Elder Construction & Associates, Inc. v. Georgetown-Scott County Airport Board

• Court: Court of Appeals of Kentucky
• Decided: March 7, 2025
• Docket: 2023-CA-0997
• Status: Unpublished

Opinion

RENDERED: MARCH 7, 2025; 10:00 A.M. NOT TO BE PUBLISHED

Commonwealth of Kentucky Court of Appeals NO. 2023-CA-0997-MR

ELDER CONSTRUCTION & ASSOCIATES, INC. AND DAVID S. ELDER APPELLANTS

APPEAL FROM SCOTT CIRCUIT COURT v. HONORABLE JEREMY MICHAEL MATTOX, JUDGE ACTION NO. 10-CI-00703

GEORGETOWN-SCOTT COUNTY AIRPORT BOARD; ELMER J. GEORGE; AND QUALITY AUTO GLASS, INC. APPELLEES

OPINION AFFIRMING

** ** ** ** **

BEFORE: THOMPSON, CHIEF JUDGE; ACREE AND L. JONES, JUDGES.

ACREE, JUDGE: Appellants, Elder Construction and David Elder, appeal the

Scott Circuit Court’s findings of fact, conclusions of law, and order assigning joint

and several liability to Appellants resulting from Appellants’ non-payment of

amounts owed to a subcontractor, Appellee Quality Auto Glass, Inc. (Quality), for work Quality performed pursuant to Elder Construction’s contract with Appellee

Georgetown-Scott County Airport Board (Airport). We detect no error and affirm.

Elder Construction and Airport entered a contract for construction

work to improve the airport. Thereafter, Elder Construction and Quality entered a

subcontract whereby Quality would provide materials and labor for certain

improvements to the airport’s terminal building. Quality completed its work under

the subcontract on March 4, 2010. Per the subcontract, Elder Construction owed

Quality $81,478.00.

Elder Construction had not paid Quality, despite representations to

Airport that all subcontractors had been paid. This included a sworn statement

made to Airport by Elder Construction president David Elder that payment to all

subcontractors had been completed. Quality filed a Statement of Lien with the

Scott County Clerk. Quality served both Elder Construction and Airport with

notice of the lien.

On July 22, 2010, Quality filed the lawsuit underlying this appeal

against Elder Construction, David Elder, and Airport. Quality alleged, among

other claims, breach of contract, wrongful payment, unjust enrichment, fraud, and

violation of the Kentucky Fairness in Construction Act, KRS1 371.400 et seq.

1 Kentucky Revised Statutes.

-2- Alongside its answer, Airport filed a crossclaim against Elder Construction and

David Elder on the basis of the false statements made to Airport.

Protracted litigation ensued. Arbitration was ordered; an arbitration

award for Quality was entered and confirmed, but later set aside. In 2017, Quality

reached a settlement agreement with Airport in the amount of $140,000.

The parties agreed to a bench trial, which the circuit court conducted

on October 25, 2021. Per a request by counsel for Airport, the bench trial was

transcribed. Accompanying a notice of filing by Airport, the transcript was entered

into the trial court record on November 18, 2021.

The circuit court entered its findings of fact, conclusions of law, and

order on December 28, 2022. Therein, the circuit court pierced the corporate veil

against Elder Construction and determined David Elder could be held personally

liable. The circuit court entered judgment against Appellants for breach of their

subcontract with Quality and their contract with Airport. For the amount unpaid

under the subcontract, the circuit court awarded Quality $19,686.88 against

Appellants; it calculated this amount by adding the subcontract price of $81,478.00

with $78,218.88 in interest – determined using the Kentucky Fairness in

Construction Act’s twelve percent per annum interest applied to the unpaid amount

– and subtracting the $140,000 Quality-Airport settlement. Because Quality’s

settlement with Airport represented money Appellants failed to pay Quality, the

-3- circuit court awarded $140,000 to Airport against Appellants with interest of

twelve percent per annum.

The circuit court also determined Appellants had acted in bad faith as

contemplated by the Fairness in Construction Act. It awarded Quality and Airport

attorneys’ fees pursuant to KRS 371.415. Based on “the fraudulent conduct of

David Elder” – specifically, that he fraudulently executed affidavits so that Airport

would release funds to Elder Construction despite Quality not yet having been paid

– the circuit court awarded Quality $244,434.00 in punitive damages and awarded

Airport $200,000.00 in punitive damages. The circuit court also awarded Airport

$80,500.00 in liquidated damages, per the liquidated damages clause in the

contract between Elder Construction and Airport. Because it had pierced the veil

against David Elder, the circuit court determined he was jointly and severally liable

for all attorneys’ fees and damages awards.

Appellants filed a motion to alter, amend, or vacate pursuant to CR2

59.05. Therein, Appellants challenge the validity of the trial transcript filed on

November 18, 2021 for the first time. They argued the circuit court improperly

relied upon and cited a version of the trial transcript that was not the original. The

circuit court denied the motion in an order entered June 19, 2023.

Appellants now appeal.

2 Kentucky Rules of Civil Procedure.

-4- “In all actions tried upon the facts without a jury or with an advisory

jury, the court shall find the facts specifically and state separately its conclusions

of law thereon and render an appropriate judgment[.]” CR 52.01. Findings of fact

may only be set aside if clearly erroneous. Id. “Clear error only occurs when there

is not substantial evidence in the record to support the trial court’s findings.” Elsea

v. Day, 448 S.W.3d 259, 263 (Ky. App. 2014) (citing M.P.S. v. Cabinet for Hum.

Res., 979 S.W.2d 114, 116 (Ky. App. 1998)). Substantial evidence is commonly

defined as “evidence of substance and relevant consequence having the fitness to

induce conviction in the minds of reasonable men.” Smyzer v. B.F. Goodrich

Chem. Co., 474 S.W.2d 367, 369 (Ky. 1971) (citing O’Nan v. Ecklar Moore

Express, Inc., 339 S.W.2d 466 (Ky. 1960)). As for conclusions of law, appellate

courts review them de novo. Hoskins v. Beatty, 343 S.W.3d 639, 641 (Ky. App.

2011).

Appellants first argue we should reverse the circuit court because it

relied upon the November 18, 2021 transcript which Airport had filed. Appellants

describe this document as the “unofficial transcript” in their brief.

This argument fails because Appellants first raised it in their motion

to alter, amend, or vacate the circuit court’s December 28, 2022 order. “A party

cannot invoke CR 59.05 to raise arguments and to introduce evidence that should

have been presented during the proceedings before the entry of the judgment.”

-5- Gullion v. Gullion, 163 S.W.3d 888, 893 (Ky. 2005) (citing Hopkins v. Ratliff, 957

S.W.2d 300 (Ky. App. 1997)). After the November 18, 2021 notice of filing of

the contested transcripts, Appellants waited over a year to argue against their

validity and only did so after entry of the circuit court’s December 28, 2022 order.

The filing was available to all parties, and Appellants had ample time to review

this filing and to contest it. Therefore, Appellants are estopped from challenging

the circuit court’s reliance on transcripts which Appellants purport to be deficient.

Next, Appellants argue the circuit court’s punitive damages awards to

Quality and Airport do not conform to statutory requirements. They argue that,

because KRS 411.184 expressly states “[i]n no case shall punitive damages be

awarded for breach of contract[,]” KRS 411.184(4), the circuit court erred in

applying punitive damages while also concluding Appellants had breached their

subcontract with Quality.

“As often noted, punitive damages exist to punish and discourage

certain types of bad behavior.” Yung v. Grant Thornton, LLP, 563 S.W.3d 22, 64

(Ky. 2018) (citing KRS 411.184 and Hensley v. Paul Miller Ford, Inc., 508

S.W.2d 759, 762 (Ky. 1974)). KRS 411.184(2) provides for punitive damages “if

a plaintiff proves by clear and convincing evidence that a defendant acted with

fraud, oppression, or malice.” Yung, 563 S.W.3d at 65. Here, the circuit court

explicitly noted the availability of punitive damages for a defendant’s acts of fraud

-6- notwithstanding KRS 411.184(4)’s prohibition against punitive damages for

breaches of contract. As is obvious and contrary to Appellants’ argument, the

circuit court applied punitive damages as a result of fraudulent conduct

independent of its conclusion that the subcontract had been breached.

Third, Appellants assert the circuit court did not support its damages

awards with sufficient findings of fact and conclusions of law as CR 52.01 requires

and that the circuit court record does not support the awards. We will discuss both

the circuit court’s award of punitive damages and liquidated damages.

As to the punitive damages award, the circuit court expressly found

that David Elder submitted a false affidavit to Airport that Elder Construction had

paid all outstanding debts underlying its contract with Airport. The circuit court

found that David Elder acknowledged he signed the affidavit himself. Testimony

of record, noted by the circuit court, confirms David Elder had billed Airport for

the work Quality performed, despite knowing Quality had not yet been paid. In

our view, substantial evidence supports the circuit court’s conclusion that

Appellants engaged in fraud; therefore, substantial evidence also supports its award

of punitive damages.

The circuit court also made specific findings of fact and conclusions

of law supporting its other damages awards. The circuit court awarded statutory

damages to Quality for Appellants’ failure to pay Quality under the subcontract.

-7- The Kentucky Fairness in Construction Act requires contractors to pay

subcontractors undisputed amounts due within fifteen business days of receipt of

payment from the contracting entity. KRS 371.405(8). Should the contractor fail

to do so, “the contractor shall pay interest to the subcontractor beginning on the

sixteenth business day after receipt of payment by the contractor, computed at the

rate of twelve percent (12%) per annum on the unpaid amount.” KRS 371.405(9).

As the record and the circuit court’s findings make clear, Appellants

received payment from Airport for work Quality performed as a subcontractor and

that Appellants still have not paid Quality for this work. The circuit court

calculated the amount due under the subcontract to Quality upon application of the

Fairness in Construction Act’s twelve percent interest rate, less the amount Quality

received after its settlement with Airport. We detect no errors of fact or law in the

circuit court’s conclusions in this regard.

Nor do we detect error in the circuit court’s award of liquidated

damages to Airport. A liquidated damages clause appeared in the contract between

Elder Construction and Airport. The contract required substantial completion of

the contract within 365 days. Construction began January 6, 2009, and was not

substantially completed until June 16, 2010. Therefore, substantial completion was

achieved 161 days late, as the circuit court found. This timeframe is supported by

substantial evidence of record; a January 6, 2009 letter states that Elder

-8- Construction was to immediately commence the project, and Elder Construction’s

June 1, 2010 application for a certificate of occupancy indicated Airport could

occupy the premises on June 16, 2010. Here, too, we detect no reversible error by

the circuit court.

Appellants argue the circuit court’s attorneys’ fee awards to Quality

and Airport were in error because the circuit court made no finding as to the

reasonableness of the fee awards. The Fairness in Construction Act authorizes

attorneys’ fees in certain circumstances. “In any action to enforce KRS 371.400 to

371.425, including arbitration, the court or arbitrator shall award costs and

reasonable attorney’s fees to the prevailing party if the losing party is deemed to

have acted in bad faith.” KRS 371.415. Though Appellants do not contest the bad

faith requirement, the circuit court determined Appellants’ actions, i.e., collecting

payment from Airport after falsely attesting it had paid Quality, constituted bad

faith.

By analogy to statutorily-authorized attorneys’ fee awards in divorce

proceedings, KRS 403.220 empowers family courts with the discretion to award

attorneys’ fees to a party after “considering the financial resources of both

parties[.]” KRS 403.220. A panel of this Court has determined that, though the

statute includes consideration of the parties’ financial resources as a requirement,

“[n]owhere does it state a trial court must make specific findings on the parties’

-9- financial resources.” Hollingsworth v. Hollingsworth, 798 S.W.2d 145, 148 (Ky.

App. 1990). Because the record in Hollingsworth was “replete with circumstances

in which the trial court was made aware of each party’s financial situation[,]” this

Court determined that the trial court’s award of attorneys’ fees met the statutory

requirements, appeared reasonable, and would not be disturbed. Id.

Nowhere does KRS 371.415 require a trial court to make specific

findings as to the reasonableness of an attorneys’ fee award. All that the statute

requires as a prerequisite to an attorneys’ fee award is that the trial court deem the

losing party to have acted in bad faith and that the attorneys’ fees be reasonable.

See KRS 371.415. Appellants plainly acted in bad faith by falsely informing

Airport that all subcontractors had been paid. As to reasonableness of the awards,

the duration of the underlying lawsuit and invoices and affidavits supporting

expenses incurred by Appellees’ counsel demonstrate their reasonableness.

Because attorneys’ fee awards are reviewed for an abuse of discretion, Miller v.

McGinty, 234 S.W.3d 371, 373 (Ky. App. 2007), and because an abuse of

discretion is found only where a trial court’s ruling is arbitrary, unreasonable,

unfair, or unsupported by sound legal principles, Commonwealth v. English, 993

S.W.2d 941, 945 (Ky. 1999), we cannot say the circuit court in the instant case

abused its discretion. Nothing about the circuit court’s attorneys’ fee awards

-10- indicates the awards were arbitrary, unreasonable, unfair, or unsupported by legal

principles.

Finally, Appellants contend the circuit court erred by piercing the

corporate veil and assigning joint and several liability to David Elder. Appellants’

argument is without merit.

While the law generally regards corporations to be legal entities

distinct from their shareholders, “when the corporation is used to justify wrong,

protect fraud or defend crime, the law regards the corporation as an association of

persons.” Bear, Inc. v. Smith, 303 S.W.3d 137, 147 (Ky. App. 2010) (citing Dare

To Be Great, Inc. v. Commonwealth, ex rel. Hancock, 511 S.W.2d 224, 227 (Ky.

1974)). In the instant case, the circuit court relied upon the “instrumentality

theory” for piercing the corporate veil; “[a] Kentucky trial court may proceed

under the traditional alter ego formulation or the instrumentality theory because the

tests are essentially interchangeable.” Inter-Tel Techs., Inc. v. Linn Station Props.,

LLC, 360 S.W.3d 152, 165 (Ky. 2012). Under the instrumentality theory, a

plaintiff must establish three elements before the corporate veil may be pierced:

“(1) that the corporation was a mere instrumentality of the shareholder; (2) that the

shareholder exercised control over the corporation in such a way as to defraud or to

harm the plaintiff; and (3) that a refusal to disregard the corporate entity would

subject the plaintiff to unjust loss.” Bear, Inc., 303 S.W.3d at 148 (citing White v.

-11- Winchester Land Dev. Corp., 584 S.W.2d 56, 61 (Ky. App. 1979), overruled on

other grounds by Inter-Tel Techs., Inc., 360 S.W.3d 152)).

We cannot conclude the circuit court erred in piercing the corporate

veil and assigning liability to David Elder. As the circuit court noted, David Elder

was the president, sole shareholder, sole officer, and sole director of Elder

Construction, and David Elder entered contracts on Elder Construction’s behalf.

Therefore, the first prong is satisfied. The previously discussed actions of David

Elder in falsely representing to Airport in a notarized and sworn affidavit that Elder

Construction had paid all amounts due to Quality – and Airport’s payment to Elder

Construction as a result – satisfy the second prong. Finally, the circuit court

determined the third prong is satisfied because Elder Construction was dissolved

after this lawsuit was filed, so assigning liability to Elder Construction only would

result in undue loss to Quality. Therefore, upon review of the record, sufficient

evidence exists to support the circuit court’s piercing of the corporate veil.

Based on the foregoing, we affirm the judgment of the Scott Circuit

Court.

ALL CONCUR.

-12- BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEE GEORGETOWN-SCOTT COUNTY Harry B. O’Donnell IV AIRPORT BOARD: Louisville, Kentucky Elmer J. George Lebanon, Kentucky

BRIEF FOR APPELLEE QUALITY AUTO GLASS, INC.:

S. Thomas Hamilton Bardstown, Kentucky

-13-