Red Brick, LLC v. Lexington-Fayette Urban County Government ( 2022 )

RENDERED: DECEMBER 16, 2022; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2021-CA-1227-MR
RED BRICK, LLC APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
v. HONORABLE LUCY ANNE VANMETER, JUDGE
ACTION NO. 18-CI-04012
LEXINGTON-FAYETTE URBAN
COUNTY GOVERNMENT;
AMERICAN FOUNDERS BANK,
INC.; AMERICAN FOUNDERS LOAN
CORPORATION; BANK OF THE
BLUEGRASS AND TRUST
COMPANY; CENTRAL BANK &
TRUST COMPANY; CHARLES E.
HARVEY D/B/A TAC BLUEGRASS
SIDING OF LEXINGTON;
COMMUNITY TRUST BANK, INC.;
CROUSE CONCRETE, INC.;
DAUENHAUER & SON PLUMBING
AND PIPING, INC.; FORCHT BANK,
NA; GREENVIEW CONSTRUCTION,
INC.; KENTUCKY UTILITIES
COMPANY; READY MIX
CONCRETE MIX OF SOMERSET,
LLC F/K/A READY MIX CONCRETE
OF SOMERSET, INC. A/K/A TRIPLE
CROWN CONCRETE, A DIVISION
OF HINKLE CONTRACTING
COMPANY, LLC; SHERMAN,
CARTER & BARNHART, P.S.C.; AND
TCI NASHVILLE, LLC APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: CLAYTON, CHIEF JUDGE; CALDWELL AND K. THOMPSON,
JUDGES.
CALDWELL, JUDGE: This matter involves the sale of two parcels of property in
Fayette County. The owner of the properties had incurred fines for failure to
perform upkeep on the vacant lots and the Fayette Circuit Court ordered the lots
sold upon motion of Lexington-Fayette Urban County Government (hereinafter
“LFUCG”) for judgment and order of sale to recoup the fines owed. Red Brick,
LLC was the winning bidder at a Master Commissioner sale and afterward alleged
irregularities with the sale which they claimed in filed exceptions to the sale. The
Fayette Circuit Court denied Red Brick, LLC relief and they appeal.
FACTS
In November of 2018, LFUCG filed a complaint for foreclosure
naming the owners and lienholders of two parcels of land in Lexington, 2260 and
2261 Danforth Drive. The complaint alleged that the owner had failed in upkeep
of the parcels, resulting in a nuisance which LFUCG had abated, to its detriment.
In February of 2021, the Fayette Circuit Court granted LFUCG summary judgment
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and ordered a Master Commissioner sale of the property to recoup the amount
owed LFUCG.1
The Master Commissioner advertised the sale in compliance with the
requirements, properly describing the property to be sold and the purpose for the
sale. Additionally, in compliance with statutory requirements, two disinterested
“housekeepers” of the county were sworn by the Master Commissioner to arrive at
a fair market value of the two properties.2 The total fair market value of the
combined parcels ascribed by them was $100,000.
Because of the novel coronavirus pandemic, the auction was held
online on May 26, 2021. The Master Commissioner’s website provided the
following caution, in part:
Other information regarding the property may be found
at the Property Valuation Administrator’s office or at its
Web Site at www.FayettePVA.com.
Master Commissioner Sales are “Buyer Beware” Sales.
The Property is sold “As Is” “Where Is.” The condition
1
The amount of the default judgment included the principal sum owed of $6,315.95, interest on
that amount at 6% until paid, costs and fees of the foreclosure action, attorney’s fees, any taxes
of insurance due, plus any other costs due.
2
Kentucky Revised Statutes (“KRS”) 426.520 establishes the requirements for real property sold
under an order or judgment of court. It provides:
(1) Before any real property is to be sold under an order or judgment of a court,
other than an execution, the commissioner or other officer selling the property
shall have it appraised, under oath, by two (2) disinterested, intelligent
housekeepers of the county, who may be sworn by the officer. If they disagree,
the officer shall act as umpire. If only a part of a tract of land is sold, the part sold
shall, after the sale, be revalued in like manner.
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of the property is not warranted by the Court, by the
Master Commissioner, or by the Plaintiff. If you bid on
property, you should have done your due diligence before
you bid, not after!
Red Brick, LLC was the winning bidder, having bid $55,514 for the
combined parcels. The Report of Sale was timely filed by the Master
Commissioner on May 28, 2021. Thereafter, Red Brick, LLC filed exceptions to
the sale on June 7, 2021.3 The “cause” listed in the exceptions was the fact the lots
were not “buildable properties” and had no economic value.
LFUCG responded to the exceptions and pointed out the “buyer
beware” character of Master Commissioner sales, enumerating where such notice
was provided to prospective bidders on the Master Commissioner’s website.4 In
addition, LFUCG pointed out that the website also specified that exceptions were
to be pertaining to quality of title, and that Red Brick, LLC had not complained of
any defects with the title of the property.
The Fayette Circuit Court entered an order confirming the sale on
June 10, 2021, not having realized that exceptions to the sale had been filed by Red
3
The first exceptions filed by the Appellant were actually in the name of another entity
organized by the principles of Red Brick, LLC. Amended exceptions listing Red Brick, LLC as
the Third Party Purchaser were filed on June 8, 2021. See Kentucky Rule of Civil Procedure
(“CR”) 53.05(2).
4
“In judicial sales, there is no warranty, express or implied.” The Monte Allegre, 22 U.S. 616,
618, 6 L. Ed. 174 (1824).
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Brick, LLC. Upon motion of Red Brick, LLC under CR 59.05 to vacate the order,
the circuit court did so vacate and scheduled a hearing on the exceptions to the
sale.
The evidentiary hearing was held on September 7, 2021. Red Brick,
LLC presented the testimony of a certified appraiser it had hired to appraise the
property after the sale. LFUCG presented the testimony of the Master
Commissioner, James H. Frazier, III. After hearing the testimony of the witnesses
and the arguments of counsel, the circuit court took the matter under advisement.
The circuit court issued an opinion and order confirming the sale and
denying relief to Red Brick, LLC on September 16, 2021. In the opinion, the court
noted that the listing of the properties on the Master Commissioner’s website had
included the plat description. The court held that a purchaser exercising due
diligence would have reviewed the plat therein described and would have seen the
following restriction on the lots: “There shall be no residential uses . . . within 125
feet of the southern boundary of the subject property according to the demarcation
shown on the corollary development plan.” A purchaser reviewing the plat
description would have noted that one of the lots was described as a “draining and
retention easement.” Both lots were within a boundary reserved for greenspace for
the neighborhood in which they were located. Further, the court noted, the Master
Commissioner’s website instructed prospective bidders to refer to the Property
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Valuation Administrator’s website or office for more information regarding subject
properties.5
The court denied relief to Red Brick, LLC, finding that there was clear
information available concerning the ability of the property to be developed it
could have accessed easily before the auction. The court also held that Red Brick,
LLC could not rely upon the erroneous appraisal as the purpose of an appraisal in a
foreclosure action was to establish a threshold for redemption of the party being
foreclosed, not to provide a fair cash value of the property. The court also noted
that Red Brick, LLC had provided no testimony that the appraisal was relied upon
by its members, as no members had appeared at the evidentiary hearing to provide
any testimony. As to Red Brick, LLC’s claim of “constructive fraud” on the part
of the court, LFUCG or the Master Commissioner in allowing the “erroneous”
appraisal to induce a bidder to bid more than the value of the property, the court
noted that Red Brick, LLC had provided no evidence that any of those entities had
any knowledge of the restrictions on use of the property or any evidence that
reliance, if any, on the appraisal was reasonable.
Red Brick, LLC then filed a CR 59.05 motion seeking to vacate the
court’s opinion and order. Red Brick, LLC attached an affidavit of one of its
5
The information at the PVA for the properties indicates that the lots are not buildable. The
PVA website contains a description of the lots as homeowners retention basin, open space, and
greenway with a fair cash value of $0.
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members to provide the evidence the court had noted was lacking in its order. The
motion of Red Brick, LLC was denied. This appeal followed.
STANDARD OF REVIEW
The circuit court’s decision on a motion to set aside the sale of a
foreclosed property through commissioner sale is reviewed for an abuse of
discretion.
“[I]t is within the sound discretion of the circuit court to
confirm or vacate a sale and that the court’s exercise of
that discretion will not be disturbed unless it appears to
this court to have been abused in the judicial sense.”
Gross v. Gross, 350 S.W.2d 470, 471 (Ky. 1961). “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).
Lerner v. Mortgage Electronic Registration Systems, Inc., 423 S.W.3d 772, 773
(Ky. App. 2014).
ANALYSIS
Red Brick, LLC alleges that the Fayette Circuit Court abused its
discretion when it overruled its exceptions to the Master Commissioner sale and
denied relief on its motion pursuant to CR 59.05 to alter, amend, or vacate its
opinion and order.
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a. Exceptions
First, Red Brick, LLC argues that the Fayette Circuit Court erred in
not setting aside the sale pursuant to its exceptions because of the “grossly inflated
appraisal.” Red Brick, LLC incorrectly argues that the “master commissioner
appraised the properties.” This is not accurate. The statute clearly requires that the
officer conducting the sale of foreclosed property appoint two persons to appraise
the property:
Before a sale of land, the officer shall have the land
appraised, under oath, by two disinterested, intelligent
housekeepers of the county, who may be sworn by him.
If the appraisers disagree, the officer shall act as umpire.
If a part of a tract only is sold, the part sold shall, after
the sale, be revalued in like manner. The appraisal shall
be in writing, signed by the persons making it, subject to
inspection by the public prior to the sale, and returned
with the execution. The officer shall refer to and explain
the proceeding in his return on the execution, which
return shall be recorded in full.
KRS 426.200(3).
Per the statute, the Master Commissioner appoints two “disinterested,
intelligent housekeepers” to appraise the property and only becomes involved in
the appraisal if the two appointees cannot agree. There is no indication in this
case, and Red Brick, LLC has not so argued, that there was any disagreement. The
Master Commissioner had nothing to do with the appraisal amount.
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As the Master Commissioner testified and the trial court found, the
Master Commissioner had no knowledge of the restrictions on the land, nor is it his
responsibility to ensure that the appraisal amount is proper. In fact, the purpose of
the appraisal is to set an amount by which the party foreclosed upon might seek to
recover the property; if the sale does not net two-thirds of the appraised value, the
foreclosed party has a right to redeem the property.
If land sold under execution does not bring two-thirds of
its appraised value, the defendant and his representatives
may redeem it within six (6) months from the day of sale,
by paying the purchaser or his representative the original
purchase money and ten percent per annum interest
thereon. The defendant redeeming his land shall take a
receipt from the purchaser and lodge it with the clerk of
the court, which receipt shall be filed and recorded with
the execution under which the sale was made.
KRS 426.220(1).
As has long been recognized, the purpose of the appraisal is not to set
a value of the property on which prospective bidders might rely.
The existing statute provides that the officer shall cause
the land to be valued before the sale. This valuation is for
the benefit of the debtor, and to secure him in his legal
right to redeem if the land does not bring two-thirds of its
appraised value.
Vallandigham v. Worthington, 85 Ky. 83, 2 S.W. 772, 773 (1887).
As warned on the Fayette Master Commissioner’s website for
property sales, there are no promises or guarantees, and it is the bidder’s
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responsibility to conduct due diligence prior to the sale. Red Brick, LLC would
have been wise to have engaged the appraiser whose testimony it presented at the
evidentiary hearing before bidding on the property. To engage an appraiser only
after the sale is akin to closing the barn door only after the horse has bolted.
Red Brick, LLC cites to Elswick v. Justice, wherein a mistake of fact
was made when the appointed appraisers mistakenly believed that the lot to be sold
contained only seventy or eighty acres when it actually contained more than twice
either amount. 287 Ky. 632, 154 S.W.2d 714, 715 (1941). In setting aside the
sale, the court noted that the exceptions were filed by Elswick, the foreclosed
owner of the acreage, whose right of redemption was implicated by the error. “In
the case before us the inadequate appraisement resulted from the mistake of the
appraisers in valuing only part of the land to be sold, clearly a mistake of fact,
which not only tended to affect the price received at the sale but also deprived
appellants of their right of redemption.” Id. at 715. In the present case, the
exceptions were filed by Red Brick, LLC as third-party purchaser; therefore, their
reliance upon Elswick is misplaced.
This precept is supported by more recent caselaw, as well. In
Burchett v. Bank Josephine, from 1971, the state’s highest court held:
We are of the opinion that the purpose of an appraisal
relates primarily to the right of redemption and not to the
validity of the sale. In the event, after a hearing on the
exceptions, the appraisal is found to have been irregular,
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fraudulent, or so erroneous as to be unconscionable, the
trial court shall determine the true value of the property
as of the date of the appraisal.
474 S.W.2d 66, 68 (Ky. 1971).
As Red Brick, LLC had no right to exclusively rely upon the appraisal
amount in determining its bid, it cannot expect such exception to be held sufficient
to undo the bargain. The trial court did not abuse its discretion and there was no
error in overruling the exceptions.
b. CR 59.05 motion
Red Brick, LLC also complains that the trial court abused its
discretion in not granting its CR 59.05 motion to set aside its opinion and order. In
the motion, Red Brick, LLC attempted to address the conclusion of the trial court
that it had offered no evidence at the hearing to support a conclusion that it relied
upon the appraisal in submitting the winning bid by attaching an affidavit of one of
the members indicating that he did so rely. As LFUCG points out, by the time the
affidavit was filed, proof was closed and LFUCG cannot cross-examine an
affidavit.6 The proper time to have presented such proof was at the hearing, which
Red Brick, LLC failed to do.
6
We decline to strike the affidavit from the record as requested by LFUCG. Per CR 12.06, a
motion should have been filed for such relief within twenty (20) days of the filing of the
affidavit. “Civil Rule 12.06 provides that a motion to strike shall be filed within twenty days
after the service of a pleading. Appellee did not file its motion to strike until more than twenty
days after the appellants had filed their answer and exceptions.” Stidham v. Commonwealth,
Dep’t of Transp., Bureau of Highways, 579 S.W.2d 372, 373 (Ky. App. 1978).
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The trial court noted the lack of proof that Red Brick, LLC even relied
upon the appraisal. The original newspaper advertisement announcing the
foreclosure sale, required by law, made no mention of the appraisal amount, a fact
which the court noted in its opinion and order:
The record contains no evidence that Red Brick was
deceived or misled by the erroneous appraisal. If Red
Brick purchased by [sic] the property based on the
information contained in the print advertisement, it
would not have had knowledge of the appraisal amount.
Indeed, Red Brick made no mention of the appraisal
amount in its initial exceptions filed June 7, 2021. That
filing simply objected to continuation of the sale “on the
basis that the property is not suitable for development.”
Given the absence of evidence, the Court has no basis for
finding Red Brick was misled or deceived.
Red Brick, LLC also complains that “constructive fraud” occurred
because of the appraisal on which it alleges it relied; Red Brick, LLC provided the
trial court with no evidence that the concept of “constructive fraud” applies to
Master Commissioner sales. Constructive fraud requires some breach of a legal
duty owed to the party complaining. “Constructive fraud arises through some
breach of a legal duty which, irrespective of moral guilt, the law would pronounce
fraudulent because of its tendency to deceive others, to violate confidence, or to
injure public interests.” Wood v. Kirby, 566 S.W.2d 751, 755 (Ky. 1978).
We hold the Master Commissioner had no specific legal duty he owed
to Red Brick, LLC, other than to conduct the sale in accordance with the law. Red
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Brick, LLC makes no allegation that the law was not followed, so this allegation
must fail as well. The trial court did not abuse its discretion in overruling the CR
59.05 motion.
CONCLUSION
We find that the trial court properly overruled both Red Brick, LLC’s
exceptions to the Master Commissioner’s sale and the CR 59.05 motion. As the
trial court pointed out in its opinion, such relief should be jealously granted and
should not be granted when the party so moving failed to protect their own
interests. “It is a salutary policy to engender and maintain confidence in the
stability of sales made by a court. Such a sale ought not to be lightly disapproved
where it was conducted in a fair and regular manner, and confirmation ought not to
be refused except for substantial reasons.” Gross v. Gross, 350 S.W.2d 470, 471
(Ky. 1961) (citations omitted). We affirm.
ALL CONCUR.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE
LEXINGTON-FAYETTE URBAN
G. Michael Cain COUNTY GOVERNMENT:
Zachary A. Horn
Frankfort, Kentucky Michael R. Sanner
Lexington, Kentucky
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