AND CITY OF LOUISVILLE APPELLANT/ APPEALS v. BARGAINS GALORE, INC. APPELLEE/
Annotate this Case
Download PDF
RENDERED:
February 13, 2004; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2002-CA-001065-MR
AND
CROSS-APPEAL NO. 2002-CA-001142-MR
CITY OF LOUISVILLE
APPELLANT/CROSS-APPELLEE
APPEALS FROM JEFFERSON CIRCUIT COURT
HONORABLE DENISE CLAYTON, JUDGE
ACTION NO. 00-CI-06189
v.
BARGAINS GALORE, INC.
APPELLEE/CROSS-APPELLANT
OPINION
AFFIRMING IN PART,
REVERSING IN PART,
AND REMANDING
** ** ** ** **
BEFORE:
JOHNSON, KNOPF, AND McANULTY, JUDGES.
KNOPF, JUDGE:
This appeal and cross-appeal arise from a
judgment by the Jefferson Circuit Court in favor of Bargains
Galore, Inc. on a claim involving the loss of certain
merchandise and records while it was in the possession of the
City of Louisville.
The City alleges that the trial court
improperly awarded damages for lost profits caused by the loss
of the business records, while Bargains Galore contends that the
trial court undervalued its missing inventory.
Because we agree
with the arguments presented by both the City and Bargains
Galore, we affirm the judgment in part, reverse it in part, and
remand for entry of additional findings of fact and a new
judgment.
The undisputed facts of this case are set forth in the
trial court’s opinion as follows:
On March 27, 1996, the Louisville
Police Department, pursuant to a valid
search warrant for Kentuckiana Lease
Department, Inc d/b/a B-Mart, took
possession of a large amount of inventory
owned by Bargains Galore, Inc. Bargains
Galore is a wholesale business and goods
were sold to customers all over the country.
The inventory that was seized was not placed
in the usual Police property room, but was
stored in a building located at 340 West
Chestnut Street, Louisville, Kentucky
The Commonwealth Attorney’s Office and
Alvin Borowick, the owner of Bargains
Galore, entered into negotiations to resolve
this criminal matter. The resolution was
that certain confiscated items would be
returned to the plaintiffs and other items
would be destroyed. Richard Borowick, who
is the son of Alvin Borowick, is an employee
of Bargains Galore and is the primary buyer
for the corporation. The corporation
entered a guilty plea. However, this plea
was not entered until December 19, 1997,
although it is clear that the parties had
been in negotiations regarding this matter
for some time. On January 8, 1998, Richard
Borowick and the representatives from the
Police Department, including Detective David
James who testified in this matter, went to
the facility so that Mr. Borowick could
2
retrieve the items. However, when they
arrived at the facility, [they discovered
that] some of plaintiff’s inventory had been
stolen.
Bargains Galore filed this action against the City
seeking damages for the value of its lost inventory and business
records, as well as reimbursement for delivery expenses and
interest paid on a loan that it took out to purchase replacement
inventory.
The parties stipulated to what items were lost, and
they agreed that the inventory should be valued based upon its
fair market value as of the date of the loss – January 8, 1998.
However, the parties disagreed about the amount of inventory in
each of the lost boxes, the fair market value of those items,
and the value of the lost business records.
The City also
contested Bargains Galore’s claims for interest paid on the
loan.
The court conducted a bench trial on February 13 and
14, 2002.
The parties submitted the contested issues to the
court based on the evidence and post-trial briefs.
On March 20,
2002, the trial court issued findings of fact and a judgment
awarding damages to Bargains Galore in the total amount of
$52,971.00.
The court’s findings broke the damages down as
follows: $13,230.00 for lost inventory; $4,791.00 for delivery
expenses incurred; $4,950.00 for interest paid on the loan; and
$30,000.00 for the lost profits due to the loss of its business
records.
This appeal and cross-appeal followed.
3
Regarding the appropriate standard of review, this
Court stated in Bealert v. Mitchell:1
As in any case that is tried without the
intervention of a jury, the findings of fact
of the trial court should not be reversed
unless they are determined to be clearly
erroneous. In making such consideration the
appellate court must keep in mind that the
trial court had the opportunity to hear the
evidence and observe the witnesses, so as to
judge their credibility, and therefore, is
in the best position to make findings of
fact. 7 W. Clay, Kentucky Practice, CR
52.01.2
Although the City downplays any negligence on its
part, it has conceded liability for the loss of the inventory
while in its possession.
Nevertheless, Bargains Galore still
had the burden of proving the amount of its damages.
In its
direct appeal, the City contends that the evidence did not
support the trial court’s award of $30,000.00 for lost profits
due to the loss of the business records.
In its cross-appeal,
Bargains Galore argues that the trial court undervalued its lost
inventory, particularly in light of the parties’ stipulation
that the measure of damages was the fair market value of the
inventory.
We will first address the issues raised in the
cross-appeal.
1
Ky. App., 585 S.W.2d 417 (1979).
2
Id. at 418.
4
When the merchandise and records were seized, the City
conducted an inventory of the items.
However, most of the
merchandise remained in their shipping cases, and the City did
not attempt to determine what was in each of the boxes.3
Consequently, the parties were able to agree which boxes were
missing, but they could not agree about what the boxes contained
or how much the merchandise was worth.
The largest quantity of
items that were lost was 39 cases of cigarette rolling papers.
The City, however, questioned whether each case was a full case
and whether the cases contained “premium” or lesser quality
rolling papers.
The trial court noted that there was no
evidence conclusively establishing these facts.
Officer David
James, who was present when the items were initially seized,
testified that approximately 300 to 350 boxes were removed from
the warehouse.
He stated that some of the cigarette rolling
papers were separate, some were in packages or boxes similar to
cigarette cartons, and others were in a case.
However, he was
not sure of the difference between a case and a box.
Bargains Galore’s inventory records were also lost,
and Bargains Galore did not contact the manufacturers to re-
3
In addition, there was testimony that the police officers
packed some of the seized inventory and records into boxes
without any organized method.
5
create the inventory list.4
Michael Carden, a regional sales
manager for one of the manufacturers, testified regarding the
cost of the various types of cigarette rolling papers.
In
addition, Richard Borowick testified from memory concerning the
value of the missing inventory.
The trial court found the
testimony of Richard Borowick and Michael Carden regarding the
value of the rolling papers to be credible.
Bargains Galore asserted that the total value of the
lost inventory, including the rolling papers, amounted to
$52,281.75, and that those items would have sold for $63,738.05.
Nevertheless, the court declined to accept this figure as the
measure of damages for the lost inventory.
Rather, the court
noted that in February 1997, Alvin Borowick accepted the offer
of a loan from his friend, Harry Edelstein, for $40,000.00.
According to both Edelstein and Borowick, the purpose of the
loan was to allow Bargains Galore to purchase new inventory to
replace what was taken.
Consequently, the trial court concluded
that this assessment by the parties, at the
time the inventory was taken, is the most
reliable indication of what the parties
believed the inventory was worth. Based
upon the evidence submitted by the plaintiff
reflecting a profit margin of roughly 17%,
this would result in the inventory being
sold for approximately $49,000.00. However,
4
Richard Borowick also testified that Bargains Galore had never
kept detailed records showing how much inventory it had in stock
at any given time.
6
this loan was for all the inventory seized
as opposed to only part of the inventory
that was to be returned. According to
Exhibit “A” of the complaint, which is a
list of the missing items, approximately
eighty boxes were missing. This has been
adjusted somewhat by the parties, but
roughly speaking, it appears that
approximately 27% of the inventory that
should have been returned was not returned
to Bargains Galore.
Therefore, if the $40,000.00 inventory
would have sold for approximately
$49,000.00, then of that amount, 27% is
attributable to the lost inventory. The
Court therefore, determines that the value
of the lost inventory is $13,230.00.
Bargains Galore argues that this valuation was not
supported by the evidence presented at trial.
We agree.
Prior
to trial, the parties properly stipulated to what items were
lost while in the City’s possession.
The parties further agreed
that the measure of damages would be the fair market value of
the lost merchandise.5
However, as noted above, there was
5
See Amlung v. Bankers Bond Co., Ky., 411 S.W.2d 689 (1967)
which states:”[t]he traditional measure of damages for the
conversion or destruction of personal property is the fair
market value of the property at the time and place of the loss,
with interest, in the discretion of the jury, from the time of
the conversion. . . . Where property is destroyed, or is
converted, so that the title either is, or is regarded as, out
of the former owner, damages are the pecuniary representative of
the property, and take its place. The plaintiff has lost or
abandoned his claim to the property; his claim against the
defendant is for an equivalent sum of money. In this point, a
conversion very nearly resembles a sale. . . . In an action for
the conversion of personal property, the measure of damages is
the value of the property at the time of the conversion, with
interest. . . .” Id. at 693 (citations and internal quotations
omitted).
7
tremendous disagreement about the value of the merchandise,
particularly the cigarette papers.
Furthermore, Bargains Galore
presented very little in the way of documentary evidence to
support its valuation.
Consequently, the trial court concluded
that the $40,000.00 loan from Edelstein represented the value
which Alvin Borowitz had placed on all of the confiscated
merchandise at the time of the loss.
Because the plea agreement
only required the City to return approximately 27% of the
confiscated merchandise, the trial court valued the converted
inventory as 27% of the amount for which the entire inventory
would have sold.
There are several problems with this assessment.
First, the trial court assumed that the $40,000.00 loan from
Edelstein was intended to finance the replacement of all of the
confiscated merchandise.
This assumption is not necessarily
unreasonable, except that it overlooks the reason why the
merchandise came to be in the City’s possession in the first
place.
The basis for the initial seizure of the merchandise
was the Commonwealth’s allegation that Bargains Galore was
selling drug paraphernalia.
Under the terms of the plea
agreement, the Commonwealth would confiscate and destroy items
that were clearly paraphernalia, such as glass pipes and
powders.
The parties agreed to negotiate the status of other
items which could be used with illegal drugs, but were not
8
clearly contraband.
And finally, the Commonwealth agreed to
return items such as cigarette rolling papers, baggies, and
detoxifiers which could not be classified as drug paraphernalia.6
In finding that the proceeds of the $40,000.00 loan
were used to replace all of the confiscated merchandise, the
trial court also implies that Bargains Galore simply replaced
all of what was seized with identical merchandise – including
merchandise which the Commonwealth had classified as drug
paraphernalia.
Given the nature of the charges pending at the
time, it seems unlikely that Bargains Galore would do this.7
At
most, the $40,000.00 loan can only reasonably be viewed to
represent the replacement cost of legal merchandise, not all of
the seized merchandise.
The more fundamental problem, however, is that the
$40,000.00 loan cannot be reasonably viewed to represent the
value of the missing inventory.
The trial court also assumed
that all of the confiscated merchandise was of equivalent value,
and that the lost merchandise was of proportionate value to all
of the confiscated merchandise.
While this assumption might
have been justified had the inventory been unidentified or of
6
See KRS 218A.500 et seq.
7
Indeed, Richard Borowick testified that the new inventory which
Bargains Galore purchased after the seizure did not include
merchandise which the Commonwealth had categorized as drug
paraphernalia.
9
similar nature, the parties had stipulated to what items had
been confiscated, which items the City was required to return,
and which of these items had been stolen while in the City’s
possession.
Consequently, the evidence did not support the
trial court’s method of valuing them based upon their proportion
to the whole.
Moreover, the trial court’s finding that Bargains
Galore used the proceeds of the $40,000.00 loan to purchase new
inventory does not support the conclusion that Bargains Galore
used the loan proceeds to replace the seized inventory.
As
noted by the trial court, Bargains Galore’s business is entirely
wholesale – it purchases merchandise from suppliers and resells
it to retailers at a profit.
In turn, a significant portion of
the sales proceeds is used to purchase new merchandise.
After
its inventory was seized, Bargains Galore needed an infusion of
capital to remain in business.
needed capital.
Edelstein’s loan provided that
In short, the $40,000.00 loan represents
Bargains Galore’s capital investment in new inventory, not
replacement inventory.8
Based on the foregoing, we conclude that
8
Edelstein testified that he loaned the money “for inventory, to
rebuild the stock so they [Bargains Galore] could stay in
business.” 30-5-02 VCR 013A at 14:48:49. Richard Borowick
testified that, due to monetary constraints, Bargains Galore was
not able to replace the missing items with identical
merchandise. 30-5-02 VCR 013A at 12:17:35. Along similar
lines, Alvin Borowick also testified that the loan was necessary
10
the trial court relied on several erroneous premises in valuing
all of the seized inventory at $40,000.00.
As a result, the
trial court clearly erred in finding that the fair market value
of the converted merchandise was $13,230.00.
Although Bargains Galore did not present particularly
strong proof concerning the fair market value of these latter
items, Richard Borowick testified that the cost of noncigarette-paper merchandise was $12,969.75, and that these items
would have wholesaled for $18,732.05.9
The City takes issue with
this figure, noting that Bargains Galore did not support these
values with any documentation.
Nevertheless, Richard Borowick
testified that he was the primary buyer for the corporation, and
that he was familiar with the cost of all these items.
Moreover, the trial court specifically found that he was able to
properly testify as to the value of these items.
In the absence
of any contradictory evidence, the trial court should have found
the fair market value of these items to be $18,732.05.
to allow Bargains Galore to purchase sufficient inventory to
remain in business. 30-5-02 VCR 013A at 15:12:30.
9
These values include Bargains Galore’s cost and the wholesale
value of loose boxes and packs of cigarette papers, as well as
lesser quality cigarette papers which were in stock. However,
the City only contested the value of the whole cases, not the
separate paper. In addition to the merchandise, Bargains Galore
also alleged that the police had taken a two-wheel dolly from
its warehouse which was also not returned. Bargains Galore did
not claim that it had any wholesale value above its cost.
11
As noted above, the City did contest the value of the
39 cases of cigarette rolling papers that should have been
returned to Bargains Galore.
Officer James testified that on
January 8, 1998, when they discovered that the merchandise was
missing, Richard Borowick estimated the value of the cigarette
rolling papers at between $200.00 and $600.00 a case.
At trial,
however, Borowick testified that Bargains Galore paid $1,008.00
a case for “premium” cigarette papers, and that they would have
wholesaled for $1,154.00 a case.
Although the trial court was
undoubtedly frustrated by the lack of documentary evidence in
this case, there was sufficient evidence of at least a range of
values for these papers.
Because factual findings are outside
of the scope of this Court’s review, we shall remand this matter
for the trial court to assign a fair market value to these
cigarette rolling papers.
In its direct appeal, the City argues that the trial
court clearly erred in finding that Bargains Galore had suffered
a $30,000.00 loss due to the loss of its business records.
The
City correctly notes that Bargains Galore did not challenge the
validity of the original seizure in March of 1996.
Rather,
Bargains Galore claimed that its damages accrued after January
8, 1998, when the City was required to return the records but
was unable to do so.
However, Bargains Galore’s proof of
damages consisted of tax records from fiscal years 1996 and
12
1997, and the testimony of its accountant, Ivan O’Koon.
O’Koon
testified that Bargains Galore lost $62,000.00 in profits during
the fiscal year ending June 30, 1997.
The City points out that
these losses were sustained before it was required to return any
merchandise or records.
While O’Koon testified that Bargains
Galore sustained additional losses in the following year from
the loss of its business records, the City further argues that
he did not specifically attribute any amount of damage to the
loss of the business records.
Consequently, the City contends
that the trial court erred by finding that Bargains Galore
suffered $30,000.00 from the loss of its records.
In response, Bargains Galore notes that most of the
missing records were customer lists – names and records relating
to existing customers, as well as the contact information for
prospective customers.
Bargains Galore did not seek its lost
profits from sales to these customers, but rather sought to be
compensated for the loss of its customer base.
While it may not
be possible to precisely determine the amount of damage directly
attributable to this loss, Bargains Galore contends that it
presented sufficient evidence to establish the fact of its
injury.
Bargains Galore concludes that the trial court properly
relied on this evidence in making the award.
13
In Roadway Express, Inc. v. Don Stohlman &
Associates., Inc.,10 the former Court of Appeals set out the
standard for proving the type of losses claimed by Bargains
Galore
The test of whether there can be a recovery
for loss of anticipated revenues or profits
is not whether the amount thereof can be
ascertained with exactness or certainty, but
whether the cause of the damage or injury
can with reasonable certainty be attributed
to the breach of duty or wrongful act of the
defendant. If it is established with
reasonable certainty that damage has
resulted from a breach of duty or a wrongful
act of defendant, mere uncertainty as to
the amount will not preclude recovery,
particularly where, from the nature of the
case, the extent of the injury and the
amount of damage are not capable of exact
and accurate proof. … But no recovery is
allowed when resort to speculation or
conjecture is necessary to determine whether
the damage resulted from the unlawful act of
which complaint is made or from other
sources.11
Turning to the present case, there is no question that
Bargains Galore has been damaged by the loss of its customer
records.
It has been long recognized that customer lists are
essential to the conduct of any business.12
Furthermore,
customer lists constitute a significant work-product of any
10
Ky., 436 S.W.2d 63 (1968).
11
Id. at 65 (citations omitted).
12
Progress Laundry Co. v. Hamilton, 208 Ky. 348, 270 S.W. 834,
835-36 (1925).
14
business.
As such, they are the property of Bargains Galore,
and it is entitled to compensation for the City’s wrongful
conversion of the records.
Therefore, we agree with the trial
court that Bargains Galore has been damaged by the loss of these
customer lists.
The problem, however, is proving that this loss flowed
from the wrongful conversion of these records while they were in
the City’s possession, rather than from the City’s initial (and
lawful) seizure of the records.
In this case, there was a
twenty-two month interval between the City’s initial seizure of
the business records (March of 1996) and the date when the City
was required to return the records (January 8, 1998).
Furthermore, Bargains Galore concedes that the original seizure
of the records was pursuant to a valid search warrant.
Most of O’Koon’s testimony and the tax records related
to Bargains Galore’s losses during fiscal years 1996 and 1997 –
before the City was required to return the records.
Although
the tax return for fiscal year 1998 showed lost profits of
approximately $30,000.00, O’Koon testified that it was not
possible to determine which of Bargains Galore’s lost profits
stem from the loss of its customer lists and which stem from its
lost inventory.
And while O’Koon opined that Bargains Galore’s
sales would have increased if the City had returned its customer
lists in 1998, he admitted that this conclusion was “pure
15
conjecture.”13
Consequently, Bargains Galore failed to prove
with certainty that it incurred damages after January 8, 1998,
due the City’s negligence in losing its business records, and
the trial court clearly erred in so finding.
In conclusion, we agree with Bargains Galore that the
trial court’s findings of fact concerning the value of the
wrongful conversion of its inventory were clearly erroneous.
On
remand, the trial court shall enter a judgment for Bargains
Galore in the amount of $18,732.05, representing the value of
the uncontested merchandise, and the court shall make additional
findings and enter a judgment to compensate Bargains Galore for
the value of the cigarette rolling papers.
We further agree
with the City that the trial court clearly erred in finding that
Bargains Galore had sustained losses in the amount of $30,000.00
from the wrongful conversion of its business records, and that
portion of the judgment is vacated.
The other portions of the
judgment that have not been appealed will remain undisturbed.
Accordingly, the judgment of the Jefferson Circuit
Court is affirmed in part, reversed in part, and remanded for
additional findings and a judgment consistent with this opinion.
ALL CONCUR.
13
30-5-02 VCR 013A at 14:35:50.
16
BRIEF FOR APPELLANT/CROSSAPPELLEE:
BRIEF FOR APPELLEE/CROSSAPPELLANT:
Susan P. Spickard
Assistant Jefferson
County Attorney
Louisville, Kentucky
Neil C. Bordy
Paul J. Hershberg
Seiller & Handmanker, LLP
Louisville, Kentucky
17
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
