Lake Cumberland Resort Community Association, Inc. v. James E. Carter ( 2022 )

RENDERED: JULY 15, 2022; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2020-CA-0990-MR
LAKE CUMBERLAND RESORT
COMMUNITY ASSOCIATION, INC. APPELLANT
APPEAL FROM PULASKI CIRCUIT COURT
v. HONORABLE JERRY J. COX, JUDGE
ACTION NO. 17-CI-00960
JAMES E. CARTER; BONNIE S.
CARTER; AND FIDELITY BANK
D/B/A FIDELITY BANK MORTGAGE APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: ACREE, GOODWINE, AND L. THOMPSON, JUDGES.
ACREE, JUDGE: Appellant, Lake Cumberland Resort Community Association,
Inc. (LCRCA), appeals the Pulaski Circuit Court order granting summary
judgment in favor of Appellees, the Carters. Having reviewed the record and
briefs, we affirm.
The briefs are rife with immaterial facts and inapposite legal
arguments. Our focus shall be only on material facts and the application of law.
BACKGROUND
When the Carters purchased their home, they became obligated to pay
homeowners association (HOA) dues to Lake Cumberland Resort North
Community Association (North). LCRCA, claiming to be North’s successor-in-
interest by virtue of a merger with North, sued the Carters to collect past dues and
assessments.1 The Carters filed an answer and counterclaim denying the
complaint’s relevant allegations and averring in the counterclaim that LCRCA was
not North’s successor-in-interest because the merger was an ultra vires act, an
issue previously decided by the circuit court. The Carters also asserted the
affirmative defense of accord and satisfaction. (Record (R.) 36-41.)
The counterclaim expressly avers: “The alleged merger was not in
compliance with the covenants and restrictions of either [North] or [LCRCA] and
was ultra vires, and therefore invalid and . . . has been adjudged to be ultra vires in
previous litigation . . . but [LCRCA] continues to allege that it is the successor in
interest to [North] in this litigation . . . .” (R. 38.) The referenced adjudication is
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The Carters had paid only partial dues and assessments based on their belief the HOA Board
was failing to “abide by the by-laws; have a fair assessment of properties per the Covenants;
follow the by-laws and send out a budget by mail at the first of the year. . . . As long as this
[failure to abide by governing documents] continues, I will keep paying” an amount less than
invoiced. (R. 229; Exhibit 7 to Memorandum in Support of Summary Judgment, p. 0052.)
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found in Kleman v. Lake Cumberland Resort Community Association, Inc., No.
2018-CA-000091-MR, 2019 WL 5861908 (Ky. App. Nov. 8, 2019).
The counterclaim also alleges LCRCA calculated assessments
contrary to North’s governing documents, improperly filed liens against them,
thereby unlawfully clouding title to their property. (R. 38-39.) The relief the
Carters sought was that LCRCA “be permanently enjoined from claiming to be the
successor in interest to [North] . . . unless, and until, such assessments are
calculated in accordance with the covenants and restrictions associated with
[North] and . . . account for funds so collected.” (R. 39.)
LCRCA’s “Reply to Defendant’s Counterclaim” denies the Carters’
allegations of improperly calculated assessments; however, LCRCA expressly
“admits . . . that the alleged merger was adjudged to be ultra vires . . . .” (R. 60.)
Critical to this review, LCRCA did not assert any affirmative defense.
Specifically, LCRCA did not assert that the Carters should be estopped from
claiming the merger was an ultra vires act. (R. 59-60.)
About two years after the action began, the Carters moved for
summary judgment, offering two grounds: (1) LCRCA is not the successor-in-
interest to North and therefore does not have a right to collect dues the Carters owe
to North; and (2) under the doctrine of accord and satisfaction, the Carters owe no
more than the dues they paid under protest, even to North. (R. 223.)
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LCRCA responded by arguing the Carters should be estopped from
alleging or presenting evidence the merger was ultra vires and that LCRCA lacks
standing to sue them. (R. 242-43.) LCRCA also argued the Carters failed to
establish the elements of accord and satisfaction. (R. 243-44.)
The circuit court granted the Carters’ motion, expressly holding that
LCRCA could not argue estoppel because it waived that defense. (R. 257, 259-
60.) The court further held that LCRCA “is bound by this [Pulaski Circuit] Court’s
finding in Kleman, that its merger with North is invalid and it cannot be its
successor in interest in this matter.” (R. 259.) The Carters also persuaded the
circuit court on their claim of accord and satisfaction. The court found no genuine
issue regarding the material fact of the amounts the Carters paid under protest and
“no evidence [LCRCA] disclaimed acceptance of a partial payment” offered by the
Carters as an accord and satisfaction of their disputed dues. (R. 258-60.)
LCRCA appeals the summary judgment.
STANDARD OF REVIEW
“The standard of review on appeal when a trial court grants a motion
for summary judgment is ‘whether the trial court correctly found that there were no
genuine issues as to any material fact and that the moving party was entitled to
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judgment as a matter of law.’” Lewis v. B & R Corp., 56 S.W.3d 432, 436 (Ky.
App. 2001) (citations omitted); CR2 56.03.
“Because summary judgment involves only legal questions and the
existence of any disputed material issues of fact, an appellate court need not defer
to the trial court’s decision and will review the issue de novo.” Lewis, 56 S.W.3d at
436.
ANALYSIS
“Averments in a pleading to which a responsive pleading is required
are admitted when not denied in the responsive pleading . . . .” CR 8.04. In this
case, LCRCA admitted the issue of its status as North’s successor-in-interest was
decided against it in Kleman. LCRCA is not North’s successor-in-interest. That is
not in dispute.
Because of the admission, there is little need to address the doctrine of
issue preclusion. However, because the issues addressed in Kleman were focal
points in the judgment, we will briefly address how issue preclusion applies here.
As said in Yeoman v. Health Policy Board:
Issue preclusion bars the parties from relitigating any
issue actually litigated and finally decided in an earlier
action. The issues in the former and latter actions must be
identical. The key inquiry in deciding whether the
lawsuits concern the same controversy is whether they
2
Kentucky Rules of Civil Procedure.
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both arise from the same transactional nucleus of facts. If
the two suits concern the same controversy, then the
previous suit is deemed to have adjudicated every matter
which was or could have been brought in support of the
cause of action.
. . . The rule that issues which have been once litigated
cannot be the subject matter of a later action is not only
salutary, but necessary to the speedy and efficient
administration of justice.
983 S.W.2d 459, 465 (Ky. 1998). Unlike claim preclusion, issue preclusion does
not require identity of parties.
For issue preclusion to operate as a bar to further
litigation, certain elements must be found to be present.
First, the issue in the second case must be the same as the
issue in the first case. Restatement (Second) of
Judgments § 27 (1982). Second, the issue must have been
actually litigated[.] Id. Third, even if an issue was
actually litigated in a prior action, issue preclusion will
not bar subsequent litigation unless the issue was actually
decided in that action. Id. Fourth, for issue preclusion to
operate as a bar, the decision on the issue in the prior
action must have been necessary to the court’s
judgment. Id.
Id. The doctrine of issue preclusion applies here and establishes as a matter of law
that LCRCA cannot pursue the collection action against the Carters. Any right to
collect HOA dues from the Carters remains with North.
We are not persuaded by LCRCA’s sole argument that the Carters
should be estopped from arguing the merger was ultra vires. We reject the claim
“estoppel was raised by LCRCA in early pleadings.” (Appellant’s brief, p. 4.)
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Pleadings are defined in CR 7.01 and LCRCA’s only pleadings in this case are its
complaint and its reply to the counterclaim. Neither pleading raised estoppel.
We also turned to LCRCA’s brief for direction “to the record showing
whether the issue was properly preserved for review and, if so, in what manner.”
CR 76.12(4)(c)(v). LCRCA asserts “[t]his issue was preserved” in its own motion
for summary judgment, citing that motion and the summary judgment under
review. (Appellant’s brief, p. 3 (citing R. 71-71; 256-261).) We do not find the
issue preserved there.
However, we also examined LCRCA’s response to the Carters’
summary judgment motion. (R. 241-243.) There, LCRCA does make an estoppel
argument. LCRCA there argued that, in Kleman, it:
was successful and won at the circuit court level . . .
affirmed by the Kentucky Court of Appeals . . . [because]
the Klemans (property owners) were . . . “estopped from
denying the existence of a corporation they have dealt with
and recognized its authority on previous occasions.”
Kleman citing McGuire v. Bastain Blessing Co., 122
S.W.2d 513 (Ky. 1938). . . . Those facts in Kleman are
very similar to those in the case at hand . . . .
(R. 243.) In effect, LCRCA says because the Klemans were estopped, so should
the Carters be. Critical differences between these cases defeat the argument.
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The Klemans did not file a counterclaim against LCRCA that, by rule,
would have compelled an answer and assertion of affirmative defenses.3 CR 7.01
(“There shall be . . . a reply to counterclaim.”). Thus, LCRCA was not required to
file a “pleading to a preceding pleading,” CR 8.03, the “averments of [the] answer
st[oo]d automatically controverted[,]” CR 8.04, and the Klemans’ averment in the
answer of the ultra vires act was taken as denied or avoided as a matter of the
rules. Daniel v. Turner, 320 S.W.2d 135, 137 (Ky. 1959) (citing CR 7.01 and 8.04
(“Averments in a pleading to which no responsive pleading is required or
permitted shall be taken as denied or avoided.”)); see also Dep’t of Highways v.
Robbins, 421 S.W.2d 820, 822 (Ky. 1967) (as to “allegations of the answer . . .
[n]o reply was necessary. CR 7.01. The averments of the answer stood denied.
CR 8.04”).
In fact, without court permission, LCRCA was prohibited in Kleman
from replying to the averment of an ultra vires act. CR 7.01 (“No other pleading
shall be allowed . . . .”). Consequently, LCRCA never waived estoppel in Kleman,
proof of estoppel was allowed at trial, the circuit court found the elements of
estoppel present and permitted “amending the LCRCA’s pleadings to allow
3
The opinion shows a third-party lender asserted a cross-claim against the Klemans and they
counterclaimed against the lender. Kleman, 2019 WL 5861908, at *1 n.1. The Klemans filed
only an answer to LCRCA’s complaint and not a counterclaim as the Carters filed in this case.
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LCRCA to assert the estoppel claim”; i.e., “to conform to the evidence presented at
trial. CR 15.02.” Kleman, 2019 WL 5861908, at *3. None of that occurred here.
In this case, the circuit court held that LCRCA “fail[ed] to either plead
equitable estoppel . . . or assert any evidence indicating equitable estoppel in its
opposition to the Motion for Summary Judgment.” (R. 259) (emphasis original).
We focus on LCRCA’s failure to plead equitable estoppel because that moots any
argument by LCRCA that evidence of record supports the defense it waived.
The Carters filed a counterclaim against LCRCA and, under our Civil
Rules, a responsive pleading was required or a default judgment could have been
entered. CR 55.01. Such required responsive pleadings must comply with the
rules of pleading, including that such required “pleading to a preceding pleading
. . . shall set forth affirmatively” the defenses identified in the rule, including
“estoppel, . . . and any other matter constituting an avoidance or affirmative
defense.” CR 8.03; see CR 8.04. These affirmative defenses, and specifically
LCRCA’s estoppel defense here, “must be set forth by pleading . . . ; otherwise,
they are waived.” Vogler v. Salem Primitive Baptist Church, 415 S.W.2d 72, 74
(Ky. 1967); Am. Founders Bank, Inc. v. Moden Inv., LLC, 432 S.W.3d 715, 722
(Ky. App. 2014) (“party’s failure to timely assert an affirmative defense waives
that defense . . . , unless the circuit court allowed it to be presented later”).
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This Court’s de novo review of this issue alone is enough to affirm the
summary judgment. There is no genuine issue regarding the following material
facts: (1) the only agreement binding the Carters to pay HOA dues and
assessments was their original agreement with North; and (2) North’s merger with
LCRCA was an ultra vires act that did not have the legal effect of entitling
LCRCA to enforce North’s contract with the Carters; i.e., LCRCA is not North’s
successor-in-interest. The circuit court needed no other material facts to make a
legal ruling.
Based on the foregoing analysis, there is no reason to discuss the
extent to which the Klemans’ and the Carters’ circumstances were similar or
different from one another. Because of this case’s starkly different procedural
posture, and because LCRCA admits the ultra vires act in its reply to the
counterclaim, Kleman is all but irrelevant here.
Because LCRCA had no right to bring the collection action against
the Carters, there is no need to address its challenge to the circuit court’s ruling
regarding the Carters’ accord and satisfaction claim.
CONCLUSION
We affirm the Pulaski Circuit Court’s July 13, 2020 summary
judgment and its orders enjoining LCRCA as set forth in that summary judgment.
(R. 260-61.)
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ALL CONCUR.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEES:
Joseph F. Grimme Tommie L. Weatherly
Fort Thomas, Kentucky London, Kentucky
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