Ky Motel, Inc. v. Kentucky Oaks Mall Company, Ltd

• Court: Court of Appeals of Kentucky
• Decided: May 13, 2021
• Docket: 2020 CA 000747
• Status: Unknown

Opinion

RENDERED: MAY 14, 2021; 10:00 A.M. NOT TO BE PUBLISHED

Commonwealth of Kentucky Court of Appeals

NO. 2020-CA-0747-MR

KY MOTEL, INC. APPELLANT

APPEAL FROM MCCRACKEN CIRCUIT COURT v. HONORABLE WILLIAM A. KITCHEN, III, JUDGE ACTION NO. 19-CI-00398

KENTUCKY OAKS MALL COMPANY, LTD; BANTERRA CORP. D/B/A BANTERRA BANK; CITY OF PADUCAH, KENTUCKY C/O THE HONORABLE BRANDI HARLESS, MAYOR; HON. SAM CLYMER, MCCRACKEN COUNTY ATTORNEY; AND VIDHI LLC APPELLEES

OPINION AFFIRMING

** ** ** ** **

BEFORE: COMBS, LAMBERT, AND MCNEILL, JUDGES.

COMBS, JUDGE: This case arose from a lien foreclosure action. Ky. Motel, Inc.

(KMI), an Illinois Corporation, appeals from the summary judgment and order of

sale of the McCracken Circuit Court entered on January 28, 2020, as amended on May 5, 2020. The judgment provided that KMI was indebted to Kentucky Oaks

Mall Company, LTD. (“Kentucky Oaks”), by virtue of an affirmative covenant

included in the deed of conveyance from Kentucky Oaks to KMI’s predecessor in

title and that Kentucky Oaks was entitled to foreclose its lien. KMI argues that the

court erred by failing to conclude: that the covenant should be cancelled due to a

change in circumstances; that the covenant could not be enforced because

Kentucky Oaks breached its duty to provide maintenance to common areas; and

that a previous judgment concerning covenants contained in the deed was not res

judicata. After our review, we affirm.

KMI acquired approximately 5.4 acres of real property bounded by

US 60 and an off-ramp of Interstate 24 in Paducah by a deed of conveyance made

on June 1, 2004. The property had been developed as a motel site in 1984, and

KMI continued to operate the motel after acquiring the property some twenty years

later.

The property was conveyed subject to numerous restrictive covenants,

including those: limiting use of the property to a motel; governing the appearance

of exterior signage; preventing the construction of fences or other barriers; and

dictating the building’s overall aesthetics. Curb cuts and drives connecting the

motel property to the Kentucky Oaks shopping mall and an adjacent Wal-Mart

property were to be constructed by the original purchaser of the motel property.

-2- They were to be repaired and maintained by its successors in interest (KMI).

Kentucky Oaks retained a non-exclusive easement for vehicular and pedestrian

traffic over the drive, but the drive could be modified (subject to the approval of

Kentucky Oaks) at the successor’s expense. The original grantee and successors

were to maintain and repair a suitable parking area adjacent to the motel and keep

it illuminated.

The property was also subject to a recorded affirmative covenant

requiring the grantee and its successors to pay to Kentucky Oaks “an annual fee

equal to SIX THOUSAND AND 00/100 DOLLARS ($6,000.00) per year, in equal

monthly installments of Five Hundred and 00/100 Dollars ($500.00) each, as

adjusted by the Cost of Living set forth in Exhibit D. . . .” Exhibit D provides that

“the annual Common Area Maintenance charge payable hereunder” will be

adjusted each year to reflect fluctuations in the Consumer Price Index. Exhibit D

provides that in no event would the annual Common Area Maintenance charge fall

below $6,000.00.

On May 1, 2019, Kentucky Oaks filed an action against KMI based

upon its failure “to pay the monthly installments on the common area maintenance

assessments” and its failure “to maintain in good condition the roadways and

parking lots of the Subject Property.” As expressly provided in the deed of

conveyance, Kentucky Oaks sought an order requiring the property to be restored

-3- to a state of good repair and an order of sale permitting it to foreclose upon its lien

against the property based upon the “unpaid assessments.”

KMI answered the complaint and asserted a counterclaim against

Kentucky Oaks. In its counterclaim, KMI alleged that the affirmative covenant

included in the deed of conveyance should not be enforced because it failed to

define the obligations of Kentucky Oaks with respect to “common area

maintenance.” KMI also alleged that surrounding conditions and the character of

the mall area had changed since 1984. Based upon these allegations, KMI sought

an order declaring the covenant null and void. In its reply, Kentucky Oaks asserted

that the counterclaim was barred by the doctrine of res judicata.

In October 2019, Kentucky Oaks filed a motion for summary

judgment. In its memorandum in support of the motion, Kentucky Oaks argued

that it was entitled to judgment and an order of sale as a matter of law. It

contended that the issue of KMI’s liability for the payment of the disputed fees had

been fully litigated in a previous action and that the judgment of the McCracken

Circuit Court entered in January 2012 had resolved every issue as to its right to

enforce the covenants. The judgment had upheld the validity of the covenants and

awarded Kentucky Oaks “past-due [common area maintenance] assessments

against [KMI]” in the amount of $101,197.93, plus interest. Moreover, the parties

executed an agreement thereafter reflecting KMI’s “continuing obligation to pay

-4- certain common area maintenance fees (‘CAM fees’), as provided in a Special

Warranty Deed between [Kentucky Oaks] and [KMI’s predecessor in interest].”

KMI responded that genuine issues of material fact precluded entry of

summary judgment. It argued that the prior judgment and the terms of the parties’

written agreement were not dispositive because “circumstances have changed

relating to the real property.” It reiterated that the character of the area had

changed since 2012 and that the “Order does not and could not address facts and

circumstances arising after entry of the Order.” It also argued that language

recognizing KMI’s “continuing obligation” to pay common area maintenance fees

included in the parties’ written agreement did not foreclose KMI’s ability to

challenge the validity of those fees prospectively. Finally, KMI argued that

alterations in traffic patterns, an increase in the number of visitors to the area, and

changes to the footprint of nearby commercial entities were all changes impacting

“the . . . maintenance need of the ‘common area’ as described in the 1984

restrictions.” KMI sought to conduct discovery with respect to the collection and

use by Kentucky Oaks of common area maintenance funds.

Following a hearing, the McCracken Circuit Court concluded that its

judgment of January 2012 upheld the validity of the disputed fees. It granted the

motion for summary judgment, and an order of sale was entered.

-5- KMI filed a timely motion to alter, amend, or vacate. It argued that

the covenant recorded in 1984 “is now void or unenforceable because the area

around Kentucky Oaks Mall has undergone substantial change in the past thirty-

five years.” It also argued that Kentucky Oaks had breached its duty to perform

common area maintenance. It requested an opportunity to conduct discovery.

In an order entered May 5, 2020, the McCracken Circuit Court

amended its summary judgment. The court concluded that KMI specifically

acknowledged its obligation to pay the disputed fees in an agreement that it had

executed in late January of 2012, and it rejected KMI’s contention that changes in

the area had any bearing on the enforceability of the covenant. The court noted

that KMI had not identified any instance in which Kentucky Oaks failed to perform

common area maintenance. Lastly, it reiterated that its prior judgment had finally

decided the parties’ dispute concerning the enforceability of the covenant. This

appeal followed.

A motion for summary judgment should be granted only where:

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.

-6- CR1 56.03. Summary judgment is appropriate where the movant shows that the

adverse party could not prevail under any circumstance. Pearson ex rel. Trent v.

Nat’l Feeding Sys., Inc., 90 S.W.3d 46 (Ky. 2002). We review the trial court’s

decision to grant summary judgment de novo. Caniff v. CSX Transp., Inc., 438

S.W.3d 368 (Ky. 2014). We must consider whether the circuit court erred by

concluding that there were no genuine issues as to any material fact and whether

Kentucky Oaks was entitled to a judgment as a matter of law.

On appeal, KMI argues first that the court erred by failing to evaluate

the changes that have occurred near its motel since 1984. Citing to the Court’s

opinion in Goodwin Brothers v. Combs Lumber Company, 275 Ky. 114, 120

S.W.2d 1024 (1938), it argues that the change in the character of the neighborhood

is sufficient to defeat the purpose of the covenant so as to render it unenforceable.

Next, KMI argues that the court erred by cutting off discovery aimed

at investigating whether Kentucky Mall’s maintenance of common areas is “over-

expansive” or “woefully insufficient.” It contends that the manner in which the

disputed fees are collected and utilized is a question of fact precluding summary

judgment.

Finally, KMI argues that the court erred by concluding both: (1) that

the doctrine of res judicata applies to the controversy and (2) that the parties’

1 Kentucky Rules of Civil Procedure.

-7- written agreement limits its ability to challenge the enforceability of the covenant.

While we disagree with each of these contentions, our resolution of the final

argument is dispositive.

In Yeoman v. Commonwealth, Health Policy Board, 983 S.W.2d 459

(Ky. 1998), the Supreme Court of Kentucky explained that res judicata is an

affirmative defense that precludes repetitious legal actions. The doctrine

encompasses both issue preclusion and claim preclusion. Id. Issue preclusion bars

the parties from relitigating an issue actually litigated and finally decided in a

previous action. Miller v. Administrative Office of Courts, 361 S.W.3d 867 (Ky.

2011).

Claim preclusion bars a party from re-litigating a previously

adjudicated cause of action. Id. The bar includes every matter relating to the

subject of the litigation which could have been -- as well as those that were --

introduced in support of the contention of the parties in the prior proceeding. Id.

If two actions concern the same controversy, then the earlier action is deemed to

have adjudicated every matter pertaining to the contest. Id. Because of its breadth,

claim preclusion applies only where there is an identity of parties; an identity of

the causes of action; and a resolution of the action upon its merits. Yeoman, supra.

In evaluating KMI’s counterclaim, the court concluded that its prior

judgment had decided the parties’ dispute concerning the enforceability of the

-8- covenants affecting the motel property -- the same dispute between them in this

proceeding. Because that issue was previously resolved on its merits, the circuit

court did not err by concluding that the principle of claim preclusion barred KMI’s

claim; i.e., that the affirmative covenant requiring the payment of common area

maintenance fees to Kentucky Oaks was unenforceable.

In an effort to avoid the effect of claim preclusion, KMI contends that

it intends to litigate the enforceability of the covenant only in light of changes to

the area that have occurred since the judgment was entered in 2012 -- an issue that

was not and could not have been addressed in the prior proceeding. However, this

contention is belied and contradicted by language included both in its pleadings

and in its motion to alter, amend, or vacate the summary judgment that posited its

claim on changes in the character of the mall area since 1984.

Furthermore, in arguing that the covenant requiring the payment of

common area maintenance fees is no longer enforceable, KMI characterizes the

covenant as a restrictive covenant. It relies upon restrictive covenant cases in

which the courts recognize changed conditions and, because of the changed

conditions, refuse to enforce the covenant or cancel it. See Godwin, supra;

Cochran v. Long, 294 S.W.2d 503 (Ky. 1956).

The analysis and holdings of these cases are of no recourse for KMI

because they involve an analysis of restrictive covenants requiring the covenantor

-9- to refrain from some otherwise lawful use of the property. The matter before the

circuit court in this case concerned instead an affirmative covenant calling for the

payment of money. See RESTATEMENT (THIRD) OF PROPERTY (SERVITUDES) § 1.3

(2000); Patch v. Springfield School Dist., 989 A.2d 500 (Vt. 2009).

Changes in the character of restricted property or the property

surrounding it may be so glaring as to cause restrictive covenants to lose their

purpose over time. However, that reasoning is not relevant to the enforcement of

the common area maintenance fees at issue in this case -- particularly regarding

any changes that have occurred in the area since the court’s judgment of 2012. See

Lake Wauwanoka, Inc. v. Spain, 622 S.W.2d 309 (Mo. Ct. App. 1981) (concluding

that the analysis of a petition to void an affirmative covenant is fundamentally

different from a petition to void a negative covenant involving an alleged change in

conditions).

Finally, we are not unsympathetic to KMI’s contention that an

affirmative covenant should be enforced only where a court identifies a standard

by which the covenantee’s actions can be evaluated. See Armstrong v. Ledges

Homeowners Ass’n, Inc., 633 S.E.2d 78, 81 (N.C. 2006) (concluding that “broad

assessments for the general purposes of promoting the safety, welfare, recreation,

health, common benefit, and enjoyment of the residents of [a development] as may

be more specifically authorized from time to time by the [development’s governing

-10- body]” are unreasonable because they grant “practically unlimited power” to the

governing body to assess property owners); see also Allen v. Sea Gate Ass’n, 460

S.E.2d 197, 199-200 (N.C. App. 1995) (holding that a covenant requiring an

assessment “for the maintenance, upkeep and operations of the various areas and

facilities by Sea Gate Association, Inc.” was void because there was no standard by

which a court could assess how the homeowners’ association chose the properties

to maintain).

However, this issue was relevant to the subject of the previous

litigation. It could have been introduced in support of KMI’s earlier contention

that the covenants were unenforceable. By virtue of claim preclusion, the 2012

litigation must be deemed to have adjudicated every matter actually or potentially

pertaining to the cause of action. Consequently, it is res judicata.

We AFFIRM the judgment of the McCracken Circuit Court.

ALL CONCUR.

BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE KENTUCKY OAKS MALL Nicholas M. Holland COMPANY, LTD: Ryan T. Polczynski Paducah, Kentucky William E. Pinkston Paducah, Kentucky

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