CHEYENNE RESOURCES, INC. AND PC&H CONSTRUCTION, INC. V. ELK HORN COAL CORPORATION NOT SITTING.
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RENDERED : SEPTEMBER 18, 2008
TO BE PUBLISHED
,;vuyrrm:e Courf of 'Pt rufurhV
2006-SC-000721-DG
CHEYENNE RESOURCES, INC.
AND PC&H CONSTRUCTION, INC.
v.
APPELLANTS
ON REVIEW FROM COURT OF APPEALS
CASE NUMBER 2005-CA-001901
FLOYD CIRCUIT COURT NO . 97-CI-000634
ELK HORN COAL CORPORATION
APPELLEE
OPINION OF THE COURT
BY SPECIAL JUSTICE GREGORY L. MONGE
Affirming
This matter is before the Court on the appeal of Cheyenne Resources from a
decision of the Court of Appeals which determined that the Floyd Circuit Court had
incorrectly determined the date from which interest should be calculated on a judgment
of restitution. Thus, the issue before us is narrow and very specific . The underlying
facts are more fully set forth in this Court's decision in Elk Horn Coal Corporation v.
Cheyenne Resources, Inc. , 163 S.W.3d 408 (KY. 2005). Briefly, the Floyd Circuit Court
rendered a judgment against Elk Horn Coal Corporation ("Elk Horn") on October 14,
1998 in the amount of $9,500,000 .00 plus prejudgment interest at the rate of 8% per
annum and postjudgment interest at the rate of 12% per annum . During subsequent
appeals, Elk Horn posted a supersedeas bond . After the appellate process was
completed, the Floyd Circuit Court entered an order enforcing its judgment which
included, (pursuant to KRS 26A .300)a 10% penalty in the sum of $950,000 .00 . The
constitutionality of the statute was challenged by Elk Horn in the Circuit Court which
upheld the statute's constitutionality . That issue was appealed by Elk Horn to this Court
and on June 9, 2005, we held that the statutory penalty was unconstitutional and
vacated the judgment of the Floyd Circuit Court by opinion in Elk Horn Coal
Corporation , supra. Elk Horn then filed a Motion for Judgment of Restitution in the
Circuit Court . That court entered an initial judgment of restitution on July 22, 2005.
Included in the judgment was a determination that Elk Horn was entitled to restitution of
$950,000 .00, (the amount of the 10% penalty) plus interest at the rate of 12% from and
after July 12, 2005 (the date of the judgment of restitution) until that judgment was
satisfied . The Circuit Court reserved determination as to whether or not prejudgment
interest should be awarded and if so, from what date . Following additional briefing on
this issue, the Circuit Court entered an Order and Judgment on August 15, 2005,
awarding prejudgment interest on the $950,000.00 from the date of June 9, 2005, the
date this Court's decision became final regarding the unconstitutionality of KRS
26A.300. Elk Horn appealed from that Order arguing that the interest should run from
March 16, 2001 1 , the date upon which it had paid the $950,000 .00. The Kentucky
Court of Appeals, relying on Alexander Hamilton Life Insurance Co. of Am. v. Lewis,
550 S.W .2d 558 (Ky. 1977), agreed with Elk Horn. Cheyenne then sought discretionary
'Although that date is not precisely correct, at oral argument, the parties agreed that the
date March 16, 2001, was a date on which this Court, if it determined to award prejudgment interest, could do so.
review by this Court which was granted . For the reasons set forth herein, this Court
AFFIRMS the judgment of the Court of Appeals .
The issue before this Court is narrow. Elk Horn Coal Corporation brought this
claim as a claim for restitution. It is significant that the Floyd Circuit Court's judgment of
restitution was not appealed. Thus, the matter reaches us as one of restitution .
Restatement (First) of Restitution , § 74 (1937) provides :
A person who has conferred a benefit upon another in compliance with a
judgment, or whose property has been taken thereunder, is entitled to
restitution if the judgment is reversed or-set aside, unless restitution would
be inequitable or the parties contract of payment is to be final.
Comment d to the Restatement further provides :
If payment has been made to the judgment creditor or to his agent, or to
an officer who has paid the judgment creditor, upon reversal of the
judgment the payor is entitled to receive from the creditor the amount thus
paid with interest . (Emphasis supplied .)
Restatement (First) of Restitution , § 74, Comment d (1937).
Although Cheyenne argues Elk Horn should not be entitled to prejudgment
interest from March 16, 2001, because the tortious conduct of Elk Horn resulted in the
underlying judgment which ultimately triggered the 10% penalty payment, we reject that
argument in this case . Elk Horn paid for its conduct in satisfying a judgment that
included both prejudgment and postjudgment interest so that its payment amounted to
some $14,000,000 .00 . Elk Horn should not be penalized in this instance by virtue of an
unconstitutional statute .
Restitution requires making the paying party whole. As put by Professor Dobbs,
"As we have seen, restitution is not damages; restitution is a restoration to prevent
unjust enrichment ." Dobbs, Law of Remedies § 4.1(1), at 556 (2d ed . 1993). Here,
Cheyenne Resources unquestionably had the use of the $950,000 .00 from the date
that it was paid, i.e., March 16, 2001, until that $950,000 .00 was repaid on August 15,
2005 . Likewise, Elk Horn was deprived of the use of that money during that time
period . As pointed out by Elk Horn in citing this Court's predecessor in City of Louisville
v. Henderson's Tr. , 11 KY. L. Rptr. 796, 13 S .W . 111, 112 (1890):
If, in such a case, a creditor, after the lapse of years of litigation, is not
entitled to interest, then he will, in effect, lose a part of his debt . He would
be kept out of the use of his money; the debtor, in the mean time, getting
the benefit of it. The latter would, in effect, pay but a part of his debt .
Restitution restores the party who has satisfied a judgment that was erroneously
entered to the position which the party would have occupied but for the entry of the
erroneous judgment. As this Court said in Alexander Hamilton Life Ins. Co. of Am. v.
Lewis, supra at 559, in describing the justification for restitution, "The obvious
justification for restitution is that one should not be unjustly enriched at the expense of
another."
While both parties cite to various portions of the Alexander Hamilton decision to
support their respective positions, the most instructive part of Alexander Hamilton is its
discussion of the theory and reasons for restitution:
The theory of restitution as a basis for recovery is about as old as the law
itself. Though often assumed to be purely an equitable remedy, some of
the earliest proceedings, both at common law and in equity, were founded
upon it, and were amplified in the course of time . Restatement,
Restitution , Chapter 1, Introductory note. The obvious justification for it is
that one should not be unjustly enriched at the expense of another.
In Bridges v. McAlister, 106 Ky. 791, 51 S .W. 603, 21 KLR 45, 45 LRA 80,
90 Am . St. Rep . 267 (1899), the accountability of a party for actions taken
under authority of a judgment later set aside was discussed at some
length . Among other things, the Court concluded as follows :
When a judgment is reversed, restitution must be made of
all that has been received under it, but no further liability
should in any case be imposed . Id., 51 S.W . at p. 605 .
.. .Understandably, of course, the receipt and disbursement
of money by someone in a fiduciary capacity could very well
present a different case, but when the party who received
the money by authority of the judgment has spent some or
all of it at his own volition and for his own ends, we find it
difficult to accept the proposition that equity diminishes his
accountability .
Here, Cheyenne had the unfettered use of $950,000.00 from March 16, 2001,
until August 15, 2005. The amount was liquidated . There is nothing in the record that
would suggest there is any equitable reason to require anything other than a full
restitution . Full restitution means just that. To make Elk Horn Coal Corporation whole,
Cheyenne must pay the interest on the $950,000.00 from the date that it first had use of
that money. Therefore, this Court AFFIRMS the judgment of the Court of Appeals and
directs the Floyd Circuit Court to enter a judgment consistent with this Opinion .
Minton, C .J., Noble and Schroder, JJ ., and Special Justice Thomas D .
Emberton, concur. Cunningham, J ., dissents by separate opinion in which Special
Justice Michael O. McDonald, joins. Special Justice Michael O . McDonald dissents by
separate opinion in which Cunningham, J ., joins.
Venters, Abramson and Scott, JJ ., not sitting .
2Both sides cite Nu Cor Corp . v. General Electric Co . , 812 S.W. 2d 136 (Ky. 1991). Nu
Cor did not deal with restitution and is thus clearly distinguishable from the case here.
5
ATTORNEYS FOR APPELLANTS:
Bruce Edward Cryder
Margaret Ann Miller
GREENEBAUM, DOLL & MCDONALD
300 W. Vine Street, Suite 1100
Lexington, KY. 40507
ATTORNEYS FOR APPELLEE :
Maureen D. Carman
Richard C. Ward
Jeff A. Woods
WYATT, TARRANT & COMBS LLP
1600 Lexington Financial Center
250 West Main Street
Lexington, KY. 40507-1726
William S. Kendrick
FRANCIS, KENDRICK & FRANCIS
311 N . Arnold Ave., Suite 504
P O Box 268
Prestonsburg, KY. 41653
RENDERED: SEPTEMBER 18, 2008
TO BE PUBLISHED
2006-SC-000721-DG
CHEYENNE RESOURCES, INC.
AND PC&H CONSTRUCTION, INC .
APPELLANTS
ON REVIEW FROM COURT OF APPEALS
CASE NUMBER 2005-CA-001901
FLOYD CIRCUIT COURT NO. 97-CI-000634
V.
ELK HORN COAL CORPORATION
APPELLEE
DISSENTING OPINION BY JUSTICE CUNNINGHAM
I fear that the majority has held today that the trial court abused its discretion by
simply following the law. Therefore, I respectfully dissent .
In upholding the decision of the Court of Appeals, I also fear that we have once
again reached down into the trenches of the trial court and have imposed our own
judgment by injecting ourselves into a role best left to the trial court, as long as that
discretion is not abused .
We have held today that the trial court abused its discretion when it awarded Elk
Horn Coal Corporation prejudgment interest at the rate of 8% from June 9, 2005
instead of March 16, 2001 . It would behoove us to remind ourselves that a trial court
does not "abuse its discretion" simply by making a decision with which the appellate
courts disagree .
Abuse of discretion means "arbitrary action or capricious disposition under the
circumstances, at least an unreasonable and unfair decision ." Kuprion v. Fitzgerald ,
888 S.W.2d 679, 684 (Ky. 1994). Or, as more eloquently stated in the decision of C
of Louisville v. Allen, 385 S.W.2d 179 (Ky. 1964), there is no abuse of discretion when it
is "governed by rule, and not by humor. It must not be arbitrary, vague, and fanciful, but
legal and regular. It may not be granted or refused at the mere will or pleasure of the
judge, but he is to exercise a sound judicial judgment, in the interest of justice and
prudence." 385 S.W.2d at 182 .
When we look to the totality of the circumstances in this case, I find it impossible
to decree that the judge abused his discretion in determining the time period for the prejudgment interest to run. A quick review of some of the salient points of this case, as
well as the case law, is necessary to understand why there was no abuse of discretion .
In October of 1998, a jury in Floyd County, Kentucky found that Elk Horn Coal
Corporation committed various acts of fraud and breach of contract and awarded
Cheyenne Resources, Inc. $9,500,000.00 as compensation . After the Court of Appeals
affirmed the judgment and this Court denied discretionary review, the trial court
awarded Cheyenne a 10% supersedeas penalty pursuant to KRS 26A.300 . Elk Horn
paid the judgment, including the 10% penalty, in March of 2001, but appealed on the
penalty issue.
As the trial court noted in its order and judgment, KRS 26A.300 had been applied
for many years in the Commonwealth of Kentucky, and when the 10% penalty was
imposed it was the valid law of this state. In fact, it was not until June 9, 2005, that this
Court held that the statute requiring the 10% penalty was unconstitutional . Significantly,
up until that time Cheyenne was, and continues to be, the innocent party. This litigation
has extended over a period of almost ten years . Elk Horn has again brought Cheyenne
- the innocent party - to the attention of this Court.
The case cited by both parties of Alexander Hamilton Life Ins. Co. of Am. v.
Lewis, 550 S.W.2d 558 (Ky. 1977) is the guiding light for trial judges in determining the
starting date for calculating the amount of prejudgment interest. This case emphasizes
the concept of fairness and fault. Chief Justice John Palmore puts it this way, "When an
innocent party uses the money or property of another in reliance upon a final
unappealed judgment that says it is his, it can hardly be said that he is at fault unless
and until he is put on notice of circumstances that justify or call for setting the judgment
aside ." 550 S.W.2d at 560. The trial court in this case precisely followed this formula
when it awarded 8% interest on the penalty amount from June 9, 2005, the date that
Cheyenne was put on notice regarding the unconstitutionality of KRS 26A.300.
Therefore, the trial court followed the law both in assessing a 10% penalty under KRS
26A.300, and in determining the date that interest should begin accruing on that
penalty.
The majority opinion speaks a great deal about the concept of restitution, and
that Elk Horn was deprived of the use of their money from March of 2001, the date that
the 10% penalty was paid to Cheyenne, until June of 2005, at which time this Court
found KRS 26A.300 to be unconstitutional . In doing so, however, it presumes a duty
upon Cheyenne - the innocent party - to generate income upon Elk Horn's money. In
other words, if Cheyenne had earned only 6% interest upon the penalty amount during
this approximately four year period, but now has to reimburse Elk Horn at the rate of
8%, a deficit would result for Cheyenne . This penalizes the totally innocent party and
rewards the party that was originally found to have acted fraudulently .
It seems to me that if there is any windfall in all of this, it would be more equ itable
to fall upon the innocent party, and not the party who comes out of this lawsuit with dirty
hands . This exact sentiment is expressed in the ancient case of Bridges v. McAlister ,
106 Ky. 791, 51 S.W. 603 (1899), which was given new life in Alexander Hamilton,
supra. In Brid es, the Court concluded that "[w]hen a judgment is reversed, restitution
must be made of all that has been received under it, but no further liability should in any
case be imposed." 51 S .W. at 605 (emphasis added) .
There are also other factors to consider, including: (1) the lengthy time and cost
of litigation that the winning party, Cheyenne, has been exposed to; (2) the law of this
state at the time the 10% penalty was paid ; and (3) the reluctance of the trial court to
impose upon Cheyenne, the winning party, a duty to make Elk Horn, the offending
party, money. All of these factors certainly put fairness in a different light than that
which is done by the majority here today . The trial court was in the best position to
weigh all these various factors, and it was not capricious or arbitrary in its decision .
My able and distinguished colleagues on this Court should extend deserving
deference to the trial court and find that it did not abuse its discretion . I would reverse
the Court of Appeals and reinstate the trial order and judgment of the trial court.
Michael O . McDonald, Special Justice, joins this dissenting opinion .
RENDERED : SEPTEMBER 18, 2008
TO BE PUBLISHED
,ouprrmt Caurf of ~Rrufurkt
2006-SC-000721-DG
CHEYENNE RESOURCES, INC.
AND PC&H CONSTRUCTION, INC.
V.
APPELLANTS
ON REVIEW FROM COURT OF APPEALS
CASE NUMBER 2005-CA-001901
FLOYD CIRCUIT COURT NO. 97-CI-000634
ELK HORN COAL CORPORATION
APPELLEE
DISSENTING OPINION
BY SPECIAL JUSTICE MICHAEL O. McDONALD
I am in lock step with J . Cunningham's dissenting opinion . I additionally
comment to re-emphasize that the Court of Appeals failed to exercise equity . Gett v.
Getty, 793 S.W.2d 136 (Ky. App. 1990), holds, "[E]quity is not limited to trial court
application only. . . . Consequently, this Court may review matters that come to us by
motion, and on an ad hoc basis apply our sense of equity." Id . at 138.
Such was not done here .
Cunningham, J., joins this dissenting opinion .
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