SMITH (SAM) VS. PHOENIX INVESTMENTS, LLCAnnotate this Case
RENDERED: AUGUST 15, 2008; 2:00 P.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
APPEAL FROM OLDHAM CIRCUIT COURT
HONORABLE KAREN A. CONRAD, JUDGE
ACTION NO. 07-CI-00401
PHOENIX INVESTMENTS, LLC
d/b/a PROSPECT SELF STORAGE
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BEFORE: CLAYTON, DIXON, AND WINE, JUDGES.
DIXON, JUDGE: Sam Smith appeals from an order of the Oldham Circuit Court
dismissing his complaint against Phoenix Investments, LLC (“Phoenix”), pursuant
to Kentucky Rules of Civil Procedure (CR) 12.02(f). We affirm.
On August 2, 2006, Smith signed a rental agreement to lease a storage
unit owned by Phoenix. The agreement included the following paragraph:
3. INSURANCE. ALL PERSONAL PROPERTY IS
STORED BY OCCUPANT AT OCCUPANT’S SOLE
RISK. INSURANCE IS OCCUPANT’S SOLE
RESPONSIBILITY. Occupant agrees to indemnify and
hold harmless owner from any Loss incurred in any way
arising out of Occupant’s use of the Premises or the
Smith thereafter stored his personal property in the unit, including oriental rugs, a
piano, bookcases, and artwork. On February 17, 2007, Smith discovered that his
property was severely damaged by water that had leaked into the unit from the
roof. Smith filed a claim with his insurance company, which was denied.
On April 26, 2007, Smith filed a complaint against Phoenix raising
several claims, including negligence and breach of contract. Phoenix did not file
an answer; instead, it moved to dismiss the complaint because the exculpatory
clause in the rental agreement barred Smith’s claims. The court accepted written
briefs from the parties and ultimately granted the motion to dismiss on August 27,
2007. Smith subsequently filed a motion to reconsider. On September 20, 2007,
the court rendered a decision clarifying its prior order and denying Smith’s motion
to reconsider. This appeal followed.
Smith contends the court erred in dismissing his complaint because
the exculpatory clause does not contemplate damages caused by Phoenix’s own
negligence. Smith alternatively argues that the exculpatory clause is void because
it violates public policy.
Dismissal of a complaint for failure to state a claim is appropriate only
when “it appears the pleading party would not be entitled to relief under any set of
facts which could be proved in support of his claim.” Pari-Mutuel Clerks' Union
of Kentucky v. Kentucky Jockey Club, 551 S.W.2d 801, 803 (Ky. 1977).
Furthermore, “the circuit court is not required to make any factual determination;
rather, the question is purely a matter of law.” James v. Wilson, 95 S.W.3d 875,
884 (Ky. App. 2002).
First, Smith asserts that the exculpatory clause does not clearly
exempt Phoenix from liability for its own negligence. Smith relies on two cases,
Hargis v. Baize, 168 S.W.3d 36 (Ky. 2005) and Cumberland Valley Contractors,
Inc. v. Bell County Coal Corp., 238 S.W.3d 644 (Ky. 2007). In Hargis, the Court
addressed the validity of a pre-injury release purporting to hold an employer
harmless for the work-related death of an independent contractor. Hargis, 168
S.W.3d at 39-40. The Court noted,
An exculpatory contract for exemption from future
liability for negligence, whether ordinary or gross, is not
invalid per se. However, such contracts are disfavored
and are strictly construed against the parties relying upon
them. The wording of the release must be ‘so clear and
understandable that an ordinarily prudent and
knowledgeable party to it will know what he or she is
contracting away; it must be unmistakable.’
Id. at 47 (internal citations omitted). The Hargis Court also stated that a pre-injury
exculpatory release is valid where:
(1) it explicitly expresses an intention to exonerate by
using the word ‘negligence;’ or (2) it clearly and
specifically indicates an intent to release a party from
liability for a personal injury caused by that party's own
conduct; or (3) protection against negligence is the only
reasonable construction of the contract language; or (4)
the hazard experienced was clearly within the
contemplation of the provision.
Id. (citations omitted).
We also note that the Court’s recent decision, Cumberland Valley,
supra, quoted Hargis with approval. Cumberland Valley Contractors, Inc., 238
S.W.3d at 649-50. In that case, the Court addressed an exculpatory clause in a
contract between a coal mine operator and an independent contractor. Id. The
Court concluded that the exculpatory provision exempted the mine operator from
liability when the mine flooded and damaged the contractor’s equipment. Id. The
Court cited the fourth factor delineated in Hargis as a basis for upholding the
provision. Id. at 650.
Despite Smith’s argument to the contrary, we find that the exculpatory
provision here is enforceable pursuant to Hargis. The inclusive phrasing, “AT
OCCUPANT’S SOLE RISK” and “any Loss incurred in any way,” falls under the
third Hargis factor: that “protection against negligence is the only reasonable
construction of the contract language.” Hargis, 168 S.W.3d at 47. The broadly
worded language in the agreement clearly manifests the intent of Phoenix to place
all risk of loss on the occupant, Smith. Consequently, we conclude the exculpatory
provision is enforceable and bars Smith’s claim as a matter of law.
Smith alternatively argues that the exculpatory clause is unenforceable
because it violates public policy. We disagree.
Our Supreme Court addressed this issue in Cumberland Valley, supra:
Recognizing the importance of freedom to contract, the
courts of this Commonwealth have traditionally enforced
exculpatory provisions unless such enforcement violates
public policy. And despite perceived inconsistencies in
recent Kentucky case law, the basic principles regarding
the enforceability of exculpatory clauses or contracts
were set forth over a century ago in Greenwich
Insurance Co. v. Louisville & Nashville Railroad Co.,
[112 Ky. 598, 66 S.W. 411 (1902)]. In deciding to
uphold the exculpatory clause at issue there, our
predecessors noted that the parties were ‘dealing at arm's
length and upon an equal footing[,]’ and that the contract
was entered into voluntarily without either party being
compelled to enter into the contract on the basis of
necessity. Therefore, the railroad could validly contract
away liability for its own negligence ‘however gross,
short of wantonness or willfulness’ toward the brewing
company, which leased land located in the railroad's
right-of-way and built a cold storage house on the rightof-way.
Cumberland Valley Contractors, Inc., 238 S.W.3d at 650 (internal footnotes
omitted). The Court went on to determine that the exculpatory clause was
enforceable “as part of an arm's-length transaction between sophisticated parties
with equal bargaining power.” Id.
Smith contends that Phoenix was a more sophisticated party in a
superior bargaining position when he signed the agreement. Smith also argues
that, as a customer, he was not in a position to inspect the roof of the storage unit
or anticipate that Phoenix would fail to maintain the roof.
We are not persuaded by Smith’s argument. The terms of the
agreement clearly placed all risk of loss on Smith. There is no allegation that
Smith was forced to agree to Phoenix’s terms out of necessity. In our view, Smith
was free to decline Phoenix’s rental agreement and take his business to a different
self-storage facility if he was dissatisfied. Although Phoenix was in the business
of renting storage units, Smith, as a customer, was on equal footing because he was
free to walk away from the deal and patronize one of Phoenix’s competitors. We
conclude the exculpatory clause does not violate public policy.
For the reasons stated herein, the order of the Oldham Circuit Court is
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Ben S. Harralson
R. Douglas Burchett
Angela D. Lucchese