Easterly v. METROPOLITAN LIFE INSURANCE COMPANY
v.
METROPOLITAN LIFE INSURANCE COMPANY; Dianna L. Prather; Maziar Torabi; and Insco Rue, Appellees. and
Metropolitan Life Insurance Company, Cross-Appellant/Appellee,
v.
Stuart McWilliams Easterly, as Personal Representative of the Estate of Charles T. Easterly, Deceased; and as Personal Representative of the Estate of Marjorie Easterly, Cross-Appellee/Appellant.
Court of Appeals of Kentucky.
Gregory M. Zarzaur, Birmingham, Alabama, Briefs and Oral Argument for Appellant/Cross-Appellee.
E. Patrick Moores, Lexington, Kentucky, Briefs for Appellant/Cross-Appellee.
David C. Trimble, Lexington, Kentucky, Briefs and Oral Argument for Appellee/Cross-Appellant, Metropolitan Life Insurance Company.
No brief filed, Brief for Appellees, Dianna L. Prather; Maziar Torabi; and Insco Rue.
Before: ACREE and NICKELL, Judges; GUIDUGLI, Senior Judge.[1]
NOT TO BE PUBLISHED
OPINION
NICKELL, Judge.
Stuart McWilliams Easterly, as the personal representative of the Estate of Marjorie E. Easterly, deceased, and as the personal representative of the Estate of Charles Easterly, deceased,[2] (collectively referred to herein as "Easterly") has appealed from the July 5, 2006, opinion and order of the Fayette Circuit Court which reduced a jury's punitive damages award of $2,500,000.00 against Metropolitan Life Insurance Company ("MetLife") to $200,000.00. MetLife has cross-appealed from the same opinion and order. For the following reasons, we reverse and remand the matter to the Fayette Circuit Court for further proceedings.
In September 1989, Easterly and MetLife entered into an agreement under which Easterly's existing whole life insurance policy, having a face value of $150,000.00,[3] was exchanged[4] for a universal life insurance policy. Easterly applied for a new policy having a face amount of $235,000.00. However, following the execution of the application, Diana Prather ("Prather"), the MetLife sales agent handling the transaction, crossed out the $235,000.00 amount, replaced it with $185,000.00, and forged the initials "CE" beside the change. This alteration was made without the knowledge or consent of Easterly.[5] MetLife subsequently issued a universal life insurance policy with a face value of $185,000.00 on November 2, 1989.[6]
In January or February of 1990, Easterly met with an estate planning attorney in Florida and discovered the face value of the policy to be $185,000.00, not the $235,000.00 they believed they had contracted to purchase in 1989. Easterly immediately contacted the Lexington sales office where the application had been executed to discuss the discrepancy and was informed Prather's employment with the company had been terminated. The manager, Jay Razavi ("Razavi"), informed Easterly of MetLife's complaint procedure and assigned another agent, Mazair Torabi ("Torabi"), to handle the complaint. Torabi did not investigate Easterly's complaints. On February 26, 1990, Torabi drafted a letter to the manager of Public and Consumer Affairs at MetLife in which he simply recited the facts as Easterly had related them. Torabi informed Easterly the letter had been sent and that he believed the problem would be remedied. However, MetLife took no action in response to the letter.
In September 1990, Easterly changed the beneficiary of his policy from Marjorie to the Charles Thomas Easterly, Sr. Family Trust, and in November of that same year he requested and received a change in the frequency and amount of his premiums from $335.00 per month to $1,000.00 per year. In 1991, Easterly contacted MetLife regarding his policy and informed his new account representative, Insco Rue ("Rue"), he had received no annual statement. Rue discovered MetLife had an incorrect address for Easterly and promptly corrected this error. In 1995, Easterly again contacted Rue to inquire as to how long he would have to continue making premium payments in light of the misrepresentations which had been made in 1989 and 1990. Rue informed Easterly he believed premium payments could be discontinued and Easterly promptly ceased making the required payments. In November 1996, Easterly received notice from MetLife that the $185,000.00 universal life insurance policy would soon lapse for nonpayment of premiums.[7]
On October 29, 1999, Easterly filed a multiple count complaint against MetLife, Prather,[8] Torabi, Rue, and Ravazi. The complaint was amended on July 14, 2003, to include additional unknown defendants and new claims of wrongdoing. Easterly ultimately alleged fraud, breach of contract, negligence, negligent supervision, violations of Kentucky's Consumer Protection Act set forth at KRS Chapter 367, emotional distress, "churning" of existing policies, and conversion. Prior to trial, MetLife was awarded summary judgment on the Consumer Protection Act violations and conversion claims as the trial court found them to have been filed outside the applicable statutes of limitation periods.[9] However, the trial court overruled MetLife's motion for summary judgment on the remaining issues, holding there were genuine issues of material fact at issue and the remaining issues were not time barred.[10]
A jury trial on the remaining claims was held May 8 through May 10, 2006. MetLife's motions for a directed verdict at the close of Easterly's case-in-chief and at the close of all of the evidence were generally denied. However, the trial court granted the motion for directed verdict as to the negligent supervision claim.[11] The jury found (1) Easterly and MetLife contracted for an insurance policy having a face value of $235,000.00; (2) MetLife made intentional misrepresentations which were relied upon by Easterly to his detriment; (3) Easterly sustained actual damages of $50,000.00; and (4) Easterly was entitled to punitive damages in the amount of $2,500,000.00. Judgment was entered accordingly on May 23, 2006.
On May 24, 2006, MetLife filed a motion to alter, amend, or vacate the judgment, or alternatively for a new trial, alleging the judgment was reached as a result of passion or prejudice; Easterly failed to prove any actual pecuniary damages; the punitive damage award was unreasonable, excessive, and unconstitutional; and Easterly failed to prove the necessary elements of fraud and breach of contract. Easterly timely filed a response opposing the motion. The trial court entered an opinion and order on July 5, 2006, upholding the jury's verdict as to compensatory damages. However, the trial court reasoned a punitive damage award that was fifty times greater than the compensatory damages award did not satisfy constitutional due process, citing BMW of North America v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996) and State Farm v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). Thus, the trial court remitted the punitive damages award to $200,000.00, a ratio of four to one. Easterly filed a motion to alter, amend, or vacate the amended judgment, which motion was denied by order entered on July 26, 2006. Easterly appealed and MetLife timely filed a cross-appeal.
Before this Court, Easterly contends the trial court did not have the authority to reduce the amount of punitive damages awarded by the jury and erred in so doing. Easterly further contends the jury's award was not grossly excessive under the facts presented and thus passed constitutional muster.
In response to Easterly's arguments, MetLife contends the trial court properly exercised its power of remittitur when it reduced the jury's punitive damages award. Further, MetLife contends the punitive damages award bore no reasonable relationship to the compensatory damage award, was improperly based on a nationwide scale, and, being more than fifty times the compensatory damages award, was unconstitutional.
In its cross-appeal, MetLife contends Easterly failed to meet its burden of proof to sustain a claim for breach of contract or fraud. Further, MetLife contends the jury's verdict should be set aside as having been reached as a result of passion or prejudice and because Easterly suffered no actual harm. Finally, MetLife contends all of Easterly's claims were barred by the statute of limitations.
Before proceeding to any of the substantive issues presented in this appeal and cross-appeal, we must first address the procedural question of whether Easterly's claims were timely filed under the applicable statutes of limitations set forth in KRS 413.120.[12] After a careful review, and extensive questioning at the oral argument of this matter, we hold Easterly's claims were untimely filed and the trial court erred in not so finding.
The underlying claims which are the subject of this appeal are the fraud and breach of contract claims set forth in the complaint. The remaining claims were either dismissed or wholly dependent upon a finding in Easterly's favor on either the fraud or breach of contract claims. Thus, we must only address whether these two claims were timely filed. We will address the applicable limitations periods separately.
FRAUD
Under the provisions of KRS 413.120(12), actions for damages based on fraud or mistake must be commenced within five years after the cause of action accrues. KRS 413.130(3) states a cause of action for fraud does not accrue until the fraud is discovered, but goes on to prohibit any action being brought more than ten years after the date of "making of contract or the perpetration of the fraud." Our review of the evidence adduced below convinces us Easterly's claim for fraud was untimely filed.
There can be no question the fraud complained of occurred in September or October 1989 when Prather allegedly altered Easterly's application. Therefore, the five year limitations period contained in KRS 413.120(12) began running on that date. However, the saving provision of KRS 413.130(3) extended the limitations period based upon the date of Easterly's discovery of the fraud. Easterly acknowledges discovering the results of the forgery in 1990 upon receipt of the policy and meeting with an estate planning attorney. Nevertheless, Easterly argues the actual date of discovery for statute of limitations purposes was considerably later—i.e., sometime in 1996—based upon MetLife's concealment of the forgery. Easterly contends MetLife engaged in a continuing course of conduct intended to conceal the forgery between 1989 and 1996, and therefore the statute of limitations period should be tolled. Such tolling would render the filing of the instant complaint timely. We disagree with Easterly's contention.
Easterly argues MetLife and/or its agents continually gave assurances that the face value of the insurance policy would be increased to the $235,000.00 originally sought in the application. Further, Easterly contends these assurances were made with the intent of keeping them from discovering Prather's forgery on the original application. These alleged assurances include the letter written by Torabi to MetLife's customer service department and his statement he believed the issue "would be taken care of." Easterly also alleges they were lulled into inaction by other acts of MetLife's representatives and did not discover their potential cause of action until November 1996 when MetLife informed them of the impending lapse of the $185,000.00 policy. Until then, Easterly contends it was believed the $235,000.00 policy would be placed in effect. Thus, it is argued the statute of limitations period should be calculated as beginning to run in 1996. Easterly fails to cite us to any persuasive authority for their position on this matter.
As earlier stated, Easterly received the original policy in January or February of 1990 and promptly met with their estate planning attorney. It was during this meeting Easterly admittedly learned the face value of the policy was not in the amount they believed they had contracted to receive. This clearly was the date Easterly discovered or reasonably should have discovered the fraud perpetrated by Prather. As used in the statutes, "discovery of fraud" has been held to mean acquisition of knowledge thereof. Mussman v. Pepples, 243 Ky. 674, 49 S.W.2d 592, 593 (1932). Even if Easterly was unaware Prather had altered the application, clearly it was known something was amiss with the policy—whether by fraud or mistake—as early as February 1990.[13] It is immaterial whether Easterly knew an action for fraud or mistake could be maintained at the time of discovery of the variance. Graham v. Harlin, Parker and Rudloff, 664 S.W.2d 945, 947 (Ky.App. 1983). The date of discovery of an injury and what or who is responsible for such injury is the date upon which the statute of limitations period begins to run; not the date one learns he may file a lawsuit to recover. Conway v. Huff, 644 S.W.2d 333, 334 (Ky. 1983). See also Wiseman v. Alliant Hospitals, 37 S.W.3d 709, 712 (Ky. 2000) (citing Drake v. B.F. Goodrich Co., 782 F.2d 638 (6th Cir. 1986) and Hazel v. General Motors Corp., 863 F.Supp. 435, 438 (W.D.Ky. 1994)).
"In contemplation of the law, knowledge consists, not only of what one certainly knows, but also of information which he might have obtained by an investigation of facts which he does know and which impose upon him the duty to make that investigation." Mussman, supra, 49 S.W.2d at 593 (citing May v. Chesapeake & Ohio Ry. Co., 184 Ky. 493, 212 S.W. 131 (1919); Cable Piano Co. v. Lewis, 195 Ky. 666, 243 S.W. 924 (1922); Mitchell v. First National Bank, 203 Ky. 770, 263 S.W. 15 (1924)). Easterly had knowledge of all elements of the cause of action including the $50,000 in consequential damages that would result unless the circumstance — whether fraud or mistake — was remedied. Therefore, the statute of limitations period began running in early 1990 and expired no later than February 1995. The filing of this action in 1999 was untimely and the trial court erred in not so finding.
Contrary to Easterly's argument, there is no need for analysis under the ten-year limitation period contained in KRS 413.130(3) as Easterly's claim was time barred by the five-year limitation period. Regardless, under Johnson v. Fetter, 224 Ky. 788, 7 S.W.2d 241 (1928), actions for fraud must be brought within ten years from the perpetuation of the fraud even though the defrauding party may conceal the fraud in the meantime. See also Shilling v. McCraw, 298 Ky. 783, 184 S.W.2d 97 (1944). Any person bringing an action more than five years after the perpetration of a fraud must allege and prove he did not discover, and could not with the exercise of reasonable diligence have discovered, the fraud earlier. McCoy v. Arena, 295 Ky. 403, 174 S.W.2d 726 (1943); see also Johnson v. Fetter, supra. Easterly has failed to make the required showing.
The record reflects Easterly exercised control over the policy, wrote numerous letters about the problem and made phone calls acknowledging awareness of Prather's fraudulent action. These acts were done by Easterly within the five years immediately following the perpetration of the fraud. Easterly has simply failed to allege and prove the facts necessary to extend the limitations period past the five years set forth in KRS 413.120(12). Easterly's injury and the instrumentality causing that injury were obvious. MetLife's actions did not so conceal the elements of Easterly's alleged cause of action as to prevent its discovery, especially in light of Easterly's 1990 review of the policy in the presence of and with the aid of counsel. Thus, we hold any failure to discover the alleged fraud within the limitations period was
due to some derelictions on his part in failing to make reasonable efforts to do so, since one so situated may not sit supinely by and exercise no diligence to discover the wrong perpetrated upon him. He must bestir himself, and, if he could have discovered the fraud or mistake by the exercise of reasonable diligence, it is his duty to do so.
Johnson, supra, 7 S.W.2d at 246. The saving provision of KRS 413.030(3) is therefore inapplicable to the facts at bar.
Finally, Easterly's reliance on American Pipe & Const. Co. v. Utah, 414 U.S. 538 (1974), for the proposition the limitations period was tolled during the pendency of certain class action suits against MetLife in the federal court system, is misplaced. Easterly contends that as a member of the class protected by these actions, the limitations period on the state law claims were tolled until conclusion of the federal action, or until Easterly opted-out of the protected class, whichever occurred earlier. We disagree.
The class actions were filed as early as 1995 alleging wrongful piggybacking of claims and churning sales practices. Several of these suits were consolidated into a single Multi-District Litigation ("MDL") action in the United States District Court for the Western District of Pennsylvania, and a consolidated complaint was filed on July 1, 1996. While we agree American Pipe facially holds the commencement of a class action suspends the applicable limitations periods for the members of the class, such tolling cannot be said to revive an action which has already expired. As the MDL was initiated after the running of the applicable limitations period for Easterly's claims, the tolling contemplated under American Pipe, cannot freshen a stale claim. Further, while it appears no Kentucky court has passed on the issue, several of our sister jurisdictions have held the tolling contemplated by American Pipe does not apply cross-jurisdictionally to toll limitations periods on state law claims. See Vaught v. Showa Denko K.K., 107 F.3d 1137 (5th Cir. 1997) (interpreting Texas state law); Bell v. Showa Denko K.K., 899 S.W.2d 749, 757-58 (Tex.Civ.App. 1995); Singer Bros. Nursery v. E.I. Dupont De Nemours & Co., 184 F.R.D. 674 (M.D.Fla. 1999) (construing Florida state law); Pare v. Wyeth, Inc., 870 A.2d 378, 382 (Pa.Super. 2005).[14] The logic contained in these opinions is sound and we perceive no reason not to follow the lead of these learned courts. We thus conclude the tolling of federal claims as contemplated under American Pipe does not apply cross-jurisdictionally to toll state law claims in the Commonwealth.
BREACH OF CONTRACT
We next turn to Easterly's breach of contract claim. The only written contract between the parties was the universal life insurance policy having a face value of $185,000.00. The alleged contract for a $235,000.00 life insurance policy was oral in nature and claims for the breach thereof would be controlled by the limitations period set forth in KRS 413.120(1), which states actions on contracts not in writing, either express or implied, must be brought within five years. As Easterly's claim was not filed until more than ten years after the alleged making of the oral contract, it was untimely and the trial court erred in not so finding.
Easterly made an offer to MetLife to purchase $235,000.00 of life insurance in 1989. However, MetLife accepted and approved only $185,000.00 of life insurance when the policy was issued, agreed to pay that sum, and does not dispute it insured Easterly for that amount. Easterly did not reject the policy within thirty days of its receipt, as was his right, but rather continued to exercise authority, ownership and control over the policy. Thus, the only meeting of the minds reduced to writing and relied upon by the parties was for the lower amount, and any other alleged agreement could only be considered at law as an oral contract. In fact, in the briefs filed with this Court, Easterly acknowledges the contract with MetLife for $235,000.00 was oral.
Easterly contends this oral contract was breached when MetLife issued the universal life insurance policy with the lower face value of $185,000.00. Thus, by Easterly's own admission, the breach of contract, if any, occurred in November 1989 when the policy was issued.[15] It has long been the law of the Commonwealth that the limitations period begins to run on a claim of breach of contract when there is a refusal by one party to perform under the terms thereof. Hoskins' Adm'r v. Kentucky Ridge Coal Co., 305 S.W.2d 308 (Ky. 1957); Elliott v. Walker, 145 Ky. 71, 140 S.W. 51 (1911); Davis v. Brown, 17 Ky.L.Rptr. 1428, 32 S.W. 614 (1895); Payne v. Smith, 7 J.J.Marsh. 500, 30 Ky. 500 (1832). There being no discovery rule for breach of contract claims as there is for claims based in fraud or mistake, under the plain language of KRS 413.120(1), Easterly's breach of contract claim became stale in 1994, some five years prior to the filing of the instant action. The trial court erred in not so finding.
Therefore, for the foregoing reasons, the judgment of the Fayette Circuit Court is reversed, and the cause remanded for further proceedings consistent with this opinion.
ALL CONCUR.
[1] Senior Judge Daniel Guidugli sitting as Special Judge by assignment of the Chief Justice pursuant to Section 110(5) (b) of the Kentucky Constitution and Kentucky Revised Statutes (KRS) 21.580.
[2] Charles Easterly passed away in 2003 during the pendency of the trial court litigation. The action was properly revived naming his estate as a substitute plaintiff. Marjorie Easterly passed away during the pendency of the instant appeal. The action was properly revived naming her estate as a substitute appellant.
[3] The whole life policy had been issued in 1978 following Charles Easterly's retirement from General Motors. This policy replaced a term life insurance policy which had been provided as an employment benefit. All of the policies insured the life of Mr. Easterly. Mrs. Easterly was the policy holder and initial beneficiary of same.
[4] To achieve maximum benefit for Easterly, the exchange was made pursuant to section 1035 of the Internal Revenue Code which governs the tax treatment of exchanges of assets such as insurance policies.
[5] Prather was named as a defendant in the circuit court but was never located and was not served with process. Therefore, the motivation for the alteration remains unknown.
[6] Easterly did not actually receive the policy from MetLife until January of 1990.
[7] Although the reasoning is unclear from the record, the universal life policy did not lapse despite Easterly's failure to make additional premium payments following receipt of the notification.
[8] Prather was never served with the complaint and made no appearance in this matter.
[9] Easterly agreed these claims were time barred and does not contest the trial court's ruling on these claims in this appeal.
[10] The trial court's order offered no explanation or analysis regarding the timeliness issues on these remaining claims.
[11] The trial court dismissed the claims against Prather, Torabi, Rue and Ravazi based on a stipulation that MetLife would assume liability and responsibility for any verdict rendered against these individual defendants.
[12] Contrary to Easterly's assertion, we believe this issue was properly presented to the trial court and preserved for our review.
[13] Actions grounded on mistake are covered by the five-year limitation period contained in KRS 413.120, but are not subject to the saving provision contained in KRS 413.130(3).
[14] We note other jurisdictions have adopted this rule, albeit in unpublished opinions. Such opinions will not be cited herein to comply with the letter and spirit of CR 76.28(4)(c).
[15] In Plaza Bottle Shop, Inc. v. Al Torstrick Ins. Agency, Inc., 712 S.W.2d 349 (Ky.App. 1986), we held a cause of action for breach of an oral promise to insure did not accrue until the proposed insured learned from the insurance company the requested coverage was not in force. Applying such rule to the instant facts would place the date of the breach in February 1990. However, based on our analysis, such distinction is immaterial to the ultimate resolution of the timeliness of Easterly's claim.
