Opinion
NO. 2013-CA-000220-MR
11-21-2014
MONTE SETH CARMICAL APPELLANT v. HOME FEDERAL BANK CORPORATION; MORGANDI, LLC; AND ANTONY L. SARAGAS APPELLEES
BRIEFS FOR APPELLANT: Darrell L. Saunders Corbin, Kentucky BRIEF FOR APPELLEE HOME FEDERAL BANK CORPORATION: Bart L. Greenwald Griffin Terry Sumner A. Thomas Sturgeon III Louisville, Kentucky BRIEF FOR APPELLEE MORGANDI, LLC AND ANTONY L. SARAGAS: Susan C. Lawson Pineville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM HARLAN CIRCUIT COURT
HONORABLE JAMES L. BOWLING, JR., JUDGE
ACTION NO. 10-CI-00038
OPINION
AFFIRMING
BEFORE: CAPERTON, DIXON, AND VANMETER, JUDGES. VANMETER, JUDGE: Monte Seth Carmical appeals from the directed verdicts entered by the Harlan Circuit Court in favor of Home Federal Bank Corporation, Antony L. Saragas, and Morgandi, LLC, and a judgment notwithstanding the verdict ("JNOV") in favor of Saragas and Morgandi. For the following reasons, we affirm.
Carmical owned and operated a 50-unit self storage facility in Coldiron, Kentucky. In the spring of 2008, Carmical decided to expand his business and began discussing the purchase of Sunshine Storage, a 100-unit self storage property located in Harlan, Kentucky, with its owner, Ed Harris. Harris offered Carmical an initial sale price of $425,000, and the two continued negotiating until August 2008 when the price was lowered to $380,000. Carmical then went to the Harlan branch office of his bank, Home Federal, to secure financing for purchase of Sunshine Storage. He was directed to Saragas, who was then the market manager for Home Federal in Harlan.
Saragas instructed Carmical to fill out a loan application form and a financial statement, which he did. Carmical was then asked to provide information about Sunshine Storage's facilities and the cash flow that would be derived from its operation, as well as a sales agreement. Carmical provided a document obtained from Harris listing all of the units at Sunshine Storage and their current rental rates. No sales agreement was provided. The terms of the sale between Carmical and Harris kept changing, with Carmical repeatedly requesting a lower price. Harris claims he had a sales agreement drafted and presented to Carmical, but Carmical refused to sign the agreement and never provided Harris with a down payment of any kind. Without a purchase agreement, Carmical could not obtain a loan from Home Federal.
Later that year, with still no sales agreement between Carmical and Harris, another potential purchaser, Mike Anderson, contacted Harris about purchasing the storage units. Harris told Anderson he would give Carmical one last opportunity to purchase the units, and contacted Carmical to give him one week to make a decision. Harris never heard back from Carmical, so he began negotiating with Anderson. Harris ultimately sold the property to Morgandi, a company jointly owned by Anderson and Saragas, for a sum of $380,000. Saragas allegedly only agreed to participate in the purchase after receiving permission from his superior at Home Federal.
When Carmical learned of the sale, he complained to the bank. Morgandi then offered to sell Carmical the property at the $380,000 purchase price. Carmical refused, and then sued Saragas, Morgandi, and Home Federal for breach of good faith and fair dealing, breach of fiduciary duty, and tortious interference with prospective contractual and business relations. He further claimed negligence on the part of Home Federal in its training of Saragas.
The case proceeded to a jury trial. At the close of Carmical's proof on the issue of liability, the court directed a verdict in favor of Home Federal on all claims, and directed a verdict in favor of Saragas and Morgandi on all claims except for the tortious interference claim, for which the jury found Saragas and Morgandi liable. Carmical then presented his evidence on damages, comprised solely of his own testimony. Carmical relied on his experience in the self-storage business in estimating that he would have 95% occupancy and 100% collection at the Sunshine Storage property for forty years and in estimating the expenses he would incur yearly to maintain and operate the facility. Carmical did not provide an expert witness, nor did he offer into evidence the books and records of either his own storage business or those of Sunshine Storage. After the close of evidence on damages, Morgandi and Saragas moved for a directed verdict, which the court denied.
No breach of fiduciary duty claim was asserted against Morgandi, only tortious interference and breach of the covenant of good faith and fair dealing.
The court submitted the case to the jury, which granted Carmical $1 million in compensatory damages on the claim of tortious interference. The jury also found that Carmical failed to mitigate his damages in the amount of $380,000, the amount for which Morgandi offered to sell Carmical the property, thus reducing Carmical's award to $620,000. Following the trial, Morgandi and Saragas moved for a JNOV, arguing that on the issue of damages, Carmical failed to present evidence sufficient to raise a question for the jury. Carmical also moved to alter, amend, or vacate the judgment, arguing that the mitigation of damages instruction was improper. The court denied Carmical's motion and granted Morgandi and Saragas's motion for a JNOV, finding that Carmical "failed to present the 'quality of evidence required to permit an inference of the approximate amount of damage or to furnish a rational basis for computation of the loss.'" (quoting Illinois Valley Asphalt, Inc. v. Harry Berry, Inc., 578 S.W.2d 244, 246 (Ky. 1979)). Carmical now appeals the directed verdicts and JNOV issued by the court, as well as the denial of his motion to alter, amend or vacate the judgment.
Carmical makes five arguments on appeal. First, he argues the presiding judge should have recused himself after voicing an opinion on the merits of the case. Next, he argues the directed verdict in favor of Home Federal was erroneous on five grounds: (1) Saragas's conduct is imputed to the bank through principles of agency; (2) the bank has a fiduciary duty to him as a customer; (3) the bank breached its duty of good faith and fair dealing; (4) the bank is liable for tortious interference with Carmical's prospective contractual relations; and (5) the bank was negligent in its training of Saragas. Carmical's third argument claims the directed verdicts for Saragas and Morgandi were erroneous. Carmical's fourth argument addresses the mitigation of damages instruction given to the jury, which Carmical claims was based on improper hearsay evidence regarding an offer to compromise. Lastly, Carmical maintains that the jury's damages award was proper and should not have been vacated by the JNOV. On all of these claims, we disagree.
Carmical first asserts the special judge, Judge James L. Bowling, Jr., should have disqualified himself due to a comment he made during a pretrial hearing. During that hearing, the judge stated, "I'll tell you all right now, I'm not going to let the jury go off on the bank, ok, not in a major way," allegedly implying that he would not let the jury render an excessive verdict against the bank. Carmical cites KRS 26A.015(2)(a) for the premise that a judge should disqualify himself in any proceeding in which he has expressed an opinion as to the merits of the case. However, this rule does not apply to statements made in reaction to knowledge obtained in the course of the proceedings, but rather only when the judge expresses an opinion due to knowledge obtained extra-judicially. See Marlowe v. Commonwealth, 709 S.W.2d 424, 427-28 (Ky. 1986) (holding that judge need not recuse because of information he learned during aborted guilty plea hearing). Here, no evidence shows bias or impartiality on the judge's behalf, and when taken in context, the judge was merely commenting on the lack of damages evidence Carmical was planning to produce at trial. Therefore, we agree that Carmical did not meet his burden of proving circumstances demanding disqualification.
Kentucky Revised Statutes.
Next, Carmical claims the directed verdict entered in favor of Home Federal was erroneous. The Supreme Court has described the standard of review for a directed verdict as follows:
On a motion for directed verdict, the trial judge must draw all fair and reasonable inferences from the evidence in favor of the party opposing the motion. When engaging in appellate review of a ruling on a motion for directed verdict, the reviewing court must ascribe to the evidence all reasonable inferences and deductions which support the claim of the prevailing party. Once the issue is squarely presented to the trial judge, who heard and considered the evidence, a reviewing court cannot substitute its judgment for that of the trial judge unless the trial judge is clearly erroneous.Bierman v. Klapheke, 967 S.W.2d 16, 18 (Ky. 1998) (internal citations omitted). However, we agree with the trial court that Carmical failed to demonstrate that Saragas's actions were committed within the scope of his employment, which is required to impute Saragas's conduct to his employer. An employer may only be liable for an employee's intentional tortious actions when those actions are committed in furtherance of the employer's interests. Patterson v. Blair, 172 S.W.3d 361, 369 (Ky. 2005). Thus, the focus is on the employee's motives; if the employee acts in furtherance of personal motives not connected with the employer's interests, "'he is considered in the ordinary case to have departed from his employment, and the master is not liable.'" Id. (citation omitted). Here, no evidence indicated Saragas's actions were profitable for the bank or in any way furthered the bank's business. Consequently, Saragas's actions cannot be imputed to Home Federal.
Carmical also presented no evidence of a fiduciary relationship between himself and the bank. "'The great weight of authority is that while the relationship between a mortgagor and mortgagee is often described as one of trust, technically it is not of a fiduciary character.'" In re Sallee, 286 F.3d 878, 893 (6th Cir. 2002)(citation omitted). "Without a great deal more, a mere confidence that a bank will act fairly does not create a fiduciary relationship obligating the bank to act in the borrower's interest ahead of its own interest." Id. at 893. Additionally, Carmical was never a borrower with the bank, since he never obtained the loan he sought. Further, Home Federal cannot be liable for breach of a fiduciary duty owed to Carmical because it did not profit from the challenged transaction, a requirement under Kentucky law. Snow Pallet, Inc. v. Monticello Banking Co., 367 S.W.3d 1 (Ky. App. 2012). Snow Pallet established that in order to impose a fiduciary duty upon a bank, the bank must have profited from confidential information received through the borrower. Id. at 5. Carmical provided no evidence of Home Federal profiting from the information he gave Saragas. Carmical failed to prove that the bank owed him a fiduciary duty and thus the bank cannot be liable for breach of a fiduciary duty.
Next, Carmical claims Home Federal committed a breach of good faith and fair dealing. Yet, Carmical failed to present sufficient evidence of a contractual relationship between himself and Home Federal that would cause a duty to arise. "[I]n the absence of an underlying contract, no covenant of good faith and fair dealing arises." Quadrille Bus. Sys. v. Ky. Cattlemen's Ass'n, 242 S.W.3d 359, 364 (Ky. App. 2007). While Carmical did have a deposit account with Home Federal, that account is irrelevant to this dispute and cannot be the basis for a breach of a fiduciary duty or a duty of good faith and fair dealing in this instance.
Carmical also argues that Home Federal should not have been granted a directed verdict on his claim for tortious interference with prospective contractual relations. This argument is again based solely on Carmical's contention that the bank is liable as Saragas's principal. However, Saragas was not acting in the bank's interest when he purchased the storage unit facility, and the bank in no way profited from Morgandi's purchase of Sunshine Storage, so Saragas clearly was not acting within the scope of his employment. Therefore, the bank is not liable for Saragas's allegedly tortious actions.
In Carmical's final claim of error regarding the directed verdict entered in favor of Home Federal, he claims that Home Federal was negligent in its training of Saragas. He claims the fact that Saragas had not previously worked at a bank and only received on-the-job training establishes negligent training. However, Carmical offered no proof as to why on-the-job training constitutes less than reasonable training procedures. Thus, we are unable to say that a directed verdict on the issue of negligence was erroneous.
Carmical next claims that the directed verdicts in favor of Saragas and Morgandi - Saragas for breach of fiduciary duty and breach of good faith and fair dealing and Morgandi for only the latter - were improper. We disagree. Carmical's relationship with Saragas never became a fiduciary relationship. "A fiduciary duty is 'the highest order of duty imposed by law.' It is not to be lightly required. In an arms-length commercial transaction, where each party is assumed to be protecting its own interest, no such duty arises." Snow Pallet, 367 S.W.3d at 5 (citation omitted). Carmical failed to offer any evidence of a special relationship or a special trust between himself and Saragas, beyond that of banker and customer, which would have imposed a duty upon Saragas to act only in Carmical's best interest. Because no fiduciary duty flowed from the bank to Carmical or from Saragas to Carmical, the trial court properly directed a verdict in Saragas's favor. Secondly, Carmical never had a contract with either Saragas or Morgandi; therefore, neither owed Carmical any duty of good faith and fair dealing. A directed verdict for Saragas and Morgandi on these claims was not erroneous.
Carmical next claims the instruction on mitigation of damages given to the jury was improper and the court abused its discretion by denying his motion to alter, amend or vacate the judgment. A trial court's ruling on a CR 59.05 motion to alter, amend or vacate is reviewed under an abuse of discretion standard. Bowling v. Kentucky Dep't of Corr., 301 S.W.3d 478, 483 (Ky. 2009). He argues the evidence of Saragas and Morgandi's offer to sell him the property for $380,000, the price Morganadi paid for the property, should have been inadmissible, since a settlement offer is inadmissible. KRE 408 provides:
Kentucky Rules of Civil Procedure.
Kentucky Rules of Evidence.
Evidence of:Saragas and Morgandi argue that the offer was not made in the context of a settlement negotiation because the offer was made prior to any lawsuit being filed. KRE 408 specifically limits this prohibition to situations in which the offer is admitted to prove "liability for or invalidity of the claim or its amount." Here, this evidence was offered to prove Carmical's failure to mitigate his damages. This court has held that "the question of damage mitigation is . . . a valid exception to the general inadmissibility rule in KRE 408." Powers v. Halpin, 2007 WL 1196527, at *3 (Ky. App. April 6, 2007). Moreover, we agree with Saragas and Morgandi that any alleged error concerning the mitigation evidence is harmless due to the proper grant of JNOV.
(1) Furnishing or offering or promising to furnish; or
(2) Accepting or offering or promising to accept a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise negotiations is likewise not admissible. This rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations. This rule also does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness, negativing a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.
Lastly, Carmical argues that the grant of Saragas and Morgandi's motion for JNOV on the damages award granted by the jury was erroneous, and the jury's award of damages should have been upheld. We disagree. This court reviews orders granting a JNOV under the clearly erroneous standard. Moore v. Envtl. Constr. Corp., 147 S.W.3d 13, 16 (Ky. 2004). "That is to say, we must review all the evidence presented to the jury and must uphold the trial court's decision if 'after all the evidence is construed most favorably to the verdict winner, a finding in his favor would not be made by a reasonable [person].'" Id. The trial court granted Saragas and Morgandi's motion for JNOV based on the court's determination that the evidence of damages presented by Carmical was speculative and insufficient to support an award of $620,000 in compensatory damages. Loss of anticipated profits is a recognized form of damages in Kentucky, and "[m]ere uncertainty as to the amount will not preclude recovery." Illinois Valley Asphalt, Inc. v. Harry Berry, Inc., 578 S.W.2d 244, 245 (Ky. 1979). Yet, more than a mere estimate is required:
Saragas and Morgani also moved for a JNOV on the verdict of liability for tortious interference with a prospective business relationship; JNOV was only granted on the damages verdict. No cross-appeal was filed, so the finding of liability stands.
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There must be presented, however, sufficient evidence on which a reasonable inference as to the amount of damage can be based. McCormick, Handbook on the Law of Damages, Sec. 28, 104-06 (1935). In proving a claim of loss of profits of an established business, the record of past profits is usually the best available evidence. Mere "estimates" of witnesses will not serve, if books were kept. McCormick states: "Opinions of witnesses as to the amount of profits that would have been gained are not admissible, except where the opinion is that of an expert [b]ased upon relevant facts."Id. at 246. The question of whether damages are speculative is a question of law, not meant for the jury. Kellerman v. Dedman, 411 S.W.2d 315, 319 (Ky. 1967).
Carmical cites Pauline's Chicken Villa, Inc. v. KFC Corp., 701 S.W.2d 399 (Ky. 1985), for the proposition that the test for recovering lost profits is whether the lost profits can be established with reasonable certainty. However, Pauline's Chicken Villa involved a new and unestablished business. Sunshine Storage was not a new or unestablished business - it had been operated by Harris for many years prior. Further, while the court in Pauline's Chicken Villa recognized that "[n]o court, including this one, can elucidate a single definition of 'reasonable certainty' which may be used as a yardstick in all cases[,]" the court also recognized that "'damages may be established with reasonable certainty with the aid of expert testimony, economic and financial data, market surveys and analyses, business records of similar enterprises, and the like.'" Id. at 401.
Carmical's only proof of damages was his own testimony. While he did have some experience in the self-storage unit industry and the operation and maintenance costs associated with operating such a facility, he was not qualified as an expert, but was merely a lay witness. He provided no records from his own business, nor did he provide the records from Sunshine Storage or any other similar storage facility in the area. Carmical's estimates were based on the future profits of an existing business, Sunshine Storage, but he never inspected the books and records of that business. He also provided no expert testimony on lost profits or any economic data outside his own limited experience. The estimates provided by Carmical hardly amounted to the "quality of evidence required to permit an inference of the approximate amount of damage or to furnish a rational basis for computation of the loss." Illinois Valley, 578 S.W.2d at 246. A JNOV was therefore proper.
The order of the Harlan Circuit Court is affirmed.
DIXON, JUDGE, CONCURS.
CAPERTON, JUDGE, CONCURS IN RESULT ONLY. BRIEFS FOR APPELLANT: Darrell L. Saunders
Corbin, Kentucky
BRIEF FOR APPELLEE
HOME FEDERAL BANK
CORPORATION:
Bart L. Greenwald
Griffin Terry Sumner
A. Thomas Sturgeon III
Louisville, Kentucky
BRIEF FOR APPELLEE
MORGANDI, LLC AND
ANTONY L. SARAGAS:
Susan C. Lawson
Pineville, Kentucky