Charles Damon Moore v. Pegasus industries/packaging, LLC ( 2023 )

RENDERED: MAY 5, 2023; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2022-CA-0648-MR
CHARLES DAMON MOORE APPELLANT
APPEAL FROM SHELBY CIRCUIT COURT
v. HONORABLE CHARLES R. HICKMAN, JUDGE
ACTION NO. 14-CI-00628
PEGASUS INDUSTRIES/PACKAGING, LLC APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: COMBS, EASTON, AND ECKERLE, JUDGES.
EASTON, JUDGE: The Appellant (“Moore”) seeks reversal of the judgment in
favor of the Appellee (“Pegasus”) enforcing a liquidated damages provision in the
employment contract between them. Finding no error by the circuit court, we
affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Moore began working with Pegasus in 2012 as a production manager.
Moore signed an Employment Agreement on September 26, 2012. This contract
contained several covenants.
Paragraph 4 of the Employment Agreement states Moore would
receive specialized training while employed with Pegasus. During his
employment, Moore would learn trade secrets and business methods of Pegasus.
Such knowledge allowed Pegasus to rely upon Moore as its employee to help
Pegasus compete in its field of business. The sharing of this information would
harm Pegasus and thus was prohibited in Paragraph 6(a). In Paragraph 6(b),
Moore agreed that for a period of two years and within an area of one hundred
miles he would not “engage in any activity which may be in interference with or in
competition with the interests of” Pegasus.
Paragraph 7 of the Employment Agreement begins with a recognition
by Moore “that a violation of provisions of this Agreement will surely result in
damage . . . .” A further provision states: “in the event that damages to the
Employer are not ascertainable, then Employee shall be liable to Employer for
Twenty-Five Thousand Dollars ($25,000.00) in liquidated damages. Employee
agrees to pay a reasonable attorney’s fees and cost of suit.”
-2-
Nifco was a customer of Pegasus. Pegasus performed work for Nifco,
including “kitting,” a process of putting certain related items together for
packaging and shipping. Pegasus had a dozen employees, including Moore,
stationed at Nifco when fulfilling purchase orders from Nifco. Pegasus bought a
property near Nifco and some specialized equipment in anticipation of this
relationship continuing.
Moore quit his job with Pegasus on August 4, 2014. Within two
months, he was working for Nifco. According to testimony in the record, this
change resulted in an “awkward” and “cold” or even “hostile” environment for the
Pegasus employees at Nifco. Nifco would not return Pegasus’ calls.
The business relationship between Nifco and Pegasus rapidly
deteriorated as shown by Pegasus’s well-documented income data from the time
Moore started working at Nifco. The $250,000 annual income stream from Nifco
to Pegasus diminished to just a trickle. Several Pegasus employees working at
Nifco lost their jobs due to this reduction in business. The equipment Pegasus
purchased for the Nifco work would not be used, as there was no expansion much
less continuation of their interaction.
The first hearing in this case in 2015 focused on whether the circuit
court would issue a temporary injunction. At the conclusion of that hearing, the
circuit court denied a temporary injunction finding no irreparable injury in that
-3-
damages could be awarded. Subsequently, the circuit court granted summary
judgment in favor of Pegasus on the question of whether Moore violated the
covenants of the Employment Agreement.
As it turns out, Moore would not work at Nifco for even a year. He
did some self-employed work after he left Nifco. Moore then became a production
technician for a bedding company in Louisville by the time of the second hearing
in 2018.
At the second hearing in 2018, the remaining question was what
damages could be awarded in this case. Moore (and essentially Nifco on his
behalf) argued Moore had nothing to do with the changes Nifco made with respect
to Pegasus. Nifco simply decided to go a more cost-efficient way, which happened
to involve a different supplier. With respect to damages, Moore insisted Pegasus
could not establish any damages resulting from Moore’s competing employment.
The question of whether Moore violated the Employment Agreement
is not presented on appeal. The appeal is limited to the later decision by the circuit
court to award liquidated damages of $25,000 with attorney’s fees and costs of
$17,968.03.
STANDARD OF REVIEW
The opinion and order appealed from was a summary judgment.
When a circuit court grants a motion for summary judgment, the standard of
-4-
review for the appellate court is de novo because only legal issues are involved.
Hallahan v. The Courier-Journal, 138 S.W.3d 699, 705 (Ky. App. 2004).
Whether liquidated damages are to be awarded for a breach of
contract involves the interpretation of the governing contract. The question is one
of law. The circuit court looks at the circumstances to decide whether the
liquidated damages provisions will be enforced, or the case proceeds to a factual
determination of actual damages. Because this is a question of law, our review of
the circuit court’s decision enforcing liquidated damages is de novo. Patel v. Tuttle
Properties, LLC, 392 S.W.3d 384, 386 (Ky. 2013).
ANALYSIS
Citing Black’s Law Dictionary, this Court has defined liquidated
damages as damages “contractually stipulated as a reasonable estimation of actual
damages to be recovered by one party if the other party breaches.” Goetz v. Asset
Acceptance, LLC, 513 S.W.3d 342, 346 (Ky. App. 2016). We have recognized
liquidated damages provisions as “particularly appropriate” for restrictive
covenants in employment situations. Daniel Boone Clinic, P.S.C. v. Dahhan, 734
S.W.2d 488, 491 (Ky. App. 1987).
The leading early case on liquidated damages is Fidelity & Deposit
Company of Maryland v. Jones, 75 S.W.2d 1057 (Ky. 1934). The “only inquiry”
in such a case is whether the parties intended the liquidated damages provision as
-5-
compensation for a breach. Id. at 1060. If it serves only as a penalty, it is not
enforceable. Id. at 1059.
Moore relies upon other language in Jones: “[I]f no damages have
been sustained by reason of the violation of the agreement, a clause liquidating the
damages will not avail the plaintiff. In such case only nominal damages are
recoverable.” Id. at 1059-60. It stands to reason that if no damages are shown,
then the liquidated damages amount would be disproportionate and would serve
only as a penalty.
Kentucky would later adopt the Restatement (Second) of Contracts §
356(1) (1981) on this subject. Mattingly Bridge Co., Inc. v. Holloway & Son
Constr. Co., 694 S.W.2d 702, 705 (Ky. 1985). We then consider alternately both
the anticipated loss and the actual loss when determining whether a liquidated
damages provision is to be enforced. It will be enforced if it does not serve as a
penalty only. Id.The argument between the parties here helps to illustrate the very
reason for liquidated damages. It would be very difficult to ascertain to what
degree Moore’s use of his training, Pegasus’ in-house knowledge, and experience
would harm Pegasus. Pegasus lost some of that investment when Moore left.
Moore’s influence with Nifco and the negative impact on the working relationship
between the companies could be a causative factor in Nifco’s decision to
-6-
discontinue its relationship with Pegasus. Yet other factors may also have to be
considered.
Neither the circuit court nor this Court must accept the explanation
offered by Nifco of pure coincidence in the deterioration of the relationship with
Pegasus. The testimony (at both hearings) of the environment at Nifco with
Moore’s presence combined with the contemporary decline in Pegasus income
from Nifco was sufficient circumstantial evidence to establish actual damage apart
from the lost training value issue. The inability to establish an amount with
certainty is the justification for liquidated damages. Considering the intangibles
anticipated by the parties with the evidence of an actual and substantial economic
loss, at least partially connected to Moore, the circuit court did not err in
concluding the legal question of the validity of the liquidated damages provision in
this case.
With respect to attorney’s fees, KRS 411.195 is an exception to the
“American Rule” under the common law. If a contract provides for attorney’s
fees, they may be awarded. See Gibson v. Kentucky Farm Bureau Mut. Ins. Co.,
328 S.W.3d 195, 204 (Ky. App. 2010). In this case, the Employment Agreement
authorizes an award of attorney’s fees. The circuit court awarded such fees based
upon documented billing statements of the fees incurred.
-7-
CONCLUSION
The opinion and order of the Shelby Circuit Court awarding liquidated
damages and attorney’s fees and costs is AFFIRMED.
ALL CONCUR.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE:
Nathan Thomas Riggs C. Gilmore Dutton, III
Shelbyville, Kentucky Katherine H. Whitten
Shelbyville, Kentucky
-8-