Court Opinion

ID: 4682759
Source: CourtListenerOpinion
Date Created: 2021-04-30 14:06:46.250975+00
Date Added: 2024-06-11T08:04:10.791470
License: Public Domain

RENDERED: APRIL 23, 2021; 10:00 A.M.
                            NOT TO BE PUBLISHED

                    Commonwealth of Kentucky
                                 Court of Appeals
                                  NO. 2020-CA-0666-MR

CAPITAL ONE BANK (USA), N.A.                                        APPELLANT

                       APPEAL FROM TRIGG CIRCUIT COURT
v.                     HONORABLE C.A. WOODALL III, JUDGE
                            ACTION NO. 19-CI-00085

DONALD RAY MCWATERS AND
CYNTHIA A. MCWATERS                                                 APPELLEES

                                       OPINION
                                      AFFIRMING

                                     ** ** ** ** **

BEFORE: ACREE, MCNEILL, AND L. THOMPSON, JUDGES.

ACREE, JUDGE: Capital One Bank (USA), N.A. (“Capital One”), appeals the

summary judgment entered in favor of Donald and Cynthia McWaters (collectively

“Appellees”), awarding them $139,500.00 in statutory penalties for Capital One’s

failure to release a judgment lien. KRS1 382.365. After careful consideration, we

affirm.

1
    Kentucky Revised Statutes.
                                      BACKGROUND

                In 2006, Capital One obtained a judgment against Frederick Earl

McWaters (“Freddie”),2 for indebtedness owed on his credit card account. Capital

One filed a Notice of Judgment Lien on Real Estate in the Trigg District Court,

encumbering all real estate in which Freddie had an ownership interest.

                On August 3, 2018, Freddie contracted to sell his one-half (1/2)

interest in a parcel of land located in Trigg County to the Appellees, who owned

the other one-half (1/2) interest. Local attorney Vance Cook handled closing.3

Prior to closing, Cook conducted a title search and discovered the judgment lien

encumbering the property. He contacted Capital One to obtain a payoff. On July

24, 2018, Cook received a payoff letter from “Capital One Services, LLC”4 stating

the payoff amount was $1,648.57. (T.R. at 7).

                Cook deducted the payoff amount from Freddie’s sale proceeds and

held it in escrow. At closing, he sent a letter, accompanied with a check in the

2
    Freddie and Donald McWaters are brothers.
3
 The transaction was financed by Farm-Credit Mid-America (“FCMA”). Cook testified in
deposition that he represented both the Appellees and FCMA.
4
 According to the affidavit of Jenna Guerriero, a Litigation Specialist for Capital One Services,
Capital One Services provides, among other things, accounting, account and database
management, human resources, and other operational and managerial services to Capital One.
(Trial Record (“T.R.”) at 321).

                                                -2-
amount of $1,648.57, by certified mail to the address provided in the payoff letter.

The letter, dated August 3, 2018, stated:

               Enclosed please find a check in the amount of $1,648.57
               to satisfy the payoff for the above referenced account.5
               Please file the Release for the Notice of Judgment Lien on
               Real Estate with the Trigg County Clerk in Cadiz,
               Kentucky. A copy of the Notice of Judgment Lien on Real
               Estate and the payoff letter are attached. I request that a
               copy of the Release be mailed to my office.

(T.R. at 8). It is uncontested that Capital One received the check on August 6,

2018.

               A month lapsed, and the lien had not been released. On September 4,

2018, Cook contacted Capital One by telephone to inquire why the lien had not

been released. Cook was informed by a Capital One employee that the check had

been erroneously applied to a second, open credit card account held by Freddie,

which had a balance of $457.29. Capital One allowed Freddie a credit balance on

that account for the overpayment by approximately $1,200. (T.R. at 323). Capital

One initiated a payment investigation and, according to Cook, Capital One

informed him the funds would be transferred to satisfy the lien account. (T.R. at

45).

5
 It is undisputed that the account number referenced in the letter was correct. Additionally, the
check was noted “Lien Pay-off.”

                                               -3-
              On September 13, 2018, Cook drafted a letter to “Capital One

Services, LLC,” with which he had been corresponding, threatening to initiate

legal proceedings pursuant to KRS 382.365, if the lien was not released. The letter

was mailed to “Corporation Service Company,” the registered agent of Capital One

Services, located in Richmond, Virginia.6 It stated:

              I represent Freddie McWaters. Payment in the amount of
              $1,648.57 in satisfaction of the above referenced
              Judgment Lien was delivered to Capital One on or around
              August 5, 2018. Capital One misapplied the proceeds. It
              is my understanding the payment was applied to the proper
              account on September 4, 2018. We have requested Capital
              One file the Release for the Notice of Judgment Lien with
              the Trigg County Clerk’s office in Cadiz, Kentucky. The
              Release has not been received.

              KRS 382.365 Provides that any lien on real property
              shall be released from the County Clerk’s Office within
              thirty (30) days after the date of satisfaction. The
              statute provides further that if the lien holder fails to
              release a satisfied real estate lien without good cause
              within forty-five (45) days from the date of written notice
              [it] shall be liable to the owner of the property for an
              additional four hundred ($400) per day for each day that
              good cause did not exist after the forty-fifth (45th) day
              from the date of written notice. . . .

(T.R. at 13). Capital One appears not to have responded to the letter.

              On October 4, 2018, Freddie contacted Capital One, inquiring about

the $1,648.57 payment that had been applied to his second, open credit card

6
 Corporation Service Company is the registered agent for both Capital One and Capital One
Services.

                                             -4-
account. (T.R. at 324). On October 17, Capital One issued a refund check in the

amount of $1,191.14, the remaining balance of the payoff check. Freddie cashed

the check. (T.R. at 399).

               Cook again contacted Capital One and was told that Freddie would

need to resubmit the payoff amount in order for the lien to be released. On

October 26, 2018, Cook drafted another letter. This one, however, was addressed

to “Capital One Bank” and was again mailed to Corporation Service Company, the

registered agent for Capital One. In substance, it stated what he had said in his

September 13, 2018 letter. Cook did not hear back from Capital One, and the lien

was never released.

               Approximately six months after Cook’s last correspondence,7 on April

25, 2019, the Appellees, represented by different counsel, filed this current action

against Capital One. Appellees sought release of the judgment lien and an award

of statutory penalties pursuant to KRS 382.365. According to Capital One, it did

not learn of the lawsuit until May 31, 2019, when its registered agent received

discovery requests. By this time, however, Appellees had filed a motion for

summary judgment. Capital One responded by filing a release of judgment lien on

7
  Cook claims that around the time of his second letter, his brother passed away, and he was
responsible for winding up all the assets of his estate. Because of this, he did not immediately
initiate proceedings. He further stated he informed the Appellees he had little experience in this
field and referred them to their current counsel.

                                                -5-
July 3, 2019, a motion to dismiss the complaint for improper service, and a motion

to continue the summary judgment hearing.

               At a hearing on the issues, counsel for Capital One agreed to accept

service on behalf of his client, and the circuit court allowed additional time to file a

response to the complaint. In addition, the Appellees accurately argued that the

lien release was ineffective.8 Capital One filed its answer to the complaint on July

30, 2019 and filed a proper release on August 2, 2019.

               Capital One asked to schedule depositions for Cook and Freddie.

Regarding Freddie, Appellees filed a motion for a protective order, asserting

Freddie did not possess relevant information as to whether Capital One was liable

under KRS 382.365. Capital One responded, arguing that Freddie had knowledge

regarding the refund issued to him by Capital One and any communications

regarding the refund and resubmission of payment.

               The circuit court granted the protective order. It reasoned that:

               Plaintiff [Appellants] stipulated on the record: (1) the
               Defendant had received a check from Hon. Vance Cook as
               the closing attorney in the amount of $1,648.57 for the
               payoff of a judgment lien. (2) Defendant applied the full
               amount to a credit card that the seller, Freddie McWaters,
               had with Capital One and not the judgment lien account.
               (3) Defendant refunded the sum of $1,191.14 to Freddie
               McWaters since the balance of the credit card was only
               $457.43. (4) Freddie McWaters received these funds by

8
 In the order granting summary judgment, the circuit court ruled that the July 3 lien release was
not effective. This is not an issue before this Court.

                                               -6-
                check and negotiated the check. (5) Plaintiff did not
                receive any of the refunded amount from Freddie
                McWaters.

Accordingly, the circuit court ruled that all relevant information sought by Capital

One had been stipulated, and that Freddie would not be able to provide any further

relevant information relating to damages under KRS 382.365.

                Capital One responded to the Appellees’ motion for summary

judgment on August 30, 2019. It argued the Appellees failed to sufficiently

establish the requirements for statutory penalties under KRS 382.365. In addition,

it contended the doctrine of laches and good faith barred the Appellees’ claim

because they delayed filing suit for six months, allowing penalties to balloon.

                The circuit court granted summary judgment for Appellees on

February 3, 2020, awarding them $139,500.00 in penalties that accrued from

October 2, 2018 until August 2, 2019, the date of the release. Costs and attorney’s

fees were awarded. (T.R. at 556, 584). This appeal followed.

                                STANDARD OF REVIEW

                Summary judgment review determines “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 judgment as a matter of law.” Scifres v. Kraft,

916 S.W.2d 779, 781 (Ky. App. 1996); CR9 56.03. “Because summary judgment

9
    Kentucky Rules of Civil Procedure.

                                          -7-
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 v. B&R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001).

                                     ANALYSIS

             KRS 382.365 provides, in pertinent part:

             (1) A holder of a lien on real property . . . shall release
                 the lien in the county clerk’s office where the lien is
                 recorded within thirty (30) days from the date of
                 satisfaction.

             ...

             (3) A proceeding may be filed by any owner of real
                 property or any party acquiring an interest in the real
                 property in District Court or Circuit Court against a
                 lienholder that violates subsection (1) [] of this
                 section. . . .

             (4) Upon proof to the court of the lien being satisfied by
                 payment in full to the final lienholder or final
                 assignee, the court shall enter a judgment noting the
                 identity of the final lienholder or final assignee and
                 authorizing and directing the master commissioner of
                 the court to execute and file with the county clerk the
                 requisite release or assignments or both, as
                 appropriate. The judgment shall be with costs
                 including a reasonable attorney’s fee. If the court
                 finds that the lienholder received written notice of its
                 failure to release and lacked good cause for not
                 releasing the lien, the lienholder shall be liable to the
                 owner of the real property or to a party with an
                 interest in the real property in the amount of one
                 hundred dollars ($100) per day for each day,
                 beginning on the fifteenth day after receipt of the
                 written notice, of the violation for which good cause

                                          -8-
                   did not exist. This written notice shall be properly
                   addressed and sent by certified mail or delivered in
                   person to the final lienholder or final assignee as
                   follows:

                   (a) For a corporation, to an officer at the lienholder’s
                       principal address or to an agent for process
                       located in Kentucky; however, if the corporation
                       is a foreign corporation and has not appointed an
                       agent for process in Kentucky, then to the agent
                       for process in the state of domicile of the
                       corporation[.]

             ...

             (5) A lienholder that continues to fail to release a
                 satisfied real estate lien, without good cause, within
                 forty-five (45) days from the date of written notice
                 shall be liable to the owner of the real property or to
                 a party with an interest in the real property for an
                 additional four hundred dollars ($400) per day for
                 each day for which good cause did not exist after the
                 forty-fifth day from the date of written notice, for a
                 total of five hundred dollars ($500) per day for each
                 day for which good cause did not exist after the forty-
                 fifth day from the date of written notice. The
                 lienholder shall also be liable for any actual expense
                 including a reasonable attorney’s fee incurred by the
                 owner or a party with an interest in the real property
                 in securing the release of real property by such
                 violation and in securing an award of damages. . . .

KRS 382.365 essentially conditions an award of statutory penalties on proof of

three facts: (1) satisfaction of the underlying debt; (2) written notice to the

lienholder of its failure to release the lien; and (3) lack of good cause for failing to

                                           -9-
release the lien once notice is provided. Hall v. Mortg. Elec. Registration Sys.,

Inc., 396 S.W.3d 301, 304 (Ky. 2012).

               Capital One argues: (1) that the judgment lien was not satisfied; (2)

Cook’s letter did not satisfy the notice requirement; (3) it had good cause for not

releasing the judgment lien; (4) genuine issues existed regarding the doctrines of

laches and good faith; and (5) the circuit court abused its discretion by granting

Appellees’ motion for protective order. We address each argument in turn.

Satisfaction

               The circuit court concluded the lien was satisfied on August 6, 2018,

when Capital One received the payoff amount. We agree.

               KRS 382.365(7) defines when a lien is satisfied. It states:

               For the purposes of this section, “date of satisfaction”
               means that date of receipt by a holder of a lien on real
               property of a sum of money in the form of a certified
               check, cashier’s check, wired transferred funds, or other
               form of payment satisfactory to the lienholder that is
               sufficient to pay the principal, interest, and other costs
               owing on the obligation that is secured by the lien on the
               property.

KRS 382.365(7) (emphasis added). It is clear, from the face of the statute, that a

lien is satisfied once the lienholder receives sufficient payment. It is uncontested

that the payoff check was received by Capital One on August 6, 2018.

               Capital One, however, asserts that a lien is not satisfied until payment

is actually applied to the debt. And, because the $1,648.57 payoff check was

                                          -10-
erroneously applied to Freddie’s second credit card account, the lien account was

never satisfied. We are not persuaded.

             Capital One’s reliance on Jones v. PBK Bank is misplaced. No. 2006-

CA-002449-MR, 2008 WL 2696232, (Ky. App. July 11, 2008). The plaintiff in

Jones attempted to pay off a mortgage. However, the title company involved in

that transaction requested a payoff amount for the wrong loan – a chattel loan.

Due to the requesting title company’s error, the lienholder applied the proceeds to

the chattel loan instead of the mortgage. This Court held that the mortgage had not

been satisfied.

             The facts before us are distinguishable from Jones. Here, it is

uncontested that on August 3, 2018, Cook sent, by certified mail, a check that was

sufficient to satisfy the judgment lien. The letter referenced the proper account

number, appended the payoff letter for reference, and sought a release of the

judgment lien. Capital One’s internal administrative error in applying the check

does not avoid the statute’s definition of the “date of satisfaction.” If a lienholder’s

internal administrative error could avoid the statutory penalty, we no doubt would

see more of them.

             Because Capital One was properly instructed as to which account the

check was intended to satisfy, the lien was satisfied on August 6, 2018, when

Capital One received the payoff check.

                                         -11-
Written Notice

               The circuit court concluded the September 13, 2018 letter addressed

to “Capital One Services, LLC” and sent to the shared registered agent of both

Capital One and Capital One Services satisfied the notice requirement of KRS

382.365(4)(a). We find no error.

               Capital One’s argument before this Court is that the letter was

addressed to “Capital One Services, LLC” and not “Capital One Bank (USA),

N.A.” – the final lienholder – and, therefore, it was not properly noticed in

accordance with the statute. Given the facts of this case and the close relationship

between Capital One and Capital One Services, we disagree.

               First, we note Capital One admits it shares the same registered agent

as Capital One Services – Corporation Service Company – which is located in the

state of Virginia.10 Capital One also acknowledges that Capital One Services

provides a multitude of services on its behalf, including accounting, account and

database management, human resources, and other operational and managerial

services. (T.R. at 321). In fact, it was Capital One Services that communicated

with Cook regarding the payoff amount for the judgment lien. (T.R. at 7). The

10
   It does not appear, and Capital One does not assert to this Court, that it has a registered agent
in the state of Kentucky.

                                                -12-
two entities are inextricably interrelated, with Capital One Services, in essence,

acting as an agent of Capital One.

               As succinctly stated by Justice Palmore, “When all else is said and

done, common sense must not be a stranger in the house of the law.” Coots v.

Allstate Ins. Co., 853 S.W.2d 895, 900 (Ky. 1993) (quoting Cantrell v. Kentucky

Unemployment Ins. Comm’n, 450 S.W.2d 235, 237 (Ky. 1970)). Common sense

leads this Court to the determination that the September 13, 2018 letter, although

addressed to “Capital One Services, LLC,” sufficiently put Capital One on notice

of its failure to release the judgment lien. Accordingly, we agree with the circuit

court that the notice requirement was satisfied.11

Good cause

               Good cause is a question of law to be determined by the totality of the

circumstances. Hall v. Mortg. Elec. Registration Sys., Inc., 396 S.W.3d 301, 305

(Ky. 2012).

               Capital One argues that it had good cause for not releasing the

judgment lien because a legitimate controversy existed as to whether the

underlying debt had been satisfied. Specifically, it admits to inadvertently

applying the payoff check to the wrong account, but contends it refunded part of

11
  This Court notes that Cook sent a nearly identical letter, dated October 26, 2018, properly
addressed to “Capital One Bank.” This letter also satisfied the notice requirement.

                                              -13-
the check, leaving the lien unpaid. Accordingly, it asserts, its “human error –

applying part of [Freddie’s] payment to satisfy his open account and refunding the

rest of the payment to [Freddie] – ‘created a good faith dispute which provided the

requisite ‘good cause.’” Capital One relies on Hall, 396 S.W.3d 301, and Wolter v.

U.S. Bancorp, No. 2003-CA-2788-MR, 2004 WL 2984882, at *2 (Ky. App. Dec.

23, 2004), in which human error was determined to amount to good cause for

failure to release a lien.

              It is true that simple human error can create a good faith dispute,

preventing a claimant from recovering statutory damages. Hall, 396 S.W.3d at

306. However, not all human error amounts to good cause for refusing to release a

lien. Id. at 307-308. In Hall, the debtors satisfied their mortgage in full. The

lienholder prepared and filed a release. However, due to a scrivener’s error, the

release as ineffective. Id. at 302. The debtors, aware of the error, notified the

lienholder but did not inform them of the scrivener’s error. The lienholder

promptly searched and confirmed that a release had been filed, even though it was

ineffective. Id. The Kentucky Supreme Court held that under these facts, the

ignorance of the scrivener’s human error misled the lienholder into believing that it

released the lien, and this established “good cause” for failing to timely release the

mortgage. Id at 307-08.

                                         -14-
             In Wolter, the debtors satisfied their mortgage in full. However, a

human calculation error on behalf of the lienholder misled it to believe that an

outstanding balance remained. Wolter, 2004 WL 2984882, at *1. Accordingly, the

bank refused to release the lien. This Court held that a legitimate controversy

existed regarding whether the mortgage had been satisfied, providing the requisite

“good cause.” Id. at *3.

             The facts in this case are distinguishable from Hall and Wolter. Here,

Capital One was given a check, backed by sufficient funds sufficient to satisfy the

debt in full, directed to the proper party, and identifying the proper account to

which it was to be applied. Even after erroneously applying it to the wrong

account, Capital One could have rectified its error by simply transferring the funds

to the appropriate account, as it informed Cook it would do. Instead, Capital One

appears to have sought an advantage in its error. It refunded Freddie $1,191.14 –

the remaining balance after satisfying his second debt – and required him to remit

the entire $1,648.57 before it would release the lien. That way, both accounts

would have been satisfied.

             What perhaps began as human error of a Capital One employee turned

into a calculated attempt to collect on both the judgment lien and Freddie’s second

credit card account. Capital One’s actions are clearly distinguishable from the

human error cases and, if anything, cause the Court to look in the direction of bad

                                         -15-
faith in failing to release the lien. We affirm the circuit court’s conclusion that

Capital One did not have good cause for not releasing the lien.

Doctrine of Laches and Good Faith

             Capital One next contends that even if Appellees established the

elements of their statutory claim, genuine issues remained regarding the doctrine of

laches and good faith. Irrespective of its title, the concept implies that the

landowner has a duty to act reasonably and in good faith. Union Planters Bank,

N.A. v. Hutson, 210 S.W.3d 163, 167 (Ky. App. 2006). Capital One asserts that

Appellees’ six month delay in bringing their statutory claim was unreasonable,

barring them from recovery. It relies on Union Planters Bank, supra.

             We acknowledge that Capital One’s premise finds support in this

Court’s opinion in Union Planters Bank. However, this case is factually

distinguishable. In Union Planters Bank, the plaintiffs executed a mortgage to

secure a loan and paid it in full less than a year later. Union Planters Bank did not

release the mortgage. Notice was given, but there was no further communication

between the parties until the action was filed approximately eight months later. Id.

at 165. The Court of Appeals addressed whether the defense of laches/good faith

imposed on the plaintiffs a duty to act in good faith, for example, by following up

on the notice sent to the lienholder. Id. at 167-68. This Court noted, “[Plaintiffs’]

rights flowed from a contractual relationship with the Bank. The Courts have not

                                         -16-
hesitated to place a duty of good faith on both parties to a contract. ‘In every

contract, there is an implied covenant of good faith and fair dealing.’” Id. at 167.

It then noted some of the advantages of implying a duty to act in good faith and

remanded the issue of damages.

             Here, however, the Appellees did not have a contractual relationship

with Capital One from which a duty of good faith may be implied. When the

Appellees purchased from Freddie the parcel of land encumbered by Capital One’s

judgment lien, they did not step into Freddie’s shoes vis-à-vis his account

indebtedness with Capital One. In the absence of such a contractual relationship

between the Appellees and Capital One, the equitable doctrine of laches and good

faith as applied in Union Planters Bank is not applicable.

             In addition, we note the text of KRS 382.365 does not impose on a

party enforcing their statutory rights an independent duty to act in good faith.

Instead, so long as they meet the required elements, they may bring an action

within the five-year statute of limitations. KRS 413.120.

             Accordingly, we agree with the circuit court that the doctrine of laches

and good faith does not apply to the facts of this case.

Protective Order

             Finally, Capital One argues that the circuit court abused its discretion

when it granted the Appellees’ motion for a protective order. It contends the order

                                         -17-
denied it the opportunity to develop facts essential to oppose summary judgment.

We disagree.

             To be sure, “[summary judgment] is proper only after the party

opposing the motion has been given ample opportunity to complete discovery and

then fails to offer controverting evidence.” Henninger v. Brewster, 357 S.W.3d

920, 928 (Ky. App. 2012) (quoting Suter v. Mazyck, 226 S.W.3d 837, 841 (Ky.

App. 2007)). “It is not necessary to show that the respondent has actually

completed discovery, but only that respondent has had an opportunity to do so.”

Id. (internal quotations omitted). Issuance of a “protective order is within the full

discretion and authority of the trial court and is appropriate only to prevent a party

from ‘annoyance, embarrassment, oppression, or undue expense or burden.’”

Richmond Health Facilities-Madison, LP v. Clouse, 473 S.W.3d 79, 83 (Ky. 2015)

(quoting Ewing v, May, 705 S.W.2d 910, 913 (Ky. 1986)); CR 26.03(1).

             Here, Capital One contends that Freddie had relevant information

regarding its defense, including communications about the refund and submission

of payment to satisfy the lien. Although we agree with Capital One that some of

this information is relevant, we note, as did the circuit court, that the relevant

information had been stipulated on the record. Capital One does not describe any

additional material fact, genuinely disputed, that could be gleaned from the

                                          -18-
deposition. Accordingly, all material facts pertaining to the refund and

resubmission of payment were already established.

             In addition, any communications between Freddie and Capital One

after the refund are irrelevant. As noted above, the three elements at issue are: (1)

satisfaction; (2) notice; and (3) good cause. Because satisfaction is defined by

KRS 382.365(7), the lien was satisfied upon receipt of the payoff check. Any

communications after that point are not relevant to satisfaction. Likewise, Freddie

would have no knowledge regarding notice. And lastly, Capital One’s attempt to

collect on both of Freddie’s debts undermined its good cause defense. Any

subsequent communications with Freddie regarding the refund have no bearing on

this case.

             Accordingly, we find no error in the circuit court’s entry of the

protective order.

                                  CONCLUSION

             Based on the foregoing, we affirm the Trigg Circuit Court’s entry of

summary judgment in favor of the Appellees.

             ALL CONCUR.

                                        -19-
BRIEFS FOR APPELLANT:     BRIEF FOR APPELLEE:

H.B. Quinn                Daniel N. Thomas
Cadiz, Kentucky           Hopkinsville, Kentucky

Brian C. Neal
Nashville, Tennessee

Rik S. Tozzi
Birmingham, Alabama

                        -20-