Christy Roberts v. Mt. Washington Health Care, LLC ( 2021 )

RENDERED: OCTOBER 29, 2021; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2020-CA-1190-MR
CHRISTY ROBERTS APPELLANT
APPEAL FROM BULLITT CIRCUIT COURT
v. HONORABLE RODNEY D. BURRESS, JUDGE
ACTION NO. 19-CI-00689
MT. WASHINGTON HEALTH CARE,
LLC APPELLEE
OPINION
AFFIRMING IN PART, VACATING IN PART,
AND REMANDING
** ** ** ** **
BEFORE: CALDWELL, CETRULO, AND JONES, JUDGES.
JONES, JUDGE: Christy Roberts appeals an August 18, 2020 judgment of the
Bullitt Circuit Court in favor of Mt. Washington Health Care, LLC, (appellee)
representing the unpaid balance of a promissory note. She claims the underlying
promissory note was illegal, and that it otherwise included an improper rate of
post-judgment interest. Upon review, we affirm in part, vacate in part, and remand
as set forth below.
I. BACKGROUND
In September 2018, Erma Basham was admitted to Green Meadows,
the appellee’s long-term care nursing facility; from all indications of record, this is
where Basham continues to reside. In March 2019, Basham’s application for
Medicaid benefits was approved, and there is no dispute that Medicaid paid for
Basham’s care and treatment at Green Meadows retroactively to January 1, 2019.
Prior to the approval of her application, however, Basham had been considered a
private-pay resident of the facility, and her expenses between her admission date
and February 12, 2019 had accumulated to $34,742.26.
The date of February 12, 2019 is significant because it is the date
Basham’s daughter, Christy Roberts, executed a promissory note in favor of the
appellee. The relevant substance of the note provided:
I Christy Roberts WILL PAY $750.00 PER MONTH ON
Erma Basham [sic] OUTSTANDING BALANCE OF
$34,742.26 BY THE 10TH OF EACH MONTH. I
WILL CONTINUE TO PAY THIS AMOUNT TO
GREEN MEADOWS HEALTHCARE CENTER UNTIL
ACCOUNT [sic] IS PAID IN FULL.
TELEPHONE CONVERSATION DATE: 2-12-19
RESPONSIBLE PARTY: Christy Roberts
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Roberts later defaulted on her obligation under this note after making
only one payment of $750, and the appellee filed suit against her in Bullitt Circuit
Court on July 10, 2019 to collect $22,797.26 – what the appellee alleged was the
remaining balance of the promissory note, minus what Medicaid had paid on
Basham’s account retroactive to January 1, 2019. Afterward, Roberts responded
by asserting only one defense; namely, she contended the appellee could have
sought partial or complete payment for her mother’s outstanding balance from
Medicaid, rather than herself.
This matter eventually proceeded to a bench trial, and it was later
resolved by way of an August 18, 2020 judgment in which the circuit court made
the following salient determinations: (1) Roberts had executed a valid promissory
note in favor of the appellee; (2) the outstanding balance of the note was the
amount the appellee had alleged; (3) Roberts’ sole defense lacked merit, as she
“neither present[ed] affirmative evidence supporting her claim nor [did] she
present the court with a specific sum she believe[d] she should owe as a result”;
and (4) the appellee was accordingly entitled to judgment against Roberts in the
amount of “$22,797.26, with interest thereon at the rate of 12% per annum[.]”
This appeal followed.
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II. ANALYSIS
In her appellate brief, Roberts concedes that the arguments she now
wishes to assert were not raised before the circuit court or otherwise preserved.
Echoing that notion, the appellee has moved this Court to strike her brief and
dismiss her appeal. See Kentucky Rule of Civil Procedure (CR) 76.12(8)(a); see
also Osborne v. Pepsi-Cola, 816 S.W.2d 643, 645 (Ky. 1991), superseded by
statute on other grounds as stated in Smith v. Dixie Fuel Co., 900 S.W.2d 609 (Ky.
1995) (it is a “fundamental concept that one waives error at the trial level by failing
to properly and timely object or otherwise bring the error to the attention of the
trier of fact.”).
Nevertheless, we will consider Roberts’ arguments to an extent,1 and
by separate order have further denied the appellee’s motion to strike her brief, on
the ground that Roberts invokes CR 61.02 and requests2 palpable error review.
Under that rule,
1
Roberts has also appended a document to the third tab of her appendix that was not part of the
record below (i.e., a “final order of summary reversal” which, purportedly, is from the Cabinet
for Health and Family Services and relates to Basham’s application for social security benefits).
To be clear, palpable error review entails review of arguments not adduced below, not evidence
that was never adduced. Accordingly, this document will not be considered. See Kindred
Nursing Centers Ltd. P’ship v. Leffew, 398 S.W.3d 463, 468 n.5 (Ky. App. 2013) (“We will not
consider evidence the circuit court had no opportunity to examine.”); see also CR
76.12(4)(c)(vii) (clarifying that “materials and documents not included in the record shall not be
introduced or used as exhibits in support of briefs.”).
2
Absent extreme circumstances amounting to a substantial miscarriage of justice, an appellate
court will not engage in palpable error review “unless such a request is made and briefed by the
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A palpable error which affects the substantial rights of a
party may be considered by the court on motion for a
new trial or by an appellate court on appeal, even though
insufficiently raised or preserved for review, and
appropriate relief may be granted upon a determination
that manifest injustice has resulted from the error.
Further elaborating upon this rule, the Kentucky Supreme Court has
explained that to qualify as “palpable error,”
[A]n error “must be easily perceptible, plain, obvious and
readily noticeable.” Brewer v. Commonwealth, 206
S.W.3d 343, 349 (Ky. 2006). “Implicit in the concept of
palpable error correction is that the error is so obvious
that the trial court was remiss in failing to act upon it sua
sponte.” Lamb v. Commonwealth, 510 S.W.3d 316, 325
(Ky. 2017).
Nami Res. Co. v. Asher Land & Mineral, Ltd., 554 S.W.3d 323, 338 (Ky. 2018).
Considering that standard, Roberts’ first argument is that her February
12, 2019 promissory note was unenforceable due to illegality. Before delving into
the substance of her argument, we pause to note there is an ostensible contradiction
in the law regarding when illegality must be raised. It is a basic principle of
contract law that a court “may refuse to enforce a contract on grounds of illegality
where the contract has a direct objective or purpose that violates the federal or a
state Constitution, a statute, an ordinance, or the common law.” Yeager v.
McLellan, 177 S.W.3d 807, 809 (Ky. 2005) (citation omitted). It has also been
appellant.” Jenkins v. Commonwealth, 607 S.W.3d 601, 613 (Ky. 2020) (quoting Shepherd v.
Commonwealth, 251 S.W.3d 309, 316 (Ky. 2008)).
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held that “a contract is void ab initio if it seriously offends law or public policy,”
see Commonwealth v. Whitworth, 74 S.W.3d 695, 700 (Ky. 2002); and also, that
the court “sua sponte will refuse to enforce a contract against public policy.”
S.J.L.S. v. T.L.S., 265 S.W.3d 804, 821 (Ky. App. 2008) (quoting Dodd v. Dodd,
278 Ky. 662, 129 S.W.2d 166, 169 (1939)).
However, despite being associated with phrases such as “void ab
initio” and “sua sponte,” “illegality” remains an affirmative defense. CR 8.03.
“As a general rule, a party’s failure to timely assert an affirmative defense waives
that defense.” Rose v. Ackerson, 374 S.W.3d 339, 345 (Ky. App. 2012) (internal
quotation marks and citations omitted). And, Kentucky law tolerates the waiver of
certain illegality arguments. See, e.g., Diaz v. Goodwin Bros. Leasing, Inc., 511
S.W.2d 680, 681 (Ky. 1974) (argument that guaranty was illegal deemed waived
because not affirmatively pled); Crowder v. Stinson, 401 S.W.2d 761, 762 (Ky.
1966) (“Appellant’s answer does not affirmatively or at all plead illegality of the
contract.”); Brand v. Howell, No. 2003-CA-000972-MR, 2004 WL 1229265, at *3
(Ky. App. Jun. 4, 2004)3 (“We conclude the defense of illegality based on an
alleged illegal contingent fee contract was waived.”).
3
We cite Brand for purposes of illustration only, not as persuasive authority pursuant to CR
76.28(4)(c).
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That said, any ostensible contradiction regarding when “illegality”
must be raised is resolved by the palpable error review standard itself, which, as
stated, only concerns errors that are “easily perceptible, plain, obvious and readily
noticeable[,]”4 and that affect “the substantial rights of a party.”5 See, e.g.,
PolyOne Corp. v. Westlake Vinyls, Inc., 937 F.3d 692, 701 (6th Cir. 2019)
(applying Kentucky law in this context, and declining to raise sua sponte the
illegality of an agreement where the agreement in question did not “contemplate
criminal activity or the commission of a tort[,]” and the parties’ inclusion of an
offending provision did not indicate they intended “to willfully contravene the
law.”).
Keeping that in mind, we now turn to the substance of Roberts’
illegality argument. Generally speaking, nursing homes that accept residents
whose charges will be paid in whole or in part by Medicaid are governed by the
federal Nursing Home Reform Act (see 42 United States Code (U.S.C.) § 1396r),
and federal and state regulations (see 42 Code of Federal Regulations (C.F.R.) Part
483; see also 902 Kentucky Administrative Regulation (KAR) 20:300).
Relevant to Roberts’ illegality argument, the federal statute provides
that “a nursing facility must . . . not require a third party guarantee of payment to
4
Brewer, 206 S.W.3d at 349.
5
CR 61.02.
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the facility as a condition of admission (or expedited admission) to, or continued
stay in, the facility[.]” 42 U.S.C. § 1396r(c)(5)(A)(ii) (emphasis added). Kentucky
has adopted the federal regulations applicable to this statute,6 in which virtually the
same language appears (see 42 C.F.R. § 483.15(a)(3)). Moreover, federal
regulations provide that a qualifying nursing facility “must not charge, solicit,
accept, or receive, in addition to any amount otherwise required to be paid under
the State plan, any gift, money, donation, or other consideration as a precondition
of admission, expedited admission or continued stay in the facility.” 42 C.F.R. §
483.15(a)(4) (emphasis added).
Here, Roberts’ argument is that the freestanding promissory note she
executed in favor of the appellee on February 12, 2019 qualified as a third-party
guaranty of payment and therefore violated 42 C.F.R. § 483.15(a)(3) or (4). In
support, she notes that her promissory note plainly reflects her promise to satisfy
her mother’s outstanding account; and, that the appellee’s counsel stated in his
opening remarks during the bench trial below that the appellee’s “bookkeeping
department brought in Ms. Roberts and had her, as the guarantor for her mother,
sign paperwork to that effect, had her sign a promissory note at her agreement, and
she’s going to pay $750 a month on this arrearage.”
6
See 902 KAR 20:300 § (1)(a).
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Notwithstanding, we disagree with Roberts’ insinuation that the
“illegality” of her promissory note was “easily perceptible, plain, obvious and
readily noticeable,”7 or that the law plainly indicates her “substantial rights”8 were
violated in this matter. Perhaps owing to her failure to raise this point below, there
is no testimony or other evidence of record apart from Roberts’ unsupported
assertions indicating that her mother’s admission or continued stay at the
appellee’s facility was conditioned upon Roberts executing the February 12, 2019
promissory note. At trial, she conceded that her execution of the promissory note
was voluntary. Furthermore, while Roberts cites no caselaw interpreting these
federal regulations – and Kentucky currently has no such precedent – other
jurisdictions have concluded that under federal law, third parties could nevertheless
“volunteer” to sign as guarantors of payment to nursing homes. See, e.g., Pioneer
Ridge Nursing Facility Operations, L.L.C. v. Ermey, 41 Kan. App. 2d 414, 419,
203 P.3d 4 (2009); Manor of Lake City, Inc. v. Hinners, 548 N.W.2d 573, 576
(Iowa 1996); Podolsky v. First Healthcare Corp., 50 Cal. App. 4th 632, 646, 58
Cal. Rptr. 2d 89 (1996) (reasoning that “[h]ad Congress intended to forbid third
party guarantees under any circumstances, . . . it would have said so.”). Due to the
posture of this case, it is unnecessary for this Court to comment further upon the
7
Brewer, 206 S.W.3d at 349.
8
CR 61.02.
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statutes and regulations discussed above. Suffice it to say that the “illegality” of
Roberts’ promissory note is – due to the state of the law and record before us – less
than clear. Thus, if the circuit court committed any error in this regard, its error
was not palpable.
Next, Roberts argues the circuit court had no legal or factual basis to
enter judgment against her “with interest thereon at the rate of 12% per annum[.]”
She asserts the appropriate rate of interest should have been 6%. We agree. First,
the statute governing post-judgment interest, Kentucky Revised Statute (KRS)
360.040, mandated a 6% rate of interest. At all relevant times in this matter, it has
stated:
(1) Except as provided in subsections (2), (3), and (4) of
this section, a judgment, including a judgment for
prejudgment interest, shall bear six percent (6%) interest
compounded annually from the date the judgment is
entered. A judgment may be for the principal and
accrued interest.
(2) A judgment for unpaid child support payments shall
bear twelve percent (12%) interest compounded annually
from the date the judgment is entered.
(3) A judgment rendered on a contract, promissory note,
or other written obligation shall bear interest at the
interest rate established in that contract, promissory note,
or other written obligation.
(4) When a claim for unliquidated damages is reduced to
judgment, such judgment may bear less interest than six
percent (6%) if the court rendering such judgment, after a
hearing on that question, is satisfied that the rate of
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interest should be less than six percent (6%). All
interested parties must have due notice of said hearing.
In sum, there are only three circumstances under which a court may
deviate from the statutory post-judgment interest rate of 6% expressed in KRS
360.040. The first circumstance is where the claim is for unliquidated damages.
KRS 360.040(4). The second is for unpaid child support payments. KRS
360.040(2). The claim here was for liquidated damages (i.e., the unpaid balance of
a promissory note); therefore, neither of those subsections were bases for awarding
other than 6% post-judgment interest. The third circumstance is where “the
interest rate [is] established in that contract, promissory note, or other written
obligation.” KRS 360.040(3). However, the February 12, 2019 promissory note
that served as the basis of the circuit court’s judgment did not “establish” any rate
of interest. Accordingly, the circuit court lacked authority to specify a rate other
than 6%. For parity of reasoning, see Service Financial Company v. Ware, 473
S.W.3d 98, 106 (Ky. App. 2015) (reasoning, under prior version of KRS 360.040,
that a judgment for liquidated damages based upon a contract specifying no rate of
interest could not deviate from the statutory post-judgment interest rate, which was
then 12%); see also Doyle v. Doyle, 549 S.W.3d 450, 456 (Ky. 2018) (“All
judgments bear interest. The amount of interest is mandated at the statutory rate
unless the claim is unliquidated or interest is provided for in a separate written
obligation.”).
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Additionally, “a judgment cannot properly adjudicate a matter not
within the pleadings.” Kentucky Ret. Sys. v. Foster, 338 S.W.3d 788, 798 (Ky.
App. 2010). Here, why the circuit court provided a “12%” rate of interest remains
an unanswered question.9 In fact, even the appellee prayed for “the statutory rate
of 6% per annum” in its complaint; it never asked for a different rate at any time
during these proceedings; and, for at least two months after judgment had been
entered, it appears the appellee remained unaware that the interest rate the circuit
court had applied to its judgment was not 6%.10 Indeed, even the appellee’s
motion to strike Roberts’ brief makes no mention of this point; and the appellee
has filed no brief otherwise addressing it.
A court cannot award relief that is prohibited by statute. And, issues
of palpable error aside, “[i]t is elemental that a judgment must conform to the
pleadings. Where the judgment grants relief beyond that prayed in a petition, it is
void as to the excessive relief granted and may be collaterally attacked.” Belcher
v. Hunt, 248 S.W.2d 717, 718 (Ky. 1952). Accordingly, while Roberts did not
preserve the issue below, it is nevertheless appropriate for this Court to address and
9
While a prior version of the statute specified a rate of 12%, the version of KRS 360.040 that
has been applicable at all relevant times in this litigation specifies a 6% rate of judgment interest
and has been effective since June 29, 2017.
10
Illustrating this point, on October 12, 2020, the appellee filed of record an “affidavit for order
of wage garnishment,” explaining the “amount due” on its August 18, 2020 judgment against
Roberts was “22,797.26 @ 6% per annum from 8/18/20 until paid in full[.]”
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order the correction of the unauthorized interest rate set forth in the circuit court’s
August 18, 2020 judgment.
III. CONCLUSION
For the reasons set forth above, the judgment of the Bullitt Circuit
Court is vacated insofar as the award of post-judgment interest of 12% is
concerned, and this matter is remanded for entry of a judgment reflecting a rate of
6% post-judgment interest instead. In all other respects, we affirm.
ALL CONCUR.
BRIEF FOR APPELLANT: NO BRIEF FOR APPELLEE.
Cynthia T. Griffin
Elizabethtown, Kentucky
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