Louisville Metro Hous. Auth. Dev. Corp. v. Commonwealth Sec., Inc., NO. 2012-CA-000073-MR

CourtCourt of Appeals of Kentucky
Writing for the CourtTHOMPSON
Docket NumberNO. 2012-CA-000073-MR
Decision Date28 June 2013


NO. 2012-CA-000073-MR

Commonwealth of Kentucky Court of Appeals



ACTION NO. 07-CI-006701



THOMPSON, JUDGE: Louisville Metro Housing Authority Development Corporation (Housing Authority) appeals from a judgment entered against it in favor of Commonwealth Security, Inc. (CSI) after a jury found it liable for fraud and three counts of intentional interference with existing contacts and awarded

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$2,845,880 in compensatory damages. The Housing Authority alleges that: (1) it is entitled to immunity; (2) the trial court erred when it awarded post-judgment interest; (3) the elements of intentional interference with existing contracts were not properly included in the jury instruction and not proven; (4) the finding of fraud was not sustained by the evidence; (5) evidence concerning damages was improperly admitted because CSI failed to make adequate pretrial disclosures; and (6) evidence of CSI's President, Curtis Gordon's, prior felony convictions were improperly excluded.

This action commenced when CSI filed a complaint against the Housing Authority alleging breach of contract. CSI subsequently amended its complaint to assert claims for theft of services, fraud and intentional interference with existing contractual relationships.

The Housing Authority filed a counterclaim against CSI alleging that CSI knowingly and fraudulently billed the Housing Authority, and later filed an amended counterclaim alleging that CSI lost keys to Dosker Manor Apartments and agreed to reimburse the Housing Authority for the cost to replace the locks. The Housing Authority alleged the lock replacement cost $10,221.40, which was not reimbursed by CSI.

The parties' business relationship began in 1998, when CSI and the Housing Authority entered into a contract for CSI to provide security services to various Housing Authority apartment complexes. The contracts were negotiated on behalf of the Housing Authority by John Groves, head of security, and by Curtis

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Gordon on CSI's behalf. Under the original contracts, CSI only provided security guards who were not sworn police officers and the Housing Authority agreed to pay CSI $8.50 per hour for each guard provided.

At trial, Gordon testified that in 2004, Groves requested CSI to supply additional security services for the Housing Authority's Dosker Manor Apartments, including sworn police officers to be paid $19 per hour. In that same conversation, Groves allegedly agreed that the hourly fee for guards that were not sworn officers would increase from $8.75 per hour to $9.75 per hour. Groves negotiated the proposed contract without soliciting bids, the submission of bids, and without government approval. Although no written contract was executed, CSI provided security guards and sworn officers to the Housing Authority and continued to be assured by Groves that the Housing Authority would pay the agreed price. However, the Housing Authority continued to pay CSI only $8.75 per hour for unsworn officers but did pay the $19 an hour for sworn officers.

In 2005, after CSI's business increased and other companies were paying it $9.75 per hour for unsworn security guards, CSI notified the Housing Authority that it planned to file a breach of contract action against it for failure to pay $9.75 per hour. The Housing Authority denied that there was a written contract executed with CSI in 2005 and refused to pay the increased amount.

Gordon testified that as a result of his attempt to enforce the 2005 agreement, the Housing Authority publically accused him of falsifying billing records, failing to provide security services billed to the Housing Authority and

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failing to provide sworn officers with authority to arrest in Jefferson County. Based on the accusations, Gordon was charged with one count of forgery in the second degree and 43 counts of theft by deception over $300. Gordon was found not guilty of all charges.

CSI presented evidence that after the Housing Authority's disparaging public statements, CSI lost contracts with three customers, Park DuValle Health Centers, Louisville Water Company and City of West Buechel. Representatives from those entities testified that although CSI had provided quality service, the public accusations caused them to terminate their contracts with CSI. Groves admitted that once the allegations were made against Gordon, police departments refused to permit their officers to work off duty for CSI, effectively destroying CSI's business. After the allegations were made public, Gordon sold his security company.

The jury rejected CSI's claim that the Housing Authority executed a written contract providing for $9.75 per hour but returned a verdict against the Housing Authority on the fraud and intentional interference with existing contract counts. The jury also returned a verdict against CSI on the Housing Authority's counterclaim for the cost of replacing the locks at Dosker Manor Apartments.

The Housing Authority asserted its immunity defense in its post-judgment motions filed after seven years of litigation and a lengthy trial. The trial court expressed the dilemma presented by the Housing Authority's plea for immunity and the Housing Authority's misuse of Kentucky Rules of Civil

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Procedure (CR) 59.01 to raise the immunity issue. It observed that the rule is intended to provide relief where the jury's verdict was fundamentally unjust "as a consequence of circumstances beyond the control of the aggrieved party or conduct (or misconduct) by the lawyers, the judge or the jury." It found the Housing Authority's "thirteenth hour plea of immunity to be procedurally and equitably disconcerting." The trial court ruled that the Housing Authority was not entitled to claim immunity.

We agree with the trial court that the Housing Authority's belated claim of immunity is disconcerting. Although it now vehemently contends that it cannot be sued for its torts and asserts the shield of immunity, this Court cannot comprehend its reason for waiting until after years of trial preparation and a trial to assert its defense. Its lack of diligence is particularly troublesome in light of the rule in this Commonwealth that a party claiming immunity is entitled to immediately appeal a trial court's denial of immunity. Breathitt County Board of Education v. Prater, 292 S.W.3d 883, 887 (Ky. 2009). Instead of attempting to avoid the burdens of litigation, the Housing Authority chose to wait until the burdens were borne and a judgment entered to assert its defense. Given the precarious path chosen by the Housing Authority, as a threshold inquiry, we must determine whether, on the record presented, we can properly review the immunity issue.

Generally, an issue not properly preserved in the trial court cannot be considered by this Court on appellate review. CR 8.03 provides that "[i]n pleading

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to a preceding pleading, a party shall set forth affirmatively ... any ... matter constituting an avoidance or affirmative defense." Our procedural rules do not permit a party to assert a waived defense in a post-judgment motion.

CR 59.01 provides specific grounds for post-judgment relief, none of which are applicable to the Housing Authority's belated claim of immunity. Moreover, a CR 59.05 motion to alter or amend a judgment cannot be invoked "to raise arguments and to introduce evidence that should have been presented during the proceedings before the entry of the judgment." Gullion v. Gullion, 163 S.W.3d 888, 893 (Ky. 2005). Despite the well established rules of procedure, the Housing Authority asserts that its claim of immunity was not waived by its failure to properly present it to the trial court and cites three cases in support of its position.

In Commonwealth, Department of Highways v. Davidson, 383 S.W. 2d 346, 348 (Ky. 1964), the Court held that the Commonwealth's failure to assert sovereign immunity as a defense in its answer did not preclude the Commonwealth from presenting the issue for the first time on appeal. Without deciding whether immunity is an affirmative defense that must be pled under CR 8.03, the Court held that "[t]he immunity is such that it may not be waived, except by legislative action." Id. The Court reasoned that the mandate of Section 231 of the Kentucky Constitution, stating that only the legislature can waive sovereign immunity, "would be of small stature if its precepts could be 'waived' by any state officer or agent other than the general assembly." Id.

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One month later, in another case filed against the Commonwealth, Department of Highways, the Court reaffirmed its holding. Although the defense of sovereign immunity was not specifically pleaded, the Court reiterated that "it is a constitutional protection that can be waived only by the General Assembly and applies regardless of any formal plea." Wells v. Commonwealth, Department of Highways, 384 S.W.2d 308 (Ky. 1964).

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