BRUCE A. LEVY, Trustee of the

Estate of George Griffith and

Helen Griffith, Debtors;




VS. ADV. NO. 95-7032





Co-Executrixes of the Estate of

J. Douglas Graham; WILLIAM T. BACK,

VELMA BACK, his wife, and ETHEL





This matter is before the Court on remand from the United States District Court to resolve the question of whether contract claims against the Estate of J. Douglas Graham (Athe Graham Estate@) are time-barred. The plaintiffs= statements concerning the issue or issues before this Court to the contrary notwithstanding, this is the only issue on remand. This matter was tried on August 29 and September 9, 1996. Findings of Fact and Conclusions of Law were rendered on December 27, 1996, and after consideration of various motions to alter or amend, a final Judgment was entered on January 24, 1997. On appeal and cross appeal the District Court affirmed this Court=s decision except with regard to the contract claims of the plaintiffs herein against the Graham Estate, and the effect of the statute of limitations and the timeliness of the claims upon them.

In its ruling the District Court stated that the issues remanded are the same as those the Graham Estate asserted in its motion to dismiss which this Court overruled by order of February 26, 1996. On this matter, the Court issued a written opinion simultaneously with its order, setting out its reasons for overruling the Graham Estate=s motion to dismiss the myriad claims asserted. Passages from the opinion may be helpful herein:

The Graham Estate's Motion to Dismiss argues, first of all, that the trustee may not bring any claim against the Estate because it did not exist on the date the bankruptcy petition was filed, Graham having died on June 12, 1994. The Estate further argues that, pursuant to KRS 396.035, the plaintiffs are prohibited from bringing any civil action against the Estate unless and until they have presented a claim against it and the claim has been rejected. Even if the plaintiffs, or any of them, had presented a claim against the Estate, however, it contends that the claim would be barred by the statute of limitations as set out in KRS 396.011. In that regard, the Estate also contends that 11 U.S.C. '108 does not operate to extend the time. The Estate further contends that the claims of conversion, conspiracy, and professional malpractice are time-barred by KRS 413.140 and 413.245.

In regard to the Graham Estate's Motion to Dismiss, the plaintiffs argue that no statute of limitations cited by the Estate operates to bar their claims against it. Specifically, they state that KRS 396.011 does not apply in this proceeding because it is expressly overridden by KRS 413.245 as to claims which constitute malpractice. Further, the plaintiffs point out, the time limit in KRS 413.245 does not begin to run until the "cause of action was, or reasonably should have been, discovered by the party injured." This did not occur, they argue, until Graham cashed the Certificate of Deposit in April 1994. In addition, they argue that KRS 413.190, which provides that the statute of limitations does not run during the period in which the defendant "by any ... indirect means obstructs the prosecution of the action," and which has been applied to misrepresentations and concealment of underlying facts, takes Graham's acts and omissions outside KRS 396.011. While this statute may [] apply to a myriad of actions mentioned in KRS 413.090 to 413.160, it clearly does not apply to extend the limitations period for state law preferential conveyances pursuant to KRS 378.060 since that statute has its own limitations period set forth in KRS 378.070.

. . . . .

In Columbia Natural Resources v. Tatum, 58 F.3d 1101 (6th Cir. 1995), the court, in determining whether a district court had correctly dismissed a suit pursuant to FRCP 12(b)(6), stated:

The district court must construe the complaint in a light most favorable to the plaintiff, accept all of the factual allegations as true, and determine whether the plaintiff undoubtedly can prove no set of facts in support of his claims that would entitle him to relief. .... When an allegation is capable of more than one inference, it must be construed in the plaintiff's favor. .... Hence, a judge may not grant a Rule 12(b)(6) motion based on a disbelief of a complaint's factual allegations. (Cites omitted.)

At page 1109.

. . . . .

Applying this standard to the facts pleaded in the Complaint filed herein, as well as the reasonable inferences to be drawn from those facts, it is clear that this Court must overrule both Motions to Dismiss except to the extent that they are directed at state law preferential conveyances.

In considering a motion to dismiss, this Court was bound to, and did, make a determination of the sufficiency of the plaintiffs= Complaint. Once that determination was made, there was no need for the Court to discuss the merits of the Graham Estate=s timely filing and statute of limitations arguments. The Court had, after all, decided that these considerations did not warrant the dismissal of the Complaint. The matter proceeded to trial, and the Graham Estate prevailed on every issue except the plaintiffs= contract claim against it. This Court found that Douglas Graham had earned his fee up to the time he withdrew, and that he was justified in withdrawing from the case. The Court then stated in its Findings of Fact and Conclusions of Law:

This Court is also of the opinion, however, that Graham violated the escrow agreement when he withdrew the funds without informing George Griffith or Harlan Noble. The essence of their agreement appears to the Court to be that Graham would continue to represent them in the state court action without charging them any further fee, not that he would not have earned it until the litigation was concluded. This is evidenced by the fact that he continued to represent them after he cashed the CD. Therefore their damages are the additional attorney fees incurred in defense of the Back claim after Graham withdrew, including the $5,000.00 paid to Calvin Akers. This sum was paid by the payment of $2,500 by the Nobles and the same sum by the Griffiths. The trustee is entitled to recover any damages that the Griffiths would have recovered in this regard as this cause of action became property of the bankruptcy estate when the Griffiths filed their petition.

It appears that the Graham Estate=s contention that the claims arose after George and Helen Griffith filed for bankruptcy and therefore are not property of the bankruptcy estate have been ruled upon. The contentions that remain are that none of the plaintiffs timely presented a claim against the Estate, and that such claims are barred by the statute of limitations. These questions, as well as the effect of 11 U.S.C. '108(a) on time considerations, are now before this Court.

The Graham Estate has consistently presented the same arguments as it did in its Motion to Dismiss: that KRS 396.035 prohibits the bringing of any civil action, including this adversary proceeding, unless the claimant first files a claim with the probate court or mails a statement of the claim to the estate=s personal representative, and that KRS 396.011 bars the plaintiffs= claims. As concerns the KRS 396.035 argument, the plaintiffs respond that they did present their claims against the Graham Estate in the manner prescribed by KRS 396.015, and that their claim was disallowed and rejected 30 days before the Graham Estate filed its motion to dismiss herein in 1995. As stated above, this Court overruled the motion to dismiss in February 1996.

The Graham Estate=s primary argument, however, is that even assuming the plaintiffs had the right to make any claim against it, those claims are completely time-barred by the statute of limitations set out in KRS 396.011. That section provides in relevant part as follows:

(1) All claims against a decedent=s estate which arose before the death of the decedent, .... whether due or to become due, absolute or contingent, liquidated or unliquidated, founded on contract, tort, or other legal basis, if not barred earlier by other statute of limitations, are barred against the estate, the personal representative, and the heirs and devisees of the decedent, unless presented within six (6) months after the appointment of the personal representative, ....

As the Graham Estate points out, none of the plaintiffs filed any claim against Douglas Graham personally or against his estate before this matter was filed on August 15, 1995, more than one year after the appointment of the personal representatives on June 22, 1994, and nearly nine months after the expiration of the statute of limitations under KRS 396.011.

The plaintiffs have consistently argued that these periods of limitation do not apply to them. However, on remand, they have treated the timeliness of the trustee=s claims and that of the Nobles= claims separately. In regard to the trustee=s claims they have taken the position that any claims based on the contract or escrow agreement had a fifteen year statute of limitations, and that any claims based in tort or on oral agreements had a five year statute of limitations, none of which had expired when the Griffiths= bankruptcy petition was filed in January 1994. Since this action was filed within the two year extension period allowed by 11 U.S.C. '108(a), they argue, it is timely.

As concerns the Nobles, they contend that their claims against the Graham Estate did not arise until after Douglas Graham=s death because they did not find out about violation of the escrow agreement until after he died. They therefore argue that their claims fall under KRS 413.245 which deals with actions for professional service malpractice and provides in part that such an action A...shall be brought within one (1) year from the date of the occurrence or from the date when the cause of action was, or reasonably should have been, discovered.@ Since the only issue being considered here, however, is whether the contract claims against the Graham Estate are time-barred, the same considerations apply to the Nobles.

The contract between Douglas Graham and the Griffiths and Nobles was entered into July 2, 1990, and this Court ruled that the contract had been breached when Douglas Graham ceased representing them and they each had to pay another $2,500.00 to hire a new attorney. They were therefore aware of the breach at that time, and their contract claims arose at that time. Being claims that arose before Graham=s death, they were required by KRS 396.011 to be presented within six months of the appointment of the Graham Estate=s personal representatives on June 24, 1994.

In the case of the trustee, however, the extension of time provided by 11 U.S.C. '108(a) for filing an action on this contract made the trustee=s filing timely. Section 108(a) provides in pertinent part:

If applicable nonbankruptcy law .... fixes a period within which the debtor may commence an action, and such period has not expired before the date of filing of the petition, the trustee may commence such action only before the later of----(1) the end of such period including any suspension of such period occurring on or after the commencement of the case; or (2) two years after the order for relief.

The period for filing a claim with the Graham Estate had not expired before the Griffiths filed their petition, and the trustee filed this action within two years after the order for relief was entered, fulfilling the requirements of '108(a). See In re DiSalvo, 224 B.R. 763, 769 (9th Cir.BAP 1998). The rationale behind '108(a) is that the introduction of a new party, the trustee, into the affairs of the debtor requires the provision of special time limitations for the trustee to take actions that the debtor could have taken under nonbankruptcy law. Further, federal law takes precedence over state law in bankruptcy matters. See In re Martin, 157 B.R. 268, 276 (Bkrtcy.W.D.Va. 1993).

The Nobles, on the other hand, do not have the benefit of the '108(a) extension of the limitation period. As set out above, the contract with Douglas Graham was breached, and they were aware of the breach, before his death. They were required to file a claim with the personal representatives within six months after June 24, 1994. They did not, and their claim is therefore untimely and must be denied and should have been denied by this Court at the conclusion of the trial.

Before concluding, this Court is compelled to make an observation concerning the plaintiffs= constant reference to Douglas Graham in their briefs on remand as a Acrooked lawyer.@ First of all, this Court ruled after trial that Graham had earned his fee up to the time he withdrew, and that he was justified in withdrawing from the case. Graham=s conduct toward the plaintiffs is no longer in issue, and this gratuitous denigration of Graham=s character violates every principle of civility, if not ethics, to which the legal profession purports to adhere. Counsel for the plaintiffs are admonished that this Court will not tolerate the use of such language in any future proceedings before it.







By the Court -





Copies to:


Bruce A. Levy, Esq., Trustee

C. Wayne Shepherd, Esq.

C. Christopher Trower, Esq.

Gina S. McCann, Esq.