Mercury Development, LLC et al v. Motel Sleepers, Inc.

Filing 37

MEMORANDUM OPINION & ORDER: (1) Defendant Motel Sleepers, Inc.'s Motion for Summary Judgment R. 30 is GRANTED as to all claims against it brought by Plaintiffs Mercury Development, LLC and Eagle Realty & Development, LLC; and (2) Defendan t Motel Sleepers, Inc.'s Motion for Summary Judgment R. 30 on its counterclaim is DENIED and notice pursuant to Rule 56(f)(1) is provided above. (3) The dates for the Final Pretrial Conference and Trial are SET ASIDE pending final resolution of Motel Sleepers, Inc.'s Counterclaim. Signed by Judge Gregory F. VanTatenhove on 02/11/2013.(KJA)cc: COR, London Court Diary, Jury Clerk

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
LONDON
MERCURY DEVELOPMENT, LLC, and
EAGLE REALTY & DEVELOPMENT,
LLC,
Plaintiffs/Counterclaim Defendants,
V.
MOTEL SLEEPERS, INC.
Defendant/Counterclaim Plaintiff.

)
)
)
)
)
)
)
)
)
)
)
)
)

Civil No. 11-147-GFVT

MEMORANDUM OPINION
&
ORDER

*** *** *** ***
For the parties in this case, good news abounded in March 2010. Mercury Development
was presented with the opportunity to sell a piece of land to Motel Sleepers, Inc. (MSI) brokered
by Eagle Realty. MSI needed to buy land because its service was in demand and expanding.
Within three months—and after MSI bought land from another seller—the outlook was more
ominous: Mercury Development failed to sell its land, Eagle Realty missed out on its broker
fees, and MSI saw that litigation over the failed deal might be in its future.
This lawsuit, including the Motion for Summary Judgment filed by MSI now before the
Court, are the sour fruits of that promising beginning. For the reasons set out below, MSI’s
motion will be GRANTED with regard to the breach of contract and fraud claims. MSI also
filed a counterclaim against Mercury Development seeking costs and attorney’s fees. This claim
is based on language in the real estate sale and purchase contract providing for such an award.
MSI will be DENIED summary judgment on that claim.

I
MSI’s business is providing lodging and food service to clients in the transportation
industry who regularly have employees working away from their permanent residences. [R. 30-1
at 3.] Norfolk Southern, a railroad company and one of MSI’s clients, approached MSI about
building a facility in Somerset, Kentucky to accommodate employees at Norfolk Southern’s new
“crew switch point.” [Id.] MSI undertook that venture and began exploring land on which it
could build this motel-like building. [Id. at 3-4.] Mike Whitaker, a member of and broker for
Eagle Realty and a member of Mercury Development, aided MSI’s search. [R. 31 at 4.]
Eventually, Cori Catlett, Executive Vice President of MSI, and Leon Catlett, President of
MSI, [R. 28 at 5] visited Somerset to scout the area for a proper location. [R. 31 at 4.] On March
18, 2010, Cori Catlett (Catlett) and Leon Catlett toured the Somerset area with Whitaker. [Id.]
The Catletts, as MSI’s agents, decided to make an offer on a piece of real estate owned by
Mercury Development, [id.] and a form real estate sale and purchase contract was prepared. [R.
31-1.] In doing that, Catlett made three handwritten notations in section seventeen of the
contract, entitled “This Contract is Contingent Upon The Following.” [Id. at 3.] Catlett
conditioned the offer on three occurrences: “bank financing, signed contract from Norfolk
Southern Railway, soil test.” [Id.]
Before Whitaker, on behalf of Mercury Development, accepted MSI’s offer, Whitaker
sent an email to Catlett notifying of a restrictive covenant on the property. Whitaker wrote:
In reviewing all the documents of our development, we have an exclusion
in our Holiday Inn Express agreement against any other motels. I feel OK about
what you are doing not conflicting with this exclusion since you are not doing
business with the public[,] but I just want to make you aware of this for your
future use. Let me know if this is a problem.
2

[R. 30-7 at 3.] Catlett responded with an email stating that the covenant “is no concern to me,
we have been in this business a long time and this will be exclusively used by Contract
employees only.” [Id.] On March 22, Whitaker accepted MSI’s offer and signed the purchase
and sale contract, which included a provision that the closing of the deal must occur on or before
June 18, 2010. [R. 30-6.]
MSI began to pursue financing for the purchase of the property and construction of the
building. At the end of April, Malvern National Bank (MNB) agreed to finance up to $3,067,875
for the project subject to various conditions. [R. 30-9.] “Title work” for the property was
conducted by MNB in May, and nothing surprising was revealed. [R. 27 at 7.] Closing on the
property on June 15 seemed to be a routine matter. [R. 30-1 at 7.]
On June 14, MSI and MNB agreed to increase the amount of the loan to $4,647,634
because Norfolk Southern needed more housing capacity. [Id.; R. 30-10.] On that same day and
in anticipation of the closing, MNB received an updated title commitment and draft deed. [R. 27
at 8.] For the first time, MNB became aware of the motel exclusion referenced above. [Id.] As
stated in the prepared deed, “NO MOTELS other than HOLIDAY INN EXPRESS shall be
located on any lot unless approved by a member of Sitaram, LLC.” [R. 30-17 at 6.] This
concerned MNB. It feared that if MSI’s venture failed, it would own “a motel building that
couldn’t be used as a motel.” [R. 27 at 9.] MNB received notice of this restriction so late in the
process because Mercury Development did not place the restrictions in the public record until
after MNB’s initial title search, [R. 29 at 25] and MSI did not notify MNB of this restriction.1

1

As to MSI’s failure to disclose, it should be noted that MNB never asked MSI about any
restrictions on the property and MSI provided all the information regarding the loan that MNB
requested. [R. 27 at 20.]
3

[See R. 27 at 20.]
As a result of this information, MNB stated that it would not close the deal unless the
restriction was waived. Mercury Development contacted Sitaram, the owner of the Holiday Inn
Express, on June 15 and sought a waiver, but that request was declined. [R. 26 at 6.]
Consequently, on June 16, Catlett sent an email to Whitaker explaining that MNB refused to
provide financing and thus, “despite our good faith efforts the contingency will not be met and
thus there is no legal obligation to close the transaction.” [R. 30-11 at 2.] This lawsuit followed.
II
A
This action is in federal court on the basis of diversity jurisdiction, 28 U.S.C. § 1332.
Because Kentucky is the forum state, its substantive law will be used. Rawe v. Liberty Mut. Fire
Ins. Co., 462 F.3d 521, 526 (6th Cir. 2006) (citations omitted). However, federal procedural law
will govern as applicable, including in establishing the appropriate summary judgment standard.
Weaver v. Caldwell Tanks, Inc., 190 F. App’x 404, 408 (6th Cir. 2006).
Summary judgment is appropriate where “the pleadings, discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2); Celotex
Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). “A genuine dispute exists on a material fact, and
thus summary judgment is improper, if the evidence shows ‘that a reasonable jury could return a
verdict for the nonmoving party.’” Olinger v. Corp. of the President of the Church, 521 F. Supp.
2d 577, 582 (E.D. Ky. 2007) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986)). Stated otherwise, “[t]he mere existence of a scintilla of evidence in support of the

4

plaintiff’s position will be insufficient; there must be evidence on which the jury could
reasonably find for the plaintiff.” Anderson, 477 U.S. at 252.
The moving party has the initial burden of demonstrating the basis for its motion and
identifying those parts of the record that establish the absence of a genuine issue of material fact.
Chao v. Hall Holding Co., Inc., 285 F.3d 415, 424 (6th Cir. 2002). The movant may satisfy its
burden by showing “that there is an absence of evidence to support the non-moving party’s
case.” Celotex Corp., 477 U.S. at 325. Once the movant has satisfied this burden, the nonmoving party must go beyond the pleadings and come forward with specific facts to demonstrate
there is a genuine issue. Hall Holding, 285 F.3d at 424 (citing Celotex Corp., 477 U.S. at 324).
In applying the summary judgment standard, the Court must review the facts and draw all
reasonable inferences in favor of the non-moving party. Logan v. Denny’s, Inc., 259 F.3d 558,
566 (6th Cir. 2001) (citing Liberty Lobby, 477 U.S. at 255).
B
Breach of contract claims consist of three elements: (1) the existence of a valid contract;
(2) breach of the contract; and (3) damages to the plaintiff. Ward v. Daugherty, 14 S.W.2d 1089,
1089 (Ky. 1929). With regard to Eagle Realty’s claim for breach, MSI contends that it cannot
show the existence of a valid contract. As to Mercury Development, MSI presents two
arguments. First, there was no breach: because the condition of bank financing was never
satisfied, MSI was excused from performance. In the alternative, even if MSI breached, Mercury
Development did not suffer damages or plead them particularly enough.
As to Eagle Realty’s breach claim, Kentucky Revised Statute (KRS) § 371.010(8)
prohibits actions based “[u]pon any promise, agreement, or contract for any commission or
5

compensation for the sale or lease of any real estate or for assisting another in the sale or lease of
any real estate” unless there is a signed writing. The writing does not have to be an extensive
version of the contract, and in fact does not have to be the contract itself—a writing that “relieves
the court of the necessity of relying upon parol evidence to establish the existence of the
contract” will suffice. John Lawson Realty Co. v. Erler, 2004 WL 2915346, at *3 (Ky. App. Dec.
17, 2004) (citing Koplin v. Faulkner, 293 S.W.2d 467, 470 (Ky. 1956)). The Agency Disclosure
Statement signed by MSI [R. 31-19] is cited by Eagle Realty as sufficient. The Court disagrees.
Although MSI signed the Agency Disclosure Statement, indicating that MSI agreed to
Eagle Realty serving as dual agent for itself and Mercury Development, the writing does not
satisfy the Statute of Frauds. That is, there is no evidence that the exchange of consideration is
contemplated in the Agency Disclosure Statement. Fischer v. Fischer, 2009 WL 350629, at *4
(Ky. App. Feb. 13, 2009) (noting that “consideration flowing both ways” is a fundamental
requirement of a contract). It is not necessary to express the specific consideration in the writing,
as KRS § 371.010 clearly explains, but consideration must be contemplated, evidenced by some
reference to it in the writing; the deal must be non-gratuitous. Without mention of consideration,
the relief from total reliance on parol evidence, as mentioned in Erler, is not achieved.
Here, parol evidence would have to substantiate both that consideration was flowing to
and from both parties and the type or amount of the consideration. That stretches the Court’s
ability to engage in contract interpretation under the Statute of Frauds too far.
C
Mercury Development claims that MSI breached its contract by refusing to pay the
purchase price and close on the property. [R. 1-1.] MSI seeks summary judgment arguing that it
6

did not breach because it was excused from performing by the non-occurrence of a condition
precedent—the acquisition of bank financing. Mercury Development’s retort is that there is a
genuine issue about whether MSI acted in good faith in seeking financing.
The contract between Mercury Development and MSI clearly states that the contract is
contingent on “bank financing.” [R. 30-6 at 3.] MSI has filed probative evidence identifying the
efforts it expended in obtaining financing. [R. 30-9 (MNB’s loan commitment letter dated April
23, 2010); R. 30-10 (MNB’s loan commitment letter with increased amount dated June 14,
2010); [R. 30-12 (MNB’s letter explaining why it could not extend financing for this transaction
dated June 21, 2010).] In terms of the summary judgment procedure, MSI has shown “an
absence of evidence” in support of Mercury Development’s claim. Celotex Corp., 477 U.S. at
325. Mercury Development responded by claiming that MSI did not make a good faith effort in
satisfying the condition, as Kentucky law requires.
“Within every contract, there is an implied covenant of good faith and fair dealing, and
contracts impose on the parties thereto a duty to do everything necessary to carry them out.”
Farmers Bank & Trust Co. v. Wilmott Hardwoods, Inc., 171 S.W.3d 4, 11 (Ky. 2005) (citing
Ranier v. Mount Sterling Nat’l Bank, 812 S.W.2d 154, 156 (Ky. 1991)). The definition of good
faith focuses on whether a party possesses a state of mind of “honesty in belief or purpose” and
“faithfulness to one’s duty or obligation.” Hollins v. Joe Guy Hagan Realtors Co., LLC, 2006
WL 1946866, at * 2 (Ky. App. July 14, 2006) (quoting Black’s Law Dictionary (8th ed. 2004)).
Failure to act in good faith in bringing about the fulfillment of a condition is met with the
consequence of being estopped from claiming the non-occurrence of the condition justifies nonperformance. See Estate of Riddle ex rel. Riddle v. S. Farm Bureau Life Ins. Co, 421 F.3d 400,
7

406 (6th Cir. 2005) (quoting Marshall v. Craig, 4 Ky. 379, 386 (1809)). If reasonable jurors
could find that MSI did not act in good faith, this question must be submitted to a jury. Id. at 409.
Mercury Development’s evidence that MSI did not act in good faith rests on five bases.
[R. 31 at 13-17.] First, MSI did not inform MNB about the property restriction even though MSI
knew about it in March. [R. 30-7 at 2.] But, an agent for MNB testified that MSI revealed all the
information about the property that MNB requested. [R. 27 at 20.] Non-disclosure is different
than withholding, and no evidence in the record supports the conclusion that MSI believed it
would be advantageous to it to conceal this restriction. Further, MNB checked this property’s
title in May and no restriction was noted. The reason MNB became aware of the restriction so
close to the closing date was because of Mercury Development’s tardy filing. [R. 29 at 25.] In
accord with Fougere v. Weinrebe, 1988 WL 21821, at *8 (E.D. Penn. Mar. 3, 1988), the Court
finds that the obligation to act in good faith does not require a party to provide information that is
not requested. This is especially true because Mercury Development possessed the ability to
prevent this from occurring.
Second, MSI only sought financing from MNB. Mercury Development argues this
indicates MSI was unfaithful to its duty to find financial backing. Here, the facts encumber
Mercury Development’s position. MNB revoked their offer of financing a short time before the
scheduled closing—and only a few days before the contractual deadline—because of this
restriction. Whether another bank could have prepared a financing package in such a short time
is unknown, but the implied covenant of good faith does not require MSI to engage in
superhuman endeavors. Perhaps under a different factual scenario pursuing only one source of
financing could move the metaphorical ball incrementally towards the line separating good and
8

bad faith, but here it does not. Good faith is not betrayed by reasonable assessment of one’s
situation.
Third, MSI didn’t give Mercury Development enough time to obtain a waiver of the
condition from Sitaram. MSI notified Mercury Development by telephone of MNB’s concerns
on June 15. [R. 26 at 6.] Mercury Development was told that unless Sitaram would waive the
problematic condition, MNB would not close on the property. [Id.] Sitaram was contacted by
Mercury Development and it refused to waive the condition. As recounted by Linda Skaarup,
agent for Eagle Realty, Sitaram “said no[,] absolutely not. That was why [Sitaram] wanted the
restriction in the document in the first place was to prevent another hotel from coming.”
Mercury Development and MSI communicated through email after learning of Sitaram’s
position. Whitaker emailed Catlett, expressing regret over Sitaram’s decision, rehashing
particular facts about the way this contract had developed, reminding Catlett that the contract is
“legally binding,” and expressing hope that everything could be settled by the contractual
deadline for closing of June 18. [R. 31-12.] Notably absent is any indication that Mercury
Development desired more time to communicate with Sitaram. Also notably absent, from the
Court’s perspective, is an indication that MSI did not act in good faith by asking for a waiver,
receiving a negative response, and moving on. MSI probably could have offered more time,
evidenced by testimony from MNB’s agent, [R. 27 at 10] but Mercury Development could have
asked for more time too. The facts reveal that MSI exhibited a desire to complete this
transaction, i.e., it acted in good faith.
Fourth, Mercury Development raises a fact question about when MBN notified Catlett
that the property restriction needed to be waived. Did MBN notify MSI on the afternoon of June
9

14 or the morning of June 15 that the property restriction was problematic? This is a question of
fact, but it is inconsequential. The most glaring problem with Mercury Development’s argument
is that MBN’s agent was unsure when MSI was told:
My recollection is I tried to get in touch with Phil McLaughlin [(an MSI
employee)] . . . on the afternoon of the 14th, and to be honest with you, I’m not
sure whether I got him that day or not. The closing was set—and they were to be
here on the morning of the 15th, and they showed up.
....
I know absolutely without question that it was communicated to [MSI] on June
15th.
[R. 27 at 9.] In addition, this factual issue is immaterial. “Only disputes over facts that might
affect the outcome of the suit under the governing law will properly preclude the entry of
summary judgment.” Liberty Lobby, 477 U.S. at 248. The substantive law determines the facts
that are material, id., and the law of good faith, as outlined above, is not impacted by this
unimportant factual question.
Fifth, an email sent from MNB to MSI on June 21 is cited as evidence that MSI was not
acting in good faith. The email stated: “Attached is the letter regarding Somerset. If you need
any changes or additional wording, let me know.” [R. 31-14.] This is the quintessential example
of a scintilla of evidence—an insufficient amount to persist past summary judgment.
“Evidence on which the jury could reasonably find for the plaintiff” is required. Liberty
Lobby, 477 U.S. at 252. The critical question is “whether reasonable jurors could find by a
preponderance of the evidence that the plaintiff is entitled to a verdict—whether there is
evidence upon which a jury can properly proceed to find a verdict for the party producing it,
upon whom the onus of proof is imposed.” Id. (internal quotation marks omitted) (citation
omitted). MNB’s email message suggests that MSI and MNB may have conspired in order to
10

excuse MSI’s performance when financing actually could have been arranged. Furthermore,
MNB’s officer who wrote the letter was deposed and his testimony did not refute Mercury
Development’s accusation in a totally convincing manner.2 But that is the extent of the evidence
in support of Mercury Development’s position.
Weighing against that evidence are the facts identified above: the loan offer letters;

2

The deposition testimony from Mark Roberts, Executive Vice President/Legal Counsel
for MNB:
Q: Why were you—why were you asking Phil McLaughlin if he needed
any changes or additional wording?
A: Well, I wanted to make sure—make sure it was clear to them that they
understood that we could not proceed and the reasons we couldn’t
proceed.
Q: Well, but your—I mean, that was a bank decision, wasn’t it?
A: It was.
....
Q: Why are you asking the potential customer for their blessing on the
letter if, in fact, all the letter is trying to do is convey the bank’s position?
A: Well, I wanted to make sure that they—that that letter—we had the
discussion in the room, and I wanted to make sure that it was clear what
our position was.
Q: Is it not correct, you wanted to make sure that it covered and said what
MSI wanted it to say since Mike Whitaker had been in touch with them
and told them that they needed to go ahead and close this loan?
A: No, I don’t—I don’t know anything about that.
Q: Well, if you were worried that it didn’t clearly convey it, wouldn’t the
proper thing to say is if you have any questions let me know?
A: Possibly.
Q: But, instead, you’re giving them an insight into making sure that the
wording meets their approval, correct?
A: I look at it as making sure that there’s no question as to what our
position was.
Q: But you’re asking the customer for help in crafting the wording of the
bank’s position?
A: No.
Q: Okay.
A: The letter didn’t change.
11

MNB’s title searches; the tardy filing of the restrictions on the property which prevented MNB
from having earlier notice of the restrictions; and the communications on June 15 in which
Mercury Development had the opportunity to obtain a waiver of the restrictions—a waiver that
would have brought about the satisfaction of the financing condition. Mark Roberts also clearly
stated that the decision not to extend financing rested with the bank. [R. 27 at 27.]
This email could be the one mistake in an otherwise flawless conspiracy to unjustly
excuse MSI’s performance. It could be a poorly worded email. It could be an email, in
conjunction with the attached letter, memorializing the reasons for bank financing being refused
in anticipation of litigation, as MSI contends. [R. 32 at 9.] The Court is required to draw all
reasonable inferences in Mercury Development’s favor. But the Court ought not opt for a
conspiracy theory when evidence supports the opposing position.
In sum, and as to all of Mercury Development’s arguments about good faith, the Court
looks to facts in making decisions at summary judgment, avoiding credibility decisions. The
material facts lead to the conclusion that Mercury Development has not rebutted MSI’s weighty
evidence.
D
Mercury Development submits a final argument for breach improperly couched in terms
of good faith. Mercury Development classifies the “most telling evidence” of MSI’s lack of good
faith being that MSI sought financing only in substantial excess of the $150,000 the property
cost. [R. 31 at 15.] Its argument, however, lies within the ambit of the law regarding contract
ambiguity.

[R. 27 at 13.]
12

Of the utmost importance in contract interpretation is ensuring that the intentions of the
parties at the time the contract was entered into are effectuated. See Cantrell Supply, Inc. v.
Liberty Mut. Ins. Comp., 94 S.W.3d 381, 384 (Ky. App. 2002) (citing another source). In a
completely integrated contract, like that at issue here, [R. 31-1 at 3, para. 19); see also Keith v.
Robinson, 2006 WL 3524056, at *2 (Ky. App. Dec. 8, 2006), extrinsic evidence is only allowed
in particular circumstances, such as when a contract term is ambiguous. Cantrell Supply, Inc. 94
S.W.3d at 384. A contract term is ambiguous “if a reasonable person would find it susceptible to
different or inconsistent interpretations.” Id. (quoting Transp. Ins. Co. v. Ford, 886 S.W.2d 901,
905 (1994)). The answer to this question of law is easy: yes. See id. (citing other sources); [see
also R. 29 at 14 (Whitaker labeling this condition as “vague.”); R. 26 at 5 (Skaarup also
describing this term as “vague.”).] A reasonable person could find that the bank financing
requirement, which triggered MSI’s obligation to perform, was satisfied if MSI obtained
financing to cover only the property cost. Or that person could conclude that bank financing was
satisfied only if financing for the whole project costing in excess of $4 million was offered.
Consequently, “extrinsic evidence involving the circumstances surrounding execution of
the contract, the subject matter of the contract, the objects to be accomplished, and the conduct
of the parties” can be considered in resolving the ambiguity. Cantrell Supply, Inc., 94 S.W.3d at
384 (citing several cases). Mercury Development’s claim that “bank financing” only meant
financing for the purchase of the land lacks reference to any evidence now before the Court.3

3

Mercury Development cited Price v. Bartkowiak, 715 F. Supp. 76 (S.D.N.Y. 1989) for
support, but the Court does not find this case helpful. It is a case about a residential real estate
contract in which the buyers were purchasing an existing home. Additionally, the contract
contained specific financing requirements. Moreover, the buyers withheld important personal
financial information, resulting in the loan application being denied, and the buyers being found
13

MSI counters by pointing to two emails sent from Cheryl Mounce, Closing Agent for Southern
Title, LLC, an entity helping with the closing, to Linda Skaarup on June 11. [R. 30-1 at 16.] The
first email, sent by Mounce to Skaarup at 8:54 a.m., contained the U.S. Department of Housing
and Urban Development Estimated Settlement Statement, which includes the amount of the
construction loan—$3,067,875—as of June 11. [R. 30-15.] The second email sent by Mounce at
2:26 p.m. reached Whitaker via Skaarup. That email posed a question pertaining to the
“construction loan” included in the previous email and a related survey that was required before
closing. [R. 30-14.] Whitaker responded, opining about that survey, and not questioning the
construction loan. [Id. at 1.]
MSI’s probative and unrefuted evidence leads the Court to conclude that the only time
Mercury Development misunderstood what “bank financing” meant was when MSI claimed a
lack of financing excused its performance. The Court is persuaded that MSI’s interpretation
accurately portrays the parties’ pre-litigation intent and that the contract ambiguity should be
resolved in MSI’s favor. Consequently, MSI did not breach this agreement.
E
Eagle Realty and Mercury Development assert that MSI committed a fraud on each of
them. The evidence of fraud is that Catlett expressed to Whitaker that the motel restriction “was
of no concern as MSI had been in the business of housing and feeding railroad company
employees for a very long time and that the motel would be used exclusively by Norfolk
Southern employees, as opposed to the general public.” [R. 30-13 at 4.] That representation
allegedly induced Whitaker to contract with MSI. [Id.] The holes in this argument are legion.

to have violated their obligation to act in good faith.
14

Judgment will be granted to MSI.
A fraud claim in Kentucky has six elements that must be proven by clear and convincing
evidence: (1) a material representation; (2) which is false; (3) which is known to be false or made
recklessly; (4) made with inducement to be acted upon; (5) acted in reliance thereon; and (6)
causing injury. Yeager v. McLellan, 177 S.W.3d 807, 809-10 (Ky. 2005) (citation omitted).
Because of the higher burden of proof required for fraud claims, evidence to overcome summary
judgment must meet this higher standard. Liberty Lobby, 477 U.S. at 253.
One of Plaintiffs’ failings is in identifying a false representation. Both Catlett and
Whitaker held the same belief about the property restriction. [R. 30-7.] MNB, because of
different considerations and incentives, found this issue concerning. MNB, then, made the
decision to deny financing. This does not make Catlett’s statement false—it makes it wrong.
And it is only as reckless as was Whitaker’s initial statement: “I feel ok about what you are doing
not conflicting with this exclusion since you are not doing business with the public but I just
want to make you aware of this for future use.” [Id. at 3.]
Plaintiffs’ claim also fails because it has not introduced any evidence showing that
Catlett’s concurrence induced Plaintiffs to contract. In other words, there has been no suggestion
that Catlett believed Mercury Development would only be interested in selling its land if it was
assured that the motel restriction would not create a pitfall making financing unobtainable. If
Catlett did not know that, then element number four is missing. Moreover, Plaintiffs’ claim that
it is undisputed that Catlett’s statement elicited Whitaker’s assent. [R. 31 at 25.] MSI, however,
cites Whitaker’s deposition in which he is asked, “Did you consider this email from [Catlett] that
the motel restriction was no concern, did you consider that in determining whether or not you’d

15

enter into this contract?” [R. 29 at 18.] In other words, did Catlett’s representation induce
reliance? Whitaker’s answer: “Ummm, I don’t know.” [Id.] Therefore, element five is also
missing.
Based on the lack of factual support for the elements that constitute this claim, Plaintiffs’
claims for fraud cannot proceed. Judgment will be granted in MSI’s favor.
F
The final matter that must be addressed is MSI’s counterclaim, [R. 19 at 4-5], seeking
attorney’s fees from Mercury Development.4 In Kentucky, such fees can be awarded if
contemplated in a contract. Batson v. Clark, 980 S.W.2d 566, 577 (Ky. App. 1998) (citing
another source). However, if the contract only becomes effective after the approval of a third
party, then the contract is in actuality a “conditional agreement.” In re Big Rivers Elec. Corp.,
233 B.R. 726, 734 (W.D. Ky. 1998) (citing Green River Steel Corp. v. Globe Erection Comp.,
294 S.W.2d 507, 509 (Ky. 1956)). That agreement only becomes a contract when the “last act
necessary for its formation is complete.” Id. (citing Green River Steel Corp., 294 S.W.2d at 509).
If the third party approval is never garnered, the provisions of the conditional agreement are
unenforceable. Green River Steel Corp., 294 S.W.2d at 509; see also Hopkins v. Performance
Tire & Auto Serv. Ctr., 866 S.W.2d 438, 441 (Ky. App. 1993); Edwards v. Inman, 566 S.W.2d
809, 811 (Ky. App. 1978).
In this case, the Court’s previous holdings indicate that the product of Mercury
Development and MSI’s dealings was a conditional agreement. In that agreement, there is a
provision regarding attorney’s fees that MSI seeks to use: “ENFORCEMENT COSTS AND

4

Eagle Realty is not involved in this counterclaim because they were not a party to the
16

LITIGATION: Should it become necessary to institute litigation to enforce this contract, the
prevailing party shall be entitled to recover costs, including reasonable attorney fees, from the
non-prevailing party.” [R. 30-6 at 3.] Kentucky precedent opposes MSI’s position, and based on
that case law, MSI is denied summary judgment on this claim.
Two cases, also pertaining to conditional agreements over real estate, outline the
justification for denying this claim. In Fentress v. Henderson, 2005 WL 1540253 (Ky. App. July
1, 2005), a conditional agreement was reached in which the condition centered on a particular
appraisal value the real estate at issue had to achieve. Id. at *1. The appraisal was less than
required, but the seller refused to return the buyer’s deposit. Id. The buyer filed suit, seeking the
deposit as well as attorney’s fees based on a provision of the agreement. Id. Distinguishing that
case from this one, the agreement in Fentress had a severability clause. Id. Pursuant to that
clause, “the deletion, alteration, or unenforceability of any provision of the contract, shall not
affect the enforceability of the contract.” Id. The court found that the attorney’s fees provision
could thus stand on its own and be enforced against the seller. Id. at 2.
More recently, in Ward v. Taylor, 2009 WL 1203949 (Ky. App. May 1, 2009), the court
reached a similar conclusion, although the case was before the appeals court after a jury trial
instead of a summary judgment decision. Ward also involved a dispute between a buyer and
seller in which a deposit was withheld after the transfer of real property failed. Id. at *1. The suit
included a claim for attorney’s fees based on language in the agreement. Id. at *4. The jury ruled
in favor of the buyer, and based on the jury instructions found that “the contract was not
binding.” Id. at *5-6. The jury also awarded attorney’s fees based on the agreement, a decision

contract. [R. 30-6.]
17

which the appeals court overturned. Id. at *4. The Ward court explained that because the
contract was not binding on either party and it did not have a severability clause, the fee
provision was also non-binding. Id. at 5. The court noted that the jury instructions lacked clarity
and opaquely opined that with more specific instructions attorney’s fees might have been
available. Id. at 6.
Regardless, the Ward court’s ultimate conclusion controls. The conditional agreement is
non-binding on both parties, and there is no severability clause. Consequently, MSI’s motion
must be denied.
This conclusion, however, leaves this claim pending as Plaintiffs did not seek summary
judgment in their favor. But MSI’s only basis for its claim has been undermined. [See R. 19 at 45.] Federal Rule of Civil Procedure 56(f)(1) is useful in this type of situation. In accordance
with it, the Court puts all parties on notice that it intends to grant summary judgment for
Plaintiffs on this claim. However, before doing so, Rule 56(f)(1) requires “notice and a
reasonable time to respond.” Therefore, Plaintiffs and Defendant have fifteen (15) days from the
entry of this order to file any response to the Court’s stated intent. If no responses are filed, the
Court will enter an order of judgment for Plaintiffs on this claim.
III
Accordingly, and the Court being sufficiently advised, it is hereby ORDERED as
follows:
(1)

Defendant Motel Sleepers, Inc.’s Motion for Summary Judgment [R. 30] is

GRANTED as to all claims against it brought by Plaintiffs Mercury Development, LLC and
Eagle Realty & Development, LLC; and
18

(2)

Defendant Motel Sleepers, Inc.’s Motion for Summary Judgment [R. 30] on its

counterclaim is DENIED and notice pursuant to Rule 56(f)(1) is provided above.
(3)

The dates for the Final Pretrial Conference and Trial are SET ASIDE pending

final resolution of Motel Sleepers, Inc.’s Counterclaim.
This 11th day of February, 2013.

19