RENDERED: MAY 24, 2024; 10:00 A.M. NOT TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals NO. 2023-CA-0200-MR
PAUL MILLER FORD, INC. APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT v. HONORABLE THOMAS L. TRAVIS, JUDGE ACTION NO. 20-CI-02182
BARRY T. SMITH APPELLEE
AND
NO. 2023-CA-0216-MR
BARRY T. SMITH CROSS-APPELLANT
CROSS-APPEAL FROM FAYETTE CIRCUIT COURT v. HONORABLE THOMAS L. TRAVIS, JUDGE ACTION NO. 20-CI-02182
PAUL MILLER FORD, INC. CROSS-APPELLEE OPINION AFFIRMING ON APPEAL NO. 2023-CA-0200-MR AND AFFIRMING IN PART AND REVERSING IN PART ON CROSS-APPEAL NO. 2023-CA-0216-MR
** ** ** ** **
BEFORE: THOMPSON, CHIEF JUDGE; EASTON AND GOODWINE, JUDGES.
EASTON, JUDGE: A jury found the Appellant Paul Miller Ford, Inc. (“PMF”)
liable for violation of the Kentucky Consumer Protection Act (“KCPA”) and a
breach of warranty regarding a truck the Appellee, Barry T. Smith (“Smith”),
bought from PMF. PMF conceded a violation of a specific statute requiring
disclosure of damage and repairs done to the truck before it was sold, and the
question of liability on that basis was not submitted to the jury. Smith made a
separate claim for fraud, which the jury rejected. On the claims of the specific
statutory violation, breach of warranty, and a KCPA violation, the jury awarded
compensatory and punitive damages. Post-trial, the circuit court awarded
attorneys’ fees and costs to Smith but reduced the punitive damages awarded by
the jury. For the reasons which follow, we affirm in part and reverse in part.
FACTUAL AND PROCEDURAL HISTORY
Smith was employed by UPS.1 He liked to keep a relatively new
pickup truck because of his travel requirements. In August 2019, Smith wanted to
1 United Parcel Service.
-2- trade in his old truck for a new one. He was particularly interested in buying a new
Ford F-250 pickup truck. Smith searched online, and he found an F-250 he liked at
PMF’s lot in Lexington. On August 21, Smith contacted a PMF salesman about
the truck. They exchanged text messages about price and trade-in value.
The next day, Smith drove to Lexington to check out the truck. Smith
test drove the truck and asked the salesman Charles Davis (“Davis”) about the
mileage, which was 686 miles according to the odometer. Davis replied that
managers at PMF had been driving the truck as a demo, but he told Smith he was
buying a new truck.
When Smith commented that the ride seemed rough, Davis reassured
Smith the truck was a heavy-duty truck with a naturally stiffer suspension. There
was no disclosure of the prior wreck and damage. Smith purchased the truck: a
2019 Ford F-250 Super Duty SRW 4x4 Lariat Crew Cab. The purchase price was
$66,282.72. The Retail Purchase Agreement indicated the truck was “NEW” and
not “USED.” Smith signed the financing paperwork, and he drove the truck back
to Louisville.
Smith became dissatisfied with the truck. He testified it had
numerous problems, including excessive “play”2 in the steering system, not
handling well when encountering bumps in the road, an undue amount of vibration,
2 The term “play” refers to how far the steering wheel can be turned before the wheels turn.
-3- and generally not driving like a new truck should. Smith did not complain to PMF
about his concerns, as he thought the truck was brand new and that was just how it
drove.
In July 2020, Smith began to search for a replacement truck and found
a GMC pickup truck at Stoops Buick GMC in Plainfield, Indiana. Smith contacted
this dealership regarding the GMC truck and the potential trade-in value of his
truck. On July 23, 2020, Stoops Buick GMC provided Smith a “Instant Cash
Offer” for the trade-in value of his truck. Attached to the Instant Cash Offer was a
Carfax report for Smith’s truck. Smith had never seen the information in this
Carfax report before.
The Carfax report documented that PMF had taken possession of the
truck on March 21, 2019, and that on May 21, 2019, while still in PMF’s
possession, the truck was involved in a collision in which it rear-ended another
vehicle. The report stated there was damage to the front-end of the truck. Smith
later said that, on the same day he learned of the Carfax report, he attempted to call
the person who handled the financing of the truck at PMF. He left a voicemail, but
he was not contacted back. Smith traded in his truck and purchased the GMC
pickup truck.
Smith filed his Complaint against PMF on July 24, 2020. Smith’s
Complaint asserted causes of action for breach of contract/breach of express
-4- warranty, violations of the KCPA, and fraudulent misrepresentation. Smith served
discovery requests to PMF. PMF’s response confirmed that on May 21, 2019, the
truck was involved in a motor vehicle accident on Interstate 75. The driver of the
truck at the time of the accident was Mark Collier (“Collier”), who was PMF’s new
car director. PMF produced the police report regarding the accident. According to
the police report, Collier rear-ended a Chevrolet Malibu at an estimated speed of
45 to 60 miles per hour. The Malibu was totaled. PMF’s insurer paid the property
damage claim for the total loss of the Malibu. In June 2019, Fortune Collision
Centre of Lexington repaired the truck. PMF paid the repair invoice in the amount
of $6,297.73.
Upon receipt of this discovery response, Smith moved for leave to file
an Amended Complaint. The circuit court granted Smith’s motion. The Amended
Complaint asserted an additional cause of action based on violation of KRS3
186A.540 for not disclosing the damages and repairs to the truck before selling it.
After a failed mediation, PMF tendered a total of four Offers of
Judgment pursuant to CR4 68, the last being for $17,284.82. Each Offer of
Judgment presented itself as “inclusive of all attorneys’ fees which a prevailing
party is statutorily or otherwise entitled to recover on the claims asserted in this
3 Kentucky Revised Statutes. 4 Kentucky Rules of Civil Procedure.
-5- action.” We mention this as it becomes relevant to arguments made about costs
and attorneys’ fees, which we must address.
After denial of PMF’s Motion for Partial Summary Judgment, a three-
day jury trial commenced in September of 2022. Collier testified. Subsequent to
the sale of the truck at issue, Collier was promoted and is now the general sales
manager for PMF. Collier was allowed to drive “demo” vehicles for personal use.
PMF did not keep a record of what vehicles he drove. Collier described driving
the truck on May 19, 2021, and the accident that took place on Interstate 75 in
Lexington. Collier was able to drive the truck home, and he drove it to work the
next day. Collier consistently downplayed the damage to the truck.
Collier said he informed his supervisor at the time, Chris Arnold, of
the wreck. He also told Sean Early (“Early”) (with the accounts receivable
department of PMF) of the wreck. Collier did not file any standard incident report
for PMF. Early told Collier to report the wreck to PMF’s insurance company.
Once the insurance claim was processed, Collier spoke with the insurance adjuster,
but Collier did not provide a written statement about the wreck. Collier did not
know who did the repair work on the truck.
Collier testified that Arnold and Early were the only ones at PMF he
talked to about the wreck. He did not inform the salespeople under his supervision
about the wreck. Collier did not check PMF’s website to see if the truck had been
-6- removed from the website’s “new vehicle” inventory while it was being repaired or
later. Collier did not keep track of what happened to the truck after the wreck.
Collier did not do so because PMF was experiencing a lot of “turnover.”
Collier maintained there was no intent to deceive Smith but
sometimes “things fall through the cracks.” Collier testified PMF does not offer
Carfax reports on new vehicles. Collier recognized that customers do not typically
ask for Carfax reports on new vehicles. When asked why not, Collier replied that
customers do not think they need a Carfax report on a “new” vehicle. Collier
confirmed that buyers of new vehicles would assume the vehicle had no prior
damage before purchasing it.
Collier testified he had no problem with representing the truck as new
despite its damage because the truck technically still remained a “new” vehicle
under Kentucky law. Collier stated the fact that the truck had been repaired would
not have lowered the sales price as PMF prices vehicles by MSRP
(“Manufacturer’s Suggested Retail Price”). Despite an admitted lack of disclosure
in this case, Collier stated PMF would have normally disclosed pre-sale repairs to a
new vehicle.
Collier said his supervisor at the time, Billy Gorth, was not aware of
the truck being sold until after the filing of the lawsuit. Collier was never
reprimanded or disciplined by PMF because of the incident. Collier recalled that
-7- he had to sign several documents relating to the sale of the truck to Smith. Collier
was present on the day of the sale and approved the sale to Smith.
Collier had no concerns about whether the truck sold to Smith was the
same truck he wrecked. Collier insists he personally did nothing wrong, just a
“one-off”5 happened. Collier blamed no individual at PMF for the failure to
disclose, but that it was a “systematic failure.” Collier said that in his career he
had no knowledge of any other “new” vehicle being sold after a wreck or repairs,
either disclosed or not. Collier pointed out that all of PMF’s vehicles are sold “as
is,” although this truck had warranties provided by the manufacturer.
Collier recalled that Smith never contacted him after the sale about
Smith’s dissatisfaction with the truck. Collier repeated that there was no intent to
deceive or fail to disclose to Smith. Collier argued it was not feasible for PMF to
rectify the situation because Smith filed the lawsuit one day after Smith discovered
the truck’s history.
Early testified. He is currently the accounts receivable clerk for PMF.
Early did not remember Collier reporting the collision to him, but he thinks Collier
“probably did.” Early testified Collier’s responsibility after the collision would
have been to provide a handwritten incident report for Early to mail to PMF’s
insurance carrier. Early testified he had “no idea” of what procedures PMF uses to
5 A colloquial expression meaning a happening that occurs only once and is not repeated.
-8- track incident reports. Early testified that, since he left PMF briefly around the
same time, he was probably not employed by PMF when the truck was sold in
August of 2019.
Next to testify was David Ries (“Ries”). He was one of Collier’s
supervisors at the time of Smith’s purchase of the truck. Ries said Collier
informed him of the collision after Smith’s lawsuit was filed. Ries testified he was
not working on the day of the sale, so Collier approved the sale of the truck. Ries
agreed that the pre-sale collision and repairs should have been disclosed to Smith.
Ries stated Collier could have noted the collision and repairs on the deal jacket (the
sale documents relating to the truck). Ries testified, that if he had a wreck like
Collier did, he probably would not remember to disclose it at sale since PMF
handles so many vehicles.
Davis also testified. He was the salesman who sold the truck to
Smith. Davis did not know of the truck’s history when he sold it. Davis testified
he would have disclosed the truck’s history to Smith, had he known about it.
Davis said proper procedure would have been to add a disclaimer regarding the
wreck and repairs to the truck’s paperwork.
The deposition testimony of Smith’s damages expert, Richard
Hixenbaugh (“Hixenbaugh”), was introduced into evidence. He is an independent
vehicle appraiser with Collision Claims Associates, Inc. Part of his job is to
-9- determine the diminished value (or loss of value) of a vehicle involved in a
collision. Hixenbaugh opined Smith’s truck lost approximately $12,000 in value
due to the collision and subsequent repairs. Had the damage been disclosed, the
truck’s value at the time of Smith’s purchase would have been $12,000 less than
the amount for which the vehicle sold.
At the conclusion of evidence, the circuit court entered a directed
verdict against PMF for the violation of KRS 186A.540. The remaining claims
(breach of contract/express warranty, KCPA, and fraud) were submitted to the
jury. The jury returned with a verdict finding PMF breached a warranty and
violated the KCPA. The jury awarded Smith $8,026 in compensatory damages and
$100,000 in punitive damages. The jury ruled in favor of PMF on the separate
fraud claim.
Post-trial, Smith filed a Motion for Attorney’s Fees and Costs
pursuant to the KCPA. Smith represented to the circuit court that his fees and
costs to that point totaled $64,058.67. PMF filed a response and objection to
Smith’s motion, as well as an Exception to Bill of Costs.
On October 26, 2022, the circuit court entered its Judgment on Jury
Verdict, but it did not address Smith’s attorneys’ fees and costs. Smith refiled his
Motion for Attorney’s Fees and Costs. Smith’s renewed Motion sought
$73,000.92 in attorneys’ fees. PMF filed a Motion for Judgment Notwithstanding
-10- the Verdict (“JNOV”) under CR 50.02, asking the circuit court to set aside the
jury’s verdict, or in the alternative, set aside or reduce the award for punitive
damages. PMF also filed a combined Motion to Alter, Amend, or Vacate the
Judgment pursuant to CR 59.05, and for Relief from the Judgment under CR 60.02.
The parties submitted briefs, and the circuit court conducted a hearing.
On January 18, 2023, the circuit court entered an Order with Judgment as
Amended ruling on the post-trial motions. The circuit court sustained in part
PMF’s Motion for JNOV by reducing the punitive damages award of $100,000 to a
number equaling ten times the actual damages of $8,026 – viz., $80,260. PMF’s
motions were otherwise overruled. The circuit court awarded Smith attorneys’
fees in his requested amount of $73,000.92. The circuit court sustained PMF’s
Exception to Bill of Costs, holding that much of Smith’s claimed costs were not
recoverable under CR 54.04. The circuit court directed Smith to resubmit a Bill of
Costs consistent with its ruling.
PMF filed a Notice of Appeal contending that only the violation of
KRS 186A.540 was a viable claim and that no punitive damages could be awarded.
Smith filed a cross-appeal regarding the reduction of the punitive damages award
and the limitation of Smith’s recovery of costs. The parties have filed appropriate
briefs, and we have examined the circuit court record.
-11- We must address several issues: What is the impact of the admitted
violation of KRS 186A.540 in the context of the other claims? With respect to the
compensatory damages awarded, did the circuit court err in limiting cross-
examination of Smith’s expert about the value of the truck? Was there a breach of
any warranty, including the argument that PMF sold the “new” truck “as is?” Do
the circumstances support a finding of a violation of the KCPA? If punitive
damages were appropriate, should the circuit court have reduced the amount
awarded by the jury? Finally, did the circuit court err in the award of attorneys’
fees and limiting the costs recoverable?
STANDARD OF REVIEW
Many of the questions raised are part of PMF’s contention that the
circuit court should have granted a directed verdict or a JNOV on most of Smith’s
claims. “The standard of review regarding a motion for a directed verdict or JNOV
has been described as a difficult one for an appellant to meet.” Est. of Moloney v.
Becker, 398 S.W.3d 459, 461 (Ky. App. 2013) (citation omitted). In Taylor v.
Kennedy, 700 S.W.2d 415 (Ky. App. 1985), the Court described the standard of
review:
In ruling on either a motion for a directed verdict or a motion for judgment notwithstanding the verdict, a trial court is under a duty to consider the evidence in the strongest possible light in favor of the party opposing the motion. Furthermore, it is required to give the opposing party the advantage of every fair and reasonable
-12- inference which can be drawn from the evidence. And, it is precluded from entering either a directed verdict or judgment n.o.v. unless there is a complete absence of proof on a material issue in the action, or if no disputed issue of fact exists upon which reasonable [people] could differ.
Id. at 416. An appellate court shall not disturb a circuit court’s decision on a
motion for JNOV unless that decision is clearly erroneous. Peters v. Wooten, 297
S.W.3d 55, 65 (Ky. App. 2009). The denial of a motion for JNOV should only be
reversed “when it is shown that the verdict was palpably or flagrantly against the
evidence such that it indicates the jury reached the verdict as a result of passion or
prejudice.” Id.
“[T]he standard of review of an evidentiary ruling is abuse of
discretion.” Cox v. Commonwealth, 553 S.W.3d 808, 814 (Ky. 2018). Abuse of
discretion is also the standard of review for the award of attorneys’ fees and costs.
Alexander v. S & M Motors, Inc., 28 S.W.3d 303, 305 (Ky. 2000). “The test for
abuse of discretion is whether the trial judge’s decision was arbitrary,
unreasonable, unfair or unsupported by sound legal principles.” Woodard v.
Commonwealth, 147 S.W.3d 63, 67 (Ky. 2004).
The circuit court’s decision to reduce the punitive damages awarded
by the jury is reviewed de novo. Yung v. Grant Thornton, LLP, 563 S.W.3d 22, 63
(Ky. 2018). This is a purely legal decision because the question is whether the
award violates due process.
-13- ANALYSIS
PMF did not dispute the directed verdict against it on the KRS
186A.540 claim. PMF limits its appeal to breach of contract/breach of express
warranty (Count II), violation of the KCPA (Count III), and fraud (Count IV). It is
important first to understand the conceded, specific statutory claim to the extent it
alone may support the jury’s verdict.
In 1994, the Kentucky’s General Assembly enacted the first version of
KRS 186A.540. This law requires the seller of a “new” vehicle to disclose any
damage to the vehicle as measured by repairs done or repair estimates of more than
$300. The statute has been amended over the years in part due to inflation. The
current version (2017) now requires proof of actual repairs, not estimates, and the
amount has increased to $2,000.
KRS 446.070 gives people a right to seek a civil remedy for the
violation of Kentucky statutes when those statutes are aimed at protecting the
people harmed by the violation of that statute. In doing so, the law recognizes that
statutes create duties, the violation of which may serve as the basis of a negligence
claim. This is a well-established rule of Kentucky law. See Hackney v. Fordson
Coal Co., 19 S.W.2d 989 (Ky. 1929).
Regardless of success on any breach of warranty or KCPA claim,
PMF was going to be liable for at least compensatory damages. We must also
-14- keep this in mind as we review the propriety of any punitive damages. We will
return to this question in due course.
While on the topic of compensatory damages, we will address the
issue of the limitation of expert testimony. Smith’s expert witness, Hixenbaugh,
was called to establish damages in the form of the difference in the fair market
value of the truck if new without prior damage versus the truck’s actual history and
condition. Hixenbaugh opined the truck lost $12,000 in value after the collision
and repairs. This is the proper measure of Smith’s damages. See, e.g., Edwards v.
State Farm Mut. Auto Ins. Co., 389 S.W.3d 641, 644 (Ky. App. 2012) (when
assessing damages relating to a motor vehicle, diminution of the fair market value
is evaluated).
After the sale of this truck in 2019, the COVID-19 pandemic changed
many things economically. One was the market value of used vehicles. PMF
wanted to introduce evidence by cross-examining Hixenbaugh about the changes
in the market for used cars during the COVID-19 pandemic beginning in 2020.
The value of Smith’s truck went up to more than what he paid for the truck. The
circuit court correctly excluded this evidence as irrelevant to the value at the proper
time. Even if some relevance could have been illustrated, the risk of confusion of
-15- issues and waste of time justified the circuit court’s decision. KRE6 403. The
circuit court did not abuse its discretion in the exclusion of this evidence.
Moving on to the claims in addition to the admitted statutory
violation, PMF makes two arguments about breach of warranty. The
documentation shows this truck as a “new” vehicle, and it may have technically
been “new” according to one legal definition even though damaged prior to sale.
KRS 190.010 (13) provides that “[a]s used in this chapter: . . .‘new motor vehicle’
means a vehicle that is in the possession of the manufacturer, distributor, or
wholesaler, or has been sold to the holders of a valid sales and service agreement,
franchise, or contract, granted by the manufacturer, distributor, or wholesaler for
the sale of the make of new vehicle, which is new, and on which the original title
has not been issued from the franchised dealer.” PMF insists that, since no title to
the truck was issued by PMF prior to Smith’s purchase and it was thus still a
“new” vehicle, Smith was not entitled to recover pursuant to any contractual
warranty claim premised on his theory that the truck was not “new.”
While KRS 190.010(13) may support PMF’s strained notion that the
truck was technically a “new” vehicle under KRS Chapter 190, the analysis cannot
end there. In Smith v. General Motors Corporation, 979 S.W.2d 127 (Ky. App.
1998), the plaintiff purchased a motor vehicle advertised as new from a dealership.
6 Kentucky Rules of Evidence.
-16- During the plaintiff’s ownership, the vehicle would stall on the highway while
being operated at normal speeds. Id. at 128.
The plaintiff filed an action against the dealership alleging breach of
warranty and violation of the KCPA with other claims. Similar to the present case,
during discovery, the plaintiff learned the dealership had made pre-sale repairs to
the vehicle in the amount of $323.33, in violation of the version of KRS 186A.540
then in effect. The dealership did not advise the plaintiff of the vehicle’s repair
history prior to his taking possession. After learning the vehicle’s history, the
plaintiff amended his complaint to allege fraud. Upon motion by the dealership,
the circuit court entered summary judgment dismissing the plaintiff’s complaint in
its entirety. Id. at 129.
On appeal, this Court reversed and remanded, opining that the
plaintiff established sufficient facts to preclude summary judgment on the claims
relating to the dealership’s failure to disclose the van’s pre-sale history. Id. We
noted that mere silence is not fraudulent absent a duty to disclose. Id. (citing Hall
v. Carter, 324 S.W.2d 410 (Ky. 1959)). But “[a] duty to disclose may arise from a
fiduciary relationship, from a partial disclosure of information, or from particular
circumstances such as where one party to a contract has superior knowledge and is
relied upon to disclose same.” Id. The Court considered the dealership’s superior
knowledge and the plaintiff’s reliance thereon and concluded the dealership, as a
-17- matter of law, had the duty to disclose material defects and repairs known to it
about this “new” vehicle. Id.
Having recognized the common law duty to disclose material defects
and repairs, this Court in Smith then reviewed the statutory language contained in
KRS Chapter 190, “Motor Vehicle Sales.” KRS 190.071(1)(e) reads as follows:
“It shall be a violation of this section for any new motor vehicle dealer . . . [t]o use
false or fraudulent representations in connection with the operation of the new
motor vehicle dealership.” “Fraud,” in the context of this KRS Chapter is defined
as “a misrepresentation in any manner, whether intentionally false or due to gross
negligence, of a material fact; a promise or representation not made in good faith;
or an intentional failure to disclose material fact[.]” KRS 190.010(24). Taking
this definition of “fraud” into account, we held that KRS 190.071(1)(e) “imposes
an affirmative duty upon new motor vehicle dealers to disclose material facts to
customers while in the course of conducting business.” Smith, supra, at 130. The
Court went on to say this kind of failure to disclose material facts to customers
may constitute fraud. Id.
We need not comment at length on the separate claim of fraud. That
issue was properly submitted to the jury, and they declined to find fraud. But
aspects of that fraud claim overlapped with the other claims. There being no
separate finding of fraud by the jury, we will not address this further except as it
-18- may be pertinent to the punitive damage arguments. On this point, what remains
significant about the Smith case is the holding on other claims arising from these
circumstances.
The Court in Smith likewise held summary judgment should not have
been entered on the plaintiff’s claim that failure to disclose the vehicle’s pre-sale
history constituted a false, misleading and/or deceptive trade practice under the
KCPA. Id. The Court noted “false,” “misleading,” and “deceptive” are defined in
terms generally understood and perceived by the public. Id. at 131. The Court
stated a factfinder might reasonably conclude that the sale of the vehicle as “new”
without disclosure of its pre-sale history constituted a false, misleading, or
deceptive act under the KCPA, and thus summary judgment upon the KCPA claim
was improper. Id.
PMF asserts the circuit court’s failure to grant summary judgment is
particularly glaring due to Smith purchasing the truck “as is,” with all warranties
disclaimed. Kentucky’s Uniform Commercial Code (codified as KRS Chapter
355) provides a structure for construing written disclaimers within an agreement
for the sale of goods. Roberts v. Lanigan Auto Sales, 406 S.W.3d 882, 884 (Ky.
App. 2013). “[U]nless the circumstances indicate otherwise, all implied
warranties are excluded by expressions like ‘as is,’ ‘with all faults’ or other
language which in common understanding calls the buyer’s attention to the
-19- exclusion of warranties and makes plain that there is no implied warranty[.]” KRS
355.2-316(3)(a) (emphasis added). This is not to say that express warranties
cannot also be excluded.
PMF cites Roberts, supra, in support of their argument the circuit
court erred by ignoring the “as is” language. In Roberts, the buyer of a used
vehicle sold “as is” sued the seller for fraud and violations of the KCPA for
allegedly concealing the vehicle’s damage history. Following his purchase, the
plaintiff independently obtained a report which indicated that the vehicle had
previously been involved in an accident and suffered damage to its undercarriage.
Roberts, supra, at 883. The seller maintained it never represented that the vehicle
had not been damaged or involved in a wreck. The circuit court dismissed the
plaintiff’s action on the basis that the purchase contract, which contained the
express term “sold as is,” barred his action for fraud. Id. at 884.
When we compare Smith with Roberts, we see the obvious distinction
between new and used. The purchase agreement in the present case does have
boilerplate language saying the truck was sold as is, but that is disingenuous. It
was a “new” truck clearly indicated as such and stated just above the “as is”
disclaimer. The truck was sold with express, written warranties provided by the
manufacturer through PMF as the seller.
-20- From the typical consumer’s perspective, Smith would not have
thought this was an “as is” situation. We note the circuit court correctly instructed
the jury about express warranties, including the statutory definition of a new
vehicle relied upon by PMF, and referred to the “as is” language. Regardless of
the arguments about the contract/warranty claim, we must remember that there are
two other claims which may support compensatory and perhaps punitive damages.
To some extent, the discussion of the contractual warranty claim is academic. The
verdict on this one claim is not necessary to sustain the jury’s overall verdict.
Moving to the KCPA claim, PMF argues there was no evidence that
PMF acted with bad intentions or gross negligence, as required to state a claim
under the KCPA. Codified under KRS 367.110 et seq., the KCPA provides a right
to recover both compensatory and punitive damages for unlawful acts. KRS
367.220(1). Unlawful acts mean “[u]nfair (or unconscionable), false, misleading,
or deceptive acts or practices in the conduct of any trade or commerce[.]” KRS
367.170.
In Capitol Cadillac Olds, Inc. v. Roberts, 813 S.W.2d 287, 291 (Ky.
1991), the Kentucky Supreme Court recognized that not every breach of contract
claim is sufficient to trigger the KCPA – there must be evidence of “unfair, false,
misleading or deceptive acts” on the part of the defendant. Simple incompetence
in the performance of contractual duties is not enough to trigger the KCPA unless
-21- some element of intentional or grossly negligent conduct is also present. Id. See
also Sparks v. Re/Max Allstar Realty, Inc., 55 S.W.3d 343, 348 (Ky. App. 2000).
PMF seems to suggest that the jury, the circuit court, and this Court
are simply required to accept its version of the events – that this was just an
innocent oversight. But in assessing the “systemic failure” admitted by PMF, the
factfinder was not required to make no inferences from all the circumstances.
Collier, the PMF employee who wrecked the truck, did not make a formal incident
report. There was no paper trail about the damage to the truck, and there should
have been according to PMF witnesses. Collier made no effort to inform other
sales employees of the truck’s condition. The status of the truck was not changed
on the website. The same employee who wrecked the truck approved the sale of
the same truck to Smith.
Smith’s counsel effectively drew together the inferences about who
knew what and when in successfully arguing that the KCPA was violated. As the
attorney said, PMF’s version of “just a mistake” just did not “add up.” As we
stated previously, when reviewing the question of whether an issue should have
been submitted to a jury, the courts must give the opposing party the advantage of
every fair and reasonable inference which can be drawn from the evidence. We
cannot say that the evidence, when considered as a whole, did not support a finding
of a KCPA violation.
-22- We will now look at the issue of punitive damages. PMF argues the
punitive damages award should be set aside, or at least reduced. Smith’s cross-
appeal seeks to reinstate his punitive damages award in full.
PMF insists the nexus of Smith’s action constitutes only an
incompetent failure to perform a contract, which does not constitute a violation of
the KCPA “unless some element of intentional or grossly negligent conduct is also
present.” Keaton v. G.C. Williams Funeral Home, Inc., 436 S.W.3d 538, 546 (Ky.
App. 2013). PMF maintains there was no evidence of it acting intentionally or
grossly negligently under the KCPA, and thus, there is no foundation for the
punitive damages awarded to Smith. Whether they might be based on the admitted
statutory violation (which is a negligence tort claim) or the KCPA violation, PMF
argues the punitive damages award should be set aside.
We recognize that a mere breach of contract does not authorize
punitive damages as PMF correctly argues. Ford Motor Co. v Mayes, 575 S.W.2d
480, 486 (Ky. App. 1978). However, a plaintiff may recover punitive damages if
the breach of contract also involved tortious conduct by the defendant. Id. We
will review statutory and case law to demonstrate why punitive damages were not
awarded in error in this case.
Punitive damages may be awarded in cases of gross negligence.
Williams v. Wilson, 972 S.W.2d 260, 262-63 (Ky. 1998). Otherwise, definitions
-23- provided by KRS 411.184 govern: “A plaintiff shall recover punitive damages
only upon proving, by clear and convincing evidence, that the defendant from
whom such damages are sought acted toward the plaintiff with oppression,[7] fraud
or malice.” KRS 411.184(2).
While the parties do not discuss the definition of “fraud” under this
statute, we note that the definition does not equate precisely with a finding of the
common-law tort of fraud. The circuit court here used the wording of KRS
190.010(24) as the definition of fraud for the separate claim of fraud, which the
jury rejected. But for punitive damages purposes, “‘Fraud’ means an intentional
misrepresentation, deceit, or concealment of material fact known to the defendant
and made with the intention of causing injury to the plaintiff.” KRS 411.184(1)(b).
There was evidence for the jury to conclude PMF acted fraudulently
under the definition in the punitive damages statute. Unfortunately, the circuit
court did not include a definition of fraud from KRS 411.184 in the separate
instruction on punitive damages. This could have been an error but for the separate
KCPA basis for the punitive damages award, which the jury clearly indicated
under the instructions given as the basis for the punitive damages awarded.
Kentucky law, which we have previously cited, makes it proper to submit the issue
7 Neither party contends that “oppression” as defined applies to this case. KRS 411.184(1)(a).
-24- of punitive damages for a KCPA violation. The circuit court correctly allowed
consideration of punitive damages for the KCPA violation alone. In essence, the
KCPA violation here would sustain both the gross negligence and fraud (as defined
by KRS 411.184) bases for a punitive damages award.
Craig & Bishop, Inc. v. Piles, 247 S.W.3d 897 (Ky. 2008), involved
the interaction of KCPA and fraud claims when determining the validity of
punitive damages. In Craig, a car dealership advertised a particular vehicle for a
sales price of $5,000 but told prospective buyers when they showed up that the
vehicle had been sold even after telling them over the telephone that it was still
available. Id. at 900. The dealership then showed the prospective buyers a second
car priced around $14,000. Id. The dealership let the prospective buyers drive
away without any agreement as to credit terms, sold their trade-in vehicle before
financing was arranged on the second car, and threatened to repossess the second
car if the buyers did not come up with the full sales price in cash. Id. at 900-01.
The buyers then sued the dealership, alleging violation of the KCPA,
common-law fraud, conversion, and breach of contract. Id. at 901. The jury found
in favor of the buyers on the KCPA violations, fraud, and conversion. Id. The jury
awarded $8,600 in compensatory damages and $50,000 in punitive damages. Id. at
906. This Court affirmed the judgment but vacated the verdict based on fraud. Id.
at 901.
-25- Even without a finding of the tort of fraud, the Kentucky Supreme
Court upheld the punitive damages award in Craig. The Supreme Court held the
KCPA verdict alone was enough to justify punitive damages as it was reasonable
under the facts of the case for a jury to infer the dealership committed unfair, false,
misleading, or deceptive acts or practices pursuant to the KCPA. Id. at 905. The
court did not analyze the vacated fraud verdict: “[W]e find that the KCPA claim
was properly before the jury; and, thus, we have found it unnecessary to reach the
fraud issue.” Id.
Ultimately, the award of punitive damages by the jury in this case was
proper on the evidence and the law. The jury could reasonably conclude under the
evidence that PMF’s actions constituted unfair, false, misleading, or deceptive acts
or practices under the KCPA, and “fraud” as defined in KRS 411.184. A finding
of the tort of fraud is not required for the consideration of “fraud” as defined by the
punitive damages statute in a given case. They are separate questions. See
Miller’s Bottled Gas, Inc. v. Borg-Warner Corp., 817 F. Supp. 643 (E.D. Ky.
1993) (a finding of liability for the tort of fraud does not automatically justify
submission of a punitive damages instruction under Kentucky law).
PMF then argues the punitive damages amount awarded is grossly
excessive and violates constitutional due process. The substantive standard for
determining whether a jury award of punitive damages comports with due process
-26- is provided in the landmark case BMW of North America, Inc. v. Gore, 517 U.S.
559, 567, 116 S. Ct. 1589, 1595, 134 L. Ed. 2d 809 (1996). In BMW, the United
States Supreme Court recognized the following three guideposts in evaluating
whether a punitive damages award is grossly excessive: the degree of
reprehensibility, the disparity between the harm or potential harm suffered by the
plaintiff and his punitive damages award, and the difference between the award
and the civil or criminal penalties authorized or imposed in comparable cases. Id.
at 575, 116 S. Ct. at 1599. Kentucky courts have adopted these guideposts as well.
Yung, supra, at 65.
As for PMF’s reprehensibility, there was no common-law fraud
verdict against it, but there was evidence of KCPA violations that allowed for
punitive damages. A jury could review the evidence and conclude PMF was being
unfair, false, misleading, or deceptive when dealing with Smith.
As for the difference between the award and the civil or criminal
penalties authorized or imposed in comparable cases, violation of KRS 186A.540
is a Class A misdemeanor under KRS 186A.990(6), as to which a maximum fine
of $500 may be imposed per KRS 534.040(2)(a). Violation of the KCPA carries
“a civil penalty of not more than two thousand dollars ($2,000) per violation, or
where the defendant’s conduct is directed at a person aged sixty (60) or older, a
-27- civil penalty of not more than ten thousand dollars ($10,000) per violation[.]” KRS
367.990(2).
In Craig, supra, the Court noted the possible penalties found in KRS
190.040. This statute provides that a license to sell motor vehicles may be denied,
suspended, or revoked on grounds of false advertising, fraudulent
misrepresentation, etc. The loss of PMF’s license to sell vehicles would be much
more financially catastrophic than the punitive damages assessed here.
The second guidepost is the disparity between the harm or potential
harm suffered by the plaintiff and his punitive damages award. This is often
depicted as a mathematical ratio of the punitive damages over the compensatory
damages. There may be a tendency to put too much emphasis on the ratio factor
because it catches judicial attention.
The circuit court reduced the punitive damages award of $100,000 to
$80,260. The circuit court did not explain its reasoning, except to state that a ten-
to-one ratio for punitive damages to compensatory damages was acceptable. The
single sentence of the circuit court’s order about the punitive damages reduction
cited Ragland v. Diguiro, 352 S.W.3d 908, 921 (Ky. App. 2010). We were careful
not to adopt a ratio alone approach in Ragland, remembering that punitive damages
are determined by a jury as the voice of the community with proper focus primarily
on the reprehensibility of the conduct. Id. at 917.
-28- The United States Supreme Court has indicated that a single digit ratio
(9:1 versus 10:1) is usually going to be acceptable. State Farm Mut. Auto Ins. Co.
v. Campbell, 538 U.S. 408, 425; 123 S. Ct. 1513, 1524, 155 L. Ed. 2d 585 (2003).
But a permissible ratio is impacted by how much the compensatory damages are.
If $1 million in compensatory damages are awarded, then $10 million in punitive
may be too much, depending on the reprehensibility of the conduct and what other
penalties might apply. Then again, in the particular circumstances of the case,
such an award may not violate due process. In Craig, supra, another CPA case,
the jury award of punitive damages “was rationally imposed by the jury to serve
the deterrent effect for which punitive damages were designed, especially in
consumer protection cases such as this where the economic harm suffered is
relatively small.” Id. at 907-08.
If a jury sought to punish a large corporation as opposed to an
individual, the amount of punitive damages may show a higher ratio to a
comparatively modest award of compensatory damages. We have recognized even
in cases involving nominal damages that punitive damages are permissible and
may greatly exceed a ratio of 10:1. Mo-Jack Distributor, LLC v. Tamarac Snacks
LLC, 476 S.W.3d 900 (Ky. App. 2015); see also Phelps v. Louisville Water
Company, 103 S.W.3d 46 (Ky 2003) (upholding a ratio of slightly more than 11:1
-29- in punitive damages vs compensatory damages). There is no magic number or
ratio to govern punitive damages awards.
PMF bragged about the volume of its business as it excused this
situation as just falling through the cracks. PMF presented itself as a substantial
business with decades of experience selling many vehicles each month. During the
final hearing before the circuit court when the amount of the supersedeas bond was
determined, the circuit court commented that PMF was one of the biggest car
dealerships in Kentucky. A properly punitive amount for PMF may not be the
same as for a small used car lot owner.
We conclude the punitive damages award should not have been
reduced. There is not that much economic difference for a defendant such as PMF
between the 10:1 punitive ratio settled upon by the circuit court and the 12.46:1
ratio of the jury award. When we consider all the circumstances, not just the ratio
alone, the award of 12.46:1 for punitive damages in this case did not offend due
process to require a reduction of the punitive damages the jury found as an
appropriate punishment. The circuit court should reinstate the full amount of the
punitive damages awarded to Smith.
PMF next argues any award of attorneys’ fees and costs incurred by
Smith after March 16, 2021, the date on which PMF made an Offer of Judgment
($10,000) that exceeded the actual compensatory damages ultimately awarded
-30- ($8,026), was improper. The March 16, 2021, Offer of Judgment (along with all
other Offers of Judgment made to Smith) stipulated it was made “with costs now
accrued, and inclusive of all attorneys’ fees which a prevailing party is statutorily
or otherwise entitled to recover on the claims asserted in this action.”
Offers of Judgment are governed by CR 68. This rule permits a party
defending a claim to make an Offer of Judgment (as a potentially effective part of
the settlement process) at any time more than 10 days before trial. Smith v.
Kentucky State Fair Bd., 816 S.W.2d 911, 912 (Ky. App. 1991). If the offer is not
accepted and the judgment obtained by the offeree is not more favorable, the
offeree must pay the costs incurred by the offeror after the making of the offer. Id.
The offeree is essentially penalized by not being able to recover from the offeror
the costs that could have been avoided by timely accepting the offer. PMF’s Offer
of Judgment argument is not availing primarily because Smith’s total recovery
(including both compensatory and punitive damages and even a modest amount of
attorneys’ fees) exceeded the amount of the highest offer of $17,284.82 made on
April 26, 2021.
We next review the award of attorneys’ fees and costs. Attorneys’
fees are authorized for KCPA violations. KRS 367.220(3). The record reveals a
careful evaluation of the fees claimed, and the evidence supports the amount
awarded. It is a large number, but some of the work resulted from discovery
-31- disputes instigated by PMF. There was no abuse of discretion in the assessment of
attorneys’ fees.
Finally, we look at the limitation of costs by the circuit court. KRS
367.220(3) not only allows attorneys’ fees but also “reasonable costs.” The circuit
court limited Smith’s recovery of costs to taxable costs under CR 54.04.8 Smith
believes costs under the KCPA should be more expansive. We must disagree.
KRS 367.220(3) does not define “reasonable costs.” CR 54.04 is the
established rule on what is recoverable as costs. CR 54.04 is consistent with KRS
452.040. It was appropriate for the circuit court to analyze CR 54.04 in
determining which costs proffered by Smith were “reasonable.” CR 54.04 has
specific limits, which the circuit court imposed here. CR 54.04 is older than KRS
367.220(3). The General Assembly is presumed to know the existing state of the
8 A party entitled to recover costs shall prepare and serve upon the party liable therefor a bill itemizing the costs incurred by him in the action, including filing fees, fees incident to service of process and summoning of witnesses, jury fees, warning order attorney, and guardian ad litem fees, costs of the originals of any depositions (whether taken stenographically or by other than stenographic means), fees for extraordinary services ordered to be paid by the court, and such other costs as are ordinarily recoverable by the successful party. If within five days after such service no exceptions to the bill are served on the prevailing party, the clerk shall endorse on the face of the judgment the total amount of costs recoverable as a part of the judgment. Exceptions shall be heard and resolved by the trial court in the form of a supplemental judgment.
CR 54.04(2).
-32- law when it enacts a statute. Maysey v. Express Services, Inc., 620 S.W.3d 63, 71
(Ky. 2021).
The General Assembly could expand the definition of costs. It has
done so in several contexts. Sometimes the wording is expanded to say, “costs of
litigation” and specifically permits expert witness fees. See KRS 61.797(2); KRS
61.990(4); KRS 350.250(2). The General Assembly did not choose to use such
expansive language in the KCPA. It just says, “reasonable costs.” The circuit
court correctly applied the law as to costs which may be awarded in this case. The
circuit court did not err when limiting Smith’s recovery of costs to taxable costs
under CR 54.04.
CONCLUSION
For the reasons stated, the Fayette Circuit Court is AFFIRMED on
Appeal No. 2023-CA-0200-MR and AFFIRMED in part and REVERSED in part
on Appeal No. 2023-CA-0216-MR. The case is remanded to the Fayette Circuit
Court to reinstate the full amount of the punitive damages awarded.
ALL CONCUR.
-33- BRIEFS FOR APPELLANT/CROSS- BRIEFS AND ORAL ARGUMENT APPELLEE: FOR APPELLEE/CROSS- APPELLANT: Carroll Morris Redford, III Lexington, Kentucky Bradley Douglas Harville Louisville, Kentucky ORAL ARGUMENT FOR APPELLANT/CROSS-APPELLEE:
Carroll Morris Redford, III Lexington, Kentucky
-34-