Opinion
NO. 2018-CA-001657-MR
01-10-2020
AUGUST PROPERTIES, LLC d/b/a PIONEER PLAZA OF GEORGETOWN APPELLANT v. COMMONWEALTH OF KENTUCKY, FINANCE AND ADMINISTRATION CABINET; AND COMMONWEALTH OF KENTUCKY, CABINET FOR HEALTH AND FAMILY SERVICES APPELLEES
BRIEFS FOR APPELLANT: Noel Mark Botts Harrodsburg, Kentucky BRIEF FOR APPELLEE COMMONWEALTH OF KENTUCKY, CABINET FOR HEALTH AND FAMILY SERVICES: Catherine York Frankfort, Kentucky BRIEF FOR APPELLEE COMMONWEALTH OF KENTUCKY, FINANCE AND ADMINISTRATION CABINET: Patrick W. McGee Bradford A. Nilsson Frankfort, Kentucky
NOT TO BE PUBLISHED APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 17-CI-00503 OPINION
AFFIRMING
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BEFORE: COMBS, DIXON, AND TAYLOR, JUDGES. COMBS, JUDGE: Appellant, August Properties, LLC d/b/a Pioneer Plaza of Georgetown (August Properties), appeals from orders of the Franklin Circuit Court dismissing its complaint and denying its motion to alter, amend or vacate. Finding no error after our review, we affirm.
Appellant, August Properties, LLC, owns and operates a shopping plaza in Georgetown, Kentucky. Appellee Finance and Administration Cabinet (FAC) entered into a lease agreement with Pioneer Plaza of Georgetown, LLC, for office space to be occupied by Appellee Cabinet for Health and Family Services (CHFS). The Commonwealth of Kentucky entered into an original lease contract between Pioneer Plaza of Georgetown, LLC, and the Commonwealth effective July 1, 2012, through June 30, 2013. The original lease was extended by a written lease renewal agreement for two more years through June 30, 2015. The parties remained the same.
Before the lease expired, August Properties purchased the shopping plaza from Pioneer Plaza of Georgetown, LLC, by deed executed on February 25, 2015. According to the parties' briefs, Pioneer Plaza filed articles of dissolution with the Secretary of State on December 14, 2015. Neither August Properties nor Pioneer Plaza gave notice of the purchase or dissolution either to FAC or to CHFS.
On December 16, 2015, August Properties, LLC d/b/a Pioneer Plaza of Georgetown, filed a complaint in Scott Circuit Court against both Appellees alleging that the lease agreement required Appellees either to vacate the leased space on or before June 30, 2015, or to enter into a new lease agreement; that Appellees did not give notice of intent to vacate until July 2, 2015; that Appellees did not vacate the space on or before June 30, 2015, rendering them liable for additional rent for three additional months in the amount of $54,183.94, the time required to complete repairs necessary to return the space to its prior condition. August Properties also sought $24,750.00 for unspecified damages and repairs.
FAC and CHFS filed motions to dismiss pursuant to CR 12.02(c) and (f) on January 7, 2016, and January 19, 2016, respectively. On May 4, 2017, the Scott Circuit Court entered an order that the proper venue was Franklin Circuit Court and transferred the motions to dismiss to that court.
Kentucky Rules of Civil Procedure.
On August 3, 2018, the Franklin Circuit Court entered an order dismissing, which provides as follows:
Defendants claim that the suit ought to be dismissed because 1) Plaintiff failed to strictly comply with KRS 45A.245 when it filed suit in Scott County instead of Franklin Circuit Court; and 2) August Properties, LLC lacks standing because it has not shown itself to be the real party in interest, as it has not provided any proof that the lease was ever assigned to August Properties, LLC from the now-defunct Pioneer Plaza of Georgetown, LLC.
Kentucky Revised Statutes.
Kentucky Revised Statutes.
The circuit court explained: that August Properties, LLC, had not supplied any proof that either the claim or the lease itself had been legally assigned to it; that the complaint did not contain any statement that August Properties, LLC, is the owner or assignee of Pioneer Plaza of Georgetown; that no documentation of a change in ownership or assignment of the lease was submitted; and that there was no proof that the defendants (Appellees) were ever notified of a change in ownership.
Noting that CHFS is entitled to sovereign immunity, the court observed that the lawsuit must strictly comply with the terms of the Commonwealth's consent or waiver of immunity. KRS 45A.245, which governs waiver of immunity for contractual obligations, "pertains to waiver of immunity for those persons or entities which have a lawfully authorized written contract with the Commonwealth. August Properties, LLC was never a party to the Contract. As such, Plaintiff has failed to show that its claims are not barred by sovereign immunity."
The circuit court further noted: that the lease provides that the Commonwealth's funds "cannot not be committed beyond its current fiscal year and its applicable appropriation"; that it was undisputed the Commonwealth had made all required payments for the full lease term which expired on June 30, 2015, the end of its fiscal year; and that the lease did not authorize payment beyond that date. The court concluded that "there is no legal authority for the payment of additional sums to the lessor."
The circuit court also explained as follows:
[T]he lease provides that the lessor shall notify the Commonwealth of "any change or transfer of ownership involving 5% or more", and "non compliance may result in termination of the lease agreement." [Lease, Complaint, Ex. A] at ¶14. Here, there is no allegation or proof that the Commonwealth was notified of the transfer of ownership of the leased property from Pioneer Plaza of Georgetown, LLC to August Properties, LLC. It appears that the waiver of sovereign immunity set forth in KRS 45A.245 is limited to "[a]ny person, firm or corporation having a lawfully authorized written contract with the Commonwealth," and the statute makes no provision for the assignment of such a claim to a new entity that was not a party to the original agreement.(Emphasis added.) On August 13, 2018, August Properties, LLC filed a motion to alter, amend or vacate pursuant to CR 59.05.
By an order entered on October 10, 2018, the court denied the motion, but it supplemented its prior ruling. The court relied upon the reasoning of Turner v. Andrew, 413 S.W.3d 272 (Ky. 2013):
[A]n LLC and its solitary member are not legally interchangeable as the real party in interest and that by law the only appropriate plaintiff to assert a business damage claim is the LLC itself . . . . The owner in the present matter is actually more distant from being the real party in interest than the owner in Turner . . . . In any case, Turner shows that the real party in interest in this matter was the now-defunct Pioneer Plaza of Georgetown, LLC. Because Plaintiff has not shown that it was the real party in interest, this suit was properly dismissed for lack of standing.(Emphasis added.)
The circuit court explained that its prior order dismissed the action against all defendants and that the viability of any other grounds upon which plaintiff relied "also rests on the erroneous belief that August Properties, Pioneer Plaza, and the owner of these businesses are not distinct legal entities."
On November 8, 2018, August Properties filed a notice of appeal to this Court from the orders of August 3, 2018, and October 10, 2018. "We review dismissals under CR 12.02(f) de novo, accepting as true the plaintiff's factual allegations and drawing all reasonable inferences in the plaintiff's favor." Carruthers v. Edwards, 395 S.W.3d 488, 491 (Ky. App. 2012).
August Properties first argues that the order dismissing the complaint should be reversed because it is the real party in interest - and that no provision in the lease, statute or case law prevents it from bringing the underlying action as the real party in interest. In support of this argument, August Properties contends that the "lease contemplated an assignment or transfer by its very terms." August Properties relies upon the following language: "THIS LEASE, entered into between: Pioneer Plaza of Georgetown LLC, . . . his heirs and assigns, hereinafter called the "Lessor", [and the . . . Commonwealth.]" (Emphasis original.) However, as the circuit court correctly observed in its order of October 10, 2018, that language only contemplated a possible future assignment.
Complaint, Exhibit "A"; Appendix "C" to Appellant's Brief. --------
Next, August Properties relies upon KRS 275.245(2)(a). That statute provides that an authorized manager may execute an instrument of transfer of title to property held in the LLC's name where the LLC's management is vested in a manager or managers.
The circuit court explained that the lease required the lessor to notify the Commonwealth of any change or transfer of ownership involving 5% or more and that noncompliance might result in termination of the lease agreement. August Properties observes that this requirement is codified at KRS 56.809(3), which provides that:
A new disclosure statement shall be furnished to the Finance and Administration Cabinet upon: (a) Any change or transfer of ownership involving persons, including silent or limited partners, owning five percent (5%) or more of the shares in the corporation, partnership, business trust, or organization[.](Emphasis added.)
However, August Properties contends that there was "'no change in ownership" requiring notification under the lease or the aforementioned statute because "[t]he owners of Pioneer Plaza of Georgetown, LLC, which was dissolved, and August Properties, LLC are the same."
CHFS submits that August Properties has missed the point, and we are compelled to agree. Turner clearly holds that an LLC and its solitary member are not legally interchangeable. There, the Appellee "created an LLC [which] . . . was conducting the trucking business at issue. By law, the only appropriate plaintiff to assert the lost business damages claim was the LLC . . . ." 413 S.W.3d at 277.
August Properties also argues that there is no provision in KRS 45A.245 that prohibits the assignment of a lease. KRS 45A.245(1) provides in relevant part that "[a]ny person, firm or corporation, having a lawfully authorized written contract with the Commonwealth . . . may bring an action against the Commonwealth on the contract . . . ." As this Court held in Louisville Arena Auth., Inc. v. RAM Eng'g & Const., Inc., 415 S.W.3d 671, 681 (Ky. App. 2013), "[t]he General Assembly has expressly waived the Commonwealth's immunity on claims based on written contracts. However, because it is a statute waiving sovereign immunity, it must be strictly and narrowly construed." (Emphasis added.)
We agree with the circuit court that "the real party in interest in this matter was the now-defunct Pioneer Plaza of Georgetown, LLC." We also agree August Properties failed to show that its claims are not barred by sovereign immunity because it did not have a lawfully authorized written contract with the Commonwealth under KRS 45A.245(1). Accordingly, as this reasoning is dispositive of the matter, we need not address August Properties' remaining arguments.
We AFFIRM the judgment of the Franklin Circuit Court.
DIXON, JUDGE, CONCURS.
TAYLOR, JUDGE, DISSENTS. BRIEFS FOR APPELLANT: Noel Mark Botts
Harrodsburg, Kentucky BRIEF FOR APPELLEE
COMMONWEALTH OF
KENTUCKY, CABINET FOR
HEALTH AND FAMILY
SERVICES: Catherine York
Frankfort, Kentucky BRIEF FOR APPELLEE
COMMONWEALTH OF
KENTUCKY, FINANCE AND
ADMINISTRATION CABINET: Patrick W. McGee
Bradford A. Nilsson
Frankfort, Kentucky