Opinion
NO. 2012-CA-000962-MR
04-05-2013
DANNY GIBSON APPELLANT v. READY MIX CONCRETE APPELLEE
BRIEFS FOR APPELLANT: Michael S. Vitale David W. Anderson Bowling Green, Kentucky ORAL ARGUMENT FOR APPELLANT: Michael S. Vitale Bowling Green, Kentucky BRIEF FOR APPELLEE: John T. Mandt Somerset, Kentucky ORAL ARGUMENT FOR APPELLEE: Leila O'Carra Lexington, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM PULASKI CIRCUIT COURT
HONORABLE DAVID A. TAPP, JUDGE
ACTION NO. 09-CI-00085
OPINION
AFFIRMING
BEFORE: ACREE, CHIEF JUDGE; COMBS AND STUMBO, JUDGES. STUMBO, JUDGE: Danny Gibson appeals from Findings of Fact, Conclusions of Law and Judgment of the Pulaski Circuit Court in an action initiated by Ready Mix Concrete of Somerset, Inc., to recover the cost of concrete it provided for a construction project. Gibson contends that the trial court erred in concluding that 1) the concrete was purchased by a partnership by estoppel consisting of Gibson and John Lanham, and that 2) Gibson is liable for the cost of the concrete under the doctrine of promoter liability. We find no error, and accordingly affirm the Judgment on appeal.
Appellee Ready Mix is a Kentucky corporation engaged in the business of producing and supplying pre-mixed concrete for residential and commercial construction. Appellant Danny Gibson is a former employee of Ready Mix, whose job responsibilities centered on sales.
Somerset Motorsports, Inc., was a Kentucky corporation engaged in the business of selling and servicing all-terrain vehicles ("ATVs") and motorcycles. John Lanham is a former employee of Somerset Motorsports, who purchased the business in or around December, 2003.
When profits at Somerset Motorsports began declining in or around 2008, Lanham and Gibson entered into discussions relating to a new business plan for Somerset Motorsports, which included increasing the physical facility, constructing a retaining wall and motorcycle track, and expanding the parking lot. Lanham and Gibson also discussed entering into a venture to purchase the assets of a Honda and Suzuki franchisee called Hart Motorsports. Lanham would later testify that he and Gibson agreed to be partners in the business, with Lanham contributing his ongoing business including land, building and inventory, and Gibson providing the improvements.
At the same time, Lanham and Gibson entered into a written agreement to form a new corporate entity to operate the business venture. The new entity was to be called Somerset Motorsports Complex, LLC, but it was never incorporated. As part of the new business plan, Gibson contracted with his former employer, Ready Mix, for Ready Mix to provide concrete for the new training track, parking lot, building expansion and retaining wall. The record reveals that Gibson told Ready Mix Vice President Al Newell that Gibson and Lanham were entering into a partnership, with Gibson acquiring 51% of the new corporate entity. Newell, who also had a personal relationship with Gibson, later testified that Ready Mix agreed to contract with the new entity and/or Gibson only because of Gibson's involvement in the project. Newell would state that he knew Lanham had a declining financial situation and had "already expended all his credit."
Gibson later purchased the needed concrete from Ready Mix, which opened and maintained an account in Gibson's name. Gibson also contacted other vendors and service providers as the facility was being improved, and was almost always present on site as the main negotiator in discussions with contractors. Larry Stringer of Stringer Brothers Concrete would state that Lanham "left everything to Danny", and Stringer "took it Danny Gibson owned Somerset Motorsports." Both Lanham and Gibson made representations to others that they were forming a partnership.
On September 15, 2008, Gibson paid in full the amount of $12,558.53 to Ready Mix for concrete utilized in the retaining wall. Gibson later stated that he informed Ready Mix Vice President Newell that he (Gibson) was "done" paying for work on Somerset Motorsports' property. Newell denied that this conversation occurred. After Somerset Motorsports acquired the inventory of Hart Motorsports, the new corporate entity was never formed and Lanham remained the sole shareholder of Somerset Motorsports.
Ready Mix continued to provide services and issue invoices to Somerset Motorsports until October 2008. Ready Mix issued a final statement on November 19, 2008, reflecting an outstanding balance of $59,279.45. Lanham filed a petition for individual bankruptcy in December, 2008, and Somerset Motorsports filed for bankruptcy the following month.
Ready Mix then filed the instant action seeking recovery from Gibson for the outstanding balance of $59,279.45. At the bench trial which followed, the court characterized the issue as whether Gibson should be responsible for the improvements at Somerset Motorsports. It found that the resolution of this issue turned on whether Gibson and Lanham formed a partnership. Gibson argued that since he never entered into a formal partnership or similar arrangement with Somerset Motorsports, and because no new corporate entity was formed by the Secretary of State, he was not liable for the debts of Somerset Motorsports.
In considering this issue, the court determined that Lanham and Gibson entered into a partnership. In reaching this conclusion, the court looked to all of the circumstances related to the new venture, including the testimony of the parties and Gibson's representations to Ready Mix and others. The court also relied in part on KRS 362.1-308(1) for the proposition that a person who represents himself as a partner and induces others to act in reliance on that representation is liable for the obligations of the partnership. The court considered the parties' intent to create a partnership, the intent to share profits and other factors in concluding that a partnership existed, that Gibson represented himself as a partner and that Ready Mix acted in reliance on these factors. Ultimately, the court determined that Lanham and Gibson had formed a partnership, and that they were individually and jointly liable for the debts incurred by the partnership; therefore, Ready Mix was entitled to the relief sought. This appeal followed.
Gibson now argues that the Pulaski Circuit Court erred in rendering a Judgment in favor of Ready Mix. He first argues that the court erred in applying the doctrine of partnership by estoppel to the instant facts. Gibson contends that during the course of business with Ready Mix, he stated to Ready Mix salesman Donnie Moore that he denied responsibility for the concrete in question before it was purchased, and stated that the concrete was to be billed to Somerset Motorsports. Gibson maintains that Moore is an agent of Ready Mix, and contends that notice to an agent of one's intent to withdraw from a purported partnership is the functional analog of notice to the principal. Gibson argues that his notice to Moore of Gibson's intent to withdraw from the purported partnership served to place Ready Mix on notice that Gibson was not financially responsible for the project, and that this became effective before any concrete was delivered or billed. Gibson asserts that since Ready Mix, through its agent Moore, knew before the concrete was sold that Gibson disclaimed any liability for it, Ready Mix is not entitled to assert a partnership by estoppel claim against Gibson with respect to the concrete at issue.
Gibson directs our attention to Fluke Corp. v. LeMaster, 306 S.W.3d 55 (Ky. 2010), and Greater Harrodsburg/Mercer County Planning & Zoning Commission v. Romero, 250 S.W.3d 355 (Ky. App. 2008), for the proposition that a party claiming estoppel must prove 1) lack of knowledge and of the means of knowledge as to the facts in question; 2) good faith reliance on the conduct or statements of the party to be estopped; 3) and, a detrimental change in position or status by the party claiming estoppel due to such reliance. Gibson contends that Ready Mix cannot claim estoppel because it knew the true facts, to wit, that Gibson had disavowed any financial responsibility for the cost of the concrete prior to Ready Mix supplying it. Haag v. Northwestern Mut. Life Ins. Co., 297 Ky. 132, 179 S.W.2d 215, 219 (1944) ("We have repeatedly held that no one can claim an estoppel where he himself knows the true facts.")
At issue, then, is whether the Pulaski Circuit Court properly determined that Ready Mix proved the elements of estoppel in its claim that Gibson held himself out as a partner of the new venture and that Ready Mix relied to its detriment on that representation. We must answer this question in the affirmative. The record contains documentary and testimonial evidence - although some is controverted - that Gibson told Ready Mix Vice President Newell that Gibson was forming a partnership with Lanham, that Gibson conducted business with Newell and other vendors as a partner, and that Lanham and Gibson went so far as to gain approval from the Secretary of State for the name of the new corporate entity. The record shows that Gibson had an office on site at Somerset Motorsports from which he conducted business, and that he executed an "Agreement" with Lanham to form the new entity, which was witnessed by Angela Evans on or around October 10, 2008, and that Gibson's name appears as an "organizer" on the Articles of Organization filed with the Kentucky Secretary of State. As to Gibson's claim that he told Ready Mix's agent that he was not financially responsible for the concrete before it was ordered, the trial court found "this testimony not to be credible based upon an assessment of the totality of the evidence."
The distinction between a partnership and a partnership by estoppel is somewhat blurred in the instant case. On one hand, the Pulaski Circuit Court ruled that the totality of the record demonstrated that Gibson and Lanham both intended to and did form an actual partnership, which was never incorporated. At the same time, principles of partnership by estoppel (i.e., an apparent but not actual partnership) are woven into this analysis, in that the trial court looked to Gibson's representations to Ready Mix and Ready Mix's detrimental reliance thereon. Though the circuit court found an actual partnership to have been formed, we will examine the elements of partnership by estoppel to the extent that they are woven into the circuit court's analysis, and because Gibson's primary claim of error centers on the theory of partnership by estoppel even though the circuit court found the existence of an actual partnership.
Lastly, the record reveals that even if Gibson did tell Ready Mix's agent that he would not be individually liable for any additional concrete, he continued to accept concrete deliveries from Ready Mix. The only other entity which could have been financially responsible for the concrete was the partnership - which Gibson claims never existed. We cannot characterize as credible Gibson's apparent claim that Ready Mix continued pouring concrete with the knowledge that Gibson had disclaimed personal financial responsibility and with the knowledge that there was no real or apparent partnership to foot the bill.
On the questions of law presented, Gibson correctly asserts that our review is de novo. Western Kentucky Coca-Cola Bottling Co., Inc. v. Revenue Cabinet, 80 S.W.3d 787 (Ky. App. 2001). However, we review the trial court's findings as to the weight and credibility of the evidence for clear error and will not set aside those findings unless they are clearly erroneous. CR 52.01; Reichle v. Reichle, 719 S.W.2d 442 (Ky. 1986). The Pulaski Circuit Court correctly applied the law on this issue, and the findings of fact it applied to those principles of law are not clearly erroneous; therefore, we find no error on this issue.
Gibson also argues that the trial court erred by applying the rule of promoter liability to support the Judgment in favor of Ready Mix. He maintains that the doctrine of promoter liability, which appears to hold that persons incur liability where they transact business in the name of a purported corporation, or one whose formation was never completed, Stearns Coal & Lumber Co. v. Douglas, 299 Ky. 314, 185 S.W.2d 385 (Ky. 1945), has been superceded by KRS 271B.2-040. That statute provides that persons purporting to act on behalf of a corporation shall be jointly and severally liable for all liabilities created while so acting. Gibson contends that there was no testimony at trial suggesting that he or anyone else represented to any employee of Ready Mix that the concrete was being purchased by a yet-to-be formed corporation as required for the application of KRS 271B.2-040. He maintains that the circuit court erred in pointing to Stearns, supra, to support the Judgment.
We have closely examined this contention and find no error. In its Findings of Fact, Conclusions of Law and Judgment, the Pulaski Circuit Court made a passing reference to Stearns, supra, which consisted of a single sentence and concluding sentence, and it never addressed by name the apparent doctrine of promoter liability. The court's reference to Stearns merely served to bolster its thesis that Gibson held himself out as a partner with Lanham and therefore was subject to the foreseeable consequences of that representation. We find no error.
Findings of Fact, Conclusions of Law and Judgment at pp. 29-30.
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Finally, Gibson argues that the circuit court abused its discretion in awarding prejudgment and postjudgment interest. He notes that under Kentucky law, prejudgment interest should be allowed as a matter of right only on liquidated damages, and is a matter within the discretion of the trial court on unliquidated damages. 3D Enterprises Contracting Corp. v. Louisville and Jefferson County Metropolitan Sewer District, 174 S.W.3d 440 (Ky. 2005). He contends that Ready Mix's claim did not support an award of liquidated damages, that prejudgment interest is not mandatory or appropriate in this instance, and that the circuit court erred in failing to so rule. We find no error on this issue. Even if "Ready Mix's claim was plainly unliquidated" as Gibson contends, the award of prejudgment interest was discretionary, and we find no basis for concluding that the trial court abused its discretion herein. As to the award of postjudgment interest, Gibson acknowledges that such an award is discretionary, KRS 360.040, and we again have no basis for finding an abuse of discretion. The trial court's award of 12% postjudgment interest comports with KRS 360.040, and we find no error.
For the foregoing reasons, we affirm the Findings of Fact, Conclusions of Law and Judgment of the Pulaski Circuit Court.
ALL CONCUR. BRIEFS FOR APPELLANT: Michael S. Vitale
David W. Anderson
Bowling Green, Kentucky
ORAL ARGUMENT FOR
APPELLANT:
Michael S. Vitale
Bowling Green, Kentucky
BRIEF FOR APPELLEE: John T. Mandt
Somerset, Kentucky
ORAL ARGUMENT FOR
APPELLEE:
Leila O'Carra
Lexington, Kentucky