JAMES MEDICAL EQUIPMENT, INC. AND DON JAMES v. LOYIE ALLEN; BREATHE EASY, L.L.C. AND MADISON HOME HEALTH, L.L.C.; SHARON MORRISON COPELAND; REX ALLEN; FRANKIE DOBSON AND RON HALL AND LOYIE ALLEN AND BREATHE EASY v. JAMES MEDICAL/FOR YOUR HEALTH, LTD. AND DON JAMES
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RENDERED:
SEPTEMBER 29, 2006; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO.
2005-CA-000128-MR
JAMES MEDICAL EQUIPMENT, INC.
AND DON JAMES
APPELLANTS
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE STEPHEN K. MERSHON, JUDGE
ACTION NO. 99-CI-01715
v.
LOYIE ALLEN; BREATHE EASY, L.L.C. AND
MADISON HOME HEALTH, L.L.C.; SHARON
MORRISON COPELAND; REX ALLEN;
FRANKIE DOBSON AND RON HALL
APPELLEES
AND
NO.
2005-CA-000272-MR
LOYIE ALLEN AND
BREATHE EASY
v.
CROSS-APPELLANTS
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE STEPHEN K. MERSHON, JUDGE
ACTION NO. 99-CI-01715
JAMES MEDICAL/FOR YOUR HEALTH, LTD.
AND DON JAMES
CROSS-APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
COMBS, CHIEF JUDGE; GUIDUGLI AND HENRY, JUDGES.
COMBS, CHIEF JUDGE:
In this appeal, James Medical Equipment
(JME) seeks to reinstate a judgment of the Jefferson Circuit
Court that was set aside by subsequent orders of the court.
The
original judgment had awarded damages to JME for breach of
fiduciary duty and for conspiracy to damage its business
relationships.
There is also a cross-appeal in which Loyie
Allen and Breathe Easy contend that there was insufficient
evidence of a conspiracy and that proof of damages was too
speculative.
After our review of the complex issues asserted by
the numerous parties, we affirm the trial court.
JME is a medical equipment company founded in 1979 by
Don James (James) and owned solely by him.
JME’s primary
business was to provide home oxygen equipment to patients
receiving Medicare benefits.
In addition, James owned other
affiliated medical companies in Taylor County -- e.g., DJ’s
Leasing and Sleep Labs.
In 1993, James placed JME into an
irrevocable trust, naming himself as the sole beneficiary.
He
remained actively involved in running the company, and he
selected the initial trustees.
After disagreements arose
between James and those initial trustees, he appointed his
nephew, Thomas James (a Washington, D.C., attorney), as the
Trustee (Trustee) for JME.
The Trustee hired Sharon Morrison Copeland (Copeland)
as chief executive officer of JME on July 14, 1997.
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The company
was experiencing serious financial problems in 1997-98.
It was
also undergoing an investigation for possible Medicare fraud due
to transactions between and among companies owned by James.
In
January 1998, James began an active campaign to regain control
of JME after the Trustee refused to pay him a substantial sum of
money from the company’s cash-strapped coffers.
When he
threatened to transfer JME’s home oxygen clients to one of his
other companies, the Trustee wrote him a letter advising that
such a decision would have a negative effect on the Medicare
investigation.
James then filed suit against JME in the Taylor
Circuit Court and asked that the trust be dissolved.
In August 1998, the Taylor Circuit Court decided that
the trust should be dissolved and that control of the company
would be returned to James.
on October 13, 1998.
That transfer of control occurred
During the interval between August and
October of 1998, Copeland was still acting as CEO of JME and was
simultaneously meeting with Rex Allen, a JME employee, and his
father, Loyie Allen, regarding their plans to start a competing
home oxygen company to be named “Breathe Easy.”
Upon regaining
control of JME, James discovered that all but one of his
employees were working for Breathe Easy -- despite having signed
non-compete agreements.
These employees included Frankie Dobson
and Ronnie Hall (Dobson and Hall).
In addition, Quentin Madison
(Madison), who had formerly serviced JME as an independent
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contractor, had also started a competing business called Madison
Home Health Services (Madison Home Health).
JME had lost
approximately one hundred home oxygen clients to Breathe Easy.
On March 24, 1999, James filed suit on behalf of
himself and JME in the Jefferson Circuit Court.
defendants:
He named as
Breathe Easy, Loyie and Rex Allen, Dobson and Hall,
Madison and Madison Home Health, and Copeland and her husband.
He alleged that the other defendants had conspired with Copeland
to breach her fiduciary duty to JME and to interfere with the
company’s business relationships.
After granting several requests by the defendants to
continue the matter due to various health problems, the court
first tried the case on July 15, 2003.
Seeking her third
continuance at this point, Copeland alleged an upcoming spinal
surgery as a basis for her inability to attend.
Two previous
continuances had been granted -- later found to have been based
on misrepresentations by Copeland concerning her husband’s
health.
Copeland was not present during this trial, and
Copeland, the Allens, and Breathe Easy were not represented by
counsel.
Except for Dobson and Hall, the jury found all of the
defendants liable and awarded approximately $1.5 million.
The
trial court entered judgment consistent with the jury verdict on
August 11, 2003.
The complaints as to Dobson and Hall were
dismissed.
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The remaining defendants filed a motion to set aside
the judgment.
They argued that the trial court should have
granted their request for a continuance due to Copeland’s need
for a surgery that prevented her from attending the trial.
The
court held a hearing on the motion at which Loyie Allen and
Breathe Easy, Copeland, and Rex Allen were all represented by
attorneys.
Following that hearing, the court set aside its
previous judgment on November 6, 2003, and ordered a new trial.
That order was followed by a second order, dated
December 31, 2003, which included factual findings in support of
the court’s decision to set aside the original judgment.
This
second order also dismissed with prejudice all complaints
against Copeland’s husband and denied Rex Allen’s motion for
judgment notwithstanding the verdict.
Six months later, JME
requested a hearing on the status of defendants Dobson and Hall.
The trial court found that after it dismissed the complaints
against them in August 2003, it had lost jurisdiction over them.
It declared that they were no longer parties.
The second trial took place from September 24 through
October 7, 2004.
Breathe Easy and Loyie Allen, Madison and
Madison Home Health, Copeland, and Rex Allen were all present
and were all represented by counsel.
The jury found that
Copeland had breached her fiduciary duty toward JME, that
Copeland and Loyie Allen had interfered with JME’s prospective
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business relationships, and that they had participated in a
conspiracy.
Madison and Madison Home Health, Breathe Easy, and
Rex Allen were all found not to have been involved in the
wrongful conduct of Copeland and Loyie Allen.
The jury
determined that JME suffered $101,288.00 in lost business
profits and allocated the fault among the parties as follows:
Copeland-50%, Loyie-30%, and James-20%.
were awarded.
No punitive damages
The trial court entered judgment reflecting the
jury verdict on November 1, 2004, and this appeal and crossappeal followed.
On appeal, JME and James contend that the trial court
erred in setting aside the first judgment, in upholding the
portion of the first judgment that dismissed Dobson and Hall as
defendants, in admitting prejudicial evidence regarding a
Medicare fraud investigation in the second trial, and in
instructing the second jury to apportion damages among the
parties.
Dobson and Hall filed a brief defending the court’s
decision to dismiss all complaints against them.
Rex Allen
filed a brief contending that the trial court acted properly in
setting aside the first judgment and in admitting the evidence
relating to possible Medicare fraud.
Breathe Easy and Loyie
Allen filed a cross-appeal in which they presented numerous
issues regarding the first trial.
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They argued that the trial
court should have granted their request for a directed verdict
at the second trial and that damages were not sufficiently
proven.
Madison and Madison Home Health did not file a brief;
nor did Copeland.
Whether the trial court erred in dismissing Dobson and Hall
JME argues that Dobson and Hall should have been retried at the second trial.
The trial court originally dismissed
with prejudice all complaints against them in its judgment of
August 11, 2003, after the jury found in their favor.
judgment was set aside on November 6, 2003.
That
JME argues that the
order setting aside the original judgment left Dobson and Hall
in the same position and amenable to liability just as if no
trial had taken place.
L.Ed. 625 (1869).
final judgment.
United State v. Ayres, 76 U.S. 608, 19
We disagree.
They had been dismissed in a
Kentucky Rule of Civil Procedure (CR) 59.05
provides that a motion to alter or amend a judgment shall be
filed no later than ten days after entry of final judgment.
CR
73.02 sets forth a thirty-day time limit on filing a notice of
appeal.
Neither rule had been invoked to keep them in the case.
The judgment dismissing Dobson and Hall was entered on
August 11, 2003.
JME never challenged this order of dismissal
by appeal or by a CR 59.05 motion.
It was not challenged until
June 2004 when JME filed a motion to clarify the status of
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defendants Dobson and Hall.
Meanwhile, the other defendants had
already filed a timely motion to set aside this judgment and to
grant a new trial due to Copeland’s allegedly unavoidable
absence at the first trial.
The subsequent orders did not
mention Dobson and Hall; their counsel during the first trial
did not receive copies of the orders from the court.
The court’s order of June 24, 2004, held that the
defendants’ motion to set aside the first judgment was not a
motion with regard to that portion of the order that had
dismissed Dobson and Hall.
The trial court correctly found that
it had lost jurisdiction over them ten days after entry of the
order of August 11, 2003.
Their status was not timely addressed
in a proper post-trial motion pursuant to CR 59.05.
Additionally, since JME never sought to appeal from that
judgment, the order dismissing the complaints against Dobson and
Hall with prejudice is no longer appealable pursuant to CR
73.20(2).
They literally slipped through the cracks and out of
the litigation.
Whether the trial court erred in granting a second trial
JME contends that because of the language in its order
of November 6, 2003, setting aside the judgment from the first
trial, the trial court erroneously believed that it had to grant
the defendants’ motion for a new trial.
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This case had
previously been set for trial on two separate dates in 2002 -both of which were rescheduled due to Copeland’s requests for a
continuance.
Prior to the third scheduled trial date, Copeland
had again asked the trial court for a continuance.
time, she had moved to Texas with her husband.
By this
She claimed that
he was in extremely poor health and that she needed back surgery
in order to be able to travel to Louisville to attend the trial.
The trial court wrote a letter dated May 6, 2003, to
Copeland’s physician and requested detailed information
regarding the date on which she would have her surgery and when
she would be sufficiently recovered to attend trial.
This
letter, which was copied to Rex Allen as well as to the
attorneys for JME and Dobson and Hall, stated in part as
follows:
Your letters indicate to me that Ms.
Copeland is in need of one and possibly two
surgeries but give no indication when these
surgeries will take place. I understand
that one had to be postponed because of
cardiac concerns.
I would appreciate it if you would advise me
at your earliest convenience as to when one
or both of these surgeries are scheduled and
the possible recovery period so that I may
work with counsel to schedule a trial date
when Ms. Copeland may appear.
(Emphasis added.)
No further letters from Copeland’s doctor
were forthcoming prior to the trial date of July 15, 2003.
Accordingly, the trial court denied the request by the remaining
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defendants to postpone the trial.
The case proceeded to trial
with the key player in the alleged conspiracy absent and with
several of the defendants not represented by counsel.
The jury found against all of the defendants (except
Dobson and Hall) and awarded more than one million dollars in
damages.
As noted earlier, after entering a judgment reflecting
the jury verdict, the court granted a hearing on November 3,
2003, on the defendants’ motion to set aside the judgment and to
grant a new trial.
By this time, Breathe Easy and Loyie Allen,
Rex Allen, and Copeland had each retained an attorney to
represent their interests.
The trial court granted the
defendants’ request to set aside its prior judgment and ordered
a new trial.
In support of its position on appeal, JME relies on
the following language in the court’s order:
The Court advised counsel that it had
read their written arguments before the
hearing and the Court considered the oral
arguments of counsel. Having done so, the
Court concludes that it has no choice but to
set aside its prior judgment and to schedule
this matter for a new trial. The Court
believes that its failure to do so will only
result in the matter coming back after
review by an Appellate Court.
The decision as to whether to grant a continuance lies within
the sound discretion of the trial court.
Therefore, JME argues
that the order setting aside the prior judgment was based on the
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court’s erroneous belief that its failure to grant a continuance
had constituted reversible error.
In support of its argument,
JME cites numerous cases dealing with a court’s decision to
grant or to deny a request for a continuance.
This argument
ignores the procedural reality of this case.
If the trial court had refused to set aside the
judgment, the defendants could have appealed and argued that it
was an abuse of discretion to deny their request for a
continuance on July 15, 2003.
However, that is not the
procedural sequence of events in this case.
After considering
the evidence presented and the arguments of the several
attorneys in support of the motion for a new trial, the court
determined that justice required that the motion be granted.
so ordered on November 3, 2003.
CR 59.01 allows the trial court
to grant a new trial for any of the following reasons:
(a)
It
Irregularity in the proceedings of the
court, jury or prevailing party, or an
order of the court, or abuse of
discretion, by which the party was
prevented from having a fair trial.
(b)
Misconduct of the jury, of the
prevailing party, or of his
attorney.
(c)
Accident or surprise which
ordinary prudence could not have
guarded against.
(d)
Excessive or inadequate damages,
appearing to have been given under
the influence of passion or
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prejudice or in disregard of the
evidence or the instructions of
the court.
(e)
Error in the assessment of the
amount of recovery whether too
large or too small.
(f)
That the verdict is not sustained
by sufficient evidence, or is
contrary to law.
(g)
Newly discovered evidence,
material for the party applying,
which he could not, with
reasonable diligence, have
discovered and produced at the
trial.
(h)
Errors of law occurring at the
trial and objected to by the party
under the provisions of these
rules.
The court entered a second order on December 31, 2003,
in response to a request from the parties for findings of fact
supporting its November 3, 2003, order to schedule a new trial.
In its second order, the court indicated that it was uncertain
as to whether Copeland’s absence from the first trial had been
unavoidable when it refused to continue the trial on July 15,
2003.
The court was aware that Copeland was not represented by
counsel and that she claimed that a scheduled back surgery would
prevent her from attending the trial.
However, it noted that
there was no evidence before it at that time that Copeland had
in fact had back surgery.
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After entering the original judgment against Copeland
and the other defendants, the trial court received information
verifying the date of Copeland’s surgery.
Thus, it made a
finding that “Copeland, through no fault of her own, was unable
to attend the July 15, 2003, trial, [and] . . . that justice
requires that she be granted a new trial.”
We are governed by an abuse-of-discretion standard in
reviewing a decision of a court as to whether to grant a new
trial pursuant to CR 59.01.
(Ky.App. 1996).
Shortridge v. Rice, 929 S.W.2d 194
JME has not established that the trial court
abused its discretion in deciding to grant the motion for a new
trial after it discovered that the key defendant was unavoidably
absent from the July 15 trial and that she was unrepresented by
counsel as well.
Whether the court erred in admitting prejudicial evidence of a
Medicare investigation of JME for fraud
JME argues that the trial court erred in allowing the
defendants to present evidence and to make allegations that
James was committing Medicare fraud.
He contends that the
investigation had been closed without any penalties having been
assessed against James or JME.
Therefore, he contends that
evidence of the investigation was unduly prejudicial.
Kentucky Rules of Evidence (KRE) 401-403 provide for
the admissibility of all relevant evidence as long as its
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probative value outweighs the danger of prejudicing, confusing,
or misleading the jury.
In response to a pre-trial motion in
limine, the trial court ruled that evidence of Medicare fraud
would be restricted.
The defendants were allowed to cross-
examine James as to whether his motive in placing JME in trust
had been for the purpose of evading Medicare laws prohibiting
referrals of business between or among companies with common
ownership.
Nevertheless, despite that clear limitation,
numerous allegations that James had committed Medicare fraud
were made during the trial.
Loyie Allen notes in his brief that James testified on
direct examination that the Trustee wrongfully refused to pay
money from JME’s funds to two of his other companies.
James
claimed that the Trustee’s refusal to pay him resulted in his
children’s need to resort to welfare benefits because he was
unable to meet his child support obligations.
In his direct
testimony, James attempted to depict the Trustee as part of the
conspiracy against JME and him.
Thus, Loyie Allen argues that
since James opened the door to the Medicare issue, the
defendants were entitled to present evidence concerning the
Trustee’s real reasons for refusing to pay other companies owned
by James from JME funds and for discouraging James from
diverting home oxygen clients from JME to another of the
companies that he owned.
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In order to prove that this evidence was improperly
admitted, James must show that it was prejudicial to JME and to
him and that its prejudicial impact outweighed its probative
value.
Despite repeated allegations that James was defrauding
Medicare, the jury still found Copeland and Loyie Allen liable
for conspiracy and interference with JME’s business
relationships.
“The balancing of the probative value of such
evidence against the danger of undue prejudice is a task
properly reserved for the sound discretion of the trial judge.”
Comm. v. English, 993 S.W.2d 941 (Ky. 1999).
We cannot conclude
that JME has shown that the trial court abused its discretion in
admitting evidence relating to a Medicare fraud investigation of
JME and James.
We find no error.
Whether the court incorrectly instructed the jury to apportion
fault among the parties
JME claims that the law requires joint and several
liability for parties engaged in a conspiracy.
Thus, it argues
the court’s instructions allowing the jury to apportion
liability among the defendants and to find contributory fault on
the part of the plaintiffs were incorrect.
Kentucky Revised
Statute (KRS) 411.182(1), which governs the allocation of fault
in tort actions, provides as follows:
(1)
In all tort actions, including products
liability actions, involving fault of
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more than one (1) party to the action,
including third-party defendants and
persons who have been released under
subsection (4) of this section, the
court, unless otherwise agreed by all
parties, shall instruct the jury to
answer interrogatories or, if there is
no jury, shall make findings
indicating:
(a) The amount of damages each
claimant would be entitled to
recover if contributory fault is
disregarded; and
(b) The percentage of the total fault
of all the parties to each claim
that is allocated to each claimant,
defendant, third-party defendant, and
person who has been released from
liability under subsection (4) of this
section. (Emphasis added.)
In support of its argument that KRS 411.182(1) should not apply
in this case, JME cites to language in the case of James v.
Wilson, 95 S.W.3d 875 (Ky. 2002), indicating that liability for
tortfeasors who act in concert is joint and several.
However,
JME fails to mention that this language is found within the
dissent and that it does not in any way represent the actual
holding of the case.
In light of the clear and unambiguous
language of the statute governing apportionment of liability, we
hold that the trial court’s instructions to the jury were
correct.
Issues presented on cross-appeal by Breathe Easy and Loyie Allen
Breathe Easy and Loyie Allen filed a cross-appeal from
the court’s judgment entered after the second jury trial.
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They
raise numerous issues pertaining to the conduct and the outcome
of the first jury trial.
However, since the judgment relating
to the July 15, 2003, trial was subsequently set aside, all
issues raised by these defendants regarding that trial are moot.
With regard to the second trial, Breathe Easy argues
that the trial court erred in denying the motion for a directed
verdict with regard to Loyie Allen and that the plaintiffs’
proof of damages was based solely on speculation.
We will first
address the issue of whether there was sufficient evidence
presented at the second trial to find that Loyie Allen conspired
with Copeland to interfere with JME’s business relationships.
We have held that it is proper for a trial court to
deny a motion for a directed verdict where there is a genuine
issue as to a material fact.
Reece v. Dixie Warehouse and
Cartage Co., 188 S.W.3d 440 (Ky.App. 2006).
The evidence at
trial established that Copeland and Loyie Allen had been friends
for many years and that Rex Allen was employed at JME during the
time that Copeland was its CEO.
It was Rex who initially
incorporated Breathe Easy in August 1998 with the intention of
starting a durable medical supply company in Louisville.
Neither Rex nor his father, Loyie, had any experience operating
such a company nor did they have any significant ties with
Taylor County.
Nevertheless, after Rex decided that such an
enterprise would not be viable, Loyie decided to open a company
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to compete with JME, claiming that James had a bad reputation in
the community.
Sometime in August 1998, Copeland learned that the
Taylor Circuit Court planned to dissolve the trust holding JME
and to return control of the company to James.
In September,
she met with Loyie and Rex to discuss their plan to start a new
company.
There was evidence of multiple meetings among the
defendants related to their plans to start up a new company to
compete with JME.
Copeland notarized the document transferring
Breathe Easy from Rex to Loyie and faxed the company’s articles
of incorporation while she was still employed as CEO of JME.
By September 14, 1998, Breathe Easy had a bank account
which listed the address of Copeland’s apartment as its business
address.
Testimony from the landlord indicated that he was not
notified of a change in tenancy, that Copeland had paid the rent
on the apartment through the middle of October, and that Breathe
Easy began paying the rent on October 15.
Between the interval
of Copeland’s realization that JME would be returned to James’s
control and the actual dissolution of the trust, ten of the
eleven of JME’s employees had begun to work for Breathe Easy.
James returned on October 13, 1998, to find his staff gone -along with about one hundred of his home oxygen clients.
time, some of each category returned to JME.
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Over
Of eight employees
testifying during the second trial, five testified for the
plaintiffs.
These employees testified that while Copeland was
still employed by JME, she conducted Breathe Easy’s business
both at JME’s office and at the office of the new company.
Several of the employees also testified that during the time
they were working for JME, Copeland told them that James would
fire them upon his return, that James was going to end up in
jail, and that Breathe Easy had jobs for them.
James testified that although most of these employees
had signed non-complete agreements, all of these documents had
vanished from their files before his return.
Two juries
rejected Loyie’s contentions that all of his dealings with
Copeland were above board and that he did not participate in any
scheme to derail both staff and customers from JME.
Nevertheless, Loyie has failed to prove that the court erred in
allowing the jury to determine whether he was liable for
conspiracy and interference with JME’s business relationships.
The final issue raised by Breathe Easy’s cross-appeal
is whether the proof of JME’s damages was too speculative to
support an award.
JME presented expert testimony from Brian
Willis, a CPA who had handled JME’s accounting needs since 1988
as an employee of Stuedle & Spears accounting firm.
Breathe
Easy claims that Willis was unqualified to testify as an expert
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because he had never done so before.
It also argues that
Willis’s method of arriving at a figure for lost profits did not
meet the standards required by Daubert v. Merrell Dow
Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d
469 (1993), and Goodyear Tire and Rubber Co. v. Thompson, 11
S.W.3d 575 (Ky. 2000).
In order to arrive at a figure representing JME’s lost
profits, Willis determined how many customers had been switched
from JME to Breathe Easy and how many had either died or
returned to the company within the following five-year period.
He next calculated the amount paid by Medicare for home oxygen
equipment.
From this expected revenue, he deducted service
costs to JME.
Willis testified that he deducted only variable
costs -- and not fixed costs -- from the expected revenue in
arriving at his figure of $599,336.26 in lost profits.
When damages sought in a civil case consist of lost
profits, the test for determining damages is whether lost
profits may be ascertained with reasonable certainty.
Pauline's
Chicken Villa, Inc. v. KFC Corp., 701 S.W.2d 399 (Ky. 1985).
The defense strongly contested the credibility of the figure
proposed by Willis, but it declined to introduce expert
testimony on its own behalf.
The jury awarded damages of
approximately one-sixth of the amount calculated by Willis as
lost profits.
We cannot agree that Willis’s testimony as to the
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amount of lost profits suffered by JME was purely speculative.
Thus, the court properly awarded damages to JME in accordance
with the jury’s verdict.
For the foregoing reasons, the judgment of the
Jefferson Circuit Court is affirmed.
ALL CONCUR.
BRIEFS FOR APPELLANTS/CROSSAPPELLEES:
William J. Walsh, IV
Louisville, Kentucky
BRIEF FOR APPELLEE REX ALLEN:
Matthew B. Troutman
Louisville, Kentucky
BRIEF FOR APPELLEES, FRANKIE
DOBSON AND RONNIE HALL:
Bradley R. Hume
Louisville, Kentucky
BRIEFS FOR APPELLEES/CROSSAPPELLANTS LOYIE ALLEN AND
BREATHE EASY:
Hollis L. Searcy
Louisville, Kentucky
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