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finding that damages from breach included lost rental income for full seven-year lease term, as the lease had automatically renewed for a new, seven-year period prior to the breach
Summary of this case from Comprehensive Pharmacy Servs. v. Highlands Hosp. Corp.Opinion
NO. 2015-CA-001700-MR
06-02-2017
TAURUS CAPITAL MANAGEMENT, LLC APPELLANT v. JETZ LAUNDRY SYSTEMS, INC. APPELLEE
BRIEF FOR APPELLANT: Mark Hyatt Gaston Louisville, Kentucky James Robert Yates Louisville, Kentucky BRIEF FOR APPELLEE: Christopher Tyson Gorman Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE BRIAN C. EDWARDS, JUDGE
ACTION NO. 11-CI-002554 OPINION
AFFIRMING
** ** ** ** **
BEFORE: CLAYTON, DIXON AND D. LAMBERT, JUDGES. LAMBERT, D., JUDGE: This matter comes to this Court on appeal from a judgment and post-judgment orders entered by the Jefferson Circuit Court following a jury trial. The Appellant, Taurus Capital Management, LLC (hereinafter "Taurus"), contends that the trial court made several errors, including: an improper denial of its motion for summary judgment, improper admission of certain evidence, improper awards of damages for both conversion and breach of contract, and improper awards of pre-judgment interest and attorney fees to the Appellee, Jetz Laundry System, Inc. (hereinafter "Jetz"). For the reasons set forth herein, we affirm the judgment and awards entered by the Jefferson Circuit Court.
I. FACTUAL AND PROCEDURAL HISTORY
On February 1, 1999, Frankfort Properties, Inc., the owner of a residential apartment building located at 709 South Third Street, in Louisville, entered into a lease agreement with Automatic Apartment Laundries, Inc. (hereinafter "AAL"), whereby AAL would install coin-operated laundry machines and maintain the building's laundry facilities. In exchange, Frankfort Properties, Inc. was entitled to fifty percent of the monthly revenue from the machines. This lease had a seven year duration, which automatically renewed for another seven year term unless terminated pursuant to its terms. The lease also contained language that it bound and "inure[d] to the benefit of Landlord and Tenant and their respective successors, heirs, and assigns" even if the building changed hands. Neither Frankfort Properties, Inc. nor AAL ever recorded this lease.
This premises is also referred to as the "Weissinger-Gaulbert building" in the record and occasionally in the parties' briefs.
Ownership of this building did, in fact, change hands multiple times. Later in 1999, Frankfort Properties, Inc. conveyed the building to Franklin Properties, LLC. Franklin Properties, LLC in turn conveyed the building to Joseph E. Dunn, Sr. and his wife, Sally. The Dunns then conveyed the building to Weissinger-Gaulbert, LLC, in 2001. Weissinger-Gaulbert, LLC owned the building until 2009, when it conveyed the building to Taurus.
The building itself was not the only asset important to this action to have changed hands, however. In 2003, Jetz purchased a significant portion of AAL, which included the laundry facilities lease AAL had with Frankfort Properties, LLC. AAL assigned the lease on October 1, 2003, to Jetz, which retained as part of its own business records. Jetz also assumed ownership of the laundry machines AAL had installed in the building. Eight of Jetz's laundry machines were in service in the building at the time the contract's first automatic renewal in 2006.
Amar Khadey, the owner and sole employee of Taurus, testified at trial that he first learned that he had not purchased the laundry equipment along with the building shortly after the purchase in 2009. He further testified that he immediately requested that Jetz remove the machines, and that the machines had been uninstalled and placed in storage by Taurus, awaiting Jetz to retrieve them. Khadey also testified that he had purchased and installed his own machines to replace them. The record reflects that five of the Jetz machines were stored within the building, and Khadey testified that the remaining three machines were stored at another location. With Jetz having never come to pick up the machines, Khadey testified that he considered the lease abandoned. (Though, curiously, Taurus did not argue to this Court that the machines themselves had been abandoned.)
In Taurus's brief, this individual's name is spelled both "Khadey" and "Khaday," but was spelled only as "Khadey" in Jetz's brief. He is also identified as the owner of both Jetz and Taurus at different points in Taurus's Reply Brief. To avoid confusion, the Court will use the spelling "Khadey," and because the record conclusively and undisputedly establishes his ownership connection to Taurus and none to Jetz, we will also draw that conclusion.
Jetz initiated this civil action in 2011, seeking specific performance of the lease, or, in the alternative, damages for breach of contract and conversion. Taurus filed a motion for summary judgment, arguing that it was an innocent purchaser of the building, lacking notice of the lease, and, for that reason, was not bound by its terms. The trial court denied the motion, finding the record presented an unresolved issue of material fact as to whether Taurus had notice of the lease.
Simultaneously with the summary judgment motion, Taurus also filed a motion in limine to prevent introduction of a copy of the lease. Taurus argued that a proper foundation could not be laid, that the document could not be authenticated, and that only the original lease should be admitted. The trial court admitted the copy as a business record, and issued an identical ruling when Taurus voiced the same objections during trial.
During the trial, Roy Crowe, an agent of Jetz, testified. Crowe acted as Jetz's rent collector and serviced the machines when the need arose. He testified that each of Jetz's laundry machines has a prominently placed sticker bearing the Jetz logo and the words "Laundry Room Leased by Jetz Laundry Systems, Inc." Crowe further testified that large and prominently placed signs within each laundry room indicating the laundry facilities are subject to a lease, and requested residents call an agent of Jetz to service the machines. He testified that he learned the Jetz machines at the building had been taken out of service in September or October of 2009.
This individual was referred to as "Dewey Crowe" in Taurus's Reply Brief, but all other pleadings identify him as "Roy Crowe," as will the Court.
Also, two other agents of Jetz, Ronald Sommers, and his nephew, Christopher Sommers, testified. Christopher Sommers provided both factual testimony and also provided a calculation of damages for the jury to consider. However, it was the Sommers' factual testimony offered in rebuttal to Khadey's testimony that garnered the most strenuous objection by Taurus.
In Taurus's brief, these individuals are at different points known as "Ronald and Christopher Summers" and "Ronald and Christopher Sommers." In Taurus's Reply brief, Ronald Sommers is identified as "Donald Sommers." These individuals are identified only and "Ronald Sommers" and "Christopher Sommers" in Jetz's brief, and for the sake of clarity, the Court will do the same.
The Sommers offered rebuttal testimony that, two days prior to trial, they had entered into the building via the front door, which had been opened for them by a resident of the building. Once inside, they inspected the machines in the building's laundry facilities. They testified that they identified the three machines in active service in the laundry facilities both by appearance and by serial number as those owned by Jetz. They noted that the stickers had been defaced on two of the machines, and on the third, the sticker had been removed and the area where it had been placed had been painted over. They also noted signs of tampering present on the coin boxes on each, and further testified that Jetz retained possession of the only keys to the coin boxes of their machines. Taurus objected to this testimony, contending that the evidence was the "fruit of the poisonous tree" due to the Sommers' "illegal trespass" into the building, and further because Jetz had never amended its pre-trial disclosures to include this testimony. The trial court overruled the objections, as well as Taurus's challenges to the admission of the photographs taken by Ronald Sommers of the machines during this inspection.
Following the close of evidence, the jury deliberated for approximately ninety minutes before returning a unanimous verdict against Taurus. Eschewing Jetz's request for specific performance, the jury awarded damages in the amount of $9,197.56 for the breach of contract, and $12,432.80 for the conversion.
After the entry of the judgment, Jetz moved for and award of pre- and post-judgment interest, and for attorney fees. The trial court conducted a hearing, and granted these motions.
This appeal ensued.
II. ANALYSIS
A. THE TRIAL COURT PROPERLY DENIED TAURUS'S
MOTION FOR SUMMARY JUDGMENT
The review on appeal of a denial of a summary judgment involves an inquiry into whether the trial court properly determined an unresolved question of material fact exists. Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 483 (Ky. 1991). Because the analysis is purely for the existence of factual issues and not resolution of such issues, the trial court's examination is one of law. This court, therefore, applies a de novo standard with no deference to the trial court's conclusion. Davis v. Scott, 320 S.W.3d 87, 90 (Ky. 2010) (citation omitted).
Taurus contended before the trial court, and continues to contend before this Court, that it was an innocent bona fide purchaser of the building, lacking knowledge of the lease agreement between his predecessor-in-title and Jetz's predecessor-in-interest. Taurus asserts that its actions evince due diligence, it having performed a title search and finding no recorded leases relating to the laundry facilities.
Taurus is correct in that the law protects a bona fide purchaser of realty without notice of any encumbrances from those encumbrances. "It is a well-known rule of law that a bona fide purchaser of land without notice of an equity in favor of a third person is not affected thereby." Glass v. Gutman, 268 S.W.2d 410, 412 (Ky. 1954) (citing Lemmon v. Brown, 7 Ky. 308 (Ky. 1816); Vanderpool's Guardian v. Louisville Gas & Elec. Co., 65 S.W.2d 69 (Ky. 1933)).
However, constructive notice imputed by virtue of a recorded encumbrance is not the only means of establishing notice. The Kentucky Supreme Court has previously held that "[i]t is immaterial how the party charged with notice acquired his knowledge or from whom the information was obtained." State Street Bank & Trust Co. of Boston v. Heck's, Inc., 963 S.W.2d 626, 630 (Ky. 1998). This includes inquiry notice. Id. ("[P]roof of notice need not be by direct testimony, but may be established by all degrees and grades of evidence, including circumstantial evidence.") If there is "knowledge of such facts as would put a reasonable man upon inquiry, and as would indicate heedless disregard of other's rights, if no attention were paid to them, the same is as if actual notice had been given." Sentry Safety Control Corp. v. Broadway & 4th Ave. Realty Co., 124 S.W.2d 1051, 1055 (Ky. 1939)).
The record established that the Jetz signage and the machines with their Jetz stickers were still in the laundry rooms at the time of the sale of the building to Taurus. Further, Khadey testified that he had personally walked through the building's laundry facilities prior to his purchase of the building, but that he ignored these notices and "didn't care about stickers" as he was only purchasing the building "as an investment."
Taurus also argued that the lease did not operate to bind it because Jetz had abandoned the right to enforce the lease. "There is no presumption in law of abandonment or of intention to abandon. The burden is upon him who sets up abandonment to prove the same by clear, unequivocal and decisive evidence." Elk Horn Coal Corp. v. Allen, 324 S.W.2d 829, 831 (Ky. 1959). Further, "[m]ere lapse of time and nonuser, unaccompanied by other evidence showing intention, have been generally held not enough to constitute an abandonment." Id. at 830. Thus, this is a fact-based question, requiring a jury to resolve whether sufficient other evidence showing intention to abandon existed.
Taking the evidence in the light most favorable to the non-moving party, as required by Steelvest, the trial court correctly found that the evidence conflicted, and the record presented unresolved issues of material fact as to whether Taurus held the status of a bona fide purchaser, and whether Jetz had abandoned the right to enforce the contract. Consequently, the trial court acted appropriately in denying Taurus's motion, and we affirm the ruling on this issue.
B. THE TRIAL COURT DID NOT ABUSE ITS DISCRETION IN
ALLOWING THE INTRODUCTION OF THE COPY OF THE
LEASE AND THE REBUTTAL TESTIMONY OF
RONALD AND CHRISTOPHER SOMMERS
Taurus argues that the trial court made two evidentiary rulings in the proceedings below that resulted in the admission of incompetent evidence. First, Taurus argues that the trial court should have precluded entry of a copy of the laundry facilities lease in lieu of the original. Second, Taurus contends that the rebuttal testimony offered by Ronald and Christopher Sommers, because it was not disclosed in Jetz's pre-trial disclosures, should also have been excluded.
"Our standard of review in matters involving a trial court's rulings on evidentiary issues and discovery disputes is abuse of discretion. 'The test for abuse of discretion is whether the trial judge's decision was arbitrary, unreasonable, unfair, or unsupported by sound legal principles.'" Manus, Inc. v. Terry Maxedon Hauling, Inc., 191 S.W.3d 4, 8 (Ky. 2006) (quoting Goodyear Tire & Rubber Co. v. Thompson, 11 S.W.3d 575 (Ky. 2000)). Trial courts have "considerable discretion to determine the admissibility [of] evidence." Davis v. Fischer Single Family Homes, Ltd., 231 S.W.3d 767, 778 (Ky. App. 2007).
The trial court admitted the copy of the lease, pursuant to Kentucky Rule of evidence ("KRE") 902(11), as a business record. Taurus attacks the admission of the copy of the lease on multiple fronts. First, Taurus challenged the very fact that Jetz sought to enter a copy rather than the original. Taurus further challenged Jetz's foundational proof, contending that Jetz had failed to prove the unavailability of the original. Second, Taurus argues that the lease had not been adequately authenticated because none of the original signers testified.
While KRE 1002 generally requires an original document in order to prove its contents, the very terms of the rule itself provide that exceptions exist. One such exception is KRE 1003, which specifically allows the admission of duplicates "to the same extent as the original," unless the authenticity of the original is genuinely called into question or the circumstances reflect an unfairness to the party opposed to admission. Another exception to the general rule of KRE 1002 is found in KRE 1004, which provides that an original is not required and other evidence of the contents of a writing may be admitted if certain conditions, such as the unavailability or destruction of the original, are met.
The rule on which the trial court relied, KRE 902(11), allows for the introduction of business records without the need for authentication unless the source of the information or the circumstances indicates a lack of trustworthiness and certain conditions are met. This rule applies to original documents and duplicates alike. KRE 902(11)(A). In order to be self-authenticating, KRE 902(11)(A) requires a record be made "at or near the time of occurrence of the matters set forth," kept "in the course of regularly conducted activity," and "made by the regularly conducted activity as a regular practice." (KRE 902(11)(A)(i)-(iii)).
The trial court found these conditions satisfied, and held the copy of the lease admissible without the need for authentication. Based on the evidence of the circumstances of the creation of the lease contract presented to the trial court, this Court sees no abuse of discretion, nor any cause to disrupt the trial court's ruling.
Taurus also argues that Jetz should have been required to amend its pre-trial disclosures to advise Taurus of its rebuttal evidence. In making this argument, Taurus cites no binding Kentucky authority whatsoever.
Instead, Taurus attempts to emphasize its allegations that Ronald and Christopher Sommers obtained the evidence by unlawfully trespassing in the building. Taurus cites two opinions of the Supreme Court of the United States to stand for the proposition that illegally obtained evidence is not admissible. Brown v. Illinois, 422 U.S. 590, 95 S.Ct. 2254, 45 L.Ed.2d 416 (1979), and Dunaway v. New York, 442 U.S. 200, 99 S.Ct. 2248, 60 L.Ed.2d 824 (1979). However, these cases concern the suppression of evidence based on a Miranda violation (Brown) and an illegal seizure of the defendant's person (Dunaway). Given that these cases concern issues that are exclusively criminal, we fail to see any possible relevance to the evidentiary issue presented here.
This Court presumes Taurus intended to cite Dunaway, as it actually provided the style, Dunham v. New York, for the case, and entering the citation provided, 422 U.S. 200, into a legal search engine retrieves an entirely unrelated case concerning federal authority over the Cook Inlet in the Gulf of Alaska, U.S. v. Alaska, 422 U.S. 184, 95 S.Ct. 2240, 45 L.Ed.2d 109 (1975). --------
Moreover, the Fourth Amendment only excludes evidence illegally obtained by state actors in warrantless intrusions in the criminal context, not private actors in civil actions. Cf. Smith v. Maryland, 442 U.S. 735, 740, 99 S.Ct. 2577, 61 L.Ed.2d 220 ("[T]he application of the Fourth Amendment depends on whether the person invoking its protection can claim a 'justifiable,' a 'reasonable,' or a 'legitimate expectation of privacy' that has been invaded by government action) (emphasis added); Carter v. Commonwealth, 358 S.W.3d 4, 8 (Ky. App. 2011) (holding that KASPER prescription records in the possession of private actors are not subject to Fourth Amendment protections against warrantless search); Welch v. Commonwealth, 149 S.W.3d 407 (Ky. 2004) (holding that counselors at a private juvenile rehabilitation facility were state actors when interrogating a patient, whose presence at the facility was court-ordered, about uncharged criminal behavior).
Additionally, the witnesses who offered rebuttal testimony were already disclosed on Jetz's witness list, and had, in fact, already testified in the trial. Taurus failed to demonstrate how it would be unduly prejudiced by the admission of this testimony. Because any relevant evidence is prejudicial in that it tends to prove or disprove one party's version of the facts, Taurus must have shown that the prejudice was "unnecessary and unreasonable" in order for it to have been sufficient to exclude this rebuttal testimony. Price v. Commonwealth, 31 S.W.3d 885, 888 (Ky. 2000). Simply being damaging to Taurus's case by tending to show Khadey had been less than wholly truthful in his testimony does not render the testimony offered in rebuttal either unnecessary or unreasonable. In fact, Khadey's misrepresentations during his testimony necessitated the introduction of such evidence in order for the jury to have a full view of the facts. Taurus's argument that it would have changed its trial strategy had Jetz attempted to amend its pre-trial disclosures seems disingenuous, given that Khadey was Taurus's most crucial witness, without whose testimony certain beneficial facts could not have been established.
This Court cannot conclude that the trial court abused its discretion in admitting the foregoing evidence. Absent an abuse of discretion, the rulings cannot be reversed.
C. THE TRIAL COURT DID NOT ABUSE ITS DISCRETION IN
ALLOWING THE JURY TO AWARD DAMAGES FOR BOTH
CONVERSION AND BREACH OF CONTRACT
In arguing that the jury lacked the ability to award damages for both conversion and breach of contract, Taurus cites no authority whatsoever, relying solely on a mischaracterized quote from Christopher Sommers' testimony regarding damages.
Sommers did provide two different calculations in his testimony, but those amounts both concerned damages for the breach. One amount included only the calculation based on based on the three Jetz machines found to still be in service in the building over the 69-month period between October 2009 and July 2015. The other amount included the total derived in the previous calculation, plus a calculation of the lost rental income for all eight machines in Taurus's possession for the full seven-year lease term (because the lease on all eight machines automatically renewed in February of 2006). Sommers testified that the damages for breach could either be set according to the former calculation or the latter, and contrary to Taurus's assertions, he said nothing regarding a choice whereby awarding damages for breach precluded awarding damages for conversion.
Taurus's position is also inconsistent with Kentucky law. Damages for conversion are awarded in compensation for the tortfeasor's wrongful exercise of dominion over the owner's property. Illinois Cent. R.R. Co. v. Fontaine, 289 S.W. 263 (Ky. 1926). "Damages for breach of a contract are normally that sum which would put an injured party into the same position it would have been in had the contract been performed." Univ. of Louisville v. RAM Engineering & Constr., Inc., 199 S.W.3d 746, 748 (Ky. 2005). These two different theories of recovery are not mutually exclusive, particularly when, as here, there are distinct injuries to the owner/non-breaching party and distinct behaviors by the tortfeasor/breaching party comprising both causes of action. Taurus putting the defaced machines back into service constitutes an exercise of dominion to the detriment of Jetz's claims of ownership, and Taurus's failure to remit Jetz's share of the proceeds per the lease agreement constitutes the breach.
Moreover, assessing damages is the role of the jury. As this Court noted in Hazelwood v. Beauchamp, 766 S.W.2d 439 (Ky. App. 1989):
The amount of damages is a dispute left to the sound discretion of the jury, and its determination should not be set aside merely because we would have reached a different conclusion. If the verdict bears any reasonable relationship to the evidence of loss suffered, it is the duty of the trial court and this Court not to disturb the jury's assessment of damages.Id. at 440.
Here, the jury clearly believed that Taurus should be held liable on both causes of action, and given the evidence presented, neither we nor the trial court are entitled to contend the verdict bore no relationship to it. Much to the contrary, it is the duty of the courts to honor the jury's assessment unless it is clearly against the weight of the evidence. Id.
D. THE TRIAL COURT DID NOT COMMIT CLEAR ERROR IN
AWARDING PRE-JUDGMENT INTEREST
Despite Taurus's assertion that the trial court committed clear error in awarding pre-judgment interest to Jetz, we do not examine the record for clear error. In contract and tort litigation, the trial court is "not required to grant pre-judgment interest, but may do so if, in its discretion believes under the facts and circumstances of this case that equity and justice requires such an award." Nucor Corp. v. General Electric Co., 812 S.W.2d 136, 145 (Ky. 1991) (emphasis added). Under Nucor, the awarding of interest falls within the sound discretion of the trial court. See Fields v. Fields, 58 S.W.3d 464, 466 (Ky. 2001) (recognizing Nucor's holding that the standard of review for awarding interest is abuse of discretion).
Taurus argues that an award of pre-judgment interest was inappropriate because the measure of damages was uncertain and not readily ascertainable. "When the damages are 'liquidated,' prejudgment interest follows as a matter of course. Precisely when the amount involved qualifies as 'liquidated' is not always clear, but in general 'liquidated' means '[m]ade certain or fixed by agreement of parties or by operation of law.'" Nucor at 141 (quoting Black's Law Dictionary, "liquidated damages" (6th Ed. 1990)).
Taurus's argument fails to match the facts here. Paragraph 12 of the lease, entitled "Landlord Default," establishes a formula by which liquidated damages are established in the event of a breach by the landlord. Christopher Sommers used this methodology when he calculated the measure of damages for Taurus's breach during his testimony.
The facts established in this action meet all of the requirements set forth in Nucor. The amount of damages was reasonably calculable using the methodology laid out in the lease agreement, and Taurus had reason to know the amount of damages sought, given the disclosure of the contract in discovery well in advance of the trial date. Additionally, the trial court acted within its discretion in determining that the two-year delay in filing this action, in light of the statute of limitations for breach of contract actions allowing a 15-year period, was not unreasonable. KRS 413.090(2).
Given these facts, this Court cannot disrupt the trial court's exercise of discretion in awarding pre-judgment interest.
E. THE TRIAL COURT DID NOT COMMIT ERROR IN AWARDING
JETZ ATTORNEY FEES
Taurus again asserts that the trial court committed clear error in a situation where the standard is abuse of discretion. "[A]n award of attorney fees is within the sound discretion of the trial court, and its decision will not be disturbed absent a finding of abuse of discretion." Golden Foods, Inc. v. Louisville & Jefferson Metro. Sewer Dist., 240 S.W.3d 679, 683 (Ky. App. 2007) (citing Ford v. Beasley, 148 S.W.3d 808 (Ky. App. 2004)).
When an attorney seeks to recover a reasonable fee from an opposing party, a question of law is presented for the trial court to resolve. Inn-Group Mgmt. Serv. v. Greer, 71 S.W.3d 125, 130 (Ky. App. 2002). Attorney fees may not be awarded to a prevailing party in litigation absent a statutory or contractual authorization. Bell v. Commonwealth, 423 S.W3d 742, 748 (Ky. 2014).
Taurus relies on an assumption that the contract did not bind it. In light of the jury's finding that the contract did bind Taurus, and this Court's affirmation of the jury's right to make that determination, the contract language controls. In paragraph 12, the following language can be found: "Landlord shall indemnify Tenant for any and all direct and indirect damages, costs and expenses (including court costs and reasonable attorney fees) suffered or incurred by Tenant as a result thereof."
The trial court thus committed no error, clear or otherwise, in awarding attorney fees to Jetz. Nor can we conclude the award an abuse of discretion; given the contentious and protracted nature of this litigation the award is not arbitrary, unfair, unreasonable, or lacking in support from sound legal principles.
III. CONCLUSION
After careful review of the record, we conclude that the trial court committed no reversible errors or abuses of discretion. Therefore, we hereby affirm the judgment and awards entered by the Jefferson Circuit Court.
ALL CONCUR BRIEF FOR APPELLANT: Mark Hyatt Gaston
Louisville, Kentucky James Robert Yates
Louisville, Kentucky BRIEF FOR APPELLEE: Christopher Tyson Gorman
Louisville, Kentucky