Opinion
NO. 2018-CA-001707-MR NO. 2019-CA-000836-MR NO. 2019-CA-000856-MR
04-03-2020
Shea CINQUE, Appellant v. LEXINGTON VILLAGE, LLC, Appellee Lexington Village, LLC, Cross-Appellant v. Lindsay Beals, Katrina Gehrisch, Brook Goodwin, Natalie Mersch, Lauren Severa, Cheyenne D. Zoechling, and Michael Cinque, Cross-Appellees Lindsay Beals, Katrina Gehrisch, Brooke Goodwin, Natalie Mersch, Lauren Severa, Cheyenne Zoechling, and Michael Cinque, Appellants v. Lexington Village, LLC, Appellee
BRIEFS FOR APPELLANTS / CROSS-APPELLEES: Aaron D. Reedy, James L. Deckard, Lexington, Kentucky. BRIEFS FOR APPELLEE / CROSS-APPELLANT: Carroll M. Redford, III, Elizabeth C. Woodford, Lexington, Kentucky.
BRIEFS FOR APPELLANTS / CROSS-APPELLEES: Aaron D. Reedy, James L. Deckard, Lexington, Kentucky.
BRIEFS FOR APPELLEE / CROSS-APPELLANT: Carroll M. Redford, III, Elizabeth C. Woodford, Lexington, Kentucky.
BEFORE: COMBS AND LAMBERT, JUDGES; BUCKINGHAM, SPECIAL JUDGE.
Retired Judge David C. Buckingham sitting as Special Judge by assignment of the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution.
OPINION
BUCKINGHAM, SPECIAL JUDGE:
Lexington Village, LLC, filed a civil action in the Fayette Circuit Court against seven college students seeking a judgment for breach of a residential lease agreement involving property located at 227 East Maxwell Street, Lexington, Kentucky. Lexington Village obtained a default judgment against one of the students, Shea Cinque, but the other six students prevailed on their summary judgment motion against Lexington Village, resulting in dismissal of the claims against them.
Cinque appeals from an order of the circuit court denying her motion to set aside the default judgment, and Lexington Village cross-appeals from the summary judgment awarded to the other six students. We affirm in part, reverse in part, and remand.
On February 18, 2016, Lexington Village entered into an eight-page Lease Agreement with small print for the subject property with the following college students: Natalie Mersch, Lauren Severa, Lindsay Beals, Shea Cinque, Katrina Gehrisch, Brook Goodwin, and Cheyenne D. Zoechling. The lease commenced on August 20, 2016, and ended on July 31, 2017. The total rent to be paid was $43,120, and it was payable in monthly installments of $3,920 each, due and payable the first of each month. It is undisputed that the students paid all rents due under the lease and vacated the property before the lease expired.
The lease was actually between Lexington Rental Homes, Inc., and the seven students. Lexington Rental Homes, Inc., has a limited management agreement to collect rents for the out-of-state Lexington Village, LLC.
The first numerical paragraph in the lease contained the following provision:
This Lease shall automatically be renewed on a year-to-year basis on the same terms and conditions set forth herein at the expiration of the original term hereof, subject to the right of Landlord to increase the annual and monthly rental rates, unless Landlord or Resident gives the other at least one hundred twenty (120) days written notice of the intention to terminate the tenancy at the end of the rental term in place at the time, or that any one or more of the terms herein shall not be acceptable for the successive term.
Paragraph 33 of the lease stated the following: "RENEWAL: You have no right to renew this Lease. We may, at our option, offer you an opportunity to renew."
When the students vacated the property at the end of the lease term, Lexington Village sought to recover rents from them for a renewal term, even though the students were no longer living there. Lexington Village relied on the aforementioned lease provision that stated the lease would automatically renew "unless Landlord or Resident gives the other at least one hundred twenty (120) days written notice of the intention to terminate the tenancy at the end of the rental term...." Lexington Village claimed that the lease automatically renewed under the lease provision because the students had not given written notice of their intention to terminate the tenancy.
Lexington Village sent a demand letter to the seven students before filing a civil complaint in the circuit court against them. The complaint sought to recover rentals for a renewal term and attorney fees based on claims of breach of contract and unjust enrichment. A summons was issued by the clerk to each of the students, and the summons issued to Cinque was addressed to her last known address, which was the address of the subject property where she no longer resided. While service on several of the students, including Cinque, was unsuccessful, attorneys filed an answer on behalf of four of them (Severa, Zoechling, Goodwin, and Beals).
Because attempts to serve the other three students were unsuccessful, Lexington Village filed a motion for leave to file an amended complaint. That complaint alleged that Cinque's last known address was in Hamilton County, Ohio, and it directed she be served by the Secretary of State pursuant to KRS 454.210, the long-arm statute. Summons was issued to Cinque and was served on the Secretary of State. The attorneys representing the students filed an answer to the amended complaint wherein they responded on behalf of five of the students. The attorneys later filed a second answer to the amended complaint, responding on behalf of all the students except Cinque.
Kentucky Revised Statutes.
On March 14, 2018, the Secretary of State filed its report with the court stating it had served Cinque by sending a copy of the summons and complaint by certified mail, return receipt requested, on January 25, 2018, and that neither the return receipt card nor the undelivered letter had been received. Lexington Village moved for the entry of a default judgment against Cinque, and on October 5, 2018, the court granted the motion and entered a default judgment against her. The judgment was in an amount in excess of $22,000.
Upon receiving the court's order granting Lexington Village a default judgment against Cinque, the attorneys representing the other students filed a motion to set aside the default judgment on Cinque's behalf. On November 13, 2018, the court entered an order denying the motion. This appeal by Cinque followed.
These attorneys had not been served with a copy of Lexington Village's motion for default judgment.
Lexington Village also sought and received permission from the court to file a second amended complaint against Cinque's father, Michael Cinque, based upon his status as co-applicant on the lease.
Meanwhile, the other students moved the court to grant them summary judgment based on email communications between Lexington Village and the students in October 2016, not long after the students had taken possession of the property under the lease. During that time, Lexington Village had sent emails to the students advising them that the "deadline for renewal is 10/24/2016" and that after that date "we will begin marketing your property and you will not be guaranteed your current property." Further, the students were advised that "you have until this Monday the 24th of October to let us know if you are renewing your lease contract. If we do not hear from you by Monday we will begin marketing your property." Also, "[i]f we don't get the signed lease back this week we will begin marketing your property for rent for the 2017-2018 year." When the students did not execute the lease, Lexington Village proceeded to show the property as it had promised.
The students argued to the court in support of their summary judgment motion that Lexington Village's correspondence in October 2016 constituted prior written notice that it would not be renewing the lease if they did not execute the new lease, which they elected not to do. They also argued other legal theories in opposition to Lexington Village's summary judgment motion, including equitable estoppel.
On April 25, 2019, the circuit court entered summary judgment in favor of the students. The court reasoned: "Defendants’ argument of equitable estoppel applies to prevent Plaintiff from enforcing the automatic renewal provision in the Lease[.]" Lexington Village's motion to reconsider was denied by a final and appealable order dated May 22, 2019. This appeal by Lexington Village followed.
The students also cross-appealed on the grounds that it was error for the court not to also grant summary judgment on other legal theories presented in their summary judgment motion.
DEFAULT JUDGMENT AGAINST CINQUE
Cinque contends the circuit court erred by refusing to set aside the default judgment entered against her. She cites CR 55.02 which states: "For good cause shown the court may set aside a judgment by default in accordance with Rule 60.02." Further, she cites CR 60.02 which states in part that "[o]n motion a court may, upon such terms as are just, relieve a party or his legal representative from its final judgment, order, or proceeding upon the following grounds ... (f) any other reason of an extraordinary nature justifying relief."
Kentucky Rules of Civil Procedure.
Cinque's first argument in this regard is that Lexington Village failed to properly serve her. She states she was not personally served with a copy of the summons and complaint as required by CR 4.04, which states, in relevant part, as follows:
(2) Service shall be made upon an individual within this Commonwealth, other than an unmarried infant or person of unsound mind, by delivering a copy of the summons and of the complaint (or other initiating document) to him personally or, if acceptance is refused by offering personal delivery to such person, or by delivering a copy of the summons and of the complaint (or other initiating document) to an agent authorized by appointment or by law to receive service of process for such individual.
Cinque argues Lexington Village erroneously served her through the long-arm statute, KRS 454.210(3), which permits nonresidents subject to personal jurisdiction under the statute to be constructively served through the Secretary of State. Cinque asserts that at all relevant times she was living and residing in Lexington, Kentucky, and therefore was not a nonresident subject to service through the long-arm statute.
Cinque also cites PNC Bank, N.A. v. Citizens Bank of Northern Kentucky, Inc. , 139 S.W.3d 527 (Ky. App. 2003), in support of her argument that she demonstrated good cause for setting aside the default judgment. In PNC Bank this Court stated that "[a] party seeking to have a default judgment set aside must show good cause; i.e. , the moving party must show ‘(1) a valid excuse for the default; (2) a meritorious defense to the claim; and (3) absence of prejudice to the non-defaulting party.’ " Id. at 530-31 (quoting Sunrise Turquoise, Inc. v. Chemical Design Co., Inc. , 899 S.W.2d 856, 859 (Ky. App. 1995) ). She asserts that all three factors are present in this case.
Lexington Village argues in response that the circuit court had broad discretion in considering Cinque's CR 55.02 motion, and that we may not disturb the default judgment "unless the trial court abused that broad discretion." First Horizon Home Loan Corp. v. Barbanel , 290 S.W.3d 686, 688 (Ky. App. 2009) (citing S.R. Blanton Development, Inc. v. Investors Realty & Management Co., Inc. , 819 S.W.2d 727, 730 (Ky. App. 1991) ). For this Court to find that the circuit court abused its discretion, the circuit court's decision "must have been arbitrary, unreasonable, unfair or unsupported by sound legal principles." Id. (citing Clark v. Commonwealth , 223 S.W.3d 90, 95 (Ky. 2007) ).
Lexington Village contends that Cinque was properly served through the Secretary of State. It argues that she was a resident of Ohio, has an Ohio driver's license, has been employed recently by a restaurant in Cincinnati, and gave her parents’ Cincinnati address on her 2017 income tax return. Lexington Village also contends that Cinque's statement that she lived in Lexington, Kentucky, during all relevant times indicates a misunderstanding of legal residency. It argues that the fact Cinque may have lived in Kentucky while a college student at the University of Kentucky does not make her a Kentucky resident. In this regard, Lexington Village cites Baker v. Baker, Eccles & Co. , 162 Ky. 683, 173 S.W. 109 (1915), which held:
It does not always follow that the place of actual residence is the place of legal residence, as a person may have an actual residence at a place where he is only temporarily located, and where he has no intention of remaining permanently or indefinitely, while his legal residence will be at that place where he intends to remain permanently or indefinitely.
Id. , 173 S.W. at 118. See also Perry v. Motorists Mut. Ins. Co. , 860 S.W.2d 762, 765 (Ky. 1993) (a person may "maintain a permanent place of residence even though he or she may live elsewhere temporarily"). Lexington Village maintains, therefore, that Cinque has no valid excuse for her default and thus is unable to meet the first element necessary to show good cause to set aside a default judgment.
Lexington Village also contends that Cinque cannot demonstrate the presence of the remaining factors that must be present before a default judgment may be set aside. In this regard, it asserts that setting aside the judgment "will create clear and obvious prejudice to Lexington Village" and that whether Cinque has a meritorious defense is subject to this Court's review of the circuit court's award of summary judgment to the other students. Additionally, Lexington Village notes that all three elements that are relevant to the setting aside of a default judgment must be present. See S.R. Blanton Development , 819 S.W.2d at 729.
This case presents a unique fact situation in which a party seeks to uphold a default judgment against an individual where the merits of the case have been decided by the trial court in favor of the individual's co-defendants. If the co-defendants continue to prevail, and the summary judgment in favor of the co-defendants is upheld by this Court in this appeal, then it would defy logic to let the judgment against Cinque stand. As Kentucky's highest court noted in a case that involved the setting aside of a default judgment nearly a century ago, "[i]f appellant does not owe the money claimed by appellee, it would be a grave injustice to require him to pay it. It is all-important that courts exercise their discretion liberally, to the end that justice may be done, when in so doing no injustice is done to another." Steuerle v. T.B. Duncan & Co. , 221 Ky. 501, 299 S.W. 205, 206 (1927).
Regardless of whether this Court affirms the circuit court's award of summary judgment in favor of Cinque's co-defendants, we conclude the circuit court abused its discretion in denying Cinque's motion to set aside the default judgment. In Childress v. Childress , 335 S.W.2d 351 (Ky. 1960), Kentucky's highest court held as follows:
Since every cause of action should be tried upon the merits, the rendering of judgments by default ought to be withheld where seasonable objection is made unless a persuasive reason to the contrary is submitted.... A liberal attitude should be observed toward a timely application to set aside a default judgment, although delay in pleading without reasonable excuse cannot always be overlooked.
Id. at 354. Further, in Cox v. Rueff Lighting Co. , 589 S.W.2d 606 (Ky. App. 1979), this Court held:
Accepting that in personam jurisdiction can be acquired without actual notice to a defendant does not a fortiori create a rule that a showing of no actual notice may not constitute good cause sufficient to warrant the setting aside of a default judgment. The facts and circumstances of each individual case should be weighed. We think that in a case such as the instant one which is a simple one-on-one action for debt, a trial judge would be hard pressed to refuse to set aside a default judgment if he were truly convinced that the movant had no actual notice in fact and was possessed of an arguably meritorious defense.
Id. at 607.
In HP Hotel Management, Inc. v. Layne , 536 S.W.3d 208 (Ky. App. 2017), this Court encountered facts similar to those herein and reversed a circuit court's denial of motions to set aside default judgments against two corporate defendants. Id. at 217. In that case, the defendants had been served through the Secretary of State but had no actual notice until learning of the entry of a judgment. We recognized that "under the long-arm statute, actual notice is not required." Id. In reversing the circuit court, however, we held the circuit court abused its discretion in denying the motion to set aside the default judgments and noted that "[n]either appellant acted culpably with regard to service of the summons and complaint, and both acted almost immediately upon learning of the entry of the default judgment." Id.
We conclude Cinque satisfied all three elements required for setting aside the default judgment against her. Regardless of whether the service on her through the Secretary of State was valid, she never received actual notice. In addition, although actual notice of the legal action against her was not required, we conclude that under these circumstances she had a valid excuse for her default. While some of her roommates were served with summonses listing the Maxwell Street address, she was not. When she did learn of the default judgment, she promptly moved the court to set it aside so that the case could be decided on its merits. Further, there is no indication whatsoever that Cinque had any culpability in the lack of service on her.
Moreover, we believe Cinque has a meritorious defense or defenses as shown by the circuit court's entry of summary judgment in favor of the other students. Finally, Lexington Village will suffer no prejudice in the setting aside of the default judgment against Cinque, as the same facts continue to be subject to litigation along with Cinque's co-defendants.
We reverse the order of the circuit court denying Cinque's motion to set aside the default judgment and remand for proceedings consistent herewith.
SUMMARY JUDGMENT IN FAVOR OF STUDENTS
Lexington Village cross-appeals from the summary judgment dismissing its claims against the students. As we have noted, the circuit court granted summary judgment to the students on the grounds that "Defendants’ argument of equitable estoppel applies to prevent Plaintiff from enforcing the automatic renewal provision in the Lease[.]"
"Under the doctrine of equitable estoppel, certain conduct by a party is viewed as being so offensive that it precludes the party from later asserting a claim or defense that would otherwise be meritorious." Akers v. Pike County Board of Education , 171 S.W.3d 740, 743 (Ky. 2005).
A portion of the first paragraph of the lease provided it would automatically renew "unless Landlord or Resident gives the other at least one hundred twenty (120) days written notice of the intention to terminate the tenancy at the end of the rental term in place at the time[.]" Paragraph 33 of the lease stated: "RENEWAL: You have no right to renew this Lease. We may, at our option, offer you an opportunity to renew."
Lexington Village sent the students emails in October 2016, shortly after the lease term commenced, discussing the students’ opportunity to renew the lease. These emails consisted of messages that
"The deadline for renewal is 10/24/2016"
"After 10/24/2016 we will begin marketing your property and you will not be guaranteed your current property"
"you have until this Monday the 24th of October to let us know if you are renewing your lease contract. If we do not hear from you by Monday we will begin marketing your property"
"FINAL NOTICE! Renewal notice is due by Monday"
"If we don't get the signed lease back this week we will begin marketing your property for rent for the 2017-2018 year."
When the students did not execute a new lease agreement, Lexington Village proceeded to show the property to other prospective tenants. The students argue that this conduct, together with the emails, served to notify them that Lexington Village was not going to renew the lease. They believed no further action or notice was required by them.
Lexington Village views these actions in a different light, however. It claims that there is nothing in the emails that indicated it no longer intended to enforce the auto-renewal provision in the lease. Further, it states that through the emails it had communicated an opportunity to the students to renew early and at a special and discounted renewal rate and that a new lease had actually been prepared for the students after they initially indicated an interest to renew. Lexington Village maintains, however, that these emails may not be characterized as an intention on its part to repudiate the auto-renewal provision in the lease or as a waiver of that provision. It states that "[t]he fact that those negotiations in October [2016] did not lead to an early renewal lease being signed is wholly irrelevant to the obligation of both parties to act affirmatively in order to avoid auto-renewal under Paragraph 1 in April 2017."
April 2, 2017, would have been the 120-day deadline date in the auto-renewal provision.
In Sebastian-Voor Properties, LLC v. Lexington-Fayette Urban County Government , 265 S.W.3d 190 (Ky. 2008), our Supreme Court set forth the following elements of equitable estoppel:
(1) conduct which amounts to a false representation or concealment of material facts, or, at least, which is calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) the intention, or at least the expectation, that such conduct shall be acted upon by, or influence the other party or other persons; and (3) knowledge, actual or constructive, of the real facts. And, broadly speaking, as related to the party claiming the estoppel, the essential elements are (1) lack of knowledge and of the means of knowledge of the truth as to the facts in question; (2) reliance, in good faith, upon the conduct or statements of the party to be estopped; and (3) action or inaction based thereon of such a character as to change the position or status of the party claiming the estoppel, to his injury, detriment, or prejudice.
Id. at 194-95 (quoting Weiand v. Board of Trustees of Kentucky Retirement Systems , 25 S.W.3d 88, 91 (Ky. 2000) (quoting Electric and Water Plant Bd. of City of Frankfort v. Suburban Acres Dev., Inc. , 513 S.W.2d 489, 491 (Ky. 1974) )). "Estoppel is a question of fact to be determined by the circumstances of each case." Id. at 194 (citation omitted).
Lexington Village cites several cases that stand for the principle that a party may not assert equitable estoppel based upon some alleged representation or omission where that representation or omission is contradicted by written documents governing the parties’ relationship. See Rivermont Inn, Inc. v. Bass Hotels & Resorts, Inc. , 113 S.W.3d 636 (Ky. App. 2003) ; Smith v. Bethlehem Sand & Gravel Co., LLC , 342 S.W.3d 288 (Ky. App. 2011). The students did not dispute these authorities in their reply brief.
The students urge this Court to affirm the circuit court on grounds other than equitable estoppel if we do not affirm on that ground. Specifically, the students contend that Lexington Village's October 2016 emails to them provided prior written notice that the lease would not be renewed if they did not execute the new lease and that the marketing of the property thereafter by Lexington Village confirmed that fact. Further, the students contend that the October 2016 emails "are tantamount to an intentional and voluntary waiver of the auto renewal provision," that the renewal provisions of paragraph 1 and paragraph 33 are ambiguous and thus should be construed in their favor, and that the automatic renewal provision is unconscionable as written and as Lexington Village seeks to apply it.
Regardless of the applicability of equitable estoppel, we conclude the October 2016 emails from Lexington Village to the students provided clear written notice that the lease would not be renewed unless they signed the new lease. While the lease itself stated in paragraph 1 that it would be automatically renewed unless written notice of the intention to terminate was given at least 120 days before the expiration of the term, the email communications clearly stated, in writing, that "The deadline for renewal is 10/24/2016." When the students did not sign the new lease by that date, it was clear Lexington Village was no longer giving them the opportunity to renew. Lexington Village had stated as much in the written emails. Therefore, as Lexington Village had stated its intention not to renew, the students were not in violation of the lease provisions.
Because we have based our decision on this issue, we decline to also determine whether, as the students argue, the auto-renewal provision was unconscionable as written and as Lexington Village seeks to apply it. "A fundamental rule of contract law holds that, absent fraud in the inducement, a written agreement duly executed by the party to be held, who had an opportunity to read it, will be enforced according to its terms." Schnuerle v. Insight Communications Co., L.P. , 376 S.W.3d 561, 575 (Ky. 2012) (quoting Conseco Finance Servicing Corp. v. Wilder , 47 S.W.3d 335, 341 (Ky. App. 2001) ). However, "[t]he doctrine of unconscionability has developed as a narrow exception to this fundamental rule." Id.
The students argue that the auto-renewal provision is unconscionable as applied to the facts of this case because if it were strictly enforced, the students could potentially be liable for an exorbitant rent for another year, regardless of whether they occupied the property. They state in their brief that "[t]o expect 19 and 20-year-old college students to provide notice of their collective intent to terminate a lease 4 months prior to the end of the lease is unconscionable as a matter of law—particularly without so much as a follow-up call, letter or email to confirm their wishes in advance of the harsh deadline."
"Procedural, or unfair surprise, unconscionability pertains to the process by which an agreement is reached and the form of an agreement, including the use therein of fine print and ... material, risk-shifting contractual terms which are not typically expected by the party who is being asked to assent to them and often appear [ ] in the boilerplate of a printed form." Id. at 576 (citation and internal quotation marks omitted). Further, "[f]actors relevant to the procedural unconscionability inquiry include the bargaining power of the parties, ‘the conspicuousness and comprehensibility of the contract language, the oppressiveness of the terms, and the presence or absence of a meaningful choice.’ " Id. (quoting Jenkins v. First American Cash Advance of Georgia, LLC , 400 F.3d 868, 875-76 (11th Cir. 2005) ).
The issue of unconscionability was neither addressed by the circuit court nor necessary to our decision. We thus decline to address it. Therefore, we affirm the summary judgment rendered by the circuit court in favor of the students.
"[I]t is well-settled that an appellate court may affirm a lower court for any reason supported by the record." Kentucky Spirit Health Plan, Inc. v. Commonwealth Finance and Administration Cabinet , 462 S.W.3d 723, 729 (Ky. App. 2015) (quoting McCloud v. Commonwealth , 286 S.W.3d 780, 786 n.19 (Ky. 2009) ).
ALL CONCUR.