Douglas Wain v. Central Bank and Trust Company

RENDERED: NOVEMBER 4, 2022; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2021-CA-0202-MR
DOUGLAS WAIN AND ELISA WAIN APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
v. HONORABLE KIMBERLY N. BUNNELL, JUDGE
ACTION NO. 19-CI-00812
CENTRAL BANK AND
TRUST COMPANY; DITECH FINANCIAL,
LLC; NEWREZ, LLC, D/B/A SHELLPOINT
MORTGAGE SERVICING, ASSIGNEE OF
DITECH FINANCIAL, LLC APPELLEES
OPINION
AFFRIMING
** ** ** ** **
BEFORE: ACREE, JONES, AND MAZE, JUDGES.
MAZE, JUDGE: Douglas and Eliza Wain (collectively, the Wains) appeal from a
judgment and order of sale entered by the Fayette Circuit Court in favor of Central
Bank & Trust Company (Central Bank). The Wains argue that there were genuine
issues of material fact on their defense of unclean hands that precluded summary
judgment. We agree with the trial court that the Wains failed to identify any facts
which would have precluded Central Bank from foreclosing on the property.
Hence, we affirm.
On June 28, 2006, the Wains and Central Bank executed a “Gold Line
Equity Agreement” (the Agreement) in the principal amount of $350,000.00. The
Agreement was secured by a second mortgage on their residence in Lexington.
Beginning in August 2018, the Wains fell behind in their payments on the account.
The parties agree that they engaged in discussions about options to bring the
account current, but they disagree as to the content of those discussions.
The Wains point to correspondence between Douglas Wain and
Central Bank employees Ashleigh Holden and Steve Hall. The Wains contend that
they repeatedly asked for reconciliation statements showing the past-due amounts,
but they did not receive a reply until November 2018. However, Central Bank
points out that the Wains accessed their account online during this period and had
ready access to the current information regarding the amounts due. The Wains
also made several partial payments on the past due amounts through the online
system.
On January 31, 2019, Hall sent a demand letter, advising the Wains
that Central Bank had elected to accelerate payment and declare the entire loan
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amount then due and owing. Douglas Wain sent a reply on February 11,
acknowledging receipt of the demand letter but disputing the interest rate and
credit for payments previously made. The Wains also requested that Central Bank
reinstate the loan. On February 22, Hall responded that Central Bank would only
allow reinstatement of the loan under certain conditions and directed the Wains to
respond to the offer by March 1. Prior to that date, Douglas Wain responded to
Hall and expressed an interest in getting current on the loan. However, he did not
accept Central Bank’s condition of accepting an agreed judgment.
Thereafter, on March 6, 2019, Central Bank filed the current action
against the Wains for breach of contract and foreclosure on the encumbered
property.1 The Wains filed an answer and counterclaim, asserting an affirmative
defense of unclean hands on the part of Central Bank. Specifically, the Wains
alleged that Central Bank failed to negotiate in good faith. The Wains also
asserted claims for breach of contract, fraud, violation of the Truth-in-Lending Act
(TILA), 15 U.S.C.2 § 1666a, and the Kentucky Consumer Protection Act, KRS3
367.110 et seq.
1
Subsequently, Central Bank filed an amended complaint naming the first mortgage-holder.
2
United States Code.
3
Kentucky Revised Statutes.
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Following a period of discovery, Central Bank moved for partial
summary judgment, judgment on the pleadings, and an order of sale. In support of
the motion, Central Bank pointed to the following facts to which the Wains had
admitted or were otherwise unrefuted:
• The Wains executed and delivered the Agreement,
secured by a Mortgage, to Central Bank in June 2006;
• The Wains had access, at all relevant times, to their
account information, including their outstanding
balance and payment due, via Monthly Statements
and Central Bank’s online system, CardManager;
• The Wains accessed CardManager many times and
used it to submit partial payments;
• The Wains have defaulted in payments on the
Agreement;
• The amount owed on the Agreement is $380,684.43,
with interest thereon at a variable rate as provided in
the Agreement, currently at $31.13 per diem from
July 8, 2020, until paid, and such other costs,
expenses including collection costs, taxes and
damages that may be incurred or to be incurred by
Central Bank; and
• The Agreement is secured by the Mortgage, which is
valid and enforceable to secure payment of the
Agreement.
The trial court conducted a hearing on the motion on December 11,
2020. After considering the briefs and arguments of counsel, and after noting the
undisputed facts set forth above, the trial court granted summary judgment and an
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order of sale on January 20, 2021. The trial court found that Central Bank had a
valid and enforceable second mortgage on the Wains’ property to which it was
entitled to foreclose. The judgment awarded Central Bank $358,412.72, plus
interest from March 6, 2019, plus costs and attorney fees. The order of sale
directed the Master Commissioner to sell the property and apply the proceeds
among the lienholders. The trial court subsequently entered an order confirming
the Commissioner’s Report of Sale. Following the sale but prior to the
confirmation of the Commissioner’s Report, the Wains filed their current appeal.4
The sole question presented on appeal is whether Central Bank was
entitled to summary judgment as a matter of law. “The proper function of
summary judgment is to terminate litigation when, as a matter of law, it appears
that it would be impossible for the respondent to produce evidence at the trial
warranting a judgment in his favor.” Steelvest, Inc. v. Scansteel Service Center,
Inc., 807 S.W.2d 476, 480 (Ky. 1991). Summary judgment is appropriate “if the
pleadings, depositions, answers to interrogatories, stipulations, and admissions on
file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of
law.” CR5 56.03. The record must be viewed in a light most favorable to the party
4
The Wains did not file a supersedeas bond or seek to stay the Commissioner’s Sale.
5
Kentucky Rules of Civil Procedure.
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opposing the motion for summary judgment and all doubts are to be resolved in his
favor. Steelvest, 807 S.W.2d at 480. The trial court must examine the evidence,
not to decide any issue of fact, but to discover if a real issue exists. Id. Since a
summary judgment involves no fact-finding, this Court’s review is de novo, in the
sense that we owe no deference to the conclusions of the trial court. Scifres v.
Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996).
As discussed above, the Wains admitted that there was a valid
mortgage on their property and that they were in default under the terms of the
Agreement. However, the Wains argue that there were genuine issues of material
fact which precluded summary judgment on their defense of unclean hands. The
unclean hands doctrine is a rule of equity that forecloses relief to a party who has
engaged in fraudulent, illegal, or unconscionable conduct but does not operate to
“repel all sinners from courts of equity.” Dunscombe v. Amfot Oil Co., 201 Ky.
290, 256 S.W. 427, 429 (1923). “The transaction with respect to which there was
misconduct must be connected with the matter in litigation in order for the doctrine
of unclean hands to apply.” Eline Realty Co. v. Foeman, 252 S.W.2d 15, 19 (Ky.
1952). See Suter v. Mazyck, 226 S.W.3d 837, 843 (Ky. App. 2007).
“In a long and unbroken line of cases this court has refused relief to
one, who has created by his fraudulent acts the situation from which he asks to be
extricated.” Asher v. Asher, 278 Ky. 802, 129 S.W.2d 552, 553 (1939). A trial
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court’s decision to invoke the equitable defense of the unclean hands doctrine rests
within its sound discretion. See Petroleum Exploration v. Pub. Serv. Comm’n of
Kentucky, 304 U.S. 209, 218, 58 S. Ct. 834, 839, 82 L. Ed. 1294 (1938). The
doctrine will not be applied to all misconduct, as when “the plaintiff has engaged
in conduct less offensive than that of the defendant.” Suter, 226 S.W.3d at 843.
See also Mullins v. Picklesimer, 317 S.W.3d 569, 577 (Ky. 2010).
The Wains cite two cases in support of their contention that the
doctrine of unclean hands is a fact-specific matter on which summary judgment is
usually inappropriate. In Memorial Hall Museum, Inc. v. Cunningham, 455 F.
Supp. 3d 347, 361 (W.D. Ky. 2020), a museum sued to recover two stolen Civil
War uniforms that were in the possession of the defendant. The defendant argued
that the museum’s claim was barred by laches, but the museum argued that the
defendant had unclean hands because he was aware that the uniforms had been
stolen. Applying Kentucky law, the federal district court concluded that there were
disputed issues of material fact regarding both parties’ equitable claims. Id. at 362.
In Cabot Turfway Ridge Defendants v. U.S. Bank National
Association, No. 2015-CA-001199-MR, 2017 WL 2211082, (Ky. App. May 12,
2017), a group of investors signed a promissory note and mortgage, but then turned
over management of the encumbered property to their partners and tenants. When
the Bank sought to foreclose on real property after a default, the investors argued
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the Bank’s action was precluded by laches and unclean hands. The investors
argued that the Bank was aware of the tenants’ misconduct and failed to require a
timely cure to the tenants’ defaults. This Court agreed that summary judgment was
appropriate because the investors had not produced any evidence that the Bank
aided in the tenants’ fraud or that it knew of the improper conduct by the tenants.
Id. at *7.
It is well-established that a party opposing a properly supported
summary judgment motion cannot defeat it without presenting at least some
affirmative evidence showing that there is a genuine issue of material fact for trial.
Steelvest, 807 S.W.2d at 481. The facts and procedural posture of the current case
are closer to those presented in Cabot Turfway than Memorial Hall Museum. The
Wains contend that Central Bank failed to properly acknowledge their partial
payments made in October 2018 but acknowledge that they remained in default
under the Agreement. The Wains further assert that Hall misrepresented Central
Bank’s willingness to negotiate a resolution of their default without proceeding to
foreclosure.
However, all of the conduct involving those negotiations occurred
after Hall advised the Wains that Central Bank had elected to accelerate the
balance due on the Agreement. Furthermore, Hall’s February 22, 2019, email
expressly conditioned any settlement on the Wains’ agreement to pay all past due
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amounts by March 15 and to execute an agreed judgment. The email also required
the Wains’ acceptance of these conditions by March 1. Douglas Wain’s response
did not clearly accept all of these conditions.
In any event, the negotiations did not involve the validity of the
underlying loan or Central Bank’s obligations involving that loan. Rather, the
negotiations only concerned the Wains’ efforts to seek Central Bank’s forbearance
on collection and foreclosure. Although Central Bank could have handled these
matters differently, there is no showing that Hall’s representations induced the
Wains to act or fail to act to make a timely cure of their default. Under the
circumstances, we agree with the trial court that there was no fraudulent, illegal, or
unconscionable conduct that would preclude Central Bank from exercising its
rights under the Agreement.
Accordingly, we affirm the summary judgment and order of sale
entered by the Fayette Circuit Court.
ALL CONCUR.
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BRIEF FOR APPELLANTS: BRIEF FOR APPELLEE CENTRAL
BANK AND TRUST COMPANY:
David W. Hemminger
Louisville, Kentucky Gregory D. Pavey
Timothy R. Wiseman
Lexington, Kentucky
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