TUNACAKES vs. SJK PROPERTIES et al.

[Caliga]

Below I am reproducing what I posted in garbo's jury thread:

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There's a gas station in the county which is right at the junction of KY Highway 44 and Overlook Drive, that leads down to the lake's main boat launch and marina, making it a pretty good location to say the least.

Back in 1998, the guy who owned the station went bankrupt and the bank foreclosed on him.  The gas station was sold at auction on the courthouse steps for $75,000 plus back taxes to these two dudes (who are brother-in-laws) from Louisville who had begun speculating out here as the construction boom was beginning.

They fixed the place up, opened an adjoining restaurant and bait shop, replaced the old gas tanks (which were not up to EPA and Kentucky standards), added diesel, digital pumps, and prepared a portion of the property as a boat storage facility.  Their improvements drove business through the roof: in their first full year of operation, they grossed around $120,000; within five years, they grossed over a million dollars.

In late 2002, they decided to put the place up for sale, because they had been running it entirely themselves (with the help of their wives) and wanted to move on to other entrepreneurial projects.. I guess (they really weren't too clear on that).  They put it up for $1,000,000 asking price, and this cat came along and offered them $812,500 which they accepted.

The guys who owned the place were basically blue collar wheeler-dealers: the one guy had only his high school diploma and had been a locksmith, and the other guy had gotten his GED (Euros = this means he didn't finish high school, and went back and took retard classes to get a sort of makeup diploma) and was a roofer.  They are what we call "good old boys" here--hard working, no doubt, but it goes without saying that they're going to be a little bit shady.  In fact, there was an allegation that they were involved in bootlegging and investigated for that: remember that I live in a county that had prohibition until last November.  Yeah, I kind of felt like I was in a time machine when that came up.

Anyway, the guy who ultimately bought the property from him was a career salesman who had a BA in business administration from Purdue and had previously been a VP of sales for Atlas Machinery, GE Appliance, and some other impressive places.  He had "gotten laid off" in 2002 and had decided he wanted to be self-employed after that.  He did not want to tap into his savings or re-mortgage his home to get the purchase capital, so he sought out an SBA loan and was approved for a loan in the amount of $650,000.  Obviously, $650,000 != $812,500, so they had to figure out some other way of closing the gap, since apparently the sellers liked him and were quite motivated to sell (and can you blame them, given the figures I've presented?)

So what they decided to do to close the gap was the following:

A. The sellers wrote a promissory note to the buyer in the amount of $150,000 plus interest (I forget the interest rate... think it was 5%), with no payments due for the first five years.  In years 6 through 10, the total accrued interest would be due in annual installments (each = 20% of total accrued interest).  In year 11, the principal would come due in full.

B.  To close the remaining gap and as a precondition of item A., the buyer/sellers agreed to a consulting agreement in which the sellers would give the buyer any advice he felt he needed to be successful, would agree to be on the premises for a transition period to help "maintain business/personal relationships", and so forth--basically teach the guy all he needed to know to run the business.  In return, the seller would pay them 0.65% of his gross receipts annually for five years.

Both parties agreed to the above and signed and there were no conditional clauses for either agreement (now this fact will become important later on in the story).

Ok, so the business + property was sold in "as is" condition following seller's standard disclosures, in which they did not disclose any major problems with the property, and the business changed hands on 4/1/2003.  For the first year or so, everything was cool.  The new buyer continued to grow the business and make improvements (the first thing he did was install chicken broasters, and if you look at that website I posted he's quite proud of his fried chicken), such as expanding the gravel parking lot and putting in more restaurant seating, and he dutifully paid his first consulting agreement installment in January of 2004.

In the late spring/early summer of 2004, several customers who were storing boats onsite complained to him of "foul odors" coming from the storage area.  He wasn't really sure what to think of that, and didn't do anything about it until July.

He got some more complaints in July and thought to himself... hmmm...  well, this property does have a septic system, so maybe I should have my septic hauler come out and take a look (he had had his solid waste removed in January of 2004 without any apparent issues).  So he calls up the hauler and asks him to come out and do a removal.  The hauler was like "ok, I'll do it, but you shouldn't need to have your waste pumped out so soon"... but he figured he better have him do it just in case.

So the hauler gets there, backs his truck up to the septic tank cap (which was on a riser), and when he opens the cap so he can get the pump hose in there, there is an explosion of back pressure that lifts the cap AND him clear off the ground.

o the hauler is like "umm sir I believe you may have a problem here" and hooks up his pump and cleans 2,200 gallons of solid material out of the septic system.  Now, the tank capacity is 1,000 gallons, which is his normal haul for this guy.  Basically, the tank itself, the distribution box, and the lateral lines were clogged full of solid waste for some reason.

Now, remember how I said earlier that the new owner had made a bunch of improvements?  One of the improvements was that he had expanded the size of the parking lot.  The sellers argued, but for some reason it could not be definitively shown to us, that the new owner had expanded his gravel lot onto the leach field, which effectively destroys it as the gravel + parked cards compacts the soil and disrupts normal soil percolation.  The new owner seemed to be insinuating (but did not convincingly prove via his testimony or his attorney's) that he was either not informed as to the location of the leach field, or was misinformed, and also that he didn't expand the lot onto the leach field. 

So anyway, the new owner then called a plumber and the first thing the plumber did was walk to the back of the field, and sure enough they discovered that there was effluent oozing out of the ground at the back end of the field, down the slope toward the back of his property.  Now, it just so happens that the adjacent property belongs to the US Army Corps of Engineers, and is a State Park and Conservation Area that drains into Taylorsville Lake, which is a very popular fishing and boating area.  I myself have a boat I moor at the marina, and swim and fish in that lake.  Obviously, the station owner immediately realized that it would not be a good business practice to pollute this property.

So, he then paid this plumber (who was working in conjunction with the county board of health inspector( to completely replace and expand his lateral field and distribution box.  The new owner tried to argue that the distribution box was faulty, because the outlet pipe was submerged when the plumber and inspector exposed it (we got to look at delightful photo exhibits of the box), but nobody seemed to be able to prove or even recall when exactly these photos were taken or who took them.   He spent a total of $12,000 on this project.

At the beginning of calendar year 2005, the new owner's consulting payment to the sellers came due again.  He showed up at the sellers' place of business--after they sold the station they bought the hotel up the street--and tried to give them what was due minus the cost of the repairs he'd made to the septic system, which he felt must have been defective when he purchased the property.

So the sellers were like "Fuck you, give us all our money" and the new owner was like "NOWAI", and the sellers refused to take his check, and have refused all of his additional payments (two of which are held in escrow by the court).  He has also not paid any of the interest on his promissory note because of this, nor the $150K principal, which the sellers have called in early, which they are within their rights to do since he has failed to pay any interest.  When he was questioned about why he didn't pay on the promissory note, his answer was "times are tough, and plus I've spent close to $200K between the cost of the septic repairs and legal fees due to this lawsuit."

In his defense, he argued that the sellers knew there was a problem, because in 1999 a guy who runs a local construction business, and who came in to testify, was out at the grocery shooting the shit with the former owners, and as a favor had agreed to dump some topsoil onto the leach field.  The plaintiffs had difficulty explaining this witness away other than by saying he had had a stroke and "was ill"... this same guy also mentioned on the witness stand that one of the sellers had owed him $1,500 from a subcontract deal on a house the seller had acted as developer on and had never paid up.

Also, the defense argued that the distribution box was defective because the photos presented showed that the water levels were above the outlet pipe--under normally operating conditions, the inlet pipe is fully exposed (as it's located higher in the box than the outlet pipe) and the outlet pipe should be half submerged.  The photos presented showed only one pipe (which appeared to be the inlet pipe) and it was half submerged.  The outlet pipe was totally below the scum layer.

Ok, so in terms of parties involved and amounts asked:

The plaintiffs were the former owners, who were suing in the amount of $150,000 (promissory note principal) plus accrued interest in full, as well as the full amount owed in consultancy fees, which I believe totaled $46,000 and change.

The defendant was the new (current) owner, who was basically asking that the promissory note be declared void due to the septic issues.  He was not asking to be excused from paying the consultancy fees, though for some reason we were asked to rule on that as well.  He also had a counterclaim seeking unspecified punitive damages against the plaintiffs.

The buyer, by law, had to have an environmental inspection done for two reasons, which focused on those two things:

A. inspection of his fuel tanks and dispensing equipment
B. inspection of his food service and sanitation facilities

These items were found to have no deficiencies.

The county inspector who looked after item B. also happens to be responsible for septic inspections, but he didn't do a septic inspection other than a surface examination of the leach field, which appeared normal, because at the time the septic tank, which was first installed in 1979, was totally buried (by Kentucky law they now have to have access risers when newly installed) and neither seller nor buyer wanted to pay for excavation.

Unsurprisingly, his tank now has a riser. 

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You may ask any clarifying questions of me that you wish and I will answer to the best of my ability and recollection.

[DGuller]

When judge asked the foreman about the verdict, do you remember what the foreman said?

[The Brain]

Wall of text. Tell me how to vote.

[Caliga]

When judge asked the foreman about the verdict, do you remember what the foreman said?

She was a pretty hot MILF and I was too busy examining the goods to listen to all of that. 

[Caliga]

Wall of text. Tell me how to vote.

You would have fit in well with this jury. 

[Eddie Teach]

The judge or the foreman?

[garbon]

Wall of text. Tell me how to vote.

Hard and often.

[Caliga]

The judge or the foreman?

The foreman.  The judge was an old guy.  Excuse me, forePERSON.

[DGuller]

BTW, why is paying back the promisory note even in question?  It seems like a separate transaction from the buying of the property to me.  Just because the buyer was sold a property with a problem doesn't mean that the buyer can just go around and appropriate assets of the sellers in any other deal that he has with them.

[Caliga]

BTW, why is paying back the promisory note even in question?  It seems like a separate transaction from the buying of the property to me.  Just because the buyer was sold a property with a problem doesn't mean that the buyer can just go around and appropriate assets of the sellers in any other deal that he has with them.

That is a very good question, sir.

I don't know the real answer to that, having reviewed the text of the note in detail and finding that there were no escape clauses written in to it.

When the defendant was questioned about this, he said "times are tough" and said something about how he had to pay his creditors first before he could pay off the promissory note.

I can only assume that since the defendant's contention was that he was fraudulently sold the property, he had the right to challenge any and all associated contracts.

[DGuller]

Sounds like an easy win for Mr. Tuna and Mr. Cupcakes.  The defendant strikes me as someone in financial trouble looking for any excuse to welch on his loan.

[stjaba]

BTW, why is paying back the promisory note even in question?  It seems like a separate transaction from the buying of the property to me.  Just because the buyer was sold a property with a problem doesn't mean that the buyer can just go around and appropriate assets of the sellers in any other deal that he has with them.

Depending on the state's rules of civil procedure, you can lump in multiple, even unrelated claims into a single case. If you think about it, it  is far more efficient to do it that way then to have multiple cases with multiple judges, juries, etc.  For instance, in federal court, the federal rules of civil procedure permits plaintiff to assert multiple unrelated claims against a single defendant so long as federal court will have subject matter jurisdiction over at least one of them.
Also lurking in the background is claims preclusion, especially for counter-claims. Again depending on the how the rules are interpreted and the state's policy on claims preclusion, a defendant should assert probably counter-claims if he has them, lest he lose the ability to assert them in the future because he should have asserted them in the earlier action. Under the federal rules, only transactionally related claims need to be asserted, but why risk not bringing forth a claim and then later on when you do bring it, have a judge rule you should have previously asserted some claim, and now cannot?

[MadImmortalMan]

Pay up, chump.

[Razgovory]

Raz rules in favor of the hillbillies.

[crazy canuck]

Why is this kind of case being heard by a jury and not judge alone?