Sm Newco Paducah, LLC v. Kentucky Oaks Mall Company ( 2016 )

TO BE PUBLISHED
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2015-SC-000629-I
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SM NEWCO PADUCAH, LLC APPELLANT
ON REVIEW FROM COURT OF APPEALS
V. CASE NO. 2014-CA-000900-I
MCCRACKEN CIRCUIT COURT NO. 13-CI-01099
KENTUCKY OAKS MALL COMPANY APPELLEE
OPINION AND ORDER
DENYING INTERLOCUTORY RELIEF
Following injunctive relief granted by McCracken Circuit Court to
Appellee, Kentucky Oaks Mall Company (the "Mall"), Appellant, SM Newco
Paducah, LLC ("Newco"), moved pursuant to CR 65.07 for interlocutory relief in
the Court of Appeals. The Court of Appeals denied the motion and Newco now
moves for interlocutory relief in this Court under CR 65.09. Because Newco
fails to show the "extraordinary cause" required by CR 65.09 for obtaining such
relief, we deny Newco's motion.
I. FACTUAL AND PROCEDURAL BACKGROUND
The Mall owns a commercial real estate development in Paducah,
Kentucky. Newco owns a building located within that development that it
acquired from Service Merchandise Company, Inc. (Service Merchandise) as
that company went out of business. Service Merchandise had an agreement,
referred to as the Amended and Restated Declaration (Amended Declaration),
with the Mall. The Amended Declaration provides: "Service [Merchandise]
shall maintain all buildings, utilities and other improvements on the Service
Land, as well as, the Service Common Area and keep the same in good
condition, including all maintenance, necessary repairs, and replacements .. .
." The Mall contends that when Newco acquired the building, it also assumed
Service Merchandise's responsibility under the Amended Declaration to
maintain the building.
The building acquired by Newco had been vacant and deteriorating for
more than a decade when the Mall filed suit in the McCracken Circuit Court to
compel the enforcement of Newco's obligation to keep the building in good
condition. The suit was pending for several months when the Mall learned that
Newco was considering the possibility of demolishing the building because
restoring it to good condition was cost prohibitive. Because the Mall regarded
the destruction of the building as a breach of Newco's contractual obligation to
maintain the building in good condition, it filed in the pending litigation a
verified Motion for a Temporary Injunction under CR 65.04 to stop the
demolition. A hearing on that motion was set for May 28, 2014.
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In the meantime, the Mall learned that Newco had applied for a
demolition permit. The added urgency of that information induced the Mall to
seek more immediate relief so, on May 1, 2014, the Mall filed a motion
pursuant to CR 65.03 for an ex parte restraining order to forestall the
demolition until the temporary injunction motion could be heard. The
restraining order motion was promptly set for hearing on May 5th, 2014, and
notice was given to Newco as provided in CR 65.03(1). The short notice
prevented Newco's lead counsel from personally attending the hearing, and so
he arranged to attend telephonically, with local counsel being physically
present.
At the May 5th hearing, Newco's counsel complained of the short notice.
The circuit judge offered to reschedule the hearing so that counsel could be
physically present, but the court also indicated that it would enter an order
preserving the status quO pending such a hearing. Counsel for Newco objected
to the entry of any order that immediately restrained Newco's option of
demolishing the building, and he further stated that if the court was inclined to
issue such an order, Newco wanted the order to be immediately appealable.
Under our civil rules, a restraining order is not subject to review by an
appellate court, but a temporary injunction is subject to such review by way of
CR 65.07. No evidence other than what may have been found in the pleadings
of the case was presented at the May 5th hearing. The discussion of counsel
focused upon whether Newco had the right under the Amended Declaration to
destroy the building.
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The verified Motion for Temporary Injunction pending before the circuit
court included exhibits consisting of the Amended Declaration and the
Quitclaim Assignment and Assumption of Operating Agreement executed
between Newco and Service Merchandise. The trial court had these
documents, as well as the other pleading in the record, for its consideration. A
proposed order designated as a Temporary Injunction was tendered by counsel
for the Mall and entered by the court over Newco's objection.'
Newco moved for interlocutory relief in the Court of Appeals pursuant to
CR 65.07. The Court of Appeals denied the motion. Appellant now moves for
relief from the Court of Appeals' decision pursuant to CR 65.09.
II. ANALYSIS
A. Standard for Relief under CR 65.09
To obtain relief under CR 65.09, the movant, here Newco, must show
"extraordinary cause." 2 Abuse of discretion by the courts below has been
interpreted to be an "extraordinary cause." Gharad v. St. Claire Medical Center,
Inc., 443 S.W.3d 609, 611 (Ky. 2014) (citation omitted). An abuse of discretion
occurs when the judge's decision is "arbitrary, unreasonable, unfair, or
1 These facts are also reflected within the circuit court's temporary injunction order,
Appellant's motion to the Court of Appeals to dissolve the temporary injunction, and
Appellee's response to the motion (Appellee provided 'a verification of the factual
allegations).
2CR 65.09 provides in pertinent part: "Such a motion [for relief from an order of the
Court of Appeals entered pursuant to CR 65.07] will be entertained only for
extraordinary cause shown in the motion."
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unsupported by sound legal principles." Commonwealth v. English, 993 S.W.2d
941, 945 (Ky. 1999).
CR 65.04(1) provides the framework for determining whether the circuit
court abused its discretion. CR 65.04(1)states:
A temporary injunction may be granted during the pendency of an
action on motion if it is clearly shown by verified complaint,
affidavit, or other evidence that the movant's rights are being or
will be violated by an adverse party and the movant will suffer
immediate and irreparable injury, loss, or damage pending a final
judgment in the action, or the acts of the adverse party will tend to
render such final judgment ineffectual.
Under this rule, the circuit court may grant injunctive relief when it finds
"(1) that the movant's position presents 'a substantial question' on the
underlying merits of the case, i.e. that there is a substantial possibility that the
movant will ultimately prevail; (2) that the movant's remedy will be irreparably
impaired absent the extraordinary relief; and (3) that an injunction will not be
inequitable, i.e. will not unduly harm other parties or disserve the public."
Price v Paintsville Tourism Commission, 261 S.W.3d 482, 484 (Ky. 2008)
(citations omitted).
B. The Arguments before the Court of Appeals
Newco argued in the Court of Appeals that the Temporary Injunction was
entered erroneously because: 1) the hearing from which the injunction
emanated was for a restraining order, not a temporary injunction; 2) the Mall
presented no evidence to support the issuance of an injunction; 3) since no
evidence was presented, the circuit court's findings of fact are clearly
erroneous; 4) because the Amended Declaration does not expressly restrict the
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demolition of the building, the circuit court erred in finding that Newco is
prohibited from doing so; 5) there is no foundation for the circuit court's
finding of irreparable harm; and 6) no evidence was presented to establish that
the public interest will be served by the temporary injunction.
Newco contends that the Court of Appeals abused its discretion by
ignoring procedural and evidentiary deficiencies of the circuit court proceeding.
The primary evidentiary issue presented in the Court of Appeals was whether
the documents attached to the Mall's verified Motion for a Temporary
Injunction could be used as evidence at the restraining order hearing to
support the trial court's order.
C. The Court of Appeals Did Not Abuse Its Discretion
The Court of Appeals did not directly address Newco's allegations of
procedural and evidentiary deficiencies pertaining to the scheduling of the May
5th hearing at a time when lead counsel could not be physically present.
Neither did it expressly address the transformation of the hearing for a
restraining order into a temporary injunction hearing. Upon review of the May
5th hearing, as presented in the pleadings an the limited record before us, we
cannot disregard Newco's role in any deficiencies resulting in the injunction.
The lack of formality of the proceeding, and the blurring of the
distinctions between a restraining order and a temporary injunction are
troublesome. But the circuit court's attempt to defer the hearing to a more
convenient time, as well as its insistence that the building not be demolished
pending a more formal hearing on the issue, was eminently reasonable.
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Accommodating Newco's insistence upon an order that was subject to
immediate interlocutory review precluded the circuit court from designating the
order as a "restraining order."
Under the circumstances, we cannot conclude that the Court of Appeals
abused its discretion when it found the circuit court properly relied on the
exhibits attached to the verified Motion for a Temporary Injunction when it
issued the order it designated as a temporary injunction. 3 The abbreviated
nature of the hearing and any evidentiary deficiencies that occurred are largely
attributable to Newco's stated preferences for a dispositive hearing followed by
an immediately reviewable order, which could only be a temporary injunction.
We see no extraordinary cause to warrant relief, and consequently, we decline
to address the question of whether the evidentiary requirements for issuance of
the temporary injunction under CR 65.04(1) were met.
Newco also maintains that the circuit court erred in its conclusion that
the covenant for maintenance and upkeep contained within the Amended
Declaration prohibits Appellant from demolishing the building. However, the
Court of Appeals noted the circuit court expressly refrained from addressing
the merits of the case and, consequently, committed no error. As stated in
Maupin v. Stansbury, 575 S.W.2d 695, 699 (Ky. App. 1978), the merits of an
issue in litigation cannot be conclusively decided within the scope of a hearing
3 The Court of Appeals seems to have misstated the assertion of fact that the circuit
court relied upon a "verified complaint" rather than the Mall's verified motion for a
temporary injunction, but that misstatement does not alter the substance of its
decision.
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on a motion for a temporary injunction (or a restraining order). At most, the
circuit court's findings and conclusions are nothing but preliminary
determinations that have no binding effect on the court's ultimate judgment
after trial of the issues. Preliminary findings of that nature are necessarily in
accord with the circuit court's obligation to determine whether the party
seeking interlocutory injunctive relief has pre'sented a substantial question on
the merits underlying the case and whether "the equities are in favor of
issuance" of injunctive relief. Maupin, 575 S.W.2d at 699. Moreover, the
circuit court stated that a final determination on the merits of the Mall's
complaint would have to await the final adjudication. The Court of Appeals
correctly determined that the circuit court did not adjudicate the merits of the
case.
Newco also argues that the Court of Appeals erred by finding that
irreparable harm was likely unless the demolition of the building is enjoined.
Newco correctly notes that the Amended Declaration does not contain an
express covenant not to destroy the building. Nevertheless, the covenant to
"keep the [building] in good condition, including all maintenance, necessary
repairs, and replacements" provides the Mall with a plausible argument to that
effect. The Court of Appeals did not abuse its discretion in applying the rule
stated in Marshall v. Adams, 447 S.W.2d 57, 58 (Ky. 1969): "where one who
has entered into a restrictive covenant as to the use of land commits a distinct
breach thereof, he may be enjoined irrespective of the amount of damage
caused by his breach, and even if there appears to be no particular damage."
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Obviously, if the Mall were ultimately to prevail upon its claim, the demolition
of the building pendente lite would certainly render the judgment ineffectual.
Moreover, Newco did not show the existence of any countervailing harm of an
immediate nature that would ensue if the building were not immediately
demolished.
The Court of Appeals concluded that the circuit court did not abuse its
discretion when balancing the equities, but it also noted that the balancing is
not required when the injunction prevents the breach of a restrictive covenant.
With the finding above, that the Court of Appeals did not abuse its discretion in
applying Mafshall, it follows, as the Court of Appeals stated, that a balancing of
the equities is not necessary.
III. CONCLUSION
Finding no extraordinary cause to warrant modification of the order of
the Court of Appeals, we deny Appellant's motion for interlocutory relief. All
sitting.
All sitting. All concur.
ENTERED: October 20, 2016.
CH JUSTICE fii°111 /."11
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