JAVIER STEEL CORPORATION VS. CENTRAL BRIDGE COMPANY, LLC.
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RENDERED: JANUARY 14, 2011; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2009-CA-002124-MR
JAVIER STEEL CORPORATION
v.
APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE BARRY WILLETT, JUDGE
ACTION NO. 04-CI-002500
CENTRAL BRIDGE COMPANY, LLC.
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: ACREE, JUDGE; HENRY AND ISAAC,1 SENIOR JUDGES.
ACREE, JUDGE:
The appellant, Javier Steel Corporation (Javier), appeals
from the judgment of the Jefferson Circuit Court which found Javier was unjustly
1
Senior Judges Michael L. Henry and Sheila R. Isaac sitting as Special Judges by assignment of
the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky
revised Statutes (KRS) 21.580. Senior Judge Henry concurred in this opinion prior to the
expiration of his term of senior judge service. Release of the opinion was delayed by
administrative handling.
enriched when appellee, Central Bridge Company, LLC (CBC), overpaid Javier;
Javier was ordered to reimburse $402,423.26 to CBC. We affirm.
Facts
CBC is a bridge and road construction contractor and Javier is a steel
subcontractor. Between 1999 and 2002, pursuant to highway contracts funded by
the federal and state governments, CBC contracted with Javier to provide materials
and labor for road works projects throughout the Commonwealth. The agreements
at issue provided that Javier would provide labor and materials at each of seven
locations and that CBC would pay Javier as follows:
Contract #1(Madison Co.) – $653,226.77
Contract #2 (Scott Co.) – $136,003.40
Contract #3 (Boone Co.) – $370,440.40
Contract #4 (Lexington-Covington Road) – $117,683.12
Contract #5 (Henry Clay Blvd.) – $107,802.73
Contract #6 (Paris-Covington Rd.) – $234,601.37
Contract #7 (Lexington-Catlettsburg Rd.) – $391,809.88
These seven contracts allowed for alternative methods of assuring payment to
third-party materials vendors. When Javier procured materials from third-party
vendors, it was supposed to pay third-party vendors out of the amounts received
under the contracts from CBC. Alternatively, the contracts authorized CBC to
make arrangements with third-party vendors and pay them for the materials
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directly. If CBC paid vendors directly for materials, it was entitled to reduce the
payments made to Javier by the amount paid to the third-party vendors.
When CBC made a change to its accounting software, this contract-payment
flexibility resulted in mistaken overpayments to Javier. Three sets of
circumstances that led to overpayments are outlined below.
The dispute concerning Contract #1 arose because Javier simply was paid in
excess of the amount contracted. The circuit court found CBC had paid Javier
$16,517.26 over and above the agreed upon contract amount and that Javier had
not performed any additional work to warrant the payment. Accordingly, the
circuit court found that CBC was entitled to recover the overpayment from Javier.
The issue with Contract #2 concerned a double payment by CBC to Javier
for work that Javier had performed only once. The court found Javier had
performed work according to the contract and had been fully paid under the
contract. However, Javier mistakenly double-billed CBC and CBC paid the sum of
$16,800.00 a second time for the same work for which it had already compensated
Javier. Javier was therefore required to repay CBC the $16,800.00 overpayment.
With regard to the final five contracts, CBC made arrangements to pay
certain third-party materials vendors directly yet still paid Javier the full payments
due under the contracts (labor and materials) without deducting from the payments
to Javier the amounts of the direct payments to third-party vendors. At trial, CBC
presented evidence of the direct payments for materials to vendors and the
concomitant double payment for the same materials to Javier. Javier produced no
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evidence that it had in fact paid the vendors for the materials out of the payments it
received from CBC. The trial court concluded that Javier had retained the funds
that were intended for the vendors and was therefore unjustly enriched. The
overpayments for the five remaining contracts totaled $514,288.98.
The circuit court found that CBC’s overpayments to Javier totaled
$547,606.54. Prior to trial, CBC had set off $145,183.28 of this amount against
subsequent contract payments owed to Javier.
Procedural History
A bench trial was held over three days in July and August 2005. In
September 2006, because there had been no activity in the file, the clerk of the
court, apparently without determining that the case was under submission, sent the
parties a Notice to Dismiss for Lack of Prosecution. In an effort to correct the
clerk’s mistake, the parties made their way back before the circuit judge who, in a
November 9, 2006 hearing, acknowledged that the Notice had been issued in error.
The parties waited another six months, anticipating a decision in the case. It
then came to the parties’ attention that on November 9, 2006, the circuit judge had
mistakenly signed the order dismissing the case for lack of prosecution but the
clerk had not noticed the parties. On May 9, 2007, CBC moved to vacate that
order. A hearing was held and on May 14, 2007, the circuit court vacated the
mistaken order of dismissal stating in the order that the court was relying on the
authority of Kentucky Rules of Civil Procedure (CR) 60.01 and CR 60.02.
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On March 17, 2008, the circuit court finally ruled on the merits of the case,
issuing Findings of Fact and Conclusions of Law in accordance with CR 52.01.
The judgment was in CBC’s favor. Javier timely filed a Motion to Alter, Amend
or Vacate Judgment or for Judgment Notwithstanding the Verdict. This motion
was denied by order entered October 15, 2009. Javier filed a timely Notice of
Appeal to this Court.
In its appeal, Javier contends that CBC did not overpay it, and that it was
paid according to the contract terms. Javier further asserts that CBC has unclean
hands and that if CBC were allowed to recover from Javier, CBC would be
violating federal law and committing a fraud against the state and federal
governments to which CBC had made representations regarding payments to
Javier. Javier also appealed the trial court’s vacating of its order to dismiss.
Standard of Review
This case was tried without a jury, the circuit judge acting as fact-finder. An
appellate court will set aside a circuit court’s findings of fact only if those findings
are clearly erroneous. CR 52.01. In sum, only if reasonable minds could not differ
with Javier’s contention that it was not overpaid will we set aside the circuit
court’s findings of fact on this point.
Legal conclusions, however, are subject to de novo appellate review.
“Questions of law are reviewed anew by this Court.” Daniels v. CDB Bell, LLC,
300 S.W.3d 204, 210 (Ky. App. 2009). The theory of unjust enrichment is an
equitable doctrine, Dodson v. Key, 508 S.W.2d 586 (Ky. 1974), and the application
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of an equitable doctrine to the facts of a case is a question of law. Daniels, 300
S.W.3d at 210. Therefore, the question as to whether Javier was unjustly enriched
will be “reviewed anew by this Court.” Id. at 209.
Analysis
Order Vacating Order of Dismissal Was Not Error or Abuse of Discretion
Because of its procedural nature and capacity for making all other issues
moot, we address Javier’s final argument first. Javier asserts that the circuit court
did not have the authority under CR 60.01 to set aside the November 9, 2006 order
dismissing the case for failure to prosecute. Javier points to “the fact that the
Judge signed the [November 9, 2006] Order dismissing [as] the operative fact.”
(Appellant’s Brief, p. 22). This means, so goes Javier’s argument, that the mistake
“was a judicial mistake of law and not a clerical error” and therefore was not
subject to correction by resort to CR 60.01.
We disagree with Javier’s underlying premise that the error here was a
judicial error. It was not. Even judges are capable of making clerical errors.
[T]he distinction [between judicial error and clerical error] turns on
whether the error was the deliberate result of judicial reasoning and
determination, regardless of whether it was made by the clerk, by
counsel, or by the judge. A clerical error involves an error or mistake
made by a clerk or other judicial or ministerial officer in writing or
keeping records.
Cardwell v. Commonwealth, 12 S.W.3d 672, 674 (Ky. 2000)(citations and
quotation marks omitted). In the case sub judice, the circuit court conducted a
bench trial and, no doubt burdened by a weighty docket, failed to rule for more
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than a year; instead, despite acknowledging that clerical error caused issuance of
an administrative notice of dismissal for failure to prosecute, mistakenly signed an
order dismissing the case for failure to prosecute. It cannot be asserted credibly
that such a sequence of events “was the deliberate result of judicial reasoning and
determination.” Entry of the order dismissing was a clerical error, and of this we
have no doubt, correctible by use of CR 60.01. Id. (“CR 60.01 allows a trial court
to correct clerical mistakes . . . arising from an oversight . . . at any time . . . .”).
The Evidence Was Sufficient to Support the Circuit Court’s Findings of Fact.
The court below found that overpayments to Javier had been made on
each of the seven contracts at issue. To prove overpayment, CBC submitted to the
circuit court copies of the contracts between CBC and Javier, copies of cancelled
checks payable to Javier, copies of cancelled checks jointly payable to Javier and a
third-party vendor, copies of cancelled checks payable to a third-party vendor only,
invoices from Javier, and invoices from third-party vendors. This evidence
showed that CBC made duplicate payments to third-party vendors and to Javier for
materials that the vendors provided only once. Javier was therefore not entitled to
retain the payments it received from CBC that were intended for the vendors
merely because CBC’s duplicate payments to the vendors had already satisfied the
obligation.
Javier, in response, presented evidence in the form of ledger entries showing
it had received payments from CBC and made payments to vendors. However,
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Javier presented no evidence (of cancelled checks or otherwise) that it in fact paid
the third-party vendors the amounts reflected in the ledger.
We will not disturb findings of fact where those findings are not clearly
erroneous. CR 52.01. Findings of fact are not clearly erroneous if supported by
substantial evidence. Faulkner Drilling Co. Inc. v. Gross, 943 S.W.2d 634, 638
(Ky. App.1997). Substantial evidence is that which a “reasonable mind would
accept as adequate to support a conclusion.” Moore v. Asente, 110 S.W.3d 336,
354 (Ky. 2003). If both parties present evidence that qualifies under this definition
as “substantial,” which often occurs, we will not and cannot disturb the factfinder’s preference for one party’s evidence over the other. The substantial
evidence Javier presented was enough for the trial court to conclude that CBC had
indeed overpaid Javier and that Javier had retained those funds and unjustly
enriching its coffers. We will not disturb that determination.
The Trial Court’s Finding That Javier Was Overpaid Does Not Result in an
Unlawful Construction of the Javier-CBC Contracts.
Javier argues that the trial court’s finding that it had been overpaid results in
an illegal construction of the contracts. To assist our understanding of the
argument, Javier explained the nature of these contracts. They were awarded to
Javier in part because the company qualified as a “Disadvantaged Business
Enterprise” (DBE). Bridge and road construction contracts funded by certain
federal programs and awarded by the Commonwealth require that “not less than 10
percent of the amounts made available [for road construction and maintenance]
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shall be expended with small business concerns owned and controlled by socially
and economically disadvantaged individuals” – that is, with DBEs. Transportation
Equity Act for the Twenty First Century (“TEA-21”), Pub. L. No. 105-178, 112
Stat. 107, § 1101(b)(1) (1998); see also the successor to TEA-21, The Safe,
Accountable, Flexible, Efficient Transportation Equity Act, Pub.L. No. 109-59,
119 Stat. 1144, § 1101(b)(2) (2005).
In its essence, Javier’s argument is that the trial court’s determination that it
was overpaid means that DBE credit was awarded for labor and/or materials that
the DBE subcontractor (Javier) did not in fact supply, resulting in a fraud upon the
state and federal governments. However, the issue before us does not involve the
contract between CBC and the governments and, furthermore, neither the state nor
the federal government is a party. The only contracts with which we are concerned
are the subcontracts between CBC and Javier. The allegations of improperlyclaimed DBE credit do not affect the question of whether overpayments occurred.
The issue of whether fraud was committed against the government is separate from
the essential issue in this case – whether Javier was overpaid. If CBC or another
prime contractor received DBE credits for labor or materials that Javier did not in
fact provide, that is for the state and federal authorities to police. The sole issue
for this court to decide is whether Javier was entitled to all of the money it received
from CBC. We find no merit in Javier’s argument of a resultant fraud.
The Doctrine of Unclean Hands Is Not a Bar to CBC’s Claim of Unjust
Enrichment.
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Javier asserts that CBC should not be allowed to recover overpayments
under a theory of unjust enrichment because CBC had unclean hands. This is a
twist on the previously-discussed argument of resultant fraud. Javier argues that
by paying suppliers directly (and not the DBE subcontractor, Javier), CBC was
defrauding the governments which relied on CBC’s representations regarding the
percentage of the highway contract amounts expended with DBEs. Javier claims
CBC had unclean hands by doing so. We disagree.
No court or administrative body has found that CBC obtained or maintained
its highway contracts by fraudulently claiming DBE credit or that the credit
allowed would be considered fraudulent if CBC recovered the overpayments.
Furthermore, even if CBC fraudulently claimed DBE credit affecting a third
party, i.e., the government, that fact would not necessarily mean that it has unclean
hands relative to Javier.
The traditional defense of unclean hands applies to facts
involving only two parties, plaintiff and defendant, and
one transaction involving both parties. The maxim does
not extend to any misconduct, however gross, which is
unconnected with the matter in litigation, and with which
the opposite party has no concern. In this regard,
ordinarily, the alleged wrongdoing must have an
immediate and necessary relation to the matter being
litigated, or must in some measure affect the equitable
relations between the parties in respect of something
brought before the court for adjudication. If the wrong is
shown to be merely collateral to the complainant’s cause
of action, it does not constitute a matter of defense.
. . . Furthermore . . . it appears to be the general rule that
relief will not be denied because of [a party’s]
wrongdoing in the course of a transaction with a third
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person, or because of a wrong practiced by both parties
on a third person . . . .
27A Am. Jur. 2d Equity § 104 (2010) (footnotes omitted; emphasis added). The
fraud Javier alleges CBC would be perpetrating if allowed to recover would be
against entities not party to the subcontracts or this litigation – the state and federal
governments. As the circuit court put it, “[t]he doctrine [of unclean hands] does
not repel all sinners from a court of equity, especially where there were no
injurious consequences” suffered by the party asserting the doctrine – in this case,
Javier. (Final Judgment, pp. 6-7, quoting Parris’ Adm’r v. John W. Manning &
Sons, 284 Ky. 225, 144 S.W.2d 490, 492 (1940).
Furthermore, the alleged fraud does not “affect the equitable relations
between the parties in respect of something brought before the court for
adjudication.” 27A Am. Jur. 2d Equity § 104. If CBC overpaid Javier, it is
entitled to recoup those monies, regardless of any fraud CBC may have committed
against third parties. Accordingly, Javier’s claim of fraud appears to be “merely
collateral to the complainant’s cause of action.” Id. In fact, any such claim of
fraud would not accrue in favor of the governments, if at all, until this judgment in
favor of CBC became final. Therefore, we agree with the circuit court that the
doctrine of unclean hands does not bar CBC from recovering in equity the
overpayments it made to Javier.
Conclusion
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CBC presented sufficient evidence to support the circuit court’s judgment
that Javier was overpaid, and there is no ground upon which the judgment from
which the appeal has been taken could be reversed. Accordingly, the judgment of
the Jefferson Circuit Court is affirmed.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
Galen L. Clark
Louisville, Kentucky
John William Woodard, Jr.
Sara Veeneman
Louisville, Kentucky
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