RENDERED: JUNE 9, 2023; 10:00 A.M. NOT TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals
NO. 2021-CA-1061-MR
SAKURA, LTD CO.;1 SAKURA, LTD.; AND CHRIS ARDELT APPELLANTS
APPEAL FROM FRANKLIN CIRCUIT COURT v. HONORABLE THOMAS D. WINGATE, JUDGE ACTION NO. 21-CI-00343
KAY-JEN INVESTMENTS, LLC APPELLEE
AND
NO. 2022-CA-0580-MR
KAY-JEN INVESTMENTS, LLC APPELLANT
v. APPEAL FROM FRANKLIN CIRCUIT COURT HONORABLE THOMAS D. WINGATE, JUDGE ACTION NO. 21-CI-00900
1 Sakura, Ltd. Co. is named in the notice of appeal. However, the trial court denied its motion to intervene in the underlying case. That denial was memorialized in the same order that is the subject of the present appeal. However, Sakura, Ltd. Co. has not challenged the denial of intervention. That issue is not before this Court. Accordingly, nothing herein addressing the merits of the present cases applies to Sakura, Ltd. Co. SAKURA, LTD. AND CHRIS ARDELT APPELLEES
OPINION AFFIRMING IN PART, REVERSING IN PART, AND REMANDING
** ** ** ** **
BEFORE: THOMPSON, CHIEF JUDGE; ACREE, AND MCNEILL; JUDGES.
MCNEILL, JUDGE: This case involves a lease (hereafter, the Lease), with an
option to purchase a property located in Frankfort, Kentucky. Beginning on
February 17, 2017, Appellee, Kay-Jen Investments, LLC (Lessor), leased the
properties to Appellants, Sakura, Ltd., and Chris Ardelt (Lessees). The Lease ran
for a term of three years and expired on February 16, 2020. The Lease also
granted Lessees an option to purchase the property, with closing to occur “on or
before sixty (60) days after exercise of the Option . . . .”
After the three-year term expired, the parties agreed to amend the
lease to extend through February 16, 2021. On that day, Lessees provided Lessor
with a notice to exercise the option to purchase. However, Lessees failed to close
on the property within sixty days. Lessor then provided Lessees with a notice of
cancellation of the lease. Despite the notice of cancellation, Lessees asserted rights
under the lease.
-2- Lessor filed a Petition for a Declaration of Rights in Franklin Circuit
Court (Case One). Lessees filed a motion to dismiss, which was denied. The court
granted Lessor’s Petition, thereby concluding that the Lease term had expired. No
motion to alter, amend, or vacate was filed pursuant to CR2 59.05. Lessee
appealed and the circuit court was divested of jurisdiction. Lessor subsequently
filed a motion pursuant to CR 60.02, which was denied.
On December 22, 2021, Lessors filed a separate action in the Franklin
Circuit Court (Case Two), alleging, inter alia, breach of contract, damages, and
attorney’s fees. On May 9, 2022, the court granted Lessor’s motion to dismiss on
the basis that Case Two was an improper attempt to “split” the litigation. Lessor
appealed. Both Cases were originally docketed as two separate appeals before two
different panels of this Court. At the Court’s discretion, both cases shall be
decided by the present panel. For the following reasons, we affirm the judgment in
Case One. We reverse the judgment in Case Two and remand. Each will be
addressed in turn.
ANALYSIS
It is undisputed that the parties failed to close the purchase deal within
sixty days after Lessees provided notice of their intent to purchase. And although
there was no express clause indicating that time was of the essence, the circuit
2 Kentucky Rules of Civil Procedure.
-3- court correctly cited the “long established and universally declared rule that in such
contracts (creating options) time is of the essence thereof both in law and equity
. . . .” Rounds v Owensboro Ferry Co., 253 Ky. 301, 69 S.W. 2d 350, 354 (1934).
See also Good v. Evans, 178 S.W.2d 600, 601 (Ky. 1944); and 3 ROBERT W.
KEATS, KY. PRAC. REAL ESTATE TRANSACTIONS § 5:11 Client’s purpose in buying
or selling – Time of essence.
We emphasize the circuit court’s conclusion that the Lessees had four
years to obtain financing and to otherwise prepare for the purchase. This included
a one-year extension of the lease’s original term. In addition, it appears that the
parties here are sophisticated corporate entities, presumably well-versed in
managing real estate agreements. In any event, in the absence of clear and binding
authority to the contrary, we cannot conclude that the circuit court erred in this
instance. Therefore, we affirm the circuit court as to Case One. We will now
address whether the circuit court correctly determined that Case Two was an
impermissible attempt to “split” the causes of action.
“[T]he rule against splitting causes of action precludes successive
actions arising from one transaction.” Moorhead v. Dodd, 265 S.W.3d 201, 203
(Ky. 2008).
Thus, the rule against splitting claims is nothing more than that aspect of res judicata which requires the court to determine the scope of the prior claim; i.e., to decide if
-4- the second action involves issues which should have been litigated in the first action, but were not.
Coomer v. CSX Transp., Inc., 319 S.W.3d 366, 371 n.9 (Ky. 2010) (citation
omitted). “Application of res judicata, being a question of law, is . . .
reviewed under the de novo standard.” Humber v. Lexington-Fayette Urb. Cnty.
Gov’t, 553 S.W.3d 273, 276 (Ky. App. 2018) (citation omitted). To be clear, we
are specifically concerned here with claim preclusion.
The doctrine of res judicata is formed by two subparts: 1) claim preclusion and 2) issue preclusion. Claim preclusion bars a party from re-litigating a previously adjudicated cause of action and entirely bars a new lawsuit on the same cause of action.
....
For claim preclusion to bar further litigation, certain elements must be present. First, there must be identity of the parties. Second, there must be identity of the causes of action. Third, the action must have been resolved on the merits.
Id. at 277 (citations and footnote omitted) (citing Yeoman v. Commonwealth,
Health Policy Bd., 983 S.W.2d 459, 464-65 (Ky. 1998)). Both cases at issue here
involve identical parties. It is undisputed that Case One was resolved on the
merits. The only remaining element of a traditional claim preclusion analysis is
whether there is sufficient identity of the causes of action.
However, the more precise question we must resolve here, is whether
a declaratory claim(s) (Case One), bars a subsequent coercive claim(s) (Case Two).
-5- Under the specific pleadings at issue here, we conclude that it does not. In so
holding, we find the following case law instructive: “Claim preclusion generally
does not apply to declaratory judgments.” Cont’l Cas. Co. v. Indian Head Indus.,
Inc., 941 F.3d 828, 835 (6th Cir. 2019) (citing ASARCO, L.L.C. v. Montana Res.,
Inc., 858 F.3d 949, 955 (5th Cir. 2017)). See also Strunk v. Bennett, 258 S.W.2d
517, 519 (Ky. 1953) (holding that judgment in earlier suit to cancel leases did not
Free access — add to your briefcase to read the full text and ask questions with AI
RENDERED: JUNE 9, 2023; 10:00 A.M. NOT TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals
NO. 2021-CA-1061-MR
SAKURA, LTD CO.;1 SAKURA, LTD.; AND CHRIS ARDELT APPELLANTS
APPEAL FROM FRANKLIN CIRCUIT COURT v. HONORABLE THOMAS D. WINGATE, JUDGE ACTION NO. 21-CI-00343
KAY-JEN INVESTMENTS, LLC APPELLEE
AND
NO. 2022-CA-0580-MR
KAY-JEN INVESTMENTS, LLC APPELLANT
v. APPEAL FROM FRANKLIN CIRCUIT COURT HONORABLE THOMAS D. WINGATE, JUDGE ACTION NO. 21-CI-00900
1 Sakura, Ltd. Co. is named in the notice of appeal. However, the trial court denied its motion to intervene in the underlying case. That denial was memorialized in the same order that is the subject of the present appeal. However, Sakura, Ltd. Co. has not challenged the denial of intervention. That issue is not before this Court. Accordingly, nothing herein addressing the merits of the present cases applies to Sakura, Ltd. Co. SAKURA, LTD. AND CHRIS ARDELT APPELLEES
OPINION AFFIRMING IN PART, REVERSING IN PART, AND REMANDING
** ** ** ** **
BEFORE: THOMPSON, CHIEF JUDGE; ACREE, AND MCNEILL; JUDGES.
MCNEILL, JUDGE: This case involves a lease (hereafter, the Lease), with an
option to purchase a property located in Frankfort, Kentucky. Beginning on
February 17, 2017, Appellee, Kay-Jen Investments, LLC (Lessor), leased the
properties to Appellants, Sakura, Ltd., and Chris Ardelt (Lessees). The Lease ran
for a term of three years and expired on February 16, 2020. The Lease also
granted Lessees an option to purchase the property, with closing to occur “on or
before sixty (60) days after exercise of the Option . . . .”
After the three-year term expired, the parties agreed to amend the
lease to extend through February 16, 2021. On that day, Lessees provided Lessor
with a notice to exercise the option to purchase. However, Lessees failed to close
on the property within sixty days. Lessor then provided Lessees with a notice of
cancellation of the lease. Despite the notice of cancellation, Lessees asserted rights
under the lease.
-2- Lessor filed a Petition for a Declaration of Rights in Franklin Circuit
Court (Case One). Lessees filed a motion to dismiss, which was denied. The court
granted Lessor’s Petition, thereby concluding that the Lease term had expired. No
motion to alter, amend, or vacate was filed pursuant to CR2 59.05. Lessee
appealed and the circuit court was divested of jurisdiction. Lessor subsequently
filed a motion pursuant to CR 60.02, which was denied.
On December 22, 2021, Lessors filed a separate action in the Franklin
Circuit Court (Case Two), alleging, inter alia, breach of contract, damages, and
attorney’s fees. On May 9, 2022, the court granted Lessor’s motion to dismiss on
the basis that Case Two was an improper attempt to “split” the litigation. Lessor
appealed. Both Cases were originally docketed as two separate appeals before two
different panels of this Court. At the Court’s discretion, both cases shall be
decided by the present panel. For the following reasons, we affirm the judgment in
Case One. We reverse the judgment in Case Two and remand. Each will be
addressed in turn.
ANALYSIS
It is undisputed that the parties failed to close the purchase deal within
sixty days after Lessees provided notice of their intent to purchase. And although
there was no express clause indicating that time was of the essence, the circuit
2 Kentucky Rules of Civil Procedure.
-3- court correctly cited the “long established and universally declared rule that in such
contracts (creating options) time is of the essence thereof both in law and equity
. . . .” Rounds v Owensboro Ferry Co., 253 Ky. 301, 69 S.W. 2d 350, 354 (1934).
See also Good v. Evans, 178 S.W.2d 600, 601 (Ky. 1944); and 3 ROBERT W.
KEATS, KY. PRAC. REAL ESTATE TRANSACTIONS § 5:11 Client’s purpose in buying
or selling – Time of essence.
We emphasize the circuit court’s conclusion that the Lessees had four
years to obtain financing and to otherwise prepare for the purchase. This included
a one-year extension of the lease’s original term. In addition, it appears that the
parties here are sophisticated corporate entities, presumably well-versed in
managing real estate agreements. In any event, in the absence of clear and binding
authority to the contrary, we cannot conclude that the circuit court erred in this
instance. Therefore, we affirm the circuit court as to Case One. We will now
address whether the circuit court correctly determined that Case Two was an
impermissible attempt to “split” the causes of action.
“[T]he rule against splitting causes of action precludes successive
actions arising from one transaction.” Moorhead v. Dodd, 265 S.W.3d 201, 203
(Ky. 2008).
Thus, the rule against splitting claims is nothing more than that aspect of res judicata which requires the court to determine the scope of the prior claim; i.e., to decide if
-4- the second action involves issues which should have been litigated in the first action, but were not.
Coomer v. CSX Transp., Inc., 319 S.W.3d 366, 371 n.9 (Ky. 2010) (citation
omitted). “Application of res judicata, being a question of law, is . . .
reviewed under the de novo standard.” Humber v. Lexington-Fayette Urb. Cnty.
Gov’t, 553 S.W.3d 273, 276 (Ky. App. 2018) (citation omitted). To be clear, we
are specifically concerned here with claim preclusion.
The doctrine of res judicata is formed by two subparts: 1) claim preclusion and 2) issue preclusion. Claim preclusion bars a party from re-litigating a previously adjudicated cause of action and entirely bars a new lawsuit on the same cause of action.
....
For claim preclusion to bar further litigation, certain elements must be present. First, there must be identity of the parties. Second, there must be identity of the causes of action. Third, the action must have been resolved on the merits.
Id. at 277 (citations and footnote omitted) (citing Yeoman v. Commonwealth,
Health Policy Bd., 983 S.W.2d 459, 464-65 (Ky. 1998)). Both cases at issue here
involve identical parties. It is undisputed that Case One was resolved on the
merits. The only remaining element of a traditional claim preclusion analysis is
whether there is sufficient identity of the causes of action.
However, the more precise question we must resolve here, is whether
a declaratory claim(s) (Case One), bars a subsequent coercive claim(s) (Case Two).
-5- Under the specific pleadings at issue here, we conclude that it does not. In so
holding, we find the following case law instructive: “Claim preclusion generally
does not apply to declaratory judgments.” Cont’l Cas. Co. v. Indian Head Indus.,
Inc., 941 F.3d 828, 835 (6th Cir. 2019) (citing ASARCO, L.L.C. v. Montana Res.,
Inc., 858 F.3d 949, 955 (5th Cir. 2017)). See also Strunk v. Bennett, 258 S.W.2d
517, 519 (Ky. 1953) (holding that judgment in earlier suit to cancel leases did not
preclude subsequent conversion suit because, “[t]here was really no conversion (as
alleged) until after the court had adjudged the instruments to be void”); Cooke v.
Gaidry, 309 Ky. 727, 218 S.W.2d 960 (1949) (holding that the judgment in
declaratory judgment action was not res judicata of matters which could have been
adjudicated but were not); Coomer, 319 S.W.3d at 372 (noting the “number of
exceptions” to the rule against splitting causes of action); and 50 C.J.S. Judgments
§ 928 (March 2023 Update). We now return to the substantive pleadings at issue
here.
Case One is a petition for a declaration of rights under the option to
purchase provision of the Lease. By contrast, Case Two pleaded the following:
breach of contract, conversion, damages, and fees. These causes of action and
request for relief resulted from Lessees’ alleged wrongful withholding of rental
income, property damage, etc. In consideration of the aforementioned case law,
-6- secondary source material, and the specific pleadings and procedural history at
issue here, we conclude that Case One does not preclude Case Two.
CONCLUSION
For the foregoing reasons – and in consideration of the record, the
law, and the arguments presented – we affirm the Franklin Circuit Court’s opinion
and order entered on August 31, 2021. We reverse the court’s order entered on
May 10, 2022, and remand for further proceedings consistent with the decision.
ALL CONCUR.
BRIEFS FOR BRIEFS FOR APPELLANTS/APPELLEES APPELLEE/APPELLANT KAY-JEN SAKURA, LTD. AND CHRIS INVESTMENTS, LLC: ARDELT: Matthew W. Forsythe Christopher P. Farris Carmel, Indiana Lexington, Kentucky
-7-