Notes: Appeal of a Kentucky eviction

Background

When a Kentucky landlord wishes to regain possession of real estate occupied by an uncooperative tenant, there is a special statutory procedure called Forcible Entry and Detainer, KRS § 383.200, et seq.. This is commonly known as an action for eviction. The law of Forcible Entry and Detainer applies uniformly throughout the Commonwealth to residential, commercial and agricultural tenancies, and an essential element of a landlord's action is to establish the tenant's possession of the property is wrongful.

The applicability of Kentucky's Uniform Residential Landlord and Tenant Act,  KRS § 383.505, et seq., however, is subject to adoption by local governments, see: KRS § 383.500. Thus, determining if and when a the tenant's possession of the property is wrongful is complicated by its geographic location, if the occupancy is "residential," landlord's compliance with the appropriate notice requirements and the terms of any written or oral agreements.

Landlord's Statutory Cause of Action In District Court

Let us set these issues aside, and simply assume a landlord can make a good faith claim the tenant's possession of the premises is wrongful. If a tenant wrongfully refuses to surrender possession of a premise, a landlord can file a complaint in District Court under KRS § 383.210. There is a standard court approved form for this: Forcible Detainer Complaint. The tenant must be given at least three (3) days advance notice of a hearing. Either party may make written demand for a jury "at the calling of the case for trial," KRS § 383.210(2). The issues will be decided by either the jury or by the judge, and a final judgment will be entered in favor of one party or the other, on the issue of possession. Issues other than wrongful occupancy and possession of a property normally cannot be included in a Forcible Detainer Action. However, I have previously speculated if Kentucky's Uniform Residential Landlord and Tenant Act might complicate the inherent straightforward simplicity of an action for Forcible Detainer. See:  Fantasy Litigation - Forcible Entry and Detainer vs. URLTA.

Notes: Appeal from District Court to Circuit Court

1. KRS § 383.255 and the Kentucky Rules of Civil Procedure, Rule 72.02, allow seven (7) days after the District Court's final judgment within which to file a Notice of Appeal in the original District Court cause..
2. Civil Rule 72.02(1) provides: "Appeals from the district court to the circuit court in civil cases shall be taken by filing a notice of appeal in the district court and paying the filing fee required by KRS 23A.210."
3. Unfortunately. it appears that KRS 23A.210 was repealed in 1999, so the full meaning of CR 72.02(1) remains unclear and it will likely require a trip to a law library. Yikes!
4. KRS § 383.255(1) requires a tenant to deposit all past due rents, and future rents as they become due during the pendency of the appeal, with the Clerk of the Circuit Court.
5. Upon tenant's deposit of rents with the Circuit Court Clerk, the "court shall stay all further proceedings on the inquisition." KRS § 383.255(2).
6. CR 72.04 provides, "The record on appeal to the circuit court shall consist of the entire original record of proceedings in the district court, including untranscribed mechanical recordings made under the supervision and remaining in the custody of the district court or clerk. . . . " 
7. In addition to paying all rents to the Circuit Court Clerk, to perfect an appeal the tenant must file a Statement of Appeal as specified in CR 72.10.
8. Time for perfecting appeal: CR 72.08 provides, "An appeal from the district court must be perfected within 30 days after the date of filing the first notice of appeal."
9. As a general rule, not much by way of facts or law can be successfully argued on appeal which were not first fully presented to the trial judge and made part of the record.

Kentucky default judgment - Answers for non-lawyers

What is a default judgment?

The most common type of default judgment comes about when a defendant debtor is sued but fails to answer and defend against the lawsuit. It is like when a basketball game between two teams has been scheduled, but one team simply fails to show up for the contest. The other team automatically wins by default.

What is the effect of a default judgment?

Generally, a default judgment is treated the same as any other court judgment. If the default judgment says you owe the plaintiff creditor money and interest, all legally available collection efforts, such as wage garnishment, may proceed at the plaintiff’s option.

Can a default judgment be reopened?

The best way to avoid a default judgment is to prevent it from happening in the first place, but Kentucky law provides for setting aside a default judgment in limited circumstances and with a good enough excuse.

How long can you wait to seek relief from a Kentucky default judgment?

The longer you wait, the harder it gets.

Do active military personnel or their families have special protection against default judgment?

Yes. The U. S. Congress passed The Soldiers' and Sailors' Civil Relief Act of 1940 (SSCRA), which has been updated over the years, to provide protection to those called to active duty in the U.S. Armed Forces or who are deployed.  Reservists and members of the National Guard (when activated under Title 10, United States Code) are also protected under the SSCRA.

I never received notice that a default judgment was entered. Don’t they have to tell me?

No, they do not have to tell you. Your first indication that you have a default judgment may be when your creditor garnishes your bank account. It is always a big shock when this happens.

Do I need to hire a lawyer to seek relief from a Kentucky default judgment?

No. You have the right to represent yourself in court and to proceed without a lawyer. However, the law is complex and a non-lawyer will have a difficult time navigating the legal system alone without expert guidance, but it’s not impossible.

If I succeed in having my default judgment set aside, does that mean my debt is gone?

No. Having a default judgment set aside just brings everything in the lawsuit back to the point before the default judgment was entered against you. You will still need to defend against the plaintiff’s original claim.

Kentucky default judgment and the absence of notice

Kentucky Rules of  Civil Procedure 5.01. Service; When Required,  provides, in part,

" Every order . . . every pleading . . . every paper . . .  every written motion . . .  and every written notice, . . . shall be served upon each party except those in default for failure to appear . . . . "

From a plaintiff's point of view, this is good news. Every notice, motion or court order that a defendant might receive is potentially a catalyst to action that inspires a defendant to defend against the plaintiff's claim. Under the Kentucky Rules of Civil Procedure a defendant has virtually perpetual right to contest a default or a default judgment, in theory. As a practical matter, the longer the elapsed time between the default and and a defendant's eventual response, the less likely are the chances for the defendant to carry the day. A motion for relief from a final judgment made pursuant to  K. R. C. P. 60.02 must be made "within a reasonable time," and the grounds for relief are drastically limited after one year.

Consequently, after a default judgment has been entered against a defendant, the defendant's first actual notice of the judgment may be by way of a wage or bank garnishment. A defendant's ability to effectively respond to such an unwelcome development and to assert legitimate objections is severely handicapped due to lack of information. This is a real problem, but it is not an insurmountable limitation.

The first task at hand for any defendant in default  is to trot down to the courthouse that entered the default judgment and to carefully review the Court Clerk's case file for the specific details of the proceedings and paperwork.

(H. I. defendant's checklist)

Notes: Kentucky Tax Delinquency Certificates

This is a first step into the unknown for me. This is an acknowledgement that I know nothing about Kentucky Tax Delinquency Certificates, but that I intend to get to the bottom of it. This blog post my personal repository of links and references, research notes, unanswered questions and ruminations on the subject which are all subject to change and revision without notice or warning. If you make the mistake of taking any of this as authoritative, then shame on you.

Overview. When folks don't pay their property taxes in Kentucky, laws and procedures in the Commonwealth provide a mechanism to sell those tax liabilities to private investors. The advantage of this to the taxing authority is that it gets much needed revenue immediately, without the expense, delay and uncertainty associated with collection. The advantage to the private investors who buy the tax liabilities is a relatively high rate of return on investment, which is 12%, more or less. The investment instrument is called a Certificate of Delinquency (KRS §134.101(1)).

Evolution. Although it remains a specialty investment vehicle, Certificates of Delinquency are still an emerging field. Basically, it looks to be a 21st Century phenomenon. In 2013 there were some 115 individual or group investors who had registered with the Kentucky Department of Revenue as non-incidental third  party purchasers of Delinquency Certificates. See: Third Party Purchasers Registered 2013 If market interest rates remain low, I expect interest in Certificates of Delinquency will continue to grow.

Statutory Authority: KRS Chapter 134.

Links:

Jefferson County Clerk's Delinquent Tax Website
Jefferson County Clerk’s Office Tax Bill Sale Procedures
Kentucky Department of Revenue - Property Tax
Kentucky Department of Revenue - Basic Information for Third Party Purchasers (PDF)

Is It or Is It Not a Parking Lot?

What is a parking lot if not a place where cars are parked? This question is the most recent legal thorn in my side.

Kentucky Revised Statutes §189.725 Removal of Vehicles by Owner of Private Parking Lot - Signs, provides:

"(1) Any owner or attendant of a privately owned parking lot may have removed from the lot any unauthorized vehicle parked and any person engaged to remove such vehicle shall have a lien on the vehicle in accordance with KRS 376.275. 

"(2) Every operator of a parking lot covered by the provisions of subsection (1) shall post signs stating thereon that the parking lot is privately owned and unauthorized vehicles will be towed away at the owner's expense."

K.R.S. §§ 189.700 to 189.720 were all enacted as a lump in 1954 and it is clear those sections relate to parking lots which are operated as businesses, "wherein automobiles are parked or stored for hire."

With K.R.S. §189.725, enacted in 1966, it's clear enough to me that the section is not limited to places where cars are parked for a fee. Thus, a gravel pad behind a three-unit residential house in Old Louisville with bumper blocks where everyone and his bother likes to park for free just because I'm not sitting out there in a lawn chair with a shotgun day and night would be a "parking lot" under this section.

The good news is that K.R.S. §189.725(1) specifically empowers me to have "unauthorized vehicles" removed.

The bad news of K.R.S. §189.725(2) is that I have to put up a sign.

The confusion arises in deciding which vehicles are or are not "authorized."

Here is the sign. It's the best I can do for cheap.

Unfortunately, it is no exactly how I would word it were I bent on having the perfect sign.

"No Parking" isn't strictly true. Of course the gravel pad in the back yard next to the alley, with the bumper blocks, is intended for parking and it will be used as such. "No Unauthorized Parking" would be better. But, I'll make sure that the authorized people understand the "No Parking" does not apply to them.

If others are confused by cars parked where the sign says "No Parking,", they can obtain clarity the hard way.

Unconventional Legalizing

Did you ever agree to help a friend and later regret it? Herein lies the origin of the phrase, "No good deed goes unpunished."

Consider the possibilities. A friend who owns a few residential rental properties in Louisville decides to move out of state and needs someone to mow the grass, pay the utility bills and collect the rents. Things start off easy. It is Fall and there is no grass to mow. Just collect the rents and pay the utility bills. Then there are apartment vacancies that need to be filled. Still, fairly standard and expected chores. We do things the way they were done before by our friend, without much question.

Then, about ten months into the project we become curious and read the Uniform Residential Landlord and Tenant Act (URLTA).

Notes on Kentucky's URLTA - Security Deposits

Oh shit. We have been doing it wrong.

"All landlords of residential property requiring security deposits prior to occupancy shall be required to deposit all tenants' security deposits in an account used only for that purpose, in any bank or other lending institution subject to regulation by the Commonwealth of Kentucky or any agency of the United States government. Prospective tenants shall be informed of the location of the separate account and the account number."  

K.R.S. §383.580(1)

Oops.

With a little cajoling, we persuade our friend to put a dollar amount equal to all outstanding tenant security deposits into a savings account used for nothing else.

Just as we are patting ourselves on the back, disaster strikes.

Foreclosure! Commissioner's Auction! Deficiency Judgment! Oh, my!

This tectonic shift in circumstances puts our friend's bank accounts at risk of garnishment by the deficiency judgment creditor, and the risk extends to the tenants' security deposit money. Fending off a garnishment of the tenants' money held by a landlord is no big deal in theory, but in actual practice it would be a monumental pain in the ass.

Again. Shit! What to do?

The top of my list of Bright Ideas, is to quickly form a Kentucky non-profit corporation for the sole purpose of opening a savings account in which to hold the tenants' security deposits. We do not want the money in our friend's name. We do not want the money in our name. We do not want to hold the money as cash. And, we would like to be in compliance with the URLTA.

Think about it.

K.R.S. §273.167, the "purpose" section of Kentucky's "Nonstock, Nonprofit Corporations" statute, provides:

"Corporations may be organized under KRS 273.161 to 273.390 for any lawful purpose or purposes, including, without being limited to, any one or more of the following purposes: charitable; benevolent; eleemosynary; educational; civic; patriotic; political; governmental; religious; social; recreational; fraternal; literary; cultural; athletic; scientific; agricultural; horticultural; animal husbandry; and professional, commercial, industrial or trade association; but labor unions, cooperative organizations, and organizations subject to any of the provisions of the insurance laws or banking laws of this state may not be organized under KRS 273.161 to 273.390" [emphasis added]

Sure, it's not a charity or any of those other things commonly thought of as being non-profit, but;

1. It's not a labor union;
2. It's not an insurance company;
3. It's not a bank, and;
4. Complying with K.R.S. §383.580(1) of the URLTA is clearly a lawful purpose.

Looking further, at K.R.S. §273.161(4) defines "Nonprofit corporation" to mean:

". . . . a corporation no part of the income or profit of which is distributable to its members, directors or officers."

Thinking about that, security deposits either go back to the tenants or they go to the landlord, so neither can be members, directors or officers of the corporation. The security deposits are not income or profits anyway, but there's no good reason to cloud the issue.

This is not a problem.

Forming a Kentucky nonprofit corporation and getting a Federal Employer Identification Number (EIN) is quick, cheap and easy, so there is not a lot of work or expense involved.

Bank savings accounts are paying only about one-tenth of a percent interest these days, so filing tax returns for the corporation probably would not be necessary,

So, why not? I like the idea of doing something nobody has ever done before. The main downside is that bureaucrats really detest things that have never been done before.

I'll talk it over with my old friend Mr. Bourbon later on this evening and see how it looks from a slightly different perspective.

Effect of Foreclosure on Preexisting Tenancy - The Pesky Details

I've written about this before, sort of:

PTFA does NOT expire December 31, 2012

 Conundrums, Foreclosure and Tenant Security Deposits Under URLTA and PTFA

Generally, the Federal Protecting Tenants at Foreclosure Act of 2009, as amended, gives rights to innocent bona fide tenants caught up in a foreclosure of the landlord's rental property.

The interesting language of PFTA is this:

".... under any bona fide lease entered into before the notice of foreclosure .... "

  12 USC § 5220 note. Seriously, it's in the damn notes to that Code section

One might wonder what "before notice of foreclosure" means, and rightly so. In 2010 Congress amended the 2009 law to provide:

“For purposes of this section, the date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust, or security deed.”

12 USC § 5220 same damn note.

Thus, before "notice of foreclosure" means before "complete title to a property is transferred to a successor."

See also: A New Amendment to the “Protecting Tenants in Foreclosure Act” by William A. Robinson, Esq. Colorado

This is only one of many reasons why the suicide rate among lawyers is so high.

The obvious next question is:  When does transfer of complete title to a successor after foreclosure happen in Kentucky law? That must wait for another day.

What I don't know about Environmental Law fills many books

What I learned today.

The Resource Conservation and Recovery Act of 1976, Title 42, USC §6901, et seq, was enacted by Congress to require a safe means of managing hazardous waste from cradle to grave, including its generation, transportation, treatment, storage, and ultimate disposal.

 The United States Environmental Protection Agency (“EPA”) regulates the storage, disposal and export of hazardous waste. This includes the disposal or export of unwanted electronic devices that contain hazardous or toxic materials.

Nearly all laptop computers, cell phones, televisions, tablets . . . and on and on, contain toxic materials that must be recycled or disposed of responsibly.

Throwing unwanted electronic devices into the garbage along with the used Q-tips is irresponsible and probably illegal under local ordinance. Louisville Metro Solid Waste Ordinance 44 (Series 2005) seems to be controlling, but frankly, I have not read it. Kentucky statutes and administrative agencies probably have something to say about it too.

Putting them out with general plastic or metal recycling is not acceptable. They will not take it.

Oh my!

Letter To a Tenant

Hmmmm. I hope this helps.

-oOo-

Dear Tenant

 We want to avoid any misunderstandings about your rental contract. The written lease agreement you signed on July 12, 2012, provides:

“After 1 year(s), the lease will become a month to month lease subject to 30 day notice by either party of non-renewal.” 

 This means that the original agreement is still fully applicable at the present time. It automatically renews for one month periods beginning on the first day of each month. You have the option, as do we, to terminate this agreement by giving written notice at least 30 days before the beginning of the month.

A thirty-day notice usually requires more than 30 days in actual practice..

We have not received a written 30 day notice of non-renewal from you, and it is now too late in the game for you to avoid paying a full month’s rent for September. September 1st is less than 30 days from today.

If you plan to move out anytime before September 30, and wish to stop the automatic lease renewal for October, we need to receive your written 30-day notice before September 1st. If that is your intention, you can use the form below.

Sincerely,

Landlord
------------------------------------------------------------------------------------------
Date: _______________

To: Landlord

Notice to Terminate Rental Agreement

Please consider this my notice under the written lease agreement dated ____________ that I am exercising my option to terminate the month-to-month tenancy at _______________ effective at the end of the month of _____________, 2013.

___________________________
Tenant

When 30 Days Is Not Thirty Days - More Landlord & Tenant

There are three types of month-to-month residential tenants. First, there is the type who understands a 30-day notice means thirty days before the beginning of the next month. Second, there is the type that thinks a 30-day notice means thirty days from the date of the notice, whenever it is given. Finally, there is the type that believes notice is for suckers and who reads stinking rental agreements anyway?

Kentucky's Uniform Residential Landlord and Tenant Act (URLTA) K.R.S. §383.695(2) - Periodic tenancy - Holdover remedies, provides:

"The landlord or the tenant may terminate a month-to-month tenancy by a written notice given to the other at least thirty (30) days before the periodic rental date specified in the notice." [Emphasis added]

I'll stick my neck out and surmise this means a month-to-month tenancy that runs from the first of each month can be terminated by written notice given thirty days or more before the beginning of the next month. So, if this is the case and notice is given, say for example, on the 7th of any month, the tenant is still contractually obligated for a full month's rent in the following month. (See note below.)

Apart for the statutory language, "(30) days before the periodic rental date," reference to a rental date, also consider  K.R.S. §383.675 - Waiver of landlord's right to terminate:

"Acceptance of rent with knowledge of a default by the tenant or acceptance of performance by him that varies from the terms of the rental agreement constitutes a waiver of the landlord's right to terminate the rental agreement for that breach, unless otherwise agreed after the breach has occurred."

Imagine the hypothetical where a landlord wishes to terminate a month-to-month rental and gives a 30-day notice on the 15th of a month. If the rental terminated 30 days after the notice, the landlord would clearly be entitled to demand and receive pro-rated rent for the two week spill-over into the following month, but accepting less than a full month's rent would work as a waiver of the termination.

The 30-day notice is not a termination of the rental agreement. The 30-day notice is a termination of a right to renew the rental agreement for another month.

You might think this is easy to understand it this way, but apparently that is not always so. I have seen rental agreement provisions like this:

" . . . . the lease will become a month-to-month lease subject to 30 day written notice by either party of non-renewal."

This says basically the same thing as §383.695(2), but it is not an improvement.

Questing for clear understandings, I tentatively propose the following rental agreement language:

"At the end of the rental period covered by this agreement, this lease will automatically renew in one month increments beginning on the ___ day of each month. Either party may stop this rental agreement from renewing automatically by giving written notice of non-renewal to the other party at least thirty (30) days before the beginning of the next rental period. If notice is not delivered to landlord a full 30 days before the beginning of the next monthly renewal date, tenant remains obligated to pay rent for the next full month."

Another variation:

This lease shall be for a term beginning ______ and ending ______, after which time this lease will become a month-to-month lease from the first day of each succeeding month, subject to written notice of non-renewal by either party. To be effective, such written notice must be delivered to the other party at least thirty (30) days in advance of the first day for any month for non-renewal. This provision may be waived by mutual agreement of the parties.

As always, there are weird permutations I have not considered. Caveat emptor.

Note: One hitch in this is the seven-twelfths of the year with 31 day months. A thirty day notice given on August 1, for example, will be effective before the beginning of September.

I'm Glad I'm Not an Attorney

K.R.S. §383.580(1), part of Kentucky's version of the Uniform Residential Landlord and Tenant Act, provides that tenants are to be informed of the dedicated Security Deposit Trust Account bank and account number.

"All landlords of residential property requiring security deposits prior to occupancy shall be required to deposit all tenants' security deposits in an account used only for that purpose, in any bank or other lending institution subject to regulation by the Commonwealth of Kentucky or any agency of the United States government. Prospective tenants shall be informed of the location of the separate account and the account number." [emphasis added]  

Were I an attorney and sworn to uphold the laws of the Commonwealth, I couldn't say,

"DON'T DO IT!"

But, I'm not, so I can and I did.

I've only recently arrived at this rebellious position. It was just last month that I created my first draft of a Notice of Residential Security Trust Deposit: Form and it had provision for disclosing the bank account number, with the implicit suggestion that doing what the statute says to do might be smart, It isn't.

The Uniform Residential Landlord and Tenant Act was drafted in simpler times and it reeks of its Twentieth Century origin. Now, in the Age of Identity Theft, handing out complete bank account numbers to total strangers is not a smart thing to do.

Rather, do as banks do. Provide the last four digits of the account number only, in the form "xxxxxxxx1234."

If any tenant objects to my less than literal observance of the statute, they can do as Sages of all ages suggest and "Sue me!"

Landlord's Rental Property Conditions Inventory - long form

Kentucky landlords who operate in local jurisdictions that have adopted the Uniform Residential Landlord and Tenant Act, as enacted in Kentucky, must provide a tenant with an itemized list of preexisting damages to the premises before accepting the tenant's security deposit. This form is one possible, however excessive, possibility for that purpose.

Residential condition Inventory - long form by Tom Fox

Anticipating the Strange Things Tenants Might Do

We once had a tenant who borrowed my stepladder two months into a twelve month apartment rental. After a month I went to get it back, but it was gone. "Where's my ladder?" I ask.

"I dunno."

We once had an apartment tenant who moved out and left the place spotlessly clean, but took every working light bulb from every ceiling fixture in every room. Of course, I did not discover this until I went to show the apartment after dark one winter evening.

Would a tenant ever steal your refrigerator? Maybe. If you inadvertently rent to a junkie, it's possible. That's why it's smart to make a list of appliances with year, make, model and serial number. If you ever need to file a police report for a missing kitchen appliance, they'll ask.

Before and After. Residential Tenant Security Deposits

What system does Kentucky's enactment of the Uniform Residential Landlord and Tenant Act (URLTA) provide for documenting tenant-caused damages to the premises, and why do I always refer to "Kentucky's enactment" of the URLTA, and not just the URLTA?

The second question is first, and my answer is another question. What are the odds that Kentucky enacted the URLTA exactly as the Uniform Law Commission presented it, with zero tweaks, and it is just the same in Kentucky as it is in any other state that has adopted it? The answer is, I don't know and I don't like to gamble.

The easy way to answer the first question is to quote K.R.S. §383.560(2) - (3)

(2) Prior to tendering any consideration deemed to be a security deposit, the prospective tenant shall be presented with a comprehensive listing of any then-existing damage to the unit which would be the basis for a charge against the security deposit and the estimated dollar cost of repairing such damage. The tenant shall have the right to inspect the premises to ascertain the accuracy of such listing prior to taking occupancy. The landlord and the tenant shall sign the listing, which signatures shall be conclusive evidence of the accuracy of such listing, but shall not be construed to be conclusive to latent defects. If the tenant shall refuse to sign such listing, he shall state specifically in writing the items on the list to which he dissents, and shall sign such statement of dissent. 

(3) At the termination of occupancy, the landlord shall inspect the premises and compile a comprehensive listing of any damage to the unit which is the basis for any charge against the security deposit and the estimated dollar cost of repairing such damage. The tenant shall then have the right to inspect the premises to ascertain the accuracy of such listing. The landlord and the tenant shall sign the listing, which signatures shall be conclusive evidence of the accuracy of such listing. If the tenant shall refuse to sign such listing, he shall state specifically in writing the items on the list to which he dissents, and shall sign such statement of dissent.

Answering the first question begets the next question: What the hell does this mean?

Clearly, the intention is to document the condition of the premises at the beginning of the tenant's occupancy and then again at the end of occupancy; and to give the tenant the opportunity to either agree or disagree with the landlord's assessment of each, and to make a record of any disagreement .

The procedure in the statute strikes me as antiquated and excessively clunky, but I will not go into the details as to why I think this. Here in the 21st Century when digital photography is cheap, easy and ubiquitous, simply photographing any preexisting damage and having both parties to sign off on the collection of photos would be sufficient to substantially satisfy the spirit and intention of the URLTA, while ignoring the literal requirements of the section. This is my opinion only.

There is not an abundance of Kentucky caselaw on the subject.

Never mind, I take it back. It's not a good idea to blatantly ignore the clear language of a duly enacted law in the Commonwealth of Kentucky. It's not a good habit to get into. But the statutory language, "estimated dollar cost of repairing such damage," is difficult to implement in practice.

Obviously, if the estimated repair cost of damage existing at the beginning of a tenancy is the same as the estimated cost of repair at the end of a tenancy, then the tenant did nothing to elevate the repair cost during the tenancy. But the reverse is not necessarily true.

Estimating repair costs is difficult and inexact. It is difficult and inexact for a landlord, and it is even more difficult for a tenant. The fact of the matter is that the landlord opted not to have the existing damage repaired and the tenant chose to enter a rental agreement and occupancy with knowledge of the existing damage.  It is very likely that two different people at two different times would come up with two different estimates for the cost to repair the exact same damage.

There are two separate related questions. Did the tenant damage the premises during the course of the tenancy and how much should the landlord be compensated for this damage.

Before and after photographs of the premises would be very useful to avoid or resolve landlord tenant disputes about damages. This would be in addition to the clunky mechanism provided by statute.

The Kentucky Legislature Rubs My Rhubarb

The Kentucky Legislature, or whoever is in charge of its online version of the Kentucky Revised Statutes, has changed the system recently.

This means is that every hot link I have ever used to connect directly to a particular statute or Code Title is now obsolete. R.I.P.

This has happened to me so many times, I don't get angry about it anymore.

Notice of Residential Security Trust Deposit: Form

Kentucky Revised Statute. §383.580(1), in effect for Jefferson County, Kentucky, requires residential landlords to:

1. Deposit all tenants’ security deposits in an account used only for that purpose, and 
2. To inform the tenant of the location of that separate account and the account number.

This is the form I use to document the deposit:

Notice of Residential Security Trust Deposit: Form by Tom Fox

Conundrums, Foreclosure and Tenant Security Deposits Under URLTA and PTFA

I have to say that foreclosure law is not my thing, but with that disclaimer in mind, I have to write about it anyway.

In Jefferson County, Kentucky, the standard notice of Commissioner's auctions for foreclosed upon properties (sometimes called a Handbill) contains the following language:

"The subject real estate shall be sold free and clear of all liens, encumbrances and interest of the parties hereto, except sold subject to:  

A) Easements, restrictions and stipulations of record;  

B) Any matters which would be disclosed by an accurate survey or inspection of the property;  

C) Any current assessments for public improvements levied against the property."

However, the 2009 Federal law, Protecting Tenants at Foreclosure Act (PTFA), as amended, (see: PTFA does NOT expire December 31, 2012), remains in effect until December 31, 2014. PTFA provides, in part:

" . . . . any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to . . . any bona fide lease entered into before the notice of foreclosure to occupy the premises until the end of the remaining term of the lease . . . . " 

12 USC § 5220 note (Really. It's in the notes to that section)

First. the notice of the Commissioner's auction is not accurate. By reason of PTFA the buyer at Commissioner's auction takes a rental property subject to any bona fide lease entered into before the sale (I have omitted a few PTFA details here).

Second. By reason of Kentucky's Uniform Residential Landlord and Tenant Act (URLTA) (see:Notes on Kentucky's URLTA - Security Deposits) a buyer of rental property at a Commissioner's auction might be obligated to refund a tenant's security deposit, when the time comes, without ever having collected it.

This potential undisclosed liability is the conundrum. In a negotiated sale of rental property, tenant security deposits are undoubtedly disclosed and resolved by negotiation. But in a forced sale after foreclosure? How are tenant security deposits accounted for?

Drafting the Residential Lease - Security Deposits

K.R.S. §383.545 (13) defines the meaning of the term "Security Deposit" as it is used in Kentucky's enactment of the Uniform Residential Landlord and Tenant Act.

"Security deposit" means an escrow payment made to the landlord under the rental agreement for the purpose of securing the landlord against financial loss due to damage to the premises occasioned by the tenant's occupancy other than ordinary wear and tear.

But, there are many other uses for deposits commonly required by landlords. A key deposit, for example, does not involve "damage to the premises occasioned by the occupancy." It just involves the tenant returning the keys to the locks on the doors at the end of the tenancy. If the tenant returns the keys upon surrendering occupancy, the tenant gets the deposit back. If the keys are not returned to the landlord, the key deposit is forfeited and the landlord has the option of using the money to replace the locks, or at least to replace the keys. Either way, there is no "damage to the premises."

Possible types of deposits:

• Key deposit;
• Cleaning deposit;
• Junk removal deposit;
• Appliance deposit - some appliances are fixtures and some are not;
• Furniture deposit - for furnished apartments;
• No smoking deposit;
• Yard maintenance deposit, and;
• Others, depending upon the peculiarities of the rental.

As a landlord, my drafting objectives would be:

1. To allocate the total deposit among every reasonably imaginable contingency;
2. To provide for the re-allocation of deposited amounts between categories if events during or at the end of the tenancy prove that to be necessary;
3. To provide for clear documentation of starting conditions at the beginning of the tenancy and ending conditions at its termination, to which the tenant agrees, dissents or abstains;
4. To specify objective criteria to clearly establish how much of the deposit can be transferred out of escrow for the landlord's benefit, and when that transfer may be effected;
5. To specify objective criteria to clearly establish how much of the deposit can be transferred out of escrow and returned to the tenant, when that transfer must be effected and how;
6. How to allocate the expense of maintaining an escrow bank account and the allocation of any interest earned by the deposit over time, and;
7. Something I haven't thought of yet.

As a tenant, I'd want to include provisions in the rental agreement that addressed these concerns:

1. For any tenancy lasting more than a year, that the security deposit in all it's guises be re-visited at least annually to update the documentation on the condition of the leased premises and to settle any landlord claims at the time the lease is renewed, when everyone is still friendly.
2. To provide for a disposition of the security deposits in the event of the landlords bankruptcy or the sale of the property, forced or otherwise. See: Conundrums, Foreclosure and Tenant Security Deposits Under URLTA and PTFA
3. Something else I haven't thought of yet.

Yeah, this is a work in progress, and yeah, I didn't get around to the drafting part, and yeah, this will be revised sometime. I'm thinking about it.

Fantasy Litigation - Forcible Entry and Detainer vs. URLTA

Beware the hypothetical.

In Kentucky the statutory action for Forcible Entry or Detainer, K.R.S. §383.200 - §383.285, is widely understood and acknowledged to be a summary proceeding to determine the right of possession of real property, and nothing else. (citations omitted) It is a statute with statewide application, unlike the Uniform Residential Landlord and Tenant Act (URLTA) which is a local option law. Where it has been adopted by local governments, URLTA and Forcible Entry or Detainer overlap, and the latter is employed to evict tenants from residential leaseholds governed by the former.

Under the Kentucky Rules of Civil Procedure (K.R.C.P.) it would be simplicity itself to combine a claim for Forcible Entry or Detainer and a claim for unpaid rents in a single action arising from a common set of facts. Or, to entertain a counterclaim by the tenant for money damages for the landlord's breach of a lease agreement. This has the virtue of being expressly authorized by URLTA in K.R.S. §383.645(1):

"In an action for possession based upon nonpayment of the rent . . .  the tenant may counterclaim for any amount he may recover under the rental agreement . . . . "

The different parts of the action could be adjudicated sequentially.

The biggest bug in the hypothetical soup is the different service of summons procedures specified for Forcible Entry or Detainer and  for a claim for money damages under the K.R.C.P. Service of summons for a Forcible Entry and Detainer action is controlled by K.R.S. §454.030, Forcible entry or detainer, how notice served:

"If the officer directed to serve notice on the defendant in forcible entry or detainer proceedings cannot find the defendant on the premises mentioned in the writ, he may explain and leave a copy of the notice with any member of the defendant's family thereon over sixteen (16) years of age, and if no such person is found he may serve the notice by posting a copy thereof in a conspicuous place on the premises and by mailing a copy of the notice to the mailing address of the premises mentioned in the writ by regular mail through the United States Postal Service, postage prepaid. The notice shall state the time and place of meeting of the court."

This is different from the rules for service of summons in the K.R.C.P.

I'm not complaining. The prevailing system seems to work just fine, but at the expense of ignoring the seemingly clear language of the URLTA in K.R.S. §383.645(1)

-oOo-

Addendum, December 30, 2013 -

After re-reading the last part of this blog post, it does not make as much sense to me now as what I imagined when I first wrote it. The problem of merging any issue other than the right of possession into the expedited statutory Forcible Detainer action, or "an action for possession based upon nonpayment of the rent" as K.R.S. §383.645(1) words it,  is the risk of destroying the streamlined efficiency of the eviction process. The procedure and timetable specified for Kentucky's statutory Forcible Detainer action is very different from that provided for general damage breach of contract actions proceeding under the Kentucky Rules of Civil Procedure. The statutory scheme for Forcible Detainer has no room for counterclaims or any issue other than the right of possession. Yet the URLTA, K.R.S. §383.645(1), expressly allows for tenant counterclaims in a landlord's action for possession.

I have no idea how the courts will resolve this seeming conflict should it ever arise in actual practice.

More on Kentucky's residential security deposits

The meaning of 'security deposit' within the framework of Kentucky's Uniform Residential Landlord and Tenant Act (URLTA) is extremely limited. It is confined to, "securing the landlord against financial loss due to damage to the premises occasioned by the tenant's occupancy other than ordinary wear and tear" K.R.S. §383.545 (13). In actual practice, Kentucky landlords think of rental security deposits as covering much more than just physical damage to the leased residential premises.

In property law, for example, surrendering the keys to a residence has great symbolic importance as an indicator of relinquishing possession. In practice, many tenants just move out and don't bother returning the keys. When this happens, simple prudence may require the landlord to incur the expense of changing the locks on the doors for the security of the next tenant, and the idea of a 'key deposit' is born. It also sometimes happens that a tenant will leave the premises in a filthy mess with assorted junk left behind that the landlord must have hauled off and disposed, or the carpets must be professionally steam cleaned. Pet deposits and cleaning deposits are not unheard of concepts, even if the financial damage to the landlord is not strictly physical damage to the premises. In actual practice, the various tenant obligations a landlord believes are secured by a deposit may be ambiguously rolled up into a single 'security deposit' and the technical niceties of the statute are completely overlooked.

The online comments of the Uniform Law Commission show the path forward.

" . . . . the basic approach was to eliminate all elements of outmoded 'common law' from the landlord-tenant relationship and base all phases of the rental agreement on contract law."

The specific provisions of the URLTA are not the beginning and the ending of landlord - tenant relations, they are just the beginning. While preserving the URLTA's treatment of security deposits as escrows, a more comprehensive elaboration of the terms of the security deposit escrow should be subject to the parties' express agreement. If so, it is merely a drafting problem for the rental agreement, to expand upon the statutory provisions without contradicting or offending them.

"A landlord and a tenant may include in a rental agreement terms and conditions not prohibited by KRS 383.505 to 383.715 or other rule of law, including rent, term of the agreement, and other provisions governing the rights and obligations of the parties."

K.R.S. §383.565(1)

Notes on Kentucky's URLTA - Security Deposits

Kentucky has adopted the Uniform Residential Landlord and Tenant Act (URLTA) not as a statewide law, but as a local option. It is found at K.R.S. §§ 383.500 - 383.715.

Section 383.580 deals with tenant security deposits. The first part of that section requires a landlord to deposit and maintain all tenant security deposits in a separate dedicated bank account, in the nature of an escrow.

"Security deposit" means an escrow payment made to the landlord under the rental agreement for the purpose of securing the landlord against financial loss due to damage to the premises occasioned by the tenant's occupancy other than ordinary wear and tear.

K.R.S. §383.545 (13)

Tenants are to be informed of the bank and account number.

"All landlords of residential property requiring security deposits prior to occupancy shall be required to deposit all tenants' security deposits in an account used only for that purpose, in any bank or other lending institution subject to regulation by the Commonwealth of Kentucky or any agency of the United States government. Prospective tenants shall be informed of the location of the separate account and the account number."  

K.R.S. §383.580(1)

Normally, the security deposit is held by the landlord until the end of the tenancy when it is applied to repairs for damage caused by the tenant or retained for unpaid rent, EXCEPT:

"No landlord shall be entitled to retain any portion of a security deposit  if the security deposit was not deposited in a separate account as required by subsection (1) of this section and if the initial and final damage listings required by subsections (2) and (3) of this section are not provided." 

K.R.S. §383.580(4)

Although the URLTA was made a local option nearly thirty years ago, and it has been adopted by many municipalities across the Commonwealth since then, the woods are not full of Kentucky case law discussing K.R.S. § 383.580. In fact, so far, I have located exactly nothing. But, the part where it says, ""No landlord shall be entitled to retain any portion of a security deposit  if  . . . . " is not quite the same as saying the landlord is obligated to return it to the tenant. I'm inclined to put the conceptual emphasis on the idea of entitlement, and not so much on retention.
If the conditions of the URLTA are not met, the landlord continues to hold the money in trust with all that entails, whatever that is.

Part (2) of K.R.S. § 383.580 requires the landlord to provide the tenant a "comprehensive listing of any then-existing damage to the unit which would be the basis for a charge against the security deposit and the estimated dollar cost of repairing such damage," at the beginning of the tenancy. The tenant then has the option of agreeing to the landlord's list of preexisting damage and estimated repair costs or dissenting, in writing. This process is repeated at the end of the tenant's occupancy, as provided in part (3) of the section. If the landlord and the tenant agree as to the extent and repair cost of damage caused during the tenancy, then the landlord would clearly be justified under the URLTA in removing  the agreed dollar amount from the escrow account and and retaining that sum free of tenant's claim. "A tenant who disputes the accuracy of the final damage listing given pursuant to subsection (3) of this section may bring an action in District Court." K.R.S. § 383.580(5), except "if the tenant shall fail to sign the listing or specifically dissent in accordance with subsection (3) of this section.[§ 383.580]"

Holding security deposits in escrow under the URLTA is a big responsibility. It's not the landlord's money. The security deposit is being held in trust and any misappropriation of funds by the landlord might amount to theft by embezzlement. The URLTA expressly states the landlord is not "entitled to [summarily] retain any portion of a security deposit" as her own if it is not deposited in a separate dedicated bank account or if the beginning and ending signed written damage inventories are not provided.

Parts (6) and (7) of § 383.580 provide for the landlord applying the excess remaining security deposit to unpaid rent after thirty days, and for retaining the unearned balance of the security deposit if the tenant does not claim it within sixty days after the landlord sends reasonable notification to the tenant.

Lame excuse contest - Monday, June 3, 2013

In Kentucky, the general rule to set aside a judgment for default resulting from a failure to defend is that the defaulted party must affirmatively show a "good enough" defense on the merits, among other considerations. In Statewide Environmental Services Inc v. Fifth Third Bank, 352 S.W.3d 927 (Ky. App. 2011), Appellants asked for “an opportunity to defend themselves by conducting discovery and ascertaining whether or not they had counterclaims that could have been asserted.”

Seeing that Appellants' desire to go fishing may have been a tacit admission by them there was no defense on the merits, the Kentucky Court of Appeals decided that a defense of wishful thinking was not "good enough."

Do they really do that? - Striking an answer

In Roman Catholic Diocese of Lexington v. Noble, 92 S.W.3d 724 (Ky. 2002), the court  indicated not only that stricken pleadings have no legal effect,  but that the trial court has the power to physically remove stricken pleadings from the record.

Physically removing a stricken pleading from the record would hamper appellate review of the trial court's decision to strike the pleading, would it not?

It does not strike me as seem to be a good idea.

Smith v. Flynn - Ky App. 2012

Smith v. Flynn

Kentucky Court of Appeals
Rendered: November 9, 2012

Full opinion here.

No. 2011–CA–002101–MR
Appeal from the Russell County Circuit Court: Cause No. 110-CI-00460

Denial of motion to vacate a default judgment affirmed.

This dispute arose between two adjoining land owners in Russell County, Kentucky, from the unauthorized timber removal by one from the land of the other. Both parties were aware of the situation and they had discussed reparations, but nothing came from these negotiations and a civil complaint for statutory damages was filed and served. The defendant did not offer any defense and judgment by default was entered. Some eight months after the action was commenced, after the plaintiff sought execution of a judgment lien, the defendant was inspired to take action.

Defendant’s excuse for not taking timely action to defend against the claim was that he had recently been diagnosed with Alzheimer's disease and dementia. His two motions to have the default judgment vacated pursuant to Kentucky Rules of Civil Procedure CR 60.02 were denied,

On appeal, defendant Smith argued he was incompetent for purposes of service of process, but he admitted that he has never been adjudicated incompetent by a court.

Claiming he was of “unsound mind,” defendant Smith proposed that CR 17.03 required the trial court to appoint a guardian ad litem on his behalf, which did not happen. The court relied upon the Kentucky Supreme Court case Goff v. Walker, 809 S.W.2d 698 (Ky.1991) which affirmed that the words “unsound mind” as used in CR 17.03 are technical words which mean a person who actually had been adjudicated incompetent pursuant to KRS 387.500.  The opinion in Goff states:

“It is the holding of this Court that the trial judge in a civil case, in the absence of a legal adjudication of incompetency, has no duty to take steps on his own to protect the interests of any defendant other than as provided in existing CR 17.03.”

This is not to suggest a trial court could not accept serious medical or mental problems as a valid excuse for default under CR 60.02, within the legitimate exercise of its sound discretion, but only that it is not required to do so as a matter of law.

The Court of Appeals relied upon Perry v. Central Bank & Trust Co., 812 S.W.2d 166, 170 (Ky.App.1991) for the relevant considerations in deciding whether to set aside a judgment for good cause, which are:

1. A valid excuse for the default;
2. some form of a meritorious defense against the claim, and;
3. absence of prejudice to the other party.

Without specifically stating so, but by implication, the Court of Appeals presented the circumstances of this case as an indication there was no arbitrary abuse of the trial court’s discretion for rejecting the Alzheimer's diagnosis as a valid excuse:

“There is no dispute that he was actually served with notice of the lawsuit. His daughter submitted an affidavit in which she averred that she has designated people who live close to Smith to look after his affairs. As his power of attorney, his daughter could have initiated proceedings to have Smith declared incompetent.”

The court’s opinion also observed that defendant Smith offered no form of defense to the merits of Plaintiff’s claim for damages. Nothing.

I would argue that the Court of Appeals should have stopped here, but it proceeded to make two curious statements:

“The third of the Perry criteria entails the prejudicial impact on the other party. If the default judgment were reversed, Flynn would suffer the loss of his legal expenses in addition to the expense of replacing his fence and the destruction of his trees.”

Any time the court sets aside a default judgment, the opposing party will suffer the results of having to pursue a claim on the merits. Since the Civil Rules specifically authorize setting aside judgments by default under appropriate circumstances, the unavoidable consequences of occasionally setting a default judgment aside cannot by itself be a good reason not to do it.

Finally, the opinion states:

“All three factors for not setting aside the default judgment were satisfied. Therefore, we cannot conclude that the court erred.”

Rather than, “all three factors for not setting aside the default judgment were satisfied,” a better phrase might be, “all three factors for setting aside the default judgment were not satisfied.”

Cases cited:

1. Straney v. Straney, 481 S.W.2d 292 (Ky.1972)
2. Dressler v. Barlow, 729 S.W.2d 464 (Ky.App.1987)
3. Perry v. Central Bank & Trust Co., 812 S.W.2d 166 (Ky.App.1991)
4. Goff v. Walker, 809 S.W.2d 698 (Ky.1991)
5. Age v. Age, 340 S.W.3d 88 (Ky.App.2011)

True Gospel Church Ministries, Inc v. Church of God In Christ - Ky. App. 2012 [Unpublished]

True Gospel Church Ministries, Inc v. Church of God In Christ

Kentucky Court of Appeals
Rendered: JULY 6, 2012
NOT TO BE PUBLISHED

Full opinion here.

NO. 2011-CA-000796-MR

Appeal from the Christian County Circuit Court: Cause No. 10-CI-00127

Denial of motion to vacate a default judgment affirmed.


This case involved an ecclesiastical dispute regarding the ownership of real property used by a local congregation as its church facility. The beloved founding minister died and his children and most of the congregation objected to the replacement minister appointed by the national denomination. The deceased minister’s children attempted to transfer the real property from the original church organization to a new spin-off church organization. On January 27, 2010 the national denomination filed suit against the new spin-off church organization and the children individually for rescission of the property transfer. It is assumed that all defendants are properly served.

Nearly ten months elapsed with no appearances or answers from any defendant. On October 6, 2010, Plaintiffs filed a motion for default judgment and/or for summary judgment. The court scheduled the motion for a hearing on October 20, 2010. At the hearing, one of the individual defendants informed the court that counsel had been retained. Thereafter, counsel entered an appearance for the corporate church defendant only and he filed a response in opposition to the plaintiffs’ motion. He did not submit an answer to Plaintiffs’ complaint. The court rescheduled a hearing on Plaintiffs’ motion for January 12, 2011, but counsel for defendant church failed to appear at that hearing. The court re-scheduled the hearing for February 23, 2011 at which time the court took Plaintiffs’ motion under advisement.

“. . . . On March 3, 2011, the court entered a memorandum opinion stating that it was granting the motion for default judgment. In doing so, the court noted that: no one had entered an appearance or filed an answer on behalf of [the individual defendants]; and despite an order to do so, counsel for the True Gospel Ministries had not filed an answer on its behalf. . . . ”

On March 18, 2011, a different attorney entered his appearance on behalf of all the defendants and moved for relief from the default judgment, which the court denied. Defendants appealed the default judgment and the denial of their motion to set the default judgment aside.

Defendants never did tender an answer to the plaintiffs’ complaint, nor did they otherwise articulate any defense to the claim for relief, other than they were opposed to it and to claim they had some facts that were important. The only excuse Defendants offered for not answering the complaint was to blame it on the lawyer.

In its unpublished opinion, the Kentucky Court of Appeals basically agreed with the trial court that shit-canning this action was probably a good idea, but expressed it with greater elegance.

The Court cited the following cases:

1. Greathouse v.Am. Nat'l Bank & Trust Co., 796 S.W.2d 868, 870 (Ky. App. 1990)
2. S.R. Blanton Development, Inc. v. Investors Realty and Management Co., Inc., 819 S.W.2d 727 (Ky. App. 1991)
3. PNC Bank, N.A. v. Citizens Bank of Northern Kentucky, Inc., 139 S.W.3d 527 (Ky. App. 2003)
4. First Horizon Home Loan Corp. v. Barbanel, 290 S.W.3d 686 (Ky. App. 2009)

C.R. 76.28(4)(c) provides:

“Opinions that are not to be published shall not be cited or used as binding precedent in any other case in any court of this state; however, unpublished Kentucky appellate decisions, rendered after January 1, 2003, may be cited for consideration by the court if there is no published opinion that would adequately address the issue before the court. Opinions cited for consideration by the court shall be set out as an unpublished decision in the filed document and a copy of the entire decision shall be tendered along with the document to the court and all parties to the action.”

There is nothing about the legal issues discussed in this opinion that is unique or particularly useful. The standard on reviewing trial court discretion and what a defendant needs to show in order to justify setting aside a judgment by default is fairly standard stuff.  The usefulness of the case is to demonstrate what is not an abuse of trial court discretion, and to illustrate the extraordinary patience trial judges must frequently exhibit.

If the exact same facts arise again, this case might be used as controlling precedent.

K. R. C. P. 37.02(2)(c) case search

The Kentucky Court of Justice website publishes the opinions of the Kentucky Court of Appeals and the Kentucky Supreme Court in PDF format, with a search engine, here. Using that search feature and searching for "CR 37.02(2)(c)"

The most interesting part of this search result is that of the sixteen cases found, only one is published. Fifteen of the opinions are unpublished.

1. [U] Godsey v. Holland (Ky. App. 1997) No. 94-CA-0445-MR
2. [U] Sunset Management, Inc. v. Jackson (Ky. App. 1998) No. 96-CA-2053-MR
3. [U] Hamilton v. Hamilton (Ky. App. 1998) No. 1997-CA-000720-MR
4. [U] Smith v. Caligo, Ltd (Ky. App. 1998) No. 1997-CA-002353-MR
5. [U] Pierce v. Minit Mart Foods (Ky. App. 2000) No. 1999-CA-002387-MR
6. [U] Adams v. Rudolph (Ky. App. 2001) No.  1999-CA-001968-MR
7. [U] Christian v. Super Quik, Inc. (Ky. App. 2001) No.  1999-CA-002467-MR
8. [U] Goff v. Rogers (Ky. App. 2001) No.  2000-CA-000390-MR
9. [U] Leonard v. City Of Brandenburg, Kentucky (Ky. App. 2004) No.  2003-CA-002238-MR
10. [U] Deaton v. St. Luke Hospital East (Ky. App. 2004) No.  2003-CA-002405-MR
11. [U] Leonard v. City Of Lebanon Junction (Ky. App. 2005) No.  2004-CA-000328-MR
12. [U] Brown v. The Lake Cumberland Area  Drug Task Force (Ky. App. 2007)
    No.  2005-CA-002330-MR
13. [U] Sunnyside Homes Of Rockledge, Inc. v. Owen (Ky. App. 2007) No. 2006-CA-000432-MR
14. [U] Crawford v. Pittman (Ky. App. 2007) No.  2006-CA-001604-MR
15. R.T. Vanderbilt Company, Inc. v. Franklin, 290 S.W.3d 654 (Ky. App. 2009)
    No.  2007-CA-002103-MR
16. [U] Lanore v. Lanore (Ky. App. 2012) No.  2010-CA-001898-MR

Default Judgments In Kentucky - Introduction

Default Judgments In Kentucky 
Introduction

 Rules of civil procedure are the boring, but essential, part of our primary method for civil conflict resolution under a system of law. Like any other competitive undertaking that is governed by rules and referees, each participant must play his or her part according to the accepted standards to efficiently move the contest to a final conclusion.

 The main playing field in civil litigation is at the trial court level. That phase of a civil litigation contest is completed with a judgment or final court order. Default judgments happen when one of the parties to a lawsuit fails or refuses to play by the rules. These judgments by default are most frequently imposed when a party simply fails to show up for the contest and forfeits the game, but they can also result when a party willfully defies the rules of discovery and related orders of court.

 The logic of a default judgment resulting form a defendant’s failure to answer a complaint is fairly straightforward. By Kentucky Rules of Civil Procedure CR 8.04, allegations in a complaint are deemed admitted if they are not expressly and timely denied. When a complaint states a cause of action upon which relief can be granted but the liability is admitted by a defendant, there is no dispute and there is no good reason not to enter judgment for the Plaintiff.

 CR 55.01 provides, in part, as follows:

“When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend as provided by these rules, the party entitled to a judgment by default shall apply to the court therefor. . . .”

It is commonly thought that a judgment by default does not go to the merits of a claim, and that it is a purely procedural undertaking. It could just as easily be thought that a judgment by default arises because the claim is meritorious and not subject to any good faith defense. This thinking holds when a defendant’s non-defense amounts to an intentional waiver. If there is an intentional waiver involved in a choice to not defend against a civil action, there is no conflict in need of a resolution. The debt collection tools provided by law that accompany a judgment are a separate justification for using litigation, wholly apart from deciding the merits of the underlying claim.

 This idea collapses when a failure to defend results from a defendant’s mistake or neglect. This latter category of judgment by default makes it into the appellate case reports when the defaulting party appeals directly from the judgment or seeks to have the trial court vacate the judgment.

 A less common authorization for judgment by default is contained in CR 37.02(2)(c). Default judgment is but one of the many alternate sanctions provided in Rule 37.02, and it is one of the more severe options..  The possibility of this extreme sanction arises when a party fails to provide discovery upon request as Kentucky’s Rules of Civil Procedure specify; or if the court has issued an order compelling discovery under CR 37.01 or an order of examination under CR 53.01 and a party does not comply with the court’s order. Unlike judgment by default for failure to defend pursuant to CR 55.01, which applies to defendants only, the sanctions allowed in CR 37.02(2)(c) include dismissal of all or part of a claim for non-complying plaintiffs.

Characterizing the exemption

Reading only the Florida's Head of Family exemption statute § 222.11, one might think in terms of two related exemptions; one for disposable income less than the statutory amount, which is exempt from garnishment, and another conditional exemption for disposable income greater than the statutory amount.  

§ 222.11(2) currently provides, in part, as follows:

"(a) All of the disposable earnings of a head of family whose disposable earnings are less than or equal to $750 a week are exempt from attachment or garnishment.  

"(b) Disposable earnings of a head of a family, which are greater than $750 a week, may not be attached or garnished unless such person has agreed otherwise in writing . . . . "

The logic of this two-exemption characterization has definite pleading and proof implications. The most significant of these would be to put the debtor into the difficult position of proving a negative proposition: That there was no written agreement relinquishing the exemption over the statutory limit.

However, Usameribank, A Florida Corporation v. Richard Nelson Klepal (2011) makes it clear enough that Florida courts tend to characterize Section 222.11 as being a unitary wage exemption with the possibility of a partial waiver. Both the trial and appellate courts discussed the issues in terms of exemption and waiver, with Judge Whatley's dissenting opinion focusing upon the essential characteristics of a valid waiver.

When reading Usameribank v. Klepal, it is important to remember that the loan documentation in issue originated in 2007, and that Section 222.11(2)(b) was subsequently amended to include specific requirements for a valid waiver:

" . . . . The agreement to waive the protection provided by this paragraph must: 

"1. Be written in the same language as the contract or agreement to which the waiver relates;
"2. Be contained in a separate document attached to the contract or agreement; and
"3. Be in substantially the following form in at least 14-point type:  

"IF YOU PROVIDE MORE THAN ONE-HALF OF THE SUPPORT FOR A CHILD OR OTHER DEPENDENT, ALL OR PART OF YOUR INCOME IS EXEMPT FROM GARNISHMENT UNDER FLORIDA LAW. YOU CAN WAIVE THIS PROTECTION ONLY BY SIGNING THIS DOCUMENT. BY SIGNING BELOW, YOU AGREE TO WAIVE THE PROTECTION FROM GARNISHMENT.  

 "(Consumer’s Signature) (Date Signed)

"I have fully explained this document to the consumer. 

 "(Creditor’s Signature) (Date Signed)"

The Usameribank v. Klepal opinion did not disclose the nature of the original loan involved. Whether is was a business loan or a consumer loan might have had some bearing upon the majority opinion. The law frequently holds business people to a higher standard of sophistication than it does consumers. However, the Florida legislature clearly opted to require full and detailed written disclosure of the exemption right being waived.