Court Opinion

ID: 9394117
Source: CourtListenerOpinion
Date Created: 2023-05-12 14:05:01.496232+00
Date Added: 2024-06-11T17:18:58.351095
License: Public Domain

RENDERED: MAY 5, 2023; 10:00 A.M.
                        NOT TO BE PUBLISHED

                Commonwealth of Kentucky
                          Court of Appeals
                             NO. 2022-CA-0648-MR

CHARLES DAMON MOORE                                                 APPELLANT

                APPEAL FROM SHELBY CIRCUIT COURT
v.             HONORABLE CHARLES R. HICKMAN, JUDGE
                      ACTION NO. 14-CI-00628

PEGASUS INDUSTRIES/PACKAGING, LLC                                     APPELLEE

                                   OPINION
                                  AFFIRMING

                                 ** ** ** ** **

BEFORE: COMBS, EASTON, AND ECKERLE, JUDGES.

EASTON, JUDGE: The Appellant (“Moore”) seeks reversal of the judgment in

favor of the Appellee (“Pegasus”) enforcing a liquidated damages provision in the

employment contract between them. Finding no error by the circuit court, we

affirm.
               FACTUAL AND PROCEDURAL BACKGROUND

             Moore began working with Pegasus in 2012 as a production manager.

Moore signed an Employment Agreement on September 26, 2012. This contract

contained several covenants.

             Paragraph 4 of the Employment Agreement states Moore would

receive specialized training while employed with Pegasus. During his

employment, Moore would learn trade secrets and business methods of Pegasus.

Such knowledge allowed Pegasus to rely upon Moore as its employee to help

Pegasus compete in its field of business. The sharing of this information would

harm Pegasus and thus was prohibited in Paragraph 6(a). In Paragraph 6(b),

Moore agreed that for a period of two years and within an area of one hundred

miles he would not “engage in any activity which may be in interference with or in

competition with the interests of” Pegasus.

             Paragraph 7 of the Employment Agreement begins with a recognition

by Moore “that a violation of provisions of this Agreement will surely result in

damage . . . .” A further provision states: “in the event that damages to the

Employer are not ascertainable, then Employee shall be liable to Employer for

Twenty-Five Thousand Dollars ($25,000.00) in liquidated damages. Employee

agrees to pay a reasonable attorney’s fees and cost of suit.”

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             Nifco was a customer of Pegasus. Pegasus performed work for Nifco,

including “kitting,” a process of putting certain related items together for

packaging and shipping. Pegasus had a dozen employees, including Moore,

stationed at Nifco when fulfilling purchase orders from Nifco. Pegasus bought a

property near Nifco and some specialized equipment in anticipation of this

relationship continuing.

             Moore quit his job with Pegasus on August 4, 2014. Within two

months, he was working for Nifco. According to testimony in the record, this

change resulted in an “awkward” and “cold” or even “hostile” environment for the

Pegasus employees at Nifco. Nifco would not return Pegasus’ calls.

             The business relationship between Nifco and Pegasus rapidly

deteriorated as shown by Pegasus’s well-documented income data from the time

Moore started working at Nifco. The $250,000 annual income stream from Nifco

to Pegasus diminished to just a trickle. Several Pegasus employees working at

Nifco lost their jobs due to this reduction in business. The equipment Pegasus

purchased for the Nifco work would not be used, as there was no expansion much

less continuation of their interaction.

             The first hearing in this case in 2015 focused on whether the circuit

court would issue a temporary injunction. At the conclusion of that hearing, the

circuit court denied a temporary injunction finding no irreparable injury in that

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damages could be awarded. Subsequently, the circuit court granted summary

judgment in favor of Pegasus on the question of whether Moore violated the

covenants of the Employment Agreement.

              As it turns out, Moore would not work at Nifco for even a year. He

did some self-employed work after he left Nifco. Moore then became a production

technician for a bedding company in Louisville by the time of the second hearing

in 2018.

              At the second hearing in 2018, the remaining question was what

damages could be awarded in this case. Moore (and essentially Nifco on his

behalf) argued Moore had nothing to do with the changes Nifco made with respect

to Pegasus. Nifco simply decided to go a more cost-efficient way, which happened

to involve a different supplier. With respect to damages, Moore insisted Pegasus

could not establish any damages resulting from Moore’s competing employment.

              The question of whether Moore violated the Employment Agreement

is not presented on appeal. The appeal is limited to the later decision by the circuit

court to award liquidated damages of $25,000 with attorney’s fees and costs of

$17,968.03.

                            STANDARD OF REVIEW

              The opinion and order appealed from was a summary judgment.

When a circuit court grants a motion for summary judgment, the standard of

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review for the appellate court is de novo because only legal issues are involved.

Hallahan v. The Courier-Journal, 138 S.W.3d 699, 705 (Ky. App. 2004).

             Whether liquidated damages are to be awarded for a breach of

contract involves the interpretation of the governing contract. The question is one

of law. The circuit court looks at the circumstances to decide whether the

liquidated damages provisions will be enforced, or the case proceeds to a factual

determination of actual damages. Because this is a question of law, our review of

the circuit court’s decision enforcing liquidated damages is de novo. Patel v. Tuttle

Properties, LLC, 392 S.W.3d 384, 386 (Ky. 2013).

                                    ANALYSIS

             Citing Black’s Law Dictionary, this Court has defined liquidated

damages as damages “contractually stipulated as a reasonable estimation of actual

damages to be recovered by one party if the other party breaches.” Goetz v. Asset

Acceptance, LLC, 513 S.W.3d 342, 346 (Ky. App. 2016). We have recognized

liquidated damages provisions as “particularly appropriate” for restrictive

covenants in employment situations. Daniel Boone Clinic, P.S.C. v. Dahhan, 734

S.W.2d 488, 491 (Ky. App. 1987).

             The leading early case on liquidated damages is Fidelity & Deposit

Company of Maryland v. Jones, 75 S.W.2d 1057 (Ky. 1934). The “only inquiry”

in such a case is whether the parties intended the liquidated damages provision as

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compensation for a breach. Id. at 1060. If it serves only as a penalty, it is not

enforceable. Id. at 1059.

             Moore relies upon other language in Jones: “[I]f no damages have

been sustained by reason of the violation of the agreement, a clause liquidating the

damages will not avail the plaintiff. In such case only nominal damages are

recoverable.” Id. at 1059-60. It stands to reason that if no damages are shown,

then the liquidated damages amount would be disproportionate and would serve

only as a penalty.

             Kentucky would later adopt the Restatement (Second) of Contracts §

356(1) (1981) on this subject. Mattingly Bridge Co., Inc. v. Holloway & Son

Constr. Co., 694 S.W.2d 702, 705 (Ky. 1985). We then consider alternately both

the anticipated loss and the actual loss when determining whether a liquidated

damages provision is to be enforced. It will be enforced if it does not serve as a

penalty only. Id.

             The argument between the parties here helps to illustrate the very

reason for liquidated damages. It would be very difficult to ascertain to what

degree Moore’s use of his training, Pegasus’ in-house knowledge, and experience

would harm Pegasus. Pegasus lost some of that investment when Moore left.

Moore’s influence with Nifco and the negative impact on the working relationship

between the companies could be a causative factor in Nifco’s decision to

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discontinue its relationship with Pegasus. Yet other factors may also have to be

considered.

              Neither the circuit court nor this Court must accept the explanation

offered by Nifco of pure coincidence in the deterioration of the relationship with

Pegasus. The testimony (at both hearings) of the environment at Nifco with

Moore’s presence combined with the contemporary decline in Pegasus income

from Nifco was sufficient circumstantial evidence to establish actual damage apart

from the lost training value issue. The inability to establish an amount with

certainty is the justification for liquidated damages. Considering the intangibles

anticipated by the parties with the evidence of an actual and substantial economic

loss, at least partially connected to Moore, the circuit court did not err in

concluding the legal question of the validity of the liquidated damages provision in

this case.

              With respect to attorney’s fees, KRS 411.195 is an exception to the

“American Rule” under the common law. If a contract provides for attorney’s

fees, they may be awarded. See Gibson v. Kentucky Farm Bureau Mut. Ins. Co.,

328 S.W.3d 195, 204 (Ky. App. 2010). In this case, the Employment Agreement

authorizes an award of attorney’s fees. The circuit court awarded such fees based

upon documented billing statements of the fees incurred.

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                               CONCLUSION

           The opinion and order of the Shelby Circuit Court awarding liquidated

damages and attorney’s fees and costs is AFFIRMED.

           ALL CONCUR.

BRIEFS FOR APPELLANT:                      BRIEF FOR APPELLEE:

Nathan Thomas Riggs                        C. Gilmore Dutton, III
Shelbyville, Kentucky                      Katherine H. Whitten
                                           Shelbyville, Kentucky

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