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RENDERED: MARCH 14, 2024
NOT TO BE PUBLISHED
Supreme Court of Kentucky
2023-SC-0044-DG
MARK HANDY APPELLANT
ON REVIEW FROM COURT OF APPEALS
V. NO. 2021-CA-0664
JEFFERSON CIRCUIT COURT NO. 20-CI-004304
LOUISVILLE/JEFFERSON APPELLEE
COUNTY METRO GOVERNMENT
MEMORANDUM OPINION OF THE COURT
REVERSING AND REINSTATING
Subject to certain exceptions, the Claims Against Local Governments
Act 1 (CALGA) mandates that a local government provide for the defense of its
employees in any tort action arising out of an act or omission that occurs
within the scope of that employee’s employment, and further mandates that the
local government must pay any judgment or settlement arising therefrom. KRS
65.2005(1). However, a local government may seek indemnification from an
employee for those expenses under CALGA if “[t]he employee acted or failed to
act because of fraud, malice, or corruption[.]” KRS 65.2005(3)(a). In Kentucky,
those indemnity claims are subject to a five-year statute of limitations
1 Kentucky Revised Statutes (KRS) 65.200 to KRS 65.2006.
pursuant to KRS 413.120. Norohna v. Zolkiewicz, 583 S.W.3d 42, 46 (Ky. App.
2018) (citing Affholder, Inc. v. Preston Carroll Co., Inc., 27 F.3d 232, 234 (6th
Cir. 1994)).
In this case, Louisville/Jefferson County Metro Government (Metro) filed
a CALGA indemnity claim against Mark Handy (Handy), a former Louisville
Metro Police Department (LMPD) detective. Handy’s numerous acts of
misconduct during the course of his employment led to Edwin Chandler
(Chandler) being convicted and sentenced to thirty years’ imprisonment for
crimes he did not commit. After Chandler was exonerated, he filed a 42
U.S.C.A. § 1983 claim against Metro, Handy, and others alleging numerous
violations of his civil rights. Metro paid Handy’s legal fees, and it reached an
8.5-million-dollar settlement with Chandler on Handy’s behalf which it paid.
Six years after the Chandler settlement agreement was reached, Handy
was indicted for perjury in relation to Chandler’s case. Two years after that,
Handy pled guilty to the charge. One month later, Metro filed a CALGA
indemnity claim against Handy on the basis that he acted or failed to act
because of fraud, malice, or corruption during the Chandler investigation and
trial. Handy filed a motion to dismiss the claim and asserted that the statute
of limitations on Metro’s indemnity claim began running when Chandler filed
his § 1983 claim or, at the latest, it began when Metro agreed to pay Chandler
an 8.5-million-dollar settlement. Metro argued in response that it had
absolutely no knowledge of Handy’s “malice, fraud, or corruption” until he pled
2
guilty or, at the earliest, until he was indicted, and its claim was therefore
timely.
The Jefferson Circuit Court found that the statute of limitations began to
run on Metro’s indemnity claim, at the latest, when it reached its settlement
agreement with Chandler, and it dismissed the claim as untimely. The Court
of Appeals reversed the circuit court because it did not make a finding as to
when Metro knew or reasonably should have known of Handy’s malice, fraud,
or corruption. Louisville/Jefferson Cnty. Metro Gov’t v. Handy, 2021-CA-0664-
MR, 2022 WL 12138037, at *3 (Ky. App. Oct. 21, 2022). It remanded to the
circuit court for it to make that finding and proceed accordingly. Id. After
review, we reverse the Court of Appeals and reinstate the circuit court’s order
dismissing Metro’s indemnity claim against Handy as untimely.
I. FACTS AND PROCEDURAL BACKGROUND
Chandler filed his § 1983 complaint in July 2010. The complaint listed
several LMPD police officers as defendants, but in February 2012 Chandler
voluntarily dismissed his claims against all individually named officers save for
Handy and Sargent Jay Pierce (Pierce).
Chandler’s complaint alleged the following facts. On September 28,
1993, Percy Phillips (Phillips) murdered Brenda Whitfield (Whitfield) while she
was working as a clerk at a Chevron gas station in Louisville. Phillips entered
the gas station at approximately 10:15 pm and waited for the only other
individual in the store to leave. Phillips then went to the cooler, grabbed a
bottle of malt liquor, and placed it on the checkout counter. When Whitfield
3
opened the cash register to give Phillips change, he shot her in the face and
stole the paltry amount of money in the register. When Phillips fled the scene,
he left the malt liquor bottle, which had his fingerprint on it, and his hat
containing a least one hair in it. In addition, the station’s video surveillance
captured the entire incident, and two eyewitnesses saw Phillips at the scene:
the individual who left the store just before the shooting and an individual who
saw Phillips flee the scene while pumping gas.
Handy was assigned as the lead detective in Whitfield’s murder case and
was responsible for the investigation. Handy committed unconscionable and
egregious misconduct during the investigation which ultimately led to
Chandler’s wrongful conviction. That misconduct included: recording over the
surveillance footage depicting the robbery and murder; mischaracterizing
and/or omitting information provided by witnesses; disregarding the fact that a
fingerprint analyst determined that none of the latent fingerprints found on the
bottle of malt liquor matched Chandler’s fingerprints; disregarding the fact that
a forensic examiner determined Chandler’s hair did not match the hair found
in the cap left by the shooter at the scene; coercing Chandler’s alibi witnesses
into changing their statements; and using improper photographic lineups.
Handy also improperly coerced Chandler into providing a false
confession. Chandler discovered he was wanted by police after seeing his
photograph on the news several days after the shooting and voluntarily went to
the police station without counsel to clear his name. Chandler was subjected
to an improper polygraph examination after his initial interrogation and was
4
falsely told he had failed it. He was then subjected to an “aggressive” two-hour
interrogation by Handy and Pierce during which they confronted him with
several pieces of “evidence” they had proving his guilt, each of which were lies.
This false evidence included: that he failed his polygraph; that a customer of
the Chevron station had identified him as the shooter; that his neighbors had
identified the hat left at the scene as belonging to him; and that his fingerprints
were found on the bottle of malt liquor left by the shooter. They also
threatened to prosecute the family members Chandler had been living with for
harboring a fugitive if he did not confess. Additionally, Handy provided
Chandler with several details about the crime that had been withheld from the
public so that Chandler could regurgitate them in his “confession.” In
particular, that the last customer to leave the Chevron station before the
shooting had been wearing a Chicago White Sox cap.
During Chandler’s trial in February 1995, the Commonwealth’s case
relied almost solely on Chandler’s “confession.” Significantly, Handy falsely
testified that he learned one fact about the case for the first time from
Chandler: that the last customer to leave the Chevron station before the
shooting was wearing a Chicago White Sox cap. This was represented to the
jury as a fact that only the perpetrator could have known. Chandler was
ultimately convicted of first-degree robbery and second-degree manslaughter
and was sentenced to thirty years’ imprisonment. Chandler was paroled in
2002 after serving seven years of his sentence. He then began a tireless
campaign to exonerate himself and successfully lobbied LMPD’s cold case unit
5
to have the fingerprints found on the malt liquor bottle entered into AFIS. 2 In
October 2009, one of the prints on the bottle was matched to Phillips and he
was shortly thereafter indicted for Whitfield’s murder. In the same month, the
Jefferson County Commonwealth’s Attorney filed a joint motion with Chandler
to vacate and set aside his conviction and sentence.
As previously mentioned, Metro appointed and paid for Handy’s legal
representation in defending Chandler’s § 1983 suit in accordance with CALGA.
KRS 65.2005(1). On October 9, 2012, two years after the claim was filed,
Metro entered into a settlement agreement with Chandler for 8.5 million
dollars. Metro paid the entire settlement sum pursuant to CALGA. Id. Metro
asserts to this Court that the settlement agreement did not involve any
admissions of liability or wrongdoing, but the agreement itself is not in the
record now before us.
On September 26, 2018, six years after Metro entered into the settlement
agreement with Chandler, Handy was indicted by a Jefferson County grand
jury for one count of perjury in relation to Chandler’s case and one count of
tampering with physical evidence concerning a different case. Nearly two years
later in June 2020, Handy pled guilty to one count of perjury pursuant to a
plea deal. Under the terms of that deal, the Commonwealth dismissed the
tampering charge, and Handy acknowledged the following facts:
On or about February 7, 1995, in Jefferson County, Kentucky, the
defendant was the lead officer in the matter of Commonwealth v.
Edwin Chandler, 93CR3293. The defendant testified in trial that
2 Automated Fingerprint Identification System.
6
Mr. Chandler told him in an interview that an individual was in the
store prior to the homicide and was wearing a Chicago White Sox
hat. This fact was material to the proceedings against Mr.
Chandler as the individual who committed the murder would have
been the only person aware of this fact which had not been
released to the public. This testimony given by the defendant was
untruthful and led to the wrongful conviction of Edwin Chandler.
Handy subsequently withdrew his guilty plea in August 2020.
On July 23, 2020, roughly two years after Handy’s indictment and one
month after he pled guilty, Metro filed its CALGA indemnity claim against
Handy seeking reimbursement for legal fees and the settlement amount.
Metro’s claim alleged that Handy gave Chandler non-public information about
the crime and subsequently perjured himself. But, notably, the claim also
alleged that Handy erased the Chevron station video surveillance footage and
that he mischaracterized and/or omitted information provided by witnesses
during the Chandler investigation. In other words, Handy’s conduct as alleged
by Metro went beyond the perjury which Metro now claims formed the basis for
its belief that Handy acted with fraud, malice, or corruption.
Three months after Metro filed its claim, Handy filed a motion to dismiss
pursuant to CR 3 12.02(f) for failure to state a claim upon which relief could be
granted. Handy primarily argued, citing Affholder, Inc. v. Preston Carroll Co.,
Inc., 27 F.3d 232 (6th Cir. 1994), and Norohna v. Zolkiewicz, 583 S.W.3d 42
(Ky. App. 2018), that the statute of limitations began running on Metro’s
indemnity claim in 2010 when Chandler filed his § 1983 claim. Affholder and
3 Kentucky Rule of Civil Procedure.
7
Norohna each involved a common law indemnity claim and held that a claim
accrues, and therefore the statute of limitations is triggered, when the party
seeking indemnity is provided with “sufficient notice of [its] potential liability.”
Affholder, 27 F.3d at *6-7; Norohna, 583 S.W.3d at 47-48. In the alternative,
Handy asserted that Metro was certainly on notice that it had an indemnity
claim against Handy when it settled the Chandler suit in 2012. Citing
Queensway Financial Holdings Ltd. v. Cotton & Allen, P.S.C., 237 S.W.3d 141,
151 (Ky. 2007), Handy argued that Metro had an affirmative duty to exercise
reasonable diligence and investigate him for potential malice, fraud, or
corruption and it did not do so. Accordingly, the discovery rule could not save
its claim.
Metro countered that Affholder and Norohna do not apply because its
claim was a statutory indemnity claim under CALGA, not a common law
indemnity claim. Accordingly, the issue was not when Metro knew of its
“potential liability,” but rather when it knew that Handy had acted with malice,
fraud, or corruption. Metro argued that it had no knowledge of Handy’s
misconduct until he was indicted and pled guilty to perjury, and that it could
not have reasonably known of said misconduct because Handy actively
concealed it. Metro claimed that Handy denied any wrongdoing in relation to
Chandler’s case and had lied under oath regarding said wrongdoing during the
§ 1983 litigation. Therefore, it asserted, its claim was still viable under the
discovery rule, or in the alternative, the statute of limitations had been tolled
by Handy’s active concealment.
8
The circuit court initially denied Handy’s motion to dismiss with a
barebones ruling that simply found that “the Plaintiff’s complaint is sufficient
to state a cause of action against the Defendant.” Later, upon Handy’s motion
for reconsideration and clarification, the circuit court dismissed Metro’s claim.
Its order read:
Louisville/Jefferson County Metro Government (“Louisville Metro”)
brings this indemnification action against Handy in connection
with amounts it paid Edwin Chandler (“Chandler”) to resolve a
2010 lawsuit. Handy contends the indemnification action is
untimely as it was filed outside of the applicable five-year statute of
limitations. Citing Affholder, Inc. v. Preston Carroll Co., Inc., 27
F.3d 232 (6th Cir. 1994), and Norohna v. Zolkiewicz, 583 S.W.3d
42 (Ky. App. 2018), Handy emphasizes that knowledge of potential
liability triggers the start of the applicable five-year statute of
limitations in this matter and Louisville Metro had knowledge of
any potential indemnification claim when Chandler filed suit
against him in 2010 or at the time Louisville Metro settled
Chandler’s claims in 2012.
Louisville Metro contends it did not have knowledge of its
indemnification claim until Handy was indicted for perjury in
2018. Louisville Metro alternatively contends it did not have
knowledge of its indemnification claim until Handy entered a
subsequently withdrawn guilty plea to perjury in 2020. Under the
latter rationale, the five-year statute of limitations has not begun to
run. The court finds Louisville Metro’s positions to be without
merit. At the latest, the applicable five-year statute of limitations
began to run in 2012 when Louisville Metro settled Mr. Chandler’s
claims. That is when Louisville Metro had knowledge of Handy’s
potential liability. The indemnification claim is untimely. The
motion to reconsider will be granted. Louisville Metro’s complaint
against Handy will be dismissed.
The circuit court did not address Metro’s argument that the statute of
limitations had been tolled by Handy’s alleged concealment. Metro appealed
the circuit court’s ruling to the Court of Appeals.
9
The Court of Appeals reversed and held that the circuit court erred by
dismissing Metro’s claim based on “knowledge of Handy’s potential liability.”
Handy, 2022 WL 12138037, at *3. The court noted that the “discovery rule
operates to save claims for injuries that were not immediately discoverable
when those injuries occurred,” and that to trigger the statute of limitations
under the discovery rule one must know: (1) that he has been wronged, and (2)
by whom the wrong was committed. Id. at *2. It held that
Metro only has an indemnification claim against Handy for his
known acts of fraud, malice, or corruption. In the circuit court's
written order, there is no finding when Metro had knowledge of
Handy's fraud, malice, or corruption – there is only a finding of
when Metro knew of Handy's potential liability, which took the
form of the mere claim of liability Chandler brought suit to prove
but never did, and which Metro denied and defended against.
Handy's liability was merely alleged at that point and KRS 65.2005
did not authorize Metro to initiate a claim for Handy's potential
liability.
Id. The court remanded to the circuit court for further proceedings “beginning
with a finding of when Metro knew or reasonably should have known of
Handy's fraud, malice, or corruption[.]” Id. In doing so, the Court of Appeals
acknowledged that if “Metro knew or reasonably should have known of Handy's
wrongdoing in 2012, then Metro's claim would be time barred under the
applicable statute of limitations.” Id. Handy now appeals the Court of Appeals’
ruling to this Court.
10
II. ANALYSIS
When reviewing a circuit court’s ruling dismissing a case for failure to
state a claim, we assume that all the facts asserted in the plaintiff’s complaint
are true. See, e.g., Lawrence v. Bingham, Greenebaum, Doll, L.L.P., 567 S.W.3d
133, 137 (Ky. 2018). We then ask whether the plaintiff is entitled to relief
based on those facts. Id. As this is purely a question of law, our review of a
circuit court’s order dismissing for failure to state a claim is reviewed de novo.
Id.
Before this Court, the parties’ arguments remain largely the same.
Handy asserts that Affholder and Norohna apply, and that the statute of
limitations on Metro’s claim therefore began running in 2010 when Chandler
filed his § 1983 claim. In the alternative, he asserts that the statute of
limitations began running when Metro settled the Chandler claim. Handy
contends that the allegations contained in the Chandler complaint were more
than sufficient to put Metro on notice that it had a potential indemnity claim
against him. Accordingly, he argues, the Court of Appeals’ application of the
discovery rule directly conflicts with Queensway, as that precedent is clear that
a claimant has a duty to promptly investigate further when a claimant has
reasonable notice that it may have a claim.
In response, Metro asserts that Affholder and Norohna are inapplicable,
and it continues to claim that it had “zero knowledge” of Handy’s fraud, malice,
or corruption until Handy pled guilty to perjury. It therefore asserts that the
Court of Appeals was correct in applying the discovery rule to its claim against
11
Handy. It argues in the alternative that the statute of limitations should have
been tolled because Handy actively attempted to conceal his wrongdoing by
lying under oath during the § 1983 litigation.
We agree with Metro that Affholder and Norohna are inapplicable, and
therefore the statute of limitations did not begin running when Chandler filed
his § 1983 claim. Nevertheless, we disagree with the Court of Appeals’
application of the discovery rule in this case. “[T]he discovery rule is available
only in cases where the fact of injury or offending instrumentality is not
immediately evident or discoverable with the exercise of reasonable diligence[.]”
Fluke Corp. v. LeMaster, 306 S.W.3d 55, 61 (Ky. 2010) (emphasis added). The
circumstances leading up to the § 1983 litigation, the facts alleged by Chandler
during that litigation, and the settlement that resulted were more than
sufficient to put Metro on notice that it should have investigated Handy for
fraud, malice, or corruption. See Queensway, 237 S.W.3d at 151. By its own
admission, Metro allowed Handy to continue his employment as an LMPD
detective after the Chandler settlement. Metro now tries to benefit from its own
claimed inaction, asserting that it did not know of Handy’s misconduct until he
pled guilty to perjury.
Metro’s cause of action for indemnity against Handy accrued in 2012
when it entered into and paid the Chandler settlement agreement. The
discovery rule does not save its claim, and the statute of limitations was not
tolled.
12
We begin with an explanation of why Affholder and Noronha are
inapplicable in this case. Nearly three decades ago in Affholder, this Court was
asked by the Sixth Circuit to certify the law of Kentucky regarding when the
statute of limitations began to run on a common law indemnity claim. 27 F.3d
at 233. The case concerned a wastewater treatment project for the
Metropolitan Sewer District of Louisville (MSD). Id. A subcontractor on the
project sued its general contractors for additional costs incurred due to alleged
defects in the project’s design and soil conditions. Id. at 234. The general
contractors in turn filed a third-party indemnity claim in the case against MSD
and the engineering companies that worked on the project. Id. The third-party
defendants filed a motion for summary judgment based on their argument that
the indemnity claim was untimely, and the Sixth Circuit sought certification of
Kentucky law regarding, inter alia, when the statute of limitations began to run
on the claim. Id. at 233.
The certification of law issued by this Court in response held that the
statute of limitations began running on the general contractors’ indemnity
claim against the third-party defendants when the subcontractor filed its claim
against the general contractors. Id. at 235. The Court noted that “[a] party is
responsible to know the date on which a cause of action is or reasonably
should have been discovered. It is that knowledge, whether actual or imputed,
that triggers the start of any applicable statute of limitations.” Id. It went on
to reason that “the damage or wrong” that occurred in the case was “the
potential liability claimed by [the subcontractor] against the [general
13
contractors,]” and that “[t]he date of the filing of the claim was the first moment
in time that the [general contractors] could have possibly known that they were
facing potential liability.” Id.
In Norohna, Nirmala Norohna (Norohna) the co-owner of a company
sought indemnity against, inter alia, her investors. 583 S.W.3d at 43.
Norohna alleged that her investors fraudulently diverted the company’s
accounts receivable to themselves, leaving the company unable to pay its
federal withholding taxes in the second and third quarters of 2000. Id. at 43-
44. This led to the IRS assessing Norohna for the company’s unpaid taxes with
interest and penalties in 2001. Id. at 44. After unsuccessfully fighting the
IRS’s assessment for several years, Norohna began paying the assessment in
2011 and paid it off in 2015. Id. In 2016, Norohna filed an indemnity claim
against the investors and others for repayment of the tax assessment. Id. The
circuit court granted the defendants’ motion to dismiss the claim as untimely.
Id. at 45.
The Court of Appeals affirmed. Id. The court rejected Norohna’s
argument that the statute of limitations was not triggered until 2011 when she
began to pay the assessment, and instead held that it began running in 2001
when the IRS initially assessed the company’s unpaid taxes against her. Id. at
47. Applying Affholder, the court reasoned that was the point in time at which
she “had actual knowledge of possible liability.” Id.
Although we are somewhat wary of the holding in Affholder and the
reinforcement of that holding in Norohna—how can a cause of action for
14
indemnity accrue before the party seeking indemnity has paid anything for
which he or she could be indemnified? —we have not been asked to revisit or
overturn those opinions and, at any rate, they have no application here. Unlike
those cases, which concerned common law indemnity claims, the cause of
action for indemnity in this case is derived from statute. Specifically, CALGA
directs that
(3) A local government may refuse to pay a judgment or settlement
in any action against an employee, or if a local government pays
any claim or judgment against any employee pursuant to
subsection (1) of this section, it may recover from such
employee the amount of such payment and the costs to defend
if:
(a) The employee acted or failed to act because of
fraud, malice, or corruption[.]
KRS 65.2005(3)(a) (emphasis added). Consequently, a cause of action for an
indemnity claim under this provision of CALGA requires: (1) that a local
government has paid a claim or judgment on behalf of an employee; and (2)
that the employee acted or failed to act due to fraud, malice, or corruption. If
we were to apply the holdings in Affholder and Norohna in this case, we would
be bound to hold that the statute of limitations on Metro’s indemnity claim
began running in 2010 when Chandler filed his § 1983 claim, as that was the
date Metro had knowledge of its “potential liability.” But, at that point, Metro
had not paid “any claim or judgment” assessed against Handy. Its cause of
action under CALGA for indemnity had therefore not accrued, and the statute
of limitations could not have yet been triggered.
15
As the statute of limitations did not begin running upon the filing of
Chandler’s § 1983 suit, the question becomes: when did it begin to run? A
basic tenet of the law concerning statutes of limitations is that, generally, a
statute of limitations begins to run when the underlying cause of action
accrues, i.e., a harmful act and a resulting injury have occurred. The discovery
rule, on the other hand, “presumes that a cause of action has accrued . . . but
that it has accrued in circumstances where the cause of action is not
reasonably discoverable, and it tolls the running of the statute of limitations
until the claimant knows, or reasonably should know, that injury has
occurred.” Michels v. Sklavos, 869 S.W.2d 728, 732 (Ky. 1994) (emphasis
added). In other words, the discovery rule has no application in cases where
the cause of action is reasonably discoverable by the plaintiff. 4 Queensway is
demonstrative.
In Queensway, Queensway Financial Holdings, Ltd. (Queensway) agreed
to buy Paradigm Insurance Company (Paradigm). 237 S.W.3d at 143. Under
the purchase agreement, Paradigm was to produce an audited financial
statement as of September 30, 1997, to set the purchase price. The audit was
performed by Cotton & Allen, P.S.C. (Cotton & Allen), which had been
performing Paradigm’s audits for several years. Id. Cotton & Allen delivered
the audit on December 16, 1997, and Queensway purchased and took over
4 Indeed, the discovery rule is most often applied in cases where a cause of
action is not reasonably discoverable through due diligence such as medical
malpractice where the rule finds its origin. See Tomlinson v. Siehl, 459 S.W.2d 166
(Ky. 1970).
16
Paradigm’s operations on December 31. Id. at 144. On the day of the
purchase, sometime after it was completed, Greg Bubalo (Bubalo), Paradigm’s
general counsel and head of claims, informed Queensway that its reserves were
being increased by $ 3.3 million. Id. Prior to the purchase, on December 5,
Bubalo had informed Queensway’s actuary that he was changing the way the
reserves were to be calculated, and that Paradigm’s method for setting reserves
“was in need of systematic revision.” Id. at 143. In October 1998, the Indiana
Department of Insurance reviewed Paradigm’s books and questioned the
adequacy of its reserves. Id. at 145. And, on February 15, 1999, the
Department of Insurance ordered that Paradigm’s reserves be adjusted upward
by approximately 6 million dollars. Id.
In February 2000, Queensway filed suit against Cotton & Allen for
breach of contract and professional malpractice in auditing Paradigm’s
financial statements. Id. at 147. Cotton & Allen filed a motion to dismiss,
claiming the suit was filed outside the one-year statute of limitations for
professional malpractice. Id. The circuit court granted the motion, and the
Court of Appeals affirmed. Id.
Before this Court, Queensway argued that the statute of limitations
should have been tolled until at least February 1999 when the Department of
Insurance ordered Paradigm’s reserves be adjusted. Id. Queensway argued
this was the point at which its cause of action accrued because its damages
had become fixed and non-speculative. Id. at 148. The Queensway Court
rejected this argument, as it did not focus on the “correct injury and damages.”
17
Id. at 149. The Court explained that any damages Queensway suffered
stemmed from its overpayment for Paradigm, and therefore its damages
became fixed and non-speculative at the time of the purchase in December
1997. Id. In other words, “[i]f the reserves were set too low, then the price paid
for the company was too high[,]” and “the reserve adjustment did not require
Queensway or Paradigm to pay out any money; rather, it required only that
cash from surplus be shifted to reserves[.]” Id. The Court accordingly
concluded that “Queensway’s cause of action accrued well more than a year
prior to its filing suit[,]” and the survival of its claim depended on “whether it
enjoy[ed] the benefit of the discovery rule.” Id. at 150.
With regard to the discovery rule, Queensway argued—as Metro does
here—that there was “a material issue of fact as to when it knew or reasonably
should have known of its cause of action[.]” Id. This Court rejected this
argument outright and held that “Queensway should have known of its cause
of action beginning in December 1997 when it completed its purchase.” Id. It
held that the “controlling factor” was that Queensway was informed by Bubalo
that the reserves were being increased by $3.3 million on the day it purchased
Paradigm. Id. at 151. The Court explained:
At that time, Queensway had knowledge of a reduction in the value
of Paradigm and should have known that something was amiss
with the way reserves were being calculated. When combined with
the fact that the reserves had previously been adjusted upward as
part of a plan to “attain adequacy” of reserves, the significant,
postpurchase adjustment should have been especially troubling.
The response to this is that the obvious problems with Paradigm's
reserve setting system did not by themselves mean Queensway
18
should have known of Cotton & Allen's alleged negligence.
However, that Queensway had to make a significant
adjustment, and in essence suffered losses after having had
the benefit of Cotton & Allen's audit report, should have put
them on notice that something was wrong with the report.
Cotton & Allen's report showed no problem with the reserves,
yet within weeks of its delivery, Paradigm had to make
significant adjustments to those reserves. The disconnect
between these two facts is striking and would lead a
reasonable owner to investigate why the report had failed to
show the inadequacy of reserves that had to be adjusted
upward only a short time later. Assuming Cotton & Allen was
responsible for assessing the reserves (rather than relying on
actuarial certifications), such an investigation would have revealed
one of two things as of December 31, 1997: either Paradigm's
claims had taken significant unpredictable turns in the fourth
quarter, or Cotton & Allen had been negligent in auditing the
reserves.
Regardless of which option (or combination of the two) was true, it
was clear that Queensway knew it had suffered damages at
that time by the amount of the decrease in Paradigm's true
value as a result of the reserves adjustment. The fact that the
cause of the injury may not have been obvious does not mean
Queensway could avoid the effects of the discovery rule
statute of limitations at that point. “[T]he discovery rule does
not operate to toll the statute of limitations to allow an injured
plaintiff to discover the identity of the wrongdoer unless there is
fraudulent concealment or a misrepresentation by the defendant of
his role in causing the plaintiff's injuries.” McLain v. Dana Corp.,
16 S.W.3d 320, 326 (Ky. App. 1999). “A person who knows he has
been injured has a duty to investigate and discover the identity of
the tortfeasor within the statutory time constraints.” Combs v.
Albert Kahn Associates, Inc., 183 S.W.3d 190, 199 (Ky. App. 2006).
Had Queensway exercised reasonable diligence, it would have
taken some steps, upon notice of the $3.3 million reserves
adjustment, to discover the source of the injury.
Id. (emphasis added). This Court accordingly upheld the circuit court’s
dismissal of Queensway’s claim, as it ‘“had numerous opportunities to discover
any issues regarding the mishandling of the insurance reserves’ and should
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have known of its injury as early as December 1997 and no later than October
1998.” Id. at 152.
Applying Queensway to the facts of this case, it is clear that Metro’s
cause of action against Handy accrued in 2012. Metro paid an 8.5 million
dollar settlement to Chandler and was therefore clearly injured as of that year.
And the cause of Metro’s injury was Handy’s fraud, malice, or corruption: At
the time Chandler filed his suit, it was an undeniable, objective fact that
Chandler had been convicted and sentenced because of an investigation for
which Handy was responsible, and that he had later been exonerated based on
evidence that Handy had in his possession from the outset of the investigation.
This should have put Metro on notice that something was very badly amiss
with Handy and his conduct. Had Metro exercised due diligence or, indeed,
performed any follow up investigation of Handy at all, it could have easily
discovered that his investigation was absolutely wrought with malice, fraud,
and corruption. After all, Metro was a party to the § 1983 suit. As a practical
matter, that litigation consisted of a plaintiff-led investigation into Handy’s
fraud. Consequently, in accordance with Queensway, Metro does not now get
to avail itself of the discovery rule.
For similar reasons, we are likewise unpersuaded by Metro’s argument
that the statute of limitations should be tolled. There are two necessary
prerequisites for the application of equitable tolling: “a litigant must show ‘“(1)
that he has been pursuing his rights diligently, and (2) that some extraordinary
circumstance stood in his way and prevented timely filing,” with those
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circumstances being beyond the litigant's control.’” See, e.g., MGG Inv. Group
LP v. Bemak N.V., Ltd., 671 S.W.3d 76, 88 (Ky. 2023) (quoting Williams v.
Hawkins, 594 S.W.3d 189 (Ky. 2020)). Even if this Court were to conclude that
Handy’s efforts to conceal his misconduct by lying under oath constituted an
“extraordinary circumstance,” Metro has not proven that it has been diligently
pursuing its rights, as it sat on this indemnity claim for eight years and did
nothing to further investigate Handy’s misconduct.
III. CONCLUSION
Based on the foregoing, we conclude that Metro’s cause of action for
indemnity under CALGA accrued in 2012. Accordingly, the statute of
limitations on that claim began running in 2012, rendering Metro’s 2020
complaint well-outside the five-year statute of limitations. Metro does not
receive the benefit of the discovery rule because it was placed on notice in 2012
that it should have further investigated Handy’s conduct surrounding the
Chandler investigation, and now asserts it did not. The statute of limitations is
not tolled for the same reason. The Court of Appeals is hereby reversed and
the circuit court order dismissing its claim is hereby reinstated, based on
different reasoning.
All sitting. VanMeter, C.J.; Conley, Keller, Lambert, and Nickell, JJ.,
concur. Thompson, J., dissents by separate opinion, in which Bisig, J., joins.
THOMPSON, J., DISSENTING. Respectfully, I dissent and would affirm
the well-reasoned Court of Appeals opinion. The majority allows an admittedly
dishonest police officer, Mark Handy, to escape all financial responsibility for
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the actions he took that led to the wrongful imprisonment of an innocent man,
Edwin Chandler. The majority does so on the basis that the Louisville/
Jefferson County Metro Government (Metro), should have been able to
determine sooner that Handy “acted or failed to act because of fraud, malice, or
corruption[.]” Kentucky Revised Statutes (KRS) 65.2005(3)(a). This decision
leaves Metro and taxpayers responsible for shouldering the cost of Handy’s
defense and the subsequent substantial settlement provided to Chandler, even
though the first conclusive evidence of Handy’s fraud was not produced until
2020, when Handy admitted to the perjury in conjunction with a criminal case
brought against him relating to his actions vis-a-vis Chandler’s criminal
prosecution. Metro acted properly in then immediately seeking indemnification.
The Claims Against Local Governments Act (CALGA) requires local
governments to defend their employees and pay judgments arising from acts or
omissions that occur within the scope of their employees’ employment. KRS
65.2005(3). This obligation “is absolute in the absence of a statutory
exception.” Louisville/Jefferson Cnty. Metro Gov’t v. Braden, 519 S.W.3d 386,
395 (Ky. App. 2017). However, CALGA contains only very narrow grounds for
either refusing to defend and pay any judgment or settlement, or for seeking
recovery of the cost to defend and the repayment of any judgment or
settlement. KRS 65.2005(3). Due to such restrictions, Metro was obligated to
provide Handy with a defense and be financially responsible for the ultimate
resolution of Chandler’s claim, until and unless it had conclusive proof that
one of the five exemptions in KRS 65.2005(3)(a)-(e) was present. Additionally,
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there can be no proper action for indemnification until after a local government
has actual knowledge that an exemption applies. In this sense, CALGA recovery
claims are distinguishable from ordinary cases, because local governments’
statutory duty puts them in a different position relative to their employees than
ordinarily occurs in civil complaints.
The circuit court in granting a dismissal of Metro’s indemnification in
Handy’s favor ruled: “At the latest, the applicable five-year statute of limitations
began to run in 2012 when Louisville Metro settled Mr. Chandler’s claims. That
is when Louisville Metro had knowledge of Handy’s potential liability.”
(Emphasis added).
The majority agrees, explaining that at that time Metro knew that
Chandler had been convicted and sentenced because of a botched investigation
for which Handy was responsible and had later been exonerated based on
evidence Handy had in his possession, which should have put Metro on notice
that something was badly amiss. The majority opines: “Had Metro exercised
due diligence or, indeed, performed any follow up investigation of Handy at all,
it could have easily discovered that his investigation was absolutely wrought
with malice, fraud, and corruption.” For this reason, the majority believes that
the five-year statute of limitations for indemnification had lapsed and had not
been tolled. I disagree.
I instead agree with the Court of Appeals that the circuit court’s finding
that Metro had knowledge in 2012 of “Handy’s potential liability, which took the
form of a mere claim of liability Chandler brought suit to prove but never did[,]”
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could not authorize Metro to initiate a claim pursuant to KRS 65.2005(3)(a).
Louisville/Jefferson Cnty. Metro Gov’t v. Handy, 2021-CA-0664-MR, 2022 WL
12138037, at *3 (Ky. App. Oct. 21, 2022). While Metro knew at the time it
entered into the settlement agreement that Handy was negligent in his
handling of the murder investigation (and thus civil liability was established),
nothing in the record below suggests to me that Metro knew or reasonably
should have known at that time, that Handy had acted fraudulently.
The facts as I am aware of them, militate against Metro having such
awareness in 2012. Chandler’s allegations were just allegations and while it
was evident that Handy had badly erred in conducting the murder
investigation, Metro could not easily resolve whether Handy’s missteps were
the result of carelessness, ignorance, a faulty memory, or incompetence or were
the result of deliberate and fraudulent actions on his part.
In conjunction with the civil trial, Handy admitted at his March 7, 2012,
deposition that the videotape of the murder did get erased, but denied that he
deliberately allowed for its erasure, explaining that he should have removed a
tab from the video to prevent it from being taped over and the failure to do so
was a violation of procedure. However, besides that error, Handy denied doing
anything inappropriate or improper which led to Chandler’s conviction, denied
any dishonesty in his handling of the murder investigation, denied attempting
to mislead the prosecutor, denied providing any details to Chandler about the
crime, and repeatedly stated that Chandler lied that Handy had provided him
with details about the crime.
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The settlement was entered prior to there being any resolution of where
the truth lay as the basis for Handy’s errors was as yet unclear. Based on
Handy’s sworn deposition testimony and Chandler’s allegations, Metro could
have reasonably believed: (1) Handy’s account that his missteps in connection
with preserving the videotape were accidental, and Chandler was lying about
his other allegations relating to Handy perjuring himself; (2) Handy may have
accidentally given Chandler information about the crime but did not realize he
had done so and testified honestly, but erroneously, that such information
originated with Chandler; (3) it was impossible to resolve Handy’s motivations;
or (4) Handy possibly may have acted deceptively or dishonestly in part, but
Metro could not conclude that this rose to the level of fraud, malice or
corruption with the information reasonably available to it. Simply put, only
Handy knew why he took the actions that he took. Metro could have prudently
decided to settle the lawsuit based on its calculation of the risks of proceeding
to trial on the negligence of Handy, rather than based on a belief that any
wrongdoing which occurred on Handy’s part was fraudulent.
It is not appropriate to use Metro’s good-faith effort to comply with
CALGA, in providing for Handy’s defense, against Metro. See generally Braden,
519 S.W.3d at 395 (discussing that a local government providing an employee a
defense does not function as an acknowledgment that such employee was
acting within the scope of employment and decrying the chilling effect such a
holding would have which “would place municipal employees in greater
individual and financial peril . . . in direct conflict with the spirit and intent of
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CALGA”). Yet, that is just what the majority does in requiring Metro to
promptly act against its employee in the absence of proof or lose such
opportunity.
It does not further the purposes of CALGA if every time a local
government suspects that an employee is being less than honest and
forthcoming but could also possibly simply be in error, that it is obligated to
treat its employee in an adversarial manner. I do not believe that as a matter of
policy we want to encourage a local government to have to essentially work to
aid a civil plaintiff’s case, so that the local government could be positioned to
immediately seek recovery from such employee. Instead, it is far more
reasonable to allow local governments to wait for outside information to emerge
which will resolve the matter. The majority opinion incentivizes local
governments to act improvidently in suing their employees to preserve claims
which may not be valid or lose the privilege of seeking reimbursement later.
This imperils employees from realizing the benefits of CALGA.
In 2018, Handy was indicted for perjury and tampering with physical
evidence in conjunction with Chandler’s conviction. Commonwealth v. Handy,
No. 18-CR-002871 (Jefferson Cir. Ct. filed Sept. 26, 2018). 5 At that junction,
Metro could perhaps resolve that if there was evidence sufficient for an
5 A review of CourtNet has confirmed Metro’s account of what took place
regarding the Commonwealth’s criminal case against Handy and provided clarification
of what occurred in it since Metro’s indemnification case has been on appeal.
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indictment, it could properly pursue its claim for indemnification, which would
be timely for five years.
However, a more definitive event took place in 2020, when Handy pled
guilty to perjury in the first degree in conjunction with a plea agreement, in
exchange for dismissal of the tampering charge with five years probated. The
trial court rejected the recommended sentence of five years probated as being
too lenient and Handy withdrew his plea. However, this event certainly
provided Metro with definitive evidence that Handy acted in a fraudulent
manner. Indeed, Metro recognized that by filing its complaint for
indemnification promptly after this occurred.
Ultimately, in 2021, Handy pled guilty to perjury in the first degree and
tampering with physical evidence in exchange for concurrent one-year
sentences with the agreement that he would not seek probation and he was
sentenced in accordance with this agreement. This provided further evidence
that Handy acted in a fraudulent manner.
I agree with the Court of Appeals that it is up to the circuit court to
determine when Metro knew or reasonably should have known of Handy’s
wrongdoing, such that its claim accrued. Unfortunately, the record below was
simply insufficiently developed to resolve this issue. Therefore, it would be
appropriate to reverse and remand for the further development of the record so
that the circuit court could resolve when Metro first knew or reasonably should
have known of Handy’s fraud: whether this was in 2012 (when Metro entered
into a settlement agreement with Chandler), in 2018 (when Handy was indicted
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for perjury and tampering with evidence), or in 2020 (when Handy entered a
plea to perjury).
I note that Metro may have had additional obligations to defend Handy.
In addition to KRS 65.2005, there is a policy and procedures manual outlining
Metro’s responsibilities to its employees, and the Fraternal Order of Police
contract likely had additional provisions that are pertinent.
These matters would best be addressed by remanding for an extensive
evidentiary hearing to be followed by appropriate factual findings. Among the
issues to consider would be whether, based on Handy’s own actions of false
representation and concealment, equitable estoppel would preclude him from
using the statute of limitations as a defense. See Williams v. Hawkins, 594
S.W.3d 189, 193-94 (Ky. 2020) (discussing and comparing equitable estoppel
and equitable tolling).
Accordingly, because I conclude that the majority errs in determining
that Metro’s cause of action of indemnity under CALGA accrued in 2012, I
dissent.
Bisig, J., joins.
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COUNSEL FOR APPELLANT:
Michael M. Denbow
Michael D. Risley
Jennifer Henry Jackson
Stites & Harbison, PLLC
COUNSEL FOR APPELLEE:
Jan Michele West
Jonathan David Goldberg
Goldberg Simpson, LLC
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