Insight Kentucky Partners II, L.P. v. Preferred Automotive Services, Inc.

514 S.W.3d 537, 2016 Ky. App. LEXIS 98, 2016 WL 3213586
CourtCourt of Appeals of Kentucky
DecidedJune 10, 2016
DocketNO. 2014-CA-001189-MR AND NO. 2014-CA-001236-MR
StatusPublished
Cited by35 cases

This text of 514 S.W.3d 537 (Insight Kentucky Partners II, L.P. v. Preferred Automotive Services, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals of Kentucky primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Insight Kentucky Partners II, L.P. v. Preferred Automotive Services, Inc., 514 S.W.3d 537, 2016 Ky. App. LEXIS 98, 2016 WL 3213586 (Ky. Ct. App. 2016).

Opinion

OPINION

DIXON, JUDGE:

Appellant, Insight Kentucky Partners II, L.P., appeals from a judgment of the Jefferson Circuit Court following a jury trial finding it liable to Appellee, Preferred Automotive Services, Inc., for aiding and abetting a breach of fiduciary duty by Jerry Key, Preferred’s former General Manager. Preferred has filed a cross-appeal challenging the trial court’s reduction of the jury’s award of punitive damages, as well as the denial of Preferred’s motion to amend its complaint to add a trade secrets claim. For the reasons set forth herein, [543]*543we reverse and remand the matter for a new trial.

Preferred was formed in 2001 to provide vehicle repair and maintenance services. Brothers Brian Payne and Jack Payne together owned eighty percent of Preferred with Key owning the remaining twenty percent. Key was responsible for all of Preferred’s daily operations. Preferred’s corporate report filed with Kentucky’s Secretary of State identified Key as president, vice-president, treasurer and sole director.

Soon after Preferred’s formation, Insight began using Preferred for all of its local vehicle fleet maintenance and repair work. Key was the primary contact and managed all of Insight’s business with Preferred. During the time period that Preferred. provided services to Insight, Bob Mathena and Todd Knight were the Insight employees responsible for the company’s vehicle fleet maintenance. It is undisputed that Preferred and Insight never entered into any type of contract.

In June 2007, the Paynes accused Key of embezzling from Preferred. Rather than terminate Key, however, the Paynes chose to take over all financial responsibilities, although Key continued to manage the other daily operations. However, Preferred’s annual corporate report filed in July 2007 identified Brian Payne as president, Jack Payne as vice-president, and both Paynes as the only directors of Preferred. Key was listed only as a shareholder. Preferred’s 2008 annual report contained the same information, except that Key was no longer identified in any capacity.

On January 13, 2009, the Paynes again accused Key of embezzling money from Preferred. Key contended that he was terminated on that date and never returned to or had any further responsibilities with Preferred. Indeed, the record herein contains Preferred’s payroll records reflecting that Key was “TERMINATED 1/13/09” as well as a letter dated February 18, 2009, from Brian Payne to Preferred’s vendors stating that “Key is no longer employed by Preferred Automotive as of January 13, 2009.” In addition, Payne testified at trial that Key had no authority to do anything on Preferred’s behalf after January 13, 2009. Nevertheless, Preferred claimed that Key was not terminated on January 13th, but rather took “time off to think about the situation,” and intended to return to work. Preferred contended that despite its records to the contrary, Key, in fact, remained an employee until January 30, 2009, because he had a company cell phone and insurance benefits until that date, as well as remained a corporate director until 2010.1

Sometime between January 13th and January 30th, Key met with Mathena and Knight and discussed the possibility of Insight moving its business if Key obtained employment elsewhere. At the end of January 2009, Key met with Robert Johnson, the owner of Southside Automotive and arranged to rent a building to start a vehicle fleet maintenance business to compete with Preferred. Key hired two of Preferred’s longtime mechanics and began operations under the name of Southside Automotive. Around the middle of February 2009, Insight began sending some of its vehicles to Southside. At the same time, Insight also increased its use of other [544]*544vendors including Nationwide Truck Service for maintenance work, Jim Berry Collision Center for body work, and Mosby Towing for towing services.

In March 2009, a billing dispute arose between Preferred and Insight. Specifically, in a March 11th letter to Bob Mathe-na, Brian Payne accused Insight of defamation by “passing rumors” that Preferred was double billing and otherwise cheating Insight. As evidenced through a string of internal e-mails, Insight thereafter made the decision to terminate its relationship with Preferred, noting specifically that there was no contract prohibiting it from doing so.

In June 2009, Preferred filed an action against Key asserting breach of fiduciary duty, conversion and fraud. That lawsuit was settled in 2010. Preferred thereafter filed a lawsuit against Southside and Johnson in August 2010, alleging aiding and abetting a breach of fiduciary duty, misappropriation of trade secrets, and tortious interference. That lawsuit similarly settled in November 2011.

In January 2012, Preferred filed the instant action against Insight alleging that Insight (1) tortiously interfered with a noncompete agreement between Key and Preferred, and (2) aided and abetted a breach of fiduciary duty owed by Key to Preferred. A nine-day jury trial was held beginning January 27, 2014. Preferred sought $4,340,000 in lost profit damages. Despite not having a contract, Preferred based its damages upon the assumption that Insight would have continued to send all of its business to Preferred from the time Preferred lost Insight as a customer in 2009 until 2022. Preferred also sought $22 million in punitive damages.

At the close of Preferred’s proof, the trial court granted Insight’s motion for a directed verdict on the tortious interference claim. With respect to the aiding and abetting claim, Preferred asserted that Insight knew that Key owed fiduciary obligations to Preferred and it nonetheless helped Key breach that duty by assisting him in establishing a new business to compete with Preferred and by encouraging Key to utilize confidential information he obtained from Preferred for Insight’s benefit and to the detriment of Preferred. At the close of evidence, the jury found that Insight aided and abetted a breach of fiduciary duty owed by Key to Preferred and awarded $2 million in compensatory damages and $2 million in punitive damages. The trial court apportioned the compensatory damages 50% to Key, 85% to Insight, and 15% to Preferred. As a result, the original trial judgment awarded Preferred $2.7 million in damages.

Insight thereafter filed a motion for judgment notwithstanding the verdict (JNOV), as well as motions to alter, amend or vacate the judgment and for a new trial. Following an extensive hearing, the trial court denied the JNOV and new trial motions. However, the trial court granted the motion to alter, amend or vacate, in part, by reducing the punitive damages award from $2 million to $1.4 motion on the grounds that the award was the result of “passion, prejudice, and/or bias as to [Insight’s] financial status and sympathy for employees of [Preferred], given [Insight’s] degree of reprehensibility and the lack of contact between the parties.” Insight then appealed to this Court. Preferred has filed a cross-appeal on several issues. Additional facts are set forth as necessary.

Before we turn to the issues herein, we would note that this case involved a nine-day trial and a voluminous record. The hearing on Insight’s post-trial motions lasted over two hours and involved a multitude of issues. Yet, the trial court made no rulings from the bench, nor did it in-[545]*545elude any findings or rationale in its orders denying the motions for JNOV and new trial. In CertainTeed Corporation v. Dexter,

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Cite This Page — Counsel Stack

Bluebook (online)
514 S.W.3d 537, 2016 Ky. App. LEXIS 98, 2016 WL 3213586, Counsel Stack Legal Research, https://law.counselstack.com/opinion/insight-kentucky-partners-ii-lp-v-preferred-automotive-services-inc-kyctapp-2016.