Appalachian Regional Healthcare, Inc. v. U.S. Nursing Corporation

Filing 368

OPINION AND ORDER: 1) Appalachian Regional's motion 349 to alter judgment in this action to add prejudgment interest is GRANTED in part and DENIED in part as follows: a. the motion is GRANTED to extent that Appalachian Regional requests th at judgment be amended to add prejudgment interest of $470,760.96, which reflects prejudgment interest calculated at simple interest of 6 percent commencing on April 7, 2016 for the $2 million settlement payment to the Profitts and commenc ing on the later of February 21, 2011 or date of payment for defense costs incurred in the Profitt litigation; and b. motion is otherwise DENIED; and 2) Appalachian Regional's motion to recover attorney's fees 350 it incurred in this action is DENIED. Signed by Judge Karen K. Caldwell on 12/4/2018. (RCB)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION -- PIKEVILLE
APPALACHIAN REGIONAL
HEALTHCARE, INC.,

CIVIL ACTION NO. 7:14-122-KKC-EBA

Plaintiff,
V.

OPINION AND ORDER

U.S. NURSING CORPORATION,
Defendant.
This matter is before the Court on Appalachian Regional Healthcare, Inc.’s
motion to alter the judgment in this action to add prejudgment interest (DE 349) and its
motion for attorney’s fees (DE 350).
Appalachian Regional Healthcare, Inc. provides medical services in Eastern
Kentucky, including at its hospital located in Whitesburg, Kentucky. U.S. Nursing
Corporation is a staffing agency that provided nurses to Appalachian Regional on a
temporary basis when Appalachian Regional was short-staffed. The staffing agreement
between the parties required U.S. Nursing to indemnify Appalachian Regional from "any
and all liability or damage that arises from . . . the negligent or intentional act or
omission" of U.S. Nursing or its employees. (DE 52-1, Staffing Agreement,§ D(15)).
A patient at the Whitesburg facility, Ralph Profitt, and his wife asserted a claim
in Kentucky state court against Appalachian Regional and U.S. Nursing, alleging that
he was injured while he was a patient. Appalachian Regional incurred legal fees and
costs of $823,522.71 in defending the claim and ultimately paid the Profitts $2 million to
settle it. U.S. Nursing refused to indemnify Appalachian Regional for those amounts,

which caused Appalachian Regional to bring a claim against U.S. Nursing in this Court
for breach of the indemnification provision of the staffing agreement.
After a trial, a jury found that a U.S. Nursing employee – Nurse Constance Foote
– was negligent in performing certain acts in treating Profitt, meaning that U.S.
Nursing’s indemnification obligations were triggered. In a second phase of the trial, the
jury determined that Nurse Foote’s negligent acts caused Appalachian Regional to spend
sums to settle and defend the Profitts’ claims against it. The jury further determined
that the $2 million that Appalachian Regional paid to settle the Profitts’ claims was
reasonable and that the $823,522.71 Appalachian Regional paid in attorney’s fees and
costs to defend the Profitts’ claims against it was reasonable. The Court then entered a
judgment (DE 338) ordering that Appalachian Regional was entitled to recover from U.S.
Nursing Corporation a total of $2,823,522.71.
With the first motion now under consideration, Appalachian Regional asks the
Court to alter the judgment to include an award of pre-judgment interest. In a diversity
case, state law governs awards of prejudgment interest. Jack Henry & Associates, Inc. v.
BSC, Inc., 487 F. App'x 246, 260 (6th Cir. 2012) (internal quotation marks omitted)
(quoting Estate of Riddle v. S. Farm Bureau Life Ins. Co., 421 F.3d 400, 409 (6th
Cir.2005)).
The “longstanding rule” in Kentucky “is that prejudgment interest is awarded as a
matter of right on a liquidated demand, and is a matter within the discretion of the trial
court or jury on unliquidated demands.” 3D Enterprises Contracting Corp. v. Louisville
and Jefferson County Metropolitan Sewer Dist., 174 S.W.3d 440, 450 (Ky. 2005) (citing
Nucor Corp. v. General Electric Co., 812 S.W.2d 136, 141 (Ky. 1991)). “Precisely when the
amount involved qualifies as ‘liquidated’ is not always clear, but in general ‘liquidated’

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means ‘made certain or fixed by agreement of parties or by operation of law. Common
examples are a bill or note past due, an amount due on an open account, or an unpaid fixed
contract price.’” Nucor Corp., 812 S.W.2d at 141 (quotations and citation omitted).
In determining whether a claim is liquidated or unliquidated, “one must look at the
nature of the underlying claim, not the final award.” 3D Enterprises, 174 S.W.3d at 450.
“Liquidated claims are ‘of such a nature that the amount is capable of
ascertainment by mere computation, can be established with reasonable certainty, can be
ascertained in accordance with fixed rules of evidence and known standards of value, or
can be determined by reference to well-established market values.’” Id. (quoting 22
Am.Jur.2d Damages § 469 (2004)).
In contrast, an unliquidated damages claim is one that has “not been determined
or calculated” and “not yet reduced to a certainty in respect to amount.” Ford Contracting,
Inc. v. Kentucky Transp. Cabinet, 429 S.W.3d 397, 414 (Ky. Ct. App. 2014) (quoting Nucor
Corp., 812 S.W.2d at 141).
Judgment was entered in Appalachian Regional’s favor on its claim that U.S.
Nursing breached the staffing agreement by failing to indemnify it for the costs it incurred
in defending and settling the Profitt litigation. The amount that Appalachian Regional
paid to settle the Profitts’ claim and the attorney’s fees it incurred in that action were fixed
and ascertainable on April 1, 2016, the date of the settlement. Judge Amul Thapar (who
originally presided over this case), however, ruled that Appalachian Regional must prove
its defense and settlement costs were reasonable (DE 77, Opinion at 7.) In other words,
Appalachian Regional’s claim was for the reasonable amounts it expended to defend and
settle the Profitts’ claims.

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In support of its motion for prejudgment interest, Appalachian Regional cites
several cases in other jurisdictions holding that a claim may be deemed liquidated even
where the jury must determine the reasonableness of the damages. Numerous cases also
hold the opposite.
For example, Appalachian Regional cites the Tenth Circuit’s decision in Neustrom
v. Union Pac. F. Co., 156 F.3d 1057 (10th Cir. 1998) in which the court rejected under
Kansas law an argument that a claim was not liquidated until the court determined the
reasonableness of the settlement. More recently, however, the Tenth Circuit held that,
under Oklahoma law, attorney fees are “subject to a reasonableness determination by
the fact finder” and, thus, “are not liquidated as required under Oklahoma law for an
award of prejudgment interest.” Yousuf v. Cohlmia, 741 F.3d 31, 48 (10th Cir. 2014). See
also Flood Control Dist. of Maricopa Cty. v. Paloma Inv. Ltd. P'ship, 279 P.3d 1191, 1211
(Ariz. Ct. App. 2012) (stating “attorneys’ fees spent defending the underlying litigation
are not liquidated and subject to prejudgment interest because they are subject to a
reasonableness determination by the trial court.”); Pierce Couch Hendrickson Baysinger
& Green v. Freede, 936 P.2d 906, 914 (Okla. 1987) (“[T]he expenses in the present case
were subject to the fact-finders determination of reasonableness. Thus, they were not
liquidated and not subject to prejudgment interest.”); Tri-M Erectors, Inc. v. Donald M.
Drake Co., 618 P.2d 1341, 1346 (Wash. Ct. App. 1980) (“A claim is unliquidated if the
principal must be arrived at by a determination of reasonableness.”).
While cases from other jurisdictions are instructive, ultimately this Court must
predict whether Kentucky courts would find Appalachian Regional’s claims to be
liquidated. Hines v. Joy Mfg. Co., 850 F.2d 1146, 1150 (6th Cir. 1988). Because U.S.
Nursing disputed the reasonableness of the amounts Appalachian Regional paid to settle

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and defend the Profitts’ claim, Kentucky courts would likely find Appalachian Regional’s
claims not liquidated. “When the amount of a claim can be ascertained readily by
reference to a formula in the contract and none of the facts is in dispute or when the
amount of the claim itself is not disputed, the claim is liquidated.” Bituminous Cas.
Corp. v. Lynn, 503 F.2d 636, 646 (6th Cir. 1974) (applying Kentucky law). “Interest
should not be required except for a claim which is for a liquidated amount, and which is
not disputed in good faith.” Wittmer v. Jones, 864 S.W.2d 885, 891 (Ky. 1993) (emphasis
added).
“Damages are deemed certain or capable of being made certain where there is
essentially no dispute between the parties concerning the basis of computation of
damages and where the parties' dispute centers on the issue of liability giving rise to
damage.” 22 Am. Jur. 2d Damages § 479. “A claim is ‘unliquidated’ for prejudgment
interest purposes, where the exact amount of the sum to be allowed cannot be definitely
fixed from the facts proved, disputed or undisputed, but must in the last analysis depend
upon the opinion or discretion of the judge or jury as to whether a larger or a smaller
amount should be allowed.” 22 Am. Jur. 2d Damages § 480. “In general, ‘[d]amages that
were established by proof offered during the trial are unliquidated and not subject to
prejudgment interest.’” Osborn v. Griffin, 865 F.3d 417, 456 (6th Cir. 2017) (quoting Ford
Contracting, Inc., 429 S.W.3d at 414).
“[I]f damages are both undisputed and liquidated, prejudgment interest is
payable as a matter of law. However, if the damages are either disputed or unliquidated,
or both, then the decision as to whether prejudgment interest is due is left to the sound
discretion of the trial court.” Barnett v. Hamilton Mut. Ins. Co. of Cincinnati, Ohio, No.

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2009-CA-002234-MR, 2011 WL 43307, at *3–4 (Ky. Ct. App. Jan. 7, 2011) (citing Nucor
Corp, 174 S.W.3d 440; 3D Enterprises Contracting Corp., 174 S.W.3d 440)).
The amounts that U.S. Nursing owed Appalachian Regional could not be known
until a jury determined the sums that were reasonable. This was a matter that
depended upon the opinion and discretion of the jury. The fact that the jury ultimately
awarded Appalachian Regional the total amount it sought on its claims is not relevant in
determining whether those claims were liquidated or not. “[T]he fact that it is ultimately
determined that a party is owed damages ‘should not be construed as confirmation that
the original claim was liquidated.’” Barnett, 2011 WL 43307, at *3–4 (quoting 3D
Enterprises, 174 S.W.3d at 450). See also Prosoft Automation, Inc. v. Logan Aluminum,
Inc., No. 1:03CV142-R, 2006 WL 1228773, at *1–2 (W.D. Ky. Apr. 28, 2006) (“Therefore,
although the jury ultimately awarded Prosoft the full amount requested [in engineering
fees] as compensation for those hours, they were not reduced to a certainty in amount
prior to trial. There was a legitimate dispute as to the necessity and amount of those
hours. Therefore, they are ‘unliquidated’ damages. . . .”)
Thus, under Kentucky law, Appalachian Regional’s claims for breach of its
indemnification obligations are not liquidated claims.
“When the amount [of damages] is ‘unliquidated,’ the amount of prejudgment
interest, if any, is a matter for the trial court weighing the equitable considerations.”
University of Louisville v. RAM Engineering & Const., Inc., 199 S.W.3d 746, 748
(Ky.App.2005). Considering the totality of the circumstances, the Court finds that
awarding prejudgment interest is appropriate in this case.
“As a general matter, prejudgment interest is intended to make the plaintiff
whole; it is an element of complete compensation.” In re ClassicStar Mare Lease Litig.,

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727 F.3d 473, 494–95 (6th Cir. 2013) (internal quotation and citations omitted).
Appalachian Regional’s claims against U.S. Nursing were based on U.S. Nursing’s broad
agreement to indemnify it for any damage Appalachian Regional may suffer arising from
the negligence of any U.S. Nursing employee. The purpose of such an agreement is to
ensure that the indemnitee will suffer no loss caused by the indemnitor’s actions.
Appalachian Regional lost funds as a result of Nurse Foote’s negligence. It is just to
award Appalachian Regional the interest that would have accrued on those sums.
“It is well-accepted that a federal court sitting in diversity should use the statelaw interest rate when awarding prejudgment interest.” Id. at 497. Under Kentucky
law, “[p]rejudgment interest is limited to the legal rate, found in KRS 360.010, of 8%.”
Fields v. Fields, 58 S.W.3d 464, 467 (Ky. 2001). “The trial court may award prejudgment
interest at any rate up to 8%.” Id. The Kentucky statute pertaining to post-judgment
interest, KRS 360.040, provides that a judgment must award interest at six percent.
KRS 360.040(1). Reliable Mech., Inc. v. Naylor Indus. Servs., Inc., 125 S.W.3d 856, 857
(Ky. Ct. App. 2003) This is also an appropriate rate for this award of pre-judgment
interest.
Pre-judgment interest “has traditionally been simple interest.” Id. at 858. The
Court does not find anything about this case that warrants deviating from that tradition.
For the $2 million settlement payment, prejudgment interest should run from April 7,
2016, the date that Appalachian Regional made the payment. As to the date that
prejudgment interest should commence for the defense costs, Appalachian Regional
argues that the date should be the later of February 21, 2011 (the date that Appalachian
Regional demanded that U.S. Nursing honor its defense and indemnification obligations)
or the date the expenses were actually paid by Appalachian Regional. With its motion,

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Appalachian Regional has submitted a calculation of the prejudgment interest owed it at
a simple, non-compounded interest rate of 6 percent commencing on these dates. (DE
349-10, Calculation.) U.S. Nursing has not objected to the calculation or to the dates that
pre-judgment interest should commence. Accordingly, the Court will alter the judgment
to award Appalachian Regional pre-judgment interest of $470,760.96.
As to Appalachian Regional’s request to recover the attorney’s fees it incurred in
this indemnification action, this request will be denied. The only argument that
Appalachian Regional presents in support of this request is that it is entitled to recover
its attorney’s fees under the indemnification provision. Appalachian Regional argues
that the indemnification provision required U.S. Nursing to indemnify it “‘from any and
all liability or damages that arises from’ the negligent act or omission of a [U.S. Nursing]
nurse.” (DE 350-2, Mem. at 1, 10; DE 364, Reply at 1.) Appalachian Regional argues that
this is a “broad indemnity provision under which [U.S. Nursing] agreed to indemnify and
hold harmless [Appalachian Regional] from ‘any and all’ damage that ‘arises from’ the
negligent act of a [U.S. Nursing] employee.” (DE 364, Reply at 4.) Appalachian Regional
argues that “but for Nurse Foote’s negligence, [Appalachian Regional] would not have
had to sue [U.S. Nursing] to enforce its defense and indemnity obligations.” (DE 350-2,
Mem. at 11.)
Thus, the issue as framed by Appalachian Regional is whether the attorney’s fees
it incurred in this action “arose from” Nurse Foote’s negligent actions in treating Profitt.
In a prior opinion, Judge Thapar pointed out that the parties agreed that the phrase
“arises from” means “proximate cause.” (DE 77, Order at 8.) No party ever disputed that
finding. “[U]nder Kentucky law, causation or proximate cause is defined by the
substantial factor test: was the defendant's conduct a substantial factor in bringing

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about plaintiff's harm?” Morales v. Am. Honda Motor Co., 71 F.3d 531, 537 (6th Cir.
1995).
The attorney’s fees and litigation costs Appalachian Regional incurred in
defending the Profitt negligence claim certainly “arose from” the negligence of a U.S.
Nursing employee. With this motion, however, U.S. Nursing does not seek the attorney’s
fees arising from the negligence of a U.S. Nursing employee. It seeks the attorney’s fees
it incurred as a result of U.S. Nursing’s breach of its indemnification obligations.
Appalachian Regional argues that Nurse Foote’s actions were a “but for” cause of
Appalachian Regional’s attorney’s fees in this action. (DE 350-2, Mem. at 11-14.) The socalled “but for test” is, however, only one aspect of proximate causation. See Trail-Likoy
v. Saint Joseph Healthcare, Inc., No. 2005-CA-000658-MR, 2006 WL 2193496, at *2 (Ky.
Ct. App. Aug. 4, 2006).
To be deemed a “proximate cause” of an injury, an event must also be a
“substantial factor” in causing the injury. Id. “A defendant is not liable when the original
negligence is remote and only furnishes the occasion of the injury.” Id. For an event to be
deemed a “substantial factor” in an injury, the injury must “flow directly from the event.”
Deutsch v. Shein, 597 S.W.2d 141, 145 (Ky. 1980), abrogated on other grounds by
Osborne v. Keeney, 399 S.W.3d 1 (Ky. 2012). Nurse Foote’s negligence was not a
substantial factor in the legal fees that Appalachian Regional incurred in this action.
Appalachian Regional’s attorney’s fees in this action did not flow directly from Nurse
Foote’s negligent acts. The factor that directly caused U.S. Nursing to incur legal fees in
this action was U.S. Nursing’s breach of the indemnification agreement. Id. That breach
was not a foreseeable result of Nurse Foote’s acts. Trail-Likoy v. Saint Joseph
Healthcare, Inc., No. 2005-CA-000658-MR, 2006 WL 2193496, at *2.

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Accordingly, the Court hereby ORDERS as follows:
1) Appalachian Regional’s motion (DE 349) to alter the judgment in this action
to add prejudgment interest is GRANTED in part and DENIED in part as
follows:
a. the motion is GRANTED to the extent that Appalachian Regional
requests that the judgment be amended to add prejudgment interest of
$470,760.96, which reflects prejudgment interest calculated at the
simple interest of 6 percent commencing on April 7, 2016 for the $2
million settlement payment to the Profitts and commencing on the
later of February 21, 2011 or the date of payment for the defense costs
incurred in the Profitt litigation; and
b. the motion is otherwise DENIED; and
2) Appalachian Regional’s motion to recover the attorney’s fees (DE 350) it
incurred in this action is DENIED.

Dated December 4, 2018.

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