Court Opinion

ID: 9402623
Source: CourtListenerOpinion
Date Created: 2023-06-16 14:05:18.951089+00
Date Added: 2024-06-11T17:20:01.344725
License: Public Domain

RENDERED: JUNE 9, 2023; 10:00 A.M.
                            NOT TO BE PUBLISHED

                   Commonwealth of Kentucky
                               Court of Appeals

                                  NO. 2021-CA-1061-MR

SAKURA, LTD CO.;1 SAKURA, LTD.;
AND CHRIS ARDELT                                                               APPELLANTS

                   APPEAL FROM FRANKLIN CIRCUIT COURT
v.                 HONORABLE THOMAS D. WINGATE, JUDGE
                           ACTION NO. 21-CI-00343

KAY-JEN INVESTMENTS, LLC                                                           APPELLEE

AND

                                  NO. 2022-CA-0580-MR

KAY-JEN INVESTMENTS, LLC                                                        APPELLANT

v.                 APPEAL FROM FRANKLIN CIRCUIT COURT
                   HONORABLE THOMAS D. WINGATE, JUDGE
                           ACTION NO. 21-CI-00900

1
  Sakura, Ltd. Co. is named in the notice of appeal. However, the trial court denied its motion to
intervene in the underlying case. That denial was memorialized in the same order that is the
subject of the present appeal. However, Sakura, Ltd. Co. has not challenged the denial of
intervention. That issue is not before this Court. Accordingly, nothing herein addressing the
merits of the present cases applies to Sakura, Ltd. Co.
SAKURA, LTD. AND CHRIS ARDELT                                          APPELLEES

                                  OPINION
                   AFFIRMING IN PART, REVERSING IN PART,
                             AND REMANDING

                                    ** ** ** ** **

BEFORE: THOMPSON, CHIEF JUDGE; ACREE, AND MCNEILL; JUDGES.

MCNEILL, JUDGE: This case involves a lease (hereafter, the Lease), with an

option to purchase a property located in Frankfort, Kentucky. Beginning on

February 17, 2017, Appellee, Kay-Jen Investments, LLC (Lessor), leased the

properties to Appellants, Sakura, Ltd., and Chris Ardelt (Lessees). The Lease ran

for a term of three years and expired on February 16, 2020. The Lease also

granted Lessees an option to purchase the property, with closing to occur “on or

before sixty (60) days after exercise of the Option . . . .”

             After the three-year term expired, the parties agreed to amend the

lease to extend through February 16, 2021. On that day, Lessees provided Lessor

with a notice to exercise the option to purchase. However, Lessees failed to close

on the property within sixty days. Lessor then provided Lessees with a notice of

cancellation of the lease. Despite the notice of cancellation, Lessees asserted rights

under the lease.

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               Lessor filed a Petition for a Declaration of Rights in Franklin Circuit

Court (Case One). Lessees filed a motion to dismiss, which was denied. The court

granted Lessor’s Petition, thereby concluding that the Lease term had expired. No

motion to alter, amend, or vacate was filed pursuant to CR2 59.05. Lessee

appealed and the circuit court was divested of jurisdiction. Lessor subsequently

filed a motion pursuant to CR 60.02, which was denied.

               On December 22, 2021, Lessors filed a separate action in the Franklin

Circuit Court (Case Two), alleging, inter alia, breach of contract, damages, and

attorney’s fees. On May 9, 2022, the court granted Lessor’s motion to dismiss on

the basis that Case Two was an improper attempt to “split” the litigation. Lessor

appealed. Both Cases were originally docketed as two separate appeals before two

different panels of this Court. At the Court’s discretion, both cases shall be

decided by the present panel. For the following reasons, we affirm the judgment in

Case One. We reverse the judgment in Case Two and remand. Each will be

addressed in turn.

                                         ANALYSIS

               It is undisputed that the parties failed to close the purchase deal within

sixty days after Lessees provided notice of their intent to purchase. And although

there was no express clause indicating that time was of the essence, the circuit

2
    Kentucky Rules of Civil Procedure.

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court correctly cited the “long established and universally declared rule that in such

contracts (creating options) time is of the essence thereof both in law and equity

. . . .” Rounds v Owensboro Ferry Co., 253 Ky. 301, 69 S.W. 2d 350, 354 (1934).

See also Good v. Evans, 178 S.W.2d 600, 601 (Ky. 1944); and 3 ROBERT W.

KEATS, KY. PRAC. REAL ESTATE TRANSACTIONS § 5:11 Client’s purpose in buying

or selling – Time of essence.

              We emphasize the circuit court’s conclusion that the Lessees had four

years to obtain financing and to otherwise prepare for the purchase. This included

a one-year extension of the lease’s original term. In addition, it appears that the

parties here are sophisticated corporate entities, presumably well-versed in

managing real estate agreements. In any event, in the absence of clear and binding

authority to the contrary, we cannot conclude that the circuit court erred in this

instance. Therefore, we affirm the circuit court as to Case One. We will now

address whether the circuit court correctly determined that Case Two was an

impermissible attempt to “split” the causes of action.

              “[T]he rule against splitting causes of action precludes successive

actions arising from one transaction.” Moorhead v. Dodd, 265 S.W.3d 201, 203

(Ky. 2008).

              Thus, the rule against splitting claims is nothing more
              than that aspect of res judicata which requires the court
              to determine the scope of the prior claim; i.e., to decide if

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             the second action involves issues which should have been
             litigated in the first action, but were not.

Coomer v. CSX Transp., Inc., 319 S.W.3d 366, 371 n.9 (Ky. 2010) (citation

omitted). “Application of res judicata, being a question of law, is . . .

reviewed under the de novo standard.” Humber v. Lexington-Fayette Urb. Cnty.

Gov’t, 553 S.W.3d 273, 276 (Ky. App. 2018) (citation omitted). To be clear, we

are specifically concerned here with claim preclusion.

             The doctrine of res judicata is formed by two subparts:
             1) claim preclusion and 2) issue preclusion. Claim
             preclusion bars a party from re-litigating a previously
             adjudicated cause of action and entirely bars a new
             lawsuit on the same cause of action.

              ....

             For claim preclusion to bar further litigation, certain
             elements must be present. First, there must be identity of
             the parties. Second, there must be identity of the causes
             of action. Third, the action must have been resolved on
             the merits.

Id. at 277 (citations and footnote omitted) (citing Yeoman v. Commonwealth,

Health Policy Bd., 983 S.W.2d 459, 464-65 (Ky. 1998)). Both cases at issue here

involve identical parties. It is undisputed that Case One was resolved on the

merits. The only remaining element of a traditional claim preclusion analysis is

whether there is sufficient identity of the causes of action.

             However, the more precise question we must resolve here, is whether

a declaratory claim(s) (Case One), bars a subsequent coercive claim(s) (Case Two).

                                          -5-
Under the specific pleadings at issue here, we conclude that it does not. In so

holding, we find the following case law instructive: “Claim preclusion generally

does not apply to declaratory judgments.” Cont’l Cas. Co. v. Indian Head Indus.,

Inc., 941 F.3d 828, 835 (6th Cir. 2019) (citing ASARCO, L.L.C. v. Montana Res.,

Inc., 858 F.3d 949, 955 (5th Cir. 2017)). See also Strunk v. Bennett, 258 S.W.2d

517, 519 (Ky. 1953) (holding that judgment in earlier suit to cancel leases did not

preclude subsequent conversion suit because, “[t]here was really no conversion (as

alleged) until after the court had adjudged the instruments to be void”); Cooke v.

Gaidry, 309 Ky. 727, 218 S.W.2d 960 (1949) (holding that the judgment in

declaratory judgment action was not res judicata of matters which could have been

adjudicated but were not); Coomer, 319 S.W.3d at 372 (noting the “number of

exceptions” to the rule against splitting causes of action); and 50 C.J.S. Judgments

§ 928 (March 2023 Update). We now return to the substantive pleadings at issue

here.

             Case One is a petition for a declaration of rights under the option to

purchase provision of the Lease. By contrast, Case Two pleaded the following:

breach of contract, conversion, damages, and fees. These causes of action and

request for relief resulted from Lessees’ alleged wrongful withholding of rental

income, property damage, etc. In consideration of the aforementioned case law,

                                         -6-
secondary source material, and the specific pleadings and procedural history at

issue here, we conclude that Case One does not preclude Case Two.

                                 CONCLUSION

            For the foregoing reasons – and in consideration of the record, the

law, and the arguments presented – we affirm the Franklin Circuit Court’s opinion

and order entered on August 31, 2021. We reverse the court’s order entered on

May 10, 2022, and remand for further proceedings consistent with the decision.

            ALL CONCUR.

BRIEFS FOR                                BRIEFS FOR
APPELLANTS/APPELLEES                      APPELLEE/APPELLANT KAY-JEN
SAKURA, LTD. AND CHRIS                    INVESTMENTS, LLC:
ARDELT:
                                          Matthew W. Forsythe
Christopher P. Farris                     Carmel, Indiana
Lexington, Kentucky

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