Court Opinion

ID: 5123678
Source: CourtListenerOpinion
Date Created: 2021-11-05 14:07:36.983173+00
Date Added: 2024-06-11T08:22:35.375719
License: Public Domain

RENDERED: OCTOBER 29, 2021; 10:00 A.M.
                        NOT TO BE PUBLISHED

                Commonwealth of Kentucky
                          Court of Appeals

                             NO. 2020-CA-1190-MR

CHRISTY ROBERTS                                                     APPELLANT

                 APPEAL FROM BULLITT CIRCUIT COURT
v.              HONORABLE RODNEY D. BURRESS, JUDGE
                        ACTION NO. 19-CI-00689

MT. WASHINGTON HEALTH CARE,
LLC                                                                   APPELLEE

                               OPINION
                 AFFIRMING IN PART, VACATING IN PART,
                          AND REMANDING

                                  ** ** ** ** **

BEFORE: CALDWELL, CETRULO, AND JONES, JUDGES.

JONES, JUDGE: Christy Roberts appeals an August 18, 2020 judgment of the

Bullitt Circuit Court in favor of Mt. Washington Health Care, LLC, (appellee)

representing the unpaid balance of a promissory note. She claims the underlying

promissory note was illegal, and that it otherwise included an improper rate of
post-judgment interest. Upon review, we affirm in part, vacate in part, and remand

as set forth below.

                                  I. BACKGROUND

             In September 2018, Erma Basham was admitted to Green Meadows,

the appellee’s long-term care nursing facility; from all indications of record, this is

where Basham continues to reside. In March 2019, Basham’s application for

Medicaid benefits was approved, and there is no dispute that Medicaid paid for

Basham’s care and treatment at Green Meadows retroactively to January 1, 2019.

Prior to the approval of her application, however, Basham had been considered a

private-pay resident of the facility, and her expenses between her admission date

and February 12, 2019 had accumulated to $34,742.26.

             The date of February 12, 2019 is significant because it is the date

Basham’s daughter, Christy Roberts, executed a promissory note in favor of the

appellee. The relevant substance of the note provided:

             I Christy Roberts WILL PAY $750.00 PER MONTH ON
             Erma Basham [sic] OUTSTANDING BALANCE OF
             $34,742.26 BY THE 10TH OF EACH MONTH. I
             WILL CONTINUE TO PAY THIS AMOUNT TO
             GREEN MEADOWS HEALTHCARE CENTER UNTIL
             ACCOUNT [sic] IS PAID IN FULL.

             TELEPHONE CONVERSATION DATE: 2-12-19
             RESPONSIBLE PARTY: Christy Roberts

                                          -2-
             Roberts later defaulted on her obligation under this note after making

only one payment of $750, and the appellee filed suit against her in Bullitt Circuit

Court on July 10, 2019 to collect $22,797.26 – what the appellee alleged was the

remaining balance of the promissory note, minus what Medicaid had paid on

Basham’s account retroactive to January 1, 2019. Afterward, Roberts responded

by asserting only one defense; namely, she contended the appellee could have

sought partial or complete payment for her mother’s outstanding balance from

Medicaid, rather than herself.

             This matter eventually proceeded to a bench trial, and it was later

resolved by way of an August 18, 2020 judgment in which the circuit court made

the following salient determinations: (1) Roberts had executed a valid promissory

note in favor of the appellee; (2) the outstanding balance of the note was the

amount the appellee had alleged; (3) Roberts’ sole defense lacked merit, as she

“neither present[ed] affirmative evidence supporting her claim nor [did] she

present the court with a specific sum she believe[d] she should owe as a result”;

and (4) the appellee was accordingly entitled to judgment against Roberts in the

amount of “$22,797.26, with interest thereon at the rate of 12% per annum[.]”

This appeal followed.

                                         -3-
                                         II. ANALYSIS

               In her appellate brief, Roberts concedes that the arguments she now

wishes to assert were not raised before the circuit court or otherwise preserved.

Echoing that notion, the appellee has moved this Court to strike her brief and

dismiss her appeal. See Kentucky Rule of Civil Procedure (CR) 76.12(8)(a); see

also Osborne v. Pepsi-Cola, 816 S.W.2d 643, 645 (Ky. 1991), superseded by

statute on other grounds as stated in Smith v. Dixie Fuel Co., 900 S.W.2d 609 (Ky.

1995) (it is a “fundamental concept that one waives error at the trial level by failing

to properly and timely object or otherwise bring the error to the attention of the

trier of fact.”).

               Nevertheless, we will consider Roberts’ arguments to an extent,1 and

by separate order have further denied the appellee’s motion to strike her brief, on

the ground that Roberts invokes CR 61.02 and requests2 palpable error review.

Under that rule,

1
  Roberts has also appended a document to the third tab of her appendix that was not part of the
record below (i.e., a “final order of summary reversal” which, purportedly, is from the Cabinet
for Health and Family Services and relates to Basham’s application for social security benefits).
To be clear, palpable error review entails review of arguments not adduced below, not evidence
that was never adduced. Accordingly, this document will not be considered. See Kindred
Nursing Centers Ltd. P’ship v. Leffew, 398 S.W.3d 463, 468 n.5 (Ky. App. 2013) (“We will not
consider evidence the circuit court had no opportunity to examine.”); see also CR
76.12(4)(c)(vii) (clarifying that “materials and documents not included in the record shall not be
introduced or used as exhibits in support of briefs.”).
2
 Absent extreme circumstances amounting to a substantial miscarriage of justice, an appellate
court will not engage in palpable error review “unless such a request is made and briefed by the
                                               -4-
              A palpable error which affects the substantial rights of a
              party may be considered by the court on motion for a
              new trial or by an appellate court on appeal, even though
              insufficiently raised or preserved for review, and
              appropriate relief may be granted upon a determination
              that manifest injustice has resulted from the error.

              Further elaborating upon this rule, the Kentucky Supreme Court has

explained that to qualify as “palpable error,”

              [A]n error “must be easily perceptible, plain, obvious and
              readily noticeable.” Brewer v. Commonwealth, 206
              S.W.3d 343, 349 (Ky. 2006). “Implicit in the concept of
              palpable error correction is that the error is so obvious
              that the trial court was remiss in failing to act upon it sua
              sponte.” Lamb v. Commonwealth, 510 S.W.3d 316, 325
              (Ky. 2017).

Nami Res. Co. v. Asher Land & Mineral, Ltd., 554 S.W.3d 323, 338 (Ky. 2018).

              Considering that standard, Roberts’ first argument is that her February

12, 2019 promissory note was unenforceable due to illegality. Before delving into

the substance of her argument, we pause to note there is an ostensible contradiction

in the law regarding when illegality must be raised. It is a basic principle of

contract law that a court “may refuse to enforce a contract on grounds of illegality

where the contract has a direct objective or purpose that violates the federal or a

state Constitution, a statute, an ordinance, or the common law.” Yeager v.

McLellan, 177 S.W.3d 807, 809 (Ky. 2005) (citation omitted). It has also been

appellant.” Jenkins v. Commonwealth, 607 S.W.3d 601, 613 (Ky. 2020) (quoting Shepherd v.
Commonwealth, 251 S.W.3d 309, 316 (Ky. 2008)).
                                            -5-
held that “a contract is void ab initio if it seriously offends law or public policy,”

see Commonwealth v. Whitworth, 74 S.W.3d 695, 700 (Ky. 2002); and also, that

the court “sua sponte will refuse to enforce a contract against public policy.”

S.J.L.S. v. T.L.S., 265 S.W.3d 804, 821 (Ky. App. 2008) (quoting Dodd v. Dodd,

278 Ky. 662, 129 S.W.2d 166, 169 (1939)).

              However, despite being associated with phrases such as “void ab

initio” and “sua sponte,” “illegality” remains an affirmative defense. CR 8.03.

“As a general rule, a party’s failure to timely assert an affirmative defense waives

that defense.” Rose v. Ackerson, 374 S.W.3d 339, 345 (Ky. App. 2012) (internal

quotation marks and citations omitted). And, Kentucky law tolerates the waiver of

certain illegality arguments. See, e.g., Diaz v. Goodwin Bros. Leasing, Inc., 511

S.W.2d 680, 681 (Ky. 1974) (argument that guaranty was illegal deemed waived

because not affirmatively pled); Crowder v. Stinson, 401 S.W.2d 761, 762 (Ky.

1966) (“Appellant’s answer does not affirmatively or at all plead illegality of the

contract.”); Brand v. Howell, No. 2003-CA-000972-MR, 2004 WL 1229265, at *3

(Ky. App. Jun. 4, 2004)3 (“We conclude the defense of illegality based on an

alleged illegal contingent fee contract was waived.”).

3
 We cite Brand for purposes of illustration only, not as persuasive authority pursuant to CR
76.28(4)(c).
                                               -6-
                That said, any ostensible contradiction regarding when “illegality”

must be raised is resolved by the palpable error review standard itself, which, as

stated, only concerns errors that are “easily perceptible, plain, obvious and readily

noticeable[,]”4 and that affect “the substantial rights of a party.”5 See, e.g.,

PolyOne Corp. v. Westlake Vinyls, Inc., 937 F.3d 692, 701 (6th Cir. 2019)

(applying Kentucky law in this context, and declining to raise sua sponte the

illegality of an agreement where the agreement in question did not “contemplate

criminal activity or the commission of a tort[,]” and the parties’ inclusion of an

offending provision did not indicate they intended “to willfully contravene the

law.”).

                 Keeping that in mind, we now turn to the substance of Roberts’

illegality argument. Generally speaking, nursing homes that accept residents

whose charges will be paid in whole or in part by Medicaid are governed by the

federal Nursing Home Reform Act (see 42 United States Code (U.S.C.) § 1396r),

and federal and state regulations (see 42 Code of Federal Regulations (C.F.R.) Part

483; see also 902 Kentucky Administrative Regulation (KAR) 20:300).

                Relevant to Roberts’ illegality argument, the federal statute provides

that “a nursing facility must . . . not require a third party guarantee of payment to

4
    Brewer, 206 S.W.3d at 349.
5
    CR 61.02.
                                            -7-
the facility as a condition of admission (or expedited admission) to, or continued

stay in, the facility[.]” 42 U.S.C. § 1396r(c)(5)(A)(ii) (emphasis added). Kentucky

has adopted the federal regulations applicable to this statute,6 in which virtually the

same language appears (see 42 C.F.R. § 483.15(a)(3)). Moreover, federal

regulations provide that a qualifying nursing facility “must not charge, solicit,

accept, or receive, in addition to any amount otherwise required to be paid under

the State plan, any gift, money, donation, or other consideration as a precondition

of admission, expedited admission or continued stay in the facility.” 42 C.F.R. §

483.15(a)(4) (emphasis added).

                Here, Roberts’ argument is that the freestanding promissory note she

executed in favor of the appellee on February 12, 2019 qualified as a third-party

guaranty of payment and therefore violated 42 C.F.R. § 483.15(a)(3) or (4). In

support, she notes that her promissory note plainly reflects her promise to satisfy

her mother’s outstanding account; and, that the appellee’s counsel stated in his

opening remarks during the bench trial below that the appellee’s “bookkeeping

department brought in Ms. Roberts and had her, as the guarantor for her mother,

sign paperwork to that effect, had her sign a promissory note at her agreement, and

she’s going to pay $750 a month on this arrearage.”

6
    See 902 KAR 20:300 § (1)(a).
                                           -8-
                Notwithstanding, we disagree with Roberts’ insinuation that the

“illegality” of her promissory note was “easily perceptible, plain, obvious and

readily noticeable,”7 or that the law plainly indicates her “substantial rights”8 were

violated in this matter. Perhaps owing to her failure to raise this point below, there

is no testimony or other evidence of record apart from Roberts’ unsupported

assertions indicating that her mother’s admission or continued stay at the

appellee’s facility was conditioned upon Roberts executing the February 12, 2019

promissory note. At trial, she conceded that her execution of the promissory note

was voluntary. Furthermore, while Roberts cites no caselaw interpreting these

federal regulations – and Kentucky currently has no such precedent – other

jurisdictions have concluded that under federal law, third parties could nevertheless

“volunteer” to sign as guarantors of payment to nursing homes. See, e.g., Pioneer

Ridge Nursing Facility Operations, L.L.C. v. Ermey, 41 Kan. App. 2d 414, 419,

203 P.3d 4 (2009); Manor of Lake City, Inc. v. Hinners, 548 N.W.2d 573, 576

(Iowa 1996); Podolsky v. First Healthcare Corp., 50 Cal. App. 4th 632, 646, 58

Cal. Rptr. 2d 89 (1996) (reasoning that “[h]ad Congress intended to forbid third

party guarantees under any circumstances, . . . it would have said so.”). Due to the

posture of this case, it is unnecessary for this Court to comment further upon the

7
    Brewer, 206 S.W.3d at 349.
8
    CR 61.02.
                                           -9-
statutes and regulations discussed above. Suffice it to say that the “illegality” of

Roberts’ promissory note is – due to the state of the law and record before us – less

than clear. Thus, if the circuit court committed any error in this regard, its error

was not palpable.

             Next, Roberts argues the circuit court had no legal or factual basis to

enter judgment against her “with interest thereon at the rate of 12% per annum[.]”

She asserts the appropriate rate of interest should have been 6%. We agree. First,

the statute governing post-judgment interest, Kentucky Revised Statute (KRS)

360.040, mandated a 6% rate of interest. At all relevant times in this matter, it has

stated:

             (1) Except as provided in subsections (2), (3), and (4) of
             this section, a judgment, including a judgment for
             prejudgment interest, shall bear six percent (6%) interest
             compounded annually from the date the judgment is
             entered. A judgment may be for the principal and
             accrued interest.

             (2) A judgment for unpaid child support payments shall
             bear twelve percent (12%) interest compounded annually
             from the date the judgment is entered.

             (3) A judgment rendered on a contract, promissory note,
             or other written obligation shall bear interest at the
             interest rate established in that contract, promissory note,
             or other written obligation.

             (4) When a claim for unliquidated damages is reduced to
             judgment, such judgment may bear less interest than six
             percent (6%) if the court rendering such judgment, after a
             hearing on that question, is satisfied that the rate of
                                         -10-
             interest should be less than six percent (6%). All
             interested parties must have due notice of said hearing.

             In sum, there are only three circumstances under which a court may

deviate from the statutory post-judgment interest rate of 6% expressed in KRS

360.040. The first circumstance is where the claim is for unliquidated damages.

KRS 360.040(4). The second is for unpaid child support payments. KRS

360.040(2). The claim here was for liquidated damages (i.e., the unpaid balance of

a promissory note); therefore, neither of those subsections were bases for awarding

other than 6% post-judgment interest. The third circumstance is where “the

interest rate [is] established in that contract, promissory note, or other written

obligation.” KRS 360.040(3). However, the February 12, 2019 promissory note

that served as the basis of the circuit court’s judgment did not “establish” any rate

of interest. Accordingly, the circuit court lacked authority to specify a rate other

than 6%. For parity of reasoning, see Service Financial Company v. Ware, 473

S.W.3d 98, 106 (Ky. App. 2015) (reasoning, under prior version of KRS 360.040,

that a judgment for liquidated damages based upon a contract specifying no rate of

interest could not deviate from the statutory post-judgment interest rate, which was

then 12%); see also Doyle v. Doyle, 549 S.W.3d 450, 456 (Ky. 2018) (“All

judgments bear interest. The amount of interest is mandated at the statutory rate

unless the claim is unliquidated or interest is provided for in a separate written

obligation.”).
                                          -11-
               Additionally, “a judgment cannot properly adjudicate a matter not

within the pleadings.” Kentucky Ret. Sys. v. Foster, 338 S.W.3d 788, 798 (Ky.

App. 2010). Here, why the circuit court provided a “12%” rate of interest remains

an unanswered question.9 In fact, even the appellee prayed for “the statutory rate

of 6% per annum” in its complaint; it never asked for a different rate at any time

during these proceedings; and, for at least two months after judgment had been

entered, it appears the appellee remained unaware that the interest rate the circuit

court had applied to its judgment was not 6%.10 Indeed, even the appellee’s

motion to strike Roberts’ brief makes no mention of this point; and the appellee

has filed no brief otherwise addressing it.

               A court cannot award relief that is prohibited by statute. And, issues

of palpable error aside, “[i]t is elemental that a judgment must conform to the

pleadings. Where the judgment grants relief beyond that prayed in a petition, it is

void as to the excessive relief granted and may be collaterally attacked.” Belcher

v. Hunt, 248 S.W.2d 717, 718 (Ky. 1952). Accordingly, while Roberts did not

preserve the issue below, it is nevertheless appropriate for this Court to address and

9
 While a prior version of the statute specified a rate of 12%, the version of KRS 360.040 that
has been applicable at all relevant times in this litigation specifies a 6% rate of judgment interest
and has been effective since June 29, 2017.
10
  Illustrating this point, on October 12, 2020, the appellee filed of record an “affidavit for order
of wage garnishment,” explaining the “amount due” on its August 18, 2020 judgment against
Roberts was “22,797.26 @ 6% per annum from 8/18/20 until paid in full[.]”
                                                -12-
order the correction of the unauthorized interest rate set forth in the circuit court’s

August 18, 2020 judgment.

                                  III. CONCLUSION

             For the reasons set forth above, the judgment of the Bullitt Circuit

Court is vacated insofar as the award of post-judgment interest of 12% is

concerned, and this matter is remanded for entry of a judgment reflecting a rate of

6% post-judgment interest instead. In all other respects, we affirm.

             ALL CONCUR.

 BRIEF FOR APPELLANT:                       NO BRIEF FOR APPELLEE.

 Cynthia T. Griffin
 Elizabethtown, Kentucky

                                          -13-