Richard Holmes v. Horse Capital Realty, LLC

• Court: Court of Appeals of Kentucky
• Decided: October 26, 2023
• Docket: 2023 CA 000117
• Status: Unknown

Opinion

RENDERED: OCTOBER 27, 2023; 10:00 A.M. NOT TO BE PUBLISHED

Commonwealth of Kentucky Court of Appeals NO. 2023-CA-0117-MR

RICHARD HOLMES APPELLANT

APPEAL FROM FAYETTE CIRCUIT COURT v. HONORABLE THOMAS L. TRAVIS, JUDGE ACTION NO. 21-CI-00707

HORSE CAPITAL REALTY, LLC; AARON KENDALL; AND SARA ASGARI KENDALL APPELLEES

OPINION AFFIRMING

** ** ** ** **

BEFORE: EASTON, ECKERLE, AND JONES, JUDGES.

EASTON, JUDGE: The Appellant, Richard Holmes (“Holmes”), seeks reversal of

a summary judgment granted by the Fayette Circuit Court in favor of the

Appellees, Aaron and Sara Asgari Kendall (“Kendall”)1 and Horse Capital Realty,

1 From the record, it appears much of the relevant correspondence was between Holmes and Aaron Kendall. We will refer to the Appellees Aaron and Sara Kendall singularly as Kendall. We note the briefs filed in this case list only HCR as the Appellee. We will still address the claims against Kendall as they relate to the agency claims involving HCR. LLC (“HCR”), in this contract dispute about the attempted sale of a residential

property. Holmes also claims error in the denial of his motion to amend his

Complaint to assert additional claims against HCR after summary judgment had

been granted. Concluding that the circuit court properly granted summary

judgment and did not abuse its discretion in denying the amendment motion, we

affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Holmes had a house to sell in Lexington. Kendall wanted to buy this

property. Both Holmes and Kendall were knowledgeable with respect to real

estate transactions. Both testified about their considerable experience with

properties as investments or other experience with buying and selling properties.

Both Holmes and Kendall had their own real estate agents for this transaction.

Holmes was represented by Sheridan Sims (“Sims”), and Kendall was represented

by Brenda Winkler (“Winkler”) with HCR.

Kendall made an offer of $1.45 million which Holmes accepted. The

agents used an Offer to Purchase Contract (“Contract”), a standard form created by

a Lexington association of realtors. The provision governing the present dispute

appears under Item 3:

BUYER agrees to apply for and lock in the above- mentioned loan within five (5) calendar days from the date of acceptance of this CONTRACT and shall proceed with due diligence to obtain financing. Should BUYER -2- be unable to obtain financing, this CONTRACT shall be null and void and the earnest money shall be refunded to Buyer.

Kendall made an earnest money deposit of $25,000. HCR held the

deposit. The Contract anticipated a further down payment of $265,000. The

“above mentioned loan” was for the remaining $1.16 million. The loan to be

obtained was to be repaid over a thirty-year period with an interest rate of no more

than 3%. The closing was set for November 6, 2020, forty-eight days after the

contract was signed.

Before making the offer, Kendall had given to Holmes or his agent

Sims an “approval notice” for $1.5 million from Statewide Mortgage

(“Statewide”). This one-page preapproval was dated July 31, 2020. The approval

was clearly conditioned on Kendall satisfying underwriting guidelines and the

continued availability of the contemplated loan programs. Also, the preapproval

had already expired after thirty days. This did not stop Holmes from entering the

Contract.

Undisputed evidence from Stephen Gray (“Gray”) with Statewide

shows that Winkler sent the contract to Statewide on September 21, 2020, within

two days of the Contract signing. Kendall sent everything Gray requested for the

loan processing. Gray noted “the loan was locked in for a 30 year fixed mortgage”

-3- on September 22, 2020. Gray made another note dated September 23, 2020:

“Loan was locked and completely structured for underwriting.”

Then things went south. Kendall was verbally informed on

September 24, 2020, that Statewide had denied the loan. Statewide issued a

written denial on October 1, 2020, after the formal underwriting review. Kendall

insists the denial was because the type of loan contemplated was no longer going

to be offered by Statewide. Regardless, the documentation of the denial indicates

underwriting wanted a larger down payment, and Kendall did not have sufficient

available funds for a larger down payment. The loan was denied for insufficient

funds from Kendall.

Kendall immediately informed his agent Winkler, who contacted

Holmes’s agent Sims the very next day, on September 25, 2020. The interaction

between the two agents at this point is key to this dispute. Sims admits

conversations occurred, but he remembers (or perhaps does not remember) them

the same way as Winkler.

Winkler is adamant that she told Sims about the Statewide denial.2

When asked if Winkler specifically informed him of the denial, Sims repeatedly

said “not to my recollection.”3 Yet, after Sims spoke with Winkler and Gray with

2 Winkler Depo. at 38-39. 3 Sims Depo. at 144. -4- Statewide, Sims knew Kendall “would not ultimately be obtaining financing from

Statewide.”4 Sims knew Kendall would be seeking other financing through

another mortgage provider (“Envoy”), and Sims even suggested, more than once,

that Kendall should contact other lenders for financing.5 Sims had contact with

Envoy about the loan application with them. The documentation again shows

Kendall provided all requested information needed by Envoy to consider the loan

with them.

Of particular significance is the fact that the discussion between

Winkler and Sims led Sims to discuss with Holmes an option of not going forward

with the Contract when the problem developed with Statewide.6 Subsequent

events show that Sims and Holmes decided to proceed with the Contract hoping

that financing would come through.

The financing efforts with Envoy also ultimately failed just prior to

the closing. The scheduled closing did not take place. Holmes then sued Kendall

as well as HCR. Holmes claimed breach of contract, including the implied duty to

act in good faith and with fair dealing. Holmes also claimed misrepresentation by

Kendall or through the agent Winkler. Finally, Holmes made a claim of unjust

4 Sims Depo. at 98. 5 Sims Depo. at 74-75 and 127. 6 Sims Depo. at 160-164. -5- enrichment. As Kendall in no way was enriched by this failed contract, we will not

comment on that claim further.

Holmes’s asserted claim against HCR was related to the deposit as is

indicated in the demand for relief which requests only the application of the

deposit held by HCR to Holmes’s claimed damages. Yet Holmes clearly included

Winkler in the allegations in the Complaint as to misrepresentations made.7

Essentially, Holmes feels Kendall or his agent Winkler should have

specifically told Holmes or his agent Sims that Statewide had “denied” the loan.

Holmes then supposedly would have freed himself of the Contract and tried to

salvage a deal with another potential purchaser, assuming such other purchaser

could obtain financing. As it is, Holmes was left with the property. It would be

months before another sale could be consummated. As it turns out, Holmes sold

the property for the exact same price of $1.45 million. Even so, Holmes claims

over $100,000 in “carrying costs” as damages.

During the pendency of the case, the circuit court ordered the return of

the earnest money deposit to Kendall by a partial summary judgment entered on

July 29, 2021. Applying KRS8 324.111(6), the circuit court correctly ruled the

deposit had to be returned. But the circuit court did not then decide the liability of

7 Paragraphs 23 and 48 of the Complaint. 8 Kentucky Revised Statutes. -6- anyone resulting from the alleged failures of Kendall or the agent Winkler. The

circuit court succinctly stated this in its July 2021 Order.

All the actors were deposed, and the circuit court then granted

summary judgment to Kendall on all Holmes’s claims. There being no further

claim pled against HCR other than the deposit issue, there was nothing left to

determine, and the circuit court stated the claim against HCR was dismissed as

well. When Holmes sought reconsideration of the summary judgment, Holmes

also sought leave to amend his Complaint to allege claims against HCR directly for

the alleged misrepresentations of Winkler. The circuit court denied the

amendment motion and did not alter its summary judgment decision.

On appeal, Holmes contends that the circuit court should not have

granted summary judgment, because there were disputed issues of material fact

pertaining to his contractual claims and related misrepresentation. Holmes also

believes the circuit court abused its discretion in denying the amended pleading

against HCR.

STANDARD OF REVIEW

The proper standard of review on appeal when a trial judge has granted a motion for summary judgment is whether the record, when examined in its entirety, shows there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. The trial judge must view the evidence in a light most favorable to the nonmoving party, resolving all doubts in its favor. Because summary judgment does not require -7- findings of fact but only an examination of the record to determine whether material issues of fact exist, we generally review the grant of summary judgment without deference to either the trial court’s assessment of the record or its legal conclusions.

Phoenix American Adm’rs, LLC v. Lee, 670 S.W.3d 832, 838 (Ky. 2023) (citations

omitted).

With respect to the circuit court’s decision not to permit the amended

pleading, we review this for an abuse of discretion. Swearingin v. Hagyard

Davidson McGee Associates, PLLC, 641 S.W.3d 186, 192 (Ky. App. 2022). “The

test for abuse of discretion is whether the trial judge’s decision was arbitrary,

unreasonable, unfair, or unsupported by sound legal principles.” Commonwealth v.

English, 993 S.W.2d 941, 945 (Ky. 1999).

ANALYSIS

“A ‘usage of trade’ is any practice or method of dealing having such

regularity of observance in a place, vocation, or trade as to justify an expectation

that it will be observed with respect to the transaction in question.” KRS 355.1-

303(3). This Uniform Commercial Code provision is consistent with Kentucky

common law as it applies to real estate transactions. See Maddox-Grundy Co. v.

Helm, 37 S.W.2d 49 (Ky. 1931) (custom in real estate trade is for real estate agents

to share commission when one brings the buyer and the other brings the seller even

if that is not stated in the contract).

-8- The Contract required only that Kendall “lock in” the loan within five

days of the signing of the Contract. Both Sims and Winkler understood this

Contract term meant a lock in of the interest rate.9 When the United States

Consumer Financial Protection Board advises consumers about the meaning of

“lock in” it explains: “A lock-in or rate lock on a mortgage loan means that your

interest rate won’t change between the offer and closing, as long as you close

within the specified time frame and there are no changes to your application.”10

Even the preapproval which Holmes now claims mislead him refers to locking in

as pertaining only to the interest rate.

More to the point Holmes and his agent Sims referred to the lock in as

relating to the interest rate in email exchanges11 between them. But Holmes now

argues, without specificity, that “lock in the loan” should mean something more.

Basically, Holmes thinks it should mean the loan is almost guaranteed and can be

relied upon to be there at closing. This interpretation would render the rest of the

Contract language meaningless and ignores the realities of the loan process. The

lock in of interest rate is just one step. If the lender is going to approve any loan,

9 Winkler Depo. at 19-20; Sims Depo. at 48-49.

10 What’s a Lock-in or a Rate Lock on a Mortgage?, CONSUMER FINANCIAL PROTECTION BUREAU, https://www.consumerfinance.gov/ask-cfpb/whats-a-lock-in-or-a-rate-lock-en- 143/#:~:text=A%20lock%2Din%20or%20rate,can%20change%20daily%2C%20sometimes%20 hourly (last updated May 2, 2023). 11 Holmes Depo. at 86-87. -9- the lock in simply assures one aspect and that is the interest rate for the term of the

loan. Otherwise, there would be no need for Kendall further to exercise due

diligence “to obtain financing.” In the same Contract sentence as the interest rate

lock in, the loan is still contingent on an appraisal and acceptance through

underwriting, which would take more than the initial five days to lock in the

interest rate.

Kendall did what he had to do. He had a lock in of the interest rate,

and he proceeded to obtain a loan. When Statewide did not come through, Kendall

had every right to use due diligence to find other financing before the scheduled

closing. There was no genuine issue of material fact as to the exercise of due

diligence. When a loan did not materialize for the closing, the Contract gave

Kendall the right to get the deposit back. The Contract had become “null and

void” according to its express terms.

As for the duty to act in good faith and with fair dealing, Holmes

leans on the inability of Sims to remember if Winkler specifically told Sims of

Statewide’s “denial.” Even if we were inclined to play this word game, nothing

excuses the failure of Holmes and Sims to act when they clearly knew Statewide

was out of the picture and financing would have to come from another source.

Again, Kendall complied with the plain terms of the Contract. “The implied

covenant of good faith and fair dealing simply ‘impose[s] on the parties . . . a duty

-10- to do everything necessary to carry’ out the contract.” Harvest Homebuilder, LLC,

v. Commonwealth Bank and Trust Co., 310 S.W.3d 218, 220 (Ky. App. 2010)

(citations omitted).

Because there was no claim remaining against Kendall when the

circuit court was considering the summary judgment motion, that court would then

look to see what remains to be decided in the Complaint. As to HCR, nothing

remained. The deposit had been returned by the prior Order. In these

circumstances, there was no error in the circuit court noting no claims remained

against HCR either. See Smith v. Norton Hospitals, Inc., 488 S.W.3d 23, 35 (Ky.

App. 2016).

The only remaining issue is Holmes’s belated attempt to amend the

Complaint to add more allegations directed against HCR and opposed to Kendall.

Amendment is governed by CR12 15.01. In exercising its discretion, the circuit

court considers several factors. Kenney v. Hanger Prosthetics & Orthotics, Inc.,

269 S.W.3d 866 (Ky. App. 2007). For example, the circuit court should consider

any prior opportunity to assert the new claims as well as prejudice to the opposing

party if the amendment is allowed. Id. at 869. The circuit court commented on

these factors.

12 Kentucky Rules of Civil Procedure. -11- As seen from the initial Complaint, Holmes knew or should have

understood a real estate agent has more than one agency relationship. Winkler was

the agent for the buyers, but she was also an agent for her realtor/broker HCR. If

Holmes wanted to sue HCR because of Winkler’s actions, he could have done so

from the beginning rather than waiting for the correct observation by the circuit

court that, if Winkler did not explain the “denial” of Statewide’s loan, she would

have acted contrary to the agency she had with Kendall. Instead, Holmes waited to

add a claim after summary judgment had been granted and approaching two years

after the filing of the initial Complaint.

At a hearing on April 28, 2022, Holmes’s counsel commented on

retaining an expert for criticism of Winkler’s actions. A discussion of dismissing

HCR without prejudice went nowhere. No action was taken to consider making

further claims against HCR until after summary judgment was granted months

later.

If the belated amendment had been allowed, HCR would have to

begin a defense of a whole new claim which, if previously pled, could have been

addressed with those already decided. The circuit court correctly assessed

prejudice to HCR in denying the amendment.

The larger problem was the futility of the amendment. In the context

of a real estate contract for a residence, our courts have declined to recognize a

-12- claim for negligent misrepresentation. See Kentucky Farm Bureau Mut. Ins. Co, v.

Blevins, 268 S.W.3d 368 (Ky. 2008). Holmes could allege fraud by omission, but

there must be a legal duty to disclose a given fact. Giddings & Lewis, Inc. v.

Industrial Risk Insurers, 348 S.W.3d 729, 747 (Ky. 2011). Holmes offers no legal

authority under Kentucky law in the context of telling a seller when one loan

provider officially “denies” a loan, especially in these circumstances when Sims

and Holmes knew Statewide was out, and other loan providers were in play.

Kendall did not have to use Statewide for financing.

An affirmative fraudulent misrepresentation claim would require

Holmes to prove by clear and convincing evidence all six elements of the claim.

Id. Even if Winkler had made an affirmatively false statement, like Statewide did

not deny the loan, of which there is no evidence, reliance on that statement would

have to be reasonable. Sims knew Statewide was out of the picture and that other

lenders were being considered, and Sims and Holmes moved forward with the

Contract and did not seek a mutual release from the Contract. Holmes had no

unilateral right to anticipatorily breach the Contract when Statewide denied the

loan. Kendall still had the right to proceed and try to get financing for the closing.

On this record, the circuit court correctly determined there was no

genuine issue of material fact on the claims made by Holmes. The circuit court did

-13- not abuse its discretion in denying Holmes’s request to amend his Complaint. The

Fayette Circuit Court is AFFIRMED.

ALL CONCUR.

BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE HORSE CAPITAL REALTY, LLC: Marshall R. Hixson Lexington, Kentucky M. Jake Bliss Lexington, Kentucky

-14-