QUADRILLE BUSINESS SYSTEMS v. KENTUCKY CATTLEMEN'S ASSOCIATION, INC.
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RENDERED: DECEMBER 28, 2007; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2005-CA-002621-MR
AND
NO. 2006-CA-000009-MR
QUADRILLE BUSINESS SYSTEMS
v.
APPELLANT/CROSS-APPELLEE
APPEAL AND CROSS-APPEAL FROM OLDHAM CIRCUIT COURT
HONORABLE KAREN A. CONRAD, JUDGE
ACTION NO. 02-CI-00301
KENTUCKY CATTLEMEN'S
ASSOCIATION, INC.
APPELLEE/CROSS-APPELLANT
OPINION
AFFIRMING IN PART AND
REVERSING IN PART
** ** ** ** **
BEFORE: MOORE AND THOMPSON, JUDGES; GRAVES,1 SENIOR JUDGE.
THOMPSON, JUDGE: Quadrille Business Systems (Quadrille) filed this action against
the Kentucky Cattlemen's Association (Cattlemen's) for alleged breach of contract, breach
of good faith and fair dealing, and fiduciary duty. The Oldham Circuit Court granted
Cattlemen's motion for summary judgment on all claims asserted but permitted Quadrille
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Senior Judge John W. Graves sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and KRS 21.580.
to submit a claim for quantum meruit to the jury. The jury returned a verdict for
$22,093.50 in favor of Quadrille.
Quadrille contends that: (1) the terms of the contract are definite and
certain; (2) the damages caused by the breach are certain and substantial; (3) it did not
waive the alleged breach; (4) Cattlemen's breached a duty of good faith and fair dealing
owed to Quadrille; (5) Cattlemen's breached its fiduciary duty owed to Quadrille; (6) the
statute of frauds does not preclude the enforcement of the contract between the parties;
and (7) the trial court erroneously instructed the jury on quantum meruit. Cattlemen's
complains that the jury's verdict was palpably and flagrantly against the evidence. We
affirm the summary judgment but hold that the trial court erroneously denied Cattlemen's
motion for directed verdict on the quantum meruit claim.
Cattlemen's is a non-profit organization whose members are Kentucky cattle
farmers and is comprised of 92 volunteer chapters with members in all 120 Kentucky
counties. It provides continuing education to farmers, facilitates communication between
cattle farmers and oversees education programs for young people with an interest in
agriculture. To further its purposes, in 1999, Cattlemen's began preparation of a grant
proposal to submit to the Kentucky Agricultural Development Board (Board).2 Upon
receipt of the grant, Cattlemen's planned to establish the Kentucky Beef Network to
coordinate the education and marketing efforts of Kentucky's beef producers.
2
The Board was formed to disburse funds received from the settlement of the tobacco company
litigation to assist Kentucky tobacco farmers develop alternative agricultural interests.
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In 2000, Greg Schoettmer, Mike Carlson, and Fred Speyerer learned that
the Board was established to distribute tobacco settlement money. The three
entrepreneurs established Quadrille, and Schoettmer began developing a proposal to the
Board seeking money to establish and administer a cattle cooperative and a computer
tracking system to track Kentucky cattle from birth through slaughter. The three owners
had no prior experience in the business they proposed and, as a for-profit company, the
Board would require Quadrille to contribute a dollar-for-dollar match for any grant
received. In contrast, a non-profit organization was not required to contribute any funds.
Thus, in the summer of 2000, Quadrille approached Cattlemen's to establish a business
relationship to jointly apply for a grant from the Board.
After numerous meetings, in February 2001, the parties again met. At this
time, Quadrille contends that it and Cattlemen's entered into an oral agreement to proceed
together to solicit funds from the Board. It recites the terms of the alleged contract as
follows:
1. QBS (Quadrille) and the KCA (Cattlemen's) would
cease their independent efforts to obtain funds from the
Board and work together “as a team” to obtain funds
from the Board.
2. QBS would be in charge of the “business and
technology” efforts to include all efforts related to the
cooperative and the “computer system.”
3. QBS would be in charge of the business plan and
proposal that would be submitted to the Board.
4. The KCA would be responsible for the “cow side of
things” to include the Kentucky Beef Network.
5. As a non-profit organization, the KCA would initially
receive the funds granted by the KADB(Board) and
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forward those funds allocated to the line items
associated with the “computer system” and producers'
cooperative to QBS.
Cattlemen's denies that there was such an agreement; however, with an approaching
deadline of March 1, 2001, to submit the proposal, it admits that Cattlemen's and
Quadrille agreed to merge their proposals.
Because of his business expertise, Schoettmer drafted the proposal which
included a funding request for the Kentucky Beef Network as well as funding for the
computer tracking system and the cooperative that Quadrille would manage.
Additionally, the plan requested a grant of $1,100,000 to reopen the Dawson-Baker
packing plant in Louisville and $1,000,000 for the Kentucky Forage and Grassland's
Council. It set forth a five year-plan, the first phase of which was the establishment of the
Kentucky Beef Network to be absorbed by the cooperative within three years. The entire
funding request for the proposal totaled $10,919,672.30.
After the proposal was submitted, Cattlemen's representatives, John
Stevenson and Charlie Miller, met with the Board's representatives, including Gordon
Duke. After the meeting, Stevenson called Schoettmer and told him that Duke had stated
that the funds would not be granted without the deletion of all proposals except that
pertaining to the Kentucky Beef Network. In response, Schoettmer told Stevenson to do
whatever Duke instructed, but that he would not work on the revision of the proposal.
Schoettmer testified that he subsequently learned that Duke did not expressly state that
only the Kentucky Beef Network was acceptable in the proposal.
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The proposal was rewritten by Cattlemen's and it obtained $1,811,000 for
the establishment of the Kentucky Beef Network.
Quadrille filed this action alleging that Cattlemen's breached its contract, its
duty to act in good faith and deal fairly, and its fiduciary duty when it removed the
request for funding for the cooperative and computer tracking system from its proposal to
the Board. As a result, it sought $1,811,000 in damages representing the amount received
by Cattlemen's and additional damages of $400,000. The trial court granted Cattlemen's
motion for summary judgment on all of Quadrille's claims. However, it ruled that
Quadrille could proceed to trial on a claim for quantum meruit recovery.
Cattlemen's denies that it entered into a binding contract with Quadrille for
either Schoettmer's work on the proposal or for the use of the grant funds. Instead, it
contends that Schoettmer rendered his services in exchange for the opportunity to
bootstrap Quadrille's grant request to that of Cattlemen's. It is further contended that even
if Quadrille is correct as to the content of the the parties' conversation in February 2001,
the terms of the alleged contract are so indefinite that it cannot constitute a legally
enforceable contract. We agree.
In Lewis v. B & R Corporation, 56 S.W.3d 432, 436 (Ky.App. 2001), this
court addressed the proper standard of review in appeals from summary judgments:
The standard of review on appeal when a trial court grants a
motion for 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. The trial court must view the
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evidence in the light most favorable to the nonmoving party,
and summary judgment should be granted only if it appears
impossible that the nonmoving party will be able to produce
evidence at trial warranting a judgment in his favor. The
moving party bears the initial burden of showing that no
genuine issue of material fact exists, and then the burden
shifts to the party opposing summary judgment to present at
least some affirmative evidence showing that there is a
genuine issue of material fact for trial. The trial court must
examine the evidence, not to decide any issue of fact, but to
discover if a real issue exists. (internal citations and
quotations omitted).
We have examined the record and conclude that the trial court properly granted summary
judgment.
To be legally enforceable, an agreement must “contain definite and certain
terms setting forth promises of performance to be rendered by each party.” Kovacs v.
Freeman, 957 S.W.2d 251, 254 (Ky. 1997). As the court in Auto Channel Inc. v.
Speedvision Network LLC, 144 F.Supp.2d 784, 790 (W. D. Ky. 2001) stated:
In Kentucky, Plaintiffs must show that an actual agreement
existed between the parties with clear and convincing
evidence. Industrial Equip. Co. v. Emerson Elec. Co., 554
F.2d 276, 288 (6th Cir. 1977). While the agreement need not
cover every conceivable term of the relationship, it must set
forth the “essential terms” of the deal.
Schoettmer's description of the alleged contract's terms demonstrates its
lack of specificity and definiteness. He admitted that there was no agreement as to the
compensation for his work on the proposal and, in fact, rejected any payment stating that
his interest was in developing a business from the funds received. However, he was well
aware that no funds would be received if the grant was denied. Moreover, if as Quadrille
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suggests, the parties contemplated a multi-million dollar grant from which each would
fund their efforts, the alleged contract omits crucial terms. Notably absent are terms as to
when and how the money would be distributed to the respective parties, the specific
responsibilities of each party, and the organizational structure of the proposed businesses.
A sound reason for the requirement that the terms of a contract be clear and
definite is so that the court can measure the damages in the event of its breach. Kovacs,
957 S.W.2d at 254. Again, Schoettmer's testimony is the most damaging to Quadrille's
claim. When asked if Schoettmer would admit that it was speculation that Quadrille
would have been awarded the $1,800,000 he replied: “As much as it's speculation for
them to say I wouldn't have been. I agree that both sides are speculative.” There is no
testimony from any Board member indicating that but for Cattlemen's action, Quadrille
would have been awarded the grant. Moreover, there is no evidence as to the profit to be
made by Quadrille from any funds which may have been awarded. In summary, the
amount of damages would be based on nothing more than speculation and conjecture.
Because we find there was no enforceable contract, we do not address the
statute of frauds issue or whether Quadrille waived any right to insist that the cooperative
and computer tracking system remain in the proposal. Because there is no contract,
Quadrille's claim that Cattlemen's breached a duty of good faith and fair dealing requires
little discussion. Under Kentucky law, in the absence of an underlying contract, no
covenant of good faith and fair dealing arises. Auto Channel, 144 F.Supp.2d at 791.
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Quadrille cannot maintain a claim based on breach of a fiduciary duty. A
fiduciary relationship is “founded on trust or confidence reposed by one person in the
integrity and fidelity of another and which also necessarily involves an undertaking in
which a duty is created in one person to act primarily for another's benefit in matters
connected with such undertaking.” Steelvest Inc. v. Scansteel Service Center, Inc., 807
S.W.2d 476, 485 (Ky. 1991). An ordinary business relationship or an agreement reached
through arm's length transactions “cannot be turned into a fiduciary one absent factors of
mutual knowledge of confidentiality or the undue exercise of power or influence.”
Anchor v. O'Toole, 94 F.3d 1014, 1024 (6th Cir. 1996). The relationship between
Quadrille and Cattlemen's was not one where either party owed a fiduciary relationship to
the other. Again, we need review only Schoettmer's testimony to reach our conclusion.
When asked if there was any relationship between the parties other than the alleged
agreement, Schoettmer responded “no,” and he testified that his claim that there was a
fiduciary duty arose solely from the alleged agreement. Such an allegation cannot sustain
an action for breach of a fiduciary duty. Id.
We now turn to the issues raised by both parties concerning the jury's
verdict on Quadrille's quantum meruit claim. Because we agree with Cattlemen's that the
trial court erred when it denied its motion for a directed verdict, we do not address
Quadrille's complaint regarding the jury instructions.
The standard of review of a denial of a motion for directed verdict is as
follows:
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Upon review of the evidence supporting a judgment entered
upon a jury verdict, the role of an appellate court is limited to
determining whether the trial court erred in failing to grant the
motion for directed verdict. All evidence which favors the
prevailing party must be taken as true and the reviewing court
is not at liberty to determine credibility or the weight which
should be given to the evidence, these being functions
reserved to the trier of fact. The prevailing party is entitled to
all reasonable inferences which may be drawn from the
evidence. Upon completion of such an evidentiary review,
the appellate court must determine whether the verdict
rendered is palpably or flagrantly against the evidence so as to
indicate that it was reached as a result of passion or prejudice.
Brooks v. Lexington-Fayette Urban County Housing Authority, 132 S.W.3d 790, 797-98
(Ky. 2004) (internal quotation marks and citations omitted).
We have reviewed the record and have drawn all reasonable inferences from the evidence
in Quadrille's favor. Having done so, we can reach no conclusion other than that directed
verdict should have been granted and reverse.
Recovery under the theory of quantum meruit can be had regardless of the
absence of an enforceable contract. Baker v. Shapero, 203 S.W.3d 697 (Ky. 2006).
A contract implied by law allows for recovery quantum
meruit for another's unjust enrichment. It is not based upon a
contract but a legal fiction invented to permit recovery where
the law of natural justice says there should be a recovery as if
promises were made. The courts supply the fiction of the
promise to permit the recovery. Furthermore recovery
quantum meruit may be had irrespective of the intentions of
the parties, and sometimes even in violation of them.
Perkins v. Daugherty, 722 S.W.2d 907, 909 (Ky.App. 1987) (citations omitted).
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However, merely because work was performed that benefited another does not
necessarily warrant recovery.
The party proceeding under a quantum meruit theory must establish the
following elements:
1. that valuable services were rendered, or materials
furnished;
2. to the person from whom recovery is sought;
3. which services were accepted by that person, or at
least were received by that person, or were rendered
with the knowledge and consent of that person; and
4. under such circumstances as reasonably notified the
person that the plaintiff expected to be paid by that
person.
66 Am.Jur.2d Restitution and Implied Contracts §38 (2001).
Cattlemen's contends that because Quadrille did not perform the work on
the proposal with the expectation of a cash payment but did so in pursuit of its own
business interest, it cannot recover under a quantum meruit theory. Specifically,
Cattlemen's points to Schoettmer's trial testimony which, it contends, entitled it to a
directed verdict. Schoettmer testified as follows:
Question: You didn't keep any time records because you
didn't think you'd be billing by the hour, correct?
Schoettmer: That's correct.
Question: And if you didn't think you were being billed by
the hour, certainly the Kentucky Cattlemen's Association
never thought they would be getting billed by the hour?
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Schoettmer: I can't imagine that they would. But I can't
speak for them.
Question: Well, in fact, you even told them-they even asked
you if you would consider working by the hour to do this
project? Is that correct?
Schoettmer: That's correct.
Question: You said no, you didn't want to be paid by the
hour?
Schoettmer: That is correct.
Question: You wanted to get your proposals funded?
Schoettmer: That's correct.
Question: You wanted to get your company going. Correct?
Schoettmer: That is correct.
In Corbin's Ex'rs v. Corbin, 302 Ky. 208, 213, 194 S.W.2d 65, 68 (1946),
the court held that where the services rendered benefited both parties, there can be no
recovery under the quantum meruit doctrine because services performed for the mutual
benefit of both parties are ordinarily done without the expectation of payment. Our
Supreme Court has also recognized that while quantum meruit remains a theory for
recovery, because of the structure and complexity of modern industrial society, it is not
viable in all situations. Bishop v. American States Life Insurance, 635 S.W.2d 313 (Ky.
1982). The theory is not applicable, for instance, to insurance and real estate sales where
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the work performed is done in anticipation of a future benefit and not a direct cash
payment. Id. at 315.
We believe the holdings in Corbin's Ex'rs and Bishop are entirely consistent
with the general rule as cited in 66 Am.Jur.2d Restitution and Implied Contracts §47
(2001):
Where no compensation is agreed upon in advance for
services requested by and performed for another, the
presumption that compensation was intended is rebutted by
circumstances which negative such an intention, and one of
such circumstances is a strong self-interest in the outcome of
the transaction by the person furnishing the services. Thus,
the expectation of a future business advantage or opportunity
cannot form the basis of a quantum meruit claim; a company
cannot recover for the alleged services it renders in submitting
a program to a second company where it is conclusively
established as a matter of law that the alleged services were
preliminary services performed without any thought of direct
cash compensation but with a view to obtaining business
through a hoped-for contract.
The inference of a promise to pay for services is also
negatived where the circumstances or conduct warrant a
contrary inference or the person benefited has said or done
nothing from which such a promise may be inferred, or
where, at the time the services were rendered, it was intended,
understood, or agreed that no payment should be made for
them,or where the services were performed without authority,
express or inferred. (footnotes omitted).
Both state and federal courts which have had the opportunity to address quantum meruit
in the context of work performed in the pursuit of a business advantage have consistently
agreed with the recited rule.
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In a case of first impression in Texas, the court in Peko Oil USA v. Evans,
800 S.W.2d 572 (Tex. App. 1990), thoroughly examined case law from those jurisdictions
which had considered the question and provided an informative review of the courts'
decisions. Ultimately, the Texas court adopted the general rule that there can be no
recovery for services performed without thought of a direct cash payment nor for those
performed to obtain a future business contract. Id. at 577.
[N]o recovery can be had for the alleged services as a matter
of law. We reach these conclusions because it is elementary
in the law governing quantum meruit recovery for work and
labor that no recovery may be had for services performed,
without thought of direct cash compensation, for business
reasons. Maple Island Farm, 209 F.2d at 871-72. Moreover,
no recovery can be had for preliminary services that are
performed with a view to obtaining business through a hoped
for contract. Maple Island Farm, 209 F.2d at 871-72. See
also Dunn v. Phoenix Village, Inc., 213 F.Supp. 936, 952-54
(W.D.Ark. 1963) (where plaintiff's chief purpose in obtaining
loan commitments was to place himself in a favorable
position to write insurance that might be required by the
lenders); Gould v. American Water Works Serv. Co., 226, 245
A.2d 14, 16-27 (1968)(where plaintiff dug water wells in the
hope that he could negotiate a favorable rate of the well or
property to defendants who owned adjacent lands); Anderson
v. Distler, 173 Misc. 261, 17 N.Y.S.2d 674, 678 (1940)(where
plaintiff furnished information to defendant with intent of
receiving other business).
Id. at 578.
Similar to the present case, in Cherokee Oil Co. Ltd. v. Union Oil Co. of
California, 706 F.Supp. 826 (M.D.Fla. 1989), the court reiterated the general rule that
quantum meruit is available where the parties understand and intend that compensation is
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to be paid. Id. at 830. However, the plaintiff testified that when he provided expert and
consultation services to the defendant he did not intend paid compensation but performed
the services in hopes of obtaining an exclusive agency contract. The court held that the
plaintiff's testimony, as a matter of law, precluded the recovery sought. Id.
As in Cherokee Oil Company, Ltd., the intent and understanding of the
parties was that the work was not performed with expectation of payment. Schoettmer's
testimony was unequivocal that his work on the proposal was in hopes of obtaining the
grant money to begin his business and that he specifically rejected Cattlemen's offer of
payment on an hourly basis. Under the circumstances, we conclude that the trial court
erred when it denied Cattlemen's motion for a directed verdict.
The trial court's summary judgment on the issues of breach of contract,
good faith and fair dealing, and breach of fiduciary duty is affirmed. The judgment
awarding Quadrille damages on the claim of quantum meruit is reversed.
ALL CONCUR.
BRIEFS FOR APPELLANT/CROSSAPPELLEE:
BRIEFS FOR APPELLEE/CROSSAPPELLANT:
D. Berry Baxter
LaGrange, Kentucky
Christopher W. Brooker
Gregory S. Berman
Deborah H. Patterson
Louisville, Kentucky
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