Opinion
NO. 2018-CA-000564-MR
02-07-2020
ACTON PROPERTIES, LLC APPELLANT v. DANIEL TOBIAS FREESE APPELLEE
BRIEFS FOR APPELLANT: Jean Acton Louisville, Kentucky BRIEF FOR APPELLEE: Marque G. Carey Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE DARRYL S. LAVERY, JUDGE
ACTION NO. 16-CI-005479 OPINION
AFFIRMING IN PART, REVERSING IN PART, AND REMANDING
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BEFORE: CLAYTON, CHIEF JUDGE; COMBS AND MAZE, JUDGES. MAZE, JUDGE: Acton Properties, LLC ("Acton") appeals from a judgment and orders of the Jefferson Circuit Court regarding its claims against a former tenant, Daniel Tobias Freese. Acton appeals from a summary judgment which denied its claims for attorney fees, "management fees," prejudgment and post-judgment interest, and sanctions under CR 11. Acton also appeals the trial court's order requiring it to pay "contempt sanctions." We affirm in part, reverse in part, and remand for additional proceedings, findings and entry of a new judgment as set forth below.
Kentucky Rules of Civil Procedure.
Freese signed a lease to rent a 100-year-old house on Charles Street in Louisville, Kentucky for $750.00 per month. The lease ran from December 31, 2014 to March 30, 2016, with the tenant liable for any damage caused to the property. The lease provided that Freese would be charged an additional $850.00 per month should anyone other than Freese occupy the home. The lease also included the following "Management Fees" provision:
In the event there is non-compliance with the terms of this lease, there shall be a management fee imposed at the rate of $150.00 per hour for all time expended to correct the non-compliance in addition to expenses incurred. This management fee shall be applicable irrespective of whether services are provided by a member of the limited liability company or outside person(s).Freese moved out of the house in September 2015. Acton subsequently brought suit for unpaid rent, damages for necessary repairs to the property, attorney fees under KRS 383.660(3), and "management fees." Freese raised multiple defenses and brought counterclaims that are not pertinent to this appeal.
Kentucky Revised Statutes.
Discovery commenced and the relationship between trial counsel grew contentious. Acton eventually moved for sanctions under CR 11 and CR 37, alleging non-compliance with discovery orders and violations of the Kentucky Rules of Professional Conduct by Freese's trial attorney. The trial court awarded Acton attorney fees after finding Freese failed to respond to discovery requests but reserved ruling on the CR 11 motion until final judgment.
Acton eventually moved for summary judgment. In addition to the claims raised in its complaint, Acton alleged Freese did not disclose that his girlfriend moved in with him for a time; therefore, it sought $850.00 for every month the girlfriend resided in the rental home. The trial court held oral arguments on the matter one day before Freese's scheduled deposition. Freese conceded he did not have any deposition testimony or affidavits to support his defenses or counterclaims. However, he requested the trial court sanction Acton, alleging Acton unilaterally scheduled his deposition and intended to cancel it after he had already returned early from a trip to Florida.
In its written opinion and order, the trial court found Freese failed to present any evidence in support of his defenses for failing to pay rent or his claim the alleged damage to the home was preexisting; therefore, it granted Acton summary judgment on its claim for $4,500.00 in unpaid rent and $4,040.80 for damage to the home. The trial court did not award any damages regarding the allegation Freese's girlfriend lived in the home without authorization. The trial court declined to award attorney fees under KRS 383.660, finding no proof of willful non-compliance with the lease. The trial court also refused to award "management fees," claiming they were "essentially attorney fees stated differently and therefore precluded by statute." The trial court also declined to impose sanctions for Freese's alleged discovery violations, concluding there was no intentional wrongdoing justifying sanctions. Finally, the trial court stated it would consider ordering Acton to reimburse Freese for costs incurred for his trip to Louisville for his deposition if Freese could produce receipts for his incurred expenses.
The trial court then entered an order granting Freese's motion for "contempt sanctions." Acton was ordered to pay $72.50, the cost of the plane ticket Freese purchased to travel to Louisville for his deposition. Acton then moved to alter, amend, or vacate, seeking an award of costs under CR 54.04 and interest on the award of damages under KRS 383.010. Acton also moved to set aside the "contempt sanction" for $72.50, claiming Freese's counsel participated in selecting the deposition date and never mentioned his client would have to travel.
Finally, Acton complained that statements the court made at the summary judgment hearing showed "bias" and "indifference to the plaintiff in general." The trial court denied the motion to alter, amend, or vacate in its entirety. This appeal follows.
"The proper function of summary judgment is to terminate litigation when, as a matter of law, it appears that it would be impossible for the respondent to produce evidence at the trial warranting a judgment in his favor." Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR 56.03. "The record must be viewed in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor." Steelvest, 807 S.W.2d at 480. The trial court "must examine the evidence, not to decide any issue of fact, but to discover if a real issue exists." Id. Since a summary judgment involves no fact-finding, this Court's review is de novo, in the sense that we owe no deference to the conclusions of the trial court. Scrifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996).
I. Preservation
As an initial matter, in contravention of CR 76.12(4)(c)(v), Acton does not adequately state how it preserved any of its arguments in the trial court.
CR 76.12(4)(c)[(v)] in providing that an appellate brief's contents must contain at the beginning of each argument a reference to the record showing whether the issue was preserved for review and in what manner emphasizes the importance of the firmly established rule that the trial court should first be given the opportunity to rule on questions before they are available for appellate review. It is only to avert a manifest injustice that this court will entertain an argument not presented to the trial court. (citations omitted).Elwell v. Stone, 799 S.W.2d 46, 48 (Ky. App. 1990) (quoting Massie v. Persson, 729 S.W.2d 448, 452 (Ky. App. 1987)). We require a statement of preservation:
so that we, the reviewing Court, can be confident the issue was properly presented to the trial court and therefore, is appropriate for our consideration. It also has a bearing on whether we employ the recognized standard of review, or in the case of an unpreserved error, whether palpable error review is being requested and may be granted.Oakley v. Oakley, 391 S.W.3d 377, 380 (Ky. App. 2012).
Acton's brief does not include a preservation statement at the beginning of each argument. However, dismissal based upon non-compliance with CR 76.12 is not automatic. Baker v. Campbell County Board of Education, 180 S.W.3d 479, 482 (Ky. App. 2005). As noted, our review of the summary judgment is de novo, with no deference to the trial court's factual findings. But with respect to the remaining issues, we conclude that the appropriate remedy is to undertake a review for manifest injustice. Mullins v. Ashland Oil, Inc., 389 S.W.3d 149, 154 (Ky. App. 2012) (citing J.M. v. Commonwealth, Cabinet for Health & Family Services, 325 S.W.3d 901, 902 n.2 (Ky. App. 2010)).
II. Attorney Fees
The Uniform Residential Landlord and Tenant Act (KRS 383.505-383.715) prohibits a clause in a lease that requires the tenant to pay attorney fees. KRS 383.570(1)(c). However, "[i]f the tenant's noncompliance is willful the landlord may recover actual damages and reasonable attorney's fees." KRS 383.660(3). "Willful" is defined as "with deliberate intention, not accidentally or inadvertently, and done according to a purpose." KRS 383.545(17). In light of the statutory prohibition on attorney fees in KRS 383.570(1)(c), the limited exception allowing attorney fees under KRS 383.660(3) must be strictly construed. O'Rourke v. Lexington Real Estate Co. L.L.C., 365 S.W.3d 584, 587 (Ky. App. 2011).
In its motion for summary judgment, Acton supported its argument that Freese willfully failed to comply with the lease with photographs and affidavits describing the condition of the rental home after Freese moved out. These photographs show several small holes in at least one wall; the carpet, which Acton characterizes as "filthy"; and a bathroom sink dislodged from the wall. Acton does not argue that these photographs and affidavits created a genuine issue of material fact regarding willfulness. Instead, Acton contends that "[r]easonable minds cannot conclude that the vast damages substantiated by the record, photos before and after Mr. Freese's occupancy, affidavits, repair statements, receipts and own admissions just 'happened.' Damages were caused by the egregious, willful and wanton acts of Mr. Freese."
As a general rule, the question of whether the damage to the house was "willful" would not be appropriate for summary judgment, since it involves a strictly factual determination. But in this case, Acton only sought judgment on this issue as a matter of law. This argument essentially concedes that there are no genuine issues of material fact on this matter. Having carefully reviewed the evidence cited in support of Acton's motion for summary judgment, we do not believe that it was so persuasive that a court was required, as a matter of law, to find that Freese engaged in willful behavior. Accordingly, we affirm the trial court's finding that Acton was not entitled to attorney fees.
III. "Management Fees"
Acton alleged that its managing member spent thirty-eight hours working to return the house to a rentable condition. Accordingly, it sought $5,700.00 under the lease's "Management Fees" clause. The trial court refused to enforce this provision on the grounds it essentially sought attorney fees prohibited under KRS 383.570. We disagree with that characterization. The "management fee" did not seek reimbursement for legal services or any work by a licensed attorney.
Freese sought relief from this provision under KRS 383.555, which provides that a court may refuse to enforce a provision in a rental agreement that is unconscionable. We agree with Freese that the trial court should have analyzed the "Management Fees" clause under KRS 383.555 but conclude that additional factual findings are necessary on this issue. "Whether a contract provision is unconscionable is 'highly fact specific.'" Grimes v. GHSW Enterprises, LLC, 556 S.W.3d 576, 583 (Ky. 2018) (quoting Kegel v. Tillotson, 297 S.W.3d 908, 913 (Ky. App. 2009)).
Unsurprisingly, the Uniform Residential Landlord and Tenant Act provides that "[i]f unconscionability is put into issue by a party or by the court upon its own motion, the parties shall be afforded a reasonable opportunity to present evidence as to the setting, purpose, and effect of the rental agreement or settlement to aid the court in making the determination." KRS 383.555(2). The need for factual findings before a determination on unconscionability is readily available in this case. There has been no proof Acton actually paid its manager $150.00 per hour; whether that rate was reasonable for the work required; or if Acton's manager actually spent thirty-eight hours correcting non-compliance with the lease. It also appears Acton is attempting to use Freese's breach as an opportunity to pass on a business expense it would incur even if there was not a breach. Given that Acton already received $4,040.80 for damage Freese caused to the house, it is unclear how an award of management fees does not amount to compensating Acton for harm in which it already received an award of damages. Nonetheless, Acton should be afforded an opportunity to present evidence supporting its argument that the "Management Fees" provision is not unconscionable. Accordingly, the portion of the trial court's final judgment refusing to award Acton management fees must be vacated and remanded for a hearing and further written factual findings on the issue of unconscionability.
The trial court stated at the hearing on Acton's motion for summary judgment that it found the "Management Fees" provision unconscionable as well as precluded by KRS 383.570. However, it made no finding that the management fees provision was unconscionable in its written order. Conclusions of law made orally by the circuit court at an evidentiary hearing cannot be considered on appeal unless incorporated into a written order. Kindred Nursing Centers Ltd. Partnership v. Sloan, 329 S.W.3d 347, 349 (Ky. App. 2010). Thus, there is no finding on whether the lease is unconscionable for review. --------
IV. Rent for Unauthorized Person
Acton sought an additional $6,375.00 in unpaid rent on the grounds that Freese's girlfriend lived with him during the term of the lease. Acton does not cite to the record in support of this allegation. It is not this Court's duty to scour the record for evidence in support of a party's argument. See Phelps v. Louisville Water Co., 103 S.W.3d 46, 53 (Ky. 2003). By failing to show that there is any evidence that Freese breached the provision relating to unauthorized persons residing in the house, there are no grounds for this Court to reverse the trial court's judgment with instructions it award additional damages under this provision of the lease.
V. Prejudgment and Post-Judgment Interest
KRS 383.010(1) provides that "[r]ent may be recovered by distress, attachment or action, and shall bear six percent (6%) interest per annum from the time it is due." Although the trial court did not cite any law in its orders denying Acton pre or post-judgment interest, KRS 360.040(4) provides that "[w]hen a claim for unliquidated damages is reduced to judgment, such judgment may bear less interest than six percent (6%) if the court rendering such judgment, after a hearing on that question, is satisfied that the rate of interest should be less than six percent (6%)." (Emphasis added.) Liquidated damages are the type "the amount of which has been made certain and fixed either by the act and agreement of the parties or by operation of law to a sum which cannot be changed by the proof." Hazel Enterprises, LLC v. Ray, 510 S.W.3d 840, 843-44 (Ky. App. 2017) (quoting Neurodiagnostics P.S.C. v. Modern Radiology, PLLC, Nos. 2009-CA-002413-MR and 2010-CA-000068-MR, 2010 WL 5018565, *11 (Ky. App. Dec. 10, 2010)).
Thus, the damages for unpaid rent were liquidated, and the trial court did not have discretion to reduce the statutory interest rate for unpaid rent. Id. at 844. The damages awarded for the damage Freese caused to the home were unliquidated, but the trial court did not hold a hearing on whether Acton should receive interest on these damages. The portion of the trial court's judgment denying Acton interest must be reversed and remanded with instruction to award interest on its claim for unpaid rent and to hold a hearing on whether the damages awarded for the damage Freese caused to the home should bear interest at less than the statutory rate.
VI. CR 11 Sanctions
CR 11 provides that
[t]he signature of an attorney or party constitutes a certification by him that he has read the pleading, motion or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.A trial court is required to impose sanctions if any pleading, motion, or paper is signed in violation of the rule. Id. When a trial court denies sanctions under CR 11, our review is limited to whether the trial court abused its discretion. Clark Equipment Co., Inc. v. Bowman, 762 S.W.2d 417, 420 (Ky. App. 1988). "The test for abuse of discretion is whether the trial judge's decision was arbitrary, unreasonable, unfair, or unsupported by sound legal principles." Commonwealth v. English, 993 S.W.2d 941, 945 (Ky. 1999).
Acton did not point to a specific CR 11 violation by Freese or his attorney in its brief. The affidavit it filed in support of its motion before the trial court claimed Freese failed to respond to discovery and included a vague complaint about "unprofessional and untruthful allegations" by Freese's counsel. Acton had already received sanctions for Freese's failure to respond to certain discovery requests. Acton's vague reference to untruthful allegations did not warrant sanctions absent a citation to an actual writing Freese's attorney signed in violation of CR 11. Thus, the trial court did not err when it found that a CR 11 violation did not occur in this case.
Acton also complains that the trial court did not hold a hearing on its CR 11 motion. However, Acton was permitted to argue its case for CR 11 sanctions at the hearings on its motion for summary judgment and to alter, amend, or vacate. A hearing and findings of fact are required only when the trial court imposes sanctions. Clark Equipment Co., 762 S.W.2d at 421. The trial court is not required to hold an evidentiary hearing when a motion, on its face, fails to allege a CR 11 violation. Under these circumstances, the trial court did not abuse its discretion by denying Acton's motion for sanctions under CR 11.
VII. Contempt Sanction
"A trial court has inherent power to punish individuals for contempt, and nearly unfettered discretion in issuing contempt citations." Crowder v. Rearden, 296 S.W.3d 445, 450 (Ky. App. 2009) (citations omitted). Contempt is defined as "willful disobedience of—or open disrespect for—the rules or orders of a court." Id. (quoting Commonwealth v. Burge, 947 S.W.2d 805, 808 (Ky. 1996)). A trial court's contempt order is reviewed for an abuse of discretion, and the factual findings underlying the order will not be disturbed unless clearly erroneous. Commonwealth, Cabinet for Health and Family Services v. Ivy, 353 S.W.3d 324, 332 (Ky. 2011).
"In a civil contempt proceeding, the initial burden is on the party seeking sanctions to show by clear and convincing evidence that the alleged contemnor has violated a valid court order." Id. "[W]hen the existence or non-existence of a contempt, civil or criminal, requires the resolution of a factual issue the trial court may itself resolve that issue upon the basis of a hearing in which the alleged offender is afforded a fair opportunity to present a defense[.]" International Ass'n of Firefighters, Local 526, AFL-CIO v. Lexington-Fayette Urban County Government, 555 S.W.2d 258, 259 (Ky. 1977) (quoting Miller v. Vettiner, 481 S.W.2d 32, 35 (Ky. 1972)). We recognize that the trial court did not hold a hearing or make findings addressing Acton's justification for cancelling Freese's scheduled deposition. But as noted above, Acton failed to show how this error was preserved for review. Considering that the trial court imposed sanctions of only $72.50, we conclude that any error was de minimus and cannot reach the level of manifest injustice. Therefore, we decline to address the issue further.
VIII. Costs
Because we affirm the trial court's finding that Acton was not entitled to attorney fees or rent for unauthorized persons residing in the rental property, the trial court's refusal to award Acton costs is affirmed. See CR 54.04(1).
IX. Alleged Bias of Trial Judge
Acton claims the trial judge was biased because he inquired whether Freese could afford to pay the damages awarded to Acton. Acton failed to cite to where this statement can be located in the record. However, we have reviewed the hearing on summary judgment and discovered that the following exchange occurred after the trial court awarded summary judgment and Acton's counsel informed him that its CR 11 motion was still pending:
Trial Judge: "This is a case that needs to—"
Plaintiff's Counsel: "Go away."
Trial Judge: "Go away, I think everyone, can your client even afford this amount?"
Defense counsel: "I doubt it."
Trial Judge: "I mean—"Placed in context, it is clear the trial court was merely advising Acton's counsel that its CR 11 motion probably was not worth the effort because it was unlikely Freese could even pay the full amount of damages. We do not comprehend how the trial judge's remarks can be interpreted as showing bias against Acton. A review of the record reveals the trial judge managed this case with extraordinary patience despite the acrimonious relationship between counsel. Regardless, Acton failed to explain what relief it was requesting in light of the trial court's perceived bias. It never sought recusal or moved to set aside any order because the trial judge lacked impartiality. Accordingly, any argument that the trial court should be reversed because the judge was biased was not preserved for appellate review. Ten Broeck Dupont, Inc. v. Brooks, 283 S.W.3d 705, 734 (Ky. 2009).
Defense counsel: "In fact I'm doing most of this work—"
Plaintiff's counsel: "The CR 11 motion is against [Defense counsel] Mr. Samuel."
Defense counsel: "Yeah, it's against me but I'm doing most of this work pro bono. [inaudible] just a goodfella."
X. Conclusion
The trial court's findings regarding attorney fees, rent for unauthorized persons residing in the rental property, CR 11 sanctions, contempt sanctions, and costs are affirmed. The trial court's findings on management fees and interest are reversed. On remand, the trial court shall hold a hearing on whether the "Management Fees" provision in the lease is unconscionable. The trial court shall award Acton 6% interest on its award for unpaid rent. The trial court shall hold a hearing on whether Acton's damages for the damage Freese caused to rental property should accrue interest at less than the statutory rate.
ALL CONCUR. BRIEFS FOR APPELLANT: Jean Acton
Louisville, Kentucky BRIEF FOR APPELLEE: Marque G. Carey
Louisville, Kentucky