Summary
The Kentucky Supreme Court reversed a judgment against Wiley in a class action alleging fraud in the operation of a proprietary business school. The court held that Wiley lacked sufficient notice of the trial and that entering a default judgment against him was erroneous, requiring a new trial. The court also addressed class certification, damages, and punitive-damages instructions, concluding that those rulings were otherwise permissible or could be considered on retrial.
Topics
Practice areas
Questions Presented
- Whether the trial court violated Wiley's right to reasonable notice by proceeding to trial on liability and entering a default judgment when Wiley was not in default and had not received notice of the proceedings or trial date.
- Whether the trial court properly maintained the litigation as a class action under Kentucky Rules of Civil Procedure 23.01(b) and 23.02(c).
- Whether uncertainty regarding the precise amount of individual damages prevented the jury from awarding damages in the class action.
- Whether punitive damages could properly be submitted to the jury on a fraud claim arising from a contract.
Holdings
- A party who is not in default is entitled to reasonable notice of proceedings and the trial date. Because Wiley received insufficient notice and the trial court's scheduling order indicated that the trial would concern only the bank, it was error to proceed against Wiley and enter a default judgment on liability.
- A class action may be maintained when class members share a common nucleus of operative facts; complete identity of facts among all class members is not required. The trial court therefore did not err in maintaining the former students' fraud action as a class action.
- Uncertainty regarding the amount of damages does not preclude recovery when it is reasonably certain that damage occurred, and the trial court properly instructed the jury on damages.
- It was proper to instruct the jury on punitive damages because the claim was based on fraud rather than merely breach of contract; punitive damages may be awarded when fraud induces a party to enter a contract.
Key quotations
“It is fundamental that notice of trial be given or received by the parties.” (48 S.W.3d at 22)
“It is not necessary that there be a complete identity of facts relating to all members as long as there is a common nucleus of operative facts.” (48 S.W.3d at 23)
“Where it is reasonably certain that damage has resulted, the mere uncertainty as to the amount does not preclude the right to recovery or to prevent a jury from awarding damages.” (48 S.W.3d at 23)
Factual background
Wiley owned and operated Excel College, a proprietary business school in Corbin, Kentucky. Former students alleged that Wiley and the college defrauded them, and the trial court certified the action as a class action involving hundreds of students. After Wiley's attorneys withdrew, Wiley moved to Texas without providing a new address; he received no notice of proceedings after 1992, learned of the scheduled trial only shortly before it began, and unsuccessfully sought a continuance. The court proceeded without him, entered a default judgment on liability, and later awarded the class $1,188,950 in compensatory damages and $1 million in punitive damages.
Procedural history
Former students sued Wiley and Excel College for alleged fraud and later added Huntington Federal Savings and Loan Association. The trial court certified the case as a class action. After Wiley's counsel withdrew and Wiley could not be located, the court proceeded with a trial concerning the bank, entered a default judgment against Wiley on liability, and later conducted a damages trial at which Wiley appeared with counsel. The jury awarded compensatory and punitive damages, and the Court of Appeals affirmed. The Supreme Court reversed and remanded for a new trial because Wiley lacked adequate notice.
Remand instructions
The matter was remanded to the trial court for a new trial as to Wiley.