RENDERED: JULY 29, 2011; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
APPEAL FROM ROWAN CIRCUIT COURT
HONORABLE BETH LEWIS MAZE, JUDGE
ACTION NO. 07-CI-90197
PACK’S INC.; SOUTHEASTERN
CONSTRUCTION, INC.; AND
JEFF E. COLLINSWORTH
** ** ** ** **
BEFORE: THOMPSON AND VANMETER, JUDGES; ISAAC,1 SENIOR
THOMPSON, JUDGE: Ed Martin appeals the Rowan Circuit Court’s granting of
summary judgment in favor of Pack’s Inc. We affirm.
Senior Judge Sheila R. Isaac sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and KRS 21.580.
On August 4, 2004, Pack’s Inc. and Southeastern Construction, Inc.
entered into a contract for the construction of a gas station at the Kroger grocery
store in Morehead, Kentucky. Pack’s, a commercial and residential construction
company, was owned by Keith Pack, and Southeastern was owned by Martin and
Jeff Collinsworth. The gas station project was completed by November 2004.
When the project was completed, Pack’s was owed $77,879.50 as final payment.
On November 9, 2004, Southeastern was administratively dissolved
by the Kentucky Secretary of State’s Office. After the dissolution of the company,
Martin requested that Mr. Pack execute a waiver of the company’s right to file a
lien on the gas station project. He informed Mr. Pack that Kroger would issue the
final payment on the gas station project after the execution of the waiver and that
Martin would then forward Pack’s their final payment.
Based on Martin’s request, Mr. Pack executed the lien waiver and
Martin executed a letter promising that Southeastern would forward Pack's final
payment upon receipt of the money owed to Southeastern by Kroger. After Kroger
made the remaining payment for its project, Martin did not forward the final
payment to Pack’s as the parties had agreed in their lien release agreement. Mr.
Pack began communicating with Martin and Collinsworth to obtain payment and
obtained their signatures on a payment schedule document in January 2006. The
schedule required a $10,000 first payment to Pack’s and then regularly scheduled
payments until the balance was paid. Martin and Collinsworth made the first
payment under the schedule but did not make any further payments.
On June 6, 2007, Pack’s filed a civil action against Southeastern,
Martin, and Collinsworth based on breach of contract for $74,555.81. On January
6, 2010, Pack’s filed a motion for summary judgment arguing that it was entitled to
a personal judgment against Martin and Collinsworth because the parties reached
an agreement after Martin and Collinsworth’s company was dissolved. The
defendants responded that they were not obligated to pay their outstanding debt
because Pack’s work was completed before the dissolution and, thus, any
obligation would be owed by the defunct company.
On April 6, 2010, the trial court issued summary judgment in favor of
Pack’s, ruling that Martin and Collinsworth’s conduct following their company’s
dissolution created personal liability for paying the outstanding debt to Pack’s.
The trial court ruled that Martin and Collinsworth were jointly and severally liable
in the amount of $74,555.81, plus prejudgment interest of seven percent and postjudgment interest of twelve percent. This appeal followed.
Martin contends that the trial court’s reliance on an unpublished
decision of this Court was misplaced because he did not incur any new post-
dissolution debt unlike the parties in the unpublished case.2
The standard of review applicable to an appeal of a summary judgment is
well established. An appellate court must decide whether the trial court correctly
ruled that there was no genuine issue as to any material fact and that the moving
Martin’s brief contains similar versions of this argument on pages five and twelve. We address
both arguments here.
party was entitled to a judgment as a matter of law. Barnette v. Hospital of Louisa,
Inc., 64 S.W.3d 828, 829 (Ky.App. 2002). “Summary judgment is proper ‘if the
pleadings, depositions, answers to interrogatories, stipulations, and admissions on
file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of
law.”’ Id., quoting CR 56.03.
Summary judgment should only be granted when it appears that it would be
impossible for the non-moving party to produce sufficient evidence to succeed at
trial. Paintsville Hosp. Co. v. Rose, 683 S.W.2d 255, 256 (Ky. 1985). Because
summary judgments do not involve matters where there are disputed facts, we
review the decision of the trial court de novo and, thus, without deference. Kreate
v. Disabled American Veterans, 33 S.W.3d 176, 178 (Ky.App. 2000).
The trial court cited Forleo v. American Products of Kentucky, Inc., No.
2005-CA-000196-MR, 2006 WL 2788429 (Ky.App. 2006), in finding that Martin
and Collinsworth were liable for paying Pack’s.3 In Forleo, the Court held that
shareholders, officers, and directors of a dissolved corporate entity can be held
personally liable for non-winding up debts incurred after the dissolution. Id.
However, Martin contends that, unlike the facts in Forleo, he did not incur
any new debt for the dissolution of Southeastern; rather, his subsequent actions
reflected the recognition of a debt that preexisted the dissolution of his company.
Kentucky Rules of Civil Procedure (CR) 76.28(4)(c) permits the citation of unpublished
opinions of the appellate courts of this Commonwealth rendered after January 1, 2003, if there is
no published opinion that adequately addresses the issue before the court.
Therefore, he contends that the circumstances in Forleo are dissimilar to his case
and, thus, could not be applied to find him personally liable to Pack’s.
Although he believes the facts in Forleo are dissimilar to his case, Martin’s
agreement to pay Pack’s the final payment constituted a new debt. Before
Southeastern was dissolved, it contracted with Pack’s to construct a gas station at a
Kroger’s grocery store, and Southeastern was solely liable to pay Pack’s upon
completion. When Southeastern dissolved, Martin requested and obtained Pack’s
waiver of its right to file a lien upon the property for the purpose of securing its
right to collect its final payment. This agreement became enforceable as a new
contract and debt obligation.
Our case law provides that a material alteration in the terms of an existing
agreement cannot be enforced unless a consideration for the change enures to the
party whom the new agreement is being enforced against. Pool et al. v. First Nat.
Bank of Princeton, 287 Ky. 684, 155 S.W.2d 4, 6 (1941). Consideration is defined
as a benefit conferred to a promisor or a detriment incurred by a promisee. Huff
Contracting v. Sark, 12 S.W.3d 704, 707 (Ky.App. 2000). A benefit occurs when
the promisor, in exchange for a promise, obtains a legal right to which he was not
otherwise entitled. A detriment occurs when the promisee, in exchange for the
promise, waives a right to which he was otherwise entitled to exercise. Id.
Martin could rely on the first agreement to deny personal liability if that
agreement was the only exchange the parties made during their relationship.
However, Pack’s, in exchange for waiving its right to file a lien, and Martin, in
exchange for agreeing to pay Pack’s, executed an agreement that permitted Martin
to receive money from Kroger for the completion of the gas station. Thus, Pack’s
waived its right to file a lien so that Martin could obtain payment from Kroger.
This lien-waiver agreement was for new consideration by both parties and, thus,
was enforceable against Martin as a post-dissolution incurred debt.
Martin contends that the trial court’s reliance on Forleo was improper
because the unpublished opinion was in direct conflict with published case law.
Martin argues that Fairbanks Arctic Blind Co. v. Prather & Associates, Inc., 198
S.W.3d 143 (Ky.App. 2005), is controlling published law on the issue and, thus,
should have been applied without consideration of Forleo under CR 76.28(4)(c).
After reviewing the Fairbanks decision, we fail to see how it was applicable
to the facts of the instant case. The Fairbanks decision simply holds that a
company’s reinstatement restores it to the “same position it would have occupied
had it not been dissolved and that reinstatement validates any action taken by a
corporation between the time it was administratively dissolved and the date of its
reinstatement.” Id. at 146. In the instant case, the Fairbanks decision has no
application because Southeastern has not been reinstated in Kentucky. Thus,
Martin remains personally liable for his own actions, not Southeastern.
Martin contends that the trial court’s granting of summary judgment was
premature because he did not have an adequate opportunity for discovery. He
argues that Pack’s had not produced all of the requested documentation, including
a copy of the original contract of the parties for the construction of the gas station.
He further contends that no discovery was conducted regarding whether he owned
a sufficient interest in Southeastern to be held personally liable to Pack’s.
A trial court can grant a summary judgment only after the litigants have been
provided an ample opportunity to complete pretrial discovery. Pendleton Bros.
Vending, Inc. v. Com. Finance and Admin. Cabinet, 758 S.W.2d 24 (Ky. 1988). It
is not necessary that litigants be allowed to complete discovery but only that they
be granted sufficient time to complete discovery and then fail to produce any
evidence to create a genuine issue of material fact. Id.
Pack’s filed its complaint on June 6, 2007, Martin filed his answer on
October 5, 2007, and the trial court issued summary judgment on April 6, 2010.
The period between Martin’s answer and the summary judgment was two and one
half years. Yet, Martin failed to produce evidence of a genuine issue of material
fact to preclude summary judgment, and his appellate discovery claims fall short as
well. He had ample opportunity to obtain discovery and the specific discovery
shortcomings, namely that his ownership interest in Southeastern and the gas
station contract have no bearing on the outcome of this case. The fact remains that
Martin’s post-dissolution conduct created a new debt obligation in favor of Pack’s,
and he has failed to produce any material fact to bring this conclusion into doubt.
Martin contends that the trial court failed to find that he was not authorized
to act on behalf of his company when he entered the agreement. He argues that
officers are not personally liable for their company’s debts unless they act outside
of their authority, which he asserts that he did not. Because the trial court did not
find that he was unauthorized to enter the agreement with Pack’s, he argues that he
could not be held personally liable to Pack’s.
Generally, an officer, director, or shareholder, when acting as an agent of the
corporation, is shielded from personal liability when acting within his authority to
bind the corporation. Young v. Vista Homes, Inc., 243 S.W.3d 352, 363 (Ky.App.
2007). However, the record clearly demonstrates that Martin’s corporation was
dissolved and, thus, did not provide him protection to conduct business on behalf
of Southeastern because his authority was limited by statute. Fairbanks Arctic
Blind Co., 198 S.W.3d at 143 (KRS 271B.14-210(3) is now codified at KRS
Martin contends that the trial court erred by issuing summary judgment
because he was shielded from personal liability pursuant to KRS 271B.14-050 and
271B.6-220(2).4 With respect to KRS 271B.14-050, Martin contends that
Southeastern was responsible for Pack’s liability because his agreement with
Pack’s was for the purpose of winding up Southeastern’s affairs. Thus, he argues
that his personal conduct was still protected by his corporate status. Based on KRS
271B.6-220(2), Martin contends that his actions were generally shielded from
personal liability pursuant to the statute.
KRS 271B.14-050 provides the following:
Martin’s brief contains two essentially identical arguments regarding his winding up claim.
The first argument is contained on pages five and six of his brief, and the second argument is
contained on pages ten and eleven of his brief.
(1) A dissolved corporation shall continue its corporate
existence but may not carry on any business except that
appropriate to wind up and liquidate its business and
(a) Collecting its assets;
(b) Disposing of its properties that will not be distributed
in kind to its shareholders;
(c) Discharging or making provision for discharging its
(d) Distributing its remaining property among its
shareholders according to their interests; and
(e) Doing every other act necessary to wind up and
liquidate its business and affairs.
KRS 271B.6-220(2) provides that “[u]nless otherwise provided in the articles of
incorporation, a shareholder of a corporation shall not be personally liable for the
acts or debts of the corporation except that he may become personally liable by
reason of his own acts or conduct.”
While Martin contends that his actions were strictly limited to the
purpose of winding up Southeastern, his actions exceeded the scope of activity
envisioned by KRS 271B.14-050. In the instant case, after his company was
dissolved on November 9, 2004, Martin solicited Pack’s, created a new liability,
and subsequently established a payment agreement with Pack’s in 2006. It has
long been held that the purpose of the winding up statute was to provide a party
with the opportunity to liquidate a business in a reasonable time. Holliday v.
Cornett, Sheriff, 224 Ky. 356, 6 S.W.2d 497, 498 (1928). In this case, Martin
continued to reach agreements with Pack’s in the years following his company’s
dissolution and established a ten-year payment agreement in 2006.
Under the facts of this case, Martin has produced no affirmative
evidence how this conduct constituted winding up his business. A party “opposing
a properly supported summary judgment motion cannot defeat it without
presenting at least some affirmative evidence showing that there is a genuine issue
of material fact for trial.” Steelvest, Inc. v. Scansteel Service Center, Inc., 807
S.W.2d 476, 482 (Ky. 1991). After Pack’s presented evidence showing the
circumstances of Martin’s action required a finding of personal liability, Martin
failed to present any affirmative evidence to show a genuine issue of material fact.
Accordingly, the trial court’s judgment was not in violation of KRS 271B.14-050.
Furthermore, we have previously addressed the essence of Martin’s
KRS 271B.6-220(2) claim. To reiterate, Martin cannot be shielded from personal
liability by virtue of the statute, because his corporation was dissolved at the time
of his actions. Therefore, KRS 271B.6-220(2) provides Martin no relief.
Martin argues that he cannot be individually liable in an amount in
excess of his equity in the corporation at the time his ownership of the corporation
terminated. He contends that he transferred all of his interest in Southeastern to
Collinsworth at a substantial loss, subsequent to his dealings with Pack’s and, thus,
could not be individually liable to Pack’s because he had no equity in the
Notwithstanding Martin’s argument, he has failed to cite where he
preserved this argument by presenting the facts to the trial court. “It is well-settled
that a trial court must be given the opportunity to rule in order for an issue to be
considered on appeal, and the failure of a litigant to bring [a matter] to the trial
court's attention is fatal to that argument on appeal.” Baker v. Weinberg, 266
S.W.3d 827, 835 (Ky.App. 2008). Accordingly, we will not address Martin’s
argument because he did not present this argument to the trial court.
Martin contends that the Rowan Circuit Clerk’s Office’s failure to
timely mail his counsel a copy of the summary judgment prevented him from filing
a motion to reconsider pursuant to CR 59.05. He contends that the clerk’s office
mailed the judgment to him eleven days after the judgment was entered. Thus, he
argues that the clerk’s error prevented him from filing a CR 59.05 motion.5
Assuming Martin is correct regarding the late mailing, he has failed to
state what new facts he would have produced to the trial court to create a genuine
issue of material fact to preclude summary judgment. As stated in Hopkins v.
Ratliff, 957 S.W.2d 300, 301 (Ky.App. 1997), a litigant cannot utilize a motion
pursuant to CR 59.05 to raise arguments and introduce evidence that could and
should have been presented to the trial court before the judgment was issued.6
CR 59.05 provides that “[a] motion to alter or amend a judgment, or to vacate a judgment and
enter a new one, shall be served not later than 10 days after entry of the final judgment.”
See James v. James, 313 S.W.3d 17 (Ky. 2010), for a discussion of reinvesting the trial court
with authority to modify a judgment after the expiration of the ten-day period in CR 59.05.
Therefore, we conclude that any mailing error was harmless because Martin has
not stated what new evidence or arguments that he would have presented to the
trial court which could not have been previously presented. Id.
Martin contends that the Rowan Circuit Clerk’s Office’s failure to
timely mail his counsel a copy of the summary judgment prevented him from filing
a motion to reconsider the trial court’s award of interest to Pack’s. However,
Martin has failed to make specific arguments regarding what he would have
presented to the trial court. Accordingly, we conclude any error was harmless.
For the foregoing reasons, the Rowan Circuit Court’s granting of
summary judgment is affirmed.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
James M. Gary
John J. Ellis