Opinion
NO. 2017-CA-000372-MR
03-30-2018
GEORGE T. BREATHITT APPELLANT v. DANIEL R. GORMAN APPELLEE
BRIEF FOR APPELLANT: Allen K. Gailor Louisville, Kentucky BRIEF FOR APPELLEE: Robert R. Sparks Cincinnati, Ohio
NOT TO BE PUBLISHED APPEAL FROM CAMPBELL CIRCUIT COURT
HONORABLE FRED A. STINE V, JUDGE
ACTION NO. 15-CI-01231 OPINION
AFFIRMING
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BEFORE: ACREE, CLAYTON, AND J. LAMBERT, JUDGES. CLAYTON, JUDGE: George T. Breathitt appeals the Campbell Circuit Court's February 7, 2017 opinion and order granting Daniel R. Gorman's Kentucky Rules of Civil Procedure (CR)12.02(f) and 12.03 motion to dismiss the complaint.
After careful review, we affirm the decision.
BACKGROUND
This case is a breach of contract action wherein Breathitt claims that he is entitled to the return of a $60,000 deposit of a $290,000 purchase price for certain property. According to Breathitt, under the relevant contract (Purchase Agreement) if the purchase did not go through, Gorman was to return the deposit to Breathitt. Breathitt, in the Purchase Agreement, consented to purchase all of Gorman's membership, other assets, and interests in Robin Springs Acquisition, LLC ("Robin Springs), an Ohio limited liability company. Robin Springs was a general partner of Robin Springs Acquisition, L.P., an Ohio limited partnership, that owned the low-income housing project known as Robin Springs Apartments, which were in Middletown, Ohio.
The time line shows that in late December 2005, Breathitt and Gorman entered into the Purchase Agreement. The Purchase Agreement required a closing date on or before April 1, 2006, but by written agreement, the parties extended the closing date to July 1, 2006. Nonetheless, the project never closed.
On December 22, 2015, some eight years later, Breathitt initiated this action because, according to him, the transaction did not close because the Construction Lender did not approve the transaction. Thus, ten years after the parties initiated their business deal, Breathitt, relying on Section 6.14 of the Purchase Agreement, filed a Complaint. In the Complaint, he underscored Section 6.14 of the Purchase Agreement, which conditioned the purchase of Robin Springs on the approval of the transaction by a Limited Partner, Permanent Lender, and Construction Lender. As noted, Breathitt claimed that the Construction Lender did not approve the transaction, and hence, the sale never closed. Therefore, he posits that the $60,000 deposit should be returned to him.
Notably, in making this claim, Breathitt did not attach any documentation to the Complaint showing that the Construction Lender did not approve the transaction nor did he later provide such a document for the record.
Gorman responded to the Complaint with a motion to dismiss it under CR 12.02(f) and CR 12.03. In the motion, he first pointed out that in Section 5.5 of the Purchase Agreement stated:
Notwithstanding anything to the contrary, any claim to be made that relates to an alleged breach of any provision, representation, covenant or warranty in this Agreement shall be made by the claimant in writing, with notice to all parties hereto within two (2) years after the Closing Date, or the same shall be deemed forever waived.Hence, Gorman posits that Breathitt's claim is not colorable because based on the two-year limitations period, it is time-barred.
Second, Gorman provided a letter dated, July 7, 2007, that Breathitt wrote to Gorman. Breathitt wrote that the deal did not close because "the property was losing money" and he "had to walk away from the deal." Gorman highlighted Breathitt's statement about the Construction Lender was contradicted by this letter. And Gorman pointed out that the letter made no mention of a lack of approval by the Construction Lender nor a request for the return of the deposit. Indeed, until 2015, Breathitt never sought a return of the deposit.
Breathitt responded to the motion to dismiss with numerous factual allegations, which were not included in the Complaint. Further, he maintained that Section 5.5 only referred to the representations and warranties in Section 5 and asserted that the July 2007 letter referred to a different business deal. But Gorman replied that the language in Section 5.5 referring to "any provision, representation, covenant or warranty" and also said "in this Agreement." Consequently, the language in the Purchase Agreement did not limit its application to Section 5.
In the February 7, 2017, order, the trial court granted Gorman's motion to dismiss. In its order, the trial court did not address Gorman's assertions regarding the July 2007 letter but instead focused solely on the language of the Purchase Agreement. It agreed with Gorman that the contract included a contractual limitations period, which had expired prior to the filing of the complaint, and hence, dismissal was appropriate.
Breathitt now appeals from this order.
STANDARD OF REVIEW
The standard for dismissing a complaint for failure to state a claim is set forth in CR 12.02(f), which provides that a court should not grant the motion unless it appears the pleading party would not be entitled to relief under any set of facts which could be proved in support of his claim. To make this decision, the trial court "is not required to make any factual determination; rather, the question is purely a matter of law[,]" that is, "the court must ask if the facts alleged in the complaint could be proved, would the plaintiff be entitled to relief?" James v. Wilson, 95 S.W.3d 875, 883-84 (Ky. App. 2002) (internal quotation marks and footnotes omitted).
An appellate court reviews a CR 12.02(f) motion for dismissal de novo and accepts as true plaintiff's factual allegations while drawing all reasonable inferences in the plaintiff's favor. Gall v. Scroggy, 725 S.W.2d 867, 868-69 (Ky. App. 1987).
ANALYSIS
The primary issue before us is whether the trial court appropriately dismissed this action under CR 12.02(f) and 12.03 based on the limitations period in Section 5.5 of the Purchase Agreement.
On appeal, Breathitt argues that the motion to dismiss should have been treated as a motion under CR 56, and ultimately denied; that Breathitt's claim is not time-barred; and that July 20, 2007, letter was unrelated to the Purchase Agreement. Gorman counters that the trial court properly granted the motion to dismiss; that Breathitt's claim is contractually time-barred, and that the 2007 letter clearly references the Purchase Agreement.
We begin by addressing the efficacy of the CR 12.02(f) and 12.03 motion. CR 12.02 sets out defenses which may be asserted without filing a responsive pleading, including, "(f) failure to state a claim upon which relief can be granted[.]" It is axiomatic that a trial court should not grant such a motion "unless it appears the pleading party would not be entitled to relief under any set of facts which could be proved...." Pari-Mutuel Clerks' Union of Kentucky, Local 541, SEIU, AFL-CIO v. Kentucky Jockey Club, 551 S.W.2d 801, 803 (Ky. 1977).
It is suggested by Breathitt that Gorman did not deny the factual matters in the Complaint, and thus, the trial court should not grant the motion since a court must draw all reasonable inferences in Breathitt's favor before dismissing the Complaint. But the only disputed factual issues cited in the complaint is that the Construction Lender did not approve the transaction. Under the propriety of granting the CR 12.02(f) motion, the matter is procedural, and the factual issue is inapposite.
The other facts proffered by Breathitt in response to the motion to dismiss involve matters outside the pleadings, and consequently, have no impact on whether the motion is suitable. Further, the veracity of this claim still implicates the validity of the limitations period in the contract. Moreover, this proposition negates Breathitt's suggestion that a motion for summary judgment under CR 56 was the proper motion. The rule in CR 12.02(f) and 12.03 authorizes judgment in favor of a defendant if the plaintiff fails to state a claim upon which relief can be granted.
Regarding the July 20, 2007, the trial court, when it granted the motion, noted that it was granting the motion solely on the action being filed outside the limitations period. The trial court explicitly indicated that the 2007 letter was irrelevant to its decision. Since the trial court did not consider the letter, no matters outside the pleadings were considered, and discovery was unnecessary. Again, since the motion was based only on the pleadings, a motion for summary judgment is not necessary. We, too, do not consider the letter relevant to the correctness of granting the motion to dismiss; hence, a motion for summary judgment is unnecessary. See Beckhart v. Jefferson County Board of Education, 486 S.W.3d 886, 890 (Ky. App. 2015).
Having so determined, our analysis is based on the standard set forth in CR 12.02(f) and 12.03. And we must affirm, if the plaintiff does not appear "to be entitled to relief under any set of facts which could be proven in support of [the] claim." Morgan v. Bird, 289 S.W.3d 222, 226 (Ky. App. 2009) (citations omitted). In addition, we are cognizant that when making this determination, we must construe the pleadings in a light most favorable to the plaintiff, Breathitt, who opposes the motion. Id.
Because the trial court entered judgment in favor of Gorman under CR 12.02(f) and 12.03 before the parties engaged in any discovery, the record consists primarily of Breathitt's complaint, Gorman's motion to dismiss, and responses thereto.
The entirety of Section 5.5 in the Purchase Agreement states:
All representations and warranties provided in Section 5 are effective as of the date of this Agreement and shall be continuing through the Closing Date, unless the context requires or provides otherwise. Notwithstanding anything to the contrary, any claim to be made that relates to an alleged breach of any provision, representation, covenant or warranty in this Agreement shall be made by the claimant in writing, with notice to
all parties hereto within two (2) years after the Closing Date, or the same shall be deemed forever waived.The language clearly avers that for "any alleged breach of any provision, representation, covenant or warranty in this Agreement," the claim must be made in writing within two years of the closing date.
Hence, the plain meaning of the contract sets out a two-year limitations period. In Kentucky, parties are permitted to provide a limitations period in a contract that is shorter than the period fixed by statute. Munday v. Mayfair Diagnostic Laboratory, 831 S.W.2d 912, 914 (Ky. 1992) (citation omitted). While it is unclear in the limited record whether Gorman actually breached the contract or if Breathitt had a cause of action under Section 6.14, under the language of Section 5.5, he had two years to make his claim.
Breathitt proffers two arguments to support the position that the limitations period in the Purchase Agreement is not applicable in this matter. First, he maintains that since the matter did not close, the limitations period is void. Second, he argues that Section 5.5 only applies to Section 5. Initially, we address the contention that Section 5.5 only applies to Section 5. The language itself answers that when the second sentence states "in this Agreement," overtly referencing that the limitations period applies to the entire agreement.
Breathitt's other argument is that Section 5.5 is not applicable since a closing never occurred and it was a condition precedent for the two (2) year limitation. Without explanation, he maintains that the key words are "closing date," "closing," and "closing conditions," since Section 5.5 says "after the closing date."
If the closing was the triggering event, the limitations period would be illusory, that is, if a closing had not occurred, there would have been no need for the limitations period in the Purchase Agreement. And if the parties wanted the "closing" to trigger the limitations period, they could have used "closing" rather than "closing date." As pointed out by Breathitt himself, "closing" is expressly defined in the Purchase Agreement as the date that the actual closing occurs. But the parties opted to use "closing date." Reinforcing the significance of "closing date," is that the parties by written mutual agreement changed the closing date from April 1, 2006 to July 1, 2006. No dispute exists as to the date that is the "closing date."
The plain meaning of the Purchase Agreement states that the limitations period began to run on July 1, 2006. This date is the relevant one, and Breathitt had until July 1, 2008, to file an action. Interestingly, he does not address the language in Section 6.14, which says:
If this Agreement has not been approved by the Limited Partner, Permanent Lender, Construction Lender, and any other government agency from which approval may be required, by April 1, 2006, this agreement becomes null and void.Based on the plain language of the Purchase Agreement, the construction lender would have had to proffer its dismissal prior to the closing date, which ultimately was July 1, 2006. Because the disapproval must have been proffered prior to the limitation period in Section 5.5, Breathitt would still have had to observe the contract's limitation period to have the deposit returned to him. (In fact, the section itself refers to April 1, 2006.)
Since the Complaint was filed seven years after the running of the limitations period, the granting of the motion to dismiss under CR 12.02(f) and 12.03 is proper.
CONCLUSION
Breathitt did not file this action until seven years after the limitations period expired. Under the written agreement, the Purchase Agreement, he waived any claim in the matter after the limitations period expired. Hence, we affirm the Campbell Circuit Court's order granting the CR 12.02(f) and 12.03 motion to dismiss this action with prejudice.
LAMBERT, J., JUDGE, CONCURS.
ACREE, JUDGE, CONCURS BY SEPARATE OPINION. ACREE, JUDGE, CONCURRING: I concur in the result. However, because the trial court considered a matter outside the pleadings — the contract — and, in fact, decided the case by interpreting the contract provision establishing a limitation within which an action could be brought, the disposition of this case was a summary judgment. Our review should have been on that basis. I agree with the substantive analysis and conclude that summary judgment was proper because there was no genuine issue regarding the material facts of the limitation period, when the cause of action accrued, or when the action was filed. Summary judgment was proper, and I would affirm on that basis. BRIEF FOR APPELLANT: Allen K. Gailor
Louisville, Kentucky BRIEF FOR APPELLEE: Robert R. Sparks
Cincinnati, Ohio