Court Opinion

ID: 9941291
Source: CourtListenerOpinion
Date Created: 2024-02-16 15:14:18.247718+00
Date Added: 2024-06-11T13:46:30.534908
License: Public Domain

RENDERED: FEBRUARY 9, 2024; 10:00 A.M.
                   NOT TO BE PUBLISHED

           Commonwealth of Kentucky
                    Court of Appeals
                     NO. 2022-CA-1271-MR

RICK S. ROBINETTE                                    APPELLANT

            APPEAL FROM FAYETTE CIRCUIT COURT
v.          HONORABLE JULIE M. GOODMAN, JUDGE
                   ACTION NO. 21-CI-02414

MARK C. CARROLL,
INDIVIDUALLY AND AS MEMBER
OF CATAPULT MARKETING, LLC
AND CATAPULT FUNDING, LLC,
AND AS PRESIDENT AND
DIRECTOR OF CARROLL
FOUNDATION, INC.; CARROLL
FOUNDATION, INC.; CATAPULT
FUNDING, LLC; CATAPULT
MARKETING, LLC; AND LUKE A.
CURRY, INDIVIDUALLY AND AS A
MEMBER OF CATAPULT
MARKETING, LLC                                       APPELLEES

                          OPINION
                    AFFIRMING IN PART,
             REVERSING IN PART, AND REMANDING

                         ** ** ** ** **

BEFORE: CALDWELL, GOODWINE, AND LAMBERT, JUDGES.
CALDWELL, JUDGE: Rick Robinette (Robinette) appeals from the Fayette

Circuit Court’s order denying default judgment against several of the defendants

named in his complaint as well as the trial court’s order finding he suffered no

actual damages for any breach of contract. We reverse the trial court as concerns

the entry of default judgment against the remaining named defendants but affirm

on damages.

                                      FACTS

              Retired coal miner Robinette heard of a lucrative business proposition

from other members of his community in Williamson, West Virginia, which lies

just across the state line from Pike County, Kentucky. The proposition involved

“lending” money to a concern variously known as “Catapult Funding, LLC” or

“Catapult Marketing, LLC” (Catapult). In documents contained in the record,

Catapult listed Lexington, Kentucky as its place of business. Under the terms of

the proffered agreement, any money “deposited” would be used by Catapult to

invest in cryptocurrency and other like forms of investments. The “lenders,” like

Robinette, would receive their investment capital back in six months, along with

interest in the amount of 17% per month. It was promised that some of the

proceeds would be used by “Catapult” to invest in local community projects, like

building a new football stadium at Belfry High School in Pike County. Robinette

decided to invest with Catapult.

                                         -2-
               In January of 2021, Robinette executed a document online by

electronic signature.1 The document was entitled “Catapult Marketing, LLC.

Private Loan agreement (sic).” Under the terms of the two-page contract,

Robinette as “investor” deposited $84,000 and would receive $155,400 by July 10,

2020. The $155,400 consisted of his initial investment of $84,000 plus interest of

$71,400, or 85% of his initial investment. As Robinette later told the trial court, “It

sounded too good to be true.”

               In July of 2020, Robinette did not realize $155,400. Rather, on June

30, 2020, he was convinced to execute a second “loan agreement.” This second

document was entitled “Catapult Funding LLC. Private Loan agreement (sic).”

The terms in this second document indicated Robinette was “depositing” $265,000

and would realize $517,120 at maturity on December 31, 2020. The $265,000

deposit, Robinette explained, was comprised of his initial investment of $84,000,

plus the interest he “realized” under the first contract for a total “rollover” of

$155,400, plus an additional $109,600 cash which Robinette provided.2 At this

point, Robinette had provided Catapult a total of $193,600 in cash.

1
 Robinette testified he never met Mark Carroll or Luke Curry, who were the operators of the
various “Catapult” entities, in person.
2
 We note on the face of this second agreement, the amount of the “deposit” is variously listed as
$265,000 and $256,000. There is no reason to believe Robinette ever noted the discrepancy.

                                               -3-
                 Before the maturity date of the second agreement, Robinette informed

Catapult he would be withdrawing $135,000 and allowing the remainder of his

“investment” to form the basis of a third agreement.3 He did receive $35,000 from

Catapult but did not receive the other $100,000 he requested. Despite this failure,

on January 1, 2021, the parties entered into the third and last agreement. This

agreement was again entitled “Catapult Funding LLC. Private Loan agreement

(sic).” By its terms, Robinette was “depositing” $400,000 on January 1, 2021, and

would realize in June of 2021 a return of $808,000, erroneously deemed a 100%

interest rate.

                 After the June 30, 2021, maturity date, despite repeated demands,

Catapult failed to pay Robinette the $808,000 he was due under the terms of the

agreement. Robinette engaged counsel and Catapult ultimately provided him with

$182,500. Along with the $35,000 already received, Robinette managed to recover

$217,500 from Catapult. As he only provided cash in the amounts of $84,000 and

$109,600, totaling $193,600, Robinette realized a return on his investment of

$23,900.

3
  According to the complaint, Robinette expected the remaining “principal and interest” to
remain after he received $135,000 to be $400,000. There is no explanation for where he arrived
at this figure as if he “realized” $517,120 after the maturity of the second agreement and
withdrawn $135,000, the remainder would be only $382,120.

                                              -4-
               Robinette filed suit in Fayette Circuit Court, naming Catapult

Marketing, LLC, Catapult Funding, LLC, Mark C. Carroll, Carroll Foundation,

Inc.,4 and Luke Curry. Robinette alleged breach of contract because he did not

receive the $808,000 per the terms of the last agreement. He also alleged fraud,

averring Carroll and Curry induced him and others to “loan” cash to the Catapult

entities by falsely promising exorbitant rates of return and guaranteeing payment of

principal and interest. Robinette also sought pre- and post-judgment interest.

               No answers to the complaint were filed. Robinette sought default

judgment against all named defendants. The trial court, reviewing the agreements

executed by Robinette, entered default judgment only against Catapult Funding,

LLC, the entity listed on the final agreement. As to the remaining named

defendants, the court’s order held it denied “the motion as to the remaining

Defendants, as the Contract produced by the Plaintiff does not indicate liability on

the part of any of the other Defendants for any damages on that contract.” The

order did not mention the other claims raised in the complaint, such as fraud.

               A hearing on damages was held by the court on April 12, 2022, for the

breach of contract claim against Catapult Funding, LLC. The plaintiff entered into

evidence the three written agreements. Robinette also introduced receipts from

4
  In the complaint, this entity is listed as both a corporation and an LLC. Its only connection to
the case is Mark Carroll, and it was named as an alter ego of Carroll.

                                                -5-
withdrawals from his bank accounts to prove the “deposits” he made under the

agreements. Robinette was the only witness and he was seeking what he was due

under the third agreement – $808,000.

                During the hearing, the trial court asked Robinette if he were

contacted by any law enforcement agencies which might be investigating the

matter. Robinette told the trial court the FBI5 contacted him about the situation

and used the term “Ponzi scheme.”6

                Following the hearing, the judge allowed counsel to brief damages as

once she determined Robinette recovered all he invested, and realized $23,900 in

5
  We take judicial notice under Kentucky Revised Statute (KRS) 201 that Carroll and Curry were
indicted in federal court for the scheme in May of 2023. United States of America v. Mark
Carroll and Luke Curry, No. 23-CR-50020; Two Kentucky Men Charged With Scheming To
Obtain Millions of Dollars From Victims in Illinois and Throughout the U.S., UNITED STATES
ATTORNEY’S OFFICE, https://www.justice.gov/usao-ndil/pr/two-kentucky-men-charged-
scheming-obtain-millions-dollars-victims-illinois-and (last visited February 8, 2024).

6
    Black’s Law Dictionary (11th ed. 2019), defines a Ponzi scheme as follows:

                A fraudulent investment scheme in which money contributed by
                later investors generates artificially high dividends or returns for
                the original investors, whose example attracts even larger
                investments. Money from the new investors is used directly to
                repay or pay interest to earlier investors, usu[ally] without any
                operation or revenue-producing activity other than the continual
                raising of new funds. This scheme takes its name from Charles
                Ponzi, who in the late 1920s was convicted for fraudulent schemes
                he conducted in Boston. Cf. PYRAMID SCHEME; GIFTING
                CLUB.

                                                -6-
gains, she did not believe Robinette had suffered any actual damages. After

counsel filed a brief on damages, the trial court issued its order.

             The trial court determined the agreement between the parties, even

though it was referred to as a “loan” in the documentation, was an investment

vehicle. While the court realized it must respect the “expectations of the parties in

determining interest to be charged on a loan[,]” those expectations must be realistic

and not unconscionable. The return of over 100% interest as stated in the last

agreement was unconscionable, the court determined. The court ruled any

reasonable investor would realize the vehicle was potentially a Ponzi scheme, so a

reasonable investor would proceed at his own risk. As Robinette realized $23,900

from his participation, she found he suffered no actual damages under the contract.

Robinette filed a motion to reconsider, which was denied.

             Robinette appeals both from the trial court’s order denying default

judgment against any of the defendants except “Catapult Funding, LLC” for breach

of contract and the trial court’s order finding he suffered no actual damages for any

breach of the contract by “Catapult Funding, LLC.” We reverse as to the entry of

default judgment against the balance of the named defendants but affirm as to the

finding on damages as against Catapult Funding, LLC.

                                          -7-
                            STANDARD OF REVIEW

             A trial court’s determination of a motion for default judgment and its

assessment of damages after entry of default judgment on liability are both

reviewed for an abuse of discretion.

             A trial court has broad discretion when it comes to
             default judgments, and we will not disturb a default
             judgment unless the trial court abused that broad
             discretion. S.R. Blanton Development, Inc. v. Investors
             Realty and Management Co., Inc., 819 S.W.2d 727, 730
             (Ky. App. 1991). For a trial court to have abused its
             discretion, its decision must have been arbitrary,
             unreasonable, unfair or unsupported by sound legal
             principles. Clark v. Commonwealth, 223 S.W.3d 90, 95
             (Ky. 2007).

First Horizon Home Loan Corp. v. Barbanel, 290 S.W.3d 686, 688 (Ky. App.

2009).

             “Notwithstanding that a default judgment has been entered, the law

still requires a legal basis to support a damages claim. . . .” Deskins v. Estep, 314

S.W.3d 300, 304 (Ky. App. 2010).

                                     ANALYSIS

             Robinette first complains the trial court abused its discretion in failing

to enter default judgments against Catapult Marketing, LLC; Mark C. Carroll,

individually; Luke A. Curry, individually; and Carroll Foundation, Inc. on all

claims, as well as against Catapult Funding, LLC as to his claim against the entity

for fraud. We agree with Robinette. He was entitled to default judgment against

                                          -8-
each entity on his claim of fraud and against the four remaining defendants for the

claim of breach of contract.

                CR7 55.01 provides a defendant cannot thwart justice by refusing to

answer a lawsuit properly filed against it.

                When a party against whom a judgment for affirmative
                relief is sought has failed to plead or otherwise defend as
                provided by these rules, the party entitled to a judgment
                by default shall apply to the court therefor. If the party
                against whom judgment by default is sought has
                appeared in the action, he, or if appearing by
                representative, his representative shall be served with
                written notice of the application for judgment at least
                three days prior to the hearing on such application. The
                motion for judgment against a party in default for failure
                to appear shall be accompanied by a certificate of the
                attorney that no papers have been served on him by the
                party in default. If, in order to enable the court to enter
                judgment or to carry it into effect, it is necessary to take
                an account or to determine the amount of damages or to
                establish the truth of any averment by evidence or to
                make an investigation of any other matter, the court,
                without a jury, shall conduct such hearings or order such
                references as it deems necessary and proper, unless a jury
                is demanded by a party entitled thereto or is mandatory
                by statute or by the Constitution. A party in default for
                failure to appear shall be deemed to have waived his right
                of trial by jury.

CR 55.01.

                We understand default judgment should be entered advisedly. We

“realize that default judgments are not looked upon with favor as it is the policy of

7
    Kentucky Rule of Civil Procedure.

                                            -9-
the law to have every case decided on its merits.” Dressler v. Barlow, 729 S.W.2d

464, 465 (Ky. App. 1987) (citing Ryan v. Collins, 481 S.W.2d 85 (Ky. 1972);

Mullins v. Commonwealth, 262 S.W.2d 666 (Ky. 1953)). The administration of

justice requires when a defendant, properly and duly served under the civil rules of

procedure, fails to respond as required, the plaintiff is entitled to judgment so as

not to allow inaction to thwart justice. If there were no consequences to failure to

answer a lawsuit, the administration of justice would grind to a halt. See

Hutcherson v. Hicks, 320 S.W.3d 102, 105 (Ky. App. 2010) (“The desirability of

finality in judgments of any court requires this.”) (citation omitted).

             Kentucky is not alone in approaching the entry of default judgments

with caution. The intermediate appellate court in Kansas has acknowledged the

disfavor with which default judgments are considered but acknowledges that the

inaction of a defendant cannot be allowed to thwart justice. “Default judgments

are not favored by the law but are necessary when the inaction of one party

frustrates the administration of justice. Jenkins v. Arnold, 223 Kan. 298, 299, 573

P.2d 1013 (1978).” First Management, Inc. v. Topeka Inv. Group, LLC, 47 Kan.

App. 2d 233, 239, 277 P.3d 1150, 1156 (2012).

             Missouri’s Court of Appeals also expressed disfavor with default

judgments but acknowledged they are a necessity borne out of the inaction of a

party.

                                         -10-
                 And we recognize the important policies favoring the
                 resolution of lawsuits on the merits and disfavoring
                 default judgments. See Dozier v. Dozier, 222 S.W.3d
                 308, 311 (Mo. App. W.D. 2007). Those policies,
                 however, must be considered together with the
                 countervailing and fundamental policy on which the
                 administration of justice rests – that parties obey and
                 respect orders of the court to appear or respond or
                 otherwise to take some action. See Stradford v. Caudillo,
                 972 S.W.2d 483, 486 (Mo. App. W.D. 1998) (“When a
                 litigant chooses to ignore or act in reckless disregard of
                 the rules and procedures set out for the orderly
                 administration of the judicial process, he cannot then be
                 heard to complain when he receives no relief under its
                 rules, particularly Rule 74.05(d).”).

Plasmeier v. George, 575 S.W.3d 485, 488 (Mo. Ct. App. 2019).

                 Indiana, too, has acknowledged the need to have such methods as

default judgment in place to ensure that the system of justice runs efficiently.

“Courts must balance the need for efficient administration of justice with the

preference for deciding cases on their merits and giving a party its day in court.”

Flying J, Inc. v. Jeter, 720 N.E.2d 1247, 1249 (Ind. App. 1999).

                 In the present case Robinette filed a motion for default judgment

against all defendants named in his complaint on all claims forwarded after none of

them filed an answer to his complaint. Counsel indicated in a certificate8 appended

8
    “A party seeking a judgment by default under CR 55.01 shall file a written motion therefore.
The motion shall be accompanied (a) by a certificate of the attorney that no papers have been
served upon the attorney by the party in default . . . .” Rule 20, Fayette Circuit Criminal and
Civil Court Rules.

                                                -11-
to the motion he received no answer served on him by any of the parties.9

Robinette was entitled to default judgment as to all entities named in his complaint.

                 The trial court gave limited justification in its order granting default

judgment only against Catapult Funding, LLC, citing “as the Contract produced by

the Plaintiff does not indicate liability on the part of any of the other Defendants

for any damages on that contract.” We find this to be an abuse of discretion.10

Robinette alleged other causes of action against the named defendants, such as

fraud, not dependent upon privity of contract. It was an abuse of discretion not to

enter judgment against each named party on each claim as none of the parties

answered any of the claims forwarded in the complaint.

                 A default judgment cannot be entered when a complaint fails to state a

claim upon which relief can be granted. Morgan v. O’Neil, 652 S.W.2d 83, 85

(Ky. 1983). However, leniency is warranted in construing the pleadings in such a

circumstance. See Jeffrey v. Jeffrey, 153 S.W.3d 849, 851 (Ky. App. 2004);

9
  Counsel did indicate in the motion for default judgment Mark Carroll emailed him on
November 22, 2021, and counsel included the text of the email in the motion out of an
abundance of caution. The email did not suffice to constitute either an answer or an appearance.
See Ryan v. Collins, 481 S.W.2d 85, 88 (Ky. 1972). The email counsel received from Carroll
indicated an answer would be “sent” within ten (10) business days, but no document was either
“sent” or “filed.”

10
     “Although default judgments are not favored, trial courts possess broad discretion in
considering motions to set them aside and we will not disturb the exercise of that discretion
absent abuse. Kidd v. B. Perini & Sons, 313 Ky. 727, 233 S.W.2d 255 (1950).” Howard v.
Fountain, 749 S.W.2d 690, 692 (Ky. App. 1988).

                                                -12-
Crowder v. American Mutual Liberty Ins. Co., 379 S.W.2d 236, 238 (Ky. 1964).

There is nothing in the trial court’s order denying default judgment to suggest it

found the plaintiff failed to state a claim against any of the defendants; the trial

court apparently wholly disregarded the fraud claim, which we find was an abuse

of discretion.

               When a defendant fails to respond to a complaint and does not enter

an appearance in any way, the plaintiff is entitled to default judgment unless the

trial court can point to some defect in the complaint or with its jurisdiction over the

claims therein. The Fayette Circuit Court having done neither on the claim for

fraud, we reverse and remand for entry of default judgment on the fraud claims

against all defendants.11 A damages hearing must be held by the circuit court on

this claim on remand, pursuant to CR 55.01 and 52.01.12

11
  Given the trial court’s determination Robinette was not damaged on the breach of contract
claim, it is unnecessary to reverse its ruling on default judgment on that claim against Catapult
Marketing, LLC, Carroll Foundation Inc., Mark Carroll, and Luke Curry. Further, the trial court
did hold the only defendant signatory to the third agreement was the entity against which it
granted default judgment, Catapult Funding, LLC, which we hold was not in error.

12
   “CR 55.01 clearly contemplates that damages hearings in cases where a default judgment for
liability has been entered should be evidentiary in nature to determine the amount of damages
and establish the truth of any other allegations or evidence supporting the damage claim.
Kentucky Courts have concluded that proceedings of this nature are governed by CR 52.01.
Greathouse v. Am. Nat’l Bank & Trust Co., 796 S.W.2d 868 (Ky. App. 1990). The provisions in
CR 52.01 are mandatory and require the court to make specific findings of fact and separate
conclusions of law before rendering a judgment. Brown v. Shelton, 156 S.W.3d 319 (Ky. App.
2004).” Deskins, 314 S.W.3d at 304.

                                              -13-
             Robinette further appeals from the trial court determination that he

suffered no actual damages. The trial court granted default judgment against

Catapult Funding, LLC on the breach of contract claim, as it was the entity listed

as party to the third agreement and held a damages hearing. The trial court

determined Robinette suffered no actual damages under the agreement. We agree.

             We find the trial court did not abuse its discretion in holding

Robinette did not suffer any actual damages under the contract. The trial court

found, as a matter of law, the contract term calling for over 100% “interest” be

paid to Robinette for his “loan” of $400,000 was unconscionable. The court cited

Conseco Finance Servicing Corporation v. Wilder for the proposition “[a]n

unconscionable contract has been characterized as ‘one which no man in his

senses, not under delusion, would make, on the one hand, and which no fair and

honest man would accept, on the other.’” 47 S.W.3d 335, 342 (Ky. App. 2001)

(citing Louisville Bear Safety Service, Inc. v. South Central Bell Telephone

Company, 571 S.W.2d 438, 439 (Ky. App. 1978) (citing Black’s Law Dictionary

(Rev 4th ed.))).

             It was not reasonable, the court held, for Robinette to anticipate

realizing over a 100% return on his deposit. We cannot hold this finding to be an

abuse of discretion.

                                        -14-
              The court also found Robinette deposited a total of $193,600 with

Catapult and recovered $217,500, a difference of $23,900, representing a 12.3%

return on his deposit. The court found this amount a reasonable return on an

investment, which the court found this agreement was, despite the characterization

of it describing a “loan.” The expectation of an over 100% interest rate were this

scheme a “loan,” as Robinette insists it was, would be unconscionable and

unenforceable. Again, we find no abuse of discretion in the court’s

determination.13

                                      CONCLUSION

              The Fayette Circuit Court erred in denying Robinette default

judgment against all named defendants. We reverse the court and remand this

matter back to the Fayette Circuit Court for further proceedings in accordance with

this Opinion. The court did not err in determining Robinette was not entitled to

recover per the terms of the clearly unreasonable agreement which indicated he

would realize over 100% interest on money deposited with Catapult. The Fayette

Circuit Court is affirmed in part, reversed in part, and this matter is remanded.

13
  Whether Robinette will retain $23,900 is not for us or the Fayette Circuit Court to determine.
Rather, the federal indictment of Carroll and Curry may well speak to whether Robinette, as a
“net winner” in the Ponzi scheme, will be made to forfeit this amount. See generally 23
A.L.R.7th Art. 4 (Originally published in 2017). For an example of such a “claw back” recovery
suit, see Kelley as Trustee for PCI Liquidating Trust v. Boosalis, 974 F.3d 884 (8th Cir. 2020).

                                             -15-
          ALL CONCUR.

BRIEF FOR APPELLANT:      NO BRIEF FOR APPELLEES.

Darrell E. Sammons
Erlanger, Kentucky

                        -16-