The James C. Hudson and Norma D. Hudson Revocable Trust v. Craig Runner

• Court: Court of Appeals of Kentucky
• Decided: December 9, 2021
• Docket: 2020 CA 001469
• Status: Unknown

Opinion

RENDERED: DECEMBER 10, 2021; 10:00 A.M. NOT TO BE PUBLISHED

Commonwealth of Kentucky Court of Appeals

NO. 2020-CA-1469-MR

THE JAMES C. HUDSON AND NORMA D. HUDSON REVOCABLE TRUST APPELLANT

APPEAL FROM WARREN CIRCUIT COURT v. HONORABLE JOHN R. GRISE, JUDGE ACTION NO. 20-CI-00467

CRAIG RUNNER AND MELISSA HAYES D/B/A MELISSA’S COUNTRY CAFE APPELLEES

OPINION AFFIRMING

** ** ** ** **

BEFORE: CETRULO, LAMBERT, AND TAYLOR, JUDGES.

CETRULO, JUDGE: This matter is on review to determine whether the Warren

Circuit Court properly (1) granted a lessee’s declaratory judgment and permanent injunction against a landlord, and (2) enjoined the lessor from treating the lease as

null and void. For the reasons set forth, we AFFIRM.

FACTUAL AND PROCEDURAL BACKGROUND

The appellant/lessor, James C. Hudson and Norma D. Hudson

Revocable Trust (the Trust), is the owner of real estate located at 7493 Russellville,

Bowling Green, Kentucky. On or about February 23, 2015, the Trust signed a

lease agreement with appellee/lessee, Craig Runner (Runner). The lease contains a

provision allowing the initial five-year term, starting April 1, 2015, to be extended

for an additional five-year term. In pertinent part, the lease includes an insurance

requirement and provisions defining what constitutes default, notice, and

subletting.

Many facts and dates are contested by the parties. Runner states in his

affidavit that on or before February 1, 2017, he started subleasing the property to

Melissa Hayes (Hayes).1 The property includes a restaurant, which thereafter

changed names from “Country Café” to “Melissa’s Country Café.”

According to Runner’s affidavit, “[w]hen I collected September 2019

rent from Melissa Hayes, she informed me she was no longer going to pay rent to

me and would rent directly from Mrs. Hudson.” Despite this, on or about

1 Melissa Hayes d/b/a Melissa’s Country Café was named as an appellee, but she did not file a brief in this matter.

-2- September 26, 2019, Runner sent written notice to Norma Hudson (Norma), the

only remaining trustee,2 via certified mail, of his intention to extend the lease for

an additional five years pursuant to the lease.

On or about October 28, 2019, Runner’s legal counsel and the Trust’s

legal counsel had a conversation. During that conversation, the Trust’s attorney

informed Runner’s attorney that Runner had properly exercised his right to extend

the lease, but that the property was not properly insured. Shortly after this letter,

Runner states that he provided the Trust a copy of the insurance declaration

belonging to subtenant Hayes.

On October 29, 2019, Norma’s counsel sent her a letter, stating, “I

have discussed this matter [the lease] with Attorney Mark Allcott [sic] who

represents Craig Runner with regard to the above-mentioned Lease. Attorney

Alcott indicated he would make sure his client immediately secures the insurance

referred [to] in paragraph IX of the Lease. I have requested a copy of the policy as

proof and will provide you with same upon receipt.” There is no indication the

Trust sought to terminate the lease at this time.

According to Runner, on or about January 3, 2020, an attorney for the

Trust requested that Norma be named as an additional insured on the insurance

2 James C. Hudson is now deceased.

-3- policy on the property. Thereafter, Runner stated that he requested Hayes add

Norma to her insurance policy on the property.

On March 11, 2020, counsel for the Trust hand-delivered a letter to

Runner’s counsel. The March 11 letter states, in relevant part, “[p]lease let me

make it clear that Mr. Runner has violated the terms and conditions of the Lease in

question, and my clients do not agree to his extension. Mr. Runner has not had the

property appropriately insured during the lease period. Further, Mr. Runner sublet

the property without notice and permission, and for those reasons we declare the

lease null and void and expect him to vacate the premises on April 1, 2020.”

Even with the letter, Runner stated that on March 23, 2020, he sent the

Trust, via certified mail, a check for $3000 as rent for the six-month period

beginning on April 1, 2020. The Trust accepted this rent payment.

On March 27, Runner filed suit in Warren Circuit Court seeking

injunctions, restraining orders, and a declaration of rights as it related to his alleged

leasehold interest in the property. After numerous motions, answers,

counterclaims, and oral arguments, the circuit court issued an order, without a

bench trial, resolving the issues and dismissing the case.

The September 4, 2020 order held: (1) Runner properly extended his

lease with the Trust; (2) Runner breached the lease by not maintaining proper

insurance and by subleasing without the Trust’s written permission; (3) Runner

-4- was not properly notified of either breach and is not estopped from making such

argument because the Trust has not been prejudiced by Runner’s position; (4)

Runner has cured the insufficient insurance matter; and (5) the Trust waived its

argument regarding Runner’s improper sublease by accepting rent from Runner

while knowing that Hayes was a sublessor. This order granted Runner’s petition

for a declaratory judgment and permanent injunction against the Trust; it also

enjoined the Trust from treating the lease as null and void.

Afterward, the Trust moved the circuit court to alter, amend, or vacate

the September 4 order, claiming: (1) Runner had actual notice of his breach and

failed to cure within the requisite time period; (2) the Trust proved it was injured,

prejudiced, or acted to its own detriment; and (3) the Trust did not waive

compliance. The court denied the motion, and this appeal followed.

On appeal, the Trust reasserts the same arguments it raised in the

motion to alter, amend, or vacate the September 4 order. Those issues were well

addressed in the circuit court’s October 12 order denying the motion; and, we

reiterate below.

STANDARD OF REVIEW

In a declaratory action, findings of fact are reviewed under a clearly

erroneous standard, and conclusions of law are reviewed de novo. Big Sandy Co.,

L.P. v. EQT Gathering, LLC, 545 S.W.3d 842, 844 (Ky. 2018) (citing Baze v. Rees,

-5- 217 S.W.3d 207, 210 (Ky. 2006)). See also Kentucky Rule of Civil Procedure

(CR) 52.01. Additionally, when a court grants a permanent injunction the order

shall not be set aside unless clearly erroneous. CR 52.01. Factual findings

are clearly erroneous if unsupported by substantial evidence. Bishop v. Brock, 610

S.W.3d 347, 350 (Ky. App. 2020) (citation omitted). Substantial evidence is

defined as that which, when taken alone or in light of all the evidence, has

sufficient probative value to induce conviction in the mind of a reasonable person.

Id. (internal quotation marks and citations omitted).

NOTICE

The Trust argues the October 2019 conversation between the parties’

legal representatives gave Runner actual notice of his insurance failure.

Additionally, the March 11 letter put Runner on notice of his breach in regard to

both the insurance failure and the unapproved sublease. The Trust argues, at the

latest, the 30-day window to cure began with the March 11 letter. The cure

window elapsed, and the contract voided, because Runner’s insurance was not

effective until April 22.

Runner argues that because the October 2019 notice was not in

writing, as required by the lease, it therefore did not initiate the lease’s 30-day

window to cure. Runner also argues that although written notice was given to him

in the March 11 letter, the letter was not sent via certified mail, as required by the

-6- lease. Additionally, Runner argued he did take prompt steps to cure upon

receiving written notice of the insurance requirement. 3

The circuit court held that Runner was not properly notified of either

breach. We agree with the circuit court; and, without published, fact-analogous

precedent to guide us, we turn to the unambiguous lease itself. An unambiguous

written contract must be strictly enforced according to the plain meaning of its

express terms and without resort to extrinsic evidence. Allen v. Lawyers Mut. Ins.

Co. of Kentucky, 216 S.W.3d 657 (Ky. App. 2007) and Smithfield Farms, LLC v.

Riverside Developers, LLC, 566 S.W.3d 566, 570 (Ky. App. 2018).

Section XIV of the lease, “Default,” requires that “[a]ny notice

required under the terms and conditions of this Lease shall be given by certified

mail, return receipt requested, to the addresses of the Landlord and the Tenant[.]”

Runner was not notified via certified mail of any alleged breach. We need not

review the circuit court’s determination that the subtenant and insurance failure

were both breaches, because whether they were or not, Runner was not properly

notified of the breach.

3 Runner applied for the requisite insurance on April 1, 2020; the insurance was finalized April 10 and effective as of April 22.

-7- ESTOPPEL

Estoppel is a question of fact to be determined by the circumstances of

each case. City of Richmond v. Spangler Apartments, LLC, 547 S.W.3d 556, 562

(Ky. App. 2018) (internal quotation marks and citations omitted). Equitable

estoppel, in pertinent part,4 requires action or inaction of such a character as to

change the position or status of the party claiming the estoppel, to his injury,

detriment, or prejudice. Id.

The Trust argues5 the March 11 letter declared the lease null and void,

and from that point forward, Runner was in wrongful possession of the property.

This wrongful possession allegedly interfered with the Trust’s use and enjoyment

of the land; and, it is argued such an unreasonable interference with the property

owner’s possessory use of his/her property is sufficient evidence of an actual

injury. Smith v. Carbide and Chemicals Corp., 226 S.W.3d 52, 57 (Ky. 2007).

Smith holds that contamination alone, even if invisible to the naked eye and

4 “[A]s related to the party claiming the estoppel, the essential elements are (1) lack of knowledge and of the means of knowledge of the truth as to the facts in question; (2) reliance, in good faith, upon the conduct or statements of the party to be estopped; and (3) action or inaction based thereon of such a character as to change the position or status of the party claiming the estoppel, to his injury, detriment, or prejudice.” Id. 5 The parties and the circuit court discussed Spalding v. Myers, No. 2009-CA-001070-MR, 2011 WL 6743292 (Ky. App. Dec. 22, 2011), but because that is an unreported case, we continue our analysis without it.

-8- without verifiable health risks, is sufficient evidence of injury (or damage to

property) to award actual damages. Id.

But, in Smith, the contamination was held to be damage that

encroached on the owner’s use and enjoyment of the land. Herein, the use and

enjoyment of the land was not affected by Runner’s continued presence. The Trust

does not argue Runner damaged the property, prohibited their use of the land, or

diminished the value in any way. The Trust has not proved any interference with

the Trust’s use of the property. Without any interference, any reliance to their

detriment, or any injury, Runner is not estopped from arguing the Trust did not

properly notify him of his breach. We agree with the trial court that Runner is not

estopped from arguing lack of required notice because the Trust was not prejudiced

by Runner’s position.

COMPLIANCE

Section XVI of the lease requires “prior written consent of the

Landlord” before subleasing; there is no dispute that Runner did not have written

permission from the Trust to sublease to Hayes.

The Trust argues it did not waive compliance with the lease by

accepting rental payments with knowledge that Hayes was subleasing the property

from Runner. The Trust argues Runner did not strictly comply with the lease; and,

accepting rent did not waive that lease requirement.

-9- Runner argues that the Trust waived compliance with the lease by

accepting rent after having actual notice of the sublease. Although the facts are

contested by the parties, Runner argues the Trust had knowledge of the subtenant

(1) by receiving a copy of the sublessor’s insurance policy, (2) from a conversation

with Runner, and/or (3) first-hand knowledge by eating at the subleased restaurant,

“Melissa’s Country Cafe.” Additionally, Runner cites to Venters v. Reynolds, 354

S.W.2d 521 (Ky. 1961), a case with very similar facts to the present case.

In Venters, the lessee signed a lease for five years with an option to

extend for 15 years. The lessee subleased a portion of the leased property to a third

party; the third party used the land to open a restaurant. The lessor lived within a

few hundred feet of the restaurant and had knowledge of the third party’s operating

the restaurant. Venters held that the lessor waived the right of forfeiture by

accepting rent from the sublessee with knowledge that a sublease had occurred in

violation of the lease. Id. at 524.

The circuit court ruled consistent with the Venters precedent. The

court enumerated various ways the trustees gained knowledge of the sublease

(proximity, restaurant name change, conversations, emails); and therefore, the

Trust waived Runner’s breach (of the written permission to sublease requirement)

of the lease. We find no error with the circuit court’s decision.

-10- CONCLUSION

We find the circuit court’s order was supported by substantial

evidence. For the reasons expressed, the opinions and orders entered by the

Warren Circuit Court – keeping the lease contract intact and enjoining the Trust

from treating the lease contract as null and void – are AFFIRMED.

ALL CONCUR.

BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE:

David F. Broderick Mark D. Alcott Brandon T. Murley Justin L. Duncan Bowling Green, Kentucky Bowling Green, Kentucky

-11-