Court Opinion

ID: 4584357
Source: CourtListenerOpinion
Date Created: 2020-11-06 15:05:39.651194+00
Date Added: 2024-06-11T13:47:26.015098
License: Public Domain

RENDERED: OCTOBER 30, 2020; 10:00 A.M.
                          TO BE PUBLISHED

                Commonwealth of Kentucky
                          Court of Appeals

                             NO. 2019-CA-0928-MR

ALL THAT N MORE, LLC;
MARTY NILEST; AND
MATT NILEST                                                       APPELLANTS

             APPEAL FROM JEFFERSON CIRCUIT COURT
v.        HONORABLE JUDITH MCDONALD-BURKMAN, JUDGE
                     ACTION NO. 17-CI-002319

ROMAN KUSYO AND
NATALIE KUSYO                                                       APPELLEES

                               OPINION
                AFFIRMING IN PART, REVERSING IN PART,
                          AND REMANDING

                                  ** ** ** ** **

BEFORE: CLAYTON, CHIEF JUDGE; DIXON AND JONES, JUDGES.

JONES, JUDGE: All That N More, LLC (“All That”), a construction company,

and its owners, Marty and Matt Nilest, appeal orders of the Jefferson Circuit Court

which granted default judgment against the company and awarded damages to
Roman and Natalie Kusyo based on a home construction contract. After thorough

review, we affirm in part, reverse in part, and remand.

                               I. BACKGROUND

             This case has a somewhat lengthy and complex background and

procedural history. In August 2016, the Kusyos signed a contract drafted by

Appellants to construct a new home on a plot of land owned by the Kusyos in

Louisville, Kentucky. Pursuant to the contract, All That agreed to construct the

home for $228,500.00, payable in a series of installments or “draws” based on

specific milestones achieved during the course of construction. Further, the

contract required any changes or overages to be in writing and approved by both

parties in what are referred to as “change orders.” There were only two authorized

change orders during the construction: an added room for $5,000.00 and a window

for $320.00. This resulted in a new total owed on the contract of $233,820.00.

             Unfortunately, All That encountered rock on the third day of

excavating the foundation for the house. A “rock clause” in paragraph 6.5 of the

contract, entitled “Concealed Conditions,” applied to such an event:

             The Contractor is not responsible for subsurface or latent
             physical conditions at the site or in an existing structure
             that differ from those (a) indicated or referred to in the
             contract documents or (b) ordinarily encountered and
             generally recognized as inherent in the work of the
             character provided for in this contract.

                                         -2-
             After receiving notice of the conditions, the Owner shall
             investigate the condition within five (5) working days. If
             the parties agree that the condition will increase (a) the
             Contractor’s cost of performance of any part of the work
             under this contract or (b) the time required for that work,
             the parties may sign a change order agreement
             incorporating the necessary revisions, or the Owner may
             terminate the contract. If the Owner terminates the
             contract, the Contractor will be entitled to recover from
             the Owner payment for all work performed, including
             normal overhead, and a reasonable profit.

Matt Nilest informed the Kusyos’ agent, their daughter Oksana, that All That had

encountered rock. However, Oksana testified that she was informed there would

be no added cost as a result; it would simply change how the house would be built,

i.e., “up” from the rock, rather than digging down through it. Matt Nilest denied

telling Oksana there would be no added cost. Nonetheless, it is undisputed that no

change order was prepared and signed at the time All That discovered rock on the

property. It is likewise undisputed that the construction project continued after

discovery and notice of the rock.

             From September 2016 through January 2017, the Kusyos paid All

That a total of $203,500.00, approximately eighty-seven percent of the contracted

price. Oksana’s fiancé noticed the house did not appear to be progressing, and it

did not appear that drawn funds were being spent on intended purchases. Then, in

February 2017, Oksana began to receive text messages and emails from Matt

Nilest requesting more money, even though All That had drawn nearly all the

                                         -3-
money allocated to it under the contract. The only remaining draw was the final

ten percent of the contract price, which under the terms of the contract was due on

the completion of construction. Oksana and her fiancé agreed to meet with the

Nilests at the construction site on March 1, 2017, to discuss the project. During the

meeting, the Nilests handed Oksana an invoice, dated that day, demanding a price

addendum to the contract of $81,340.00 and claiming the new balance owed was

$107,840.00, over and above the $203,500.00 which the Kusyos had already paid.

Oksana declined to pay this new invoice. At the conclusion of this meeting,

Appellants walked away from the job.

             The Kusyos eventually hired a second contractor, Jeremy Murphy, to

finish the house. Murphy would later testify the house was approximately fifty

percent complete when he first inspected the site, and it contained incorrect or poor

quality construction. As a result, the second contractor estimated it would take

over $76,000.00 to repair the previous, subpar construction completed by

Appellants and another approximately $200,000.00 to complete the remaining

construction. At the time of the damages hearing in December 2019, the home was

not yet complete.

             Meanwhile, on May 11, 2017, the Kusyos filed a complaint against

Appellants in Jefferson Circuit Court alleging breach of express contract, breach of

express and implied warranty, negligent or reckless misrepresentation, and

                                         -4-
violating KRS1 Chapter 367 et seq., the Kentucky Consumer Protection Act. The

Kusyos alleged Appellants breached the contract by walking off the job site after

receiving $203,500.00, when it appeared less than $80,000.00 had been expended

on the project. The Kusyos also alleged the project was less than fifty percent

complete when Appellants walked away from the contract and that it would require

in excess of $150,000.00 to complete the construction of the home Appellants

contracted to construct for them.

                Appellants did not file an answer to the complaint within twenty days.

The summonses for Matt Nilest and Marty Nilest were returned as undeliverable.

However, on May 15, 2017, the summons for All That was successfully served

upon its registered agent. All That had been dissolved as a corporate entity, but

nonetheless remained subject to suit. See KRS 275.300(4)(a) (“Dissolution of a

limited liability company shall not . . . [p]revent commencement of a proceeding

by or against the limited liability company in its name[.]”). On June 21, 2017, the

Kusyos moved the circuit court for default judgment against All That, and the

circuit court granted this motion on June 23, 2017.

                Several days later, attorney J. Clark Baird entered his appearance on

behalf of Appellants. He subsequently filed a “motion to alter, amend, or vacate

1
    Kentucky Revised Statutes.

                                           -5-
default judgment” citing CR2 59.05 or CR 60.02. The stated basis for this motion

was that Appellants had previously “required time to acquire funds to retain

counsel upon receipt of the complaint.” (Record (“R.”) at 33.) The circuit court

granted Baird’s motion to set aside the default judgment to allow Appellants to file

answers to the complaint. “Marty Nilest, of All That N More, LLC” and “Matt

Nilest, of All That N More, LLC” filed answers to the complaint, but All That did

not. (R. at 47, 60.)

                On July 31, 2017, the circuit court set aside its earlier order setting

aside the June 23 order—effectively reinstating the default judgment. (R. at 74.)

The court’s July 31 order stated Appellants’ CR 59.05 motion was untimely as its

justification for setting aside the prior order. However, in a hearing on the motion

that same day, the circuit court also stated that the CR 59.05 motion was not proper

in any event, because the judgment was not final. It reasoned that instead

Appellants should have moved to set aside the default judgment under CR 55.02.

                Less than two weeks later, Appellants moved the circuit court to set

aside the default judgment pursuant to the correct rule, CR 55.02. In a hearing on

the motion, Baird blamed his secretary for mislabeling his previous motion as one

to alter, amend, or vacate. He also repeated his earlier argument that the Nilests

2
    Kentucky Rules of Civil Procedure.

                                             -6-
did not have funds to retain him in order to file an answer within the twenty days

noted in the summons. After hearing the arguments of counsel, the circuit court

ruled that the failure to raise a fee to pay an attorney does not amount to excusable

neglect which would be sufficient to set aside a default judgment. The circuit court

thereafter entered a written order on October 20, 2017, which summarily denied

Appellants’ motion to set aside the default judgment. (R. at 98.)

             After retaining new counsel, Appellants again moved to set aside or,

in the alternative, modify the default judgment. The circuit court heard arguments

on the renewed motion on January 2, 2018. The circuit court noted it had already

denied Appellants’ motion to set aside and would not revisit that decision.

However, the circuit court was willing to consider modifying the default judgment

based on counsel’s arguments that the Kentucky Consumer Protection Act was

inapplicable in this context. The circuit court then ruled that these issues could be

discussed at a hearing on the Kusyos’ damages, which had yet to take place. Over

the next several months, the circuit court continued the damages hearing while the

parties argued over discovery. In a status hearing on June 25, 2018, Appellants

argued the Kusyos were not supplying enough discovery materials regarding their

asserted damages. In response, the Kusyos contended they had given documents to

Appellants, but the damages were ongoing due to the continued construction on the

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house. The circuit court ruled the discovery period would continue until the end of

August.

              The circuit court held the damages hearing over two days, on

December 14 and 19, 2018. At the hearing, the circuit court heard testimony from

Oksana and her fiancé which conformed to the above narrative. The circuit court

also heard from Jeremy Murphy, the general contractor employed by the Kusyos to

complete construction on the house. As noted previously, Murphy testified that the

house was in poor repair when he first arrived on the site, containing

approximately fifty percent usable work. He also testified about the amounts

required to repair and complete the structure. Finally, the circuit court also heard

from Matt and Marty Nilest. The essence of Matt Nilest’s testimony was that

hitting rock changed the scope of the construction project in such a way that it

could not help being a much more expensive undertaking. He also stated the

invoice he handed Oksana during the March 1, 2017, meeting amounted to the

change order required under paragraph 6.5 of the contract. Finally, Matt Nilest

denied walking off the job. Instead, he argued that the Kusyos had not allowed All

That to finish construction, and that—if anything—the Kusyos owed money to

Appellants.

              Following post-hearing briefs by the parties, the circuit court entered

its findings of fact, conclusions of law, and judgment on March 5, 2019. The court

                                          -8-
found there were only two valid change orders on the contract, one for $5,000.00

and one for $320.00. The circuit court also found that Appellants had walked off

the job and thereby breached the contract. The Kusyos had conceded the Kentucky

Consumer Protection Act was not applicable to real estate, and thus the circuit

court disallowed recovery for punitive damages under that statutory scheme.

Ultimately, the circuit court awarded damages to the Kusyos as follows:

$76,045.40 for repairs; $101,500.00 in overpaid draws; $200,000.00 for the cost to

complete the house; and $5,605.47 in expenses relating to the release of a brick

subcontractor’s lien. All told, the circuit court granted damages to the Kusyos

amounting to $383,150.87, then added costs and attorney’s fees in the amount of

$24,601.18.

              Appellants subsequently moved the court to alter, amend, or vacate

the judgment, arguing against certain categories of damages and alleging the

damage award gave the Kusyos a larger and more valuable home than Appellants

originally contracted to construct. The circuit court denied this motion in an

opinion and order entered on May 15, 2019. Regarding the damages awarded, the

circuit court ruled the overpaid draws should be refunded because Appellants only

completed approximately fifty percent of the work for which they were paid, and

the award of attorney’s fees was based on a provision in the contract granting such

fees to the non-prevailing party. Regarding the size and value of the home, the

                                         -9-
circuit court agreed the house was larger than originally contracted, but noted the

Kusyos paid $5,000.00 for the five-hundred-square-foot addition. The circuit court

ruled, “In sum, the house was not significantly different than the one [Appellants]

contracted to build.” (R. at 584-85.) This appeal followed.

                                   II. ANALYSIS

             We begin with the general standard of review in cases where a circuit

court acts as the factfinder. “In all actions tried upon the facts without a jury or

with an advisory jury, the court shall find the facts specifically and state separately

its conclusions of law thereon and render an appropriate judgment . . . . Findings

of fact, shall not be set aside unless clearly erroneous, and due regard shall be

given to the opportunity of the trial court to judge the credibility of the witnesses.”

CR 52.01; see also Moore v. Asente, 110 S.W.3d 336, 353-54 (Ky. 2003). Factual

findings are not clearly erroneous if supported by substantial evidence. Owens-

Corning Fiberglas Corp. v. Golightly, 976 S.W.2d 409, 414 (Ky. 1998).

“Substantial evidence has been conclusively defined by Kentucky courts as that

which, when taken alone or in light of all the evidence, has sufficient probative

value to induce conviction in the mind of a reasonable person.” Bowling v.

Natural Res. and Envtl. Prot. Cabinet, 891 S.W.2d 406, 409 (Ky. App. 1994)

(citations omitted).

                                         -10-
             Appellants present four main arguments on appeal. First, they argue

the circuit court erroneously set aside its July 17, 2017 order which set aside the

default judgment. Second, Appellants argue the circuit court erroneously awarded

repayment damages. Third, Appellants argue the circuit court’s damages award

was not supported by the evidence. Fourth, and finally, Appellants argue the

circuit court erroneously awarded attorney’s fees. We will consider each argument

in turn.

                               A. July 17, 2017 Order

             For their first argument, Appellants contend the circuit court

erroneously set aside the July 17, 2017 order which set aside the default judgment.

As noted previously, the circuit court’s stated rationale for setting aside the

July 17 order was that Appellants’ CR 59.05 motion was untimely filed. In a

somewhat convoluted argument, Appellants argue the original motion was not a

valid CR 59.05 motion because there was no final judgment at that time, and thus

the court’s stated reason citing the untimeliness of the CR 59.05 motion as a reason

to set aside the July 17 order was also erroneous.

             Although Appellants correctly note the improper application of CR

59.05 early on in this case, we consider this to be of no significance to the

underlying issue. Appellants themselves created this procedural muddle by

incorrectly using CR 59.05 in an attempt to set aside the default judgment. The

                                         -11-
record reflects how, in the midst of these proceedings, the circuit court correctly

noted that CR 59.05 was not applicable and steered the parties toward the correct

rule. Thus, we give no credence to the issue of whether CR 59.05 timing was

appropriate to set aside the order because everyone acknowledges that using CR

59.05 here was incorrect from the beginning. The appropriate issue is whether the

circuit court correctly ruled on the underlying question of whether there was

sufficient reason to set aside the default judgment. This question is resolved by an

examination of the correct rule, CR 55.02.

             CR 55.02 allows a court to set aside a default judgment “[f]or good

cause shown[.]” “The moving party must show: (1) a valid excuse for default, (2)

a meritorious defense to the claim, and (3) absence of prejudice to the non-

defaulting party. All three elements must be present to set aside a default

judgment.” S.R. Blanton Development, Inc. v. Inv’rs Realty and Management Co.,

Inc., 819 S.W.2d 727, 729 (Ky. App. 1991) (citation and internal quotation marks

omitted). We review a decision by the circuit court regarding whether to set aside

a default judgment for an abuse of discretion. VerraLab Ja LLC v. Cemerlic, 584
S.W.3d 284, 287 (Ky. 2019). To find an abuse of discretion, we must find the

“trial judge’s decision was arbitrary, unreasonable, unfair, or unsupported by sound

legal principles.” Commonwealth v. English, 993 S.W.2d 941, 945 (Ky. 1999)

(citations omitted).

                                         -12-
             The circuit court considered the default judgment under CR 55.02 in a

hearing held on October 20, 2017. The record reflects Appellants and their

eventual counsel had notice of the suit. “[M]ere inattention on the part of the

defendant or his attorney” is not good cause to set aside default. Howard v.

Fountain, 749 S.W.2d 690, 692 (Ky. App. 1988). The record also reflects

Appellants consulted with attorney Baird about the complaint during the twenty-

day time period provided for in the summons. Attorney Baird requested and

received a copy of the complaint from the Kusyos’ attorneys. Yet Appellants’ only

rationale for their failure to respond was that they had to raise money to retain

Attorney Baird to assist them. During the hearing, the circuit court held the failure

to raise an attorney’s fee was not a valid excuse for All That’s failure to file an

answer. We agree. See, e.g., Richardson v. Brunner, 327 S.W.2d 572, 574 (Ky.

1959) (purported inability to hire an attorney is not sufficient excuse for a failure to

defend).

             Appellants also argued that the answers submitted by the Nilests

should be extended to cover All That as well, based on principles allowing

multiple defendants to respond “in a joint or separate answer[.]” Ellington v.

Becraft, 534 S.W.3d 785, 791 n.1 (Ky. 2017) (citation omitted). This argument

ignores the fact that All That did not reply in a joint or separate answer; the two

answers submitted were clearly on behalf of the individuals Matt and Marty Nilest

                                         -13-
and not for the company itself. Appellants’ motion to the circuit court conceded

the pleadings submitted by previous counsel were “inartfully drawn.” (R. at 111.)

However, “[c]arelessness by a party or his attorney is not reason enough to set an

entry aside.” Perry v. Central Bank & Tr. Co., 812 S.W.2d 166, 170 (Ky. App.

1991) (citation omitted).

             Finally, the circuit court pointed out that the Kusyos would be

prejudiced by setting aside default, in that they were only able to obtain a

construction loan to finish their house based on the default judgment against

Appellants. Based on these factors, we cannot say the circuit court abused its

discretion in refusing to set aside the default judgment.

                              B. Repayment Damages

             For their second issue, Appellants contend the circuit court’s award of

repayment damages was erroneous. They allege several different grounds in

support of this argument. First, Appellants contend the Kusyos failed to timely

disclose their alleged damages resulting from overpaid draws when they provided

“Supplemental Discovery Responses” on the day before the damages hearing was

scheduled, contrary to CR 8.01(2). Second, Appellants contend the repayment of

draws is not a proper measure of damages. Third, Appellants contend that an

award providing repayment of draws as well as the cost to complete construction

results in a double recovery to the Kusyos.

                                         -14-
             We need not consider the first or second grounds asserted by

Appellants because we agree with the third argument. The circuit court’s award

based on overpaid draws improperly allowed a double recovery for the Kusyos.

             In the case of a breach of contract, the goal of
             compensation is not the mere restoration to a former
             position, as in tort, but the awarding of a sum which is
             the equivalent of performance of the bargain—the
             attempt to place the plaintiff in the position he would be
             in if the contract had been fulfilled.

Batson v. Clark, 980 S.W.2d 566, 577 (Ky. App. 1998) (quoting SEG Employees

Credit Union v. Scott, 554 S.W.2d 402, 406 (Ky. App. 1977)). Here, if the

contract between Appellants and the Kusyos had been fulfilled, the Kusyos would

have paid the contract price, approximately $233,820.00, and in exchange would

have gotten their contracted house. We disagree with Appellants’ claim that the

Kusyos are getting a better house than that promised by the contract, because the

circuit court determined that the Kusyos paid $5,000.00 for the additional square

footage in a valid change order. The circuit court then concluded “the house was

not significantly different than the one [Appellants] contracted to build.” As an

appellate court, we defer to the factual findings of the trial court unless they are

clearly erroneous. Kentucky Properties Holding LLC v. Sproul, 507 S.W.3d 563,

568-69 (Ky. 2016); CR 52.01.

             Having established the house actually constructed is consistent with

the parties’ contract, we now turn to the purchase price. As provided by the

                                          -15-
contract and amended by valid change orders, the Kusyos owed $233,820.00 under

the contract for the construction. The Kusyos paid $203,500.00 to Appellants, and

the circuit court ordered $101,500.00 of that amount to be refunded in an award for

overpaid draws. These draws were deemed overpayments because they were

based on construction which was not performed by Appellants. The circuit court

then awarded the Kusyos another $200,000.00 for the completion of the house.

The problem is that this $200,000.00 effectively also compensates the Kusyos for

the unperformed construction. Logically, if Appellants had performed more work

under the draws, this would have reduced the amount of work the second

contractor needed to perform.

             Because the completion amount overlaps the amount awarded on the

basis of the overpaid draws, the circuit court inadvertently awarded the Kusyos a

double recovery. Based on these considerations, we reverse that portion of the

award based on overpaid draws as duplicative of amounts already awarded to the

Kusyos based on completing construction of the house. It is also worth noting that

the circuit court’s damage award does not account for the $30,320.00 ($233,820.00

- $203,500.00) which the Kusyos may still owe toward the completion of the house

pursuant to the contract. If this amount is taken into consideration anywhere in the

record by the circuit court, we have been unable to find it. Despite these

considerations, the awards based on repair of Appellants’ construction and the

                                        -16-
brick subcontractor’s lien appear to be grounded in substantial evidence, and we

affirm those portions of the judgment.

                   C. Damages Not Supported by the Evidence

             For their third argument on appeal, which is closely related to the

second, Appellants contend the amounts awarded to the Kusyos were not

supported by the evidence. Appellants argue, “From the evidence at the damages

hearing, it would be impossible to determine the cost to complete the structure

which All That contracted to construct for the Kusyos.” (Appellants’ Brief at 16.)

A review of the record refutes this argument. As previously noted, the circuit court

found the house being built is “not significantly different” than the one contracted.

Murphy, the replacement contractor hired by the Kusyos, testified that the total

amount required for him to complete the structure, including the repairs, will be

about $285,000.00. The circuit court’s award, when shorn of the improper refund

of overpaid draws, is consistent with this amount. We defer to the circuit court’s

findings when supported by substantial evidence, giving “due regard . . . to the

opportunity of the trial court to judge the credibility of the witnesses.” CR 52.01.

             Appellants also argue the amount of the damage award is speculative,

pointing to the fact that the Kusyos’ house was not yet completed at the time of the

hearing. However, “[i]f it is established with reasonable certainty that damage has

resulted from a breach of duty or a wrongful act of defendant, mere uncertainty as

                                         -17-
to the amount will not preclude recovery.” Roadway Exp., Inc. v. Don Stohlman &

Associates, Inc., 436 S.W.2d 63, 65 (Ky. 1968). Aside from the issues in the

award regarding double recovery and possible underpayment by the Kusyos on the

contract, which we noted in the previous argument, we affirm the circuit court’s

award of damages.

                                     D. Attorney’s Fees

              In their fourth and final argument, Appellants contend the circuit court

erroneously awarded attorney’s fees to the Kusyos. Originally, the Kusyos pleaded

a claim for attorney’s fees in Count III of the complaint, alleging a violation of the

Kentucky Consumer Protection Act, which provides a statutory basis for such an

award.3 However, the parties dismissed this count by agreement when they

discovered the Kentucky Consumer Protection act does not apply to real estate

transactions or construction contracts, pursuant to Craig v. Keene, 32 S.W.3d 90

(Ky. App. 2000) and its progeny. With Count III removed, the only specific

reference to attorney’s fees left in the complaint was in the ad damnum clause.

Citing O’Roarke v. Lexington Real Estate Company, L.L.C., 365 S.W.3d 584 (Ky.

App. 2011), Appellants contend the prayer for attorney’s fees in the ad damnum

clause was not sufficient to state a cause of action to recover those fees. The

3
  See, e.g., KRS 367.220(3) (“In any action brought by a person under this section, the court may
award, to the prevailing party, in addition to the relief provided in this section, reasonable
attorney’s fees and costs.”).

                                              -18-
circuit court disagreed and awarded the Kusyos attorney’s fees based on a

provision of the construction contract which shifted liability for attorney’s fees to

the non-prevailing party.

             After some consideration, we must agree with Appellants. In

Nesselhauf v. Haden, 412 S.W.3d 213 (Ky. App. 2013), we held that placing

“attorney’s fees in the ‘prayer for relief’ sections of two pleadings . . . was

insufficient to create a separate claim for relief.” Id. at 217 (citation omitted).

Commenting on O’Roarke, we said that case stood for the proposition that “a claim

does not arise merely from stating a prayer for relief in the ad damnum section

clause of a pleading; a party must also state why he or she is legally entitled to that

which is being requested.” Id. Although the Kusyos stated their claims for breach

of contract in Count I of the complaint, there is nothing in this count which would

give notice to Appellants that the Kusyos would seek attorney’s fees based on the

contractual provision. “Despite the informality with which pleadings are

nowadays treated, and despite the freedom with which pleadings may be amended,

CR 15.01, the central purpose of pleadings remains notice of claims and defenses.”

Hoke v. Cullinan, 914 S.W.2d 335, 339 (Ky. 1995) (citations omitted).

Accordingly, we reverse the circuit court’s award of attorney’s fees in this case.

                                          -19-
                                III. CONCLUSION

             For the foregoing reasons, we affirm the amounts awarded in the

judgment, excepting that we reverse the circuit court’s award of damages to the

Kusyos which were grounded in overpaid draws and the award of attorney’s fees.

In addition, on remand, we direct the circuit court to conduct further proceedings

which will determine if there are any amounts owed by the Kusyos on their

contract and, if so, to reduce their award to reflect their obligations under the

contract toward construction of the home. The circuit court shall thereafter enter a

new judgment not inconsistent with this Opinion.

             ALL CONCUR.

 BRIEFS FOR APPELLANTS:                     BRIEF FOR APPELLEES:

 Thomas E. Roma, Jr.                        Sarah Chervenak
 Louisville, Kentucky                       Britt Stevenson
                                            Louisville, Kentucky

                                         -20-