4 ZANE MANAGEMENT, LLC VS. SOUTHEASTERN REAL ESTATE, INC.Annotate this Case
RENDERED: SEPTEMBER 5, 2008; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
4 ZANE MANAGEMENT, LLC
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE GEOFFREY P. MORRIS, JUDGE
ACTION NO. 04-CI-008833
SOUTHEASTERN REAL ESTATE,
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BEFORE: CLAYTON, DIXON AND WINE, JUDGES.
WINE, JUDGE: 4 Zane Management, LLC (“4 Zane”) appeals the Jefferson
Circuit Court’s order granting attorney fees to Southeastern Real Estate, Inc.
(“Southeastern”) during a foreclosure action. Finding no error, we affirm.
The facts of this case are not in dispute. On September 2, 2003,
Southeastern conveyed a parcel of real property located at 1111 Zane Street,
Louisville, Kentucky (“Zane Street Property”) to a group of investors consisting of
TKY Investments, Inc.; Yoni Cohen and his wife, Harriet Cohen; Isaac Azencot
and his wife, Anat Cohen; and Uri Cohen and his wife, Natalie Cohen. In addition
to $200,000.00 in cash, they gave Southeastern a mortgage for $525.000.00 with
monthly payments of $4,289.69. Subsequently, on September 16, 2003, Yoni
Cohen, Tal Yona, Uri Cohen and Isaac Azencot formed 4 Zane. Thereafter, the
Zane Street Property was conveyed to 4 Zane by the original purchasers of the
property via quitclaim deed in September 2003. Following execution of this deed,
4 Zane assumed all duties and obligations under the note and property mortgage.
The mortgage required the purchasers to maintain fire insurance
coverage on the Zane Street Property. Pursuant to this provision, 4 Zane acquired
property insurance coverage against fire loss in the amount of $750,000.00 in
November 2003. However, the insurance policy terminated in November of 2004
and 4 Zane was unable to secure replacement insurance.
On October 19, 2004, 4 Zane and Yoni Cohen filed suit against
Southeastern and its owner, Joseph Dooley, alleging various contractual claims and
seeking to recover rents and utility money incurred by Southeastern during its use
of the Zane Street Property. Joseph Dooley and Southeastern counterclaimed
against Yoni Cohen and 4 Zane and filed a third-party complaint against Harriet
Cohen, Uri Cohen, Natalie Cohen, Tal Yona, Keren Yona, Isaac Azencot, Anat
Azencot, M-H Properties, Inc., and TKY Investments, Inc., seeking to accelerate
the mortgage and foreclose on the Zane Street Property, asserting that they had
failed to insure the property as required by the mortgage.
After extensive briefing, the trial court entered an order on April 10,
2007, granting Southeastern’s motion for partial summary judgment as to the
amounts due and owning under the terms of the parties’ mortgage and note,
including attorney fees pursuant to Kentucky Rules of Civil Procedure (“CR”)
54.02(1). The court found that Southeastern was entitled to accelerate the
mortgage pursuant to Clause Three because the property was not covered by fire
insurance and further was entitled to recover attorney fees pursuant to Clause Five.
On April 12, and June 20, 2007 (supplement), 4 Zane moved the court to
reconsider its April 10 order. The trial court denied the motions on September 4,
2007. This appeal followed.
On appeal, 4 Zane asserts that the trial court erred in granting attorney
fees to Southeastern. 4 Zane argues that the mortgage contract does not clearly
authorize an award of attorney fees under these circumstances. Given this
ambiguity, 4 Zane contends that the contract provision allowing an award of
attorney fees should be narrowly construed.
“Generally, the interpretation of a contract, including determining
whether a contract is ambiguous, is a question of law for the courts and is subject
to de novo review.” Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381,
385 (Ky. App. 2002). The first question when interpreting a contract is whether
the terms are ambiguous. In the absence of ambiguity, “a court will interpret the
contract’s terms by assigning language to its ordinary meaning and without resort
to extrinsic evidence.” Frear v. P.T.A. Industries, Inc., 103 S.W.3d 99, 106 (Ky.
The parties agree that the mortgage outlines three types of default in
the Second, Third, and Fourth Clauses. The Second Clause provides for default for
non-payment of property taxes and assessments; the Third Clause for failure to
maintain insurance on the property; and the Fourth Clause for non-payment of the
mortgage. If 4 Zane failed to adhere to one of these clauses, Southeastern could
treat the note as due and proceed to enforce the mortgage.
In this case, 4 Zane failed to maintain fire insurance as required by
Clause Three, which reads as follows:
The mortgagors further covenant, that until the note and
interest aforesaid are fully paid, they will keep the
improvements upon the tract of land herein conveyed,
insured against loss from fire in the tract of land herein
conveyed, insured against loss from fire in the sum of at
least $725,000.00, or to the extent of the value of the
improvements if more; will cause the policy or policies
therefore to be made payable to or transferred to the
mortgagee, as collateral security, for the payment of the
debt hereby secured, the proceeds of such insurance to be
applied to its payment, and to deposit all such policies
with the mortgagee or the holder of said note; If
mortgagors fail to obtain said insurance, then mortgagee,
at its option, may obtain same and add the cost thereof to
the note to earn interest as stated on said note or the
mortgagee or the holder of said note, may, at their option,
treat the said note as due, and may proceed to enforce
this mortgage therefore.
Thus, in the event that 4 Zane failed to have the appropriate fire insurance,
Southeastern had the option of obtaining the insurance itself or proceeding to
enforce the mortgage (treat as a default). 4 Zane points out that this clause does
not authorize an award of attorney fees. Rather, the only reference to attorney fees
is found in Clause Five, which specifically authorizes attorney fees upon default in
In the event mortgagors default on the payments herein,
and renting the premises, then mortgagee may collect any
and all rents, after default, and mortgagors do hereby
assign said rent proceeds to mortgagee as additional
security for this debt. Upon default mortgagors shall pay
all costs of collection including mortgagee’s reasonable
attorney fees. All parties hereto agree exclusive
jurisdiction and venue for enforcement or collection or
any other action concerning this mortgage shall be
Jefferson County, Kentucky, and that this mortgage shall
be governed by Kentucky law.
4 Zane maintains that the attorney fees provided in Clause Five apply only to a
default under that section – for a default in mortgage payments. Thus, 4 Zane
argues that attorney fees are not authorized for a default based upon the earlier
sections. We disagree.
Clause Five is not a separate ground for default, but is merely a
general section outlining the mortgagee’s rights upon the mortgagor’s default. The
first sentence provides that, upon “default in payments,” Southeastern is entitled to
collect and to take an assignment of any rent proceeds. The term “default in
payments” as used in this sentence clearly refers to the payments owed for taxes
and assessments, failure to maintain insurance, and non-payment of the mortgage
in Clauses Two through Four. Likewise, the following sentence clearly allows
Southeastern to recover attorney fees upon the mortgagor’s default on any
provision of the mortgage. Since 4 Zane’s failure to maintain fire insurance
amounted to a default on its obligations under the mortgage, the trial court was
authorized to award attorney fees to Southeastern.
Accordingly, the Jefferson Circuit Court’s order awarding attorney
fees to Southeastern is affirmed.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Mark B. Wallace
Donald L. Cox
John D. Cox
Reva D. Campbell