactingwithinhisorherjurisdictionifanotheradequateremedy,particularly by way of appeal, exists. Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 161 (Ky. 2009). As explained in National Gypsum Co. v. Corns, 736 S.W.2d 325, 326 (Ky. 1987):

[i]f what he (the trial court) does is wrong it can be undone in due course and in the same manner applicable to any other case.… If every action taken or about to be taken by a trial court judge were made subject to day-to-day supervision by an appellate court the result would be chaos.

Mandamus also has been denied where relief was available by way of a motion for temporary injunction (Jaggers v. Ryan, 474 S.W.2d 85, 86 (Ky. 1971)) or by a motion to dissolve a temporary restraining order (Palmer-Ball v. Meigs, 456 S.W.2d 697, 698 (Ky. 1970)). Nonetheless, the alternative remedy must not only exist but be an adequate remedy. Bender v. Eaton, 343 S.W.2d 799, 802 (Ky. 1961) (extraordinary relief available to overturn interlocutory order erroneously requiring litigant to disclose trial preparation materials despite right to subsequent appeal because injury to petitioner was complete and irremediable upon compliance with order); see Macklin v. Ryan, 672 S.W.2d 60, 61 (Ky. 1984) (mandamus issued

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to block retrial in violation of petitioner’s constitutional right not to be tried twice forthesameoffense).

2. [4.48] Great and Irreparable Injury

Greatandirreparableinjuryalternatelyhasbeendefinedas“somethingofaruinousnature”(Bender v. Eaton, 343 S.W.2d 799, 801 (Ky. 1961)) or the loss of valuable rights or property combined with “something in the nature of usurpation orabuseofpowerbythelowercourt”(Ison v. Bradley, 333 S.W.2d 784, 785 (Ky. 1960)). The irreparable injury must result from the “trial court’s erroneous refusal totaketheactionwhichthepetitionseekstocompel.”Goldman v. Eichenholz, 851 S.W.2d 463, 465 (Ky. 1993). Unlike the absence of an adequate remedy, which is absolute, “a court may grant a writ without showing of irreparable harm ‘provid-ed a substantial miscarriage of justice will result if the lower court is proceeding erroneously, and correction of the error is necessary and appropriate in the interest oforderlyjudicialadministration.”Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 161 (Ky. 2009) (quoting Bender v. Eaton, 343 S.W.2d 799, 801 (Ky. 1958)).

In most instances, irreparable injury does not include anticipated litigation expense (National Gypsum Co. v. Corns, 736 S.W.2d 325, 327 (Ky. 1987)), or incurring“extensiveorunnecessarycostsindefendingthecaseonappeal”(Jag-gers v. Ryan, 474 S.W.2d 85, 86 (Ky. 1971)). Irreparable injury may result from thedisclosureofconfidentialorprivilegedinformation.Adventist Health Systems/Sunbelt Healthcare Corporation v. Trude, 880 S.W.2d 539, 542 (Ky. 1994) (“[o]nce informationisfurnisheditcannotberecalled”),overruled in part on other grounds by Leanhart v. Humana, Inc., 933 S.W.2d 820, 821 (Ky. 1996) and Sisters of Charity Health Systems, Inc. v. Raikes, 984 S.W.2d 464, 471 (Ky. 1998).

“Therequirementof‘greatandirreparableinjury’hasadegreeofflexibilitywhich permits intervention when the administration of justice, as opposed to the petitioners,wouldsuffergreatandirreparableinjury.”Id.

C. [4.49] Standard of Review

As is the case with writs of prohibition, the standard of review on appeal of the grant or denial of a writ of mandamus turns on whether the application for thewritispremisedupontheofficeractingwithinorwithouthisorherjurisdiction.Fletcher v. Graham, 192 S.W.3d 350, 356 n.7 (Ky. 2006) (citing Grange Mutual Insurance Co. v. Trude, 151 S.W.3d 803, 810 (Ky. 2004) (writ of prohibition)). As such, it is identical to the standard for writs of prohibition. See Sections [4.59]-[4.61].

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VI. [4.50] Writ of Prohibition

A. [4.51] Nature of Remedy

A writ of prohibition is an extraordinary remedy. Cox v. Braden, 266 S.W.3d 792, 795 (Ky. 2008) (“[I]t is also clear that the message…[of] the ex-traordinary nature of writs is not getting through. So again: Remedy by way of extraordinary writ is disfavored, applications for such relief are discouraged, and thetestarticulated…willbeusedtoeffectuatethesepreferencesandtolimitsuchwritstotrulyextraordinarycases.”)(mandamus);Graham v. Mills, 694 S.W.2d 698, 699-700 (Ky. 1985). The relief granted by a writ of prohibition lies within “thesounddiscretionofthecourt,”butthecourtsare“cautiousandconservativeinentertainingpetitionsforandingrantingsuchrelief.”Sisters of Charity Health Systems, Inc. v. Raikes, 984 S.W.2d 464, 466 (Ky. 1998). This caution springs in large part because of the burdens imposed upon the appellate courts as a result of writ litigation, as well as the heightened chance for error because only an abbrevi-ated record is available in writ cases. Cox, 266 S.W.3d at 797.

The grant of a writ is always discretionary, never mandatory, even where theelementsforthewritaresatisfied.Id. at 795 (Ky. 2008). Thus, in the four years following the court’s decision in Hoskins v. Maricle, 150 S.W.3d 1 (Ky. 2004) clearly restating the requirements for a writ, relief was granted in less than one-third of the cases. Cox, 266 S.W.3d at 797 n.3.

The writ issues from a superior court to a court or other tribunal exer-cising judicial or quasi-judicial power for the purpose of preventing the inferior tribunal from exercising power unauthorized by law. Morris v. Randall, 112 S.W. 856, 858 (Ky. 1908). The right of appellate courts to issue the writ arises out of their constitutional authority to issue all writs in aid of their jurisdiction and in aid of the complete determination of a case. Ky.Const.§§ 110, 111; Green Valley Environmental Corp. v. Clay, 798 S.W.2d 141, 143-44 (Ky. 1990). The writ of prohibition,likeawritofmandamus,isavailableonlyincertainnarrowlydefinedcircumstances. Normally, it is not available to control the discretionary acts of a judge acting within her jurisdiction. Tipton v. Commonwealth, 770 S.W.2d 239, 242 (Ky. 1989) overruled on other grounds Hoskins v. Maricle, 150 S.W.3d 1 (Ky. 2004).

Early on, writs of prohibition were limited to those instances where the judicialofficerwasactingoutsidehisorherjurisdictionandthepetitionerlackedan adequate remedy. Goldsmith v. Owen, 26 S.W. 8 (Ky. 1894). Thus, writs issued wheretherespondentjudicialofficerexceededhisjurisdictionbyattemptingtotrya case at a time other than the special term for which he was appointed (Harrison v. Wright, 423 S.W.2d 901 (Ky. 1968)), where the court attempted to try the defendant after it lost subject matter jurisdiction by not bringing the defendant to trial within 180 days of his request for trial (Spivey v. Jackson, 602 S.W.2d 158 (Ky. 1980)), and where the judge attempted to enter an order in a criminal prosecution after disquali fying himself and a special judge had been appointed (Wedding v. Lair,

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404 S.W.2d 451 (Ky. 1966)). In modern times, the scope of the writ has expanded to include those instances where the court acted erroneously within its jurisdiction. Local No. 181 v. Miller, 240 S.W.2d 576, 579 (Ky. 1951).

The elements of a writ of prohibition and a writ of mandamus are nearly identical, and the courts frequently treat cases involving each interchangeably. See, e.g., Gilbert v. McDonald-Burkman, 320 S.W.3d 79, 83 (Ky. 2010) (“The Hoskins testappliesbothtowritsofprohibitionandmandamus.”);National Gypsum Co. v. Corns, 736 S.W.2d 325, 326-27 (Ky. 1987).

B. [4.52] “JudicialOfficer”Defined

Unlike a mandamus, an injunction, or an action for declaratory judgment, awritofprohibitionwillissueonlyagainstajudgeoranofficeractinginajudi-cial or quasi-judicial capacity such as a justice of the peace or magistrate. White v. Harlan, 503 S.W.2d 494, 495 (Ky. 1972); Brents v. Burnett, 174 S.W.2d 521 (Ky. 1943). In the sole reported case in which a writ of prohibition issued against a party other than a judge, magistrate, or justice of the peace, Superintendent of Common Schools v. Taylor,49S.W.38(Ky.1899),thecourtfirstdeterminedthatthe school superintendent against whom the writ was sought, and who apparently wastoactasahearingofficerinaproceedingtorevokethepetitioner’steachingcertificate,wasactingasajudicialofficer.Id. at 39.

Administrativeagenciesarenot“judicialofficers”againstwhomtheex-traordinary writ will issue. Payne v. Kentucky Railroad Commission, 287 S.W. 560 (Ky. 1926); Maynard v. Workmen’s Compensation Board, 276 S.W. 812 (Ky. 1925). For example, in Brents v. Burnett, 174 S.W.2d 521 (Ky. 1943), the court refused to issue a writ to prevent the Louisville Bar Association from pressing disciplinary claimsagainsttheplaintiffsinceitwasnota“judicialofficer”subjecttothewrit.Ontheotherhand,andalthoughthecourtdidnotaddressthespecificquestionofwhether the Kentucky Bar Association acting as a disciplinary body was a “judi-cialofficer,”theSupremeCourtdidconsiderthemeritsofapetitionforawritofprohibition against the bar association in Kentucky Bar Association v. Shewmaker, 842S.W.2d520,523(Ky.1992)(describingpetitionas“improperlyfiled”).

Even persons inextricably involved in the judicial process such as police officers(Pruitt v. Davidson, 334 S.W.2d 899 (Ky. 1960)) or prosecutors (Common-wealth ex rel. Breckinridge v. Wise, 351 S.W.2d 491 (Ky. 1961)) are not judicial officerssubjecttothewrit.

C. [4.53] Requirements for Issuance of a Writ of Prohibition

The prerequisites for the writ depend upon whether the challenged act iswithin orwithout the judicial officer’s jurisdiction.Hoskins v. Maricle, 150 S.W.3d 1, 10 (Ky. 2004); Kentucky Labor Cabinet v. Graham, 43 S.W.3d 247, 251 (Ky. 2001) overruled on other grounds Hoskins v. Maricle, 150 S.W.3d 1 (Ky. 2004); Bender v. Eaton, 343 S.W.2d 799, 800 (Ky. 1961). In Hoskins, Justice

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Cooper reviewed, and then attempted to clarify and reconcile, a quarter century of conflictingauthorityregardingtheprerequisitesforawritofprohibition.Gilbert v. McDonald-Burkman, 320 S.W.3d 79, 83 (Ky. 2010) (“Hoskins was an express attempt to reset the law of writs by removing the inconsistencies that had crept into variouscases.”)Inconclusion,theHoskinscourtdistilledtheconflictingprecedentinto the following rule:

A writ of prohibition may be granted upon a showing that (1) the lower court is proceeding or is about to proceed outside its jurisdiction and there is no remedy through application to an in-termediate court; or (2) that the lower court is acting or is about to act erroneously, although within its jurisdiction, and there exists no adequate remedy by appeal or otherwise and great injustice and irreparable injury will result if the petition is not granted.

Id. at 10. In Commonwealth, Department of Corrections v. Engle, 302 S.W.3d 60, 66 (Ky. 2010) the court further held that when a court is acting erroneously within its jurisdiction, and great and irreparable injury will not result in the case before the court in the absence of a writ of prohibition, the writ nevertheless may be ap-propriatewhererequiredforthe“orderlyadministrationofjustice.”Suchinstanceshavebeencharacterizedas“rare.”Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 161 n.16 (Ky. 2009).

For purposes of a writ of prohibition, a court acts within its jurisdiction where it has subject matter jurisdiction. Goldstein v. Feeley, 299 S.W.3d 549, 552-553 (Ky. 2009); Masters v. Masters, 415 S.W.3d 621, 624 (Ky. 1999) (subject matterjurisdictionreferstothecourt’sauthoritytodecide“thiskindofcase”asopposedto“thiscase”).Acourtalsoactsoutsideitsjurisdictionwhenitactscon-trary to or without statutory authorization. Hidalgo v. Commonwealth, 290 S.W.3d 56, 59 (Ky. 2009); Baker v. Ryan, 967 S.W.2d 591, 592 (Ky. Ct. App. 1997). But once a court acquires subject matter jurisdiction its actions contrary to the statute do not divest it of jurisdiction; rather the deviation provides a basis for granting relief“baseduponthecourt’simproperexerciseofjudicialpower.”Masters, 415 S.W.3d at 624. Typically, the determination of whether a court is acting within its subject matter jurisdiction may be determined by examining the applicable rule, statute or constitutional provision. Cox v. Braden, 266 S.W.3d 792, 796 (Ky. 2008) (“Since the jurisdiction of each level of court is clearly established, either by the Constitution, statute, or rule, petitions alleging this ground are resolved by legal interpretationoftheprovisionsgrantingjurisdiction.”)

Where the scope of relief that may be granted is at issue, as opposed to the court’s ability to grant the requested relief at all, the court is not acting outside its jurisdiction. Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 161 n.11 (Ky. 2009) (“But arguing about the proper scope of an injunction is not the same as arguing the court lacked the inherent jurisdiction to issue an injunction.) A court that lacks personal jurisdiction over the defendant is not acting outside its jurisdiction. Goldstein, 299 S.W.3d at 552 (“A lower court lacking personal

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jurisdictionoverapartyisnotactingorabouttoact“outsideofitsjurisdiction,”as that phrase has been used in the context of writ cases. It is acting “erroneously althoughwithinitsjurisdiction.”)

The determination of whether a court is acting within or without its ju-risdiction typically is a question of law. Appalachian Regional Healthcare, Inc. v. Coleman, 239 S.W.3d 49, 53-54 (Ky. 2007).

1. [4.54] Lack of an Adequate Remedy

Withoutregardtowhetherthejudicialofficeractedwithinorwithouthisjurisdiction, a petitioner must demonstrate that she lacks an adequate remedy. Ken-tucky Labor Cabinet v. Graham, 43 S.W.3d 247, 251 (Ky. 2001) overruled on other grounds Hoskins v. Maricle, 150 S.W.3d 1 (Ky. 2004). (rejecting as being “against thegreatweightofauthority”theargumentthatlackofanadequateremedydoesnothavetobedemonstratedwherejudicialofficerisactingoutsideitsjurisdiction.)

a. [4.55] Lack of an Adequate Remedy – Where the Court Is Acting Outside Its Jurisdiction

The nature of the inadequacy to be demonstrated varies depending on whetherthejudicialofficialisactingwithinorinexcessofhisorherjurisdiction.Wherethejudicialofficerisactingoutsidehisorherjurisdiction,theadequacyinquiry is limited to whether an adequate remedy is available through application to an intermediate court. Hoskins v. Maricle, 150 S.W.3d 1, 10 (Ky. 2004). That is, was the writ initiated in the proper court? Appalachian Regional Healthcare, Inc. v. Coleman, 239 S.W.3d 49, 53 (Ky. 2007). Thus, an applicant seeking a writ prohibiting a district court judge from taking action must initiate the action in the circuit court and not the Court of Appeals or the Supreme Court. Id. Thereafter, the decision of the court in which the application was initiated may be appealed to the next higher court. Id.

Where a court is acting outside of its jurisdiction, the existence of a remedy through appeal does not control the availability of the writ. Hoskins, 150 S.W.3d at 11. The existence or non-existence of a remedy through appeal may, however, be considered by the court in exercising its discretion to grant or deny the writ. Appalachian Regional Healthcare, Inc., 239 S.W.3d at 53.

b. [4.56] Lack of an Adequate Remedy – Where the Court Is Acting Within Its Jurisdiction

Whereajudicialofficerisacting,orthreatenstoacterroneously,butwithinhis or her jurisdiction, an applicant for a writ of prohibition must demonstrate the absence of an adequate remedy by appeal or otherwise. Id. If, because of the peculiar nature of the issue in controversy, the movant’s rights will not be fully protected on appeal, the remedy is not adequate. Id. As the court explained in Grange Mutual

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Insurance Co. v. Trude, 151 S.W.3d 803, 810 (Ky. 2004) “there will rarely be an adequateremedyonappealiftheallegederrorisanorderthatallowsdiscovery.”Thus, in Southern Bluegrass Mental Health & Retardation Board, Inc. v. Ange-lucci, 609 S.W.2d 931 (Ky. Ct. App. 1980), the court concluded that petitioner’s right of appeal from the trial judge’s order that his psychiatric records be released to the Department of Corrections was not an adequate remedy since “[o]nce the information is furnished, it cannot be recalled and the [petitioner’s patient-psychi-atrist]privilegeis,ineffect,destroyed.”Id. at 934; see also Wal-Mart Stores, Inc. v. Dickinson, 29 S.W.3d 796, 801 (Ky. 2000) (“an aggrieved party does not have an adequate remedy on appeal for an alleged discovery violation involving the er-roneousdisclosureofinformation”).Finally,whilenormallythequestionofotheradequate remedy is limited to an examination of the petitioner’s right of appeal anditsefficacy,theprerequisitewouldpresumablyrequireanexaminationofanyother remedy. Thus, in Powers v. Adams, 374 S.W.2d 862, 863 (Ky. 1964), the court refused to issue a writ of prohibition preventing a circuit judge from enforcing a judgment committing the petitioner to the Veteran’s Hospital since the petitioner had the right to move the circuit court to vacate its order.

Claims of constitutional violations normally may be adequately addressed by way of appeal, and a writ of prohibition is not available. Graham v. Mills, 694 S.W.2d 698, 700 (Ky. 1985).

2. [4.57] Irreparable Injury or Miscarriage of Justice

Wherethejudicialofficerisactingerroneouslywithinherjurisdiction,the movant typically must also demonstrate that denial of the writ will produce “greatandirreparableinjury.”James v. Shadoan, 58 S.W.3d 884, 885 (Ky. 2001); Wal-Mart Stores, Inc. v. Dickinson, 29 S.W.3d 796, 800 (Ky. 2000); Schaetzley v. Wright, 271 S.W.2d 885, 886 (Ky. 1954). The “mere loss of valuable rights or propertythrougherror”doesnotnecessarilysatisfytherequirement.Ison v. Bradley, 333S.W.2d784,785(Ky.1960).Rather,“greatandirreparableinjury”hasbeendefinedas“somethingofaruinousnature.”Bender v. Eaton, 343 S.W.2d 799, 801 (Ky.1961).Examplesofimmediateandirreparableinjurysufficienttosupporttheissuance of a writ of prohibition include:

• “Restraining free speech constitutes immediate and irrep-arableharmifunauthorized.”James v. Hines, 63 S.W.3d 602, 605 (Ky. Ct. App. 1998);

• Refusing to disqualify defense counsel in murder prose-cution after former Assistant Commonwealth Attorney, whose participation in the Commonwealth’s preparation ofitscasewas“personalandsubstantial,”joineddefensecounsel’slawfirm.Commonwealth v. Maricle, 10 S.W.3d 117, 120-21 (Ky. 1999);

• In exceptional circumstances, an evidentiary ruling ex-

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cludingevidence tobeofferedby theCommonwealth ina criminal prosecution in district court. Commonwealth v. Williams, 995 S.W.2d 400, 403 (Ky. Ct. App. 1999);

• Where forensic testing by prosecution may destroy excul-patory evidence. McGregor v. Hines, 995 S.W.2d 384, 387-388 (Ky. 1999);

• Requiring plaintiff to sign a blankmedical authorizationand thereby permitting defendant’s counsel to obtain ac-cesstorecordswithoutnoticetoplaintiff.Geary v. Schro-ering, 979 S.W.2d 134, 135-36 (Ky. Ct. App. 1998).

Therequirementthemovantsustain“greatandirreparableinjury”intheabsenceofthewritisnotan“absoluterequirement,”Grange Mutual Ins. Co. v. Trude,151S.W.3d803,808(Ky.2004),enforcedwithunflinchingrigor.Wal-Mart Stores, Inc. v. Dickinson, 29 S.W.3d 796, 801 (Ky. 2000) (“‘[t]he requirement of ‘greatand irreparable injury’[is] treatedwithadegreeofflexibilitypermittingintervention if the administration of justice, [rather than the petitioner], would suffergreatandirreparableinjury.’”)Asaresult:

In certain special cases this Court will entertain a petition for prohibitionintheabsenceofashowingofspecificgreatandirrep-arable injury to the petitioner, provided a substantial miscarriage of justice will result if the lower court is proceeding erroneously, and correction of the error is necessary and appropriate in the interest of orderly judicial administration. It may be observed that in such a situation the court is recognizing that if it fails to acttheadministrationofjusticegenerallywillsufferthegreatand irreparable injury.

Id.

This exception most commonly arises in connection with matters involv-ing the application of the rules of civil procedure involving discovery. In Bender v. Eaton, 343 S.W.2d 799, 801 (Ky. 1961), for example, the court issued a writ to prohibit the defendant judge from compelling production of certain information in contraventionoftherulesofcivilprocedure.Insoholding,thecourtfirstnotedthattheinjurytothepetitionerthroughdisclosurewasinitselfinsufficient.Onlybecausethe rule was expressly adopted to prevent the production of such information, and refusal to grant the writ would undermine the court’s attempt to ensure the proper applicationoftherules,didthecourtfindthattherequirementhadbeenmet.Id. at 802; see also Wal-Mart Stores, Inc. v. Dickinson, 29 S.W.3d 796, 801 (Ky. 2000) (application of Civil Rule 34 permitting entry onto land); Sisters of Charity Health Systems, Inc. v. Raikes, 984 S.W.2d 464, 466 (Ky. 1998) (“public policy [may] be the most compelling reason to grant the writ even though the petitioners had not metthesecondprongofthetest”);Sexton v. Bates, 41 S.W.3d 452, 455 (Ky. Ct.

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App.2001)(writappropriatetopermitcourttoexercise“supervisoryauthority”withrespecttothe“orderlyadministration”ofthecivilrules”).However,noteverymistaken application of a legal principle gives rise to the right to a writ of prohi-bition. In Colwell v. Ward, 428 S.W.2d 30, 31-32 (Ky. 1968), the court refused to issue the writ where the trial judge’s mistaken application of a legal principle was an“ordinaryorroutineerror,”notrisingtothestatusofamiscarriageofjustice.

D. [4.58] Record

Because an application for a writ of prohibition is an original action pursu-ant to CR 81, and not an appeal from the underlying action, the only record before the court to whom the application is made, and any appellate court reviewing that court’s decision on the application, “the only evidence available for consideration is thatfiledbythepartieseither insupportofor inoppositiontothepetition.”Lexington Public Library v. Clark, 90 S.W.3d 56, 56 (Ky. 2002).

E. [4.59] Standard of Review

1. [4.60] In the Court in Which the Application Is Filed

Although an original action, the court to whom the petition is addressed does not employ, with one exception, de novo review of the lower tribunal’s ac-tions. Commonwealth v. Deloney, 20 S.W.3d 471, 474 (Ky. 2000). Rather, in the original action:

Where a petition for one of the extraordinary writs alleges that a lower adjudicatory body within its jurisdiction has acted in-correctly, and the threshold factors of inadequate remedy and irreparableinjuryaresatisfied,thewritshouldbegrantedonlyuponashowingthatthechallengedactionreflectsanabuseofdiscretion…. Where the challenge involves matters of fact, or application of law to facts, however, an abuse of discretion should be found only where the factual underpinnings for application of an articulated rule is so wanting as to equal, in reality, a distortion of the legal rule.

Southeastern United Medigroup, Inc. v. Hughes, 952 S.W.2d 195, 199-200 (Ky. 1997) ; see also Commonwealth v. Deloney, 20 S.W.3d 471, 474 (Ky. 2000) (“def-erencetothetrialjudge’sroleasfact-finderappliesaswelltoanoriginalaction[forawritofprohibition]astoanactiononappeal”).

The exception to the abuse of discretion standard is for questions of law, which are reviewed de novo. Wal-Mart Stores, Inc. v. Dickinson, 29 S.W.3d 796, 801 (Ky. 2000).

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2. [4.61] On Review of the Decision of the Court to Grant or Deny the Writ

The standard of review on appeal from a decision in the original writ action to grant or deny a writ of prohibition turns on the type of writ action before the appellate court. Grange Mutual Insurance Co. v. Trude, 151 S.W.3d 803, 810 (Ky. 2004). Appeals from decisions granting or denying writs of prohibition, where thebasisforthewritisthatthejudicialofficerisactingoutsideofhisorherjuris-diction(thefirstclassofwritsidentifiedinHoskins v. Maricle, 150 S.W.3d 1, 10 (Ky. 2004)) typically will be reviewed de novo, “because jurisdiction is generally onlyaquestionoflaw.”Trude, 151 S.W.3d at 810; Conrad v. Evridge, 315 S.W.3d 313, 315 (Ky. 2010) Conversely, most appeals from applications involving the judicialofficeractingerroneouslywithinhisorherjurisdiction(thesecondclassofwritsidentifiedinHoskins) are reviewed under an abuse of discretion standard. Trude, 151 S.W.3d at 810. The two limited de novo review exceptions to the abuse of discretion standard in connection with appeals from writ applications involv-ingajudicialofficeractingerroneouslywithinhisorherjurisdictionareforanyquestions of law that might arise in connection with the issues resolved in the writ proceeding,and,whereapplicable,fromthedeterminationinthose“specialcases”that a writ should issue to avoid a miscarriage of justice and is in the interest of the orderly administration of justice. Id. In addition, the court in Lexington Public Library v. Clark, 90 S.W.3d 56, 62 (Ky. 2002) suggested, but did not decide, that questions involving the attorney-client privilege, and other mixed questions of fact and law may, be reviewed de novo on appeal from the initial writ proceeding. Finally,anyfindingsoffactmadebythecourtinwhichthewritapplicationwasfiledarereviewedundertheclearerrorstandardofCR52.01.Trude, 151 S.W.3d at 810.Afindingoffactisclearlyerroneouswhereitisnotsupportedbysubstantialevidence. Moore v. Assente, 110 S.W.3d 336, 354 (Ky. 2003).

WheretheoriginalactionforawritofprohibitionisfiledintheKentuckyCourt of Appeals, Section 115 of the Kentucky Constitution provides for an appeal as a matter of right to the Kentucky Supreme Court. Petrey v. Cain, 987 S.W.2d 786, 788 (Ky. 1999).

VII. [4.62] Quo Warranto

Quo warranto “is an ancient common law process by which the sovereign determined the legality of a claim which a party asserts to the use or exercise of an officeorfranchiseandoustssuchaoneifhisclaimisnotwellfoundedortherighttoenjoytheprivilegehasbeenforfeitedorlost.”Arnett v. DeWeese, 304 S.W.2d 784, 786 (Ky. 1957). It also was available where an entity having a franchise fails to exercise it. Commonwealth v. Kentucky Jockey Club, 38 S.W.2d 987, 1005 (Ky. 1931).Inessence,theactionisavailabletooustausurperfromanofficeorfranchise.Commonwealth v. Mason, 300 S.W.2d 44, 45 (Ky. 1957). The respondent must

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actuallyusurptheofficeandnotmerelylayclaimtoit.Broyles v. Commonwealth, 219 S.W.2d 52, 54 (Ky. 1949). Thus, relief by way of quo warranto is not available untilthetermhadbegunandthedefendanthadactuallyassumedtheoffice.Id.

Quowarrantohasbeenexpandedtopermitaclaimanttotheofficeaswellas a representative of the Commonwealth to obtain the relief. Jenkins v. Congleton, 45 S.W.2d 456, 457 (Ky. 1932) (“suits of this character should be brought by some publicofficers,orbysomeonepersonallyinterestedintheoffice.…[whoclaimsarighttotheoffice]”).Therationaleforlimitingthereliefavailablebyquowarrantois that “it would be highly detrimental to the public welfare and highly inexpedient thattitletopublicofficeshouldbeputinquestionwheneveranyprivatecitizenseesfittomaketheassault.”Id.

ThereisnobasisinKentuckycaselawfortheawardofdamagesorfinesinconnectionwithaquowarrantoactionrelatingtoastatutoryoffice.Perks v. Byers-Abston, 2011 Ky. App. Unpub. LEXIS 72 *7 (Ky. Ct. App. 2011).

Relief in the form of quo warranto and other common law writs may be obtained by means of a writ in a court of appropriate jurisdiction. Mischler v. Thompson, 436 S.W.3d 498, 502 n. 6 (Ky. 2011).

VIII. [4.63] Compensatory Damages

A. [4.64] Generally

The“bottomprinciple”ofthelawofdamagesiscompensation,(Hughett v. Caldwell County, 230 S.W.2d 92, 96 (Ky. 1950)), not retribution (Paducah Area Public Library v. Terry, 655 S.W.2d 19, 23 (Ky. Ct. App. 1983)). Compensatory damages are designed “to place the injured party in the same condition, so far as money can do so, in which he would have been if the contract had been duly per-formed”(Evergreen Land Co. v. Gatti, 554 S.W.2d 862, 866 (Ky. Ct. App. 1977)) or the tort had not been committed (Paducah Area Public Library v. Terry, 655 S.W.2d 19, 23 (Ky. Ct. App. 1983)). Accordingly, they are designed to provide “full recompensebutnothingmore.”Id; see also Kentucky Central Insurance Company v. Schneider, 15 S.W.3d 373, 374-375 (Ky. 2000) (“The object of compensatory damages is to make the injured party whole to the extent that it is possible to measurehisinjuryintermsofmoney….Theobjectisnottoplacetheplaintiffinabetterpositionthanhewouldhavebeenhadthewrongnotbeendone”).Finally,“[t]here is a strong public policy in this Commonwealth against double recovery forthesameelementofloss.”Hardaway Management Company v. Southerland, 977 S.W.2d 910, 918 (Ky. 1998).

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B. [4.65] Contract vs. Tort

Although “full recompense” is the goal of compensatory damages inbothcontractandtort,themeasurefundamentallydiffers.“Inthecaseofabreachof contract, the goal of compensation is…the awarding of a sum which is the equivalentofperformanceofthebargain–theattempttoplacetheplaintiffinthepositionhewouldbeinifthecontracthadbeenfulfilled.”SEG Employees Credit Union v. Scott, 554 S.W.2d 402, 406-07 (Ky. Ct. App. 1977); accord Hogan v. Long, 922 S.W.2d 368, 371 (Ky. 1995). By contrast, compensatory damages in a tortactionaredesignedtorestoretheplaintifftotheformerpositionshewouldhave enjoyed in the absence of the tort. Paducah Area Public Library v. Terry, 655 S.W.2d 19, 23 (Ky. Ct. App. 1983). That is, the critical distinction is between restoration(tort)andfulfillmentofthebargain(contract).Onefundamentalresultof this distinction is that compensatory damages in contract are limited “to those which may reasonably be supposed to have been within the contemplation of the parties.”Western Union Telegraph Co. v. Guard, 139 S.W.2d 722, 727 (Ky. 1940). No such rule applies in tort.

C. [4.66] Types of Compensatory Damages

Kentucky law recognizes two types of compensatory damages: general andspecific.

1. [4.67] General Damages

Generaldamagesarethosedamages“naturallyandnecessarily”flowingfrom the tort or breach of contract such that they are implied by law. Moss Jellico Coal Co. v. American Railway Express Co., 248 S.W. 509-10 (Ky. 1923). General damagesaresynonymouswith“consequentialdamages.”Gaines v. Murphy, 239 S.W.2d 453, 456 (Ky. 1951). In a tort case, general damages include “pain and sufferingandpermanentimpairmentofabilitytolaborandearnmoney.”Drury v. Franke, 57 S.W.2d 969, 982 (Ky. 1933); Columbia Sussex Corporation v. Hay, 627 S.W.2d 270, 274 (Ky. Ct. App. 1981) (in defamation action, “general damages relatetohumiliation,mentalanguish,etc.”).Incontract,generaldamagesincludelossofbargainandlostprofits.SEG Employees Credit Union v. Scott, 554 S.W.2d 402, 406-07 (Ky. Ct. App. 1977); see also DP Service, Inc. v. AM International, 508F.Supp.162,167(N.D.Ill.1981)(generaldamagesincludelossofprofitsand other damages resulting from the disruption of day to day business); but see Roadway Express, Inc. v. Don Stohlman & Assoc. Inc., 436 S.W.2d 63, 65 (Ky. 1968)(lostprofitsarespecialdamages).

Attorneys fees, even when available under the American Rule, are not a form of compensatory damages. Mo-Jack Distrib., LLC v. Tamarak Snacks, LLC, 476 S.W.3d 900, 906 (Ky. Ct. App. 2015).

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2. [4.68] Special Damages

Specialdamagesarethosedamageswhichflowfromthespecialcircum-stances of the injury or breach. United States Bond & Mortgage Corp. v. Berry, 61 S.W.2d 293, 297 (Ky. 1933). In tort they include “physician’s bills, hospital bills, losttime,(and)billsformedicine.”(Drury v. Franke, 57 S.W.2d 969, 982 (Ky. 1933)),aswellasother“out-of-pocket”expensesandlosses(In re Hawaii Federal Asbestos Cases, 734 F. Supp. 1563, 1562 (D. Hi. 1990)) and lost wages or earnings (Gunn v. Robinson, 330 S.W.2d 399, 400 (Ky. 1959)). See also Columbia Sussex Corporation v. Hay, 627 S.W.2d 270, 274 (Ky. Ct. App. 1981) (“[s]pecial damages arethosebeyondmereembarrassmentwhichsupportactualeconomicloss”).Spe-cial damages encompass those damages arising because of “special circumstances attendingthemakingofthecontract.”United States Bond & Mortgage Corp. v. Berry, 61 S.W.2d 293, 297 (Ky. 1933). Attorney fees frequently constitute special damages. In re American Casualty Co., 851 F.2d 794, 802 (6th Cir. 1988). Special damagesmustbespecificallypleaded.CR9.06.

D. [4.69] “Damage”DistinguishedfromInjury

“Injury”and“damage”arenotsynonymous.Injurymeans“aviolationof some legal right.…a wrong or a tort…aris[ing] by nonfeasance or failure to performalegalobligationorduty.”Combs v. Hargis Bank & Trust Co., 27 S.W.2d 955, 956 (Ky. 1930). Damage, in turn “is the harm, or loss, sustained by reason oftheinjury.”Id.

E. [4.70] Requirement of Certainty

1. [4.71] Certainty as to Fact of Damage

Courts distinguish between the certainty required with re spect to the amount of damages and proof that the claimed damages resulted from the defen-dant’s breach. There is little dispute that the fact of “damages must be shown with reasonablecertainty.”Commonwealth v. Jent, 525 S.W.2d 121, 122 (Ky. 1975) (reversingawardofdamagesfordivertingwateroverplaintiff’spropertywhereplaintifffailedtoofferanyproofofresultantdamage).Thus,“norecoveryisal-lowed where resort to speculation or conjecture is necessary to determine whether the damage resulted from theunlawful act…or fromother sources.”Roadway Express, Inc. v. Don Stohlman & Associates, Inc., 436 S.W.2d 63, 65 (Ky. 1968).

However,mere difficulty in proof of damages does not render themspeculative as a matter of law. Spencer v. Woods, 282 S.W.2d 851, 852 (Ky. 1955). Rather,inprovingthelinkbetweenthedefendant’sactionorinactionandplaintiff’sdamages,resortcanbemadeto“commonknowledgeandhumanexperience.”Road-way Express, Inc. v. Don Stohlman & Assoc., Inc., 436 S.W.2d 63, 65 (Ky. 1968).

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Thedemarcationbetween“reasonablecertainty”and“speculationandcon-jecture”ishardlyabrightline,particularlyinactionsforlostprofits.Thedifficultyin distinguishing between the two is illustrated by two decisions. In Kellerman v. Dedman, 411 S.W.2d 315 (Ky. 1967), a dispute arose over whether certain assets to be sold at public auction, in connection with a partnership dissolution, were partnership assets. On the day of the auction, the partner claiming the disputed assets publicly stated immediately before the auction that any purchaser would be “buyingalawsuit.”Id. at 317. Thereafter, approximately one-half of the crowd left,andtheassetsweresoldforlessthantheir“reasonablemarketvalue.”Id. at 317-18. On appeal, the former partner making the public statement at the auction arguedthattheplaintiffsfailedtoprovethathisconductcausedtheirdamages.Rejecting the appellant’s argument, the court noted that there was evidence of the fact of damage (the property sold at less than its market value) and a causal connection between the defendant’s actions and the damage (the dispersal of the crowd and the dampening of the crowd’s spirits after defendant’s statements). Id. at 317. In addition, the loss followed closely on the heels of the defendant’s actions.

In contrast is Roadway Express, Inc. v. Don Stohlman & Associates., Inc.,436S.W.2d63(Ky.1968).There,theplaintiffsoughttorecoverlostprofitsitclaimed resulted from the defendant’s failure to deliver advertising materials for a trade fair. Reversing the jury’s award of damages, the Kentucky Court of Appeals held that theplaintifffailed toestablish the factof itsdamagewith reasonablecertainty. In so holding, the court appeared to rely upon four factors: (1) the wide-lyfluctuatingnatureofplaintiffsincome;(2)thefactthatthedamageallegedlyoccurred over a two-month period instead of contemporaneously with defendant’s action;(3)plaintiff’sfailuretoidentifyanycustomerslostornotobtainedasare-sult of defendant’s failure to deliver the materials in a timely fashion; and (4) lack of expert testimony tying the claimed damages to defendant’s actions. Id. at 66.

Nevertheless, in both cases, there was evidence that other factors may have contributedtotheplaintiffs’claimedlosses.Forexample,inRoadway Express, the plaintiff’spresidenttestifiedthatthemissingmaterialsaffectedthecrowd’sreactiontoplaintiff’sdisplay.Inaddition,inRoadway Expresstheplaintiffintroducedevi-dence that its income declined following defendant’s failure to deliver the materials, while in three other years it increased following the trade show.

Although the decisions are not entirely reconcilable, the following factors seemimportantinforgingwith“reasonablecertainty”thecausallinkbetweenadefendant’sactionsandplaintiff’slostprofits:

(a) temporal proximity;

(b) introduction of expert testimony tying the two;

(c) absenceoflargefluctuationsinincome;and

(d) theoccurrenceofotherfactorsthatcouldaffectplaintiff’sprofits.

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2. [4.72] Certainty as to Amount of Damage

Uncertainty as to the amount of damages will not bar recovery. Wiley v. Adkins, 48 S.W.3d 20, 23 (Ky. 2001) (“Where it is reasonably certain that damage has resulted, the mere uncertainty as to the amount does not preclude the right to recoveryortopreventajuryfromawardingdamages.”);Roadway Express Co. v. Don Stohlman & Associates, Inc., 436 S.W.2d 63, 65 (Ky. 1968) (“mere uncertainty astoamountwillnotprecluderecovery”).

F. [4.73] Attorney Fees and Prejudgment Interest

Kentucky law permits the recovery of attorney fees and prejudgment interest in certain instances. “As a general rule, in the absence of contractual or statutory liability, attorney’s fees are not recoverable as an itemof damages.”CSX Transportation, Inc. v. First National Bank of Grayson, 14 S.W.3d 563, 569 (Ky. Ct. App. 1999). In limited circumstances, attorney fees may be awarded by the trial court (not the jury) sitting in Equity in the court’s discretion. Mo-Jack Distrib., LLC v. Tamarak Snacks, LLC, 476 S.W.3d 900, 906 (Ky. Ct. App. 2015). In addition, a court may also award attorney fees when exercising “its inherent authoritytoadministerjustice.”Kentucky Ret. Sys. v. Foster, 338 S.W.3d 788, 803 (Ky.Ct.App.2010).Acontemptproceedingisthe“veryembodiment”ofacourt’sinherent authority. Id.

By contrast,

[w]hendamagesare“liquidated,”prejudgmentinterestfollowsasamatterofcourse.Preciselywhentheamountinvolvedqualifiesas“liquidated”isnotalwaysclear,butingeneral“liquidated”means“[m]adecertainorfixedbyagreementorbyoperationoflaw.”…Commonexamplesareabillornotepastdue,anamountdueonanopenaccount,oranunpaidfixedcontractprice.

Nucor Corporation v. General Electric Company, 812 S.W.2d 136, 142 (Ky. 1991); see also Faulkner Drilling Company v. Gross, 943 S.W.2d 634, 648 (Ky. Ct. App. 1997) (“In order for damages to be deemed liquidated, there must be some certainty astotheamounts.”).Thedeterminationofwhetherprejudgmentinterestwillbeawarded is made by the trial court and not the jury. Church and Mullins Corporation v. Bethlehem Minerals Company, 887 S.W.2d 321, 325 (1992).

“A ‘liquidated amount’ is one which ‘can be determined by simple calcu-lation, can be determined with reasonable certainty, can be determined pursuant to fixedrulesofevidenceorcanbedeterminedbywell-establishedmarketvalues.’”Hazel Enters. LLC v. Ray, 510 S.W.3d 840, 843 (Ky. Ct. App. 2017) (quoting Neurodiagnostics v. Modern Radiology, 2010 Ky. App. Unpub. LEXIS 937, 2010 WL 5018565 (Ky. Ct. App. 2010)). The amount becomes reasonably certain “by the act and agreement of the parties or by operation of law to a sum which cannot bechangedbytheproof.’”Id. at 843-44. “By contrast, ‘unliquidated damages’ are

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“damages that have been established by a verdict or award but cannot be determined byafixedformulasotheyarelefttothediscretionofthejudgeorjury.’”Id. at 844.

Notwithstanding the Nucor court’s statement that prejudgment interest will beawardedasa“matterofcourse”wheredamagesareliquidated,“thetrialcourthas the discretion to weigh the equitable considerations and determine whether pre-judgmentinterestshouldbeawarded.”Murray v. McCoy, 949 S.W.2d 613, 615 (Ky. Ct. App. 1996); see also Church and Mullins Corporation v. Bethlehem Minerals Company, 887 S.W.2d 321, 325 (1992) (decision to award prejudgment interest is based“uponthefoundationofequityandjustice”);Hazel Enters. LLC v. Ray, 510 S.W.3d 840, 843 (Ky. Ct. App. 2017) (“In the face of Hazel’s inexplicably ardent argument to the contrary, we will once again declare what Kentucky law already states: payees such as Hazel do not possess an ‘absolute right’ to post-judgment interest under KRS 360.040”).

G. [4.74] Standard of Review

In determining whether an award of damages is excessive or inadequate, thetrialcourtandappellatecourtsemploydifferingstandards.Miller v. Swift, 42 S.W.3d 599, 601 (Ky. 2001) (rejecting claim of inadequate damages); Burgess v. Taylor, 44 S.W.3d 806, 813 (Ky. Ct. App. 2001) (rejecting claim of excessive damages).Thetrialcourtusesthe“firstblush”ruleandlookstoseewhether“thedamagesare ‘outrageous’and ‘allmankindatfirstblushmust thinkso.’”Ow-ens-Corning Fiberglass Corporation v. Golightly, 976 S.W.2d 409, 414 (Ky. 1998). Thatis,“whetherthejury’sawardappears‘tohavebeengivenundertheinfluenceof passion or prejudice or in disregard of the evidence or the instructions of the court.’”Burgess v. Taylor, 44 S.W.3d 806, 813 (Ky. Ct. App. 2001).

Onappeal,thefocusisonthetrialcourt’sapplicationofthe“firstblush”rule, not the jury’s actions, and the trial court’s decision will be reversed only if clearly erroneous. Cooper v. Fultz, 812 S.W.2d 497, 501 (Ky. 1991).

The award of prejudgment interest is reviewed on appeal under the abuse of discretion standard. Id.

IX. [4.75] Non-compensatory Damages

Kentucky law recognizes two types of non-compensatory damages: nominal damages and punitive or exemplary damages.

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A. [4.76] Nominal Damages

1. [4.77] Definition

“Nominal damages are a trivial sum of money awarded to a litigant who has established a cause of action but has not established that he is entitled tocompensatorydamages…[theyare]damagesinnameonly.”Stoll Oil Refining Co. v. Pierce, 343 S.W.2d 810, 811 (Ky. 1961). Nominal damages are a means of vindicating a breach of contract or invasion of a legal right (Western Union Tel. Co. v. Guard, 139 S.W.2d 722, 728 (Ky. 1940)) and are “‘a mere peg to hang costs on’”(Stoll Oil Refining Co. v. Pierce, 343 S.W.2d 810, 811 (Ky. 1961)).

2. [4.78] Circumstances Justifying Grant of Nominal Damages

Nominal damages are granted in two circumstances. First, nominal dam-ages are appropriate “where a legal right is to be vindicated against an invasion that hasproducednoactualpresentlossofanykind.”Western Union Telephone Co. v. Guard, 139 S.W.2d 722, 728 (Ky. 1940). This includes those claims where actual damages are not required for a cause of action. See Ellison v. R&B Contracting, Inc., 32 S.W.3d 66, 71 (Ky. 2000) (trespass); Vitale v. Henchey, 24 S.W.3d 651, 659 (Ky. 2000) (nominal damages may be awarded in action for battery because a showing of actual damages is not an element); Banks v. Fritsch, 39 S.W.3d 474, 479 (Ky. Ct. App. 2001) (false imprisonment). In addition, they are granted in those instances where the fact of damage is established but the proof fails to show the amount. Western Union, 139 S.W.2d at 728. Nominal damages are granted in these circumstances because the law “infers some damage from the breach of an agreementorinvasionofaright.”Id.

3. [4.79] Amount

Nominal damages typically are granted in the amount of $1.00. Stoll Oil Refining Co. v. Pierce, 343 S.W.2d 810, 811 (Ky. 1961). The sum of $1,500 in 1961 dollars exceeds a nominal amount. Id. An award of $3,000 was deemed to exceed a nominal amount in 2007. Young v. Vista Homes, Inc., 243 S.W.3d 352, 366 (Ky. Ct. App. 2007).

4. [4.80] EffectofFailuretoGrantWhenJustified

Thefailuretograntnominaldamageswhentheyareotherwisejustifiedis not reversible error. Hayes v. Hayes, 357 S.W.2d 863, 866 (Ky. 1962). The sole exception is where the party entitled to but not receiving nominal damages also was not awarded its costs. USACO Coal Co. v. Liberty National Bank & Trust Co., 700 S.W.2d 69, 72 (Ky. Ct. App. 1985); cf. Stoll Oil Refining Co. v. Pierce, 343 S.W.2d810,811(Ky.1961)(nominaldamagesare“amerepegtohangcostson”).

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B. [4.81] Punitive or Exemplary Damages

Punitive damages long have been a part of Kentucky jurisprudence. See, e.g., Tyson v. Ewing, 26 Ky. 185, 186 (Ky. 1830). Sometimes referred to as exem-plary or vindictive damages (Chiles v. Drake, 59 Ky. 146, 151 (Ky. 1859)), as well as“smartmoney”(Bisset v. Goss, 481 S.W.2d 71,74 (Ky. 1972)), punitive damages inessenceareaprivatefine.In re Air Crash Disaster at Gander, Newfoundland, 684 F. Supp. 927, 931 (W.D. Ky. 1987). “From the injured party’s perspective, punitive damages represent an additional, non-compensatory award based upon policyconcernslargelyirrelevanttotheissueofcompensation.”Kentucky Central Insurance Company v. Schneider, 15 S.W.3d 373, 375 (Ky. Ct. App. 2000). Although describedas“nofavoriteofthelaw”(Gum v. Coyle, 665 S.W.2d 929, 932 (Ky. Ct. App. 1984)), the Kentucky Supreme Court has defended their use, rejecting the contention that they had outlived their usefulness:

[t]here are sound legal reasons of longstanding supporting both the award of punitive damages and their payment to the injured party in addition to compen satory damages. The concept of punitive damages represents more than mere blind adherence to an cient precedent. It is as just a principle and as fair to litigants as it ever was.

Horton v. Union Light, Heat & Power Co., 690 S.W.2d 382, 390 (Ky. 1985). In-deed, as recently as 2000 no other Justice would join in Justice Graves’ opinion concludingthat“punitivedamageshavenoplaceinmoderntortlaw.”See Farm-land Mutual Insurance Company v. Johnson, 36 S.W.3d 368, 385-388 (Ky. 2000) (Graves, J., dissenting).

The common-law method for assessing punitive damages does not violate theEighthAmendment’sproscriptionagainstexcessivefines (Browning-Ferris Industries of Vermont, Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 274, 109 S. Ct. 2909, 2919-20 (1989)) and does not constitute a per se violation of the Due Process Clause of the Fourteenth Amendment (Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1, 17-18, 111 S. Ct. 1032, 1043 (1991)). However, the Due Process Clause prohibits“theStatesfromimposing‘grosslyexcessive’punishmentsontortfeasors.”Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 433, 121 S. Ct. 1678, 1684 (2001).


“Punitive damages are damages other than compensatory or nominal damages,awardedagainstapersontopunishhimforhisoutrageousconduct.”Ashland Dry Goods Co. v. Wages, 195 S.W.2d 312, 315 (Ky. 1946); see also Great Atlantic & Pacific Tea Co. v. Smith, 136 S.W.2d 759, 768 (Ky. 1940) (“exemplary orpunitivedamagesaregenerallydefinedasthosegiveninenhancementofcom-pensatorydamages…[and]gobeyondactualdamagessuffered”).

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Bystatute,punitivedamagesaredefinedas“damages,otherthancompen-satory and nominal damages, awarded against a person to punish and to discourage himandothersfromsimilarconductinthefuture.”KRS411.184(1)(f).

Punitive damages are not recoverable as a matter of right. C.I.T. Corpo-ration v. Short, 115 S.W.2d 899, 901 (Ky. 1938). They also are unavailable in an action to enforce an administrative order. Cherry v. Augustus, 245 S.W.3d 766, 780 (Ky. Ct. App. 2006).

2. [4.83] Purpose

Courtshaveidentifiedfivepolicyreasonsunderlyingtheawardofpunitivedamages. First, punitive damages serve as a deterrent to the defendant and others. Ragland v. Estate of DiGiuro, 352 S.W.3d 908, 916 (Ky. Ct. App. 2010); Peoples Bank of Northern Kentucky, Inc. v. Crowe & Chizek, 277 S.W.3d 255, 267 (Ky. Ct. App. 2008); Bisset v. Goss, 481 S.W.2d 71, 74 (Ky. 1972); Burgess v. Taylor, 44 S.W.3d 806, 814 (Ky. Ct. App. 2001) (“Punitive or exemplary damages…are designed to punish or deter a person, or others, from committing such acts in the future.”);Simpson County Steeplechase Association v. Roberts, 898 S.W.2d 523, 527 (Ky. Ct. App. 1995) (“Punitive damages are appropriate in such cases to discourage theviolationofpublicpolicyandstatutesbyemployers.”).Punitivedamagesalsoare a means by which society expresses its disapproval of intolerable conduct. Horton v. Union Light, Heat & Power Co., 690 S.W.2d 382, 390 (Ky. 1985). Third, punitive damages, as the name implies, punish the wrongdoer. Ragland v. Estate of DiGiuro, 352 S.W.3d 908, 916 (Ky. Ct. App. 2010); Peoples Bank of Northern Kentucky, Inc., 277 S.W.3d at 267; Ashland Dry Goods v. Wages, 195 S.W.2d 312, 315 (Ky. 1946). Punitive damages also are awarded as a means of recompense “becausetheinjuryhasbeenincreasedbythemanner[inwhich]itwasinflicted.”Horton v. Union Light, Heat & Power Co., 690 S.W.2d 382, 390 (Ky. 1985); but see Kentucky Central Insurance Company v. Schneider, 15 S.W.3d 373, 375 (Ky. Ct. App. 2000) (“From the injured party’s perspective, punitive damages represent an additional, non-compensatory award based upon policy concerns largely irrelevant totheissueofcompensation.”).Finally,inhisdissentinSmith v. Wade, 461 U.S. 30, 58 103 S. Ct. 1625, 1641 (1983), Chief Justice William Rehnquist pointed to an increasingly important role played by punitive damages, noting that “punitive damagesare justifiedasa ‘bounty’ thatencouragesprivate lawsuits seeking toassertlegalrights.”

3. [4.84] Elements of a Claim for Punitive Damages

a. [4.85] At Common Law

Kentucky law provides for two bases for the award of punitive damages: at common law in connection with gross negligence and pursuant to KRS 411.184(2). St. Joseph Healthcare, Inc. v. Thomas, 487 S.W.3d 864, 870 (Ky. 2016).

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TheKentuckySupremeCourtrecentlyreiterateditsdefinitionofgrossnegligence as constituting “the wanton or reckless disregard for the lives, safety, orpropertyofothers.”Id. Other,similar,definitionsinclude“malice,willfulnessorarecklessorwantondisregardfortherightsofothers”(Island Creek Coal Co. v. Rodgers, 644 S.W.2d 339, 347 (Ky. Ct. App. 1982)), “such gross negligence as toindicateawantondisregardfortherightsofothers”(Louisville & N. Railroad Co. v. Jones’ Administrator,180S.W.2d555,558(Ky.1944)),“recklessconduct,”“outrageousconduct,”“actsdonewithabadmotive”(Ashland Dry Goods Co. v. Wages,195S.W.2d312,315(Ky.1946)),“tortiousconduct”aggravatedby“evilmotive,actualmaliceordeliberateviolence”(Great Atlantic & Pacific Tea Co. v. Smith, 136 S.W.2d 759, 768 (Ky. 1939)), acting “wantonly, or recklessly, or op-pressively,orwithmaliceasimpliesaspiritofmischieforcriminalindifferencetocivilobligations”(Bissett v. Goss, 481 S.W.2d 71, 73 (Ky. 1972)), and an unlawful actpartaking“somewhatofacriminalorwantonnature”(Drane v. Graves, 88 S.W.2d 927, 929 (Ky. 1935)).

In determining whether these various standards, however phrased, have been met, courts have followed the following rules:

• Intentionalconduct,standingalone,isnotasufficientbasisfor the award of punitive damages. Horton v. Union Light, Heat & Power Co., 690 S.W.2d 382, 389 (Ky. 1985); Banks v. Fritsch, 39 S.W.2d 474, 482 (Ky. Ct. App. 2001) (“The mere fact that the act is intentional and a tort does not jus-tify punitive damages absent this additional element of impliedmalice,meaningconsciouswrongdoing.”).Thus,theremustbe“somethingmore.”Horton, 690 S.W.2d at 389.

• Punitive damages may be awarded in the absence of “in-tentoractualknowledgeoftheresult.”Williams v. Wilson, 972 S.W.2d 260, 264 (Ky. 1998).

• An award of punitive damages may be premised upon a findingofgrossnegligence.Id. at 263-264. Although gross negligencemaybedefinedasthe“absenceofslightcare,”for there to be gross negligence sufficient to support anaward of punitive damages:

theremustbefirstafindingoffailuretoexerciserea-sonable care and then an additionalfinding that thisnegligence was accompanied by a “wanton or reckless disregard of the lives, safety or property of others.”This bears an element not distinguishable from malice implied from the facts.

Id. (quoting Horton v. Union Light. Heat & Power Co.,

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690 S.W.2d 382, 388 (Ky. 1985)); City of Middlesboro v. Brown, 63 S.W.3d 179, 181 (Ky. 2001)(“though gross neg-ligence in theabstract isdefinedas theabsenceofslightcare, in order to serve as a basis for punitive damages it must be specifically defined to include the essential ele-mentofrecklessindifferenceordisregardfortherightsofothers”)(internalquotationsomitted.)Evidenceof“‘drink-ing,speedingandrecklessdriving’”maysupportanawardof punitive damages. Shortridge v. Rice, 929 S.W.2d 194, 197 (Ky. Ct. App. 1996).

• Thenatureandextentofharmto theplaintiff is relevantto determining the appropriateness and amount of punitive damages. Owens-Corning Fiberglass Corporation v. Goli-ghtly, 976 S.W.2d 409, 412 (Ky. 1998) (“In Kentucky, the assessment of punitive damages requires consideration of not only the nature of the defendant’s act, but also the ex-tentoftheharmresultingtotheplaintiff.”);Fowler v. Man-tooth, 683 S.W.2d 250, 253 (Ky. 1984); Hensley v. Paul Miller Ford, Inc., 508 S.W.2d 759, 763 (Ky. 1984) (“puni-tivedamagesmustbearsomerelationshipstotheinjury”).Punitive damages may still be appropriate even though the plaintiff’s injuries areminimal.Fowler v. Mantooth, 683 S.W.2d 250, 253 (Ky. 1984).

• In assessing punitive damages, the character of the defen-dant’s act is of equal, if not greater, importance than the ex-tentandnatureofplaintiff’sinjuries.Hensley v. Paul Miller Ford, Inc., 508 S.W.2d 759, 763 (Ky. 1974). In considering the defendant’s actions, the relevant factors include “the degree of outrageousness, the extent of culpability, the mo-tive of the wrongdoer, the relationship between the parties and the existence or absence of provocation.”Fowler v. Mantooth, 683 S.W.2d 250, 253 (Ky. 1984).

• Although not involving “necessarily personal hate or ill will” (Huddleston v. Hughes, 843 S.W.2d 901, 906 (Ky. Ct.App. 1992)), “malice” relevant to the award of pu-nitivedamages isdifferent inkind from that involved intorts such as malicious prosecution and abuse of process. Bourbon County Joint Planning Commission v. Simpson, 799 S.W.2d 42, 45 (Ky. Ct. App. 1990). In the context of punitive damages, malice involves “wanton or reckless disregardforthelives,safetyorpropertyofothers.”Wil-liams v. Wilson, 972 S.W.2d 260, 264 (Ky. 1998); Horton v. Union Light, Heat & Power Co., 690 S.W.2d 382, 388

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(Ky. 1985); Simpson County Steeplechase Association v. Roberts, 898 S.W.2d 523, 525 (Ky. Ct. App. 1995) (“Mal-ice may be implied from outrageous conduct and need not beexpresssolongastheconductissufficienttoevidenceconsciouswrongdoing.”).Italsohasbeendefinedas“con-scious wrongdoing” (Fowler v. Mantooth, 683 S.W.2d 250, 252 (Ky. 1984)); that is, “defendant’s conduct must be intentional and deliberate, and have the character of out-rage”(Radcliff Homes, Inc. v. Jackson, 766 S.W.2d 63, 67 (Ky. Ct. App. 1989)) or as “a spirit of mischief or criminal indifferencetocivilobligations”(Louisville & N. Railroad Co. v. Jones’ Administrator, 180 S.W.2d 555, 558 (Ky. 1944)).Thestatutorydefinitionsofmaliceasrequiring“in-tentionalconduct”mustberead in lightof theKentuckySupreme Court’s clear statement in Williams v. Wilson that “grossnegligence[whichthecourtheldwassufficient tosupport the award of punitive damages], however it may be qualified,isconductlackingintentoractualknowledgeoftheresult.”Williams v. Wilson, 972 S.W.2d 260, 264 (Ky. 1998).

• Malice need not be express but can be inferred from defen-dant’s conduct. Fowler v. Mantooth, 683 S.W.2d 250, 252 (Ky. 1984). Malice may be implied from the facts in a neg-ligencecasewhere,inadditiontosupportingafindingofnegligence, the evidence demonstrates a “wanton or reck-lessdisregardfor thelives,safetyorpropertyofothers.”Horton v. Union Light, Heat & Power Co., 690 S.W.2d 382, 389-90 (Ky. 1985); see also Williams v. Wilson, 972 S.W.2d 260, 264 (Ky. 1998).

• Evidenceofeitherparty’sfinancialcondition isnot rele-vant to assessing punitive damages. Hardaway Manage-ment Company v. Southerland, 977 S.W.2d 910, 916 (Ky. 1998) (“It has been the law of this Commonwealth for al-most one hundred years that in an action for punitive dam-ages, the parties may not present evidence or otherwise ad-visethejuryofthefinancialconditionofeithersideofthelitigation.”);accord Fowler v. Mantooth, 683 S.W.2d 250, 253 n.1 (Ky. 1984); Hensley v. Paul Miller Ford, Inc., 508 S.W.2d 759, 762 (Ky. 1974).

• Although available because the defendant’s conduct was outrageous, “a victim of outrageous conduct can recover

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bothcompensatoryandpunitivedamages.”Burgess v. Tay-lor, 44 S.W.3d 806, 814 (Ky. Ct. App. 2001).

b. [4.86] By Statute

In 1982 the Kentucky General Assembly enacted KRS 411.184 through 411.186. This act purports to govern “all cases in which punitive damages are sought and supersedes all existing statutory or judicial law insofar as such law is inconsistentwiththeprovisions”ofthestatute.KRS411.184(5).Infact,inWilliams v. Wilson, 972 S.W.2d 260, 264 (Ky. 1998), a portion of the act, KRS 411.184, was declared unconstitutional as violative of the jural rights doctrine to the extent it required“proofofasubjectiveawarenessthatharmwillresult.”

The only bases for recovery of punitive damages under the statute are “oppression, fraudormalice.”KRS411.184(2).Bycontrast,underWilliams v. Wilson,972S.W.2d260,264(Ky.1998),grossnegligenceissufficienttosupportan award of punitive damages. To the extent KRS 411.184(2) requires more, it is unconstitutional. Id. The element relied upon to establish an entitlement to punitive damages must be demonstrated by clear and convincing evidence. KRS 411.184(2).

i. [4.87] Oppression

Oppressionisdefinedas“conductwhichisspecificallyintendedbythedefendanttosubjecttheplaintifftocruelandunjusthardship.”KRS411.184(1)(a).Therequirementofspecificintentencompassedinthedefinitionof“oppression”was stricken down in Williams v. Wilson, 972 S.W.2d 260, 264 (Ky. 1998).

ii. [4.88] Fraud

Fraud is defined as “an intentionalmisrepresentation, deceit or con-cealment of material fact known to the defendant and made with the intention of causinginjurytotheplaintiff.”KRS411.184(1)(b).Whilefraudisstillsufficientto support an award of punitive damages, it is not necessary that the fraudulent actoromissionbeundertakenwiththeintentionofcausingharmtotheplaintiff.Williams v. Wilson, 972 S.W.2d 260, 264 (Ky. 1998).

To recover punitive damages for fraudulent concealment under KRS 411.184(1)(b), the concealment itself, and not the actions sought to be concealed, mustgiverisetotheplaintiff’sinjuries.Young v. Vista Homes, Inc., 243 S.W.3d 352, 367 (Ky. Ct. App. 2007).

iii. [4.89] Malice

Thestatutedefinesmaliceas:

conductwhichisspecificallyintendedbythedefendanttocausetangibleor intangible injuryto theplaintifforconduct that is

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carriedoutbythedefendantbothwithaflagrantindifferencetotherightsoftheplaintiffandwithasubjectiveawarenessthatsuch conduct will result in human death or bodily harm.

KRS 411.184(1)(c).

Under Williams v. Wilson,itissufficientthattherebea“afindingoffailuretoexercisereasonablecareandthenanadditionalfindingthatthisnegligencewasaccompanied by a ‘wanton or reckless disregard of the lives, safety or property of others.’”Williams v. Wilson,972S.W.2d260,264(Ky.1998).Thatis,afindingofgrossnegligenceissufficienttosupporttheawardofpunitivedamages.Peoples Bank of Northern Kentucky, Inc. v. Crowe & Chizek, 277 S.W.3d 255, 267 (Ky. Ct. App. 2008) (in the context of a professional negligence claim gross negligence sufficienttosupporttheawardofpunitivedamagesrequiresafindingthedefendantfailed to exercise even slight care such that the defendant’s wanton and reckless disregard of the rights of others may be inferred). To the extent the statute requires moreforafindingofmalice,thestatuteisunconstitutional.Id.

Malicesufficienttogiverisetopunitivedamagesneednotbeexpress;ajury may determine that a defendant’s conduct is “‘so outrageous that malice can beimpliedfromthefactsofthesituation.’”Gersh v. Bowman, 239 S.W.3d 567, 572 (Ky. Ct. App. 2007).

c. [4.90] Statutory and Common Law Bases for Punitive Damages Compared

Under the statute, the right to punitive damages must be demonstrated by “clearandconvincingevidence”insteadofthemoretraditional“preponderanceoftheevidence.”KRS411.184(2).

Further, under the statute, and with a single exception, punitive damages werenotavailableunlessthedefendantactedwiththespecificintentofcausinginjury. KRS 411.184(1)(a)-(c). Wanton and reckless conduct was no longer a basis for the award of punitive damages unless it was undertaken with the “sub jective awareness that suchconductwill result inhumandeathorbodilyharm.”KRS411.184(1)(c). However, the Kentucky Court of Appeals in Shortridge v. Rice, 929 S.W.2d 194, 197 (Ky. Ct. App. 1996), read this requirement out of the statute, holding “KRS 411.184 only requires ‘awareness’ of the possible consequences. The statutedoesnotrequireadeliberateorspecificintentthatthe‘conduct…resultinhumandeathorbodilyharm.’”Inanyevent,Williams v. Wilson, 972 S.W.2d 260, 264 (Ky. 1998), held this portion of the statute unconstitutional.

Prior to Williams v. Wilson, and except where wanton conduct is involved, some question existed under the statute whether punitive damages were available wheretheplaintiffintendedtoinjureonepersonbutinfactinjuredanother.See, e.g., KRS411.184(1)(a)(“specificallyintendedbythedefendantto subject the plaintiff tocruelandunjusthardship”);KRS411.184(1)(b)(“madewiththeintentionof

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causing injury to the plaintiff”)KRS411.184(1)(c)(specificallyintendedbythedefendant to “cause tangible or intangible injury to the plaintiff…”).Nevertheless,in Roman Catholic Diocese of Covington v. Secter, 966 S.W.2d 286, 291 (Ky. Ct. App. 1998), the court of appeals held that punitive damages were available even thoughthedefendant’sconductwasnotspecificallydirectedtowardtheplaintiff.See also Shortridge v. Rice, 929 S.W.2d 194, 197-198 (Ky. Ct. App. 1996) (“The ‘awareness’requirementcanbesatisfiedbyashowingofmere‘consciousness’orcognizanceofpotentialdanger.”)(drivingintoxicatedsatisfiedstatutoryrequire-ment). In light of the Williams court’s rejection of any requirement of “proof of a subjectiveawarenessthatharmwillresult,”itseemsclearthatajurymayawardpunitivedamagesevenwhen thedefendantdidnot intend toharmthespecificplaintiff.

Prior to Williams v. Wilson, wanton conduct resulting in other than personal injury or death, unless coincidentally undertaken with the subjective awareness thattheconductwillresultinhumandeathorbodilyharmtotheplaintiff,wasnot a basis for the award of punitive damages. See KRS 411.184(1)(c). Under Williams,itissufficientifthedefendantactedwith“‘wantonorrecklessdisregardforthe…propertyofothers.’”Accord Horton v. Union Light, Heat & Power Co., 690 S.W.2d 382, 389-90 (Ky. 1985) (punitive damages may be awarded in case of negligence accompanied by “wanton or reckless disregard for the lives, safety orpropertyofothers”).

The availability of punitive damages in fraud cases was restricted under the statute. Punitive damages were avail able only in cases of intentional misrep-resentation, concealment or deceit. KRS 411.184(1)(b). After Williams, so long as the defendant acts wantonly or recklessly, punitive damages also may be awarded for the reckless misrepresentation of a material fact (Harlin v. Calvert’s Adminis-trators, 70 S.W.2d 524, 525 (Ky. 1934)) and constructive fraud (Combs v. Poulos, 44 S.W.2d 571, 573 (Ky. 1931) (no requirement of an intent to deceive)).

By focusing almost exclusively on the defendant’s conduct, and particu-larly the defendant’s intent, the statute reduces the extent and nature of the harm totheplaintifftoanalmostincidentalconsideration.See Fowler v. Mantooth, 683 S.W.2d250,253(Ky.1984)(natureandextentofharmtheplaintiffisoneoftwoelements to be considered in assessing punitive damages). Nevertheless, it is clear thatthenatureandextentofharmtotheplaintiffremainsrelevanttodeterminingwhether punitive dam ages are appropriate and their amount. Owens-Corning Fi-berglass Corporation v. Golightly, 976 S.W.2d 409, 412 (Ky. 1998).

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4. [4.91] Necessity of Compensatory or Nominal Damages or Entitlement to Equitable Relief

a. [4.92] Compensatory or Nominal Damages

Punitive damages are not recoverable in the absence of an otherwise ac-tionable wrong. Karst-Robbins Coal Company, Inc. v. Arch of Kentucky, Inc., 964 S.W.2d 419, 427 (Ky. Ct. App. 1997) (“[S]ince Karst was not entitled to recover compensatory damages as a matter of law, the court’s refusal to instruct the jury onpunitivedamageswasnoterror.”).Inaddition,theconductgivingrisetotheclaim for punitive damages must yield a separate and distinct injury. Hardaway Management Company v. Southerland, 977 S.W.2d 910, 917 (Ky. 1997) (“South-erland did not sustain any separate and distinct damages as a result of Hardaway’s alleged attempt to conceal the real reason for her termination….the Court of Appeals correctlysetasidetheawardofpunitivedamages.”).

Mostimportantly,theplaintiffmusthavereceivedsomeinjury as a result of the defendant’s conduct. Estep v. Werner, 780 S.W.2d 604, 607 (Ky. 1989) (“If the plaintiffhassufferedaninjuryforwhichcompensatorydamagesmightbeaward-ed,...hemayinapropercaserecoverpunitivedamages”).Evennominaldamagesneed not be awarded to receive punitive damages if there are compensable injuries. Department of Agriculture v. Vinson, 30 S.W.3d 162, 166 (Ky. 2000); Louisville & Nashville Railroad Company v. Richtel, 147 S.W. 411, 414 (Ky. 1912) (“the fact that the jury returned a verdict for punitive damages only, furnishes no just reason whytheverdictshouldnotbeallowedtostand”).

Where damages are awarded, nominal damages will support an award of punitive damages. Fowler v. Mantooth, 683 S.W.2d 250, 253 (Ky. 1984).

b. [4.93] Equitable Relief

In Department of Agriculture v. Vinson, 30 S.W.3d 162, 166 (Ky. 2000), theKentuckySupremeCourtrecognizedthat“‘thegrantingofaffirmativeequi-tablereliefwillsupportanawardofpunitivedamages.’”Nevertheless,thecourtwas careful to note that there was “a factual basis for the possible award of actual compensatorydamagesalthoughnotgiveninthiscase.”

5. [4.94] Amount of Punitive Damages

a. [4.95] Common Law

At common law the amount of punitive damages awarded did not have to bear any relation to the amount of compensatory damages awarded. Great Atlantic & Pacific Tea Co. v. Smith, 136 S.W.2d 759, 768 (Ky. 1939). Rather, subject to two limitations,theamountofpunitivedamagesawardedresidedinthefactfinder’sdiscretion.

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Atcommonlawtwolimitsexistedonthefact-finder’sdiscretioninaward-ing punitive damages. First, the amount of punitive damages awarded must bear somerelationtothe“injury[notdamages]anditscausecomplainedof.”Hensley v. Paul Miller Ford, Inc., 508 S.W.2d 759, 763 (Ky. 1974); Great Atlantic & Pacific Tea Co. v. Smith, 136 S.W.2d 759, 768 (Ky. 1939). Second, in awarding damages, the factfindercannotactwith“passion,prejudiceorbias.”Bissett v. Goss, 481 S.W.2d 71, 74 (Ky. 1972); see also Henderson v. Henderson Funeral Home Corp., 320 S.W.2d 113, 116 (Ky. 1958) (there should be “no reasonable basis for concluding that[theamountawarded]flow[s]fromaconsiderationofincompetentevidencesolikelytoinflamethepassionandprejudiceofjurors”).Atcommonlaw,evidenceofmitigation is admissible. Gum v. Coyle, 665 S.W.2d 929, 932 (Ky. Ct. App. 1984).

In addition to these two common law limitations, and as discussed below, the Due Process Clause of the Fourteenth Amendment limits the amount of punitive damages that can be awarded. BMW of North America, Inc. v. Gore, 517 U.S. 559, 562, 116 S. Ct. 1589, 1592 (1996).

b. [4.96] Statutory Law

Infixingtheamountofpunitivedamagestobeawarded,KRS411.186(2)mandatesthatthefactfinderconsiderfivefactors:

(a) The likelihood at the relevant time that serious harm would arise from defendant’s misconduct;

(b) The degree of defendant’s awareness of that likelihood;

(c) Theprofitabilityofthemisconducttothedefendant;

(d) The duration of the misconduct and any concealment of it by defendant; and

(e) Any action by the defendant to remedy the misconduct once it became known to the defendant.

Significantly,thesefactorsfocusonlyonthecharacterofthedefendant’sconductwithoutanyconsiderationoftheinjurysufferedbytheplaintiff.Neverthe-less,itisclearthatthenatureandextentofharmtotheplaintiffremainsrelevanttodetermining the appropriateness and amount of punitive dam ages. Owens-Corning Fiberglass Corporation v. Golightly, 976 S.W.2d 409, 412 (Ky. 1998); Fowler v. Mantooth, 683 S.W.2d 250, 253 (Ky. 1984). Moreover, nothing in the statute expresslyrestrictsthefactfindertothefivefactorslisted.

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6. [4.97] Availability of Punitive Damages in Contract Actions


Punitive damages are not available for mere breach of contract. Wahba v. Don Corlett Motors, Inc., 573 S.W.2d 357, 360 (Ky. Ct. App. 1978). Where the manner in which the contract was breached constitutes tortious conduct, or a breach of contract claim is combined with a tort claim, punitive damages may be awarded in connection with the tortious conduct only. Audiovox Corporation v. Moody, 737 S.W.2d 468, 471 (Ky. 1987); Faulkner Drilling Company, Inc. v. Gross, 943 S.W.2d 634, 638-639 (Ky. Ct. App. 1997); see also Curry v. Fireman’s Fund Ins. Co., 784 S.W.2d 176, 178 (Ky. 1989). Thus, “[p]unitive damages are allowed where a party hasbeeninducedbyfraudtoenteracontract.”Wiley v. Adkins, 48 S.W.3d 20, 23 (Ky. 2001). In such a case the jury instructions must inform the jury that the award of punitive damages is discretionary and that prior to awarding punitive damages thejury“mustfindasamatteroffactthattheconductinvolvedwastortiousasadequatelydefinedbythetermstraditionallyassociatedwith‘outrage.’”Audiovox Corporation v. Moody, 737 S.W.2d 468, 471 (Ky. 1987).


KRS 411.184(4) prohibits the award of punitive damages for breach of contract. Nothing in the statute on its face appears to modify the common law rule permitting the award of punitive damages where the manner of the breach rises to the level of an independent tort. In fact, the courts have recognized the availabil-ity of punitive damages in such instances since the statute was enacted. Wiley v. Adkins, 48 S.W.3d 20, 23 (Ky. 2001); Faulkner Drilling Company, Inc. v. Gross, 943 S.W.2d 634, 638-39 (Ky. Ct. App. 1997).

7. [4.100] Award of Punitive Damages Against Principal Based on Agency Principles


Kentuckyrecognizestherightofthefactfindertoawarddamagesagainsta principal based solely on the conduct of her agent under the principle of respon-deat superior. Horton v. Union Light, Heat & Power Co., 690 S.W.2d 382, 390 (Ky. 1985).

A related issue is whether a partnership and its non-culpable partners, who are jointly and severally liable for the partnership’s debts, are liable for punitive damages awarded as a result of the actions of one or more of the partners. There is a split of authority as to whether a partnership, and hence non-culpable partners, may be held liable for punitive damages arising from a partner’s actions absent some level of culpability by the partnership. See, e.g., Hyatt Regency Phoenix

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Hotel Company v. Winston & Strawn, 907 P.2d 506 (Ariz. Ct. App. 1995) (relying on Section 13 of the Uniform Partnership Act [adopted as KRS 362.210 in Ken-tucky] to hold partnership liable); Duncan v. Henington, 835 P.2d 816 (N.M. 1992) (holding that despite adoption of Section 13 of the Uniform Partnership Act other partners are not liable for punitive damages arising from actions of partner absent ratification,authorization,orparticipationintheconductgivingrisetopunitivedamages.) Those jurisdictions refusing to hold the partnership liable without some level of heightened culpability typically follow the Restatement (Second)ofAgency,whichrequiressomeshowingoffaultorratificationbythepartnershipor that the partner tortfeasor served in a managerial capacity, before holding the partnership vicariously liable.


KRS 411.184(3) provides that “in no case shall punitive damages be as-sessed against a principal or employer for the act of an agent or employee unless suchprincipal or employer authorized, ratified, or should have anticipated theconductinquestion.”InBerrier v. Bizer, 57 S.W.3d 271, 283-284 (Ky. 2001), the Kentucky Supreme Court noted that KRS 411.184(3) was the broadest limitation on the vicarious imposition of punitive damages among the states it surveyed. Ac-cording to the court, the majority of states limiting vicarious liability for punitive damages follow the Restatement(Second)ofAgency. Id.at283.Ratificationcan be inferred from the circumstances, and the employer need not explicitly af-firmorendorsetheemployee’sconducttoratifyit.St. Joseph Healthcare, Inc. v. Thomas,487S.W.3d864,874(Ky.2016).Ratificationofanemployee’sconductby an employer requires proof, including circumstantial evidence, of two elements: (a) knowledge of the wrongful conduct; and (b) an intent to ratify it. Id. at 875.

The employer’s defense of a matter, including the employee’s wrongful conduct,doesnotconstituteratificationoftheemployee’swrongfulconductbythe principal. Id. at 874.

8. [4.103] Award of Punitive Damages Against an Estate Based Upon the Conduct of the Estate’s Decedent

In Stewart v. Estate of Cooper, 102 S.W.3d 913, 915-916 (Ky. 2003) the Kentucky Supreme Court held that KRS 411.184(2) prohibits the award of punitive damages against an estate where the basis for the punitive damages is the conduct of the estate’s decedent. Rather, punitive damages may be recovered from an es-tate only where the estate – not its decedent – has acted with oppression, fraud, or malicetowardtheplaintiffs.Id. at 916.

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9. [4.104] Review of Amount of Punitive Damages

a. [4.105] Trial Court

In reviewing the amount of punitive damages, the trial court employs the “firstblush”test.Owens-Corning Fiberglass Corporation v. Golightly, 976 S.W.2d 409,414(Ky.1998).Underthe“firstblush”test,theawardisreviewedtodetermine“whether,at‘firstblush,’andinaccordancewiththecriteriasetforthinCivilRule59.01(d),(e)and(f),theverdictisexcessive.”Id. That is, the trial court may set aside the award only where the amount of punitive damages is “‘outrageous’ and ‘allmankindatfirstblushmustthinkso.’”Id. The trial court’s review is deferential and “[t]here must be strong reasons for granting a new trial, and it must appear with reasonable certainty that injustice or wrong would result unless the relief be granted andanotheropportunityallowedtorelitigatethesameissues.”Gray v. Sawyer, 247 S.W.2d496(Ky.1952)(underformerCivilCode).The“firstblush”testisappliedby the trial court even though de novo review is required upon appeal. Craig & Bishop, Inc. v. Piles, 247 S.W.3d 897, 906 (Ky. 2008).

Civil Rule 59.01(d) permits the trial court to grant a new trial where dam-ages appear excessive or inadequate as a result of having “been given under the influenceofpassionorprejudiceorindisregardoftheevidenceortheinstructionsofthecourt.”CivilRule59.01(e)inturnsprovidesforanewtrialwherethereisan“errorintheassessmentoftheamountofrecoverywhethertoolargeortoosmall.”Finally, Civil Rule 50.01(f) empowers the trial court to grant a new trial where “theverdictisnotsustainedbysufficientevidence,oriscontrarytolaw.”Thesestandardsrequirebothfact-findingandareviewoftheevidencebythetrialcourt.Owens-Corning Fiberglass Corporation v. Golightly, 976 S.W.2d 409, 414 (Ky. 1998). Nevertheless, the courts recognize that the calculation of punitive damages is more of an art than a science:

It is impossible to measure with anything like absolute certainty the amount of punitive damages proper in a case, or the extent of some of the elements of those which are compensatory. The opinion of a jury has been, and properly, no doubt, regarded as the best means of even a fair approximation, and every verdict should be treated prima facie as the result of honest judgment upon their part. They are the constitutional triers of the facts of a case, and courts should exercise great caution in interfering with their verdicts.

Louisville South R. Company v. Minoque, 14 S.W. 357, 358 (1890); see also Hanson v. American National Bank & Trust Company, 865 S.W.2d 302, 310 (Ky. 1993) (“Reasonablemenandwomenwilldifferindeterminingtheamountofexemplarydamages….”);but see Farmland Mutual Insurance Company v. Johnson, 36 S.W.3d 368, 386-387 (Ky. 2000) (Graves, J., dissenting) ( Punitive damages “are assessed in unlimited amounts for violation of vague, elastic, retroactive, and highly subjective

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standards of conduct…. Punitive damages present a persistent problem of lack of uniformityandvaguenessofstandards.”).

b. [4.106] Appellate Review

Even more deferential was the clearly erroneous standard previously used by Kentucky appellate courts in reviewing the amount of punitive damages. See id.Theappellatecourtdidnotemploythe“firstblush”standard.Burgess v. Taylor, 44 S.W.3d 806, 813 (Ky. Ct. App. 2001). Rather,

[t]he appellate court no longer steps into the shoes of the trial court to inspect the actions of the jury from his perspective. Now, the appellate court reviews only the actions of the trial judge…to determine if his actions constituted an error of law. There is no error of law unless the trial judge is said to have abused his discretion and thereby rendered his decision clearly erroneous.

Cooper v. Fultz, 812 S.W.2d 497, 501 (Ky. 1991). This deference is based in large partonthefactthetrialjudgehas“heardthewitnessesfirst-handandviewedtheirdemeanorand…hasobservedthejurythroughoutthetrial.”Id.

The Kentucky Supreme Court previously held that the clearly erroneous standardofappellatereviewsatisfiesthedueprocessrequirementsoftheFour-teenth Amendment. See Owens-Corning Fiberglass Corporation v. Golightly, 976 S.W.2d 409, 414 (Ky. 1998). In Steel Technologies, Inc. v Congleton, the Kentucky Supreme Court recognized that the required standard of review of whether the amount of punitive damages awarded comports with the due process clause is de novo. 234 S.W.3d 920, 931 (Ky. 2007), citing Cooper Industries, Inc. v. Leather-man Tool Group, Inc., 532 U.S. 424, 435-37, 121 S. Ct. 1678, 1685-686 (2001) (review of award of punitive damages under the standards established in BMW of North America, Inc. v. Gore, 517 U.S. 559, 562, 116 S. Ct. 1589, 1592 (1996) to determine whether the amount is so excessive as to violate the Due Process Clause is de novo). See also Craig & Bishop, Inc. v. Piles, 247 S.W.3d 897, 906 (Ky. 2008).

c. [4.107] Due Process

“The Due Process Clause of the Fourteenth Amendment prohibits a State fromimposinga‘grosslyexcessive’punishmentonatortfeasor.”BMW of North America, Inc. v. Gore, 517 U.S. 559, 562, 116 S. Ct. 1589, 1592 (1996). “Only when an award can fairly be categorized as ‘grossly excessive’ in relation to these interests [(punishment and deterrence)] does it enter a zone of arbitrariness that violatestheDueProcessClauseoftheFourteenthAmendment.”Id. at 1595.

In imposing punitive damages, state courts are limited to advancing that state’s legitimate interests in permitting punitive damages. Id. at 1595, 1597 (“ju-dicially imposed punitive damages must be supported by the State’s interests in protectingitsownconsumersandowneconomy.”).Ataminimum,thismeansa

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state “may not impose economic sanctions on violators of its laws with the intent ofchangingthetortfeasor’slawfulconductinotherStates”ortopunishadefendantforlawfulconducttakingplaceinanotherstatethathasnoeffectontheforumstate’s residents. Id. at 1597-1598.

Fundamental fairness and protection from arbitrariness at their heart embody fair notice of both the possibility of a penalty as well as its severity. Id. at 1598. The Court in BMW of North America, Inc.identifiedthreefactorsforjudgingthe adequacy of notice and hence fundamental fairness:

1. The Reprehensibility of the Defendant’s Conduct. Id. at 1599-1601. The Court characterized the degree of repre-hensibility as the most important of the three factors. Id. In judging the reprehensibility of the defendant’s conduct, the Courtlookedtowhethertheplaintiffsufferedeconomicorpersonal injury, whether the defendant’s conduct involved indifferenceorrecklessnesstothehealthandsafetyofoth-ers, whether the act was done intentionally, whether the target was vulnerable, whether the defendant is a “recidi-vist,”andwhethertherewere“deliberatefalsestatements,actsofaffirmativemisconductorconcealmentofevidenceofimpropermotive.”Id.

2. The Ratio of The Award of Punitive Damages to the Actu-al Damages Resulting from the Defendant’s Conduct. Id. at 1601. The Court noted this is the most commonly em-ployed of the three factors. Id. Although involving a math-ematical computation, the ratio factor cannot be reduced to mathematical exactitude. Thus, the Court has held that a ra-tio of four times the compensatory damages was approach-ing the constitutional line (Pacific Mutual Life Insurance Company v. Haslip, 499 U.S. 1, 23-24, 111 S. Ct. 1032, 1046 (1991)), that not more than ten times the actual dam-agesdidnot“‘jarone’sconstitutionalsensibilities’”(TXO Production Corporation v. Alliance Resources Corpora-tion, 509 U.S. 443, 462,113 S. Ct. 2711, 2722 (1993)), but that500timestheactualdamageswas“breathtaking,”andwhen viewed in conjunction with the other factors violat-ed the due process clause (BMW of North America, Inc. v. Gore, 517 U.S. 559, 583, 116 S. Ct. 1589, 1603 (1996)). A low award of compensatory damages will support a higher ratio if the defendant’s conduct was particularly egregious. BMW of North America, Inc., 116 S. Ct. at 1602; St. Jo-seph Healthcare, Inc. v. Thomas, 487 S.W.3d 864, 870 (Ky. 2016).

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3. Civil and Criminal Penalties for Comparable Misconduct Id. at 1603-04. These factors are based upon the princi-ple that the courts should “accord ‘substantial deference’ to legislative judgments concerning appropriate sanctions for the conduct at issue.” Id. at 1603. The possibility of imprisonment for similar conduct will support a larger punitive damages award. Id. The Court also looked to the defendant’s history, if any, of non-compliance with known statutory requirements. Id.

See also Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 433-36, 121 S. Ct. 1678, 1684-85 (2001). Although using the ratio of punitive damages awarded to the compensatory damages is widely accepted means of measuring the reasonableness of the punitive damages award for constitutional purposes, its use is of limited utility where only nominal damages are awarded. Mo-Jack Distrib., LLC v. Tamarak Snacks, LLC, 476 S.W.3d 900, 909 (Ky. Ct. App. 2015) (citing Phelps v. Louisville Water Co., 103 S.W.3d 46, 55 (Ky. 2003)).

Where the amount of the award is challenged on due process grounds, the appellate courts review the issue de novo. Id. at 1685-1686; see also Steel Technologies, Inc. v. Congleton, 234 S.W.3d 920, 931 (Ky. 2007). A post-judgment constitutional challenge to the amount of punitive damages awarded is properly brought and considered under CR 59.05. Id. In resolving such a challenge, the trial courtshould–butisnotrequiredto–makefindingsoffactandconclusionsoflawto aid appellate review. Id.

Successive awards of punitive damages for the same course of conduct have been found not to violate due process. Owens-Corning Fiberglass Corporation v. Golightly, 976 S.W.2d 409, 412 (Ky. 1998).

X. [4.108] Liquidated Damages

A liquidated damages clause is a contractual provision by which the parties tothecontractatthetimeofcontracting“anticipate”theamountofdamagestobesustained (and hence the amount of any award) in the event the contract is later breached. Although historically viewed with disfavor “as devices to extract penalties andforfeituresandagainstpublicpolicy”(Mattingly v. Bridge Co. v. Holloway & Son Construction Co., 694 S.W.2d 702, 705 (Ky. 1985)), “[t]he courts now favor arrangements between the parties that settle the matter of damages between themselvesincaseofforfeitureorbreach”(Uncle George Orphans Home, Inc. v. Landrum, 551 S.W.2d 582, 584 (Ky. Ct. App. 1977)). Nevertheless, liquidated damages provisions will not be enforced if they constitute a bare penalty. KRS 355.2-718(1)(“Atermfixingunreasonablylargeliquidateddamagesisvoidasapenalty.”);Furlong Dev. Co., LLC v. Georgetown-Scott Cnty. Planning & Zoning Com’n, 504 S.W.3d 34, 43 (Ky. 2016) (“Liquidated damages are allowed under

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Kentucky contract law, unless their amount is substantially higher than the actual injury incurred.”); United Services Auto Association v. ADT Security, Inc., 241 S.W.3d 335, 341 (Ky. Ct. App. 2006) (“A provision in a contract providing for liquidated damages will be enforced, provided it is in actuality liquidated damages andnotapenalty.”);Man O War Restaurants, Inc. v. Martin, 932 S.W.2d 366, 368 (Ky. 1996) (“[a]lthough damages for breach of a contract may be liquidated in agreements,termsfixingunreasonablylargeliquidateddamagesareunenforceableasagainstpublicpolicy”);Wehr Constructors, Inc. v. Steel Fabricators, Inc., 769 S.W.2d 51, 54 (Ky. Ct. App. 1988).

A. [4.109] Liquidated Damages vs. Penalty at Common Law

“The distinction between a penalty provision and one for liquidated damag-es is that a penalty is imposed to secure performance of the contract and liquidated damagesaretobepaidinlieuofperformance.”Goetz v. Asset Acceptance, LLC, 513 S.W.3d 342, 346 (Ky. Ct. App. 2016).

A contractual provision liquidating damages will be deemed not to be a penalty, and thus is enforceable, if two conditions are met: (a) the actual damages sustainedmust“beverydifficulttoascertain”(Robert F. Simmons & Associates v. Urban Renewal & Community Development Agency, 497 S.W.2d 705, 706 (Ky. 1973)); and (b) the liquidated amount must be reasonable “in light of the anticipated or actualloss”(Mattingly Bridge Co. v. Holloway & Son Construction Co., 694 S.W.2d 702, 705 (Ky. 1985)). See also United Services Auto Association v. ADT Security Services, Inc., 241 S.W.3d 335, 340-341 (Ky. Ct. App. 2006) (“Where, at the time of the execution of the contract, damages may be uncertain in character oramount,ordifficulttoreasonablyascertain,aprovisionforliquidateddamageswill be enforced, provided the amount agreed upon is not greatly disproportionate to the injurywhichmight result.”)Mattingly Bridge Co. makes clear that both partsofthesecondprongofthetestmustbesatisfied.Thatis,theliquidatedsummust be reasonable both with respect to any loss that might be anticipated at the time the contract is made and the actual loss occurring at the time of the breach. Id. Failure to meet either part of the second prong renders the liquidated damage provision unenforceable as a penalty. Id.

The requirement under Mattingly Bridge Co. that both parts of the test must be met has not been consistently followed. Following Mattingly Bridge Co., appellate decisions typically considered only the relationship between actual and liquidated damages. See Patel v. Tuttle Properties, LLC, 392 S.W.3d 384, 387 (Ky. 2013) (“Therefore, the trial court needs to determine whether the amount of the earnest money deposit, in light of the anticipated damages or actual loss caused by the breach of the contract, was reasonable or so unreasonably large that it is unenforceableonthegroundsthatpublicpolicywoulddeemittobeapenalty.”);Moore v. Ford Motor Credit Co., 778 S.W.2d 657, 659 (Ky. Ct. App. 1989) (recites rule concerning anticipated damages but does not address); Wehr Constructors, Inc. v. Steel Fabricators. Inc., 769 S.W.2d 51, 55 (Ky. Ct. App. 1988); Daniel Boone

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Clinic, P.S.C. v. Dahhan, 734 S.W.2d 488, 491 (Ky. Ct. App. 1987)) or has simply ignored both parts of the second prong, (Capital Holding Corp. v. Octagon Devel-opment Co., 757 S.W.2d 202, 206 (Ky. Ct. App. 1988)). None of these decisions, nor Mattingly Bridge Co.,criticallyconsideredthefirstprongofthetest;thatis,whethercalculationofthedamagesarisingfromthebreachwouldbedifficult.

By contrast, the court of appeals in United Services Auto Association v. ADT Security Services, Inc., 241 S.W.3d 335, 341 (Ky. Ct. App. 2006) examined both factors. At issue was a provision in home alarm monitoring contract limiting damages for breach of the contract by the monitoring service to $250. Id. Conclud-ingitwasnotapenalty,thecourtfirstnoted“[d]amagesbasedonabreachofthecontractbytheappelleeswouldhavebeendifficult,ifnotimpossible,toascertainbecause they did not contract to assume the duties of an insurer and did not know thevalueofthehome,itscontents,ortheextentofanypossiblefiredamagethatmightresult.”Id. The court then went on to conclude that $250 liquidated damages amount, which was roughly equivalent to the fees paid by the homeowner over the course of one year for the monitoring service, was “roughly proportionate to the damagesexpectedfromabreachofa$24.00permonthmonitoringagreement.”Id. Perhaps what was most interesting about the decision was the court’s implicit recognition that a provision limiting damages should be examined as a liquidated damages clause. See also Goetz v. Asset Acceptance, LLC, 513 S.W.3d 342, 346-347 (Ky. Ct. App. 2016) (examining liquidated damages provision in light of both parts of the analysis).

Wheretheplaintiffhasnotsustainedanyinjuryasaresultofthedefen-dant’s breach, a provision for liquidated damages is unenforceable. Wehr Construc-tors, Inc. v. Steel Fabricators, 769 S.W.2d 51, 55 (Ky. Ct. App. 1988).

A provision in a lease agreement providing for acceleration of lease payments upon breach without discounting the sum of the accelerated payments to a present value is void as not bearing a reasonable relation to the actual damage suffered.Moore v. Ford Motor Credit Co., 778 S.W.2d 657, 659 (Ky. 1989).

A party may recover his or her actual damages in the event the liquidated damages provision is deemed unenforceable. Patel v. Tuttle Properties, LLC, 392 S.W.3d 384, 387 (Ky. 2013).

B. [4.110] Liquidated Damages vs. Penalty in the Sale of Goods

A liquidated damages provision in a contract for the sale of goods is gov-erned by Article 2 of the Uniform Commercial Code. KRS 355.2-718(1). It must be reasonableinlightof:(a)“theanticipatedoractualharmcausedbythebreach;”(b)“thedifficultiesofproofofloss;”and(c)“theinconvenienceornonfeasibilityofotherwiseobtaininganadequateremedy.”Id.

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XI. [4.111] Injunctive Relief

A. [4.112] Generally

An injunction is an extraordinary remedy (National Collegiate Athletic Association v. Lasege, 53 S.W.3d 77, 84 n.11 (Ky. 2001)) and has been styled “‘the strongarmofequity’”(Commonwealth v. Mountain Truckers Association, Inc., 683 S.W.2d 260, 263 (Ky. Ct. App. 1984)). “The purpose of statutory requirements [(civil rules)] for the issuance of temporary injunctions is to ensure that injunctions are issued only where absolutely necessary to preserve a party’s rights pending a trialonthemerits.”Commonwealth ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 612 (Ky. 1992), overruled on other grounds by Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 172 (Ky. 2009). Because “trial courts are asked to make significantdecisionswithlessthancompleteinformation…thesedeterminationsdifferfrommostdecisionsreachedbytrialcourts.”National Collegiate Athletic Association v. Lasege, 53 S.W.3d 77, 83 (Ky. 2001) (“There are no ‘drive-through windows’oncourthousesforagoodreason.”).

The grant or denial of an injunction lies within the court’s discretion. Cyprus Mountain Coal Corporation v. Brewer, 828 S.W.2d 642, 645 (Ky. 1992) (“Propriety of a temporary injunction is basically addressed to the sound discretion ofthetrialcourt.”).Thisdiscretionextendsnotonlytothedecisiontograntordenyreliefbutalsotheeffectivedateoftheinjunctionaswellastheimpositionofterms and conditions with respect to the relief granted. Gregory v. Crain, 291 Ky. 194, 163 S.W.2d 289, 291 (Ky. 1942).

Unless otherwise authorized by statute, the district court is prohibited from granting injunctive relief. CR 65.01. Notwithstanding this prohibition, a district judge,actingintheabsence,disqualification,ordisabilityofacircuitjudge,mayissue a restraining order in an action pending in circuit court under the limited circumstances detailed in Civil Rule 65.03(2) and discussed below.

Anoriginalactionforinjunctivereliefmaynotbefiledinthecourtofappeals. Courier Journal & Louisville Times Co. v. Peers, 747 S.W.2d 125, 126 (Ky. 1988).

B. [4.113] Types of Injunctive Relief

1. [4.114] Three Types of Injunctions

Civil Rule 65.01 provides for three types of injunctive relief: (a) restrain-ing order; (b) temporary injunction; and (c) permanent injunction in connection withafinaljudgment.

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2. [4.115] Mandatory and Prohibitory Relief

Injunctive relief may either be mandatory or prohibitory. CR 65.01; Gregory v. Crain, 291 Ky. 194, 163 S.W.2d 289, 290-291 (Ky. 1942). Mandatory injunctive relief requires the party enjoined to take certain acts. That is, it says “‘Thoushalt.’”Id. at 291. Mandatory relief sometimes is described as being less than favored. Oscar Ewing, Inc. v. Melton, 309 S.W.2d 760, 762 (Ky. 1958) (courts reluctant to grant mandatory injunctive relief because it changes the status quo); Johnson v. Ray, 265 S.W.2d 782, 784 (Ky. 1954) (“courts, generally, are reluctant tograntreliefbymeansofamandatoryinjunction,exceptinextremenecessity”).

Mandatory injunctive relief may be further sub-divided into structural or reparative. “The purpose of a structural injunction is to remodel an existing social or political institution and bring it into conformity with constitutional demands; e.g., restructuring a school system to facilitate equal educational opportunities. Structural injunctions are typically used as public law remedies for serious and pervasiverightsviolations.”Lampkin v. District of Columbia, 886 F. Supp. 56, 62 (D.D.C.1995).“Areparativeinjunctionpreventsthefutureharmfuleffectsofpastacts;itrequiresthedefendanttorestoretheplaintifftoapreexistingconditiontowhichtheplaintiffisentitled.Id.

By contrast, prohibitory relief requires that the party enjoined not take certainactions;itprovides:“‘Thoushaltnot.’”Gregory v. Crain, 291 Ky. 194, 163 S.W.2d 289, 290-291 (Ky. 1942). The purpose of a preventive injunction is to“forecloseafutureharmfulact.”Lampkin v. District of Columbia, 886 F. Supp. 56, 62 (D.D.C. 1995).

A temporary or permanent injunction may provide either mandatory or prohibitory relief. Russell v. Ephraim McDowell Health, Inc., 152 S.W.3d 230, 232 n.2 (Ky. 2004); CR 65.01. A restraining order is available only to provide prohibitory relief. Russell, 152 S.W.3d at 232 n.2; CR 65.01 (“A restraining order shallonlyrestrictthedoingofanact.”).

C. [4.116] OfficersWhoMayGrantorDissolveInjunctiveRelief

1. [4.117] Restraining Order

CivilRule65.03(2)identifiesfourofficersempoweredtograntrestrain-ing orders. First, a restraining order may be granted at any time by a judge of the circuit court in which the action is pending. CR 65.03(2). Where the circuit court consists of more than one division, this seemingly would include any judge of the circuit court. As a practical matter, a circuit judge in a division other than the one in which the action is pending will decline to issue a restraining order in an action not pending in her division if the judge in whose division the action is pending is, or will become, available.

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Second, if all of the circuit judges of the judicial circuit in which the action is pending are outside the county in which the action is pending, a district judge of that judicial circuit may issue the restraining order. Id.

Third, if all of the circuit judges of the judicial circuit in which the ac-tion is pending, as well as all of the district judges of that circuit, are outside the county in which the action is pending, a district court trial commissioner of the county in which the action is pending may issue the restraining order if he or she is an attorney. Id.

Finally, if the circuit judges of the judicial circuit in which the action is pending are outside the judicial circuit in which the action is pending, any circuit judge may issue a restraining order. Id. A circuit judge may issue the restraining order even though an appropriate district judge or district court trial commissioner is available, if the predicate for the circuit judge acting is met. Id.

For purposes of Civil Rule 65.03(2), a judge is treated as being outside his orherjudicialcircuitifthejudgeisdisqualifiedordisabledandthuspreventedfromacting. Id. A party seeking a restraining order from a circuit judge other than a judge in the judicial circuit in which the action is pending must demonstrate by means ofanaffidavitthattheappropriatejudgeisabsent,disqualified,ordisabled.Id. In addition,theaffidavitmuststatethatnojudgehasrefusedtherequestedrelief.Id.

Only a circuit court judge may dissolve a restraining order. CR 65.03(2). A restraining order may be dissolved upon motion to a judge of the circuit court in which the action is pending, or if all such judges are absent from the circuit, by any circuit judge. Id.

NothinginCivilRule65.03authorizesthemodificationofarestrainingorder. Cf. Civil Rule 65.04(4).

2. [4.118] Temporary Injunction

Because,bydefinition,atemporaryinjunctioninvolveslessurgencythanarestraining order, and potentially carries longer-lasting consequences, the civil rules restrict the persons authorized to issue temporary injunctions. Civil Rule 65.04(2) providesthatatemporaryinjunctionmaybe“granted,modifiedordissolved”by,(1) a judge of the circuit court in which the action is pending; or (2) when all such judges are absent from the judicial district, any circuit judge.

D. [4.119] Temporary Injunctions

CivilRule65.04governstemporaryinjunctions.Itconsistsoffiveparts.Civil Rule 65.04(1) details the circumstances under which a temporary injunction maybeentered.Theofficersauthorizedtogrant,dissolve,andmodifyatemporaryinjunction are set out in Civil Rule 65.04(2). The requirement that a temporary injunctionbeendorsedwiththedateandhourofitsissuanceandthatitbefiled

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intheclerk’sofficeandenteredisestablishedbyCivilRule65.04(3).CivilRule65.04(4)describeswhenatemporaryinjunctionbecomeseffectiveanditsduration.Thefinalsubsection,CivilRule65.04(5),establishestherequirementforfindingsof fact and conclusions of law.

1. [4.120] Purpose

“[B]ydefinition,temporaryinjunctionsattempttoplacethepartiesinapositionmostlikelytominimizeharmbeforethecourtcanfinallydecidetheissuesraisedinacomplaint….”National Collegiate Athletic Association v. Lasege, 53 S.W.3d 77, 83 (Ky. 2001) see also Doe v. Harlan County School District, 96 F. Supp. 2d 667, 671 (E.D. Ky. 2000) (“preserves the relative position of the parties untilatrialonthemerits…”);Wells v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 919 F. Supp. 1047, 1050 (E.D. Ky. 1994) (pending decision in arbitration). Among its purposes is to prevent the decision on the merits from being a “‘hollow formality.’”Id.

2. [4.121] Prerequisites to Issuance of a Temporary Injunction

Civil Rule 65.04(1) provides that:

A temporary injunction may be granted during the pendency of anactiononmotionifitisclearlyshownbyverifiedcomplaint,affidavit,orotherevidencethatthemovant’srightsarebeingorwillbeviolatedbyanadversepartyandthemovantwillsufferimmediateandirreparableinjury,loss,ordamagependingafinaljudgment in the action, or the adverse party will tend to render suchfinaljudgmentineffectual.

In construing the rule, and applying long-standing equitable consider-ations,thecourtshavedistilledfivefactorstobeweighedbythetrialcourtindecid-ingwhethertoexerciseitsdiscretiontoissueatemporaryinjunction,specifically:

• a pending action;

• absence of an adequate remedy at law;

• a substantial question on the merits;

• immediate and irreparable injury; and

• the balance of the equities.

Thefirsttwoareapplicabletoanyclaimforequitablerelief;thefinalthreeroutinelyare listed as factors for the grant of injunctive relief. See, e.g., Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152 161-162 (Ky. 2009); National Collegiate Athletic Association v. Lasege, 53 S.W.3d 77, 90 (Ky. 2001).

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The moving party bears the burden of establishing the circumstances justifying the grant of a temporary injunction. Kentucky Heartwood, Inc. v. Worth-ington, 125 F. Supp. 2d 839, 842 (E.D. Ky. 2000). Doubtful cases are to be resolved against the moving party. Thompson, 300 S.W.3d at 161.

a. [4.122] A Pending Action

Until the subject matter jurisdiction of the circuit court is invoked by the filingofanaction,thecourtiswithoutauthoritytoissueatemporaryinjunction.Bowling v. Commonwealth, 926 S.W.2d 667, 669-670 (Ky. 1996) (“the rules explicitly state the action must be commencing or pending before the court can issuesuchanorder”).Anactioniscommencedbythefilingofacomplaintandthe issuance of a summons or warning order in good faith. CR 3.01. Conversely, there is no pending action for purposes of entering a temporary injunction where a finalandappealablejudgmenthasbeenenteredwithrespecttotheclaimsthatarethe subject of the injunction. Chesley v. Abbott, 503 S.W.3d 148, 152 (Ky. 2016).

There is no independent cause of action for injunctive relief. Reuben H. Donnelley Corporation v. Mark I Marketing Corporation, 893 F. Supp. 285, 293 (S.D.N.Y. 1995).

b. [4.123] The Absence of an Adequate Remedy at Law

Althoughsometimesunavoidablyconflatedwiththerequirementthatthemoving party demonstrate immediate and irreparable injury in the absence of the requested relief, the absence of an adequate remedy at law is an independent and necessary predicate to the grant of injunctive relief. See Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 172 (Ky. 2009) (distinguishing between an adequate remedy at law and irreparable injury in the case of a writ of prohibition); Jenkins Independent School District v. Hunt, 314 Ky. 760, 237 S.W.2d 65, 66 (Ky. 1951) (treating irreparable injury and lack of adequate remedy at law as separate requirements); Bowles v. Major, 301 Ky. 604, 191 S.W.2d 926, 928 (Ky. 1945) (“irreparable injury and inadequate remedy at law should be made to appear in ordertoobtainaninjunction”).Infact,theabsenceofanadequateremedyatlawis fundamental to a court’s exercise of any equitable powers, which is premised “upon the ability of equity to prevent irreparable mischief and vexatious litigation, andtofurnishamorecompleteremedythancanbehadatlaw.”Commonwealth v. McGovern, 116 Ky. 212, 75 S.W. 261, 265 (Ky. 1903); see also Price v. Paintsville Tourism Comm’n, 261 S.W.3d 482, 484 (Ky. 2008) quoting Cyprus Mountain Coal Corporation v. Brewer, 828 S.W.2d 642, 645 (Ky. 1992) (“our case law is adamant thatinjunctionsgenerallywillnotbegranted‘whentheremedyatlawissufficienttofurnishtheinjuredpartyfullrelief.’”);Commonwealth ex rel. Luckett v. Monson, 465 S.W.2d 719, 720 (Ky. 1971); Food Basket, Inc. v. Amalgamated Meat Cutters and Butcher Workmen, Local 227, 293 S.W.2d 861, 862 (Ky. 1956) (inadequacy ofdamages“is‘thebroadfoundationofremedialjurisdictioninequity.’”).Thus,an injunction will be denied, even in the face of claimed immediate and irrepara-

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ble injury, where the movant had, but failed to exercise, a remedy at law. Miller v. Kentucky Real Estate Commission, 251 S.W.2d 845, 848 (Ky. 1952); see also Wyatt, Tarrant & Combs v. Williams, 892 S.W.2d 584, 586 (Ky. 1995) (holding that although no longer available, movant had adequate remedy at law by means of appeal and thus not entitled to writ of prohibition).

The Kentucky courts have carved a narrow exception to the rule. An in-junction will be granted, even where an adequate remedy at law exists, if a statute provides for the grant of an injunction without the necessity of demonstrating the inadequacy of remedies at law. Cyprus Mountain Coal Corporation v. Brewer, 828 S.W.2d 642, 645 (Ky. 1992) (“Injunctions, generally, will not be granted, minus some positive provision of the law to the contrary, where there is a choice between ordinary processes of law and the extraordinary remedy by injunction, when the remedyatlawissufficienttofurnishtheinjuredpartyfullrelieftowhichheisenti-tledinthecircumstances.”);Commonwealth ex rel. Chandler v. Anthem Insurance Companies, Inc., 8 S.W.3d 48, 55 (Ky. 1999) (statute expressly provided “[i]n order to obtain a temporary or permanent injunction, it shall not be necessary to prove that anadequateremedyatlawdoesnotexist”).Infact,theKentuckySupremeCourthas held that the movant need not demonstrate the lack of an adequate remedy at law where the statute merely authorizes the court to issue an injunction. See Floyd County Board of Education v. Ratliff, 955 S.W.2d 921, 925 (Ky. 1997) (statute authorized court to enforce Open Meetings Act “by injunction or other appropriate order”);see also United States v. Szoka, 260 F.3d 516, 523 (6th Cir. 2001) (movant need only meet statutory requirements for issuance of injunction where “Congress has replaced the traditionalequitable factorswithadifferent inquiry”);but see Smothers v. Lewis, 672 S.W.2d 62, 64-65 (Ky. 1984) (holding General Assembly unconstitutionally usurped the power of the judiciary by prohibiting the issuance of injunctions on appeals from orders of the Alcoholic Beverage Control Board and explaining “once the administrative action has ended and the right to appeal arises the legislature is void of any right to control a subsequent appellate judicial proceeding.Thejudicialruleshavecomeintoplayandhavepreemptedthefield.”).

i. [4.124] Meaning of Inadequate Remedy at Law

To constitute an adequate remedy at law, the available relief must be legal as opposed to equitable or otherwise. Underhill v. Murphy, 117 Ky. 640, 78 S.W. 482, 484 (Ky. 1904) (“The rule that an injunction will not be granted where there isanadequateremedyatlawreferstolegalremedies.”);Allen v. Perrine, 103 Ky. 516, 45 S.W. 500, 502 (Ky. 1898) (equitable proceeding to clear title to realty did not constitute an adequate remedy at law). Similarly, criminal prosecution does not constitute an adequate remedy at law. Jones v. Commonwealth, 308 Ky. 233, 213 S.W.2d 983, 986 (Ky. 1948) overruled on other grounds by Levisa Stone Corporation v. Hays, 429 S.W.2d 413, 418 (Ky. 1968); Underhill v. Murphy, 117 Ky. 640, 78 S.W. 482, 484 (Ky. 1904). Although the most common type of legal remedy is an action for damages, actions for quo warranto, ouster, and mandamus serve as adequate remedies at law where otherwise appropriate. Commonwealth

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ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 616 (Ky. 1992) overruled on other grounds by Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 172 (Ky. 2009) (Quo warranto is an adequate remedy at law); Spurlock v. Lafferty, 214 Ky. 333, 283 S.W. 124, 125 (Ky. 1926) (ouster); Mason v. Byrley, 84 S.W. 767, 771 (Ky. 1904) (mandamus). An adequate remedy at law may also exist by means of a defense to a legal claim. Foltz v. Kenton County Water District, 357 S.W.2d 668, 669 (Ky. 1962).

Even if a remedy exists at law, it must, not surprisingly, be more than a remedy in name only:

Todefeattheequitablejurisdiction,however,itisnotsufficientthat the law shouldmerely afford some remedy; that remedyshouldbeaspracticalandefficientasistheequitableremedyinrendering justice and as prompt in its administration. An injunc-tionisinmanycasesmorepromptandefficientthananylegalremedy,andbecauseofthispromptnessandefficiencythereisa strong tendency to grant injunctions in cases where formerly the remedy at law would have deemed fully adequate.

H. Friedberg, Inc. v. McClary, 173 Ky. 579, 191 S.W. 300, 302 (Ky. 1917); see also USACO Coal Company v. Carbomin Energy, Inc. 689 F.2d 94, 99 (6th Cir. 1982) (“An ‘adequate remedy at law’ is a remedy that is plain and complete and aspracticalandefficienttotheendsofjusticeastheremedyinequitybyinjunc-tion.”); Collins v. Commonwealth, 324 S.W.2d 406, 409 (Ky. 1959). Thus, the remedyatlawmustbe“full,adequateandcomplete.”Herr v. Central Kentucky Lunatic Asylum, 110 Ky. 282, 61 S.W. 283, 284 (Ky. 1901). Notwithstanding the broadlanguageofthesedecisions,delay,orthefactthemovantmustsuffersomeinjury before being compensated in damages, or must incur expenses incident to defending the action, typically does not render an otherwise adequate legal remedy inadequate. Cyprus Mountain Coal Corporation v. Brewer, 828 S.W.2d 642, 645-646 (Ky. 1992) (overturning injunction because of adequacy of action for damages despitewhatthedissentcharacterizedas“thehumansufferingofthetruckersandtheirfamilieswhohaveavestedrighttolifetimeemployment”);Foltz v. Kenton County Water District, 357 S.W.2d 668, 669 (Ky. 1962) (defendant had adequate remedyatlawthroughdefendingefforttocollectassessment).

ii. [4.125] Adequate Remedies at Law

The following procedures or actions, if available, typically provide an adequate remedy at law:

• actions for damages. Herr v. Central Kentucky Lunatic Asylum, 110 Ky. 282, 61 S.W. 283, 284 (Ky. 1901), includ-ing back pay. Price v. Paintsville Tourism Comm’n, 261 S.W.3d 482, 484 (Ky. 2008);

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• actions for relief in the nature of the former common law writs of quo warranto and mandamus. Commonwealth ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 616 (Ky. 1992) overruled on other grounds by Commonwealth ex rel. Con-way v. Thompson, 300 S.W.3d 152, 172 (Ky. 2009) (quo warranto); Mason v. Byrley, 84 S.W. 767, 771 (Ky. 1904) (mandamus);

• an adequate performance bond posted by the party to be enjoined. Standard Printing Company v. Miller, 304 Ky. 49, 199 S.W.2d 731, 732 (Ky. 1946);

• appeal. McCowan v. Bond, 249 S.W.2d 536, 537 (Ky. 1952); Heyser v. Brown, 299 Ky. 82, 184 S.W.2d 893, 894 (Ky. 1945);

• by raising a defense to an action at law. Foltz v. Kenton County Water District, 357 S.W.2d 668, 669 (Ky. 1962);

• remedy through private organization’s operating rules. Simpson v. Hughes, 299 Ky. 758, 187 S.W.2d 440, 443 (Ky. 1945);

• statutory remedy. Collins v. Commonwealth, 324 S.W.2d 406, 409 (Ky. 1959).

iii. [4.126] When a Remedy at Law Is Inadequate

The courts recognize that even when otherwise available, a remedy at law, particularly damages, may not be adequate in the following situations:

• where the remedy is an action for damages and the damages are incapable of measurement. Hall v. Willard & Woolsey, P.S.C., 471 S.W.2d 316, 319 (Ky. 1971) (“damages are not susceptibleofmonetaryvaluation”);Lareau v. O’Nan, 355 S.W.2d 679, 681 (Ky. 1962); Heidelberg Brewing Compa-ny v. E.F. Prichard Company, 297 Ky. 788, 180 S.W.2d 849 (Ky. 1944); Collins v. Pigman, 292 Ky. 240, 165 S.W.2d 955, 957 (Ky. 1942);

• where the remedy is action for damages but the monetary damages are nominal or non-existent. Gregg v. Starks, 188 Ky. 834, 224 S.W. 459, 462 (Ky. 1920);

• where the action is for damages, but the party to be en-joined is insolvent, or is likely to declare bankruptcy or cease business. Heidelberg Brewing Company v. E.F. Prichard Company, 297 Ky. 788, 180 S.W.2d 849 (Ky.

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1944); Payne v. Natural Resources and Environmental Protection Cabinet, 746 S.W.2d 90, 93 (Ky. Ct. App. 1988) (“thepossibilityofthecompany’sfilingbankruptcyorgo-ing out of business, rather than paying the cost of reclama-tion to a third party, is very strong. As such, equitable relief wasentirelyappropriate”);

• where the defendant, for reasons beyond his control, can not avail himself of the remedy at law. H. Friedberg, Inc. v. McClary, 173 Ky. 579, 191 S.W. 300, 302 (Ky. 1917);

• where the remedy is available only in a foreign court. Id.

• where the nature of the interest or right violated is such that monetary damages will not adequately compensate for the injury. Ferguson v. Rohde, 449 S.W.2d 758, 761-762 (Ky. 1970) (“transcendsmere recovery ofmoney”).Thecourt memorably described the situation in Greer v. Born-stein, 246 Ky. 286, 54 S.W.2d 927, 930-931 (Ky. 1932), in connection with an action to enjoin the violation of a restrictive covenant, by stating it would not “relegate the complaining party to his action at law, which, after its relief is exhausted, leaves the disturbing conditions still existing (and which in all probability are perpetual) and directstheinjuredcomplainanttobecontentandsatisfiedwithafewadditionalshekels.”See also H. Friedberg, Inc. v. McClary, 173 Ky. 579, 191 S.W. 300, 302 (Ky. 1917) (“But the mere fact that damages are recoverable at law is no objection to the granting of an injunction in case such damage would not be an adequate compensation for the injury.”). Examples other than restrictive covenants in-clude a threat to the health and lives of the movants and their families (Louisville & Nashville Railroad Company v. Franklin, 170 Ky. 645, 186 S.W.2d 643, 647 (Ky. 1916)), lossofelectiveoffice(Ferguson v. Rohde, 449 S.W.2d 758, 761-762 (Ky. 1970)), loss use and enjoyment of movant’s residence (Sam Warren & Son Stone Company v. Gruesser, 307 Ky. 98, 209 S.W.2d 817, 821 (Ky. 1948)) and violation of at least some statutory rights (City of Covington v. Mey-er, 376 S.W.2d 679, 680 (Ky. 1964) (loss of rights under KRS 95.500(3))).

c. [4.127] A Substantial Question on the Merits

To obtain an injunction, the movant must demonstrate that his or her claim raises a substantial question on the merits. National Collegiate Athletic Association

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v. Lasege, 53 S.W.3d 77, 90 (Ky. 2001); Cyprus Mountain Coal Corporation v. Brewer, 828 S.W.2d 642, 645 (Ky. 1992); Commonwealth ex rel. Cowan v. Wilkin-son, 828 S.W.2d 610, 616 (Ky. 1992) overruled on other grounds by Commonwealth ex rel. Conway v. Thompson,300S.W.3d152,172(Ky.2009)(“itissufficientifthecomplaintraisesseriousquestionswarrantingatrialonthemerits”).Absentasubstantial question on the merits, the court cannot issue a temporary injunction. Cyprus Mountain Coal Corporation v. Brewer, 828 S.W.2d 642, 645 (Ky. 1992) (“in granting such equitable relief, the trial court must…determine a substantial questionhasbeenpresented”).

Since at least the court of appeals’ decision in Maupin v. Stansbury, 575 S.W.2d 695, 699 (Ky. Ct. App. 1978), the substantial question standard has been understood to not require that the movant demonstrate a probability of success on the merits:

Where there has been no judicial determination as to the under-lying controversy, we do not believe a rule requiring a party to show a substantial probability of success on those merits is an appropriatestandard….itissufficientifthecomplaintraisesase-rious question warranting a trial on the merits….the actual overall merits of the case are not to be addressed in CR 65.04 motions.

See also Oscar Ewing, Inc. v. Melton, 309 S.W.2d 760,761 (Ky. 1958) (“A mo-tion for a temporary injunction does not call for, or justify, an adjudication of theultimaterightsoftheparties.”).InPrice v. Paintsville Tourism Comm’n, 261 S.W.3d 482, 484 (Ky. 2008), the Supreme Court, while citing Maupin,definedthesubstantial question requirement in terms of a substantial probability of success: “‘asubstantialquestion”ontheunderlyingmeritsofthecase,i.e., that there is a substantialpossibilitythatthemovantwillultimatelyprevail….’”AlthoughthePricecourt’sdefinitionwastechnicallydicta, theSupremeCourt thefollowingyear in Norsworthy v. Kentucky Board of Med. Licensure, 330 S.W.3d 58, 63 (Ky. 2009) construed the substantial question requirement in more demanding terms than did the Maupin court: “[t]o support a temporary injunction, one must show that a substantial question exists that tends to create a ‘substantial possibility’ that the Appellant will ultimately prevail on the merits.” (emphasis in original) (quoting Price, 261 S.W.3d at 484.) Thus, although both Price and Norsworthy suggest that thecourtmaybemigratingtowardamoredemanding“substantialquestion”test,the exact contours have yet to be established.

The determination that the movant has presented a substantial question on the merits is not formally an adjudication on the merits: “[a]t most, the circuit court’sfindingsandconclusionsarenothingbutpreliminarydeterminationsthathavenobindingeffectonthecourt’sultimatejudgmentaftertrialoftheissues.”SM Newco Paducah, LLC v. Ky. Oaks Mall Co., 499 S.W.3d 275, 279 (Ky. 2016).

A more searching inquiry is employed in federal court. Deters v. Davis, 2011 U.S. Dist. LEXIS 3836 *9 (E.D. Ky. Jan. 14, 2011) (the federal standard is “a

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muchmorestringentstandardthanappliedintheKentuckycourts.”)IntheSixthCircuit,the“results”oftheinquirytypicallyareusedsomewhatdifferentlythanin Kentucky state courts. In the federal system, the trial court looks to whether the movanthasdemonstrated“astronglikelihoodofsuccessonthemerits.”United States v. Szoka, 260 F.3d 516, 523 (6th Cir. 2001). But, unlike under Kentucky law wherethelessdemanding“substantialquestion”testisoneoftherequirementsforinjunctive relief, the inquiry in federal court concerning the merits of the movant’s claim is only a factor to be balanced:

“[A]findingthatthemovanthasnotestablishedastrongprob-ability of success on the merits will not preclude a court from exercising its discretion to issue a preliminary injunction if the movant has, at a minimum, show[n] serious questions going to the merits and irreparable harm which decidedly outweighs any potentialharmtothedefendantiftheinjunctionisissued.”

Six Clinics Holding Corporation, II v. Cafcomp Systems, Inc., 119 F.3d 393, 399-400 (6th Cir. 1997). As a result, in federal court “[t]he likelihood of success on the merits that needs to be shown will vary inversely with the degree of irreparable injurythat…[movant]willsufferabsenttheinjunction.”Wells v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 919 F. Supp. 1047, 1051 (E.D. Ky. 1994).

d. [4.128] Immediate and Irreparable Injury

A showing of immediate and irreparable injury is fundamental to the court’s ability to grant a temporary injunction and is “a mandatory prerequisite to theissuanceofanyinjunction.”Cyprus Mountain Coal Corporation v. Brewer, 828 S.W.2d 642, 645 (Ky. 1992); Maupin v. Stansbury, 575 S.W.2d 695, 699 (Ky. Ct. App. 1978). The determination of whether the movant will be irreparably injured is made by looking at “the harm arising during the interim between the request for theinjunctionandfinaldispositionofthecaseonthemerits.”Jayaraj v. Scappini, 66 F.3d 36, 40 (2d Cir. 1995).

i. [4.129] Requirement of Civil Rule

Civil Rule 65.04(1) provides:

A temporary injunction may be granted during the pendency of anactiononmotionifitisclearlyshownbyverifiedcomplaint,affidavit,orotherevidencethatthemovant’srightsarebeingorwillbeviolatedbyanadversepartyandthemovantwillsufferimmediateandirreparableinjury,loss,ordamagependingafinaljudgment in the action, or the acts of the adverse party will tend torendersuchfinaljudgmentineffectual.

Thus, a party seeking a temporary injunction must make three separate but relat-ed showings to satisfy the immediate and irreparable injury requirement: (1) an

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existing or threatened violation of the movant’s rights; (2) injury, loss, or damage that is immediate; and (3) injury, loss, or damage that is irreparable. Alternatively, in lieu of the second and third showing, the movant may show that unless the in-junctionisgranted,theadverseparty’sactionswilltendtorenderafinaljudgmentineffectual.CR65.04(1).

ii. [4.130] Standard of Proof

Civil Rule 65.04(1) requires that the grounds supporting an injunction be“clearlyshownbyverifiedcomplaint,affidavit,orotherevidence.”See also Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 161 (Ky. 2009). Allegationsareinsufficient.Marina Management Service, Inc. v. Commonwealth, 906 S.W.2d 318, 320 (Ky. 1995); Maupin v. Stansbury, 575 S.W.2d 695, 698 (Ky. Ct. App. 1978) (“At a minimum, the rule contemplates that a mere allegation that irreparableinjurywillresultisinsufficient.”).Instead,evidenceisrequired.Com-monwealth ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 612 (Ky. 1992) overruled on other grounds by Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 172 (Ky. 2009) (“[A] temporary injunction is not to be substituted for a full trial on the merits, the party seeking the injunction must clearly demonstrate by verifiedcomplaint,affidavit,orotherproofthattheharmislikelytooccurunlesstheinjunctionissues.”); Revenue Cabinet v. St. Ledger, 955 S.W.2d 539, 542 (Ky. Ct. App. 1997) (“CR 65.04 requires a movant for injunctive relief to show clearly, by suitable evidence, that his or her right has or will be violated by the adverse party.”);Maupin v. Stansbury, 575 S.W.2d 695, 698-699 (Ky. Ct. App. 1978) (“‘[t]he complaining party must allege and prove facts from which the court can reasonablyinferthatsuchwouldbetheresult’”).Ataminimum,theprobabilityofirreparable injury must be demonstrated. Commonwealth ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 613 (Ky. 1992) overruled on other grounds by Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 172 (Ky. 2009). However, a “clear showing”isnottantamounttoprevailinguponthemerits.Maupin v. Stansbury, 575 S.W.2d 695, 698-699 (Ky. Ct. App. 1978) (“to require one to carry an extremely highburdenofproofastohisentitlementtotherightwouldeffectivelydisposeofthemeritswithoutfulltrial”).

In federal court, the requirement of a clear showing is at least as substantial asinstatecourt:“[T]heproofforaplaintifftoobtainapreliminaryinjunctionis much more stringent than the proof required to survive a motion for summary judgment.”Leary v. Daeschner, 228 F.3d 729, 739 (6th Cir. 2000); see also Direx Israel, Ltd. v. Breakthrough Medical Corporation, 952 F.2d 802, 819 (4th Cir. 1991) (“Morethanasummaryjudgmentreviewwasrequired.”).InWinter v. Natural Resources Defense Council, Inc. 555 U.S. 7, 12 (2008), for example, the Supreme Court emphasized that the mere possibility of irreparable injury was inadequate to support the grant of a preliminary injunction:

Our frequently reiterated standard requires plaintiffs seekingpreliminary relief to demonstrate that irreparable injury is likely in

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the absence of an injunction…. Issuing a preliminary injunction based only on a possibility of irreparable harm is inconsistent with our characterization of injunctive relief as an extraordinary remedy that may only be awarded upon a clear showing that the plaintiffisentitledtosuchrelief.

iii. [4.131] Existing or Threatened Violation of Movant’s Rights

A movant must clearly allege the rights at issue and make the requisite evidentiary showing that those rights are being or will be violated:

In order to demonstrate a right to a temporary injunction, the movantmust first allege possible abrogation of a concretepersonal right. Some substantial claim to a personal right must be alleged in order for a movant to be entitled to a temporary injunction. CR 65.04. A doubtful case should await trial on the meritsbecausethetemporaryinjunctionoftenhastheeffectofenforcing a mere claim of right.

Commonwealth ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 613 (Ky. 1992) over-ruled on other grounds by Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 172 (Ky. 2009). See also Geveden v. Commonwealth ex rel. Fletcher, 142 S.W.3d 170, 172 (Ky. Ct. App. 2004). Except where the Attorney General is seeking an injunction on behalf of the citizens of the Commonwealth, Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 172-173 (Ky. 2009) (construing KRS 15.020 and the common law), the rights alleged and demonstrated to be violated must be those of the movant. Breathitt v. Warren County Election Commission, 372 S.W.2d 793, 794 (Ky. 1963) (“It is axiomatic that an injunction will not lie unless the defendant is doing or threatening an act which will be injurious to the oneseekingtheinjunctiverelief.”);Maupin v. Stansbury, 575 S.W.2d 695, 698 (Ky. Ct. App. 1978) (“There being no clear showing of possible irreparable injury totheMayor’srights,part2ofthetemporaryinjunctionisimproper.”).

Theharmflowingfromtheinjurytothemovant’srightsmustdifferinkindfromthatsufferedbythepublicgenerally.Dempsey v. Stovall, 418 S.W.2d 419, 423 (Ky. 1967); Deters v. Kenton County Public Library Board, 168 S.W.3d 62, 63 (Ky. Ct. App. 2005).

The defendant’s actions must either presently impair the movant’s rights or threaten to do so immediately:

It is also necessary that a clear showing be made that rights of the movant will be immediately impaired. A remote possibility ofsomefearedwronginthefutureisnotsufficienttosupportan award of a temporary injunction.

Commonwealth ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 612 (Ky. 1992) overruled on other grounds by Commonwealth ex rel. Conway v. Thompson, 300

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S.W.3d 152, 172 (Ky. 2009); Deters v. Kenton County Public Library Board, 168 S.W.3d 62, 63 (Ky. Ct. App. 2005). The fact that a violation has occurred in the past is not determinative because “the party seeking injunctive relief must at least demonstrate ‘that there exists some cognizable danger of recurrent violation’ of its legalrights.”Anderson v. Davila, 125 F.3d 148, 164 (3d Cir. 1997).

iv. [4.132] Immediacy of the Injury, Loss, or Damage

Thisfactorconsistsoftwosubparts:exigencyandcertainty.Thefirstsub-part is temporal. The possibility of injury at some point in the future will not support the grant of a temporary injunction. Commonwealth ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 612 (Ky. 1992) overruled on other grounds by Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 172 (Ky. 2009) (“It is also necessary that a clear showing be made that rights of the movant will be immediately impaired. A remotepossibilityofsomefearedwronginthefutureisnotsufficienttosupportanawardofatemporaryinjunction.”);Maupin v. Stansbury, 575 S.W.2d 695, 698 (Ky. Ct. App. 1978) (“the element of ‘immediacy’ contemplates that the parties show anurgentnecessityfortherelief”).Rather,“[t]heexigencymustbeextreme…andthe consequent irremedial injury equally imminent, before the writ should be so employed.”Oscar Ewing, Inc. v. Melton, 309 S.W.2d 760, 762 (Ky. 1958).

The second sub-part turns on the likelihood of the injury, damage, or loss. “This means that ‘[a]n injunction will not be granted on the ground of an anticipated danger or an apprehension of it, but there must be a reasonable probability that injurywillbedoneifnoinjunctionisgranted.”Maupin v. Stansbury, 575 S.W.2d 695, 698 (Ky. Ct. App. 1978); see also Commonwealth ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 613 (Ky. 1992) overruled on other grounds by Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 172 (Ky. 2009) (“To support an extraordinary remedy of an injunction, there must be shown a practically certain injury.”);Oscar Ewing, Inc. v. Melton, 309 S.W.2d 760, 762 (Ky. 1958) (“the threateneddanger[mustbe]practicallycertain”).Moreover,“[c]essationoftheallegedly illegal conduct, though not rendering a claim moot, nevertheless may affecttheabilitytoobtaininjunctiverelief,asbyimpactingtheabilitytoshowsubstantialandirreparable injury.”Milwaukee Police Association v. Jones, 192 F.3d 742, 748 (7th Cir. 1999).

The movant’s alacrity in seeking relief is considered by the courts in gauging the immediacy of the claimed injury. Citibank, N.A. v. Citytrust, 756 F.2d 273, 276 (2d Cir. 1985) (Temporary injunctions “are generally granted under the theorythatthereisanurgentneedforspeedyactiontoprotecttheplaintiff’srights.Delay in seeking enforcement of those rights, however, tends to indicate at least a reducedneedforsuchdrastic,speedyaction.”);see also Gilder v. PGA Tour, Inc., 936 F.2d 417, 423 (9th Cir. 1991) (“delay in seeking a preliminary injunction is a factortobeconsideredinweighingtheproprietyofrelief”);Vaughan v. General Outdoor Advertising Co., 352 S.W.2d 562, 565 (Ky. 1961) (injunction action commenced within two months of knowledge of complained of conduct evidenced

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reasonablediligence).Norshouldthecourtspermittherequired“immediacy”tobe fashioned through the movant’s delay. See Greene v. Eversole, 177 S.W.2d 559, 560 (Ky. 1944) (maxim “has peculiar force when the injunctive power of the Courtisinvoked”).Typically,“ashowingofdelaydoesnotpreclude,as a matter of law,adeterminationofirreparableharm.”Hybritech, Incorporated v. Abbott Laboratories, 849 F.2d 1446, 1457 (Fed. Cir. 1988). “[R]ather, it puts the burden onthemovingpartytoexplainthedelay.”New York State Trawlers Association v. Jorling, 764 F. Supp. 24, 26 (E.D.N.Y. 1991).

Delaysufficienttobarthegrantingofatemporaryinjunctionneednotrise to the level of laches. Majorca, S.A. v. R.H. Macy & Co., Inc., 762 F.2d 7, 8 (2d Cir. 1985).

v. [4.133] IrreparableInjuryorRenderingFinalJudgmentIneffectual

ThefinalfactorunderCivilRule65.04(1)isprooftheinjuryisirreparableorthattheadverseparty’sactswillrenderafinaljudgmentineffectual.Althoughthe rule is written in the disjunctive, there is substantial overlap between the two factors. See Oscar Ewing, Inc. v. Melton, 309 S.W.2d 760, 761 (Ky. 1958). The main distinction,althoughrarelyidentifiedbythecourts,isthatunderthesecondfactorafinaljudgmentmustberenderedineffectualbytheactionsoftheadverseparty.

(a) [4.134] Irreparable Injury

Most commonly, irreparable injuries aredefined as injuries forwhichmonetary damages will not provide adequate compensation. Jayaraj v. Scappini, 66 F.3d 36, 39 (2d Cir. 1995).

Mere injuries, however substantial in terms of money, time and energy necessarily expended in the absence of a stay, are not enough. The possibility that adequate compensatory or other corrective relief will be available at a later date, in the ordinary course of litigation, weighs heavily against a claim of irreparable harm.

Sampson v. Murray, 415 U.S. 61, 90, 94 S. Ct. 937, 953 (1974). The lack of monetary damages, although an important determinant, is not always determinative. As explained by the Kentucky Supreme Court, “[t]hough ‘irreparableinjury’isatime-honoredhandle, it isnoteasytogrip.”Harrison’s Sanatorium, Inc. v. Commonwealth, 417 S.W.2d 137, 139 (Ky. 1967). In this respect, it resemblesJusticeStewart’sdefinitionofobscenity.See Jacobellis v. Ohio, 378 U.S. 184, 197, 84 S. Ct. 1676, 1683 (1964) (Stewart, J., concurring) (statementof“IknowitwhenIseeit”).Moreover,thereissomeoverlapbetweenthe“irreparability”oftheinjuryandwhetherthemovanthasaremedyatlaw.See Crane v. Indiana High School Athletic Association, 975 F.2d 1315, 1326 (7th Cir. 1992) (irreparable injury “‘is one basis for showing the inadequacy of the legal remedy.’”)Thus,manyoftheprinciplesgoverningthedeterminationofwhether

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the movant has an adequate remedy at law are equally applicable to whether the movantwillsufferanirreparableremedy.

At least at the time the case was decided, the court in Goose v. Common-wealth, 305 Ky. 644, 205 S.W.2d 326, 328 (Ky. 1947), noted that “irreparable injury topropertyrights…[was]perhapsthemostcommonofcausesforinjunctiverelief.”

Notwithstandingthedifficultyincraftingaprecisedefinitionofirreparableinjury, the following principles are relevant:

• An injury is not irreparable if it may be remedied through the payment of money damages. Campbell v. Irvine Toll Bridge Company, 173 Ky. 313, 190 S.W. 1098, 1099 (Ky. 1917) (“where damages would fully compensate for the in-jury, and the defendant is solvent and able to respond, no injunctionshouldissue”);see also People v. Tahoe Region-al Planning Agency, 766 F.2d 1316, 1319 (9th Cir. 1985) (“Merefinancialinjurywillnotconstituteirreparableharmif adequate compensatory relief will be available in the course of litigation”); Transamerica Insurance Finance Corporation v. North American Trucking Association, Inc., 937 F. Supp. 630, 634 (W.D. Ky. 1996) (“As a general rule,wheretheharmsufferedbythemovingpartymaybecompensated by an award of money damages, courts will refusetofindtheharmirreparable.”).Moreover,adelayinpayment, even if not fully recompensed by the payment of interest, does not rise to the level of an irreparable injury. Centurion Reinsurance Co. v. Singer, 810 F.2d 140, 144-145 (7th Cir. 1987).

• Loss of income, depletion of savings, damage to reputa-tion, disruption of the plaintiff’s life, and difficulty find-ing other employment as a result of wrongful termination typically are remediable by damages and thus do not con-stitute irreparable injury. Gharad v. St. Claire Med. Ctr., Inc., 443 S.W.3d 609, 612 (Ky. 2014) (“‘despite individual hardship[,] the loss of one’s job and one’s income pending disposition of a wrongful termination case does not amount to ‘irreparable injury’ justifying a temporary injunction’…but in the ordinary case,…loss of income or damage to reputation’ is inadequate’”); Price v. Paintsville Tourism Comm’n, 261 S.W.3d 482, 484-485 (Ky. 2008); D’Aquisito v. Washington, 640 F. Supp. 594, 626 (N.D. Ill. 1986).

• Expenses attendant to administrative litigation, including costs, attorney fees, and expert witness fees that cannot be recouped, do not constitute irreparable injuries. Ar-

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nold v. Commodity Futures Trading Commission, 987 F. Supp. 1463, 1468 (S.D. Fla. 1997). In fact, the Kentucky Supreme Court has held that the availability of further ad-ministrative proceedings may negate a claim of irreparable injury. Sturgeon Mining Company v. Whymore Coal Com-pany, Inc., 892 S.W.2d 591, 592 (Ky. 1995). One exception to this rule is where such “costs far exceed those incident to ordinary litigation because of the conduct of one of the par-ties.”Entergy, Arkansas, Inc. v. Nebraska, 210 F.3d 887, 899 (8th Cir. 2000).

• Arbitration expenses and costs do not rise to the level of irreparableinjuriessufficienttosupportaninjunction.Te-jidos de Coamo, Inc. v. ILGWU, 22 F.3d 8, 14-15 (1st Cir. 1994).

• Thepaymentofafineorcarryingoutthedirectionsofanadministrative agency pending an appeal do not constitute irreparable injury. Sturgeon Mining Company v. Whymore Coal Company, Inc., 892 S.W.2d 591, 592 (Ky. 1995).

• Even if money damages are available, an injury is irrep-arable “if ‘there exists no certain pecuniary standard for themeasurementofdamages.’”United Carbon Company v. Ramsey, 350 S.W.2d 454, 456 (Ky. 1961) (company’s “freedomtooperateitsaffairsinalawfulandbusinesslikemanner”andavoidanceofviolence);Oscar Ewing, Inc. v. Melton, 309 S.W.2d 760, 761 (Ky. 1958) (“impossibility of measuringtheinjuryintermsofmoney”).Otherexamplesof injuries not susceptible to measurement include inju-ries to a business’ goodwill and reputation (Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 217 F.3d 8, 13 (1st Cir. 2000)), loss of customers to competitors through loss of a “prestigious brand or product line”(Ross-Simons of War-wick, Inc. v. Baccarat, Inc., 102 F.3d 12, 20 (1st Cir. 1996)), a celebrity’s property interest in his name and likeness (Mi-chaels v. Internet Entertainment Group, Inc., 5 F. Supp. 2d 823, 838 (C.D. Cal. 1998)) and an actionable disclosure of private facts (Id. at 842). Conversely, the fact that the calculationofdamagesmaybedifficultdoesnotrendertheinjury irreparable. Gharad v. St. Claire Med. Ctr., Inc., 443 S.W.3d 609, 612 (Ky. 2014).

• Even where money damages are sought, some courts have held that the adverse party’s insolvency or likely insolven-cymaymeanthemovantwillsufferanirreparableinjuryin the absence of injunctive relief. American Hospital Sup-

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ply Corporation v. Hospital Products, Ltd., 780 F.2d 589, 596 (7th Cir. 1986) (“a defendant’s insolvency is a standard groundforconcludingthataplaintiff’sharmiftheprelim-inary injunction is denied will not be cured by an award of damagesattheendoftrial”);Roland Machinery Compa-ny v. Dresser Industries, Inc., 749 F.2d 380, 386 (7th Cir. 1984); Campbell v. Irvine Toll Bridge Company, 173 Ky. 313, 190 S.W. 1098, 1099 (Ky. 1917) (“where damages would fully compensate for the injury, and the defendant is solventandabletorespond,noinjunctionshouldissue”);R.O. Hahn, Inc. v. MDG Diagnostics, Inc., 737 S.W.2d 180, 181 (Ky. Ct. App. 1987) (suggesting that unsecured claimagainstadefendantexperiencingcashflowproblemsmay constitute irreparable injury).

• Althoughfinancial injuries typicallywillnotgive rise toirreparableinjury,financialinjuriesofsufficientmagnitudeor type as to threaten the ongoing existence of a business may be irreparable. Patriot, Inc. v. Department of Housing and Urban Development, 963 F. Supp. 1, 5 (D.D.C. 1997).

• “Legally unwarranted deprivation of the immediate right to possession of a child shall ipso facto be regarded as irrep-arableinjury….”Galloway v. Pruitt, 469 S.W.2d 556, 558 (Ky. 1971).

• Constitutional violations (Ross v. Meese, 818 F.2d 1132, 1135 (4th Cir. 1987)), particularly First Amendment viola-tions, constitute irreparable injury. Elrod v. Burns, 427 U.S. 347, 373, 96 S. Ct. 2673, 2690 (1976); see also Capital Area Right to Life, Inc. v. Downtown Frankfort, Inc., 862 S.W.2d 297, 307 (Ky. 1993) (Wintersheimer, J., dissent-ing).

• Violation of an enforceable covenant not to compete may give rise to irreparable injury. Jak Productions, Inc. v. Wiza, 986 F.2d 1080, 1084 (7th Cir. 1993).

• Liability for a criminal penalty may constitute or serve as a substitute for irreparable injury. Harrison’s Sanitarium, Inc. v. Commonwealth, 417 S.W.2d 137, 139 (Ky. 1967) (“‘The Supreme Court has often assumed without dis-cussion that enforcement of regulations may be enjoined whenever a violator is subject to criminal penalty without any special showing of irreparable injury or threat of en-forcement...’Weareinclinedtothesameview.”).

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• A rebuttable presumption that a governmental entity will be irreparably injured in the absence of the requested injunc-tion exists where the governmental entity seeks to enjoin a violation of a statute or ordinance enacted in furtherance of the entity’s police powers. Boone Creek Props., LLC v. Lexington-Fayette Urban County Board of Adjustment, 442 S.W.3d 36, 40-41 (Ky. 2014).

• Avoidance of a multiplicity of lawsuits, particularly where the damages at issue in each are small, may be relevant. Bartman v. Shobe, 353 S.W.2d 550, 554 (Ky. 1962); Aboud v. Bailen, 289 Ky. 536, 159 S.W.2d 410, 412 (Ky. 1942) (“the remedy of successive actions at law for such [min-imal] damages is inadequate and equity will interpose by injunction on the ground that the injury is irreparable and, incertaincases,inordertopreventamultiplicityofsuits”);Music Hall Theatre v. Moving Picture Machine Operators Local No. 165, 249 Ky. 639, 61 S.W.2d 283, 285 (Ky. 1933). There is some authority suggesting that the avoid-ance of a multiplicity of suits is an independent basis for the grant of injunctive relief even in the absence of irreparable injury. See Burden v. Hendrix, 205 Ky. 167, 265 S.W.2d 493, 494 (Ky. 1924) (“It is the generally recognized rule that the aid of a court of equity cannot be invoked so as to interfere with proceedings of subordinate tribunals, unless topreventirreparableinjuryoramultiplicityofsuits.”).

(b) [4.135] RenderingFinalJudgmentIneffectual

As originally enacted, the only basis under Civil Rule 65 for the grant of a temporary injunction was that the defendant’s actions would tend “to render thejudgmentineffectual.”See Tentative Draft of the Rules of Civil Procedure of Kentucky 202 (1952). The provision was based on the then existing civil code provision governing injunctions and restraining orders. Id. at 204. In Oscar Ewing, Inc. v. Melton, 309 S.W.2d 760, 761 (Ky. 1958), the court addressed the meaning of the language of the then existing rule:

CR 65.03 authorizes a temporary injunction when the defendant isdoinganact“tendingtorenderajudgmentineffectual.”Thismeansthattheplaintiffmustestablishtheurgentnecessityforimmediatereliefonthegroundthatheisnowsufferingorwillsuffersuchseriousandirreparableinjurythatevenafavorablefinaljudgmentwillnotgivehimadequaterelief.Obviouslythisremedy is extreme because it deprives the defendant of substantial rights before he has had an opportunity to present his defense to the action.

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Subsequent to the decision in Oscar Ewing, Inc., the rule was amended to its present form.

Since the rule was amended to provide an injunction may be granted upon a showing of irreparable injury, or where the adverse party’s actions will render the finaljudgmentineffectual,thelatterbasishasnotbeenspecificallyaddressedbytheKentucky courts in a reported decision. Nevertheless, the concept is part of equity jurisprudence, and its limits have been discussed by several courts. WarnerVision Entertainment, Inc. v. Empire of Carolina, Inc., 101 F.3d 259, 261 (1996) (“This concept – the preservation of the court’s power to render a meaningful decision after trial on the merits – has been, and continues to be a basic principle of pre-liminaryinjunctionlaw.”).However,thereissubstantialoverlapwiththeconceptof irreparable injury. See Meis v. Sanitas Service Corporation, 511 F.2d 655, 656 (5th Cir. 1975) (The purpose of a preliminary injunction is “to prevent irreparable injury so as to preserve the court’s ability to render a meaningful decision on the merits.”).Examplesofdecisionspremisedonpreservingtheefficacyoftheulti-mate decision are:

• court entered preliminary injunction “pending arbitration to prevent arbitration from being rendered a ‘hollow for-mality’ and to preserve the ‘meaningfulness of arbitra-tion.’”Wells v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 919 F. Supp. 1047, 1051 (E.D. Ky. 1994);

• court entered preliminary injunction because Eleventh Amendment barred any claim for damages against state defendants. New York State Trawlers Association v. Jor-ling, 764 F. Supp. 24, 25 (E.D.N.Y. 1991) (characterized as irreparable injury);

• court entered preliminary injury to preserve possible eq-uitable remedies. United States v. Alabama, 791 F.2d 1450, 1459 (11th Cir. 1986) (permanent injunctive relief); USACO Coal Company v. Carbomin Energy, Inc., 689 F.2d 94, 97-98 (6th Cir. 1982) (constructive trust); F.T.C. v. H.N. Singer, Inc., 668 F.2d 1107, 1112 (9th Cir. 1982) (rescis-sion). Where the equitable relief to be protected involves the payment of money by the adverse party to the movant (as distinguished from money damages, which typically are not awarded in an equitable action), the property with respect to which the injunction issues must be related to the claims of the action. See DeBeers Consolidated Mines, Ltd. v. United States, 325 U.S. 212, 220 65 S. Ct. 1130, 1134 (1945);

• decision recognizing that the courts possess the authority to enter an injunction to protect their appellate jurisdiction.

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Jackson v. District of Columbia, 254 F.3d 262, 268 (D.C. Cir. 2001) (“We think an irreparable injury exception is unnecessary. The Supreme Court has long recognized that federal courts possess a ‘traditional power to issue injunc-tions to preserve the status quo while administrative pro-ceedings are in progress and prevent impairment of the effectiveexerciseofappellatejurisdiction.’”);

• decision characterizing “the power of the district court to preserveafundorpropertywhichmaybesubjectofafinaldecree” as “well established.”USACO Coal Company v. Carbomin Energy, Inc., 689 F.2d 94, 97-98 (6th Cir. 1982).

e. [4.136] Balancing the Equities

Although nowhere contained in Civil Rule 65.04, a court is required to weigh the respective hardships on the parties and the public of granting and deny-ing the requested injunctive relief as part of its calculus of determining whether the relief is to be granted. National Collegiate Athletic Association v. Lasege, 53 S.W.3d 77, 85-86 (Ky. 2001); City of Monticello v. Rankin, 521 S.W.2d 79, 81 (Ky. 1975) (“the interests of the parties and the public must be balanced in granting orwithholdingtheequitableremedyof injunction”); Maupin v. Stansbury, 575 S.W.2d 695, 698 (Ky. Ct. App. 1978) (“in any temporary injunctive relief situation therelativebenefitsanddetrimentsshouldbeweighed”).

Essentially, in balancing the relative equities the court seeks to limit the costs of a mistaken decision on the motion for injunctive relief. See, e.g., American Hospital Supply Corporation v. Hospital Products, Ltd., 780 F.2d 589, 593 (7th Cir. 1985). That is, where the irreparable injury to the movant in the absence of the requested relief outweighs the harm to the adverse party and the public of granting the relief, an erroneous decision granting the injunctive relief will result in less harm than an erroneous decision denying the relief. Thus, the equities weigh in favor of granting the requested relief. Id. at 593-594. Conversely, where the harm to the adverse party and the public in granting the relief outweighs the irreparable injurytobesufferedbythemovantintheabsenceoftherelief,lessharmoverallwill result from an erroneous decision denying the relief than from one granting the relief. In such a case, the equities favor the denial of the injunction. Id. Typi-cally,“thebalanceofharmmustweighmoreheavilyinfavoroftheplaintiffthandefendant before an injunction should issue.”RAM Products Company, Inc. v. Chauncey, 967 F. Supp 1071, 1086 (N.D. Ind. 1997); Bartman v. Shobe, 353 S.W.2d 550, 554 (Ky. 1962) (courts “consider the ‘balance of inconvenience,’ frequently withholdingthegrantingofaninjunctionwhenthebenefittotheplaintiffwillbesmallincomparisontotheinjurytothedefendant”).

Whilebuildinguponthedeterminationmadeunderthe“irreparableinjury”

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factor, balancing the equities requires a broader analysis:

Irreparable harm focuses on the harm or potential harm to the plaintiffofthedefendant’sconductorthreatenedconduct….Incontrast, the balance of harm analysis examines the harm of grant-ing or denying the injunction upon both of the parties to the dispute and upon other interested parties, including the public, as well.

Heather K. v. City of Mallard, Iowa, 887 F. Supp. 1249, 1259 (N.D. Iowa 1995).

i. [4.137] Equities Considered

In addition to considering the irreparable injury to the movant, and “[a]lthough not an exclusive list, the court should consider such things as possible detriment to the public interest, harm to the defendant, and whether the injunction willmerelypreservethestatusquo.”Maupin v. Stansbury, 575 S.W.2d 695, 699 (Ky. Ct. App. 1978) quoted in Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 162 (Ky. 2009). In balancing the equities, the following considerations are relevant:

• “Potential economic harm to each of the parties and to interested third parties of either granting or denying the injunctionisparticularlyrelevant.”Ram Products Compa-ny, Inc. v. Chauncey, 967 F. Supp. 1071, 1086 (N.D. Ind. 1997); but see R.O. Hahn, Inc. v. MDG Diagnostics, Inc., 737 S.W.2d 180, 181 (Ky. Ct. App. 1987) (rejecting con-sideration of harm to third party in balancing the equities);

• Voluntary remedial action by the adverse party may read-just the balance. Heather K. v. City of Mallard, Iowa, 887 F. Supp. 1249, 1260 (N.D. Iowa 1995);

• “[I]llusory harm to the movant will not outweigh any actu-alharmtothenonmovant.”Id. at 1259;

• The movant’s delay in seeking injunctive relief is relevant to the balancing of the equities. The Kingsford Products Company v. Kingsfords, Inc., 674 F. Supp. 1428, 1432 (D. Kan. 1987);

• In gauging the public interest, the court “indulges in broad observations about conduct that is generally recognizable ascostlyorinjurious.”Heather K. v. City of Mallard, Iowa, 887 F. Supp. 1249, 1260 (N.D. Iowa 1995);

• “The ‘public interest’ factor involves, among other things, the ‘public’s interest in minimizing unnecessary costs’ to bemetfromthepubliccoffers.”Id. at 1260 n.16;

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• Theaffectedparty’sparticipationor“culpability”inbring-ing about the harm complained of by that party is relevant. R.O. Hahn, Inc. v. MDG Diagnostics, Inc., 737 S.W.2d 180, 181 (Ky. Ct. App. 1987) (“[adverse party] is the victim of a situationthatithascreateditself”);see also Hall v Budde, 293 Ky. 436, 169 S.W.2d 33, 33 (Ky. 1943) (“the fact that thecomplainants“movedtothenuisance”isbutafactor,though an important one, to be considered in connection with all the circumstances in determining the equities of a givencase”);

• Inmeasuring the relative effect of thegrant or denial ofinjunctivereliefonparties, theparties’sizeandfinancialstrength“maybearelevantfactorinthisdetermination.”Robinson v. Jardine Insurance Brokers International Ltd., 856 F. Supp. 554, 559 n.20 (N.D. Cal. 1994).

ii. [4.138] Status Quo

Whether the injunctive relief will maintain the status quo must be con-sidered in balancing the equities (Maupin v. Stansbury, 575 S.W.2d 695, 699 (Ky. Ct. App. 1978)), although the fact that the status quo will be maintained by the injunctive relief is not determinative where the other equities weigh in favor of denying the motion. See Sturgeon Mining Company v. Whymore Coal Company, Inc., 892 S.W.2d 591, 592 (Ky. 1995).

Most courts measure the status quo as of “‘the last uncontested status which precededthependingcontroversy.’”GoTo.com, Inc. v. Walt Disney Company, 202 F.3d 1199, 1210 (9th Cir. 2000); see also Consarc v. United States Treasury De-partment,71F.3d909,912(D.C.Cir.1995)(“Judicialprecedentconfirmsthat‘thestatusquoisthelastuncontestedstatuswhichprecededthependingcontroversy.’”);Litton Systems, Inc. v. Sunstrand Corporation, 750 F.2d 952, 961 (Fed. Cir. 1984); Commonwealth ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 617 (Ky. 1992) (Leib-son,J.,dissenting)(definingthestatusquoas“thelastactualnon-contestedstatusprecedingcontroversy”).See also Witten v. Sternberg, 475 S.W.2d 496, 498 (Ky. 1971)(definingstatusquoastheconditionthatexistedpriortothecontestedevent)(non-injunction case). However, in at least one case the Kentucky Supreme Court measuredthestatusquoasofthetimetheactionwasfiled.Commonwealth ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 613 (Ky. 1992) overruled on other grounds by Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 172 (Ky. 2009).

3. [4.139] Procedure

Interlocutory injunctive relief is available only through a motion, and seekingsuchreliefinacomplaintisnotsufficient.Commonwealth v. Maynard, 537 S.W.2d 169, 170 (Ky. 1976).

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a. [4.140] When Available

Upon the requisite showing, a temporary injunction may be granted at any time during the pendency of the action. CR 65.04(1) (“A temporary injunction maybegrantedduringthependencyofanactiononmotion.”).

b. [4.141] Notice and Hearing

Unlike the Federal Rules of Civil Procedure, which expressly require no-tice and provide for a hearing on a motion for preliminary (temporary) injunction, the Kentucky Rules of Civil Procedure merely provide that temporary injunctions are to made by motion. CR 65.04(1); cf. Fed. R. Civ. P. 65(a)(1); Fed. R. Civ. P. 65(a)(2). The omission might be noteworthy in light of the fact that as originally proposed, Civil Rule 65.03, like Federal Rule of Civil Procedure 65(a)(1), would have provided that “no temporary injunction shall be issued without notice to the adverseparty.”Tentative Draft of the Rules of Civil Procedure of Kentucky 202 (1952). Likewise, the Civil Code, the predecessor to the Civil Rules, formerly provided that “[a]n injunction shall only be granted upon reasonable notice, in writing,tothepartysoughttobeenjoined.”Ky.CivilCode§276.

Notwithstanding the lack of an express requirement, it is clear that both the Civil Rules and practice require notice of a motion for a temporary injunction. Because a temporary injunction is available only by motion, Civil Rule 7.02(1) is applicable. It provides in pertinent part that “[a]n application to the court for an order shall be by motion which, unless made during a hearing or trial, shall be made in writing, shall state with particularity the grounds therefor, and shall set forththerelieforordersought.”CivilRule5.01inturnrequiresthat“everywrittenmotion other than one that may be heard ex parte…shall be served on each party except those indefault for failure toappear.”Finally,CivilRule6.04providesthat “[a] written motion, other than one which may be heard ex parte, and notice ofthehearingthereofshallbeservedareasonabletimebeforethetimespecifiedforthehearing.”NothinginCivilRule65.04contemplatesanexpartemotionfortemporary injunction, and thus, the rules contemplate both a written motion and notice (of the motion and hearing if there is to be one) by service. See also Notes, Tentative Draft of the Rules of Civil Procedure of Kentucky 203 (1952) (“[a] tem-poraryinjunctionbeinggrantedalwayswithnotice”).

Any doubt of the necessity of a notice and hearing before a temporary injunction may be issued under CR 65 was put to rest by the court of appeals in Common Cause of Kentucky v. Commonwealth, 143 S.W.3d 634, 636-637 (Ky. Ct. App. 2004), and the Kentucky Supreme Court four years later in Kentucky High School Athletics Ass’n v. Edwards, 256 S.W.3d 1, 5 (Ky. 2008) (“a temporary in-junctionmayonlybegrantedwithnoticeandahearing.”)Evenifaccompaniedbyfindingsoffactandlabeleda“temporaryinjunction,anordergrantinginjunctiverelief without notice and hearing is a temporary restraining order and is subject to its limitations and requirements. Id.

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The length of the notice turns on the facts of the case and lies within the discretion of the trial court. See United States v. Alabama, 791 F.2d 1450, 1458 (11th Cir. 1986). Normally, “[n]otice on the day of the preliminary injunction hearingitselfdoesnotsatisfy”thenoticerequirement.Hoechst Diafoil Company v. Nan Ya Plastics Corporation, 174 F.3d 411, 422 (4th Cir. 1999) (recognizing that a restraining order could issue on such notice). Although construing Federal Rule of Civil Procedure 65(a), the Supreme Court’s explanation in Granny Goose Foods, Inc. v. Brotherhood of Teamsters, Local 70, 415 U.S. 423, 433 n.7, 94 S. Ct. 1113, 1121 n.7 (1974), seems equally applicable to practice under state rules: “The notice required by Rule 65(a) before a preliminary injunction can issue implies a hearing in which the defendant is given a fair opportunity to oppose the application andtoprepareforsuchopposition.”Thereasonforrequiringnoticeofamotionfortemporary injunctive relief, and it is equally applicable in state and federal court, isthatunlikearestrainingorder,atemporaryinjunctionis“unlimitedinduration.”CIENA Corporation v. Jarrard, 203 F.3d 312, 319 (4th Cir. 2000).

Presumably, the parties can, with the consent of the trial court, agree to waive a formal hearing and submit the motion to the court on the basis of the affidavitsandotherproof.Infact,CR65.04doesnotexpresslyrequireahearingbefore action on a motion for temporary injunction. Rather, what is required is that the decision on the motion be on the basis of evidence and not allegations, as the rule expressly requires that the movant’s right to a temporary injunction mustbe“clearlyshownbyverifiedcomplaint,affidavit,orotherevidence.”CR65.04; Commonwealth ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 612 (Ky. 1992 overruled on other grounds by Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 172 (Ky. 2009).

Even when the parties otherwise agree, it will be a rare case that can be decidedwithoutahearing.Forexample,therulerequiresthecourttomakefindingsof fact in connection with any decision on a motion for temporary injunction. CR 65.04(5);CR52.01.Ofcourse,findingsoffactmustbesupportedbysubstantialevidence, which typically is adduced through a hearing. See Massachusetts Bonding and Insurance Company v. Huffman,340S.W.2d447,449(Ky.1960)(findingsof fact must be supported by substantial evidence). Thus, although the motion for temporary injunction can theoretically be tried on the basis of the parties’ written evidentiarysubmissions(includingverifiedcomplaint,affidavits,answerstointer-rogatories, answers to requests for admission, and depositions), as a practical matter the party opposing the injunction, as well as the trial court, in most cases will want a hearing in which the competing parties’ evidence can be tested by cross examination and legal positions challenged in oral argument. See Markendorf v. Friedman, 280 Ky.484,133S.W.2d516,519(Ky.1939)(affidavitscompetentinhearingonmotionfor temporary injunction); see also Adams v. Freedom Forge Corporation, 204 F.3d 475, 487 (3d Cir. 2000) (“A preliminary injunction may not be based on facts not presentedatahearing,ornotpresentedthroughaffidavits,depositiontestimony,orotherdocuments”);Sierra Club Lone Star Chapter v. F.D.I.C., 992 F.2d 545, 551 (5th Cir. 1993) (“at the preliminary injunction stage, the procedures in district

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court are less formal, and the district court may rely upon otherwise inadmissible evidence…[including]depositiontranscriptsandaffidavits”).

A motion for temporary injunction in state court is not a substitute for trial on the merits. Commonwealth ex rel. Cowan v. Wilkinson, 828 S.W.2d 610, 613 (Ky. 1992) overruled on other grounds by Commonwealth ex rel. Conway v. Thompson, 300 S.W.3d 152, 172 (Ky. 2009) (“a temporary injunction is not to besubstitutedforafull trialonthemerits”);Maupin v. Stansbury, 575 S.W.2d 695, 699 (Ky. Ct. App. 1978) (“the actual overall merits of the case are not to be addressedinCivilRule65.04motions”);cf. Fed. R. Civ. P. 65(a)(2) (permitting consolidation of hearing on motion for preliminary injunction with trial on the merits). The introduction of evidence that is not otherwise admissible, such as affidavits,inconnectionwithamotionfortemporaryinjunctiondoesnotmakesuch evidence admissible at trial on the merits. Markendorf v. Friedman, 280 Ky. 484, 133 S.W.2d 516, 519 (Ky. 1939).

c. [4.142] Order on Motion for Temporary Injunction

The order granting or denying a motion for temporary injunction must be signed by the judge (CR 58(1)), and if the order grants the temporary injunction it must be indorsed with the date and hour of its issuance. CR 65.04(3). The rule alsorequirestheordergrantingatemporaryinjunctionbefiledinthecircuitcourtclerk’soffice“forthwith”andentered.Id.Anorderisenteredandbecomeseffectiveupon its notation on the civil docket as required by Civil Rule 79.01. CR 58(1).

In granting, denying, or modifying a temporary injunction, the court must makefindingsoffactandconclusionsoflawthatconstitutethegroundsforthecourt’s action. CR 65.04(5); Commonwealth v. Maynard, 537 S.W.2d 169, 170 (Ky.1976)(findingsoffactandconclusionsoflawaremandatory).Failuretoenterfindingsandfactsandconclusionsoflawrendersthetemporaryinjunctionvoidable,not void. Local 1336, UAW v. International Harvester Company, 597 S.W.2d 157, 158 (Ky. Ct. App. 1980). In addition, and although clearly not a preferred practice, findingsoffactandconclusionsoflawmaybesuppliedsubsequenttotheentryofthe order with respect to the motion for temporary injunction. Id.Adequatefindingsof fact and conclusions of law are critical to informed appellate review:

It is of the highest importance to a proper review of the action of a court in granting or refusing a preliminary injunction that there should be full compliance with Rule 52(a) [(52.01)]…. In the absence of the explanation required by Rule 52(a), we will normally be unable to determine whether the district court, for example, properly balanced the parties’ probable hardships or whether it carefully tailored its remedy to protect only against theparticular,threatenedinjuryithadidentified.

Hoechst Diafoil Company v. Nan Ya Plastics, 174 F.3d 411, 423 (4th Cir. 1999).

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Thefindingsoffactandconclusionsoflawmadeinconjunctionwithamotionforatemporaryinjunctionarenotbindinguponafinaldispositionofthemerits of the action. University of Texas v. Camenisch, 451 U.S. 390, 395, 101 S. Ct. 1830, 1834 (1981) (“Given this limited purpose [of a motion for preliminary injunction], and given the haste that is often necessary if those positions are to be preserved, a preliminary injunction is customarily granted on the basis of proceduresthatarelesscompletethanatrialonthemerits….thefindingsoffactand conclusions of law made by a court granting a preliminary injunction are not bindingatatrialonthemerits.”).

Thetermsofatemporaryinjunctionarenotconfinedtothosecontainedin an earlier restraining order where the evidence presented in connection with the motionforatemporaryinjunctionindicatesdifferentprotectionsarerequired.Pro-Choice Network of Western New York v. Schenck, 67 F.3d 377, 388-389 (2d Cir. 1995), aff’d in part and rev’d on other grounds by Schenck v. Pro-Choice Network of Western New York, 519 U.S. 357, 117 S. Ct. 855 (1997).

i. [4.143] The Order Must Specifically Describe theActs Enjoined orRestrained

Civil Rule 65.02(1) provides that “every restraining order or injunction shallbespecificintermsandshalldescribeinreasonabledetailandnotbyrefer-encetothecomplaintorotherdocument,theacttoberestrainedorenjoined.”Therequirement is mandatory. Fiscal Court of Jefferson County v. Courier-Journal and Louisville Times Company, 554 S.W.2d 72, 73 (Ky. 1977). At a minimum, the rule requires that “a court craft its orders so that those who seek to obey may know preciselywhatthecourtintendstoforbid.”American Red Cross v. Palm Beach Blood Bank, Inc., 143 F.3d 1407, 1412 (11th Cir. 1998). Moreover, the conduct enjoined must be ascertainable from the document itself or documents appended to the injunction. Id. (“‘an ordinary person reading the court’s order should be able to ascertainfromthedocumentitselfexactlywhatconductisproscribed.’”);California v. Campbell, 138 F.3d 772, 783 (9th Cir. 1998) (physically appending additional document referred to in injunction to the injunction meets requirement of rule).

“The Rule [(Civil Rule 65.02)] was designed to prevent uncertainty and confusion on the part of those faced with injunctive orders, and to avoid the possible foundingofacontemptcitationonadecreetoovaguetobeunderstood.”Swatzell v. Natural Resources and Environmental Protection Cabinet, 996 S.W.2d 500, 503 (1999). “Since an injunctive order prohibits conduct under threat of judicial punishment, basic fairness requires that those enjoined receive explicit notice of preciselywhatconductisoutlawed.”Fiscal Court of Jefferson County v. Couri-er-Journal and Louisville Times Company, 554 S.W.2d 72, 73 (Ky. 1977). Although nowpartoftheCivilRules,therequirementofspecificityis“nothingmorethanacodificationoftheancientrequirementofequityjurisprudencethataninjunctionbeneithertoobroadnortoovague.”Commonwealth v. Mountain Truckers Asso-ciation, Inc., 683 S.W.2d 260, 263 (Ky. Ct. App. 1984). A further purpose of the

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specificityrequirementistoaidjudicialreview.Schmidt v. Lessard, 414 U.S. 473, 476-77, 94 S. Ct. 713, 715-716 (1974) (“Unless the trial court carefully frames its orders of injunctive relief, it is impossible for an appellate tribunal to know pre-cisely what it is reviewing…. We can hardly begin to assess the correctness of the judgment entered by the District Court here without knowing its precise bounds. In theabsenceofspecificinjunctiverelief,informedandintelligentappellatereviewisgreatlycomplicated,ifnotmadeimpossible.”).

An injunction that merely requires compliance with (or proscribes violation of) a statute probably falls short of the requirements of the rule. Courier-Journal, 554 S.W.2d at 73-74. On the other hand, an injunction that describes, but does not identify by name, customers not to be solicited meets the rule’s requirement of specificity.White v. Sullivan, 667 S.W.2d 385, 388 (Ky. Ct. App.1983). An injunction thatproscribesuseof“anyotherdocumentthatcontainstradesecrets,”withoutfurther identifying the type of documents is too vague. American Red Cross v. Palm Beach Blood Bank, Inc., 143 F.3d 1407, 1411 (11th Cir. 1998).

ii. [4.144] Persons Bound

At common law:

[t]he general rule is that one is bound by an injunction although not a party to the suit therefor, if he has notice or knowledge of the order and is within the class of persons whose conduct is intended to be restrained or acts in concert with such a person….

Wallace v. Sowards, 313 Ky. 360, 231 S.W.2d 10, 12 (Ky. 1950). In addition, persons in privity with a party were bound. Cruse’s Executor v. Haggard, 241 Ky. 442, 44 S.W.2d 290, 292 (Ky. 1931). The federal rule, which is almost identical toCivilRule65.02(2),“isderivedfromthecommon-lawdoctrine.”Golden State Bottling Company v. NLRB, 414 U.S. 168, 180, 94 S. Ct. 414, 423 (1973). Thus, Civil Rule 65.02(2) similarly provides:

Every restraining order or injunction shall be binding upon the parties to theaction, theirofficers,agents,andattorneys;andupon persons in active concert or participation with them who receive actual notice of the restraining order or injunction by personal service or otherwise.

Under the rule, two classes of persons or entities are bound by an injunc-tionorrestrainingorder.First,partiesandtheir“officers,agents,andattorneys”are bound. CR 65.02(2). Of course, the court must have personal jurisdiction over the party. Wright v. Sullivan Payne Company, 839 S.W.2d 250, 253-255 (Ky. 1992) (out of state intermediary not bound by injunction, and thus not subject to order of contempt for violating injunction, where it lacked minimum contacts with Com-monwealth). Further, a court in an in rem proceeding cannot enter an injunction. R.M.S. Titanic, Inc. v. Haver, 171 F.3d 943, 957 (4th Cir. 1999). In addition, Civil

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Rule 65 does not and cannot do away with other requirements of due process, in-cludingnotice,andaparty,itsofficers,agents,andattorneysmusthaveactual,orperhaps constructive, notice of the injunction or restraining order to be bound. Id.; Dole Fresh Fruit Company v. United Banana Company, Inc., 821 F.2d 106, 109 (2dCir.1987)(actualknowledgenotrequiredtobind“officers,agents,servants,employeesandattorneys”ofparty);but see United States v. Hochschild, 977 F.2d 208, 211 (6th Cir. 1992) (“As a matter of law, injunctions are binding on a party’s officersiftheyreceiveactualnoticeoftheinjunction.”).

Second, persons participating or acting in concert with a party are bound by an injunction or restraining order if they receive actual knowledge of the order. CR 65.02(2). “In essence…[the rule] is that defendants may not nullify a decree by carrying out prohibited acts through aiders and abettors, although they were not partiestotheoriginalproceeding.”Regal Knitwear Company v. NLRB, 324 U.S. 9, 14, 65 S. Ct. 478, 481 (1945). This second part of the rule involves a two-part inquiry: (a) is the person in active concert or participation with a party; and (b) did the non-party receive actual knowledge of the injunction or restraining order. Dole Fresh Fruit Company v. United Banana Company, Inc., 821 F.2d 106, 109 (2d Cir. 1987); Howlett v. Kentucky Board of Dentistry, 823 S.W.2d 461, 463 (Ky. Ct. App. 1991) (person with knowledge of injunction but who was not acting in concert with party enjoined is not bound).

“A nonparty who has acted independently of the enjoined defendant will notbeboundbytheinjunction.”Microsystems Software, Inc. v. Scandinavia Online AB, 226 F.3d 35, 43 (1st Cir. 2000). Similarly, a nonparty does not act “‘in concert’ with a party to an injunction merely by associating with the party; the association musthavethepurposeandeffectofassistingthepartytoviolatetheinjunction.”Hoover v. Wagner, 47 F.3d 845, 847 (7th Cir. 1995). By the same token, the non-party must be participating with or acting in concert with the enjoined party at the time of the allegedly contumacious act; prior participation is not enough. Howlett v. Kentucky Board of Dentistry, 823 S.W.2d 461, 463 (Ky. Ct. App. 1991).

An injunction enjoining the Commonwealth as a nominal party binds only those departments or agencies named and does not bind the entire state government, particularly where the non-parties are without actual knowledge. Commonwealth v. Mountain Truckers Association, Inc., 683 S.W.2d 260, 263-264 (Ky. Ct. App. 1984). “‘An injunction decree or order restraining actions or proceedings in another court is directed only to the parties. It is not addressed to the court and is in no sense a prohibitiononitintheexerciseofitsjurisdiction.’”Id.

Formal notice by personal service is not required. Roe v. Operation Res-cue, 919 F.2d 857, 871-72 (3d Cir. 1990) (repeatedly reading terms of restraining order over loudspeaker).

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4. [4.145] Injunction Bond

The party obtaining a temporary injunction bears the risk the injunction is incorrectly or improperly issued. National Collegiate Athletic Association v. Lasege, 53 S.W.3d 77, 88 (Ky. 2001) (“the concept of risk-free’ injunctive relief isunheardof”).Thisincludesthecourtlackingsubjectmatterjurisdictiontoissuethe injunction as well as an incorrect determination on the merits of the motion. Teamsters Local No. 783 v. National Linen Service, 472 S.W.2d 671, 674 (Ky. 1971). A party wrongfully enjoined may recover compensatory damages result-ing from the issuance of the injunction. National Collegiate Athletic Association v. Lasege, 53 S.W.3d 77, 88 (Ky. 2001). The purpose of an injunction bond is to secure payment of those damages and costs. Id.; Teamsters Local No. 783 v. National Linen Service, 472 S.W.2d 671, 674 (Ky. 1971) (“The whole concept of an injunction bond, particularly in the case of an ex parte restraining order, is that the order is issued on peril of a subsequent determination that injunctive relief is notproperlygrantable.”).Interlocutoryinjunctivereliefmaynotissuewithoutthemovantpostingabondsufficienttoprotectthepartyenjoinedfromanydamagesresulting from the incorrect or improper grant of injunctive relief. Lewis LP Gas, Inc. v. Lambert, 113 S.W.3d 171, 177 (Ky. 2003).

a. [4.146] Requirements of Rule

Civil Rule 65.05(1) sets out the requirements for an injunction bond. It provides that “[n]o restraining order or temporary injunction shall be granted exceptuponthegivingofabondbytheapplicant.”Theamountofthebondisestablishedbytheofficergrantingtheinjunctivereliefandshouldbesufficientto compensate the enjoined party for “costs and damages as may be incurred or suffered”asaresultofbeingwrongfullyenjoined.Id. Where the amount of the bondisinsufficient,thepartyenjoinedmaymovethecourtforadditionalsecurityin the form of an increased bond. CR 65.05(3). If the court determines the amount of the bond should be increased, and the additional security is not provided within a reasonable period, the court may vacate the temporary injunction. Id.

The bond must be with surety. CR 65.05(1). The purpose of the surety is to provide additional security for the movant’s obligation to pay the enjoined party’s damages and costs as a result of a wrongfully issued temporary injunction. See Black’sLawDictionary 1441 (6th ed. 1990). If the party enjoined believes the surety given on the bond is inadequate, she may move the court to require that a new surety be provided. CR 65.05(3). As with an inadequate bond amount, if a new surety is ordered but not provided within a reasonable period, the court may vacate the temporary injunction. Id.

CivilRule81Aexemptsgovernmentalagenciesandofficersfrompostingan injunction bond. It does not exempt them from liability, unless otherwise provided by statute, for the wrongful issuance of a temporary injunction. Id.; International

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Brotherhood of Firemen and Oilers, Local 320 v. Board of Education of Jefferson County, 393 S.W.2d 793, 796 (Ky. 1965).

b. [4.147] Damages and Costs

Where an injunction is wrongfully issued, the party enjoined may recov-er compensatory damages and costs. National Collegiate Athletic Association v. Lasege, 53 S.W.3d 77, 88 (Ky. 2001). In the case of a business, this includes “lost profits,costsandattorneys’fees”thatareascertainablewithreasonablecertainty.Pharo Distributing Company v. Stahl, 782 S.W.2d 635, 637 (Ky. Ct. App. 1989). The damages recoverable are limited to those arising in connection with the claim for injunctive relief “and not…[those] occasioned by the action independent of theinjunction.”Holliday v. Sphar, 274 Ky. 556, 119 S.W.2d 656, 660 (Ky. 1938), overruled on other grounds by Pauline’s Chicken Villa, Inc. v. KFC Corporation, 701 S.W.2d 399 (Ky. 1985).

Reasonable attorney fees incurred in dissolving a temporary injunction ul-timately determined to have been wrongfully issued may be recovered if the request for injunctive relief is ancillary to other relief sought in the action. Id.; International Brotherhood of Firemen and Oilers, Local 320 v. Board of Education of Jefferson County, 393 S.W.2d 793, 795-796 (Ky. 1965). In Pharo Distributing, the court of appeals seemingly expanded this limitation, stating that “[w]here injunctive relief is the sole relief sought, damagesandattorneyfeesarenotrecoverable.”Pharo Distributing, 782 S.W.2d at 637. To the extent the court of appeals sought to extend the prohibition to compensatory damages, as opposed to attorney fees, its opinion is contrary to well-established precedent of the Kentucky Supreme Court, including International Brotherhood of Firemen and Oilers, Local 320 v. Board of Education of Jefferson County, 393 S.W.2d 793, 795-796 (Ky. 1965), the case upon which it relied. See also Grant County Board of Education v. Baston, 251 S.W.2d 880, 881 (Ky. 1952) (“[I]t is well established that, where the injunctive relief is the sole relief sought, and is not merely ancillary to some other relief, attorney’s fees may not be recovered as damages in an action on an injunction bond; however, if the injunctive relief sought is ancillary, a recovery may be had on the bond for reason-ableattorney’sfeesforservicesrenderedindissolvingtheinjunction.”);Strong v. Duff, 243 Ky. 469, 48 S.W. 1074, 1075 (Ky. 1932) (same). The rule as stated by the Pharo Distributing court also is contrary to the entire premise of an injunc-tion bond, which is to provide security to the party ultimately determined to have been wrongfully enjoined. See Teamsters Local No. 783 v. National Linen Supply, 472 S.W.2d 671, 674 (Ky. 1971). The damages sustained by a party wrongfully enjoined are the same whether the injunctive relief was the only relief sought or merelyancillarytootherrelief.Ineffect,thePharo Distributing rule would permit a party seeking an injunction to insulate himself from all liability in the event it is determined the temporary injunction was wrongfully issued by limiting the relief sought to an injunction. Cf. National Collegiate Athletic Association v. Lasege, 53 S.W.3d77,88(Ky.2001)(“theconceptofrisk-free’injunctivereliefisunheardof”).

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c. [4.148] Action Against the Surety

A surety’s liability on its bond in connection with a wrongfully issued temporary injunction may be enforced by motion in the injunction proceeding. CR 65.05(2). An independent action is not required. Id. At least twenty days’ notice must be provided of any hearing with respect to the surety’s liability. Id.

An action against a surety to recover for the wrongful issuance of an interlocutory injunction (a restraining order or a temporary injunction) cannot be broughtuntilthereisafinaljudgmentintheactiondenyingpermanentinjunctiverelief. Rose v. Martin, 308 Ky. 661, 215 S.W.2d 579, 580 (Ky. 1948).

The reason for this rule that no action accrues on an injunction bonduntilfinaljudgmentisenteredisthatitcannotbedetermineduntil that time whether the temporary injunction was wrongfully issued, since the court may change or modify the order relative totheinjunctionuntilthecaseisfinallydetermined.

Id. (trial court granted restraining order and both trial court and appellate court denied motion for temporary injunction).

The amount recoverable from the surety is limited to the amount of the bond. Begley v. Ferra, 239 S.W.2d 468, 468 (Ky. 1951) The party seeking damages has the burden of proof. Id.

5. [4.149] Appeal

a. [4.150] Kentucky Court of Appeals

i. [4.151] Generally

Althoughatemporaryinjunctionbydefinitionisnotafinalorder,CivilRule 65.07 provides for interlocutory relief in the court of appeals from any order granting, denying, or modifying a temporary injunction. Upon making the required showing, the rule “allows for a streamlined and expedited disposition of certain matters appropriate for injunctive relief – followed by an opportunity for immediate reviewbytheKentuckySupremeCourtunderCR65.09.”Bridgestone/Firestone v. McQueen, 3 S.W.3d 366, 367 (Ky. Ct. App. 1999).

Interlocutory relief is soughtbymotion,whichmustbefiledwith thecourt of appeals within twenty days after the entry of the order granting, denying, modifying, or dissolving a temporary injunction. CR 65.07(1). The twenty-day period for seeking interlocutory review cannot be circumvented by means of an original action for a writ in the nature of a writ of prohibition. Wyatt, Tarrant & Combs v. Williams, 892 S.W.2d 584, 586 (Ky. 1995). The format of the motion follows the requirements set out in Civil Rule 76.34, and the motion must “state clearly the procedural history of the case, the factual history of the dispute, and the

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basisfortheclaimofrelief.”CivilRule65.07(2).Inaddition,themovantshouldfilea“certifiedcopyoraphotocopy”oftherelevantportionsoftherecordbelow.CR 65.07(3). The adverse party has ten days after service of the motion in which to filearesponse.CR65.07(4).Thereafter,themotionissubmittedtoathree-memberpanel of the court of appeals for decision. CR 65.07(5)(a). Oral argument is not normally allowed, although it may be ordered on the motion of one of the parties or by the court at its own behest. Id.

Civil Rule 65.07(1) authorizes the trial court to stay an order dissolving a previously granted temporary injunction for a period of up to twenty days to permit the party previously granted injunctive relief to seek review. The decision to stay the order dissolving the temporary injunction lies within the trial court’s discretion. CR 65.07(1).

If injunctive relief is granted upon interlocutory review, an injunction bond mayberequiredtobefiledinthecircuitcourt.CR65.07(5)(b).

The rules do not permit rehearing or reconsideration of a decision granting or denying interlocutory relief pursuant to Civil Rule 65.07. CR 65.07(8).

ii. [4.152] Emergency Relief

Emergency relief also is available from a single member of the court of appealswherethemovantwillsufferirreparableinjurypriortothetimethecourtwill consider the movant’s motion. CR 65.07(6). Although the rule does not specify the format of a motion for emergency relief, it presumably would follow the format for interlocutory relief generally. The rule provides for ex parte relief but requires in such instance that the motion for emergency relief state “why it is impractical to notify opposing counsel so that they may appear, in person or by phone, before thejudgetowhomtherequestforemergencyreliefispresented.”Id.

At a minimum, the court should decline to grant ex parte emergency relief where the motion does not set out why opposing counsel could not be given notice, and an opportunity to participate, or where the reasons given are inadequate.

iii. [4.153] Standard of Review

Because the grant of a temporary injunction is discretionary with the trial court, review by the court of appeals is deferential. National Collegiate Athletic Association v. Lasege, 53 S.W.3d 77, 84 (Ky. 2001). The court of appeals thus employs an abuse of discretion standard. Maupin v. Stansbury, 575 S.W.2d 695, 699 (Ky. Ct. App. 1978) (“Unless a trial court has abused its discretion in applying theabovestandards,wewillnotsetasideitsdecisiononaCR65.07review.”).Examples of an abuse of discretion include:

• “where it appears that the circuit court has made clearly erroneousfindingsunsupportedbysubstantialevidence.”

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National Collegiate Athletic Association v. Lasege, 53 S.W.3d 77, 84 (Ky. 2001);

• errors of law, including the trial court’s determination of the movant’s probability of success on the merits. Id. at 84-85;

• failure to identify properly the equities to be balanced. Id. at 86 (“The trial court could not possibly have weighed the NCAA’s interests, because it did not believe the NCAA had anyinterestforittoconsider.”);

• failure tomake adequate findings of fact or to considerthe Maupin factors. Revenue Cabinet v. Picklesimer, 879 S.W.2d 482, 484 (Ky. 1994);

• error in characterizing injury as irreparable. Cyprus Moun-tain Coal Corporation v. Brewer, 828 S.W.2d 642, 646 (Ky. 1992);

• failure to defer to the primary jurisdiction of an administra-tive agency. McGuffey v. Western Pioneer Life Insurance Company, 510 S.W.2d 245, 249 (Ky. 1974);

• in the context of a motion to compel arbitration, the court’s discretion extends no further than the correct application of the law. North Fork Collieries, Inc. v. Hall, 322 S.W.3d 98, 102 (Ky. 2010).

Thetrialcourt’sfactualfindingsarereviewedundertheclearerrorstandard,whilequestions of law are reviewed de novo. Id.

b. [4.154] Kentucky Supreme Court

Civil Rule 65.09 provides for interlocutory relief in the Kentucky Supreme Court.Itisonlyavailabletoaparty“adverselyaffectedbyanorderoftheCourtofAppeals in a proceeding under Rule 65.07 or Rule 65.08 [(providing for relief from finaljudgmentsprovidinginjunctiverelief)].”CivilRule65.09(1).Evenwheretherelief granted by the court of appeals is in the nature of an injunction, the supreme court does not have jurisdiction under Civil Rule 65.09 if the decision under re-view was not pursuant to Civil Rules 65.07 or 65.08. Green Valley Environmental Corporation v. Clay, 798 S.W.2d 141, 143 (Ky. 1990).

Fundamental to obtaining relief pursuant to CR 65.09 is that the order being challenged is an injunction. Chesley v. Abbott, 503 S.W.3d 148, 152 (Ky. 2016). A temporary injunction may only be entered during the pendency of an action. Id. at 153.

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Reviewisdiscretionaryandisgrantedonlyfor“extraordinarycause.”Id. at 152 (“Demonstrating extraordinary cause is not an easy task – in fact we have recognizedthatthemovantfacesan“enormousburden”whenrequestingreliefpursuanttoCR65.09.”) Anabuseofdiscretionprovidesasufficientbasisforreviewby the supreme court but does not necessarily compel it. See National Collegiate Athletic Association v. Lasege, 53 S.W.3d 77, 84 (Ky. 2001) (“While additional review by this Court is limited to those cases which demonstrate ‘extraordinary cause,’abusesofdiscretionbythecourtsbelowcansupplysuchcause.”)Anabuseof discretion involves a decision that is “‘arbitrary, unreasonable, unfair, or unsup-portedbysoundlegalprinciples.’”SM Newco Paducah, LLC v. Ky. Oaks Mall Co., 499 S.W.3d 275, 279 (Ky. 2016) (no abuse of discretion notwithstanding “[t]he lack of formality of the proceeding, and the blurring of the distinctions between a restrainingorderandatemporaryinjunction.”)

An order denying a motion to compel arbitration may be reviewed pur-suant to CR 65.09, particularly where no statutory right to interlocutory appeal under KRS 417.220 exists. North Fork Collieries, Inc. v. Hall, 322 S.W.3d 98, 101-102 (Ky. 2010). In addition, extraordinary cause may exist where the action being reviewed is clearly erroneous. Revenue Cabinet v. Picklesimer, 879 S.W.2d 482, 484 (Ky. 1994).

ThemotionforreviewpursuanttoCivilRule65.09mustbefiledwithinfivedaysofthedateonwhichtheCourtofAppealsorderpursuanttoCivilRules65.07 or 65.08 is entered. CR 65.09(1). Ten copies of the motion are required. Id. Also,themovantmustfile“certifiedcopiesorphotocopiesoftheorderorordersoftheCourtofAppealsandallotherpapers,exhibits,andbriefsfiledinthatcourt.”CR65.09(2).Althoughtheruledoesnotexpresslyprovideforfilingaresponsetoa motion for relief pursuant to Civil Rule 65.09, the supreme court’s practice is that the general rule governing appellate motions is applicable, and thus, a party has tendaysafterserviceofthemotiontofilearesponsetoaCivilRule65.09motion.SeeCR76.34(2).Tencopiesoftheresponsemustbefiled.CR65.09(1).IftheCivil Rule 65.09 motion is served by mail, an additional three days are provided inwhichtofiletheresponse.CR76.34(1);CR76.34(2);CR6.05.

Unlike a motion for discretionary review, the merits of the lower courts’ action with respect to injunctive relief is not briefed separately following a deter-mination by the Supreme Court that it will review the matter. Thus, the Supreme Court’s opinions pursuant to Civil Rule 65.09 oftentimes combine the determination ofwhether“extraordinarycause”existswithadecisiononthemerits.See Revenue Cabinet v. Picklesimer, 879 S.W.2d 482, 484 (Ky. 1994) (“Under the circumstances, andwiththemorethanadequatefactfindingandlegalconclusionsofthetrialcourt,we cannot do else but conclude that since all of the criteria set forth in Maupin were considered and met, the action of the trial court in granting the temporary injunction was not clearly erroneous. Therefore, the Cabinet has not met its burden inthisargument,ofdemonstratingextraordinarycause.”).

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Civil Rule 65.09 also provides for Supreme Court review of Court of Appeals decisions granting or denying emergency relief pursuant to Civil Rules 65.07(6)or65.08(7)(onappealsfromfinaljudgments).CR65.09(3).Theprocedureand standard for review are the same as for review of Court of Appeals decisions not involving emergency relief. CR 65.09(3). If the Supreme Court accepts review of the Court of Appeals decision with respect to emergency relief, the entire appeal is decided by the Supreme Court. CR 65.09(3)(b). If the Supreme Court declines to accept review of the Court of Appeals decision granting or denying emergency relief, the decision on the merits is assigned to a panel of the Court of Appeals and reviewed pursuant to Civil Rule 65.07(1). Failure to seek Supreme Court review ofacourtofdecisionwithrespecttoemergencyreliefdoesnotaffectaparty’sright to seek review of the Court of Appeals’ subsequent decision on the merits of the claim for injunctive relief.

E. [4.155] Restraining Order

Injunctive relief may be obtained on an ex parte basis by means of a mo-tion for a restraining order. CR 65.03; Kentucky Bar Association v. Heleringer, 602 S.W.2d 165, 166 (Ky. 1980); Commonwealth v. Mountain Truckers Association, Inc., 683 S.W.2d 260, 263 (Ky. Ct. App. 1984). The purpose of a restraining order is to maintain the status quo until such time as the parties can be heard. Palmer-Ball v. Meigs, 456 S.W.2d 697, 697 (Ky. 1970) (“it acts as a restraint until the parties havehadanopportunitytobeheard”).AsthecourtexplainedinHoechst Diafoil Company v. Nan Ya Plastics, 174 F.3d 411, 422 (4th Cir. 1999):

While a preliminary injunction preserves the status quo pending a finaltrialonthemerits,atemporaryrestrainingorderisintendedto preserve the status quo only until a preliminary injunction hearing can be held….“[temporary restraining orders] should be restricted to serving their underlying purpose of preserving the status quo and preventing irreparable harm just so long as is necessarytoholdahearing,andnolonger.”

“The essence of a temporary restraining order is its brevity, its ex parte character, and(relatedtothesecondelement)itsinformality.”Geneva Assurance Syndicate, Inc. v. Medical Emergency Services Associates, 964 F.2d 599, 600 (7th Cir. 1992).

A restraining order issued without notice may only restrict the perfor-mance of an act; it may not direct the taking of action. Russell County v. Ephraim McDowell Health, Inc., 152 S.W.3d 230, 232 (Ky. 2004).

1. [4.156] Comparison of Restraining Orders and Temporary Injunctions

Althoughdesignedtoservesomewhatdifferentpurposes,temporaryin-junctions and restraining orders are identical in many respects. Some similarities anddifferencesarelistedinthechartonthefollowingpage.

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Restraining Order Temporary InjunctionNotice Not required if Civil

Rule 65.03(1)(b) is satisfied.CR65.01.

Required.

When Available “At the commencement or during the pendency oftheaction....”CR65.03(1).

“[D]uring the pendency ofaction...”CR5.04(1).Although the rules are worded in a slightly differentfashion,thereshouldbenodifferencein practice if the required notice can be provided.

Hearing Not required. CR 65.03(1).

Not required, but in practice almost always held.

OfficersEntitledtoIssue

Circuit Judge of the court in which the action is pending. In her absence or disability othernamedofficers.Allofficersmustbeattorneys. CR 65.03(2).

Circuit Judge of the court in which the action is pending or in his absence or disability any other circuit judge. CR 65.04(2).

Evidence Considered “verifiedcomplaintoraffidavit”CR65.03(1).Although the rules are worded slightly different,thereisnoreason that a temporary restraining order cannot be based upon evidence otherthanaverifiedcomplaintoraffidavit.

“verifiedcomplaint,affidavit,orotherevidence”CR65.04(1).

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Restraining Order Temporary InjunctionBasis for Granting Relief

In addition to the traditional prerequisites for invoking equitable jurisdiction, movant must demonstrate that the movant’s “rights are being or will be violated by the adverse party and that the…[movant] willsufferimmediateand irreparable injury, loss, or damage before the adverse party or his attorney can be heard inopposition.”CR65.03(1).

In addition to the traditional prerequisites for invoking equitable jurisdiction, movant must demonstrate that the movant’s “rights are being or will be violated by the adverse party and that the…[movant] will sufferimmediateandirreparable injury, loss, ordamagependingfinaljudgmentintheaction”CR 65.04(1). The principaldifferenceisthat a restraining order is available only where the moving party will be irreparably injured prior to the time a hearing with notice can be conducted.

Type of Relief Prohibitory only. CR 65.01.

Mandatory or Prohibitory. CR 65.01.

Bond Required. CR 65.05(1). Required. CR 65.05(1).Findings of Fact and Conclusions of Law

Not required, although to the extent possible, good practice suggests they should be made.

Required. CR 65.04(5); CR 52.01.

Effective A restraining order becomeseffectiveupon earlier of service or knowledge of the restraining order. CR 65.03(5).

Becomeeffectiveuponentry. CR 65.04(4).

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Restraining Order Temporary InjunctionPersons Bound Binding on parties and

theirofficers,agents,and attorneys. Also binding on persons acting in concert with or participating with party. CR 65.02(2).

Binding on parties and theirofficers,agents,and attorneys. Also binding on persons acting in concert with or participating with party. CR 65.02(2).

Service of Order Required to be served in accordance with Civil Rule 4.04. CR 65.03(4).

May be served like any other order. CR 77.04.

Duration Unless otherwise provided by the order, a restraining order remainsineffectuntilone of three events listed in the rule. CR 65.03(5).

Unlessmodifiedordissolved earlier, a temporary injunction remainsineffectuntilapermanent injunction is granted or denied. CR 65.04(4).

Ability to be Appealed A decision granting or denying a restraining order is not appealable. See CR 65.07; CR 65.09.

An order granting, denying, modifying, or dissolving a temporary injunction may be immediately appealed. CR 65.07; CR 65.09.

2. [4.157] Procedure

a. [4.158] In the Absence of Notice

Under certain circumstances, a restraining order may be issued on an ex parte basis, and hence, without notice. Commonwealth v. Mountain Truckers Association, Inc., 683 S.W.2d 260, 263 (Ky. Ct. App. 1984). Civil Rule 65.03(1) limits a court’s ability to do so to where: (1) the movant will be irreparably injured prior to the time the adverse party or his counsel can be heard; and (2) the moving party’sattorneycertifieshereffortstogivenoticeandthereasonssupportingthenecessity of proceeding without notice. Thus, the rule imposes two substantive requirements (immediate and irreparable injury and that the injury will occur prior tothetimeahearingcanbeconducted)andaproceduralrequirement(certificationby the movant’s attorney, or in the case of a pro se litigant, the movant). Both the substantiveandproceduralrequirementsmustbesatisfied,orthemotionshouldbe denied.

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The requirement of irreparable injury with respect to a restraining order is identical to that needed for a temporary injunction, and authority under Civil Rule 65.04shouldbeequallyapplicabletorestrainingorders.Thetworulesdifferwithrespect to the showing of immediacy. Although a party moving under Civil Rules 65.03 or 65.04 must show immediate irreparable injury, the immediacy requirement is heightened in connection with a motion for restraining order. Only where the party will be injured in the short period between the commencement of the action and the time when a hearing could be conducted on a motion for temporary may a restraining order be issued. CR 65.03(1).

In 1985, the Kentucky Supreme Court amended Civil Rule 65.03(1) to conformtothefederalruletorequirethemovant’sattorneytocertify“theefforts,if any, which have been made to give notice and reasons supporting his claims thatnoticeshouldnotberequired.”See Fed. R. Civ. P. 65(b). The amendment underscores the limitations on the court’s ability to grant injunctive relief without notice to the party to be restrained. See Granny Goose Foods, Inc. v. Brotherhood of Teamsters, Local 70, 415 U.S. 423, 433 n.7, 94 S. Ct. 1113, 1121 n.7 (1974) (“The 1966 Amendments to Rule 65(b), requiring the party seeking a temporary restrainingordertocertifytothecourtinwritingtheefforts,ifany,whichhavebeenmade to give either written or oral notice to the adverse party or his attorney, were adopted in recognition of the fact that informal notice and a hastily arranged hearing aretobepreferredtononoticeorhearingatall.”).Typically,exparterestrainingordersarejustifiedonlywhere“noticetotheadversepartyisimpossible,asinthecase where the adverse party is unknown or is unable to be found…[or] where noticetothedefendantwouldrenderfruitlessfurtherprosecutionoftheaction.”First Technology Safety Systems, Inc. v. Depinet, 11 F.3d 641, 650 (6th Cir. 1993).

Althoughphrasedonlyintermsofrequiringcertification,inlightofthecourts’ broad discretion in acting on requests for injunctive relief, a court should review theefforts toprovidenoticeand reasons forproceedingexparte in thecertificationandexerciseitsdiscretiontodenyarestrainingorderwhereadequateeffortswerenotmade,orthereasonsgivenareinsufficient.Certainly,arestrainingorder should not be issued where the movant’s counsel fails to include the required certification.See Austin v. Altman, 332 F.2d 273, 275 (2d Cir. 1964) (requirements ofrulegoverningrestrainingordersshouldbe“scrupulouslyobserved”toavoid“thedangersandembarrassmentsofhastyactioninhearingonlyoneside”).

b. [4.159] A Restraining Order with Notice

Although a restraining order may be issued without notice, the giving of notice does not necessarily convert a restraining order into a motion for temporary injunction. SeeCR65.03(3)(“Everyrestrainingordergrantedwithoutnotice.”).Rather,arestrainingorderisproperwherethemovantwillsufferirreparableinjury“beforetheadversepartyorhisattorneycanbeheardinopposition.”CR65.03(1).Thus, a court can exercise its discretion to issue a restraining order where, although

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notice can and is given, irreparable injury will result prior to the time the parties could be ready for a temporary injunction hearing.

A closer issue is presented where there is both notice and a hearing. There is at least some federal authority in such cases for treating the motion for restraining order as a motion for a preliminary injunction. See Saco Defense System Division v. Weinberger, 606 F. Supp. 446, 449 (D. Me. 1985) (“no-tice was given to the defendants and a hearing held on the pending motions... [t]heCourtwill,therefore,treatthemotionasoneforpreliminaryinjunction”).However, the extent of the notice or the type of hearing conducted is unclear from the opinion in Weinberger. Where both notice and the hearing are limited, so that the parties lack a fair opportunity to prepare for and contest the motion for tempo-rary injunction, the better rule is to treat the motion as one for a restraining order:

[T]his informal, same-day notice, desirable though it may be before a restraining order is issued, is no substitute for the more thoroughnoticerequirementswhichmustbesatisfiedtoobtaina preliminary injunction of potentially unlimited duration. The notice required by Rule 65(a) before a preliminary injunction can issue implies a hearing in which the defendant is given a fair opportunity to oppose the application and to prepare for such opposition.

Granny Goose Foods, Inc. v. Brotherhood of Teamsters, Local 70, 415 U.S. 423, 433 n.7, 94 S. Ct. 1113, 1121 n.7 (1974).

c. [4.160] Proceedings Under Civil Rule 65.03

Unlike the rule governing temporary injunctions, Civil Rule 65.03(1) does not mandate that a request for a restraining order be by motion. Relief may be granted upon the basis of a request for a restraining order in a complaint, although the better practice is to proceed by way of a separate motion. CR 65.03(1); see In re President of Georgetown College, 331 F.2d 1000, 1001 n.2 (D.C. Cir. 1964). However the request for relief is initiated, the request for a restraining order must besupportedbyaverifiedcomplaintoraffidavit.CR65.03(1).Alternatively,andalthough Civil Rule 65.03(1), unlike Civil Rule 65.04(1), does not refer to “other evidence,”nosoundreasonprohibitsrelianceuponotherswornevidence,suchas a deposition transcript or answers to interrogatories, to support a motion for restraining order.

Theaffidavit,verifiedcomplaintorotherswornevidencemust“clearly”demonstrate“fromspecificfacts…thattheapplicant’srightsarebeingorwillbeviolatedbytheadversepartyandtheapplicantwillsufferimmediateandirreparableinjury, loss or damage before the adverse party or his attorney can be heard in oppo-sition.”CR65.03(1).Assuch,therequirementsforarestrainingorder,asstatedinthe rules, are nearly identical to those for a temporary injunction. Cf. CR 65.04(1). Theonlyrealdifferenceisthetimingoftheirreparableinjury;underCivilRule

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65.03(1) the irreparable injury must occur or threaten to occur before the adverse party can be heard, while a temporary injunction is available to prevent irreparable injurypendingafinaljudgment.Thus,althoughthereissubstantialoverlap,thereisgreater immediacy with a restraining order. In any event, and with this one excep-tion, it is not surprising that the same factors are considered by courts in passing on motions for restraining order and for temporary injunction. See Ingram v. Ault, 50 F.3d 898, 900 (11th Cir. 1995) (the same factors for a restraining order as are required for a preliminary injunction). The requirement that the request be premised uponashowingof“specificfacts”preventsthecourtfromgrantingarestrainingorder in order to permit the movant to conduct discovery to demonstrate his or her entitlement to such relief. In re Kunstler, 914 F.2d 505, 515 (4th Cir. 1990).

3. [4.161] Order

As with an order granting a temporary injunction, an order granting a restrainingordermustbe“endorsedwiththedateandhourofissuance,”signedbytheofficerissuingtherestrainingorder,andfiledwiththeclerk’soffice.CR65.03(3). If the restraining order is issued without notice, the irreparable injury must beidentified,andtheordermuststatewhyitwasissuedwithoutnotice.Id. Unlike temporaryinjunctions,findingsoffactandconclusionsoflawarenotrequiredfora restraining order. Cf. Civil Rule 65.04(5).

4. [4.162] Service

A restraining order must be served in accordance with Civil Rule 4.04, which governs service of a summons and complaint. CR 65.03(4). If, as often occurs, the restraining order is issued at the commencement of the action, it must be served with the summons and complaint. Id.

5. [4.163] BindingEffectandPersonsBound

Because a restraining order is sometimes issued on an ex parte basis, it becomeseffectiveandbindingonapartytoberestrainedonlyupontheearlierof service of the restraining order on the party or when the party learns of the restraining order. CR 65.03(5).

Civil Rule 65.02(2), which governs the parties bound by a temporary injunction, also is applicable to restraining orders. See Section [4.144], supra.

6. [4.164] Duration

Although designed to protect the status quo and prevent irreparable injury only for the period prior to when the parties may be heard, under the Civil Rules arestrainingordermayremainineffectduringthependencyoftheentireaction:

Unless it provides an earlier termination date, a restraining order shall remain in force until, and not after, (a) the time set for a

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hearing on a motion to dissolve a restraining order unless there is then pending a motion for a temporary injunction, or (b) the entry of an order on a motion for temporary injunction, or (c) theentryoffinaljudgment,whicheverisearlier.

CR 65.03(5). Thus, a restraining order automatically dissolves if at the time set for a hearing on a motion to dissolve a restraining order a motion for temporary injunction is not pending. Kentucky High School Athletics Ass’n v. Edwards, 256 S.W.3d 1, 6-7 (Ky. 2008); Commonwealth v. Maynard, 537 S.W.2d 169, 170 (Ky. 1976) (“The rule is clear that if there is no motion for a temporary injunction pending at the time set for the hearing on the motion to dissolve the restraining order, it is automatically dissolved with or without an order of the court. The better practice, however,dictatesthatanordershouldbeentereddissolvingtherestrainingorder.”).Otherwise,therestrainingorderremainsineffectuntilthecourtactsonanymo-tion for a temporary injunction, or if there is no motion to dissolve the restraining orderorforatemporaryinjunction,untilafinaljudgmentisentered.Palmer-Ball v. Meigs, 456 S.W.2d 697, 697-98 (Ky. 1970) (“An ex parte restraining order such astheonehereremainsineffect(unlessitspecifiestothecontrary)untilsomefurtheractionintheproceedingistakenbytheparties.”).

By contrast, in federal court a restraining order issued without notice remainsineffectfornomorethan14daysunlessthepartyrestrainedconsentsor unless, for good cause shown, the restraining order is extended for a second period of not longer than ten days. Fed. R. Civ. P. 65(b). If the restraining order is extended, the reasons for doing so must be placed in the record. Id. In the fed-eralsystem,arestrainingorderforanindefiniteperiodistreatedasapreliminaryinjunction and must comport with the requirements for a preliminary injunction. Granny Goose Foods, Inc. v. Brotherhood of Teamsters, Local 70, 415 U.S. 423, 433 n.7, 94 S. Ct. 1113, 1121 n.7 (1974); Hudson v. Barr, 3 F.3d 970, 974-75 (6th Cir. 1993) overruled in part on other grounds Pollard v. E.I. du Pont de Nemours & Co., 532 U.S. 843, 853-54 (2001).

Any extension beyond the ten-day period for ex parte restraining orders in federal court must be entered during the original period of the restraining order. S.E.C. v. Unifund Sal, 910 F.2d 1028, 1034-35 (2d Cir. 1990). In addition, the restraining order may be extended pending a decision following a hearing on a motion for preliminary injunction. Id.

7. [4.165] Bond

A bond is required for any restraining order, and the principles governing the bond and any action on the bond are the same as for an injunction bond. CR 65.05(1); see Sections [4.145]-[4.148], supra.

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8. [4.166] Appeal

There is no appeal from an order granting, denying, or dissolving a temporary restraining order. Kentucky High School Athletics Ass’n v. Edwards, 256 S.W.3d 1, 5 (Ky. 2008); CR 65.07(1) (“When a circuit court by interlocutory orderhasgranted,denied,modified,ordissolveda temporary injunction, a party adverselyaffectedmay…movetheCourtofAppealsforrelieffromsuchorder.”).The remedy for an order granting a restraining order is to move the trial to dissolve the order. Edwards, 256 S.W.3d at 6; CR 65.03(5). A party seeking relief from an order denying or dissolving a restraining order may move for a temporary injunction.

The appellate courts lack subject matter jurisdiction to consider appeals from the grant or denial of a temporary restraining order. Edwards, 256 S.W.3d at 7. This absence of subject matter jurisdiction may be raised by the appellate court sua sponte. Id.

F. [4.167] Permanent Injunction

A court may enter a permanent injunction in connection with the entry of a finaljudgment.CR65.01.Notwithstandingthe“permanent”natureoftheinjunction,

[t]here is no doubt but that the court which renders a decree for a permanent or perpetual injunction may open or modify the same where the circumstances of the parties are shown to have so changed as to make it just and equitable to do so… The court has inherent power in this respect and may exercise it after the term in which the decree is rendered.

Gregory v. Crain, 291 Ky. 194, 163 S.W.2d 289, 291 (Ky. 1942) (dicta); System Federation No. 91, Railway Employees Department v. Wright, 364 U.S. 642, 647, 81S.Ct.368,371(1961)(“soundjudicialdiscretionmaycallforthemodificationof the terms of an injunctive decree if the circumstances, whether of law or fact, obtaining at the time of its issuance have changed, or new ones have arisen since.… A balance must be struck between the policies of res judicata and the right of the courttoapplymodifiedmeasurestochangedcircumstances.”).

Where requested in the prayer for relief, a separate motion for a permanent injunction is not required. Ramey v. Weddington, 268 Ky. 675, 105 S.W.2d 824, 827 (Ky. 1937) (former civil code). In fact, where the requirements for granting such relief are otherwise met, the court is authorized to grant permanent injunc-tive relief even if omitted from the pleadings. CR 54.03(2) (“Except as to a party againstwhomajudgmentisenteredbydefaultforwantofappearance,everyfinaljudgment shall grant the relief to which the party in whose favor it is rendered is entitled,evenifthepartyhasnotdemandedsuchreliefinhispleadings.”).

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1. [4.168] Bases

“The standard for a preliminary injunction is essentially the same as for a permanentinjunction.”Amoco Production Company v. Village of Gambell, Alaska, 480 U.S. 531, 545 n.12, 107 S. Ct. 1396, 1404 n.12 (1987). But see Vescio v. Darnell, 2016 Ky. App. Unpub. LEXIS 97 *21 n.9 (Ky. Ct. App. 2016) (no requirement that movant show immediate and irreparable injury to obtain a permanent injunction). Of course, a permanent injunction may be granted only where the party obtaining injunctive relief prevails on the claim giving rise to the injunctive relief. Bank One, Utah, N.A. v. Guttau, 190 F.3d 844, 847 (8th Cir. 1999) (“to obtain a permanent injunctionthemovantmustattainsuccessonthemerits”).

Permanent injunctive relief is not dependent (at least technically) on the court’s prior decision on motions for a temporary injunction in the action: “The right to an injunction as the ultimate relief in an action is not dependent whether temporary injunctions are granted or refused, either rightfully or wrongfully, but dependent upon the facts in the case as developed in the evidence and the law applicabletosuchfacts.”Commonwealth v. McIntire, 249 Ky. 555, 61 S.W.2d 31, 33 (Ky. 1933).

2. [4.169] Bond

No bond is required for a permanent injunction. See CR 65.05(1) (“[n]o restraining order or temporary injunction shall be granted except upon the giving ofabondbytheapplicant”);Pilcher v. Stadler, 276 Ky. 450, 124 S.W.2d 475, 480 (Ky. 1939) (former civil code).

3. [4.170] Relief Pending an Appeal from a Final Judgment Disposing of a Claim for Injunctive Relief

Civil Rule 65.08 is the sole basis for obtaining relief pending an appeal fromafinaljudgmentgrantingordenyinginjunctiverelief.CR62.02;Bella Gardens Apartments, Ltd. v. Johnson, 642 S.W.2d 898, 900 (Ky. 1982).

a. [4.171] In the Trial Court

Uponappealfromafinaljudgmentgrantingordenyinginjunctiverelief,apartyadverselyaffectedmaymovethetrial courtto“grant,suspendormodify”thefinaljudgmentwithrespecttoinjunctivereliefpendingtheappeal.CR65.08(1).By the express terms of the rule, the relief is not available prior to taking an appeal fromthefinaljudgment.Id.(“[a]fteranappealistaken”).Inrulingonthemotion,the trial court may also order that the “status existing immediately before the entry ofthefinaljudgmentshallbemaintainedforaspecifiedlimitedtimetoprotectapartywishingto”seekimmediaterelieffromthecourtofappealspursuanttoCivilRule 65.08(2). CR 65.08(1). Thus, even if the trial court is not inclined to grant the Civil Rule 65.08(1) motion, it can restore the parties to their position immediately

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priortothefinaljudgmentforashortperiodsufficienttopermitthepartyseekingrelief to move for relief from the court of appeals.

b. [4.172] In the Court of Appeals

Apartyadverselyaffectedby the trialcourt’s rulingon itsCivilRule65.08(1) motion may seek relief from the Court of Appeals pursuant to Civil Rule 65.08(2).SuchreliefalsoisavailablefromtheCourtofAppealswithoutfirstpeti-tioningthetrialcourt,althoughifreliefisnotfirstsoughtfromthetrialcourt,themotion to the Court of Appeals must state why it was impractical to do so. Id. Thus, absent extenuating circumstances relief always should be sought from the trial court.

The procedure in the Court of Appeals is similar to that under Civil Rule 65.07 for interlocutory relief in connection with a temporary injunction. See CR 65.08(4), (5), (6). An original and four copies of the motion, which must comply withCivilRule76.34,mustbefiledwiththeCourtofAppeals.CR65.08(2).Al-though there is no time period for seeking relief pursuant to Civil Rule 65.08, delay would seem to be inconsistent with any showing of irreparable injury that might berequired.Themovantmustalsofilewiththemotion“theoriginal,photocopyorcertifiedcopy”ofthoseportionsoftherecordnecessaryforthecourtofappealsto decide the matter. CR 65.08(4). The motion is submitted for decision to a panel of the Court of Appeals without oral argument, although the parties may request, and the court may order, oral argument. CR 65.08(6).

As with Civil Rule 65.07, emergency relief also is available from a single judgewherethemovantcandemonstratehewillsufferirreparableinjurybeforethe Court of Appeals can rule on the motion. CR 65.08(7). The motion can be heard ex parte, but the motion must state “why it is impractical to notify opposing counsel so that they may appear, in person or by phone, before the judge to whom therequestforemergencyreliefispresented.”CR65.08(7).

In granting relief pursuant to Civil Rule 65.08, the trial court and Court of Appealsareauthorizedtofixsuchtermsasarenecessarytosecuretherightsoftheparties. CR 65.08(8). Either court may require the posting of a bond, in conformity with Civil Rule 65.05.

A motion to reconsider will not be entertained with respect to a ruling by the Court of appeals or the trial court on a Civil Rule 65.08 motion. CR 65.08(9).

c. [4.173] In the Supreme Court

ApartyadverselyaffectedbyacourtofappealsorderunderCivilRule65.08 may seek further review by the supreme court pursuant to Civil Rule 65.09. See Section [4.156], supra.

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XII. [4.174] Receivership

A. [4.175] Definition

A receiver is “a person appointed by a court possessing chancery juris-diction,toreceivetherentsandprofitsofland,ortheprofitsofprocedureofotherproperty in dispute. The appointment of a receiver does not change the title or right ofpossessionoftheproperty.”Annot.,Carroll’sKentuckyCode 298 (1948). The essence of the appointment of a receiver is that the receiver will take control of the property in dispute, as well as the income produced by it, and manage and protect the property and income for the party ultimately determined to be entitled to it. Woods v. Consolidated Newspapers, 122 S.W.2d 112, 113 (Ky. 1938). As such, it is generally ancillary to the ultimate relief sought, such as the enforcement of a lien. Kentucky Utilities Co. v. Steenman, 141 S.W.2d 265, 268 (Ky. 1940). “[A] receiver is in no sense a representative of any party involved in a litigation; a receiver rep-resentstheappointingcourt,andonlythecourt.”Rosenbalm v. Commercial Bank of Middlesboro, 838 S.W.2d 423, 429 (Ky. Ct. App. 1992).

The appointment of a receiver is an equitable remedy. Diamonite Manufac-turing Corp. v. Clark Construction Co., 446 S.W.2d 285, 286 (Ky. 1969). Although perhaps not as frequently invoked as in the past, receivership proceedings are still utilized. See Stagg Industrial Development Corp. v. General Oil Field Supply Co., 743 S.W.2d 41 (Ky. Ct. App. 1988): Schott v. Citizens Fidelity Bank & Trust Co., 692 S.W.2d 810 (Ky. Ct. App. 1985).

Theorderappointingthereceiverisfinalforpurposesofappealandcannotbe superseded on appeal. KRS 425.600.

B. [4.176] Appointment of a Receiver

1. [4.177] Generally – Elements

The general receivership statute is KRS 425.600. It provides that a court may appoint a receiver upon the demonstration of the following: (1) the movant is a party to the action; (2) the right to the property or fund to be placed in receivership is“involvedintheaction;”(3)themovant“hasorprobablyhas”aninterestin,lienupon, or right to the property or fund; and (4) the property or fund is in danger of being lost, removed, or materially injured. KRS 425.600(1). The Kentucky Supreme Court has suggested that such statutory conditions limit the courts’ broad equitable power to appoint a receiver. Greasy Creek Coal & Land Co. v. Greasy Creek Coal Co., 244 S.W. 85, 88 (Ky. 1922).

The appointment of a receiver is “a harsh and extraordinary course of actionforthecourttopursue”andassuchisa“remedyoflastresort.”Dulworth & Burress Tobacco Warehouse Co. v. Burress, 369 S.W.2d 129, 132 (Ky. 1963). It is not enough for the movant to demonstrate that the appointment of a receiver will

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do no harm. Reid Drug Co. v. Salyer, 105 S.W.2d 625, 628 (Ky. 1937). Rather, the movant must demonstrate that she will be irreparably injured in the absence of the requested relief (Oscar C. Wright Co. v. Steenman, 71 S.W.2d 991, 995 (Ky. 1934)) and that she has no other adequate remedy. Cumberland Publishing Co. v. Adams Real Estate Corp., 432 S.W.2d 808, 812 (Ky. 1968). The appointment of a receiver is discretionary with the court. Padgett v. Sensing, 438 S.W.2d 501, 504 (Ky. 1969).

a. [4.178] Interest in or a Lien Upon the Property

Generally, an unsecured creditor whose claim has not been reduced to judgmentandexecutedupondoesnothaveasufficientinterestinthepropertytopetition for appointment of a receiver. Black Hawk Coal Co. v. Hazard Fruit Co., 266 S.W. 3, 4 (Ky. 1924). An exception may exist where the defendant is insolvent. See Oscar C. Wright Co. v. Steenman, 71 S.W.2d 991, 994 (Ky. 1934). Minority shareholders in an insolvent corporation whose assets are wasting or subject to beingfraudulentlydispersedmayalsohaveasufficientinterestincorporateassetsto have a receiver appointed. See Reid Drug Co. v. Salyer, 105 S.W.2d 625, 626 (Ky. 1937); see also Padgett v. Sensing, 438 S.W.2d 501, 504 (Ky. 1969) (intimating but notdecidingthattaxpayersseekingdissolutionoflibraryboardmayhavesufficientinterest in taxes collected to petition for appointment of a receiver).

b. [4.179] Danger of Loss, Removal, or Injury

Meremismanagement or a failure to earn a projectedprofit does notconstitute danger of loss, removal, or injury. Reid Drug Co. v. Salyer, 105 S.W.2d 625, 629 (Ky. 1937). Rather, the movant must demonstrate that the corporate assets are in danger of being distributed to persons outside the jurisdiction of the court (Diamonite Manufacturing Corp. v. Clark Construction Co., 446 S.W.2d 285, 286 (Ky. 1969)), that they are in danger of being lost through the fraud or collusion of theofficersofthecorporation(Oscar C. Wright Co. v. Steenman, 71 S.W.2d 991, 994 (Ky. 1934)), or “fraud, willfulness, and recklessness in the management of the propertyandaffairs”ofthecorporation(Dulworth & Burress Tobacco Warehouse Co. v. Burress, 369 S.W.2d 129, 132 (Ky. 1963)). See Watts v. Chreste, 109 S.W.2d 803, 809 (Ky. 1937) (fact that corporate trustee was not authorized under its articles of incorporation to act as such does not constitute loss, removal, or injury).

Where a person in possession of real property commits waste or threat-enstodoso,apartyinanactiontorecoveror“charge”thelandisentitledtotheappointment of a receiver. KRS 381.420.

2. [4.180] Powers of Receiver

By statute, a receiver has the authority to “bring and defend actions re-specting the property, to take and keep possession of the property, to receive rents, collect debts and generally do such acts respecting to property as the court may authorize.”KRS425.600(2).Thereceiveratalltimesactsunderthecontrolofthe

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court. Id. Stated otherwise, a receiver has only such powers as are granted by the court. Farmer v. Miller, 496 S.W.3d 485, 490 (Ky. Ct. App. 2016). Any income accruing during the pendency of the action follows the property. KRS 425.600(3).

Areceiverenjoysqualifiedimmunity“fromliabilityfornegligencearisingfrom the performance of discretionary actions (i.e., actions involving personal deliberation, decision, and judgment) taken in good faith and within the scope ofhisauthority.”Farmer, 496 S.W.3d at 490.

3. [4.181] Persons Who May Be Appointed Receiver

Therearenospecificqualificationsfortheofficeofreceiver.Obviously,thepersonappointedshouldbefullyqualifiedtotakecontrolof,protect,andoperatethe property. KRS 31A.080(2) prohibits the court from appointing as a receiver the parties to the action (except personal representatives, guardians, curators, and committees), their attorneys, or any interested person.

C. [4.182] Other Statutory Provisions for the Appointment of a Receiver

There are numerous statutory provisions empowering the courts to appoint a receiver in the case of a default on a public bond or indenture. See, e.g., KRS 58.060(1) (governmental agency revenue bond); KRS 67.515 (county government building bonds); KRS 162.220 (school construction bonds).

XIII. [4.183] Contempt


1. [4.185] Nature of Contempt Authority

The judiciary enjoys the inherent authority to enforce its orders through the contempt power:

As necessary to the due exercise of their functions, it was rec-ognized at common law, and has been from time immemorial, that courts have the inherent power to enforce their process and orders and so to attain the ends of their creation and existence.

Arnett v. Meade, 462 S.W.2d 940, 947 (Ky. 1971) see also Crowder v. Rearden, 296 S.W.3d 445, 450 (Ky. Ct. App. 2009); Norton v. Commonwealth, 37 S.W.3d 750, 754 (Ky. 2001). In addition, the courts may utilize their contempt authority to compel respectforthejudiciarybyattorneysandofficersofthecourt.Fritz v. Barker, 801 S.W.2d 318, 319 (Ky. 1990); Roark v. King, 696 S.W.2d 787, 787 (Ky. 1985); see also Casteel v. Sparks,226S.W.2d533,535(Ky.1950)(“anattorney,asanofficerof the court, labors always under the peculiar duty of maintaining the respect due to

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courts”).Thisauthorityisrootedintherecognitionthatstatementswhichimpugnthe integrity of the judiciary “degrade the court and impair its respectability and usefulness.”Lewis v. Rice, 261 S.W.2d 804, 805 (Ky. 1953).

The Kentucky General Assembly may not enact a statute regulating the courts’ invocation of their contempt power which materially interferes with the administration of justice. Arnett v. Meade, 462 S.W.2d 940, 946-48 (Ky. 1971); cf. Miller v. Vettiner, 481 S.W.2d 32, 35 n.3 (Ky. 1972) (“It may be, though it has not thus far been decided by this court, that no statutory limit on the extent of punishmentforatruecontemptisbindingonthecourts.”).

The Commonwealth and its agencies may be held in contempt. Louisville Metro Department of Corrections v. Commonwealth, 258 S.W.3d 419, 421 (Ky. Ct. App. 2007); (“The judiciary’s contempt power extends to all branches of govern-ment.‘Noone,however,importantorofwhateverhighposition,isabovethelaw.’”);Commonwealth v. Partin, 702 S.W.2d 51, 53 (Ky. Ct. App. 1985). Perjury usually is not punishable by contempt. Miller v. Vettiner, 481 S.W.2d 32, 35 (Ky. 1972).

The courts enjoybroad, “nearly unfettered,” discretion in sanctioningcontumacious conduct. Crowder v. Rearden, 296 S.W.3d 445, 450 (Ky. Ct. App. 2009). Notwithstanding this discretion, and the limits on the General Assembly’s ability to fetter a court’s contempt power, the court has decided as a matter of “sound policy”thatwhereastatutoryprovisionalsogovernstheconductatissue,courtsshould defer to the statutory procedure. Commonwealth v. Nicely, 326 S.W.3d 441, 448 (Ky. 2010) (revocation of probation).

An injured party may be awarded compensatory damages through a con-tempt proceeding. Louisville Metro Department of Corrections, 258 S.W.3d at 422.


“‘Contempt is the willful disobedience toward, or open disrespect for, the rulesorordersofacourt.’”Jefferson v. Eggemeyer, 516 S.W.3d 325, 342 (Ky. 2017) quoting Commonwealth v. Burge, 947 S.W.2d 805, 808 (Ky. 1996). “Both…[the courtofappeals]andtheKentuckySupremeCourthavedefinedcontemptas‘thewillfuldisobedienceof–oropendisrespectfor–therulesorordersofacourt.’”Newsome v. Commonwealth, 35 S.W.3d 836, 839 (Ky. Ct. App. 2001).

Historically, the Kentucky courts have recognized two distinct types of contempt: civil and criminal. Jefferson, 516 S.W.3d at 342. Both may involve the imposition of sanctions that are punitive. The fundamental distinctions between the two lies in their purpose and in the ability of the contemnor to purge himself or herself of the contempt. Id. Civil contempt serves to coerce compliance with a court’s orders or to compensate a party for damages resulting from the contumacious conduct (or both). Id. As such, the sanctions imposed are remedial and principally areimposedforthebenefitofthepartycomplaining.Cabinet for Health & Family Servs. v. J.M.G., 475 S.W.3d 600, 613 (Ky. 2015). Criminal contempt is designed

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principally to punish. Id. A contemnor subject to civil contempt may always purge himself of the sanction. Jefferson, 516 S.W.3d at 343. Criminal contempt sanctions are not subject to purgation. Id.

B. [4.187] Civil vs. Criminal Contempt

Although the determination of whether a particular contempt sanction is criminal or civil carries with it important consequences, the determination is not entirely straightforward. For example, both civil and criminal contemnors may be jailed. Crowder v. Rearden, 296 S.W.3d 445, 450 (Ky. Ct. App. 2009). Moreover, notonlyaretherulesappliedbythefederalandKentuckycourtssomewhatdiffer-ent, but the federal cases “have employed a variety of not easily reconcilable tests fordifferentiatingbetweencivilandcriminalcontempts.” International Union, UMWA v. Bagwell, 512 U.S. 821, 839-40, 114 S. Ct. 2552, 2563 (1994) (Scalia, J., concurring).

1. [4.188] The Distinction

a. [4.189] Federal Law

Thedistinctionbetweencivilandcriminalcontemptissignificantbecauseof the constitutional protections, or lack thereof, attaching to each designation. In distinguishing between the two, for federal constitutional purposes, “the critical features are the substance of the proceeding and character of the relief that the proceedingwillafford.”Hicks v. Feiock, 485 U.S. 624, 631-32, 108 S. Ct. 1423, 1429(1988).Incivilcontemptthepunishmentisremedialorforthebenefitofaprivate party; a criminal contempt proceeding involves a punitive remedy designed to vindicate the authority of the court. Id.Perhapsthemostreadilyidentifiablecharacteristic of a civil contempt penalty is that “the contemnor is able to purge thecontemptandobtainhisreleasebycommittinganaffirmativeact,andthus‘carriesthekeysofhisprisoninhisownpocket.’”International Union, UMWA v. Bagwell, 512 U.S. 821, 828, 114 S. Ct. 2552, 2558 (1994). In Feiock v. Feiock, 485 U.S. 624, 631-32, 108 S. Ct. 1423, 1429 (1988), the Supreme Court fashioned “a fewstraight-forwardrules”fordistinguishingbetweencivilandcriminalcontemptsanctions.Specifically:

• Where the remedy is imprisonment, the contempt is civil if the defendant “stands committed unless and until he per-formstheaffirmativeactrequiredbythecourt’sorder.”485U.S. at 632, 108 S. Ct. at 1429.

• Where the remedy is imprisonment, the contempt is crim-inal if the sentence is for a determinate period, except as provided above. Id.

• Iftheremedyisthepaymentofafine,thecontemptiscivil

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ifthefineispaidtothecomplainant,orifitispaidtothecourtbutthefinemaybeavoidedbyperformingtheaffir-mative act required by the court’s order. 485 U.S. at 632, 108 S. Ct. at 1429-30.

• Iftheremedyisthepaymentofafinetothecourt,thecon-tempt proceeding is criminal, except as provided above. 485 U.S. at 632, 108 S. Ct. at 1429.

The determination of whether contempt proceedings are civil or criminal is to be based upon these objective criteria concerning the character of the relief itself (Feiock, 485 U.S. at 636, 108 S. Ct. at 1429), and not the label applied to it by the court imposing the sanction (Shillitani v. United States, 384 U.S. 364, 369-70, 86 S. Ct. 1531, 1535 (1966)), nor the reviewing court’s assessment of the court’s underlying purpose in imposing the sanction (Feiock, 485 U.S. at 636, 108 S. Ct. at 1429). This bright line test is necessary so that the states and state courts can properly structure their contempt proceedings to comply with the requirements of the federal Constitution. Feiock, 485 U.S. at 636-37, 108 S. Ct. at 1429. If an order containsbothcriminalandcivilrelief,the“criminalaspectoftheorderfixesitscharacter”forthepurposeofdeterminingtheproceduralprotectionsrequiredbythe Constitution. Penfield Co. of California v. Securities Exchange Commission, 330 U.S. 585, 591, 67 S. Ct. 918, 921 (1947). Although the purposes underlying the court’s use of its contempt power are germane, for federal constitutional purposes the courts do not attempt “to psychoanalyze the subjective intent of a State’s laws anditscourts.”Feiock, 485 U.S. at 635, 108 S. Ct. at 1431.

b. [4.190] Kentucky Law

The Kentucky courts loosely follow the federal distinction:

Despite what appears to be clear distinction made in Ketchan between “civil” and “criminal” contempt, said distinctionseems to have become blurred in subsequent cases. A workable (andpoetic)descriptionof“criminalcontempt”is…[c]riminalcontempt“penalizesyesterday’sdefianceratherthanseekingtocoercetomorrow’scompliance.”

Leibson v. Taylor, 721 S.W.2d 690, 692 n.1 (Ky. 1986) (conduct “directed against the dignity and authority of the court” constitutes criminal contempt).UnderKentucky law:

It is generally recognized that civil contempt consists of failure of a person to do something pursuant to an order of court, gen-erally,forthebenefitofanotherlitigant.Clearlyapersonmaybe sentenced to jail for civil contempt but the party in contempt “carriesthekeystojailinhispocket”becauseheisentitledtoimmediate release upon obedience to the order of the Court….

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The purpose of civil contempt is to compel obedience to and re-spectforanorderofthecourt.Itisthereasonfortheconfinementthat distinguishes civil from criminal contempt. If the purpose of the court is to punish, such sanction is criminal contempt. If it is the purpose of the court to compel into action a course of conduct, that sanction is civil.

Dunagan v. Commonwealth, 31 S.W.3d 928, 931 (Ky. 2000); see also Blakeman v. Schneider, 864 S.W.2d 903, 906 (Ky. 1993) (“If the contemnor has absolutely no opportunity to purge himself of contempt, then such imprisonment can be deemed punitive in nature and in the nature of a proceeding for criminal contempt. The United States Supreme Court unequivocally held that a civil contemnor cannot be incarceratedbeyondtheopportunitytopurgehimselfofhiscontempt.”);Schroering v. Hickman,229S.W.3d591,593(Ky.Ct.App.2007)(“Thedifferencebetweenthetwo is in the court’s purpose in imposing its sentence. If the purpose is to punish, thesanctionisforcriminalcontempt.”).

Fundamental to the imposition of sanctions as civil contempt is notice to thecontemnorofthefindingofcontemptandhowthecontemptmaybepurged.Jefferson, 516 S.W.3d at 343. Failure to do either requires that the contempt be vacated. Id.

Notwithstanding these decisions, the Kentucky courts also look to the nature of the contumacious action. In Newsome v. Commonwealth, 35 S.W.3d 836, 839 (Ky. Ct. App. 2001), for example, the court of appeals held that “[c]ivil contempt is the failure of one to do something under order of a court; criminal contempt is conduct ‘which amounts to an obstruction of justice and which tends tobringthecourtintodisrepute.’”See also Schroering, 229 S.W.3d at 593 (Ky. Ct. App. 2007); Grant v. Dortch, 993 S.W.2d 506, 507 (Ky. Ct. App. 1997); Smith v. City of Loyall, 702 S.W.2d 838, 839 (Ky. Ct. App. 1986).

Even these distinctions are not as clear in practice as they may seem on paper;thedifferencebeingoneofdegreeratherthankind.Forexample,“thewillfulfailuretopaychildsupportasordered,ortotestifyasordered”istreatedascivilcontempt (Commonwealth v. Burge, 947 S.W.2d 805, 808 (Ky. 1996)), while an attorney’s failure to obey a court order is punishable as criminal contempt “because itisdirectedagainstthedignityandauthorityofthecourt”(Newsome v. Common-wealth, 35 S.W.3d 836, 840 (Ky. Ct. App. 2001)). Similarly, the imposition and immediatesuspensionofafineforpastconduct,subjecttoreinstatementuponthecontemnor’s next contumacious act, gives rise to criminal contempt because “the criminalpenaltyremainsabroodingomnipresence.”Commonwealth v. Burge, 947 S.W.2d 805, 808 (Ky. 1996); but see United States v. Mine Workers, 330 U.S. 258, 303-04,67S.Ct.677,701(1947)(holdingthatfixedfineswillbetreatedascivilcontemptwherethefineissuspendedpendingfuturecompliance).

Only “willful disobedience toward, or open disrespect for, the rule or orders ofacourt”ispunishableascriminalcontempt.Cabinet for Health & Family Servs.

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v. J.M.G., 475 S.W.3d 600, 618 (Ky. 2015); Commonwealth v. Pace, 15 S.W.3d 393, 396 (Ky. Ct. App. 2000). Thus, “[t]o be punished for criminal contempt, it was necessary to prove that he had knowledge of a valid order which prohibited the conductinquestionandthatheintentionallyviolatedit.”Butts v. Commonwealth, 953 S.W.2d 943, 944 (Ky. 1997) overruled on other grounds Commonwealth v. McCombs, 304 S.W. 3d 676, 679 (Ky. 2009); see also Jefferson v. Eggemeyer, 516 S.W.3d 325, 343 (Ky. 2017) (“If the court believed the contempt was criminal, it wasrequiredtofindthatDr.Jeffersonhadwillfullyviolatedalawfulandreason-ablyspecificorder.”)

The label attached by the state is suggestive, but not determinative of the federal constitutional protections available. Feiock, 485 U.S. at 631, 108 S. Ct. at 1429.Nevertheless,“onewhochallengesaState’sclassificationofreliefimposedas ‘civil’ or ‘criminal’ may be required to show ‘the clearest proof’ that it is not correctasamatteroffederallaw.”Id.

c. [4.191] Direct vs. Indirect Criminal Contempt

Criminal contempt further is divided into direct and indirect contempt. Directcontempt“iscommittedinthepresenceofthecourtandisanaffronttothedignityofthecourt.”Commonwealth v. Burge, 947 S.W.2d 805, 808 (Ky. 1996). By contrast, indirect criminal contempt “is committed outside the presence of the court.”Id.

2. [4.192] Proceedings and Protections Required

The proceedings and protections mandated by the Due Process Clause turn on whether: (1) the sanction is civil or criminal; (2) if criminal, whether the contumacious conduct is direct or indirect; and (3) if criminal, whether the sanc-tion is severe or petty. Generally, “criminal penalties may not be imposed (in a contemptproceeding)uponsomeonewhohasnotbeenaffordedtheprotectionthattheConstitutionrequiresofsuchcriminalproceedings.”Feiock v. Feiock, 485 U.S. 624, 632, 108 S. Ct. 1423, 1429-30 (1988). The protections include the right to trial by jury (in those instances in which trial by jury is constitutionally mandated in an analogous criminal proceeding) (Bloom v. State of Illinois, 391 U.S. 194, 206-08,88S.Ct.1477,1485(1968)),therequirementthatallelementsoftheoffensebe proved beyond a reasonable doubt (Commonwealth v. Pace, 15 S.W.3d 393, 396 (Ky. Ct. App. 2000)), and the protection against self-incrimination (Feiock v. Feiock, 485 U.S. 624, 632 n.5, 108 S. Ct. 1423, 1430 n.5 (1988)). On the other hand, less protection is required, and more informal procedures are permissible, in connection with civil contempt proceedings.

a. [4.193] Protections and Proceedings Required for Civil Contempt

The United States Constitution permits the imposition of civil contempt penalties “upon notice and an opportunity to be heard. Neither a jury trial nor proof

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beyondareasonabledoubtisrequired.”International Union, UMWA v. Bagwell, 512 U.S. 827, 114 S. Ct. 2552, 2557 (1994); Miller v. Vettiner, 481 S.W.2d 32, 35 (Ky.1972)(requiringa“hearinginwhichtheallegedoffenderisaffordedafairopportunitytopresentadefense”).UnderKentuckylaw,arighttojurytrialandconviction only by a unanimous verdict upon proof beyond a reasonable doubt exists even in the case of civil contempt where a penalty of more than six months imprisonmentorafineofmorethan$500isimposed.Miller, 481 S.W.2d at 35; Newsome v. Commonwealth, 35 S.W.3d 836, 840 (Ky. Ct. App. 2001). In addition, an indigent criminal defendant is entitled to appointment of counsel in any pro-ceeding“whereimprisonmentisapotentialpunishment.”May v. Coleman, 945 S.W.2d 426, 427 (Ky. 1997).

b. [4.194] Direct vs. Indirect Contempt

Direct criminal contempt arises from contumacious conduct in the presence of the court. Commonwealth v. Burge, 947 S.W.2d 805, 808 (Ky. 1996). As a result, “allof‘theelementsoftheoffensearematterswithinthepersonalknowledgeofthecourt,’”[and]theoffensemaybepunishedsummarilybythecourt.”Commonwealth v. Pace, 15 S.W.3d 393, 395 (Ky. Ct. App. 2000). Summary disposition typically meanswithoutahearing,as there isno factfinding.See Grant v. Dortch, 993 S.W.2d 506, 507 (Ky. Ct. App. 1999). “The idea behind this summary proceeding is that an emergency of sorts exists and needs to be dealt with immediately in order to maintain control of the courtroom. Consequently, due process considerations takeabackseattothecourt’surgentneedtodealwithany‘affronttoitsdignity.’”Schroering v. Hickman, 229 S.W.3d 591, 594 (Ky. Ct. App. 2007).

Nevertheless, “[t]he breadth of the court’s summary contempt power [for direct criminal contempt] should be narrowly construed and carefully circum-scribed.”Commonwealth v. Pace, 15 S.W.3d 393, 395 (Ky. Ct. App. 2000). As discussed below, there are limits on the courts’ ability to punish summarily direct criminal contempt through the imposition of serious penalties. International Union, UMWA v. Bagwell, 512 U.S. 821, 827 n.2, 114 S. Ct. 2552, 2557 n.2 (1994). In addition,

[s]ummaryadjudicationbecomes less justifiableonceacourtleaves the realm of immediately sanctioned, petty direct con-tempts. If a court delays punishing a direct contempt until the completion of a trial, for example, due process requires that the contemnor’s rights to notice and a hearing be respected…. There “itismuchmoredifficulttoarguethatactionwithoutnoticeorhearing of any kind is necessary to preserve order and enable [the court]proceedwithitsbusiness,”…particularly“inviewoftheheightenedpotentialforabuseposedbythecontemptpower.”

Bagwell, 512 U.S. at 832-833, 114 S. Ct. at 2560 (1994).

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The Kentucky Court of Appeals has held that where direct contempt is not contemporaneously adjudicated in a summary fashion, the broader due process protections associated with indirect criminal contempt become applicable. Schroer-ing v. Hickman, 229 S.W.3d 591, 594-595 (Ky. Ct. App. 2007). In Schroering, the court remanded defense counsel into custody for a brief period and then ordered thatshebe“sentenced”byanotherjudgeatalaterdate.Thatjudgefineddefensecounsel $250. Id.at593.Onappealfromthefine,thecourtofappealsconcludedthatthedefensecounsel’sdueprocessrightswereviolatedwhenshewasfinedwithout being heard at the subsequent hearing before the second judge, despite the factthatthefirstjudgecouldhavesummarilyfinedheratthetimeofthecontuma-cious conduct. Id. at 594-595.

Indirect criminal contempt, which involves actions outside the presence of the court, typically may be punished only in proceedings that satisfy due process. Newsome v. Commonwealth, 35 S.W.3d 836, 839-40 (Ky. Ct. App. 2001). “Summary adjudicationofindirectcontemptsisprohibited.”International Union, UMWA v. Bagwell, 512 U.S. 821, 833, 114 S. Ct. 2552, 2560 (1994). The extent of the process due turns, as discussed below, primarily on the nature of the sanction imposed. One exception is “indirect contempts involving discrete, readily ascertainable acts, such as turning over a key or payment of a judgment, properly may be adjudicated throughcivilproceedingssincetheneedforextensive,impartialfactfindingislesspressing.”Bagwell, 512 U.S. at 833, 114 S. Ct. at 2560. By contrast, “contempts involving out-of-court disobedience to complex injunctions” require “criminalprocedural protections such as the right to counsel and proof beyond a reasonable doubt.”Bagwell, 512 U.S. at 833-34, 114 S. Ct. at 2560-61.

Consistent with these principles, under Kentucky law, where the allegedly contemptuous act is committed outside the immediate presence of the judge, the alleged contemnor cannot be adjudged in contempt until served with a rule to show cause why she should not be held in contempt and given a hearing. Boyle County Fiscal Court v. Shewmaker, 666 S.W.2d 759, 763 (Ky. Ct. App. 1984). The motion foraruleshouldbesupportedbyanaffidavit.Id.

c. [4.195] Petty vs. Serious Contempt – the Right to a Jury Trial

The use of criminal penalties in a proceeding involving indirect con-tempt brings with it the constitutional protections arising in any like criminal case, including protection against double jeopardy, rights to notice of charges, assistance of counsel, summary process and to present a defense, the privilege against self-incrimination, and the right to proof beyond a reasonable doubt. Inter-national Union, UMWA v. Bagwell, 512 U.S. 821, 826, 114 S. Ct. 2552, 2556-2557 (1994). However, the right to a jury trial, as in other criminal matters, arises only inconnectionwitha“serious”penalty.Muniz v. Hoffman, 422 U.S. 454, 475-76, 95 S. Ct. 2178, 2190 (1975). A criminal contempt proceeding, whether involving direct or indirect contempt, in which the actual sentence exceeds six months or the applicablestatuteexpresslyprovidesforalongersentence,constitutes“serious”

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contempt and requires a trial by jury and proof beyond a reasonable doubt even if it involves a direct contempt. International Union, UMWA v. Bagwell, 512 U.S. 821, 827 n.2, 114 S. Ct. 2552, 2557 n.2 (1994); Taylor v. Hayes, 418 U.S. 488, 493-95, 94 S. Ct. 2697, 2701 (1974); Newsome v. Commonwealth, 35 S.W.3d 836, 840 (Ky. Ct. App. 2001).

Theimpositionofafinewillbejudged“serious”basedupon“theriskandpossibledeprivationfacedbyaparticularcontemnor.”International Association of Firefighters v. Lexington-Fayette Urban County Government, 555 S.W.2d 258, 260(Ky.1977).Thus,theKentuckycourtshaveheldthata$10,000fineleviedagainstalocalunionwithover300memberswasnot“serious,”whilea$1,000fineimposedagainstajailerwas“serious,”therebyrequiringajurytrial.Id.; Vaughn v. Asbury, 726 S.W.2d 315, 317 (Ky. Ct. App. 1987). As a rule of thumb, under Kentuckylawafineofgreaterthan$500istreatedasconstitutingapenaltyforserious contempt and may not be imposed “except upon the unanimous verdict ofthejuryfindingtheindividualguiltyofcontemptbeyondareasonabledoubt.”Newsome v. Commonwealth, 35 S.W.3d 836, 840 (Ky. Ct. App. 2001).

The United States Supreme Court has yet to address “what magnitude of contemptfinemayconstituteaseriouscriminalsanction.”International Union, UMWA v. Bagwell, 512 U.S. 821, 837 n.5, 114 S. Ct. 2552, 2562 n.5 (1994).

Kentucky has extended the right to jury trial, and the requirement that the facts be established beyond a reasonable doubt as found by a unanimous jury, to all instances, whether involving civil or criminal contempt, in which “the existence ornonexistenceofacontempt…requirestheresolutionofafactualissue”andthepenalty imposed is more than six months imprisonment (Miller v. Vettiner, 481 S.W.2d32,35(Ky.1972))orafinethatis“serious”asmeasuredbytheriskandpossible deprivation faced by the contemnor (International Association of Fire-fighters v. Lexington-Fayette Urban County Government, 555 S.W.2d 258, 260 (Ky.1977)).Aspreviouslystated,afineofgreaterthan$500istreatedasaseriouspenalty. Newsome v. Commonwealth, 35 S.W.3d 836, 840 (Ky. Ct. App. 2001).

Even where the question of contempt is tried to a jury, the penalty for contemptisfixedbythecourt.International Association of Firefighters v. Lexing-ton-Fayette Urban County Government, 555 S.W.2d 258, 260 (Ky. 1977).

C. [4.196] Impossibility as a Defense

A party cannot be punished for contempt for falling to perform an impos-sible act. Crowder v. Rearden, 296 S.W.3d 445, 450 (Ky. Ct. App. 2009); Lewis v. Lewis, 875 S.W.2d 862, 864 (Ky. 1993); Campbell County v. Commonwealth, 762 S.W.2d 6, 10 (Ky. 1988); Bailey ex rel. Bailey v. Bailey, 970 S.W.2d 818, 820 (Ky. Ct. App. 1998). In civil contempt proceedings, the inability to comply “must be shown clearly and categorically by the defendant, and the defendant must prove hetookallreasonablestepswithinhispowertoinsurecompliancewiththeorder.”Blakeman v. Schneider, 864 S.W.2d 903, 906 (Ky. 1993).

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D. [4.197] Appeal

An adjudged contemnor has a right of appeal in civil contempt proceed-ings if there is no statutory limitation on the punishment which might be meted out (Miller v. Vettiner, 481 S.W.2d 32, 34 (Ky. 1972)), and in criminal contempt proceedings (Leibson v. Taylor, 721 S.W.2d 690, 692-93 (Ky. 1986)). A person imprisoned for criminal contempt is not eligible for bail. KRS 432.270; Levisa Stone Corporation v. Hay, 429 S.W.2d 413, 418 (Ky. 1968). A judgment imposing afineforcivilcontemptmaybesupersededandenforcementstayedpursuanttoCivil Rules 62.03 and 73.04. Levisa Stone Corporation v. Hay, 429 S.W.2d 413, 418 (Ky. 1968).

Unresolved is the forum in which a contemnor adjudged in contempt of the Kentucky Supreme Court may contest a criminal contempt adjudication.

XIV. [4.198] SpecificPerformance


Specificperformanceisanequitableremedyforbreachofcontract(Bil-ly Williams Builders & Developers, Inc. v. Hillerich, 446 S.W.2d 280, 283 (Ky. 1969)) pursuant to which a party to a contract is required to perform his contractual obligations. That is, the court will order the breaching party to do exactly what he promised. Thus, a party who contracts to sell the Hope Diamond and subsequent-ly breaches the contract may be compelled to deliver the Hope Diamond to the purchaserthroughtheremedyofspecificperformance.Intheabsenceofarighttospecificperformance,thepurchaserwouldbeleftwithonlymoneydamagesfortheseller’srefusaltodeliverthediamond.Specificperformancewas“createdbyequitytomeetthedeficienciesinremediesprovidedbystrictlylegalprocedures.”Kuntz v. Peters,150S.W.2d665,667(Ky.1941).Atbottom,specificperformance“‘ispremiseduponwhatisjustandfairinallrespects.’”Westlake Vinyls, Inc. v. Goodrich Corp, 523 F. Supp. 2d 577, 583 (W.D. Ky. 2007) (applying Kentucky law).

Thegrantofspecificperformance,iftherequirementsfordoingsoaresatisfied, lieswithin“thereasonable,butnotarbitrary,discretionof thecourt.”Puritan Homes, Inc. v. Abell, 432 S.W.2d 632, 638 (Ky. 1968). There is no abso-luterighttospecificperformance.Long v. Reiss, 160 S.W.2d 668, 675 (Ky. 1942).

B. [4.200] PrinciplesGoverningaClaimforSpecificPerformance

1. [4.201] Inadequacy of a Common Law Action for Damages

Theparamountrequirementinanactionforspecificperformancesisthedemonstration that a common law action for damages “is an inadequate and incom-

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plete remedy for the injuries arising from the failure to carry out [the contract’s] terms.”London Bucket Company v. Stewart, 237 S.W.2d 509, 510 (Ky. 1951); see also Billy Williams Builders & Developers, Inc. v. Hillerich, 446 S.W.2d 280, 283 (Ky.1969)(anactionfordamagesmustbe“inadequatetoaffordfullrelief”);Kuntz v. Peters,150S.W.2d665,667(Ky.1941)(specificperformanceisunavailable“wherethecomplainingpartyhadanadequateremedyatlaw”).

An action for damages for breach of contract is inadequate where the ob-ject of the contract is unique. Thus, an action for damages is an inadequate remedy in connection with the breach of a contract to convey real property. The courts apparently indulge in the presumption that each piece of real property is unique. Edelen v. W. B. Samuels & Co., 103 S.W. 360, 362 (Ky. 1907). By contrast, the courts typically hold that an action for damages is an adequate remedy for breach of a contract for the sale of personalty. Campbell v. Stiles, 190 S.W.2d 347, 349 (Ky. 1945). However, an exception exists where the personalty “has a sentimental, peculiaroruniquevalue,suchasaheirlooms,familyportraits,furnitureorcurios.”Id.; see also KRS 355.2-716(1) (in connection with the sale of goods subject to Article2oftheUniformCommercialCode,“[s]pecificperformancemaybedecreedwherethegoodsareuniqueorinotherpropercircumstances”).

Other factors considered in determining the adequacy of an award of damages are:

• thedifficultyofprovingdamageswithreasonablecertain-ty:

• thedifficultyofprocuringasuitablesubstituteperformanceby means of money awarded as damages; and

• the likelihood that an award of damages could not be col-lected.

See Restatement(Second)ofContracts § 360 (1981).

2. [4.202] Existence of a Contract

Specificperformanceisavailabletoenforcethetermsofanexistingagree-ment, not to create the agreement for the parties. “Even equity cannot enforce as acontractanonagreement.”Wilson v. Clearview Water Co., 418 S.W.2d 734, 735 (Ky. 1967). As a result, “[a] greater degree of certainty is required in the terms of acontracttobespecificallyenforcedthanisnecessaryinonetosupportanactionfordamages.”Calhoun v. Everman, 242 S.W.2d 100, 103 (Ky. 1951). Thus, rea-sonable certainty is required with respect to the contract’s “subject-matter, its stip-ulations,itspurposes,itsparties,andthecircumstancesunderwhichitwasmade.”Kentucky-Pennsylvania Oil & Gas Corp. v. Clark, 57 S.W.2d 65, 71 (Ky. 1933).

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3. [4.203] Readiness to Perform and Mutuality of Obligation

Apartyseekingspecificperformancemustdemonstratethathe“hascom-plied with its terms, or that he is ready, able, and willing to perform his obligations underthecontract,intheirentirety.”AEP Indus., Inc. v. B.G. Props., Inc. 533 S.W.3d 674,676(Ky.2017)(“wellsettledequitableprinciplethatspecificperformanceofacontractwillonlybegrantedwhenthepartyseekingthespecificperformancehasitselfcompliedwithalltermsofthecontract”);Kuntz v. Peters, 150 S.W.2d 665, 667 (Ky. 1941); see also West Kentucky Coal Co. v. Nourse, 320 S.W.2d 311, 315(Ky.1959)(partyseekingspecificperformancemuststrictlycomplywithallterms of the contract).

A somewhat related requirement is that of mutuality of obligations. As explainedbyonecourt:“Specificperformanceofacontractwillnotbeenforcedwhich imposes a continuing obligation upon the person against whom it is asked, whileperformanceofitstermsisoptionalwiththeoneseekingrelief.”Calhoun v. Everman, 242 S.W.2d 100, 103 (Ky. 1951) (refusing to enforce restrictive covenant where employer was not obligated to retain employee against whom the contract was to be enforced).

4. [4.204] Defenses

Asanequitableproceeding,anactionforspecificperformanceissubjectto traditional equitable defenses:

• Specificperformanceisavailableonlyinthosecasesthatare “entirely free from fraud, illegal or inequitable con-duct.”West Kentucky Coal Co. v. Nourse, 320 S.W.2d 311, 314(Ky.1959).Acontractobtainedthrough“sharp”prac-ticeswillnotbespecificallyenforced.Taylor v. Johnson, 58 S.W.2d 392, 393 (Ky. 1933).

• Courts will consider the relative positions of the parties at the time of contracting; existence of a substantial oppor-tunity for overreaching is a factor considered in acting on a claim for specificperformance. Id. (defendant was un-educatedandilliterate,whileplaintiffwasrepresentedby“shrewd,intelligentmen”).

• Specificperformanceisnotavailablewhereitwouldcre-ate a hardship for the defendant (Faulkner v. Denniston, 63 S.W.2d 286, 288 (Ky. 1933)), or innocent third parties to the contract (Wides v. Wides’ Executor, 184 S.W.2d 579, 582 (Ky. 1944)), or result in oppression or harshness (West Kentucky Coal Co. v. Nourse, 320 S.W.2d 311, 314 (Ky. 1959)), or where the conditions have so changed as to ren-der enforcement of the contract unconscionable (Westlake

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Vinyls, Inc. v. Goodrich Corp, 523 F. Supp. 2d 577, 583 (W.D. Ky. 2007)). Fraud, mistake, or undue advantage is not required. Id.Rather,todefeatspecificperformancethedefendant need show only injurious consequences rising to the level of “oppression”which could not have beencontemplated. Id. The hardship is measured at the time the contract is made, not at the time the contract is to be en-forced. Simmerman v. Ft. Hartford Coal Co., 221 S.W.2d 442, 447-48 (Ky. 1949) (subsequent rise in coal prices did not constitute hardship in connection with a contract for sale of coal).

• The contract to be enforced must be reasonable. Miller v. Prater, 100 S.W.2d 842, 845 (Ky. 1937).

• Specificperformancemaybebarredbylaches;thatis,spe-cificperformancewillbedeniedwherethepartyseekingrelief unreasonably has delayed in seeking relief to the det-riment of the defendant. Simmerman v. Ft. Hartford Coal Co., 221 S.W.2d 442, 448 (Ky. 1949).

• A lesser quantity and quality of evidence is required to re-sistspecificperformancethanisrequiredtoobtainit.West Kentucky Coal Co. v. Nourse, 320 S.W.2d 311, 314 (Ky. 1959).

C. [4.205] AvailabilityofSpecificPerformanceandDamages

Althoughspecificperformanceisnotavailablewheretheplaintiffhasanadequateremedyatlaw,particularlyanactionfordamages,bothspecificperfor-mance and damages are available in a single action in the limited circumstance where part of the promised performance cannot be rendered, but the requirements forspecificperformancearemet.Billy Williams Builders & Developers, Inc. v. Hillerich, 446 S.W.2d 280, 282-84 (Ky. 1969) (defendant ordered to convey house andlotandpayplaintiffdamagesfordefectsinhouseanddelayinconveyance);see alsoKRS355.2-716(2)(decreeforspecificperformancemayinclude“suchterms and conditions as to payment of price, damages, or other relief as court may deemjust”).

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XV. [4.206] Restitution



Most simply defined, “restitution”means restoration.DanB.Dobbs,LawofRemedies § 4.1, at 222 (1973). Its essence is “restoring the status quo and orderingthereturnofthatwhichrightfullybelongs”totheplaintiff.Tull v. United States, 481 U.S. 412, 424, 107 S. Ct. 1831, 1839 (1987). It is founded upon the recognition that “the obligation to do justice rests upon all persons, natural or ar-tificial;ifoneobtainsthemoneyorpropertyofotherswithoutauthority,thelaw,independentlyofexpresscontract,willcompelrestitution.”Marshall’s Adminis-trator v. Webster, 155 S.W.2d 13, 18 (Ky. 1941). More simply stated, “[a] person whohasbeenunjustlyenrichedattheexpenseofanothermustmakerestitution.”Herman v. Jackson, 405 S.W.2d 9, 11 (Ky. 1966).

“Restitution is not damages….”Cheyenne Resources, Inc. v. Elkhorn Coal Corp., 265 S.W.3d 184, 186-187 (Ky. 2008) (quoting Dan B. Dobbs, LawofRemedies § 4.1, at 556 (2d ed. 1993)). Unlike damages, the purpose of which istocompensatetheplaintiff(Evergreen Land Co. v. Gatti, 554 S.W.2d 862, 866 (Ky. Ct. App. 1977)), restitution is aimed at “forcing the defendant to disgorge benefitsitwouldbeunjustforhimtokeep”(DanB.Dobbs,LawofRemedies § 4.1, at 224 (1973)).

2. [4.209] Unjust Enrichment

The essence of restitution is as a remedy for unjust enrichment. Cheyenne Resources, Inc. v. Elkhorn Coal Corp., 265 S.W.3d 184, 186 (Ky. 2008); Dan B. Dobbs, LawofRemedies § 4.1, at 225 (1973). 225; RestatementoftheLawofRestitution § 1 (1937) (“A person who has been unjustly enriched at the expense ofanotherisrequiredtomakerestitutiontotheother.”).Adefendantisunjustlyenriched where he has received money, property, services or something of value undersuchcircumstancesthat“inequityandgoodconscience”thebenefitshouldberestoredtotheplaintiff.Thompson v. Hunter’s Executor, 269 S.W.2d 266, 269 (Ky. 1954); see also Kentucky Hospital Association Trust v. Chicago Insurance Company, 978 S.W.2d 754, 755 (Ky. Ct. App. 1998) (“In equity, a court may give restitutiontoaplaintifftopreventtheunjustenrichmentofthedefendantwherethe plaintiff has used its property in discharging an obligation.”).The benefitconferred can take the form of an addition to the property of another, or “sav[ing] theotherfromexpenseorloss.”RestatementoftheLawofRestitution § 1, cmt.b(1937).Moreover,itisnotenoughthatabenefitwasreceived.Id. at cmt. c.Essentialtothedoctrineofunjustenrichmentisthatthebenefitwasinequitablyreceived at the claimant’s expense. Bogan v. Finn, 298 S.W.2d 311, 314 (Ky. 1957).

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Absent special circumstances, the doctrine of unjust enrichment, and hence restitution, is not applicable to a fully performed express contract which is challenged because it resulted in a bad deal. Codell Construction Co. v. Common-wealth, 566 S.W.2d 161, 163 (Ky. Ct. App. 1977).

3. [4.210] Restitution at Law and in Equity

Restitutionary remedies exist at both law and equity. Although the ulti-mate result at law and in equity is restitution, and while both are founded upon thedoctrineofunjustenrichment,themechanismforreliefdiffersbetweenlegaland equitable remedies.

B. [4.211] Restitutionary Remedies at Law

1. [4.212] Generally

Restitution is available at law through the mechanism of quasi-contract or contract implied in law. A contract implied in law arises where although “neither words nor conduct of a party are promissory in form or justify an inference of a promise,…an obligation [is] imposed by law as an enforceable duty where money or property or services are received under such circumstances that in equity and goodconscience”restitutionisowed.Thompson v. Hunter’s Executor, 269 S.W.2d 266, 269 (Ky. 1954); see also Fayette Tobacco Warehouse Co. v. Lexington Tobacco Board of Trade,299S.W.2d640,644(Ky.1956)(definingacontractimpliedinlawas“alegalfictioninventedbycommon-lawcourtsinordertopermitarecoverybythe contractual remedy of assumpsit in cases where, in fact, there is no contract, but where the circumstances are such that under the law of natural and immutable justicethereshouldberecoveryasthoughtherehadbeenapromise”).Quasi-con-tracts may also arise if “there has been an actual contract which for some reason, suchasstatuteoffrauds,isnotenforceable.”First Security National Bank & Tr. Co. v. Merriman, 440 S.W.2d 256, 257 (Ky. 1969).

By contrast, a contract implied in fact arises “where there was a meeting ofthemindsuponthepromisesoftherespectivepartiesbutwithoutanydefiniteexpressedorcategoricalagreement.”SEG Employees Credit Union v. Scott, 554 S.W.2d 402, 405 (Ky. Ct. App. 1977). The contract is implied from the conduct of the parties (Dorton v. Ashland Oil & Refining Co., 197 S.W.2d 274, 275 (Ky. 1946)), is a form of express contract (First Security National Bank & Trust Co. v. Merriman, 440 S.W.2d 256, 257 (Ky. 1969)), and is not a restitutionary remedy.

The distinction between a contract implied in fact and a quasi-contract was captured by the court in Thompson v. Hunter’s Executor, 269 S.W.2d 266, 269 (Ky.1954):“[I]nthecaseofcontractsimpliedinfact,thecontractdefinestheduty,whileinthecaseof[quasi-contracts]thedutydefinesthecontract.”

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2. [4.213] Quantum Meruit

The most familiar quasi-contractual remedy is quantum meruit. Recov-ery may be had by way of quantum meruit in two closely related circumstances: (1)theplaintiffprovidesservicesorlaborwithoutcontracttothebenefitofthedefendant,whichbenefitthedefendantingoodequityshouldnotbepermittedtoretain (Thompson v. Hunter’s Executor, 269 S.W.2d 266, 269 (Ky. 1954) (“extraor-dinarynursing,careandattention”provideddefendant’sdecedent));or(2)wheresuch service or labor is provided pursuant to a contract rendered unenforceable (Clinkenbeard v. Poole, 266 S.W.2d 796, 798 (Ky. 1954), rev’d on other grounds, Louisville Trust Co. v. Monsky, 444 S.W.2d 120, 122 (Ky. 1969)). Adequate and availablelegalremediesmustberesortedtofirst.Superior Steel, Inc. v. Ascent at Roebling’s Bridge, LLC, 540 S.W.3d 770, 781 (Ky. 2017).

Torecoverinquantummeruitunderthefirstbranchofthedoctrine,aclaimant must demonstrate four elements:

1. that valuable services were rendered, or materials fur-nished;

2. to the person from whom recovery is sought;

3. which services were accepted by that person, or at least were received by that person, or were rendered with the knowledge and consent of that person; and

4. undersuchcircumstancesasreasonablynotifiedthepersonthattheplaintiffexpectedtobepaidbythatperson.

Cherry v. Augustus, 245 S.W.3d 766, 779 (Ky. Ct. App. 2006).

Contracts rendered unenforceable by the statute of frauds (Adkins v. Cor-nett, 684 S.W.2d 853, 855 (Ky. Ct. App. 1985)) or impossibility of performance (Louisville & Nashville Railroad Co. v. Crowe, 160 S.W. 759, 760 (Ky. 1913)) most typically give rise to the second branch of quantum meruit. Recovery is not available by way of quantum meruit in the case of a contract rendered unenforceable because of the statute of frauds, where granting the relief would frustrate the purpose of the statute of frauds. Louisville Trust Co. v. Monsky, 444 S.W.2d 120, 121-22 (Ky. 1969) (refusing to grant quantum meruit with respect to an oral brokerage contract). Nevertheless, where restitution can be granted without undermining the purpose of the statute of frauds, quantum meruit will be granted. Restatement(Second)ofContracts§ 375, cmt. a (1981).

Recovery is available under quantum meruit without regard to the par-ties’ intentions and sometimes in contradiction of them. Perkins v. Daugherty, 722 S.W.2d 907, 909 (Ky. Ct. App. 1987). In both instances, the measure of the remedy is the value of the services provided. Adkins v. Cornett, 684 S.W.2d 853, 855 (Ky. Ct. App. 1985).

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3. [4.214] Money Paid

Where theplaintiff ingoodfaithhaspaidmoney to thebenefitof thedefendant upon the “mistaken belief there is a contract between them requiring himtodoso,orinanticipationofsuchacontract,”thedefendantisrequiredtomakerestitutiontotheplaintiff.Herman v. Jackson, 405 S.W.2d 9, 12 (Ky. 1966). In Herman,thecourtaffirmedajudgmentrequiringthedefendanttorepaytotheplaintiffone-halfoftheloanpaymentsmadebytheplaintiffduringtheperiodhemistakenly believed a garage was being operated as a partnership. See also Union Central Life Ins. Company v. Glasscock, 110 S.W.2d 681, 687 (Ky. 1937).

C. [4.215] Restitutionary Remedies in Equity


The Supreme Court noted “Kentucky courts’ willingness to adopt eq-uitable measures where appropriate and wholly consistent with the principles in the Restatement(Third)ofRestitutionandUnjustEnrichment”§§2,25(2011). Superior Steel, Inc. v. Ascent at Roebling’s Bridge, LLC, 540 S.W.3d 770, 779 (Ky. 2017).

Restitution is carried out in equity through constructive trusts (Long v. Reiss, 160 S.W.2d 668, 676 (Ky. 1942)); equitable liens (McFerran v. Louisville Title Company’s Receiver, 71 S.W.2d 655, 657 (Ky. 1934)); subrogation (Western Casualty & Surety Co. v. Meyer, 192 S.W.2d 388, 390 (Ky. 1946)); and an action for accounting (Clark v. Isaacs, 206 S.W. 606, 607-08 (Ky. 1918)). See Sections [4.9]-[4.28], supra, for a discussion of an action for accounting.

“Equitable claims, such as unjust enrichment, are heard and decided by thetrialcourt,notthejury.”Superior Steel, Inc. v. Ascent at Roebling’s Bridge, LLC, 540 S.W.3d 770, 779 (Ky. 2017).

2. [4.217] Constructive Trusts

a. [4.218] Basis for Establishing a Constructive Trust

A constructive trust does not arise as a result of words or actions expressly or impliedly evidencing an intent to create a trust. Long v. Reiss, 160 S.W.2d 668, 676 (Ky. 1942). Rather, a constructive trust arises where “legal title to property is obtained through fraud,misrepresentation, concealment, undue influenceortaking advantage of one’s weakness or necessities, or through similar means or circumstances rendering it unconscionable for the holder of legal title to retain the property.”Moore v. Terry, 170 S.W.2d 29, 32 (Ky. 1943); accord Patel v. Tuttle Properties, LLC, 392 S.W.3d 384, 387 (Ky. 2013) (“‘[A] constructive trust arises when a person entitled to property is under the equitable duty to convey it to another becausehewouldbeunjustlyenrichedifhewerepermittedtoretainit.’”);Bjorkman

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v. Protestant Episcopal Church in the United States of America, 759 S.W.2d 583, 587(Ky.1988)(constructivetrustimposedtorestorebeneficialownershipwherelegal title is lost through the illegal, deceptive, or unconscionable conduct of cur-renttitleholder).Similarly,aconstructivetrustwillbeimposedwhereafiduciaryorsomeoneina“confidentialrelationship”obtainspropertyorprivatebenefitinbreachofherfiduciarydutiesortherelationship.Davis v. Davis, 489 S.W.3d 225, 230 (Ky. 2016) (“Kentucky courts have required the party seeking the imposition ofatrusttoestablisha‘confidentialrelationship’withthepartyuponwhomthetrustistobeimposed.’”)See also USACO Coal Co. v. Carbomin Energy, Inc., 689 F.2d 94, 97 (6th Cir. 1982) (corporate promoters); O’Bryan v. Bickett, 419 S.W.2d 726, 729 (Ky. 1967) (partnership or joint venture); Antle v. Haas, 251 S.W.2d 290, 295 (Ky. 1952) (agency). For the purposes of the creation of a constructive trust, a confidentialrelationshipexists“wheretherehasbeenaspecialconfidenceimposedin one who in equity and good conscience is bound to act in good faith and with dueregardtotheinterestsoftheonereposingconfidence.”Security Trust Co. v. Wilson, 210 S.W.2d 336, 338 (Ky. 1948).

Actual fraud need not be demonstrated to support a constructive trust. Ka-plon v. Chase, 690 S.W.2d 761, 763 (Ky. Ct. App. 1985). Property acquired through mistake of fact may also be impressed with a constructive trust. In re Hurricane Elkhorn Coal Corp. II, 32 B.R. 737, 739 (W.D. Ky. 1983). “The foundation upon which a constructive trust arises is a wrongful appropriation or retention of the propertyofanother.”Panke v. Panke, 252 S.W.2d 909, 911 (Ky. 1952). Neverthe-less, merely supplying the funds with which property was purchased does not in and of itself give rise to a constructive trust. Bryant’s Administrator v. Bryant, 269 S.W.2d 219, 222 (Ky. 1954).

Being a creature of equity, a constructive trust does not come into exis-tence(anditspriorityisnotfixed)untilcreatedbyanorderofthecourt.Cabinet for Human Resources v. Security of America Life Insurance Company, 834 S.W.2d 176, 180-81 (Ky. Ct. App. 1992).

b. [4.219] Evidence Required

The facts giving rise to the imposition of a constructive trust must be established by clear and convincing evidence. Rakhman v. Zusstone, 957 S.W.2d 241, 244 (Ky. 1997) (“to establish a constructive trust, there must be clear and convincingevidenceofaspecificagreement,eitherexpressorimplied,thatthetitle is held in trust or clear and convincing evidence that the title was obtained bythegranteebyfraudorinviolationofaspecificagreementorunderstanding”);Burgraf v. Reynolds, 206 S.W.2d 206, 207 (Ky. 1947). A mere preponderance of theevidenceisinsufficient.Curlee v. Hall, 178 S.W.2d 193, 195 (Ky. 1944). An exception to this rule may exist where the constructive trust is to be impressed in connectionwiththeactsofafiduciary.Whitsell v. Porter, 217 S.W.2d 311, 313 (Ky. 1949). Because the constructive trust is not premised upon an agreement or contract, but rather the relationship between the parties, there need not be a writing

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which complies with the statute of frauds. O’Bryan v. Bickett, 419 S.W.2d 726, 728-29 (Ky. 1967).

c. [4.220] Nature of Remedy

Where property is impressed with a constructive trust, the legal titleholder holdsthepropertyastrusteeforthebenefitofthepersonstowhomitistoberestored.Huff v. Byers, 272 S.W. 897, 898-99 (Ky. 1925). Once the trust is recognized, the courtmayorderthepropertyandtitle“wrested”fromthetrusteeanddeliveredtothebeneficiaries.Id. Because the creation of a constructive trust is an in personam remedy, the court need not have jurisdiction over the property that is the subject of the trust to grant relief. Kaplon v. Chase, 690 S.W.2d 761, 763 (Ky. 1985).

Aconstructivetrustallowstherecoveryofspecificpropertyfromthede-fendant. Dan B. Dobbs, LawofRemedies, § 4.1, at 227 (1973). Equally important, the trust will be impressed on the property even if it is in the hands of third parties, solongastheyarenotbonafidepurchasersforvalueandwithoutnotice.McCracken County v. Lakeview Country Club, 70 S.W.2d 938, 942 (Ky. 1934). The mechanism ofthetrustcanbeusedtotracethe“property,”eventhoughithasbeenconvertedintoanotherform,solongasitcanbe“followedandidentified.”Id. Accordingly, the “trust will follow property through all changes in its state and form, so long as suchproperty,itsproduct,oritsproceedsarecapableofidentification.”Cabinet for Human Resources v. Security of America Life Insurance Company, 834 S.W.2d 176, 179 (Ky. Ct. App. 1992). Unless the property or its proceeds is traced into specificproperty,thebeneficiaryonlyhasapersonalclaimagainstthetrustee.Id. As the Security of America court explained:

Theclaimof thebeneficiaryagainst the trustee forbreachoftrust does not entitle him to priority over the general creditors of the trustee…the mere fact that the trust property or its proceeds has been mingled with the trustee’s individual property in one indistinguishablemass doesnot prevent the beneficiary fromfollowing the trust property and obtaining in part at least priority over the trustee’s general creditors. But if it is shown the property or its proceeds has been dissipated so that no product remains, orifthebeneficiaryfailstoprovethetrusteestillhaspropertyinto which the trust property is traceable, his claim is only that of a general creditor of the trustee.

Id.

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3. [4.221] Equitable Subrogation

a. [4.222] Definition

Two kinds of subrogation are recognized:

[L]egal, also known as equitable, and conventional…. Legal/equitable estoppel arises by operation of law; conventional subrogation arises by contract or agreement…. In equity, a court maygiverestitutiontoaplaintifftopreventtheunjustenrichmentofthedefendantwheretheplaintiffhasuseditspropertyindis-charging an obligation…. The doctrine of subrogation includes every instance in which one person not acting voluntarily, has paid a debt in which in equity and good conscience should have been discharged by the latter.

Kentucky Hospital Association Trust v. Chicago Insurance Company, 978 S.W.2d 754, 755 (Ky. Ct. App. 1998). Both types are subject to equitable principles. Wine v. Globe American Casualty Company, 917 S.W.2d 558, 565 (Ky. 1996).

Equitable subrogation is not available to reorder the priority of mortgage liens where the lienholder has actual or constructive notice of the lien to be reor-dered. Mortgage Elec. Registration Sys. v. Roberts, 366 S.W.3d 405, 406 (Ky. 2012).

“Subrogation is often referred to as the doctrine of substitution, and it is aninventionofequitytocompeltheonewhoowesadebttoultimatelypayit.”Rollins v. Board of Drainage Commissioners, 136 S.W.2d 1094, 1096 (Ky. 1939). “[G]enerally the subrogee [(the person paying the debt)] is placed in the shoes or precise position of one to whose rights he is subrogated and is entitled to all legal rightsandremediesofthecreditor.”Federal Deposit Insurance Corp. v. Wilhoit, 180 S.W.2d 72, 76 (Ky. 1943). Its purpose is to avoid unjust enrichment. Evans’ Administrator v. Evans, 199 S.W.2d 734, 737(Ky. 1947); Dalton v. First National Bank of Grayson, 712 S.W.2d 954, 957 (Ky. Ct. App. 1986).

Originally described as “broad enough to include every instance in which one person who is not a mere volunteer pays a debt which in justice, equity, and goodconscienceoughttobepaidbyanother”(McCracken County v. Lakeview Country Club, 70 S.W.2d 938, 942 (Ky. 1934)), equitable subrogation is now more parsimoniously used (United Pacific Insurance Co. v. First National Bank of Pres-tonsburg, 457 S.W.2d 833, 835 (Ky. 1970) (doctrine has been widely discredited but survivesinKentucky)).Thedoctrinenowis“strictlylimitedinitsapplication.”Id.

“Subrogationrightsmaybemodifiedbycontract,providedviolenceisnotdonetoestablishedequitableprinciples.”Wine v. Globe American Casualty Company, 917 S.W.2d 558, 565 (Ky. 1996).

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D. [4.223] Elements

Aclaim for equitable subrogation requires the establishment of fiveelements:

1. payment of the debt of another. Bryan v. Henderson Elec-tric Co., 566 S.W.2d 823, 825 (Ky. Ct. App. 1978). The expenditureofmoneyonbehalfof,orgrantof abenefitto another, does not give rise to equitable subrogation un-lessitsatisfiedadebtordutyofthedefendant.Chapman v. Blackburn, 175 S.W.2d 26, 28 (Ky. 1943);

2. subrogee must not be acting as a volunteer. Bryan v. Hen-derson Electric Co., 566 S.W.2d 823, 825 (Ky. Ct. App. 1978). A person is a volunteer where she pays the debt of another without a legal duty (City of Jackson v. First Na-tional Bank of Jackson, 157 S.W.2d 321, 326 (Ky. 1941)) or moral obligation to do so (Vance v. Atherton, 67 S.W.2d 968, 970-7 1 (Ky. 1934) (support of aged parent)), unless she does so to protect some interest of her own (Dodson v. Key, 508 S.W.2d 586, 589 (Ky. 1974));

3. “The debt is not one for which the subrogee is primarily liable. Bryan v. Henderson Electric Company, 566 S.W.2d 823, 825 (Ky. Ct. App. 1978);

4. “The entire debt must be paid unless the others who made paymentarejoined.”Id.

5. The subrogation must not work an injustice on others. Id.

1. [4.224] Equitable Liens

Kentucky recognizes two types of equitable liens. First are those arising from a contract which demonstrates an intention to charge some property with the lien. McFerran v. Louisville Title Company’s Receiver, 71 S.W.2d 655, 657 (Ky.1934).Thus,where theplaintiffagreed toprovide thedefendantswith80percent of the purchase price of a farm in return for the defendants supporting her, the court imposed an equitable lien on the property purchased to secure the promise. Gabbard v. Watkins, 133 S.W.2d 54, 57 (Ky. 1939). The contract from which the equitable lien arises need not be written. McFerran v. Louisville Title Company’s Receiver, 71 S.W.2d 655, 657-58 (Ky. 1934). However, there must be some agreement or meeting of the minds concerning an intention to charge the property with a lien. Best v. Jenkins, 260 S.W.2d 653, 657 (Ky. 1953) (provision ofmoneyforrecipient’suseasshesawfitdidnotdemonstrateintentiontochargehouse improved with funds with lien).

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The second type of equitable lien arises under more nebulous circumstanc-es. Such liens arise from “general considerations of right and justice as applied to therelationsofthepartiesandthecircumstancesoftheirdealings.”McFerran v. Louisville Title Company’s Receiver, 71 S.W.2d 655, 657 (Ky. 1934). Thus, a court may impose an equitable lien on a defendant’s property within the Commonwealth to secure the payment by a nonresident of an administrative penalty where the court acts in good conscience and believes it is warranted. Jones v. Division of Licensure and Regulations, 710 S.W.2d 862, 867 (Ky. Ct. App. 1986). Other equitable liens of this type include “vendor’s liens, liens for improvements innocently made on another’s property, liens on property paid for which the seller cannot deliver…andliensonpropertyfraudulentlypurchasedorimprovedwithanother’smoney.”McFerran v. Louisville Title Company’s Receiver, 71 S.W.2d 655, 657 (Ky. 1934); see also Castle Insurance Company v. Vanover, 993 S.W.2d 509, 511 (Ky. Ct. App. 1999) (equitable lien created on insurance proceeds where mortgagor agrees to purchaseinsuranceforthebenefitofmortgageebutfailstodoso).

Neither form of equitable lien requires that the person asserting the lien be in possession of the property. Back v. Back’s Administrator, 135 S.W.2d 911, 916 (Ky. 1940). Equitable liens are enforceable against persons taking the property with notice of the lien, or who, “like an assignee or receiver, stands in the shoes of thedefendant.”McFerran v. Louisville Title Company’s Receiver, 71 S.W.2d 655, 657 (Ky. 1934); see also Tile House, Inc. v. Cumberland Federal Savings Bank, 942 S.W.2d 904, 906 (Ky. 1997) (an equitable lien takes priority over a subsequent valid and recorded materialmen’s lien acquired with actual notice).

“[A]n equitable lien attaches upon the advancement of money and con-tinuestoexistforthedurationofthedebt.”State Street Bank & Trust Company of Boston, Massachusetts v. Heck’s Inc., 963 S.W.2d 626, 631 (Ky. 1998). Thus, to theextentitiseffective,itiseffectiveab initio and does not relate back. Id.

XVI. [4.225] Equitable Principles in Current Practice


As the court explained in Brock v. Farmer, 291 S.W.2d 533, 533-34 (Ky. 1956), the creation of a single form of action in connection with the adoption of the Civil Rules was for “procedural purposes only[;]...[the] merger of legal and equitable procedures does not obliterate the substantive distinctions between those rights,norfusethedifferingapplicableprinciples,norenlargetherighttorelief.”See also Johnson v. Holbrook, 302 S.W.2d 608, 610 (Ky. 1957) (creation of single form of action did not abolish “the time-honored distinction between remedies applicable toa legal causeof actionor toone sounding inequity”).However,with the rise of a single form of action as a result of the adoption of the civil rules, equity as a separate and distinct body of jurisprudence has disappeared below the

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horizon. Nevertheless, even with this general blurring of equity and law, certain equitable principles remain intact and in use.

B. [4.227] Commonly Used Principles

1. [4.228] Requirement That Party Seeking to Invoke Protection of Equity Act with Reasonable Diligence

Simply stated, “[e]quity aids the vigilant, not those who slumber on their rights.”Williams Coal & Coke Co. v. Spears, 125 S.W.2d 745, 748 (Ky. 1938). In Swiss Oil Corp. Fyffe, 176 S.W.2d 398, 402 (Ky. 1943), the court refused to permit an assignee to recover lease payments made though inadvertence or mistake where itcouldhaveavoidedthemistakethrough“reasonablediligence.”

Temporary injunctive relief, an equitable remedy, is available only to preventtheinflictionof“immediateandirreparableinjury.”CR65.04;Maupin v. Stansbury, 575 S.W.2d 695, 698 (Ky. Ct. App. 1978). The courts should not permit the required“immediacy” tobe fashioned through themovant’sdelay.Greene v. Eversole, 177 S.W.2d 559, 560 (Ky. 1944) (maxim “has peculiar force when theinjunctivepoweroftheCourtisinvoked”);cf. Vaughan v. General Outdoor Advertising Co., 352 S.W.2d 562, 565 (Ky. 1961) (injunction action commenced within two months of knowledge of complained of conduct evidenced reasonable diligence).

2. [4.229] Laches

Laches consists of the failure “to assert one’s rights within a reasonable period of time, where it causes prejudice, injury, or a change in the position of the otherparty.”Wigginton v. Commonwealth ex rel. Cadwell, 760 S.W.2d 885, 887 (Ky. Ct. App. 1988); see also Plaza Condominium Association, Inc. v. Wellington Corporation, 920 S.W.2d 51, 54 (Ky. 1996) (“Laches bars claims in circumstances where a party engages in unreasonable delay to the prejudice of others, rendering it inequitabletoallowthatpartytoreverseapreviouscourseofaction.”).Lachesisanaffirmativedefense(CR8.03)andabartoequitablerelief(Jobe v. Hammer, 563 S.W.2d 740, 741-42 (Ky. Ct. App. 1972)). But see Price v. First Federal Savings Bank, 822 S.W.2d 422, 423 (Ky. Ct. App. 1992) (acknowledging that laches is an affirmativedefensebutaddressingthemeritsoftheclaimdespiteparty’sfailuretoraiselachesasanaffirmativedefense).

Mere delay does not inevitably give rise to laches. Fightmaster v. Leffler, 556 S.W.2d 180, 183 (Ky. 1977). Rather, the delay must injure the defendant, either through such a change in his position that he could not be restored to his former state (id.) or through some other type of injury such as “loss of evidence, change oftitle,interventionofequitiesorothercauses”(Wisdom’s Administrator v. Sims, 144 S.W.2d 232, 236 (Ky. 1940)).

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Laches also requires a demonstration that the delay was unreasonable in a both a temporal sense (Card Creek Coal Co. v. Cline, 204 S.W.2d 571, 573 (Ky. 1947))andinlightoftheplaintiffs“knowinginaction”(McMahan v. Wittlig, 310 S.W.2d 777, 778 (Ky. 1958)).

Adefendantassertinglachesmustdemonstratethattheplaintiffeitherhadactualknowledgeoftheinvasionofplaintiff’srightsorthatsuchknowledgecouldbeimputedtotheplaintiffbecauseofplaintiff’s“opportunitytoacquireknowledge,or where it appears that he could have informed himself of the facts by the exercise of reasonable diligence, or where the circumstances were such as to put a man of ordinaryintelligenceoninquiry.”Amlung v. Bankers Bond Co., 411 S.W.2d 689, 694 (Ky. 1967). A delay normally will not be considered unreasonable where the plaintiffduringtheperiodof“judicialinaction”soughttoasserthisrights“bymeansotherthanlitigation.”Chapman v. Bradshaw, 536 S.W.2d 447, 449 (Ky. 1976).

Laches may ripen prior to the lapse of an applicable statute of limitations. Plaza Condominium Association, Inc. v. Wellington Corporation, 920 S.W.2d 51, 54 (Ky. 1996); Anspacher v. Utterback’s Administrator, 68 S.W.2d 15, 18 (Ky. 1934) but see Karami v. Roberts, 706 S.W.2d 843, 846 (Ky. Ct. App. 1986) (“a statutory period of limitations overrides the common law [sic] doctrine of laches inthatparticularaction”).

The application of the doctrine of laches turns on the particular facts of each case. (Plaza Condominium Association, Inc. v. Wellington Corporation, 920 S.W.2d 51, 54 (Ky. 1996); Chapman v. Bradshaw, 536 S.W.2d 447, 448 (Ky. 1976)), and resides within the discretion of the trial court. Cherry v. Augustus, 245 S.W.3d 766, 774 (Ky. Ct. App. 2007).

3. [4.230] “CleanHands”Doctrine

The principle that a party seeking equity must come to court with “clean hands”meansthatalitigantseekingtoinvokeanequitableremedymaynotprem-ise his claim upon a violation of the law, his own illegal acts, or “conduct contra bonosmores.”Gastineau v. Bradley, 249 S.W.2d 529, 530 (Ky. 1952). Moreover, the predicament for which the litigant seeks equity’s aid may not be the result of the litigant’s own wrongful conduct. McMullin v. McMullin, 338 S.W.3d 315, 322 (Ky. App. 2011) (intentional inclusion of an ambiguous contract provision); Mullins v. Picklesimer, 317 S.W.3d 569, 577 (Ky. 2010); Sherman v. Sherman, 160 S.W.2d 637, 639 (Ky. 1942). Thus, equity will not provide a remedy in connection with an unconscionable note (Steuerle v. Tindell, 265 S.W.2d 787, 788 (Ky. 1954)); nor property acquired illegally (Munn v. Munn, 291 S.W.2d 560, 561 (Ky. 1956)); nor a wrongfully appropriated abandoned road (Sowards v. Commonwealth, 180 S.W.2d 545, 546 (Ky. 1944)). The misconduct to be raised as a bar to equitable relief must beconnected to“thesubjectmatter in litigation,so that itaffects theequitablerelationssubsistingbetweentheparties,andarisingoutofthetransaction.”Maas

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v. Maas’ Administrator, 255 S.W.2d 497, 498 (Ky. 1952); Suter v. Mazyck, 226 S.W.3d 837, 843 (Ky. Ct. App. 2007).

Thedoctrineofcleanhandsbarsaffirmativeequitablereliefwithoutregardtowhetherthereliefissoughtbytheplaintifforthedefendant.Hazard Coal Co. v. Getaz, 29 S.W.2d 573, 579 (Ky. 1930). De minimis wrongful conduct does not necessarily give rise to the doctrine of unclean hands. Chapman v. Bradshaw, 536 S.W.2d 447, 448 (Ky. 1976) (“slight or inconsequential acts on [litigant’s] part are notasufficientbasisfordenyinghimrelief”).Rather,theequitablerightassertedisweighed“againstthetransgressionclaimedtoforecloseit.”Parks v. Parks, 418 S.W.2d 726, 727 (Ky. 1967). There is some authority for the proposition that in applying the doctrine the wrongfulness of the actions of the party seeking to invoke the clean hands defense is to be weighed against the wrongfulness of the conduct said to give rise to the unclean hands defense. Suter, 266 S.W.3d at 843 (“When theplaintiffhasengagedinconductlessoffensivethanthatofthedefendant,therulewillnotprecludetheplaintiff’srecovery.”)

Thecourtmayinvokethedoctrineof“uncleanhands”onitsownmotion(Steuerle v. Tindell, 265 S.W.2d 787, 788 (Ky. 1954)), and the decision whether to do so lies within the court’s discretion. Mullins, 317 S.W.3d at 577.

4. [4.231] Equity Will Retain Jurisdiction for All Purposes Connected to the Principal Controversy

“Once equity has assumed jurisdiction for one purpose it will retain it for allpurposesconnectedwiththeprincipalcontroversy.”Thomas v. Thomas, 379 S.W.2d 743, 747 (Ky. 1964). Thus, in Department for Human Resources v. Kentucky Products, Inc., 616 S.W.2d 496, 499-500 (Ky. 1981), the court held that the circuit court which enjoined a food distributor from transacting business until unsanitary conditions were remedied also enjoyed the authority to order the seizure and de-struction of contaminated food despite the fact that subject matter jurisdiction for such relief lay in the district court. See also Thomas v. Thomas, 379 S.W.2d 743, 747 (Ky. 1964) (court could grant alimony in post-divorce property division action).

5. [4.232] He Who Seeks Equity Must Do Equity

Undergirding the maxim that he who seeks equity must do equity is the principlethatthechancerycannotbeconvertedintoan“instrumentofinequity.”Louisville Title Company’s Receiver v. Crab Orchard Banking Co., 61 S.W.2d 615,618(Ky.1933).Thus,aplaintiffseekinganinjunctionrequiringalandownertoremoveadamcausingwater toflowbackovertheplaintiff’slandwouldberequiredtocorrecttheconditiononhislandincreasingtheflowoverthedefen-dant’s property. Board v. Schneider, 191 S.W.2d 418, 420 (Ky. 1945). Similarly, grantors seeking to cancel a deed given in consideration of the grantee’s promise to care for grantor’s brother because the grantee was no longer able to provide the

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care required were obligated to compensate the grantee for the value of services rendered by her. Gabbard v. Truett, 283 S.W.2d 833, 835 (Ky. 1955).

XVII. [4.233] Reformation and Rescission

A. [4.234] Reformation

Reformation of an instrument is an equitable remedy. Roberts v. Jiles’ Executrix,307S.W.2d171,174(Ky.1957).Theeffectofreformationistomodifytheinstrument,typicallyacontractordeed,toaccuratelyreflectthepartiestrueagreement. Ohio Casualty Insurance Co. v. Murphy, 28 F. Supp. 252, 254 (W.D. Ky. 1939).

1. [4.235] Elements of an Action to Reform an Instrument

Reformation will be granted where:

(a) there is a valid agreement between the parties which is not expressed by the written instrument. Berry v. Crisp, 247 S.W.2d 384, 385 (Ky. 1952); or

(b) the discrepancy between the instrument and the agreement is the result of a mutual mistake of the parties (Struve v. Lebus, 136 S.W.2d 554, 557 (Ky. 1940); Sroka-Calvert v. Watkins, 971 S.W.2d 823, 829-30 (Ky. Ct. App. 1998)), or mistake on one side and fraud on the other (Goerter v. Sha-piro, 72 S.W.2d 444, 445 (Ky. 1934)), or mistake on one side and inequitable conduct on the other (Farley v. Gib-son, 30 S.W.2d 876, 877 (Ky. 1930)), or it must arise as a result of a scrivener’s error in drafting the instrument (A.H. Thompson Co. v. Security Insurance Co., 67 S.W.2d 493, 495 (Ky. 1933)). The mistake typically must be one that arose in connection with the drafting of the instrument as opposed to the agreement itself. Vernon Casualty & Rein-surance Co. v. Rosenberg, 280 S.W.2d 207, 209 (Ky. 1955) overruled on other grounds Deskins v. Leslie, 387 S.W.2d 596, 597 (Ky. 1965).

2. [4.236] Mutuality of Mistake

“A mutual mistake is one in which both parties participate by each la-boringunderthesamemisconception.”Reiss v. Wintersmith, 44 S.W.2d 609, 613 (Ky. 1931), overruled on other grounds, Deskins v. Leslie, 387 S.W.2d 596, 597 (Ky. 1965). See also Nichols v. Zurich Am. Ins. Co., 423 S.W.3d 698, 703 (Ky. 2014) (“A mutual mistake in a written agreement that will justify reformation of

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the agreement is one common to both or all parties wherein each labors under the same misconception respecting a material fact, the terms of the agreement, or the provisionofawrittenagreementdesignedtoembodysuchanagreement.”)Oneparty’s knowledge of the other’s mistake is the equivalent of a mutual mistake. The party seeking reformation must not have been negligent. Clarke v. Salyersville National Bank, 86 S.W.2d 674 (Ky. 1935).

3. [4.237] Quantum of Proof

The mistake giving rise to the reformation of an instrument must be demonstrated by clear and convincing evidence. Spratt v. Carroll, 399 S.W.2d 291, 293 (Ky. 1966); Sroka-Calvert v. Watkins, 971 S.W.2d 823, 829-30 (Ky. Ct. App. 1998). In weighing the proof to determine whether the mistake was demonstrated by clear and convincing evidence, the court considers “the character of the testi-mony, the coherency of the entire case, and the documents, circumstances, and facts whichareproven.”Byerly Motors, Inc. v. Phillips Petroleum Co., 346 S.W.2d 762, 765 (Ky. 1961). In addition, the written instrument itself is accorded great weight. Spratt v. Carroll, 399 S.W.2d 291, 292 (Ky. 1966).

4. [4.238] Bona Fide Purchasers

An instrument will not be reformed where to do so would prejudice the rightsofabonafidepurchaserforvaluewhotookundertheinstrumentwithoutnotice of the mistake. Nichols v. Zurich Am. Ins. Co., 423 S.W.3d 698, 706 (Ky. 2014) (instrument will not be reformed where to do so will prejudice the interven-ing rights of third parties); Althaus v. Bassett, 245 S.W.2d 943, 944 (Ky. 1952).

B. [4.239] Rescission

The equitable remedy of rescission terminates a contract, discharges the parties obligations under the agreement, and purports to place the parties in the positions they occupied immediately prior to entering into the contract. Fay E. Sams Money Purchase Pension Plan v. Jansen, 3 S.W.3d 753, 760 (Ky. Ct. App. 1999) (effectofrescission“isnotonlytoterminateit,buttoabrogateitandundoitfromthebeginning”).Acontractmustberescinded“intoto.”Grigsby v. Draughn, 88 S.W.2d 964, 966 (Ky. 1935). Rescission is not lightly granted. Evergreen Land Co. v. Gatti, 554 S.W.2d 862, 865 (Ky. 1977). Moreover, rescission is not available for the purpose of relieving a party of the consequences of a bad bargain. Farmers’ Trust Co. of Harrodsburg v. Threlkeld’s Administratrix, 77 S.W.2d 616, 620 (Ky. 1934).

1. [4.240] Grounds for Rescission

Kentucky law recognizes four principal bases for rescinding contracts.

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a. [4.241] Breach or Default in Performance

A contract may be rescinded where “one party fails to perform a mutual ordependentcovenantwhichwasaconditionoftheagreementorconveyance.”Schmidt v. Schmidt, 343 S.W.2d 817, 819 (Ky. 1961). Thus, a contract may be rescinded in the event of a substantial and material breach or nonperformance. Evergreen Land Co. v. Gatti, 554 S.W.2d 862, 865 (Ky. Ct. App. 1977). A slight or casual breach will not give rise to an action for rescission. Leonard Lumber Co. v. Reed, 236 S.W.2d 961, 962 (Ky. 1951). A breach resulting in a complete forfei-ture will support rescission. Hill v. Parks, 627 S.W.2d 36, 38 (Ky. Ct. App. 1981).

Even in the case of a substantial breach, rescission is not appropriate unless the parties’ former status can be substantially restored. C.C. Leonard Lumber Co. v. Reed, 236 S.W.2d 961, 962 (Ky. 1951). Absolute and literal restoration is not required. Black Motor Co. v. Green, 79 S.W.2d 409, 411 (Ky. 1934). Rather, “it is‘sufficientifsuchrestorationbemadeasisreasonablypossibleandsuchasthemeritsofthecasedemand.’”Id. (Property must be returned in as good or substan-tially as good of condition as when it was received.). Rescission also is unavailable in the case of a substantial breach where the party seeking rescission was at fault in bringing about the breach upon which rescission is premised. Schmidt v. Schmidt, 343 S.W.2d 817, 819 (Ky. 1961).

b. [4.242] Failure of Consideration

Rescission ordinarily will be granted where there is a “substantial failure ofconsideration.”O.P. Link Handle Co. v. Wright, 429 S.W.2d 842, 845 (Ky. 1968) (rescission of contract to purchase standing timber where most of the timber on the subject land was already sold).

c. [4.243] Unilateral Mistake

A contract may be rescinded for unilateral mistake if the following ele-ments are demonstrated:

1. the consequences of the mistake must be so grave that en-forcement of the contract would be uncon scionable;

2. the mistake must relate to a material feature of the contract;

3. the mistaken party must have exercised ordinary diligence; and

4. rescission must not seriously prejudice either party.

Jones v. White Sulphur Springs Farm, Inc., 605 S.W.2d 38, 43 (Ky. Ct. App. 1980).

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d. [4.244] Fraud

A contract may be rescinded where it was procured through fraudulent misrepresentations. Webb v. Tri-State Fair & Racing Assoc., 36 S.W.2d 839, 840 (Ky. 1931); Grant v. Wrona, 662 S.W.2d 227, 230-31 (Ky. Ct. App. 1983). A party seeking to rescind a contract for fraud must act seasonably to rescind the contract upon learning the true facts. Dolle v. Melrose Properties, 67 S.W.2d 706, 710 (Ky.1934).Failuretodosoleavestheplaintiffwithonlyanactionfordamages.National Life Co. v. Wilkerson’s Administrator, 71 S.W.2d 1034, 1037 (Ky. 1934).

A party seeking to rescind a contract for fraud must promptly tender or deliveranybenefitreceivedunder thecontract.Estate of Adams v. Trover, 547 S.W.3d 545, 552 (Ky. Ct. App. 2018); Grant v. Wrona, 662 S.W.2d 227, 230-31 (Ky. 1983).

2. [4.245] Notice

A condition precedent to an action to rescind a contract is timely notice of intent to rescind. Id. The notice must be given within a reasonable time after the transaction giving rise to the claim for rescission. Id.

XVIII. [4.246] Administrative Review

A more detailed review of judicial relief from administrative decisions is available at Mark R. Overstreet, The Final Order, Record and Judicial Review of Administrative Decisions,KentuckyAdministrativeLaw (UK/CLE 2d ed. 2006).

A. [4.247] IntheAbsenceofaSpecificStatutoryGrant


Kentucky appellate opinions addressing judicial review of the decisions of administrative bodies are not on their face easily reconcilable. One line of cases declares that “[t]here is no appeal to the courts from an action of an administrative agencyasamatterofright.”Board of Adjustments v. Flood, 581 S.W.2d 1, 2 (Ky. 1978); Our Lady of the Woods, Inc. v. Kentucky Health Facilities and Health Ser-vices Certificate of Need and Licensure Board, 655 S.W.2d 14, 16 (Ky. Ct. App. 1982). A second line of cases holds the opposite: “It is the inherent power of the courtstoscrutinizetheactsofadministrativetribunals.”Kendall v. Beiling, 175 S.W.2d 489, 491 (Ky. 1943); accord City of Covington v. Tranter, 673 S.W.2d 744, 747 (Ky. Ct. App. 1984) (“the right…to resort to the court is implicit in Section 14 oftheKentuckyConstitution”).

The cases declaring that there is no inherent right of appeal typically arise in connection with statutorily granted appeals from administrative agencies that

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were dismissed by the trial court for failure to comply with the statutory procedure. Thus,despitethecourts’broadlanguage,theholdingsinthefirstlineofcasesaremore properly and narrowly read to mean that where a statutory right of appeal exists,thereisgenerallynoseparateandadditional“commonlaw”righttoreviewavailable to remedy a failure to follow the statutory procedure. See Greater Cin-cinnati Marine Service, Inc. v. City of Ludlow, 602 S.W.2d 427 (Ky. 1980). The courts’ inherent right of review has been addressed (by the statutory mechanism of appeal), and the failure to follow the statutorily prescribed procedure simply leaves the litigant without an appeal in that case. Cf. Board of Adjustments v. Flood, 581 S.W.2d 1, 2 (Ky. 1978) (“where the conditions for the exercise of power by a court arenotmet,thejudicialpowerisnotlawfullyinvoked”).Thelossofreviewforfailure to follow the statutorily prescribed procedure is no more of an abolition of judicial review than is a dismissal of an appeal to the court of appeals for failure tofileatimelynoticeofappeal.

2. [4.249] Areas of Non-Statutory Right to Judicial Review of Administrative Decisions

Even if the above interpretation is erroneous, it is indisputable that judicial review of administrative decisions is available in at least three broad areas despite the absence of a statutory procedure:

• decisions wholly dependent upon a question of law. Foster v. Goodpaster, 161 S.W.2d 626, 627 (Ky. 1942);

• “clearlyarbitraryandcapriciousdecisions.”Hatch v. Fis-cal Court, 242 S.W.2d 1018, 1031 (Ky. 1951); and

• decisions wholly unsupported by the evidence. Foster v. Goodpaster, 161 S.W.2d 626, 627 (Ky. 1942).

B. [4.250] Review Pursuant to a Statute

Where the Kentucky General Assembly has prescribed a procedure for review of administrative decisions, the failure to comply strictly leaves the court without subject matter jurisdiction. Kentucky Utilities Co. v. Farmers Rural Electric Cooperative Corp., 361 S.W.2d 300, 301 (Ky. 1962). An appeal from an adminis-trativeagencytothecircuitcourtisan“originalaction”(KRS23A.010),therebypermitting further review as a matter of right by the court of appeals. Sarver v. County of Allen, 582 S.W.2d 40, 43 (Ky. 1979).

In 1994, the Kentucky General Assembly enacted the “Albert Jones Act of1994,”whichiscodifiedatChapter13BoftheKentuckyRevisedStatutes.1994Ky. Acts 382. Intended as a state administrative procedure act, it governs proceed-ings before and appeals from many state administrative bodies. The provisions providing for review of decisions by state administrative agencies can be found at KRS 13B.140-13B.160.

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XIX. [4.251] Bibliography

A. [4.252] Declaratory Judgments

Annotation, Availability and Scope of Declaratory Judgment Actions in Determining Rights of Parties, or Powers and Exercise Thereof by Arbitrators, Under Arbitration Agreements, 12 ALR 3d 854 (1967).

Annotation, Declaratory Judgment, During Lifetime of Spouses, as to Construction of Antenuptial Agreement Dealing with Property Rights of Survivor, 80 ALR 2d 941 (1961).

Annotation, Issue as to Negligence as a Proper Subject of Declaratory Judgment Action, 28 ALR 2d 957 (1953).

Annotation, Partnership or Joint-Venture Matters as Subject of Declar-atory Judgment, 32 ALR 2d 970 (1953).

Annotation, Tax Questions as Proper Subject of Action for Declaratory Judgment, 11 ALR 2d 359 (1950).

Annotation, Validity. Construction and Application of Criminal Statutes or Ordinances as Proper Subjects for Declaratory Judgment, 10 ALR 3d 727 (1966).

Donald L. Doernberg & Michael B. Mushlin, The Trojan Horse: How the Declaratory Judgment Act Created a Cause of Action While the Supreme Court Wasn’t Looking, 36 UCLAL.Rev.529 (1989).

Dianne K. Ericsson, Declaratory Judgment: Is it a Real or Illusory Solu-tion?, 23 Tort&Ins.L.J. 161 (1987).

David A. Barrett, Declaratory Judgments for Libel: A Better Alternative, 74 Cal.L.Rev. 847 (1986).

B. [4.253] Writs of Mandamus and Prohibition

Annotation, Mandamus, Prohibition, or Interlocutory Appeal as Proper Remedy to Seek Review of District Court’s Disposition of Motion for Change of Venue Under § 1404(a) or § 1406(a) of Judicial Code, 28 ALRFed2d 311 (2008).

Annotation, Mandamus Under 28 U.S.C.A. § 1361, to Obtain Change in Prison Conditions or Release of Federal Prisoner, 86 ALR 5th 397 (2001).

Annotation, Allowance of Attorneys’ Fees in Mandamus Proceedings, 34 ALR 4th 457 (1984).

Annotation, Availability of Mandamus or Prohibition to Compel or Prevent Discovery Proceedings, 95 ALR 2d 1229 (1964).

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Annotation, Construction and Application of 28 U.S.C.S. § 1361 Con-ferring on Federal District Courts Original Jurisdiction of Actions in Nature of Mandamus to Compel Federal Officer, Employee, or Agency to Perform Duty Owed Plaintiff, 13 ALRFed. 145 (1972).

Annotation, Mandamus as a Remedy to Compel Disqualification of Fed-eral Judge, 56 ALR Fed. 494 (1987).

Annotation, Judgment Granting or Denying Writ of Mandamus or Pro-hibition as Res Judicata, 21 ALR 3d 206 (1968).

Annotation, Prohibition or Mandamus as Appropriate Remedy to Review Ruling on Change of Venue in Civil Case, 93 ALR 2d 802 (1964).

Annotation, Stay or Supersedeas on Appellate Review in Mandamus Proceeding, 88 ALR 2d 420 (1963).

Annotation, Summary Judgment in Mandamus or Prohibition Cases, 3 ALR 3d 675 (1965).

C. [4.254] Compensatory and Punitive Damages

Annotation, Constitutional Issues Concerning Punitive Damages – Su-preme Court Cases 1 ALR Fed. 529 (2005).

Annotation, Excessiveness or Adequacy of Damages for Wrongful Termi-nation of At-Will-Employees Under State Law, 86 ALR 5th 397 (2001).

Annotation, Punitive Damages in Actions for Violation of Title VII of Civil Rights of 1964, 150 ALR Fed. 601 (1998).

Annotation, Allowance of Punitive Damages in Medical Malpractice Action, 35 ALR 5th 145 (1996).

Annotation, Intoxication of Automobile Driver As Basis for Awarding Punitive Damages, 33 ALR 5th 303 (1995).

Annotation, Effect of Plaintiff’s Comparative Negligence in Reducing Punitive Damages Recoverable, 27 ALR 4th 318 (1984).

Annotation, Excessiveness or Inadequacy of Punitive Damages Awarded in Personal Injury or Death Cases, 12 ALR 5th 195 (1993).

Annotation, Excessiveness or Inadequacy of Punitive Damages in Cases Not Involving Personal Injury or Death, 14 ALR 5th 242 (1993).

Annotation, Punitive Damages: Relationship to Defendant’s Wealth as Factor in Determining Propriety of Award, 87 ALR 4th 141 (1991).

Annotation, Allowance of Punitive Damages in Products Liability Case, 13 ALR 4th 52 (1982).

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Annotation, Standard of Proof as to Conduct Underlying Punitive Dam-ages Award – Modern Status, 58 ALR 4th 878 (1987).

Annotation, Sufficiency of Showing of Actual Damages to Support Award or Punitive Damages – Modern Cases, 40 ALR 4th 11 (1985).

Annotation, Action or Claim for Punitive Damages As Surviving Death of Person Wronged, 30 ALR 4th 707 (1984).

Annotation, Recovery of Exemplary or Punitive Damages from Municipal Corporation, 1 ALR 4th 448 (1996).

Charles William Burton, Comment, Punishing the Dead: Whether the Estates of Dead Tortfeasors Should Be Responsible for Punitive Damages, 12 U. Ark.LittleRockL.J. 283 (1989-90).

Frank J. Cavico, Jr., Punitive Damages for Breach of Contract – A Prin-cipled Approach, 22St.Mary’sL.J. 357 (1990).

Stephen Daniels & Joanne Martin, Myth and Reality in Punitive Damages, 75Minn.L.Rev. 1 (1990).

Leslie E. John, Comment, Formulating Standards for Awards of Punitive Damages in the Borderland of Tort and Contract, 74 Cal.L.Rev. 2033 (1986).

Arlen W. Langvardt, A Principled Approach to Compensatory Damages in Corporate Defamation Cases, 27 Am.Bus.L.J. 491 (1990).

Barry Levenstam & Daniel Lynch, Punitive Damage Awards Against Successor Corporations: Deterrent of Malicious Torts or Legitimate Acquisitions, 26 Tort&Ins.L.J. 27 (1990).

Mark Pennington, Punitive Damages for Breach of Contract: A Core Sample from the Decisions of the Last Ten Years, 42 Ark.L.Rev. 31 (1989).

D. [4.255] Liquidated Damages

JamesArthurWeisfield,Note,“Keep the Change!:” A Critique to the No Actual Injury Defense to Liquidated Damages, 65 Wash.L.Rev. 977 (1990).

JeffreyB.Coopersmith,Comment,Refocusing Liquidated Damages Law for Real Estate Contracts: Returning to the Historical Roots of the Penalty Doctrine, 39 Emory L.J. 267 (1990).

Sheak & Korzun, Liquidated Damages and the Surety: Are They Defen-sible, 9 Construction 19 (1989).

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E. [4.256] Receivers

Annotation, Law Governing Appointment of Receiver in Federal Diversity Action, 44 ALRFed.2d 241 (2010).

Annotation, Appealability of Order Appointing or Refusing to Appoint. Receiver, 72 ALR 1009 (1960).

Annotation, Appealablity of Order Discharging, or Vacating Appointment of, or Refusing to Discharge, or Vacate Appointment of Receiver, 72 ALR 2d 1075 (1960).

Annotation, Propriety of Appointing Receiver at Behest of Mortgagee to Manage or Operate Property During Foreclosure Action, 82 ALR 2d 1075 (1962).

Bruce J. Bergman, Appointing and Paying Receivers in the Mortgage Foreclosure Action, 62 N.Y. St. B.J. 34 (1990).

Paula Whitney Best, Note, Corporate Receiverships and Chapter 11 Reorganizations, 10 CardozoL.Rev. 285 (1988).

F. [4.257] Contempt

Annotation, Holding Jurors in Contempt Under State Law, 93 ALR 5th 145 (2001).

Annotation, Profane or Obscene Language by Party, Witness, or Observer During Trial Proceedings as Basis for Contempt Citation, 29 ALR 5th 702 (1995).

Annotation, Attacks on Judiciary as a Whole as Indirect Contempt, 40 ALR 3d 1204 (1971).

Annotation, Contempt Proceedings as Violating Procedural Due Process – Supreme Court Cases, 39L.Ed. 2d 1031 (1973).

Annotation, Exercise of Federal Court’s Power to Punish for Contempt Committed in Actual Presence of Court, 3 L.Ed. 2d 1855 (1959).

Annotation, Right to Counsel in Contempt Proceedings, 52 ALR 3d 1002 (1973).

Annotation, Allowance of Attorneys’ Fees in Civil Contempt Proceedings, 43 ALR 3d 793 (1972).

Annotation, Defense of Entrapment in Contempt Proceedings, 35 ALR 3d 418 (1972).

Teresa S. Hanger, Note, The Modern Status of Rules Permitting a Judge to Punish Direct Contempt Summarily, 28Wm.&MaryL.Rev. 553 (1987).

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Ronald J. Rychlak, Direct Criminal Contempt and the Trial Attorney: Constitutional Limitations on the Contempt Power, 14Am.J.TrialAdvoc.243 (1990).

Louis S. Raveson, Advocacy and Contempt: Constitutional Limitations on the Judicial Contempt Power – Part One: The Conflict Between Advocacy and Contempt, 65 Wash.L.Rev. 477 (1990).

Louis S. Raveson, Advocacy and Contempt – Part Two: Charting the Boundaries of Contempt: Ensuring Adequate Breathing Room for Advocacy, 65 Wash.L.Rev. 743 (1990).

G. [4.258] SpecificPerformance

Annotation, Illegality as Basis for Denying Remedy of Specific Perfor-mance for Breach of Contract, 58 ALR 5th 387 (1998).

Annotation, Change of Conditions After Execution of Contract or Option for Sale of Real Property as Affecting Right to Specific Performance, 11 ALR 2d 390 (1950).

Annotation, Special or Consequential Damages Recoverable. on Account of Delay in Delivering Possession By Purchaser of Real Property Awarded Specific Performance, 11 ALR 4th 891 (1982).

Annotation, Specific Performance of Agreement to Lend or Borrow Money, 82 ALR 3d 1116 (1978).

Annotation, Specific Performance of Compromise and Settlement Agree-ment, 48 ALR 2d 1211 (1956).

Annotation, Specific Performance of Sale of Goods Under U.C.C. § 2-716, 26 ALR 4th 294 (1983).

Arthur S. Leonard, Specific Performance of Collective Bargaining Agree-ment, 52 FordhamL.Rev. 193 (1983).

Timothy J. Muris, Comment, The Costs of Freely Granting Specific Per-formance, 1982 Duke L.J. 1053 (1982).

H. [4.259] Restitution and Restitutionary Remedies

Annotation, Equitable Estoppel of Secured Party’s Right to Assert Prior, Perfected Security Interest Against Other Secured Creditor or Subsequent Purchaser Under Article 9 of Uniform Commercial Code, 9 ALR 5th 708 (1993).

Joel Eichengrun, Remedying the Remedy of Accounting, 60 Ind. L.J. 463, 473 (1985).

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Annotation, Availability of Equitable Remedy of Accounting Between Principal and Agent, 3 ALR 2d 1310 (1949).

Annotation, Recovery on Theory of Quasi Contract, Unjust Enrichment, or Restitution of Money Paid In Reliance Upon Unenforceable Promise to Accept Bill of Exchange or Draft, 81 ALR 2d 587 (1962).

Annotation, When Statute of Limitations Starts to Run Against Enforcement of Constructive Trust, 55 ALR 2d 220 (1957).

Annotation, When Statute of Limitations Starts to Run on Right of Part-nership Accounting, 44 ALR 4th 678(1986).

Thomas C. Galligan, Jr., Extra Work in Construction Cases: Restitution, Relationship and Revision, 63 Tul.L.Rev. 799 (1989).

Douglas Laycock, The Scope and Significance of Restitution, 67 Tex.L.Rev. 1277 (1989).

Saul Levmore, Explaining Restitution, 71 Va.L.Rev. 65 (1985).

Timothy J. Sullivan, The Concept of Benefit in the Law of Quasi-Contract, 64 Geo. L.J. 1 (1975).

5-1

Prejudgment Remedies


5

PREJUDGMENT REMEDIES

JOHN T. McGARVEY MELINDA T. SUNDERLANDMorgan Pottinger McGarvey PSC


5-2


5-3


I. [5.1] Introduction .........................................................................5-7

II. [5.2] Writ of Possession ...............................................................5-7A. [5.3] Generally .................................................................5-7B. [5.4] Procedure to Obtain Writ of Possession .................5-8

1. [5.5] Filing ........................................................5-82. [5.6] MotionandAffidavitor

VerifiedMotion ........................................5-83. [5.7] Due Process – Notice and

Demand ....................................................5-9a. [5.8] Notice and Service ...................5-10

i. [5.9] Service by Mail ............................5-10

ii. [5.10] Documents Served ........................5-10

b. [5.11] Required Contents of Notice ...................................5-10

i. [5.12] Generally ...................5-10ii. [5.13] Time for

Response ....................5-11iii. [5.14] Local Rules ................5-11

C. [5.15] Issuance of the Writ of Possession ........................5-11D. [5.16] LevybySheriffandExecutionofWrit .................5-12

1. [5.17] Dwellings ...............................................5-122. [5.18] 10-Day Waiting Period ...........................5-123. [5.19] Storage of Property .................................5-13

a. [5.20] Immovable Property .................5-13b. [5.21] Perishable Property ..................5-13

4. [5.22] Securing the Property .............................5-135. [5.23] Immediate Surrender to the

Plaintiff ...................................................5-146. [5.24] Return of Writ .........................................5-147. [5.25] Delivery of Copy of Writ........................5-148. [5.26] Levy in Another County .........................5-14

E. [5.27] Plaintiff’sBond .....................................................5-141. [5.28] Amount ...................................................5-152. [5.29] Required Statement ................................5-153. [5.30] Damages .................................................5-154. [5.31] Sureties;Exceptionto

Requirement ...........................................5-15F. [5.32] Defendant’sBond .................................................5-15

1. [5.33] Amount ...................................................5-162. [5.34] Required Statement: Damages ..............5-16

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3. [5.35] Notice of Bond .......................................5-16G. [5.36] ExceptionstoSureties ...........................................5-16

1. [5.37] Appearance by Surety ............................5-162. [5.38] Retention of Property by

Sheriff .....................................................5-17H. [5.39] Special Procedures Available Under

the Writ of Possession Statute ...............................5-171. [5.40] Ex Parte Writs ........................................5-17

a. [5.41] Requirements ...........................5-17b. [5.42] Other Requirements Not

Waived .....................................5-17c. [5.43] Limitations on

Ex Parte Relief .........................5-18d. [5.44] Issued by Judicial

Officer ......................................5-182. [5.45] Endorsing a Writ of Possession ..............5-183. [5.46] Order Transferring Possession ...............5-194. [5.47] Procedure When the

Property Sought Cannot Be Located ..............................................5-19

I. [5.48] Defending Writ of Possession Actions .................5-191. [5.49] Strict Compliance with

Statutes ...................................................5-192. [5.50] Request for Hearing................................5-193. [5.51] Standard of Proof....................................5-194. [5.52] EffectofFailuretoPrevent

Writ .........................................................5-205. [5.53] Lack of Notice; Motions to

Quash ......................................................5-206. [5.54] Bond .......................................................5-207. [5.55] Venue ......................................................5-20

III. [5.56] Temporary Restraining Orders Under KRS Chapter 425 ..............................................................5-20

A. [5.57] Use ........................................................................5-21B. [5.58] Farm Products and Inventory ................................5-21C. [5.59] Restrictions on Ordinary Property ........................5-21D. [5.60] Required Statement ...............................................5-21E. [5.61] Scope of Order ......................................................5-21F. [5.62] TRO Following Request for Ex Parte

Writ .......................................................................5-22G. [5.63] Hearings ................................................................5-22

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IV. [5.64] Attachments .......................................................................5-22A. [5.65] Generally ...............................................................5-22

1. [5.66] Variety of Attachment Remedies ................................................5-22

2. [5.67] Proper Defendants ..................................5-223. [5.68] Attachment to Secure

Liquidated Debt ......................................5-234. [5.69] Unmatured Obligations ..........................5-235. [5.70] SpecificityofPleadings ..........................5-24

B. [5.71] Due Process Requirements – Notice and Demand ..........................................................5-24

1. [5.72] Notice .....................................................5-24a. [5.73] Service by Mail ........................5-24b. [5.74] Local Rules ..............................5-24

2. [5.75] Required Contents of the Notice and Demand ................................5-25

a. [5.76] Generally ..................................5-25b. [5.77] Required Statement ..................5-25

C. [5.78] Motion for Attachment .........................................5-25D. [5.79] Issuance of the Attachment ...................................5-25E. [5.80] Attachment Bonds ................................................5-26

1. [5.81] Compared to Bond Requirements in Writ Actions ................5-26

2. [5.82] Defendant’sBonds .................................5-263. [5.83] No “Magic Words” .................................5-264. [5.84] SuretiesandExceptions..........................5-26

F. [5.85] Ex Parte Relief .....................................................5-27G. [5.86] Venue ....................................................................5-27H. [5.87] Attachment Against Real Estate ...........................5-27I. [5.88] Defending the Attachment Suit .............................5-27

1. [5.89] Motions to Release Attachments ............................................5-28

2. [5.90] Strict Compliance ...................................5-283. [5.91] Defendant’sBonds .................................5-28

V. [5.92] Constitutional Considerations in Prejudgment Remedy Practice ........................................5-28

VI. [5.93] Appendix ............................................................................5-31A. [5.94] VerifiedMotionforWritof

Possession and Order Transferring Possession .............................................................5-31

B. [5.95] Notice and Demand ..............................................5-34C. [5.96] AffidavitofCompliancewith

KRS 425.012 .........................................................5-36

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D. [5.97] Writ of Possession.................................................5-38E. [5.98] Order Transferring Possession ..............................5-39F. [5.99] Bond on Writ of Possession and

Order Transferring Possession ..............................5-41G. [5.100] Bond on Writ of Possession ..................................5-43H. [5.101] VerifiedMotionforWritofPossession

and Temporary Restraining Order ........................5-45I. [5.102] Temporary Restraining Order ...............................5-49J. [5.103] Bond on Writ of Possession and

Temporary Restraining Order ...............................5-52K. [5.104] VerifiedMotionforAttachment ............................5-54L. [5.105] Notice and Demand (Attachment)

Letter .....................................................................5-55M. [5.106] Notice of Action (Attachment) .............................5-56N. [5.107] Writ of Attachment ...............................................5-57O. [5.108] Bond for Attachment .............................................5-58P. [5.109] AffidavitofCompliance(Attachment) .................5-60

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Prejudgment collection and recovery remedies in Kentucky are known asprovisional remediesandare located inChapter425ofKentucky’sRevisedStatutes. In 1976, the Kentucky General Assembly enacted two separate remedies, the writ of possession and the attachment, as a legislative response to decisions of the United States Supreme Court mandating due process rights for defendants in prejudgment seizure actions. 1976 Ky. Acts ch. 91 § 22. The attachment remedy retaineditsname;however,Kentucky’sformerorderofdeliverybecameawritofpossession. Substantive amendments were enacted in 1984 to enhance due process protections for defendants in both writ of possession and attachment actions and in order to make the writ of possession remedy more utilitarian for use in commercial cases. 1984 Ky. Acts ch. 150 § 4. The most recent amendments to Chapter 425 were to conform internal statutory references to Revised Article 9 of the Uniform Commercial Code. 2000 Ky. Acts ch. 408 § 185.

II. [5.2] Writ of Possession

The writ of possession remedy is primarily used by secured creditors when self-help repossession cannot be obtained. Owens v. First Commonwealth Bank of Prestonsburg, Kentucky, 706 S.W.2d 414 (Ky. Ct. App. 1985). A plain-tiff’sdecisiontoseekpossessionofpropertythroughawritofpossessiondoesnot constitute an election of remedies under KRS 355.9-601 (formerly 9-501). Theplaintiffisentitledtopursuethesimultaneousremediesofpossessionofthecollateral and the monetary balance due on the obligation for which the property serves as collateral. Glamorgan Coal Corp. v. Bowen, 742 F. Supp. 308 (W.D. Va. 1990); Ingersoll-Rand Financial Corporation v. Electro Coal, Inc., 496 F. Supp. 1289 (E.D. Ky. 1980); Bank One Akron, NA v. Nobil, 610 N.E.2d 538 (Ohio Ct. App. 1992); contra Coones v. Federal Deposit Ins. Corp., 848 P.2d 783 (Wyo. 1993). A pending writ of possession action does not prevent private action through self-help repossession pursuant to KRS 355.9-609. Headspath v. Mercedes-Benz Credit Corp., 709 A.2d 717 (D.C. 1998) (citing original Article 9-503); see also OfficialComment5toRevisedArticle9-601(regardingcumulativeremedies).

A. [5.3] Generally

Both the writ of possession and the attachment suit seek possession of spe-cificpersonalproperty.However,thewritofpossessionisdirectedtowardpropertyinwhichtheplaintiffholdsanownershiporsecurityinterestorwhichconstitutestheproceedsofpropertyinwhichtheplaintiffheldasecurityinterest.See KRS 355.9-315 (as to traceable proceeds). The security interest in the subject property must be valid; however, it need not be properly perfected to proceed with a writ of possession. Nevertheless, proceeds from the disposition of property obtained through a writ of possession remain subject to the statutes governing priority.

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Attachment is a remedy for collection of an ordinary debt that is not se-curedbyanypropertyandactsthroughseizureofthedebtor’sassetsunderlegalprocess. Placer Coal, Inc. v. Rhondale Coal Services, 684 S.W.2d 25 (Ky. Ct. App. 1984). Attachment is discussed in detail in Sections [5.64] through [5.91], infra.

B. [5.4] Procedure to Obtain Writ of Possession

1. [5.5] Filing

Amotionforawritofpossessionisproperonlyafterthecomplaintisfiledandpriortofinaljudgment.KRS425.011(1).Itcanbefiledsimultaneouslywiththe complaint, though. The post-judgment counterpart of the writ of possession is ajudgmentgrantingspecificpossessionofpersonalproperty.See KRS 426.295 & 426.300 (for post-judgment possessory remedies).

2. [5.6] MotionandAffidavitorVerifiedMotion

Theplaintiffseekingawritofpossessionmaydosothroughamotionandaffidavitorproceedthroughaverifiedmotion.See Section [5.94], infra, for a sampleverifiedmotionforwritofpossessionandordertransferringpossession.TheaffidavitorverifiedmotionmustmeettheveryspecificrequirementsofKRS425.011(2). The following factual evidence must be presented to the court under oath:

a. Theplaintiffmustshowthebasisoftheclaimthatentitlestheplaintifftopossessionof thepropertysought throughthe writ. If the claim is made based on a written instrument, such as a security agreement, a copy of the instrument shouldbeattachedasanexhibittothemotionoraffidavitand incorporated by reference.

b. Factual evidence must show that the property sought is wrongfully detained by the defendant, how the defendant obtained possession of the property and, according to the plaintiff’sbestknowledge,information,andbelief,whythedefendantisdetainingtheproperty.Iftheplaintiffobtainedits security interest after the debtor acquired the proper-ty, the only alternative may be to state that the defendant owned the property at the time the security interest was granted, and has held the property at all times since, sub-jecttotheplaintiff’ssecurityinterest.Often,thereasonfordetention is merely that the defendant continues to have the beneficialuseandenjoymentoftheproperty.

c. A particular description of the property to be seized and a statement of its value must be given to the court. The

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valueofthepropertyasstatedbytheplaintiffisthebasisupon which the amount of the required bond will be deter-mined.Thevalueshouldbesufficientlyhighthatitcannotbechallengedincourtbutsufficientlylowthatitdoesnotresult inanexcessivebondpremium.Adebtor’sdefenseto adeficiency judgmentmaybebasedon theplaintiff’sstatement of value as opposed to the amount the property brought at repossession sale. As originally enacted, the re-quirement for a “particular description” was open to inter-pretation. However, the 1984 amendments to Chapter 425 adopted the description requirements of the Uniform Com-mercial Code (KRS 355.9-108) as the legal standard for the description under Chapter 425. Where multiple items of property are sought through a writ of possession, the statement of value may relate to the whole of the property and is not required for each individual item.

d. Becauseitmaybenecessaryforasherifftoenterprivatepropertytolevythewritofpossession,theplaintiffmuststate, to its “best knowledge, information, and belief,” the locationof theproperty.Theplaintiffmustprovidesuffi-cient facts to show there is probable cause to believe the property is located there. If the location of the property “is within a private place which may have to be entered,” the plaintiffmustshowthatthereis“probablecausetobelievesuch property is located there.”

e. Theaffidavitorverifiedmotionmustalsocontainthestatu-torily required statement that “[T]he property has not been takenforataxassessment,orfine,pursuanttoastatute;orseizedunderanexecutionagainstthepropertyoftheplain-tiff,orifsoseized,thatitisbystatuteexemptfromsuchseizure.” KRS 425.011(2)(e).

3. [5.7] Due Process – Notice and Demand

Prior to various decisions of the United States Supreme Court (discussed in Section [5.92], infra),itwaspossibleforaplaintifftoobtainareplevinorderinwhat was known as a “claim and delivery” or “order of delivery” action without prior notice to the defendant. Following the decision in Fuentes v. Shevin, 407 U.S. 67 (1972), and Thompson v. Kessee, 375 F. Supp. 195 (E.D. Ky. 1974) (the Thompson courtaddressedtheKentuckystatutespecifically),theKentuckyGeneralAssemblyenacted the current statutes on prejudgment remedies. The primary thrust of these statutes is to provide a defendant with meaningful notice and an opportunity to be heard before property is taken through the power and force of the government. KRS 425.012. See Section [5.95], infra, for a sample notice and demand.

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a. [5.8] Notice and Service

Notice must be timely. A writ of possession may not be issued less than seven(7)daysnormorethansixty(60)daysafternoticehasbeenservedonthedefendant or mailed to the defendant. Notice and other required papers may be served in the manner set out in Kentucky Rule of Civil Procedure (“Civil Rule” or “CR”) 4, personally served by any person entitled to serve a subpoena or sent byregisteredorcertifiedmailtothedefendant’slastknownplaceofresidence.CR 69.01.

The reason for the less restrictive service requirements for prejudgment remedies is to ensure that the defendant has notice of the proceeding. Technical service requirements might inhibit quick receipt of notice of a proceeding where time isof theessence.There isnocase lawonwhetherfinal judgmentcanbeobtained through service under Civil Rule 69.01; however, KentuckyPractice asserts that service under Civil Rule 69.01 can be the basis for a personal judgment. 7 Ky.Prac.R.Civ.Prac.Ann.R. 69.01 (6th ed. 2005).

i. [5.9] Service by Mail

Servicebymail,eithercertifiedorregistered,shouldnot require personal service on the defendant (e.g., restricted delivery) but only a return receipt. This isdifferentfromtherequirementunderCivilRule4.Becausethenoticeprovisionis statutory (Civil Rule 6.05), the required three (3) additional days when service is by mail should not apply.

ii. [5.10] Documents Served

The defendant must be served with: a summons; notice and demand; complaint;motionandaffidavitorverifiedmotion;andacopyofanyinstrumentuponwhichtheplaintiffbasesitsclaimforpossession.KRS425.012(1).

b. [5.11] Required Contents of Notice

i. [5.12] Generally

The notice must identify the court in which the lawsuit is pending, the groundsonwhichtheplaintiffbasesitsmotionforawrit,thedateofthenoticeanddemand,theamountofmoneyclaimedduetheplaintiff,andthenameandaddressof theplaintiffand its counsel.See Section [5.95], infra, for a sample notice and demand.

ii. [5.13] Time for Response

The notice should open with a statement that the debtor has seven (7) days fromthedateofthedemandtopetitionthecourtforahearingontheplaintiff’s

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motion for a writ of possession. Or, in cases where the writ is based on a security interestheldbytheplaintiff,thenoticeshouldstatethatthedebtorhasseven(7)daystopaytheamountclaimedintheplaintiff’scomplaint.Thedefendantshouldadditionally be informed that if a hearing is not requested, or the amount claimed not paid, the writ of possession will automatically be issued. The notice should include information from which the defendant can calculate the time in which to request a hearing. If the notice is served by mail, it should specify the date it is mailed as the date of the notice. If the notice is personally served, it should specify the date of service as the date of notice.

iii. [5.14] Local Rules

Theplaintiff’sattorneyshouldchecklocalrulesofcourtforanyadditionalspecificrequirementsofnoticeinprejudgmentproceedings.Forexample,JeffersonCircuitCourtRule511Dsetsoutspecificrequirementsfornoticeanddemandinadditiontotherequirementsofthestatute.ThelocalruleinJeffersonCounty,inthesettingofalargercourt,makesthenoticemoremeaningfulbyexplaininghowthe defendant may obtain a hearing.

C. [5.15] Issuance of the Writ of Possession

Ifthedefendanthasnotrequestedahearingandtheplaintifforplaintiff’scounselhastenderedanaffidavitevidencingcompliancewiththenoticerequire-ments of KRS 425.012, the statute provides that the clerk shall issue the writ of possession. See Section [5.96], infra,forasampleaffidavitofcompliancewithKRS425.012.TheKentuckyAttorneyGeneralhasaffirmedtheclerk’spowertoissuea writ of possession. See 1980-1981 Ky. Op. Atty. Gen. 2-174, Ky. OAG 80-235; see also Section [5.97], infra, for a sample writ of possession. The writ must meet the following requirements:

1. Thewritmustbedirectedtothesheriff.KRS425.046(1)(a). Assuming proper jurisdiction and venue in the county wheretheactionwasfiled,thewritmaybedirectedtoanysheriffoftheCommonwealth.Thesheriffshouldbedirect-ed to levy the writ pursuant to KRS 425.091 and, if the property is found, to retain the property in the custody of thesheriffuntilreleasedorsoldpursuanttoKRS425.101.KRS 425.046(1)(d). A writ of possession may also be lev-iedbyspecialbailiff.KRS454.145.See 1984 Ky. Op. Atty. Gen. 2-417, Ky. OAG 84-366.

2. Thepropertytobeseizedbythesheriffmustbesufficientlyidentified that the sheriffmay levy thewritwithout riskof taking property which is not subject to the proceeding. KRS 425.046(1)(b).

3. Private property must be specifically identified if the

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sheriff is to enter privateproperty to levy thewrit.KRS425.046(1)(c).

4. The writ must contain a notice to the defendants that they have a right to post a bond to obtain redelivery of the prop-erty pursuant to KRS 425.116, that they have a right to excepttothesuretiesontheplaintiff’sbond,andthattheyhave a right to seek an order under KRS 425.081 to quash the writ and release the property. KRS 425.046(2) & (4).

D. [5.16] LevybySheriffandExecutionofWrit

LevybythesheriffisgovernedbyKRS425.091,KRS425.096,andKRS425.101. One reason the writ of possession remedy is sometimes more useful than itspost-judgmentequivalentisthatasheriffhastherighttoforceentryintopri-vate property to levy a writ of possession. The right to force entry is not generally availabletoasheriffexecutingapost-judgmentremedy.ThepreciseproceduretobefollowedbythesheriffpriortoforcingentryissetoutatKRS425.091(3).Thesheriffmaycalluponotherlawenforcementofficersforassistanceinthelevyofthe writ but is under a duty to retreat if a risk of death or serious bodily harm may resultfromlevyofthewrit.Entrybyasherifftolevyawritofpossessionisnotwithin the prohibition of the Fourth or Fifth Amendments of the Constitution. GM Leasing Corp. v. United States, 429 U.S. 338 (1977).

1. [5.17] Dwellings

If the property to be seized is a dwelling (most often manufactured homes, but possibly boats, recreational vehicles, or any other personal property in which a debtorresides),thesheriffmustappointakeeperofthepropertyfortwo(2)daysbefore taking further action. (Practitioners should make sure a manufactured home hasnotbeenconvertedtorealpropertyunderKRS186A.297.)Plaintiffbearsthecost of the keeper. Once the defendant resident has been provided with two (2) daystovacatethepremises,thesheriffmayremovetheoccupantsiftheyremainandanypersonalpropertynotcoveredbythewritofpossession.Thesheriffmaythen take possession of the property to be levied upon. KRS 425.091(2).

2. [5.18] 10-Day Waiting Period

To provide a defendant with an opportunity to post a redelivery bond, excepttotheplaintiff’ssurety,ordemandahearingonamotiontoquash,thesheriffmust hold the property seized under a writ of possession for ten (10) days. If no redelivery bond has been posted by the defendant or no hearing is demanded, the sheriffmaydeliverthepropertytotheplaintiff.KRS425.101(1)(a).

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3. [5.19] Storage of Property

KRS425.091directs thesheriff,upon levy, to remove theproperty toaplaceofsafekeeping(exceptinthecaseofpropertyusedasadwelling).Thisprovisionworkedoutverywellwhenasheriffwasdirectedtolevyuponanauto-mobilebutwasquiteimpractical,forexample,whenthewritwasdirectedtotheentireinventory,equipment,fixtures,andotherpersonalpropertyofanautomobiledealership.Additionalproblemsaroseininstanceswheresheriffsweredirectedtolevyupondelicate,expensive,andsophisticatedcomputerorscientificequipment,large jet aircraft, etc. These problems were remedied through the 1984 amendments thatofferedsheriffsadditionalalternativesinthelevyofawritofpossession.

a. [5.20] Immovable Property

Ifthesheriffdeterminesthatitisimpracticalorimpossibletomoveprop-ertyleviedupontoaplaceofsafekeepingortostoretheproperty,thesheriffmaysecure the property where the levy has been made or surrender the property to the plaintiffimmediatelyuponseizure.KRS425.101(3).

b. [5.21] Perishable Property

If the property levied upon is perishable or subject to immediate and sub-stantial deterioration or depreciation, or if the interest of the parties is best served, ajudicialofficer(see KRS 425.006(1)) may order that the property be sold and the proceeds held by the court. KRS 425.101(2). The author has previously used this remedy when levying a writ of possession on the meat, dairy products, vegetables, and other perishables in the inventory of a grocery store.

4. [5.22] Securing the Property

Forasherifftosecurepropertyintheplacewhereitisfound,thepropertymust consist of all, or substantially all, of the property within a structure or area whichisnotusedasadwelling.Additionally,thesheriffmusthavetheconsentofany third-party owner or occupant of the structure or area and must provide the defendant with a reasonable right of access to any property not covered by the writ ofpossession.Afterlevyingupontheproperty,thesheriffmaysecurethepropertyby locks or other means. KRS 425.101(3)(b); see School Supply Co., Inc. v. First National Bank of Louisville, 685 S.W.2d 200 (Ky. Ct. App. 1985).

5. [5.23] ImmediateSurrendertothePlaintiff

Ifthepropertylevieduponissurrenderedtotheplaintiff,theplaintiffisrequired to hold the property within the Commonwealth of Kentucky and under all the same restrictionsand requirements as areplacedupon the sheriff.KRS425.101(3)(a).

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6. [5.24] Return of Writ

Thesheriffmustmakeareturnonthewritofpossessionnomorethanthirty (30) days after levy, and in no event, even if levy has not been made, no morethansixty(60)daysfollowingthedatethewritisissued.KRS425.106(1).

7. [5.25] Delivery of Copy of Writ

At the time thewritofpossession is levied, thesheriffshoulddeliverto the person in possession of the property, whether or not the defendant, a copy ofthewritofpossessionandacopyoftheplaintiff’sbond.KRS425.096(1).Ifthere is no obvious party in possession or control of the property at the time of the levyandthedefendantcannotbefound,thesheriffisdirectedtoleaveacopyofthe writ and bond at the “usual place of abode of the person in possession of the property.” KRS 425.096(2).

8. [5.26] Levy in Another County

AlthoughawritmaybedirectedtoanysheriffoftheCommonwealth,thesheriffwhoinitiallyhasbeenchargedwithlevyofthewritmaypursuepropertywhich is subject to the writ into another county if the property has been removed from the original county within twenty-four (24) hours of the time the writ was placedinthesheriff’shands.Iftimepermits,theprudentpractitionershouldmakean ex parte motion pursuant to KRS 425.051 to have the writ of possession endorsed for service in another county. This avoids the question of the precise time the prop-ertywasmovedinrelationtothetimethewritwasplacedinthesheriff’shands.

E. [5.27] Plaintiff’sBond

Aplaintiffmustpostabondtoobtainawritofpossession.See Sections [5.99], [5.100], and [5.103], infra, for sample writs of possession bonds. Counsel representingplaintiffsshouldmakelocatingasuretyforthebondoneoftheirfirstpriorities. Many surety companies are reluctant to write this type of bond and will requireextensiveinformationconcerningtheclient.Thebondapplicationoftenmust be reviewed at a regional or headquarters level. When practicing in an area where time is frequently important, the surety requirement can often cause the greatest delay. KRS 425.111 & 425.116.

1. [5.28] Amount

Theplaintiff’sbondmustbeaminimumoftwicethevalueofthepropertytobeseized.Ifahearingisheldontheplaintiff’smotionforawritofpossession,oneofthedeterminationsthatmustbemadebythejudicialofficeristhevalueofthe property for bonding purposes. If sureties are unavailable, a cash bond may be posted with the court. KRS 425.111.

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2. [5.29] Required Statement

Theplaintiff’sbondmuststate:“Iftheplaintifffailstorecoverjudgmentintheaction,theplaintiffshallreturnthepropertytothedefendant,ifreturnthereofbe ordered, and shall pay all costs that may be awarded to the defendant and all damages referred to insubsection (2),notexceeding theamountof thebond.”KRS 425.111(1).

3. [5.30] Damages

Damagesforwhichaplaintiff’sbondmayprovidereimbursementinclude“alldamagessustainedbythedefendantwhichareproximatelycausedbytheop-eration of the temporary restraining order and preliminary injunction, if any, the levy of the writ of possession, and the loss of possession of the property pursuant to levy of the writ of possession or in compliance with an order issued under KRS 425.036.” KRS 425.036 relates to the issuance of the writ of possession but does not authorize issuance of any form of order. It is possible that the reference to KRS 425.036 is a legislative drafting error and that the intent is to cover orders issued under KRS 425.041 (see Section [5.46], infra) directing defendants to transfer propertytotheplaintiff.

4. [5.31] Sureties;ExceptiontoRequirement

Sureties are not required on the bond of any “domestic bank, savings and loan institution, or institution which is a member of the Farm Credit System, as definedby12USC§2002.”KRS425.001.

F. [5.32] Defendant’sBond

Any person who claims an interest in property levied upon or about to belevieduponmayeitherpreventthetaking,orregainpossessionpendingfinaladjudicationonthemerits,byfilingadefendant’sbond.KRS425.116.See Wahba v. Don Corlett Motors, 573 S.W.2d 357 (Ky. Ct. App. 1978). This bond, which also requiressurety,maybeinanamountequaltotheplaintiff’sbond.Alternatively,iftherehasbeennojudicialdeterminationofthevalueoftheproperty,thedefendant’sbondmustequalthevaluestatedintheplaintiff’smotionforawritofpossession.Adefendant’sbondisdeterminativeofthequestionofadequateprotectionintheeventofthedefendant’sbankruptcy.In re Milo Ridge Resort, 26 B.R. 277 (Bankr. W.D. Ky. 1982).

1. [5.33] Amount

The statute setting out the requirements for a defendant’s bond,KRS425.116, does not make sense when read in conjunction with the statute for the plaintiff’sbond,KRS425.111.Aplaintiff’sbondmust be in an amount not less than twicethevalueoftheproperty,whilethedefendant’sbondmayeitherequalthe

5-16


plaintiff’sbondorbeonlyinanamountequaltothevalueoftheproperty.Thereis no logical reason for a defendant to elect to post a bond equal in amount to the plaintiff’sbond.

2. [5.34] Required Statement: Damages

Thedefendant’sbondmustprovidethat:“[I]ftheplaintiffrecoversjudg-mentontheaction,thedefendantshallpayallcostsawardedtotheplaintiffandalldamagesthattheplaintiffmaysustainbyreasonofthelossofpossessionoftheproperty,notexceedingtheamountofthebond.”KRS425.116(1).

3. [5.35] Notice of Bond

Adefendantwhopostsabondmustmailacopytothelevyingofficerandtheplaintiff.Atthetimetheoriginalbondisfiledwiththecourt,itmustbeaccompaniedbyacertificatethattheappropriatecopieshavebeenmailed.Thedefendant’sbondmustalsostatetheaddresstowhichacopyofanoticeofexceptionto sureties may be sent. KRS 425.116(2) & (3).

G. [5.36] ExceptionstoSureties

Boththeplaintiffanddefendanthavetherighttoobjecttoeachother’ssureties.KRS425.121.Thedefendant’sobjectionmustbefilednolaterthanten(10)daysafterlevyofthewrit.Theplaintiff’sexceptionsmustbetakennolaterthanten(10)daysafter thedefendant’sbondisfiledwith thecourt.Anypartytakingexceptionstotheother’ssuretiesmustfiletheoriginalexceptionwiththecourtandmailacopytothelevyingofficerandtheopposingparty.Thefailuretotimelytakeexceptiontothesuretyonabondconstitutesawaiverofanyfurtherobjection. KRS 425.121(3).

1. [5.37] Appearance by Surety

Whenexceptionistakentoasurety,thesuretymustappearbeforeajudicialofficeratthetimespecifiedbythepartytakingexceptionandjustifytheirabilitytoactassurety.Ifthejudicialofficerdeterminesthatasuretyisnotqualified,thestatute directs that they vacate any writs or orders entered under KRS Chapter 425, andthelevyingofficermustdeliverallseizedpropertytotheprevailingpartyatthe hearing. KRS 425.121(5) & (6).

2. [5.38] RetentionofPropertybySheriff

Attorneysfilinganoticeofexceptiontosuretiesshouldseekanorderfromthecourtdirectingthesherifftoretainpossessionofthepropertylevieduponuntilahearinghasbeenheldonthenoticeofexception.

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H. [5.39] Special Procedures Available Under the Writ of Possession Statute

1. [5.40] Ex Parte Writs

A writ of possession may be obtained ex parteunderspecifiedandlimitedcircumstances.KRS425.076.Theplaintiffmusttenderanaffidavitwhichshowssufficientfactstoindicatetheplaintiffwillbesubjecttogreatorirreparableinju-ry if issuance of the writ is delayed in order for the notice requirements of KRS 425.012 to be met.

a. [5.41] Requirements

Specificstatutorycircumstanceswhichmeettherequiredstandardare:

(i) that there is a danger that the property sought will be con-cealed, placed beyond the process of the court, or substan-tially impaired in value;

(ii) that the defendant obtained the property by wrongfully tak-ingitfromtheplaintiff(exceptpropertytakenbyadefen-dant who was entrusted with the property or originally ob-tained by a defendant by false pretense or embezzlement; the restrictions are such that they almost require outright theft before this subsection applies);

(iii) that the property is a credit card; or

(iv) there are other circumstances which in the judgment of a judicialofficerwouldresultingreatorirreparableinjuryifthe writ is delayed for the notice period.

b. [5.42] Other Requirements Not Waived

Exceptfortherequirednoticeanddemand,allotheraspectsofthewritofpossessionstatutemustbemetbytheplaintiffwhoseeksawritex parte. The Kentucky Court of Appeals in Pope v. Thompson, 519 S.W.3d 781 (Ky. Ct. App. 2017), while pointing out that appellants had failed to raise such issues at the circuit court level or in their pre-hearing statement, stated that the notice and time requirements of KRS 425.012(1) need not be met when the petition for writ of possessionisfiledpursuanttoKRS425.051.

In addition to service of the writ and bond as required by KRS 425.096, any defendant against whom a writ has been entered ex parte must additionally be servedwithacopyofthesummons,complaint,motion,andanyaffidavittenderedin support of the writ of possession and ex parte procedure.

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c. [5.43] Limitations on Ex Parte Relief

Counsel should only use the ex parte procedure in limited circumstances thatunquestionablyjustifythismostextraordinaryofremedies.AlthoughtheUnit-ed States Supreme Court, in a footnote to Fuentes v. Shevin, 407 U.S. 67 (1972) (described further at Section [5.92], infra), referred to circumstances where notice mightnotbeappropriate,nodecisionspecificallyapprovestheuseofanex parte prejudgment remedy. See Farmers Deposit Bank v. Ripato, 760 S.W.2d 396 (Ky. 1988) (Leibson, J., concurring).

The majority opinion of the Kentucky Supreme Court in Farmers Deposit Bank v. Ripato,760S.W.3d396(Ky.1988),specificallywithheldarulingontheconstitutionality of KRS 425.076, the statute allowing an ex parte writ of posses-sion.However,JusticeLeibson,inaconcurringopinion,arguedthatKentucky’sstatute meets the due process requirements of federal law.

To obtain an ex partewritofpossession, theplaintiffmustpresentanaffidavitorverifiedmotionallegingactualknowledgeofspecificfactsthatmeetthetestofKRS425.076.Forexample,theplaintiffcouldallegethedefendant’sthreattodestroythepropertyoranimminentandspecificthreatofremovalofthepropertyfromthejurisdictionifawritofactionisfiled.Ageneralallegationthatthepropertymaybemovedisinsufficient.

d. [5.44] IssuedbyJudicialOfficer

An ex partewritofpossessionshouldonlybeissuedbyajudicialofficer(asdefinedatKRS425.006).KRS425.076(1).Whennonoticeoropportunitytobe heard is provided to the defendant before a writ is issued, it is necessary that the plaintiff’spleadingsbeinspectedfortheirlegalsufficiencybyaneutralmagistrate.Mitchell v. Grant, 416 U.S. 600 (1974); McLaughlin v. Weathers, 170 F.3d 577 (6th Cir. 1999); United States v. Calor, 172 F. Supp. 2d 900 (E.D. Ky. 2001).

2. [5.45] Endorsing a Writ of Possession

Afterthewritofpossessionisissued,iftheplaintiffdeterminesthatthepropertysoughttobeseizedisataprivateplacethatisnotspecifiedinthewrit,throughmotionandaffidavitshowingprobablecause,thewritcanbeendorsedforlevyataplacenotspecifiedinthewrit.KRS425.051.Acopyoftheendorsementshould be served with the writ of possession.

3. [5.46] Order Transferring Possession

Atthetimeawritofpossessionisentered,theplaintiffmayalsoobtainanorderfromthejudicialofficerwhichdirectsthedefendanttotransferpossessionofthepropertytotheplaintiff.See Section [5.98], infra, for a sample order transferring possession. This order is most useful in situations where the property sought cannot

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be located but the defendant is available for service of the order. KRS 425.041. If thedefendantdoesnotcomplywiththeordertransferringpossession,theplaintiffcan initiate a proceeding for the defendant to show cause why he or she should not be held in contempt of court. The show cause order must be personally served on the defendant.

4. [5.47] Procedure When the Property Sought Cannot Be Located

Ifthelevyingofficer’sreturnindicatesthatthedefendanthasdisposedofthepropertyorhasconcealedthepropertysothatitcannotbefound,theplaintiffmayobtainanorderofthecourtcompellingattendanceofthedefendantforex-amination under oath concerning the property. The contempt powers of the court may be invoked against uncooperative defendants. KRS 425.106(2).

I. [5.48] Defending Writ of Possession Actions

1. [5.49] Strict Compliance with Statutes

Theseizureofpropertypriortoentryofafinaljudgmentconstitutesanextraordinaryprocedure.Thisrequiresstrictcompliancewithallofthestatutoryrequirements to obtain the writ of possession. Duo-Therm v. Sheergrain, 504 S.W.2d 689 (Ky. 1974); Weisenberger v. Corcoran, 275 Ky. 322, 121 S.W.2d 712 (1938). The strict compliance standard does not apply to the third remedy, garnishment, authorized by Chapter 425. PNC Securities Corp. v. Finanz-Und GmbH-Liedgens, 101 F.3d. 702, 1996 WL 665574 (6th Cir. 1996) (unpublished decision).

2. [5.50] Request for Hearing

Iftheplaintiff’spleadingsareinorderbutthedefendant’scounselbelievesquestionsoffactorlawexist,arequestforahearingshouldimmediatelybefiledwiththecourtandcertifiedtoplaintiff’scounsel.ThehearingprocedureissetoutinKRS425.031.Eachpartymaypresentwitnesses,cross-examineadversewitnesses,and compel the attendance of witnesses by subpoena.

3. [5.51] Standard of Proof

Theplaintiff’sstandardofproof is foundatKRS425.036.Under thatsection,aplaintiffmustestablishthe“probablevalidityofhisclaimtopossession.”Atthehearing,thejudicialofficermustalsodeterminethevalueoftheproperty,thesufficiencyoftheplaintiff’sbond,andwhetherprobablecauseexistsforallowingasherifftoenterprivateproperty.

4. [5.52] EffectofFailuretoPreventWrit

A defendant who unsuccessfully opposes entry of a writ of possession has not been prejudiced in her case on the merits. KRS 425.061 provides that the

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determinationsofthejudicialofficeratahearingonamotionforwritofpossessionmaynotbegiveninevidenceattrialonthemeritsandhavenoeffectonanyissuesotherthantheproceedingsunderKRSChapter425.Theyalsocannotaffecttherights of any party in any other action arising out of the same claim.

5. [5.53] Lack of Notice; Motions to Quash

Incaseswhereadefendanthasnotreceivednoticeoftheplaintiff’smo-tion for a writ and was unaware of the proceedings until the property was taken, amotiontoquashisthedefendant’sremedy.KRS425.081.Amotiontoquashgives the defendant a second chance for a hearing. When a motion to quash has been made, a hearing is held pursuant to KRS 425.031, the same statute governing hearings prior to the writ having been issued. However, a mere motion to quash is insufficienttopreventdeliveryofpropertytotheplaintiff.Defensecounselmustmake a motion and obtain an order staying delivery. KRS 425.081(2).

6. [5.54] Bond

Thedefendantmaytakeexceptiontosuretiesontheplaintiff’sbond,ifsurety is required. KRS 425.121.

7. [5.55] Venue

Anyactionwhichseekspossessionofspecificpersonalproperty,whencoupledwithademandfordamages,isatransitoryactionandmustbefiledwherepersonal service may be obtained. Gover v. Wheeler, 206 Ky. 734, 178 S.W.2d 404(Ky.1944). If theaction isfiledonlyagainst theproperty, for thepurposeof gaining possession, it may be brought in rem.Iftheactionisfiledinacountywhere personal service may be obtained, the writ may be directed to any county in Kentucky where the property is located. KRS 425.046(3).

III. [5.56] Temporary Restraining Orders Under KRS Chapter 425

A temporary restraining order (“TRO”) oftenfills the gap that existsbetween a noticed motion for a writ of possession and proceeding ex parte. At the timeamotionforwritofpossessionisfiled,theplaintiffmayalsoapplyforaTRO.KRS 425.066 & 425.086. SeeSections[5.101]forasampleverifiedmotionforwrit of possession and temporary restraining order, [5.102] for a sample temporary restraining order, and [5.103] for a sample bond on writ of possession and restraining order, infra. When a TRO is sought in conjunction with a writ of possession, it is pursuant to a statutory process, rather than Civil Rule 65.03. For this reason, there is a disagreement between judges, commentators, and practitioners as to whether the notice requirements of Civil Rule 65.03 are applicable.

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A. [5.57] Use

This remedy is frequently used in situations where a third-party has temporary possession or control of the property that may become unavailable for levyifpossessionisreturnedtothedefendant.Anexampleofsuchasituationisan automobile that is the subject of a writ of possession proceeding and that is temporarily in the possession of a dealer for repairs.

B. [5.58] Farm Products and Inventory

If the property sought by the writ of possession action is a farm product (KRS 355.9-102(ah)) or inventory (KRS 355.9-102(av)), the TRO may not prohibit transferofthepropertyintheordinarycourseofthedefendant’sbusiness.However,the TRO may impose restrictions on disposition of the proceeds of farm products and inventory. KRS 425.071(a).

C. [5.59] Restrictions on Ordinary Property

Other prohibitions that may be obtained by a temporary restraining order include prohibiting the defendant from: (1) transferring any interest in the property by sale, pledge, or grant of security interest, or otherwise disposing of or encum-bering the property; (2) concealing or otherwise removing the property in such a mannerastomakeitlessavailabletoseizurebyalevyingofficer;and(3)impairingthe value of the property either by acts of destruction or by failure to care for the property in a reasonable manner. KRS 425.071(a), (b), and (c).

D. [5.60] Required Statement

ToobtainaTROpendingissuanceofthewritofpossession,theplaintiffmustshowbyaffidavit,“thatthereisanimmediatedangerthatthepropertyclaimedmay become unavailable by reason of being transferred, concealed, or removed or may become substantially impaired in value.” KRS 425.066(2).

E. [5.61] Scope of Order

TROs may prohibit the transfer of an interest in property by: sale, pledge, or grant of security interest; encumbrance of property; concealment or removal of propertywhichmakesitlessavailabletoalevyingofficer;orimpairmentofthevalue of property by either act of destruction or failure to care for the property. KRS 425.071; see Section [5.102], infra, for a sample temporary restraining order.

F. [5.62] TRO Following Request for Ex Parte Writ

Theplaintiffwhounsuccessfullyseeksanex parte writ of possession may move the court for a TRO under KRS 425.086 in lieu of the ex parte procedure.

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G. [5.63] Hearings

If a TRO has been issued and the defendant requests a hearing on the plaintiff’smotionforawritofpossession,thejudicialofficermusteitherdissolvethe temporary restraining order or enter a preliminary injunction based on the court’sdecisiononthemeritsoftheplaintiff’smotion.Ifapreliminaryinjunctionis entered, it is to cover the period between entry of the writ of possession and levybythesheriff.

IV. [5.64] Attachments

A. [5.65] Generally

Attachments are governed by KRS 425.301 et seq. An attachment is a remedy available at the commencement of an action for the recovery of money. It is similar in nature to the writ of possession but is the proper remedy for seizure ofpropertyinwhichtheplaintiffdoesnotholdasecurityorownershipinterest.An attachment is a remedy for collection of an ordinary debt, where the creditor proceedsbyseizureofdebtor’spersonalpropertyassetsunderlegalprocess.Placer Coal, Inc. v. Rhondale Coal Services Co., Inc., 684 S.W.2d 25 (Ky. Ct. App. 1984). Thepurposeof theattachment is toserveassecurity forsatisfactionofafinaljudgment. Attachment is also available prior to the time a debt or liability may be due when an equitable action for indemnity is brought against a debtor, a principal by a surety, or one joint debtor against another. KRS 425.306. Attachment, like a writofpossession,isanextraordinaryremedy.

1. [5.66] Variety of Attachment Remedies

The various remedies available under the umbrella term “attachment” include garnishments of bank accounts and wages, liens against real estate, and the seizure of personal property.

2. [5.67] Proper Defendants

Attachmentisnotavailabletoeveryplaintiff.Ifthemotionforattachmentis brought pursuant to KRS 425.301 in an action for recovery of money, a motion for attachment is proper against:

(a) foreign corporations and nonresidents of Kentucky;

(b) residents who have been absent from Kentucky for four (4) months, or

(c) persons who:

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i. have departed from Kentucky with the intent to de-fraud their creditors;

ii. have left the county of their residence to avoid service of a summons;

iii. have concealed themselves so that a summons cannot be served on them;

iv. are about to remove, or have removed their property, or a material part thereof, out of Kentucky, not leaving enoughwithinthestatetosatisfytheplaintiff’sclaims,ortheclaimsofthedefendant’sothercreditors;

v. have sold, conveyed, or otherwise disposed of their property or permitted it to be sold, with the fraudulent intent to cheat, hinder, or delay their creditors; or

vi. are about to sell, convey, or otherwise dispose of their property with the fraudulent intent to cheat, hinder, or delay their creditors.

3. [5.68] Attachment to Secure Liquidated Debt

If the sum of money is due upon a contract, judgment, or award and the collection or demand will be endangered by a delay in obtaining judgment, proper defendants additionally include those who do not have property in this state subject toexecutionandthosewhodonothaveenoughpropertytosatisfytheplaintiff’sdemand. KRS 425.301(2).

4. [5.69] Unmatured Obligations

If the attachment is sought pursuant to KRS 425.306 based on a debt or liability upon a contract which is not yet due or mature, it is proper if:

(a) the defendant(s) is or are about to depart from Kentucky, and, with intent to defraud their creditors, have concealed or removed from Kentucky their property, or so much of their property that after judgment there would be an insuf-ficientamountavailableforexecution;or

(b) the defendant falls within any of the groups set forth in Section [5.67], supra.

5. [5.70] SpecificityofPleadings

Whenseekinganattachment,plaintiff’scounselshouldnot take a shotgun approach in listing the statutory criteria which entitle the client to an attachment.

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Theplaintiff’sattorneyshouldlistspecificgroundsandbepreparedtoshowfactsto back up those grounds. Universal C.I.T. Credit Corp. v. Collett, 256 S.W.2d 35 (Ky. 1953).

B. [5.71] Due Process Requirements – Notice and Demand

The notice requirements of KRS 425.301(3) associated with a motion for a prejudgment attachment are nearly identical to those in KRS 425.012, the writ ofpossessionstatute.Thecontentsoftherequirednoticediffer,buttheproceduralrequirements are identical. See Section [5.105], infra, for a sample notice and demand letter for an attachment.

1. [5.72] Notice

The notice given the defendant against whom an attachment is sought must be timely. The attachment may not be issued less than seven (7) days nor morethansixty(60)daysafterthenoticehasbeenservedon,ormailedto,thedefendant. Service of the notice and other required papers may be accomplished in the manner set out in Civil Rule 4, personally served by any person entitled to serveasubpoenaormaybesenttothedefendantbyregisteredorcertifiedmail,returnreceiptrequested,tothedefendant’slastknownplaceofresidence.See CR 69.01. As noted in the notice and demand section of the discussion on writs of possession (see Section [5.8], supra), the primary thrust of the statutory and Civil Rules requirements for service in attachment actions is to ensure that the defen-dant has notice of the proceeding. The time in which the defendant must respond to keep the attachment from being issued is very short. Hence, the drafters of the statute deemed making the notice available to the defendant more important than ensuring that it is delivered personally to the defendant.

a. [5.73] Service by Mail

Ifserviceismadebycertifiedorregisteredmail, itshouldnotbesentrestricted delivery. This varies from the mail requirements of Civil Rule 4 and mustoftenbeexplainedtocourtpersonnel.Thenoticemustbeservedsimultane-ouslywithacopyofthecomplaint,themotionorverifiedmotionforattachment,asummons,andanyaffidavitinsupportofthemotion.

b. [5.74] Local Rules

JeffersonCircuitCourtRule511Dgovernsall motions for prejudgment remediesunderKRSChapter425filedbeforethatcourt.Additionalnoticerequire-ments, designed to make the notice more meaningful to the average person, are required.SpecificdirectionsonhowtoobtainahearingfromthecourtmustbeprovidedinnoticesanddemandsusedinJeffersonCounty.Practitionersinothercircuits should check their local rules for similar requirements.

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2. [5.75] Required Contents of the Notice and Demand

a. [5.76] Generally

The notice and demand must identify the court in which the suit has been filed,thegroundsonwhichtheplaintiffbasesthemotionforattachment,thedatethedemandisservedormailed,theamountoftheplaintiff’sclaim,andthenameandaddressoftheplaintiffanditscounsel.See Sections [5.105] for a sample no-tice and demand letter for an attachment and [5.106], infra, for a sample notice of action pleading for an attachment.

b. [5.77] Required Statement

The notice and demand must contain an initial statement declaring that the defendant has seven (7) days in which to request a hearing from the court or in whichtopaytheplaintiff’sclaiminfull.Itmustalsostatethatifahearingisnotrequestedortheclaimpaid,theplaintiffwillseekanorderthatwillsubjectthedefendant’spropertytopaymentoftheclaim.Ifthenoticeisservedbymail,theplaintiffshouldspecifythedateofmailingasthedateofnotice.Ifthenoticeisper-sonallyserved,theplaintiffshouldspecifythedateofserviceasthedateofnotice.

C. [5.78] Motion for Attachment

Under KRS 425.307, the motion for attachment must be made under oath and contain the following:

(a) thenatureoftheplaintiff’sclaim;

(b) that the claim is just;

(c) thesumwhichtheplaintiffbelievesitoughttorecover;and

(d) theexistenceofanyoftheenumeratedgroundsforattach-ment set out in KRS 425.301 or KRS 425.306.

See Section [5.104], infra,forasampleverifiedmotionforattachment.

D. [5.79] Issuance of the Attachment

KRS 427.307(3) states that the order of attachment “shall” be issued by the clerk upon compliance with KRS 425.301(3). See Section [5.107], infra, for a sample writ of attachment. This statute sets out the notice and service requirements andrequiresanaffidavitoftheplaintiff,ortheplaintiff’sattorney,evidencingcom-pliance with the notice, service, and pleading requirements. See Section [5.109], infra,forasampleaffidavit.TheKentuckyAttorneyGeneraldiscussedtheclerk’sauthority to issue an order of attachment at 1980-1981 Ky. Op. Atty. Gen. 2-174, Ky. OAG 80-235.

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E. [5.80] Attachment Bonds

AplaintiffisrequiredtopostabondunderKRS425.309inaminimumamountofdoubletheplaintiff’sclaimbeforeanattachmentwillbeissued.See Section [5.108], infra, for a sample bond for attachment.

1. [5.81] Compared to Bond Requirements in Writ Actions

Thebondrequirementforattachmentsuitsisdifferentfromthatinwritof possession actions. For attachment suits, the amount of the bond is based on the plaintiff’sclaim,asopposedtothevalueofthepropertytobeattached.Thisworkswell in situations where the property is worth more than the debt to be collected butposesproblemsfortheplaintiffwithalargeclaimandonlylimitedassetsofthe defendant to attach. An argument can be made that the bond amount should betwicetheplaintiff’sclaimwhichisinthenatureofattachment(thevalueofthe property to be attached) as opposed to the total amount of the lawsuit brought against the defendant.

2. [5.82] Defendant’sBonds

Prior to the 1984 statutory amendments, there were no provisions for a defendant’sbond.Now,uponpostingofabondequaltotheplaintiff’sclaim,in-cludingcourtcostsandattorneyfees,anattachmententeredagainstadefendant’sproperty may be dissolved by the posting of a bond. KRS 425.309(2).

3. [5.83] No “Magic Words”

The attachment bond statute doesnot have a requirement for specificlanguage as is found in the writ statute. However, the language of the writ of pos-session statute can serve as a model.

4. [5.84] SuretiesandExceptions

Exceptionstothesuretiesonbothplaintiff’sanddefendant’sattachmentbondsaremadeinaccordancewiththewritofpossessionsuretyexceptionstat-ute. KRS 425.121. Just as in the writ of possession statute, no surety is required onthebondofaplaintiffthatisadomesticbank,savingsandloaninstitution,orinstitutionwhichisamemberoftheFarmCreditSystem(asdefinedby12USC§ 2002). KRS 425.001.

F. [5.85] Ex Parte Relief

Anorderof attachment is available toaplaintiffex parte under KRS 425.308.IftheplaintiffmeetstherequirementsofKRS425.307,andadditionallydemonstrates that great or irreparable injury will result if issuance of the attachment is delayed for the notice period, the order for attachment may be issued without

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notice to the defendant. As with the ex parte provisions of the writ of possession statute,practitionersareurgedtouseextremecautionandcarefullyexaminethefacts upon which a client bases a request for ex parte relief. KRS 425.306(2) implies that when an attachment is sought as part of an equitable action for indemnity it maybehadwithoutnoticeifcertainspecificgroundsappearinthepetition.Thissectionhasnotbeen testedbefore theCommonwealthofKentucky’sappellatecourts. A conservative practitioner would follow the requirements of KRS 425.308 before seeking the ex parte order. See discussion of ex parte writs of possession, Sections [5.40] through [5.44], supra.

G. [5.86] Venue

Attachment actions may be brought as in rem, quasi in rem, or in personam actions. Shaffer v. Heitner, 433 U.S. 186 (1977); John R. Leathers, Substantive Due Process Controls of Quasi In Rem Jurisdiction, 66 Ky. L.J. 1 (1977-78). Although the attachment suit may be brought against property, it is necessary to plead the case in the proper forum, as the cause of action itself may be considered transitory. See also Citizens Bank and Trust Company of Paducah v. Collins, 762 S.W.2d 411 (Ky. 1989) (Kentucky Supreme Court held that the basis for jurisdiction over a thing mustbesufficienttojustifyjurisdictionovertheinterestsofapersoninthething).

H. [5.87] Attachment Against Real Estate

Frequently, a debtor who has left the state retains ownership of real estate within the Commonwealth. This real estate may be reached by the remedy of at-tachment.Topreventtransferoftherealestate,theplaintiff’sattorneymustrecordnotice of the attachment in the real estate records of the county clerk in the county in which the real estate is located. See Section [5.106], infra, for a sample notice. The priority of the attachment lien is established by the date of levy. KRS 426.383.

I. [5.88] Defending the Attachment Suit

The statutory framework of the attachment suit section of KRS Chapter 425ismuchlessprecisethanthatforwritsofpossession.Nosectionspecificallysetsoutthenatureofthehearingaffordedadefendantwhopetitionsforahearing.Most judges and practitioners refer to KRS 425.031, concerning conduct of the hearing, and 425.036 (both in the writ of possession section), for the burden of proof standard. See also Handmaker v. CertusBank, NA, 189 F. Supp. 3d 663 (W.D. Ky 2016) (employees were not entitled to prejudgment attachment because they failed to establish that they were more likely than not to prevail on their claim that the employer breached their employment agreements by failing to pay them a bonus).

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1. [5.89] Motions to Release Attachments

KRS 425.302 allows a defendant against whom an order of attachment has been levied to move by noticed motion that the attachment be released. A defendant making such a motion is entitled to an immediate hearing.

2. [5.90] Strict Compliance

Theplaintiff’spleadingsshouldbecarefullyexaminedtoensuretheyhavemet the technical requirements of the statute since the rule of strict compliance will apply. Duo-Therm v. Sheergrain, 504 S.W.2d 689 (Ky. 1974). Carr v. Smith, 137 S.W.2d 415 (Ky. Ct. App. 1940) (attachments are summary proceedings and must strictlycomplywithspecificstatutoryrequirements).

3. [5.91] Defendant’sBonds

The 1984 amendments also resulted in the creation of KRS 425.309(2), thedefendant’sbondstatute.

V. [5.92] Constitutional Considerations in Prejudgment Remedy Practice

In Kentucky, the writ of possession was formerly known as an order of delivery, or replevin. The name of the remedy was changed with the enactment of the current statute in 1976. The name of the remedy of attachment has not changed; however, the statutory method to obtain the remedy was also changed in 1976. This wasthestatelegislature’sresponsetothedecisionsoftheUnitedStatesSupremeCourt that applied the constitutional concepts of due process to several remedies obtainedbyprivatepartiesthroughthepowerofthecourts.Thesignificantdeci-sions, which should be reviewed by any practitioner who either brings or defends actions where a prejudgment remedy is sought, are:

1. Sniadach v. Family Finance Corporation, 395 U.S. 337 (1969).Thiscasewasthefirstdecisiontoapplyduepro-cess requirements to civil remedies. The decision was lim-ited in scope and provided that wages were a special class of property that could not be garnished without giving the defendant a notice and opportunity to be heard.

2. Fuentes v. Shevin, 407 U.S. 67 (1972). This is perhaps the mostfamousofthelineofcasesconcerningadefendant’snotice and opportunity to be heard before the imposition ofaprejudgmentremedy.Thisdecisionextendedthedueprocess requirements necessary for satisfaction prior to the

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issuanceofaprejudgmentremedyaffectingaparty’swag-es to all forms of personal property.

3. Mitchell v. Grant, 416 U.S. 600 (1974). This decision was a slight retreat from Fuentes in that the defendant was not given notice and opportunity to be heard before the sei-zure of personal property. The Court found that a pre-levy inspection of pleadings by a neutral magistrate combined with an immediate right to a hearing after the seizure met the due process requirements.

4. North Georgia Finishing v. Di-Chem, 419 U.S. 601 (1975). Here, the Court specifically extended due process pro-tection, and the notice and opportunity to be heard, from strictly consumer to corporate defendants.

5. Connecticut v. Doehr, 501 U.S. 1 (1991). The Supreme Court overturned a Connecticut statute that allowed the ex parte attachment of real estate to secure an unliquidated tort claim when the defendant did not have an opportunity for hearing before the attachment. The primary point on whichplaintiffsmaydistinguish thecase is thenatureofthe claim for which they seek an attachment. However, the Connecticut statute included a due process protection re-quirementthatajudgefindprobablecausetobelievethatjudgmentwouldberenderedinfavoroftheplaintiff.

a. The Ninth Circuit similarly found that a Washington statute allowing the prejudgment attachment of real propertyinahomeowner’ssuitforbreachofabuild-er’sconstructioncontract,withoutnoticeandanop-portunity to be heard, violated the builder’s right todue process. The court ruled that, although the state statute required a bond in the amount sought by the plaintiff and provided for an expedited post-seizurehearing, there remained a high risk of improper depri-vation of property and denial of due process. Tri-State Development, Ltd. v. Johnston, 160 F.3d 528 (9th Cir. 1998).

6. McLaughlin v. Weathers, 170 F.3d 577 (6th Cir. 1999). TheSixthCircuitupheldaTennesseeattachmentprocessthatdidnotaffordthedefendantapre-deprivationhearing.However, the statute required supporting documentation, affidavits, adequate bond, an appearance before a judgeto establish that the statutory requirements were met, and itoffered thedefendant anopportunity for an immediate

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post-seizure hearing.

7. United States v. Calor, 172 F. Supp. 2d 900 (E.D. Ky. 2001). The Fuentes v. Shevin line of cases stands “for the propositionthatahearingmustbehadbeforeoneisfinallydeprived of his property. These cases ‘do not deal at all with the need for a predetermination hearing where a full and immediate post-termination hearing is provided.’”Calor, 172 F. Supp. 2d at 906 (citing Parratt v. Taylor, 451 U.S. 527, 540 (1981)).

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VI. [5.93] Appendix

A. [5.94] VerifiedMotionforWritofPossessionandOrderTransferringPossession

No. ___________________ JEFFERSON CIRCUIT COURT

SIXTH NATIONAL BANK PLAINTIFF v. FAST TRUCKING, LLC DEFENDANT

VERIFIED MOTION FOR WRIT OF POSSESSION AND ORDER TRANSFERRING POSSESSION

ComestheAffiant,BobBanker,firstbeingdulysworn,whostatesthatheisavicepresidentofSixthNationalBank(“SixthNational”),andthathehasbeenspecificallyauthorizedtogivethisaffidavitonbehalfofSixthNational,andthathehaspersonalknowledgeofandhasreviewedSixthNational’srecordsrelatingto the accounts of the Defendant Fast Trucking, LLC (“Fast Trucking”), and that hehasspokenwithofficersofSixthNationalwhohaveworkedontheaccountsoftheDefendantandwhoalsohavepersonalknowledgerelatingtotheDefendant’saccountswithSixthNational.TheAffiantfurtherstatesthathemakesthefollow-ingstatementsaspartofSixthNational’sactiontorecoverpossessionofcertainKenworth Tractor Trucks through a Writ of Possession and an Order Transferring PossessionoftheKenworthTractorTrucksthatconstituteSixthNational’scollateralunder its security agreement with the Defendant.

1. ThedebtsofDefendanttoSixthNational,asmorespecif-icallydescribed in theComplaintfiledherein, are inde-fault.UnderthetermsofSixthNational’ssecurityagree-ment with the Defendant, a copy of which is tendered as an exhibit toSixthNational’sComplaintand ismadeapartof thisVerifiedMotion asExhibitA attachedhereto andincorporatedhereinbyreference,SixthNationalisentitledto the immediate possession, custody, control, title, and ownershipoftheDefendant’stractortrucksinwhichSixthNational holds a security interest.

2. ThepropertysoughtbySixthNational iswrongfullyde-tained by the Defendant in that the terms of the security agreementprovidethatupondefaultSixthNationalisim-mediately entitled to take possession of its collateral for the Defendant’sdebtstoSixthNational.

3. The Defendant obtained possession of the Kenworth Truck

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TractorsthatareSixthNational’scollateralthroughSixthNational’s extension of credit to the Defendant. At alltimes the Defendant holds possession of the Kenworth TractorTruckssoughtbySixthNationalsubjecttothese-curityinterestDefendantgrantedtoSixthNationalincon-siderationofthecreditextendedbySixthNationaltotheDefendant. The Defendant continues to hold possession ofSixthNational’scollateralinthattheDefendanthasthebeneficialuseandenjoymentofthecollateral,and,tothebestofSixthNational’sknowledge, information,andbe-lief, the Defendant, or others working in conjunction with the Defendant, continue to operate the Kenworth Tractor Trucks.

4. ThepropertyagainstwhichSixthNationalseeksaWritofPossession and Order Transferring Possession includes the following described Kenworth Tractor Trucks:

2018 Kenworth Truck Tractor SN 1AB2CDEF3GH456789 2018 Kenworth Truck Tractor SN 1AB2CDEF3GH456790 2018 Kenworth Truck Tractor SN 1AB2CDEF3GH456791

The total retail value of the Kenworth Tractor Trucks is $210,000.00.

5. The Affiant, based upon information and belief, statesthat the Kenworth Truck Tractors continue to be operated by Defendant, both within and without the COMMON-WEALTHOFKENTUCKY,andthatPlaintiffandAffiantare unaware of a specific private place that may be en-teredbyaSheriffoftheCommonwealthtolevytheWritof Possession forwhich SixthNational herewithmoves. AffiantfurtherstatesthatforSixthNationaltohaveanef-fective remedy through Writ of Possession it is necessary thatSixthNational alsohave,pursuant toKRS425.041,an Order Transferring Possession that directs Defendant to transfer possession of the Kenworth Tractor Trucks to SixthNational.

6. To thebest ofSixthNational’s andAffiant’s knowledge,the Kenworth Tractor Trucks sought by Sixth Nationalhavenotbeentakenforataxassessment,orfine,pursuanttoastatute;orseizedunderanexecutionagainsttheprop-ertyofSixthNational;orifsoseized,theyareexemptbystatute from such seizure.

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WHEREFORE,SixthNationalBankandAffiant,byandthroughSixthNational’scounsel,movetheCourt,pursuanttoKRS425.011,toissueaWritofPossession to be levied upon the Kenworth Tractor Trucks described herein and further move, pursuant to KRS 425.041, for an Order Transferring Possession directing the Defendant to transfer possession of the Kenworth Tractor Trucks describedhereintoSixthNational.

________________________________ Bob Banker

Vice President SixthNationalBank

COMMONWEALTH OF KENTUCKY ) ) SS: COUNTY OF JEFFERSON )

I, the undersigned, a Notary Public within and for the State and County aforesaid,doherebycertifythattheforegoingVerifiedMotionforWritofPosses-sion and Order Transferring Possession was this day produced to me in said State and County, and was acknowledged before me by Bob Banker as a Vice President ofSixthNationalBank.

Witness my signature this ____ day of ________, 20____.

MyCommissionExpires: ________________________________

________________________________ NOTARY PUBLIC STATE AT LARGE

TENDERED BY:

________________________________ JOHN D. LAWYER LAWYER & ATTORNEY, LLC AttorneysforPlaintiff 111 West Main Street Anywhere, Kentucky 40202 (502) 555-1234

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B. [5.95] Notice and Demand


SIXTH NATIONAL BANK PLAINTIFF v. DAVID DEBTOR DEFENDANT

NOTICE AND DEMAND

YOU ARE HEREBY NOTIFIED AS FOLLOWS:

1. AlawsuithasbeenfiledagainstyouinwhichthePlaintiffhas moved the Court to enter a Writ of Possession. The Writ of Possession would direct the Sheriff of JeffersonCountytoseizeyour20188FordEscape,VehicleIdentifi-cation No. 1234565789.

2. You have seven (7) days from the date of this Demand topetitiontheJeffersonCircuitCourtforahearing,orinwhich to pay the amount claimed against you in the Com-plaint in full, or to surrender the 2018 Ford Escape to the Plaintiff.Unlessahearingisset,oryousurrenderposses-sion of the 2018 Ford Escape, or the amount is paid, a Writ of Possession will issue.

3. You have a right to be heard before the Master Commis-sioner of the Jefferson Circuit Court. Pursuant to JRP511(D),youarefurthernotifiedthat:

“If you want a hearing, notify the Master Commissioner either in writing (514 West Liberty Street, Louisville, Ken-tucky 40202) or by phone (502-574-5934) within seven (7) days. If your request is in writing, send a copy of your requesttotheattorneyforthePlaintiff. Youwillreceivewritten notice of the date and time of the hearing.

If your request is by telephone, ask for the “possessory ac-tion clerk” who will tell you the date and time of the hear-ing.”

If your request is by telephone, you should then call the attorneyforthePlaintiffandnotifyhimorherofthedateand time of the hearing.

4. ThesuithasbeenfiledintheJeffersonCircuitCourtandassigned the case number and to the division indicated at

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thetopofthefirstpageofthisNoticeandDemand.

5. ThegroundsforPlaintiff’slawsuitandVerifiedMotionforWrit of Possession is your default under the terms of your noteandsecurityagreementwithPlaintiff.

6. The date of this Demand is the 5th day of August, 2018.

7. The amount claimed by the Plaintiff is $20,000.00, plusinterest at the rate of $4.00 per day from June 28, 2018, untilpaid,Plaintiff’scourtcosts,attorneys’fees,andotherreasonableexpensesincurredherein.

8. The Plaintiff is Sixth National Bank, 101 North SixthStreet, Louisville, Kentucky 40202.

9. Together with this Notice and Demand, the following pa-pers are being served upon you: Summons, Complaint, andVerifiedMotionforWritofPossession.

10. The name and address of the Plaintiff’s counsel appearsimmediately hereinbelow.

________________________________ JOHN D. LAWYER

LAWYER & ATTORNEY, LLC AttorneysforPlaintiff 111 West Main Street

Anywhere, Kentucky 40202 (502) 555-1234

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C. [5.96] AffidavitofCompliancewithKRS425.012



AFFIDAVIT OF COMPLIANCE WITH KRS 425.012

ComestheAffiant,JohnD.Lawyer,andstatesthatheiscounselforthePlaintiff,SixthNationalBank,andassuchhaspersonalknowledgeofthefactsstated herein.

TheAffiantfurtherstatesthatthePlaintiffhascompliedwithKRS425.012by sending to the Defendant, at his last known place of residence, a Notice and Demand, a copy of which is attached hereto, together with a Summons, copy of theComplaint,andcopyoftheVerifiedMotionforWritofPossession.

TheAffiantfurtherstatesthatattachedheretoisacopyofthecertifiedmailreturn receipt card, indicating delivery of the Notice and Demand, and associated documents, to the Defendant on August 6, 2018.

TheAffiantfurtherstatesthatneitherhenorthePlaintiffhasreceivedarequest for a hearing from the Defendant.

________________________________ JOHN D. LAWYER, AFFIANT LAWYER & ATTORNEY, LLC

AttorneysforPlaintiff 111 West Main Street


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Subscribed, sworn to and acknowledged before me by John D. Lawyer this ____ day of ________, 20____.



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D. [5.97] Writ of Possession



WRIT OF POSSESSION

THE COMMONWEALTH OF KENTUCKY to the Sheriff of Jefferson County:

Greetings

You are hereby ordered to seize from the possession of the Defendant the following described property:

2018 Ford Escape VIN No. 1234356789

You may enter upon the following private places to take possession of the property or any of it:

Residence of David Debtor at 1001 North Main Street

Any Town, Kentucky 00000

You are directed to levy on the property pursuant to KRS 425.091 if it is found and to retain it in your custody until released or sold pursuant to KRS 425.101.

NOTICE TO DEFENDANT

Youhavetherighttoobtainre-deliveryofthepropertybeingseizedbyfilingaBondwithoneormoresufficientsuretiesasprescribedbyKRS425.116andyouhavetherighttoexcepttothesuretiesuponthePlaintiff’sBond,acopyofwhichis attached to this Writ of Possession.

You further have the right to seek an order from the Court, pursuant to KRS 425.081, to quash the Writ of Possession and seek a release of the property seized.

________________________________

ISSUING OFFICER

________________________________

DATE

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E. [5.98] Order Transferring Possession



ORDER TRANSFERRING POSSESSION

A Writ of Possession having previously been issued herein by the Clerk oftheJeffersonCircuitCourt,pursuanttohisauthorityunderKRS425.012,anditappearingtotheCourtthatPlaintiffhasfulfilledtherequirementsofsaidstat-ute,andhaspostedabond,inanamountthat,basedontheVerifiedMotionofthePlaintiff,isnotlessthantwicethevalueofthepropertysubjecttotheWritofPossessionandthisOrder,andthePlaintiff’sVerifiedMotionadditionallymoving,pursuant to KRS 425.041, for an Order directing the Defendant Fast Trucking, LLCtotransferpossessionofcertainpropertytothePlaintiff,andtheCourtbeingotherwisesufficientlyadvised:

IT IS HEREBY ORDERED that the Defendant Fast Trucking, LLC, anditsManager,LesT.Load,andeachofthem,areherebyorderedtowithinfive(5) days of the service of this Order upon them, or any one of them, to transfer possession, or to cause the Defendant, Fast Trucking, LLC to transfer possession, tothePlaintiff,three(3)KenworthTractorTrucks,ModelYear2018,withVehicleIdentificationNumbersasfollows:

SN 1AB2CDEF3GH456789 SN 1AB2CDEF3GH456790 SN 1AB2CDEF3GH456791

In the event that anyone served with this Order does not transfer possession oftheKenworthTractorTrucksdescribedhereintothePlaintiff,orshouldthereturnbytheSheriffoftheWritofPossessionindicatethatthepropertyclaimedbythePlaintiffhasbeendisposedoforconcealedsothattheWritcannotbeexecuted,theCourt may compel the attendance of the Defendant, and/or its individual members, andexaminehimorheronoathastothesituationofthepropertyandpunishadisobedience of its orders in the respect as in cases of contempt.

________________________________

JUDGE, JEFFERSON CIRCUIT COURT

________________________________

DATE

5-40


TENDERED BY:


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F. [5.99] Bond on Writ of Possession and Order Transferring Possession



BOND ON WRIT OF POSSESSION AND ORDER TRANSFERRING POSSESSION

WeundertakethatthePlaintiff,ifitshouldfailtorecoverjudgmentinthisaction, shall return the property to the Defendant if return thereof be ordered, and shall pay all costs that may be awarded to the Defendant and all damages sustained bytheDefendantwhichareproximatelycausedbythelevyoftheWritofPosses-sion, the service of the Order Transferring Possession, and the loss of possession of the property pursuant to levy of the Writ of Possession or in compliance with an orderissuedunderKRS425.041,notexceedingFourHundredTwentyThousandDollars ($420,000.00).

WITNESS our hands this ____ day of ________, 20____.

________________________________

Bob Banker Vice President

SixthNationalBank

NO SURETY REQUIRED PURSUANT TO KRS 425.001

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I, the undersigned, a Notary Public within and for the State and County aforesaid, do hereby certify that the foregoing Bond for Writ of Possession and Order Transferring Possession was this day produced to me in said State and County, and was acknowledged before me by Bob Banker as a Vice President of SixthNationalBank.




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G. [5.100] Bond on Writ of Possession



BOND ON WRIT OF POSSESSION

WeundertakethatthePlaintiff,ifitshouldfailtorecoverjudgmentinthis action, shall return the property to the Defendant if return thereof be ordered, and shall pay all costs that may be awarded to the Defendant and all damages sus-tainedbytheDefendantwhichwereproximatelycausedbythelevyoftheWritofPossession, and the loss of possession of the property pursuant to levy of the Writ ofPossession,notexceedingFortyThousandDollars($40,000.00).


________________________________

Bob Banker Vice President

SixthNationalBank

NO SURETY REQUIRED PURSUANT TO KRS 425.001

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I, the undersigned, a Notary Public within and for the State and County aforesaid, do hereby certify that that the foregoing Bond for Writ of Possession was this day produced to me in said State and County, and was acknowledged before mebyBobBankerasaVicePresidentofSixthNationalBank.




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H. [5.101] VerifiedMotionforWritofPossessionandTemporaryRestrainingOrder


FLOOR PLAN LENDING CORPORATION PLAINTIFF v. NEW CAR CITY, INC. DEFENDANT

VERIFIED MOTION FOR WRIT OF POSSESSION AND

TEMPORARY RESTRAINING ORDER

ComestheAffiant,LucilleLender,firstbeingdulysworn,whostatesthatshe is a Vice President of Floor Plan Lending Corporation (“Floor Plan”) and Man-agerofFloorPlan’sonlyofficeinKentucky,thatshehasbeenspecificallyauthorizedtogivethisaffidavitonbehalfofFloorPlan,andthatshehaspersonalknowledgeofandhasreviewedFloorPlan’srecordsrelatingtotheaccountsoftheDefendantNew Car City, Inc. (“New Car”), and that she has spoken with other Floor Plan officersandemployeesandwhohavebeenonthepremisesofNewCarandwhohave personal knowledge of matters relating to the New Car accounts with Floor Plan.TheAffiantfurtherstatesthatshemakesthefollowingstatementsaspartofFloorPlan’sactiontorecoverpossessionofcertainnewandusedmotorvehiclesand motor vehicle parts from New Car through a Writ of Possession, and to obtain a Temporary Restraining Order restraining New Car from the sale of new and used motor vehicles and motor vehicle parts in which Floor Plan has a security interest, and prohibiting the transfer by New Car of any other type of property that consti-tutesFloorPlan’scollateralunderitsvarioussecurityagreementswithNewCar.

1. The debts of New Car to Floor Plan are in default. Under the terms of the Floor Plan Security Agreement, and oth-er security agreements (collectively, “the Security Agree-ments”),copiesofwhichhavebeentenderedasexhibitstoFloorPlan’sComplaint,andaremadeapartofthisVerifiedMotioncollectivelyasExhibitA,whichisattachedheretoand incorporated herein by reference, Floor Plan is entitled to the immediate possession, custody, control, title, and ownershipofNewCar’sinventoryofnewandusedmotorvehicles and motor vehicle parts.

2. The property sought by Floor Plan is wrongfully detained by New Car in that the terms of the security agreements provide that upon default, Floor Plan is immediately enti-tledtotakepossessionofitscollateralforNewCar’sdebtsto Floor Plan as described in the security agreements.

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3. New Car obtained possession of the new and used motor vehiclesthatarepartofitsinventoryandareFloorPlan’scollateralforNewCar’sdebtstoFloorPlan,throughFloorPlan’s extension of credit to New Car and payment byFloor Plan to the manufacturers and other sellers of the mo-torvehiclestoNewCar.FloorPlandoesnothavespecificknowledge as to the means by which New Car obtained anyotherpropertysoughtbyFloorPlan,butaffirmativelystates that New Car holds possession of all of the property sought by Floor Plan subject to the security interests New CargrantedtoFloorPlaninconsiderationofcreditextend-ed by Floor Plan to New Car. New Car continues to hold possessionofFloorPlan’scollateralinthatNewCarhasthebeneficialuseandenjoymentof thecollateraland, inthe case of the inventory of new and used motor vehicles and motor vehicle parts, continues to sell those motor vehi-cles and motor vehicle parts in the ordinary course of New Car’sbusiness.

4. The property against which Floor Plan seeks a Writ of Pos-session and Temporary Restraining Order consists of all new and used motor vehicles in the possession of New Car and its inventory of motor vehicle parts. Those new and used motor vehicles are more specifically described, bymodelandbyvehicleidentificationnumber,onExhibitAtothisverifiedmotion.Thevalueofeach2018newvehi-cle is the amount listed as the amount owed to Floor Plan onExhibitBattachedhereto and incorporatedhereinbyreference.ThetotalvalueofNewCar’sinventoryofnewandusedmotorvehiclesisapproximately$1,000,000.00. ThevalueofNewCar’sinventoryofmotorvehiclepartsisapproximately$50,000.00.ExhibitBwaspreparedbyJoeAuditor, a Commercial Lending Administrator for Floor Plan, who personally inspected the new and used motor ve-hicles that remain in the possession of New Car. The total valueofNewCar’sinventoryofnewandusedmotorvehi-cles and inventory of motor vehicle parts is $1,050,000.00.

5. JoeAuditorreportedtotheAffiantthathehaspersonallyobserved all of the new and used motor vehicles and the in-ventory of motor vehicle parts sought by Floor Plan on the premises of New Car at 509 North Main Street, Louisville, Kentucky 40202. This is a private place of business that mayhavetobeenteredbytheSheriffofJeffersonCountyto levy the Writ of Possession and Temporary Restraining Order for which Floor Plan herewith moves.

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6. To thebest ofFloorPlan’s andAffiant’s knowledge, thepropertysoughtbyFloorPlanhasnotbeentakenforataxassessment,orfine,pursuanttoastatute;orseizedunderanexecutionagainstthepropertyofthePlaintiff;orifsoseizeditisexemptbystatutefromsuchseizure.

7. TheAffiantfurtherstatesthathehaspersonalknowledgethat New Car operates an automobile dealership, that it re-mains actively engaged in the sale of new and used mo-tor vehicles and motor vehicle parts, that New Car sells the new and used motor vehicles and motor vehicle parts, whichareFloorPlan’scollateral,intheordinarycourseofits business, to consumers, who by virtue of KRS 355.9-320(1),takethepropertythatconstitutesFloorPlan’scol-lateralfreeandclearofFloorPlan’ssecurityinterest,andthat this places Floor Plan’s collateral beyond its reachthrough proceedings in this Court. TheAffiant furtherstates that Floor Plan, through its regular audit procedures, has determined that New Car has previously sold as many assix(6)newandusedvehicles toretailcustomers,anddid not pay Floor Plan in accordance with the terms of NewCar’ssecurityagreementswithFloorPlan,andthatatthetimethisVerifiedMotionissignedbyAffiant,NewCar has not paid Floor Plan for two new vehicles that New Car has sold to retail customers, that Floor Plan has made specificadvancesofmoneytoNewCaroneachofthosevehicles, and that the total amount owed to Floor Plan, at this time, but not paid by New Car, on the vehicles it sold is $40,100.00.

8. TheAffiantfurtherstatesthatthereisanimmediatedangerthatNewCar’sinventoryofnewandusedmotorvehiclesand motor vehicle parts sought by Floor Plan through Writ of Possession may become unavailable to levy of a Writ ofPossessionbytheSheriffofJeffersonCountybyreasonthat New Car will transfer additional new and used mo-tor vehicles and motor vehicle parts to retail customers, as described hereinabove, without paying Floor the sums ad-vanced by Floor Plan.

WHEREFORE,FloorPlanLendingCorporationandAffiant,throughFloorPlan’scounsel,movethecourt,pursuanttoKRS425.066,toissueaTemporaryRestraining Order imposing appropriate restrictions under KRS 425.071 on the use anddispositionofNewCarCityInc.’sinventoryofnewandusedmotorvehiclesand motor vehicle parts and the proceeds of any transfers of that inventory, and

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further move the Court, pursuant to KRS 425.011, to issue a Writ of Possession to be levied upon the inventory of new and used motor vehicles and motor vehicle parts.

________________________________ Lucille Lender

Vice President & Manager Floor Plan Lending Corporation


I, the undersigned, a Notary Public within and for the State and County aforesaid,doherebycertifythattheforegoingVerifiedMotionforWritofPossessionand Temporary Restraining Order was this day produced to me in said State and County, and was acknowledged before me by Lucille Lender as a Vice President and Manager of Floor Plan Lending Corporation.




TENDERED BY:


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I. [5.102] Temporary Restraining Order



TEMPORARY RESTRAINING ORDER

OntheMotionofPlaintiff,FloorPlanLendingCorporation(“FloorPlan”),asverifiedunderoathbyitsofficer,andthetestimonyofFloorPlan’semployeeLucille Lender, who appeared before the Court, and it appearing to the Court that thereisanimmediatedangerthatthepropertysoughtbyFloorPlaninitsVerifiedMotion for Writ of Possession, and in which Floor Plan holds a security interest, maybecomeunavailableforlevybytheSheriffofJeffersonCounty,shouldFloorPlan’smotionbe sustained, by reasonof being transferred to retail purchasersthrough the ordinary course of business of New Car City, Inc. (“New Car”), and Floor Plan having given its Bond in the amount of $2,100,000.00, with good cor-porate surety thereon, in the form prescribed by KRS 425.111, and it appearing to the Court that Floor Plan through its pleadings and motions has complied with all other applicable provisions of KRS 425.001, et seq., and it further appearing to the Court that Floor Plan is entitled to a Temporary Restraining Order pursuant to the provisions of KRS 425.066 that imposes on New Car the prohibitions permitted byKRS425.071,andtheCourtbeingotherwisesufficientlyadvised:

IT IS NOW HEREBY ORDERED that the Defendant, New Car City, Inc.,anditsofficers,agents,servants,employees,attorneysandrepresentatives,and all persons in active concert or participation with it, and all persons who have knowledge of this Temporary Restraining Order, be immediately restrained and enjoined from:

1. TransferringanyinterestinanyofNewCar’sinventoryofnew and used motor vehicles and motor vehicle parts by sale,pledgeorgrantofsecurityinterest,exceptaspermit-ted hereinbelow through retail sale in the ordinary course ofNewCar’sbusiness.

2. Concealingorotherwise removinganyofNewCar’s in-ventory of new and used motor vehicles and motor vehicle parts in such a manner as to make said inventory less avail-abletolevyorseizurebytheSheriffofJeffersonCounty.

3. Impairing the value ofNewCar’s inventory of new andused motor vehicles and motor vehicle parts by acts of de-struction, or by failure to care for or to insure the property

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in a reasonable manner.

4. New Car, may, in the ordinary course of its business, sell any of its inventory new or used motor vehicles, or motor vehicle parts, at retail sale, provided that prior to the close ofthenextbusinessdayfollowingthesale,itwilltransfertoFloorPlan incash, cashequivalent (certified fundsorcashier’sorotherofficialcheckofafinancialinstitution),wire transfer, or in the form of proceeds actually received by New Car with any required endorsements, the total sale price of the item or items of inventory, together with a copy ofthesalesslip,buyer’sorder,orequivalentdocumentde-scribing the item or items of inventory sold. If the sale of inventory is by retail installment contract, note and security agreement,ortoalessor,NewCarshallspecificallynotifythe purchaser of the retail installment contract, the lender to which the note is payable, or the lessor that acquires a vehicle for its lessee, that all proceeds due New Car from the transaction are to be paid to Floor Plan at such address asFloorPlannotifiesNewCar.Ifthesaleofinventoryispaid for with a credit card, New Car shall transfer to Floor Plan, within one (1) business day of receipt of credit to its merchant account, the total sale price, less any merchant discountorKentuckysalesorusetaxifcollectedaspartof the sale, and a copy of a sales slip or equivalent docu-ment describing the item(s) of inventory sold. New Car is prohibited from transferring its inventory of new and used motor vehicles and motor vehicle parts through retail sale by any means other than a cash sale, credit card sale, or sale by retail installment contract that a purchaser has agreed to accept, sale by note and security agreement that a lender has agreed to accept, or sale to a lessor unless Floor Plan authorizes, in writing, another form of sale. Should Floor Plan receive any funds from New Car, or others as a result of a sale of inventory by New Car, that represent sales or usetaxduetheCOMMONWEALTHOFKENTUCKY,ordue to any other taxing entity, Floor Plan shall, no laterthan the Tuesday following the week in which Floor Plan received such funds, remit the funds to New Car.

5. New Car, and all other parties described herein, shall not interferewith theofficers, agents,oremployeesofFloorPlanintheperformanceoftheirexaminationandprotec-tionofFloorPlan’scollateralinthepossessionofNewCar,andtheirexaminationofNewCar’srecordsrelatingtothatcollateral and its proceeds.

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6. This Temporary Restraining Order shall remain in full forceandeffectuntilsuchtimeasahearingmaybeheldonFloorPlan’sMotion forWritofPossession, atwhichtimetheCourt,orajudicialofficerasdesignatedbyKRS424.001, shall either dissolve this Temporary Restraining Order, or issue a Preliminary Injunction that will remain ineffectuntilthepropertyclaimedbyFloorPlanisseizedpursuant to the Writ of Possession. If New Car does not request a hearing, this Temporary Restraining Order shall remainineffectuntilsuchtimeastheSheriffofJeffersonCounty has levied a Writ of Possession and seized all of the property against which the Writ of Possession is directed.

7. Any violation of the terms of this Order shall subject the violator to the contempt powers of this Court.

________________________________

JUDGE, JEFFERSON CIRCUIT COURT

________________________________

DATE

5-52


J. [5.103] Bond on Writ of Possession and Temporary Restraining Order



BOND ON WRIT OF POSSESSION AND TEMPORARY RESTRAINING ORDER

WeundertakethatthePlaintiff,ifitshouldfailtorecoverjudgmentinthis action, shall return the property to the Defendant if return thereof be ordered, and shall pay all costs that may be awarded to the Defendant and all damages sustainedby the defendantwhich are proximately causedby operationof theTemporary Restraining Order and Preliminary Injunction, if any, the levy of the Writ of Possession, and the loss of possession of the property pursuant to levy of the Writ of Possession or in compliance with an order issued under KRS 425.036, notexceedingTwoMillionOneHundredThousandDollars($2,100,000.00).


________________________________

Hy Premium ExecutiveVicePresident

ABC Surety Company

________________________________ Lucille Lender

Vice President & Manager Floor Plan Lending Corporation

5-53



I, the undersigned, a Notary Public within and for the State and County aforesaid, do hereby certify that the that the foregoing Bond on Writ of Possession and Temporary Restraining Order was this day produced to me in said State and County, and was acknowledged before me by Hy Premium as surety thereon.





I, the undersigned, a Notary Public within and for the State and County aforesaid, do hereby certify that the foregoing Bond on Writ of Possession and Temporary Restraining Order was this day produced to me in said State and Coun-ty, and was acknowledged before me by Lucille Lender as a Vice President and Manager of Floor Plan Lending Corporation.




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K. [5.104] VerifiedMotionforAttachment


SMALL LOAN COMPANY PLAINTIFF v. JANE DEBTOR DEFENDANT

VERIFIED MOTION FOR ATTACHMENT

ComestheAffiant,_________,whostatesthathe/sheis___________forthePlaintiff,thathe/sheisspecificallyauthorizedtomakethisAffidavitandhas personal knowledge of all of the facts stated herein.

PlaintiffandAffiantstatethatthisisanactionfortherecoveryofmoneyfrom the Defendant, arising under the terms of a _____________; that said claim isjust;thatPlaintiffought,astheAffiantbelieves,torecoverthereonthesumof$_________ with interest at the rate of __% from ___________ until paid.

PlaintiffandAffiant furtherstate that theDefendant [factualand legalgroundsentitlingPlaintifftoattachment,see KRS 425.301(1) and (2)].

WHEREFORE,PlaintiffandAffiant,pursuanttoKRS425.301andKRS425.307, by counsel, move the Court to enter an attachment against the property of the Defendant, including garnishments, as a security for the satisfaction of such judgment as may be recovered.

________________________________

AFFIANT





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L. [5.105] Notice and Demand (Attachment) Letter

[For Placement on Law Firm Letterhead]

[Date]

Re: ____________________

____________________ v. ____________________ Our File No. ____________________

Dear ____________________:

Youareherebynotifiedthatdemandisbeingmadeuponyouforpaymentofthesum of $_______, plus court costs and attorney fees.

PursuanttoKentuckyRevisedStatutes425.301(3),youareadditionallynotifiedthat you have seven (7) days from the date of this notice in which to petition the CourtforahearingorinwhichtopaythePlaintiff’sclaiminfull,andthatunlessa hearing is set or the claim is paid in full, an order will be issued to subject your property to payment of the claim.

ThegroundsforthePlaintiff’smotionforattachmentare[usespecificfactsandlegal grounds from 425.301(1) or (2) or KRS 425.306].

ThenameandaddressofthePlaintiffis____________________.ThenameandaddressofthePlaintiff’sattorneysisshownabove.Thecourtinwhichthelawsuitandmotionforattachmenthavebeenfiledis____________________.

This notice is being sent to youby certifiedmail, return receipt requested, onthe date shown at the top of this letter. The time in which you have to petition the court for a hearing runs from the date of the letter, not from the date that you receive the Notice.

(IfthenoticeisforuseinJeffersonCountyaddtheadditionallanguagerequiredbyJeffersonCircuitCourtRule511D.)

Sincerely,

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M. [5.106] Notice of Action (Attachment)



NOTICE OF ACTION (ATTACHMENT)

NoticeisherebygiventhatthePlaintiffintheabovestyledcasehasfiledanactionaffectingtheright,title,andinterestoftheDefendant,JaneDebtor,inandtothefollowingdescribedrealpropertylocatedinJeffersonCounty,Kentucky:

[insert description of real property]

________________________________ JOHN D. LAWYER

LAWYER & ATTORNEY, LLC AttorneysforPlaintiff 111 West Main Street


THIS INSTRUMENT PREPARED BY:


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N. [5.107] Writ of Attachment



WRIT OF ATTACHMENT

THE COMMONWEALTH OF KENTUCKY

To the Sheriff of Jefferson County, Greetings:

You are hereby ordered to levy the within Attachment on the right, title, and interest of the Defendant: Jane Debtor, in and to the real property described in the attached Notice of Attachment.

You are directed to make the levy by invading the property under your powerasaSheriffandtoservetheWritonsuchoccupantasyoumayfind,or,inthe event that no one is present at the time your levy is made, you shall leave a copy of this Writ and its attached Bond at the site of your levy.

Service of this Writ upon the Defendant informs the Defendant that: (1) THE ATTACHMENT MAY BE DISSOLVED UPON THE POSTING OF A BOND IN COMPLIANCE WITH KRS 425.309; (2) THE DEFENDANT MAY TAKE EXCEPTION TO THE SURETIES ON THE PLAINTIFF’S BOND UNDER KRS 425.121; AND, (3) THE DEFENDANT IS ENTITLED TO AN IMMEDI-ATE HEARING ON A MOTION TO QUASH THIS ATTACHMENT.

________________________________

ISSUING OFFICER

________________________________

DATE

5-58


O. [5.108] Bond for Attachment



BOND FOR ATTACHMENT

SmallLoanCompany,PlaintiffandPrincipal,andABCPropertyInsuranceCompany,asSurety,undertakethatifthePlaintiffshouldfailtorecoverjudgmentin this action and the order of attachment is determined to have been wrongfully obtained,PlaintiffshallreturntheattachedpropertytotheDefendantifreturnthereofbe ordered, and we shall pay to the Defendant, all damages and costs that may be awarded by reason of the attachment being wrongfully obtained in an amount not exceeding$____________.


________________________________ Hy Premium

ExecutiveVicePresident ABC Surety Company

________________________________ Imogene Interest

Assistant Vice President Small Loan Company

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I, the undersigned, a Notary Public within and for the State and County aforesaid, do hereby certify that the foregoing Bond for Attachment was this day produced to me in said State and County, and was acknowledged before me by Hy Premium as surety thereon.





I, the undersigned, a Notary Public within and for the State and County aforesaid, do hereby certify that the foregoing Bond for Attachment was this day produced to me in said State and County, and was acknowledged before me by Imogene Interest as Assistant Vice President of Small Loan Company.




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P. [5.109] AffidavitofCompliance(Attachment)



AFFIDAVIT OF COMPLIANCE

ComestheAffiant,JohnD.Lawyer,andstatesthatheiscounselforthePlaintiff,SmallLoanCompany,andassuchhaspersonalknowledgeofthefactsstated herein.

TheAffiantfurtherstatesthatthePlaintiffhascompliedwithKRS425.301by sending to the Defendant, at his last known place of residence, a Notice and Demand, a copy of which is attached hereto, together with a Summons, copy of theComplaint,andcopyoftheVerifiedMotionforWritofAttachment.

TheAffiantfurtherstatesthatattachedheretoisacopyofthecertifiedmailreturn receipt card, indicating delivery of the Notice and Demand, and associated documents, to the Defendant on ________ ____, 20____.

TheAffiantfurtherstatesthatneitherhenorthePlaintiffhasreceivedarequest for a hearing from the Defendant.

________________________________ JOHN D. LAWYER, AFFIANT





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Post-Judgment Remedies


6

POST-JUDGMENT REMEDIES

TIMOTHY A. SCHENKKentucky Bankers Association


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I. [6.1] Introduction .........................................................................6-5A. [6.2] The Ten Day Stay ...................................................6-5B. [6.3] Limitations Period on Judgments ...........................6-6C. [6.4] Fair Debt Collection Practices –

Compliance Post-Judgment ....................................6-6

II. [6.5] Collection Without Legal Process ......................................6-9A. [6.6] Payment in Full and Settlements

(Lump Sum or Payoff Over Time) ........................6-11

III. [6.7] Information and Asset Discovery .....................................6-12A. [6.8] Credit File .............................................................6-12B. [6.9] Credit Reporting Services .....................................6-13C. [6.10] Third Parties ..........................................................6-14D. [6.11] Public Records ......................................................6-14E. [6.12] Internet Search Services .......................................6-15F. [6.13] Commercial Locator and Asset

Services .................................................................6-16G. [6.14] Post-Judgment Depositions and

Discovery ..............................................................6-16

IV. [6.15] Legal Remedies Post-Judgment/Post-Judgment Process ..............................................................6-18

A. [6.16] Garnishment ..........................................................6-181. [6.17] Special Notes on Wage

Garnishment ...........................................6-202. [6.18] Special Notes on Non-

Wage Garnishment .................................6-20B. [6.19] Executions on Property .........................................6-21C. [6.20] Notice of Judgment Lien ......................................6-22

V. [6.21] Exempt Property ...............................................................6-24

VI. [6.22] Foreign Judgments ............................................................6-25

VII. [6.23] Execution by Charging Order ..........................................6-25

VIII. [6.24] Appendix ............................................................................6-27A. [6.25] Post-Judgment Collection Letter (1) .....................6-27B. [6.26] Post-Judgment Collection Letter (2) .....................6-28C. [6.27] Notice to Take Deposition ....................................6-29D. [6.28] Interrogatories .......................................................6-30

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E. [6.29] Order of Wage Garnishment and Notice of Rights to Assert Exemption Thereto (AOC-150) ..............................................6-35

F. [6.30] Affidavit for Order of Wage Garnishment (United States District Court for the Eastern District of Kentucky Form EDKy-424) .................................6-39

G. [6.31] Order of Garnishment (Non-Wage) (AOC-150.1) .........................................................6-43

H. [6.32] Order of Garnishment (Non-Wage) (United States District Court for the Eastern District of Kentucky Form EDKy-426) ...........................................................6-46

I. [6.33] Affidavit to Challenge Garnishment (AOC-150.2) .........................................................6-49

J. [6.34] Execution Form (AOC-135) .................................6-50K. [6.35] Notice of Judgment Lien ......................................6-52L. [6.36] Notice and Affidavit of Foreign

Judgment Registration (AOC-160) .......................6-54

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Congratulations! You have your judgment. Unfortunately, the entry of a judgment does not automatically result in payment or satisfaction for the victorious litigant. If the judgment debtor fails or refuses to pay voluntarily on the judgment, the judgment creditor must employ those tools available under the statutory and common law to, literally, go and “get” its money. Someone once said that a judg-ment is like a “hunting license.” The license grants its possessor the right to go into the forest of real and personal property and hunt for the debtor’s assets. However, without the right tools, or if there is no game, the license is of little value.

A useful tip to remember when consulting with a client on a collection case (both pre- and post-judgment) is for the lawyer to be careful not to raise the client’s expectations of recovery beyond those that are realistic, based upon what the lawyer and the client know or may know about the debtor’s assets. Communication between the lawyer and the client is critical in establishing realistic expectations and goals. A judgment in a medical malpractice case against a solvent hospital may be as good as gold. On the other hand, a judgment against an individual debtor who does not work, draws Social Security and has little in the way of personal property may result in nothing more than personal satisfaction on the part of the creditor for having enforced its legal rights. The reality is that, while billions of dollars are recovered each year in the collection industry, many billions more go unrecovered.

In this chapter, the statutory and common-law tools that will help the judgment creditor recover funds from the recalcitrant judgment debtor will be explored. Other useful tools will also be examined that will enable the judgment creditor to identify assets available for attachment, other information that may assist in the judgment’s collection, and tried and true methods of collection which can be very successful and which do not require legal process.

A. [6.2] The Ten Day Stay

It is important to remember that KRS 426.030 prohibits post-judgment execution or process (of any form), unless otherwise ordered by the court, prior to the expiration of ten (10) days after entry of judgment. This “breathing space” is designed to afford the judgment debtor time to exercise its right to file a motion for a new trial or a motion to amend the judgment under Kentucky Rules of Civil Procedure (“Civil Rule(s)” or “CR”) 50, 52, and 59 (all of which automatically stay execution upon filing).

If a judgment creditor wants to be able to execute on a judgment immedi-ately upon its entry (which is recommended given that many debtors have a history of leaving town or moving assets shortly after entry of judgment), the attorney is advised to build such language into the terms of the judgment submitted to the court. For example, a careful attorney will indicate in the tendered judgment that upon its entry “execution may issue forthwith, and this is a final judgment and there

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is no just reason for delay in its entry.” Failure to follow this rule could result in a premature execution attempt being declared void, which could also expose the judgment creditor or counsel to a claim for wrongful execution. Adams v. Napier, 334 S.W.2d 915 (1960).

For purposes of this chapter, the author will assume that the requisite ten (10) days has passed or that the judgment to be enforced grants the right to immedi-ate execution – before any of the legal processes described below are implemented. This chapter also assumes that the debtor has not filed a post-judgment motion that would stay enforcement or filed an appeal and given the bond required by Civil Rule 73.04 (which will also stay enforcement of the judgment). Of course, nothing in the statutes or Civil Rules prohibits the judgment creditor from employing the traditional, non-legal collection procedures discussed herein (i.e., methods that do not employ legal process, such as telephone calls or correspondence) within the ten (10) day period, and these can be quite effective.

B. [6.3] Limitations Period on Judgments

The limitations period on judgments is an important issue that is often left out of collection outlines, and deserves attention. Under KRS 426.035, execution on a judgment may issue “at any time until the collection of it is barred by the statute of limitation....” As a general rule, judgments in Kentucky are valid and enforceable for fifteen (15) years “from the date of the last execution thereon.” KRS 413.090. This means that a judgment in Kentucky may be executed on for at least fifteen (15) years from date of entry and in some cases in virtual perpetuity so long as the judgment creditor is careful to “execute” on the judgment at least once every 15 years.

What type of “execution” is necessary to renew the judgment? Any of the remedies denominated as executions and found in KRS Chapters 425 or 426 (garnishment, real property or personal property execution) should suffice. What about the filing of a judgment lien filed against a debtor’s real estate? In the au-thor’s view and as discussed below, a judgment lien should be considered a form of execution since the remedy it was designed to create is in the nature of a lien or attachment against the debtor’s property. However, there is no case law on point, and because the statute which grants authority for the real estate lien is not found in the “judgments” and “enforcement” sections of the Kentucky statutes, the careful practitioner will not rely on a judgment lien for purposes of renewing a judgment. Instead, counsel should employ the other enumerated remedies so as to leave no room for doubt that the judgment has been extended by execution.

C. [6.4] Fair Debt Collection Practices – Compliance Post-Judgment

Chapter 1, as well as Sections [2.12] and [10.140] through [10.148] of this Handbook, discusses the obligations of the collection attorney and other “debt col-lectors” under the Fair Debt Collection Practices Act (“FDCPA”), 15 USC § 1692,

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et seq. In Chapter 1, the obligations of the attorney attempting to collect a retail or consumer debt (i.e., a debt incurred “primarily for personal, family or household purposes”) both prior to and during the litigation of a collection case are addressed. However, it is just as vital for the practitioner who may be collecting a retail or consumer debt post-judgment to keep in mind that the obligations of a collection attorney under the FDCPA continue after judgment has been entered and until the case is closed.

The first clue to the validity of this statement is 15 USC § 1692g(a)(4), which specifically requires that the validation notice required to be sent to the debtor offer to provide a copy of “a judgment” is one has been obtained. Further, judicial decisions interpreting the FDCPA make it clear that it applies to collection activity post-judgment. For example, in Caroll v. Wolpoff & Abramson, 961 F.2d 459 (4th Cir. 1992), the requirement for a “Mini-Miranda” warning (“this is a communication from a debt collector”) that is found at 15 USC § 1692e(11) was held to apply to post-judgment communications. Similarly, in Frey v. Gangwish, 970 F.2d 1516 (6th Cir. 1992), the court held that where the debt collector’s initial communication with the consumer occurred while trying to enforce a judgment the “validation notice” required by 15 USC 1692g(a)(1)-(5) was required. It has also been held that the venue restrictions found in the FDCPA apply to post-judgment proceedings. See, e.g., Fox v. Citicorp Credit Services, Inc., 15 F.3d 1507 (9th Cir. 1994).

Accordingly, it is clear that, in all communications and interactions with a consumer debtor post-judgment, the practitioner (assuming he or she is a “debt collector” under the FDCPA, which generally means that the attorney handles more than a few isolated collection cases) must be careful to avoid the common viola-tions (e.g., overshadowing, harassment or abuse, prohibited communications with a debtor at their place of employment, improperly acquiring location information, failure to provide the validation notice or proper verification of the indebtedness, failure to provide the “Mini-Miranda” warning) that may also occur prior to the entry of judgment.

The FDCPA was originally adopted by Congress in 1977 and was designed to curb what was considered abusive and improper conduct on the part of collectors and collection agencies. In July 1986, with virtually no consideration about how application of the statute might impact litigation practice, Congress removed the attorney exemption from the FDCPA. However, the original problems that the FDCPA was designed to correct, such as the use of harassing or misleading tac-tics, obscenity, threats of criminal prosecution and similar actions, have no place in a collection case. Such actions are prohibited by the code of ethics and rules of professional conduct that attorneys are bound to uphold. As a general rule, lawyers who adhere to these principles, are familiar with the FDCPA and who implement strategies in their office to deal with its technical requirements should rarely find themselves on the wrong side of the act.

Of course, applicability of the FDCPA to judgments and post-judgment enforcement remedies can create some interesting quandaries and problems for

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the collection attorney. For example, the FDCPA provides that the Mini-Miranda warning must be given in “all communications” with a consumer debtor except in a “formal pleading made in connection with a legal action.” 15 USC § 1692e(11). Clearly, all post-judgment letters to a debtor should contain the warning, and in all post-judgment phone calls with a debtor the practitioner should ensure that he or she (or the staff person assisting the lawyer) orally provide the warning to the debtor.

However, Federal Rule of Civil Procedure 7(a) generally limits the defini-tion of “pleadings” to complaints, answers, replies to counterclaims and third-party complaints, or answers. Consequently, what would the collection attorney (and the courts) consider a garnishment or judgment lien notice to be? If these documents can be considered true “pleadings” (as the author believes Congress intended when it amended the statute to add this exclusion in 1996), they would clearly be exempt from the inclusion of the Mini-Miranda warning. However, as a general rule the FDCPA is strictly interpreted by the courts. Considered alongside other existing federal law and following standard methods of statutory construction, these documents might be considered communications with a debtor that do not fall into the category of true “pleadings.” If so, presumably these documents and any other post-judgment process, paper, or order served upon a debtor must include the required notification.

It may be difficult to explain that reasoning to a district court judge who refuses to sign a tendered order or judgment with the notification that it comes “from a debt collector.” If this author’s experience is a guide, many judges will refuse to sign such tendered orders or will scratch through the notification. However, at least the collection attorney can say that she did her best to comply with the FDCPA.

Additionally, the venue restrictions of the FDCPA require that a collection suit in a consumer case be filed only in the judicial district where the consumer signed the contract or where the consumer resides at the commencement of the action. See 15 USC § 1692n. However, one can easily imagine a problem if the collection attorney learns that the debtor has no assets available in the state in which judgment has been entered but owns property in another jurisdiction. Would “commencing” an action to enforce a judgment in a sister state under the Uniform Enforcement of Judgments Act (see Section [6.22], infra) against those assets be a violation of the FDCPA venue restrictions? The author is not aware of a case that has so held, but that does not mean that a judge enforcing a claim for violation of the FDCPA could not rule in such a manner under a strict interpretation of the relevant provisions.

The point of this section is that application of the FDCPA to attorneys and court process (both pre-legal and post-judgment) is fraught with pitfalls and traps. The prudent practitioner will follow this advice: When in doubt, assume the FDCPA applies or that it may place limitations on the collection attorney’s ability to exercise certain remedies. Treat all debtors with courtesy and respect, carefully review post-judgment collection methods, and take any necessary internal steps

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to ensure that those methods are tailored to meet the requirements of the FDCPA to the best of the attorney’s legal skill and ability.

II. [6.5] Collection Without Legal Process

Many creditors and attorneys are under the mistaken belief that once a judgment is entered, the only avenue available for collection is post-judgment process. This is not true, and this type of thinking will not serve the client well. To a lawyer, the concept of collection without using judicial process may sound unusual. However, the attorney should consider that the vast majority of bad debt in this country is collected prior to suit and without resort to legal process, both by collection agencies and many specialized law firms who concentrate in debt collection. At a minimum, the attorney handling a collection case should consider the use of “non-legal” methods, keeping in mind that the client’s goal is to collect the money it is owed, however that may be best accomplished, in the most efficient and cost-effective manner.

As with “pre-legal” or “non-suit” pre-judgment collection efforts, which are discussed in Chapter 1, phone calls and letters (so long as they comply with the FDCPA when used in the consumer context) are valuable tools available to a creditor or any collection attorney, even after judgment has been entered, and they often result in liquidation of an account. Some sample form letters that might be used successfully for these purposes when collecting a consumer debt are included in the Appendix of Chapter 1 at Sections [1.66] and [1.67]. Sample post-judgment collection letters appear in the Appendix to this chapter at Sections [6.25] and [6.26].

After receiving a judgment, the collection attorney should contact the debtor by phone and mail as much as possible, being careful, however, to stay within the legal limits and avoiding any prohibition that is placed on time, place, manner, or number of contacts under the FDCPA. The more contact one has with the debtor, the more opportunities there are to convince the debtor that it is in their interests to satisfy the judgment (or make a good faith offer of settlement to which the judgment creditor can agree) to avoid the consequences of their of refusing to pay.

Obviously, the size of the judgment and type of debtor dealt with may dictate the strategy employed. For example, if the judgment is of substantial size, held against a large, viable business with significant assets and revenue, imme-diate execution against the debtor’s assets may be the creditor’s best alternative. However, in the vast majority of cases, the judgment creditor holds a judgment that may be only partially or marginally collectible, or the chances of recovery may be unknown. In such cases, execution on the judgment may be of little value or may drive the debtor into bankruptcy, resulting in a total loss of the potential recovery.

Above all, the collection attorney’s guiding principal, in the case of a judgment against a consumer debtor, is to be firm in his or her position and truthful

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with the debtor as to their likely exposure and the remedies to be employed against them should they choose to ignore their obligation. In most cases it is also wise to express a potential willingness to resolve the matter by agreement.

The author has included the admonition regarding “truthfulness” to remind collection lawyers that if they are dealing with a consumer debtor, they would be ill-advised to tell a consumer debtor, for example, that the debtor “will” be subject to an execution against their personal property if the attorney does not intend to take such a step (e.g., where the balance on the judgment may be insufficient to make this worthwhile). Such a representation will likely find the attorney on the wrong side of the FDCPA’s provision against threats to take any action that either cannot be legally taken or that the collector does not intend to take. 15 USC § 1692e(5). However, if the collection attorney can legally issue execution and intends to do so, there is nothing wrong with advising the debtor that these events will be forth-coming (unless, for strategy reasons it is determined to be unwise).

The following are some additional practical suggestions:

1. Place phone calls to the debtor, get them on the phone, and try to explain to them the need to satisfy the obligation to avoid further collection activity and enforcement of the judgment.

2. Use an initial letter post-judgment that advises the debtor that a judgment has been entered against them and that the creditor or its counsel “may use any and all legal means necessary to collect the debt.” Be certain before such a letter is sent that the client has authorized these remedies and that the dollar amount of the judgment is sufficient to justify their use. Also, the author suggests attorneys shy away from using the word “execution.” To the lay consum-er debtor, that word may have an ominous sound and could cause unintended consequences for the collector.

3. Other letters might advise the debtor that the judgment will remain valid and enforceable for 15 years (that will usually get their attention), or advise the debtor that the creditor is willing to accept a settlement and that a settlement would resolve the matter and result in satisfying the debt.

Another advantage of sending this type of correspondence is that, if a debtor has moved, the post office return may advise the sender concerning the debtor’s new address through the forwarding information. This will allow further contact or the use of other post-judgment remedies, including legal process.

Another factor to consider is the employment of modern technology. Facebook, text messaging, and other forms of modern communication have been used by debt collectors; but are they legal? The FDCPA does not outright prohibit

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the use of social media or text messaging to communicate with debtors. However, there are many pitfalls through such methods.

The Federal Trade Commission has brought several enforcement actions against debt collectors where it found that the debt collector’s communications were deceiving. Furthermore, any debt collector would still have to provide proper notice to the debtor in compliance with Section 15 USC § 16807(11) of the FDCPA and avoid publication of the debt to any third parties in compliance with § 805(b) of the FDCPA. Consequently, it is the author’s recommendation that these mediums of communication be avoided to mitigate potential risks.

At all times, keep in mind that whatever the attorney does or says must fully comply with the FDCPA. In the end, by using common sense and following the statutory requirements, the collection attorney will likely find that letters, tele-phone calls, and other traditional “non-legal” collection techniques can assist in liquidating the account as effectively as traditional legal process. Best of all, they are less costly for the client.

A. [6.6] Payment in Full and Settlements (Lump Sum or Payoff Over Time)

Assuming one is successful at contacting the debtor and arranging for payment of the debt, the question that often arises is what type of payment should be structured? Obviously, payment in full is the most desirable result for the client, but this is rare. In most cases, the debtor will want to settle for a reduced amount to avoid paying, for example, accrued interest and fees, while the creditor will be willing to accept a lesser, reasonable settlement to avoid the continued chase and to finalize the outstanding issues in the case once and for all.

Clearly, a lump sum payment is the most desirable outcome in such cir-cumstances, and the attorney should press for this in all cases to the extent possible. It avoids the difficulty of pursuing the debtor later upon a payment default under a structured settlement. The case may be closed, allowing the client and the lawyer to focus on other pressing matters.

What lump sum settlement amount is reasonable? If the debtor cannot come up with a satisfactory lump sum, should the client consider payment arrange-ments? If so, how much and how often? These decisions will often depend on the case and the position advanced by the client.

In advising the client on these points, the practitioner should take into account factors such as: (1) the debtor’s ability to pay (including assets available for attachment); (2) the debtor’s ability to borrow from banks, credit unions, family, or friends (this should be insisted upon before payment over time is considered); (3) the debtor’s current employment situation; (4) the likelihood of a bankruptcy ensuing if arrangements are not made on specific terms; and (5) the existence of other creditors and whether they have judgments or liens. For example, if the in-

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formation obtained discloses that the debtor is completely leveraged and is being sued by five other creditors, the collection attorney might take as much money as she can get for her client up front even if she has to leave some dollars on the table.

In the event of the acceptance of a lump sum payment for settlement, it is recommended that any such payment be accompanied by a settlement agreement and release to avoid any confusion between the parties as to what is encompassed in the settlement.

In the end, the choice will be the client’s, having considered all such factors and having had the benefit of the attorney’s best consultation and advice.

III. [6.7] Information and Asset Discovery

This section is titled “Information and Asset Discovery,” rather than sim-ply “Discovery,” for a reason. Most lawyers tend to think of discovery as a formal process, utilizing discovery devices such as deposition notices, interrogatories, and the like to find assets. Yet, often the information the attorney needs to recover on the client’s judgment may already be available. Do not overlook it! Other times, information can be obtained from various private sources for a small fee.

What does the collection attorney need to know? At a minimum in most cases, in addition to the debtor’s identity, one should know: (1) the debtor’s Social Security number; (2) a current residence or other residence or address where the debtor might live or can be contacted; (3) the debtor’s place of employment or identification of any other sources of income (other than exempt sources) that the debtor might have access to; (4) the location of any bank accounts, credit union accounts, or any other account where the debtor might keep funds or cash equiv-alents, such as stocks or bonds; and (5) an identification of the type of property (real and personal) that the debtor may own.

A. [6.8] Credit File

Before expending the time, money and energy associated with formal legal process, or paying fees to private locator or asset search companies, the attorney should try looking at the file and telephoning the client. Often, the client will have a wealth of information (e.g., history of the debtor and their account, previous efforts at collection, records of friends and family, etc.) available to assist the attorney, and much of this may have been sent to the lawyer with the client’s referral for collection. The credit file maintained by the client is the first obvious place to go, and the debtor’s application for credit (assuming one exists) is usually the best starting point. That document should have much of the information the attorney requires. Unfortunately, the author has seen many clients that failed to obtain a good, complete credit application, and the collections attorney should

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counsel his or her clients regarding the importance of obtaining these documents at the time credit is extended.

B. [6.9] Credit Reporting Services

Credit bureau reports can be a valuable tool to acquire needed informa-tion. As of the writing of this chapter, the primary credit reporting services are TransUnion, TRW, Experian, and Equifax. By becoming a client of these services for a pre-determined fee, the creditor’s attorney can access these national data warehouses to obtain credit bureaus, Social Security traces, and other similar reports. The majority of the larger collection law firms utilize these services on a regular basis. They are an excellent source of information, and an inquiring party may be able to identify Social Security numbers, a history of banks or other finan-cial institutions that the debtor has been associated with in the recent past (which may allow issuance of a garnishment against that institution), home ownership and mortgage balance information (which will help assess the utility of a real estate lien or a foreclosure remedy), and other valuable information. The cost for a search is usually approximately $1.50 to $3.00, depending on the report that is requested. Upon establishing an account, reports are also generally available and accessible on the Internet.

The practitioner is advised to carefully review the Fair Credit Reporting Act (“FCRA”), found at 15 USC § 1681 et seq., prior to utilizing these services. The FCRA strictly regulates the use of credit reporting services to obtain informa-tion on a consumer (the typical retail debtor). Under the FCRA, a consumer credit reporting agency such as those identified herein may only furnish a consumer report (i.e., a credit bureau or a Social Security trace report) if the inquiring party has a “permissible purpose” for making the inquiry. The permissible purpose important here is found in § 604(a)(3)(A) of the FCRA which authorizes the furnishing of such a report to a “person” (which would include a lawyer or law firm as the agent of a creditor client) who “intends to use the information in connection with...collection of an account of...the consumer.”

It is important for the practitioner to remember that “collection of an account” does not include attempts to find information about a debtor or his/her background to further pre-judgment litigation. The exception applies only if the lawyer has been specifically engaged for the purposes of collecting a debt. The FCRA imposes substantial civil penalties for procuring such a report under false pretenses or for an impermissible purpose. See Duncan v. Middleton & Reutlinger, et al., 149 F.3d 424 (6th Cir. 1998). In the Duncan case, the Sixth Circuit held that the law firm had impermissibly obtained a credit report on a defendant/litigant to prepare for litigation, and it awarded substantial penalties and damages in favor of the consumer.

As a general rule, neither a lawyer nor a law firm should ever obtain a credit report or other consumer report unless they have been retained specifically

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for the purpose of collecting an account from the consumer or some other specific and identifiable permissible purpose under the FCRA applies.

For more on the FCRA, see Section [2.10] of Chapter 2, supra, and Sections [10.59] through [10.67] in Chapter 10, infra.

C. [6.10] Third Parties

Many third parties may have information about the debtor, or they may know something or someone who has helpful information. For example, the debtor’s family members, friends, and associates may be willing to help without the need to be subjected to or compelled through court process. Former wives and husbands are usually of particular assistance, for reasons that need not be elaborated on here.

Alternatively, sheriff’s offices and other public officials, particularly in smaller towns, may know the debtor or someone who knows the debtor and where he or she can be found. Contacting other creditors with whom debtor has open loans or a previous history, can also be of assistance, as many creditors are willing to help share information. Of course, given the new privacy laws and the attention Congress has focused on these issues, the usefulness of these processes may wane, and the practitioner must be careful to ensure compliance with these new laws.

When contacting such third parties, the collection attorney in a consumer case must be careful to follow the rules set forth in the FDCPA on the acquisition of information on the debtor. See 15 USC § 1692b(2)-(6). For example, among other restrictions, the attorney may not disclose that the consumer owes any debt to these third parties.

With respect to commercial debts, these caveats do not apply. When attempting to collect against a business entity, a Dun & Bradstreet report is a very useful tool, as this report (which can be obtained from the company for a fee) may provide corporate director and officer information and a recent business valuation as well as disclose the business’ assets and liabilities. For further suggestions on collecting commercial accounts, refer to Chapter 3 of this Handbook.

D. [6.11] Public Records

Searching real estate records, records of the Kentucky Secretary of State, and others can assist in finding assets. Judgment lien books maintained by the county clerks’ offices may reveal other judgment creditors, with whom the attorney may be able to coordinate search and investigation. Try a title search, which may provide previous residences and identify property owned. Creditor’s counsel should check with the county property valuation office for additional information.

Divorce records are also a wealth of information in some cases, as a final order or decree of divorce may describe the parties’ assets in great detail and identify which party received what type of property in the settlement.

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Contrary to what many may think, bankruptcy records are also a great source of information. Many bankruptcies wind up in dismissal without a discharge of indebtedness. In order to file the bankruptcy, the debtor is required to submit a very detailed petition in bankruptcy to the court, outlining all of his or her assets, liabilities, and property. Upon dismissal, acting on that information is fair game. However, before doing so, it is prudent to double check and make sure that no discharge was entered, that the dismissal was actually entered and that the case was not reinstated for some reason. This is necessary to avoid any potential violation of the bankruptcy stay or the discharge injunction.

Of course, do not overlook the phone book and city and suburban direc-tories. These may provide useful information on the debtor.

Many records are available on the Internet or via telephone searches. As of the writing of this chapter, some useful websites and telephone numbers include:

• <https://www.sos.ky.gov/bus/business-filings/Pages/de-fault.aspx> (Kentucky Secretary of State (corporate and partnership records, and Uniform Commercial Code re-cords)).

• <http://www.pvalouky.org> (current property records in Jefferson County, Kentucky, for a minimal charge).

• <http://www.kydirect.net> (marriage, divorce, and death records; the “search” function can be used to input queries using keywords).

• <https://www.kywd.uscourts.gov/> (U.S. Bankruptcy Court for the Western District of Kentucky) and <https://www.kyeb.uscourts.gov/> (U.S. Bankruptcy Court for the Eastern District of Kentucky) (includes bank-ruptcy dockets and records, and soon under a new system just being implemented, actual documents online).

• Division of Driver Licensing: (502) 564-6800 (for a $2 fee per search title, lien, and registration searches are avail-able). One should review the Driver Privacy Protection Act, found at 18 USC § 2721, before using motor vehicle records.

E. [6.12] Internet Search Services

There are a variety of Internet sites and search services accessible to creditors. There are various online sources for skip tracing, directories, people searches, and there are certainly more to come as the Internet continues to expand. Some useful sites include:

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• <http://www.whitepages.com>;

• <http://www.555-1212.com>;

• <http://www.tudesktop.com> (through TransUnion);

• <http://www.accurint.com> (a pay site, where one must sign up and register but which provides people locator ser-vices, updated phone numbers, and verification of Social Security numbers).

The Internet and its usefulness for gathering such information may be lim-ited in the future by new legislation, which continues to evolve to address privacy concerns. The identification of these sites is not an endorsement or recommendation of any particular site by the author; they are provided solely for assistance and informational purposes.

F. [6.13] Commercial Locator and Asset Services

There are a variety of services available that specialize in locating assets and providing the location of debtors. Most of these services charge a flat fee (from $50 to $150). Many are excellent, due to the specialized nature of their work and the development of national databases that assimilate vast amounts of information on individuals electronically through the use of the Internet and other services. These services are particularly useful on larger balance accounts or where tradi-tional attempts to locate a debtor or assets have failed. Several of the larger such organizations advertise extensively in the major trade publications on collections, such as Collections & Credit Risk magazine, published by Thomson Financial Media ((312) 913-1334).

The collection attorney should always be sure that these parties are retained as independent contractors and that some assurances are obtained that they strictly comply with the rules applicable to debt collection, such as the FDCPA and FCRA. Information concerning any bonds or other insurance that such entities may carry to protect against potential violations should be obtained as well, and those companies who do not have sufficient protection should be rejected by the prudent attorney.

G. [6.14] Post-Judgment Depositions and Discovery

Discovery is not a prerequisite to executing on a judgment. If the attorney has sufficient information from some or all of the above sources that will allow her to proceed with legal process, further discovery may be a waste of time and resources. However, it is discussed here because logically, without sufficient in-formation concerning the debtor’s assets and income, further legal process is not feasible, and in some cases discovery is the only available alternative to obtain the information the attorney will need for collection.

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As a general rule, all pre-judgment discovery devices are also available post-judgment pursuant to Civil Rule 69.03, which states that: “In aid of judgment or execution, the judgment creditor...may obtain discovery from any person, includ-ing the judgment debtor, in any manner provided for in these Rules.” Besides the debtor, any “person” would also include friends, associates, or family members.

The effect of this Civil Rule is to allow the judgment creditor to utilize post-judgment discovery (e.g., depositions, interrogatories, requests for production, etc.) in aid of execution. A sample deposition notice and basic interrogatories, which might be utilized in a consumer case, are included in the Appendix at Sections [6.27] and [6.28].

If the debtor fails to appear for a deposition or to answer interrogatories or other forms of discovery, a subpoena may be issued to compel attendance. If a debtor does not appear after service of the subpoena, an order of arrest for civil contempt can be requested under KRS 432.230, and the debtor could be subject to a fine or even imprisonment.

It is important to remember that in such a case the debtor has not been “arrested” for failing to pay his or her debt (a common misconception and which would clearly expose both the collection attorney and his client to a claim for abuse of process or for violation of the FDCPA). That debtor has been detained for failing or refusing to obey the lawful orders of the court. However, caution is advised. Arresting a debtor for failure to appear for discovery in a collection case is a serious matter, and the client should be consulted and approve the move before this action is taken, as it could easily lead to claims for violations of consumer protection laws, including the FDCPA. While such a claim would likely be unfounded given the protection afforded the creditor by the court’s order authorizing the arrest, the tactic appears offensive and may create more problems than it solves.

The lawyer may take the debtor’s deposition without a court reporter. Except in large balance or complex cases, a reporter is generally not recommended for reasons of cost. There is usually no reason to transcribe such a deposition, as it will be limited solely to discovering assets and for internal purposes by the attorney.

The collection lawyer should remember that, just as at every stage in the post-judgment cycle, contact with a debtor for purposes of arranging or compelling a deposition is governed by the FDCPA. It is also another opportunity to negotiate with the debtor and determine if a resolution short of execution may be obtained. Many debtors fear depositions, and when pressured with the obligation to appear and give testimony under oath, some would rather make payment arrangements or propose a settlement (either because they do not want to be examined or because they have assets to protect that may otherwise be uncovered).

Most counties in Kentucky do not have systems that facilitate post-judg-ment discovery depositions, and the costs in terms of travel and for a place to hold the deposition, along with court reporter fees, can be prohibitive, depending on the

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size of the judgment. However, under Jefferson Circuit Court Rule 510, a notice to take a deposition post-judgment can be used, and the matter is placed on the docket of the circuit court commissioner. If the judgment debtor does not appear for the examination, a subpoena to compel attendance can be issued by the com-missioner’s office for a fee. For state district court cases, the local rules require that the initial notice to appear require the defendant to appear at the attorney’s office. If the defendant fails to appear, a subpoena may be issued for a court appearance, where the deposition is taken informally outside the courtroom.

Every county has different procedures (or no procedures), and the collec-tion attorney should check the local rules where the lawsuit is filed. If all else fails, call an attorney who regularly practices in that county and ask him or her how best to proceed with a post-judgment examination.

IV. [6.15] Legal Remedies Post-Judgment/Post-Judgment Process

Sometimes letters, telephone calls, and negotiations with the debtor will not work, or these remedies are not utilized by choice. Assuming the attorney has sufficient information to allow her to issue post-judgment process, there are several to choose from. The following remedies are available under Kentucky law.

A. [6.16] Garnishment

A garnishment is a court order served upon a third party (the “garnishee”) who it is believed may be holding money or property that belongs to the judgment debtor. The order of garnishment directs the third party to hold and safeguard the funds to which the garnishment attaches and to deliver the funds to the judgment creditor within certain time periods.

There are two types of garnishments: (1) those which are directed against and attach to a debtor’s earnings or wages (wage garnishment) and (2) those which may be directed against other money or property being held for the judgment debtor by a third party (a non-wage garnishment – generally against accounts at a bank, credit union, savings and loan, or another non-employer who may be holding the debtor’s property). Other items that can be attached using this procedure include stocks, bonds, mutual funds, and similar depository accounts.

Garnishments are governed by KRS Chapters 425 and 427. Garnishment actions can be brought by any judgment creditor against any person who is indebted to or has any property in his or her possession or under his or her control belonging to the judgment debtor. KRS 425.501.

The Kentucky Administrative Office of the Courts (“AOC”) has produced various pre-printed forms to assist counsel with the issuance of garnishments, and the required forms can be obtained from the AOC and from most circuit court clerks.

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The primary forms utilized for wage garnishments are AOC-150 and AOC-145 (the affidavit which is required to be used with the order of garnishment for a non-wage garnishment). A sample copy of AOC-150 is provided in the Appendix at Section [6.29]. In the United States District Court for the Western District of Kentucky, modified state forms indicating that the judgment was issued in the federal court may be used and processed through the federal court. In the Eastern District of Kentucky, the District Court has developed a specific form (EDKY-424) for this purpose that must be used. A sample copy of this Eastern District form is provided in the Appendix at Section [6.30].

For non-wage garnishments, AOC-150.1 may be used. The United States District Court for the Eastern District of Kentucky also has its own form, EDKY-426. Sample copies of these non-wage garnishment forms are provided in the Appendix at Section [6.31] and Section [6.32].

The judgment creditor’s attorney must correctly complete the forms. The garnishment affidavit must be signed and the Notice of Rights to Assert Exemp-tions (AOC 150.2) is mailed to judgment debtor. A sample copy of AOC-150.2 is included in the Appendix at Section [6.33]. The garnishment will be issued by the court clerk, and the order of garnishment is then mailed to the garnishee.

The fee for issuance of a garnishment is $4.00, payable to the court clerk for issuance of the garnishment order. Once the form has been issued and returned to the attorney’s office, he may mail the order to the garnishee. In some counties in Kentucky, including Jefferson, lawyers may deliver a pre-printed self-addressed stamped envelope to the court clerk, and they will mail the order directly to the garnishee rather than returning it to the lawyer for mailing.

For both wage and non-wage garnishments, the garnishee (e.g., employer, bank, etc.) has 20 days within which to respond to the garnishment. If the garnishee fails to answer within that time, it may be held liable to the judgment creditor for failing to honor the garnishment. KRS 425.521 and 425.526. For example, upon the filing of a motion, the court can order the garnishee to appear and show cause why the court should not hold it in contempt for failure to answer the garnishment under KRS 425.511. Should an employer fail to appear or fail to remit non-exempt wages, the collection attorney may amend the initial complaint to join the employer as a party defendant and ask for a judgment against the employer for failure to honor the garnishment. KRS 425.526.

The attorney or the clerk of the court is required to safely hold the gar-nished funds recovered from the third party in escrow for a period of fifteen (15) days from the date of the issuance of the garnishee’s check. This allows the debtor time to assert a challenge to the garnishment in court (typically, the assertion of an exemption as to the funds). Common examples of exempt funds include funds received from Social Security proceeds, supplemental assistance programs, and other similar government aid programs. However, failure to object waives the de-fense that the funds are exempt. If a challenge is asserted, the funds shall be held

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until further order of the court. If after 15 days no objection has been made, the attorney or clerk may disburse the funds.

In some cases, the attorney may find that the judgment debtor has left the state. However, if the debtor is employed by a company that is registered to do business in Kentucky or otherwise present in the Commonwealth, the garnish-ment may be served on the corporation’s registered agent or other agent found in Kentucky. See, e.g., Hamilton v. Hamilton, 476 S.W.2d 197 (1972). This is true even if the garnishee’s payroll department is in another state. This is an extremely useful tool, particularly where the debtor works for a larger corporation with a nationwide presence.

1. [6.17] Special Notes on Wage Garnishment

Continuing wage garnishment was instituted in Kentucky by KRS 425.506. It is a superior mechanism to the old method, which required the service of a garnishment order during each pay cycle. KRS 425.506(3) provides detailed instructions to the garnishee employer as to its obligations upon receipt of the order. Since garnishments are continuous, the first garnishment to be served upon the employer for the debtor will be paid first and in full before any other garnish-ments are honored. Therefore, it is important for the creditor’s counsel to initiate garnishment against the debtor’s wages as soon as employment information is obtained (unless there is a strategic reason to forbear).

KRS Chapter 427, dealing with exemptions, provides for a subsistence allowance beyond which a judgment creditor cannot garnish. Generally, the weekly, bi-weekly, semi-monthly, or monthly amount which the creditor will receive (this depends on how often the debtor is paid) will be limited to the lesser of 25% of the debtor’s disposable earnings per week or the amount by which the disposable earn-ings exceed 30 times the federal minimum wage. KRS 427.010(2); 15 USC § 1673.

Once the judgment creditor has received the majority of its expected payment from the wage garnishment, the collection attorney should prepare and file the Affidavit and Supplemental Order of Wage Garnishment (AOC-150.5) to maintain the judgment creditor’s status and to ensure that all interest and costs due under the garnishment are paid before the garnishment is stopped. Without this filing, the employer may pay only the amount shown on initial garnishment but not know that additional sums, including accrued interest, are due.

For additional information on federal restrictions on wage garnishments, see Sections [10.149] through [10.154] in Chapter 10, infra.

2. [6.18] Special Notes on Non-Wage Garnishment

Generally, an account held in the name of one of more parties jointly, if alienable by both, is subject to attachment by the judgment creditor of either. See Barton v. Hudson, 560 S.W.2d 20 (Ky. Ct. App. 1978); but see KRS 391.310 (on

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multiple party accounts). In the author’s view, Barton is controlling on the issue, but there is an argument that the statute would supercede the ruling in Barton. In 1999, the Kentucky Court of Appeals decided Brown v. Commonwealth Natural Resources & Environmental Protection Cabinet, 40 S.W.3d 873 (Ky. Ct. App. 1999). This case altered the Barton rule somewhat and established that while a debtor is presumed to own all funds in a joint account, this rule may be rebutted through a challenge to a garnishment. On the other hand, a debtor may not claim an exemption to funds as “wages” after they pass from an employer’s control and into another account. The effect of the case may be to limit a judgment creditor’s right to attach funds held jointly by a debtor and a third party, but it also may limit a debtor’s right to claim an exemption to certain classes of funds.

B. [6.19] Executions on Property

Executions are governed by KRS Chapter 426. The two types of executions are: (1) against the personal property of the judgment debtor, and (2) against the real property of the judgment debtor. Pursuant to KRS 426.130 and 426.140, one must first execute against personal property. Thereafter, the creditor may only execute against real property if execution on personal property is issued and returned, “no property found” or “insufficient property found.” However, this does not appear to apply to the filing of a judgment lien. In fact, the judgment lien statute has in many ways rendered the real property execution somewhat antiquated in Kentucky. Nevertheless, there are some potential important differences between these two mechanisms, which are discussed below in the section on judgment liens. See Section [6.20], infra.

The contents of a writ of execution are described at KRS 426.020. A specific form from the AOC, AOC-135, is required in Kentucky. A copy of this form is provided in the Appendix at Section [6.34]. Federal courts use the Federal Writ of Execution form and the U.S. Marshall’s service process receipt and return. Executions are returnable by the sheriff within, and expire after, 60 days.

When completing the writ forms for personal property, the attorney should provide the sheriff with a specific list of all known property and as much identify-ing and descriptive information as possible to obtain better results than a general execution. For example, if it is known that the debtor has an automobile, boat, or some other physical asset sought for execution, it should be identified as clearly as possible. However, unlike with the pre-judgment remedy of a writ of possession, precise identification of the property is not required. It should be remembered that “cash” is considered personal property, and a writ of execution can include an order to seize all “cash on hand.”

The personal property execution form and execution order are sent to the circuit court, which forwards it to the sheriff. The sheriff executes and levies against property and returns the form within 30 days of levy and no more than sixty days from date of issuance. KRS 426.040(1). Upon the direction of the judgment

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creditor, the sheriff may sell the levied property at least 10 days after levy and after the sale has been advertised. Property is sold subject to all existing liens. After the sale, the sheriff pays the net sale proceeds to judgment creditor.

If the personal property execution is returned because the sheriff found no or insufficient property, the judgment creditor may execute against real property. As a practical matter, execution against real property is rarely pursued because of mortgages and liens with priority and available exemptions. Judgment creditors usually allow their judgment lien, discussed below in Section [6.20], to remain on property.

If the judgment debtor’s equity is sufficient and real property execution is desired, the same procedures for personal property are followed. However, if the personalty is insufficient, the sheriff can levy on realty simultaneously. KRS 426.140. Thus, to prevent duplication of efforts, the judgment creditor should include instructions for real property execution if insufficient personalty is found in the original execution.

The author finds personal property executions extremely valuable. Hav-ing the sheriff arrive at the door with an execution which authorizes seizure of the debtor’s property will usually get their attention and in many cases facilitate payment or settlement on the account.

C. [6.20] Notice of Judgment Lien

Under Kentucky law, a final judgment acts as a lien upon all real estate in which the judgment debtor has any ownership interest in any county in which a notice of judgment lien is filed. KRS. 426.720.

Although listed last in this section of the chapter, the first step a judgment creditor should take after entry of a judgment and the expiration of any waiting period is to file a notice of judgment lien in every county where the creditor or attorney believes the debtor owns, or is likely to own, real estate. The use of this remedy is the exception to the general statement that one must have sufficient information about the debtor’s assets to initiate legal process.

This remedy may be used (and indeed, it is recommended) whether or not creditor’s counsel has verified the debtor’s ownership interest or equity in real property. The cost is $9 to file per lien, making it an extremely cost-effective remedy that can produce excellent results for the creditor client over the long term.

The notice of judgment lien is a document that must be prepared and filed by the practitioner in any county where the debtor may own property. The document should be filed with the county clerk. The notice will be entered in the lis pendens records.

A proper notice of judgment lien must contain:

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1. court of record entering judgment;

2. civil action number of suit;

3. amount of the judgment, including principal and interest;

4. court costs and any attorney fees;

5. a certificate of service stating that a copy of the notice of judgment lien was mailed to the last known address of the judgment debtor by regular, first-class mail, postage pre-paid; and

6. the text of KRS 427.060, regarding homestead and burial plot exemptions, as well as a notice to the judgment debtor that these are other exemptions to which they may be enti-tled.

A sample form of judgment lien that meets these requirements is included in the Appendix at Section [6.35].

Although not required by statute, it is recommended that the last four digits of a debtor’s Social Security number be included on the lien, if possible. This will help avoid any unintended cloud on the title of another party with a similar name.

The lien remains enforceable until released by the judgment creditor (due to satisfaction, bankruptcy (in some cases), or otherwise) or until it expires. Since the statute of limitations on a judgment is fifteen (15) years from the date of the last execution, it is possible for the creditor to keep the lien enforceable in virtual perpetuity through occasional executions on the judgment.

Two questions remain unanswered about the effect of the lien under Ken-tucky law – since no published cases exist on the issues: (1) Does a judgment lien attach to after-acquired property? and (2) Is a judgment lien sufficient to foreclose real property?

The answer to question (1), in the author’s opinion, is “yes.” The statute states that the lien shall attach to “any interest” in real property of the debtor. More-over, other states that have similar statutes have held generally that the lien would attach to after-acquired property. The majority of debtors and creditors’ counsel in Kentucky appear to agree with this interpretation, and in any event, failure to deal with a lien of record against after-acquired property creates title problems and clouds that most insurance companies will not accept.

The answer to question (2), again in the author’s opinion, is “yes.” The judgment lien statute was designed and intended to replace the cumbersome process of real property execution, and it should be sufficient to initiate foreclosure. This is accomplished by filing a separate foreclosure suit against the judgment debtor and any other parties with an interest in the property. However, the execution statutes

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are still on the books, and a judgment lien is technically not an execution. There-fore, it may be wise in some instances to utilize the procedure for executing and levying real property under KRS 426.130 and 426.140, particularly where there are large dollars at stake.

V. [6.21] Exempt Property

When post-judgment collection efforts are used, the judgment debtor may invoke exemptions. Exemptions are primarily established in KRS Chapter 427, and they include:

1. homestead exemption for $5,000 (KRS 427.060);

2. household furnishing and personal clothing exemption for $3,000 (KRS 427.010);

3. tools, equipment, and livestock for Farmer exemption for $3,000 (KRS 427.030);

4. one motor vehicle and accessories for $2,500 (KRS 427.030);

5. a general exemption for $1,000 (KRS 427.160);

6. retirement plans, such as individual retirement accounts and 401k plans. Payments and amounts payable under pen-sion plans under KRS 61.090 (Kentucky Employees, State Police, County Employees) are also exempt. City police and teachers payments under these plans are similarly ex-empt. See KRS 427.120, 427.125, and 427.150. Generally, an individual’s entire interest in an individual retirement account, pension, tax sheltered annuity, profit sharing, stock bonus, or other retirement plan described in the In-ternal Revenue Code of 1986, as amended, which qualifies for tax deferral is exempt. KRS 427.150(2)(f).

This last provision has been called the “debtor’s paradise” since it essen-tially shields from attachment any amount of money a debtor may have been smart enough to put away in such a retirement account. For example, even if a judgment creditor is owed $5,000 by a debtor who has $1,000,000 in a 401k plan and no other assets, the debtor is exempt from attachment and can keep his money. This is true unless it can be shown that the debtor fraudulently transferred the funds into the account within a prohibited time period or in contemplation of insolvency. This exemption does not apply to contributions to such a plan made within 120 days before a debtor files bankruptcy.

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It should also be noted that the exemptions set forth in KRS 427.010 to 427.040 are not applicable to executions, attachments. or garnishments issued for the collection of child support.

VI. [6.22] Foreign Judgments

Kentucky has adopted the Uniform Enforcement of Foreign Judgments Act. See KRS 426.950 et seq.

An authenticated copy of the foreign judgment may be filed in the office of the clerk of the court with competent jurisdiction over the person in Kentucky, and the judgment will then be treated as if it were a domestic judgment and may be enforced in the same manner. At the time the judgment is filed, the creditor or its attorney must file an affidavit setting forth the name and last known address of the creditor and the debtor. See AOC-160, Notice and Affidavit of Foreign Judgment Registration. A copy of such a form is included in the Appendix at Section [6.36].

After filing, the clerk mails notice of the registration to the judgment debtor, or the creditor may mail the notice and file proof of the mailing in court. The fee for filing a foreign judgment is the same filing fee charged for filing suit in the court in which it is filed. KRS 426.970.

No execution can issue until twenty (20) days after the judgment is filed. The registration may be attacked on the grounds that the foreign state lacked per-sonal jurisdiction over the defendant debtor. Further, enforcement may be stayed on the grounds that: (1) an appeal of the foreign judgment is pending in the sister state or (2) a stay of execution has been granted by the sister state. KRS 426.965.

VII. [6.23] Execution by Charging Order

KRS 275.260 provides the exclusive remedy for which for a judgment creditor may satisfy a judgment out of the debtor’s limited liability company.

A charging order is a judicial remedy where upon application to the court of competent jurisdiction, a judgment creditor may “charge” the judgment debtor’s interest in the limited liability company. It is important to note that this remedy does not provide the judgment creditor with the right to participate in the management of the company. Rather, this remedy solely provides the judgment creditor with the rights of an assignee.

The charging order can, amongst other things, give the judgment creditor the right to receive distributions with respect to the judgment debtor’s limited liability company interest and to foreclose upon the debtor’s limited liability company interest.

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A charging order can be an effective means to reach assets of the debtor that would otherwise be unavailable. It is the author’s recommendation that the judgment debtor’s deposition be taken before continuing with a charging order to better understand the judgment debtor’s interest in the limited liability company as well as understand whether there is value in seeking such a judicial remedy. This is important because while effective, a charging order can be costly as it typically involves significant court time.

It is important to note that there are limitations to a charging order and this text is not an exhaustive explanation of the processes or limitations thereof. It is the author’s recommendation that anyone seeking a charging order review KRS 275.260 before seeking such a remedy.

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VIII. [6.24] Appendix

A. [6.25] Post-Judgment Collection Letter (1)

[Law Firm Letterhead] date

[name and address of debtor]

Name of Creditor: [court proceeding] Account No.: Our File No.: Amount due as of this date: $

Dear [name of debtor]

This is an important notice to you. Our office has obtained a judgment against you, copy enclosed, on behalf of the above named Creditor.

Unless paid or settled, the judgment will survive and will exist against you for 15 years from its date of entry, and possibly longer if renewed. Our attorneys will also, if not already, file a judgment lien against any interest in real estate you may own.

We will be happy to discuss a reasonable payment plan with you, to avoid contin-ued collection activity. In most cases, we can also accept a lump sum payment to settle this account, with our client’s authorization, for less than the total amount due. If you have a checking account, we can accept payments over the phone as well at no cost to you.

Don’t wait and let the interest and other costs go up. We urge you to call our office now at the toll free number below to discuss this very important matter.

This communication is from a debt collector.

Sincerely,

____________________________________ [attorney or staff member authorized to sign]

Toll Free: (800) ___________

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B. [6.26] Post-Judgment Collection Letter (2)

[Law Firm Letterhead] date

[name and address of debtor]

Name of Creditor: [court proceeding] Account No.: Our File No.: Amount due as of this date: $

Dear [name of debtor]


A judgment in court has been entered against you in the above styled case. In order to resolve the judgment and avoid further legal action to collect this debt through the court, our client, the Creditor listed above, would agree to accept less than the amount due as stated to resolve this account and would be willing to accept the sum of $ , payable in a lump sum within days. This is an opportunity for you to resolve this dispute and put this matter behind you.

If you cannot afford a lump sum payment, we are also willing to discuss reasonable payment terms or arrangements, but you must respond to this communication if an agreement in settlement is to be reached.

This offer will expire 30 days from its date if not previously accepted in writing. You may contact us by calling toll free, at 1-800- [if applicable] for details. Please note that unless otherwise agreed to, any payment or settlement arrangements made between us as a result of this letter shall not affect the liability of any co-debtor or co-obligor on this account, if any, unless reached separately with them in writing.

All contact with this office must include OUR FILE NUMBER and should be directed to the undersigned.

Sincerely,

____________________________________ [attorney or staff member authorized to sign]

Toll Free: (800) ___________

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C. [6.27] Notice to Take Deposition




vs.


NOTICE TO TAKE DEPOSITION ON BILL OF DISCOVERY

You are hereby notified to appear in person on [day], [month/day], 20[__] at [__: __0] [a.m./p.m.], before the [name and address of court, or place of exam-ination], for oral examination under oath for purposes of discovery pursuant to all applicable Kentucky Rules of Civil Procedure.

You are requested to produce on the above date, a copy of your income tax returns for the past two years, a copy of your pay check stubs and documentation showing title to any real and/or personal property which you own.

If you fail to appear, a Subpoena to compel your attendance will be issued.

This is to certify that a true copy of the foregoing Notice has been mailed to the Defendant(s) at the above address on this day of [month], 20[__].


LAWYER & ATTORNEY, P.S.C.

Sincerely,

____________________________________ By: John D. Lawyer

COUNSEL FOR PLAINTIFF 100 West Main Street


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D. [6.28] Interrogatories




vs.


INTERROGATORIES TO DEFENDANT FOR PURPOSES OF DISCOVERY OF EARNINGS AND INCOME OF THE DEBTOR

The Plaintiff, [plaintiff’s name], by counsel, propounds the following Interrogatories to the Defendant, [defendant’s name], to be answered within thirty (30) days hereof:

1. What is your full name and birth date?

ANSWER:

2. What is your Social Security number?

ANSWER:

3. State whether you are:

a. Currently drawing disability benefits?

b. Currently employed or operating your own business?

ANSWER:

4. If you are still drawing disability benefits, state how much per month you receive from these disability benefits.

ANSWER:

5. If you are currently employed or operating your own profession or business, state:

a. The name, address and telephone number of your place of employment or profession.

b. Your job title or description.

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c. Description of your work or duties.

d. The name and address of your immediate superior.

e. The name and address of your bookkeeper, payroll clerk or account or other person who has custody of records, salaries, commissions, bonus-es, allowances, expenses or any other sums of money paid to you by your present employer during the term of your employment or during the operation of your profession.

ANSWER:

6. Please state:

a. Whether you have any source of income other than disability.

b. If so, state the source and amount of such income.

ANSWER:

7. Have you during the past five years, received any income from the rental of any of your property in which you owned an interest?

ANSWER:

8. If so, state:

a. The location and description of each piece of property.

b. A description of each building improvement on each.

c. The total amount received as rent for each parcel for each of the last three years.

d. The total amount of expenses incurred in renting this property.

e. The name and address of each person having custody of any books of account or other records in connection with the rentals received and ex-penses incurred for each parcel.

ANSWER:

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9. Do you own any automobiles? If so, state:

a. Who is it financed through?

b. How much is owed on it?

c. What is the make, model and year?

ANSWER:

10. Do you own other automobiles, motor vehicles, boats, aircraft or farm imple-ments? If so, state:

a. The type of motor vehicle.

b. Who is it financed through?

c. How much is owed on it?

d. What is the make, model and year?

ANSWER:

11. Do you own any real property?

ANSWER:

12. If so, state (for each parcel of property):

a. The address and legal description of the property.

b. The description of the structures and improvements on said property.

c. The name and address of each person or business other than you with an interest in the property.

ANSWER:

13. Do you maintain any personal checking or savings accounts or any accounts in or under which you may certificates of deposit, stocks, bonds, or mutual funds or any other form of investment?

ANSWER:

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14. If so, for each account, state:

a. Where the account is located.

b. Under what name the account is held.

c. The name of the bank and branch holding each account.

d. The balance on the account as of today’s date.

ANSWER:

15. Do you have any joint savings or checking account with anyone?

ANSWER:

16. If so, for each account state:

a. Where the account is located.

b. Under what name the account is held.

c. The name of the bank and branch holding each ac-count.

d. The balance on the account as of today’s date.

ANSWER:

17. Do you at the present time have any creditors other than the Plaintiff named herein?

ANSWER:

18. If so, for each creditor, state:

a. The name and address of each creditor.

b. The amount of the debt owed.

c. The description of the security given to secure the debt.

ANSWER:

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19. Do you at the present time have any judgments against you?

ANSWER:

20. If so, for each judgment, state:

a. The name of each Plaintiff;

b. The balance of the judgment;

c. The date each judgment was entered in court.

ANSWER:

21. [Add any other questions that may be fact specific to the case. For larger balance cases or commercial collection cases, consider additional income, expense and asset questions, as this form is designed generally for smaller balance or consumer debtor cases.]

ANSWER:

Respectfully Submitted,

____________________________________ By: John D. Lawyer

COUNSEL FOR PLAINTIFF 100 West Main Street



I hereby certify that a true copy of the foregoing Interrogatories was on this day of [month], 20[ ], mailed to Defendant, [defendant’s name].

____________________________________ By: John D. Lawyer

COUNSEL FOR PLAINTIFF

6-35


E. [6.29] Order of Wage Garnishment and Notice of Rights to Assert Exemption Thereto (AOC-150)

6-36


6-37


6-38


6-39


F. [6.30] Affidavit for Order of Wage Garnishment (United States District Court for the Eastern District of Kentucky Form EDKy-424)

�EDKy424 (Rev. 10/06) Affidavit for Order of Wage Garnishment (Continuous or as Designated)

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF KENTUCKYat _______________

Case No. _________________AFFIDAVIT FOR ORDER OF WAGE GARNISHMENT

Judgment Debtor: Date of Judgment:

Post Judgment Int Rate: %

Judgment Creditor: Amount of Judgment: $

Pre-judgment Interest: $

Garnishee (Employer): Allowed Court Costs: $

Amount Due: $

AFFIDAVIT

The undersigned affiant is counsel for Judgment Creditor, or is the Judgment Creditor, and statesas follows:

1. The above named Judgment Debtor is not now nor has been at any time during the pendency of thisaction, in the active military service of the United States of America..

2. The date of the Judgment and the amount due thereon (subject to any credits due for any sums currentlybeing processed) are stated above.

3. The Garnishee (Employer) listed above is believed to be indebted to the Judgment Debtor.

4. The Notice of Rights to Assert Exemption to Wage Garnishment will be sent to the Judgment Debtorwithin five (5) business days of sending this Affidavit to the U.S. District Court Clerk.

5. Any garnished funds will be held by Affiant for a period of thirty (30) days from the issuance date on theemployer's garnishment check.

WHEREFORE: The Judgment Creditor prays for garnishment against the Judgment Debtor; thatthe Garnishee named herein be made a party to this action, and that the Garnishee be required to answer theGarnishment issued hereunder; and for its costs.

___________________________________________Affiant

Subscribed and sworn to before me by the above affiant this ____ day of ______________, 20_____.

My commission expires:__________________________________

_____________________________________________Notary Public, State at Large

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�EDKy424 (Rev. 10/06) Order of Wage Garnishment (Continuous or as Designated)


EASTERN DISTRICT OF KENTUCKYat

Case No.

ORDER OF WAGE GARNISHMENT (CONTINUOUS OR AS DESIGNATED)






Amount Due: $

To the Garnishee (Employer): You are hereby (1) restrained from paying to the Judgment Debtor, or to anyone for him, money, property, or otherevidence of debt in your possession belonging to him or in which he has any interest; and (2) ordered to continuouslywithhold and safely keep all of said nonexempt property of the Judgment Debtor until (a) the amounts due plus interestand costs are paid in full, or (b) for only the following designated succeeding pay periods: _________.ROBERT R. CARR, CLERK By: _________________________D.C. Date_______________

AFFIDAVIT AND ANSWER OF GARNISHEE (EMPLOYER)Comes the undersigned Affiant, who after being duly sworn, states:A. The name and Social Security Number of the Judgment Debtor ("Employee") is: Name:________________________________________ S.S. #________________________B. The date on which this Order was originally served was _________________________________________________C. No funds are due employee because _________________________________________________________________D. If no funds are withheld due to superior (earlier) garnishments, the number of those garnishments is: _____E. The pay period of the remittance accompanying this return is from ________________ to ________________F. The pay period of this employee is: (choose one) ( ) weekly ( ) semi-monthly ( ) monthly1. Gross Earnings $_____________2. Less amounts required by law to be withheld:

Federal Income Tax: $________State Income Tax: $________Occupational Tax: $________Social Security: $ ________Ordered Child Support: $________

Total Deductions: $______________3. Disposable earnings (Gross Earnings less Total Deductions): $______________

4. Exempt Earnings:(a) 75% of line 3: $________(b) Other Amt (below):$________(c) Enter greater of (a) or (b): $______________

5. Non-exempt Disposable Earnings (Line 3 less Line 4(c)) $_____________G. Remit the amount on Line 5 or the Amount Due shownat the top of this Order plus interest and costs, whichever isless, to the Judgment Creditor or Judgement Creditor'sAttorney.

Subscribed and sworn to before me this ______ day of ______________________________________________________________, 20__. Affiant Position/TitleNotary Public, State at Large ________________________ My Commission expires: __________________________ Other Amount: The other amount referred to in line 4(b). above is: (a) for weekly pay periods, 30 times the federal minimum hourly

wage; or (b) for all other pay periods, the multiple of the federal minimum hourly wage as prescribed by the U.S. Department of Labor.

Important Notice to the Judgment DebtorThe Judgment Creditor is garnishing a portion of your wages to pay a judgment entered against you in the

above court. You may have a right to recover all or part of the money your employer has withheld from your pay.Carefully review this form and your notice of rights to assert exemption to wage garnishment you previously received.Closely examine your employer's calculations regarding any withholding pursuant to this garnishment. If you believethat your employer has withheld too much money from you, file your objection to this garnishment in the office of theU.S. District Court Clerk which issued this garnishment within 13 days of the date on the payroll check you received

from which money was withheld pursuant to this garnishment. Note: The Clerk does not have forms.

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�EDKy424 (Rev. 10/06) Instruction to Garnishee (Employer) for Completing Affidavit & Answer to Order of Wage Garnishment (Continuous or as Designated)

INSTRUCTIONS TO GARNISHEE (EMPLOYER) FOR COMPLETING AFFIDAVIT ANDANSWER TO ORDER OF WAGE GARNISHMENT (CONTINUOUS OR AS DESIGNATED)

Note: You should make copies of the Order of Wage Garnishment (Continuous or as Designated) and keepthem for future use.

You Are Summoned and Ordered to Do the Following:1. Complete the Affidavit and Answer on the bottom of Order under oath and send copies as directed inparagraph 2 below:

(a) within 20 days from your receipt of this Order; AND(b) when you first withhold as required by this Order; AND(c) whenever the amount withheld from any later paycheck differs from the amount withheld from the lastpaycheck.

2. Send copies of each completed Affidavit and Answer to:(a) the Judgment Debtor-Employee; AND(b) the Judgment-Creditor's Attorney or to the Creditor (if no attorney is named); AND(c) the Clerk, U.S. District Court; AND(d) retain a copy for your records.

3. The following provisions apply to money or property of the Judgment Debtor consisting of earnings(compensation for personal services):

(a) This Order creates a lien on all non-exempt earnings of the Judgment Debtor earned during the payperiod in which this Order is served and during all succeeding pay periods until the entire judgmentbalance is paid in full or for the pay periods designated on the front of this Order. At a later date, theCreditor or Creditor's Attorney may provide you with notice of any remaining unpaid principal, interestand court costs due.(b) Orders of Wage Garnishment shall have priority according to the date of service on you. If youreceive more than one Order of Wage Garnishment against a Judgment Debtor, honor the first Order youreceive until the amount due, plus interest and costs, is paid in full (or for the pay periods designated onthe front of that Order). The second Order received then automatically takes effect.(c) You may be notified by the Creditor's Attorney, the Judgment Creditor, or the Court to discontinuewithholding pursuant to this Order The second Order received then automatically takes effect.(d) Calculate the amount of non-exempt earnings on the Order or on a copy of it. It is based on a certainportion of disposable earnings, determined as follows:

i. "Disposable Earnings" means that part of the earnings of any individual remaining after thededuction from those earnings of any amounts required by law to be withheld. Amounts required bylaw to be withheld include income taxes, occupational license taxes, social security, ordered childsupport, railroad retirement and retirement for teachers and state and county employees.ii. The percentage of disposable earnings exempted from this Order is the greater of

(a) 75% of disposable earnings, or(b) the other amount set forth in subparagraph iii. below.

iii. The other amount referred to in subparagraph ii.(b) above is:(a) for weekly pay periods, 30 times the federal minimum hourly wage; or(b) for all other pay periods, the multiple of the federal minimum hourly wage as prescribed bythe U.S. Department of Labor.

4. Include a copy of the Notice to Judgment Debtor (Employee) of Right To Assert Exemption to WageGarnishment with each completed Affidavit and Answer sent to the Judgment Debtor (Employee).

Note: Contact your attorney, the creditor's attorney or the creditor if you need assistance to determine the amount towithhold. Do not contact the Clerk’s Office. It cannot give you advice on completing the Affidavit and Answer ofthe Garnishee. It cannot give you legal advice.

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�EDKy424 (Rev. 010/06) Notice to Judgement Debtor (Employee) of Right to Assert Exemption to Wage Garnishment)



Case No. NOTICE TO JUDGMENT DEBTOR (EMPLOYEE) OF RIGHT TO ASSERT EXEMPTION TO WAGE GARNISHMENT






Amount Due: $

Creditor’s Attorney

To Judgment Debtor:

The Judgment Creditor is garnishing a portion of your wages to satisfy a judgment entered against you, whichincludes the Amount Due shown above, plus interest and costs. You may have a right to recover all or part of the moneyyour employer will withhold, but you must follow the instructions given below.

IMPORTANT LEGAL NOTICE OF RIGHTS TO ASSERT EXEMPTION

If you are not the actual Judgment Debtor named above, or if the judgment has been paid, immediately notify theCreditor's Attorney (or the Creditor if no attorney is named above) to avoid garnishment, or request a hearing from theCourt (see below).

You are entitled to receive a copy of the first Affidavit and Answer of Garnishee (Employer) to be prepared by youremployer in response to the garnishment of your wages. Read it carefully. Your employer is required to send you a copyof the Affidavit and Answer of Garnishee each time garnished funds have been withheld from your paycheck if theamount withheld is different from the amount previously withheld from your last paycheck. If you do not receive a copy,request one from your employer. If refused, request a hearing from the Court (see below). The percentage of disposableearnings exempted from each garnishment, where the pay period Is weekly, is the greater of (A) 75% of disposableearnings or (B) 30 times the federal minimum hourly wage.

If you believe that your employer has completed the form incorrectly and withheld wages which are properly exempt,you must take the following step: Within thirteen (13) days of the date on the payroll check from which funds have beenwithheld as a result of this garnishment, you must file an objection to the garnishment in the U.S. District Court Clerk'soffice which issued this garnishment.

You may request a hearing. If a hearing is granted, you will be notified of the date. The judge will check thewithholding made by your employer to determine if a mistake has been made. If a portion of your wages was improperlyseized, the judge will order that it be returned to you. Otherwise, the judge will order that the garnishment proceed asplanned. If you do not request a hearing within thirteen (13) days of the date on the payroll check, the wages withheldwill be later sent to the Judgment Creditor's Attorney or the Judgment Creditor(if there is no Creditor's Attorney) whowill hold the garnished money received from your employer for 30 days from the issuance date on the employer'sgarnishment check. This is to allow you to assert any exemption you may have.

Note: The Clerk does not have legal forms for your use. The Clerk cannot give you legal advice.

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G. [6.31] Order of Garnishment (Non-Wage) (AOC-150.1)

AOC-150.1 Doc. Code: GNRev. 1-08

Commonwealth of KentuckyCourt of Justice

KRS 425.501-425.506;CR 69.02

Case No._____________________

Court________________________

County_______________________Order Of Garnishment

(nOn-WaGe)

Judgment Creditor:

Judgment Debtor:

Garnishee:

Amount Due:

Probable Court Costs:

The Commonwealth of Kentucky to the Sheriff of ______________________________________ County:

You are commanded to summon the Garnishee named above to answer in this action within twenty(20) days from the service hereof; and you will make due return of this Order.

ATTORNEY: Date: ________________________________________

___________________________________ Circuit Clerk

By: ______________________________________ D.C.

FOR SHERIFF'S RETURN

www.courts.ky.gov

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AOC-150.1 Doc. Code: GNRev. 1-08

Commonwealth of KentuckyCourt of Justice

KRS 425.501-425.506;CR 69.02

Case No._____________________

Court________________________

County_______________________Order Of Garnishment

(nOn-WaGe)

Garnishee's Date of Receipt: ______________________ Judgment Creditor:

Judgment Debtor:

Garnishee:

Amount Due:

Probable Court Costs:

The Commonwealth of KentuckyTo the Garnishee Named Above:

If you hold property belonging to, or are indebted to, the judgment debtor named above, you are hereby ORDERED to hold and safely keep all of the property of the judgment debtor necessary to satisfy the amounts due as shown above. The object of this Order is to restrain you from paying to the judgment debtor, or to anyone for him/her, money or property in your possession belonging to him/her or in which he/she has any interest.

YOU ARE HEREBY SUMMONED AND REQUIRED TO DO THE FOLLOWING:

(1) Fill in the GARNISHEE'S DATE OF RECEIPT in the space provided above on all copies; (2) Hold and safely keep any funds or property due the judgment debtor to the extent of the amount due above plus costs until further order of the court or as directed below; (3) Promptly attempt to notify the judgment debtor by mailing a copy of this order to his/her last known address or by delivering it to him/her; (4) If after the expiration of fourteen (14) days from your receipt of this order, there has been no further notice from the court, then do the following: (a) Answer as garnishee within twenty (20) days of the receipt of this order (You may use the form on the reverse side); and (b) Forward to the Attorney named below the amount of money or property withheld from the judgment debtor, together with one copy of this order and your answer; and (c) Send the original of your answer and this order to the court.

ATTORNEY: Date: ________________________________________

___________________________________ Circuit Clerk

By: ______________________________________ D.C.

IMPORTANT LEGAL NOTICE TO JUDGMENT DEBTOR

Money or property belonging to you has been subjected to a garnishment under a judgment entered against you in this case. Some funds may be exempt from garnishment, including individual income tax refunds, Social Security benefits, workers compen-sation benefits, unemployment insurance benefits, public assistance/TANF, and some types of governmental benefit payments; however, you must claim and prove any applicable exemption.

If you can show that the property garnished by this order consists of exempt funds, then you may immediately request a hear-ing in the court listed above by filing a sworn written request with the Clerk of the Court within ten (10) days of the Garnishee's Date of Receipt noted above. Your notarized written request for a hearing must be on Affidavit Form AOC-150.2, which is to be obtained from the Clerk of the Court from which this Order issued.

If a hearing is requested, the Clerk of the Court will notify plaintiff and defendant of the time and place, and issue the court's order for the garnishee to continue to hold the funds pending the outcome of the hearing.

www.courts.ky.gov

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AOC-150.1 Doc. Code: GAGRev. 1-08

affidavit and ansWer

Of Garnishee

The Affiant, after being first duly sworn, states as follows:

1. The name of the Judgment Debtor is ____________________________________________________________.

2. At the time of the service of this order, the Garnishee herein is indebted to the Judgment Debtor or holds money

belonging to the Judgment Debtor in the amount of $______________________ (If none, put “none”).

3. Other property belonging to the Judgment Debtor and held by me is as follows (If none, put “none”):

_________________________________________________________________________________________________

_________________________________________________________________________________________________

_________________________________________________________________________________________________

4. I, or I on behalf of the Garnishee herein, state that there is no other money, property, or other evidence of debt in my pos-session that belongs to the Judgment Debtor.

5. I, or I on behalf of the Garnishee, have FORWARDED TO THE ATTORNEY named on the reverse side the amount of money so held by me to the extent of the amount due plus costs as shown on the reverse.

THE AMOUNT FORWARDED IS: $_______________________.

6. If I, or I on behalf of the Garnishee, hold property (listed above) other than money which I am unable to forward, I hereby disclose (in Paragraph 3 above) such property and will hold and safely keep such property pending further order of the Court.

7. In addition, I have sent the original of this Answer and the Order on the reverse to the Court, and copies to the attorney named on the reverse and the Judgment Debtor.

_____________________________________________ Name of Garnishee

By: __________________________________________ Signature of Affiant

_____________________________________________ Position (If Applicable)

Subscribed and sworn to before me by the above Affiant on _________________________________________, ________.

Original to be returned to Court My Commission Expires:One Copy to Judgment DebtorOne Copy to Judgment CreditorOne Copy for Garnishee _____________________________________________ Notary Public

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H. [6.32] Order of Garnishment (Non-Wage) (United States District Court for the Eastern District of Kentucky Form EDKy-426)

�EDKy426 (Rev. 09/91) Affidavit for Order of Garnishment (Non-wage)



AFFIDAVIT FOR ORDER OF GARNISHMENT (NON-WAGE)

Judgment Creditor:

Judgment Debtor: Case Name and No.

Garnishee: Name and Address of JudgmentCreditor’s Attorney

Amount Due:Court Costs:

The undersigned affiant states that he is counsel for the Judgment Creditor and states as follows:1. The above named Judgment Debtor(s) are not now, nor have they been at any time during the pendency of

this action, in the active military service of the United States of America.2. The date of the judgment and the amount due thereon (subject to any credits due for any sums currently

being processed) are:______________________________________________________________________________________________________________________________________________________________________________

3. The following are indebted to said Judgment Debtor(s):_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

WHEREFORE: The Judgment Creditor prays for garnishment against the Judgment Debtor(s); that theGarnishee(s) named herein be made parties to this action, and that they be required to answer the garnishment(s)issued hereunder; and for its costs.

_________________________________________Affiant

Subscribed and sworn to before me by the above affiant this ____day of ________________ 20______.

My Commission expires:_________________ _________________________________________Notary Public, State at Large

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�EDKy426 (Rev. 09/91) Order of Garnishment (Non-wage)


EASTERN DISTRICT OF KENTUCKY

atORDER OF GARNISHMENT (NON-WAGE)

Judgment Creditor: Garnishee’s Date of Receipt




THE UNITED STATES OF AMERICA: To the Garnishee:

If you hold property belonging to, or are indebted to, the judgment debtor named above, you are herebyORDERED to hold and safely keep all of the property of the Judgment Debtor necessary to satisfy theamount due plus court costs as shown above. You are RESTRAINED from paying to the Judgment Debtor,or to anyone for him, money or property in your possession belonging to him or in which he has any interest.

INSTRUCTIONS

You Are Hereby Summoned and Required to Do the Following:(1) Fill in the Garnishee's Date of Receipt in the space provided above on all copies;(2) Hold and safely keep any funds or property due the Judgment Debtor to the extent of the Amount Dueabove plus Court Costs until further Order of the Court or as directed below;(3) Promptly attempt to notify the Judgment Debtor by mailing a copy of this Order to his last knownaddress or by delivering it to him;(4) If after the expiration of fourteen (14) days from your receipt of this Order and there has been no furthernotice from the Court, then do the following:

(a) Using the form provided, Answer as Garnishee within twenty (20) days of the receipt of this Order;and(b) Forward to the Attorney named below your Answer; and,(c) Send the original of your Answer to the Court.

Date: _________________ ROBERT R. CARR, CLERK

By: _______________________ D.C.

IMPORTANT LEGAL NOTICE TO JUDGMENT DEBTORMoney or property belonging to you has been subjected to a garnishment under a judgment entered against

you in this case. Some funds may be exempt from garnishment, including Social Security benefits, workerscompensation benefits, unemployment insurance benefits, AFDC, and some other types of governmental benefitpayments; however, you must claim and prove any applicable exemption. If you can show that the propertygarnished by this Order consists of exempt funds, then you may immediately request a hearing in the court listedabove by filing a sworn written request with the Clerk of the Court within ten (10) days of the Garnishee's Dateof Receipt noted above. Note: The Clerk does not have forms for you to use and cannot give you legal advice.

Distribution: Original to Court, Copy to Judgment Creditor’s Attorney, Copy to Garnishee (sent by Judgement Creditor’s Attorney)

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�EDKy426 (Rev. 09/91) Affidavit and Answer of Garnishee (Non-wage)



AFFIDAVIT AND ANSWER OF GARNISHEE

Judgment Creditor: Garnishee’s Date of Receipt




The Affiant, after being first duly sworn, states as follows:1. The name of the Judgment Debtor is _________________________________________________________2. At the time of the service of the Order of Garnishment (Non-wage), the Garnishee herein is indebted to the

Judgment Debtor or holds money belonging to the Judgment Debtor in the amount of $________________.3. Other property belonging to the Judgment Debtor and held by me is as follows (If none, put "none"):

_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

4. I, or I on behalf of the Garnishee herein, state that there is no other money, property, or other evidence ofdebt in my possession that belongs to the Judgment Debtor.

5. I, or I on behalf of the Garnishee, have forwarded to the Judgment Creditor’s Attorney the amount ofmoney so held by me to the extent of the amount due plus costs as shown on the reverse. THE AMOUNTFORWARDED IS: $_____________________________________________________________________

6. If I, or I on behalf of the Garnishee, hold property (listed above) other than money which I am unable toforward, I hereby disclose (in Paragraph 3 above) such property and will hold and safely keep such propertypending further orders of the Court.

7. In addition, I have sent the original of this Answer to the Court, a copy to the Judgment Creditor’sAttorney and a copy or the Order of Garnishment (Non-wage) and of this Answer to the Judgment Debtor.

GARNISHEE

By: _____________________________________Signature of AffiantPosition (If Applicable): _________________

Subscribed and sworn to before me by the above Affiant this___ day of __________, 20_____

My Commission Expires: ____________ _____________________________________Notary Public, State at Large

INSTRUCTIONS1. After receiving the Order of Garnishment (Non-wage), promptly send a copy of it to the Judgment Debtor.2. After 14 days from Garnishee’s Date of Receipt, but within 20 days from Garnishee’s Date of Receipt,

mail the original of this Answer to the Court, a copy to the Judgment Creditor’s Attorney and a copy to theJudgment Debtor.

3. Retain a copy of the Order and this Answer for your records.

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I. [6.33] Affidavit to Challenge Garnishment (AOC-150.2)

1. Subscribed and sworn to before me this ______ day of ___________________, 2______. My commissionexpires: _____________________, 2______.

______________________________________________Notary/Clerk

__________________________________________Title

2. NOTICE TO JUDGMENT CREDITOR OR CREDITOR’S ATTORNEY(to be completed by Circuit Court Clerk)

You are hereby ordered to continue to hold and safely keep any funds due the Judgment Debtor to theextent of the amount due as shown on the Order of Garnishment plus costs until further Order of the Court. Thisdocument is intended to constitute notice to you of the Debtor’s challenge of the garnishment action. A hearinghas been set for _____________________ , 2_______, at ____________ [ ] a.m. [ ] p.m. at which you mayappear to respond. If this time is inconvenient, this office must be promptly notified for rescheduling.Date ________________________, 2______ _________________________________________ Clerk

By: ______________________________________ D.C.

AOC-150.2 Doc. Code: GACW & Case No. Rev. 5-03 GACN Page 1 of 1 Court Commonwealth of KentuckyCourt of Justice www.kycourts.net County KRS 425.501 [ ] WAGE [ ] NON-WAGE

AFFIDAVIT TO CHALLENGEGARNISHMENT

Name: PLAINTIFF

VS.

Name: DEFENDANT

Affiant is the Judgment Debtor in the above-styled case and states that certain money/property belonging to Affiant, whichis exempt from garnishment, has been garnisheed. The amount of money/property exempted is$__________________________. The money/property is exempt because: __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

WHEREFORE, the Judgment Debtor prays that the garnishment of money/property be set aside and that allexempt money/property garnisheed be released to the Judgment Debtor.

Signature of Affiant: _______________________________________

INSTRUCTIONS FOR COMPLETING AFFIDAVIT TO CHALLENGE GARNISHMENTGive the form to the completed Circuit Court Clerk. DO NOT DETACH any copies from the form. If you printed this fromthe Internet, you must submit the signed original and two (2) copies to the Clerk.

Distribution: Original to Case FileCopy to Judgment Creditor/Creditor’s Attorney Copy to Judgment Debtor

Print Reset Form

09/21/2018 03:32 pmVer. 1.01

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J. [6.34] Execution Form (AOC-135)

ExEcution Form

___________________________________________________________ PLAINTIFF

V.

________________________________________________ DEFENDANT

IMPORTANT LEGAL NOTICE TO:____________________________________________________________, Judgment Debtor

The judgment creditor is trying to take and sell the property listed on the attached sheet to satisfy a judgment entered against you. You may have a right to keep certain property but you must follow these instructions.

Examples of some of the property you may keep are as follows:

All household furnishings, jewelry and personal clothing worth not more than three thousand dollars ($3,000). This does not include works of art, more than one radio and TV, antiques, and jewelry which is not wedding rings.

One (1) motor vehicle, including one (1) spare tire, worth not more than two thousand five hundred dollars($2,500).

Tools, equipment and livestock, including poultry, of a person engaged in farming, worth not more than three thousand dollars ($3,000).

Professionally prescribed health aids for you or your dependent.

The tools, worth not more than three hundred dollars ($300), of any individual debtor necessary in his or her trade.

If you believe you are allowed by law to keep your property, you have ten (10) days to ask for a hearing from the clerk of the court which issued this order. The clerk will provide you withAffidavit Form No. AOC-135.1and tell you when to come back to court for your hearing.

IF YOU DO NOT REQUEST A HEARING WITHIN

TEN (10) DAYS, YOUR PROPERTY MAY BE SOLD.

AOC-135 Doc. Code: EXRev. 6-14Page 1 of 2

Commonwealth of KentuckyCourt of Justice www.courts.ky.gov

KRS 426.020; 427.010; 427.030

CaseNo.____________________

Court ____________________

County____________________

Division ____________________

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ExEcution ordEr

The Commonwealth of Kentucky, to the Sheriff of _______________________________________ County:

We command you that of the non-exempt property of the estate of _____________________________________

you cause to be made the sum of $_______________________ which __________________________________

in District or Circuit Court has recovered against him/her for debt, with interest at the rate of_______________%

per annum from___________________,2_____________,until paid and also the sum of $____________ in court

cost which the same court ordered to be paid to the _____________________________ for his/her cost spent

to bring the case before the court; and that you have the said sums of money before the court on

______________________,2________, to give to plaintiff his/her debt, interest and costs mentioned above and

to have then and there this writ, but in no event shall any property be sold before the fourteenth (14th) day

following service of this writ upon the defendant.

Witness, Clerk of said Court, on ____________________________,2__________.

_____________________________________________ ________________________________________Clerk Attorney

By:_____________________________________, D.C._____________________________________________

_____________________________________________ Address

SHERIFF'S RETURN

[ ] I delivered notice form to debtor. Property seized was: ____________________________________________

________________________________________________________________________________________________

________________________________________________________________________________________________

________________________________________________________________________________________________

Date: _________________________________, 2_____ Served By: ____________________________________

COPY DISTRIBUTION:Notice Form & White Copy to DebtorNotice Form & Canary Copy to CreditorNotice Form & Pink Copy to ClerkNotice Form & Gold Copy to Sheriff

AOC-135Doc.Code:EXRev.6-14Page 2 of 2

(Defendant/Debtor)

(Plaintiff / Creditor)

(Plaintiff / Creditor)

(Amount of judgment)

(Date of judgment)

(Issue date)

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K. [6.35] Notice of Judgment Lien



NOTICE OF JUDGMENT LIEN ON REAL ESTATE

COMMONWEALTH OF KENTUCKY COURT OF JUSTICE

JUDGMENT DEBTOR JUDGMENT CREDITOR [debtor’s name] [creditor’s name] SOC SEC #[ - - ]

JUDGMENT DATE: [_________] JUDGMENT AMOUNT: $[_________] COURT COSTS TO DATE: $[_________] AWARDED ATTORNEY FEES: $[_________] BALANCE AS OF [_________] [___], 20[___]: $[_________] INTEREST RATE: [___]%

NOTICE TO JUDGMENT DEBTOR:

YOU MAY BE ENTITLED TO AN EXEMPTION UNDER KRS 427.060, RE-PRINTED BELOW. IF YOU BELIEVE YOU ARE ENTITLED TO ASSERT AN EXEMPTION, SEEK LEGAL ADVICE.

Take notice that the Judgment Creditor herein has obtained Judgment against the Judgment Debtor as set forth above and that this Notice constitutes a lien upon all real estate in [_______] County in which said Judgment Debtor has any ownership interest.

[_______] County Clerk [_______] County Courthouse

[street address] [_______], Kentucky [_______]

INSTRUCTIONS TO COUNTY CLERK:

Pursuant to KRS 426.720, you shall immediately enter this Notice of Judgment Lien on Real Estate in the Lis Pendens Records of [ ] County. Entry shall be noted

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upon the original of this Notice and a copy returned to Lawyer & Attorney, P.S.C., as indicated below.

KRS 427.060: In addition to any exemption of personal property, an individual Debtor’s aggregate interest, not to exceed five thousand dollars ($5,000.00) in value, in real or personal property that such debtor or a dependent of such debtor uses as a permanent residence in this state, or in a burial plot for such debtor or a depen-dent of such debtor is exempt from sale under execution, attachment or judgment, except to foreclose a mortgage given by the owner of a homestead or for purchase money due thereon. This exemption shall not apply if the debt or liability existed prior to the purchase of the property or the erection of the improvements thereon.

I certify that on [_________] [___], 20[___] a copy of this Notice of Judgment Lien on Real Estate was hand-delivered or sent to the last known address of the above Judgment Debtor and to the [_______] County Clerk by regular first-class mail, postage prepaid, and that THIS INSTRUMENT WAS PREPARED BY:

LAWYER & ATTORNEY, P.S.C.

____________________________________ By: John D. Lawyer

COUNSEL FOR JUDGMENT CREDITOR 100 West Main Street



6-54


L. [6.36] Notice and Affidavit of Foreign Judgment Registration (AOC-160)

Case No. _____________________

Court ________________________

County _______________________Notice aNd affidavitof foreigN JudgmeNt

registratioN

Name(s) and address(es) of vs. Name and address ofJudgment Debtor(s): Judgment Creditor:

Notice To Judgment Debtor(s)

An authenticated copy of a foreign judgment, decree or order against you was entered with the Clerk of this court on the “Judgment entry date” below. Twenty (20) days after the “Judgment entry date” below, execution or other process for enforcement of the judgment may be issued against you at the request of the Judgment Creditor. The Clerk will treat the foreign judgment in the same manner as a judgment of any court of Kentucky. The entered judgment has the same effect and is subject to the same procedures, defenses and proceedings for reopening, vacating or staying as a judgment of a court of Kentucky. It also may be enforced or satisfied like a judgment of a court of Kentucky. The name and address of the judgment creditor are above. The name and address of the judgment creditor's lawyer (if any) are below. This Notice has been mailed to the judgment debtor promptly upon the filing of the affidavit below and the foreign judgment described below.

Name of foreign Court: _________________________________________ Circuit Clerk

Date of foreign judgment: By: ____________________________________________ D.C.

Amount of foreign judgment: Judgment entry date: __________________________________

$

Affidavit of Creditor or of Creditor's Attorney

The undersigned affiant is counsel for judgment creditor or is the judgment creditor. The names and last known post office addresses of the judgment debtor(s) and of the judgment creditor are provided above.

Subscribed and sworn to before me on: _____________________________________________ Affiant_____________________________________________

My commission expires on:

_____________________________________________

_____________________________________________ Notary Public Name and address of judgment creditor

or of judgment creditor's counsel

AOC-160 Doc. Code: NAFRev. 1-08 Page 1 of 2

Commonwealth of KentuckyCourt of Justice www.courts.ky.net

KRS 426.960

6-55


AOC-160 Doc. Code: NAFRev. 1-08Page 2 of 2

iNstructioNs to JudgmeNt creditors aNd their attorNeys

1. Complete all blanks on the front of this form, except the Case No., the court division (if any) and the judgment entry date. The Clerk will provide these.

2. Sign the Affidavit as “affiant” before a Notary Public, and have the notary sign as well.

3. Provide this form with all the copies to the Circuit Clerk in the county where you want the form to be filed, together with:

a. One (1) copy of the foreign judgment, decree or order to be registered, authenticated by the foreign court according to the act of Congress, AND b. A civil action filing fee. The Clerk will inform you of the amount of the fee.

4. The Clerk will stamp, sign and date the front of this form and return two (2) copies to you. The Clerk will mail one copy to the judgment debtor. You may also mail one copy to the judgment debtor if you wish.

5. Twenty (20) days after entry of the foreign judgment and this form by the Clerk, execution for enforcement of the judgment may then be issued provided no stay of execution or enforcement has been granted by the court.

iNstructioNs to circuit clerks

1. Verify proper completion of the form by the creditor or its counsel, including notarization of the affiant's signature.

2. Examine the foreign judgment to see that it has been authenticated according to the act of Congress by the Clerk of the foreign court or has been authenticated in accordance with the statutes of this state. This is usually done with a separate overlay sheet with a seal (see for example Kentucky's Form AOC-065 or AOC-060), but the format varies from state to state.

3. Collect the appropriate filing fee just as for a civil action. Refer to the “amount of the foreign judgment” on the face of this document to determine whether to file it as a Circuit or District civil action, and to determine the filing fee.

4. Assign a case number (and division, if any).

5. Apply “entered” stamp to the foreign judgment and "filed" stamp to the Notice and Affidavit of Foreign Judgment Registration (Form AOC-160); add date and initials; and enter on docket sheet.

6. Serve notice of entry as follows:

a. Make a copy of the foreign judgment and separate one copy of AOC-160 and mail both by first class mail to the judgment debtor as addressed on front of AOC-160. Certified mail is recommended. If certified mail is used, collect postage fees as set forth in the "FEES AND COSTS" section of the Kentucky Circuit Court Clerks Manual. Mail the documents by certified mail, return receipt requested, with instructions to deliver to addressee only and to show the address where delivered and the date of delivery on the return receipt. CR 4.01(1)(a). IN ORDER TO ACCOMPLISH PROPER SERVICE, CHECK THE RESTRICTED DELIVERY BOX ON THE 'RETURN' RECEIPT (Green Card). If AOC-160 is folded in thirds at the indicator line on the left margin, it will fit in a standard business window envelope, showing the judgment debtor's name and address.

b. Detach the two (2) bottom copies of AOC-160 and return them to the judgment creditor or its counsel (if any).

c. Place foreign judgment and top copy of AOC-160 in case file.

7. Note on the case docket the date that the judgment debtor was mailed a copy of the foreign judgment and AOC-160.

8. Once twenty (20) calendar days have elapsed from the date this form and the foreign judgment were entered and if no stay of execution or enforcement has been granted by the court, then the judgment creditor may seek execution or other process for its enforcement, as with any civil judgment entered in your court. No other order or judgment shall be required. You will treat the foreign judgment in the same manner as a judgment of any court of this state.

6-56


7-1

Enforcement of Statutory Liens and Bond Claims


7

ENFORCEMENT OF STATUTORY LIENS AND BOND CLAIMS

STEPHEN E. SMITH AIDA ALMASALKHIGoldberg Simpson LLC


7-2


7-3


I. [7.1] Enforcement of Statutory Liens .......................................7-15A. [7.2] Introduction ...........................................................7-15B. [7.3] Mechanic’s and Materialmen’s

Liens on Private Projects (Property Not Owned by Government) ................................7-15

1. [7.4] Who Is Entitled to a Mechanic’s Lien? .......................................................7-15

a. [7.5] Must Satisfy the Two-Part Statutory Test ...........................7-16

b. [7.6] SpecificExamplesof Those Entitled to a Mechanic’s Lien .......................7-17

i. [7.7] General Contractors ...7-17ii. [7.8] Subcontractors ...........7-17iii. [7.9] Material &

Equipment Suppliers ....................7-18

iv. [7.10] Engineers, Architects, Landscape Architects, Land Surveyors, and Real Estate Brokers ......................7-20

(a) [7.11] Engineers .....7-20(b) [7.12] Architects ....7-21(c) [7.13] Landscape

Architects ....7-21(d) [7.14] Land

Surveyors.....7-22(e) [7.15] Real

Estate Brokers ........7-23

2. [7.16] Who Is Not Entitled to a Mechanic’s Lien? ...................................7-24

3. [7.17] Statutory Requirements & Steps for Filing and Perfecting a Mechanic’s Lien .................7-24

a. [7.18] Mandatory Notice ....................7-24i. [7.19] Time Limitation for

Sending “Notice of Intent to File Lien” ....7-25

7-4


(a) [7.20] “Owner-Occupied Family Dwelling” – 75-Day Notice Period ..........7-25

(b) [7.21] All Other Property or Projects (ExceptGovernment Projects) – 75-120 Day Notice Period ..........7-25

(c) [7.22] Attempts toExtendDeadline ......7-26

(d) [7.23] Issues Concerning Receipt of Notice ......7-26

ii. [7.24] Mandatory Information for “Notice of Intent to File Lien” ...............7-26

iii. [7.25] Examplesof Insufficientor Defective Notice ........7-27

b. [7.26] Post-Notice Procedures for Perfecting and Recording a Mechanic’s Lien Statement ......7-28

i. [7.27] Time Limitation for Filing/Recording Mechanic’s Lien ........7-28

ii. [7.28] Necessary Content for Statement of Lien ............................7-28

iii. [7.29] Proper Filing of the Statement of Lien ......7-29

iv. [7.30] Post-Filing Procedures .................7-29

4. [7.31] Enforcement of the Lien .........................7-29

7-5


a. [7.32] Statute of Limitations (Shelf-Life of the Lien) ............7-30

b. [7.33] Civil Action in General ............7-30i. [7.34] Location of Civil

Action (Venue) ...........7-30ii. [7.35] Proper Parties .............7-31

(a) [7.36] Bonding and Surety Companies ...7-31

iii. [7.37] Procedure for Filing Civil Action ...............7-32

iv. [7.38] Recovery of Costs, Interest, and Attorney Fees .............7-32

c. [7.39] Intervening Sale of Property by Owner ..................................7-33

5. [7.40] Priority of Liens and Claims Against the Property ...................7-33

a. [7.41] TaxLiens ..................................7-34b. [7.42] Other Liens &

Encumbrances ..........................7-34c. [7.43] Priority Among Competing

Mechanic’s Liens .....................7-346. [7.44] Common Defense Issues ........................7-34

a. [7.45] StatutoryDeficiencies ..............7-35b. [7.46] Payment by Owner ...................7-35c. [7.47] Defects in Work or Material .....7-36d. [7.48] Waiver ......................................7-36

7. [7.49] Issues Relating to Voluntary and Involuntary Release of Liens .....................................7-36

a. [7.50] Release Pursuant to Bond ........7-36b. [7.51] Release Pursuant to

Satisfaction of Underlying Debt ..........................................7-36

i. [7.52] Mandatory Statutory Requirements for Lien Release ..............7-37

ii. [7.53] Filing and Notice Procedure for Lien Release .......................7-37

c. [7.54] Release Prior to Full Satisfaction of Debt ..................7-37

7-6


C. [7.55] Mechanic’s and Materialmen’s Liens on Government or Public Projects and Improvements ...................................7-38

1. [7.56] What Is a Public Project? .......................7-382. [7.57] Who Is Entitled to Assert a

Public Improvement Mechanic’s Lien? ..7-39a. [7.58] Must Satisfy the Two-Part

Statutory Test ...........................7-393. [7.59] Statutory Requirements

& Steps for Filing and Perfecting a Public Improvement Mechanic’s Lien ...............7-39

a. [7.60] No Mandatory Pre-Filing Notice .......................................7-39

b. [7.61] Procedure for Filing a Public Improvement Mechanic’s Lien ..........................................7-40

i. [7.62] Time Limitation for Filing/Recording a Public Improvement Mechanic’s Lien ........7-40

ii. [7.63] Necessary Content for Statement of Lien ............................7-40


c. [7.65] Final Procedure for Perfecting a Public Improvement Mechanic’s Lien ..........................................7-41

i. [7.66] Post-Filing Notice to Contractor/Subcontractor .............7-41

ii. [7.67] Post-Filing Notice to the Public Authority ....................7-41

4. [7.68] Enforcement of the Lien .........................7-42a. [7.69] Enforcement Procedure

When Debtor Timely Protests Lien ..........................................7-42

i. [7.70] Mandatory Civil Action to Enforce Public Project Lien ....7-43

(a) [7.71] Location for

7-7


Mandatory Civil Action (Venue) ........7-43

(b) [7.72] Proper Parties ..........7-43

(c) [7.73] Service of Summons .....7-43

b. [7.74] Enforcement Procedure When Debtor Fails to Timely Protest Lien ..............................7-44

5. [7.75] Issues Relating to Release and Bonding of Public Project Liens ......7-44

D. [7.76] Motor Vehicle Liens (Including Boat Liens) for Repairs, Storage, Towing, and Accessories.......................................7-45

1. [7.77] What Is a Motor Vehicle? .......................7-452. [7.78] Who Is Entitled to Assert a

Motor Vehicle Lien Under KRS 376.270 to 376.280? ......................7-45

3. [7.79] What Debts Are Subject to a Motor Vehicle Lien? ............................7-45

4. [7.80] Procedure to Secure and Enforce Motor Vehicle Lien ...................7-46

a. [7.81] Debts for Repairs, Work, and Accessories ........................7-46

i. [7.82] Options When Vehicle Still in Possession of Lien Holder/ Creditor ......................7-46

(a) [7.83] Right to Detain or Retain Possession of the Vehicle .........7-46

(b) [7.84] Right to Sell Vehicle and Retain Sale Proceeds ......7-46

(i) [7.85] Step 1 – File a Lien State-

7-8


ment with the County Clerk ........7-46

(ii) [7.86] Step 2 – Adver-tise the Sale ........7-47

(iii) [7.87] Step 3 – Provide Pre-Sale Notice to Owner and Inter-ested Parties ........7-47

(iv) [7.88] Step 4 – Sell the Vehicle ........7-47

ii. [7.89] Options When Vehicle No Longer in Possession of Lien Holder/ Creditor ......................7-47

b. [7.90] Debts for Towing and Storage Fees .............................7-48

i. [7.91] Perfecting Motor Vehicle Liens for Towing & Storage Fees ............................7-48

ii. [7.92] Enforcing Motor Vehicle Liens for Towing & Storage Fees ............................7-48

5. [7.93] Priority of Motor Vehicle Liens Under KRS Chapter 376 ...............7-49

6. [7.94] Constitutional Concerns .........................7-497. [7.95] Final Precautionary Warning ..................7-50

7-9


E. [7.96] Liens for the Repair of Timepieces, Jewelry, Electrical Equipment, Machinery, and Motors .........................................7-50

1. [7.97] Liens for the Repair of Timepieces and Jewelry .........................7-51

a. [7.98] Rights and Duties of Lien Holder in Possession of Repaired Article .......................7-51

i. [7.99] Right to Detain Property .....................7-51

ii. [7.100] Right to Sell Property .....................7-51

(a) [7.101] Statutory Pre-Sale Notice Requirement .....................7-51

(b) [7.102] Method of Sale..........7-52

(c) [7.103] Proceeds of Sale.........7-52

b. [7.104] Rights of Lien Holder No Longer in Possession of Repaired Article .......................7-52

2. [7.105] Liens for the Repair of Electrical Equipment and Appliances.....7-53



ii. [7.108] Duty to Notify Debtor of Completion of Repair ....................7-53

iii. [7.109] Right to Sell Property .....................7-54


(b) [7.111] Method of Sale..........7-54

(c) [7.112] Proceeds of Sale..........7-54

7-10


b. [7.113] Rights of Lien Holder No Longer in Possession of Repaired Article .......................7-55

3. [7.114] Liens for the Repair of Equipment, Machinery, and Motors .......7-55



ii. [7.117] Right to Sell Property .....................7-56


(b) [7.119] Mandatory Advertising of Sale..........7-57

(c) [7.120] Method of Sale..........7-57

(d) [7.121] Proceeds of Sale..........7-57

b. [7.122] Rights and Duties of Lien Holder No Longer in Posses- sion of Repaired Article ...........7-57

i. [7.123] Duty to File Lien Statement ...................7-57

(a) [7.124] Deadline to File Statement of Lien .........7-58

(b) [7.125] Procedure for Filing Statement of Lien .........7-58

ii. [7.126] Enforcement of Lien When Property Not in Lien Holder’s Possession ..................7-58

F. [7.127] Liens Against Tenant Property ..............................7-591. [7.128] Landlord’s Lien Against

Crops for Advancement of Supplies or Property ...............................7-59

7-11


a. [7.129] Deadlines for Lien Enforcement .............................7-59

b. [7.130] Procedure for Enforcement of Lien on Tenant’s Crops ........7-59

2. [7.131] Landlord’s Lien Against Tenant Property for Past Due Rent on Premises ............................7-59

a. [7.132] Lien Rights Where Premises Rented for Farming or Coal Mining Purposes ......................7-59

b. [7.133] Lien Rights Where Premises Not Rented for Farming or Coal Mining Purposes ..............7-60

3. [7.134] Landlord Lien for Past Due Rent on Self-Service Storage Facility.......................................7-60

a. [7.135] Procedure for Perfecting Lien Rights ...............................7-60

b. [7.136] Enforcement of the Lien ..........7-60i. [7.137] 45-Day Default

Rule ............................7-60ii. [7.138] Pre-Sale Notice to

Property Owner .........7-61iii. [7.139] Pre-Sale

Advertising ................7-61iv. [7.140] Tenant’s Right to

Redeem Property .......7-61v. [7.141] Method of Sale ..........7-62vi. [7.142] Distribution of

Sale Proceeds .............7-62vii. [7.143] Rights of Purchas-

ers for Value ...............7-624. [7.144] Lien for Rent Due on

Mobile Home Space or Lot ....................7-62a. [7.145] Enforcement of the Lien by

Sale of Property ........................7-62i. [7.146] Mandatory Notice

to Tenant and Other Lien Holders ..............7-63

ii. [7.147] Mandatory Advertising of Sale ............................7-63

iii. [7.148] Method of Sale ..........7-63iv. [7.149] Disposition of

Sale Proceeds .............7-63

7-12


G. [7.150] Lien for Attorney Fees ..........................................7-631. [7.151] What Property Is Subject

to an Attorney Fee Lien? ........................7-642. [7.152] Determining the Amount

of the Attorney Fee Lien .........................7-643. [7.153] Procedures to Enforce the

Attorney Fee Lien ...................................7-65H. [7.154] Veterinarian’s Liens and Other

Liens Relating to Animals ....................................7-651. [7.155] Veterinarian Liens...................................7-65

a. [7.156] Who Is Entitled to a Veterinarian Lien? ....................7-66

b. [7.157] Procedures for Perfecting and Recording a Veterin- arian’s Lien ...............................7-66

i. [7.158] Time Limitation for Filing/Recording Veterinarian Lien .......7-66

ii. [7.159] Necessary Content for Lien Statement .....7-66


iv. [7.161] Post-Filing Procedures .................7-67

c. [7.162] Enforcement of the Lien ..........7-67i. [7.163] Statute of Limitations

(Shelf-Life of the Lien) ..........................7-67

ii. [7.164] Civil Action in General ......................7-68

(a) [7.165] Location of Civil Action (Venue) ........7-68

(b) [7.166] Proper Parties ..........7-68

(c) [7.167] Procedure for Filing Civil Action ..........7-68

2. [7.168] Agister’s Liens (Liens for Livery, Boarding, and Feeding Animals) ...................................7-69

a. [7.169] Duration of the Lien .................7-69

7-13


b. [7.170] Procedure for Enforcement of Lien ......................................7-69

i. [7.171] Enforcement by Levy and Seizure .......7-69

c. [7.172] Enforcement by Sale of Animal ......................................7-70

3. [7.173] LiensforExpensesRelating to Capture and Care of Stray Animals ............................7-70

4. [7.174] Liens for Stud Fees .................................7-71a. [7.175] Procedure for Enforcement

of Lien ......................................7-71i. [7.176] Enforcement by

Levy and Seizure .......7-71ii. [7.177] Enforcement by

Other Judicial Action ........................7-71

I. [7.178] Other Miscellaneous Statutory Liens ....................7-711. [7.179] Liens on Farm Crops for

Custom Operator Services ......................7-712. [7.180] Liens on Gas, Oil, and

Other Mineral Leaseholds ......................7-723. [7.181] Lien of Employees on

Property of Certain Employers ...............7-724. [7.182] Lien of Dry Cleaner,

Tailor, and Launderer for Work Done ....7-725. [7.183] Lien for Costs Relating to

Clothing Storage .....................................7-726. [7.184] Lien of Innkeeper and

Hotel for Boarding Fees .........................7-73

II. [7.185] Enforcement of Bond Claims ...........................................7-73A. [7.186] Introduction ...........................................................7-73B. [7.187] The Nature of Suretyship ......................................7-73C. [7.188] Indemnification .....................................................7-75D. [7.189] ExtentofSuretyLiability .....................................7-75E. [7.190] Elements of a Successful Bond Claim ..................7-77F. [7.191] Construction Performance Bonds .........................7-77

1. [7.192] Parties Protected by Performance Bonds ......................................................7-77

2. [7.193] Origins of the Bond Claim .....................7-783. [7.194] Principal’s Obligations and Rights .........7-794. [7.195] Obligee’s Obligations and Rights ...........7-80

7-14


5. [7.196] Notice to the Surety ................................7-806. [7.197] Declaration of Default ............................7-817. [7.198] Surety’s Obligations and Rights .............7-828. [7.199] Claims by the Obligee ............................7-839. [7.200] Surety’s Defenses ...................................7-83

a. [7.201] Overpayment by the Owner .....7-84b. [7.202] Delay or Acceleration by

the Owner .................................7-84c. [7.203] Lack of Notice ..........................7-84d. [7.204] Defense of Discharge ...............7-84e. [7.205] Untimely Claim ........................7-85

10. [7.206] Claims by the Surety ..............................7-85a. [7.207] Claims Against the

Contractor ................................7-85b. [7.208] Claims Against the Owner .......7-85c. [7.209] Claims Against the Design

Professional ..............................7-86G. [7.210] Payment Bonds .....................................................7-86

1. [7.211] Parties Protected by Payment Bonds ......7-872. [7.212] Scope of Bond Coverage ........................7-883. [7.213] Notice and Suit Requirements ................7-89

H. [7.214] Statute of Limitations for Surety Bonds ...............7-90I. [7.215] EffectofPrincipal’sBankruptcyontheParties ....7-93

III. [7.216] Appendix ............................................................................7-97A. [7.217] Sample Notice of Intent to Assert Lien .................7-97B. [7.218] Sample Statement of Lien (Private Property) .......7-98C. [7.219] Sample Release of Lien ......................................7-100D. [7.220] Sample Statement of Lien for

Public Improvement ............................................7-101E. [7.221] Sample Post-Filing Notice to

Contractor(Public Project) ..................................7-103F. [7.222] Sample Post-Filing Notice to

Public Authority (Public Project) ...................................................7-104

7-15


I. [7.1] Enforcement of Statutory Liens

A. [7.2] Introduction

Kentucky law provides a number of statutory lien remedies which create additional pre-litigation and post-litigation rights and options to creditors attempting to secure payment from a debtor. However, unlike the broad application and scope of a general judgment lien (described in more detail in Chapter 6, supra), most statutory lien provisions create a distinct and separate remedy which will apply onlytothelimitedtypeofclaimorcontroversyspecificallyidentifiedwithintheparticular statute. In those instances where such a statute applies, a creditor can often use that leverage to compel payment from a debtor without resorting immediately to the additional cost and burden of formal litigation. Fortunately, the Kentucky GeneralAssemblyhascodifiedanumberofhighlyspecialized lienprovisions,which are described in the following sections.

All of the cases cited in this chapter have been reviewed. As most construction practitioners are aware, the increasing trend in mediation and arbitration has limited the number of new case law being offered by the Court of Appeals and Kentucky Supreme Court. New case law in Kentucky is a rare finding, indeed.

B. [7.3] Mechanic’s and Materialmen’s Liens on Private Projects (Property Not Owned by Government)

Perhaps the most commonly employed statutory lien, the mechanic’s and materialmen’s lien (frequently referred to conjunctively as “mechanic’s liens”), generally applies to debts arising from or relating to construction or improvement of real property, structures, buildings, bridges, and roadways. The purpose of this statutory recovery right is to provide persons or entities who supply labor, services, and/or materials for such projects a method to seek payment or otherwise protect their rights to payment for such labor, services, and/or materials. After all, absent these additional rights, most creditors in the construction and supply industries would have little, if any, leverage to compel payment for the services or materials they had already provided since they cannot practically repossess or recoup the services or materials which have been incorporated into the completed building, structure, bridge, or roadway. Fortunately for many creditors, the Kentucky Gen-eral Assembly recognized this problem and created a statutory framework to assist thiscategoryofcreditorsintheirrecoveryefforts.Themechanic’slienstatutesarecodifiedatKRS376.010et seq.

1. [7.4] Who Is Entitled to a Mechanic’s Lien?

Since a mechanic’s lien is a statutory remedy, only those entities and in-dividualsfallingwithinthespecificstatutorylanguagewillbeentitledtofilesuch

7-16


a lien. However, the applicable statute, KRS 376.010(1), creates a broad class of entities and individuals that may be entitled to assert a mechanic’s lien as a remedy for nonpayment.

a. [7.5] Must Satisfy the Two-Part Statutory Test

Generally,thestatutoryrighttofileamechanic’slienextendstoanypersonorentitywhosatisfiesboth elements below:

First, the person or entity must have performed labor or furnished materials for:

• the erection, altering, or repairing of a house or other struc-tureoranyfixtureormachinerytherein;or

• theexcavationofcellars,cisterns,vaults,wells;or

• the improvement in any manner of real property including the furnishing of agricultural lime, fertilizer, concrete, pipe or drainage tile, crushed rock, gravel for roads or drive-ways, and materials used in the construction or mainte-nance of fences.

and

Second, the person or entity must have also performed, the labor or furnished those materials by contract with or by the written consent of the owner, the contractor, sub-contractor, architect, or an authorized agent.

Most standardized construction contracts state that a general contractor is not to be deemed the agent of a property owner for any purpose. Where the contract is silent on that issue, the contractor may be found to be an agent of the owner, but that must be determined on a case-by-case basis. The courts have stated that in determining whether one is an agent or servant of the owner, rather than an independent contractor, “substance prevails over form, and...the main dispositive criterion is whether it is understood that the alleged principal or master has the right to control the details of the work.” Middletown Engineering Co. v. Main Street Realty, Inc., 839 S.W.2d 274 (Ky. 1992). If the property owner retains the right to control the primary details of the work, the contractor may be deemed an agent, rather than an independent contractor. As a practical matter, it should not be presumed that the contractor will be found to be the agent of the owner for mechanic’s lien purposes. As will be discussed further below, the purpose of the notice provisions in the statute is to give the owner the opportunity to protect its financialinterests.Directnoticeisthereforerequired.

7-17


b. [7.6] SpecificExamplesofThoseEntitledtoaMechanic’sLien

Although the general language of KRS 376.010 creates a broad spectrum ofspecificentitiesandindividualswhomaybeentitledtoassertamechanic’slien,theKentuckycourtshaveprovidedadditionalguidancebyexpanding,andinsomeinstances limiting, the scope of those who are entitled to this remedy. As a result, theexactdeterminationofwhetheranindividualorentityfallswithintheclassofpersons permitted to assert a mechanic’s lien will always be subject to statutory interpretation and amendment, as well as occasional changes due to subsequent judicial decisions. Accordingly, the most prudent course of conduct requires con-sultation with counsel, along with a review of case law and statutory amendments, to determine an individual’s entitlement to a mechanic’s lien.

The statute begins very simply and clearly: “Any person who performs labor or furnishes materials...by contract with, or by written consent of, the owner, contractor, subcontractor, architect, or authorized agent, shall have a lien thereon, and upon the land upon which the improvements were made...” This language grants the lien, all one can do thereafter is lose it by failing to follow the steps set out in the statute.

Sections [7.7] through [7.15], infra, provide representative examplesof laborers and materialmen generally entitled to assert mechanic’s liens. These sectionsarenotnecessarilyintendedtocontainanexhaustivelisting.

i. [7.7] General Contractors

Almostwithoutexception,generalcontractorshavebeenpermitted toassertmechanic’sliensagainstpropertyiftheyhavesatisfiedthestatutoryelementsdefinedabove(e.g., performed labor, under contract with the owner, for the erec-tion, repairing, or altering of real property). There seems to be little debate that a generalcontractorwillmostoftenbeentitledtofileamechanic’slienwherethegeneralstatutoryrequirementsaresatisfied.

ii. [7.8] Subcontractors

Somestateslimittheprotectionofferedtosubcontractorsbypermittingmechanic’s liens only where the subcontractor has contracted directly with the primary or general contractor. Kentucky imposes no such restriction and instead permits direct subcontractors (those who contract directly with the general contrac-tor) and lower tier subcontractors (those who contract with other subcontractors) to assert mechanic’s liens as long as they otherwise satisfy the general two-part statutory test discussed above. Since 1913, the Kentucky courts have followed the general rule established in Grigsby v. Lexington & E. Ky. Co., 153 S.W. 232 (Ky. 1913), where the Kentucky Court of Appeals (then the state’s highest court) stated:

Itisnotuncommon,inexecutingbigcontracts,fortheworktobemanytimessubletandresublet;yettheundertakingsofall

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the contractors, no matter how many degrees removed from the owner, but make up the original contract. So, a subcontract, in the second or third degree removed, is in fact a contract under the originalcontract,asmuchsoasisthecontractinthefirstdegree;that is, a contract with the original contractor. This is evidently what the Legislature meant, and it is the only construction that givesforce,efficacy,andlifetothestatute.

Accordingly, subcontractors and those to whom they sublet or subcontract theirobligationsaregenerallyentitledtoassertmechanic’sliens.Forexample,ageneral contractor in a residential construction project often enters into an agreement with a carpentry subcontractor for the performance of all carpentry related aspects of the project. The carpentry subcontractor may then decide to perform the general framingandothergeneralcarpentryworkyetsubcontractthefinishcarpentrydutiestoaseparatecompany.The“finishsubcontractor”mayperformtheinitialinstalla-tionofthefinishcarpentry;however,itmayelecttosubcontractthefinalsandingand caulking duties to yet another subcontractor. That sanding subcontractor may buy its supplies on credit at a local lumber supply. Ultimately, if payment is not forthcoming,thecarpentrysubcontractor,thelow-tier“finishsubcontractor,”thelower-tier “sanding subcontractor,” and even the lumber company, may each be entitled to assert a mechanic’s lien, even though only one had a direct connection with the owner or general contractor. Again, the primary determination will be based uponwhetherthelaborersatisfiesthetwo-partstatutorytestdiscussedpreviously.

iii. [7.9] Material & Equipment Suppliers

Asnotedabove,theprotectionaffordedbytheKentuckymechanic’slienlaw covers suppliers and “materialmen” who furnish construction materials to a property owner or his agent, to a contractor, or even to a lower-tier subcontractor, away from the job site, so long as the material is ultimately used to improve the property involved. Woodson Bend, Inc. v. Masters’ Supply, Inc., 571 S.W.2d 95 (Ky. Ct. App. 1978).

Prior to the 1994 amendments to the mechanic’s lien statutes, the terms “materials”and“supplies”hadawell-definedandunderstoodlegalsignificance,whichspecificallyexcluded any and all supplies or items that were not permanently affixedtoorincorporatedwithinthefinishedstructure.ThispreviousdefinitionwasexplainedbythecourtinCentury Indem. Co. of Chicago, Ill. v. Shunk Mfg. Co.,68S.W.2d772(Ky.1934),whichdefined“materials”as:

[A]wordof general significance, especially in lien laws andbuilding contracts and when thus used it is understood to be somethingthatbecomesapartofthefinishedstructure;some-thingthatgoesintoandformsapartofthefinishedstructure.***Accordingtothelexicographicaldefinitionoftheterm,“materi-al” does not include tools, machinery or appliances used for the

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purpose of facilitating the work, but which are not incorporated into the structure.

However, the Kentucky General Assembly amended KRS 376.010 in 1994 toexpandandbroadenthetypesofmaterialsandsuppliessubjecttoamechanic’slien,aslistedinthefollowingstatutorydefinition:

(5) For purposes of this section, “labor” includes but is not limited to, all supplies and work done by teams, trucks, machinery, and mechanical equipment, whether the owner furnishes a driver or operator or not.

(6) (a) “Supplies” includes small tools and equipment reason-ably necessary in performing the work required to be done,includingpicks,shovels,sledgehammers,axes,pulleys, wire cables, ropes, and other similar items costingnotmorethanfiftydollars($50)peritem,andtires and tubes furnished for use on vehicles engaged in the performance of the work.

(b) “Supplies” also includes the cost of labor, materials, and repair parts supplied or furnished for keeping all machinery and equipment used in the performance of thework in good operating condition; and shall in-clude the agreed or reasonable rental price of equip-ment and machinery used in performing the work to be done.

Althoughtherearenoreporteddecisionsspecificallyaddressingthedefi-nition of “supplies” and “labor,” the 1994 amendments entitle suppliers to assert mechanic’sliensforunpaidfeesforthosespecificsupplieslisted,eveniftheyarenototherwiseincorporatedoraffixedintothestructure.Likewise,supplierswillhave rights to assert mechanic’s liens for unpaid fees for rental equipment used in constructing, altering, or repairing structures or real property. Accordingly, a supplier who rents equipment to an owner or his agent, to a contractor, or even to alowertiercontractor,foruseonaspecifiedconstructionorimprovementproject,may be entitled to assert a mechanic’s lien against the property for any unpaid rentalfees.(Nottoexceedthecostoftheequipment).Thesameisalsotrueforasupplier who sellssmalltoolsandequipmentnotcostingmorethan$50peritem.However, a supplier will not likely be entitled to assert a mechanic’s lien for the unpaidsalespriceofequipmentwhichexceedsthe$50per itemlimitation.Asapracticalmatter,inthecaseofsmalltools,anexperiencedattorneyshouldbeconsultedtohelpdrafttheliensothatitmaximizestheabilityofthelienclaimantto protect all of its interests.

Onefinalcaveatshouldbementioned.Therecanbenovalidmechanic’slien when materials or supplies are sold on the general credit of the contractor,

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without any knowledge or intention on the part of the supplier that the material will be used on a particular job or project. Central Contractors Service v. Ohio County Stone Co., Inc.,255S.W.2d17(Ky.1953);U.S. Fidelity & Guaranty Co. v. Miller, 549S.W.2d316(Ky.Ct.App.1977).Inotherwords,unlessthesupplierspecificallyknowsorintendsthatthesuppliesandmaterialswillbeusedforaspecificproject,therewillbenorighttoassertamechanic’slienonthatproject.Forexample,inthe U.S. Fidelity & Guaranty Co. v. Miller matter, the supplier provided lumber and materials to a contractor on general credit, and believed the materials would be used on “project A.” However, the facts revealed that the materials were used for both “project A” as well as a separate job at “project B.” The court advised that the supplier could not assert a lien against the property at “project B” because the supplier neither knew nor intended that the materials would be used at any site other than the “project A” location. Accordingly, it is important that suppliers obtainspecificinformationregardingtheexactprojectinwhichthematerialsandsupplies will be incorporated. Otherwise, the supplier may be denied the right to assert a mechanic’s lien. It is a good practice to note the delivery address on the invoice and the name of the project. The safest bet is to make personal delivery of the material or supplies to the job site itself.

iv. [7.10] Engineers, Architects, Landscape Architects, Land Surveyors, and Real Estate Brokers

KRS 376.075 entitles certain engineers, architects, surveyors, landscapers, andrealestatebrokerstofilemechanic’sliensonpropertytorecoverunpaidfees,under certain conditions. The statute provides as follows:

Any professional engineer, licensed architect, licensed landscape architect, real estate broker, or professional land surveyor who performsprofessional servicesor services asdefined inKRS322.010(4) for professional engineers, KRS 323.010(3) for archi-tects, KRS 324.010(1) for real estate brokers, KRS 323A.010(3) for landscape architects, and KRS 322.010(10) for professional land surveyors shall have a lien on the building, structure, land, or project relative to which the services were performed, to secure the amount of the charges for services with interest as provided in KRS 360.040 and costs.

Of course, to be eligible to assert a mechanic’s lien, an engineer, archi-tect,landscapearchitect,orsurveyormustsatisfythespecificdefinitionswithinthe statute.

(a) [7.11] Engineers

An engineer is eligible to assert a mechanic’s lien against property only if eachofthefollowingstatutoryrequirementsaresatisfied:

• The engineer must be a “professional engineer,” which

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isdefinedas“apersonwho is licensed as a professional engineer by the State Board of Licensure for Professional EngineersandLandSurveyors.”KRS322.010(3);

• Theengineermayonlyfileamechanic’slienforfeesresult-ing from the performance of professional services or ser-vicesasdefinedinKRS322.010(4).KRS322.010(4)gen-erallydefines“services”as“anyserviceorcreativework,the adequate performance of which requires engineering education, training, and experience as an engineer.”Thestatute(KRS322.010(4))alsosetsforthnumerousexam-plesof“engineeringservices;”and

• The engineer must have contracted directly with the prop-erty owner or the owner’s agent, as opposed to the contrac-tor or subcontractors.

(b) [7.12] Architects

An architect is eligible to assert a mechanic’s lien against property only if eachofthefollowingrequirementsaresatisfied:

• The architect must be licensed;

• Thearchitectmayonlyfileamechanic’slienforfeesre-sulting from the performance of professional services or services as defined inKRS323.010(3).KRS323.010(3)generally defines “services” as “services in connectionwith the design and construction of a structure or group of structures which have as their principal purpose human habitation or use, and the utilization of space within and surrounding such structures. The services include plan-ning, providing preliminary studies, designs, drawings, andspecifications,andadministrationofconstructioncon-tracts;”and

• The architect must have contracted directly with the prop-erty owner or the owner’s agent, as opposed to the contrac-tor or subcontractors.

(c) [7.13] Landscape Architects

A landscape architect is eligible to assert a mechanic’s lien against property only if eachofthefollowingrequirementsaresatisfied:

• The landscape architect must be licensed;

• The landscape architectmay only file amechanic’s lien

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for fees resulting from the performance of professional servicesorservicesasdefinedinKRS323A.010(3).KRS323A.010(3) generally defines “services” as “services inconnection with the planning of outdoor space involving therelationshipsofpeople,floraandfauna,andfacilities,with emphasis on the function, preservation, conservation, restoration, and enhancement of the physical environment, by arranging land and water and the elements thereon, including the alignment of roadways and the location of buildings, service areas, parking areas, walkways, steps, ramps, pools, and other structures, and the grading of the land, surface and sub-soil drainage, erosion control, plant-ing, reforestation, and the preservation of the natural land-scape ecology and environment, in accordance with the accepted professional standard of public health, welfare, and safety. The practice of landscape architecture shall in-clude the location and arrangement of such tangible objects and features as are incidental and necessary to the purposes outlined in this subsection. The practice of landscape archi-tecture shall not include the design of structures of facili-ties with separate and self-contained purposes for habita-tion or industry, public streets or streets intended for public dedication, highways, utilities, storm and sanitary sewers, or sewage treatment facilities, if ordinarily included in the practice of engineering or architecture. Nothing contained in this subsection shall preclude a duly licensed landscape architect from performing any of the services described in thefirstsentenceofthissubsectioninconnectionwiththesetting, approaches, or environment for buildings, struc-tures,orfacilities;”and

• The landscape architect must have contracted directly with the property owner or the owner’s agent, as opposed to the contractor or subcontractors.

(d) [7.14] Land Surveyors

A land surveyor is eligible to assert a mechanic’s lien against property only if eachofthefollowingrequirementsaresatisfied:

• The land surveyor must be a “professional land surveyor,” which is defined as “a personwho is licensed as a pro-fessional land surveyor by the State Board of Licensure for Professional Engineers and Land Surveyors.” KRS 322.010(9);

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• Thelandsurveyormayonlyfileamechanic’slienforfeesresulting from the performance of professional services or servicesasdefinedinKRS322.010(10).KRS322.010(10)generally defines “services” as “any professional serviceor work, the adequate performance of which requires the education, training, and experience as a land surveyor.”The statute (KRS 322.010(10)) also sets forth numerous examplesof“landsurveyorservices;”and

• The land surveyor must have contracted directly with the property owner or the owner’s agent, as opposed to the contractor or subcontractors.

(e) [7.15] Real Estate Brokers

Asa result of a2002amendment toKRS376.075 (effective July15,2002 pursuant to Senate Bill 170), real estate brokers are now eligible to assert a mechanic’s lien against property subject to the following limitations:

• The real estate broker must be a licensed broker under the provisionsofKRS324.042;

• Therealestatebrokermayonlyfileamechanic’slienforfees resulting from the performance of professional ser-vices, as defined in KRS 324.010(10), in the nature of“dealingin timesharesoroptions,sellingorofferingforsale,buyingoroffering tobuy,negotiating thepurchase,sale,orexchangeofrealestate,engaginginpropertyman-agement, leasing or offering to lease, renting or offeringfor rent, or referring or offering to refer for the purposeof securing prospects, any real estate or the improvements thereon for others for a fee, compensation, or other valu-ableconsideration;”

• The real estate broker must have a written contract, directly with the property owner or the owner’s agent, which: (1) authorizes the broker to sell, lease, or convey any interest inthesubjectpropertyonbehalfoftheowner;or(2)oth-erwise agrees, in writing, to pay the broker a fee for the broker’sservicesasabuyer’srepresentative;

• If the real estate broker is the seller’s agent in the trans-action, the broker must have, during the contract period, procured a person or entity ready, willing, and able to pur-chase, lease, or otherwise accept a conveyance of the prop-erty or any interest in the property, upon terms which are acceptable to the seller, as evidenced by a signed written

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agreement;and

• If the transaction involves newly constructed residential real estate, the real estate broker may not assert a lien against the property unless the purchaser has agreed, in writing, to directly compensate the broker for performing brokerage services related to the transaction.

2. [7.16] Who Is Not Entitled to a Mechanic’s Lien?

Thesimplestmethodtodeterminewhoisnotentitledtofileamechan-ic’s lien is to refer to the two-part statutory test summarized above. Neither the Kentucky courts nor its legislature have undertaken any attempts to prohibit any specificclassoflaborersorsuppliersfromfilingmechanic’sliens.Ifapartyfallswithin the scope of the statutory framework, that party may possess lien rights. If the party does not fall within the statutory framework, then there will likely be no right to assert a lien.

Whilethecourtsoccasionallyprohibitaclaimantfromfilingorenforcingamechanic’s lien, under each such ruling, the court has determined that the claimant failedtosatisfyoneormoreofthenecessarystatutoryrequirements.Forexample,the laborer may have contracted with someone other than the owner, the owner’s agent, the contractor, or a subcontractor, and therefore failed to satisfy the require-mentsofKRS376.010.Becausetheanalysisinvolvedisgenerallyfact-specific,itisdifficulttoreachuniversalconclusionsabouttherighttoassertamechanic’slienforanyparticularclassofclaimants.Consultationwithanexperiencedattorneymay help clarify those classes of individuals.

3. [7.17] Statutory Requirements & Steps for Filing and Perfecting a Mechanic’s Lien

As stated above, the statute grants a mechanic’s lien to one providing materials or labor to the improvement of real estate. All that is required, is that the lien be properly perfected. It is imperative that one seeking to assert a lien strictly follow the statutory requirements. Failure to follow any of the statutory steps will likely result in a loss of lien rights. Laferty v. Wickes Lumber Company, 708 S.W.2d 107(Ky.Ct.App.1986).Ingeneral,thestatutorystepsforfilingamechanic’slienare as described in Sections [7.18] through [7.30], infra.

a. [7.18] Mandatory Notice

Generally, if the laborer or supplier did not contract directly with the property owner or the owner’s authorized agent, KRS 376.010(3) and (4) require that the creditor give the owner timely written notice of its intention to assert a lien againstthepropertybeforethelienisfiled.Ifthelaborersorsupplierscontracteddirectlywiththeownerorowner’sauthorizedagent,theymayfilethelienwithout

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giving any prior notice. However, the safest practice is to provide timely notice inallcaseswherethenoticeperiodhasnotexpiredbecausedisputesoftenariseregarding whether the creditor contracted directly with a contractor, subcontractor, orwithsomeonewhoqualifiesasthepropertyowner’s“authorizedagent.”

Since the primary reason for notice to the owner is to allow the owner to protecthisorherfinancialinterests,thefilingofthenoticeoftenspursimmediateaction from the owner and its contractor, and results in the payment of the debt.

i. [7.19] Time Limitation for Sending “Notice of Intent to File Lien”

The proper time limitation for sending mandatory notice of intent to assert amechanic’sliendependsuponthreefactors:(1)thedollaramountofthelien;(2)whether the labor or services were performed on an owner-occupied family dwell-ing;and(3)whethertheprojectisconsideredagovernmentproject.Governmentprojects have a separate and distinct procedure, which is discussed separately below. See Sections [7.55] through [7.75], infra. The deadlines and procedures outlined in Sections [7.20] through [7.23] apply only to private (non-government) projects.

(a) [7.20] “Owner-Occupied Family Dwelling” – 75-Day Notice Period

If the property was an “owner-occupied” single or double family dwelling at the time the labor or supplies were furnished, and the laborer or supplier did not contract directly with the property owner or its authorized agent, the laborer/suppliermustsendwrittennoticeoftheintenttofilealientotheownerortheowner’s agent. That notice of intent must be sent no more than 75 days after the last item of material or labor was furnished. KRS 376.010(4) (as amended by House Bill171,effectiveJuly15,2002).

The phrase “owner-occupied” does not apply to a new dwelling under construction or before the owner-occupant has undertaken residency therein. Kinser Sheet Metal, Inc. v. Morse, 566 S.W.2d 179 (Ky. Ct. App. 1978). The fact that the words “owner-occupant” are used in the statute indicates that actual physical occupancy at the time the work is performed is necessary to invoke the protection of the statute. Accordingly, if the owner temporarily moves out of the premises while repairs or renovations are being made, the property is not deemed to be owner-occupied, and therefore, the longer notice deadline applies. Smith v. Magruder, 566 S.W.2d 430 (Ky. Ct. App. 1978).

(b) [7.21] AllOtherPropertyorProjects(ExceptGovernmentProjects)–75-120 Day Notice Period

If the property was not owner-occupied at the time the labor or supplies were furnished or was not a single or double family dwelling, and the laborer or supplier did not contract directly with the property owner or its authorized agent, thelaborerorsuppliermustsendwrittennoticeoftheintenttofilealientothe

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owner or the owner’s agent no more than 75 days after the last item of material or laborwasfurnished(forclaimsamountingtolessthan$1,000)ornomorethan120 daysafterthelastitemofmaterialorlaborwasfurnished(forclaimsinexcessof$1,000).KRS376.010(3).

(c) [7.22] AttemptstoExtendDeadline

Since the notice deadline begins to run when the laborer or supplier last performed labor or last delivered materials to the work site, many laborers or supplierswillattempttoextendthedeadline,orreviveanexpireddeadline,byreturning to the property to make minor repairs or deliver additional minor ma-terials. They will then argue that the most recent work or delivery constitutes the beginningoftheirnoticedeadline.However,theseattemptstoextendthedeadlinefail in most cases. The courts have stated that “the making of minor repairs [by thecontractor]attherequestoftheownerdoesnotextendthetimeforgivingthenotice, where the house was built by [the] contractor.” Walker v. Valley Plumbing, Inc., 370 S.W.2d 136 (Ky. 1963).

In Vogt v. Cannon Elec. Co., 54 S.W.2d 338 (Ky. 1932), the court said that thetimewithinwhichacontractorwasrequiredtofilenoticeofliencommencedrunning from the date of completion of the job in October 1926, even though the contractor later returned to the site and installed fuses in July 1927 in order to ob-tain the inspector’s approval. Conversely, the courts have also held that the “time for giving notice dates from the last work done even though it is of a trivial nature if it was necessary and performed in good faith.” Drummy v. Stern, 269 S.W.2d 198 (Ky. 1954). In most cases, the determinative factor will be whether the minor work was necessary under the building contract, in which case the notice deadline willlikelybeextended.However,whentherepairsorminorworkareanobviousattempttoextendthenoticedeadline,thecourtwillusethedateofcompletionofthe major portion of the contract.

(d) [7.23] Issues Concerning Receipt of Notice

It is also important to remember that the notice required by the statute mustbesenttotheownerinsufficienttimetobereceived beforeexpirationoftheapplicable deadline. However, as discussed in more detail below, it is not necessary that the owner actually receive the notice. Instead, the laborer or supplier must be able to show that the notice was either hand-delivered or mailed to the owner’s lastknownaddressinsufficienttimethattheownershouldorcouldhavereceiveditbeforeexpirationof thenoticedeadline.Maloney v. Waller, 261 S.W.2d 418 (Ky. 1953).

ii. [7.24] Mandatory Information for “Notice of Intent to File Lien”

Generally, the notice may be in any written form, as long as it contains the mandatory information and is sent to the property owner in a timely fashion,

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as described above. Most often, notice is provided by use of a letter. However, to preserve the laborer’s or supplier’s right to assert a lien, the notice must satisfy each of the following requirements:

• The notice must specifically indicate that the laborer orsupplier intends to hold the party liable by asserting a lien against the owner’s property. It must warn of future action, rather than advise that a lien or litigation has already been filed;

• Thenoticemustdescribethepropertysufficientlyforrea-sonableidentificationbytheowner.Generally,adescrip-tion of the street address, along with the city and county wherethepropertyislocatedissufficient;

• The notice must state the dollar amount intended to be claimedwithinthelien;

• The notice must be sent to the property owner at his last known address or to his duly authorized agent within the county in which the property is located. Notice should be sent by certified mail, with a return receipt requested. Al-thoughitisnotmandatorytosendnoticebycertifiedmail,thereturnreceiptwillprovidesufficientevidencethattheitem was mailed to the last known address and will show the date of notice in the event the owner later alleges that notice was never sent or was sent after the 45, 75, or 120-daydeadlines.Ifthedeadlineisabouttoexpire,itmaybeimpossibletosatisfytherequirementforfirstclassmailing.Clients should be admonished to address these issues well in advance of the deadlines.

Aslongasthelaborerorsuppliersatisfiesthesefour(4)requirements,it is irrelevant whether the owner ever reads or even actually receives the notice. The courts have stated that a perfected mechanic’s lien does not depend upon the property owner’s actual knowledge but rather upon whether the statutory require-ments respecting notice have been followed. Powers v. Brewer, 38 S.W.2d 466 (Ky. 1931). Again, it is imperative that the laborer or supplier satisfy each of the statutory requirements. Any failure to satisfy each of these requirements will result in a loss of lien rights. For a sample of a lien notice letter, see Section [7.217], infra.

iii. [7.25] ExamplesofInsufficientorDefectiveNotice

Kentucky courts have had several occasions to address the appropriateness ofvarioustypesofattemptednoticeunderKRS376.010.Thefollowingexampleshighlight some of these rulings.

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In Laferty v. Wickes Lumber Co., 708 S.W.2d 107 (Ky. Ct. App. 1986), the laborerfailedtosendawrittennoticeofhisintenttofilealien,andinsteadfiledacivil complaint against the landowner, seeking payment as well as requesting the imposition of a lien against the property. The court noted that although the civil complaintwasfiledandsenttotheownerwithinthemechanic’sliennoticeperi-od, it did not constitute separate prelitigation notice as required by KRS 376.010. According to the court, the owner must be given notice of the intent to assert a lien beforeeithertheproposedlienorthelitigationisfiled.Here,becausetheownerre-ceived no notice prior to the initiation of litigation, the notice was deemed defective.

In Wolflin-Luhring Lumber Co. v. Mosely, 154 S.W. 22 (Ky. 1913), the courtstatedthatnoticeisinsufficientunderthemechanic’slienlawwhereitfailsto give the dollar amount for which the lien will be claimed.

b. [7.26] Post-Notice Procedures for Perfecting and Recording a Mechanic’s Lien Statement

Sendingtimelyandadequatenoticeofone’sintenttofileamechanic’slienisjustthefirststepinprotectingthelaborer’sorsupplier’srightstoassertsuchalien. Once the notice has been sent, the laborer or supplier must create and perfect thelienbytimelyfilingastatementoflienundertheguidelinesoutlinedbelowinSections [7.27] through [7.30].

i. [7.27] Time Limitation for Filing/Recording Mechanic’s Lien

KRS 376.080 states that a mechanic’s lien shall be dissolved unless the claimantfilesa“statementoflien”withthecountyclerkofthecountywheretheproperty is located within six (6) months after he ceases to labor or furnish materials for the project. However, this does not apply to governmental/public projects, as discussed at Section [7.55], infra.

ii. [7.28] Necessary Content for Statement of Lien

To fully satisfy KRS 376.080, and therefore to create and preserve a valid mechanic’s lien, the statement of lien must satisfy each of the following requirements. Any failure to satisfy any one of the requirements could result in a loss of lien rights:

• The statement must list the total dollar amount due with anyreferencetocreditsandset-offs;

• The statement must list the actual legal description of the property;

• The statement mustlistthenameofthepropertyowners;

• The statement must indicate whether material or labor was furnished pursuant to a contract with the landowner, the

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contractororasubcontractor;

• The statement must list the laborer’s or supplier’s name, address,andprocessagent;

• Althoughnotspecificallyrequiredforprivateprojectme-chanic’s liens, it is common and recommended practice to include in the statement a sentence indicating the date on whichthelaborormaterialswerelastsupplied;and

• The statement must be “subscribed and sworn to”) by the laborer or supplier or their authorized agent (i.e., the no-tary’s acknowledgment must state that the statement was “subscribed and sworn to” by the signer).

iii. [7.29] Proper Filing of the Statement of Lien

Oncecomplete,thestatementoflienmustbefiledwiththecountyclerkinthecountywherethepropertyislocated.Thecurrentfilingfeeforastatementoflienis$13.00forthefirstseveralpages,andanadditionalchargeforeachpageovertheminimum.Thefeemustbepaidbythepersonfiling/recordingthelien.Keepinmindthatthestatementmustbefiledwithin6monthsofthedatethatthecreditorlastsuppliedlaborormaterials.Forlienswhicharetobefiledatthelast possible opportunity, the practitioner should be aware of legal holidays, local countyclerkschedules,andothereventswhichmaymakeitimpossibletofilethestatementwiththeclerkonaparticulardate.Iftheclerk’sofficeisclosedduetoinclementweather,holidays,orbecauseoflocalsportingevents,noextensionwillbe granted, and the creditor could lose its lien rights. For a sample statement of lien, see Section [7.218], infra.

iv. [7.30] Post-Filing Procedures

Afterthestatementoflienhasbeenfiledandrecordedwiththecountyclerk,thefinalstepintheperfectionprocessistomailacopyofthestatementtothe property owner’s last known address within 7 days afterfilingitwiththecountyclerk (not beforefiling).Middletown v. Main St., 839 S.W.2d 274 (Ky. 1992). Once this last step has been completed, the lien is perfected and enforceable.

4. [7.31] Enforcement of the Lien

Oncethestatementoflienhasbeenfiledandthelienhasbeenperfectedbycompletion of the statutory requirements addressed above, the creditor’s claim will beaffordedtheaddedprotectionandleverageproducedbythelien.Often,themereexistenceofthisperfectedlien,withtheassociatedthreatofaforeclosureaction,will be enough to compel payment from the property owner or debtor. Frequent-ly, the actual debt is owed by a lower tier subcontractor rather than the property owner, so the owner will have no genuine interest in the payment of the debt until

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and unless the owner’s interests in the property are put at risk. However, in some circumstances even the threat of foreclosure through enforcement of the lien is not enough to result in payment of the account. If payment is not forthcoming once notice of the perfected lien and threat of foreclosure have been sent, the creditor may need to take additional action to enforce its lien rights.

a. [7.32] Statute of Limitations (Shelf-Life of the Lien)

UnderKRS376.090,amechanic’slienwillexpireandbecomeunenforce-able 12 monthsafterthedatethestatementoflienhasbeenfiledwiththecountyclerk, unlessthelienholderhasfiledacivilactiontoenforcethelienwithinthattime frame. In other words, the statute of limitation to enforce a mechanic’s lien is12monthsfromthedatethestatementoflienwasfiled.Ifalienholderfilesacorrected or amended lien statement with the county clerk within 6 months after it ceased to perform labor or furnish materials, the 12-month period runs from the datetheamendedorcorrectedlienwasfiledratherthanthedateoftheinitiallienfiling.Hellman Lumber Co. v. Landrum, 639 S.W.2d 379 (Ky. Ct. App. 1982).

Ofcourse,ifthecivilactiontoenforcethelienisnotfiledwithinthislim-itationperiodandthecreditorlosesthebenefitofthelien,itmaystillseekrecoveryon other common law grounds, such as breach of contract, unjust enrichment, etc. Unfortunately, these common law causes of action often do not carry the same persuasiveweighttocompelpaymentpriortoreachingafinaljudgment.

b. [7.33] Civil Action in General

The civil action is designed to advise the court of the nature of the under-lying debt and to request enforcement of the lien by foreclosure and judicial sale ofthepropertyatauctionsothatthedebtmaybesatisfiedfromthesaleproceeds.However,asapracticalmatter,onceaforeclosureactionisfiledagainsttheprop-erty owner, foreclosure and sale rarely occur. Instead, the property owner usually becomesmoreaggressiveinitseffortstosatisfythedebtfromotherresourcesorloans or employs legal counsel to help compel lower-tier contractors to satisfy the debt, if applicable. Only on rare occasions do these suits result in a forced sale of the property.

i. [7.34] Location of Civil Action (Venue)

A civil complaint to enforce a mechanic’s lien and foreclose on the property mustbefiledinthecircuitcourtofthecountywherethelienpropertyislocated.Iftheactionisfiledinthewrongcountyorcourt,theactionwillneedtobefiledagainin the proper location. However, if the 12-month deadline (referenced previously) hasexpiredbeforethesuitisfiledintheappropriatecounty,thelienwilldissolveand become unenforceable.

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ii. [7.35] Proper Parties

In the civil action to enforce a mechanic’s lien, the lien holder must name the property owners as defendants. The complaint must additionally name as parties each and every individual and/or entity with a recorded or known interest in the property. This includes any recorded or known mortgage holders, lien claimants, spouses, and any parties who may be listed on the deed as joint owners, remainder-men, or others with contingent interests. Any failure to properly identify and name such persons or entities could result in a dismissal of the suit and loss of lien rights or a loss of priority with regard to payment of liens by sale proceeds.

Additionally, in those instances where the debt is owed by a contractor or lower-tier contractor rather than the actual property owner, the suit to enforce the lien may, but is not required to, include separate civil claims or counts against the party responsible for the debt. In such instances, the additional claims asserted against the debtor(s) are based upon breach of contract, unjust enrichment, or other similarcausesofaction.Theprimarybenefitofacombinedcivilactionsuchasthis is that the property owners (not wanting to lose their property in foreclosure) will place additional legal pressure upon the debtors in an attempt to get the matter resolved. This combination of claims often results in a faster resolution without the added costs of a foreclosure sale.

(a) [7.36] Bonding and Surety Companies

Occasionally, bond or surety companies will become necessary parties to the lien enforcement litigation. Under KRS 376.100, any property owner or other interestedpartymaydischargeamechanic’slienbyfilinganappropriatebondwiththe county clerk at any time before a judgment has been entered in a civil action to enforcethelien.Thissectionwasamendedin2011toexpandtheclassofpersonswho may post a bond to discharge a lien. That class now includes contractors or any subcontractor or other person in privity with the contractor. The amount of the bond must be at least twice the amount of the lien, and it must be guaranteed by surety approved by the county clerk. This generally entails securing a bond/surety contract from an approved bonding or surety company. If the lien has been discharged by bond beforetheactiontoenforcethelienisfiled,theactionmustbefiledagainstthepartyfilingthebondaswellasthenamedsurety,ratherthanthe property owner and other parties with interests in the property. However, if the bond discharge occurs aftersuithasbeenfiled,thelienholdermaysimplyamendthe complaint by naming the surety and bond principal and dismissing the claims against the property owners.

In the event the lien holder prevails in establishing the validity of the debt andlienandobtainsajudgmentintheaction,thecreditordoesnotgetthebenefitofaforeclosuresale.Instead,thepartywhofiledthebond,andtheaccompanyingsurety, will be responsible for payment of the judgment.

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iii. [7.37] Procedure for Filing Civil Action

Pursuant to KRS 376.110, in an action to enforce a lien, the petition or complaint must allege the facts necessary to secure a lien and describe the prop-ertytobesoldandtheplaintiff’sbasisforseekinganinterestintheproperty.Thecomplaintmustspecificallyallegefactssufficienttosupporttheexistenceofavalidlien (e.g.,existenceofacontractwiththeownersortheiragents,theprovisionoflaborormaterialsatthespecificpropertylocation,andcompliancewithallnoticeandfilingprovisionspreviouslyreferencedabove).Forexample,acomplainttoenforce a lien will be dismissed if it fails to allege that the lien holder provided timelynoticeoflienrights,failstoallegethatthelienstatementwastimelyfiled,or fails to allege that the lien statement was “subscribed and sworn to.”

Thestatutesandrulesstatethataftertheexpirationoften(10)daysfromthefilingofthecomplaint,theclerkwillrefertheactiontothemastercommis-sioner. However, the action will often linger with the circuit judge for resolution of all issues under normal circuit court procedures, without ever being referred to a master commissioner. If a master commissioner is appointed, a hearing will be set for presentation of proof supporting or defending the respective claims, and notice of the hearing will be sent to all parties and entities with known interests in the property. Any failure by lien holders, mortgage holders, or other claimants to attend the hearing and present proof to support their claims will result in the loss of any right they may have had in the property. KRS 376.120.

In some instances, more than one lien holder will claim an interest in a piece of property. Under such circumstances, each lien claimant may present proof to support its own claim for payment due and may also present any evidence or proofavailabletodefeatothercompetinglienclaimants.Forexample,ifonelienclaimant has failed to follow the statutory procedures listed above for perfecting a mechanic’s lien, yet the property owners do not raise this defect in defense of the action to enforce the lien, other lien holders may present proof of the defect in an attempt to defeat the defective lien and increase the money ultimately available to be divided among the valid liens and claims. Pursuant to KRS 376.130, after completion of the hearing, the master commissioner must issue a written report setting forth the amount of each valid claim, the nature of the claim, and the evi-dence that supports the claims.

iv. [7.38] Recovery of Costs, Interest, and Attorney Fees

Although attorney fees are not recoverable in actions to enforce mechanic’s liens,KRS376.010specificallyprovidesthatalienclaimantmaycollectinterestandcostsattributabletothefilingandenforcementofthelien.

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c. [7.39] Intervening Sale of Property by Owner

Onceavalidmechanic’slienhasbeenfiledandperfectedbycompliancewith the statutes, it stays with the property until it has been released or dissolved. If the property owner sells or mortgages the property before the lien has actually been perfected, the owner is statutorily required to pay the lien holder the amount of the debt from the proceeds of the sale or mortgage. However, especially in the realm of new construction, it is quite common for the owner/developer to sell the property before all the subcontractors and suppliers have been paid and before any notice of lien rights has been issued. If laborers or suppliers remain unpaid there-after, lien rights may still be asserted against the sold property as long as pre-lien notice is provided to the new owners (as discussed above) and the usual statutory stepsarefollowed.Thenewownerswillusuallythenexertsubstantialpressureonthe seller to satisfy the lien debt and remove the lien from the title.

If the property owner sells or mortgages the property after the mechanic’s lienhasbeenfiledandperfectedbutbeforeithasbeenreleasedordissolved,thelien follows the property and may be enforced against the subsequent owner in an action to enforce the lien and sell the property. However, such a sale or mortgage rarely takes place. Most prospective purchasers refuse to buy property which is subjecttoasuperiorlienorencumbrancesuchasapre-existingmechanic’slienandwill accordingly require the seller to obtain a lien release before the closing occurs. This is also generally true for banks seeking a mortgage interest in the property. As such, in most cases, if an enforceable lien has been recorded properly, the lien will generally be paid at the time of closing. However, in those rare instances where the subsequent owner acquires the property subject to the valid lien, the lien must still be enforced against the property and the owner within the original 12-month deadline for civil actions discussed previously.

5. [7.40] Priority of Liens and Claims Against the Property

Beforefilingacomplainttoenforcealien,counselwilloftenconducta“cost/benefit”analysiswhichnecessarilyincludesadeterminationofthelikelihoodof successfully collecting the debt through litigation. While a lien on property is often a good indication of anticipated recovery, counsel must address the potential priority/superiorityofanyotherliensorclaimsexistingonthetitletotheproperty.After all, if the entire equity in the property is subject to multiple liens and encum-brances which are superior to the creditor’s own mechanic’s lien, there is little to be gained in seeking foreclosure of the property. While the threat of foreclosure may be enough to compel payment from the debtor or property owner, the ulti-mateoutcomeoflitigationisnotlikelytobenefitsecondarylienholders.Assuch,counselshouldaddressthisissuebeforemakingafinaldecisiontoproceedwithacivil action to enforce a mechanic’s lien.

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a. [7.41] TaxLiens

Generally,taxlienstakepriorityoverotherliensandencumbrancesandreceive payment before any other creditors upon the sale of property.

b. [7.42] Other Liens & Encumbrances

Ordinarily, all remaining liens, mortgages, and other encumbrances on property are granted priority in the order in which they are recorded with the county clerk.However,KRS376.010(1)createsanexceptiontothe“first-in-time”ruleand states that a mechanic’s lien “on the land or improvements shall be superior to any mortgage or encumbrance created subsequent to the beginning of the labor or the furnishing of the materials, and the lien, if asserted as hereinafter provided, shallrelatebackandtakeeffectfromthetimeofthecommencementofthelaboror the furnishing of the materials.” In other words, even though a laborer may not record his mechanic’s lien until after a mortgage has been created, his lien interest will relate back to the date when he began labor on the project and will take priority overanymortgagesorencumbranceswhichcameintoexistencethereafter,evenifthosemortgagesorencumbranceswererecordedbeforethelienstatementwasfiled.

This rule is further limited by KRS 376.010(2), which states that the me-chanic’s lien will be superior to the subsequent mortgage or encumbrance only if either the mortgagee had prior knowledge that the laborer was performing services onthepropertyorthelaborerhadalreadyfiledanappropriatestatementoflienwith the county clerk.

c. [7.43] Priority Among Competing Mechanic’s Liens

If the property is subject to more than one mechanic’s lien, the laborers or suppliers will usually not have priority over each other regarding the same project. Instead, they are treated equally, and will each be paid at the same time from the remainingsaleproceeds.Totheextentthesaleproceedsareinsufficienttocoverall the mechanic’s liens on the property, the proceeds will be divided among the lien holders on a pro rata basis. Charles White v. Percy Galbraith & Sons, Inc., 563S.W.2d478(Ky.Ct.App.1978).However,oneexceptiontothisgeneralruleapplies to mechanic’s liens for rental fees or rental equipment. Pursuant to KRS 376.010(6)(b)(2), any lien for rental fees will be subordinate to liens for labor or supplies.

6. [7.44] Common Defense Issues

As noted above, while a creditor who possesses a lien on the debtor’s property or the property of the debtor’s principal has an advantage, the lien holder’s rights are not unlimited. In addition to those limitations addressed above, property owners and debtors may have success in challenging the validity and enforceability

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ofmechanic’sliensbyassertingoneormoreofthedefensesidentifiedinSections[7.45] through [7.48], infra.

a. [7.45] StatutoryDeficiencies

The most common defense to the enforcement of a mechanic’s lien gener-ally relates to the lien holder’s failure to strictly follow the statutory requirements fornoticeandfilingofthelienstatement.Amechanic’slienisastatutoryremedy,and therefore it is imperative that one seeking to assert a lien strictly follow the statutory requirements. Failure to follow any of the statutory steps may result in a loss of lien rights. Laferty v. Wickes Lumber Company, 708 S.W.2d 107 (Ky. Ct. App. 1986). A lien holder must:

• fitwithintheframeworkofthosepersonsstatutorilyenti-tledtofilealien(i.e., be a contractor, subcontractor, engi-neer, supplier, architect, etc., who is under contract with the owner or the owner’s agent, and that lien holder must havesuppliedlaborormaterialstothespecificproject);

• strictly follow and satisfy the statutory steps regarding timelynoticeoflienrights;

• establishtheamountoftheproperdebt;

• strictly follow and satisfy the statutory steps and require-ments regarding filing a timely statement of mechanic’slien;and

• strictly follow and satisfy the statutory steps and require-mentsregardingtimelyfilingacivilactiontoenforcethelien.

Any failure to follow the steps and requirements previously discussed will generally result in a dismissal of the enforcement action and an involuntary release or discharge of the lien. Accordingly, it is imperative to follow each of the statutory requirements carefully and timely.

b. [7.46] Payment by Owner

If an owner has paid a general contractor for work on an owner-occupied private project, the owner will be entitled to a dollar-for-dollar credit in any suit by a lower-tier subcontractor to enforce a lien on that same project. KRS 376.010(4). However, this credit only applies to projects where:

• The home was owner-occupied at the time of the service or materialdelivery;and

• The owner paid the general contractor before receiving any notice of the subcontractor’s lien rights.

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c. [7.47] Defects in Work or Material

As part of an owner’s defense in an action to enforce a lien, an owner is permitted to allege and prove any defect in the subject work or materials and receive acreditoroffsettotheextentthecourtorjuryacceptstheowner’sallegations.

d. [7.48] Waiver

Although many jurisdictions prohibit a prospective waiver of lien rights, Kentuckylawappearstoacceptsuchawrittenwaivertotheextentthewaiverissupported by additional consideration.

7. [7.49] Issues Relating to Voluntary and Involuntary Release of Liens

a. [7.50] Release Pursuant to Bond

KRS376.100permitsanearlyreleaseofamechanic’slienuponthefilingof an adequate bond, with surety, by the property owner or any other person who has contracted with the property owner for the furnishing of services or improvements on the owner’s property. This allows the property owner to sell the property, or otherwise clear the lien from the property title before reaching an ultimate resolution oftheclaimordisputeddebt.Thisprovidesasubstantialbenefittothepropertyowner,aslitigationconcerningmechanic’slienscanoftenextendoverseveralyears,thereby causing a long-lasting impairment to the owner’s title and hampering his abilitytosellorrefinancetheproperty.Thisstatutealsobenefitsthelienholderbyprovidingadequatefinancialprotectiontoensuresufficientresourcesforpaymentin the event of a successful outcome in litigation.

Pursuanttothestatute,thebondmaybeexecutedatanytimebeforeajudgment is rendered enforcing the lien. Accordingly, the owner or contractor must be careful to request this remedy before the enforcement action proceeds to the judgeorjuryforfinaldetermination.Thebondmustbeexecutedforanamountwhich is at least double the amount of the lien claimed, and it must be supported by adequate surety, to be approved by the county clerk.

Thebondreleasingamechanic’slienmustbeexecutedandfiledwiththecountyclerkofthecountyinwhichthelienhasbeenfiled.Oncetheclerkapprovesthe bond and surety, the lien shall be discharged, and the property may then be sold, refinanced,etc.Intheeventjudgmentislaterrenderedinfavoroftheplaintiff/former lien holder in the lien enforcement action, the surety or sureties under the bond will then be responsible for satisfaction of the judgment.

b. [7.51] Release Pursuant to Satisfaction of Underlying Debt

Mostoften,oncealienhasbeenfiled,thedebtorwillagreetopaytheoutstandingdebt.Occasionally, thepropertyownerwilleithersellor refinance

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the property, in which case the debt which is the subject of the lien will usually be paidfromthesaleorrefinanceproceeds.Anytimethedebthasbeensatisfied,theholder of the lien must take certain steps to release the lien.

i. [7.52] Mandatory Statutory Requirements for Lien Release

Pursuant to KRS 382.365 any holder of a lien on real property, including a mechanic’s lien and an assignee of the lien, “shall release the lien in the county clerk’sofficewherethelienisrecordedwithin thirty (30) days from the date of satisfaction.” (emphasis added). The statute further provides that a proceeding may befiledincircuitcourtagainstanylienholderwhofailstotimelyreleasethelien.Upon proof of satisfaction of the lien, the court may enter a judgment releasing the lien, and shallawardtheowneroftherealpropertyfiftydollars($50)andanyactualexpense,costs,andreasonableattorneyfeesincurredbytheownerinsecur-ing the release. This award of damages, costs, and fees shall be assessed against the lien holder who failed to timely release the lien. For a sample lien release, see Section [7.219], infra.

The statute also states that the lien holder shall send a copy of the lien release to the property owner at his last known address within seven (7) days of the release. A lien holder that violates this requirement shall be liable to the owner oftherealpropertyforfiftydollars($50)andanyactualexpenseincurredbytheowner in obtaining documentation of the lien release directly from the county clerk.

ii. [7.53] Filing and Notice Procedure for Lien Release

The procedure for filing a lien release is essentially the same as theprocedure forfiling the original statement of lien.The release documentmustidentifythelienwhichisbeingreleasedbyreferencingthespecificbookandpagenumberwherethelienwaspreviouslyfiledinthecountyclerk’soffice.Theclerkwillassessafeeforthefilingandrecordingofthelienrelease.Oncethereleasehas been recorded, the clerk will forward a stamped copy to the lien holder, who must then immediately send a copy to the property owner no later than seven (7) daysafterthedateoffiling.Forasamplelienrelease,see Section [7.219], infra.

c. [7.54] Release Prior to Full Satisfaction of Debt

Occasionally, a debtor will agree to make monthly payments on a debt whichisthesubjectofalienfiledwiththeclerk.Inmanyinstances,thedebtorwillrequestthatthelienholdervoluntarilyreleasethelieninexchangeforthedebtor’sagreement to continue making monthly or periodic payments on the debt. Under such circumstances, the lien holder has absolutely no obligation to release the lien until the debt has been paid in full. In fact, it is very risky to voluntarily release the lien prior to complete satisfaction of the subject debt.

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If the lien holder releases the lien before the debt is paid in full, the added leverage created by a lien will be lost forever. The debtor has less motivation to pay the debt if there is no threat of litigation and foreclosure on the property. Addi-tionally, in most cases, once the lien has been voluntarily released, the lien holder losesanyrighttorefileorreassertasubsequentmechanic’slienonthesamedebtshould the debtor default in making the promised periodic payments in the future. The lien holder’s only recourse would be to initiate litigation and seek payment or satisfaction from other assets of the debtor. Although the lien holder could possibly obtain a judgment lien after receiving a judgment in the litigation, unlike the usual mechanic’s lien, a judgment lien will be subordinate to the rights and claims of anypreexistingliensormortgagesontheproperty.Assuch,intheeventofasaleoftheproperty,thelienholderwillonlyrecovertotheextentthesaleprice,lesssaleexpenses,exceedsallpriormortgagesandliens.

Likewise, if the debtor owes money to other laborers, suppliers, or cred-itors, they may obtain and enforce a lien against the property, thereby forcing the debtor to pay their claims upon threat of foreclosure. This diminishes the debtor’s resources to pay the original lien holder’s debt, and if the original lien holder has voluntarily released the lien upon the promise of periodic payments, the lien holder will have no priority over the claims asserted by subsequent lien holders.

C. [7.55] Mechanic’s and Materialmen’s Liens on Government or Public Projects and Improvements

Much like the private project mechanic’s liens discussed above, the right to assert a mechanic’s lien on public improvements is primarily designed to protect creditors within the construction or construction-related industries since that particular class of creditors often lack the ability to reasonably repossess or recoup their prior services or materials in the event they receive no payment from the debtor. Unlike the mechanic’s liens asserted against privately owned property, amechanic’sliencannotbefiledagainstrealpropertyownedbythefederal,state,or local governments. Instead, such a lien will attach only to the remaining unpaid fundsundertheprojectcontract.Theoveralleffectofsuchapublicimprovementmechanic’s lien more closely resembles a non-wage garnishment. However, the procedureforsecuringapublicprojectmechanic’slienisquitedifferentandisgoverned by KRS 376.210 to 376.260.

1. [7.56] What Is a Public Project?

Although there is little judicial guidance on the issue of what constitutes a“publicimprovement”or“publicproject,”itisevidentthatanyprojectfinancedby, or contract entered into with, the state or local governments will be considered a public project for mechanic’s lien purposes. Likewise, a contract with or project funded by any public body or political subdivision chartered by the Kentucky Constitution or otherwise created by state statute will likely be deemed a public project. See In re Excel Engineering, Inc., 224 B.R. 582 (Bankr. W.D. Ky. 1998).

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Finally, regardless of the contracting parties’ status or identity, any project that involves property owned by a governmental entity or agency will be considered a public project, and therefore KRS 376.210 will apply.

2. [7.57] Who Is Entitled to Assert a Public Improvement Mechanic’s Lien?

Like a private project mechanic’s lien, a public improvement mechanic’s lien is a statutory remedy, and only those entities and individuals falling within thespecificstatutoryframeworkwillbeentitledtofilesuchalien.Theapplicablestatute, KRS 376.210, creates a broad class of entities and individuals that may be entitled to assert a public improvement mechanic’s lien as a remedy for nonpayment.

a. [7.58] Must Satisfy the Two-Part Statutory Test

Generally,thestatutoryrighttofileamechanic’slienextendstoanypersonorentitywhosatisfiesboth of the following elements:

First, the person or entity must have performed labor or furnished materials for “the construction, maintenance, or improvement of any canal, railroad, bridge, public highway, or other public improvementinKentucky;”

and

Second, the person or entity must have also performed the labor orfurnishedthosematerialsbycontract,expressorimplied,withthe owner thereof or by subcontract thereunder.

3. [7.59] Statutory Requirements & Steps for Filing and Perfecting a Public Improvement Mechanic’s Lien

a. [7.60] No Mandatory Pre-Filing Notice

Unlike the private project mechanic’s liens discussed above, a public improvementmechanic’sliendoesnotrequireanypre-filingnoticetotheprop-erty owner. In fact, due to the severe time restrictions applicable to asserting and perfectingapublicimprovementmechanic’slien(discussedbelow),anypre-filingnotice is generally impracticable if not entirely impossible. However, if the creditor oritscounselhassufficienttimetosendapre-filingnoticetothepropertyownerand/or debtor, such notice will often be enough to compel payment of the debt be-foretheactuallienfilingisnecessary.However,counselshouldbeawarethatthetime limitation for asserting and perfecting a public improvement mechanic’s lien is quite minimal and should be docketed and monitored during any such optional notice procedure.

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b. [7.61] Procedure for Filing a Public Improvement Mechanic’s Lien

As discussed above, a mechanic’s lien is a statutory remedy, and there-fore it is imperative that one seeking to assert a lien strictly follow the statutory requirements. Failure to follow any of the statutory steps may result in a loss of lien rights. Laferty v. Wickes Lumber Company, 708 S.W.2d 107 (Ky. Ct. App. 1986). This is especially important in the realm of public improvement mechanic’s liens, where the timing requirements are substantially constrained.

i. [7.62] Time Limitation for Filing/Recording a Public Improvement Mechanic’s Lien

UnderKRS376.230,thefirststepinperfectingamechanic’slienonapublicprojectistotimelyfileastatementoflienwiththeapplicablecountyclerk.Underthestatute,thestatementoflienmustbefiled,whicheverislater,within60 days after the last day of the month in which the labor, materials, or supplies were furnished, or by the date of substantial completion.Forexample,ifacontractorlast provides labor or materials on a public project on April 15th, to protect its mechanic’slienrightsthecontractorwillneedtofileastatementoflienwiththeapplicable county clerk no later than June 30th (i.e., 60 days after the last day of the month in which the labor, materials, or supplies were furnished).

ii. [7.63] Necessary Content for Statement of Lien

To create and preserve a valid public project mechanic’s lien, the state-ment of lien must satisfy each of the following listed requirements to comply with KRS 376.230. For a sample statement of lien for public improvement, see Section [7.220], infra. Any failure to satisfy any one of the following requirements could result in a loss of lien rights:

• The statement must list the total dollar amount due with anyreferencecreditsandset-offs;

• If the property is not owned by the state or local govern-ment, the statement must list the actual legal description of the property. If the property is owned by the state or local government,itissufficienttosimplynamethecanal,road-way, bridge, or other public improvement where the labor orsupplieswerefurnished;

• The statement mustlistthenameofthepropertyowners;

• The statement must indicate whether material or labor was furnished pursuant to a contract with the land owner, the contractor,orasubcontractor;

• The statement must list the laborer’s or supplier’s name,

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address,andprocessagent;

• The statement must indicate the date on which the labor materialswerelastsupplied;and

• The statement must be “subscribed and sworn to” by the laborer or supplier or their authorized agent (as acknowl-edged by a notary).


If the property is not owned by the state or local government, the statement oflienmustbefiledwiththecountyclerkinthecountywherethelabororserviceswere performed or provided. However, under KRS 376.230(2), if the property is owned by the state or local government, including charter county, urban county, consolidatedlocalgovernmentorcity,thestatementoflienmustbefiledinthecountyclerk’sofficewherethe“seatofgovernment”ofthatownerislocated.(i.e., FranklinCountyforstate-ownedpropertyandthespecificapplicablecountyforany county-owned or municipality-owned property).

As discussed below, the creditor or its counsel will also need to obtain several “attested copies” of the statement of lien, so it is advisable to provide the clerkwithextrasignedcopiesforattestation.Theclerkwillassessafeeforthefilingofthestatementoflien($13.00asofthedateofthewritingofthischapter)and a separate fee for attesting the additional copies of the statement.

c. [7.65] Final Procedure for Perfecting a Public Improvement Mechanic’s Lien

Oncethelienholderoritscounselhastimelyfiledthestatementoflienwith the appropriate county clerk and has received the “attested” copies of the statement, notice must be provided to both the property owner and the contractor/subcontractor, and that notice must contain certain information and documents.

i. [7.66] Post-Filing Notice to Contractor/Subcontractor

Thelienholderoritscounselmustnextsendtothecontractororsubcon-tractor, at the address provided in the public improvement contract, an attested copy of the statement of lien along with a certified letter, advising the contractor ofthelienfiling.Forasamplepost-filingnoticelettertoacontractor,see Section [7.221], infra.

ii. [7.67] Post-Filing Notice to the Public Authority

Finally, the lien holder or its counsel must send to the public authority

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who made the contract for the public improvement, the following items:

• an attestedcopyofthestatementoflien;

• a copy of the certified letter which was sent to the contrac-torasdiscussedabove;

• a copy of the post office receipt showing that the abovedescribedletterwassenttothecontractorbycertifiedmail;and

• a copy of the green “return receipt” card signed by the con-tractor or its agent, proving delivery of the above described letter.

Once the public authority receives each of these items from the lien holder or its counsel, the lien holder will have a valid and enforceable lien against any unpaid funds owed to the contractor or subcontractor under the public improvement project.Forasamplepost-filingnoticetoapublicauthority,see Section [7.222], infra.

4. [7.68] Enforcement of the Lien

The applicable deadlines and procedure to enforce a public project me-chanic’s lien are dependent upon whether the debtor/contractor asserts a timely protest to the lien. If the debtor/contractor fails to timely protest the lien or dis-charge the lien through a bond with surety, the public authority will generally issue payment to the lien holder within 45 days, provided the debtor/contractor is owed funds under the project contract. On the other hand, if the debtor/contractor asserts a timely protest to the lien or the public authority otherwise fails to issue paymentintheabsenceofatimelyprotest,thelienholdermusttakespecificactionto enforce the lien.

a. [7.69] Enforcement Procedure When Debtor Timely Protests Lien

Pursuant to KRS 376.250, a debtor/contractor may, within thirty (30) days from the date of the delivery of the attested copy of the lien, protest or challenge the lienbyfilingwiththepublicauthorityawrittenprotestquestioningthecorrectnessof the amount due the lien holder or the liability for payment.

Any and all defenses of the debtor/contractor are waived and precluded in theeventthedebtorfailstofileaprotestwithinthe30-daydeadline.Ifnoprotestisfiled,itbecomesincumbentuponthepublicauthoritytopaythelienholderandcharge the debtor/contractor’s account when the general contractor fails to timely comply with the protest provisions of KRS 376.250. Jim Skaggs, Inc. v. Smith, 799S.W.2d585(Ky.Ct.App.1990).However,ifatimelyprotestisfiled,thelienholder must act quickly to institute a civil action and complete service of process to enforce the lien. Any failure to do so may result in a loss of rights under the lien.

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i. [7.70] Mandatory Civil Action to Enforce Public Project Lien

If the debtor timely protests the public project mechanic’s lien, the public authoritywillsendacopyoftheprotesttothelienholderbycertifiedmail.Thelien holder must then institute a civil action and serve the public authority with summons within thirty (30) days from the date of the delivery of the copy of the written protest. If suit is not instituted by the lien holder for the enforcement of the lien and summons in the suit is not served on the public authority or its chairman within thirty (30) days, “the lien shall automatically be released and the funds withheldpursuanttothefilingofthelienstatementshallbereleasedandpromptlypaid to the contractor.” KRS 376.250(4).

(a) [7.71] Location for Mandatory Civil Action (Venue)

Pursuant to KRS 376.250(5), the civil action to enforce the public project mechanic’slienmustbefiledinthecountywheretheprojectpropertyislocated,unless the property is owned by a public university – in which event the civil action mustbefiledinthecountywherethe“maincampus”oftheuniversityislocated.

(b) [7.72] Proper Parties

Although the statutes do not specify each of the proper parties in a man-datory civil action to enforce a public project lien, it is evident that both the debtor/contractor as well as the public authority will need to be designated as defendants in the litigation and served with summons. Since the debtor/contractor is the primary source of information regarding the protest and lien dispute and additionally has a stake in the outcome of the litigation, the debtor/contractor must be joined in the litigation as a defending party. Furthermore, KRS 376.260 mandates that “other lien-holders shall be made parties,” so it will be necessary for counsel to search the public record for any other liens asserted against the unpaid funds owed to the debtor/contractorforthespecificproject.

(c) [7.73] Service of Summons

Asnotedabove, thestatuterequiresthat thelitigationbefiledandthepublic authority be served with summons within the 30-day limitation. However, thestatuteissilentregardinganycorollarytimelimitationtoeffectuateserviceuponthe debtor/contractor or other lien holders. Regardless, cautious counsel should makeeveryefforttoserveallknowndefendantswithinthesame30-daylimit,justin case the court were to later determine that the limit applies to all defendants in the litigation. As stressed repeatedly above, mechanic’s liens are statutory reme-dies, and therefore it is imperative that one seeking to assert a lien strictly follow the statutory requirements. Failure to follow any of the statutory steps may result in a loss of lien rights. Laferty v. Wickes Lumber Company, 708 S.W.2d 107 (Ky. Ct. App. 1986). When in doubt regarding procedure or deadlines, counsel should always err on the side of caution.

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b. [7.74] Enforcement Procedure When Debtor Fails to Timely Protest Lien

As noted above, the debtor/contractor’s failure to timely protest the lien under KRS 376.250 will constitute a waiver of any and all defenses to the lien. Ap-plicable case law clearly states that the public authority must then pay the lien holder from any funds owed to the debtor/contractor under the public project contract, regardless of any ongoing complaints, concerns, or claims of the debtor/contractor.

Occasionally, a debtor/contractor will fail to timely protest a lien but will nonetheless assert strenuous defenses to payment of the lien by the public authority. In some instances, the public authority may resist paying the lien, relying upon the debtor/contractor’s untimely protest. Under such circumstances, or under any othercircumstanceswhichrequireenforcementofthelien(exceptasdiscussedabove where a valid and timely protest is asserted), the lien holder must institute a civil action to enforce the lien within 6 monthsofthefilingofthestatementoflien. KRS 376.260.

5. [7.75] Issues Relating to Release and Bonding of Public Project Liens

Unlikeprivateprojectmechanic’sliens,whichusuallyrequireaspecificdocumenttobefiledwiththecountyclerktoeffectuateareleaseof thelien,apublic project lien dissolves and releases automatically once the public authority issues payment to the lien holder, and it does not require a formal written release. KRS 376.250(2).

Likewise, KRS 376.212 permits an early release of a public project me-chanic’slienuponthefilingofanadequatebond,withsurety,byanypersonwhohascontracted with the public authority for the furnishing of services or improvements on the public property. This allows the debtor/contractor to continue receiving payments from the public authority under the public improvement contract while the underlying dispute is either negotiated or litigated.

Pursuanttothestatute,thebondmaybeexecutedatanytimebeforeajudgmentisrenderedenforcingthelien.Thebondmustbeexecutedforanamountwhich is at least double the amount of the lien claimed and must be supported by adequate surety, to be approved by the county clerk.

Thebondreleasingapublicimprovementmechanic’slienmustbeexe-cutedandfiledwiththecountyclerkofthecountyinwhichthelienhasbeenfiled.Once the clerk approves the bond and surety, the lien will be discharged, and the public authority may continue any scheduled payment to the debtor/contractor under the underlying public improvement contract. Should the lien holder desire to seek payment from the debtor/contractor, it must then institute a civil action against the debtor/contractor as well as the surety under the bond releasing the lien.

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D. [7.76] Motor Vehicle Liens (Including Boat Liens) for Repairs, Storage, Towing, and Accessories

With the prevalence and importance of automobile use in the United States, the ability to impair a debtor’s right to possess or use a vehicle can often beaneffectiveandpersuasivedebtcollection tool.Unfortunately, inKentuckythe statutory right to impose motor vehicle liens for purposes of debt collection is limited to a narrow class of creditors and claims. Statutes KRS 376.270 through 376.280 create a right to assert a lien on a motor vehicle for certain debts arising from the act of selling, repairing, towing, or furnishing accessories or supplies for motor vehicles.

1. [7.77] What Is a Motor Vehicle?

For purposes of KRS 376.270 through 376.280, a “motor vehicle” includes “vessels used or designed for navigation of or operation on waterways, rivers, lakes, and streams, as well as those used or designed for operation on the public highways”and“vehiclesusedordesignedfornavigationoforflightintheair.”KRS 376.268 & 376.281.

2. [7.78] Who Is Entitled to Assert a Motor Vehicle Lien Under KRS 376.270 to 376.280?

The statutory right to assert a lien on a motor vehicle under KRS 376.270 to 376.280 applies only to persons engaged in the business of selling, repairing, storing, towing, or furnishing accessories or supplies for motor vehicles.

3. [7.79] What Debts Are Subject to a Motor Vehicle Lien?

Asnotedabove,alienmaybeassertedonlybyaspecificclassofcred-itorsandonlyforthespecificclassofdebtsauthorizedbytheKentuckyGeneralAssembly.UnderKRS376.270to376.280,thespecificclassofdebtswhichmaysupport a motor vehicle lien are:

• debts for the reasonable or agreed charges for repairs or workdoneonthevehicle;

• debts for the reasonable or agreed charges for accessories orsuppliesfurnishedforthevehicle;

• debts for the reasonable or agreed charges for an involun-tary towing of the vehicle pursuant to the order of a private personorbusinessforanyreason;and

• debts for storing or keeping the vehicle.

Pursuant to KRS 376.275(4), there is no right to assert a motor vehicle lien for towing or storage fees that may be incurred when a local or state govern-

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ment causes a vehicle to be towed pursuant to KRS 82.605 to 82.640 (i.e., parking violations, etc.).

4. [7.80] Procedure to Secure and Enforce Motor Vehicle Lien

The applicable procedure for securing and enforcing a lien on a motor vehicle is dependent upon the class of debt which supports the lien.

a. [7.81] Debts for Repairs, Work, and Accessories

If the debt arises from repairs or work done on the vehicle, or for acces-sories/supplies furnished for the vehicle, the creditor will have the options detailed in Sections [7.82] through [7.89] below.

i. [7.82] Options When Vehicle Still in Possession of Lien Holder/Creditor

A lien holder/creditor who has possession of the subject motor vehicle will have two statutory options to seek payment of the debt.

(a) [7.83] Right to Detain or Retain Possession of the Vehicle

Pursuant to KRS 376.270, a creditor who has repaired or worked on a vehicle or has provided accessories or supplies for a vehicle may detain that vehicle until a reasonable or agreed charge has been paid. This action is usually enough to compel payment from the debtor. However, if payment is not forthcoming, the creditor may need to take additional steps.

(b) [7.84] Right to Sell Vehicle and Retain Sale Proceeds

Pursuant to KRS 376.280, if the vehicle is still in the lien holder’s pos-session and payment for the repairs, work, or accessories has been due and owing more than thirty (30) days, the vehicle may be sold to pay such charges. If a cred-itor decides to sell a vehicle to satisfy the lien debt under KRS 376.280, certain statutory procedures must be followed before the private sale can be conducted.

(i) [7.85] Step 1 – File a Lien Statement with the County Clerk

AlthoughKRS376.280doesnotspecificallyrequirethefilingofalienstatement as an essential condition to the right of sale, 1957 OAG 40-275 states that compliancewiththelienfilingprovisionofKRS376.270constitutesaconditionprecedent to a sale under KRS 376.280 and is essential before the clerk may issue a valid title to the buyer after a forced sale. The primary rationale for this condition appears to be one of giving the county clerk notice of the lien rights and authority to issue a change of registration for a subsequent purchaser.

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However,thisgoalnowappearstobeaccomplishedthroughthefilingof theKentuckyTransportationCabinetFormTC96-153,“AffidavitofCredi-tor-in-Possession.”Infact,insomecounties,thefilingofaseparate“lienstatement”isnotnecessarytoeffectuatetheultimatesaleofthevehiclesubjecttothelienrights, where the creditor has completed and submitted TC 96-153 along with a duplicateofthecurrentregistrationreceipt.Counselshouldfirstcheckwiththeapplicablecountyclerk’sofficeforguidanceonthisissue.

(ii) [7.86] Step 2 – Advertise the Sale

Pursuant to KRS 376.280, any proposed sale of a motor vehicle subject to a statutory lien must be advertised under the terms and requirements of KRS Chapter 424.

(iii) [7.87] Step 3 – Provide Pre-Sale Notice to Owner and Interested Parties

At least ten (10) days before the sale, the lien holder must send notice of theproposedsale,bycertifiedmail,returnreceiptrequestedorbyregisteredmail,tothe owner of the vehicle and to any other person known to have any interest therein.

(iv) [7.88] Step 4 – Sell the Vehicle

Oncethepre-salerequirementshavebeensatisfied,thelienholdermaysellthe vehicle at the date, time, and location previously designated in the advertisement and notice. In all respects, the sale must be deemed “commercially reasonable.” 1984 Ky. Op. Atty. Gen. 2-185, Ky. OAG 84-155.

ii. [7.89] Options When Vehicle No Longer in Possession of Lien Holder/Creditor

A lien holder/creditor who no longer maintains possession of the vehicle has less leverage in seeking payment of the debt but nonetheless maintains some lien rights. Essentially, such a creditor must, within six (6) months of the date the lienholderrelinquishedpossessionofthevehicle,filealienstatementwiththeapplicablecountyclerk.Thedeadlineforfilingthelienstatementbeginstorunwhen the lien holder turns over possession of the vehicle, not when the work or repairs are completed. 1980-81 Ky. Op. Atty. Gen. 2-824, Ky. OAG 81-297.

The written lien statement must list the amount and cost of materials furnishedor laborperformedandbefiled in thesamemannerand in thesameindexrecordasmechanic’sliens.KRS376.270.Unfortunately,underthecurrentstatutory framework, there is no mechanism by which such a lien holder can se-cure a notation of the lien on the actual title for the automobile. Instead, the lien ismerelyfiledwithmechanic’sliensinthegeneralrealpropertyrecordsinthecountyclerk’soffice.However,duringthe2002regularsessionoftheKentucky

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General Assembly the sponsors of House Bill 773 sought to amend this procedure byrequiringthefilingofthelienstatementspecificallyintheautomobilerecordssectionoftheclerk’soffice.Unfortunately,thebillultimatelystalledincommitteeand was never passed.

Inanyevent,oncethelienstatementhasbeenfiled,thelienholdermustultimately institute a civil action to enforce the lien, seeking judicial sale of the vehicle for the past due debt. Under the terms of the applicable statutes, the vehicle may only be sold without judicial intervention if it is in the possession of the lien holder. If the vehicle has been turned over to the owner/debtor, the lien holder must filethelienstatementandseekanorderofsalefromthecourts.

b. [7.90] Debts for Towing and Storage Fees

If the debt arises from involuntary towing or storage of the vehicle, the creditorwillfirstneedtoperfectthelienandthenseekenforcement.Thisprocessis governed by KRS 376.275.

i. [7.91] Perfecting Motor Vehicle Liens for Towing & Storage Fees

Before a person “engaged in the business of storing or towing motor vehicles”isentitledtoassertalienonthevehicle,theymustfirstperfectthelienby attempting to provide notice to the owner. The statute states that:

[The lien holder] shall attempt to ascertain from the Transpor-tation Cabinet the identity of the registered owner of the motor vehicleorlessorofamotorcarrierasdefinedinKRSChapter281 and within ten (10) business days of the removal [or taking possessionof thevehicle] shall, by certifiedmail, attempt tonotify the registered owner at the address of record of the make, model, license number and vehicle identification number ofthe vehicle and of the location of the vehicle, [the amount of reasonable charges due] and the requirements for securing the release of said motor vehicle.

Once the lien holder has “substantially complied” with this notice require-ment, it shall have a lien on the vehicle. KRS 376.275.

ii. [7.92] Enforcing Motor Vehicle Liens for Towing & Storage Fees

Once the towing/storage lien holder has perfected the lien as required above, it will have the right to sell the vehicle if the debt remains unpaid for a period of forty-five (45) days after the statutory notice was sent. In Department of Revenue v. Derringer,399S.W.2d482(Ky.1966),thecourtaffirmedtheconstitutionalityof the nonjudicial sale under this statute and further mandated that any such sale be “commercially reasonable.” The court also added that if the sale comports with the statutory requirements in KRS 376.280 (i.e., advertising, notice, etc., as discussed

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above), it will be deemed “commercially reasonable.” As such, once the 45 days have elapsed without payment, the lien holder will additionally be required to:

• advertise the sale under the terms and requirements of KRS Chapter424;and

• send notice of the proposed sale, at least ten (10) days be-forethesale,bycertifiedmail,returnreceiptrequestedorby registered mail, to the owner of the vehicle and to any other person known to have any interest therein.

5. [7.93] Priority of Motor Vehicle Liens Under KRS Chapter 376

As a general rule, motor vehicle liens created under KRS Chapter 376 willbesecondarytoanypreviouslyfiledorrecordedliensorencumbrancesonthesamevehicle.However,apre-existing,recordedsecurityinterestinthesamevehicle may yield to the subsequently created lien under KRS Chapter 376 pursuant to the operation of KRS 355.9-333, which establishes the following priority rule:

When a person in the ordinary course of his business furnishes services or materials with respect to goods subject to a security interest, a lien upon goods in the possession of such person given by statute or rule of law for such material or services takes priority over a perfected security interest unless the lien is statutory and thestatuteexpresslyprovidesotherwise.

As noted by the court of appeals in Central Trust Co., N.A. v. Dan’s Marina, 858 S.W.2d 211 (Ky. Ct. App. 1993), “[t]he philosophy behind KRS 355.9-310 (the predecessor to the current statute, KRS 355.9-333) was embodied in the 1958 and 1983 Commentaries to the Commercial Code which was to ensure that liens securing claims arising from work intended to enhance or preserve the value of the collateral take priority over an earlier security interest even though perfected.” However, by the statutory language, KRS 355.9-333 only applies to lien property that remains “in the possession” of the lien holder. ITT Commercial Finance Corp. v Madisonville Recapping Co., Inc., 793 S.W.2d 849 (Ky. Ct. App. 1990).

6. [7.94] Constitutional Concerns

In Cockerel v. Caldwell, 378 F. Supp. 491 (W.D. Ky. 1974), the court ad-dressed the constitutionality of the “nonjudicial sale” provisions under KRS 376.275 and concluded that such a compulsory sale, which provides no pre-sale judicial hearing for the property owner, is unconstitutional and violates the Fourteenth Amendment of the United States Constitution. That opinion was thereafter echoed by Kentucky’s Attorney General in his opinion 74-865, in which he declared that a county clerk may not make a valid transfer of a vehicle to a buyer following a nonjudicial sale under that same statute. 1974 Ky. Op. Atty. Gen., Ky OAG 74-865.

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Accordingly, for several years after these opinions were issued, it was generally believed that a nonjudicial sale, as permitted under KRS 376.275 and 376.280, was unconstitutional and unenforceable. However, in 1978 the United States Supreme Court altered this perception in its decision in Flagg Brothers, Inc. v. Brooks, 436 U.S. 149, 98 S. Ct. 1729, 56 L. Ed. 2d 185 (1978). In that decision, the Court ruled that a warehouseman’s nonjudicial sale of a customer’s goods under provisions of the Uniform Commercial Code, for purposes of recouping storage fees, would not violate the United States Constitution. In reliance upon this change inanalysis,theKentuckyAttorneyGeneralultimatelyissuedanofficialopiniondeclaring that the nonjudicial sale provisions of KRS 376.275 and 376.280 are valid and permissible under both the Kentucky and United States’ Constitutions. 1982 Ky. Op. Atty. Gen. 2-85, Ky. OAG 82-74.

7. [7.95] Final Precautionary Warning

As stressed repeatedly above, these liens are statutory remedies, and therefore it is imperative that one seeking to assert a lien strictly follow the statu-tory requirements. Failure to follow any of the statutory steps may result in a loss of lien rights. Laferty v. Wickes Lumber Company, 708 S.W.2d 107 (Ky. Ct. App. 1986). When in doubt regarding procedure or deadlines, counsel should always err on the side of caution.

In this regard, if there is any concern or doubt regarding the validity of a possible lien right under these motor vehicle provisions, counsel would be well advised to seek judicial intervention in enforcing the purported lien, rather than pursuing the nonjudicial sale remedies. Should a lien holder sell a vehicle under themistakenimpressionthatavalidmotorvehiclelienexistsunderthesestatutes,thepurportedlienholderwillbeguiltyofconversionandwilllikelysuffercivildamages as well as possible criminal penalties.

E. [7.96] Liens for the Repair of Timepieces, Jewelry, Electrical Equipment, Machinery, and Motors

Much like the contractors and material suppliers discussed in the mechan-ic’s lien section above, persons engaged in the business of repairing or servicing jewelry and equipment are precariously positioned with little leverage to compel payment for prior services since they cannot logistically repossess or recoup those servicesormaterialswhichhavebeenincorporatedintotheircustomer’spre-ex-isting personal property. In apparent recognition of this problem, the Kentucky General Assembly has also created a statutory framework to assist this category of creditorsintheirrecoveryefforts.TheselienstatutesarecodifiedatKRS376.290(for jewelry and timepieces), KRS 376.430 (for certain electrical appliances), and KRS 376.440 to 376.455 (for equipment, machinery, and motors).

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1. [7.97] Liens for the Repair of Timepieces and Jewelry

KRS 376.290 creates a lien for “any person performing work upon any watch, clock or jewelry for a price.” The lien amount may include the value or agreed price of all labor and all materials furnished in connection with the work, even if the materials are not added or incorporated into the article itself. Liens un-der this statute are choate. In other words, these liens are automatically created by operation of law once a person performs work on a watch, clock, or jewelry. The lien holder is not required to take any additional steps to create or perfect the lien.

a. [7.98] Rights and Duties of Lien Holder in Possession of Repaired Article

As is the case for most statutory liens, the recovery prospects of a lien holder who maintains possession of the repaired timepiece or jewelry will be much more favorable than one who has already returned the property to the debtor. Such a lien holder will have more options in seeking payment of the debt.

i. [7.99] Right to Detain Property

Clearly, KRS 376.290 envisions that the lien holder will retain possession of the repaired article for added leverage in securing payment, and the statute provides sale remedies premised upon that presumption. Although the statute does notexpresslygrantthecreditoraspecificrighttodetaintherepairedproperty,itisinconceivablethatanycourtwouldfindsuchadetention,forpurposesofsecuringpaymentfortherepairservices,tobeunlawfulorunjustified,especiallyinlightofthe underlying purpose of the lien statutes. Accordingly, one can safely presume that Kentucky law will allow the creditor to retain possession of the repaired article until adequate payment is made by the debtor.

ii. [7.100] Right to Sell Property

If the mere detention of the repaired property is not enough to compel payment of the debt, the statute additionally grants the lien holder a limited right tosellthepropertyatpublicorbonafideprivatesale.Therighttosellthepropertyarises only if the debt remains unpaid for at least six (6) months after the repairs or work have been completed.

(a) [7.101] Statutory Pre-Sale Notice Requirement

KRS 376.290 imposes only limited duties upon the lien holder who intends to sell detained property to collect a debt for repair fees or work fees. Essentially, the statute only requires that the lien holder notify the property owner, at least thirty (30) days before the sale:

• ofthecurrentamountofthedebt;

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• thatthepropertywillbesoldtosatisfythedebt;and

• that the owner may redeem the property prior to the sale by paying the debt within thirty (30) days of the notice.

The notice must be served by mail directed to the property owner’s last known address, and if that address is unknown, the notice may be published pursu-anttotheprovisionsofKRSChapter424.Althoughthestatutedoesnotexpresslyrequirethatthenoticebesentbycertifiedmail,itisusuallyadvisabletodosoasanaddedprecautionintheeventthepropertyownerlaterallegesadeficiencyinthe pre-sale notice.

(b) [7.102] Method of Sale

Asnotedpreviously,KRS376.290specificallypermitsthelienholdertosellthedetainedpropertybypublicsaleorbonafideprivatesale.Thereisverylittleguidanceregardingwhatconstitutesabonafideprivatesale,butlienholdersshould be cautioned against any self-dealing or intra-familial transactions in the courseofthesaleunlessthelienholderisconfidentthattheagreedsalespriceisconsistent with the reasonable market value of the property. Otherwise, the sale could be subject to collateral attack by the property owner, and the lien holder could incur damages for any unreasonably undervalued sale of the property.

(c) [7.103] Proceeds of Sale

UnderKRS376.290,theproceedsofthesalewillbeappliedfirsttothesatisfytheexpenses,ifany,incurredinthesaleofthepropertyitself.Then,thelienholder’sclaimforrepairswillbesatisfied.Thelienholderwillretainanybalancefor ultimate payment to the property owner for 12 months. If the property owner does not claim or request the balance of the proceeds within 12 months of the sale, the lien holder must pay that balance into the district school fund.

b. [7.104] Rights of Lien Holder No Longer in Possession of Repaired Article

As noted previously, KRS 376.290 apparently envisions that the lien holder will retain possession of the repaired article for added leverage in securing payment, and the sale remedy is premised upon that presumption. However, the statute arguably allows for certain forced sale rights even if the property has already been returned to the debtor/owner.

The lien created by KRS 376.290 is automatically established by operation of law once a person performs work on a watch, clock, or jewelry. The lien holder is not required to take any additional steps to create or perfect the lien. That statute also provides that, “the lien may be enforced by legal action or as hereafter provid-ed.” There is no indication within the statute that the Kentucky General Assembly intended possession of the repaired property to be a condition precedent to the

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creation of the lien. Accordingly, it could be argued that the legislature intended to grant such lien holders the right to seek judicial enforcement of the choate lien, along with forced sale of the repaired property, through the authorized civil action even where the property has already been returned to the debtor.

If the lien holder still possesses the repaired property, it could clearly invoke the “legal action” option to seek a faster judicial sale of the property, rather thanenduringthesix(6)monthwaitingperiodrequiredfornonjudicialsalesunderthe statute. Likewise, since the lien is created simply by the act of repairing the property, a lien holder who has already turned the property back over to the owner could nonetheless institute a civil action, seeking enforcement of the statutory lien along with a forced sale of the property subject to that lien to satisfy the debt.

2. [7.105] Liens for the Repair of Electrical Equipment and Appliances

KRS376.430 creates a lien for “all persons, firms and corporationsengaged in the business of repairing radios, phonographs, combinations thereof, automatic music instruments, refrigerators, televisions, electrical or electronic recording devices, and any and all portable electrical or electronic instruments or appliances.” The lien attaches to the repaired item, and the lien amount may include the agreed or reasonable charge for parts, supplies, accessories, and labor performed in the repair. Liens under this statute are also choate. In other words, these liens areautomaticallycreatedbyoperationoflawonceapersonwithinthespecifiedclassperformsworkorrepairsonanyofthespecifiedelectricalappliances.Thelien holder is not required to take any additional steps to create or perfect the lien.



Unlike KRS 376.290 (the lien statute for watches and jewelry), KRS 376.420expresslyprovidesthatthelienholdermaydetaintherepairedelectricalequipment or appliance until adequate payment is made by the debtor.

ii. [7.108] Duty to Notify Debtor of Completion of Repair

Pursuant to KRS 376.430, once the repair has been completed, the lien holdermustnotifytheowneroftheproperty,bycertifiedmail,returnreceiptre-quested or by registered mail, that:

• therequestedrepairsarecomplete;and

• if the repaired article is not removed and all charges paid within thirty (30) days after the notice, the lien holder may holdtherepairedarticleandsell itatpublicorbonafideprivate sale to pay all agreed or reasonable charges, in-

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cluding charges for storage fees accumulated after notice ofcompletionofrepairs,aswellasexpensesincidentaltoadvertisement and sale.

iii. [7.109] Right to Sell Property

If the detention of the repaired property and the notice of possible sale rights are not enough to compel payment of the debt, the statute also grants the lienholderalimitedrighttosellthepropertyatpublicorbonafideprivatesale.The right to sell the property arises only if the debt remains unpaid for at least thirty (30) daysafterthepropertyownerhasbeennotifiedthattherepairsorworkhave been completed.


KRS 376.430 imposes only limited duties upon the lien holder who intends to sell detained property to collect a debt for repair fees or work fees. Essentially, the statute requires that the lien holder notify the property owner of:

• thetimeoftheproposedsale;and

• the place of the proposed sale.

Thenoticemustbeservedbycertifiedmail,returnreceiptrequested,orby registered mail directed to the owner’s last known address, or, if the owner or his address is unknown, notice of the sale must be published pursuant to KRS Chapter 424. The statute historically required that the sale be advertised by publi-cationpursuanttoKRSChapter424onalloccasions.However,effectivewiththe1988 statutory amendments, advertising is now only required when the property owner’s address is unknown.

(b) [7.111] Method of Sale

KRS 376.430 permits the lien holder to sell the detained property by publicsaleorbonafideprivatesale.Asnotedaboveinthesectionregardinglienson jewelry and timepieces, there is very little guidance regarding what constitutes abonafideprivatesale.Lienholdersshouldbecautionedagainstanyself-deal-ing or intra-familial transactions in the course of the sale, unless the lien holder isconfidentthattheagreedsalespriceisconsistentwiththereasonablemarketvalue of the property. Otherwise, the sale may be subject to collateral attack by the property owner, and the lien holder could incur damages for any unreasonably undervalued sale of the property.

(c) [7.112] Proceeds of Sale

UnderKRS376.430,theproceedsofthesalewillbeappliedfirsttothesatisfytheexpenses,ifany,incurredinthesaleofthepropertyitself.Then,the

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lienholder’sclaimforrepairswillbesatisfied.Thelienholdermustaccounttotheproperty owner for any remaining proceeds. Unlike KRS 376.290, this statutory provisionissilentregardingtheappropriatedispositionofanyexcesssaleproceedswhere the property owner cannot be located.

b. [7.113] Rights of Lien Holder No Longer in Possession of Repaired Article

KRS 376.430 envisions that the lien holder will retain possession of the repaired article for added leverage in securing payment, and the sale remedy is premised upon that presumption. However, the statute arguably allows for certain forced sale rights even if the property has already been returned to the debtor/owner.

The lien created by KRS 376.430 is automatically established by oper-ation of law once the repair work is complete. The lien holder is not required to take any additional steps to create or perfect the lien. That statute also provides that, “the lien may be enforced by legal action or as hereafter provided.” There is no indication within the statute that the Kentucky General Assembly intended possession of the repaired property to be a condition precedent to the creation of the lien. Accordingly, it could be argued that the legislature intended to grant such lien holders the right to seek judicial enforcement of the choate lien, along with forced sale of the repaired property, through the authorized civil action even where the property has already been returned to the debtor.

Since the lien is created simply by the act of repairing the property, a lien holder who has already returned the property to the owner should nonetheless be able to institute a civil action, seeking enforcement of the statutory lien and a forced sale of the property subject to that lien to satisfy the debt.

3. [7.114] Liens for the Repair of Equipment, Machinery, and Motors

KRS 376.440 creates a lien for “any person engaged in the business of selling, repairing, or furnishing accessories, or supplies for any kind of equipment or machinery, including motors.” This statute is most often applied to construction, mining, and industrial equipment and machinery, but it is broad enough to apply to almost any form of equipment or machinery not otherwise encompassed by another lien statute.

The lien created by this statute attaches to the repaired item, and the lien amount may include the reasonable or agreed charges for repairs, work done, ac-cessories, parts, and supplies furnished for the equipment, machine, machinery, or motor. Liens under this statute are also choate but only for so long as the repaired equipment remains in the possession of the lien holder. In other words, these liens areautomaticallycreatedbyoperationoflawonceapersonwithinthespecifiedclassperformsworkorrepairsonanyofthespecifiedequipment.Thelienholderis not required to take any additional steps to create or perfect the lien, unless the lien holder later relinquishes possession of the property.

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KRS376.440doesnot expresslygrant the creditor a specific right todetain the repaired property, but as long as the lien holder and the debt fall within thescopeofthestatute,itisunlikelythatanycourtwouldfindsuchadetention,for purposes of securing payment for the repair services, to be unlawful or unjus-tified,especiallyinlightoftheunderlyingpurposeofthelienstatutes.However,as a practical matter, due to the size and nature of the equipment covered under this statute, the lien holder may never actually “possess” the equipment during the repair process. Instead, such repairs often occur on-site, where the equipment is maintainedintheowner’spossessionorontheowner’spremises.Forexample,inmany cases, large items of mining or “earth-moving” equipment will be repaired at the owner’s work site and not at a repair shop or facility.

On the other hand, in those rare instances where the lien holder does possess the equipment subject to the lien, it is clear that such possession may continue until payment of the debt is secured. It is evident that the Kentucky General Assembly envisioned that the lien holder in possession of the equipment could retain possession of the repaired article, when possible, for added leverage in securing payment. In fact, the statute provides the lien holder with certain sale remedies which are available only when the lien holder has retained possession of the equipment. Accordingly, one can safely presume that Kentucky law will allow the creditor to detain the repaired equipment until adequate payment is made by the debtor.

ii. [7.117] Right to Sell Property

If the detention of the repaired equipment is not enough to compel payment of the debt, KRS 376.455 additionally grants the lien holder a limited right to sell the equipment. The right to sell the property arises only if the lien holder retains possession of the property and the debt remains unpaid for at least thirty (30) days after the repairs have been completed.


KRS 376.455 imposes only limited pre-sale notice duties upon the lien holder who intends to sell equipment subject to a lien. The statute requires that the lien holder notify the property owner of the proposed sale at least two (2) weeks before the sale date. The notice must be in writing, addressed to the owner at the owner’s last known address, and sent by registered mail, postage prepaid. The statute provides that the written notice may also be served upon the owner in any other mode generally recognized by the laws and practice before the courts in Kentucky.

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(b) [7.119] Mandatory Advertising of Sale

KRS 376.455 also requires the lien holder to advertise the proposed sale, by publication, pursuant to the terms of KRS Chapter 424.

(c) [7.120] Method of Sale

KRS 376.455 does not specify whether the sale of equipment may be made at public sale or private sale. Accordingly, it is probably safe to utilize either method of sale as long as the sale price obtained is commercially reasonable and somewhat consistent with the market value of the equipment being sold. Addition-ally, as noted above, lien holders electing to sell equipment at private sale should be cautioned against any self-dealing or intra-familial transactions in the course ofthesale,unlessthelienholderisconfidentthattheagreeduponsalespriceisconsistent with the reasonable market value of the property. Otherwise, the sale may be subject to collateral attack by the property owner, and the lien holder could incur damages for any unreasonably undervalued sale of the property.

(d) [7.121] Proceeds of Sale

Unlike other statutory lien sale provisions, KRS 376.455 is silent regarding the appropriate disposition of sale proceeds. Accordingly, lien holders should refer to and follow the other statutorily mandated procedures for disposition of proceeds as discussed above. Although there is no requirement to follow such procedures, doing so will likely serve as a “safe harbor” in the event the property owner col-laterally attacks the lien holder’s actions after the sale.

b. [7.122] Rights and Duties of Lien Holder No Longer in Possession of Repaired Article

Unlike the jewelry and electric appliance liens discussed above, the lien created by KRS 376.440 is “inchoate” when the lien holder either did not have possession of the equipment during its repair or otherwise returned the equipment to the owner before receiving payment. In other words, unless the lien holder has and maintains possession of the repaired equipment, the statute will require the lien holder to perform certain steps in order to fully perfect the statutory lien.

i. [7.123] Duty to File Lien Statement

Pursuant to KRS 376.440(2), the lien created by the statute will “attach” regardless of whether the equipment, machine, machinery, motor, or motors were ever upon the premises, or in the possession, of the person making the repairs. However, in such an event, or in the alternative event that the lien holder possesses the equipment but remits possession back to the owner prior to payment, the lien holdermustfileaformalstatementoflientomaintainandperfectitslienrights.

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(a) [7.124] Deadline to File Statement of Lien

Pursuant to KRS 376.440, when the lien holder does not possess the re-paired property, or otherwise relinquished possession of that property to the owner priortopayment,itmustfileaformalstatementoflienwithinthree (3) months of the date the repairs were completed (in cases where the lien holder never possessed the equipment), or the date the lien holder lost possession of the equipment (in those cases where the lien holder relinquished possession before payment received).

(b) [7.125] Procedure for Filing Statement of Lien

Pursuant to KRS 376.440 and KRS 376.445, the mandatory statement of lien must meet the following requirements:

• listthenameofthepropertyownerandthelienholder;

• list the amount due the lien holder for the cost of mate-rials furnished or labor performed on the equipment, ma-chine,machinery,ormotor,withalljustcreditsandset-offsknown;

• list a description of the property or equipment intended to becoveredbythe lien,sufficientlyaccurate to identify itandthenameoftheowner;

• be subscribed and sworn to by the person claiming the lien orbysomeoneonhisbehalf(asnotedbythenotary);and

• befiledin theofficeof thecountyclerkof thecountyinwhich the owner of the equipment, machine, machinery, or motor resides, unless such owner is a nonresident, in whichevent thelienstatementshallbefiledintheofficeof the county clerk of the county in which such equipment, machine, machinery, or motor is at the time being kept orused.Inthisregard,failuretofilethestatementintheproper county (especially for corporations with a principal place of business) will invalidate the lien. ITT Commercial Finance Corp. v. Madisonville Recapping Co., Inc., 793 S.W.2d 849 (Ky. Ct. App. 1990).

ii. [7.126] Enforcement of Lien When Property Not in Lien Holder’s Possession

Oncethenon-possessorylienholderhasperfecteditslienbyfilingtheappropriate lien statement in a timely manner and in the appropriate county, it will have the right to institute a civil action, seeking enforcement of the statutory lien and a forced sale of the property subject to that lien to satisfy the debt. The lien

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willbesuperiortoallliens,encumbrances,andbonafidepurchasersarisingafterthelienstatementhasbeenfiled(exceptfortaxliens).

F. [7.127] Liens Against Tenant Property

Kentucky statutes also provide various lien provisions for the imposition ofliensagainstthepropertyoftenantsandrentersunderspecifiedconditions.

1. [7.128] Landlord’s Lien Against Crops for Advancement of Supplies or Property

Under KRS 383.110, “a landlord shall have a superior lien, against which thetenantshallnotbeentitledtoanyexemption,”againstanycropsthetenantraisedupontheleasedorrentedpremises,totheextentthelandlordhasfurnishedmoney or property to enable the tenant to raise the crop, or to otherwise subsist during the lease term. This lien is also choate (i.e., automatically imposed without anyfilingorperfectingstepsbythelandlord).

a. [7.129] Deadlines for Lien Enforcement

The lien created by KRS 383.110 is only enforceable up to and including one hundred and twenty (120) daysaftertheexpirationoftheleaseterm.Addi-tionally, in the event the crops upon which there is a lien are removed from the leased premises, without fraudulent intent, and not returned, the landlord shall have asuperiorlienuponthepropertysoremovedforfifteendaysfromthedateofitsremoval and may enforce his lien against the property wherever found.

b. [7.130] Procedure for Enforcement of Lien on Tenant’s Crops

The landlord may enforce the lien given in KRS 383.110 only by distress or attachment, in the same manner provided for the collection of rent under the procedures outlined in KRS 383.030.

2. [7.131] Landlord’s Lien Against Tenant Property for Past Due Rent on Premises

Pursuant to KRS 383.070, a landlord may additionally have lien rights against certain classes of property of the tenant for claims of past due rent.

a. [7.132] Lien Rights Where Premises Rented for Farming or Coal Mining Purposes

A landlord renting land for farming or coal mining purposes is granted lienrightsagainsttheproductsfromtherentedpremisesandthefixtures,householdfurniture, and other personal property owned by the tenant. The lien may not be

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for more than one year’s rent due and to become due and may not be for any rent which has been due for more than eleven months. KRS 383.070(1).

b. [7.133] Lien Rights Where Premises Not Rented for Farming or Coal Mining Purposes

If the premises are not rented for farming or coal mining purposes, the landlordisentitledtoassertalienonthefixtures,householdfurniture,andotherpersonal property of the tenant, to secure the payment of four months’ rent, due or tobecomedue.However,suchalienshallnotbeeffectiveforanyrentwhichispast due for more than one hundred and twenty days.

3. [7.134] Landlord Lien for Past Due Rent on Self-Service Storage Facility

Under KRS 359.220, the operator of a self-service storage facility or self-contained storage unit shall have a lien on all personal property stored within eachleasedspaceforpastduerent,labor,orothercharges,andforexpensesreason-ably incurred in the sale of said personal property, as provided in KRS 359.200 to 359.250. Under certain circumstances, the operator may sell the personal property to secure payment of rent and charges.

a. [7.135] Procedure for Perfecting Lien Rights

Satisfactionofthenoticerequirementisthefirststepinperfectingthestatutory lien rights on personal property placed in self-service storage units. Under KRS 359.220, the operator of a self-service storage facility is not entitled to assert any lien on the personal property located in the storage units unless the written rental agreement, signed by the tenant, contains a statement in bold type advising the tenant:

• oftheexistenceofthelienrights;and

• that property stored in the leased space may be sold to sat-isfy the lien if the occupant is in default.

b. [7.136] Enforcement of the Lien

Under KRS 359.230, the operator of a self-service storage facility is not entitled to enforce the lien by selling the personal property located in the storage unitsunlessitfirstcomplieswiththerequirementsoutlinedinSections[7.137]through [7.143], infra.

i. [7.137] 45-Day Default Rule

The operator of a self-service storage facility is not entitled to enforce its lien rights by selling the personal property of the tenant unless the tenant has been in default under the lease agreement for more than forty-five (45) days. Ad-

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ditionally, if an occupant is in default, the operator may deny the occupant access to the leased space.

ii. [7.138] Pre-Sale Notice to Property Owner

Before conducting a sale of the tenant’s personal property under KRS 359.230, the operator must:

• Notify the tenant of the default by regular mail at the occu-pant’slastknownaddress;

• Send a second notice of default by certified mail to the oc-cupant at theoccupant’s last knownaddress, specificallyincluding:

a. A statement that the contents of the tenant’s leased spacearesubjecttotheoperator’slien;

b. A statement of the operator’s claim, indicating the charges due on the date of the notice, the amount of any additional charges which shall become due before the date of sale, and the date those additional charges shallbecomedue;

c. A demand for payment of the charges due within a specifiedtime,not less than fourteen (14) days after the date of the notice;

d. A statement that, unless the claim is paid within the time stated, the contents of the occupant’s leased space shallbesoldataspecifiedtimeandplace;and

e. The name, street address, and telephone number of the operator, or his or her designated agent, whom the oc-cupant may contact to respond to the notice.

iii. [7.139] Pre-Sale Advertising

At least three (3) days before the sale, the operator must advertise the time, place, and terms of the sale in a newspaper of general circulation in the jurisdiction where the sale is to be held.

iv. [7.140] Tenant’s Right to Redeem Property

At any time before a sale under KRS 359.230, the tenant may pay the amount necessary to satisfy the lien and redeem the personal property.

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v. [7.141] Method of Sale

The sale of personal property under KRS 359.230 must be held at the self-service storage facility where the personal property is stored, and it may be completed through public or private sale for cash.

vi. [7.142] Distribution of Sale Proceeds

If a sale is held under KRS 359.230, the operator shall dispose of the sale proceeds in the following manner:

• Satisfythelienfromtheproceedsofthesale;

• Hold the balance of the proceeds, if any, for delivery to any otherrecordedlienholderswhopresentclaimswithinsixty(60) days. Notwithstanding Article 9 of KRS Chapter 355, claimsshallbesatisfiedonafirstcomefirstservedbasis;and

• Deliver,uponexpirationofsixty(60)days,thebalanceofany remaining proceeds to the occupant.

vii. [7.143] Rights of Purchasers for Value

A good faith purchaser of any personal property sold under KRS 359.200 to 359.250 takes the property free and clear of any rights of the tenant and other lien holders.

4. [7.144] Lien for Rent Due on Mobile Home Space or Lot

KRS 376.480 creates a lien on any abandoned property in favor of any owner of real property who rents space on which a house trailer or mobile home is parked. The lien may be for rent due, reasonable storage, cleanup costs, and utilities furnished to the unit and paid for by the landowner. The lien will attach to any house trailer or mobile home, its contents, and other personalty abandoned by thetenantonthelandowner’sproperty.Thislienrequiresnofilingsorperfectionactivity by the landowner.

a. [7.145] Enforcement of the Lien by Sale of Property

If, after a period of sixty (60) days, the rent, reasonable storage, cleanup costs, and utilities have not been paid, the landowner may sell the house trailer or mobile home, its contents, and other personalty abandoned by the occupant.

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i. [7.146] Mandatory Notice to Tenant and Other Lien Holders

Before selling any property of the tenant under this statutory lien right, the landowner must send notice to the tenant’s last known address, advising the tenant of the time and place of the proposed sale. This notice shall be made by registered mail at least ten (10) days prior to the time of the sale. If there is a valid recorded lien against the property to be sold, the landowner must also notify the lien holder of the time and place of sale by registered mail at least ten (10) days prior to the time of the sale.

ii. [7.147] Mandatory Advertising of Sale

Before conducting the sale, the landowner must advertise a description of the property to be sold and the time and place of sale for three (3) consecutive publishing periods in a local newspaper distributed in the county where the prop-erty is located.

iii. [7.148] Method of Sale

The sale may be by written bids or by auction, or both, and the lien holder may bid on the property as authorized by statute. The sale shall be to the highest bidder.

The house trailer or mobile home shall be transferred to the purchaser in thecountywherethesaleisconducted,uponanaffidavitbeingfiledbythesellerstating that the provisions of this section have been met, listing the sale price and containing any other information that may be required by the state or county.

iv. [7.149] Disposition of Sale Proceeds

Anymoneyobtainedinexcessofthesalecosts,taxes,andliensshallbepaidbythelienholdertothetenant,andifthetenantcannotbelocated,theexcessmoney shall escheat to the state pursuant to the provisions of KRS Chapter 393.

G. [7.150] Lien for Attorney Fees

KRS 376.460 creates a lien for recovery of unpaid attorney fees in certain circumstances. This lien is choate in nature (i.e., it arises by simple operation of statute and requires no steps by the lien holder to perfect the lien interests). The rationale behind the attorney’s lien is founded upon the theory that the judgment or recovery by the client is the product of the services and skill of the attorney. Exchange Bank of Kentucky v. Wells, 860 S.W.2d 785 (Ky. Ct. App. 1993).

ThetextofKRS376.460readsasfollows:

Eachattorneyshallhavealienuponallclaims,exceptthoseofthe state, put into his hands for suit or collection or upon which

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suit has been instituted, for the amount of any fee agreed upon by the parties or, in the absence of such agreement, for a reasonable fee. If the action is prosecuted to a recovery of money or property, the attorney shall have a lien upon the judgment recovered, legal costsexcepted,forhisfee.Iftherecordsshowthenameoftheattorney, the defendant shall be deemed to have notice of the lien. If the parties in good faith and before judgment compromise or settle their controversy without the payment of money or other thingofvalue,theattorneyfortheplaintiffshallhavenoclaimagainst the defendant for any part of his fee.

1. [7.151] What Property Is Subject to an Attorney Fee Lien?

In applying the attorney fee lien statute, courts have consistently ruled that the lien attaches to personal property and to money. Further, where the underlying suit involves acquisition of real property, the successful attorney is also entitled to a reasonable fee with a lien on the land. Getaz v. Eversole, 27 S.W.2d 688 (Ky. 1930).However,anattorneyfeelienonrealpropertywillhavenoeffectagainstbonafidegoodfaithpurchasersforvalueunlessapriorwrittenrecordofthelienhasbeenfiledintheappropriatecountyclerk’soffice.Daugherty v. Pond Creek Coal Co., 188 S.W. 624 (Ky. 1916).

2. [7.152] Determining the Amount of the Attorney Fee Lien

Ordinarily, the lien against the judgment or recovery will be for the amount of the fee previously agreed upon between the attorney and client, or in the absence of such an agreement, it will be for a reasonable fee, as determined by the court.

However, in situations where the attorney’s services are terminated or withdrawn prior to completion of the underlying litigation, the attorney is not entitled to full recovery under the terms of the prior fee agreement. Attorneys who are employed under a contingency fee contract and were discharged without cause before completion of the contract are entitled to a fee recovery on a quantum meruit basis only and on the terms of the contract for legal services. Baker v. Shapero, 203S.W.3d697(Ky.2006).Forexample,ifcounselhasacontingencyfeeagree-ment for one-third (1/3) of any recovery on behalf of the client but is terminated prior to recovery, the lien will be only for the amount of those legal services and costsexpendedpriortodischargeoftheattorney,notfortheone-third(1/3)ofanyrecovery provided in the legal services contract. Of course, it is common for both clients and replacement counsel to challenge the reasonableness of such a recovery, especially where the bulk of the legal services were performed by replacement counsel.Insuchsituations,thecourtmayexerciseequitablepowerstoreducethefeeofthelienholderifthecourtdeterminesthatthefeelienisexcessiveinlightofthenatureandextentofworkperformed.

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Finally, an attorney’s lien on the fund that he or she created is generally grantedpriorityoverset-offjudgments.Exchange Bank of Kentucky v. Wells, 860 S.W.2d 785 (Ky. Ct. App. 1993).

3. [7.153] Procedures to Enforce the Attorney Fee Lien

The courts of this state have long recognized the right to enforce an attorney’s lien either by independent action or by motion in the original action. Johnston v. Stephens,266S.W.881(Ky.1924);LaBach v. Hampton, 585 S.W.2d 434 (Ky. Ct. App. 1979), overruled on other grounds by Baker v. Shapero, 203 S.W.3d 697 (Ky. 2006).

However, the more prudent practice is enforcement of the lien by motion, inthecontextoftheexisting,underlyinglitigation.Suchpracticeisgenerallymorecosteffectiveandefficientsincethecourtwillalreadybefamiliarwiththeunder-lying litigation and the relevant dispute. Additionally, if the judgment/recovery subject to the lien has not yet been paid, the court will likely direct that the judgment/recovery be paid into the court until the attorney fee dispute can be resolved. This process not only protects counsel from a possible misallocation of the recovery proceeds during the litigation of the fee dispute but additionally places pressure ontheopposingpartytoresolvethedisputeinamoreexpedientfashion.Afterall,if the recovery proceeds are paid into the court pending resolution of the attorney fee dispute rather than paid to the underlying client/debtor, the client/debtor will havesignificantfinancialpressuretosettlethefeedispute.

H. [7.154] Veterinarian’s Liens and Other Liens Relating to Animals

The purpose of the statutory lien provisions relating to the care of animals is to provide persons who supply care, treatment, livery, and boarding services for animals a method to seek payment or otherwise protect their rights to payment for such services. Absent such statutory rights, most creditors in this class and related professions would have little, if any, leverage to compel payment for the services they have already provided since they cannot logistically repossess or recoup the serviceswhichhavebeenperformedonorforthebenefitoftheanimal.TheKen-tucky General Assembly has recognized this problem and created several statutory lienrightprovisionstoassistthiscategoryofcreditorsintheirrecoveryefforts.

1. [7.155] Veterinarian Liens

KRS 376.470 creates a lien right for veterinarians who perform profes-sional services for animals. The lien is inchoate and requires the veterinarian to perfectthelienthroughaspecificfilingprocess.Thelienisfortheunpaidfeesincurred in the service to the animal, and it attaches to the underlying ownership rights to the animal that received the services.

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a. [7.156] Who Is Entitled to a Veterinarian Lien?

Since a veterinarian lien is a statutory remedy, only those entities and individualsfallingwithinthespecificstatutoryframeworkwillbeentitledtofilesuchalien.Ingeneral,thestatutoryrighttofileaveterinarianlienextendstoanypersonorentitywhosatisfieseachoftheelementsbelow:

• The person or entity must be a “licensed veterinarian;”

• The person or entity must have performed “professional services”toorforananimal;and

• The person or entity must have also performed the “profes-sional services” by contract with or by the written consent, of the owner or the owner’s authorized agent.

b. [7.157] Procedures for Perfecting and Recording a Veterinarian’s Lien

Although the lien rights are established immediately upon the performance of professional services by a licensed veterinarian, the lien has only a limited durationuntilaformalstatementoflienisfiled.Additionally,aveterinarianlienhasnoeffectuponsubsequentgoodfaithpurchasers,withoutnotice,unlessanduntilthelienstatementhasbeenfiledundertheguidelinesidentifiedinSections[7.158] through [7.161], infra.

i. [7.158] Time Limitation for Filing/Recording Veterinarian Lien

KRS 376.475 states that a veterinarian lien shall be dissolved unless the lienclaimantfiles a formalwritten lien statementwith thecountyclerkof thecounty where the animal is located within six (6) months after he ceases to provide services for the animal.

ii. [7.159] Necessary Content for Lien Statement

To fully satisfy KRS 376.475, and therefore to create and preserve a valid veterinarian lien, the lien statement must satisfy each of the following requirements. Any failure to satisfy any one of the requirements could result in a loss of lien rights:

• The statement must list the total dollar amount due with referencestoanycreditsandset-offs;

• The statement must provide a description of the animal to becoveredbytheliensufficientlyaccuratetoidentifyit;

• The statement mustlistthenameoftheanimal’sowners;

• The statement must indicate whether the professional ser-vices were provided pursuant to a contract with or written

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consentoftheownerortheowner’sauthorizedagent;

• The statement must list the veterinarian’s name, address, andprocessagent;

• Althoughnotspecificallyrequiredforveterinaryliens,itiscommon and recommended practice to include in the state-ment a sentence indicating the date on which the services ceased;and

• The statement must be “subscribed and sworn to” by the veterinarian or its authorized agent (as acknowledged by a notary).


Oncecomplete,thelienstatementmustbefiledwiththecountyclerkinthecountywheretheanimalislocated.Thecurrentfilingfeeforastatementoflienis$13.00andmustbepaidbythepersonfiling/recordingthelien.

iv. [7.161] Post-Filing Procedures

Oncethelienstatementhasbeenfiledandrecordedwiththecountyclerk,thefinalstepintheperfectionprocessistomailacopyofthestatementtotheani-mal owner’s last known address within 7 daysafterfilingitwiththecountyclerk.KRS 376.475(1). Once this step has been timely completed, the lien is perfected and enforceable.

c. [7.162] Enforcement of the Lien

Oncethelienstatementhasbeenfiledandthelienhasbeenperfectedbycompletion of the statutory requirements addressed above, the veterinarian’s claim willbeaffordedtheaddedprotectionandleverageproducedbythelien.Often,themereexistenceofthisperfectedlien,withtheassociatedthreatofanenforcementaction to sell the animal, will be enough to compel payment from the animal’s owner. If payment is not forthcoming once notice of the perfected lien and threat of enforcement has been sent, the creditor may need to take additional action to enforce its lien rights.

i. [7.163] Statute of Limitations (Shelf-Life of the Lien)

UnderKRS376.475,aveterinarianlienwillexpireandbecomeunen-forceable 12 monthsafterthedatethelienstatementhasbeenfiledwiththecountyclerk unlessthelienholderhasfiledacivilactiontoenforcethelienwithinthattime frame. In other words, the statute of limitation to enforce a veterinarian lien is12monthsfromthedatethelienstatementisfiled.

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Ofcourse,ifthecivilactiontoenforcethelienisnottimelyfiledwithinthislimitationperiodandthecreditorlosesthebenefitofthelien,itmaystillseekrecovery on other common law grounds, such as breach of contract, unjust enrich-ment, etc. Unfortunately, these common law causes of action often do not carry the samepersuasiveweightincompellingpaymentpriortoreachingafinaljudgment.

ii. [7.164] Civil Action in General

The civil action is designed to advise the court of the nature of the un-derlying debt and to request enforcement of the lien by forced judicial sale of the animalatauctionsothatthedebtmaybesatisfiedfromthesaleproceeds.

(a) [7.165] Location of Civil Action (Venue)

Acivilcomplainttoenforceaveterinarianlienmustbefiledinthecircuitcourtofthecountywheretheanimalislocated.Iftheactionisfiledinthewrongcountyorcourt,theactionwillneedtobefiledagainintheproperlocation.How-ever,ifthe12-monthdeadline(referencedpreviously)hasexpiredbeforethesuitisfiledintheappropriatecounty,thelienwilldissolveandbecomeunenforceable.

(b) [7.166] Proper Parties

In the civil action to enforce a veterinarian lien, the lien holder must name the animal owners as defendants. The complaint must additionally name as parties each and every individual and/or entity with a recorded or known interest in the animal. This includes any recorded or known lien claimants, spouses, joint owners, remaindermen, or others with contingent interests. Any failure to properly identify and name such persons or entities could result in a dismissal of the suit and loss of lien rights or a loss of priority with regard to payment of liens by sale proceeds.

(c) [7.167] Procedure for Filing Civil Action

Pursuant to KRS 376.475(4), the procedure to enforce a veterinarian lien “shall be as provided in KRS 376.110, 376.120, and 376.130” (the mechanic’s lien provisions discussed above). Accordingly, in an action to enforce the lien, the complaint must allege the facts necessary to secure a lien and describe both the animaltobesoldandtheplaintiff’sbasisforseekinganinterestintheanimal.Thecomplaintmustalsospecificallyallegefactssufficienttosupporttheexistenceofavalid lien (e.g.,existenceofacontractwiththeownersortheiragents,theprovisionof professional services by a licensed veterinarian, and compliance with all notice andfilingprovisionspreviouslyreferencedabove).

Thestatutesandrulesstatethataftertheexpirationoften(10)daysfromthefilingofthecomplaint,theclerkwillrefertheactiontothemastercommissioner.However, like actions to enforce mechanic’s liens, the action will often linger with the circuit judge for resolution of all issues under normal circuit court procedures

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without ever being referred to a master commissioner. If a master commissioner is appointed, a hearing will be set for presentation of proof supporting or defending the respective claims, and notice of the hearing will be sent to all parties and entities with known interests in the animal. Any failure by lien holders, mortgage holders, or other claimants to attend the hearing and present proof to support their claims will result in the loss of any right they may have had in the animal. KRS 376.120.

Pursuant to KRS 376.130, after completing the hearing, the master com-missioner must issue a written report setting forth the amount of each valid claim, the nature of the claim, and the evidence that supports the claims.

2. [7.168] Agister’s Liens (Liens for Livery, Boarding, and Feeding Animals)

KRS 376.400(1) creates a lien right for any owner or keeper of a livery stable or other business providing for the care of animals and a person feeding, grazing, or caring for any animal for compensation, subject to subsection (2) of thissection.Thelienischoateandrequiresnonoticeorfilingonthepartofthelien holder. The lien is for the reasonable charges for keeping, caring for, feeding, and grazing the animals, and it attaches to the underlying ownership rights to the animals in the lien holder’s possession. The lien attaches whether the animals are merely temporarily lodged, fed, grazed, and cared for, or are placed at the stable, kennel, or similar facility, or other place or pasture for regular board.

a. [7.169] Duration of the Lien

Pursuant to KRS 376.400, the lien created in this statute dissolves and becomes unenforceable one (1) year after the animal has been removed from the custody of the livery stable, kennel, or similar facility or the person feeding or grazing the animal.

b. [7.170] Procedure for Enforcement of Lien

To enforce this statutory lien and seek collection of the debt, the lien holder must, no longer than one (1) year after the animal has been removed from the custody of the livery stable keeper, kennel, or similar facility, or the person feeding or grazing the animal, seek enforcement of the lien before the district court in the county where the livery, feeding, or boarding services were performed. KRS 376.410.

i. [7.171] Enforcement by Levy and Seizure

KRS376.410allowsforenforcementofthelienbythefilingofasignedaffidavitfromthelienholder,inthedistrictcourt,specifyingtheamountdueforkeeping and caring for the animals and describing the animals so kept by him as specificallyaspossible.Thecourtshallthenissueawarrant,directedtothesheriff

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or any constable or town marshal of the county, authorizing him to levy upon and seize the cattle for the amount due, plus interest and costs.

c. [7.172] Enforcement by Sale of Animal

KRS 376.400(2), as amended in 2009, allows that a person who has agreed to provide feed or care for an animal for compensation may cause the animal to be sold in lieu of the lien provided for in subsection (1).

(1) The animal’s ownermust be at least forty-five (45)days in arrears on payment for the care and feeding of the animal and the animal is in the possession of the person providing its care.

(2) The proposed sale must be published in one or more newspapers and qualified pursuant to KRS Chapter424, in the locale where the person caring for the ani-mal is located and where the owner was last known to reside.

(3) Writtennoticeof the salemustbe sent,via certifiedmail, return receipt requested or by registered mail, to the owner of the animal at his or her last known ad-dress, to all lien holders of record, and the local coun-tyclerk’sofficeatleastten(10)daysbeforethesale.Noticemustinclude,theamountdue;thedate, time,andlocationofthesale;andastatementthatthesaleproceeds shall be disbursed pursuant to subsection 3 of this section.

d. If a sale is conducted under subsection (2), the sale pro-ceeds are to be disbursed: (1) as payment for costs associ-atedwiththesale;(2)paymentofamountsdueforthecareandfeedingoftheanimal;(3)paymenttootherlienholdersorcreditorspursuanttoacourtorder;and(4)theremain-der, if any, held for the owner for a period of 12 months and, if not claimed, then paid into the district school board.

3. [7.173] LiensforExpensesRelatingtoCaptureandCareofStrayAnimals

Repealed 2010.

4. [7.174] Liens for Stud Fees

KRS 376.420 provides that any “licensed keeper” of a stallion, jack, or bullshallhavealienforthepaymentoftheservicefeeupontheoffspringofthestallion,jack,orbull,forone(1)yearafterthebirthoftheoffspring.

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a. [7.175] Procedure for Enforcement of Lien

To enforce this statutory lien and seek collection of the debt, the lien holdermust,nolongerthanone(1)yearafterthebirthoftheoffspringresultingfrom the stud services, seek enforcement of the lien before the district court in the county where stud services were performed. KRS 376.420.

i. [7.176] Enforcement by Levy and Seizure

KRS376.420allowsforenforcementofthelienbythefilingofasignedaffidavitfromthelienholder,inthedistrictcourt,specifyingtheamountduefortheservicesanddescribingasnearlyaspossibletheoffspringsoproduced.Thecourtshallthenissueawarrant,directedtothesherifforanyconstableortownmarshalofthecounty,authorizinghimtolevyuponandseizetheoffspringfortheamount due, plus interest and costs.

ii. [7.177] Enforcement by Other Judicial Action

KRS 376.420 also states that the lien holder may enforce the lien by other civil action, “as in the case of other liens.” Accordingly, as long as the one (1) yeardeadlinehasnotexpired,thelienholdercouldinstituteacivilactionseekingenforcement of the lien through seizure and sale of the animal subject to the lien.

I. [7.178] Other Miscellaneous Statutory Liens

Kentucky statutes also provide several additional specialized lien rights, which in comparison to the statutes discussed above are employed less frequently. Accordingly, those liens are mentioned only in passing in this chapter, but they are nonetheless useful tools for debt collection.

1. [7.179] Liens on Farm Crops for Custom Operator Services

KRS 376.135 provides that “any custom operator who performs a ser-viceonafarm,includingbutnotlimitedtofillingofsilos,haybalingandcropspraying, by contract with, or by the written consent of the owner or manager of the farm, shall have a lien upon the farm crop involved to secure the cost of the servicefurnished.”Thelienprovidedforinthisstatuterequiresactivefilingandperfection steps by the lien holder.

2. [7.180] Liens on Gas, Oil, and Other Mineral Leaseholds

KRS 376.140 states that

any person who performs labor or furnishes materials, supplies, fixtures,machineryorotherthingsofvaluetoalesseeholdingor owning a leasehold or any right conferred by a lease, relating

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to oil, gas or other minerals, in the development or improvement of the leasehold, by contract with or by the written consent of the owner or the agent or representative of the owner of the lease-hold, shall have a lien on the leasehold or the entire interest of the lessee including oil or gas wells, machinery and equipment, to secure the payment for the labor or things furnished.

Thelienprovidedforinthisstatutealsorequiresactivefilingandper-fection steps by the lien holder similar to those discussed above in relation to mechanic’s liens.

3. [7.181] Lien of Employees on Property of Certain Employers

KRS 376.150 provides that an employee will have a lien on the real property,personalproperty,effects,andaccessoriesoftheemployer’sbusiness,foranyunpaidwagesorbenefits,whensuchpropertyhasbeenassignedforthebenefitoforisotherwisetobedistributedamongtheemployer’screditors,whetherby operation of law or voluntary act.

4. [7.182] Lien of Dry Cleaner, Tailor, and Launderer for Work Done

KRS 376.300 provides that “any person who cleans, presses, glazes, laun-ders, alters, or repairs any wearing apparel or household goods shall have a lien on the article remaining in his possession to secure the reasonable or agreed charge for the service.” If the charge is not paid within ninety (90) days, the article may be sold to pay the charges and costs of notice, after notice has been given the customer of the time and place of sale. The lien provided for in this statute also requires other active notice steps and prior warning postings by the lien holder before the sale.

5. [7.183] Lien for Costs Relating to Clothing Storage

KRS 376.310 provides that “any person who keeps any wearing apparel or household goods in storage, or who has performed any of the services mentioned in KRS 376.300 on such an article and then keeps it in storage, shall have a lien on the article as long as it remains in his possession.” If the reasonable or agreed charges have not been paid for a period of twelve (12) months, the article may be soldtopaythechargesaftertheownerhasbeennotifiedofthetimeandplaceofsale. The lien provided for in this statute also requires other active notice steps, and prior warning postings by the lien holder before the sale.

6. [7.184] Lien of Innkeeper and Hotel for Boarding Fees

KRS 376.340 provides that “any keeper of a hotel, inn, boarding house or house of private entertainment shall have a lien on all baggage and other personal property owned and brought in by the person receiving board, nursing, care or attention from the landlord, for the contract price of the service received, or, if no

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contract price is set, for a reasonable price.” The lien provided for in this statute is enforcedthroughthedistrictcourtandbysherifflevy.

II. [7.185] Enforcement of Bond Claims

A. [7.186] Introduction

In any discussion of the battles between debtors and creditors, one must look to the possible alternative recovery which might be found against potential thirdparties.Onemustdetermine if thereexistsany formof suretyshipwhichmightexistinvolvingthedebtor.Thereareanynumberofconditionswhichmightgiverisetotheexistenceofathird-partyrelationshipbetweenthedebtorandsomecompany or party which might be responsible for the debts of the debtor. In many cases,suretyshipmayexisteitherthroughacorporateresponsibilityorsomeper-sonal obligation which has been generated.

Therearemanytypesofsuretyandsuretybondingsituations.Examplesof surety bonds include license and permit bonds, workers’ compensation self-in-surancebonds,reclamationbonds,bailbonds,financialguarantybonds,Medicareand Medicaid bonds, and construction payment and performance bonds. Rather thanfocusonspecificdetailsofeachofthesebonds,thisportionofthechapterwill focus on the general aspects of the relationships between the parties and the issues which must be confronted. The relationship between the surety company, the principal (the one being bonded), and the obligee (the party being protected) arethesameundermosteverybond.Thedifferenceslieinthetypeofprotectionofferedandthetermsandconditionsuponwhichtheprotectioncanbesought.

B. [7.187] The Nature of Suretyship

A bond is a three-way contract between the party being bonded (“prin-cipal”), the party being protected, i.e., the party to whom the obligation is given (“obligee”), and the bonding company (“surety”). The surety is almost always a company licensed by the various state insurance agencies to write bonds, although a private person can, on some occasions, act as the surety. The party obtaining the bond is called the principal because the contract is its primary responsibility. The surety and principal promise in the bond that the contract will be performed ac-cording to its terms. Essentially, the surety promises that its obligations to perform only arise in the event that the principal fails to perform its contractual obligations.

The primary element in an understanding of suretyship involves recogniz-ing the distinction between a surety bond and an insurance policy – an important distinction which most people fail to recognize.

Though surety companies are often insurance companies as well, the two documentsarevery,verydifferent.

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Insurancehasbeendefinedasacontractwherebyoneundertakesto“in-demnify” another against loss, damage, or liability arising from an unknown or contingentevent;however,acontractofsuretyshipisonetoanswerforthedebt,default, or miscarriage of another. Meyer v. Building & Realty Services Co., 196 N.E.250,253(Ind.1935);see also United States v. Fisk, 675 F.2d 1079, 1082, n.6(9thCir.1982);Madison County Farmers Assoc. v. American Employers Ins. Co., 209 F.2d 581 (5th Cir. 1954).

The RestatementofSecurity, §82definessuretyshipasfollows:

Suretyshipistherelationwhichexistswhereapersonhasunder-taken an obligation and another person is under an obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, one rather than the other should perform.

Thisdefinitionemphasizesthatunderasuretybond,unlikeaninsurancepolicy,there isno shiftingof theobligationofpaymentorperformance; theprincipalobligor always remains liable.

There are only two parties to an insurance contract, the insurer and the insured. However, a surety bond involves multiple parties: the principal, the partywhosefaithfulperformanceisbeingbonded;thesurety, who together with the principal jointly binds itself to the obligee for the faithful performance of the principal’sobligations;andtheobligee, the party for whose protection the bond is being issued. Under this three-party arrangement, the principal always remains primarily liable to the obligee. The surety’s obligation is secondary and only arises upon the failure or default of the principal. Meyer v. Building & Realty Services Co., 196 N.E. 250, 253 (Ind. 1935).

One commentator recently summarized the nature of the suretyship re-lationship as follows:

The essential function of a surety bond is to guarantee the perfor-mance on contractual obligations. A surety bond is not, however, an insurance policy; rather it is more accurately characterized as a credit guarantee...[A]s opposed to the insurer, the surety does not anticipate the possibility of loss even in a particular instance or transaction. As a consequence, the premium paid to a surety is a professional service fee. The surety, unlike the insurer, has the undiminished right to pursue its principal for indemnifica-tion; in fact, indemnity contracts between the principal and the surety inevitably underlay all performance bonds. Insurance merely protects an individual from an unknown risk of loss, while suretyship guarantees the performance of a pre-determined, alternative contractual duty.

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C.A. Foster, Construction Management and Design-Build/Fast Track Construction: A Solution Which Uncovers a Problem for the Surety, 46 Law&Contemp.Probs. 95, 96-97 (1983) (emphasis added).

It is thisfinancial aspect of the surety bond, indemnification, and themanner in which the surety will look to the principal for any loss incurred and seek toenforceitsrightsthatisthemostsignificantrightinsuretyshipandprovidestheclearest distinction from insurance.

C. [7.188] Indemnification

A principal owes its surety indemnity at common law in the event that the suretyincursdamageswhichareproximatelycausedbytheprincipal.Thatcommonlawobligationexistsbecauseanagreementtoreimburseisimpliedinthecontractof suretyship. Kimberly-Clark Corp. v. Alpha Building Co., 591 F. Supp. 198 (N.D. Miss. 1984). However, a more common source of an indemnitor’s liability is an expressindemnificationagreementdemandedbyasuretytoinduceittoexecutebonds on behalf of the principal.

Intheconstructioncontext,theremaybeabondinglineofcreditextendedwhere the bonding company typically requires only its general agreement of indem-nitytobeexecutedbythecorporatecontractorandmajorinterestedindividuals,such as the principal stockholders. In case of default, the surety relies upon the contract balances in the bonded contracts declared in default and any free assets its principalandindemnitor(s)mustfulfilltheirindemnityobligation.However,theprincipal and any other indemnitors must understand that the surety will pursue, to the fullest extent of the assets, any and all avenues for recovery of its losses.

D. [7.189] ExtentofSuretyLiability

Thenatureofthesurety’sobligationisstrictlyfinancialasexpressedbythe terms of the bond itself. The surety binds itself jointly and severally with its principal to pay the obligee a sum certain, a penal sum, which is usually 100% of the contract amount, if a performance bond, and 50% of the contract amount if a payment bond. Any such payment is due only if the principal wrongfully and withoutexcusedefaultsontheprimaryobligation,andsuchpaymentobligationisonlytotheextentofanylosstotheobligee.Inpractice,thereisgenerallyalesserburden of proof required for a bonding company to pay on a payment bond than there is for action under a payment bond.

The liability of the surety is strictly limited by the terms of the bond, and if the bond is based upon a construction contract or subdivision bond, it is also limited by the terms of the underlying contract, which is generally incorporated in and made a part of the bond.

Sincetheexpresspurposeofthebondistosecuretheperformanceoftheunderlying obligation, the bond and that underlying obligation must be read together

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as a whole. Pacific Employer’s Insurance Co. v. City of Berkeley, 158 Cal. App. 3rd 145,204Cal.Rptr.387(Cal.Ct.App.1984).Forexample,inaconstructionbondsituationtheunderlyingperformanceisdefinedbythetermsoftheconstructioncontract.Inthatcase,thesurety’sobligationwouldbedefinedbythecontract,theplansandspecifications,andthebond.Inthesubdivisionbondcase,thedetailsof the subdivision which were agreed to in the planning and zoning process will dictate the obligations of the developer. Consequently, the surety’s liability under a suretybondgenerallyisco-extensivewiththatofitsprincipal:“[T]heliabilityofthe contractor is the measure of the surety’s liability.” Aetna Casualty and Surety Co. v. Namer Brothers Co., 355 So. 2d 785 (Fla. 1978).

The obligee also has obligations under the agreement of surety. The courts have determined that the obligee has a duty to faithfully and truly perform and comply with any conditions precedent in order to recover under the surety bond. Easton v. Boston Investment Co., 51 Cal. App. 246, 196 P. 796 (Cal. Ct. App. 1921). Any failure to do so can result in the discharge of any liability the surety may have under the bond. Just as a principal’s responsibilities are determined by a review of the bond and underlying documents, any waiver or discharge by the obligee must be found in the terms of those same documents.

As stated throughout, a bonding company does not serve the function ofaninsurancecompanyanddoesnotguaranteefinalcompletionofaprojectorpaymentoflossesinallinstances.Basically,suretybondsarethird-partybenefi-ciary contracts between the principal and a bonding company as surety. Under the terms of these bonds, the surety occupies the position of a solvent party to whom theobligee,asathird-partybeneficiarytothebond,canlookforsatisfactionintheevent of the principal’s default. American Radiator and Standard Sanitary Corp. v. Albany Municipal Housing Commission, 441 S.W.2d 433 (Ky. 1969).

Payment and performance bonds are an important everyday fact of life in the construction industry. Such bonds are required by statute on most federal, state, and other public construction projects. The requirement of bonds on private projectsisnowcommon,asmoreprivateownersareexercisingsoundbusinesspracticesandmanyfinanciallendinginstitutionsarerequiringbonds.Likewise,contractorsarerequiringtheirsubcontractorstoprovidebondsinanefforttoacquireagreatermeasureoffinancialsecuritythroughthesurety’sinvolvement.Often,theexistenceofpaymentandperformancebondsmaybetheonlysalvationforaproject, an owner, a contractor, a subcontractor, or a material supplier.

E. [7.190] Elements of a Successful Bond Claim

The underlying elements of any successful bond claim are similar, regard-less of the type of bond being pursued. The party seeking to claim under a bond mustfirstestablishthatitisathird-partybeneficiaryofthesuretyagreement.Theparty must establish that the principal has failed to satisfy the underlying obligation for which the bond was written. The party must then be prepared to counter the

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many defenses which the surety will present to the payment of the claim. Much of theexistingcaselawisbaseduponthecommondisputeswhichariseinthecon-struction arena. For this reason, the remainder of this section of the chapter will take a detailed look at those relationships, and the rights of the various parties will beexaminedinsomedetail.Inmostcases,thisinformationcanbereadilyappliedto most other forms of bond claims.

F. [7.191] Construction Performance Bonds

The primary purpose of the construction performance bond is to protect the owner against any loss resulting from the consequences of the contractor’s failure to complete or perform the construction contract in accordance with the plansandspecifications.

As a matter of law, the obligations of the surety under the bond are inte-gratedbytheexpressprovisionsofthebonditselfandtheextentofthecontractor’sobligations under the contract documents. Any obligation of the surety is depen-dent,inthefirstinstance,upontheobligationofthecontractorunderthetermsofits contract with the owner. Sanitary Systems, Inc. v. American Surety Co. of New York, 331F.2d438(8thCir.1964);Kentucky Insurance Guaranty Assoc. v. Dooley Construction Co., 732 S.W.2d 887 (Ky. Ct. App. 1987).

1. [7.192] Parties Protected by Performance Bonds

The parties must always look to the terms of the bond to determine who mayrecoverunderthebond.Asanexample,theowneristhenamedobligeeintheconstruction performance bond and is the party primarily protected by the contrac-tor’s performance bond. Similarly, the contractor may require that its subcontractors provide performance bonds naming the contractor as the obligee.

Sureties are faced with an increasing number of performance bond claims which appear to be more like payment bond claims. These cases are generally broughtunderathird-partybeneficiarytheory,withthevariousthird-partyclaim-antsattemptingtoexpandtheperformancebond’sprotectionbeyondthatofthenamed owner. This often occurs when there is no payment bond, the payment bond penalamounthasbeenexhausted,orthethird-partyclaimantsdonotfallwithintheexpressclassofclaimantsprotectedby thepaymentbond.Themajorityofcourts recognize that the paramount purpose of the bond is performance rather than payment, and they have held that third parties cannot bring suit unless it is established that there was an intent to confer such a right by either the language in the bond or the underlying contract. Treasure State Industries, Inc. v. Dell Welch Contractors, 567 P.2d 947 (Mont. 1977).

The American Institute of Architects’ (“AIA”) performance bond form attemptstoputthisissuetorestbyspecificallystatingthat“norightofactionshallaccrueonthisbondtoanypersonorentityotherthantheowneroritsheirs,exec-utors, administrators, or successors.” American Institute of Architect’s Document

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A312 (1987 Edition), ¶ 7 (This form of bond has two sections, one for performance bond issues and one for payment bond issues. Future references in this chapter to these two sections of the same bond form are noted as “AIA Performance Bond” and “AIA Payment Bond,” notwithstanding that paragraph references are to the same document.).

There is a substantial minority of jurisdictions which liberally apply the third-partybeneficiarydoctrine.Asaresult,asuretymayincurapaymentobliga-tioneventhoughonlyaperformancebondwasexecuted.Oneargumentforthisliberalexpansionisthattheunderlyingcontractrequires the contractor to pay for all labor performed and materials furnished on the project, and thus demonstrates thethird-partybeneficiaryintent.Royal Indemnity Co. v. International Time Re-cording Co., 75S.W.2d527(Ky.1934).Itisveryclearthattheexpresstermsandconditions of the bond itself must be considered.

2. [7.193] Origins of the Bond Claim

Apartyseekingtorecoverunderanytypeofsuretybondmustfirstde-terminewhethertheyaretheintendedbeneficiaryunderthebond.Asanexample,with fiduciarybonds, a proper claimant would be an heir and creditor to the estate. Only political subdivisions are proper claimants under subdivision bonds, although thepartieslivinginthesubdivisionwouldbeindirectbeneficiariesofthebond.Thegovernmentoragencythereofarebeneficiariesofreclamation bonds.

Second, the claimant must also be able to establish that a loss has occurred. In the fiduciarybond situation, a potential heir to an estate must prove that the estateadministratorfailedtoexecutehisorherdutiesunderthelawandthatsuchfailure resulted in an improper diminution of the estate. In the case of a subdivision bond, the city or county government must prove that the subdivision developer failed to complete construction of the subdivision in accordance with the terms of the development. In a reclamation bond situation, the government must prove that a mining company did not restore the mined area in accordance with the law.

In each of those cases, a party seeking to recover must make a demand upon the bonding company. The naïve claimant will believe that the surety will merelycomeforwardandsatisfytheclaim.Thesuretywillexamineallaspectsofthesituationpriortoadeterminationofliability.Thesuretywilllookfirsttotheactionsoftheprincipal.Thereafter,theactionsoftheobligeewillbeexamined,andfinally,thesuretywillseewhatotherpotentialdefensesareavailable.

3. [7.194] Principal’s Obligations and Rights

The principal’s obligations run not only to the obligee but also to the surety. While the construction contractor’s primary obligation is to complete the projectinaccordancewiththeplansandspecificationswithinthetimespecified,thecontractdocumentsgenerallystatethatanunexcuseddefaultrendersthecon-tractorliabletotheownerfortheamountbywhichthecompletioncostexceeds

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the unpaid contract balance, plus any consequential damages, such as delays and additional legal, design, and professional costs.

On the other hand, the contractor is also bound by written agreement to thesuretytoindemnifyandholdthesuretyharmlessfromanycostsorexpensesincurred by the surety under the performance bond.

Uponreceivingwrittennotificationthattheownerisdeclaringthecon-tractor in default, the contractor has essentially three options: (1) to deny being in defaultandrequestappropriaterelief;(2)tocurethedefaultandcompleteconstruc-tionwithinareasonableperiodoftime;or(3)toadmitbeingfinanciallyunabletocontinue performing and cooperate with the surety to minimize the damages for which the contractor will ultimately be liable.

Ifacontractorbelievesthereisnofaultanditremainsinaviablefinancialposition, the contractor can undertake a number of aggressive positions. First, the contractormustdocumentexcusablecausesofnon-performance,continuewiththe work where possible, and demand dispute resolution under the contract pro-visionsiftheownerdisagrees.Simultaneously,thecontractormayfileclaimsforany amounts due on the progress payment requisitions, sequester materials and equipment to avoid the owner’s seizure, and demand that the surety concurs in the contractor’s position. In the event that the surety takes over the contract or the owner ceases making progress payments to the contractor, a court action seeking declaratoryreliefmaybefiledbythecontractor.

If the surety undertakes to complete the contract to the contractor’s detri-ment,thecontractormayfileanactionincourtseekingreleaseofthecontractor’sindemnity obligations and damages from the surety for tortious interference with the contractor’s business relationship. By maintaining this aggressive posture, the contractor may obtain a time advantage and generate additional working capital thatwillallowthecontractortocompletetheworkoratleastfinancethelegalfight.

Ifthecontractor’sfinancialpositionisnotviable,thecontractor’swisercourse may be to choose to cooperate with the surety and the owner to minimize damages. The defaulted contractor has valuable negotiating leverage over the surety at this stage, including subcontractor relationships, supervisory personnel, learning curveexperience,factsrelevanttoprosecutingclaimsandoffenses,andjobsiteequipment. In general, the advantages of continuing with the defaulted contractor mayinducethesuretytofinancethecontractor’sultimatecompletion.Itmaybeinthe interest of the defaulted contractor to cooperate with the surety and the owner to minimizeanyexcessreprocurementcosts.Areasonablesuretyandcontractorshouldworktogetheratthisstageforeachother’sbenefitinlimitingultimateliabilities.

4. [7.195] Obligee’s Obligations and Rights

Just as the principal has obligations to perform, the obligee likewise must completeitsobligationstorecoverunderthebond.Forexample,undermostcon-

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struction performance bonds, the owner must satisfy certain obligations before the bondwillhaveeffect.Anowner’sfirstobligationistocomplywiththeconstructioncontract. In fact, under most performance bonds, the surety’s obligations only arise upon compliance with the contract by the owner. Under the AIA Performance Bond, the surety has no obligation if there is “owner default.” AIA Performance Bond, ¶3.Ownerdefaultisdefinedas:

A failure of the owner, which has neither been remedied nor waived, to pay the contractor as required by the construction contract, or to perform and complete or comply with the other terms thereof.

Id. at ¶ 12.4.

5. [7.196] Notice to the Surety

Asageneralruleundercommonlaw,anownerhasnoaffirmativedutyto give notice to the surety unless the performance bond so provides. American Surety Co. of New York v. United States, 317 F.2d 652 (8th Cir. 1963). In the event ofathreateneddefault,theownershouldcloselyexaminetheperformancebondandstrictlyadheretothespecificconditionstogivingnoticetothesurety.Noticemay be construed as a condition precedent to recovery under the bond.

Under the AIA Performance Bond, the owner is required to give notice to the contractor and to the surety that the owner is considering declaring the contractor in default. AIA Performance Bond, ¶ 3.1. This notice must request a conferencewiththecontractorandthesuretytobeheldnotlaterthanfifteendaysafter the receipt of the notice to discuss methods of performance. If at this meeting the owner, contractor, and surety agree, the contractor shall be allowed a reasonable timetocorrectthedeficiencyandperformtheconstructioncontract,butsuchanagreement shall not waive the owner’s right to declare a contractor in default. Id. If an agreement cannot be reached, or the contractor or the surety do not attend the conference or ignore the notice, the owner has a right to declare the contractor in default and formally terminate the contractor’s right to complete the contract. The owner must give written notice to the surety not earlier than twenty days after the contractor and the surety have received their prior notice of the owner’s intention to declare the contractor in default. Id. at ¶ 3.2. The surety’s obligation will not arise until the owner has actually declared the contractor in default and formally terminated the contractor’s right to complete the contract. Id.

Thefinalnoticeprovisionrequiresthattheownerpaythebalanceofthecontract price to the surety in accordance with the terms of the construction contract or to a contractor selected to perform the contract. Id. at ¶ 3.3. The responsibilities of the owner to the surety shall not be greater than those of the owner to the contractor under the construction contract. Id. at¶12.1.Itisonlywhentheownerhassatisfiedthese conditions precedent that the obligation of the surety under the performance bondcomesintoplayundertheexpresslanguageoftheAIAPerformanceBond.

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6. [7.197] Declaration of Default

The right to terminate performance under a contract or default a contractor generally arises when the contract has been breached or a party has failed to perform a material obligation. The rights and liabilities of the parties are controlled by the common law of contracts and by the terms of their contract that anticipated and provided for the termination of further performance upon default. At common law, a minor deviation in performance or failure to meet an objective that is not material to the contract would not be grounds to terminate for default. While such a deviation or failure in performance may give the non-breaching party corresponding rights todamages,itdoesnotrisetothelevelofsignificancethatwouldmeritacompletetermination of performance under the contract. The determination of the material nature of the breach depends upon the importance of the event or act to the purpose of the contract as a whole or to the basis for the agreement between the parties.

Unless the event of default is clear and unequivocal, the owner is placed in adifficultpositioninformallydeclaringadefaultandinterminatingthecontractor’sobligation to complete the work. Since the question of default is often disputed, the owner should make a written record detailing each instance of the contractor’s failure to perform and document not only the demand for corrective action but the inexcusablefailureofthecontractortocurethesedefectsinperformance.

Theprocessbecomesevenmoredifficultifthecontractorallegesthatitisnotresponsibleforthedefaultduetodifferingsiteconditions,changesinthework, defective design, non-payment, strikes, unusually severe weather, and other reasonsexcusingnon-performance.Theownerortheowner’srepresentativemustinvestigate and respond in writing to the contractor’s contention. This is ordinarily a time-consuming process. However, if the owner terminates the rights of perfor-mancebythecontractorfordefaultwithoutsufficientinvestigationandjustification,it risks releasing the contractor and the surety from all further obligations under the performance bond. In addition, the owner may be liable for the terminated contractor’scostoftermination,lostprofits,andevenlossofbusinessreputation.Gerstner Electric, Inc. v. American Ins. Co., 520 F.2d 790 (8th Cir. 1975).

The owner’s declaration of default is a drastic step that cannot be taken lightly. To reduce the potential liabilities from a wrongful default, the owner should insert a clause in the primary contract that, in such an event, the termination will be converted into one for convenience, which would limit contractor damages to costsofperformanceandtoprofitonworkdone.

7. [7.198] Surety’s Obligations and Rights

When default of a principal occurs or is eminent, a surety is entitled to some form of notice or demand and to a reasonable amount of time in which to evaluate the circumstances of the construction project to determine the scope of its responsibilities. However, lack of disclosure of a critical fact or nonfeasance

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byaprincipalcannotbeusedasanexcusebyasuretytoescapeliability.Integrity Insurance Co. v. Natural Resources and Environmental Protection Cabinet, 35 Ky. L. Summary 4, P. 1 (April 1, 1988), aff’d on other grounds, 759 S.W.2d 67 (Ky. 1988).

Oncetheownernotifiesthesuretythattheownerisconsideringdeclaringthe contractor in default, the surety must undertake an independent investigation of the contractor’sperformance andfinancial affairs. If the suretydecides thatthecontractorisnotindefault,thesuretyhasnoobligation;thebondisalwaysconditioneduponthecontractor’sperformance.TheonlyexceptionundertheAIAPerformance Bond is the requirement that the surety participate in conferences with the owner and the contractor. AIA Performance Bond, ¶ 3.1.

When the owner raises the question of default, the surety is placed in a dilemma. On the one hand, if the surety acts too hastily and undertakes the contrac-tor’s obligation before there is an admitted or declared event of default, the surety mayloseallrightstoindemnificationfromthecontractorandpossiblybesubjectto a suit for tortious interference with the contract. Seaboard Surety Co. v. Dale Construction Co., 230 F.2d 625 (1st Cir. 1956). On the other hand, if the surety elects to do nothing in the event of default, the surety runs the risks of incurring damages not limited to the penal amount of the bond. Continental Realty Corp. v. Andrew J. Crevolin Co., 380 F. Supp. 246 (S.D. W.Va. 1974). Moreover, a surety erroneously siding with the contractor becomes subject to the owner’s claims for breach of contract damages.

Once the surety decides that a default has occurred, it must make the economic decision of whether to pay the penal amount of the bond or the cost of completion. This requireslegalandtechnicalassistance,includinganexperiencedconstruction consultant and an accountant. When the cost of completion is likely toexceedthepenalamount,completionofthecontractor’sworkmayextendthesurety’s liability to the owner beyond the penal amount of the bond. Miracle Mile v. National Union Indemnity Co.,299F.2d780(7thCir.1962); Caron v. Andrew, 284 P.2d 544 (Cal. Ct. App. 1955).

If the surety elects to complete the contract work, the surety has the option to: (1) arrange for the contractor, with the consent of the owner, to perform and completetheconstructioncontract(AIAPerformanceBond,¶4.1);(2)choosetocomplete the construction contract itself, through its agents or through indepen-dent replacement contractors (Id. at¶4.2);(3)obtainbidsornegotiateaproposalfor qualified replacement contractors acceptable to the owner for performanceand completion of the construction contract (Id. at¶4.3);or(4)waiveitsrighttoperform and complete, determine the amount for which it should be liable to the owner, and tender that payment (Id. at ¶ 4.4).

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8. [7.199] Claims by the Obligee

In the situation described above, all of the parts have fallen neatly in place for the completion of the underlying obligation by the surety. However, in the real world,partiesoftenfindthattheycannotagreeonthefactsorthattherearetoomany remaining issues to overcome for voluntary cooperation.

A review of the construction performance bond situation remains helpful toexaminetheoptionsavailabletotheobligee.Intheeventthatthesuretydoesnot complete the project or denies liability, the owner may bring a claim against it under the bond. The AIA Performance Bond provides that the proceeding must be brought in any court of competent jurisdiction in a location in which the work or part of the work is located. The time limitation for institution of such an action is within two years after the contractor default, within two years after the contractor ceased working, or within two years after the surety refuses or fails to perform its obligationunderthebond,whicheveroccursfirst.Id. at ¶ 9.

This time limitation is the limitation for suits under private bonds. Under bondsprovidedonfederaljobs,thereisnoexpressrightoractiononaperformancebond and no discussion of the proper limitation period. The Kentucky Model Pro-curement Code provides that an action against the surety on a performance bond shall be brought within one year after completion of the contract, including the expirationofallwarrantiesandguaranties,orwithinoneyearafterdiscoveryofthe breach of warranty.

9. [7.200] Surety’s Defenses

A frequent defense of the surety to a claim on the performance bond is that the owner and general contractor have varied the terms of the construction agreement without the surety’s consent, thereby discharging the surety from liability. Most bonds, however, require the surety to be bound to perform both basic contract work and change order work, without notice. However, if an owner dramatically alters the scope of work in a contract so as to take the new work beyond the limits ofexpertiseorfinancialcapabilityofthecontractorandthisoccurswithouttheprior approval of the surety, the surety may be able to avoid its performance respon-sibilities altogether under the “cardinal change” doctrine. This is an old common law rule, and it has generally been enforced in Kentucky.

Nonetheless, the AIA Performance Bond seeks to modify the sometime harsheffectofthisrulebyrequiringthesuretytowaivenoticeonanychangestotheconstruction contract. Id. at¶8.However,thisprovisiongenerallyhasafinanciallimitation on the change orders. Performance bonds drafted by other parties may not include this waiver language. Therefore, it is very important to review the language of a particular agreement in order to determine what defenses a surety may have.

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a. [7.201] Overpayment by the Owner

Overpayment by the owner has traditionally been a defense available to a surety in a case in which the surety needs to step in to complete a project. The rationale for the defense is that the surety is entitled to all remaining unpaid con-tract amounts if it arranges to have the work completed. If the owner has overpaid the contractor, the amounts remaining to be paid have been diminished, and the amount available to the surety to satisfy its obligation under the contract of surety has been impaired. A detailed analysis of the percentage of work performed, and paymentsmadeinexcessofsuchpercentagewillbecriticalinthatcase.Gibbs v. Hartford Accident and Indemnity Co., 62 So. 2d 599 (Fla. 1952).

b. [7.202] Delay or Acceleration by the Owner

If the owner delays or accelerates performance of the contract work, ordelayspaymentstothecontractorwithoutcause,suchactionhastheeffectofreleasing the surety from its obligations. The test is whether such delay or acceler-ation would be a “material” variation in the construction contract. If the change is “material” the surety need not demonstrate that it has been prejudiced by the change.

c. [7.203] Lack of Notice

Extensionsof the timeforperformancecan impair thesurety’s rights.Unlessthesuretyreceivesnoticeofsuchanextensionandagreestoit,thistypeofchange could be a “material variation” that would discharge the surety. However, under the AIA Performance Bond the surety waives notice of these kinds of changes, and therefore, its ability to claim discharge is eliminated.

A material adjustment of the contract sum without the surety’s knowledge can discharge the surety. The key issue will be the language of the governing per-formance bond. If the AIA Performance Bond is used, the surety waives notice for such changes and will probably not be able to demand discharge.

d. [7.204] Defense of Discharge

One defense of the surety is that the general contractor has discharged its obligation under the contract. Obviously, the surety will not be liable to complete performance if performance has been completed pursuant to the contract. Issues concerning whether a project has been completed are most likely to arise in com-plexjobs,particularlywheretheremayhavebeenanumberofchangeordersormid-streammodifications.

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e. [7.205] Untimely Claim

The performance bond sets requirements concerning notice and the initi-ation of legal action. In the event that those provisions are not followed, the surety will normally not be liable on the performance bond.

10. [7.206] Claims by the Surety

If there are successful claims against the surety, there will be claims made by the surety against its principal. These claims will be based upon the indemnity agreement previously discussed.

a. [7.207] Claims Against the Contractor

The primary claim by the surety against the contractor will be a claim underitscontractforanyamountthatithadtoexpendbyreasonofthecontractor’sbreach.Intheperformancebondsetting,thesurety’sexpenseofitsownfunds,lessany remaining unpaid contract funds received from the owner, is properly charged againsttheprincipal.Collectingthesesumsmaybedifficultbecausethecontractoroftendefaultsduetofinancialproblems.

Inordertoprotectitselfintheeventacontractorhasfinancialdifficulty,suretiesoftenseekpersonalguaranteesfromprincipaldirectorsandofficersofthecontractor. There may also be a possibility for claims against those individuals in order to satisfy the contractor’s obligation to the surety.

b. [7.208] Claims Against the Owner

Because the surety steps into the shoes of its principal, it can make the sameclaimsagainsttheownerthatthecontractorcouldhavemade.Forexample,if a surety steps in and takes over a job under the performance bond and attempts tocompletethecontractbutfindscompletionbarredormademuchmoreexpensivebecauseofinadequateplansandspecificationsprovidedbytheowner,asuretymayhaveaclaimagainsttheowneriftheinadequacyofthoseplansandspecificationsleads to increased costs in performing the contract. The surety may also have the ability to sue the owner for breach of contract in the event that the owner does not pay contract amounts to the surety.

However, in Reliance Insurance Company v. Commonwealth of Kentucky, 576 S.W.2d 231 (Ky. Ct. App. 1979), a principal defaulted on an interstate highway project. The surety completed the work and sought to recover certain funds being held by the state that had been earned by the principal prior to its default. The surety’s right to these funds was contested by the Kentucky Department of Revenue and the Kentucky Division of Unemployment Insurance, which had claims against the fundsforunpaidstatetaxesandunemploymentinsurance.Unpaidmaterialsuppli-erswhohadfiledstatutoryliensalsohadclaimsagainstthefunds–asdidaunion

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pensiontrust,forunpaidunionfringebenefits.TheKentuckyCourtofAppealsheld that the surety’s interest in the contract funds was subordinate to the claim of perfectedliencreditors,statutorygovernmentaltaxandinsuranceauthorities,andtheemployeefringebenefittrusts.Justastheprincipalwouldhavelostitsrighttopayment of these funds, so too did the surety have to fall back in line behind the creditors with superior statutory rights.

c. [7.209] Claims Against the Design Professional

A surety may have claims against the design professional. In State for the Use of National Surety Corporation v. Malvaney, 72 So. 2d 424 (Miss. 1954), a surety sued the project architect after the architect released retained contract funds withoutfirst requesting the contractor to submit satisfactory evidence that thecontractor had paid for labor and materials related to the job. The court held that the architect undertook the performance of an act which, if negligently performed, would result in loss to the surety and as a result the law imposed upon the architect thedutytoexerciseduecaretoavoidtheloss.See also Hall v. Union Indemnity Co., 61F.2d85(8thCir.1932);Peerless Insurance Co. v. Cerny and Associates, Inc., 199 F.Supp.951(D.Minn.1961);Westerhold v. Carroll, 419 S.W.2d 73 (Mo. 1967).

The design professional may also be liable to the surety for negligent su-pervision. Typically, when the contractor defaults the owner calls upon the surety to complete the project. Improperly performed work must also be removed and redone. In Aetna Insurance Company v. Hellmuth, Obata & Rassabaum, Inc., 392 F.2d 472 (8th Cir. 1968), the court held the architect liable for the surety’s losses occasioned by removing and repouring a concrete retaining wall which bulged because of improper prior work and which could have been prevented by a proper inspection.

In Peerless Insurance Co. v. Cerny and Associates, Inc., 199 F. Supp. 951 (D.Minn.1961),asuretysuedtheprojectarchitectfornegligentcertificationofadefaulted contractor’s progress estimates. The court found that the surety company was subrogated to the owner’s rights against the architect for losses which were caused by the architect’s failure to properly certify progress estimates. See also Fox v. Stanley J. How & Assoc., Inc., 309N.W.2d520(IowaCt.App.1981); Klein v. Catalona, 386Mass.701,437N.E.2d514(Mass.1982);Inman v. Binghamton Housing Authority, 3 N.Y.2d 137, 143 N.E.2d 895 (N.Y. 1957).

G. [7.210] Payment Bonds

A contractor performing public construction work under the provisions of the Kentucky Model Procurement Act is required to furnish a bond to ensure payment to those persons supplying labor and material to the project. KRS 45A.190. Similarly, the federal government, under the provisions of the Miller Act, requires a payment bond to be furnished. 40 USC § 270(a). On private construction projects, payment bonds are also now frequently required.

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The terms of payment bonds on private projects vary widely. The claimant (obligee)mustexaminethebonditselftodeterminethescopeofitsrights.Althoughthetermsofthebondsmaydiffer,virtuallyallofthemcontainadefinitionoftheclaimants or the classes of claimants who have standing to make a claim under the bond, notice requirements, and time limitations for bringing a lawsuit to enforce a claim under the bond. Payment bonds also specify the jurisdiction in which suit may be brought.

1. [7.211] Parties Protected by Payment Bonds

The surety becomes the guarantor of payment to subcontractors and material suppliers through a payment bond. Most payment bond forms contain some language establishing a contractual link, direct or indirect, between the bond principalandtheclaimant.Partiesarefreetonegotiatetheextentofprotectionprovided by the bond. Because of the lack of uniformity in the terms of private construction payment bonds, an unpaid subcontractor or material supplier should obtain a copy of the payment bond in order to competently assert a claim.

Payment bonds typically protect all persons who provide labor, furnish materials and machinery, or render services in the prosecution of the work. A few examplesfromKentuckycasesmaybehelpfultoillustratetheroleandstatusofthe surety in payment bond situations.

In American Radiator and Standard Sanitary Corporation v. Albany Municipal Housing Commission, 441 S.W.2d 433 (Ky. 1969), the Kentucky Court of Appeals (then the state’s highest court) held that recovery may be had on a payment bond of a contractor for labor and materials furnished to a subcontractor unlessthewordingofthebondspecificallyindicatesotherwise.IntheAmerican Radiator case, various subcontractors did not assert their lien rights on a public project, and the surety took the position that it was not obligated to subcontractors and material suppliers beyond their statutory lien rights. The court held otherwise becausethelanguageofthebondindicatedthatitwasintendedtoaffordprotectionto all persons doing work or furnishing skills, tools, machinery, or materials under or for the purpose of the contract. The American Radiator court also relied upon the long-standing principle that:

[Such bonds] will be construed most strongly against a compen-satedsuretyandinfavoroftheobligeesorbeneficiariesunderthebond,suchasthelaborersandmaterialmenforwhosebenefititwasostensiblyexecuted.

The court determined that the laborers and material suppliers involved were third-partybeneficiariesofthebondcontract.

In United States Fidelity and Guaranty Company v. Miller, 549 S.W.2d 316 (Ky. Ct. App. 1977), a surety avoided liability to a material supplier under somewhat more complicated circumstances. A lumber supply company provided

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lumber to a bridge construction contractor on several unbonded projects and on general credit. Lumber was salvaged from the unbonded projects, returned to the contractor’s yard, presumably intermingled with the lumber sold on general cred-it, and eventually used on a series of additional projects, including two bonded projects. When the supply company was not paid for this lumber, it brought suit against the surety. While stating that the rights of a material supplier under a pay-ment bond are not limited to the material supplier’s rights under the mechanic’s lien law, the court analogized the case to the mechanic’s lien law and used lien law interpretation as a guide in interpreting the surety’s rights on the bonded projects. The court held that lumber, which was furnished to the bridge contractor prior to executionofthebondedcontracts,usedonunrelatedprojects,andlatersalvagedby the contractor, was not furnished for use on the bonded projects and that it was not supplied to the contractor in the prosecution of the bonded work. Accordingly, thelumbercompanywasaffordednorightofrecoveryagainstthepaymentbond.

The payment bond most frequently used on private projects, and on many state and local public works, is the American Institute of Architects’ Document A312(1987Edition),whichdefinesaclaimantasfollows:

An individual entity having a direct contract with the contractor or with a subcontractor of the contractor to furnish labor, ma-terials or equipment for use in the performance of the contract. The intent of this bond shall be to include without limitation in the terms “labor, materials or equipment” that part of water, gas, power, light, heat, oil, gasoline, telephone service or rental equipment used in the construction contract, architectural and engineering services required for performance of the work of the contractor and the contractor’s subcontractors, and all other items for which a mechanics’ lien may be asserted in the jurisdiction where the labor, materials, or equipment were furnished.

AIA Payment Bond, ¶ 15.1.

Thisdefinitionismuchmorespecificthanthatcontainedintheearliereditions of the AIA standard form. Remote subcontractors not having a direct contract with the contractor or with a subcontractor of the contractor may not claim under the bond.

2. [7.212] Scope of Bond Coverage

Afterdeterminingwhoisprotectedbyapaymentbond,thenextquestioniswhatworkiscoveredbythebond.Thetermsofthebondmayormaynotdefinetheitemsofmaterial,labor,orequipmentforwhichcoverageisafforded.Forexample,theAIAPaymentBonddefines“labor,materialsorequipment”andreliesuponlocallien laws for a description of the type of work covered by the bond. Id. at ¶ 15.1.

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Asageneralrule,intheabsenceofsuchanexpressdefinition,anydirectexpenserequiredfor,orinconnectionwith,theperformanceoftheworkunderthecontract will be within the bond coverage. This includes not only work incorporated intheprojectbutalso:(1)workdoneforthebenefitoftheproject;(2)materialsdeliveredingoodfaithtothejobsite(eveniflaterremovedorusedelsewhere);(3)materials used or consumed in performance of the contract or earmarked solely for thejob;and(4)laborperformedoff-siteinfabricatingmaterialsbeingfurnishedpursuanttocontractspecifications.Combs v. Jackson, 72 N.W. 565 (Minn. 1897). Rental equipment used to perform the contract work is generally covered, but the rental rates must be substantiated and an allowance must be made for reasonable wearandtear.TheAIAPaymentBondexpresslycontemplatescoverageforleasedequipment. AIA Payment Bond, ¶ 15.1.

Despite some liberal decisions, courts continue to require some direct involvementwith, and benefit to, the project.Thus, insurance premiums forspecificcoveragesrequiredbycontractorlawinconnectionwiththeprojectareusually covered. Mutual Liability Insurance Co. v. Southern Surety Co., 200 N.W. 70 (Wis. 1924). However, bank loans are not covered even if the funds are used to pay project costs. In Wasatch Bank of Pleasant Cove v. Surety Insurance Com-pany of California, 703 P.2d 298 (Utah 1985), a bank which had made loans to a subcontractor that the subcontractor used to pay for materials and labor could not recover on the contractor’s payment bond. The court held that the bond’s protection extendedonlytocontractsforprovidinglaborandmaterialsandnottolenderswhoprovided funds to purchase them.

The question of whether delay damages or damages for breach of contract are recoverable froma suretyunder apaymentbondhasnot beendefinitivelyresolved by the courts. Traditionally, delay damage claims have been prohibited against payment bonds. However, some courts have allowed the recovery of delay damagesunderaquantummeruit(theamountonedeserves)theoryfortheextrawork performed as a consequence of delays to the project when there was a will-ful breach of contract. Continental Casualty Co. v. Schaefer, 173 F.2d 5 (9th Cir. 1949). Despite the division of authority on this issue, it would appear that delay damages are a proper element of a payment bond claimant’s damages because such damagesaremerelytheincreasedcostsoflabor,materials,andindirectexpensesincurred in the performance of the work as a result of the delay. Herman Martin Braude, The Surety’s Liability Under The Miller Act For “Delay Damages,” 36 Fed.Cir.B.J. 86 (1977).

3. [7.213] Notice and Suit Requirements

Most payment bonds contain strict claim notice and suit requirements that are conditions precedent to the surety’s liability on the bond. A claimant who fails to comply with such requirements will lose the right to assert a claim under the bond and will give the surety a defense to its claim. Since notice and suit

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requirements vary with the terms of a particular bond, claimants should always review the terms of the bond.

Under the AIA Payment Bond, if the claimant has a direct contract with the contractor under the bond, he must give notice of the claim to both the owner and the surety. AIA Payment Bond, ¶ 4.1. If the claimant does not have a direct contract withthecontractor,thenoticerequirementsareverycomplex.Theclaimantmust:

a. give notice of the claim to the contractor and to the owner within 90 days after the last item of work for which the claimismadewasperformed;

b. give the contractor 30 days in which to respond to the claim;and

c. if the contractor rejects the claim or does not respond with-in the 30 days, give written notice of the claim to the surety and to the owner stating that a claim is being made under the bond and enclosing a copy of the previous written no-tice furnished to the contractor.

Id. at ¶ 4.2.

The AIA Payment Bond provides that suit must be brought on the bond no later than one year after the earliest of the date of notice of claim or the date the last labor or service was performed or equipment was delivered by anyone under the construction contract. Id. at ¶ 11. The bond also provides that, if the time periods for bringing suit that are stated in the bond are void or prohibited by law, the minimum period for bringing suit against a surety on the bond in the jurisdiction where the lawsuit is brought shall apply and govern. Id. Suitmaybefiledineitherastateorfederal court and must be in the jurisdiction in which the work was performed. Id.

A more thorough discussion of time limitations follows in Section [7.214] immediately below.

H. [7.214] Statute of Limitations for Surety Bonds

To recover from a surety under a performance or payment bond, a claimant must bring suit within the proper time period. Satisfaction of the applicable statute of limitation is a prerequisite for recovery under a surety bond. All bonds contain a claim period, which will vary with each bond. The terms of the bond will control the claimant’s course of action for recovery. The time period for suit on the bond is typically shorter than the statute of limitations for a breach of contract claim.

Under the federal Miller Act, a claim by a subcontractor or materialman mustbefiledagainsta suretywithinoneyear from thedateonwhich the lastlabor was provided or the last material supplied to the project. 40 USC § 270(b). The Miller Act is the federal statute that requires federal contractors to provide

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payment and performance bonds for their projects. U.S. v. International Fidelity Ins. Co., 200 F.3d 456 (6th Cir. 2000). Filing suit within the limitation period is a condition precedent to recovery from the contractor’s surety under the payment bond. If the claim is not brought against the surety within the one-year time period, the surety is released from all liability under the bond. 4-Star Const. Corp. v. U.S., 6Cl.Ct.271(Cl.Ct.1984).Theclaimanthasoneyeartofilesuitbutmustwaituntil ninety days from the last time labor was provided or material was furnished. Iftheclaimantisnotpaidwithinthisninety-dayperiod,suitmaybefiledagainstthesurety.Suitfiledpriortotheconclusionofthisninety-dayperiodispremature.Marmet Corp. v. Frank Briscoe Co.,382F.2d906(6thCir.1967).Ifsuitisfiledbeforetheninety-dayperiodexpiresandthedismissalisnotgivenbythecourtwithin the one-year period, the court has two choices. The court may either bar the claim against the surety as falling outside the claim period under the Miller Actorallowthefilingofanamendedcomplainttorelatebacktothetimeofthefilingoftheoriginalpleading.U.S. v. CJ Electric Contractors, Inc., 535 F.2d 1326 (1st Cir. 1976).

One major question that arises regarding the Miller Act time limitation is whether the work performed or material furnished was part of the original contract or done after inspection to correct mistakes or shortcomings of the project. U.S. ex rel. Magna Masonry, Inc. v. R.T. Woodfield, Inc., 709 F.2d 249, 251 (4th Cir. 1983) (citing U.S. ex rel. Noland v. Andrews, 406 F.2d 790, 792 (4th Cir. 1969) (itself citing U.S. ex rel. Austin v. Western Electric Co., 337 F.2d 568, 572-573 (9th Cir. 1964))). The major factors to weigh in this determination are the value of the materials,theoriginalcontractspecifications,theunexpectednatureofthework,and the importance of the materials in the project. U.S. ex rel. Georgia Electric Supply Co. v. U.S. Fidelity & Guaranty Co., 656 F.2d 993, 996 (5th Cir. 1981). If the work or material is determined to be for correcting or repairing the project, the one-year limitation period for bringing a claim against the surety is not tolled. U.S. ex rel. Automatic Elevator Co. v. Lori Construction, 912 F. Supp. 398, 400 (N.D. Ill. 1996).

Regarding private projects, parties may freely negotiate any limitation period for claims they wish to impose. Krugman and Fox Const. Corp. v. Elite Associates, Inc., 562 N.Y.S.2d 188 (N.Y. App. Div. 1990). Each party must read thetermsofthebondcarefullytobeawareoftherequirementsforfilingsuitunderthebondbecausethetimeperiodmaybedifferentfromthestatuteoflimitationsregardingclaimsagainstsuretiesandbreachofcontractclaims.Forexample,thetime in which a suit may be brought can be limited by a term in the contract when there is no prohibitory statute. The state is bound by this contractual limitation even though not bound by the statute of limitation. State v. Evans, 334 S.W.2d 337 (Tenn. Ct. App. 1959).

Astatestatuteoflimitationgoverningaspecifictypeofbondmayalsoset the limitation period. In some jurisdictions the time limitation is not dictated by a statute of limitation but rather by a statute of repose. In the case of a statute of

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repose, it does not matter when the claimant’s right of action accrues. The action mustbebroughtafterthehappeningofaspecificeventwithinasettimeperiod.Tipton and Young Const. Co., Inc. v. Blue Ridge Structure Co., 446 S.E.2d 603 (N.C. Ct. App. 1994).

Kentuckyprovidesanexampleoftheabilityofpartiestonegotiateatimelimitation for action under a bond that is shorter than the time period set in a stat-ute. In Kentucky, an action upon recognizance, bond, or written contract shall be commencedwithinfifteenyearsafterthecauseofactionaccrued.KRS413.090(2).In absence of a federal statute, this statute of limitation for a bond claim controls. Steffen v. U.S., 213 F.2d 266 (6th Cir. 1954). However, a contract term limiting the time period for a claim that is negotiated between the parties of a project is valid if it is negotiated at arm’s length and if it sets a reasonable time period. Prewitt v. Supreme Council,194S.W.2d633(Ky.1946);Green v. John Hancock Mut. Life Ins. Co., 601 S.W.2d 612 (Ky. Ct. App. 1980).

KRS413.220and413.230makeexceptionstothefifteen-yearlimitationforspecifictypesofsureties.Suretiesofanyobligationorcontractaredischargedfrom all liability after seven years from the point of accrual of the cause of action if there has been no suit against the surety. KRS 413.220. Sureties are discharged fromliabilityafterfiveyearsfromthedatethecauseofactionaccruediftherehasbeennosuitandifthesuretyisforanexecutor,administrator,guardian,curator,orsherifftowhomadecedent’sestatewastransferred.KRS413.230.

The principal on a payment bond does not need to be in default for the limitation period to begin to run when the subcontractors have an additional remedy on public projects under the “Little Miller Acts,” the state versions of the Miller Act. The point of accrual under the Little Miller Acts, like the Miller Act, is the last date thatlaborormaterialisfurnishedtotheproject.Administrativeandoff-siteworkdoes not delay the accrual of the time limitation. In re Monks Const. Co. v. Aetna Casualty and Surety Co., 944 P.2d 517 (Ariz. Ct. App. 1997). The limitation period on a private project is governed by the terms of the bond. Accrual is triggered by the occurrence of some event, such as the completion of a project or notice of the contractor’s default to the surety. Fayetteville Investors v. Commercial Builders, Inc., 936 F.2d 1462 (4th Cir. 1991).

The actions or representations of a surety can toll the statute of limitation or the time period stated in the terms of the bond. The actions or representations of the surety do not have to be fraudulent or deceptive to estop it from raising the affirmativedefenseoftheexpirationofthestatuteoflimitations.U.S. ex rel. Ber-nard Lumber Co., Inc. v. Lanier-Gervais, Corp., 896 F.2d 162 (5th Cir. 1990). The appearance that the surety is taking an active role in resolving the claim against the contractor is enough to toll the statute of limitations. U.S. v. Fidelity and Gas Co. of New York,402F.2d893(4thCir.1968).Justifiablereliancebyaclaimantonthesurety’srepresentationsorconductwillexcuseanuntimelyfilingofaclaimagainst the surety. U.S. For the Use of Nelson v. Reliance Ins. Co., 436 F.2d 1366 (10th Cir. 1971).

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I. [7.215] EffectofPrincipal’sBankruptcyontheParties

In many situations, the reality of the principal’s failure to perform is an indicationofitsoveralllackoffinancialhealth.Itisnotunusualtofindthat,astheprincipal is failing to meet its contractual or performance obligations to one party, itisdoingsoacrosstheboard.Inthesecases,bankruptcyisoftenthenextlogicalstep for the principal. Once the protection of the bankruptcy court is sought and achieved, the rights of the parties seeking to force the principal into action, or to recover funds due and owing to the principal, are changed dramatically.

Bankruptcy law is primarily intended to protect the debtor and to allow the debtor to reorganize into a viable business entity. Bankruptcy law also attempts to fairly distribute the debtor’s assets to its creditors. However, in a surety contract the rights and relationships between the parties are governed by the terms set forth inthecontract.Therefore,whentheprincipaltothebondfilesforChapter11bank-ruptcy (reorganization), there is often tension between the bankruptcy system, the terms of the contract, and the rights of the owner and the surety.

Forexample,manyconstructioncontractsstipulatethatifacontractorfilesforbankruptcythecontractisterminated.However,§362(a)oftheBank-ruptcyCode(“Code”)providesanautomaticstayofallcollectioneffortsagainstthepropertyofthedebtor’sestate.11USC§362(a).TheCodedefines“propertyof the estate” broadly, and consequently, even the contract between the contractor and the owner is the property of the contractor’s estate. 11 USC § 541. Therefore, any provision that terminates the contract upon the contractor’s bankruptcy is unenforceable as a matter of law.

Ifthecontractwasterminatedpriortothecontractorfilingforbankruptcy,the termination is valid, and the owner has a right to demand performance from the surety under the performance bond. See Moody v. Amoco Oil Co., 734 F.2d 1200, 1212 (7th Cir. 1984). If the owner or the surety attempts to terminate the contract afterthecontractorfilesforbankruptcy,anysuchattemptwillviolatetheautomaticstay. In re Computer Communications, Inc., 824 F.2d 725, 728 (9th Cir. 1987). Even if the principal admits default or waives the right to an automatic stay, in order for the owner or surety to be able to terminate the contract, they must request relief from the stay from the court. In re Edwards Mobile Home Sales, Inc., 119 B.R. 857, 860 (Bankr. M.D. Fla. 1990).

Thecontractor’sdefaultinperformancepriortofilingforbankruptcyisnot an automatic termination of the contract. In re Beeche Systems Corp., 164 B.R. 12, 16 (Bankr. N.D.N.Y. 1994). Generally, pursuant to the terms of the construc-tion contract, a contractor is permitted a period of time to cure the default in his performance. Consequently, if the cure period has not run before the bankruptcy petitionisfiled,theownerandthesuretycannotterminatethecontract,andthecontractor maintains the right under the Code to either assume or reject the contract. In deciding whether the court will allow the debtor to assume or reject the contract, the majority rule (the “business judgment test”), allows the debtor-in-possession to

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determinewhetherthecontractwillbeprofitable.In re Huff, 81 B.R. 531, 537-538 (Bankr. D. Minn. 1988).

Whenacontractorfilesforbankruptcy,thereisusuallyacontractbalancestill held by the owner. Naturally, the owner often feels that it should be able to hold this balance in order to fund completion of the project. However, there will be many other entities competing for this balance, including the contractor/debtor. Theownercanassertseveraldifferentargumentsregardingitsrightstothecon-tractbalance.First,theownermayarguethatithastherightofoffset.See 11 USC §553;In re Midwest Service and Supply Co., Inc., 44 B.R. 262 (Bankr. D. Utah 1983). Second, the owner may argue that the balance was not fully earned under the terms of the contract. In re Pacific Marine Dredging and Constr., 79 B.R. 924, 929 (Bankr. D. Or. 1987). Third, the owner or the surety may argue that the balance is not property of the estate since the contract has not been completed. See Pearlman v. Reliance Ins. Co.,371U.S.132(1962).However,manycourtsdefine“propertyof the estate” broadly to include contract balances.

Because the “automatic stay” provision protects the contractor from termi-nation of the contract and allows it the opportunity to reject or assume the contract, thesuretywillalsofindthatanyactionitwantstotakeagainstthecontractorwillviolatetheautomaticstay.Consequently,thesuretycannot,forexample,takeovercompletion of the project or demand a default letter from the principal without firstbeinggrantedrelieffromtheautomaticstayimposedbytheCode.Duringthis period the surety is in a precarious position, balancing between violating the automatic stay and wanting to obtain information regarding the contractor’s default. Fortunately, Rule 2004 of the Federal Rules of Bankruptcy Procedure provides for thetakingofan“examination”ofthecontractor/debtor.Thisservesasanavenueforthe surety to obtain information from the principal without violating the automatic stayprovision.Usingthisexamination,thesuretycanquestionthedebtoraboutbonded job performance, subrogation issues, and other matters.

Although the automatic stay protects the contractor/debtor from a claim by third parties against property of the estate, the same is not true for a claim against the debtor’s surety. Courts generally do not consider surety bonds to be property ofthedebtor’sestatebecausethebondsarenotforthebenefitofthecontractor/debtor but are for the protection of the owner and any subcontractors covered by the bond. Lynch v. Johns-Mansville Sales Corp., 710 F.2d 1194, 1196-1197 (6th Cir. 1983). Therefore, a third party is usually entitled to bring a claim against the suretywithoutviolatingtheautomaticstay.Forexample,asubcontractorcouldbring a claim under a payment bond even though the named principal to the bond, thecontractor/debtor,hasfiledforbankruptcy.Itshouldbenotedthatbecausetheautomatic stay does not implicate actions against the surety, the notice and limita-tion periods for asserting these claims are not tolled by the contractor’s bankruptcy filing.Cumberland Metals, Inc. v. Kentucky Insurance Guarantee Assoc., 801 S.W.2d 339 (Ky. Ct. App. 1990).

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Therearesomelimitedexceptionstothisgeneralruleofexposingthesurety to third-party claims under the payment bond. A minority of courts have expandedtheautomaticstaytoprotectnon-debtorco-defendants.See A.H. Robbins Co., Inc. v. Piccinin, 788 F.2d 994 (4th Cir. 1986). In addition, bankruptcy courts have a general equitable power under § 105 of the Code to stay any suits against thebond.ThisbroadpowerwasaffirmedbytheUnitedStatesSupremeCourtinCelotex Corp. v. Edwards, 514 U.S. 300 (1995).

Finally, if thesurety isseeking injunctive relief inaneffort toprotectitself, it is important to note that bankruptcy courts use the traditional standards to determine whether to grant an injunction, such as: (1) whether the movant will likelysucceedon themerits; (2)whetherwithout the injunction theestatewillsufferirreparableinjury;(3)whetherthisinjurytothemovantwilloutweightheinjurytorespondentiftheinjunctionisnotgranted;and(4)whethertheinjunctionwill further public interest. In re Otero Mills, Inc., 21 B.R. 777, 778-779 (Bankr. D. N.M.1982), aff’d, 25 B.R. 1018 (Bankr. D. N.M. 1982). However, courts are often reluctant to grant an injunction of suits against the surety. In most cases, a surety is not protected from claims against the payment bond.

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III. [7.216] Appendix

A. [7.217] Sample Notice of Intent to Assert Lien

VIA REGULAR MAIL AND CERTIFIED MAIL [DATE]

Mr. Steve Contractor Agent of Seminar Builders, Inc. 333 Seminar Drive Lexington,Kentucky40515

Mr. Robert & Mary Homeowner 111 Lien Street Lexington,Kentucky40533

RE: Account balance due and owing to Subcontractor’s Painting, Inc.

This letter is to advise you that I, Mr. Terry Subcontractor, owner of Subcontractor’s Painting, Inc., provided materials and labor to Seminar Builders, Inc., for the erection or construction of a structure owned by Mr. Robert Home-owner,locatedat111LienStreet,inLexington,FayetteCounty,Kentucky.Asofthe date of this letter, the account balance due and owing to my company for this projecttotals$9,578.07.Thisamounthasalreadybeenreducedbyanycreditsforpayments received.

PursuanttoKRSChapter376,mycompanyhastherighttofileamechan-ic’s lien on any property for which it provides labor or materials when payment is not made for the labor or materials. This letter serves as notice to you that Subcon-tractor’s Painting, Inc. intends to file a mechanic’s lien on the property located at 111 Lien Street, in Lexington, Fayette County, Kentucky, if payment in full is not received by the close of business on June 15, 20 .

If you have any questions concerning this matter, please contact me at (859) 123-1111.

Very truly yours,

________________________________ Terry Subcontractor,

President of Subcontractor’s Painting, Inc.

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B. [7.218] Sample Statement of Lien (Private Property)

MECHANIC’S AND MATERIALMEN’S LIEN

COMMONWEALTH OF KENTUCKY

COUNTY OF FAYETTE

Comes Terry Subcontractor, as owner and process agent for Subcontrac-tors’Painting, Inc.,555Painter’sDrive,Lexington,Kentucky,FayetteCounty,Kentucky and states that there is due to Subcontractor’s Painting, Inc., the prin-cipalsumof$9,578.07,togetherwithinterestandservicechargesasprovidedbylaw, and costs, for materials furnished on account and by contract with Mr. Steve Contractor, agent and President of Seminar Builders, Inc. The owner of the real estate on which these materials were furnished is Robert and Mary Homeowner, HusbandandWife,111LienStreet,Lexington,Kentucky40533.Therearenocreditsnorset-offsknowntoAffiant,TerrySubcontractor.

This lien is being asserted because the hereinafter described property was improved by way of furnishing said materials for the construction and improvement ofabuilding.TherealestateagainstwhichAffiantassertsalienislocatedat111 Lien Street, Lexington, Fayette County, Kentucky 40533 as is more particularly described as follows, to-wit:

Being all of Lot 299, Unit 12 of the Pleasant Place Subdivision totheCityofLexington,FayetteCounty,Kentucky,asshownby map or plat thereof of record in Plat Cabinet P, Slide 45 in theOfficeoftheFayetteCountyCourtClerk;theimprovementsthereonbeingknownanddesignatedas111LienStreet,Lexing-ton,Kentucky;and

Being the same property conveyed to Robert and Mary Home-owner, husband and wife, by deed of Jack Retire, dated November 23, 1998 and recorded in Deed Book 2017, at Page 159, in the FayetteCountyClerk’sOffice.

Subcontractors’ Painting, Inc. furnished materials and labor by contract. The last day Subcontractors’ Painting, Inc. furnished said labor and materials was May 28, 2018. In order for Subcontractors’ Painting, Inc., to secure the payment ofthesumof$9,578.07,withinterest,servicecharges,costs,andattorneys’fees,itherebyfilesthisstatementasrequiredbylawasnoticeofthelienithasuponallthe right, title, and interest of the owner, Robert and Mary Homeowner, in and to the above-described real estate and all improvements thereon.

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________________________________ Terry Subcontractor

Subcontractors’ Painting, Inc. 555 Painter’s Drive

Lexington,Kentucky40507 (859) 123-1111

STATE OF KENTUCKY ) ) SS COUNTY OF JEFFERSON )

Subscribed, sworn to and acknowledged before me by Terry Subcontractor, this _______ day of ____________, 20___.

MyCommissionExpires:____________________________________________



________________________________ Terry Subcontractor Subcontractors’ Painting, Inc. 555 Painter’s Drive Lexington,Kentucky40507 (859) 123-1111

RETURN TO PREPARER

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C. [7.219] Sample Release of Lien

RELEASE OF MECHANIC’S LIEN

Subcontractors’ Painting, Inc., does hereby fully release and discharge thatcertainmechanic’s lien statementfiledagainst the realpropertyownedbyRobert and Mary Homeowner, husband and wife, and recorded in Mechanic’s Lien Book18,Page654,oftheFayetteCountyClerk’soffice,andherebyauthorizestheClerk of Fayette County to place this release of record. In witness whereof, Terry Subcontractor,PresidentofSubcontractor’sPainting,Inc.,hasexecutedthisReleaseof Mechanic’s Lien on this _______ day of ____________, 20___.










RETURN TO PREPARER

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D. [7.220] Sample Statement of Lien for Public Improvement

MECHANIC’S AND MATERIALMEN’S LIEN ON UNPAID FUNDS FOR PUBLIC IMPROVEMENT

STATE OF KENTUCKY ) ) COUNTY OF JEFFERSON )

Comes Terry Subcontractor, as owner and process agent for Subcontrac-tors’Painting, Inc.,555Painter’sDrive,Lexington,Kentucky,FayetteCounty,Kentucky and states that there is due to Subcontractor’s Painting, Inc., the principal sumof$9,578.07,togetherwithinterestandservicechargesasprovidedbylaw,andcosts, for materials furnished on account and by contract with Mr. Steve Contractor, agent and President of Seminar Builders, Inc. The owner of the real estate on which these materials were furnished is Sample University and the Commonwealth of Kentucky.Therearenocreditsnorset-offsknowntoAffiant,TerrySubcontractor.

This lien is being asserted on the unpaid funds under the applicable public improvement project because the hereinafter described property was improved by way of furnishing said materials for the construction and improvement of a building. TherealestateagainstwhichAffiantassertsalienislocatedat111 Lien Street, Lexington, Fayette County, Kentucky 40533 as is more particularly designated as Wildcard Lodge Dormitory.

Subcontractors’ Painting, Inc. furnished materials and labor by contract. The last day Subcontractors’ Painting, Inc. furnished said labor and materials was May 28, 2018. In order for Subcontractors’ Painting, Inc., to secure the payment ofthesumof$9,578.07,withinterest,servicecharges,costs,andattorneys’fees,itherebyfilesthisstatementasrequiredbylawasnoticeofthelienithasuponallthe right, title, and interest of Mr. Steve Contractor and Seminar Builders, Inc., in and to payment under the applicable public improvement contract.




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RETURN TO PREPARER

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E. [7.221] Sample Post-Filing Notice to Contractor (Public Project)


Mr. Steve Contractor Agent of Seminar Builders, Inc. 333SeminarDrive”Lexington,Kentucky40515

RE: Account balance due and owing to Subcontractor’s Painting, Inc.

PursuanttoKRS376.240,pleasefindenclosedanattestedcopyofthemechanic’s lienwehavefiledagainstanyunpaidfundsowedtoyouunderthepublic improvement project for labor and/or services provided at 111 Lien Street, Lexington, Fayette County, Kentucky 40533, more particularly designated as Wildcard Lodge Dormitory.

PursuanttoKRS376.250,youhave30daystofileawrittenprotesttothis lien. Any failure to act in a timely manner may prejudice your rights under said statute.


Very truly yours,




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F. [7.222] Sample Post-Filing Notice to Public Authority (Public Project)


Kelley Scrivener, Esq. General Counsel Sample University 123 Education Blvd. Lexington,Kentucky40501

Attorney General Commonwealth of Kentucky 101BigOfficeDrive Frankfort, Kentucky 40602

RE: Public Project Lien

PursuanttoKRS376.240,pleasefindenclosedthefollowing:

• an attested copy of the Statement ofLienwe havefiledagainst any unpaid funds owed to Mr. Steve Contractor and/or Seminar Builders, Inc., under the public improve-ment project for labor and/or services provided at 111 Lien Street, Lexington, Fayette County, Kentucky 40533, more particularly designated as Wildcard Lodge Dormito-ry;

• a copy of the certified letter which was sent to the contrac-tor, which provided an attested copy of the Statement of Lientosaidparty;

• a copy of the post office receipt showing that the abovedescribedletterwassenttothecontractorbycertifiedmail;and

• a copy of the green “return receipt” card signed by the con-tractor or its agent, proving delivery of the above described letter.

Pursuant to KRS 376.250, you are now required to set aside and withhold fromanyfundspayabletothecontractorunderyourapplicablecontractasufficientsum to satisfy this lien amount and forward said payment to my address listed above, unless timely protest is received from the contractor under KRS 376.250(2).

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Very truly yours,




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8-1

Default and Enforcement in Secured Transactions


8

DEFAULT AND ENFORCEMENT IN SECURED TRANSACTIONS UNDER REVISED ARTICLE 9

JOHN T. McGARVEY MELINDA T. SUNDERLANDMorgan Pottinger McGarvey PSC


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I. [8.1] Introduction .........................................................................8-5

II. [8.2] 2010 Amendments to Revised Article 9 .............................8-5A. [8.3] Registered Organizations ........................................8-5B. [8.4] Individual Names ....................................................8-6

III. [8.5] Default ..................................................................................8-6A. [8.6] Declaration of Default Should Not

Be Used as a Collection Tool ..................................8-6B. [8.7] Does the Debtor Have a Legal or

Contractual Right to Cure Default? ........................8-7

IV. [8.8] Debtors, Obligors, and Guarantors ...................................8-7

V. [8.9] Agreement on Standards Concerning Rights and Duties ................................................................8-8

VI. [8.10] Collection and Enforcement by Secured Party ................8-8A. [8.11] Breach of the Peace in Self-Help

Repossession ...........................................................8-81. [8.12] Breach of Peace Case Law .......................8-9

B. [8.13] Trespass on Private Property ................................8-121. [8.14] Breaking a Lock or Chain ......................8-132. [8.15] “Front of the House Rule” ......................8-13

C. [8.16] Self-Help Repossession in Presence of Law Enforcement .............................................8-13

D. [8.17] Repossession Through Trick or Fraud ..................8-13E. [8.18] Personal Property Contained

Within Repossessed Collateral .............................8-14F. [8.19] Use of Repossessor “Independent

Contractors” ..........................................................8-14G. [8.20] Repossession Through Judicial Process ...............8-15H. [8.21] The Right to Require Assembly of

Collateral ...............................................................8-15

VII. [8.22] Disposition of Collateral After Default ............................8-15A. [8.23] Commercially Reasonable Disposition .................8-15B. [8.24] Preparation of Collateral for Sale .........................8-15C. [8.25] Purchase by Secured Party ....................................8-16D. [8.26] Sale Warranties by the Secured Party ...................8-16E. [8.27] Repossession Title Is Not a Disposition ...............8-16F. [8.28] Online Auctions ....................................................8-16

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VIII. [8.29] Notice of Disposition (Sale) and Sale Procedures ...........8-17A. [8.30] Various Notice Issues ............................................8-18

1. [8.31] Second-Try Doctrine ..............................8-192. [8.32] Can a Notice Become Stale? ..................8-19

B. [8.33] Public Versus Private Sale Notice Requirements ........................................................8-19

C. [8.34] Description of Collateral .......................................8-20D. [8.35] Balance of Debt ....................................................8-20E. [8.36] Husbands and Wives and Those

Using the Same Address .......................................8-20F. [8.37] Debtor’s Right to Redeem ....................................8-21G. [8.38] Specialized Collateral Requires

Specialized Sale ....................................................8-21

IX. [8.39] Safe Harbor Notices of Sale ..............................................8-22A. [8.40] KRS 355.9-613 Contents and Form

of Notification Before Disposition of Collateral: General ..........................................8-22

B. [8.41] KRS 355.9-614 Contents and Form of Notification Before Disposition of Collateral: Consumer-Goods Transaction ............................................................8-23

X. [8.42] NoticeofSurplusorDeficiency ........................................8-25

XI. [8.43] The Right of Strict Foreclosure ........................................8-27

XII. [8.44] NotificationofProposaltoAcceptCollateral .................8-27

XIII. [8.45] Penalties on the Secured Party for Failure to Comply with Article 9 ...................................................8-28

XIV. [8.46] DeficiencyJudgmentandtheRebuttablePresumption Rule ..............................................................8-28

XV. [8.47] What Is Commercially Reasonable? ...............................8-29

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Revised Article 9 became effective in Kentucky on July 1, 2001. For the most part, issues that arose in relation to the implementation of Revised Article 9 have been handled by revisions to the Official Comments. Kentucky has adopted the Official Comments as declarative of the legislative intent in the enactment of the various Articles of the Uniform Commercial Code. KRS 355.1-103(3). Never-theless, certain statutory amendments to Kentucky’s Revised Article 9 have been necessary. For example, KRS 355.9-619 was amended, effective on July 12, 2006, to make clear that a Kentucky Repossession Affidavit is a transfer statement for repossessed collateral subject to Kentucky’s certificate of title statute. Another sig-nificant amendment was to KRS 355.9-706, effective July 12, 2006. This amendment brought the “minor errors” rule of KRS 355.9-506 into Part 7, Transition, meaning that information required about previous filings at the local level is subject to the same “minor errors” standard as the other information on the financing statement.

II. [8.2] 2010 Amendments to Revised Article 9

There were not substantial amendments to the uniform Revised Article 9 as promulgated by the National Conference of Commissioners on Uniform State Laws and the American Law Institute until 2010. The 2010 Amendments to Article 9 did not promote any significant policy changes to Revised Article 9. They are best summarized as a tune-up for the digital age. As of this Edition, the 2010 Amendments have become law in 52 jurisdictions, including Kentucky. One of the central issues in the law of secured transactions is the debtor’s exact legal name. Ensuring that the debtor’s name is correct on a filing became increasingly important in the digital age. Revised Article 9 instructed secured parties to file against registered organizations in the name as it appears in the “public record” of the jurisdiction in which the debtor was organized. As for natural persons, the only instruction was to file in the “individual…name of the debtor;….” The concern for registered organizations became the definition of the “public record.” Is it the website of the filing office? Or is it the original document by which the organization was formed? As for individuals, several court decisions noted Revised Article 9 provided no real direction.

A. [8.3] Registered Organizations

The 2010 Amendments resolved the question for registered organizations by creating a new defined term – “public organic record” – and stated that it will control the debtor’s exact legal name. The “public organic record” is the actual record through which the organization was created, as opposed to what appears on the website of the filing office. In Kentucky, the Secretary of State’s website often makes the “public organic record” available to the public.

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B. [8.4] Individual Names

The name standard for individuals was the most controversial element of the 2010 Amendments. The amendments offered states a choice between the “safe harbor” and “only if” standards. Under the “safe harbor” standard, known as Alternative B, a secured party is properly perfected on an individual debtor, vis-à-vis lien creditors, it if perfects under the name of the individual as it appears on a valid driver’s license or identification card most recently issued by the state of the debtor’s principal residence. If the debtor has no driver’s license or state issued identification card, then under the individual’s surname and first given name. Although this resolves the issue of perfection as against lien creditors, including a bankruptcy trustee, it does not exactly provide a bright-line standard under which a secured party may search for other financing statements on a credit applicant or resolve priority issues as between secured parties.

Alternative A, the “only if” standard, provides that a secured party is perfected as to an individual only if it perfects under the name of the individual as it appears on a valid driver’s license or identification card most recently issued by the state of the debtor’s residence, or if the debtor has no driver’s license or state issued identification card, then under the individual’s surname and first given name. Almost all jurisdictions that have adopted the 2010 Amendments, including Kentucky, have chosen Alternative A.

III. [8.5] Default

Default triggers a secured party’s rights under Part 6. However, Revised Article 9 does not define default. What constitutes default remains a matter of contract between the parties. KRS 355.9-601 and Official Comment 3. Unless the debtor is in default, the creditor has no right to proceed against its collateral. The terms of the documentation will be determinative as to the creditor’s right to pro-ceed against collateral. Without default, the creditor cannot invoke the remedy of self-help repossession. KRS 355.9-609; see also Fulton v. Anchor Savings Bank, FSB, 452 S.E.2d 208 (Ga. Ct. App. 1994). If the contract contains no definition of default, it means only the failure to make payments.

A. [8.6] Declaration of Default Should Not Be Used as a Collection Tool

Declaration of default should not be used as a collection tool. The right to accelerate may be waived by a creditor, even in the face of an anti-waiver clause in the documents, when a creditor repeatedly declares default but allows the default to be cured by payment of the past due balance. At a minimum, it may be neces-sary to notify the debtor that strict compliance will be required in the future. See Williams v. Ford Motor Credit, 435 So. 2d 66 (Ala. 1983); Mercedes-Benz Credit Corp. v. Morgan, 850 S.W.2d 297 (Ark. 1993); Moe v. John Deere Credit Co., 516

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N.W.2d 332 (S.D. 1994); Van Bibber v. Norris, 408 N.E.2d 1302 (Ind. Ct. App. 1980); Steichen v. First Bank Grand, 372 N.W.2d 768 (Minn. Ct. App. 1985); see also Slusser v. Wyrick, 502 N.E.2d 259 (Ohio Ct. App. 1986); but see Battista v. Savings Bank of Baltimore, 507 A.2d 203 (Md. Ct. Spec. App. 1986); Pizarro v. Credit Acceptance Corp, 2001 WL 1263682 (Ohio Ct. App. 2001) (acceptance of payments within contract’s ten-day grace period does not require notice of strict compliance when subsequent payment made outside of grace period). In one case, acceptance of late payments over an eleven (11) month term did not act as a waiver of the right to repossess in a commercial setting. K.B. Ohio Co., v. Ford Motor Credit Co., Inc., 811 F.2d 310 (6th Cir. 1987). The importance of an anti-waiver clause is demonstrated in Price v. First Federal Savings Bank, 822 S.W.2d 422 (Ky. Ct. App. 1992) and McAllister v. Langford Investigators, Inc., 380 So. 2d 299 (Ala. Civ. App. 1980).

B. [8.7] Does the Debtor Have a Legal or Contractual Right to Cure Default?

Before acting against the collateral, the creditor’s counsel should examine the documentation and determine if there is a contract or state law right to cure. Are any notices required by the documents? States that have adopted the Uniform Consumer Credit Code, and other states under non-uniform laws, may give con-sumers a statutory right to cure default or right of redemption after repossession.

If the debtor cures default prior to the physical act of repossession, the secured party may be guilty of converting the debtor’s property. Chrysler Credit Corp. v. Turner, 553 So. 2d 64 (Ala. 1989). Payment mailed prior to repossession does not cure default. Anderson, The Uniform Commercial Code, § 9-503(52) (3d ed. 1999 Rev.). A security agreement should always include non-waiver of default clauses.

IV. [8.8] Debtors, Obligors, and Guarantors

All parties to a secured transaction with obligations to the secured party are placed on equal status in terms of their rights after default. For Part 6, a “debtor” is the person who owns or has an interest in the collateral and is not necessarily the person who owes the debt. KRS 355.9-102(1)(ab). An “obligor” is the person who owes the payment obligation and may be the same person as the debtor. KRS 355.9-102(1)(bg). A “secondary obligor” is one whose obligation is secondary, primarily a guarantor. KRS 355.9-102(1)(bs). Each of these parties is clearly entitled to post-default and repossession rights, including a notice of sale. Revised Article 9 voids clauses in guaranty agreements that waive the right to a notice of sale or a secured party’s duty to conduct a sale in a commercially reasonable manner. KRS 355.9-602 and KRS 355.9-624(1). After default, a debtor or secondary obligor may waive the right to notification of disposition through an authenticated record.

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V. [8.9] Agreement on Standards Concerning Rights and Duties

To the extent that Revised Article 9 places duties on a secured party, or gives debtors and obligors rights, a security agreement may set the standards and determine fulfillment of those rights and duties as long as the standards are not man-ifestly unreasonable. The lone exception is that secured parties and debtors cannot form an agreement relating to the secured party’s duty to refrain from breaching the peace in the act of self-help repossession. KRS 355.9-603.

VI. [8.10] Collection and Enforcement by Secured Party

Revised Article 9 adds to the secured party’s arsenal by specifically giving the secured party the right to enforce the obligations of an account debtor or other person obligated on collateral. It also allows the secured party to exercise the rights of the debtor with respect to enforcement of an account, including the right to act against property that secures the obligations of the account debtor to the secured party. The secured party is required to proceed in a commercially reasonable man-ner if it undertakes to collect from or enforce an obligation of an account debtor. KRS 355.9-607. A secured party may proceed under Part 6 regarding personal property of mixed real estate without affecting any of its rights with respect to the real property. Alternatively, the secured party may elect to proceed as to both the personal and real property in accordance with its rights with respect to the real property. KRS 355.9-604.

A. [8.11] Breach of the Peace in Self-Help Repossession

A secured party may, after default, take possession of its collateral or ren-der equipment unusable via self-help repossession (without judicial process), if the secured party proceeds without breach of the peace. However, “breach of peace” is not a defined term in Revised Article 9. Official Comment 3 to KRS 355.9-609 emphasizes that even the informal presence of law enforcement personnel during self-help repossession is prohibited, stating that “[t]his section does not authorize a secured party who repossesses without judicial process to utilize the assistance of a law-enforcement officer”.

This is the most important restriction on self-help repossession, and it is one that cannot be waived by the debtor. See KRS 355.9-602(6). The definitions of “breach of the peace” reached by the courts range from an oral protest by the debtor to physical confrontation. In general there are six factors courts consider in deciding whether there has been a breach of the peace: (1) where the repossession took place; (2) the debtor’s express or constructive consent; (3) the reaction of third parties; (4) the type of premises entered; (5) the creditor or repossessor’s use of deception; and (6) whether an officer of the law was present to assist the repos-

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sessor. See Roger Billings, Floor Planning, Retail Financing and Leasing in the Automobile Industry, § 11.24 Checklist for breach of the peace (West 2004).

In considering the question of whether a breach of the peace had occurred, and after reviewing self-help repossession case law, an Illinois court found that there were 6 principles to be applied: (1) breach of the peace is conduct that incites or is likely to incite immediate public turbulence; (2) violent conduct is not a necessary element; the probability of violence at the time of the repossession or immediately before is sufficient; (3) a mere trespass, such as going onto the debtor’s driveway and repossessing a vehicle, without more, is not a breach of the peace; (4) when the collateral is located inside a fence or is otherwise enclosed, the secured creditor’s privilege is considerably abridged; (5) the secured creditor’s privilege is severely restricted when repossession can be accomplished only by the actual breaking of barriers designed to exclude trespassers; and (6) the likelihood of a breach of the peace increases in proportion to the efforts of the debtor to prevent unauthorized intrusions and the creditor’s conduct in defying those efforts. Chrysler Credit Corp. v. Koontz, 661 N.E.2d 1171, 29 UCC Rep.Serv.2d 1 (Ill. App. Ct. 1996).

1. [8.12] Breach of Peace Case Law

Although appellate courts have had no trouble approving the constitution-ality of self-help repossession, they have tightened the rules to the extent that it is easy to cross the line from peaceful repossession to breach of the peace.

Georgia holds that the creation of a “hostile environment” may present a jury question on breach of the peace. Fulton v. Anchor Savings Bank, FSB, 452 S.W.2d 208 (Ga. Ct. App. 1994).

North Carolina has ruled that a secured party must cease an attempted repossession if there is a “confrontation.” Everett v. U.S. Life Credit Corp., 327 S.E.2d 269 (N.C. Ct. App. 1985). A Kentucky court commented favorably on this approach in First & Farmers Bank of Somerset v. Henderson, 763 S.W.2d 137 (Ky. Ct. App. 1989); accord Hollibush v. Ford Motor Credit Co., 508 N.W.2d 449 (Wisc. Ct. App. 1993) (“Unequivocal oral protest”).

Mere oral protest can constitute a breach of the peace in Minnesota and Georgia. Cline v. Minnesota Repossessers, Inc., 198 F.3d 661, 664 (8th Cir. 1999); Deavers v. Standridge, 242 S.E.2d 331, 23 UCC Rep. 834 (Ga. Ct. App. 1978). Minnesota has also ruled that a debtor’s actions may revoke the right of self-help repossession and force the creditor to use a judicial remedy. Bloomquist v. First National Bank of Elk River, 378 N.W.2d 81 (Minn. Ct. App. 1985).

Alabama has held that “noise and racket” at midnight that made the debtor “very angry” and “intimidated” him was a sufficient breach of the peace to award the debtor punitive damages for a wrongful repossession. Chrysler Credit Corp. v. Turner, 553 So. 2d 64 (Ala. 1989). Conversely, Washington held that a reposses-sion that occurred at 5:00 a.m., even though “noisy,” was not a breach of the peace

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because no confrontation or verbal exchange took place. Ragde v. Peoples Bank, 767 P.2d 949 (Wash. Ct. App. 1989); accord Wallace v. Chrysler Credit Corp., 743 F. Supp. 1228 (W.D. Va. 1990).

In Indiana, a creditor cannot use threats, enter a residence without debtor’s permission, or seize property over a debtor’s objection. Birrell v. Indiana Auto Sales & Repair, 698 N.E.2d 6 (Ind. Ct. App. 1998).

The Illinois and North Carolina Courts of Appeals have made the most thorough efforts to define acts that fall within the proscription of 9-503. The Illinois court defined “breach of the peace” as “conduct which incites or is likely to incite immediate public turbulence, or which leads to or is likely to lead to an immediate loss of public order and tranquility.” Chrysler Credit Corporation v. Koontz, 661 N.E.2d 1171, 29 UCC Rep.Serv.2d 1 (Ill. App. Ct. 1996). After first establishing the definition, the court ruled that a repossession at night from the debtor’s front yard, after the debtor yelled, “Don’t take it,” was not a breach of the peace.

The North Carolina court established a five-point test: (1) where did the repossession take place; (2) did the secured party have the debtor’s express or constructive consent; (3) the reactions of both parties; (4) the type of premises entered; and (5) the secured party’s use of deception. Giles v. First Virginia Credit Services, Inc., 560 S.E.2d 557 (N.C. Ct. App. 2002).

Arkansas has approved a peaceful repossession in the “dead of night” that followed a first attempt that ended in a shotgun brandishing confrontation with the debtor. Oaklawn Bank v. Baldwin, 709 S.W.2d 91 (Ark. 1986).

In Pantajo-Cahue v. Ford Motor Credit Company, 63 UCC Rep.Serv.2d 298, 2007 WL 2050943 (Ill. Ct. App. 2007), an action seeking damages for alleged breach of the peace and “illegal activities” in repossessing a lessee’s automobile from his locked garage, a court applying Illinois law held that breaking into a locked garage to effectuate a repossession may constitute a breach of the peace. Where a repossession is effectuated by an actual breaking into the lessee/debtor’s premises or breaching or cutting of chains, gates, barricades, doors, or other barriers designed to exclude trespassers, the likelihood that a breach of peace occurred is high. Accordingly, the lessee’s allegation that the credit company, through a re-possession agent, broke into his garage to repossess the automobile was sufficient to state a cause of action.

Furthermore, if a party does break into premises, they may be subject to exemplary damages. In Padilla v. Ghuman, 66 UCC Rep.Serv.2d 472, 183 P.3d 653 (Co. App. 2007), the Colorado Court of Appeals held that a trial court did not err in awarding exemplary damages in addition to the statutory penalty for wrongful self-help under § 9-625(h) [Rev.] because the statutory penalty did not punish the holders of the promissory notes for willful and wanton conduct in connection with the tort of conversion. The Colorado action arose when the holders of promissory notes sought to collect on them, and the debtors counterclaimed for breach of the

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peace, conversion, trespass, and outrageous conduct. The note holders entered the debtors’ locked warehouse using the services of a locksmith, thus the $1,000 penalty was warranted because they opened a lock to enter enclosed real property without permission. The court then found that they committed additional acts amounting to conversion, most notably unlawfully entering the debtors’ property and converting personal property not covered by the security agreements-tortious acts separate and distinct from the lock removal that established liability under § 9-625(h) [Rev.]. The court found that there was no double recovery as the acts necessary to establish liability under § 9-625(h) [Rev.] do not include acts necessary to establish liability for conversion.

In Chapa v. Traciers & Associates, 66 UCC Rep.Serv.2d 451, 2008 WL 2986386 (Tex. App. 2008), a Texas Court held that, as a matter of law, the parents of 2 young children who were inside a vehicle when it was towed by a reposses-sion did not have a viable claim for breach of peace under § 9-609 [Rev.], where neither parent witnessed the vehicle being towed from the street, and the repos-session agent, who did not know that the infants were in the vehicle when they initiated the towing procedure, immediately and peaceably returned the vehicle and children. There was no evidence that the repossession agent proceeded over any objection communicated to him at, near, or incident to the seizure of the property. By removing an apparently unoccupied vehicle from a public street when the driver was not present, he reduced the likelihood of violence or other public disturbance.

A breach of the peace that is not contemporaneous with the act of repos-session by the creditor does not result in an infraction of the law. Clark v. Auto Recovery Bureau Conn., Inc., 889 F. Supp. 573 (D. Conn. 1994); Jordan v. Citizens and Southern & Bank of South Carolina, 298 S.E.2d 213 (S.C. 1982); Wade v. Ford Motor Credit Company, 668 P.2d 183 (Kan. Ct. App. 1983).

The right to prevent a repossession extends to non-debtors who are merely in control of the secured party’s collateral. Census Federal Credit Union v. Wann, 403 N.E.2d 348 (Ind. Ct. App. 1980); Hollibush v. Ford Motor Credit Co., 508 N.W.2d 449 (Wisc. Ct. App. 1993).

Subsequent consent does not validate a self-help repossession where a breach of the peace has already occurred. Ivy v. General Motors Acceptance Corp., 612 So. 2d 1108 (Miss. 1992).

A breach of the peace during a self-help repossession that resulted in an innocent bystander being shot is not deemed negligence per se, though it could certainly be the basis for a common-law negligence claim by the bystander. Griffith v. Valley of the Sun Recovery & Adjustment Bureau, Inc., 13 P.2d 1283, 29 UCC Rep. 711 (Ariz. Ct. App. 1980).

Wisconsin prohibits self-help repossession. In Wisconsin, an automobile may be seized without a writ only when the debtor consents. Otherwise, Wisconsin prohibits self-help repossession unless the creditor has first obtained a judgment of

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replevin and permits voluntary surrender only after the financer notifies the debtor of his right to a hearing. See Roger Billings, Floor Planning, Retail Financing and Leasing in the Automobile Industry, § 11.16 Wisconsin prohibits self-help (West 2004).

There are special restrictions that apply to military personnel and Native Americans. Under federal law, a financer must not use self-help to repossess the automobile of military personnel if the installment contract was signed before the debtor entered the military service. The law similarly applies to dependents of service personnel. Tribal law may prohibit self-help repossession from Native Americans living on a reservation. See Roger Billings, Floor Planning, Retail Financing and Leasing in the Automobile Industry, § 11.18 Restriction on self-help repossession from military personnel and Native Americans (West 2004).

If a repossession is found to have breached the peace, a secured creditor may open itself up to a punitive damage claim. An Alabama court held that pu-nitives are appropriate when a repossession is carried out in “an oppressive and insulting manner”. Big Three Motors, Inc. v. Rutherford, 432 So. 2d 483, 36 UCC Rep. 338 (Ala. 1983).

B. [8.13] Trespass on Private Property

How far and in what manner may a secured party enter upon private property? Unfortunately, there is no clear-cut answer as the states vary widely in their application of the law on this question. In Wyoming, entry onto property of a third party at 5:00 a.m. was held to be a breach of the peace because of “the possibility of immediate violence.” Salisbury Livestock Co. v. Colorado Central Credit Union, 793 P.2d 470 (Wyo. 1990). The Eighth Circuit, in applying Arkansas law, has ruled that the mere entry onto private property at night may be a breach of peace and is a jury question. Rogers v. Allis Chalmers Credit Corporation, 679 F.2d 138 (8th Cir. 1982).

Kentucky and Georgia hold that entering an open garage is permitted. First & Farmers Bank of Somerset v. Henderson, 763 S.W.2d 137 (Ky. Ct. App. 1989); Pierce v. Leasing International, 235 S.E.2d 752 (Ga. Ct. App. 1977). However, Florida has suggested that the entry into a carport may be questionable. Raffa v. Dania Bank, 321 So. 2d 83 (Fla. 1975).

A court in Iowa held that a creditor breached the peace by entering the house to repossess a piano, even though there was no one around at the time. Girard v. Anderson, 257 N.W. 400 (Iowa 1934). A court in Texas held that a se-cured creditor’s unauthorized entry into a service station to repossess commercial collateral was a breach of the peace. Gulf Oil Corp. v. Smithey, 426 S.W.2d 262 (Tex. Civ. App. 1968).

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1. [8.14] Breaking a Lock or Chain

The majority of jurisdictions have ruled that breaking a lock or chain is improper. Laurel Coal Company v. Walter E. Heller & Company, Inc., 539 F. Supp. 1006 (W.D. Pa. 1982); General Electric Credit Corporation v. Timbrook, 291 S.E.2d 383 (W. Va. 1982); Riley State Bank of Riley v. Spillman, 750 P.2d 1024, 6 UCC Rep.Serv.2d 990 (Kan. 1988); Davenport v. Chrysler Credit Corp., 818 S.W.2d 23 (Tenn. Ct. App. 1991). However, Idaho has ruled that breaking a padlock on the property of a third party to obtain possession of collateral did not constitute a breach of the peace. Massey-Ferguson Credit Corp. v. Peterson, 626 P.2d 767 (Idaho 1980).

In general, it is a best practice to obtain a writ of repossession if collateral is located on private property in such a way that unauthorized entry into an enclosed space would be required to obtain possession of the collateral.

2. [8.15] “Front of the House Rule”

In 1987, the Fifth Circuit (applying Mississippi law) approved entry of private property where a truck was removed from a debtor’s driveway “in front of (the debtor’s) house.” Butler v. Ford Motor Credit, 829 F.2d 568 (5th Cir. 1987). Repossession of a locked vehicle from “front driveway” at 4:00 a.m. was approved in Giles v. First Virginia Credit Services, Inc., 560 S.E.2d 557 (N.C. Ct. App. 2002).

C. [8.16] Self-Help Repossession in Presence of Law Enforcement

A blatantly illegal practice is the self-help repossession of collateral by or in the presence of law enforcement officers. In re MacLeod, 118 B.R. 1 (Bankr. D.N.H. 1990); Walker v. Wathall, 588 P.2d 863 (Ariz. 1978); Fulton v. Anchor Savings Bank, FSB, 452 S.E.2d 208 (Ga. Ct. App. 1994); First and Farmers Bank of Somerset v. Henderson, 763 S.W.2d 137 (Ky. Ct. App. 1989); Stone Machinery v. Kessler, 463 P.2d 651 (Wash. Ct. App. 1970); see also Official Comment 3 to UCC Revised Article 9, § 9-609. The presence of law enforcement without the benefit of judicial process is often considered a breach of peace. Additionally, impersonation of a police officer, aside from being a violation of state criminal law, voids a repossession. Parks v. Associates Commercial Credit, 351 S.E.2d 661 (Ga. Ct. App. 1986).

D. [8.17] Repossession Through Trick or Fraud

Repossession through trick or fraud may be wrongful. Betterson v. First Interstate Bank of Arizona, N.A., 800 F.2d 732 (8th Cir. 1986); Chrysler Credit Corp. v. McKinney, 1984 WL 178984, 38 UCC Rep.Serv.2d 1409, opinion withdrawn and superceded on other grounds by 456 So. 2d 1069 (Ala. 1984).

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E. [8.18] Personal Property Contained Within Repossessed Collateral

Personal property contained in repossessed collateral is the single largest source of litigation stemming from self-help repossessions. Generally, the financer’s security interest is in the automobile or collateral alone, and not in the items located in it at the time of repossession. The repossessor is deemed a constructive bailee of the items with a duty to preserve them. See Roger Billings, Floor Planning, Retail Financing and Leasing in the Automobile Industry, § 11.45 Conversion of personal property in automobile (West 2004).

The most prominent commentator on secured transactions, Barkley Clark, dubs these the “Golden Glove Compartment” cases. There is no foolproof way a creditor can protect itself. Some creditors attempt to immediately inventory the repossessed property in the presence of a third party and return the property to the debtor as soon as possible. Other creditors rely upon contractual provisions in the security agreement requiring a demand by the debtor for the return of personal property. It is important to remember that retention by the creditor of property not covered by a security agreement is conversion.

F. [8.19] Use of Repossessor “Independent Contractors”

Many creditors use “independent contractors” as repossessors in order to limit liability. Because repossession is an inherently dangerous activity, the creditor cannot contract out of liability. Further, the duty to repossess without a breach of the peace may not be delegated to a third party. “In considering whether a secured party has engaged in a breach of the peace, however, courts should hold the secured party responsible for the actions of others taken on the secured party’s behalf, including independent contractors engaged by the secured party to take possession of collateral”. See Official Comment 3, UCC § 9-609.

States vary on whether a secured creditor can be liable for punitive dam-ages based on the actions of an independent contractor. The Court of Appeals of Arizona held that where lessees of a car alleged that a lessor hired and authorized a car repossession company to enter their property to remove the car and that the repossession company breached the peace and committed trespass, the non-dele-gable duty exception applied to independent contractors hired to accomplish the self-help repossession of a motor vehicle, so the lessor remained liable for any trespass because it had a non-delegable duty to repossess its collateral only if it could do so without breaching the peace. Rand v. Porsche Financial Services, 64 UCC Rep.Serv.2d 155, 167 P.3d 111 (Az. Ct. App. 2007). However, in Kentucky, punitive damages cannot be assessed against the employer for an act of the em-ployee unless the employer authorized, ratified, or should have anticipated the conduct in question. Tommie Lee Patterson v. Tommy Blair, Inc., 265 S.W.3d 241 (Ky. 2007). The Oklahoma Supreme Court, affirming that the duty to not breach the peace may not be delegated to a third party, found that a secured party may be liable for punitive damages if the independent contractor breaches the peace during

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the repossession. Williamson v. Fowler Toyota, Inc., 956 P.2d 858, 36 UCC Rep.Serv.2d 951 (Okla. 1998). See also Angela Hyman v. Capital One Auto Finance, 306 F. Supp. 3d 756, 94 UCC Rep.Serv.2d 900 (W.D. Pa. 2018).

G. [8.20] Repossession Through Judicial Process

If a secured party is unable to use self-help repossession to obtain posses-sion of its collateral post-default, it must turn to the courts. Once a secured party has obtained a court order stating that it is entitled to possession of the collateral, it can make use of law enforcement officers in its attempts to obtain possession.

H. [8.21] The Right to Require Assembly of Collateral

A standard provision in security agreements is the requirement that, after an event of default, a secured party can require the debtor to assemble the collat-eral and make it available to the secured party. This right is particularly important when the collateral is equipment. Clark Equipment Co. v. Armstrong Equipment Co., 431 F.2d 54, 7 UCC Rep. 1249 (5th Cir. 1970), involved heavy road building equipment that was spread out over 5 states. The secured party was able to obtain a mandatory injunction requiring the debtor to assemble the equipment so it could be disposed of by the secured party.

VII. [8.22] Disposition of Collateral After Default

A. [8.23] Commercially Reasonable Disposition

Every aspect of a disposition of collateral, including the method, manner, time, place, and other terms must be commercially reasonable. KRS 355.9-610; Official Comment 2 to UCC Revised Article 9, § 9-610. However, what is “com-mercially reasonable” has not been defined by statute.

B. [8.24] Preparation of Collateral for Sale

Courts have taken various positions on whether a secured party is required to clean up or fix collateral prior to sale. Revised Article 9 specifically authorizes disposition of the collateral “in its present condition or following any commercial-ly reasonable preparation or processing.” However, Official Comment 4 to KRS 355.9-610(1) takes back part of that right and holds that a secured party may not dispose of collateral “in its then condition” when, taking into account the costs and probable benefits of preparation or processing and the fact that the secured party would be advancing the costs at its risk, it would be commercially unreasonable to dispose of the collateral in that condition. For example, for want of a battery, prospective purchasers cannot start the engine of a car or construction equipment. Secured parties should document their decision on whether to invest in clean-up/

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fix-up expenses. A cost-benefit analysis must be made by a secured party in deter-mining whether it is required to take any action to prepare the collateral for sale. As a best practice, cleaning, washing, and/or doing some minor repairs typically result in a better sale price on the collateral.

Alternatively, if the secured creditor allows the condition of repossessed collateral to deteriorate during the time it’s in the secured creditor’s possession, it could be found liable to the debtor for the declination in value. In re Severance Truck Lines, Inc., 35 B.R. 332, 37 UCC Rep. Serv. 1021 (Bankr. M.D. Fla. 1983); Karlstad State Bank v. Fritsche, 374 N.W.2d 177, 42 UCC Rep. Serv. 778 (Minn. Ct. App. 1985).

C. [8.25] Purchase by Secured Party

A secured party may continue to bid on its own collateral at any public disposition. Further, under Revised Article 9, the secured party may also bid on its own collateral at a private disposition if the collateral is of a kind customarily sold on a recognized market or the subject of widely distributed standard price quotations. KRS 355.9-610(3); see Official Comment 9 to UCC Revised Article 9, § 9-610 (regarding “recognized market”).

D. [8.26] Sale Warranties by the Secured Party

The sale of collateral by a secured party includes all warranties relating to title, possession, and quiet enjoyment unless specifically disclaimed by the secured party. However, a creditor can disclaim these warranties by stating that “there is no warranty relating to title, possession, quiet enjoyment, or the like in this disposition” or by using words of similar import. KRS 355.9-610(5) and (6). See Official Comment 11 to UCC Revised Article 9, § 9-610.

E. [8.27] Repossession Title Is Not a Disposition

A non-uniform section, KRS 355.9-610(7) provides: “The acquisition of a repossession title by a secured party shall not be deemed a disposition of collateral under this section.” See also KRS 355.9-619(2) & (3); Official Comments 2 and 3 to UCC Revised Article 9, § 9-619. The purchaser of a motor vehicle at a whole-sale auction expects to receive immediate title. To maximize the price repossessed vehicles bring at auction, most secured parties obtain a repossession title in their own name prior to the auction. Imaginative debtors’ lawyers have argued that the repossession title constitutes a disposition without notice or is a de facto strict foreclosure. Subsection (7) is a legislative fix for that problem.

F. [8.28] Online Auctions

The possibility and popularity of online auction sites was not apparent to the drafters when they developed Revised Article 9. There is nothing in Revised

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Article 9 that either approves or disapproves of online auctions as a means of dis-position. However, many secured parties are disposing of their collateral almost exclusively on online auction sites. The questions of whether this type of disposition is commercially reasonable, what type of notice must be sent, and whether an online auction constitutes a public or private sale have been addressed by revisions to the Official Comments. See also eBay Auctions of Repossessed Motor Vehicles – A Template for Commercial Reasonableness Under Revised Article 9, 31 S. Ill. U. L.J. 281 (2007).

Official Comment 2 to UCC § 9-610 was revised to include public and private dispositions conducted over the Internet as permissible dispositions. Of-ficial Comment 2 to UCC § 9-613 was revised to add a new provision that states as follows:

This section applies to a notification of a public disposition conducted electronically. A notification of an electronic dis-position satisfies paragraph (1)(E) if it states the time when the disposition is scheduled to begin and states the electronic location. For example, under the technology current in 2010, the Uniform Resource Locator (URL) or other Internet address where the site of the public disposition can be accessed suffices as an electronic location.

This Official Comment applies to KRS 355.9-614 as well since that statute states that all the information required by KRS 355.9-613 must also be specified in a “Notice of Our Plan to Sell Property” in a consumer goods transaction.

VIII. [8.29] Notice of Disposition (Sale) and Sale Procedures

The notice of sale provisions is found at KRS 355.9-611. A secured party that disposes of collateral must notify:

(1) the debtor, and if different, the obligor;

(2) any secondary obligor; and

(3) for collateral other than consumer goods, any other secured party that 10 days before the date of the notice of sale had a security interest perfected by filing a financing statement that reasonably identified the collateral, was indexed under the debtor’s name, and was filed in the proper office; or a security interest perfected under other state or federal stat-ute (title liens, aircraft liens, etc.).

KRS 355.9-611(3)(c).

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Notice is not required if the collateral is perishable, threatens to decline speedily in value, or is customarily sold on a recognized market. The term “rec-ognized market” has been strictly construed by the courts. Creditors have often argued that the sale of livestock at a stockyard or cars subject to widely circulated price quotations are on a recognized market. Courts have generally held that the recognized market exception applies only to securities or commodities traded on exchanges and for which standard price quotations are available. F.D.I.C. v. Blan-ton, 918 F.2d 524 (5th Cir. 1990); see also Official Comment 9 to UCC Revised Article 9, § 9-610.

Tennessee has stretched the term “perishable” to include Christmas toys repossessed in late November. American City Bank v. Western Auto Supply, 631 S.W.2d 410 (Tenn. 1981).

There is a consumer goods exception to the requirement that one notifies other secured parties of the disposition of collateral in which other secured parties also hold a perfected security interest. This is probably a result of purchase money interests in consumer goods being perfected upon attachment without filing. Howev-er, it also appears to carry over to titled consumer goods, primarily motor vehicles, on which another secured party’s lien may appear. The safe course of action for a secured creditor is to notify any secured party that it is aware of and that claims a subordinate security interest in consumer goods that are subject to the disposition. Conversely, if one holds the subordinate security interest in consumer goods, be sure to notify the holder of the first priority security interest that one expects to receive a notice of disposition if the collateral is repossessed.

If there is any doubt about whether the collateral is consumer goods (e.g., the ATV used for hunting and for farm equipment), the additional notice should be sent. The primary purpose for which the debtor acquired the goods will determine the categorization of the goods under Revised Article 9.

Most secured creditors believe that a notice of sale is timely if sent ten days or more before the earliest time of disposition. However, Article 9 and case law interpreting Article 9 are devoid of any reference to a ten-day notice being per se commercially reasonable. For commercial transactions, Revised Article 9 adopts the ten-day standard. Unfortunately, for other transactions, the statute holds that whether a notification is sent within a reasonable time is a question of fact. KRS 355.9-612. A secured party can address this issue by specifically setting out in the security agreement the period in which a notice of disposition must be sent. Note that the 10-day rule in commercial transactions is a safe harbor rather than a requirement. A secured party may use a shorter notice period if it would be more commercially reasonable to do so.

A. [8.30] Various Notice Issues

A trustee in bankruptcy may qualify as a debtor for notice of sale purpos-es. First National Bank and Trust Company v. Hutchins, 2 B.R. 92 (Bankr. N.D.

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Okla. 1979). The estate of a deceased debtor must be notified. Gray v. F.D.I.C., 841 S.W.2d 72 (Tex. App. 1992). Voluntary surrender does not negate the requirement for notice. In re Carter, 203 B.R. 697 (Bankr. W.D. Mo. 1996). A debtor’s actual knowledge of creditor’s sale negotiations does not relieve the creditor of the duty to send a notice of sale. Chrysler Credit Corp. v. H & H Chrysler-Plymouth, 927 F.2d 270 (6th Cir. 1991). In the case of In re Hall, 155 B.R. 515 (Bankr. W.D. Mo. 1993), a debtor who attended the repossession sale was found not to have been given a proper notice of sale. The notice requirement is satisfied when the debtor is included in negotiations for sale of collateral. Hope v. Performance Automotive, 710 So. 2d 1235 (Ala. 1998). A purchaser of a debtor’s interest in collateral is entitled to notice of sale. Summit Petroleum v. Ingersoll-Rand, 909 F.2d 862 (6th Cir. 1990).

1. [8.31] Second-Try Doctrine

Several states apply a second-try doctrine when the first notice of sale is returned to the creditor unclaimed or undelivered. In re Carter, 511 F.2d 1203 (9th Cir. 1975) (applying California law); Fidelity Financial Services, Inc. v. Stewart, 608 So. 2d 1111 (Miss. 1992); Commerce Bank of St. Louis v. Dooling, 875 S.W.2d 943 (Mo. Ct. App 1994); Nationsbank v. Clegg, 1996 WL 165513, 29 UCC Rep.Serv.2d 1366 (Tenn. Ct. App. 1996); Mallicoat v. Volunteer Finance, 415 S.W.2d 347 (Tenn. Ct. App. 1966); contra First National Bank v. Mork, 850 P.2d 954 (Mont. 1993). Revised Article 9 left this issue to the courts. See Official Comment 6 to UCC Revised Article 9, § 9-611.

2. [8.32] Can a Notice Become Stale?

Can a notice become stale? When collateral was not sold for a year or more following the initial notice, some states have held the notice becomes stale. International Harvester Credit Corporation v. Ingram, 619 S.W.2d 134 (Tenn. 1981); Nationsbank v. Clegg, 1996 WL 165513, 29 UCC Rep.Serv.2d 1366 (Tenn. Ct. App. 1996). While there is no bright line standard for when a notice becomes stale, it is most certainly less than a year.

B. [8.33] Public Versus Private Sale Notice Requirements

Notice requirements for the two types of sales vary considerably. See infra, Sections [8.40] & [8.41] (model forms). Confusion on the creditor’s part can lead to liability. See Ford Motor Credit Co. v. Hall, 879 S.W.2d 487 (Ky. Ct. App. 1994); First Missouri Bank and Trust Company v. Newman, 680 S.W.2d 767 (Mo. Ct. App. 1984); see also Official Comment 7 to UCC Revised Article 9, § 9-610.

Any auction not open to the public, no matter how many bidders attend, is a private sale requiring a private sale form of notice. Dealer auctions are private sales (at which the secured party may not bid) and require a private sale form of notice; however, if properly conducted, dealer auctions are commercially reason-able dispositions. John Deery Motors, Inc. v. Steinbronn, 383 N.W.2d 553 (Iowa

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1986); Ford Motor Credit Co. v. Mathis, 660 So. 2d 1273 (Miss. 1995); Calcote v. Citizens & Southern Nat’l Bank, 345 S.E.2d 553 (Ga. Ct. App. 1986); Ford Motor Credit Co. v. Hall, 879 S.W.2d 487 (Ky. Ct. App. 1994). Secured parties can only bid at private dispositions if the collateral is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations. KRS 355.9-610(3).

So called “dual purpose” notices, i.e., those that say collateral will be sold at a private sale, and if not sold then give the terms for a public sale, frequently miss the mark and do not comply with the new safe harbor notice standards.

The Tennessee Supreme Court has held that there is no duty for the secured lender to verify that the debtor has received notice of the foreclosure sale. That’s an important safeguard for foreclosing creditors.

It is also important to note that objecting debtors must make a timely objection to the disposition of the collateral. The Kentucky Court of Appeals in Striker Golf Company, Inc. v. First Security Bank of Lexington, Inc., 242 S.W.3d 688 (Ky. Ct. App. 2007), held that the debtors’ failure to make an objection to the sale was fatal to their appeal where the debtors had timely notice of the sale and did not object to the sale until after the sale was completed.

C. [8.34] Description of Collateral

A description of a “1986 Chevrolet Truck” could have described anything from a pickup to a semi and was not sufficient to describe a tow truck being sold. Security Savings Bank, SLA v. Tranchitella, 592 A.2d 284 (N.J. Super. Ct. App. Div. 1991). When dealing with equipment and vehicles, it is best to use vehicle identification numbers.

D. [8.35] Balance of Debt

If the creditor notifies its debtor of the sum required to redeem the col-lateral, the payoff rather than the gross balance must be used. Wilmington Trust v. Conner, 415 A.2d 773 (Del. 1980). The safe harbor notices of Revised Article 9 neither require nor prohibit informing the debtor of the balance of the debt within the notice. Revised Article 9 requires only that the debtor be notified of its right to request the balance owed and an accounting of how the balance was calculated. Understating the balance owed by the debtor may result in a commercially unrea-sonable sale. In addition, any misrepresentation of an amount the debtor is required to pay (e.g., force placed insurance) may result in an invalid notice of sale.

E. [8.36] Husbands and Wives and Those Using the Same Address

A separate notice of sale should be sent to each debtor rather than a single notice addressed to “Mr. and Mrs. __________.” Central Bank and Trust Company v. Metcalfe, 663 S.W.2d 957 (Ky. Ct. App. 1984).

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The same concept applies to any debtor who at the time of origination of the credit used the same address. A father who guaranteed his daughter’s car loan did not have to pay the deficiency because the bank sent the notice of sale to only his daughter’s new address. Whitley v. Bank South, N.A., 366 S.E.2d 182 (Ga. 1988).

The requirement for separate notice does not require actual receipt by the debtor to whom the notice is addressed. Altman Tractor and Equipment Company v. Weaver, 343 S.E.2d 444 (S.C. 1986); Clark v. First National Bank of Mena, 748 S.W.2d 42 (Ark. Ct. App. 1988).

F. [8.37] Debtor’s Right to Redeem

A debtor may redeem collateral at any time before the secured party has disposed of the collateral, or entered into a contract for its disposition, by tender-ing fulfillment of all obligations secured by the collateral as well as the expenses reasonably incurred by the secured party in the retaking, holding, preparing for sale, and to the extent provided in the agreement, and not otherwise prohibited by law, reasonable attorney fees and legal expenses. KRS 355.9-623.

A common mistake made by creditors is to limit the redemption period to ten days following the notice of sale. See Moore v. Fidelity Fin. Serv., Inc., 869 F. Supp. 557 (N.D. Ill. 1994); First National Bank of Maryland v. DiDomenico, 487 A.2d 646 (Md. 1984). The right of redemption is not subject to any time limitation and is only terminated by the actual disposition, or the execution of a contract for disposition, of the collateral.

Georgia requires that debtors be notified of their right to redeem. Bradford v. General Electric Credit Corp., 359 S.E.2d 757 (Ga. Ct. App. 1987).

A creditor that takes title to a motor vehicle as part of its sale procedures does not cut off the debtor’s right to redeem. In re Wallace, 102 B.R. 114 (Bankr. S.D. Ohio 1989); see also KRS 355.9-610(7) & 355.9-619(2) and (3).

G. [8.38] Specialized Collateral Requires Specialized Sale

The manner of sale and advertising for the sale must match the type of collateral and cover the market area in which the collateral could reasonably be sold. United States v. Conrad Publishing, 589 F.2d 949 (8th Cir. 1978); Liberty National Bank v. Acme Tool, 540 F.2d 1375 (10th Cir. 1976); In re Frazier, 93 B.R. 366 (Bankr. M.D. Tenn. 1988).

The advertising of specialized collateral must reach the particular market for the collateral no matter how large the geographic area of that market may be. Ford & Vlahos v. ITT Commercial Finance Corp., 885 P.2d 877 (Cal. 1994); Villella Enters., Inc. v. Young, 766 P.2d 293 (N.M. 1988); Bank One, Texas, N.A. v. Stewart, 967 S.W.2d 419 (Tex. App. 1998).

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Employment of an expert for advice on how to dispose of collateral may help support the sale as commercially reasonable. School Supply Company v. First National Bank of Louisville, 685 S.W.2d 200 (Ky. Ct. App. 1984).

How long to hold the collateral prior to sale is also a judgment call, depending on the nature of the collateral. A case setting out too quick a resale is Hancock County Bank v. American Fletcher Bank, 276 N.E.2d 580 (Ind. Ct. App. 1971). A case where the court determined the creditor took too long is In re Myers, 1976 WL 23659, 20 UCC Rep.Serv. 1420 (Bankr. W.D. Va. 1976). The issue is discussed under Kentucky law in Sigmon-Elkorn Coal Corp. v. Westinghouse Credit Corp., 1988 WL 49071 (6th Cir. 1988) (unpublished decision).

IX. [8.39] Safe Harbor Notices of Sale

A. [8.40] KRS 355.9-613 Contents and Form of Notification Before Disposition of Collateral: General

Except in a consumer-goods transaction, the following rules apply:

(1) The contents of a notification of disposition are sufficient if the notification:

(a) describes the debtor and the secured party;

(b) describes the collateral that is the subject of the intend-ed disposition;

(c) states the method of intended disposition;

(d) states that the debtor is entitled to an accounting of the unpaid indebtedness and states the charge, if any, for an accounting; and

(e) states the time and place of a public disposition or the time after which any other disposition is to be made.

(2) Whether the contents of a notification that lacks any of the information specified in subsection (1) of this section are nevertheless sufficient is a question of fact.

(3) The contents of a notification providing substantially the information specified in subsection (1) of this section are sufficient, even if the notification includes:

(a) information not specified by that subsection; or

(b) minor errors that are not seriously misleading.

8-23


(4) A particular phrasing of the notification is not required.

(5) The following form of notification and the form appearing in KRS 355.9-614(3), when completed, each provides suf-ficient information:

“NOTIFICATION OF DISPOSITION OF COLLATERAL

To: ..... <Name of debtor, obligor, or other person to which the notification is sent>

From: ..... <Name, address, and telephone number of secured party>

Name of Debtor(s): ..... <Include only if debtor(s) are not an addressee>

<For a public disposition:>

We will sell <or lease or license, as applicable> the <describe collateral> <to the highest qualified bidder> in public as follows:

Day and Date: . . . . . . . . . .

Time: . . . . . . . . . .

Place: . . . . . . . . . .

<For a private disposition:>

We will sell <or lease or license, as applicable> the <describe collateral> privately sometime after ..... <day and date>.

You are entitled to an accounting of the unpaid indebtedness secured by the property that we intend to sell <or lease or license, as applicable> <for a charge of $.....>. You may request an ac-counting by calling us at .....<telephone number>.”

B. [8.41] KRS 355.9-614 Contents and Form of Notification Before Disposition of Collateral: Consumer-Goods Transaction

In a consumer-goods transaction, the following rules apply:

(1) A notification of disposition must provide the following information:

(a) the information specified in KRS 355.9-613(1);

(b) a description of any liability for a deficiency of the person to which the notification is sent;

(c) a telephone number from which the amount that must

8-24


be paid to the secured party to redeem the collateral under KRS 355.9-623 is available; and

(d) a telephone number or mailing address from which additional information concerning the disposition and the obligation secured is available.

(2) A particular phrasing of the notification is not required.

(3) The following form of notification, when completed, pro-vides sufficient information:

“<Name and address of secured party>

<Date>

NOTICE OF OUR PLAN TO SELL PROPERTY

<Name and address of any obligor who is also a debtor>

Subject: <Identification of Transaction>

We have your .....<describe collateral>, because you broke promises in our agreement.

<For a public disposition:>

We will sell ..... <describe collateral> at public sale. A sale could include a lease or license. The sale will be held as follows:

Date: . . . . . . . .

Time: . . . . . . . .

Place: . . . . . . . .

You may attend the sale and bring bidders if you want.

<For a private disposition:>

We will sell .....<describe collateral> at private sale sometime after ..... <date>. A sale could include a lease or license.

The money that we get from the sale (after paying our costs) will reduce the amount you owe. If we get less money than you owe, you ..... <will or will not, as applicable> still owe us the difference. If we get more money than you owe, you will get the extra money, unless we must pay it to someone else.

You can get the property back at any time before we sell it by paying us the full amount you owe (not just the past due payments), including our expenses. To learn the exact amount you must pay, call us at ..... <telephone number>.

8-25


If you want us to explain to you in writing how we have figured the amount that you owe us, you may call us at ..... <telephone number> <or write us at .....<secured party’s address>> and request a written explanation. <We will charge you $..... for the explanation if we sent you another written explanation of the amount you owe us within the last six (6) months.>

If you need more information about the sale call us at ..... <telephone number> <or write us at ....<secured party’s address>>.

We are sending this notice to the following other people who have an interest in ..... <describe collateral> or who owe money under your agreement:

.....<names of all other debtors and obligors, if any>”

(4) A notification in the form of subsection (3) of this section is sufficient, even if additional information appears at the end of the form.

(5) A notification in the form of subsection (3) of this section is sufficient, even if it includes errors in information not re-quired by subsection (1) of this section, unless the error is misleading with respect to rights arising under this article.

(6) If a notification under this section is not in the form of sub-section (3) of this section, law other than this article deter-mines the effect of including information not required by subsection (1) of this section.

The practitioner is urged to watch for debtors subject to a bankruptcy stay. Changes are required in the text of the model notice forms in such a situation.

X. [8.42] NoticeofSurplusorDeficiency

If in a consumer goods transaction the debtor is entitled to a surplus or is liable for a deficiency, Revised Article 9 requires the secured party to send its customer an explanation. The explanation must be sent no later than: (a) the time that the secured party accounts for and pays a surplus; or (b) the time of its first written attempt to collect the deficiency. If the debtor or consumer obligor requests an explanation, it must be sent within 14 days of receipt of the request. KRS 355.9-616(2).

The explanation to which the customer is entitled must be in writing and

8-26


must provide the following information in the following order:

(a) The aggregate amount of obligations secured by the secu-rity interest under which the disposition was made, and, if the amount reflects a rebate of unearned interest or credit service charge, an indication of that fact, calculated as of a specified date:

1. If the secured party takes or receives possession of the collateral after default, not more than thirty-five (35) days before the secured party takes or receives posses-sion; or

2. If the secured party takes or receives possession of the collateral before default or does not take possession of the collateral, not more than thirty-five (35) days before the disposition;

(b) The amount of proceeds of the disposition;

(c) The aggregate amount of the obligations after deducting the amount of proceeds;

(d) The amount, in the aggregate or by type, and types of ex-penses, including expenses of retaking, holding, preparing for disposition, processing, and disposing of the collater-al, and attorney’s fees secured by the collateral which are known to the secured party and relate to the current dispo-sition;

(e) The amount, in the aggregate or by type, and types of cred-its, including rebates of interest or credit service charges, to which the obligor is known to be entitled and which are not reflected in the amount in paragraph (a) of this subsection; and

(f) The amount of the surplus or deficiency.

KRS 355.9-616(3).

Specific wording is not required, and an explanation complying substan-tially with the requirements of KRS 355.9-616 is sufficient, even if it includes minor errors that are not seriously misleading. KRS 355.9-616(4).

If a debtor or consumer obligor has requested and received an explanation of surplus or deficiency within the prior six months, and sends a second request, the secured party may assess a charge not exceeding $25 for the response. KRS 355.9-616(4).

8-27


If, before distribution of surplus proceeds, the practitioner receives from the holder of a subordinate security interest in the collateral an authenticated demand for proceeds, surplus proceeds may be paid to the other secured party after you have paid your own debts secured by the collateral and your expenses of repossession and disposition.

XI. [8.43] The Right of Strict Foreclosure

Strict foreclosure, the ability of a secured party to accept its collateral in lieu of debt, provided for under former KRS 355.9-505, was expanded under Revised Article 9 (KRS 355.9-620). Secured parties may choose to use the remedy if it is unlikely that a deficiency claim can be collected or if attempting to collect a deficiency would result in excessive legal expense or risk.

Revised Article 9 allows a secured party, in a commercial claim, to offer to accept collateral in partial satisfaction. Revised Article 9 also eliminated the requirement for possession of the collateral subject to strict foreclosure, which allows for the strict foreclosure to the area of intangible collateral.

Strict foreclosure is not available for consumer collateral where 60 percent of the cash price has been paid (in the case of a purchase money security interest) or where 60 percent of the principal amount of the obligation secured has been paid (in the case of a non-purchase money security interest in consumer goods). In these instances, the secured party must act to properly dispose of the consumer collateral within 90 days of taking possession or within any longer period to which the debtor and all secondary obligors have agreed. KRS 355.9-620.

XII. [8.44] NotificationofProposaltoAcceptCollateral

A secured party that chooses to use the remedy of strict foreclosure, and accepts the collateral in full or partial satisfaction of an obligation, must send its proposal to:

(1) any person from which the secured party has received no-tice of a claim in the collateral;

(2) any other secured party that held a secured interest or lien on the collateral perfected by filing a financing statement that identified the collateral, was indexed under the debt-or’s name, and filed in the proper office; and

(3) any secured party that held a security interest perfected by compliance with another state or federal statute.

8-28


Debtors, obligors, and secondary obligors are all entitled to a notice. No safe harbor notice has been promulgated. KRS 355.9-621.

If no one entitled to notice objects to the secured party’s proposal of acceptance of collateral in lieu of debt, under KRS 355.9-622, the acceptance of the collateral:

(1) discharges the obligation to the extent consented to by the debtor;

(2) transfers to the secured party all of a debtor’s rights in the collateral; and

(3) discharges the security interest of any subordinate secured party.

XIII. [8.45] Penalties on the Secured Party for Failure to Comply with Article 9

Remedies available to the debtor for a creditor’s failure to comply with Revised Article 9 are found in KRS 355.9-625. They include:

(1) seeking a court order to restrain collection and enforce-ment or disposition of collateral;

(2) a claim for damages caused by the secured party’s failure to comply with Article 9 including any loss resulting from the debtor’s inability to obtain, or increase costs of alterna-tive financing;

(3) in the case of consumer transactions, a person that was a debtor or secondary obligor, may recover actual damages plus an amount not less than the credit service charge plus 10% of the principal amount of the obligation for the time price differential plus 10% of the cash price; and

(4) statutory damages of $500 are available for consumers from secured parties who do not send a notice of sale and their conduct is part of a pattern and practice of non-com-pliance.

XIV. [8.46] DeficiencyJudgmentandtheRebuttablePresumptionRule

Revised Article 9 adopted the “rebuttable presumption rule” for non-con-sumer transactions and leaves consumer transactions to the law of the state. KRS

8-29


355.9-626. Kentucky adopted the rebuttable presumption rule for all classes of transactions in the Kentucky Supreme Court decision of Holt v. Peoples Bank of Mt. Washington, 814 S.W.2d 568 (Ky. 1991). In dicta, the Holt court indicated that it would continue to apply the absolute bar rule in consumer cases where there is a complete failure of notice.

The rebuttable presumption rule provides that in the event of any non-com-pliance with the sale procedure, a presumption is created that the collateral is equal to the unpaid balance of the debt. However, the secured party has the opportunity to rebut the presumption and prove that a technical deficiency in the sale procedure did not harm the debtor or any other obligor and that the secured party is entitled to recover a deficiency. The rebuttable presumption rule in Kentucky replaced an absolute bar rule. Revised Article 9, in other states, eliminates the absolute bar rule in commercial transactions and leaves it to the case law of the state for consumer transactions.

XV. [8.47] What Is Commercially Reasonable?

The fact that a greater amount could have been obtained by disposition of collateral at a different time or in a different manner from that used by the secured party does not preclude the secured party from establishing a deficiency. As a matter of law under Revised Article 9 (KRS 355.9-627), a disposition is commercially reasonable if it is made:

(1) in the usual manner on any recognized market (applies only to markets for which there are standardized price quotations for property that is essentially fungible, such as stock exchanges);

(2) at the price current in any recognized market at the time of disposition; or

(3) otherwise in conformity with reasonable commercial prac-tices among dealers in the type of property that was the subject of the disposition.

A proposed disposition may also be approved in a judicial proceeding or by a creditors’ committee or representative of creditors. KRS 355.9-627(3). However, judicial approval is seldom required.

If a secured party, an entity related to the secured party, or a secondary obligor acquires collateral at foreclosure sale, and the amount of sale proceeds of the disposition is significantly below the range of proceeds that disposition to another person might have brought, a surplus or deficiency will be calculated based on the amount of proceeds that would have been realized in a disposition

8-30


that properly complied with Part 6 of Revised Article 9. See KRS 355.9-615(6); Official Comment 1 to UCC Revised Article 9, § 9-627.

Wholesale disposition is not necessarily inferior to a retail sale, which may have more expenses associated with the sale. In re Estate of Sagmiller, 615 N.W.2d 567 (N.D. 2000); see also Ford Motor Credit Co. v. Mathis, 658 So. 2d 223 (Miss. 1995); Ford Motor Credit Co. v. Jackson; 466 N.E.2d 1330 (Ill. App. Ct. 1984).

Private sales are not subject to greater judicial scrutiny than public sales. Thomas v. Price, 975 F.2d 231 (5th Cir. 1992). However, failure to secure more than one bid may be fatal. Federal Financial Co. v. Papadopoulos, 721 A.2d 501 (Vt. 1998). Partial sales are encouraged by Revised Article 9. See Official Comment 2 to UCC Revised Article 9, § 9-610.

I-1

Index


INDEX

I-2


I-3

Index

INDEX

References Are to Handbook Section Numbers

Accounting, Action for, see subheading under Recovery and Remedies

Account Stated, Action for, see subheading under Recovery and Remedies

Administrative Review, Action for, see subheading under Recovery and Remedies

Arbitrationgenerally, 10.155Federal Arbitration Act, 10.156high cost of arbitration as a defense, 10.158other defenses to arbitration

generally, 10.159inconvenient forum, 10.162non-mutuality of remedies and terms as being unconscionable, 10.160waiver, 10.161

perceived problem of arbitration, 10.157source of law, 10.156

Armed Services, Obtaining Judgments Against Members of the generally, 14.1indebtedness of military personnel and relevant procedures, 14.16involuntary allotment application (DD form 2653), 14.18letter to commanding officer, 14.2Servicemembers’ Civil Relief Act, 14.3-.7

Article 9, see Revised UCC Article 9

Attachments, see subheading under Prejudgment Remedies

Automatic Stay, see subheadings under Bankruptcy Law and Bond Claim Enforcement

Bankruptcy Lawabandonment (11 USC § 554 and Bankruptcy Rule 6007), 9.14automatic stay

generally, 9.50Chapter 13 cases

generally, 9.55co-debtor stay, 9.52post-petition property, 9.51

reaffirmation (11 USC § 524(c))generally, 9.11

I-4


procedure, 9.12termination of § 362 automatic stay

generally, 9.53cancellation of insurance, 9.60failure to maintain insurance on collateral, 9.57failure to maintain property taxes, 9.58other methods of terminating the stay, 9.13payments to one secured creditor ahead of another, 9.56plan payments deferred for extended period, 9.55post-sale petitions, 9.59procedure for stay relief motion (Fed. R. Bankr. P. 4001), 9.62proposed plan does not amortize claim over plan term, 9.54repossession of collateral, 9.61

what the automatic stay affects (11 USC § 362(a) & (b))generally, 9.4common law right of setoff (11 USC § 553), 9.5effect of violations of, 9.7notices of judgment lien (KRS 426.720), 9.6

what to do with an automatic stay, 9.10when and how the automatic stay comes into effect (11 USC § 362(a)),

9.8who the automatic stay affects, 9.3why there is an automatic stay, 9.9

Chapter 7 bankruptcy cases, creditor issuesgenerally, 9.92debtor’s viewpoint, 2.34involuntary bankruptcy proceedings, 9.99leases and executory contracts, 9.98Rule 2004 examinations, the ultimate discovery tool, 9.101trustee, 9.102types of claims against a bankruptcy estate

generally, 9.93allowance of claims, 9.96proof of claim requirements, 9.94time for filing, 9.95types of claims, 9.97

utility service, 9.100Chapter 13 bankruptcy cases, creditor issues

generally, 9.48confirmation, 9.77-.78debtor’s viewpoint, 2.35dismissal, 9.77, 9.79Form 309I: notice of Chapter 13 case, 9.176modification, 9.77, 9.80objection to plan confirmation

I-5

Index

generally, 9.63, 9.65bases for objections to confirmation

generally, 9.66disparate treatment of classes of unsecured creditors, 9.76 failure to pay all “disposable income” to the plan, 9.69feasibility, 9.68interest rate, 9.71lack of good faith, 9.72liquidation analysis, 9.70surrendering collateral “in full satisfaction of debt”, 9.73valuation of collateral, 9.67“write-down” of home mortgages, limitations, 9.75“write-down” of secured debt , 9.70

filing of objections to confirmation, 9.64practice issues in Chapter 13 cases for creditors

generally, 9.81debtor’s plan, review of, 9.83dischargeability of debts in Chapter 13, 9.91exemptions, review of a debtor’s claimed, 9.84file your proof of claim early, 9.82homes as a lender’s castle: 11 USC § 1322(b)(2)

generally, 9.86real estate used as the debtor’s principal residence, 9.90secured only by debtor’s principal residence, 9.88security interest, 9.87security interest in real property, 9.89

leases and other executory contracts, 9.85stay litigation in Chapter 13 cases, 9.49

automatic stay in Chapter 13 casesgenerally, 9.50co-debtor stay, 9.52post-petition property, 9.51

termination of § 362 automatic staygenerally, 9.53cancellation of certificate insurance and accident and health insur-

ance, 9.60failure to maintain insurance on collateral, 9.57payments to one secured creditor ahead of another, 9.59plan payments deferred for extended period, 9.55procedure for stay relief motion (Fed. R. Bankr. P. 4001), 9.62proposed plan does not amortize claim over plan term, 9.54repossession of collateral, 9.61

debtor representationgenerally, 9.103-.104creditors’ meeting

I-6


generally, 9.138preparation of debtor, 9.139

debt relief agencygenerally, 9.145

during casegenerally, 9.140amendments to petition, 9.141lien avoidance, 9.144reaffirmation of debt, 9.143redeeming of property, 9.142

filing bankruptcygenerally, 9.133fee disclosure statement, 9.135fees, 9.137post-execution filing deadline, 9.136signing the petition, 9.134

information gatheringgenerally, 9.129credit report, 9.130inquiries from creditors, 9.132lien search, 9.131

initial client contactgenerally, 9.105initial contact, 9.106conflict review, 9.107lawyer’s fees, 9.108

initial client interviewgenerally, 9.109Chapter 13 versus Chapter 7 bankruptcies

generally, 9.121choosing between, 9.124design of Chapter 7, 9.122design of Chapter 13, 9.123

client desires and goals, 9.120client relations, 9.110financial statement review

generally, 9.112asset appraisal, 9.114assets with substantial equity, 9.116debts jointly owed by husband and wife, 9.113exemptions, 9.117fraudulent transfers are avoidable, 9.119preferential transfers are avoidable, 9.118tax ramifications of filing, 9.115

immediate problems and future concerns, 9.111

I-7

Index

proceduregenerally, 9.125-.126surrender of property, 9.127

timing of the bankruptcy filing, 9.128discharge and dischargeability litigation

generally, 9.15-.16, 9.47adversary proceedings, 9.20denial of debtor’s discharge, 9.18non-dischargeable debt, 9.17procedure in adversary proceedings, 9.22reaffirmation of debts, 9.21superdischarge and discharge of individual Chapter 11 debtors,

9.19denial of discharge – 11 USC § 727

generally, 9.38case law: § 727, 9.39

hardship discharge non-dischargeability – Bankruptcy Code § 523

generally, 9.23automatic stay and § 523 judgment collection, 9.37§ 523(a)(2)(A) – false pretense, false representation, or actual

fraudgenerally, 9.24case law: § 523(a)(2)(A), 9.25

§ 523(a)(2)(B) – use of a false statement in writinggenerally, 9.26case law: § 523(a)(2)(B), 9.27

§ 523(a)(2)(C) – luxury goodsgenerally, 9.28presumption periods, 9.29

§ 523(a)(5) and (15) – obligations incident to a divorcegenerally, 9.35case law: §§ 523(a)(5) and (15), 9.36

§ 523(a)(6) willful and malicious injury (conversion)generally, 9.31case law: § 523(a)(6), 9.32

§ 523(a)(8) – student loansgenerally, 9.33case law: § 523(a)(8), 9.34

unjustified § 523(a)(2) claims, 9.30practice tips

generally, 9.40Rule 2004 exams, 9.41settlement document, 9.46subpoena duces tecum

I-8


generally, 9.42checking and savings account records, 9.43policies of property insurance and riders, 9.44

written discovery, 9.45state tax considerations

generally, 11.30excise taxes, 11.33late filed returns, 11.37nonfiled or fraudulent returns, 11.36penalties and interest, 11.35property taxes, 11.34taxes measured by income or gross receipts, 11.31trust fund taxes, 11.32

exemptions and property of the estategenerally, 9.147-.150common exemptions, 9.149objections to exemptions, 9.150

consequences of successfully objecting to an exemption, 9.152filing the objection, 9.151

fraudulent transfersgenerally, 9.164-.165bankruptcy code

generally, 9.166fraudulent conveyance actions, 9.172insolvency (constructive fraud), 9.171intent to hinder, delay, or defraud (actual fraud), 9.170obligation of the debtor, 9.169§ 548, 9.167transfer, 9.168

state law proceedings, 9.173Kentucky Uniform Voidable Transfer Act, 9.174

lien avoidancegenerally, 9.146-.147, 9.153§ 522 lien avoidance, 9.154§ 547 preferential transfers

generally, 9.155defenses to preferential transfers, 9.161

contemporaneous exchange for new value, 9.162ordinary course payments, 9.163

garnishmentswage, 9.156non-wage, 9.157

motor vehicle liensgenerally, 9.158fighting the trustee, 9.160

I-9

Index

trustee as a lien creditor, 9.159motion to dismiss and proposed order, sample form, 9.177

Bond Claim Enforcementgenerally, 7.185-.186automatic stay

claims against property of the estate, 7.215construction performance bonds

generally, 7.191claims by the obligee, 7.199claims by the surety

generally, 7.206contractor, against, 7.207design professional, against, 7.209owner, against, 7.208

declaration of default, 7.197notice to the surety, 7.196obligee’s obligations and rights, 7.195origins of the bond claim, 7.193parties protected by performance bonds, 7.192principal’s obligations and rights, 7.194surety’s defenses

generally, 7.200defense of discharge, 7.204delay or acceleration by the owner, 7.202lack of notice, 7.203overpayment by the owner, 7.201untimely claim, 7.205

surety’s obligations and rights, 7.198effect of principal’s bankruptcy on the parties, 7.215elements of a successful bond claim, 7.190extent of surety liability, 7.189indemnification, 7.188Miller Act, 3.11, 7.214nature of suretyship, 7.187payment bonds

generally, 7.210notice and suit requirements, 7.213parties protected by payment bonds, 7.211scope of bond coverage, 7.212

statute of limitations for surety bonds, 7.214

Chapter 7 Bankruptcy Cases, Creditor Issues, see also subheadings under Bankruptcy Lawgenerally, 9.92

I-10


debtor’s viewpoint, 2.34involuntary bankruptcy proceedings, 9.99leases and executory contracts, 9.98Rule 2004 examinations, the ultimate discovery tool, 9.101trustee, 9.102types of claims against a bankruptcy estate

generally, 9.93allowance of claims, 9.96proof of claim requirements, 9.94time for filing, 9.95types of claims, 9.97

utility service, 9.100

Chapter 13 Bankruptcy Cases, Creditor Issues, see also subheadings under Bankruptcy Lawgenerally, 9.48confirmation, 9.77-.78debtor’s viewpoint, 2.35dismissal, 9.77, 9.79Form B309I: Notice of Chapter 13 case, 9.176modification, 9.77, 9.80objection to plan confirmation

generally, 9.63, 9.65bases for objections to confirmation

generally, 9.66disparate treatment of classes of unsecured creditors, 9.76 failure to pay all “disposable income” to the plan, 9.69feasibility, 9.68interest rate, 9.71lack of good faith, 9.72liquidation analysis, 9.70surrendering collateral “in full satisfaction of debt”, 9.73valuation of collateral, 9.67“write-down” of home mortgages, limitations, 9.75“write-down” of secured debt , 9.74

filing of objections to confirmation, 9.64practice issues in Chapter 13 cases for creditors

generally, 9.81debtor’s plan, review of, 9.83dischargeability of debts in Chapter 13, 9.91exemptions, review of a debtor’s claimed, 9.84file your proof of claim early, 9.82homes as a lender’s castle: 11 USC § 1322(b)(2)

generally, 9.86real estate used as the debtor’s principal residence, 9.90

I-11

Index

secured only by debtor’s principal residence, 9.88security interest, 9.87security interest in real property, 9.89

leases and other executory contracts, 9.85stay litigation in Chapter 13 cases

generally, 9.49automatic stay in Chapter 13 cases

generally, 9.50co-debtor stay, 9.52post-petition property, 9.51

termination of § 362 automatic staygenerally, 9.53cancellation of certificate insurance and accident and health insur-

ance, 9.60failure to maintain insurance on collateral, 9.57failure to maintain property taxes on collateral, 9.58payments to one secured creditor ahead of another, 9.56plan payments deferred for extended period, 9.55post-sale petitions, 9.59procedure for stay relief motion (Fed. R. Bankr. P. 4001), 9.62proposed plan does not amortize claim over plan term, 9.54repossession of collateral, 9.61

Child Tax Credit, 2.5

Club Memberships, 2.24

Collection, see subheadings under Debtor’s Viewpoint – Collections, Commercial Collections, Creditor’s Viewpoint – Collections, Prejudgment Remedies and Post-Judgment Remedies

Commercial Collections, see also subheadings under Debtor’s Viewpoint – Collections, Creditor’s Viewpoint – Collections, Prejudgment Remedies and Post-Judgment Remediesgenerally, 3.1

collection litigationgenerally, 3.25contested cases and discovery, 3.29evidentiary issues during trial, 3.33filing the action

generally, 3.26assimilation of necessary documentation, 3.27choosing the proper court, 3.28

preparation for trial, 3.32protective orders, 3.30summary judgment attempt, 3.31

I-12


claim identification, 3.2claim review, 3.7contingent fee agreements, 3.6ethical considerations

generally, 3.3conflicts of interest, 3.4fees, 3.6unauthorized practice of law, 3.5

fast-track litigation techniques, 3.1Kentucky Rules of Professional Conduct, 3.4Miller Act, 3.11piercing the corporate veil

generally, 3.14checklist of considerations, 3.15

pre-litigation work-out attemptsgenerally, 3.16debtor’s legal identity, 3.18determining why the debtor is not paying, 3.20initial demand, 3.17service of process upon a corporate entity or limited liability company,

3.19specific workout techniques/tools

generally, 3.21agreed judgments, 3.24execution of a promissory note, 3.23written acknowledgment and promise of payment, 3.22

sample formsgenerally, 3.34complaint and affidavit in support of an open account debt, 3.37contingent fee agreement, 3.36initial acknowledgment letter, 3.35motion for summary judgment based upon the defendant’s failure to deny

requests for admissions and the deemed admission thereof, 3.39standardized written discovery requests, 3.38

special remediesgenerally, 3.8attorney fees, 3.12guaranties, 3.13mechanic’s liens/payment bonds, 3.11reclamation, 3.10right of repossession pursuant to a security agreement, 3.9

Construction Performance Bonds, see subheading under Bond Claim Enforcement

I-13

Index

Consumer Leasing Act, 2.17

Consumer Financial Protection Bureau, 10.57

Consumer Protection Legislation, Defenses and Remediesgenerally, 2.1arbitration, see separate headingConsumer Leasing Act, 2.17credit practice rule, 2.13Credit Repair Organizations Act, 2.10debtor’s viewpoint – collection issues, see separate headingDodd-Frank Wall Street Reform and Consumer Protection Act, see separate

headingdoor to door cooling off period, see separate headingEqual Credit Opportunity Act, see separate headingexemptions, see separate headingFair Credit Reporting Act, see separate headingFair Debt Collection Practices Act, see separate headingFederal Trade Commission preservation of claims and defenses, see separate

headinggarnishments, federal restrictions on, see separate headinggeneral theories of recovery and remedies, see separate headingholder rule, see separate headingholder-in-due-course doctrine, see separate headingHome Ownership and Equity Protection Act, see separate headinghome solicitation sales, see separate headingKentucky Consumer Protection Act, see separate headinglender liability, see separate headingMagnuson-Moss Warranty Act, see separate headingmobile home sales, 2.27odometer statutes, 2.15payday lenders, 2.31Servicemembers’ Civil Relief Act, 14.3statutes of limitation, 2.4Truth in Lending Act, 2.16truth in lending rescission, see separate headingused car and lemon law, see separate headingusury, see separate headingwarranty and defective product claims, see separate heading

Contempt, see subheading under Recovery and Remedies

Contingent Fee Agreementsample, 3.36

I-14


Creditor’s Viewpoint – Collections Issues, see also subheadings under Debtor’s Viewpoint – Collections, Commercial Collections, Prejudgment Remedies and Post-Judgment Remediesgenerally, 1.1agreement regarding fees and costs, 1.3closing the file, 1.64collecting before litigation

generally, 1.6contacting the debtor, 1.7securing the client’s lien rights, 1.8

collecting the judgmentgenerally, 1.52continuing negotiations, 1.61criminal enforcement of claims, 1.63post-judgment discovery

generally, 1.60Uniform Enforcement of Foreign Judgments Act, 1.62

post-judgment proceduresgenerally, 1.53bank garnishments, 1.57collecting court costs, 1.55executions, 1.59notice of judgment lien, 1.56wage garnishments, 1.58wording of judgment, 1.54

commencing the actiongenerally, 1.31form of complaint, 1.33proper parties, 1.32relief requested

generally, 1.34attorney fees, 1.38finance charges in retail installment contract for sale of motor vehicle,

1.37interest, 1.35interest on charged off credit card accounts, 1.36joint and several liability, 1.39Kentucky long arm statute, 1.41real property, 1.40service of process, 1.41

discoverygenerally, 1.42depositions, 1.45interrogatories, 1.44requests for admission, 1.43

I-15

Index

Fair Debt Collection Practices Act, 1.2, 1.26information needed from the client, 1.5jurisdiction

generally, 1.18-.19, 3.28federal courts, 1.20small claims courts, 1.23state circuit courts, 1.21state district courts, 1.22

moving for judgmentgenerally, 1.47default judgment, 1.48summary judgment, 1.49

negotiation and settlement, 1.46organizing your practice, 1.4preparing for trial, 1.51sample documents, 1.65

agreed judgment, 1.71agreement to pay after judgment, 1.73agreement to pay before judgment, 1.69cover letter for agreed judgment, 1.70cover letter for agreement to pay after judgment, 1.72cover letter for agreement to pay before a judgment, 1.68initial demand letter, 1.66subsequent letter to a debtor, 1.67

specially situated defendants, 1.50statutes of limitation

generally, 1.9accounts, 1.11contracts of sale, 1.16fraudulent or preferential transactions, 1.14judgments, 1.13oral or written agreements, 1.10promissory notes, 1.15retail installment contracts of motor vehicles, 1.17subrogation actions, 1.12

venuegenerally, 1.18, 1.24, 3.28, 6.4consumer debts and the Fair Debt Collection Practices Act, 1.2, 1.26corporations, 1.29foreign judgments, 1.30non-residents, 1.28post-judgment proceedings, 6.4real estate, 1.27transitory actions, 1.25, 3.28waiver, 3.28

I-16


Credit Practice Rule, 2.13

Credit Repair Organizations Act, 2.11

Damages, see subheading under Recovery and Remedies

Debtor’s Viewpoint – Collection Issues, see also subheadings under Commercial Collections, Consumer Protection Legislation, Defenses and Remedies, Creditor’s Viewpoint – Collection Issues, Prejudgment Remedies and Post-Judgment Remediesgenerally, 2.1bankruptcy, see also subheadings under Bankruptcy Law

generally, 2.33Chapter 7, 2.34Chapter 13, 2.35

consumer protection legislation, 2.1consumer remedies

generally, 2.6check cashing, 2.31Consumer Leasing Act, 2.17credit practice rule, 2.13Credit Repair Organizations Act, 2.11door-to-door sales rule, 2.14Equal Credit Opportunity Act, see own headingFair Credit Reporting Act, 2.10, 6.9Fair Debt Collection Practices Act, see own headingFederal Truth in Lending Act, 2.16Kentucky Consumer Protection Act, see own headingMagnuson-Moss Warranty Act

generally, 2.18, 10.53FTC Used Car Rule, 10.42odometer statutes, 2.15payday lenders, 2.31

Uniform Commercial Code – Article 9, see Revised UCC Article 9default judgments, 2.2earned income tax credit, 2.5exemptions

generally, 2.5earned income tax credit, 2.5federal child tax credit, 2.5

statutes of limitation, 2.4venue, 2.3, 3.28

Decedent’s Estates, Claims Againstgenerally, 13.1-.3assertion of claims against property held in a revocable trust, 13.102

I-17

Index

case law from other jurisdictions, 13.105description of the arrangement, 13.103Kentucky case law, 13.104planning considerations, 13.107secondary authorities, 13.106

claims against distributees, 13.94claim must not be barred, 13.95no claim for amounts representing exempt property, 13.96right to contribution by other distributees, 13.97

claims by heirs, 13.67ademption, 13.79illegitimate children, 13.68

constitutional issues, 13.69father inheriting through illegitimate, 13.73illegitimate inheriting through father, 13.72legislation, 13.70natural mother, 13.71

permitted children, 13.74exceptions, 13.76general rule, 13.75permitted children born before the will, 13.78satisfying permitted children’s shares, 13.77

statutes of limitation for inheritance claims, 13.80claims of persons under disability, 13.98contingent, unliquidated, or future claims, 13.58

compromised claims, 13.60procedure for settlement, 13.62rights of personal representative to settle, 13.61presentment of contingent or unliquidated claims, 13.59

disallowance of claims, 13.24claims of related individuals, 13.34

family members, 13.35others, 13.36

compromised claims, 13.30contested claims, 13.31

in circuit court, 13.33in district court, 13.32

writing requirements; time limits, 13.25consequences of inadequate notice, 13.28consequences of no notice, 13.27content of notice, 13.26disallowing previously allowed claim, 13.29

exemptions and other rights affecting claims, 13.55dower and curtesy, 13.57surviving spouse exemption, 13.56

I-18


interest on claims, 13.43liability of jointly-owned accounts to the claims of creditors, 13.108

jointly-owned bank accounts, 13.109jointly-owned brokerage accounts, 13.110

liability of personal representatives, 13.81acting in fiduciary capacity, 13.82

assertion of claims, 13.85contracts, 13.83torts, 13.84

payment of claims, 13.86payment to heirs or beneficiaries, 13.87proceedings against personal representatives, 13.88recovery of overpayments, 13.90tax liability, 13.89

Medicaid estate recovery, 13.111introduction, 13.112exemptions and limitations, 13.114recoverable assets, 13.113

multi-state administration, 13.91effect on Kentucky assets, 13.92effect on out-of-state assets, 13.93

payment of claims, 13.37court order to pay, 13.41out-of-state preferences, 13.40proportionate payment of claims, 13.39time for payment, 13.38

presenting a claim, 13.4due process requirements for notice to creditors, 13.6exception to presentment exceptions, 13.23exceptions to presentment, 13.19

governmental units, 13.20secured claims, 13.21to extent of insurance, 13.22

method of presentment of claims, 13.8content of claim, 13.11delivery and filing, 13.9optional requirements determined by personal representative, 13.12reasons for filing with court, 13.10

state court cases after Pope, 13.7statutory requirements for notice to creditors, 13.5time limitations and related considerations, 13.13

generally, 13.14new claims, 13.17pending actions, 13.16post-death claims, 13.15

I-19

Index

presentation of claims, 13.18priority of claims, 13.44

order, 13.45administration expenses and costs, 13.47debts to certain governmental units, 13.49funeral expenses, 13.48other claims, 13.50secured claims, 13.46

payment of secured claims, 13.54preference within classes, 13.52spousal exemption, 13.53tax liens, 13.51

right to file demand for notice of action regarding estate, 13.99effect of filing, 13.101who can file, 13.100

right to set-off counterclaim, 13.42statutes of limitation, 13.63

effect of presentment, 13.65post-death tolling period, 13.64waiver, 13.66

Declaratory Judgments, see subheading under Recovery and Remedies

Depositionsample notice to take, 6.27

Discharge and Dischargeability Litigation in Bankruptcy, see also subheadings under Bankruptcy Lawgenerally, 9.15-.16, 9.47denial of discharge - 11 USC § 727

generally, 9.38case law: § 727, 9.39

hardship discharge non-dischargeability - Bankruptcy Code § 523

generally, 9.23automatic stay and § 523 judgment collection, 9.37§ 523(a)(2)(A) – false pretense, false representation or actual fraud

generally, 9.24case law: § 523(a)(2)(A), 9.27

§ 523(a)(2)(B) – use of a false statement in writinggenerally, 9.26case law: § 523(a)(2)(B), 9.32

§ 523(a)(2)(C) – luxury goodsgenerally, 9.28presumption periods, 9.29

§ 523(a)(5) and (15) – obligations incident to a divorce

I-20


generally, 9.35case law: §§ 523(a)(5) and (15), 9.36

§ 523(a)(6) willful and malicious injury (conversion)generally, 9.31case law: § 523(a)(6), 9.32

§ 523(a)(8) – student loansgenerally, 9.33case law: § 523(a)(8), 9.34

unjustified § 523(a)(2) claims, 9.30

Discoverysample set of standardized written discovery requests, 3.38

Distributees, Claims Against, see subheading under Decedent’s Estates

Dodd-Frank Wall Street Reform and Consumer Protection Actgenerally, 2.8,10.55Consumer Financial Protection Bureau, 2.9, 10.57

Regulation V, 10.58purpose, 10.56scope, 10.56

Door to Door Sales Cooling Off Periodgenerally, 10.46Kentucky statutory version, 2.14, 10.50requirements of the rule, 10.49scope of coverage, 10.48source and status, 10.47

Earned Income Tax Credit, 2.4

Equal Credit Opportunity Actgenerally, 2.7, 10.68-.69civil penalties, 10.72criminal penalties, 10.72defenses, 10.73jurisdiction, 10.71predatory loans, 10.115private enforcement, 10.71prohibition against discrimination, 10.70public enforcement and interpretation, 10.75state laws, relationship to, 10.74statute of limitations, 10.72venue, 10.71

Equitable Actions, see subheadings under Recovery and Remedies

I-21

Index

Equity Protection Act, see Home Ownership and Equity Protection Act

Exemptionsgenerally, 2.5bankruptcy context

generally, 9.146-.148common exemptions, 9.149objections to exemptions, 9.150

consequences of successfully objecting to an exemption, 9.152filing the objection (Bankruptcy Rule 4003(b)), 9.151

Fair Credit Reporting Actgenerally, 2.10, 10.59adverse action, 10.62bad faith or for purposes of harassment, action brought in, 10.65civil penalties, 10.64consumer reports, 10.60-.61criminal penalties, 10.64defenses, 10.65enforcement by FTC, 10.67jurisdiction, 10.63private enforcement, 10.63public enforcement and interpretation, 10.67purpose and scope of law, 10.60relationship to state laws, 10.66statute of limitations, 10.64venue, 10.63

Fair Debt Collection Practices Actgenerally, 1.2, 2.12, 3.24, 10.140administrative enforcement and interpretation, 10.148bad faith or for purposes of harassment, action brought in, 10.146civil penalties, 10.145class actions, 10.145communications relating to the collection of a debt, 10.143debt collector, 10.142defenses, 10.146jurisdiction, 10.144misleading representation, 10.143post-judgment compliance, 6.4prohibited conduct, 10.143purpose and scope of the law, 10.141relation to state laws, 10.147remedial nature, 10.142statute of limitations, 10.145unconscionable means of debt collection, 10.143

I-22


venue, 1.26, 10.144who may bring suit, 10.144written notice requirements, 10.143

Federal Government Employees, Collecting on Judgments Againstgenerally, 14.8application for federal employee commercial garnishment (optional form

311), 14.17garnishment for federal civilian employees, 14.9Hatch Act amendments of 1993, 14.8involuntary allotment for military personnel, 14.10

Federal Tax Considerations, see Tax Liens

Federal Trade Commission - Preservation of Consumers’ Claims and Defensesgenerally, 10.23-.24case law

generally, 10.35application to truth-in-lending, 10.37notice, effect of including or failing to include, 10.36recovery amount and nature, 10.38

door to door sales cooling off periodgenerally, 10.46Kentucky statutory version, 2.14, 10.50requirements of the rule, 10.49scope of coverage, 10.48source and status, 10.47

holder rulegenerally, 10.28mandatory language, sample, 10.165state law interaction, 10.39warranty and defective products, 10.51

holder-in-due-course doctrinegenerally, 10.26negotiable instruments, 10.27retail installment contracts, 10.28

scope of coveragegenerally, 10.29only consumer transactions covered, 10.30“personal, family or household use”, 10.31purchase money loans, 10.34purchase of goods or services, 10.32retail installment contracts assigned to a financer, 10.33

source and status of the law, 10.25state law, 10.39

I-23

Index

used car rulegenerally, 10.40, 10.42effect of violation, 10.45Kentucky’s version, 2.28, 10.54source and status, 10.41Spanish-language sales, 10.44substantive provisions of the rule, 10.43window form, 10.43

Foreclosure, see subheading under Mortgages in Default

FormsAOC-135 Execution Form, 6.34AOC-150 Order of Wage Garnishment, 6.29AOC-150.1 Order of Garnishment (Non-Wage), 6.31AOC-150.2 Affidavit to Challenge Garnishment, 6.33AOC-160 Notice and Affidavit of Foreign Judgment Registration, 6.36EDKy-424 Affidavit for Order of Wage Garnishment, 6.30

Garnishments, Federal Restrictions ongenerally, 10.149effect on Kentucky law, 10.152government employee pay, 10.153maximum allowable garnishment and exceptions, 10.151overview and source of law, 10.150protection of debtor, 10.154

Government Employees, see Federal Government Employees

Holder Rulegenerally, 10.24mandatory language, sample, 10.165state law interaction, 10.39warranty and defective products, 10.51

Holder-In-Due-Course Doctrinegenerally, 10.26negotiable instruments, 10.27retail installment contracts, 10.28

Home Ownership and Equity Protection Actgenerally, 10.116-.117APR trigger, 10.117assignee liability, 10.121consequences for violating HOEPA, 10.121disclosure requirements, 10.118limitations and prohibited loan provisions, 10.119

I-24


multiple enhanced damages, 10.122points and fees trigger, 10.117prepayment penalties as violations of HOEPA, 10.119yield spread premium, 10.120

Home Solicitation Sales, 2.25

Injunctive Relief, see subheading under Recovery and Remedies

Interrogatoriessample, 6.28

Judgment Liensample notice of, 6.35

Kentucky Consumer Protection Actgenerally, 2.19, 10.1, 10.163actual deception, 10.5club memberships, 2.24damages and fees, 2.23defective new cars (“lemon law”), 2.28, 10.54distinguished from fraud, 10.3failure to disclose, 10.7“false, misleading, and deceptive”, 10.2federal law and interpretation of the Act, 10.4home solicitation sales, 2.25insufficiency of simple contract violation, 10.8intent to deceive, 10.6other protections, 2.30mobile home sales, 2.27private right of action

generally, 2.20, 10.12attorney fees, 10.20burden of proof, 10.17damages, 10.19prima facie evidence, 10.18privity of contract, 10.15real estate, 10.14services, 10.13statute of limitations, 10.21venue, 10.22who may recover, 10.16

prohibited acts, 2.21recreation land sales, 2.26rental-purchase agreements, 2.29retirement land sales, 2.26

I-25

Index

scope, 2.22systematic breach of contract, 10.10“unfair,” 10.9violation of a statute or regulation as evidence of a violation of KRS

367.170, 10.11

Lemon Law, see Used Car Rule

Lender Liabilitygenerally, 10.137breach after note signed, 10.139deviation from general rule of no liability, 10.138fiduciary duty, 10.138

Letterssample cover letter for agreed judgment, 1.70sample cover letter for agreement to pay after judgment, 1.72sample cover letter for agreement to pay before judgment, 1.68sample initial acknowledgment letter, 3.35sample initial demand letter, 1.66sample letter to debtor, 1.67sample notice and demand letter, 5.105sample post-judgment collection letters, 6.25-.26

Liens, General, see also Tax Liensgenerally, 7.1-.2attorney fees, liens for

generally, 7.150determining the amount of the attorney fee lien, 7.152procedures to enforce the attorney fee lien, 7.153what property is subject to an attorney fee lien?, 7.151

avoidance in bankruptcygenerally, 9.146-.147, 9.153-.154defenses to preferential transfersgenerally, 9.161contemporaneous exchange for new value, 9.162ordinary course payments, 9.163§ 522 lien avoidance, 9.154§ 547 preferential transfers

generally, 9.155non-wage garnishments, 9.157motor vehicle liens, 9.158

trustee as a lien creditor, 9.159fighting the trustee in a preference action, 9.160

wage garnishments, 9.156electrical equipment and appliances, repair of

I-26


generally, 7.96, 7.105rights and duties of lien holder in possession of repaired article

generally, 7.106duty to notify debtor of completion of repair, 7.108right to detain property, 7.107right to sell property

generally, 7.109method of sale, 7.111proceeds of sale, 7.112statutory pre-sale notice requirement, 7.110

rights of lien holder no longer in possession of repaired article, 7.113equipment, machinery and motors, repair of

generally, 7.114, 7.96rights and duties of lien holder in possession of repaired article

generally, 7.115right to detain property, 7.116right to sell property

generally, 7.117mandatory advertising of sale, 7.119method of sale, 7.120proceeds of sale, 7.121statutory pre-sale notice requirement, 7.118

rights and duties of lien holder no longer in possession of repaired articlegenerally, 7.122duty to file lien statementgenerally, 7.123deadline to file statement of lien, 7.124procedure for filing statement of lien, 7.125

enforcement when property not in lien holder’s possession, 7.126mechanic’s and materialmen’s liens on private projects

generally, 7.3common defense issues

generally, 7.44defects in work or material, 7.47payment by owner, 7.46statutory deficiencies, 7.45waiver, 7.48

enforcement of the liengenerally, 7.31civil action in general

generally, 7.33location of civil action (venue), 7.34procedure for filing civil action, 7.37proper parties

I-27

Index

generally, 7.35bonding and surety companies, 7.36

recovery of costs, interest and attorney fees, 7.38intervening sale of property by owner, 7.39statute of limitations (shelf-life of the lien), 7.32

entitlement to a mechanic’s liengenerally, 7.4, 7.16specific examples

generally, 7.6general contractors, 7.7architects, 7.10, 7.12engineers, 7.10-.11landscape architects, 7.10, 7.13land surveyors, 7.10, 7.14material & equipment suppliers, 7.9real estate brokers, 7.10, 7.15subcontractors, 7.8

two part statutory test, 7.5labor, 7.9priority of liens and claims against the property

generally, 7.40other liens & encumbrances, 7.42priority among competing mechanic’s liens, 7.43tax liens, 7.41

release of liens, voluntary and involuntarygenerally, 7.49release pursuant to bond, 7.50release pursuant to satisfaction of underlying debt

generally, 7.51filing and notice procedure, 7.53mandatory statutory requirements, 7.52

release prior to full satisfaction of debt, 7.54statutory requirements & steps for filing and perfecting a mechanic’s lien

generally, 7.17mandatory notice

generally, 7.18examples of insufficient or defective notice, 7.25mandatory information for “notice of intent to file lien”, 7.24time limitation for sending “notice of intent to file lien”

generally, 7.19all other property or projects, 7.21attempts to extend deadline, 7.22owner-occupied family dwelling, 7.20receipt of notice, 7.23

post-notice procedures for perfecting and recording a mechanic’s lien

I-28


statementgenerally, 7.26necessary content for statement of lien, 7.28post-filing procedures, 7.30proper filing, 7.29time limitation for filing/recording, 7.27

suppliers, 7.9mechanic’s and materialmen’s liens on public or government projects and

improvementsgenerally, 7.55enforcement of the lien

generally, 7.68debtor fails to timely protest, 7.74debtor timely protests

generally, 7.69mandatory civil action to enforce public project lien

generally, 7.70location for mandatory civil action (venue), 7.71proper parties, 7.72service of summons, 7.73

entitlement to public improvement mechanic’s liengenerally, 7.57two part statutory test, 7.58

filing and perfecting a public improvement mechanic’s liengenerally, 7.59perfecting a lien

generally, 7.65post-filing notice to contractor/subcontractor, 7.66post-filing notice to the public authority, 7.67

pre-filing notice, 7.60procedure

generally, 7.61necessary content for statement of lien, 7.63proper filing of the statement of lien, 7.64time limitation, 7.62

public project, 7.56release and bonding of public project liens, 7.75

miscellaneous statutory liensgenerally, 7.178clothing storage, 7.183dry cleaning, tailoring and laundering, 7.182employee liens on property of certain employers, 7.181farm crops for custom operator services, 7.179gas, oil and other mineral leaseholds, 7.180innkeeper and hotel liens for boarding fees, 7.184

I-29

Index

motor vehicle liens (including boat liens) for repairs, storage, towing and accessories generally, 7.76constitutional concerns, 7.94debts that are subject, 7.79entitlement under KRS 376.270 to 376.280, 7.78final precautionary warning, 7.95motor vehicles, 7.77nonjudicial sale, 7.94priority under KRS Chapter 376, 7.93procedure to secure and enforce

generally, 7.80debts for repairs, work and accessories

generally, 7.81debts for towing and storage fees

generally, 7.90enforcing, 7.92perfecting, 7.91

options when vehicle still in possession of lien holder/creditorgenerally, 7.82detaining/retaining possession of the vehicle, 7.83

options when vehicle no longer in possession, 7.89selling the vehicle and retaining the sale proceeds

generally, 7.84step 1 – file a lien statement with the county clerk, 7.85step 2 – advertise the sale, 7.86step 3 – provide pre-sale notice, 7.87step 4 – sell the vehicle, 7.88

sample formsgenerally, 7.216notice of intent to assert lien, 7.217post-filing notice to contractor (public project), 7.221post-filing notice to public authority (public project), 7.222release of lien, 7.219statement of lien for public improvement, 7.220statement of lien (private property), 7.218

tenant property, liens againstgenerally, 7.127lien against crops for advancement of supplies or property

generally, 7.128deadlines for lien enforcement, 7.129procedure for enforcement of lien on tenant’s crops, 7.130

past due rent on premisesgenerally, 7.131premises not rented for farming or coal mining purposes, 7.133

I-30


premises rented for farming or coal mining purposes, 7.132past due rent on self-service storage facility

generally, 7.134enforcement of the lien

generally, 7.136distribution of sale proceeds, 7.142forty-five day default rule, 7.137method of sale, 7.141pre-sale advertising, 7.139pre-sale notice to property owner, 7.138rights of purchasers for value, 7.143tenant’s right to redeem property, 7.140

procedure for perfecting lien rights, 7.135rent due on mobile home space or lot

generally, 7.144enforcement of the lien by sale of property

generally, 7.145disposition of sale proceeds, 7.149mandatory advertising of sale, 7.147mandatory notice to tenant and other lien holders, 7.146method of sale, 7.148

timepieces and jewelry, repair ofgenerally, 7.96-.97rights and duties of lien holder in possession of repaired article

generally, 7.98right to detain property, 7.99right to sell property

generally, 7.100method of sale, 7.102proceeds of sale, 7.103statutory pre-sale notice requirement, 7.101

rights of lien holder no longer in possession of repaired article, 7.104veterinarian and other liens relating to animals

generally, 7.154agisters’ liens

generally, 7.168duration of the lien, 7.169procedure for enforcement of lien

generally, 7.170enforcement by levy and seizure, 7.171enforcement by other judicial action, 7.172

stray animals capture and care liens, 7.173stud fee liens

generally, 7.174procedure for enforcement of lien

I-31

Index

generally, 7.175enforcement by levy and seizure, 7.176enforcement by other judicial action, 7.177

veterinarian liensgenerally, 7.155enforcement of the lien

generally, 7.162civil action in general

generally, 7.164procedure for filing civil action, 7.167

proper parties, 7.166venue, 7.165

statute of limitations (shelf-life of the lien), 7.163entitlement to a veterinarian lien, 7.156procedures for perfecting and recording a veterinarian’s lien

generally, 7.157necessary content for lien statement, 7.159

post-filing procedures, 7.161proper filing of the statement of lien, 7.160time limitation for filing/recording veterinarian lien, 7.158

Magnuson-Moss Warranty Actgenerally, 2.18, 10.53FTC Used Car Rule, 10.42

Miller Act, 3.11, 7.214

Mobile Home Sales, 2.27

Mortgages in Default, Remedies for Real Estategenerally, 15.1-.2abandoned personal property, 15.59action to enjoin waste, 15.15appraisals, 15.60commissioner’s deed and purchaser’s title, 15.56commissioner’s report and confirmation sale

generally, 15.48appeals, 15.57bond by purchaser, 15.51commissioner’s report and confirmation, 15.52credit terms, 15.50scheduling the sale, 15.49setting aside sale, 15.53

conclusion, remedies for real estate mortgages in default, 15.62condominium foreclosure, 15.58contested cases

I-32


generally, 15.38defenses, 15.39hearing by commissioner, 15.41right to jury trial, 15.40summary judgments, 15.42

deed in lieu of foreclosuregenerally, 15.7-.8consideration, 15.12convenants not to sue, 15.12equitable mortgage, 15.13fraudulent conveyance, 15.10outstanding liens, 15.11proposal for deed in lieu, 15.9

foreclosure action, initiationgenerally, 15.32default cases, 15.37foreclosure complaint, 15.34Kentucky’s long arm statute, 15.36lis pendens, 15.35requirements of petition, 15.34service of process, 15.36venue 15.33warning order attorneys, 15.36

judgment and order of salegenerally, 15.43-.44date, time, and location of sale, 15.45sale provisions, 15.46principal and interest letter, 15.47

judicial foreclosure, 15.22prerequisites to foreclosure

generally, 15.23-.24acceleration, 15.25bankruptcy, 15.29demand notes, 15.25due-on-sale clauses, 15.26inspection of premises, 15.31insurance, 15.28notice requirements, 15.27title search, 15.30

promissory note, suing on, 15.14recent cases, 15.61recovery of sale proceeds, 15.55rights of redemption, 15.54rights to possession, rents, and receivers after default

generally, 15.17

I-33

Index

assignment of rents, 15.20lien theory, 15.18possession after default, 15.19receivers, 15.21

workoutgenerally, 15.3-.4content of agreement, 15.6evaluation of situation, 15.5fraud action, 15.5non-waiver clauses, 15.5

write-off, 15.16

Odometer Statutes, 2.15

Payday Lenders, 2.31

Payment Bonds, see subheading under Bond Claim Enforcement

Personal Representative Liability, see subheading under Decedent’s Estates

Piercing the Corporate Veilgenerally, 3.14checklist of considerations, 3.15

Post-Judgment Remedies, see also subheadings under Commercial Collections, Debtor’s Viewpoint – Collections, Creditor’s Viewpoint – Collections, Commercial Collections and Prejudgment Remediesgenerally, 1.53, 6.1collection without legal process

generally, 6.5payment in full and settlements (lump sum or payoff over time), 6.6

collecting court costs, 1.55continuing negotiations, 1.61criminal enforcement of claims, 1.63debtor’s paradise, 6.21discovery

generally, 1.60, 6.7commercial locator and asset services, 6.13credit file, 6.8credit reporting services, 6.9Fair Credit Reporting Act, 6.9internet search services, 6.12judgment lien books, 6.11post-judgment depositions and discovery, 6.14public records, 6.11third parties, 6.10

I-34


Uniform Enforcement of Foreign Judgments Act, 1.62execution by charging order, 6.23exempt property, 6.21fair debt collection practices - compliance post-judgment, 6.4foreign judgments, 6.22legal remedies post-judgment/post-judgment process

generally, 6.15executions, 1.59, 6.19garnishment

generally, 6.16non-wage garnishment, 1.57, 6.18wage garnishment, 1.5, 6.17

notice of judgment lien, 1.52, 6.20limitations period on judgments, 6.3pleadings, 6.4sample documents

generally, 1.72-.73, 6.24affidavit and supplemental order of wage garnishment, 6.30affidavit to challenge garnishment, 6.33execution form, 6.34interrogatories, 6.28notice and affidavit foreign judgment registration, 6.36notice of judgment lien, 6.35notice to take deposition,6.27order of garnishment (non-wage) (federal), 6.32order of garnishment (non-wage) (Kentucky), 6.31order of wage garnishment and notice of rights to assert exemption there-

to, 6.29post-judgment collection letter (1), 6.25post-judgment collection letter (2), 6.26

ten-day stay, 6.2wording of judgment, 1.54

Prejudgment Remedies, see also subheadings under Commercial Collections, Debtor’s Viewpoint – Collections, Creditor’s Viewpoint – Collections, Commercial Collections and Post-Judgment Remediesgenerally, 1.6, 5.1attachments

generally, 5.64-.65bank, 1.57bonds

generally, 5.80compared to bond requirements in writ actions, 5.81defendant’s bonds, 5.82no “magic words”, 5.83

I-35

Index

sureties and exceptions, 5.84defending

generally, 5.88defendant’s bonds, 5.91motions to release attachments, 5.89strict compliance, 5.90

due process requirements – notice and demandgenerally, 5.71notice

generally, 5.72local rules, 5.74service by mail, 5.73

required contents of the notice and demandgenerally, 5.75-76required statement, 5.77

ex parte relief, 5.85issuance, 5.79motion for, 5.78proper defendants, 5.67real estate, against, 5.87securing liquidated debt, 5.68specificity of pleadings, 5.70unmatured obligations, 5.69variety of attachment remedies, 5.66venue, 5.86wage, 1.58

Constitutional considerations, 5.92contacting the debtor, 1.7

securing the client’s lien rights, 1.8temporary restraining orders under KRS Chapter 425

generally, 5.56farm products and inventory, 5.58hearings, 5.63required statement, 5.60restrictions on ordinary property, 5.59scope of order, 5.61following request for ex parte writ, 5.62use, 5.57

writ of possessiongenerally, 5.2-.3defendant’s bond

generally, 5.32amount, 5.33notice of bond, 5.35required statement: damages, 5.34

I-36


defending writ of possession actionsgenerally, 5.48bond, 5.54effect of failure to prevent writ, 5.52lack of notice; motions to quash, 5.53request for hearing, 5.50standard of proof, 5.51strict compliance with statutes, 5.49venue, 5.55

exceptions to suretiesgenerally, 5.36appearance by surety, 5.37retention of property by sheriff, 5.38

issuance of the writ of possession, 5.15levy by sheriff and execution of writ

generally, 5.16delivery of copy of writ, 5.25dwellings, 5.17immediate surrender to the plaintiff, 5.23levy in another county, 5.26return of writ, 5.24securing the property, 5.22storage of property

generally, 5.19immovable property, 5.20perishable property, 5.21

ten-day waiting period, 5.18plaintiff’s bond

generally, 5.27amount, 5.28damages, 5.30required statement, 5.29sureties; exception to requirement, 5.31

procedure to obtain writ of possessiongenerally, 5.4due process – notice and demand

generally, 5.7notice and service

generally, 5.8documents served, 5.10service by mail, 5.9

required contents of noticegenerally, 5.11-.12local rules, 5.14time for response, 5.13

I-37

Index

filing, 5.5motion and affidavit or verified motion, 5.6

special procedures available under the writ of possession statutegenerally, 5.39ex parte writs

generally, 5.40endorsing a writ of possession, 5.45issued by judicial officer, 5.44limitations on ex parte relief, 5.43order transferring possession, 5.46other requirements not waived, 5.42procedure when the property sought cannot be located, 5.47requirements, 5.41

Prisoners, Collection fromgenerally, 14.11appointment of guardian ad litem, 14.14collectability, 14.12venue, 14.13

Receivership, see subheading under Recovery and Remedies

Recovery and Remedies, see also Prejudgment Remedies and Post-Judgment Remediesaccount stated

generally, 4.2definition, 4.3elements of an action on an account stated

generally, 4.4balance due agreement, 4.6paying the balance, 4.7pre-existing debtor-creditor relationship, 4.5reasonable time period for objecting, 4.6

nature of an action for an account stated, 4.8accounting

generally, 4.9equitable accounting, 4.12fiduciary/confidential relationships

generally, 4.13elements

generally, 4.15defendant’s possession of money or other property of plaintiff,

4.17fiduciary relationship, 4.16inadequacy of a remedy at law, 4.18

types of relationships giving rise to an accounting, 4.14

I-38


mutual accounts, 4.12nature of remedy, 4.11procedure

generally, 4.19state court

generally, 4.20-.21referral to a commissioner, 4.22

federal courtgenerally, 4.23-.24referral to a master

generally, 4.25master’s report, 4.27proceedings, 4.26

standard of proof, 4.28types of actions for an accounting, 4.10

additional theories, generally, 4.1administrative review

generally, 4.246review pursuant to a statute, 4.250specific statutory grant, absence of

generally, 4.247-.248non-statutory right to judicial review of administrative decisions,

4.249contempt

generally, 4.183-.184appeal, 4.197civil vs. criminal contempt

generally, 4.187distinction, 4.188

direct v. indirect criminal contempt, 4.191federal law, 4.189Kentucky law, 4.190

proceedings and protections requiredgenerally, 4.192direct v. indirect contempt, 4.194

petty v. serious contempt – right to a jury trial, 4.195protections and proceedings required for civil contempt, 4.193

definition, 4.186impossibility as a defense, 4.196nature of contempt authority, 4.185

damagescompensatory damages

generally, 4.63-.64attorney fees and prejudgment interest, 4.73contract v. tort, 4.65

I-39

Index

“damage” distinguished from injury, 4.69requirement of certainty

generally, 4.70certainty as to amount of damage, 4.72certainty as to fact of damage, 4.71

standard of review, 4.74types of

generally, 4.66general damages, 4.67special damages, 4.68

liquidated damagesgenerally, 4.108liquidated damages v. penalty at common law, 4.109liquidated damages v. penalty in the sale of goods, 4.110

noncompensatory damagesgenerally, 4.75nominal damages

generally, 4.76amount, 4.79circumstances justifying grant of nominal damages, 4.78definition, 4.77effect of failure to grant when justified, 4.80

punitive or exemplary damagesgenerally, 4.81amount of punitive damages

generally, 4.94common law, 4.95statute, 4.96

availability of punitive damages in contract actionsgenerally, 4.97common law, 4.98statutory law, 4.99

award of punitive damages against principal based on agency principlesgenerally, 4.100common law, 4.101statutory law, 4.102

award of punitive damages against an estate based upon conduct of estate’s decedent, 4.103

burden of proof, 4.90definition, 4.82elements of a claim for punitive damages

generally, 4.84at common law, 4.85by statute

I-40


generally, 4.86fraud, 4.88malice, 4.89oppression, 4.87

statutory and common law bases compared, 4.90fraud cases, 4.88necessity of compensatory or nominal damages or entitlement to

equitable reliefgenerally, 4.91compensatory or nominal damages, 4.92equitable relief, 4.93

purpose, 4.83review of amount of punitive damages

generally, 4.104appellate review, 4.106due process, 4.107factors judging fairness, 4.107“first blush” test, 4.105trial court, 4.105

declaratory judgmentsgenerally, 4.29elements of an action for declaratory relief

generally, 4.31actual controversy

generally, 4.32existence of a right, duty or liability, 4.33present existence, 4.34

adversarial parties, 4.36capable of being resolved by a binding judgment, 4.37justiciable issue, 4.35moot questions, 4.30, 4.32

jurisdiction, 4.43Kentucky Declaratory Judgment Act, 4.30matters appropriate for declaratory judgment, 4.38parties

generally, 4.39-.40associational standing, 4.42attorney general, 4.41

equitable principles in current practicegenerally, 4.225-.226commonly used principles

generally, 4.227“clean hands” doctrine, 4.230diligence, 4.228equity will retain jurisdiction, 4.231

I-41

Index

he who seeks equity must do equity, 4.232laches, 4.229party seeking protection must act with reasonable diligence, 4.228

injunctive reliefgenerally, 4.111-.112officers who may grant or dissolve

generally, 4.116restraining order, 4.117temporary injunction, 4.118

permanent injunctiongenerally, 4.167bases, 4.168bond, 4.169relief pending an appeal from a final judgment disposing of a claim

for injunctive reliefgenerally, 4.170court of appeals, 4.172emergency relief, 4.172supreme court, 4.173trial court, 4.171

restraining ordergenerally, 4.15appeal, 4.166binding effect and persons bound, 4.163bond, 4.165comparison to temporary injunctions, 4.156duration, 4.164order, 4.161procedure

generally, 4.157absence of notice, 4.158proceedings under CR 65.03, 4.160restraining order with notice, 4.159

service, 4.162temporary restraining orders under KRS Chapter 425

generally, 5.56farm products and inventory, 5.58following request for ex parte writ, 5.62hearings, 5.63required statement, 5.60restrictions on ordinary property, 5.59scope of order, 5.61use, 5.57

temporary injunctionsgenerally, 4.119

I-42


appealgenerally, 4.149court of appeals

generally, 4.150-.151emergency relief, 4.152standard of review, 4.153

supreme court, 4.154comparison to restraining orders, 4.156injunction bond

generally, 4.145action against the surety, 4.148damages and costs, 4.147requirements of rule, 4.146

prerequisites to issuancegenerally, 4.121absence of an adequate remedy at law, 4.123

generally, 4.123adequate remedies at law, 4.125meaning of inadequate remedy at law, 4.124when a remedy at law is inadequate, 4.126

pending action, 4.122balancing the equities

generally, 4.136equities considered, 4.137status quo, 4.138

immediate and irreparable injurygenerally, 4.128existing or threatened violation of movant’s rights, 4.131immediacy of the injury, loss, or damage, 4.132irreparable injury or rendering final judgment ineffectual

generally, 4.133factors, 4.134irreparable injury, 4.134rendering final judgment ineffectual, 4.135

requirement of civil rule, 4.129standard of proof, 4.130

substantial question on the merits, 4.127procedure

generally, 4.139availability, 4.140notice and hearing, 4.141order on motion for temporary injunction

generally, 4.142specific description of the acts enjoined or restrained, 4.143persons bound, 4.144

I-43

Index

purpose, 4.120types of injunctive relief

generally, 4.113mandatory relief, 4.115prohibitory relief, 4.115three types of injunctions, 4.114

quo warranto, 4.62receivership

generally, 4.174appointment of receiver, 4.176

elements, 4.177danger of loss, removal, or injury, 4.179interest or lien on property, 4.178

definition, 4.1751persons who may be appointed, 4.181powers of receiver, 4.180statutory provisions of appointment of reciever, 4.182

reformationgenerally, 4.233-.234bona fide purchasers, 4.238elements of an action to reform an instrument, 4.235mutuality of mistake, 4.236standard of proof, 4.237

rescissiongenerally, 4.239grounds for rescission

generally, 4.240breach, 4.241default in performance, 4.241failure of consideration, 4.242fraud, 4.244unilateral mistake, 4.243notice, 4.245

restitutiongenerally, 4.206-.207definition, 4.208restitutionary remedies at law

generally, 4.211-.212money paid, 4.214quantum meruit, 4.213restitutionary remedies in equity, 4.215

generally, 4.215-.216constructive trusts

generally, 4.217actual fraud, 4.218

I-44


basis for establishing, 4.218evidence required, 4.219nature of remedy, 4.220

equitable subrogationgenerally, 4.221definition, 4.222elements, 4.223equitable liens, 4.224

restitution at law and in equity, 4.210unjust enrichment, 4.209

specific performancegenerally, 4.198-.199availability and damages, 4.205principles governing a claim

generally, 4.200defenses, 4.204existence of a contract, 4.202inadequacy of a common law action for damages, 4.201readiness to perform and mutuality of obligation, 4.203

writ of mandamusgenerally, 4.44extraordinary remedy, 4.45nature of remedy, 4.45object of writ, 4.45requirements

generally, 4.46great and irreparable injury, 4.48lack of an adequate remedy at law, 4.47

standard of review, 4.49writ of prohibition

generally, 4.50administrative agencies, 4.52“judicial officer” defined, 4.52nature of remedy, 4.51record, 4.58requirements for issuance of a writ of prohibition

generally, 4.53irreparable injury, 4.57lack of an adequate remedy, 4.54

where court is acting outside of jurisdiction, 4.55where court is acting within jurisdiction, 4.56

miscarriage of justice, 4.57standard of review, 4.59

in court in which application is filed, 4.60on review of court’s decision to grant or deny writ, 4.61

I-45

Index

Reformation, see subheading under Recovery and Remedies

Regulation V, 10.58

Rescission, see subheading under Recovery and Remedies

Restitution, see subheading under Recovery and Remedies

Restraining Order, see subheading under Recovery and Remedies

Revised UCC Article 9generally, 2.32, 8.1-.2Article 9 of the Uniform Commercial Code

generally, 8.1amendments, 8.2

individual names, 8.4registered organizations, 8.3

enforcing obligations, 8.10notice of sale provisions, 8.29penalties for failure to comply, 8.45purchase by secured party, 8.25repossession title, 8.27security agreements, 8.9

collection and enforcement, secured partygenerally, 8.10breach of the peace in self-help repossession, 8.11

case law, 8.12private property trespass

generally, 8.13breaking a lock or chain, 8.14“front of the house” rule, 8.15

right to require assembly of collateral, 8.21repossessed collateral, personal property contained within, 8.18repossession through judicial process, 8.20repossessor “independent contractors”, 8.19self-help repossession, 8.16subsequent consent, 8.12trick or fraud in repossession, 8.17

commercially reasonable, 8.47debtors, obligors, and guarantors, 8.8default

generally, 8.5not for use as collection tool, 8.6right to cure default, legal or contractual, 8.7

deficiency judgment, 8.46disposition of collateral after default

I-46


generally, 8.22commercially reasonable disposition, 8.23online auctions, 8.28preparation of collateral for sale, 8.24purchase by secured party, 8.25repossession title is not a disposition, 8.27warranties by the secured party, 8.26

notice of disposition (sale) and sale proceduresgenerally, 8.29balance of debt, 8.35description of collateral, 8.34dual purpose notices, 8.33perishable, 8.29public v. private sale notice requirements, 8.33recognized market, 8.29redemption period, 8.37right to redeem, 8.37specialized collateral requires specialized sale, 8.38spouses and those using the same address, 8.36various notice issues

generally, 8.30debtor’s knowledge of creditor’s sale negotiations, 8.30second-try doctrine, 8.31stale notice, 8.32voluntary surrender, 8.30

notice of surplus or deficiency, 8.42notification of proposal to accept collateral, 8.44penalties for failure to comply with Article 9, 8.45rebuttable presumption rule, 8.46safe harbor notices of sale

generally, 8.39KRS 355.9-613: Notification Before Disposition of Collateral, 8.40KRS 355.9-614: Notification Before Disposition of Collateral, 8.41

security agreement setting rights and duties, 8.9strict foreclosure right, 8.43

Revocable Trust, see subheading under Decedent’s Estates

Specific Performance, see subheading under Recovery and Remedies

State Tax Considerationsgenerally, 11.1bankruptcy’s effect on state taxes

generally, 11.27automatic stay, 11.28discharges

I-47

Index

generally, 11.30excise taxes, 11.33late filed returns, 11.37nonfiled or fraudulent returns, 11.36penalties and interest, 11.35property taxes, 11.34taxes measured by income or gross receipts, 11.31trust fund taxes, 11.32

gross income, 11.38income from cancellation of indebtedness, 11.38taxpayer’s duties while in bankruptcy, 11.29

procedural steps from state tax assessment to state tax liengenerally, 11.2final ruling and appeal to the Kentucky Board of Tax Appeals

generally, 11.6consequences of failure to appeal revenue cabinet’s final ruling, 11.7

notice of tax duegenerally, 11.3consequences of failure to pay or protest within 45 days, 11.4

protest, 11.5state tax liens

generally, 11.8ad valorem (property) tax

generally, 11.9bona fide purchasers, 11.14certificates of delinquency and private party purchasers, 11.13delinquent property taxes, 11.10duration of the property tax lien, 11.15real property taxes, 11.11tangible property taxes, 11.12

criminal prosecutions for unpaid trust fund taxes, 11.25bank franchise and local deposit tax, 11.24Dep’t of Revenue, acquiring information from, 11.22inheritance tax, 11.21Kentucky Claims Commission, 11.22license suspension and revocation, 11.26successor liability for sales tax, 11.23taxes other than property taxes

generally, 11.16competition of the tax lien against other creditors, 11.19duration of the lien, 11.20nature and extent of the lien, 11.18when the lien arises, 11.17

underpayment of taxes, 11.2

I-48


Tax Liensfederal liens

generally, 12.1administrative collection period, 12.3administrative removal, subordination, or nonattachment of Liens

generally, 12.15certificates issued under IRC § 6325, 12.20discharge of lien from specific property, 12.17nonattachment of federal tax lien, 12.19obtaining disclosure of amount of outstanding lien, 12.21release of lien, 12.16subordination of lien, 12.18

anti-injunction statute, 12.27delinquent tax collection, 12.25due process for tax liens and tax collections

generally, 12.45coordination of hearings, 12.49equivalent hearing, 12.56institution of tax levy due process, 12.47institution of tax lien due process, 12.46judicial review of appeals determination, 12.54matters considered at the appeals hearing

generally, 12.50appeals’ determination, 12.53hearing issues, 12.52investigation by appeals officer, 12.51right to fair hearing, 12.48

suspension of collections and statute of limitations, 12.55duration of lien, 12.3federal tax lien is a general lien, 12.2filing notice of lien, 12.12

place for filing, 12.13sufficiency of name of taxpayer, 12.14

installment agreementgenerally, 12.29authority for entering into, 12.30collection limitation, 12.33mandatory, 12.32modification and termination, 12.34streamlined, 12.32terms, 12.31

levy and distraint powers, 12.25lien priority

generally, 12.5choate lien, 12.6

I-49

Index

commercial transaction financing agreements, 12.10first in time is first in right, 12.6holders of security interests, 12.7insolvency situations outside of bankruptcy, 12.11judgment lien creditors, 12.7mechanic’s lienors, 12.7purchase money security interests, 12.9purchasers, 12.7superpriorities, 12.8

offer in compromisegenerally, 12.35acceptance or rejection of offer, 12.41authority to compromise tax liabilities, 12.36cancellation of debt, 12.43conclusiveness of compromise, 12.42doubt as to collectability, 12.37doubt as to liability, 12.37financial information, 12.40grounds for compromise, 12.37liabilities included in compromise, 12.39promoting effective tax administration, 12.37required offer provisions, 12.38

property exempt from levy, 12.28property to which lien attaches, 12.4removal of lien by judicial and nonjudicial proceedings

generally, 12.22judicial proceedings described in 28 USC § 2410(a), 12.23removal by nonjudicial sales of property, 12.24

restrictions on levy power, 12.27sample forms and publications

generally, 12.57form 433-A, collection information statement, 12.69form 433-B, collection information statement for businesses, 12.70form 433-D, installment agreement, 12.66form 4422, application for certificate discharging property, 12.60form 656, offer in compromise, 12.68form 656-L, offer in compromise (doubt as to liability), 12.67form 14135, application for certificate of discharge of property from

federal tax lien, 12.59form OBD-225, application for release of right of redemption, 12.63publication 487, requesting release of right to redeem property, 12.65publication 783, applying for certificate of discharge of property,

12.58publication 784, application for certificate of subordination, 12.61publication 786, notice of nonjudicial sale of property, 12.64

I-50


publication 1024, application for certificate of nonattachment of lien, 12.62

taxpayer considerations, 12.26withdrawal of notice of federal tax lien, 12.44

state liensgenerally, 11.8ad valorem (property) tax

generally, 11.9bona fide purchasers, 11.14certificates of delinquency and private party purchasers, 11.13delinquent property taxes, 11.10duration of the property tax lien, 11.15real property taxes, 11.11tangible property taxes, 11.12

bank franchise and local deposit tax, 11.23criminal prosecutions for unpaid trust fund taxes, 11.25inheritance tax, 11.21Kentucky Calims Commission, 11.22license suspension and revocation, 11.26Dep’t of Revenue, acquiring information from, 11.22successor liability for sales tax, 11.23taxes other than property taxes

generally, 11.16competition of the tax lien against other creditors, 11.19duration of the lien, 11.20nature and extent of the lien, 11.18when the lien arises, 11.17

Temporary Restraining Orders Under KRS Chapter 425generally, 5.56farm products and inventory, 5.58hearings, 5.63required statement, 5.60restrictions on ordinary property, 5.59scope of order, 5.61TRO following request for ex parte writ, 5.62use, 5.57

Truth in Lending Act, 2.16

Truth in Lending Rescissiongenerally, 10.81-.83conditional rescission, 10.109disclosure violations and extending the right of rescission, Regulation Z

Sections 1026.4 & 1026.23generally, 10.91-.92

I-51

Index

accurate disclosure: 15 USC § 1632 & Regulation Z, Section 1026.17generally, 10.93statutory damages, 10.94

excess or duplicative fees, 10.100excess fees resulting in under-disclosed charges: Regulation Z, Section

1026.4(e), 10.99federal reserve model forms, 10.104fees not excludable because not bona fide and reasonable: Regulation Z,

Section 1026.4(c), 10.100finance charges; charges imposed as conditions to extension of credit:

Regulation Z, Section 1026.4(b), 10.98finding under-disclosed finance charges that establish an unexpired right

to rescind: Regulation Z, Section 1026.4, 10.96insurance disclosure violations resulting in under-disclosed finance

charge: Regulation Z, Section 1026.4(d), 10.101rule of thumb for undisclosed finance charges, 10.97violation of delay of performance rule (“spiking”), 10.102violations extending rescission rights: 15 USC § 1602(u), 10.95violations pertaining to the number of furnished disclosure forms and

right to rescind notices, 10.103violations resulting from inaccuracies in the notice of right to rescind,

10.104discovery, 10.107effects of rescission, 10.87

generally, 10.83-.84basis of the right of rescission: three day cooling off period, 10.85effect of rescission: reverse of common law rescission, 10.87example of rescission calculation, 10.88exercising rescission in writing, 10.86property vesting in consumer without obligation and other remedies,

10.89satisfying rescission obligations in bankruptcy, 10.90TILA rescission: 15 USC § 1635 & Regulation Z, Section 1026.23, 10.84using bankruptcy after rescission to overcome consumer tender problems,

10.87predatory loans, tort, and consumer protection claims supplementing TILA

rescissiongenerally, 10.110cancellation of sales solicited at the buyer’s residence, 10.114Equal Credit Opportunity Act, 10.115fraud and civil conspiracy, 10.112home solicitation statute, 10.114Kentucky Consumer Protection Act violations, 10.113notice of adverse action or counteroffer, 10.115scenario from which claims derive, 10.111

I-52


statutory punitive damages, 10.115rescission letter drafting after finding violations, 10.105return of money or property following rescission, 10.109security interest, termination, 10.109scope, 10.82steps following creditor’s response, 10.106tender obligation, satisfying the consumer’s, 10.108vesting without obligation, 10.108

UCC Article 9, see Revised UCC Article 9

Unfair Credit Practicesgenerally, 10.76-.78cosigner practices, 10.79effect of violation, 10.80

Used Car Rulegenerally, 10.40, 10.42effect of violation, 10.45Kentucky’s version, 2.28, 10.54source and status, 10.41Spanish-language sales, 10.44substantive provisions of the rule, 10.43window form, 10.43

Usurygenerally, 10.123general usury statute

generally, 10.124courts look at the realities of the transaction, 10.128defense unavailable to entities, 10.127non-applicability, 10.126penalties, 10.129rate, 10.125

preemption of state lawgenerally, 10.131Depository Institutions Deregulation and Monetary Control Act of 1980,

10.135National Bank Act

generally, 10.132expansion to federally insured institutions, 10.135most favored lender doctrine, 10.133national banks exporting interest rates, 10.134other federal regulation, 10.136

state statutes regulating interest or fees in specific instances, 10.130

I-53

Index

Warranty and Defective Product Claimsgenerally, 10.51breach of warranty claims, 10.52Kentucky’s lemon law, 2.28, 10.54Magnuson-Moss Consumer Product Warranty Act

generally, 2.18, 10.53FTC Used Car Rule, 10.42

Writ of Mandamus, see subheading under Recovery and Remedies

Writ of Possession, see subheading under Prejudgment Remedies

Writ of Prohibition, see subheading under Recovery and Remedies