Opinion
2023-CA-1078-MR
11-15-2024
NATALYA OSYKA; YURIY OSYKA; AND INDUSTRIAL ELECTRONICS, LLC APPELLANTS v. OLEKSANDR MAKAROV APPELLEE
BRIEFS FOR APPELLANTS: Oliver H. Barber, Jr. Louisville, Kentucky BRIEF FOR APPELLEE: James N. Martin, Jr. Louisville, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM JEFFERSON CIRCUIT COURT HONORABLE JENNIFER WILCOX, JUDGE ACTION NO. 18-CI-003180
BRIEFS FOR APPELLANTS:
Oliver H. Barber, Jr. Louisville, Kentucky
BRIEF FOR APPELLEE:
James N. Martin, Jr. Louisville, Kentucky
BEFORE: THOMPSON, CHIEF JUDGE; COMBS AND LAMBERT, JUDGES.
OPINION
LAMBERT, JUDGE
Natalya Osyka, Yuriy Osyka, and Industrial Electronics, LLC (the INDEL parties) seek review of several rulings of the Jefferson Circuit Court related to breach of contract and Kentucky Revised Statutes (KRS) Chapter 337 wage and hour counterclaims brought by Oleksandr Makarov. They argue that Makarov's claims were barred by res judicata and/or collateral estoppel due to a prior settlement in a federal administrative action. We affirm.
For the underlying facts, we shall rely upon the circuit court's succinct recitation in its January 17, 2019, opinion and order:
Ms. Osyka and Mr. Osyka own and operate Industrial Electronics. Mr. Makarov is a Ukrainian national who came to the United States in 2012 as an H-1B employee of Industrial Electronics. In 2016, the Wages and Hour Division of the U.S. Department of Labor issued a Determination Letter finding that Industrial Electronics owed $88,314.55 in back wages to three (3) of its employees, including Mr. Makarov. Industrial Electronics and the Department of Labor resolved the matter by entry of a Final Judgment, in which Industrial Electronics agreed to pay $40,000 in back pay via cashier's check. [Makarov's portion of the settlement amount was $16,566.41.]
Makarov claimed that he had been promised to be paid $54,766.00 per year but only received approximately $35,000.00 per year. Therefore, in 2017, Makarov filed an action against the INDEL parties alleging a claim for breach of contract and unjust enrichment, seeking $35,576.38 in unpaid wages/salary.
This action originated in Jefferson District Court (No. 17-CI-009018) when Natalya filed a complaint against Makarov for repayment of a debt and was later transferred to circuit court after Makarov filed his answer and counterclaims seeking the unpaid wages. Because Natalya's claim has no relevance to this case, we shall not address that claim any further, other than to note that Makarov later stipulated to the amount he owed and that the circuit court awarded her a judgment for that amount. For ease of understanding, we shall refer to Makarov's counterclaims as claims, when appropriate.
In June 2018, the INDEL parties filed a motion for summary judgment based upon collateral estoppel due to the federal Department of Labor administrative action. Makarov objected because he was not a party to that action and because a common law contract claim had not been adjudicated in the administrative action.
On January 17, 2019, the circuit court entered an opinion and order denying the INDEL parties' motion for summary judgment. Addressing the INDEL parties' collateral estoppel argument, the court held that the doctrine did not apply in this case, concluding that "[t]he claims alleged in the instant action were not fully and fairly litigated by Mr. Makarov, nor are they identical to the issues decided in the Department of Labor proceedings." The court found that it was possible for Makarov to prevail at trial and denied the motion for summary judgment.
In a second amended answer and counterclaim filed in November 2019, Makarov added a claim for a violation of Kentucky's wage and hour laws (KRS Chapter 337). He sought $36,576.38 in unpaid wages/salary, punitive damages, interest, liquidated damages under KRS 337.385, and costs and fees. In their answer, the INDEL parties again raised an estoppel defense.
On March 12, 2020, Makarov filed a motion for summary judgment against the INDEL parties on his claims for breach of contract and violation of KRS Chapter 337, and he specifically sought liquidated damages and attorney fees. He claimed that he had been willfully underpaid for his work. The agreed salary was $54,766.00 per year, but he was only paid approximately $35,000.00 per year, meaning that the company breached its oral contract (made during Skype and inperson conversations) and written contract (in a letter dated October 24, 2012, in which his monthly gross salary was listed as approximately $4,500.00).
By opinion and order entered October 2, 2020, the circuit court ruled on Makarov's motion for summary judgment. The court noted that as a result of the Department of Labor administrative action, Makarov received a total of $16,566.41 in back wages. However, the court reiterated that res judicata did not preclude Makarov's state wage and hour suit to recover any remaining wages he was owed. Viewing the record in a light most favorable to the INDEL parties, the court concluded that Makarov was due the amount of $20,009.97 in unpaid wages, and, therefore, there were no genuine issues of material fact to be decided at trial on Makarov's claim for payment of wages under KRS 337.055. However, the court found there were genuine issues of fact with regard to whether the INDEL parties were acting in good faith and with reasonable grounds to believe that they were not violating the law, meaning that they could prevail at trial as to Makarov's claims for liquidated damages and attorney fees. Accordingly, the court granted summary judgment as to Makarov's claim for wages pursuant to KRS 337.055 but denied the motion as to his remaining claims.
After determining that whether Makarov was entitled to liquidated damages and attorney fees was a question for it to decide, the circuit court held a bench trial in June 2023, where it heard testimony from the Osykas and Makarov. The court entered a judgment on July 6, 2023. It found that "[t]he Osykas' belief that they could deliberately disobey a federal immigration document which requires an employer to pay the prevailing local wage is not reasonable and the efforts to pay Mr. Makarov were not done in good faith." Thus, the court found that liquidated damages were "appropriate and necessary," and it based that amount on the unpaid wages Makarov was still owed of $20,000.09.
The court awarded Makarov a judgment for unpaid wages and liquidated damages against the INDEL parties in the amount of $60,000.27 (this amount was lowered to $40,000.18 by an amended judgment entered on July 11, 2023). The court also granted the request for attorney fees, but it permitted the INDEL parties 30 days to respond to the motion and affidavit filed by Makarov's counsel. The court later ordered the INDEL parties to pay $68,117.00 in attorney fees. This appeal now follows.
We agree with Makarov that the INDEL parties' brief does not conform to the Kentucky Rules of Appellate Procedure (RAP). The statement of the case does not include "ample references to the specific location in the record supporting each of the statements contained in the summary" pursuant to RAP 32(A)(3), and the argument does not include "ample references to the specific location in the record" or "at the beginning of the argument a statement with reference to the record showing whether the issue was properly preserved for review and, if so, in what manner" pursuant to RAP 32(A)(4). This is troubling because the record is lengthy and because they quoted from depositions that were not included in the circuit court record. But, because we are affirming, we decline to impose sanctions pursuant to RAP 31(H)(1).
On appeal, the INDEL parties present two arguments. The first is that Makarov's claims in the circuit court action are barred by the doctrines of res judicata and collateral estoppel based upon the settlement in the Department of Labor administrative proceeding. The second is that KRS Chapter 337 is not applicable to Makarov based upon his exempted profession as an electrical engineer.
The INDEL parties' first argument addresses the circuit court's 2019 and 2020 summary judgment rulings, specifically the conclusion that the doctrines of res judicata and collateral estoppel do not bar Makarov's state court action to recover the remainder of his unpaid wages. Our standard of review is as follows:
The standard of review upon appeal of an order granting summary judgment is "whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law." Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996) (citing [Kentucky Rules of Civil Procedure (CR)] 56.03). Upon a motion for summary judgment, all facts and inferences in the record are viewed in a light most favorable to the nonmoving party and "all doubts are to be resolved in his favor." Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 480 (Ky. 1991). Thus, a summary judgment looks only to questions of law, and we review a trial court's decision to grant summary judgment de novo. Brown v. Griffin, 505 S.W.3d 777, 781 (Ky. App. 2016); see also Blackstone Mining Co. v. Travelers Ins. Co., 351 S.W.3d 193, 198 (Ky. 2010), as modified on denial of reh'g (Nov. 23, 2011).Lawson v. Smith, 652 S.W.3d 643, 645 (Ky. App. 2022) (footnote omitted).
Because the INDEL parties only contest whether an affirmative defense applies to bar Makarov's claim, which is a question of law, we shall review this argument de novo. Humber v. Lexington-Fayette Urban County Gov't, 553 S.W.3d 273, 276 (Ky. App. 2018) ("Application of res judicata, being a question of law, is likewise reviewed under the de novo standard.").
In Miller v. Administrative Office of Courts, 361 S.W.3d 867 (Ky. 2011), the Supreme Court of Kentucky extensively addressed the doctrines of res judicata and collateral estoppel. It defined the two doctrines as follows:
Res judicata is also known as claim preclusion. The doctrine prohibits the relitigation of claims that were litigated or could have been litigated between the same parties in a prior action. Issue preclusion, also known as collateral estoppel, is a related doctrine. It allows the use of an earlier judgment by one not a party to the original action to preclude relitigation of matters litigated in the earlier action. Though technically different doctrines, the terms res judicata and collateral estoppel (and claim and issue preclusion) are sometimes used interchangeably.
...
The very purpose of the doctrine of res judicata is to preclude repetitious actions. Harrod v. Irvine, 283 S.W.3d 246, 250 (Ky. App. 2009). Three elements must be met for the rule to apply: (1) there must be an identity of parties between the two actions; (2) there must be an identity of the two causes of action; and (3) the prior action must have been decided on the merits. Id.
...
"[A] close cousin to the doctrine res judicata is the theory of collateral estoppel, or issue preclusion." Moore v. Commonwealth, 954 S.W.2d 317, 318 (Ky. 1997). The doctrine of issue preclusion is properly asserted by "a person who was not a party to the former action nor in privity with such a party." Id. at 319 (quoting Sedley v. City of West Buechel, 461 S.W.2d 556, 559 (Ky. 1970)).... In order for issue preclusion to operate as a bar to further litigation, certain elements must be met: (1) at least one party to be bound in the second case must have been a party in the first case; (2) "the issue in the second case must be the same as the issue in the first case"; (3) "the issue must have been actually litigated"; (4) "the issue was actually decided in that action"; and (5) "the decision on the issue in the prior action must have been necessary to the court's judgment" and adverse to the party to be bound. Yeoman[ v. Commonwealth, Health Policy Bd., 983 S.W.2d 459 (Ky. 1998)]; see also Moore, 954 S.W.2d at 319; Stemler v. Florence, 350 F.3d 578 (6th Cir. 2003).Miller, 361 S.W.3d at 871-72.
We agree with Makarov that the Department of Labor action in no way bars his state court claim by either res judicata or collateral estoppel because the INDEL parties did not establish the elements of either affirmative defense.
First, there is no question that Makarov was not a party to the Department of Labor action, despite the INDEL parties' argument to the contrary. The complainant in that case was the United States Department of Labor, not Makarov or the other two individuals who had worked for INDEL, and Makarov did not sign the settlement agreement. We agree with Makarov's assertion in his brief that a victim in such a case is not bound by a settlement reached by the government: "This is analogous to a county attorney prosecuting a theft crime and settling on a restitution amount with the criminal. The victim receives the restitution payment, but they would not be barred from seeking full compensation for their injuries in a civil lawsuit." Therefore, the INDEL parties cannot establish identity of parties for the res judicata defense. And even under collateral estoppel, Makarov cannot be bound by the Department of Labor action, because the INDEL parties had to establish that "at least one party to be bound in the second case must have been a party in the first case," Miller, supra, which they could not do. Makarov was the "party to be bound" in the circuit court action, and he was not a party to the federal administrative action. Therefore, neither defense applies in the present case to bar Makarov's counterclaims.
And second, the Department of Labor and state court actions did not involve the same causes of action. The state court action involved a common law breach of contract claim and the KRS 337.055 statutory claim, which are not listed as regulatory violations that the Department of Labor is permitted to prosecute regarding H1-B employers. See 20 Code of Federal Regulations (CFR) §655.805(a).
Here, the circuit court first determined that Makarov was entitled to recover his correct wages, less the amount he received from the Department of Labor action, pursuant to KRS 337.055. The question to be resolved in the state court action addressed whether Makarov was entitled to liquidated damages, costs, and attorney fees pursuant to KRS 337.385, which requires the employer to show good faith to defeat such a claim:
"Any employee who leaves or is discharged from his employment shall be paid in full all wages or salary earned by him; not later than the next normal pay period following the date of dismissal or voluntary leaving or fourteen (14) days following such date of dismissal or voluntary leaving whichever last occurs. Any employee who is absent at the time fixed for payment by an employer, or who, for any other reason, is not paid at that time, shall be paid thereafter at any time or upon fourteen (14) days' demand. No employer shall, by any means, secure exemption from this section."
(1) Except as provided in subsection (3) of this section, any employer who pays any employee less than wages and overtime compensation to which such employee is entitled under or by virtue of KRS 337.020 to 337.285 shall be liable to such employee affected for the full amount of such wages and overtime compensation, less any amount actually paid to such employee by the employer, for an additional equal amount as liquidated damages, and for costs and such reasonable attorney's fees as may be allowed by the court.
(2) If, in any action commenced to recover such unpaid wages or liquidated damages, the employer shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he or she had reasonable grounds for believing that his or her act or omission was not a violation of KRS 337.020 to 337.285, the court may, in its sound discretion, award no liquidated damages, or award any amount thereof not to exceed the amount specified in this section. Any agreement between such employee and the employer to work for less than the applicable wage rate shall be no defense to such action. Such action may be maintained in any court of competent jurisdiction by any one (1) or
more employees for and in behalf of himself, herself, or themselves.
This statutory state claim is not a consideration in federal wage and hour actions regarding H1-B employees, and whether Makarov was entitled to liquidated damages and attorney fees was only an issue in the state court action.
For these reasons, we find no error in the circuit court's decision that Makarov's claims were not barred by res judicata or collateral estoppel. And while the INDEL parties have not raised this issue, we also agree with Makarov that the circuit court did not err when it found that the INDEL parties did not establish good faith and, therefore, awarded liquidated damages and attorney fees in proper amounts.
In their second argument, the INDEL parties assert that Makarov's profession as an electrical engineer is not covered under KRS Chapter 337. KRS 337.010(2)(a)2. exempts from the definition of "employee" for purposes of the Chapter "[a]ny individual employed in a bona fide executive, administrative, supervisory, or professional capacity, or in the capacity of outside salesman, or as an outside collector as the terms are defined by administrative regulations of the commissioner[.]" Because Makarov was a professional worker, they argue, he does not come under the definition of employee.
Unfortunately, the INDEL parties did not raise this issue before the circuit court or in their prehearing statement. Rather, they raised this issue for the first time in their appellate brief. RAP 22(C)(2) mandates that "[a] party shall be limited on appeal to issues identified in the prehearing statement, except that upon a timely motion demonstrating good cause, the Court of Appeals may permit additional issues to be raised." And the Courts of this Commonwealth have long held that "a party is not entitled to raise an error on appeal if he has not called the error to the attention of the trial court and given that court an opportunity to correct it." Little v. Whitehouse, 384 S.W.2d 503, 504 (Ky. 1964).
We have long endorsed a rule that "specific grounds not raised before the trial court, but raised for the first time on appeal will not support a favorable ruling on appeal." When a trial court never has the opportunity to rule on a legal question presented to an appellate court, an appellant presents a different case to the appellate court than the one decided by the trial court. Indeed, an appellate court is "without authority to review issues not raised in or decided by the trial court." The proper role for an appellate court is to review for error - and there can be no error when the issue has not been presented to the trial court for decision.Norton Healthcare, Inc. v. Deng, 487 S.W.3d 846, 852 (Ky. 2016) (citations in footnotes omitted). Accordingly, we decline to review this issue.
For the foregoing reasons, the judgments of the Jefferson Circuit Court are affirmed.
ALL CONCUR.