514 S.W.3d 537
Ky. Ct. App.2016Background
- Preferred Automotive (Payne brothers majority owners; Jerry Key 20% owner/GM) provided fleet maintenance for Insight without a contract; Key was Insight’s primary contact.
- Paynes accused Key of embezzlement in 2007 and again January 13, 2009; Preferred’s records show Key terminated 1/13/09 though Preferred later disputed the termination date up to 1/30/09 and Key appeared as a director in later filings during litigation.
- After Key met with Insight employees in mid–January 2009, he formed Southside Automotive, hired two Preferred mechanics, and Insight shifted some fleet work to Southside and other vendors.
- Preferred sued Key (settled), then Southside/Johnson (settled), and in 2012 sued Insight for tortiously interfering with a noncompete (directed verdict for Insight) and aiding and abetting Key’s breach of fiduciary duty; a jury awarded Preferred $2M compensatory and $2M punitive damages.
- Trial court reduced punitive damages to $1.4M but denied JNOV and new trial; the appellate court reversed and remanded for a new trial based on multiple instructional and evidentiary errors and unreliable damages testimony.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of proof for aiding and abetting breach of fiduciary duty | Insight knowingly assisted Key’s breach (encouragement, insurance verification, promise to continue business); Key remained fiduciary when misconduct occurred | Key was terminated 1/13/09 (or had no authority after that date); any preparation to compete or use of personal knowledge is permitted; Insight lacked actual knowledge of a breach | Court: Evidence was thin but not so absent to grant directed verdict/JNOV; factual disputes for jury remain, so denial of JNOV/directed verdict was not error |
| Jury instructions on fiduciary duty and post-termination conduct | Instruction correctly prohibited using prior confidences and recruiting key employees | Instruction misstated law by using vague term “fiducial information” and by barring hiring of key personnel after termination | Court: Instruction misstated law; should have limited prohibition to use of confidential (fiducial) confidences and not bar post-termination solicitation generally |
| Instruction on aiding and abetting elements (knowledge and substantial assistance) | Instruction captured required elements | Instruction omitted requirement of actual knowledge that conduct was a breach and omitted “substantial” from assistance standard | Court: Instruction erroneous — jury not required to find actual knowledge or substantial assistance as §876 requires |
| Admissibility/reliability of lost-profits expert testimony | Expert reliably linked Insight’s conduct to Preferred’s lost profits through forecast to 2022 | Expert’s model was speculative, included unrelated vendor work, and assumed continued business without contract | Court: Expert testimony unreliable and should have been excluded; damages model speculative and not causally linked to tortious conduct |
Key Cases Cited
- CertainTeed Corp. v. Dexter, 330 S.W.3d 64 (Ky. 2010) (trial court should include findings supporting new-trial decisions; appellate review hampered without those findings)
- Miles Farm Supply, LLC v. Helena Chemical Co., 595 F.3d 663 (6th Cir. 2010) (elements for aiding and abetting fiduciary breach under Restatement §876)
- Aero Drapery of Kentucky, Inc. v. Engdahl, 507 S.W.2d 166 (Ky. 1974) (fiduciary may prepare to compete but may not use prior fiducial confidences or, while still fiduciary, take key personnel to compete)
- Baptist Physicians Lexington, Inc. v. New Lexington Clinic, P.S.C., 436 S.W.3d 189 (Ky. 2013) (damages from fiduciary breaches are those caused by the breach; courts must carefully assess causation and quantum)
- Peters v. Wooten, 297 S.W.3d 55 (Ky. App. 2009) (standard of review for directed verdict/JNOV; verdict must not be palpably against evidence)
- Taylor v. Kennedy, 700 S.W.2d 415 (Ky. App. 1985) (review of directed verdict/JNOV requires viewing evidence in light most favorable to nonmoving party)