DAVIS (WILLIAM TODD) VS. DAVIS (CAROLYN), ET AL.
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RENDERED: APRIL 1, 2011; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2009-CA-002127-MR
WILLIAM TODD DAVIS
v.
APPELLANT
APPEAL FROM FLEMING CIRCUIT COURT
HONORABLE STOCKTON B. WOOD, JUDGE
ACTION NO. 07-CI-00146
WILLIAM E. DAVIS AND
CAROLYN DAVIS, D/B/A ASPHALT
MAINTENANCE SPECIALISTS
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: LAMBERT, NICKELL, AND WINE, JUDGES.
LAMBERT, JUDGE: William Todd Davis (Todd) has appealed from the
judgment of the Fleming Circuit Court in favor of William E. Davis and Carolyn
Davis, d/b/a Asphalt Maintenance Specialists, (the plaintiffs or the appellees)
awarding them $124,196.57 as well as several items of equipment. Todd contends
that the trial court committed reversible error in its judgment related to the
ownership of the company and its equipment, as well as to the money he owed for
real estate and improvements, misappropriation of business funds, and improperly
obtaining clients and contracts. Having reviewed the record on appeal and the
parties’ arguments in their respective briefs, we find no error and affirm the trial
court’s judgment.
In the 1990s, William E. Davis (Bill) started a blacktopping business,
operating it as a sole proprietorship under the name Asphalt Maintenance
Specialists (AMS). Carolyn Davis is Bill’s wife. Carolyn assisted Bill with the
bookkeeping and eventually ran the sealing and striping side of the business. Todd
is Bill and Carolyn’s son. Todd, who was thirty-four years old at the time of the
hearing in 2008, began working for AMS shortly after he graduated from high
school in the mid-1990s. Todd started as a laborer and progressed through the
years to eventually run the blacktopping side of the business. He was also
responsible for giving blacktopping bids. For his work, Todd received a salary of
up to $700.00 per week. In addition to his salary, all of his living expenses,
including his house payment, utilities, gas, insurance, and groceries, were paid by
the company, and he was provided with a truck. We note that Bill and Carolyn
maintained only one bank account, in which business and personal assets were
deposited and from which both business and personal bills were paid, including
those belonging to Todd.
In addition to paying his everyday expenses, Bill and Carolyn took out an
equity loan to pay off a debt on property Todd was purchasing and provided Todd
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with other money to pay for a later purchase of real estate. Todd constructed a
house on the real estate he had purchased. Materials, fixtures, furnishings, and
other improvements were purchased and paid for using accounts in Carolyn’s or
the business’s name. Todd also traded blacktop work for insulation in his house.
Todd’s claim throughout this case has rested on Bill’s promise that he would
give the business to him when he retired. Bill stopped working in the field due to
health issues in the mid-2000s. In March of 2007, Bill and Todd began
negotiations to transfer AMS to Todd in whole or in part. While Todd consulted
with an attorney, no transaction was ever consummated. During this period of
time, however, the parties agreed to split the income and expenses from the
blacktopping side of the business away from the rest of the business, and Todd
would take on a more active management role for the blacktopping side. Todd
opened his own AMS account and was to pay his parents’ expenses from the
proceeds of that side of the business. Todd failed to pay those expenses, and he
had the business phone moved to his own house, leaving his parents without phone
service.
Problems between the parties escalated, and Todd left AMS on June 12,
2007. He also opened his own paving business, T & K Paving, with his girlfriend,
Kristina Logan. Todd took the paving equipment from AMS to form his new
company. He also used T & K Paving to complete jobs he had bid for AMS.
On June 29, 2007, the plaintiffs filed suit against Todd and Kristina (who
was dismissed by the trial court and is not a party to this appeal), seeking damages
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for Todd’s taking business funds for his personal use, his failure to repay money
advanced related to the purchase and construction of his house, and for his
interference with their business. They also sought the return of the business
equipment Todd took with him when he left AMS. Todd filed a counter-claim
against the plaintiffs, alleging that he, as a partner and/or with an ownership
interest in AMS, was entitled to a share of all revenue and income received by the
plaintiffs through AMS, as well as the equipment.
The trial court held a two-day bench trial. Prior to the start of the trial, the
court determined that Todd was entitled to summary judgment on the issue of
whether he had signed a non-compete clause. At the conclusion, the trial court
entered its findings of fact, conclusions of law, and judgment, in which it found
that AMS was a sole proprietorship owned by Bill, that Todd was not an owner of
AMS, and that any equipment or vehicles in the names of AMS, Bill, or Carolyn
were not Todd’s property. The court then found that as an employee of AMS,
Todd owed a duty of good faith, which he breached when he tortiously interfered
with AMS’s contracts, used AMS’s equipment and supplies, and kept the profits
for himself. The trial court permitted recovery of the profits from those jobs. The
trial court also permitted recovery for funds that Todd misappropriated for AMS
jobs. Regarding Todd’s house, the trial court concluded that there was at least an
implied contract that Todd was to repay amounts provided for the purchase of real
estate and the construction of the house. The trial court awarded the sum of
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$124,196.57 to the plaintiffs and ordered the exchange of equipment and
personalty as ordered in the judgment. This appeal follows.
In his brief, Todd argues that the trial court erred in its findings and
conclusions on four separate issues related to the repayment for real estate and
improvements to his house, the ownership of AMS and its equipment,
misappropriation of funds, and interference with AMS’s business contracts. We
shall address each issue in turn.
Because this matter was tried without a jury, Kentucky Rules of Civil
Procedure (CR) 52.01 applies to our review:
In all actions tried upon the facts without a jury or with
an advisory jury, the court shall find the facts specifically
and state separately its conclusions of law thereon and
render an appropriate judgment[.] . . . Findings of fact
shall not be set aside unless clearly erroneous, and due
regard shall be given to the opportunity of the trial court
to judge the credibility of the witnesses. . . .
“On appeal, if a trial court’s findings are supported by substantial evidence, those
findings will be upheld as not being clearly erroneous.” Waters v. City of Pioneer
Village, 299 S.W.3d 278, 280 (Ky. App. 2009). Substantial evidence is defined as
“evidence, when taken alone or in light of all the evidence, which has sufficient
probative value to induce conviction in the mind of a reasonable person.” Hunter
v. Hunter, 127 S.W.3d 656, 659 (Ky. App. 2003). This Court’s review of a trial
court’s application of law to sufficiently supported facts is de novo. Waters, 299
S.W.3d at 280.
A. TODD’S HOUSE AND REAL ESTATE
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The first argument Todd raises is that the trial court erred when it adjudged
that he owed the plaintiffs (now the appellees) for the amount they paid for his real
estate and improvements to that real estate. Todd asserts that the statute of frauds
bars their recovery in this case because there was no written agreement that he
would repay those amounts. Furthermore, Todd contends that the trial court’s
determination that there was either an express contract or a meeting of the minds
between the parties was not supported by case law or admissions Bill and Carolyn
made. He also argues that the trial court should have deemed the payments to be a
gift based on his status as their son, a natural object of their bounty.
The trial court first found that there was an agreement between the
parties that Todd was to repay the funds paid by the appellees. Both the trial court
and the appellees cite to Rider v. Combs, 256 S.W.2d 749 (Ky. 1953), to establish
this agreement. In order to establish an implied contract, Rider provides:
To establish a contract implied in fact, the evidence must
disclose an actual agreement or meeting of the minds
although not expressed and such is implied or presumed
from the acts or circumstances which according to the
ordinary course of dealing and the common
understanding of men shows a mutual intent to contract.
Id. at 749. While Rider addresses the performance of personal services, we
perceive no reason that this case should not apply in cases involving real estate, as
Todd suggests.
The record supports the trial court’s findings that Bill and Carolyn
invested a substantial amount of money into Todd’s land and house. Todd’s
statements that he would “take care” of money he requested from his parents or
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charged to their accounts is sufficient to establish this implied agreement in light of
the circumstances and his problems obtaining financing to complete construction
of his house. Todd argues that there was no way to distinguish between amounts
and items Bill and Carolyn gave him as their son or paid him as their employee.
However, we note that the trial court did not award all of the sums the appellees
requested based on its findings that such funds were considered gifts pursuant to
the testimony. We therefore agree with the appellees that the trial court did not err
in finding the existence of an implied contract.
Todd also argues that several provisions of Kentucky’s statute of
frauds bar the appellees from enforcing any implied contract because their
agreement was not reduced to writing. KRS 371.010 provides, in part, that
No action shall be brought to charge any person:
....
(7) Upon any agreement that is not to be performed
within one year from the making thereof;
(8) Upon any promise, agreement, or contract for any
commission or compensation for the sale or lease of any
real estate or for assisting another in the sale or lease of
any real estate; or
(9) Upon any promise, contract, agreement, undertaking,
or commitment to loan money, to grant, extend, or renew
credit, or make any financial accommodation to establish
or assist a business enterprise or an existing business
enterprise including, but not limited to the purchase of
realty or real property, but this subsection shall not apply
to agreements pursuant to which credit is extended by
means of a credit card or similar device, or to consumer
credit transactions;
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unless the promise, contract, agreement, representation,
assurance, or ratification, or some memorandum or note
thereof, be in writing and signed by the party to be
charged therewith, or by his authorized agent. It shall not
be necessary to express the consideration in the writing,
but it may be proved when necessary or disproved by
parol or other evidence.
The appellees first rely upon Phelps v. Ham, 273 S.W.2d 814 (Ky. 1954), to
argue that the exhibits showing payments made for the house and credit card
statements are sufficient to satisfy the writing requirement. We disagree. The
writings relied upon in Phelps were receipts for monthly payments made by Mr.
Ham to his sister for the purchase price of the building in which they lived. These
receipts were much more specific to establish the agreement than the exhibits in
this case. The evidence here goes to the amount of funds that were expended,
rather than establishing the contract itself as in Phelps. Therefore, we reject the
appellees’ contention that the exhibits they submitted brought the matter outside
the statute of frauds.
However, we do agree with the appellees that the provisions Todd relied
upon to argue that the agreement falls outside the scope of the statute of frauds do
not apply in this case.
KRS 371.010(7) addresses when the agreement is to be performed,
specifically those that are not to be performed within one year. The appellees cite
to Salyers v. Kenmont Coal Co., 226 Ky. 655, 11 S.W.2d 705, 707-08 (1928), for
the proposition that if a contract may be performed within a year, it is outside of
the scope of the statute of frauds:
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Ordinarily the rule is that, where a contract may be
performed within a year, or where a contract for personal
services may be terminated by either party within a year,
it is not within the statute of frauds. This question is
fully discussed in the case of Dickey v. Dickenson in an
opinion written by Judge Hazelrigg, 105 Ky. 748, 49
S.W. 761, 20 Ky. Law Rep. 1559, 88 Am. St. Rep. 337.
In the case of East Tennessee Telephone Co. v. Paris
Electric Co., 156 Ky. 762, 162 S. W. 530, Ann. Cas.
1915C, 543, this court, in an opinion written by Judge
Carroll, discussed the question at some length, and held
to the doctrine that contracts for the performance of
which no time is fixed, but which from their subjectmatter admit of performance within a year, are not within
the statute of frauds, although it is probable that the
contract will be performed after the year.
We agree that the parties certainly would have contemplated performance of the
contract within one year as it involved completing construction of the house so that
the construction loan could be converted into permanent financing. We also note
with approval the appellees’ citation to Finley v. Ford, 304 Ky. 136, 141, 200
S.W.2d 138, 141 (1947) (“We have also held that if the performance of an oral
contract depends upon a contingency, which may or may not happen within the
year, it is not within the statute.”). Accordingly, we hold that KRS 371.010(7)
does not act to bar enforcement of the agreement in this case.
Likewise, the agreement does not come within the scope of KRS 371.010(8)
or (9). The agreement did not provide for the commission or compensation for the
sale of real estate, nor did it provide for the establishment of a business enterprise.
Rather, it was an agreement to loan funds to an individual.
Therefore, we reject Todd’s argument that the statute of frauds bars the
appellees’ right to recovery in this action.
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Finally, Todd contends that the trial court was required to infer that the
funds were intended as a gift from parents to their son, citing to Rakhman v.
Zusstone, 957 S.W.2d 241 (Ky. 1997). He argues that as their son, he is the natural
object of his parents’ bounty. Todd then states that Bill and Carolyn failed to
prove that they did not intend to make a gift to him. The Supreme Court set out the
relative burdens in Rakhman as follows:
[T]he proper allocation of the burden of going forward
would have been to note that the placing of title by
Zusstone in Rakhman raised a rebuttable presumption
that he had made a gift to Rakhman, the natural object of
his bounty. Once Zusstone put in his own testimony and
the evidence of his prior real estate transaction history,
Rakhman bore the “risk of nonpersuasion,” as opposed to
the more demanding “clear and convincing” standard of
proof required to establish a trust. This burden can also
be described as the “preponderance of the evidence” or
“more probably true than not.” R. Lawson, The
Kentucky Evidence Law Handbook, § 9.00, at 517 (3d ed.
1993).
Rakhman, 957 S.W.2d at 245-46. Here, the evidence establishes that the appellees
did not intend to make a gift to Todd, and they successfully rebutted any
presumption associated with his status as their son.
For these reasons, we hold that the trial court did not err in awarding the
appellees a judgment for sums they paid related to Todd’s house and land.
B. OWNERSHIP OF AMS
Next, Todd argues that the trial court erred in finding that AMS was solely
owned by Bill and that he (Todd) had no ownership interest in either the company
or its vehicles, equipment, and personal property. This argument is based on
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Todd’s assertions throughout the proceedings that Bill had promised to give him
the company upon his retirement. In support, Todd again relies upon Rakhman v.
Zusstone for its presumption in favor of him as the natural object of his father’s
bounty. Again, we disagree.
The trial court’s extensive findings on this issue are adequately supported by
the evidentiary record. There is absolutely no evidence to establish that Todd was
ever an owner or even a partial owner of AMS. On the contrary, the evidence
establishes that Bill set up AMS as a sole proprietorship and that Todd worked for
AMS as an employee only. For his work as an employee, Todd received a salary
and all of his bills were paid through the company. However, he never had any
responsibilities associated with ownership, including authority to sue and enter into
contracts, or responsibility for company debts, and he signed his name as
“manager.” While Bill had certainly discussed “giving” the company to Todd
when he retired (he stopped working in the field in 2004 for health reasons), that
“transfer” never came to pass, despite later discussions among the parties and with
an attorney. Witness Julia Davis Rawlings, Todd’s sister and Carolyn and Bill’s
daughter, also testified that Todd did not own any part of AMS, although there had
been preliminary conversations about a potential partnership. Based upon the
substantial evidence on this issue introduced into the record, the trial court did not
err in finding that Todd had no ownership interest in AMS.
Likewise, Todd has no ownership interest in any of the vehicles, trucks, or
other equipment, including the Leeboy Paver, titled in name or names of AMS,
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Bill or Carolyn. See Rakhman v. Zusstone, 957 S.W.2d at 244 (“[I]t has long been
the law in Kentucky that ‘[r]ecord title or legal title is an indicia sufficient to raise
a presumption of true ownership.’”).
C. MISAPPROPRIATION OF FUNDS
For his next argument, Todd contends that the trial court erred in awarding
sums to the appellees that he had misappropriated from AMS funds. On this issue,
the trial court found, in part, as follows:
24. Carolyn Davis testified that she commenced having
substantial problems with Todd in 2006, because she did
not know what work he was doing, or what he was doing
with the money. He either did not make estimates,
invoices or receipts for the work that he did, or did not
provide same to Bill Davis and Carolyn Davis. Carolyn
said that eventually so little of the money was going into
the AMS account that there was not enough money for
Bill and Carolyn Davis to buy groceries or to pay their
basic expenses.
25. Todd Davis admitted that it became common for him
to pull portions of cash out of payments for AMS jobs,
but claimed that his parents authorized him to do so.
Through the testimony of both Carolyn Davis and Todd
Davis, it was established that Todd would give an
estimate, and then when the customer paid Todd would
keep a portion and deposit the rest in the AMS account,
such checks usually being made payable [in] the name of
AMS. Carolyn testified that Todd was authorized to
receive checks or other payment on behalf of AMS, but
he was supposed to deposit the checks in AMS’ business
account.
Todd now argues that the funds he retained were amounts he was legitimately
entitled to receive as either the owner or employee of AMS, or were amounts Bill
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and Carolyn allowed him to keep as the natural object of their bounty. We
disagree.
As stated by the appellees, an employee must be loyal and faithful to his
employer. See Hoge v. Kentucky River Coal Corp., 216 Ky. 51, 287 S.W. 226
(1926). Based upon the evidence of record, the trial court’s finding that Todd had
been misappropriating money from AMS is amply supported. While the record
shows that Todd’s personal expenses were generally paid with AMS funds, he was
certainly not an owner of AMS, nor was he in a position to unilaterally keep
payments, or portions thereof, made to AMS. Accordingly, we hold that the trial
court appropriately awarded the appellees the amounts Todd misappropriated from
AMS as reflected in the judgment.
D. TORTIOUS INTERFERENCE WITH BUSINESS CONTRACTS
Finally, Todd argues that the trial court erred when it found that he tortiously
interfered with five business contracts and required him to repay the profit he
received from these contracts. He states that he was not restricted by a covenant
not to compete and that one should not be implied in this case.
The trial court found that while he was still employed at AMS, Todd began a
new company called T & K Paving, ordered new stationery and purchased a fax
machine for that business, and charged everything to AMS. He also took
possession of the paver and other AMS equipment. Todd then completed AMS
jobs as T & K Paving after he left AMS on June 12, 2007. In several instances,
Todd would submit new bids identical to those of AMS, but using T & K Paving
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stationery. The trial court relied upon Stewart v. Kentucky Paving Company, Inc.,
557 S.W.2d 435 (Ky. 1977), for its holding regarding the violation of a duty of
loyalty to an employer. The Court explained that:
After the termination of his fiduciary relationship he is
allowed the freedom to compete, and he may carry with
him his personal experience, enterprise, and knowledge,
but he may not use prior fiducial confidences to profit at
the expense of his former employer.
Id. at 438 (quoting Aero Drapery of Kentucky, Inc. v. Engdahl, 507 S.W.2d 166
(Ky. 1974)). Therefore, the trial court permitted the appellees to recover any
profits Todd derived from any of his work, efforts, leads, and contracts that were
developed while he was still working for AMS.
We agree with the appellees that Kentucky Paving and Hoge support the trial
court’s holding that Todd owed a duty of loyalty to them, which he breached when
he used his knowledge of AMS business as well as AMS equipment and supplies
to procure and complete contracts for his own, separate company. As stated in
Hoge,
Everyone – whether designated agent, trustee, servant or
what not – who is under contract or other legal obligation
to represent or act for another in any particular business
or for any valuable purpose must be loyal and faithful to
the interest of such other in respect to such business or
purpose. He cannot lawfully serve or acquire any private
interest of his own in opposition to it. This is a rule of
common sense and honesty as well as of law.
Hoge, 287 S.W. at 227. The trial court properly awarded only the established net
profit from the amount Todd received from completing the five jobs at issue
pursuant to Kentucky Paving. The undisputed fact that the parties had not entered
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into a covenant not to compete has no application to this issue, as it is premised
upon Todd’s breach of loyalty to his former employer. Accordingly, the trial court
did not commit any error in awarding the appellees the net profit from the five
contracts with which Todd interfered.
For the foregoing reasons, the judgment of the Fleming Circuit Court is
affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEES:
Stephen E. Neal
Mt. Sterling, Kentucky
John F. Estill
Maysville, Kentucky
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