December Farm International, LLC v. December Estate, LLC ( 2021 )

RENDERED: MAY 7, 2021; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NOS. 2019-CA-0983-MR
AND
2019-CA-1057-MR
DECEMBER FARM APPELLANT/CROSS-APPELLEE
INTERNATIONAL, LLC
APPEAL AND CROSS-APPEAL FROM SCOTT CIRCUIT COURT
v. HONORABLE BRIAN PRIVETT, JUDGE
ACTION NO. 09-CI-0608
DECEMBER ESTATE, LLC APPELLEE/CROSS-APPELLANT
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE: JONES, MAZE, AND TAYLOR, JUDGES.
JONES, JUDGE: Appellant December Farm International, LLC, (“the Farm”)
appeals the order of the Scott Circuit Court granting summary judgment to
December Estate, LLC, (“the Estate”) on a breach-of-contract claim concerning the
2007 relocation of an easement across the Estate’s property.
The Farm appealed, raising numerous issues of error by the circuit
court. Having reviewed the record, and being otherwise sufficiently advised, we
reverse and remand for further proceedings in accordance with this Opinion for
reasons more fully explained below.
I. STATEMENT OF THE FACTS
This ten-year litigation arises from an Access and Utility Easement
Agreement (hereinafter referred to as the “Easement Agreement”) for the Farm’s
benefit. In the spring of 2006, Nicole Hammond, the principle and sole member of
the Farm, entered into a contract for the purchase of three adjoining tracts of real
estate totaling roughly 456 acres in Scott County, Kentucky. Hammond did not
have the financial ability to pay the approximately $2.5 million asking price, nor
did she need the entire acreage for the Farm, so she proposed a deal to her
acquaintance, Bruce Davis, who in turn proposed the deal to his business partner,
Michael Milea.1
The terms of the proposal involved Hammond assigning her right to
purchase two parcels of the real estate in question to the Estate and, because the
remaining 130-acre parcel was essentially “landlocked,” the Estate simultaneously
granting the Farm an easement across the Estate’s property. The Estate agreed to
1
Davis and Milea eventually formed the Estate, although neither individual is currently
associated with the Estate in any capacity.
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the proposal, and the two parties negotiated and executed a series of related
agreements on October 31, 2006, including an Assignment and Assumption and
Partial Assignment and Assumption of Purchase and Sale Agreements, by which
the Farm assigned its right to purchase two of the tracts of land to the Estate, and
and Easement Agreement, by which the Estate granted the Farm an easement
across the two tracts of land purchased by the Estate.2
Pursuant to the Easement Agreement, the Estate had the authority to
relocate or modify the road at the Farm’s sole expense after providing the Farm
with written notice and granting the Farm a three-month period during which to
construct the relocated road itself. In relevant part, Paragraph 8 of the Easement
Agreement provides:
a. Notwithstanding anything else set forth in this
Agreement, [the Estate], in [the Estate’s] sole discretion,
reserves the right to modify or relocate, at [the Farm’s]
sole expense, the Private Drives, Access Easement, the
Utility Facilities and/or the Utility Easement, from time
to time on a temporary or permanent basis, provided such
modification or relocation does not prevent ingress and
egress to and from the Parcel 9 to a publicly dedicated
right of way and does not cause an interruption of utility
service to Parcel 9 (other than a temporary interruption
resulting from the disconnection and re-connection of the
Utility Facilities). It is agreed that the Access Easement
2
Shortly before closing, it became clear that Hammond would need approximately an additional
$75,000.00 to close on her farm purchase, so the Estate agreed to lend her $78,000.00. In return,
she executed a promissory note secured by a mortgage for that amount. With the Note and
related agreements, the parties consummated their respective real estate transactions and
purchased the adjoining properties in Scott County.
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may be relocated to provide access to either Ironworks
Pike,[3] Scott County, Kentucky or Lantern Trail, Scott
County, Kentucky. Within three (3) months from written
notice to [the Farm] of such relocation, [the Farm], at
[the Farm’s] sole expense, shall construct the relocated
Private Drives and the Utility Facilities in the relocated
Access Agreement and Utility Easement. Such relocated
Private Drives and Utility Facilities shall comply with all
applicable laws, rules, regulations and ordinances and the
requirements of applicable utility companies. . . . In the
event [the Farm] does not construct the relocated Private
Drives and Utility Facilities within such three (3) month
period, [the Estate] shall have the right to do so, and [the
Farm] shall immediately reimburse [the Estate] for the
cost thereof. Any amounts not reimbursed to [the Estate]
within twenty (20) days after demand for reimbursement
shall accrue interest at the rate of twelve percent (12%)
per annum.
b. Notwithstanding anything else set forth in this
Agreement, [the Estate] further reserves the right to
specifically locate and describe the Access Easement and
the Utility Easement.
c. Upon such relocation or location, Grantor is hereby
authorized to and shall solely and unilaterally amend this
Agreement and shall file such amendment in the Scott
County Clerk’s office for the purpose of describing the
specific location of the relocated or located Private
Drives, Access Agreement, the Utility Facilities and/or
the Utility Easement shall be terminated with respect to
all areas outside the specific Access Agreement and/or
Utility Easement. The width of the relocated and/or
located Access Easement shall be the minimum width
required by the applicable government authority or
utility company for the Private Drives or Utility
Facilities, as applicable.
3
It appears that the reference to Ironworks Pike is a mistake – that portion of the roadway
bordering the Estate’s property is actually named Ironworks Road.
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d. So long as [the Farm] has not constructed the relocated
Private Drives as contemplated in Paragraph 8.a of this
Agreement and in the event [the Farm] obtains an access,
ingress and egress easement for pedestrians, motor
vehicles (including without limitation commercial, non-
commercial, and trailers attached thereto) and horses on a
lead accompanied by a handler, to Muir Lane, the Access
Agreement shall terminate upon the recording of an
agreement granting [the Farm] access to Muir Lane . . . .
R. at 415-16 (emphasis added).
The original easement followed a preexisting old farm road on the
Estate’s land from Ironworks Road to the Farm’s parcel of land. That road, which
for approximately half its length consisted of two tire tracks through fields, was
expressly accepted as an adequate right of way to the Farm’s property in the
Easement Agreement, and a map of that route was incorporated by reference as
Exhibit “C” to the Easement Agreement.
In the summer of 2007, as the Estate began developing its property
into a residential community, it became necessary to relocate the Farm’s easement
across the Estate’s property. The Estate received a bid from Woodford Excavation
and Transport (“WET”), a company owned and operated by Galen Young. WET
had previously performed considerable work for the Farm, including building
gravel roads in 2006. On March 5, 2007, WET provided the Estate with a written
estimate for the construction of the new access road for the Farm. Aside from
being more lineal feet of driveway, WET’s proposal to the Estate was identical to
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its 2006 quotes for the Farm. WET’s 2007 estimate for the Estate provided for the
excavation of the new roadway and the installation of an eight-inch stone base over
the estimated length of 3,800 lineal feet by fourteen-feet wide. The estimate
anticipated the need for 6,000 square yards of gravel at the same $9.00 per square
yard totaling $54,000.00 and an additional $12,000.00 for grubbing the proposed
gravel roadway.
WET faxed a copy of the estimate to the Farm that same day. A
handwritten note at the bottom of the Fax Cover Sheet states that it was “[s]ent to
Nicole [Hammond] in [sic] behalf of Bruce.” WET sent its estimate to Hammond
at the same fax number it used to send prior estimates and invoices for work that it
had performed for the Farm and received a confirmation sheet denoting successful
transmission. Hammond denies receiving the estimate or even knowing the
estimated cost of the road prior to its construction, although the fax was produced
by the Farm during discovery. Hammond admitted that, in or around spring or
summer of 2007, Davis “orally notified [her] that the road would be constructed.”
WET performed the work as quoted, excavating the land to create the
new access road and installing gravel to the specifications provided. The only
difference was an additional $1,400.00 worth of clearing and grubbing that was
approved by Davis. WET submitted its bill, which included the change order,
totaling $56,600.00, and, on August 7, 2007, the Estate paid the bill.
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In September 2007, the Estate unsuccessfully sought reimbursement
from the Farm for the relocated road. In January 2008, Milea attempted to set up a
meeting with Hammond in a series of emails. The two finally met on February 13,
2008, at which time Milea requested the reimbursement of the $56,600.00 that the
Estate paid WET for the relocated easement and the $78,000.00 promissory note
due on or before May 31, 2007.
The following day, Milea emailed Hammond: “It was good to see
you yesterday. Please let me know when it is convenient for you to make the loan
and road payments.” R. at 492. On February 29, 2008, Milea emailed Hammond a
proposed payoff date of March 3, 2008. Milea and Hammond, as well as
Hammond’s banker, then exchanged additional emails in which Hammond
requested the payoff amount for the promissory note but refused to respond to
Milea’s repeated requests for a proposed payment timeline for the easement
relocation reimbursement. On March 14, 2008, Milea wrote his final email to
Hammond, saying: “It has been one month since we discussed this matter . . . We
[would] appreciate if you [would] resolve a timeline for the road payment ASAP as
you know it is past due . . . We look forward to hearing from you soon.” There is
no evidence in the record that Hammond ever responded.
On July 17, 2009, following the Farm’s refusal to reimburse the Estate
for the 2007 relocation, the Estate filed suit, raising a single breach of contract
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claim. The Farm answered, asserting a counterclaim seeking setoff for costs
incurred by the Farm to repair the easement road. The Farm alleged that it had
notified the Estate multiple times throughout the easement’s construction that
WET was not constructing the road in accordance with alleged industry standards,
resulting in a number of quality issues. R. at 20-22.
Specifically, the Farm alleged that the relocated easement was
routinely flooding and was not sufficient to be used by commercial vehicles and
trailers. WET had not installed any culverts, which Hammond testified caused at
least one section of the road to become “completely flooded.” Hammond claimed
she had telephoned Davis to complain about issues with the relocated easement
during its construction: a turn in the road was too narrow for a horse trailer to
navigate correctly, the road contained a sunken area that was “flooding
consistently,” and WET had failed to install the necessary drainpipes. Hammond
testified that she had advised Davis not to pay the bill because WET had not
completed the work correctly. Hammond claimed that she had attempted to
address her concerns with WET multiple times throughout the easement’s
construction, including the need to install culverts where there was “obvious
flooding.”
Two years later, in 2009, Hammond engaged her own contractor,
Gary Ammerman, to widen the turn, set down more rock, fill the section of road
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that was flooding, and install a culvert. Ammerman testified that Hammond
initially called him about ponding and washouts on the road and widening the turn.
A few weeks later, Ammerman received a call from Hammond about an
emergency request that he perform the repairs immediately because the horse
trailers were having to drive through standing water, submerging the trailers’
brakes and bearings. Ammerman obliged, installing fabric over the gravel in a low
area of the road, adding six to eight inches of gravel on top of what WET had
already placed, widening two corners of the road, and fixing a ditch to prevent
water from collecting. Hammond testified that, until Ammerman’s repairs were
complete, she could not use the relocated road because “it was flooding, and the
turn wasn’t wide enough” to navigate with a trailer.
From the time the Farm’s answer was filed in August 2009 to
February 2014, little progress was made in the case. The case then sat virtually
dormant for another two years until the Estate retained new counsel in March
2016. Promptly thereafter, the Estate took Hammond’s deposition and moved the
Scott Circuit Court to set a trial date, which the parties continued by agreed order.
In the spring of 2017, the Estate determined that it was again
necessary to relocate the easement. On or about May 18, 2017, the Estate sent the
Farm a written relocation notice informing the Farm that it had elected to relocate
the Private Drive, Access Easement, Utility Facilities, and the Utility Easement,
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and that, pursuant to the terms of the Easement Agreement, the Farm was required
to construct the new Private Drive and new Utilities Facilities within three months.
The relocation notice specifically referenced the Estate’s authority to relocate the
easement as provided by Paragraph 8.a of the Easement Agreement, attached a
general map of the relocated easement, and directed the Farm to contact
Thoroughbred Engineering for the specific geographical delineation and
limitations of the land.
Despite this, the Farm did not construct the new Private Drive and
Utility Facilities within the requisite three months. When the Farm finally
responded to the Estate by counsel, its counsel challenged the validity of the
relocation notice and raised a number of objections. Subsequently, on September
1, 2017, the Estate filed an amended complaint alleging a second breach of
contract. The Farm answered the Estate’s first amended complaint on September
20, 2017, specifically alleging that the written notice regarding the 2017 relocation
was insufficient to trigger any duties of the Farm under the Easement Agreement.
On August 27, 2018, the Estate filed a motion for partial summary
judgment regarding the Farm’s liability on the 2007 and 2017 easement
relocations. In particular, the Estate argued that the Farm had abandoned its claim
to setoff for failure to reassert setoff as an affirmative defense and that the Farm’s
admission that the Estate had relocated the easement “pursuant to its authority”
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constituted a judicial admission that the Estate had abided by the terms of the
contract. The Estate maintained that the Farm had breached the Easement
Agreement by failing to reimburse the Estate for the first relocation and that the
Farm’s defenses about the quality of the road and the reasonableness of its cost
were immaterial under the terms of the Easement Agreement.
On August 28, 2018, the Farm moved to amend its answer to the
Estate’s first amended complaint seeking to incorporate its original answer and
reassert its setoff counterclaim. On September 10, 2018, the Farm responded to
the Estate’s motion for partial summary judgment. The Farm argued that the
Estate’s characterization of the 2007 road was not a “relocation” under the
Agreement, negating any obligation of reimbursement; that the Estate had not
provided the contractually required written notice and three-month window; that
there were issues of fact regarding whether the 2007 road met the requirements of
the agreement; and that there were issues of material fact as to the Farm’s right to
setoff. The Farm relied in part upon a post-deposition affidavit from Ammerman
alleging that the road as built should have cost $15,188.00 or, if constructed
properly, $16,638.00.
On September 12, 2018, the circuit court stated during a hearing that it
would deny the Farm’s motion for leave to file an amended answer. Although the
circuit court granted a summary declaratory judgment in favor of the Estate on the
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second relocation, the circuit court initially denied summary judgment for liability
on the first relocation.
On October 11, 2018, the Estate filed a motion to reconsider regarding
the 2007 relocation, which the circuit court granted without further explanation.
On October 25, 2018, the circuit court denied the Farm’s motion to alter, amend, or
vacate the granting of declaratory judgment for the Estate on the second relocation,
granted the Estate’s motion to strike Ammerman’s post-deposition affidavit, and
set a hearing for the Estate’s motion for summary judgment as to remedies. In the
interim, the Estate filed a motion for summary judgment regarding the award of
appropriate remedies as related to the 2007 easement. A week after the deadline
for filing its response, the Farm sought leave to file a late response to that motion,
which the circuit court denied as untimely and unfounded. The circuit court heard
arguments on November 1, 2018.
On May 31, 2019, the circuit court entered an opinion and order
granting the Estate damages totaling $189,658.68 for the 2007 relocation –
$56,000.00 in the amount the Estate paid to WET to construct the easement plus
$133,058.68 in prejudgment interest at the contractual rate of 12% for the ten-year
period from March 5, 2008, to November 1, 2018. By agreed order entered on
June 13, 2019, the circuit court’s May 31, 2019, opinion and order was made final
and appealable.
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This appeal and cross-appeal followed.
II. STANDARD OF REVIEW
“[S]ummary judgment is to be cautiously applied and should not be
used as a substitute for trial” unless “there is no legitimate claim under the law and
it would be impossible to assert one given the facts.” Steelvest, Inc. v. Scansteel
Serv. Ctr., Inc., 807 S.W.2d 476, 483 (Ky. 1991); Shelton v. Kentucky Easter Seals
Soc’y, Inc., 413 S.W.3d 901, 916 (Ky. 2013). A motion for summary judgment
should be granted “[o]nly when it appears impossible for the nonmoving party to
produce evidence at trial warranting a judgment in his favor” even when the
evidence is viewed in the light most favorable to him. Steelvest, 807 S.W.2d at
482; see also Shelton, 413 S.W.3d at 905. To survive a properly supported
summary judgment motion, the opposing party must have presented “at least some
affirmative evidence showing that there is a genuine issue of material fact for
trial.” Steelvest, 807 S.W.2d at 482; see also Neal v. Welker, 426 S.W.2d 476, 479
(Ky. 1968) (“When the moving party has presented evidence showing that . . .
there is no genuine issue of any material fact, it becomes incumbent upon the
adverse party to counter that evidentiary showing by some form of evidentiary
material reflecting that there is a genuine issue pertaining to a material fact.”).
“The standard of review on appeal of a summary judgment is whether
the trial court correctly found that there were no genuine issues as to any material
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fact and that the moving party was entitled to judgment as a matter of law.” Scifres
v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996) (citing CR4 56.03). Because there
are no factual findings at issue, the appellate court may review the trial court’s
decision de novo. Shelton, 413 S.W.3d at 905.
III. ANALYSIS
The Farm raises a number of issues on appeal: (1) whether the circuit
court erred in granting summary judgment regarding the 2007 easement; (2)
whether the circuit court erred in dismissing the Farm’s setoff counterclaim; (3)
whether the circuit court erred in striking Ammerman’s post-deposition affidavit;
and (4) whether the circuit court abused its discretion in awarding the Estate
prejudgment interest. The Estate raised a single issue on cross-appeal: whether
the circuit court miscalculated the award of prejudgment interest based upon the
Estate’s own calculations.
The Farm alleged for the first time at summary judgment that the
Estate did not comply with the Easement Agreement’s written notice requirements,
thereby failing to trigger the Farm’s obligation to reimburse the Estate for the
relocated easement. It appears that the circuit court deemed the Farm’s condition
precedent argument waived either for failure to assert it as an affirmative defense
or by judicial admission. We disagree with the circuit court on both counts.
4
Kentucky Rules of Civil Procedure.
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“‘Condition precedent’ is a legal term of art with a clear meaning:
‘An act or event, other than a lapse of time, that must exist or occur before a duty
to perform something promised arises.’” Superior Steel, Inc. v. Ascent at
Roebling’s Bridge, LLC, 540 S.W.3d 770, 785 (Ky. 2017) (quoting BMD
Contractors, Inc. v. Fid. & Deposit Co., 679 F.3d 643, 650 (7th Cir. 2012) (citing
Condition Precedent, BLACK’S LAW DICTIONARY (11th ed. 2019)). Kentucky law
does not favor conditions precedent, and our courts will not construe them as such
“unless required to do so by plain, unambiguous language or by necessary
implication.” A. L. Pickens Co. v. Youngstown Sheet & Tube Co., 650 F.2d 118,
121 (6th Cir. 1981) (quoting 17 AM. JUR. 2d Contracts, § 321 (Supp. 1980)); see
Mock v. Trustees of First Baptist Church of Newport, 252 Ky. 243, 67 S.W.2d 9,
11 (1934).
Here, Paragraph 8.a of the Easement Agreement is unambiguous
regarding the Estate’s contractual obligations to trigger the Farm’s duty to pay.
Under the terms of the Easement Agreement, the Estate was to provide written
notice to the Farm of its intent to relocate the easement. Upon receipt of that
notice, the Farm shall have three months to construct the relocated easement at its
sole expense. Only after written notice and the passing of three months shall the
Estate have the right to construct the road and seek reimbursement from the Farm.
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“[A] party seeking to enforce specific performance usually has the
burden of proving that he has complied with its terms, or that he is ready, able, and
willing to perform his obligations under the contract, in their entirety, and to do
whatever has been made a condition precedent on his part.” Kuntz v. Peters, 286
Ky. 227, 150 S.W.2d 665, 667 (1941) (citation omitted); C.J.S. Contracts § 952
(2021) (“The party alleging the breach of contract and seeking to enforce the
contract bears the burden of proof that the condition precedent was satisfied. The
burden rests on the plaintiff to show the fulfillment of a condition precedent to the
right of recovery.”). “[T]he performance [of a condition precedent] must be stated,
or a waiver pleaded, or excuse given for noncompliance.” Louisville & N.R. Co. v.
Home Fruit & Produce Co., 310 Ky. 269, 220 S.W.2d 558, 560 (1949) (holding
that “[w]hen the petition fails to state facts sufficient to constitute a cause of action,
unless the defect is cured by an answer, the defendant is entitled to a judgment
notwithstanding the verdict.”).
CR 9.03, which governs the pleadings of conditions precedent under
Kentucky law, provides: “In pleading the performance or occurrence of conditions
precedent, it is sufficient to aver generally that all conditions precedent have been
performed or have occurred. A denial of performance or occurrence shall be made
specifically and with particularity.” Therefore, it is incumbent upon the plaintiff to
plead generally the performance of any conditions precedent as an element of his
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claim. A complaint that fails to allege performance of condition precedent when
that performance is essential to recovery fails to state a cause of action. Home
Fruit, 220 S.W.2d at 560.
Neither the Estate’s complaint nor its first amended complaint
contains the allegation that the Estate satisfied the Easement Agreement’s written
notice requirement in 2007, although the Estate does plead specifically and in
detail that it complied with the written notice requirements in 2017. Nevertheless,
“Kentucky is a notice pleading jurisdiction, where the ‘central purpose of
pleadings remains notice of claims and defenses.’” Pete v. Anderson, 413 S.W.3d
291, 301 (Ky. 2013) (quoting Hoke v. Cullinan, 914 S.W.2d 335, 339 (Ky. 1995)).
“A pleading which sets forth a claim for relief . . . shall contain (a) a short and
plain statement of the claim showing that the pleader is entitled to relief and (b) a
demand for judgment for the relief to which he deems himself entitled.” CR
8.01(1). “It is not necessary to state a claim with technical precision under this
rule, as long as a complaint gives a defendant fair notice and identifies the claim.”
Grand Aerie Fraternal Order of Eagles v. Carneyhan, 169 S.W.3d 840, 844 (Ky.
2005) (citing Cincinnati, Newport & Covington Transp. Co. v. Fischer, 357
S.W.2d 870, 872 (Ky. 1962)). Moreover, “[a]ll pleadings shall be so construed as
to do substantial justice.” CR 8.06. Accordingly, the Estate’s complaint is
sufficient to provide the Farm notice of its breach-of-contract claim.
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Likewise, the Farm’s answer does not accord with CR 9.03, as it does
not specifically deny that the Estate failed to provide the requisite written notice.
However, neither does it waive that obligation. “Denials of the fulfillment of a
condition precedent shall be made specifically and with particularity. This does
not require allegations anticipating defenses, however. CR 9.03 should not be
construed as intending to shift the burden of proof.” 11 LESLIE W. ABRAMSON, KY.
PRAC. CIV. PROC. Forms § 36:18 (2020). The Estate contends, incorrectly, that
failure to perform a condition precedent is an affirmative defense that must be pled
or be considered waived. We disagree.
An affirmative defense is a “defendant’s assertion of facts and
arguments that, if true, will defeat the plaintiff’s or prosecution’s claim, even if all
the allegations in the complaint are true.” Affirmative Defense, BLACK’S LAW
DICTIONARY (11th ed. 2019). “As a general rule, a party’s failure to timely assert
an affirmative defense waives that defense.” Am. Founders Bank, Inc. v. Moden
Investments, LLC, 432 S.W.3d 715, 722 (Ky. App. 2014) (citing CR 8.03; Bowling
v. Kentucky Dept. of Corrections, 301 S.W.3d 478, 485 (Ky. 2009)). CR 8.03
provides a non-exhaustive list of affirmative defenses, but notably, performance or
occurrence of a condition precedent is not one of them.
The Farm relies upon American General Life Insurance Company v.
Estate of Chad Jude, No. 17-90-DLB-EBA, 2019 WL 2193850, at *4 (E.D. Ky.
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May 21, 2019), aff’d in part, rev’d in part, and remanded sub nom. American
General Life Insurance Company v. Estate of Jude, 825 F. App’x 261 (6th Cir.
2020), for the proposition that FRCP5 9(c) “does not, however, ‘impose an
obligation on plaintiffs to plead the performance or occurrence of conditions
precedent. Rather, it is the applicable substantive law that determines whether the
performance or occurrence of conditions precedent is an element of the claim’ and
whether it must be pled.” Id. (quoting 5A CHARLES ALAN WRIGHT & ARTHUR R.
MILLER, FEDERAL PRACTICE AND PROCEDURE § 1303 (4th ed. 2018)). In that case,
the district court noted that, in breach-of-contract actions, “a plaintiff must
generally plead ‘that it performed all contractual conditions required of it’ before
bringing suit.” Id. at *5 (quoting Byczek v. Boelter Co., Inc., 264 F. Supp. 2d 720,
723 (N.D. Il. 2003)). Because pleading a condition precedent is the plaintiff’s
burden and is in fact an essential element of a plaintiff’s breach-of-contract claim,
failure to satisfy a condition precedent is not an affirmative defense that must be
pled or considered waived.
In this case, the Estate claims that condition precedent had not been
raised as an issue until summary judgment. This is incorrect – the subject was
raised, albeit briefly, during Hammond’s deposition when she testified regarding
WET’s fax and complained that she ought to have had a chance to select who she
5
Federal Rules of Civil Procedure.
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wanted to perform the easement construction herself. The Estate could not have
been blindsided by the Farm’s condition precedent defense given this testimony.
Moreover, we disagree with the Estate’s alternative contention that the
Farm waived its condition precedent defense by judicial admission. A judicial
admission is a formal act by a party in the course of a judicial proceeding which
has the effect of waiving or dispensing with the necessity of producing evidence by
the opponent and bars a party from disputing a proposition in question. Center v.
Stamper, 318 S.W.2d 853, 855 (Ky. 1958). For a statement to qualify as a judicial
admission, it must be conclusive, “narrowly construed,” and “remove[] the
proposition in question from the field of disputed issue[.]” Witten v. Pack, 237
S.W.3d 133, 136 (Ky. 2007); Sutherland v. Davis, 286 Ky. 743, 151 S.W.2d 1021,
1024 (1941).
The Farm admitted several allegations in the Estate’s first amended
complaint, including that the Estate “exercised its authority to relocate the Access
Easement” and acted “pursuant to its authority” under the Easement Agreement.
R. at 110, 112. According to the Estate, these constitute judicial admissions that
the Estate complied with Paragraph 8.a of the Easement Agreement. However, we
determine that such statements are not conclusive enough to constitute dispositive
admissions, particularly when the Farm asserted that the Estate’s recovery is barred
because the Estate “breached the contract first.” R. at 151. There is a difference
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between having authority under a contract and using that authority in compliance
with the terms of that contract.
Having established that the Farm did not waive its condition precedent
argument, we conclude that there remain genuine issues of material fact.
Hammond’s allegations that the Farm did not receive WET’s fax, and even if it
did, that the fax was not sufficient notice under the terms of the agreement, present
issues of fact.6 Then there is the issue of whether the Estate failed to provide the
Farm with a three-month waiting period during which the Farm could construct the
new easement itself or whether Hammond waived the Estate’s failure to comply
with the Easement Agreement. Bates v. Grain Dealers Nat’l Mut. Fire Ins. Co.,
283 S.W.2d 3, 5 (Ky. 1955) (“[Waiver] may be express or it may be inferred from
the acts or conduct of a party.”); see also Cent. Life Ins. Co. v. Roberts, 165 Ky.
296, 176 S.W. 1139 (1915) (holding that an insurance contractual provision may
be impliedly waived by a party’s conduct). Hammond’s testimony that she
“should have had the opportunity to choose who [she] wanted to [construct the
road]” demonstrates that there is a question of fact regarding whether the Estate
6
The Estate briefly argues that the Farm had actual notice of the relocation, rendering whether
the Farm veritably received written notice immaterial. This is incorrect. Because “a written
instrument will be strictly enforced according to its terms[,]” the Estate is beholden to the
specific provision within the Easement Agreement requiring notice to be given in writing.
Yeager v. McLellan, 177 S.W.3d 807, 809 (Ky. 2005). Under the terms of the Easement
Agreement, oral notice is not sufficient to satisfy the Estate’s contractual obligation to provide
written notice.
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provided Hammond with a three-month waiting period. R. at 556-57. Hammond
also testified that she actively engaged with WET’s construction of the easement
by voicing her concerns to Davis and WET, raising the question of whether the
Farm waived any failure on the Estate’s part.
“Kentucky law clearly holds that if a condition precedent is not
satisfied, the contract in question is not enforceable.” In re Big Rivers Elec. Corp.,
233 B.R. 726, 734 (Bankr. W.D. Ky. 1998), aff’d, 233 B.R. 739 (W.D. Ky. 1998)
(citing Collings v. Scheen, 415 S.W.2d 589 (Ky. 1967). Accordingly, we reverse
the circuit court’s judgment regarding the issue of condition precedent and remand
for further proceedings.
The next issue on appeal is whether the circuit erred by dismissing the
Farm’s counterclaim for setoff. After the Estate had filed its motion for partial
summary judgment, but still within the deadline imposed by the circuit court for
amendments, the Farm moved for leave to file an amended answer to the Estate’s
first amended complaint. In part, the Farm sought to reassert its counterclaim of
setoff, which the Estate averred was waived. We presume from the record the
circuit court rejected this motion having assumed that setoff was waived when it
was not reasserted in the Farm’s answer to the Estate’s first amended complaint.
Contrary to the Estate’s assertion, setoff is not an affirmative defense
that must be pled or otherwise waived. Like condition precedent, setoff is not an
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affirmative defense listed in CR 9.03. Federal courts, which operate under the
substantially similar Federal Rule of Civil Procedure 8, recognize that setoff may
be properly raised as either an affirmative defense or a counterclaim. Minnesota
Elevator, Inc. v. Imperial Elevator Servs., Inc., 758 F. Supp. 2d 533, 538 (N.D. Ill.
2010) (holding that setoff must be pleaded as a counterclaim rather than asserted as
an affirmative defense); Ace Hardware Corp. v. Marn, Inc., No. 06-CV-5335,
2008 WL 4286975, at *8 (N.D. Ill. Sept. 16, 2008) (“[A] claim for setoff, or
recoupment for that matter, is not an affirmative defense because it does not
destroy the plaintiff’s right of action.”).
“Other courts examining the issue have found that failing to assert
counterclaims in an answer to an amended complaint after they had already been
asserted in response to an earlier complaint does not necessarily constitute
abandonment of the counterclaims.” AnTerra Grp. Inc. v. KiVAR Chem. Techs.,
No. SACV 13-00734 JVS(ANx), 2014 WL 12589631, at *3 (C.D. Cal. May 23,
2014) (citing Davis v. Beaird, No. 4:10-CV-1429 NAB, 2014 WL 916947, at *3-4
(E.D. Mo. Mar. 10, 2014) (declining to dismiss a counterclaim where the court
found no indication of the defendant’s intent to abandon it); Ground Zero Museum
Workshop v. Wilson, 813 F. Supp. 2d 678, 705-06 (D. Md. 2011) (permitting
counterclaims to proceed because they were “indisputably at issue for the majority
of the discovery period” and defendant had indicated his intent to pursue the
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counterclaims); Hitachi Med. Sys. Am., Inc. v. Horizon Med. Grp., No.
5:07CV02035, 2008 WL 5723531, at *4-5 (N.D. Ohio Aug. 29, 2008) (finding the
plaintiff had been on notice of contents of counterclaim which had not changed
since initial filing and was not prejudiced the defendant’s failure to reassert the
counterclaim).7 We are likewise persuaded by the Western District of
Pennsylvania’s analysis of the Federal Rule of Civil Procedure 13, which governs
counterclaims:
Plaintiffs reason that the failure to “reassert” the
Counterclaims somehow means that they are no longer
viable. . . . Significantly, the Plaintiffs do not cite to any
authority for the proposition that the Defendants were
required to reassert the Counterclaims in their Answer to
the Amended Comp[l]aint. Rule 13, which governs
counterclaims, requires only that a counterclaim be set
forth in a pleading—it does not mandate that it be
contained in an answer. See Fed. R. Civ. P. 13(a)-(f).
Further, an answer responds to the allegations in a
complaint, a counterclaim is something independent.
Revisions to a complaint do not require revisions to a
counterclaim.
Dunkin’ Donuts, Inc. v. Romanias, No. CIV.A.00-1886, 2002 WL 32955492, at *2
(W.D. Pa. May 29, 2002).
7
State courts are not bound by the decision of federal courts; “[r]ather, the approach taken by
federal courts may be viewed as persuasive but it is not binding.” U.S., ex rel. U.S. Attorneys ex
rel. Eastern, Western Districts of Kentucky v. Kentucky Bar Ass’n, 439 S.W.3d 136, 147 (Ky.
2014).
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Here, the Farm filed a counterclaim alleging, in part: “In the event the
Court shall determine that no sums are owed to the [Estate] by the [Farm], then the
[Farm] is entitled to recover the sums set forth in its Set Off in this Counterclaim.”
R. at 20. That counterclaim was never withdrawn, and there is no Kentucky Rule
of Civil Procedure requiring that it must be reasserted upon the Estate’s filing of
the first amended complaint. The parties have been aware of the Farm’s
counterclaim since its filing in 2007, and the issue of setoff has been central to the
parties’ discovery over the past ten years. There is ample evidence that the Farm
intended to pursue its counterclaim, and so we conclude that the Farm has not
abandoned its counterclaim.
The Farm maintains that it is entitled to setoff for the money expended
to repair the easement because the Estate’s first relocation of the easement failed to
comply with standards set forth in the Easement Agreement. According to the
Farm, the Estate’s first relocation of the easement failed to comply with standards
set forth in the Easement Agreement found in Paragraph 1 of the Easement
Agreement:
1. Grant of Access Easement. Subject to Section 8, [The
Estate] hereby grants to [the Farm] the benefit of the
Parcel 9 a non-exclusive easement for pedestrians, motor
vehicles (including without limitation commercial, non-
commercial, and trailers attached thereto) and horses on a
lead accompanied by a handler, access, and ingress and
egress over and across the existing farm road on Parcels
5 and 8. . . . All vehicular traffic over the Access
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Easement shall be confined to such existing farm road
generally identified on Exhibit C (collectively, “the
Private Drives”) currently located on Parcels 5 and 8,
subject to the terms and conditions set forth herein.
Upon ten (10) days prior notice to Grantee (unless an
emergency exists, in which event as much notice shall be
given as reasonably possible). . . .
R. at 413 (emphasis in original).
The Estate asserts that it is actually Paragraph 8.c that dictates the
standards of construction for the relocated easement. R. at 416 (“The width of the
relocated and/or located Access Easement shall be the minimum width required by
the applicable government authority or utility company. . . .”).8 The Estate asserts
that under Paragraph 4 of the Easement Agreement, which expressly grants the
Farm “the right, subject to the written approval of [the Estate] to improve, maintain
or repair the Private Drives . . . at [the Farm’s] sole cost and expense,” any
expenses for additional modifications beyond what is required by the Easement
Agreement fall to the Farm. R. at 415.
The parties’ differing interpretations suggest that that Easement
Agreement may be ambiguous. “[T]he construction and interpretation of a
contract, including questions regarding ambiguity, are questions of law to be
8
The Estate’s expert witness, Jonathan Hale, testified that “Scott County at this time still does
not have any design standards for gravel roads, for properties, for access to properties – less than
three or less properties.” Hale Depo. at 14-15. According to Hale, “there’s no minimum width
[requirement] because there are no regulations.” Id. at 28.
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decided by the court.” First Commonwealth Bank of Prestonsburg v. West, 55
S.W.3d 829, 835 (Ky. App. 2000).
As such, we first must determine whether the terms of the
[contract] are ambiguous because our resolution of the
ambiguity question will dictate how our interpretive
analysis will proceed. If an ambiguity exists, “the court
will gather, if possible, the intention of the parties from
the contract as a whole, and in doing so will consider the
subject matter of the contract, the situation of the parties
and the conditions under which the contract was written,”
by evaluating extrinsic evidence as to the parties’
intentions. However, “[i]n the absence of ambiguity a
written instrument will be enforced strictly according to
its terms,” and a court will interpret the contract’s terms
by assigning language its ordinary meaning and without
resort to extrinsic evidence.
Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99, 105-06 (Ky. 2003) (footnotes
omitted).
The circuit court’s judgment is silent regarding the Easement
Agreement’s interpretation, and it did not address any potential ambiguities in the
contract terms. Without the construction standards referenced in Paragraph 8.c, it
is unclear to what specifications that relocated easement must conform. This issue
is one for the circuit court to decide. Accordingly, we find that the circuit court
erred in dismissing the Farm’s counterclaim and remand it for proceedings on its
merits.
Our conclusions on the two issues discussed above, largely moot the
parties’ other arguments. However, because the issues with respect to the striking
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of Ammerman’s affidavit and/or pre-judgment interest may arise again on remand,
we will briefly address them.
Ammerman’s expert witness disclosures provided that Ammerman
would testify as to the amount that should have been charged by WET for the road
as constructed and the cost of the road had it been properly constructed according
to “industry standards,” what was wrong with the 2007 road, what he had done to
correct the issues, and that the 2007 road constructed by WET should not have cost
$56,000. In his June 7, 2018, deposition, Ammerman was asked about his
opinions in the case.
Q: So you don’t have any opinion, I take it, about
whether the work that [WET] performed was too
expensive or not, do you?
A: No.
Q: Okay. You do have an opinion about if you had built
it, what you would charge for it, though?
A: Right.
Q: Would you agree that your opinion is not the only
reasonable opinion about what someone would charge for
doing that much work?
A: Right.
Q: And just because someone else is a higher bidder than
you wouldn’t necessarily mean it would be unreasonable
to take their bid?
A: No.
R. at 821-22 (emphasis added).
However, in his post-deposition affidavit, Ammerman opined:
2. As stated in the Itemization of Damages, the proper
amount which should have been charged for labor and
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materials to construct the road as built is $15,188.00.
This is based on the road having a total length of 3,300
feet. The rock required is based on the cost at that time
(2007) of $6.95 per ton plus $3.50 in hauling costs per
ton. The bulldozer labor would have cost $600.00.
3. If the road had been properly constructed, the cost for
labor and materials according to industry standards
would have been $16,638.00. That sum would have
included three drainage culverts at a cost of $150.00 each
and $1,600.00 in excavation costs for the drainage
culverts and to properly crown the road to ensure water
runoff.
R. at 581.
Kentucky courts have also explained that “[t]he discovery of the
substance of an expert witness’s expected testimony is essential to trial
preparation.” Clephas v. Garlock, 168 S.W.3d 389, 394 (Ky. App. 2004). The
overarching “purpose of [CR 26.02(4)(a)] is to allow the opposing party to
adequately prepare for the substance of the expert’s trial testimony.” Pauly v.
Chang, 498 S.W.3d 394, 412 (Ky. App. 2015). The proper sanction for violating
CR 26.02 is the exclusion of the proposed expert testimony. Id.In Lipsteuer v. CSX Transp., Inc., 37 S.W.3d 732, 736 (Ky. 2000), our
Supreme Court held that a post-deposition affidavit may not be ignored. “The
Kentucky Supreme Court recently noted that ‘[a]s a general proposition, a
deposition is more reliable than an affidavit.’” Gilliam v. Pikeville United
Methodist Hosp. of Kentucky, Inc., 215 S.W.3d 56, 62 (Ky. App. 2006) (citation
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omitted). “The rule for the use of a post-deposition affidavit to defeat a summary
judgment motion is that the post-deposition affidavit cannot be used to create an
issue of material fact by contradicting prior testimony, but can be used to explain
prior testimony or resolve inconsistencies in prior testimony.” Loy v. CSX Transp.,
Inc., No. 2010-CA-00516-MR, 2011 WL 5008081, at *4 (Ky. App. Oct. 21, 2011).
However, counsel may not rely upon “catch-all” questioning in an
attempt to limit a witness’s testimony. In Talley, opposing counsel asked Talley,
the claimant in a wrongful discharge case, “Is there anything else related to your
complaint that we haven’t discussed that you would like to talk about here today?”
Talley v. MAC Auto Team, LLC, No. 2015-CA-000453-MR, 2016 WL 4410091, at
*2 (Ky. App. Aug. 19, 2016). Talley’s answer was interrupted by counsel,
rendering it incomplete, and Talley explained in his post-deposition affidavit that
he was “not asked about, nor did [he] testify about” other facts relevant to his
claim. Id. Thus, Talley’s affidavit does not “merely [contradict] earlier
testimony” but “explains why the deposition testimony is incomplete and
misleading.” Id. at *3.
The Farm relies upon Talley for the premise that a “witness’s failure
to testify about a particular fact does not make a subsequent affidavit clarifying or
explaining that fact inconsistent or contradictory.” Appellant’s Br. at 28.
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However, we disagree with the Farm’s argument that Ammerman’s refusal to
characterize WET’s work as “too expensive” was a purely subjective
characterization that did not elucidate his opinion on what the road should have
cost as constructed and what the road would have cost had it been constructed
“properly.” Any opinion about whether that road was “too expensive” as
constructed would necessarily speak to how much Ammerman believes the road
should have cost. Accordingly, we find that the circuit court exercised appropriate
discretion in refusing to consider Ammerman’s post-deposition affidavit.
Finally, we address the issue of pre-judgment interest. Our Court has
previously upheld the award of both pre-judgment and post-judgment interest
“[b]ased upon the plain language of KRS[9] 360.040(3) and KRS 360.010(3), and
the express terms of the agreements between the parties.” Hellier Manor
Apartments, Ltd. v. City of Pikeville, 589 S.W.3d 528, 534 (Ky. App. 2018).
Under Kentucky law, “[t]he party entitled to be paid in any written contract or
obligation specifying a rate of interest shall be entitled to recover interest after
default at the rate of interest as is expressed in the contract or obligation prior to
the default[.]” KRS 360.010(3). “A judgment rendered on a contract . . . shall
bear interest at the interest rate established in that contract[.]” KRS 360.040(3).
9
Kentucky Revised Statutes.
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Here, the Easement Agreement provides that, following a relocation
of the easement in accordance with the terms of the contract, “[a]ny amounts not
reimbursed to [the Estate] within twenty (20) days after demand for reimbursement
shall accrue interest at the rate of twelve percent (12%) per annum.” R. at 415.
The circuit court observed that “[w]ith a clear contractual provision, the Easement
Agreement controls under KRS 360.040(3).” R. at 1029. Having awarded
summary judgment in favor of the Estate, the circuit court awarded pre-judgment
interest at the contractually agreed rate of 12% from March 5, 2008, (twenty days
after the Estate’s formal demand to the Farm) to November 1, 2018, (the
anticipated date of the hearing on this matter and the date referenced in the Estate’s
calculation of damages) in the amount of $196,299.85. The circuit court then
awarded post-judgment interest at the contractually agreed rate of 12%
compounded annually beginning on May 31, 2019, the date on which the circuit
court rendered its final judgment.
In awarding damages to the Estate, the circuit court concluded that the
amount was an unliquidated sum making the decision to award pre-judgment
interest discretionary. Nucor Corp. v. Gen. Elec. Co., 812 S.W.2d 136 (Ky. 1991).
When determining whether it would be appropriate to award pre-judgment interest
on the unliquidated damages in the present case, it is clear that the circuit court
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carefully considered the facts of the case and the terms of the Easement
Agreement:
[T]he Court finds that the amount owed under the
contract is an unliquidated sum. Because the amount
owed is not liquidated, pre-judgment interest does not
follow as a matter of course under Nucor Corp. prior to
the contracted-for twenty days following [the Estate’s]
demand for payment. Nucor Corp. does provide,
however, that a trial court may use discretion in deciding
whether [pre-judgment] interest on an unliquidated claim
is appropriate. See Nucor Corp. v. Gen. Elec. Co., 812
S.W.2d 136 at 145. The Court has considered and
balanced the undisputed facts and equities of this action
and finds that it would be inequitable for [the Estate] to
recover pre-judgment interest for the period between
August 7, 2007 through March 5, 2008 (twenty days after
[the Estate’s] demand for payment); especially since the
Easement Agreement made clear that interest would not
begin to accrue until twenty (20) days following the
demand for payment.
....
The Court has found that [the Estate] is not entitled to
pre-judgment interest prior to twenty days following the
demand date, or March 5, 2008, and the Easement
Agreement provides and controls the interest rate
thereafter. The Easement Agreement provides, in
pertinent part, “Any amounts not reimbursed to Grantor
within twenty (20) days after demand for reimbursement
shall accrue interest at the rate of twelve percent (12%)
per annum.” Interpreting the Easement Agreement
within its four corners, the Court interprets this provision
to plainly refer to compounding interest. Accordingly,
the Court finds the interest rate to be 12%, compounded
annually. . . .
....
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In Union Trust v. Brown, 757 S.W.2d 218, 220 (Ky. App.
1988), the Kentucky Court of Appeals found that the trial
court erred in awarding the statutory interest rate post-
judgment, but the contractual rate of interest pre-
judgment. “The stated rates of interest within [contracts]
are obligations of contracts. It is therefore
constitutionally beyond the general power of government
to mandate a particular rate of interest for them or for
judgments derived from them.[”] Union Trust, Inc. v.
Brown, 757 S.W.2d 218, 220 (Ky. App. 1988). “The
parties negotiated the interest rates and thus both are
bound by it.” Id. Therefore, this Court finds that [the
Estate] is entitled to a post-judgment interest equal to that
of the contractual interest rate of twelve percent (12%)
per annum, or compounded annually, from the date this
judgment is entered.
R. at 1031-33.
We disagree that the circuit court abused its discretion. It essentially
followed the parties’ contract, a contract that was negotiated by the parties, with
the assistance of counsel. While the interest is large, the Farm was or should have
been aware of the interest provisions it agreed to on the front end, and the amount
due is primarily attributable to the parties’ inability to move this case forward after
it was filed. Having reviewed the record, we do not believe the delay was
purposeful or solely the fault of either the court or the Estate. At best, the Farm
acquiesced to the delay. It should have known that doing so could work against it
in event it was found liable. Upon remand, to the extent the circuit court awards
damages upon the 2007 easement claims, those damages would be subject to pre-
judgment interest.
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IV. CONCLUSION
In light of the foregoing, we reverse the circuit court’s summary
judgment on the 2007 easement and remand for further proceedings not
inconsistent with this Opinion.
ALL CONCUR.
BRIEF AND ORAL ARGUMENT BRIEF AND ORAL ARGUMENT
FOR APPELLANT/CROSS- FOR APPELLEE/CROSS-
APPELLEE: APPELLANT:
Michael Meuser Richard Getty
Elizabeth Woodford C. Thomas Ezzell
Lexington, Kentucky Matthew W. English
Lexington, Kentucky
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