KGM Capital, L.L.C. v. Jackson

2014 Ohio 2427

• Court: Ohio Court of Appeals
• Decided: June 6, 2014
• Docket: C-130438
• Status: Published

Opinion

[Cite as KGM Capital, L.L.C. v. Jackson, 2014-Ohio-2427.] IN THE COURT OF APPEALS FIRST APPELLATE DISTRICT OF OHIO HAMILTON COUNTY, OHIO

KGM CAPITAL, LLC, : APPEAL NO. C-130438 TRIAL NO. 12CV-11483 Plaintiff-Appellee, :

vs. : O P I N I O N.

JENNIFER JACKSON, :

Defendant-Appellant. :

Civil Appeal From: Hamilton County Municipal Court

Judgment Appealed From Is: Affirmed in Part, Reversed in Part, and Cause Remanded

Date of Judgment Entry on Appeal: June 6, 2014

John Coomes for Plaintiff-Appellee,

Victor Dwayne Sims for Defendant-Appellant.

Please note: this case has been removed from the accelerated calendar. OHIO FIRST DISTRICT COURT OF APPEALS

F ISCHER , Judge.

{¶1} Defendant-appellant Jennifer Jackson appeals from the trial court’s

judgment, following a bench trial, in favor of her former landlord, plaintiff-appellee

KGM Capital LLC (“KGM”). Because there is competent credible evidence to support

the trial court’s determination that Jackson had breached her lease agreement with

KGM and that she had failed to prove her counterclaims by a preponderance of the

evidence, we affirm the trial court’s judgment in favor of KGM. We conclude, however,

that the trial court’s award of attorney fees and its award of $1300 in liquidated damages

to KGM under provision V 6 of the parties’ lease agreement is contrary to law. We,

therefore, vacate the trial court’s award of attorney fees and the $1300 in liquidated

damages, and remand this cause to the trial court to enter judgment accordingly. We

affirm the trial court’s judgment in all other respects.

The Lease and Trial Court Proceedings

{¶2} Jackson entered into a lease agreement for a two-bedroom apartment

from KGM for the term of July 8, 2011, to July 31, 2012. At the time she entered into the

lease agreement, she paid KGM a security deposit of $650. Under the terms of the lease,

Jackson paid $650 a month in rent. Jackson vacated the apartment on March 30, 2012.

{¶3} On May 10, 2012, KGM filed a complaint alleging that Jackson had

breached the terms of the lease agreement by failing to pay a portion of her rent for

February and March 2012, and then abandoning the property at the end of March 2012.

The complaint sought $3562 in rent, an additional $1300 in liquidated damages,

attorney fees, filing fees, and court costs. KGM moved for a default judgment against

Jackson, but a magistrate granted her an extension of time to file an answer and two

counterclaims. In her answer, Jackson denied breaching the lease agreement. In her

first counterclaim, she alleged that she had vacated the premises due to KGM’s failure to

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comply with R.C. 5321.04(A)(1) and 5321.04(A)(8) and (B), and to enforce a

nonsmoking provision in the lease agreement. In her second counterclaim, she alleged

that KGM had violated R.C. 5321.16 by failing to refund her security deposit or to

provide her with an itemization of the deductions from her security deposit.

{¶4} The case proceeded to a trial before the court. KGM presented

testimony from one of its partners, Michael Kaufman, as to Jackson’s breach of the

lease. John Coomes, a partner with KGM who represented the partnership

throughout the proceedings against Jackson, was questioned by the trial court as to

the amount and reasonableness of attorney fees that he had submitted in an

affidavit. Jackson testified on her own behalf.

{¶5} At the conclusion of the trial, the trial court found in favor of KGM on its

breach-of-lease claim. It further found that Jackson had failed to prove her

counterclaims by a preponderance of the evidence, and dismissed them with prejudice.

The trial court awarded KGM $4682 in damages, court costs, and $4560 in attorney

fees.

Jackson’s Breach of the Lease and Her Counterclaims

{¶6} For ease of discussion, we address Jackson’s assignments of error out of

order. In her second and third assignments of error, Jackson argues that the trial court

erred in determining that she had breached the lease agreement and that she had

failed to prove her counterclaims by a preponderance of the evidence. She makes a

number of arguments in her brief, which in essence, challenge the manifest weight of

the evidence supporting the trial court’s judgment.

{¶7} In reviewing judgments under a manifest weight analysis, this court

“ ‘weighs the evidence and all reasonable inferences, considers the credibility of the

witnesses and determines whether in resolving conflicts in the evidence, the [finder

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of fact] clearly lost its way and created such a manifest miscarriage of justice that the

[judgment] must be reversed and a new trial ordered.’ ” (Citations omitted.) Eastley

v. Volkman, 132 Ohio St.3d 328, 2012-Ohio-2179, 972 N.E.2d 517, ¶ 20. “A finding

of an error in law is a legitimate ground for reversal, but a difference of opinion on

credibility of witnesses and evidence is not.” State v. Wilson, 113 Ohio St.3d 382,

2007-Ohio-2202, 865 N.E.2d 1264, ¶ 24, quoting Seasons Coal Co, Inc. v. Cleveland,

10 Ohio St.3d 77, 81, 461 N.E.2d 1273 (1984).

{¶8} At trial, Kaufman testified that Jackson had entered into a lease

agreement with KGM for a one-year term beginning July 8, 2011, and ending July 31,

2012. Jackson had failed to pay a portion of her rent for February 2012 and March

2012, and she had abandoned the apartment at the end of March, without providing

a forwarding address. Thus, KGM had to subpoena Jackson’s employer to obtain her

current address.

{¶9} Jackson testified that she had moved into the building because there

was a provision in the lease agreement that prohibited smoking on the premises. She

testified that she and her children suffered from allergies and it was important that

they not be exposed to cigarette smoke. In March 2012, she notified KGM that the

tenant in the apartment below her was a chain smoker. She sent them roughly 15

emails and they responded to only five to ten of them, but they did not remedy the

smoking issue.

{¶10} Jackson also testified that during her tenancy, her apartment had

squirrel and insect issues. She noticed the insect problems in April 2011. She

testified that there were roaches under her kitchen sink, flies on her windowsill, and

bed bugs on her living room wall and in her bedroom closet. She also had a

scratching noise in her ceiling, which she later learned was caused by a squirrel. She

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testified that she and her children were having difficulty sleeping because of the

insects and the scratching noises on her ceiling. She made numerous complaints to

KGM. She even took photos of the insects and sent them to KGM, but KGM did not

remedy the issue.

{¶11} So in February 2012, she contacted the Hamilton County Board of

Health. They sent someone to her apartment. She showed the person photographs

she had taken of various insects in her apartment and a video of the scratching in her

apartment ceiling. At trial, she introduced 33 photos. Six of the photos depicted flies

on a windowsill, two of the photos she testified showed bed bug bites on her hands,

and 23 photos depicted individual insects on the floor of her apartment. None of the

photos were dated.

{¶12} Jackson testified that the board of health found some violations in her

apartment, which they asked KGM to remedy. She acknowledged that KGM had

removed the squirrel from inside her apartment ceiling, but she testified that they

had not eliminated the insect problem. As a result, she decided she could no longer

live in the apartment. On February 29, 2012, she gave KGM 30 days’ notice, as

required under the lease, that she intended to vacate the apartment. After she had

given KGM notice of her intent to leave, KGM had subsequently attempted to enter

her apartment while she had been sleeping, without reasonable notice or

authorization.

{¶13} Jackson additionally testified that her rent was electronically

deposited into KGM’s account every time her employer paid her. When she left the

apartment on March 30, 2012, she was current with her rent. She vacated the

apartment because she could no longer live with the insect and smoking conditions.

She gave her forwarding address and apartment keys to Jesse Day, KGM’s

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maintenance man. KGM did not return her security deposit or give her an

itemization of her deposit.

{¶14} Kaufman testified that after receiving Jackson’s complaints via email

about the smoking, he had emailed Jackson back to notify her that he was looking

into the situation. He then visited the tenant, whom Jackson had claimed was a

chain smoker, but he could find no ashtrays or evidence that the tenant had been

smoking in his apartment. He stated that he had seen tenants smoking outside near

the front of the building, and it was possible that the smoke had come in through a

common window that tenants usually left open at the top of the stairwell where the

door to Jackson’s apartment was located. No other tenants besides Jackson had

complained of cigarette smoke.

{¶15} With respect to Jackson’s claim that the apartment was insect

infested, Kaufman testified that KGM had paid a tenant, who had worked for an

extermination company, as well as Day to spray the building weekly beginning

January 2012 for insects, and that no other tenant besides Jackson had complained

about insects in their apartment. He testified that KGM had received a list of issues

concerning caulking and insects that the board of health had asked them to address

in Jackson’s apartment. KGM addressed the issues, and Kaufman informed the

board of health by letter dated March 6, 2012, that KGM had remedied the issues. A

copy of the letter he had sent to the board was admitted into evidence. KGM had no

further correspondence with the board of health about Jackson’s apartment after

Kaufman had sent the letter.

{¶16} Kaufman testified that in March 2012, he had entered Jackson’s

apartment with John Coomes, another partner with KGM, and two Springdale police

officers, because of a plumbing emergency. The tenant in the apartment below

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Jackson’s apartment had called to complain that the bathroom ceiling was falling in,

and that there must be a leak in Jackson’s apartment. He contacted Jackson and

asked if KGM could send a plumber to her apartment. Jackson told them they could

not enter her apartment and hung up on them. So Kaufman and Coomes had to call

the police to help them gain entrance to her apartment to address the issue. They

were able to turn off the water to the toilet in Jackson’s apartment, which was the

source of the water leak. According to Kaufman, Jackson had pretended to be asleep

in the bedroom when they arrived with police. He further testified that Jackson had

complained of caulking issues around her bathtub, but had initially denied their

maintenance man entrance into the apartment to correct them. He described

Jackson as a difficult tenant, who was trying to manufacture issues to get out of her

lease agreement.

{¶17} Finally, with respect to Jackson’s security deposit, Jackson testified

that she had sent an email to KGM on February 29, 2012, notifying them that she

was terminating the lease agreement and supplying a forwarding address. She,

however, did not produce the email at trial. Kaufman denied that KGM had received

the email, and testified that KGM had to subpoena Jackson’s address from her

former employer in order to initiate the current legal proceedings against her.

{¶18} As the trial court stated on the record at the conclusion of the bench

trial, the determination of Jackson’s counterclaims and KGM’s contract claim rested

upon the credibility of the witnesses. Here, the trial court stated that it found

Kaufman’s testimony to be more credible than the testimony offered by Jackson.

After considering the full record of the trial court, including the testimony of the

witnesses and the exhibits admitted into evidence, and the terms of the lease

agreement, we cannot say the trial court erred in finding that Jackson had failed to

7 OHIO FIRST DISTRICT COURT OF APPEALS

prove her counterclaims by a preponderance of the evidence, and that she had

breached the lease agreement by failing to pay rent and abandoning the premises. As

a result, we overrule Jackson’s second and third assignments of error.

Attorney Fees

{¶19} In her first assignment of error, Jackson argues the trial court erred in

awarding KGM attorney fees. We agree.

{¶20} R.C. 5321.06 provides that “[a] landlord and tenant may include in a

rental agreement any terms and conditions * * * that are not inconsistent with or

prohibited by R.C. Chapter 5321 of the Revised Code or any other rule of law.” R.C.

5321.13 bars certain rental agreement terms. Pertinent here, R.C. 5321.13(C) provides

that “[n]o agreement to pay the landlord’s or tenant’s attorney fees shall be recognized in

any rental agreement for residential premises or in any other agreement between a

landlord and tenant.”

{¶21} In Quinlan v. Lienesch, 1st Dist. Hamilton No. C-120716, 2013-Ohio-

2288, ¶ 12, this court reversed a $500 attorney fee award to a landlord, which was based

upon a provision in the parties’ lease agreement allowing for the award of attorney fees

to the prevailing party in the event of a legal dispute. We held the provision

unenforceable as a matter of law based upon the plain language of R.C. 5321.13(C). Id.

{¶22} Similarly, here the trial court’s award of attorney fees was based upon

Section IV 5 of the lease agreement, which provided that Jackson would reimburse KGM

for “all reasonable expenses incurred due to [her] violation of any term or provision

of th[e] lease, including but not limited to $25.00 for each Notice to Pay, Notice to

Quit, or other notice mailed or delivered by [KGM] to [Jackson] due to [Jackson’s]

non-payment of rent/all court costs and attorney fees and all other costs of and or

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litigation.” (sic) Thus, we agree with Jackson that the trial court violated R.C. 5321.13(C)

when it awarded attorney fees based upon this contractual provision.

{¶23} KGM, nonetheless, argues that the attorney fee award was appropriate

because Jackson had acted in bad faith. See William v. Banc One Corp., 121 Ohio St.3d

546, 2009-Ohio-306, 906 N.E.2d 396, ¶ 7. Bad faith “implies a dishonest purpose,

moral obliquity, conscious wrongdoing, breach of a known duty, or an actual intent to

mislead or deceive another.” See Covenant Dove Holding Co., LLC v. Mariner Health

Care, Inc., 1st Dist. Hamilton No. C-120878, 2013-Ohio-3824, ¶ 7. The problem with

KGM’s argument, however, is that it never argued during the trial that it was entitled to

attorney fees on this basis. Instead, it argued it was entitled to fees based upon Section

IV 5 of the lease agreement. Thus, the trial court never made any finding concerning

bad faith. And contrary to KGM’s assertions, the trial court’s statement at the

conclusion of the trial that Jackson was not a credible witness cannot be equated with a

finding of “bad faith.”

{¶24} Given that the contractual provision in the lease agreement providing for

attorney fees is contrary to law, and that the trial court made no finding of “bad faith,”

we conclude that the trial court erred as a matter of law in awarding attorney fees to

KGM. See, e.g., Wright v. Fleming, 1st Dist. Hamilton No. C-070121, 2008-Ohio-1435, ¶

5-6. As a result, we sustain Jackson’s first assignment of error.

Liquidated-Damages Clause

{¶25} In her fourth assignment of error, Jackson argues that the trial court

erred by awarding KGM $1300 in damages under Section V 6 of their residential lease

agreement. Section V 6 provides:

All parties agree that termination of this agreement prior to

the expiration date shall constitute breach of this Lease and

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that all security deposits and one full month’s rent shall be

forfeited to the Landlord. Tenant shall remain liable for all

other costs and/or damages associated with a breach of the

conditions of the Lease.

{¶26} Jackson argues Section V 6 operates as a liquidated-damages clause that

is contrary to R.C. Chapter 5321 and is therefore, unenforceable.

{¶27} R.C. 5321.06 permits a landlord and tenant to “include in a rental

agreement any terms and conditions, including any term relating to rent, the

duration of an agreement, and any other provisions governing the rights and

obligations of the parties that are not inconsistent with or prohibited by Chapter

5321 of the Revised Code or any other rule of law.” R.C. 5321.12 provides that “[i]n

any action under Chapter 5321 of the Revised Code, any party may recover damages

for the breach of contract or the breach of any duty that is imposed by law.”

{¶28} Jackson argues that Section V 6 is inconsistent with or prohibited by

R.C. 5321.16, which pertains to security deposits. R.C. 5321.01(E) defines a security

deposit as “any deposit of money or property to secure performance by the tenant

under a rental agreement.” R.C. 5321.16 sets forth the procedures, rights, and

obligations concerning security deposits. Pertinent here, are subsections (B) and (C)

of the statute, which state as follows:

(B) Upon termination of the rental agreement any property or

money held by the landlord as a security deposit may be applied to

the payment of past due rent and to the payment of the amount of

damages that the landlord has suffered by reason of the tenant’s

noncompliance with section 5321.05 of the Revised Code or the rental

agreement. Any deduction from the security deposit shall be itemized

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and identified by the landlord in a written notice delivered to the

tenant together with the amount due, within thirty days after

termination of the rental agreement and delivery of possession. The

tenant shall provide the landlord in writing with a forwarding address

or new address to which the written notice and amount due from the

landlord may be sent. If the tenant fails to provide the landlord with

the forwarding or new address as required, the tenant shall not be

entitled to damages or attorney fees under division (C) of this section.

(C) If the landlord fails to comply with division (B) of this

section, the tenant may recover the property and money due him,

together with damages in an amount equal to the amount wrongfully

withheld, and reasonable attorney fees.

(Emphasis added.)

{¶29} R.C. 5321.16 provides that the security deposit may be applied to past

due rent or to damages the landlord has suffered by reason of the tenant’s

noncompliance with section 5321.05 of the Revised Code or the rental agreement.

However, in this instance, KGM retained the security deposit and sought past due

rent without deducting the amount of Jackson’s security deposit. This is contrary to

law.

{¶30} In Carr v. Ed Stein Realtors, 10 Ohio App.3d 242, 243, 461 N.E.2d

930 (9th Dist.1983), the Ninth Appellate District held that a residential landlord was

not entitled to recover late charges and the amount of the tenant’s security deposit,

which the landlord had characterized as liquidated damages, where the landlord had

elected to prove his actual damages. The Ninth District held that permitting the

landlord to recover the forfeiture of the security deposit and the late charges imposed

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in addition to an award of actual damages suffered by the landlord constituted an

unlawful penalty imposed upon the tenant. Id.

{¶31} We agree with the reasoning in Ed Stein Realtors, and reach a similar

conclusion with regard to Section V 6 of the residential lease agreement, which

provides that the tenant, upon forfeiture of the lease agreement, automatically

forfeits the security deposit and one months’ rent to KGM. This provision bears no

relation to any actual damages suffered by KGM under the lease agreement. Thus, it

can only operate as a penalty to Jackson for her early termination of the lease

agreement. See, e.g., McGowan v. DMX Group IX, 7 Ohio App.3d 349, 455 N.E.2d

1052 (10th Dist.1982); Village Station Assocs. v. Geauga Co., 84 Ohio App.3d 448,

616 N.E.2d 1201 (8th Dist.1992). We, therefore, conclude that the trial court erred in

awarding KGM $1300 under this provision. As a result, we sustain Jackson’s fifth

assignment of error.

{¶32} Having found merit in Jackson’s first and fourth assignments of error,

we vacate the portion of the trial court’s judgment awarding KGM attorney fees and the

$1300 penalty under Section V 6 of the lease agreement. We remand this cause to the

trial court to enter judgment accordingly. We affirm the trial court’s judgment in all

other respects.

Judgment affirmed in part, reversed in part, and cause remanded.

CUNNINGHAM, P.J, and HILDEBRANDT, J., concur.

Please note: The court has recorded its own entry this date.