Kitchens v. Turquoise Properties Gulf Inc.Turquoise Properties Gulf Inc. v. Blakely M. Kitchens

70 So.3d 377

Blakely M. KITCHENS, Morgan D. Kitchens, and Kitchens Properties

v.TURQUOISE PROPERTIES GULF, INC.Turquoise Properties Gulf, Inc.

v.Blakely M. Kitchens, Morgan D. Kitchens, and Kitchens Properties.

2090791.

Court of Civil Appeals of Alabama.

Nov. 12, 2010.Rehearing Denied Feb. 4, 2011.Certiorari Denied April 8, 2011

Alabama Supreme Court 1100577.

Adam M. Milam and Shelley H. Milam of Milam & Milam, LLC, Fairhope, for appellants/cross-appellees Blakely M. Kitchens, Morgan D. Kitchens, and Kitchens Properties.Daniel G. Blackburn, Mark H. Taupeka, and Rebecca A. Gaines of Blackburn & Conner, P.C., Bay Minette, for appellee/cross-appellant Turquoise Properties Gulf, Inc.THOMPSON, Presiding Judge.

Blakely Kitchens, Morgan Kitchens, and Kitchens Properties (hereinafter collectively “the Kitchenses”) appeal from a judgment of the Baldwin Circuit Court (“the trial court”) denying their request for the trial court to consider additional compensatory damages in recalculating the amount of punitive damages awarded to them by an arbitrator. Turquoise Properties Gulf, Inc. (“Turquoise Properties”), cross-appeals from the same judgment, in which the trial court modified the arbitration order to increase the ratio of punitive damages to compensatory damages.

This dispute arose when the Kitchenses refused to close on the sale of three units in Turquoise Place, a condominium complex that Turquoise Properties was developing in Orange Beach. Because the parties challenge only the amount of damages awarded and not the arbitrator's findings regarding liability on the claims and counterclaims the parties raised, a full recitation of the evidence presented is unnecessary. The facts relevant to this appeal are as follows:

On March 24, 2005, Morgan Kitchens (“Morgan”) and Blakely Kitchens (“Blake”), who are brothers, each entered into a purchase agreement to purchase two adjoining units in Turquoise Place. Each unit cost $1,200,900. Morgan and Blake each posted a letter of credit in the amount of $240,180, or 20% of the total purchase price, as a deposit on his respective unit.

Also on March 24, 2005, Kitchens Properties, a partnership between Morgan and Blake, entered into a purchase agreement for a third unit in Turquoise Place. The price for that unit was $1,215,900. Kitchens Properties posted a letter of credit in the amount of $243,180, or 20% of the total purchase price, on the unit it had agreed to buy.

As the Turquoise Place development neared completion, certificates of occupancy were issued for the Kitchenses' units. In June 2008, Turquoise Properties sent the Kitchenses letters demanding that they close on the units they had agreed to purchase. At that time, however, the pool for the development had not been completed, and storage units and cabanas that had been part of the proposal for the Turquoise Place development had not been built because of a lack of interest in the structures. The storage units and cabanas were to be purchased separately from the residential units in Turquoise Place. The Kitchenses refused to close because, they said, the proposed storage units and cabanas were unique to Gulf Coast condominiums and were among the reasons the Kitchenses had decided to purchase units in Turquoise Place. Turquoise Properties offered to build storage units and cabanas for the Kitchenses if they agreed to close on their units. Nonetheless, the Kitchenses refused to close because, they said, they were relieved from their obligations to purchase the units because Turquoise Properties had failed to deliver what had been promised in its sales brochure.

The purchase agreements provided that, in the case of a default by the purchaser, Turquoise Properties was entitled to retain 15% of the total purchase price of the unit. The Kitchenses had paid 20% of the total purchase price of each of the units. However, when the Kitchenses refused to close on any of the units, Turquoise Properties did not refund the additional 5% of the purchase price the Kitchenses had paid.

On March 24, 2008, the Kitchenses sued Turquoise Properties and its principal, Larry Wireman; Caribe Realty, the sales agent for Turquoise Place; and Wireman's wife, Judy Ramey Wireman, who was a principal with Caribe Realty (collectively “the Turquoise Properties defendants”), alleging breach of contract, fraud, and violations of the Interstate Land Sales and Full Disclosure Act (“the ILSFDA”), 15 U.S.C. § 1701 et seq., and the Alabama Uniform Condominium Act (“the AUCA”), § 35–8A–101 et seq., Ala.Code 1975. The Kitchenses later filed an amended complaint that, among other things, added U.S. Bank, N.A. as a defendant and alleged a claim of conversion against U.S. Bank and Turquoise Properties. As to the conversion claim, the Kitchenses claimed that, because the purchase agreements allowed Turquoise Properties to retain 15% of the total purchase price in the case of a default by the purchaser, and because they had paid 20% of the purchase price of each unit as their deposits, Turquoise Properties was unlawfully refusing to refund 25% of each deposit, or 5% of the total purchase price of each unit. The parties and the arbitrator referred to the money at issue as the “5% excess.” At the time the complaint was filed, U.S. Bank was holding the deposits in escrow.

The Turquoise Properties defendants filed a counterclaim against the Kitchenses alleging misrepresentation under the AUCA and the ILSFDA, deceit, defamation, interference with a contractual relationship, and claims under the Alabama Litigation Accountability Act, § 12–19–270 et seq., Ala.Code 1975. The Turquoise Properties defendants moved to compel arbitration, as provided in the purchase agreements. The trial court granted the motion, and the matter went to arbitration.

The arbitration hearing was held on June 10, 11, and 12, 2009. On June 15, 2009, the arbitrator entered an interim order directing U.S. Bank to refund $60,045 each to Morgan and Blake and $60,795 to Kitchens Properties, which represented 25% of the principal amounts of their deposits, plus interest. The arbitrator went on to say that payment of the refunds did not affect any pending claims, defenses, or rights to the remaining amounts on deposit. The money was paid to the Kitchenses on June 22, 2009.

On September 30, 2009, the arbitrator issued its final order. The arbitrator found in favor of the Turquoise Properties defendants on all the Kitchenses' claims except for the conversion claim asserted against Turquoise Properties. ¹ He found in favor of the Kitchenses on all the Turquoise Properties defendants' counterclaims. As to the conversion claim against Turquoise Properties, the arbitrator found that Turquoise Properties had wrongly withheld the 5% excess from the Kitchenses because they had sought to enforce their rights against Turquoise Properties. In the order, the arbitrator found that the 5% excess had been improperly withheld for 13 months, and he ordered Turquoise Properties to pay 6% interest on the excess for that period. The arbitrator calculated that Morgan and Blake were both due $3,602.70 in interest and that Kitchens Properties was due $3,647.70 in interest.

In addition, the arbitrator held that Turquoise Properties' “conversion of the [Kitchenses'] money was willful and intended to oppress and aggravate the [Kitchenses].” The arbitrator further held “that a 3:1 ratio for punitive damages is not excessive” and “that the proper measure of damages since the five percent (5%) excess has now been repaid is a multiple of the interest lost on said money rather than the amount withheld.” The arbitrator awarded Morgan and Blake damages of $10,808.10 each and awarded Kitchens Properties damages of $10,943.10. The balance of the Kitchenses' deposits that were being held in escrow were ordered to be turned over to Turquoise Properties.

The Kitchenses filed with the arbitrator a motion to modify the arbitration award because of alleged computational errors. In support of their motion, the Kitchenses argued that, because Turquoise Properties had acted willfully and oppressively in withholding the 5% excess, they should have been awarded punitive damages, at a 3:1 ration, based upon the amount of the principal the arbitrator ordered returned to them in the interim order and not just on the interest awarded in the final order. The arbitrator denied the motion on November 3, 2009.

The Kitchenses timely appealed the arbitrator's award to the trial court. On February 2, 2010, the Baldwin circuit clerk entered a judgment on the arbitrator's award. The Kitchenses then filed a motion asking the trial court to modify, correct, or vacate the arbitration award as to the conversion claim against Turquoise Properties, asserting that the arbitrator had exceeded his authority, had exhibited evident partiality, and had engaged in misconduct or misbehavior that had prejudiced the Kitchenses' rights by awarding inadequate damages. The Kitchenses asserted that punitive damages should have been calculated based on both the amount of the 5% excess that the arbitrator had ordered Turquoise Properties to refund to them and the interest that had accrued on the excess. Alternatively, the Kitchenses argued, the award was due to be modified because, they said, the arbitrator had miscalculated the amount of punitive damages, awarding them punitive damages based upon the amount of interest awarded, at a 2:1 ratio rather than the 3:1 ratio to which the Kitchenses contended they were entitled.

Upon consideration of the Kitchenses' motion, the trial court entered a judgment increasing by one-third the amount of punitive damages awarded. In its judgment, the trial court stated as follows:

“[T]here seems to be an ambiguity in the award of monetary damages compared to the findings by the arbitrator. While the Court has concerns regarding the arbitrator's grant of punitive damages on the interest accrued and not on the converted...