The James C. Hudson and Norma D. Hudson Revocable Trust v. Craig Runner ( 2021 )

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NOT TO BE PUBLISHED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.
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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.
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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
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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,
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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
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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.
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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.
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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.
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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.
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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
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