TRINITY INDUSTRIAL CORPORATION OF AMERICA v. SEOUL BARBECUE, INC.
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RENDERED: OCTOBER 20, 2000; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1999-CA-000303-MR
TRINITY INDUSTRIAL CORPORATION
OF AMERICA
APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE GARY PAYNE, JUDGE
ACTION NO. 96-CI-00346
v.
SEOUL BARBECUE, INC.
APPELLEE
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
GUDGEL, CHIEF JUDGE; EMBERTON AND TACKETT, JUDGES.
EMBERTON, JUDGE: Trinity Industrial Corporation of America filed
this action against Seoul Barbecue, Inc., to collect a debt
allegedly owed under a contract to design, fabricate and install
an exhaust system to be used in a Korean Restaurant owned by
Seoul Barbecue.
Seoul Barbecue counterclaimed alleging that
Trinity failed to perform its duties under the contract and that
such failure caused it damages.
Following a bench trial, the
trial court found that Trinity failed to substantially perform
the contract and that as a direct result of Trinity’s failure,
Seoul Barbecue suffered damages in the amount of $438,613.27.
On
appeal, Trinity does not contest the trial court’s finding that
it failed to substantially perform the contract.
The primary
issues on appeal are the admission of the testimony of Seoul
Barbecue’s expert and the measure of damages.
From 1984 through 1994, a restaurant known as the China
Kitchen was operated in the Gardenside Shopping Center in
Lexington.
In 1990, and until 1994, the restaurant was owned by
OK Ja Im (Emo) and OK Bun Kim.
In 1994, Kim sold her interest to
Emo who later entered into a partnership with Jeff Wilson to
begin a new restaurant at the same location.
The new restaurant
was named Seoul Barbecue, and although most things remained
substantially the same as the China Kitchen, Korean food was
added to the menu.
To cook the Korean food, Jenn Air-type grills
were installed in the dining room.
In the fall of 1994, Emo approached Nick Ochai,
president of Trinity, about installing charcoal grills.
It was
believed the Korean food cooked on the grills would taste better
and, too, a new restaurant, Arirang Gardens, was opening in
Lexington where Korean food would be cooked on charcoal grills.
Trinity agreed to design, fabricate and install a smoke exhaust
system that would remove smoke generated from the charcoal grills
for $13,425.
No permits were obtained from the building
inspector’s office, nor the Fire Marshall’s office as required by
law.
The installation was completed on December 7, 1994, and the
grills were first used three weeks later after the electrical
facilities were completed.
Upon turning the system on it was
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determined to be completely ineffective in removing the smoke
from the restaurant.
From January through May 1995, Trinity unsuccessfully
attempted to remedy the defects.
Although there is some dispute
as to whether Seoul Barbecue tendered payment for the system
conditioned on Trinity’s remedying the problem with the exhaust
system or if Seoul Barbecue simply wrote checks drawn on
insufficient funds.
In either event, Seoul Barbecue did not pay
Trinity the $13,425 owed on the contract.
In January 1996, Trinity filed this action against
Seoul Barbecue seeking recovery of the amount owed on the
contract.1
Shortly after Trinity filed this action, an estimate
was obtained from another contractor as to the cost of making the
system usable.
The contractor informed Seoul Barbecue that the
present system was completely inadequate and quoted Seoul
Barbecue the sum of $40,000 to install a proper exhaust system.
Trinity argues that Seoul Barbeque accepted the
defective system and therefore waived any right to object to its
performance.
Relying on Shreve v. Biggerstaff,2 the trial court
held that no waiver had occurred.
In Shreve, supra, the court
recited that a “waiver may occur under certain circumstances, for
instance where the contractee, having knowledge of the defects
has stood by silently and then accepted the work as sufficient
compliance with the contract and later raises objection.”
1
We
Trinity also sought $197.50 for work done other than on
the exhaust system. This amount was awarded to Trinity and is
not relevant to the present issues.
2
Ky. App., 777 S.W.2d 616 (1989).
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find no abuse of discretion in the trial court’s finding that
there was no waiver by Seoul Barbecue.
Seoul Barbecue was not
silent but continually voiced its position that the exhaust
system was inadequate.
Next, Trinity argues that the trial court erred when it
admitted the testimony of Debra Walker, or alternatively, failed
to grant a continuance.
In 1996, Trinity served interrogatories
requesting the identity of, and information regarding, expert
witnesses and their opinions.
In its response, served on
September 17, 1996, Seoul Barbecue identified Debra Walker,
C.P.A., as a witness who would testify as to Seoul Barbecue’s
income tax returns.
On October 21, 1997, twenty-one days prior to the
scheduled trial date, Trinity took Walker’s deposition.
At that
time, Walker testified that she would be testifying at trial as
to the damages sustained by Seoul Barbecue, and that she believed
the “minimum” figure would be approximately $209,742.55.
However, Walker expressly stated that after she further reviewed
the books and records, she would furnish a top line loss amount.
Although she assured each party that a copy of her final report
would be sent, she did not state a date it would be completed nor
did Trinity seek to impose a deadline.
On the afternoon of November 10, 1997, Walker faxed a
five page calculation of damages stating that the highest amount
of loss was $475,630.11.3
3
Trinity suggests that Walker submitted losses of
$1,020,199.14, when actually she submitted three theories of loss
(continued...)
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Trinity filed a motion with the trial court to preclude
admission of Walker’s latest calculations, or in the alternative,
for a continuance.
Trinity also informed the court that its own
expert witness, George Helton, would be unable to attend the
trial and there was insufficient time to prepare a rebuttal to
Walker’s testimony.
The trial court denied Trinity’s motion.
Although Trinity argues that this was a trial by
ambush, the trial court found that Trinity simply failed to
prepare for the attack.
On April 17, 1997, a pretrial order was
entered stating that experts were to be disclosed and discovery
completed by September 1, 1997, “unless otherwise extended by
agreement or further orders of this court.”
Trinity did not
depose Walker until October 21, 1997, and prior to that date, if
it did not know the exact content of Walker’s testimony, it
certainly knew that she would testify that Seoul Barbecue’s
damages were at least $209,742.53.
Yet, from October until the
November trial, it did nothing to prepare a rebuttal.
There was complete disregard by both parties as to
discovery deadlines imposed by the trial court and preparation
for trial was obviously “last minute.”
A party who fails to
comply with discovery deadlines and waits until the final hours
to conduct its discovery has a difficult task of persuading the
trial court that it was prejudiced by surprise in the content of
a witness’s testimony.
“A party is not entitled to a
3
(...continued)
each concluding a different figure. Trinity apparently added the
total losses from each theory to arrive at the figure in excess
of one million dollars.
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postponement of trial because it neglected to make the best use
of common discovery techniques.”4
We find no abuse of discretion
in the trial court’s refusal to strike the testimony of Walker or
grant a continuance.
Although we find that the pretrial procedure
irregularities did not preclude the admission of Walker’s
testimony, we agree with Trinity that her testimony does not
support the damages awarded.
Walker’s calculation of damages was
based on the use of profit figures from the China Kitchen and the
first six months of Seoul Barbecue’s operation.
It is Seoul
Barbecue’s position that immediately after the installation of
the system, its sales dropped markedly, ultimately resulting in
the demise of the business.
In support of this hypothesis, Seoul
Barbecue’s customers testified that when the charcoal grills were
operated, the smoke was so overwhelming that customers would not
patronize the restaurant.
Damages for breach of contract are awarded so that the
non-breaching party can be placed in the same position it would
have been in had the party fully performed the contract.5
In the
context of a business, lost profits are recoverable if
established with reasonable certainty.
As explained in Pauline’s
Chicken Villa v. KFC Corporation:6
4
Kentucky Farm Bureau Mut. Ins. Co. v. Burton, Ky. App.,
922 S.W.2d 385, 388 (1996).
5
Evergreen Land Co. v. Gatti, Ky. App., 554 S.W.2d 862,
866 (1977).
6
Ky., 701 S.W.2d 399, 401 (1985).
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[T]he test is not whether the business is a
new or unestablished one, without a history
of past profits, but whether damages in the
nature of lost profits may be established
with reasonable certainty. Comment b in the
Restatement, supra, sums it up as follows:
However, if the business is a new one .
. . proof will be more difficult.
Nevertheless, damages may be established
with reasonable certainty with the aid
of expert testimony, economic and
financial data, market surveys and
analyses, business record of similar
enterprises, and the like.
The court continued to state that:
No court, including this one, can elucidate a
single definition of “reasonable certainty”
which may be used as a yardstick in all
cases. However, this is a case containing
factors and elements which eliminate
virtually all the uncertain variables. This
is a national franchisor, with uniformity of
national advertising, uniform quality
control, earnings and expense figures on
nearby and comparable locations, and an
available history concerning success and
failure ratios. The franchisee, likewise, is
experienced in the field and with the
specific product, with a proven record of
operation and management, a history of profit
and loss, with two current operations in the
general area, etc.7 (Citations omitted).
None of the factors in Paulines, supra, are present in
this case, and as a consequence, it is impossible to eliminate
the variables which could reasonably account for the loss of
profits sustained by Seoul Barbecue.
To project the future
income of Seoul Barbecue, Walker relied on the past profits of
China Kitchen, which was a different restaurant, one which did
not have to compete with restaurants opened since 1994 in the
Lexington area, and one with different owners.
7
Id. at 401-402.
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Her assumption
that Seoul Barbecue would have experienced a 25% increase in the
first year and a 50% increase in the second year after the
installation of the charcoal grills is not based on statistics,
analysis, or business records of similar restaurants, but only
her hunch that if a wider menu is offered, more customers would
be attracted.
This is simply insufficient to meet the difficult
reasonable certainty requirement imposed.8
We also note that the $438,613.27 damage award is
apparently based on the trial court’s misunderstanding of the
nature of the damages to be awarded.
It is axiomatic that to
recover for a breach of contract the damages must have naturally
arisen from the breach and be within the contemplation of the
parties to the contract.9
The damages which would naturally
arise from the improper installation of the exhaust system, which
from the evidence affected only the ability to cook food on the
grills, would be only the income found to be generated from the
use of the grills.
The reasons for the entire financial collapse
of the restaurant cannot reasonably be related to the
installation of the exhaust system.
The restaurant prospered
prior to their installation, and unless turned on, no smoke was
generated.
It is likely, as suggested by Trinity, that other
intervening factors between the time the exhaust system was
installed and the loss of revenue to Seoul Barbecue, that caused
the decrease in profits.
There is simply no evidence which
8
Id. at 401.
9
Hogg v. Edley, 236 Ky. 142, 32 S.W.2d 744 (1930).
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establishes the amount of damages caused by the inability to use
the grills.10
The evidence establishes that Seoul Barbecue bargained
for an operational exhaust system and that it received nothing.
Seoul is entitled to recover from Trinity the amount it would
cost to have the work properly performed, $40,000.11
There is no
evidence that establishes to a reasonable certainty that it
sustained damages in excess of that amount.
Since Trinity failed
to substantially perform the contract, it is not entitled to
recover, set off, or credit for its labor in installing the
exhaust system.
This case is reversed and remanded for entry of an
order consistent with this opinion.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Charles E. Beal II
Tonya S. Conner
Lexington, Kentucky
Gerry L. Calvert, Sr.
Gerry L. Calvert II
Lexington, Kentucky
ORAL ARGUMENT FOR APPELLANT:
ORAL ARGUMENT FOR APPELLEE:
Charles E. Beal II
Lexington, Kentucky
Gerry Calvert II
Lexington, Kentucky
10
Roadway Express, Inc. v. Don Stohlman & Assoc., Inc.,
Ky., 436 S.W.2d 63, 65-66 (1968).
11
Beaver Dam Coal Co. v. Brashear, 246 Ky. 69, 54 S.W.2d
609 (1932).
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