United States District Court, D. Kansas
October 12, 2005.
STEVEN T. STEIN and JOLEEN K. STEIN, Plaintiffs,
GREGORY L. STEIN, SHARON W. STEIN, MERIDIAN TOWN CENTER LLC, MERIDIAN PLACE, LLC and PL WEST, LLC, Defendants.
The opinion of the court was delivered by: J. MARTEN, Judge
MEMORANDUM AND ORDER
This matter comes before the court on the defendants' Motion
for Summary Judgment (Dkt. No. 101), defendants' Motion for
Reconsideration (Dkt. No. 108), and plaintiffs' Motion to
overrule objection to pre-trial order and/or to amend pleadings
(Dkt. No. 112). After reviewing the briefs, the court grants
defendants' Motion for Summary Judgment and denies the remaining
motions as moot.
I. FINDINGS OF FACT
Plaintiff Steve Stein (age 54) and defendant Greg Stein (age
52) are natural brothers. For most of his working life, Steve has
been a career banker in Kansas. Since 1995, Greg has been a real
estate developer in the Seattle, Washington area.
A. Prior Real Estate Developments in Washington
By the beginning of year 2000, Greg had already done several
real estate developments in Seattle, two of which 120 Aloha Associates LLC (hereafter
"Aloha") and 2840 Madison Street Associates LLC, both Washington
limited liability companies (hereafter "LLC") Steve and his
wife Joleen participated in as investors. On Aloha, the two
couples were accompanied by Sharon's brother, Lindsey Woolf, and
his wife, Amy. None of the capital contributed in Aloha was
returned to the "investors" until after the completion of the
development and sale of the units.
There was another project prior to 2000, the 1005 Fifth Avenue
Project, which Steve and Joleen declined to participate in
because they felt it too risky. There was also a project, the
"Timber Deal," which Steve and Joleen declined to participate in
as equity investors but agreed to loan Greg money for use. On the
projects in which plaintiffs were involved as equity investors,
which included Aloha, the relationship of the parties was defined
in a written LLC operating agreement. On the projects for which
plaintiffs were lenders, as in the case of the Timber Deal, there
were no promissory notes, no security agreements, no collateral
pledged, no terms specifically negotiated and no basic
documentation of any kind. In fact, there has never been any
documentation for a loan from Steve to Greg.
B. Meridian Town Center Development
In January 2000, Greg, through his development entity, Western
Front Development, Inc., (hereafter "WFDI") signed a purchase
agreement for the purchase of a partially-begun shopping center
development in the State of Washington known as Meridian Town
Center (hereafter "MTC"). He believed the purchase to be a good
opportunity because a recent appraisal on the project valued the
land at $9 million whereas he could acquire it under the purchase
agreement for under $6 million, and there were safety nets in the
form of offers that existed to purchase portions of the land. The project as it then existed had numerous
liens, had been a failure with prior development efforts by
others, and had many issues to be overcome prior to a successful
Because of the opportunity, Greg invited his brother, Steve, to
participate in MTC. Steve visited Seattle and the site of the
development, and talked to people familiar with the project. He
declined to invest with Greg. The parties disagree as to the
exact reasons why.
The parties at this juncture dispute what factually happened
next. After Steve and Joleen declined to be equity investors,
Greg contends that he offered to personally guarantee the return
of plaintiffs' money, if Steve and Joleen would be lenders.
Plaintiffs agree that Greg offered to guarantee their money but
contend their role was nevertheless as equity investors. Greg
contends that Steve agreed in February or March 2000 for himself
and Joleen to be a lender of a portion of the funds necessary to
acquire the land; plaintiffs, on the other hand, deny they were
ever lenders and claim they were "equity investors" from the
outset. Plaintiffs claim they based their decision to invest on a
"proposal" received from Greg on April 7, 2000, which they
believe were the terms and conditions of the agreement under
which plaintiffs would be equity investors in the MTC project and
allow their net worth to be utilized to obtain the loans to
purchase the real property where MTC was located. Plaintiffs
claim that in early May 2000 they accepted the written offer
outlined in the April 7, 2000 fax and attachment.
C. The "Written Contract"
Plaintiffs assert that Greg sent them a fax on April 7, 2000,
denominated "Investor Proposal" which contained all of the terms
essential to an agreement and that they accepted the proposal
thereby forming a binding, enforceable "written contract."
However, while plaintiffs assert in this lawsuit that the relationship in this case is
based upon a written contract, in their recent deposition they
acknowledged that part of the "agreement" was oral and part
contained in the written April 7, 2000 "proposal." Plaintiffs,
however, contend that the oral portion is not inconsistent or
different in any manner than those terms of the written April 7,
2000 agreement. Steve has testified that he reversed his earlier
decision not to get involved and "accepted" this April 7, 2000
"proposal" upon receipt of it; Joleen Stein testified that she
"accepted" the proposal to be an "equity investor" on May 4,
D. $1.4 Million Wired to Seattle
Plaintiffs borrowed $1.4 million from Bank of Tescott, Salina,
Kansas and the funds were wired to the defendants on May 4, 2000.
The land transaction closed on May 9, 2000. Of that $1.4 million,
$425,000 of it was returned to plaintiffs by Greg on May 9, 2000
five days later because the money was not needed to close on
the land acquisition. The bulk of the purchase price came from a
loan defendant PL West, LLC (hereafter "PL West") obtained from
Washington Capital in the amount of $5 million.
E. Accrual of Plaintiffs' Cause of Action
Regardless of any other conflicting factual assertions, it is
undisputed that Steve and Greg had a face-to-face meeting a year
later in Steve's office in Salina, Kansas, in mid-May, 2001 where
the brothers had a heated argument.
At a minimum, Steve has testified that at the May 2001 meeting,
the argument was precisely over whether Steve and Joleen were
lenders or equity investors and the issue that has led to this
lawsuit was fully joined. Greg asserted unequivocally that
plaintiffs were lenders only; Steve asserted they were equity
investors. Plaintiff contends that in a December 18, 2002 email Greg acknowledged Steve's interest as equity investors
stating in an email "Relative to Steve's interest in the
development, we have yet to finalize his
participation/receivable. Tax returns that have been filed do not
indicate he has an ownership position, however, you can be
assured he has no liability or involvement other than the note at
the Bank of Tescott that we have been discussing." Dkt. No. 109,
Exhibit H, at p. 59. Also in a July 19, 2003 email Greg sent to
Steve, Greg noted that Steve wanted to formalize his interest in
the deal but Greg advised, "[o]n several occasions when you have
indicated we needed to formalize your interest in the deal, I
have asked you to provide a draft of what you are looking for."
Dkt. No. 109, Exhibit 5, at pp. 12.
Steve testified that they left the meeting with these opposite
positions. And, those positions haven't changed. Plaintiffs also
note that there is no written communication prior to May 1, 2001,
in which Greg indicated that plaintiffs' position is anything but
that of an equity owner.
It is undisputed when Steve and Greg had their heated exchange
in May 2001, Steve gave Greg an ultimatum: "I told him if that's
your interpretation of where we're at and what's going to happen,
then I was calling the loan. I want to be paid off immediately.
If he intended us to be lenders, we had never negotiated any
terms, any maturity date, nothing had ever been talked about a
loan to that point in time. If that was the position he was going
to take, then I said go find another lender and pay us off."
Plaintiffs have testified that the $1.4 million they "invested"
in the project was entirely a "capital contribution" and that it
would be left in the project as needed by Greg. Plaintiffs
expected their money to be left in the project "until the
investment was either sold out or, you know, completed and there was a return on the capital."
F. Repayment of $1.4 Million with Interest
After the May 2001 argument between the brothers, Greg Stein
made interest and principal payments on the loan defendants
contend plaintiffs made to PL West. The entire loan principal
and interest alike was completely retired in March 2004.
However, plaintiffs contend that defendant PL West actually made
payments on the $5 million loan to Washington Capital and
ultimately refinanced that loan and made payments to pay off the
$1.4 million loan from the Bank of Tescott.
Plaintiffs' alleged "capital contribution" was thus completely
repaid, together with over $200,000 in total interest, even
though plaintiffs concede in their testimony there was no
provision in the alleged oral or written "agreement" for the
repayment of capital or the payment of interest on a capital
contribution. Plaintiffs further allege that the loan from
Washington Capital went into default and was ultimately renewed
approximately 13 months after it went into default, and
plaintiffs were not released from their personal guarantees on
the Washington Capital note until that note was paid off on
November 25, 2002. Plaintiffs allege that the $1.4 million loan
to the Bank of Tescott was not paid off until March 2004.
At the time the defendants' loan was made, plaintiffs and
defendants signed personal guarantees for the Washington Capital
loan. Plaintiffs contend that the parties were not co-equal in
their personal guarantees as Washington Capital would not have
made the $5 million loan without the express involvement and
personal guarantee by plaintiffs. By November 2002, that loan was
paid off and plaintiffs were released from their personal
After May 2001, plaintiffs focused on trying to get their loan
paid off by defendants. Greg's expectation to re-pay the plaintiffs' loan much sooner
than he was able to was thwarted by the economic effect of the
terrorist events of September 11, 2001, and the onerous actions
of a difficult anchor tenant. Plaintiffs contest this arguing
that plaintiffs were trying to get an LLC agreement as the
parties originally agreed.
G. Plaintiffs Commence Lawsuit
Plaintiffs filed their complaint on September 20, 2004. In
their amended complaint, plaintiffs asserted the following
claims: 1) breach of contract; 2) fraud; 3) unjust enrichment; 4)
breach of duty of good faith and fair dealing; 5) breach of
fiduciary duties 6) punitive damages; and 7) accounting.
Plaintiffs submitted approximately 27 pages of "additional
statements of uncontroverted facts" in their response. However,
the court does not find these facts material or necessary in
determining the legal issues before this court.
II. STANDARD OF REVIEW
Summary judgment is proper where the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show there is no genuine issue as to any
material fact, and that the moving party is entitled to judgments
as a matter of law. Fed.R.Civ.P. 56(c). In considering a
motion for summary judgment, the court must examine all of the
evidence in a light most favorable to the opposing party.
Jurasek v. Utah State Hosp., 158 F.3d 506, 510 (10th Cir.
1998). The party moving for summary judgment must demonstrate its
entitlement to summary judgment beyond a reasonable doubt. Baker
v. Board of Regents, 991 F.2d 628, 630 (10th Cir. 1993). The
moving party need not disprove the nonmoving party's claim or
defense; it need only establish that the factual allegations have
no legal significance. Dayton Hudson Corp. v. Macerich Real
Estate Co., 812 F.2d 1319, 1323 (10th Cir. 1987).
The party opposing summary judgment must do more than simply
show there is some metaphysical doubt as to the material facts.
"In the language of the Rule, the nonmoving party must come
forward with `specific facts showing that there is a genuine
issue for trial.'" Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986) (quoting Fed.R.Civ.P.
56(e)) (emphasis in Matsushita). The opposing party may not
rely upon mere allegations or denials contained in its pleadings
or briefs. Rather, the opposing party must present significant
admissible probative evidence supporting that party's
allegations. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256
A. Breach of Contract Claim
To fall within Kansas' five year statute of limitations for an
action on written contract, the agreement, contract or promise
must contain all material terms in writing. K.S.A. § 60-511(1).
Turner and Boisseau, Inc. v. Nationwide Mut. Ins. Co.,
944 F. Supp. 842, 846 (D. Kan. 1996) (citing Zenda Grain & Supply Co.
v. Farmland Indus., Inc., 20 Kan.App.2d 728, 894 P.2d 881, 893
(1995); Chilson v. Capital Bank, 10 Kan.App.2d 111,
692 P.2d 406, 408 (1984), aff'd, 237 Kan. 442, 701 P.2d 903 (1985)). A
contract which is partly in writing and partly oral is in legal
effect an oral contract. Id. (citing Chilson,
692 P.2d at 408). Kansas law limits the statute of limitations for oral
contracts to three years. K.S.A. § 60-512(1). Similarly, where a
writing is dependent upon implied promises which are not express
provisions of the written agreement, the three-year statute of
limitations controls a cause of action based on the agreement.
Turner, 944 F. Supp at 846 (citing Zenda,
894 P.2d at 893-94). The central issue on which this action is predicated is whether
all the material terms of the contract are in the written
agreement. The court finds that it is not. In support of their
claim of a written agreement, plaintiffs repeatedly refer to an
April 7, 2000 fax from Greg to Steve. The document entitled
"Meridian Town Center Investor Proposal." By its very terms, the
fax does not constitute an agreement. The only comments on the
See attached proposal and proforma. As we discussed
earlier, the initial proposal to the investors was a
2/3 developer 1/3 investor split deal with the land
being left in at full value for the developer and the
investors receiving a priority return of equity. The
attached structure represents a 50/50 split for the
10 acre parcel.
Dkt. No. 42, Exhibits 9, at pp. 68-69; Exhibit 10, pp. 1-7. As it
is titled, the document is merely a "proposal." There is no
signature, no statement on what is required to accept the
proposal, and no indication of who the investors may be, besides
what may be construed from the "To" and "From" line. Plaintiffs
argue that the contract at issue "provided that in exchange for
plaintiffs' providing their personal guarantees and pledging
their net worth to secure loans from both Kansas and Washington
lenders, plaintiffs were to receive a 50 percent ownership
interest in PL West, LLC." Dkt. No. 109, at p. 39. However, the
agreement does not state that plaintiffs were to provide their
personal guarantees or pledge their net worth. As such, even
based on plaintiffs' account of events, the court does not find
that all the material terms are in the writing for a claim of
breach of written contract. As later events indicate, there was
never truly a meeting of the minds as to each parties'
If plaintiffs were acting in reliance on this fax when they
helped secure financing, then some part of the agreement must
have been oral because there is no indication of how they would
have to assent to the agreement. Consequently, the contract
should be construed as partly written and partly oral. Thus, Kansas law dictates that the contract
should be construed as oral for the purposes of the statute of
limitations. Since plaintiffs commenced this action on September
20, 2004, and the parties entered into an agreement in early
2000, more than three years has lapsed. Thus, the statute of
limitations bars plaintiffs' claim of breach of contract.
Plaintiffs attempt to salvage their delayed claim by arguing
that there was written acknowledgment that removes the statute of
limitations. Plaintiffs claim that there were "several instances"
where defendants acknowledged the equity ownership. However, the
court finds that these alleged instances only undermine
plaintiffs' argument. Rather than demonstrate that there was any
agreement, they emphasize how there was never a meeting of the
minds on the material terms for a contract, thus supporting the
court's holding that the April 7, 2000 fax does not even
constitute a written agreement.
Therefore, under a claim of breach of written contract, the
court finds that the essential terms have not been reduced to
writing. As for the claim of breach of oral contract, using
plaintiffs' alleged date of assent to the partly written and
partly oral contract of April or May 2000, the court finds that
plaintiffs have filed outside the statute of limitations.
Further, the court finds that there was no meeting of the minds
as to any partly written, partly oral contract. Because of these
findings, the court dismisses plaintiffs' claims of breach of
good faith and fair dealing and unjust enrichment as they rely on
the existence of a contract, whether written or oral. The court
notes that while plaintiffs argue that they did not directly
receive the benefit of $200,000 in interest for their loan to
Greg, defendants represent that the Bank of Tescott received this
payment. The court accepts this representation and that
plaintiffs are the beneficiaries of the interest payment. Thus,
there is no claim of unjust enrichment even if the transaction is considered purely a loan.
B. Fraud Claim
To establish an action for fraud, a party must show: 1) an
untrue statement of material existing fact; 2) known to be untrue
by the party making it; 3) made with the intent to deceive or
with reckless disregard for the truth; 4) upon which another
party justifiably relies and acts; and 5) to his or her
detriment. Alires v. McGehee, 277 Kan. 398, 403, 85 P.3d 1191
(2004). Fraud must be established by clear and convincing
evidence. Alires, 277 Kan. at 403. Kansas law provides that an
action for relief on the grounds of fraud is barred if not
brought within two years after the fraud is actually discovered
or, with reasonable diligence, could have been discovered. K.S.A.
§ 60-513(a)(3). Waite v. Adler, 239 Kan. 1, 6, 716 P.2d 524
(1986). Based on the factual findings, plaintiffs discovered any
alleged fraud by at least May 2001, which is more than two years
after the initial discovery.
The record indicates that Greg did not consider Steve an equity
interest owner in MTC based on several interactions. In the email
sent on January 4, 2001, Steve asked about the ownership split of
PL West, and Greg responded with interest rates that could be
paid to Steve. In a subsequent meeting in May 2001, Steve and
Greg had a stormy discussion in which Steve would have clearly
become aware that he was not an equity investor. Using this later
date of May 2001, plaintiffs' claim would be time barred as this
action was filed more than three and a half years after the
discovery of the alleged fraud.
In response to the statute of limitations argument, plaintiffs
refer the court again to its previous arguments about the claims
being timely. As already discussed, the court finds that
plaintiffs' arguments merely support the finding that there was
no meeting of the minds as to the written agreement. The court does not find the July 19, 2003
email persuasive. Greg's email stating "I have asked you to
provide a draft of what you are looking for" does not prove or
disprove the existence of an equity interest and read in context
makes clear that he considers Steve's interest to be that of a
lender. Plaintiffs' argument that it was not until March 2004
that defendants refused them ownership interest in PL West is
also unpersuasive. This seems contrary to three years of history
where Steve and Joleen's equity investor status appeared to be
questioned by themselves, the defendants, the bank and
plaintiffs' accountant. Under these circumstances, the court
finds that May 2001, at the latest, began the running of the
statute of limitations. It is more than a year after plaintiffs
accepted the April 7, 2000 fax proposal, which they believed made
them equity investors. Even if the court adds the period of
equitable tolling as defendants outline in their reply, this
action is still time barred. Based on the plaintiffs' discovery
of the fraud in May 2001 and the equitable tolling, if applied,
plaintiffs' claim is now time barred.
C. Breach of Fiduciary Duty
There are two types of fiduciary relationships: 1) those
specifically created by contract such as principal and agent,
attorney and client, and trustee and cestui que trust, for
example, and those created by formal legal proceedings, such as
guardian and/or conservator and ward, and executor or
administrator of an estate, among others; and 2) those implied in
law due to the factual situation surrounding the involved
transactions and the relationship of the parties to each other
and to the questioned transactions. Olson v. Harshman,
233 Kan. 1055, 1058, 668 P.2d 147 (1983). A fiduciary relationship may
exist in cases where there has been a special confidence reposed
in one who, in equity and good conscience, is bound to act in
good faith and with due regard to the interest of the one reposing the
confidence. Id. at 1059. However, there must not only be
confidence of one in another, but there must also exist a certain
inequality, dependence, weakness of age, mental strength,
business intelligence, knowledge of the facts involved, or other
conditions, giving to one an advantage over the other. Id. A
cause of action for breach of fiduciary duty must be brought
within two years of the accrual of the cause of action. K.S.A. §
At the outset, the court is not clear whether there is any
actual fiduciary duty that was breached. The court has already
found that there is no written contract, and there was no meeting
of the minds as to any partly written, partly oral contract.
Since defendants assert that they have paid $200,000 in interest
on the transaction they believed to be a loan, the only issue is
whether there is an implied in law duty. Clearly, both parties to
this transaction have had considerable experience in financial
matters, so there is no issue of inequity. There may, however,
have been an issue about knowledge of the facts involved.
Plaintiffs allege that they had not received information about
the transaction as it was developing, including other litigation.
While the court does not question these assertions, the court
does question whether the statute of limitations has run as to
this claim. Much as with the claim of fraud, the court finds that
plaintiffs should have been aware of the breach of fiduciary duty
at least by May 2001, when there was a question as to Steve and
Joleen's interest in PL West. Plaintiffs list a series of alleged
breaches; however, they have not provided any information as to
the date of these breaches in their arguments section. Thus, the
court accepts defendants' representation of the alleged breach
and finds that the statute of limitations bars the claim.
Even if the court were to find that the statute of limitations
had not run, the fact that defendants, believing that plaintiffs were lenders, paid $200,000
in interest undercuts a claim of breach of fiduciary duty.
D. Remaining Claims
With no viable claim of breach of contract, fraud or breach of
fiduciary duties that survives the statute of limitations,
plaintiffs have no basis for punitive damages or an accounting.
In the absence of a basis for awarding actual damages, a claim
for punitive damages must also fail. McConwell v. FMG of Kansas
City, Inc., 18 Kan. App. 2d 839, 860, 861 P.2d 830 (1993). A
claim for accounting is remedial and should be dismissed if there
is no basis for giving an accounting.
The court discourages the parties from filing a motion to
reconsider. If, however, the parties believe one is necessary,
such motion should comply with the standards set forth by the
Tenth Circuit and shall not exceed ten double-spaced pages. The
response shall not exceed ten double-spaced pages. No reply shall
IT IS ACCORDINGLY ORDERED this 11th day of October 2005,
that the court grants defendants' Motion for Summary Judgment
(Dkt. No. 101).
IT IS FURTHER ORDERED that the court denies as moot defendants'
Motion for Reconsideration and plaintiffs' Motion to Overrule
Objections (Dkt. Nos. 108, 112).
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