Sm Newco Paducah, LLC v. Kentucky Oaks Mall Company

TO BE PUBLISHED

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2015-SC-000629-I

SM NEWCO PADUCAH, LLC APPELLANT

ON REVIEW FROM COURT OF APPEALS
V. CASE NO. 2014-CA-000900-I
MCCRACKEN CIRCUIT COURT NO. 13-CI-01099

KENTUCKY OAKS MALL COMPANY APPELLEE

OPINION AND ORDER

DENYING INTERLOCUTORY RELIEF

Following injunctive relief granted by McCracken Circuit Court to

Appellee, Kentucky Oaks Mall Company (the "Mall"), Appellant, SM Newco

Paducah, LLC ("Newco"), moved pursuant to CR 65.07 for interlocutory relief in

the Court of Appeals. The Court of Appeals denied the motion and Newco now

moves for interlocutory relief in this Court under CR 65.09. Because Newco

fails to show the "extraordinary cause" required by CR 65.09 for obtaining such

relief, we deny Newco's motion.
 I. FACTUAL AND PROCEDURAL BACKGROUND

The Mall owns a commercial real estate development in Paducah,

Kentucky. Newco owns a building located within that development that it

acquired from Service Merchandise Company, Inc. (Service Merchandise) as

that company went out of business. Service Merchandise had an agreement,

referred to as the Amended and Restated Declaration (Amended Declaration),

with the Mall. The Amended Declaration provides: "Service [Merchandise]

shall maintain all buildings, utilities and other improvements on the Service

Land, as well as, the Service Common Area and keep the same in good

condition, including all maintenance, necessary repairs, and replacements .. .

." The Mall contends that when Newco acquired the building, it also assumed

Service Merchandise's responsibility under the Amended Declaration to

maintain the building.

The building acquired by Newco had been vacant and deteriorating for

more than a decade when the Mall filed suit in the McCracken Circuit Court to

compel the enforcement of Newco's obligation to keep the building in good

condition. The suit was pending for several months when the Mall learned that

Newco was considering the possibility of demolishing the building because

restoring it to good condition was cost prohibitive. Because the Mall regarded

the destruction of the building as a breach of Newco's contractual obligation to

maintain the building in good condition, it filed in the pending litigation a

verified Motion for a Temporary Injunction under CR 65.04 to stop the

demolition. A hearing on that motion was set for May 28, 2014.
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 In the meantime, the Mall learned that Newco had applied for a

demolition permit. The added urgency of that information induced the Mall to

seek more immediate relief so, on May 1, 2014, the Mall filed a motion

pursuant to CR 65.03 for an ex parte restraining order to forestall the

demolition until the temporary injunction motion could be heard. The

restraining order motion was promptly set for hearing on May 5th, 2014, and

notice was given to Newco as provided in CR 65.03(1). The short notice

prevented Newco's lead counsel from personally attending the hearing, and so

he arranged to attend telephonically, with local counsel being physically

present.

At the May 5th hearing, Newco's counsel complained of the short notice.

The circuit judge offered to reschedule the hearing so that counsel could be

physically present, but the court also indicated that it would enter an order

preserving the status quo pending such a hearing. Counsel for Newco objected

to the entry of any order that immediately restrained Newco's option of

demolishing the building, and he further stated that if the court was inclined to

issue such an order, Newco wanted the order to be immediately appealable.

Under our civil rules, a restraining order is not subject to review by an

appellate court, but a temporary injunction is subject to such review by way of

CR 65.07. No evidence other than what may have been found in the pleadings

of the case was presented at the May 5th hearing. The discussion of counsel

focused upon whether Newco had the right under the Amended Declaration to

destroy the building.

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 The verified Motion for Temporary Injunction pending before the circuit

court included exhibits consisting of the Amended Declaration and the

Quitclaim Assignment and Assumption of Operating Agreement executed

between Newco and Service Merchandise. The trial court had these

documents, as well as the other pleading in the record, for its consideration. A

proposed order designated as a Temporary Injunction was tendered by counsel

for the Mall and entered by the court over Newco's objection.'

Newco moved for interlocutory relief in the Court of Appeals pursuant to

CR 65.07; The Court of Appeals denied the motion. Appellant now moves for

relief from the Court of Appeals' decision pursuant to CR 65.09.

II. ANALYSIS

A. Standard for Relief under CR 65.09
To obtain relief under CR 65.09, the movant, here Newco, must show

"extraordinary cause." 2 Abuse of discretion by the courts below has been

interpreted to be an "extraordinary cause." Gharad v. St. Claire Medical Center,

Inc., 443 S.W.3d 609, 611 (Ky. 2014) (citation omitted). An abuse of discretion

occurs when the judge's decision is "arbitrary, unreasonable, unfair, or

1 These facts are also reflected within the circuit court's temporary injunction order,
Appellant's motion to the Court of Appeals to dissolve the temporary injunction, and
Appellee's response to the motion (Appellee provided 'a verification of the factual
allegations).
2CR 65.09 provides in pertinent part: "Such a motion [for relief from an order of the
Court of Appeals entered pursuant to CR 65.07] will be entertained only for
extraordinary cause shown in the motion."

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unsupported by sound legal principles." Commonwealth v. English, 993 S.W.2d

941, 945 (Ky. 1999).

CR 65.04(1) provides the framework for determining whether the circuit

court abused its discretion. CR 65.04(1)states:

A temporary injunction may be granted during the pendency of an
action on motion if it is clearly shown by verified complaint,
affidavit, or other evidence that the movant's rights are being or
will be violated by an adverse party and the movant will suffer
immediate and irreparable injury, loss, or damage pending a final
judgment in the action, or the acts of the adverse party will tend to
render such final judgment ineffectual.

Under this rule, the circuit court may grant injunctive relief when it finds

"(1) that the movant's position presents 'a substantial question' on the

underlying merits of the case, i.e. that there is a substantial possibility that the

movant will ultimately prevail; (2) that the movant's remedy will be irreparably

impaired absent the extraordinary relief; and (3) that an injunction will not be

inequitable, i.e. will not unduly harm other parties or disserve the public."

Price v Paintsville Tourism Commission, 261 S.W.3d 482, 484 (Ky. 2008)

(citations omitted).

B. The Arguments before the Court of Appeals

Newco argued in the Court of Appeals that the Tempoi -ary Injunction was

entered erroneously because: 1) the hearing from which the injunction

emanated was for a restraining order, not a temporary injunction; 2) the Mall

presented no evidence to support the issuance of an injunction; 3) since no

evidence was presented, the circuit court's findings of fact are clearly

erroneous; 4) because the Amended Declaration does not expressly restrict the

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demolition of the building, the circuit court erred in finding that Newco is

prohibited from doing so; 5) there is no foundation for the circuit court's

finding of irreparable harm; and 6) no evidence was presented to establish that

the public interest will be served by the temporary injunction.

Newco contends that the Court of Appeals abused its discretion by

ignoring procedural and evidentiary deficiencies of the circuit court proceeding.

The primary evidentiary issue presented in the Court of Appeals was whether

the documents attached to the Mall's verified Motion for a Temporary

Injunction could be used as evidence at the restraining order hearing to

support the trial court's order.

C. The Court of Appeals Did Not Abuse Its Discretion

The Court of Appeals did not directly address Newco's allegations of

procedural and evidentiary deficiencies pertaining to the scheduling of the May

5th hearing at a time when lead counsel could not be physically present.

Neither did it expressly address the transformation of the hearing for a

restraining order into a temporary injunction hearing. Upon review of the May

5th hearing, as presented in the pleadings an the limited record before us, we

cannot disregard Newco's role in any deficiencies resulting in the injunction.

The lack of formality of the proceeding, and the blurring of the

distinctions between a restraining order and a temporary injunction are

troublesome. But the circuit court's attempt to defer the hearing to a more

convenient time, as well as its insistence that the building not be demolished

pending a more formal hearing on the issue, was eminently reasonable.

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Accommodating Newco's insistence upon an order that was subject to

immediate interlocutory review precluded the circuit court from designating the

order as a "restraining order."

Under the circumstances, we cannot conclude that the Court of Appeals

abused its discretion when it found the circuit court properly relied on the

exhibits attached to the verified Motion for a Temporary Injunction when it

issued the order it designated as a temporary injunction. 3 The abbreviated

nature of the hearing and any evidentiary deficiencies that occurred are largely

attributable to Newco's stated preferences for a dispositive hearing followed by

an immediately reviewable order, which could only be a temporary injunction.

We see no extraordinary cause to warrant relief, and consequently, we decline

to address the question of whether the evidentiary requirements for issuance of

the temporary injunction under CR 65.04(1) were met.

Newco also maintains that the circuit court erred in its conclusion that

the covenant for maintenance and upkeep contained within the Amended

Declaration prohibits Appellant from demolishing the building. However, the

Court of Appeals noted the circuit court expressly refrained from addressing

the merits of the case and, consequently, committed no error. As stated in

Maupin v. Stansbury, 575 S.W.2d 695, 699 (Ky. App. 1978), the merits of an

issue in litigation cannot be conclusively decided within the scope of a hearing

3 The Court of Appeals seems to have misstated the assertion of fact that the circuit
court relied upon a "verified complaint" rather than the Mall's verified motion for a
temporary injunction, but that misstatement does not alter the substance of its
decision.

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on a motion for a temporary injunction (or a restraining order). At most, the

circuit court's findings and conclusions are nothing but preliminary

determinations that have no binding effect on the court's ultimate judgment

after trial of the issues. Preliminary findings of that nature are necessarily in

accord with the circuit court's obligation to determine whether the party

seeking interlocutory injunctive relief has presented a substantial question on

the merits underlying the case and whether "the equities are in favor of

issuance" of injunctive relief. Maupin, 575 S.W.2d at 699. Moreover, the

circuit court stated that a final determination on the merits of the Mall's

complaint would have to await the final adjudication. The Court of Appeals

correctly determined that the circuit court did not adjudicate the merits of the

case.

Newco also argues that the Court of Appeals erred by finding that

irreparable harm was likely unless the demolition of the building is enjoined.

Newco correctly notes that the Amended Declaration does not contain an

express covenant not to destroy the building. Nevertheless, the covenant to

"keep the [building] in good condition, including all maintenance, necessary

repairs, and replacements" provides the Mall with a plausible argument to that

effect. The Court of Appeals did not abuse its discretion in applying the rule

stated in Marshall v. Adams, 447 S.W.2d 57, 58 (Ky. 1969): "where one who

has entered into a restrictive covenant as to the use of land commits a distinct

breach thereof, he may be enjoined irrespective of the amount of damage

caused by his breach, and even if there appears to be no particular damage."

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Obviously, if the Mall were ultimately to prevail upon its claim, the demolition

of the building pendente lite would certainly render the judgment ineffectual.

Moreover, Newco did not show the existence of any countervailing harm of an

immediate nature that would ensue if the building were not immediately

demolished.

The Court of Appeals concluded that the circuit court did not abuse its

discretion when balancing the equities, but it also noted that the balancing is

not required when the injunction prevents the breach of a restrictive covenant.

With the finding above, that the Court of Appeals did not abuse its discretion in

applying Mar'shall, it follows, as the Court of Appeals stated, that a balancing of

the equities is not necessary.

III. CONCLUSION

Finding no extraordinary cause to warrant modification of the order of

the Court of Appeals, we deny Appellant's motion for interlocutory relief. All

sitting.

All sitting. All concur.

ENTERED: October 20, 2016.

CH JUSTICE f)°----

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