Richard Holmes v. Horse Capital Realty, LLC ( 2023 )

RENDERED: OCTOBER 27, 2023; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2023-CA-0117-MR
RICHARD HOLMES APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
v. HONORABLE THOMAS L. TRAVIS, JUDGE
ACTION NO. 21-CI-00707
HORSE CAPITAL REALTY, LLC;
AARON KENDALL; AND SARA
ASGARI KENDALL APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: EASTON, ECKERLE, AND JONES, JUDGES.
EASTON, JUDGE: The Appellant, Richard Holmes (“Holmes”), seeks reversal of
a summary judgment granted by the Fayette Circuit Court in favor of the
Appellees, Aaron and Sara Asgari Kendall (“Kendall”)1 and Horse Capital Realty,
1
From the record, it appears much of the relevant correspondence was between Holmes and
Aaron Kendall. We will refer to the Appellees Aaron and Sara Kendall singularly as Kendall.
We note the briefs filed in this case list only HCR as the Appellee. We will still address the
claims against Kendall as they relate to the agency claims involving HCR.
LLC (“HCR”), in this contract dispute about the attempted sale of a residential
property. Holmes also claims error in the denial of his motion to amend his
Complaint to assert additional claims against HCR after summary judgment had
been granted. Concluding that the circuit court properly granted summary
judgment and did not abuse its discretion in denying the amendment motion, we
affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Holmes had a house to sell in Lexington. Kendall wanted to buy this
property. Both Holmes and Kendall were knowledgeable with respect to real
estate transactions. Both testified about their considerable experience with
properties as investments or other experience with buying and selling properties.
Both Holmes and Kendall had their own real estate agents for this transaction.
Holmes was represented by Sheridan Sims (“Sims”), and Kendall was represented
by Brenda Winkler (“Winkler”) with HCR.
Kendall made an offer of $1.45 million which Holmes accepted. The
agents used an Offer to Purchase Contract (“Contract”), a standard form created by
a Lexington association of realtors. The provision governing the present dispute
appears under Item 3:
BUYER agrees to apply for and lock in the above-
mentioned loan within five (5) calendar days from the
date of acceptance of this CONTRACT and shall proceed
with due diligence to obtain financing. Should BUYER
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be unable to obtain financing, this CONTRACT shall be
null and void and the earnest money shall be refunded to
Buyer.
Kendall made an earnest money deposit of $25,000. HCR held the
deposit. The Contract anticipated a further down payment of $265,000. The
“above mentioned loan” was for the remaining $1.16 million. The loan to be
obtained was to be repaid over a thirty-year period with an interest rate of no more
than 3%. The closing was set for November 6, 2020, forty-eight days after the
contract was signed.
Before making the offer, Kendall had given to Holmes or his agent
Sims an “approval notice” for $1.5 million from Statewide Mortgage
(“Statewide”). This one-page preapproval was dated July 31, 2020. The approval
was clearly conditioned on Kendall satisfying underwriting guidelines and the
continued availability of the contemplated loan programs. Also, the preapproval
had already expired after thirty days. This did not stop Holmes from entering the
Contract.
Undisputed evidence from Stephen Gray (“Gray”) with Statewide
shows that Winkler sent the contract to Statewide on September 21, 2020, within
two days of the Contract signing. Kendall sent everything Gray requested for the
loan processing. Gray noted “the loan was locked in for a 30 year fixed mortgage”
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on September 22, 2020. Gray made another note dated September 23, 2020:
“Loan was locked and completely structured for underwriting.”
Then things went south. Kendall was verbally informed on
September 24, 2020, that Statewide had denied the loan. Statewide issued a
written denial on October 1, 2020, after the formal underwriting review. Kendall
insists the denial was because the type of loan contemplated was no longer going
to be offered by Statewide. Regardless, the documentation of the denial indicates
underwriting wanted a larger down payment, and Kendall did not have sufficient
available funds for a larger down payment. The loan was denied for insufficient
funds from Kendall.
Kendall immediately informed his agent Winkler, who contacted
Holmes’s agent Sims the very next day, on September 25, 2020. The interaction
between the two agents at this point is key to this dispute. Sims admits
conversations occurred, but he remembers (or perhaps does not remember) them
the same way as Winkler.
Winkler is adamant that she told Sims about the Statewide denial.2
When asked if Winkler specifically informed him of the denial, Sims repeatedly
said “not to my recollection.”3 Yet, after Sims spoke with Winkler and Gray with
2
Winkler Depo. at 38-39.
3
Sims Depo. at 144.
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Statewide, Sims knew Kendall “would not ultimately be obtaining financing from
Statewide.”4 Sims knew Kendall would be seeking other financing through
another mortgage provider (“Envoy”), and Sims even suggested, more than once,
that Kendall should contact other lenders for financing.5 Sims had contact with
Envoy about the loan application with them. The documentation again shows
Kendall provided all requested information needed by Envoy to consider the loan
with them.
Of particular significance is the fact that the discussion between
Winkler and Sims led Sims to discuss with Holmes an option of not going forward
with the Contract when the problem developed with Statewide.6 Subsequent
events show that Sims and Holmes decided to proceed with the Contract hoping
that financing would come through.
The financing efforts with Envoy also ultimately failed just prior to
the closing. The scheduled closing did not take place. Holmes then sued Kendall
as well as HCR. Holmes claimed breach of contract, including the implied duty to
act in good faith and with fair dealing. Holmes also claimed misrepresentation by
Kendall or through the agent Winkler. Finally, Holmes made a claim of unjust
4
Sims Depo. at 98.
5
Sims Depo. at 74-75 and 127.
6
Sims Depo. at 160-164.
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enrichment. As Kendall in no way was enriched by this failed contract, we will not
comment on that claim further.
Holmes’s asserted claim against HCR was related to the deposit as is
indicated in the demand for relief which requests only the application of the
deposit held by HCR to Holmes’s claimed damages. Yet Holmes clearly included
Winkler in the allegations in the Complaint as to misrepresentations made.7
Essentially, Holmes feels Kendall or his agent Winkler should have
specifically told Holmes or his agent Sims that Statewide had “denied” the loan.
Holmes then supposedly would have freed himself of the Contract and tried to
salvage a deal with another potential purchaser, assuming such other purchaser
could obtain financing. As it is, Holmes was left with the property. It would be
months before another sale could be consummated. As it turns out, Holmes sold
the property for the exact same price of $1.45 million. Even so, Holmes claims
over $100,000 in “carrying costs” as damages.
During the pendency of the case, the circuit court ordered the return of
the earnest money deposit to Kendall by a partial summary judgment entered on
July 29, 2021. Applying KRS8 324.111(6), the circuit court correctly ruled the
deposit had to be returned. But the circuit court did not then decide the liability of
7
Paragraphs 23 and 48 of the Complaint.
8
Kentucky Revised Statutes.
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anyone resulting from the alleged failures of Kendall or the agent Winkler. The
circuit court succinctly stated this in its July 2021 Order.
All the actors were deposed, and the circuit court then granted
summary judgment to Kendall on all Holmes’s claims. There being no further
claim pled against HCR other than the deposit issue, there was nothing left to
determine, and the circuit court stated the claim against HCR was dismissed as
well. When Holmes sought reconsideration of the summary judgment, Holmes
also sought leave to amend his Complaint to allege claims against HCR directly for
the alleged misrepresentations of Winkler. The circuit court denied the
amendment motion and did not alter its summary judgment decision.
On appeal, Holmes contends that the circuit court should not have
granted summary judgment, because there were disputed issues of material fact
pertaining to his contractual claims and related misrepresentation. Holmes also
believes the circuit court abused its discretion in denying the amended pleading
against HCR.
STANDARD OF REVIEW
The proper standard of review on appeal when a
trial judge has granted a motion for summary judgment is
whether the record, when examined in its entirety, shows
there is no genuine issue as to any material fact and the
moving party is entitled to a judgment as a matter of law.
The trial judge must view the evidence in a light most
favorable to the nonmoving party, resolving all doubts in
its favor. Because summary judgment does not require
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findings of fact but only an examination of the record to
determine whether material issues of fact exist, we
generally review the grant of summary judgment without
deference to either the trial court’s assessment of the
record or its legal conclusions.
Phoenix American Adm’rs, LLC v. Lee, 670 S.W.3d 832, 838 (Ky. 2023) (citations
omitted).
With respect to the circuit court’s decision not to permit the amended
pleading, we review this for an abuse of discretion. Swearingin v. Hagyard
Davidson McGee Associates, PLLC, 641 S.W.3d 186, 192 (Ky. App. 2022). “The
test for abuse of discretion is whether the trial judge’s decision was arbitrary,
unreasonable, unfair, or unsupported by sound legal principles.” Commonwealth v.
English, 993 S.W.2d 941, 945 (Ky. 1999).
ANALYSIS
“A ‘usage of trade’ is any practice or method of dealing having such
regularity of observance in a place, vocation, or trade as to justify an expectation
that it will be observed with respect to the transaction in question.” KRS 355.1-
303(3). This Uniform Commercial Code provision is consistent with Kentucky
common law as it applies to real estate transactions. See Maddox-Grundy Co. v.
Helm, 37 S.W.2d 49 (Ky. 1931) (custom in real estate trade is for real estate agents
to share commission when one brings the buyer and the other brings the seller even
if that is not stated in the contract).
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The Contract required only that Kendall “lock in” the loan within five
days of the signing of the Contract. Both Sims and Winkler understood this
Contract term meant a lock in of the interest rate.9 When the United States
Consumer Financial Protection Board advises consumers about the meaning of
“lock in” it explains: “A lock-in or rate lock on a mortgage loan means that your
interest rate won’t change between the offer and closing, as long as you close
within the specified time frame and there are no changes to your application.”10
Even the preapproval which Holmes now claims mislead him refers to locking in
as pertaining only to the interest rate.
More to the point Holmes and his agent Sims referred to the lock in as
relating to the interest rate in email exchanges11 between them. But Holmes now
argues, without specificity, that “lock in the loan” should mean something more.
Basically, Holmes thinks it should mean the loan is almost guaranteed and can be
relied upon to be there at closing. This interpretation would render the rest of the
Contract language meaningless and ignores the realities of the loan process. The
lock in of interest rate is just one step. If the lender is going to approve any loan,
9
Winkler Depo. at 19-20; Sims Depo. at 48-49.
10
What’s a Lock-in or a Rate Lock on a Mortgage?, CONSUMER FINANCIAL PROTECTION
BUREAU, https://www.consumerfinance.gov/ask-cfpb/whats-a-lock-in-or-a-rate-lock-en-
143/#:~:text=A%20lock%2Din%20or%20rate,can%20change%20daily%2C%20sometimes%20
hourly (last updated May 2, 2023).
11
Holmes Depo. at 86-87.
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the lock in simply assures one aspect and that is the interest rate for the term of the
loan. Otherwise, there would be no need for Kendall further to exercise due
diligence “to obtain financing.” In the same Contract sentence as the interest rate
lock in, the loan is still contingent on an appraisal and acceptance through
underwriting, which would take more than the initial five days to lock in the
interest rate.
Kendall did what he had to do. He had a lock in of the interest rate,
and he proceeded to obtain a loan. When Statewide did not come through, Kendall
had every right to use due diligence to find other financing before the scheduled
closing. There was no genuine issue of material fact as to the exercise of due
diligence. When a loan did not materialize for the closing, the Contract gave
Kendall the right to get the deposit back. The Contract had become “null and
void” according to its express terms.
As for the duty to act in good faith and with fair dealing, Holmes
leans on the inability of Sims to remember if Winkler specifically told Sims of
Statewide’s “denial.” Even if we were inclined to play this word game, nothing
excuses the failure of Holmes and Sims to act when they clearly knew Statewide
was out of the picture and financing would have to come from another source.
Again, Kendall complied with the plain terms of the Contract. “The implied
covenant of good faith and fair dealing simply ‘impose[s] on the parties . . . a duty
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to do everything necessary to carry’ out the contract.” Harvest Homebuilder, LLC,
v. Commonwealth Bank and Trust Co., 310 S.W.3d 218, 220 (Ky. App. 2010)
(citations omitted).
Because there was no claim remaining against Kendall when the
circuit court was considering the summary judgment motion, that court would then
look to see what remains to be decided in the Complaint. As to HCR, nothing
remained. The deposit had been returned by the prior Order. In these
circumstances, there was no error in the circuit court noting no claims remained
against HCR either. See Smith v. Norton Hospitals, Inc., 488 S.W.3d 23, 35 (Ky.
App. 2016).
The only remaining issue is Holmes’s belated attempt to amend the
Complaint to add more allegations directed against HCR and opposed to Kendall.
Amendment is governed by CR12 15.01. In exercising its discretion, the circuit
court considers several factors. Kenney v. Hanger Prosthetics & Orthotics, Inc.,
269 S.W.3d 866 (Ky. App. 2007). For example, the circuit court should consider
any prior opportunity to assert the new claims as well as prejudice to the opposing
party if the amendment is allowed. Id. at 869. The circuit court commented on
these factors.
12
Kentucky Rules of Civil Procedure.
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As seen from the initial Complaint, Holmes knew or should have
understood a real estate agent has more than one agency relationship. Winkler was
the agent for the buyers, but she was also an agent for her realtor/broker HCR. If
Holmes wanted to sue HCR because of Winkler’s actions, he could have done so
from the beginning rather than waiting for the correct observation by the circuit
court that, if Winkler did not explain the “denial” of Statewide’s loan, she would
have acted contrary to the agency she had with Kendall. Instead, Holmes waited to
add a claim after summary judgment had been granted and approaching two years
after the filing of the initial Complaint.
At a hearing on April 28, 2022, Holmes’s counsel commented on
retaining an expert for criticism of Winkler’s actions. A discussion of dismissing
HCR without prejudice went nowhere. No action was taken to consider making
further claims against HCR until after summary judgment was granted months
later.
If the belated amendment had been allowed, HCR would have to
begin a defense of a whole new claim which, if previously pled, could have been
addressed with those already decided. The circuit court correctly assessed
prejudice to HCR in denying the amendment.
The larger problem was the futility of the amendment. In the context
of a real estate contract for a residence, our courts have declined to recognize a
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claim for negligent misrepresentation. See Kentucky Farm Bureau Mut. Ins. Co, v.
Blevins, 268 S.W.3d 368 (Ky. 2008). Holmes could allege fraud by omission, but
there must be a legal duty to disclose a given fact. Giddings & Lewis, Inc. v.
Industrial Risk Insurers, 348 S.W.3d 729, 747 (Ky. 2011). Holmes offers no legal
authority under Kentucky law in the context of telling a seller when one loan
provider officially “denies” a loan, especially in these circumstances when Sims
and Holmes knew Statewide was out, and other loan providers were in play.
Kendall did not have to use Statewide for financing.
An affirmative fraudulent misrepresentation claim would require
Holmes to prove by clear and convincing evidence all six elements of the claim.
Id. Even if Winkler had made an affirmatively false statement, like Statewide did
not deny the loan, of which there is no evidence, reliance on that statement would
have to be reasonable. Sims knew Statewide was out of the picture and that other
lenders were being considered, and Sims and Holmes moved forward with the
Contract and did not seek a mutual release from the Contract. Holmes had no
unilateral right to anticipatorily breach the Contract when Statewide denied the
loan. Kendall still had the right to proceed and try to get financing for the closing.
On this record, the circuit court correctly determined there was no
genuine issue of material fact on the claims made by Holmes. The circuit court did
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not abuse its discretion in denying Holmes’s request to amend his Complaint. The
Fayette Circuit Court is AFFIRMED.
ALL CONCUR.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE HORSE
CAPITAL REALTY, LLC:
Marshall R. Hixson
Lexington, Kentucky M. Jake Bliss
Lexington, Kentucky
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