Medical Vision Group, et al. v. Hon. Timothy Philpot, et al., Appointment Of Receiver Post-Dissolution

Medical Vision Group, et al. v. Hon. Timothy Philpot, et al., --S.W.3d—(Ky. 2008)

The underlying action in this case is a dissolution proceeding. Dr. and Ms. Dudee divorced in 2006. The court found that two business entities, MVG and Schatzie, were marital property and included their value in the marital estate. The court awarded the businesses to the husband and ordered the husband to pay to the wife $3600 per month in child support, an equalizing property payment of $1,299,038, and $5600 per month in maintenance until the equalizing payment was paid or the youngest children began kindergarten, whichever occurred first.
The following year, the husband failed to pay any of the equalizing payment and stopped paying maintenance. At a contempt hearing, the husband asked the court to appoint a receiver to audit the businesses if it doubted his ability to pay. The court did not rule on the motion for receiver, but found that the husband had the ability to pay and held him in contempt. The court directed the husband to pay $15,000 per month toward the outstanding judgment, sentenced him to 90 days jail time, and permitted him to participate in work and timesharing release. The wife then asked the court to appoint a receiver to operate the businesses, because the husband refused to participate in the work release program or pay any monies owed. The husband ultimately agreed with the appointment of the receiver, and the court appointed one. The role and authority of the receiver changed over time due to motions by both parties. Ultimately, the Court ordered the receiver to pay from MVG’s accounts the following items in the following order of priority: 1) child support, 2) maintenance, 3) necessary and reasonable expenses of the business. Both businesses filed a writ of prohibition with the COA to prevent the court from further imposing any more control over the businesses based on the dissolution action. The COA found that the court had jurisdiction over the corporate assets because the businesses were alter-egos of the husband. Both businesses appealed.
The SC found the issue of the receiver moot, as the lower court had discharged the receiver due to a change in circumstances in the interim of the appeal. However, the SC answered the question of whether a trial court can exercise control over business entities to effectuate a dissolution decree. The Court held that both businesses could be joined under KRS 403.150(6) based on two facts: 1) the husband’s continued failure to abide by the court’s orders to pay the wife and 2) the businesses are owned by the parties (there are no innocent third party shareholders that would be harmed).
Digested by Sarah Jost Nielsen, Diana L. Skaggs + Associates