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Rail Logistics L.C. v. Cold Train, L.L.C.

Court of Appeals of Kansas

May 26, 2017

Rail Logistics, L.C., et al., Appellees,
v.
Cold Train, L.L.C., et al., (Christopher Mnichowski), Appellants.

         SYLLABUS

         1. In ruling on a motion for judgment as a matter of law under K.S.A. 2016 Supp. 60-250(a)(1), the court must resolve all facts and inferences reasonably drawn from the evidence in favor of the party against whom the ruling is sought. When reasonable minds could reach different conclusions based on the evidence, the court must deny the motion. The issue is not whether there is literally no evidence supporting the party against whom the motion is directed, but whether there is evidence upon which the jury could properly find a verdict for that party. An appellate court applies these same standards in its de novo review.

         2. Courts consider written documents jointly when they are executed contemporaneously by the same parties. The fact that complementary instruments do not refer to each other does not necessarily detract from their significance as integral and related parts of one contract. When a court construes instruments together, the general purpose of the entire transaction controls.

         3. The court's purpose in construing a contract is to ascertain the intent of the parties, and such intent best may be determined by looking at the language employed and taking into consideration all the circumstances and conditions which confronted the parties when they made the contract.

         4. When a court is called on to interpret multiple interrelated documents, not all of which were signed by the same parties, the court can read and construe them together because of their interrelated nature and because the true nature and character of a document is not determined by the name attached to it but by the intent of the parties as reflected by its terms and content.

         5. Under Supreme Court Rule 6.05 (2017 Kan. S.Ct. R. 36) an appellant may not raise new issues in a reply brief.

         6. Constructive fraud is the breach of a legal or equitable duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive others or violate a confidence. Neither actual dishonesty nor purpose or intent to deceive is necessary to establish constructive fraud.

         7. In order to be successful on a claim of constructive fraud, the plaintiff must show (1) a confidential relationship and (2) a betrayal of a confidence or breach of a duty imposed by the relationship.

         8. A confidential or fiduciary relationship refers to any relationship of blood, business, friendship, or association in which one party reposes special trust and confidence in the other party who is in a position to have and to exercise influence over the first party.

         9. As a general rule, fiduciary relationships either are created by contract or by formal legal proceedings or they are implied in law due to the facts surrounding the transactions and the relationship of the parties to the transactions.

         10. A fiduciary relationship is characterized by a peculiar confidence placed by one individual in another. A fiduciary is one who is in a position to have and exercise, and does have and exercise, influence over another. A fiduciary relationship implies a condition of superiority of one of the parties over the other. Thus, a fiduciary relationship generally implies that one party is weaker than the other, either in business intelligence, knowledge of facts, or mental strength, thereby giving the other party an advantage. Generally, in a fiduciary relationship, the property, interest, or authority of the other party is placed in the charge of the fiduciary. Thus, a fiduciary has the duty to act primarily for the benefit of the other party.

         Appeal from Johnson District Court; James F. Vano, judge. Affirmed in part and reversed in part.

          Luke R. Hertenstein, of Foland, Wickens, Eisfelder, Roper & Hofer, P.C., of Kansas City, Missouri, for appellants.

          Mick Lerner, of The Lerner Law Firm, P.A., of Overland Park, for appellees.

          Before Standridge, P.J., McAnany, J., and Hebert, S.J.

          McAnany, J.

         Michael Lerner and Christopher Mnichowski were co-managers of Rail Logistics, L.C., and Cold Train, L.L.C., but they had a falling-out and decided to end their relationship. The details of the steps they would take to end their relationship and to divide the ownership of these companies were memorialized in three written agreements: an exchange agreement, a promissory note, and a pledge agreement. The end result was that Lerner became the sole owner of Rail and Mnichowski became the sole owner of Cold Train.

         Thereafter, Rail brought this action against Cold Train and Mnichowski, asserting claims that include breach of contract and constructive fraud. Following a jury trial, judgment was entered against Mnichowski for two counts of breach of contract and for constructive fraud. Rail was awarded damages of $375, 091. Mnichowski appeals, claiming there was insufficient evidence to support these claims, that the court erred in instructing the jury on them, and that the court erred in not entering judgment as a matter of law on them.

         We conclude that the district court did not err in its rulings or in its instructions on the contract claims, for which there was sufficient evidence to support the jury's findings, but that the court erred in allowing the claim of constructive fraud to go to the jury because there was no showing of a relationship of trust and confidence between the parties.

         Facts

         Lerner and Mnichowski were joint owners and active co-managers of Rail and Cold Train. Rail originally was formed as a limited liability company in 1998, with Lerner as its sole managing member. Rail's business was manufacturing special purpose rail cars, leasing rail cars to third parties, and providing logistic services to third parties with fleets of rail cars. In 2009, Mnichowski became a co-managing member of Rail. At that time, Lerner owned two-thirds and Mnichowski owned one-third of Rail.

         Cold Train was formed as a limited liability company in 2009 with Lerner and Mnichowski equal owners and co-managers of the company. Cold Train is in the refrigerator intermodal business. It transports refrigerated containers from trains to its customers and then returns the refrigerated containers to the trains.

         In 2010, Mnichowski proposed to Lerner that they start their own trucking company in order to provide Cold Train with better trucking rates and to provide better service to customers. Lerner was not interested, so Mnichowski formed the trucking company, CT Cartage, and agreed with Lerner that the new company would not do business with Cold Train.

         In the fall of 2010, Lerner found out that CT Cartage was doing business with Cold Train. As a result, he felt he could no longer rely on Mnichowski, so he proposed that they divide up the ownership of Rail and Cold Train with Lerner taking Rail and Mnichowski taking Cold Train.

         On December 17, 2010, Lerner and Mnichowski entered into three written agreements-an exchange agreement, a promissory note, and a pledge agreement-to end their joint ownership of Rail and Cold Train.

■ EXCHANGE AGREEMENT-Under the exchange agreement, Mnichowski became the owner of Cold Train and Lerner became the owner of Rail. The agreement provided that Mnichowski relinquish to Lerner his interest in Rail, resign from all positions with Rail, and agree to other related terms. In exchange, Lerner relinquished to Mnichowski his interest in Cold Train and resigned from all positions with Cold Train.
Rail had a contract with the Burlington Northern Santa Fe Railroad (BNSF) it had entered into in 2009. (We will discuss that contract below regarding the pledge agreement.) Rail apparently had not engaged in the intermodal services provided for in the contract. Under the exchange agreement Rail agreed to assign the BNSF contract to Cold Train.
Rail agreed to loan Cold Train $320, 000 in the form of a line of credit line for Cold Train's "working capital, day-to-day needs, [and] cash needs." Cold Train agreed to repay this credit line along with the promissory note described below.
As part of the exchange agreement, Cold Train agreed that so long as it remained indebted to Rail (see also the promissory note below), it would provide monthly financial statements to Rail, including a balance sheet and an income statement.
■ PROMISSORY NOTE-The 2-year promissory note (signed by Cold Train but not personally by Mnichowski) was for $1, 413, 396.17. It was given to Rail and was secured by a pledge of Cold Train's assets.
As of December 17, 2010, Cold Train owed Rail between $1.5 million and $2 million, an amount in excess of the value of Cold Train's receivables. As a part of dividing the ownership of these two companies, the parties agreed that Rail would convert part of the debt into a 2-year loan evidenced by this promissory note. The note covered (1) Cold Train's obligations to Rail, accumulated during the time Lerner and Mnichowski jointly owned Cold Train, (2) the unpaid charges for refrigerated containers Cold Train leased from Rail, and (3) certain start-up operating expenses Rail paid for Cold Train.
Under the terms of the promissory note, Cold Train's failure to perform any obligation under the exchange agreement or the pledge agreement would constitute a default of the note.
■ PLEDGE AGREEMENT-The pledge agreement, entered into at the same time as the promissory note, prohibited Mnichowski from taking any action which would impair the position or interest of Rail in the pledged collateral without obtaining Rail's prior written consent. Thus, Mnichowski agreed not to sell, assign, transfer, pledge, or otherwise encumber any of the collateral securing ...

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