Court Opinion

ID: 4665187
Source: CourtListenerOpinion
Date Created: 2021-03-05 15:06:10.50551+00
Date Added: 2024-06-11T08:02:40.974328
License: Public Domain

RENDERED: FEBRUARY 26, 2021; 10:00 A.M.
                           NOT TO BE PUBLISHED

                     Commonwealth of Kentucky
                                Court of Appeals

                                   NO. 2019-CA-1412-MR

EDWARD NEUTZ, JAMI NEUTZ,
AND N&R PROPERTIES, LLC                                              APPELLANTS

                    APPEAL FROM JEFFERSON CIRCUIT COURT
v.                 HONORABLE SUSAN SHULTZ-GIBSON, JUDGE
                            ACTION NO. 12-CI-004928

JOE D. TAYLOR AND J.D. TAYLOR
& SONS MOVING, INC.                                                   APPELLEES

                                          OPINION
                                         AFFIRMING

                                        ** ** ** ** **

BEFORE: CALDWELL, KRAMER, AND MAZE, JUDGES.

MAZE, JUDGE: Appellant Edward Neutz1 challenges an order of the Jefferson

Circuit Court addressing the effect of non-recourse language contained in a note

executed between the parties to this appeal, as well as the effects of condition

1
    Jami Neutz and N&R Properties, LLC are also appellants herein.
precedent and limitation of remedies language contained in a related security

agreement. Neutz argues that the circuit court erred in concluding that appellee

Taylor established the condition precedent required to enforce any remedies under

the security agreement and that the award of damages for breach of the security

agreement was unsupported by any competent evidence. Finding no error in the

decision of the circuit court, we affirm.

                                     BACKGROUND

                The dispute between the parties stems from a jury verdict and

judgment awarding appellee Taylor damages for Neutz’s breach of a promissory

note and security agreement executed in the sale of a moving company. A

previous appeal2 resulted in an opinion of this Court vacating and remanding the

matter for a hearing and findings on the effect of non-recourse language in the

promissory note and limitations on remedies provisions in the security agreement.

                Because our prior opinion fully and thoroughly sets out the facts of

this case, we reiterate them here only as necessary to an understanding of our

decision. In 2005, Taylor sold J.D. Taylor & Sons Moving, Inc., a moving

company that he had formed in 1994, to Neutz for a purchase price of

approximately $1.8 million. To consummate the sale, the parties entered into

several contracts and agreements, each effective January 1, 2006, including a

2
    Neutz v. Taylor, No. 2016-CA-001389-MR, 2019 WL 495055 (Ky. App. Feb. 8, 2019).

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$656,000.00 promissory note from Neutz, as maker, to Taylor, as payee, which

contained the following language:

             [Neutz] has granted [Taylor] a security interest in all of
             the stock now or hereafter owned by [Neutz] in J.D.
             Taylor & Sons Moving, Inc. pursuant to a security
             agreement of even date herewith (the “Security
             Agreement”). This note shall be non-recourse to [Neutz],
             and [Neutz] is hereby released of all liability hereunder.
             In the event of default hereunder, [Taylor’s] sole
             recourse shall be to exercise the remedies set forth in the
             Security Agreement, and any holder hereof (including
             [Taylor]) shall be deemed by acceptance of this note to
             have agreed not to take a deficiency judgement [sic]
             against [Neutz] with respect to indebtedness arising
             hereunder.

(Emphasis added.) Thus, Neutz granted Taylor a security interest in the stock of

J.D. Taylor & Sons as collateral for repayment of the note. Section C of the

security agreement alluded to in the promissory note defined events of default

under the various loan agreements, including 1) non-payment of sums due under

the note for a period of ninety days after the payment was due or 2) Neutz selling,

assigning, transferring, or otherwise disposing of his interest in the collateral

without Taylor’s prior consent. The security agreement also outlined Taylor’s

remedies in case of default as described in Section C:

             (D) Remedies of [Taylor]

                    If any default occurs as defined in Section C,
             [Taylor’s] sole remedies as a consequence thereof shall
             be the following:

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                  (1) [Taylor] shall have the right to take
                  immediate possession of the collateral
                  without notice or demand or intervention of
                  any court or other legal proceeding,
                  provided that the act of taking possession is
                  peaceful. As a condition precedent to
                  retaking the collateral, [Taylor] shall pay to
                  [Neutz] an amount, if any, equal to the
                  amount by which the then fair market value
                  of the assets (excluding goodwill and going
                  concern value) of [J.D. Taylor & Sons], less
                  its then liabilities and other liabilities which
                  encumber [J.D. Taylor & Sons’] assets
                  (excluding liabilities owed to [Taylor]),
                  exceeds $225,000 (or $175,000 if a
                  household goods carrier license is not
                  required to operate the business).

                  (2) [Taylor] may declare all indebtedness
                  secured hereby to be due and payable and
                  the same shall thereupon become due and
                  payable without any further presentment,
                  demand, protest, or notice of any kind. The
                  waiver of any default hereunder shall not
                  constitute a waiver of any subsequent
                  default. Upon any such default, the parties
                  shall each pay their own reasonable attorney
                  fees and legal expenses incurred in
                  enforcing or attempting to enforce, and in
                  defending, any claims brought hereunder.

(Emphasis added.) The Security Agreement defined “collateral” as the “stock” in

J.D. Taylor & Sons.

            The acts which appear to have precipitated this dispute commenced in

January 2006 when Neutz and his wife Jami formed N&R Properties, LLC, and,

subsequently in November 2008, established “Edward Neutz Sons and Daughters

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Moving” as an assumed name of N&R. In 2010, Jami, on behalf of N&R, and

Neutz, on behalf of J.D. Taylor & Sons, entered into an Outsourcing Agreement

which provided that all moving and storage marketing leads generated by J.D.

Taylor & Sons would be referred to N&R for performance. The stated

consideration was a commission of 2.5 percent, plus other economic

considerations. In addition, Neutz sold all of J.D. Taylor & Sons’ assets to N&R in

exchange for royalty payments and reduced rent. The record of the proceedings at

trial discloses that Taylor characterized the sale as a clandestine and methodical

depletion of J.D. Taylor & Sons’ assets in an attempt to unjustly enrich N&R’s

operation of the new company, Edward Neutz Sons and Daughters Moving.

Taylor also alleged that, in so doing, Neutz had depleted to zero the value of the

stock he had pledged as collateral for his financial obligations to Taylor.

             Almost immediately after entering into the Outsourcing Agreement,

Neutz defaulted on the note payments and began alleging that J.D. Taylor & Sons

was not as valuable an asset as he had been led to believe. At this point, Neutz had

paid Taylor approximately $180,000.00 of the purchase price. Taylor thereafter

demanded the return of his company but was ultimately required to seek injunctive

relief to exercise his right to take “immediate possession of the collateral” as

provided for in the security agreement. In 2012, Taylor filed suit against Neutz,

alleging breach of the various agreements and unjust enrichment and later amended

                                          -5-
his complaint to allege additional claims of fraud and breach of fiduciary duty.

Neutz thereafter filed several counterclaims, including an allegation that Taylor

had breached the security agreement when he failed to comply with its sole

remedies provision.

             A five-day jury trial conducted in September 2014 produced

testimony from Taylor that the only assets returned by Neutz pursuant to the

injunction were stock certificates and keys to trucks that allegedly were not in

working order. Taylor also alleged that the stock he received pursuant to the

injunction had no value due to Neutz’s transfer of the company’s assets to N&R.

Neutz argued that Taylor had received numerous company assets that retained

value, including intellectual property, and that the security agreement required that

Taylor establish the fair market value of J.D. Taylor & Sons at the time that the

collateral was returned to Taylor, with any amounts above $225,000.00 to be paid

to Neutz.

             The matter was submitted to the jury on Taylor’s claim for breach of

the note, but the circuit court concluded that the non-recourse issue was a legal

issue to be resolved post-verdict. The jury ultimately found that Neutz breached

the note, awarding damages of $431,129.00; that Neutz breached the security

agreement, awarding damages of $245,305.00; and that Taylor had not breached

the security agreement by failing to meet the condition precedent before retaking

                                         -6-
the collateral. The circuit court thereafter entered judgment in accord with the jury

verdict and asked the parties to schedule a hearing “to ascertain damages and costs

associated with the verdicts rendered herein.” The judgment did not specifically

adjudicate any amount of damages against any party and noted that the circuit

court would retain jurisdiction for determination of the award of attorney fees,

costs and statutory damages. The judgment was designated to be final and

appealable.

              Neutz thereafter moved to vacate the judgment, arguing that the non-

recourse note prohibited the entry of a deficiency judgment against Neutz; that

Taylor had failed to perform conditions precedent to establish entitlement to the

remedies set forth in the security agreement; and that there was no substantial

evidence to support the damages awarded Taylor under the security agreement. In

March 2015, the circuit court denied Neutz’s motion, simply stating in its order

that the motion was overruled.

              After Neutz’s appeal from the judgment was dismissed for failure to

appeal from a final and appealable order, the circuit court entered an order

clarifying that the December 2014 judgment was not interlocutory and was in fact

a final judgment which adjudicated all of the rights of the parties on Taylor’s

claims against Neutz. That order precipitated the appeal resulting in our opinion

remanding the case to the circuit court for a hearing and findings concerning the

                                         -7-
effect of the non-recourse language and condition precedent provisions of the

parties’ agreement.

                   THE CIRCUIT COURT ORDER ON REMAND

             After ordering briefs and hearing oral argument, the circuit court

entered findings and conclusions concerning the effect of both the non-recourse

provision in the note and the condition precedent provision in the security

agreement upon the damages awarded by the jury. The circuit court determined

that the non-recourse provision released Neutz from any deficiency judgment and

limited Taylor to recovery of the collateral provided for in the security agreement,

the J.D. Taylor & Sons stock. The circuit court thus vacated the award of

$431,129.00 for breach of the promissory note.

             In addition, the circuit court concluded that, as a matter of law, the

award of $245,305.00 in damages for the breach of the security agreement must be

reduced to $225,000.00, the amount provided for in the security agreement; that

the reduction satisfied the condition precedent in the security agreement; and that

the sum of $225,000.00 is supported by substantial evidence of record. This

appeal followed.

                                    ANALYSIS

             Neutz argues that the circuit court’s order on remand is erroneous in

that: 1) Taylor failed to establish compliance with the conditions precedent to

                                         -8-
enforcing the remedies set out in the security agreement; and 2) the award of

damages for breach of the security agreement was speculative and unsupported by

expert or competent evidence. As noted in our previous opinion, the “construction

and interpretation of a written instrument are questions of law for the court.”

Cinelli v. Ward, 997 S.W.2d 474, 476 (Ky. App. 1998) (citations omitted).

Further, an appellate court must “review questions of law de novo and, thus,

without deference to the interpretation afforded by the circuit court.” Id. (citations

omitted). With these factors in mind, we turn to the issues presented.

             Concerning the circuit court’s conclusion with respect to application

of the condition precedent provision, we find no error. The plain language of the

instruments in question supports the circuit court’s analysis:

             As a condition precedent to retaking the collateral,
             [Taylor] shall pay to [Neutz] an amount, if any, equal to
             the amount by which the then fair market value of the
             assets (excluding goodwill and going concern value) of
             [J.D. Taylor & Sons], less its then liabilities and other
             liabilities which encumber [J.D. Taylor & Sons] assets
             (excluding liabilities owed to [Taylor]), exceeds
             $225,000 (or $175,000 if a household goods carrier
             license is not required to operate the business).

Nothing in this provision requires Taylor, the injured party, to undertake a

valuation of the J.D. Taylor & Sons stock in order to comply with the condition

precedent. In our view, because Neutz was in control of the company, had

breached the security agreement by depleting the value of the stock through the

                                         -9-
unilateral Outsourcing Agreement, had argued that the company was not as

valuable as he had been led to believe, and was in the best position to offer proof at

trial of the current value of the company, the circuit court did not err in reducing

the jury award to the agreed upon sum of $225,000.00, absent evidence that the

value of the stock exceeded that figure. As the circuit court properly observed, the

damages provided in the agreement are “fixed and ascertainable.” Like the circuit

court, we are convinced that the condition precedent is satisfied unless Neutz, the

party in breach, comes forward with evidence that the fair market value of the

company exceeds $225,000.00. Absent such evidence, Taylor is entitled to retake

the collateral provided for in the note and security agreement.

             These same principles underpin our decision with respect to the

quality of the proof concerning the fair market value of the stock. In awarding

damages for breach, the jury heard evidence concerning the value of the J.D.

Taylor & Sons at the time Neutz purchased the company. Ordinarily, an arms-

length purchase transaction between a willing buyer and a willing seller is

competent evidence of a company’s value. However, the jury also heard evidence

concerning the impact of the Outsourcing Agreement on the value of the

company—the transfer of assets to N&R; the fact that J.D. Taylor & Sons’ phone

number and webpage information had been transferred to N&R; and that moving

services were no longer being performed by J.D. Taylor & Sons, but were rather

                                         -10-
being fulfilled by N&R. Importantly, income tax returns showing the precipitous

decline of J.D. Taylor & Sons’ revenue after the imposition of the Outsourcing

Agreement was clearly competent to show diminishment in the company’s value.

The circuit court on remand acted well within its authority in reviewing this

evidence and concluding that the condition precedent provision had been satisfied.

             In sum, our de novo review convinces us that the circuit court clearly

understood the plain language of the contract between the parties, properly applied

that language to the facts of record, and reduced the jury award as a matter of law.

Nothing in the arguments presented allow us to disturb its well-reasoned decision.

             The judgment of the Jefferson Circuit Court is affirmed.

             ALL CONCUR.

BRIEFS FOR APPELLANT                      BRIEF AND ORAL ARGUMENT
EDWARD NEUTZ:                             FOR APPELLEE JOE TAYLOR:

R. Kenyon Meyer                           Stuart Alexander
Anthony M. Zelli                          Louisville, Kentucky
Louisville, Kentucky

ORAL ARGUMENT FOR
APPELLANT EDWARD NEUTZ:

Anthony M. Zelli
Louisville, Kentucky

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