Summary
In Nohr, a case that is similar to that which is presently before this Court, the Court of Appeals of Kentucky found that in the event of default by non-payment of rent, a lease allowed recovery of future rental payments as they accrued under the terms of the lease by providing, "[T]he Lessor may... declare the said term ended and enter into possession of said premises and sue for and recover all rent and damages accrued or accruing under this lease or arising out of any violation thereof...."
Summary of this case from Fayette Middle Anchor, LLC v. Kinnucan Enters., Inc.Opinion
NO. 2011-CA-000646-MR
02-08-2013
ADRIAN NOHR, D.C., D/B/A CROSSROADS CHIROPRACTIC & WELLNESS APPELLANT v. HALL'S RENTALS, LLC APPELLEE
BRIEF FOR APPELLANT: C. Mike Moulton Elizabethtown, Kentucky BRIEF FOR APPELLEE: Jerry M. Coleman Elizabethtown, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM HARDIN CIRCUIT COURT
HONORABLE KEN M. HOWARD, JUDGE
ACTION NO. 10-CI-00392
OPINION
AFFIRMING IN PART,
REVERSING IN PART, AND REMANDING
BEFORE: CAPERTON, MAZE AND VAMETER, JUDGES. CAPERTON, JUDGE: The Appellant, Adrian Nohr, D.C., d/b/a Crossroads Chiropractic & Wellness, (hereinafter Nohr), appeals from the Hardin Circuit Court's entry of partial summary judgment in favor of Appellee, Hall's Rentals, LLC (hereinafter Hall's) and its denial of his motion for partial summary judgment in a breach-of-contract action. For reasons that follow, we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.
On September 13, 2006, the parties entered into a commercial lease agreement for property located at 1701 North Dixie Highway in Elizabethtown, Kentucky. The lease agreement was drafted by Hall's attorney and had a term of five years, with $5,000 in rent due on the first day of each month. The parties agree that the lease did not contain an acceleration clause in the event of default by Nohr. Accordingly, rent was only due and payable as it accrued each month.
Nohr eventually became delinquent on his rent payments, so Hall's sought and obtained a forcible detainer judgment against him. On February 24, 2010, the Hardin District Court entered a forcible detainer judgment against Nohr, which allowed Nohr to remain on the property for an additional 45 days if he paid Hall's $10,000 by the close of business on February 24, 2010. Nohr made the payment and vacated the premises in April 2010. Since the time that Nohr vacated the building, Hall's has been in possession of the premises, and has undertaken all maintenance and upkeep of the interior, parking lot, and grounds. Nohr has not been allowed to access the property since that time.
Hall's claimed to have attempted to lease the property to another tenant. Larry Hall, principal owner of Hall's, personally testified that his attempt to lease the property consisted of placing an advertisement in the local newspaper for a two-week period following Nohr's eviction. A "for lease" sign was also placed in the windows of the building, and on the front lawn. Hall also testified that he telephoned one potential buyer/lessee to determine his interest in the property, and that he offered payment of $5,000 to two individuals if they found someone to lease the building. He did not create any flyers or mailers advertising the property, nor did he advertise it on the internet. Hall did not list the property with any real estate agent or engage any other person to assist in leasing or selling the property.
Since Nohr's court-ordered eviction, the property has been used as a headquarters for the Hardin County Republican Party, at least for some period of time. Nohr testified that the Republican Party changed the sign on the property to advertise its presence, and that the sign presently remains in place. Hall asserts that he has only allowed the Republican Party to use the property for free until such time as he can secure a tenant.
On February 26, 2010, Hall's filed a breach-of-contract complaint again Nohr in the Hardin Circuit Court. Hall's sought relief in the form of delinquent rent plus interest, future rent owed for the remainder of the five-year lease term, property taxes due under the terms of the lease, costs, and attorneys' fees. Among the arguments made in response, Nohr contended that Hall's was not entitled to future rent because the lease did not contain an acceleration clause and because he no longer had the benefit of using the property. Nohr additionally asserted that Hall's had failed to mitigate its damages.
On October 6, 2010, Nohr filed a motion for partial summary judgment against Hall's. Nohr argued that by the express terms of the lease, the term of the lease ended, and the accruing of rent thereby ceased, as of April 9, 2010, the date that Hall's regained possession of the subject premises. Nohr specifically relied upon Paragraph 23 of the lease, which provides, in relevant part, as follows:
23. DEFAULT. If default be made in any payment of said rent, or any part thereof, within thirty (30) days from the date said payment is due, or in fulfillment of any of the covenants or agreements herein specified to be fulfilled by the Lessee, or if any waste be committed or unnecessary damage done upon or to said premises, the Lessor may, after thirty (30) days' written notice to the Lessee and the Lessee has not corrected said default, declare the said term ended and enter into possession of said premises and sue for and recover all rent and damages accrued or accruing under this lease or arising out of any violation thereof....(Emphasis added).
The parties agree that this is the only language in the lease that could arguably entitle Hall's Rentals to recover rent for the months following Nohr's eviction.
Nohr contended that the emphasized portion of Paragraph 23 did not allow for collection of future rent but instead ended the term of the lease, and released all obligations of the lessee at the point the lessor retook possession of the property. Thus, Nohr argued that Hall's ended the term of the lease by instigating a forcible detainer action and obtaining a judgment, the obligation to pay rent for any months remaining on the lease ceased at that point. Nohr also reiterated that the lease did not contain an acceleration clause that would purport to make the entirety of the five-year rent obligation due upon default.
In response, Hall's asserted that Paragraph 23 expressly provided it with three remedies in the event of default, none of which were exclusive to the others: (1) the right to declare the term of the lease ended; (2) the right to enter into possession of the premises; and (3) the right to sue for and recover all rent and damages accrued or accruing under the lease. Hall's argued that Nohr's contention that he was no longer subject to satisfying a rent obligation was erroneous because the plain language of Paragraph 23 allowed Hall's to recover all rent and damages "accrued or accruing" - including any rent obligations accumulated after default and eviction.
On December 20, 2010, the trial court issued an order denying Nohr's motion for partial summary judgment. The court explained its decision as follows:
The basis for Nohr's motion for partial summary judgment is that the lease agreement does not contain an acceleration clause and pursuant to paragraph 23 of the lease agreement the judicial eviction for non-payment of rent ends the "term" of the lease agreement and thus legally releas[es] Nohr from the obligation to pay future rent. This is a novel interpretation of the contract and law as it applies to landlord[-]tenant relationships.
It is undisputed that the lease agreement does not provide for an acceleration clause and thus the rental payments under the lease agreement are not precipitated and Hall['s] is entitled to recover rental payments only as they become due. Jordan v. Nickell, 253 S.W.2d 237 ([Ky.] 1952). Paragraph 23 of the lease agreement concerning the rights and remedies of the parties upon default is consistent with this general rule of law and
inconsistent with Nohr's interpretation. Nohr's interpretation would result in a tenant being able to terminate a lease agreement prior to the end of the term by simply not paying rent and being relieved from any financial obligations. Paragraph 23 of the lease agreement specifically provides that upon default by Nohr by non-payment of rent, Hall['s] may "... declare the said term ended and enter into possession of said premises and sue for and recover all rent and damage accrued or accruing under this lease or arising out of any violation thereof." The reasonable interpretation of this language is that future rent payments are included as part of Hall's potential damages. As provided in Jordan, Hall['s] has an obligation to minimize damages and Nohr is entitled to have any amounts received by Hall under a new lease applied toward the satisfaction of Nohr's future rent liability. The actions of Hall['s] to re-enter and take possession of the premises, maintenance and other items are consistent with this legal obligation.
On January 20, 2011, Hall's filed its own motion for partial summary judgment asking for an award of any delinquent rents and property-tax payments accrued as of December 31, 2010, as well as attorneys' fees, in light of the trial court's earlier ruling. In response, Nohr argued that genuine issues of material fact existed as to whether Hall's had taken appropriate steps to mitigate its damages. On March 3, 2011, the trial court issued an order granting Hall's motion for partial summary judgment. The court concluded that Hall's had acted reasonably in mitigating its damages and that it was entitled to rental payments in the amount of $62,391.03, taxes in the amount of $5,683.02, and attorneys' fees in the amount of $4,383.50 - for a total amount of $72,457.55 accrued through December 31, 2010. This appeal followed.
In reviewing the arguments of the parties, we note that our standard for reviewing a trial court's entry of summary judgment on appeal is well-established and was concisely summarized by this Court in Lewis v. B & R Corp., 56 S.W.3d 432 (Ky. App. 2001):
The standard of review on appeal when a trial court grants a motion for summary judgment is "whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law." The trial court must view the evidence in the light most favorable to the nonmoving party, and summary judgment should be granted only if it appears impossible that the nonmoving party will be able to produce evidence at trial warranting a judgment in his favor. The moving party bears the initial burden of showing that no genuine issue of material fact exists, and then the burden shifts to the party opposing summary judgment to present "at least some affirmative evidence showing that there is a genuine issue of material fact for trial."Id. at 436 (internal footnotes omitted). Because summary judgments involve no fact-finding, we review the trial court's decision de novo. 3D Enters. Contr. Corp. v. Louisville & Jefferson County Metro. Sewer Dist., 174 S.W.3d 440, 445 (Ky. 2005); Blevins v. Moran, 12 S.W.3d 698, 700 (Ky. App. 2000). Additionally, this appeal involves the construction and interpretation of a commercial lease agreement, i.e., a contract. The construction and interpretation of a contract is a matter of law subject to de novo review; therefore, we are not required to give deference to the interpretation offered by the trial court. Community Trust Bancorp, Inc. v. Mussetter, 242 S.W.3d 690, 692 (Ky. App. 2007); Cinelli v. Ward, 997 S.W.2d 474, 476 (Ky. App. 1998).
On appeal, Nohr first argues that the trial court erred in denying his motion for partial summary judgment. He specifically contends that the language of the lease effectively precluded Hall's from claiming damages in the form of lost future rent payments following his eviction and that "[t]he voluntary ending of the lease term ... stopped the accruing of rent as of the date" Hall's retook possession of the property. Nohr further contends that at the very least, the lease was ambiguous on this point and, therefore, has to be construed against Hall's, the party that drafted the lease.
"Generally, an order overruling a motion for summary judgment is interlocutory and not appealable." Ford Motor Credit Co. v. Hall, 879 S.W.2d 487, 489 (Ky. App. 1994). "There is an exception to this rule, however, when the order denying the motion 'constituted an adjudication on the merits,' or stated otherwise, when 'the only basis of the ruling is a matter of law.'" Medcom Contracting Services, Inc. v. Shepherdsville Christian Church Disciples of Christ, Inc., 290 S.W.3d 681, 684 (Ky. App. 2009), quoting Hall, 879 S.W.2d at 489. "The underlying rationale for this exception is that a matter of law, unlike one of fact, may not be again presented or retried in the proceedings to follow." Id. Given that the facts regarding this particular issue are not in dispute and that the issue involved is purely one of law, review is appropriate.
As noted above, Paragraph 23 of the lease allowed Hall's Rentals, in the event of default by non-payment of rent, to "declare the said term ended and enter into possession of said premises and sue for and recover all rent and damages accrued or accruing under this lease or arising out of any violation thereof[.]" While Nohr contends that ending the term of the lease released him from any obligation to pay rent following his eviction, the trial court concluded that "[t]he reasonable interpretation of this language is that future rent payments are included as part of Hall's potential damages." The trial court also concluded that since the lease did not contain an acceleration clause, Hall's was "entitled to recover rental payments only as they become due."
We agree with the trial court as we believe that the language of Paragraph 23 plainly allowed Hall's to seek recovery of any future rent obligation as it accrued under the terms of the lease. In our view, the fact that the lease authorized Hall's to "declare the [lease] term ended" did not cancel its right to also pursue "all rent ... accruing under this lease." Instead, that language merely allowed Hall's to take action to evict Nohr and to pursue a claim for rent and damages against him. The fact that the word "and" is used as a connective term between the specified remedies supports the conclusion that they were not intended to be exclusive to one another. Moreover, the fact that the lease allows for collection of rent "accruing" even after eviction and repossession indicates that Nohr's requirement to satisfy his contractual rent obligation did not cease once same occurred. Therefore, the trial court's denial of Nohr's motion for summary judgment was appropriate.
We further observe that the trial court's decision is consistent with precedent set by the Court in Jordon v. Nickell, 253 S.W.2d 237 (Ky. 1952). In Jordon, the Court refused to apply the doctrine of anticipatory breach so as to precipitate or accelerate the due dates of future rental payments under a lease breached by the lessee via abandonment. Consequently, the lessor was not entitled to recover the entire balance of the rental before the expiration of the full five-year term of the lease. Id. at 239. The Court's decision was largely based on the fact that the lease provided for payment of rent in definite fixed installments - just as the lease before us does. Id. Instead, the Court considered the action as "essentially one to recover rentals under the lease," and held that the lessor was entitled to recover rental payments but only as they became due. Id.
While Jordon differs from the present case somewhat in that it dealt with a lessee who had abandoned his lease as opposed to defaulting via nonpayment of rent, we believe that its conclusion that the lessor was entitled to recover rent payments as they became due applies herein given Paragraph 23's provision that Hall's could "recover all rent and damages accrued or accruing under this lease[.]"
We further note that this conclusion is consistent with Kentucky's common law regarding compensation in breach-of-contract cases, which holds that:
In the case of a breach of contract, the goal of compensation is not the mere restoration to a former position, as in tort, but the awarding of a sum which is the equivalent of performance of the bargain the attempt to place the plaintiff in the position he would be in if the contract had been fulfilled.SEG Emp. Credit Union v. Scott, 554 S.W.2d 402, 406-07 (Ky. App. 1977).
Thus, while Nohr "is entitled to have any amounts received by [Hall's] under a new lease applied toward the satisfaction of [his] liability[,]" Jordon, 253 S.W.2d at 238, that liability nonetheless remains. Nohr additionally argues, without elaboration, that the rule of law set forth in Jordon entitles Hall's only to the rents due at the time the subject lawsuit was filed. We do not read the decision that narrowly.
In a related argument, Nohr asserts that actions taken by Hall's following his eviction indicate that the requirements of the lease did not survive the termination of the lease term. Nohr notes that the lease required him to maintain the interior of the premises and made him responsible for the upkeep of the property's common areas. Since he has vacated the property, though, Hall's has been in possession of the premises and has undertaken all maintenance and upkeep of the interior, parking lot, and grounds. Nohr also notes that Hall's replaced carpet, fixed and repainted walls, and made plumbing changes. Nohr further indicates that the lease required him to use the premises for the purpose of operating a chiropractic and wellness center, which he obviously could no longer do once he was evicted.
Ultimately, we do not believe that Nohr's lack of access to the property to perform such duties should be viewed as a defense to Hall's claim for damages since it arose from Nohr's own breach of the lease. Moreover, Hall's resumption of the maintenance of the property is entirely consistent with its obligation to mitigate damages, a subject to which we now turn.
Nohr also argues that Hall's allowing the Republican Party to use the premises for free following his eviction while Hall's looked for a paying tenant ended any obligation on his part to pay rent. Nohr provides little justification for this position, and we find it unconvincing.
--------
Concerning mitigation of damages, Nohr argues that the trial court erred in granting partial summary judgment to Hall's for delinquent rent, taxes, and attorneys' fees because genuine issues of material fact existed as to whether Hall's had taken appropriate steps to mitigate its damages. Nohr contends that this issue remains in dispute and that it necessarily affects the amount of damages Hall's may recover; because of this, it should be presented to a jury for a factual determination.
Nohr correctly asserts that Hall's was required to mitigate its damages since an injured party "claiming damages for a breach of contract is obligated to use reasonable efforts to mitigate its damages occasioned by the other party's breach." Deskins v. Estep, 314 S.W.3d 300, 305 (Ky. App. 2010); see also Morgan v. Scott, 291 S.W.3d 622, 640 (Ky. 2009). This obligation extends to cases where there has been a forfeiture of a lease and re-entry by the lessor on account of such. Jordon, 253 S.W.2d at 238. However, under this rule, making a reasonable effort to mitigate does not require "undue risk, expense, burden, or humiliation" to minimize or avoid losses resulting from the breach. 24 Williston on Contracts § 64:27 (4th ed. 2010). "All that is required of the non-defaulting party in measuring damages is that he or she act reasonably so as to not unduly enhance the damages caused by the breach." 22 Am. Jur. 2d Damages § 353 (2010).
Here, the record reflects that Hall's placed an advertisement in the newspaper for two weeks following the eviction, placed "for lease" signs in the windows and on the lawn of the property, offered $5,000 to two individuals if they found a tenant, called a prospective tenant to determine his interest in the property, and responded to all inquiries concerning the renting or sale of the premises. As stated above, Hall's also maintained the property and made improvements to it.
However, Nohr asserts that Hall's could have done more to lease the property and mitigate damages - including placing additional advertising in the newspaper regarding the property, creating flyers or mailings advertising the property for lease, lowering the requested rent, listing the property with a real estate agent, or posting information about the property on the internet. Hall's ownership admitted that it had done none of these things. Nohr also notes that Hall's has allowed the Republican Party to use the property as its Hardin County headquarters for free since his eviction. However, the fact that Hall's arguably could have done more to lease the property does not necessarily mean that the efforts undertaken were not reasonable.
With this said, "[w]hat is a reasonable effort to avoid the injurious consequences of a breach is a question of fact. So, too, is what is undue risk or expense." 24 Williston on Contracts § 64:27. Thus, while we are inclined to believe that Hall's efforts to mitigate were sufficiently reasonable, such is not our determination to make. Given the facts listed above, we believe that Nohr has demonstrated that genuine issues of material fact exist as to whether Hall's made reasonable efforts to mitigate its damages. Under the circumstances, we believe that this question ultimately must be determined by a finder of fact. Consequently, we conclude that the trial court erred in granting Hall's motion for partial summary judgment.
For the foregoing reasons, the Hardin Circuit Court's denial of Nohr's motion for partial summary judgment is affirmed. The court's grant of partial summary judgment in favor of Hall's, however, is reversed and this case is remanded for further findings and proceedings consistent with this opinion.
ALL CONCUR. BRIEF FOR APPELLANT: C. Mike Moulton
Elizabethtown, Kentucky
BRIEF FOR APPELLEE: Jerry M. Coleman
Elizabethtown, Kentucky