Elk Horn Coal Corp. v. Cheyenne Resources, No. 2002-SC-743-DG.

• Decision Date: 19 May 2005
• Docket Number: No. 2002-SC-743-DG.
• Parties: The ELK HORN COAL CORPORATION, Appellant, v. CHEYENNE RESOURCES, INC., and PC & H Construction, Inc., Appellees.
• Court: United States State Supreme Court — District of Kentucky

Page 408

163 S.W.3d 408

The ELK HORN COAL CORPORATION, Appellant, v. CHEYENNE RESOURCES, INC., and PC & H Construction, Inc., Appellees.

No. 2002-SC-743-DG.

Supreme Court of Kentucky.

May 19, 2005.

COPYRIGHT MATERIAL OMITTED

Virginia Hamilton Snell, Deborah H. Patterson, Louisville, Richard C. Ward, Lexington, Wyatt, Tarrant & Combs, Counsel for Appellant.

Bruce E. Cryder, Greenebaum, Doll & McDonald, David Austin French, Lexington, Counsel for Appellee.

KELLER, Justice.

I. INTRODUCTION

Appellant unsuccessfully sought discretionary review in this Court of a decision of the Court of Appeals affirming a $9.5 million judgment awarded against it. Appellant had stayed enforcement of the judgment during the appellate process by posting a supersedeas bond, and because the discretionary review motion further delayed enforcement of the judgment, the trial court, pursuant to KRS 26A.300, assessed as additional damages a penalty equal to 10% of the superseded judgment. Appellant now appeals the 10% penalty, presenting us with a single issue: the constitutionality of KRS 26A.300. We hold that KRS 26A.300 violates the equal protection provisions of both the Kentucky and United States Constitutions and that it also violates the separation of powers provisions of the Kentucky Constitution. We thus vacate that part of the judgment imposing the 10% penalty.

II. BACKGROUND

The genesis of this appeal is a coalmining contract between Appellant, Elk Horn Coal Corporation, and Appellees, Cheyenne Resources, Inc. and PC & H Construction, Inc. Appellees filed an action against Appellant alleging that Appellant fraudulently induced Appellees to enter into a coal lease and further alleging that Appellant was guilty of wrongfully terminating or breaching the lease. Following a jury trial and verdict, Appellees were awarded a judgment against Appellant, totaling $9.5 million. In addition to the principal amount awarded, the judgment provided that the award would bear prejudgment interest of 8% from the date the action was originally filed, and that the judgment itself would bear post-judgment interest of 12%.¹ Appellant appealed as a matter of right² to the Court of Appeals and stayed enforcement of the judgment during the appellate process by posting a supersedeas bond. The Court of Appeals affirmed in a two-to-one split decision. Appellant then sought discretionary review in this Court, which was denied by an evenly divided court, three-to-three (with one justice not sitting).

Thereafter, Appellees moved the trial court to enforce its judgment against Appellant's surety on the supersedeas bond. As part of its motion, Appellees requested that the trial court also assess against Appellant pursuant to KRS 26A.300 a penalty of 10% of the amount of the original judgment since Appellant delayed the case beyond the first appeal when it moved this Court to grant discretionary review of the Court of Appeals's decision. Appellant responded to Appellees' motion by challenging the constitutionality of KRS 26A.300. Without specifically addressing the constitutionality of KRS 26A.300, the trial court awarded Appellees a judgment of $14,500,000, the bond amount, against Appellant's surety. However, the total judgment, which included the original award, prejudgment and post-judgment interest thereon, and the 10% penalty of $950,000 imposed under KRS 26A.300, exceeded the bond by approximately $145,000 because of the penalty. Appellant itself paid this additional sum directly to Appellees and repaid its surety the money paid to Appellees on Appellant's behalf. Appellant appealed to the Court of Appeals, challenging the constitutionality of KRS 26A.300 and the penalty assessed thereunder. The Court of Appeals affirmed in a unanimous opinion, and we granted discretionary review.

III. ANALYSIS

A. Equal Protection

Appellant is entitled to equal protection of the law under the 14th Amendment to the United States Constitution and under Sections 1, 2, and 3 of the Kentucky Constitution. Equal protection of the law essentially means "that all persons similarly situated should be treated alike."³ Appellant contends that KRS 26A.300 violates the Equal Protection provisions of the Constitutions because the statute "is not rationally related to any legitimate state interest" and it is arbitrary in assessing an appeal penalty in second appeals only on unsuccessful appellants from superseded money judgments. KRS 26A.300 provides:

(1) When collection of a judgment for the payment of money has been stayed as provided in the Rules of Civil Procedure, there shall be no damages assessed on the first appeal as a matter of right contemplated by Section 115 of the Constitution of Kentucky.

(2) When collection of a judgment for the payment of money has been stayed as provided in the Rules of Civil Procedure pending any other appeal, damages of ten percent (10%) on the amount stayed shall be imposed against the appellant in the event the judgment is affirmed or the appeal is dismissed after having been docketed in an appellate court.

(3) Similar damages of ten percent (10%) shall be imposed when a petition for writ of certiorari, petition for rehearing, or other petition which stays collection of a judgment for the payment of money is denied by an appellate court under circumstances not constituting a first appeal under subsection (1) of this section.

(4) No additional penalty shall be imposed upon a party as a consequence of a review subsequent to a petition or a second appeal.

(5) Damages imposed under subsection (2) or (3) of this section shall not be payable and shall be void if the decision of the trial court awarding the payment of money is ultimately reversed.

Statutory provisions providing for a penalty if a money judgment⁴ is affirmed or dismissed on appeal have been part of the law of this Commonwealth since its infancy.⁵ But the long existence of an appeal penalty as a part of the law of this state does not insulate it from a constitutional challenge, although KRS 26A.300, like all statutes, is presumed to be valid.⁶

With the adoption of the Judicial Article,⁷ effective January 1, 1976, Kentucky's Constitution was amended to allow one appeal as a matter of right from a judgment.⁸ Along with other enactments implementing the Judicial Amendment, the Legislature enacted KRS 26A.300,⁹ which narrowed the class of cases for which an appeal penalty was allowed, but continued in effect an appeal penalty that was first enacted when the Legislature prescribed the rules of practice and procedure for Kentucky's Courts,¹⁰ as well as the appellate jurisdiction of our predecessor, the Court of Appeals.¹¹ Under the law in effect before the enactment of KRS 26A.300, a 10% penalty was recoverable in all cases upon affirmance or dismissal of any appeal from a superseded judgment for the payment of money.¹² KRS 26A.300, however deleted the penalty "on first appeals as a matter of right contemplated by Section 115 of the Constitution of Kentucky." Additionally, a petition for rehearing of a first appeal does not trigger the penalty.¹³ But since a discretionary review motion "stays collection of a judgment ... under circumstances not constituting a first appeal,"¹⁴ KRS 26A.300's penalty is assessed when a motion for discretionary review is denied by this Court.¹⁵ When applicable, the assessment of the penalty is automatic and mandatory.¹⁶ Accordingly, the trial court in this case properly applied the unambiguous and mandatory language of KRS 26A.300 and assessed a 10% penalty against Appellant, leaving unanswered, however, the question regarding the constitutionality of the statute.

The ten percent penalty provisions of KRS 26A.300 apply only to unsuccessful appellants in second appeals from superseded money judgments. Notably, a penalty is not assessed against other unsuccessful appellants in second appeals, e.g., unsuccessful plaintiff-appellants, unsuccessful defendant-appellants who do not supersede a money judgment awarded against them, and unsuccessful appellants from non-money judgments. Clearly KRS 26A.300 does not treat all unsuccessful appellants in second appeals the same, and, as such, it is discriminatory. But the state may discriminate in certain matters if there is a rational basis for such discrimination: "In areas of social and economic policy, a statutory classification that neither proceeds along suspect lines nor infringes fundamental constitutional rights must be upheld against an equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification."¹⁷ Thus, since in the present case no fundamental right is at stake and no "suspected class" is implicated, KRS 26A.300 must be upheld "if there is a `rational basis' for the classification."¹⁸ But, as the United States Supreme Court made clear in Lindsey v. Normet,¹⁹ "arbitrary and irrational" discrimination violates the Equal Protection Clause even under the rational-basis standard of review.²⁰

The primary, if not the sole purpose of KRS 26A.300's penalty provisions is to prevent frivolous appeals:

The legislative policy underlying enactment of statutes imposing damages for delay is well-stated in Phillips v. Green, 288 Ky. 202, 155 S.W.2d 841, 843 (1941), as follows:

What is denominated "damages" on a supersedeas bond is not strictly so, for it is at the same time a penalty. "It is a penalty or tax imposed by legislative enactment upon the unsuccessful litigant for having delayed the litigation, and for having kept the successful litigant from sooner collecting his debt — a panacea, as it were, for the law's delay. It is not laid upon the litigant because of any wrong done, or duty violated, but for the sole purpose of preventing useless and frequently vexatious delays in the termination of litigation. Some means had to be adopted that would tend to put an end to useless appeals, which would more frequently than...