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Harder v. Foster

Court of Appeals of Kansas

July 28, 2017

Evelyn Harder, Appellant,
v.
Ronald H. Foster, et al., Appellees.

         SYLLABUS

          1. A court may not award attorney fees absent statutory authority or an agreement by the parties.

         2. The merger doctrine stands for the principle that a contract merges into a judgment entered upon it, and the judgment thereafter defines the parties' legal rights. Under the merger doctrine, postjudgment attorney fees are generally not recoverable unless the contract has specifically provided for postjudgment attorney fees.

         3. The meaning of the term postjudgment is clear. It means actions after the judgment is final. It does not mean actions that occur postverdict but prefinal judgment, such as motions to set aside the verdict, or other challenges to the verdict or decision, before a final judgment is issued resolving all issues.

          4. Waiver is an affirmative defense under Kansas law. K.S.A. 2016 Supp. 60-208(c)(1)(Q).

         5. An affirmative defense cannot be raised sua sponte by the court, and consideration of such defenses constitutes error.

         6. The Uniform Fraudulent Transfer Act (UFTA) provides remedies to creditors when debtors engage in fraudulent transfers. K.S.A. 33-201 et seq.

         7. The UFTA does not explicitly authorize attorney fees. K.S.A. 33-207(a)(3)(c).

         8. Because Kansas has adopted what is known as the American rule that proscribes courts from awarding attorney fees unless specifically authorized by statute or contract, the language of the UFTA allowing creditors to set aside fraudulent conveyances and "any other relief the circumstances may require" does not allow for the recovery of attorney fees related to bringing an action against the wrongdoer. K.S.A. 33-207(a)(3)(C).

         9. Kansas recognizes one exception to the American rule, known as the third-party litigation exception. When the plaintiff has been forced to litigate against a third party because of some tortious conduct of the defendant, the plaintiff may recover attorney fees even if they are not explicitly allowed by statute or contract. This is because they are viewed as a separate measure of damages collaterally related to the tortious act.

          10. In order for the third-party exception to the American rule to apply, a plaintiff must show that (1) the defendant committed a tort or violated a contractual duty; (2) third-party litigation is the natural and proximate consequence of the defendant's wrongdoing; (3) it was necessary for the claimant to engage in the third-party litigation; and (4) the claimant exercised good faith in the third-party litigation.

         11. In applying the third-party litigation exception to the American rule, if the third party and wrongdoer are tried in the same case, the claimant can only recover attorney fees that were necessary as to the third party.

         12. Claimants cannot raise the third-party litigation exception when the third party is a joint tortfeasor with the wrongdoer, or where the third party and defendant are in privity.

         13. The UFTA provides that the common law principles "supplement its provisions." K.S.A. 33-210. Therefore, the third-party litigant exception to the American rule is applicable to UFTA cases.

         14. In the absence of statutory authority in Kansas, a claim for punitive damages does not survive the death of the wrongdoer.

         Appeal from Leavenworth District Court; David J. King, judge. Affirmed in part, reversed in part, and remanded with directions.

          Kurt S. Brack, of Overland Park, for appellant.

          Gary A. Nelson, of Leavenworth, for appellee Estate of Ronald Foster.

          William E. Pray, of Leavenworth, for appellee Terrie Foster.

          Before Arnold-Burger, C.J., Green and McAnany, JJ.

          Arnold-Burger, C.J.

         Evelyn Harder bought property with a house, dam, and lake from Ronald Foster. Shortly thereafter, Harder discovered that the dam, which Foster had assured her did not have any problems, was in fact illegal and would need extensive repairs. Harder filed suit against Foster, and the jury found Foster guilty of negligent misrepresentation, intentional misrepresentation, and breach of contract. The parties' Residential Real Estate Contract provided that the party who breached the contract would pay any attorney fees the nonbreaching party incurred "in connection with the default, " so Harder filed a motion requesting attorney fees incurred up through the verdict. The court granted her motion for attorney fees, but the issue took months to litigate. Harder filed a second motion for attorney fees requesting compensation for the fees generated while litigating the first motion. The district court denied her motion, holding that the fees incurred defending the first award of attorney fees were not generated "in connection with the default." Foster appealed.

         After the trial and the first motion for attorney fees, Harder filed a second lawsuit against Foster, three of his children, and his son-in-law. Her petition alleged that Foster had fraudulently transferred all of the proceeds of the property sale to his family members for no consideration, leaving him unable to satisfy the judgment. She asked "to have the transfers avoided, set aside, and held for naught; for an attachment of the assets transferred; for execution on the transferred assets; and for injunctive relief prohibiting further disposition of the transferred assets." She later asked the court for leave to amend her petition to add a claim for punitive damages. Foster died a few months later, and his estate was substituted as a party. The estate then paid the judgment from the first case in full and filed a motion for summary judgment on Harder's second lawsuit. The district court granted the motion, holding that payment of the judgment extinguished Harder's fraudulent conveyance claim. Foster appealed the district court's grant of summary judgment to Foster and the denial of her request to amend her petition. Both cases were consolidated on appeal.

         We find that the district court erred when it held that attorney fees generated defending the verdict and first award of attorney fees were not generated "in connection with the default." Harder is allowed to recover attorney fees generated in defending against attacks on the verdict and her first award of attorney fees. We further find that the district court erred when it granted Foster's motion for summary judgment in the second case because, while the judgment was satisfied, Harder still had a potential claim against Foster's estate under the Uniform Fraudulent Transfer Act (UFTA) for attorney fees under the third-party litigation exception if she can prove it applies. Finally, because a party cannot recover punitive damages from a deceased wrongdoer, the district court decision denying the punitive damages claim was correct and is affirmed. Both cases are reversed solely as to the issue of attorney fees. Both cases are remanded to the district court for consideration of an award of attorney fees against Foster's estate.

         Factual and Procedural History

         Harder was searching for a house to purchase when she saw an advertisement for a property owned by Foster in Easton, Kansas. She visited the property in 2012. A house, lake, and dam sat on the 31.2 acre property. Harder and Foster entered into a Residential Real Estate Sale Contract. Foster executed a Seller's Disclosure and Condition of Property Addendum the same day, which required Foster to disclose to Harder "all material defects, conditions and facts [known to Foster] which may materially affect the value of the Property." Foster's disclosure stated that there were no problems with the land, no environmental issues, no legal issues, and no problems with the property in general. The price for the property was $405, 000 and closing was scheduled for July 6, 2012.

         Before closing, Harder discovered a 2007 letter from the State to Foster informing him that the dam on the property was illegal and needed repairs. Prior to finalizing the purchase, Harder asked for reassurance from the county that the dam was fixed to the State's satisfaction. Foster told Harder that, to the best of his knowledge, the dam had been fixed and did not need further repairs. Harder purchased the property in 2012.

         In 2013, the State informed Harder that the dam was illegal because it lacked a permit, and obtaining a permit would require extensive repairs to the dam. Harder filed suit against Foster in August 2013 (the 2013 case). Harder's petition alleged negligent misrepresentation, intentional misrepresentation, violation of the Kansas Consumer Protection Act, and breach of contract. The district court dismissed the Kansas Consumer Protection Act claim before trial on Foster's motion for summary judgment. After trial, the jury found that Foster was guilty of negligent misrepresentation, intentional misrepresentation, and breach of contract. The jury awarded Harder $225, 116 in actual damages but found that she was not entitled to punitive damages. The journal entry of the verdict was filed on December 10, 2014.

         After trial, Foster filed a motion to alter, amend, and set aside and for judgment as a matter of law. Harder filed a motion for attorney fees, a motion for imposition of a constructive trust, and a motion to amend the pretrial order. The court denied Foster's motion to alter, amend, and set aside the judgment, and the court also denied Harder's motion for imposition of constructive trust.

         Then, the district court addressed Harder's motion for attorney fees. The parties' Residential Real Estate Sale Contract required the defaulting party to reimburse the nondefaulting party for attorney fees, court costs, and other legal expenses incurred "in connection with the default." Harder's claim for attorney fees was not included on the pretrial order, which is why she also filed the motion to amend the pretrial order. Harder's request for attorney fees did appear on her pretrial questionnaire. Foster opposed Harder's request for attorney fees because she did not include the request in her petition or present evidence on attorney fees at trial. Foster also noted that the request was not in the pretrial order. The district judge stated that he recalled a discussion, possibly at the pretrial conference, that the parties agreed to decide the attorney fees issue after the jury returned a verdict. Harder's attorney remembered a similar discussion. The district judge stated that he "relied upon the pretrial questionnaires in formulation of the pretrial order" and that he did not have an explanation for why he failed to include the attorney fees issue from Harder's pretrial questionnaire in the pretrial order. Based on his recollection that the parties agreed to deal with the issue after the trial, the judge granted Harder's request to amend the pretrial order. The judge also granted Harder's request for attorney fees, ordering Foster to pay Harder $51, 862 in attorney fees and $13, 871.34 in legal expenses and court costs.

         In March 2015, Foster filed a motion to alter, amend, and set aside the district court's order amending the pretrial order and judgment for attorney fees and costs. The district court heard arguments on this motion on October 30, 2015. Foster's attorney began by reminding the district judge that his decision to allow an amendment to the pretrial order was based on the judge's recollection of the parties' agreement. Foster's attorney had gone back and listened to the proceedings and did not find a record of any conversation in which the parties agreed to deal with the attorney fees issue after trial. The judge agreed that he had looked through the record and had not found evidence of the agreement that he had recollected at the previous hearing. Instead of ruling on the motion that day, the judge continued the hearing to give Harder's attorney an opportunity to search the record for evidence that the parties actually agreed to defer the attorney fees issue until after the trial. The parties reconvened on December 1, 2015. Harder's attorney admitted that he had not found anything in the record to substantiate the recollection that the parties had agreed to submit that attorney fees issue to the judge after trial as opposed to the jury. However, the district judge upheld his prior order amending the pretrial order and granting Harder attorney fees, stating that he was "persuaded that it was not error to handle the attorney's fees as it was handled in this case . . . ."

         Harder filed a second motion for attorney fees on March 10, 2016. The district court's first award of attorney fees compensated Harder for fees generated through December 16, 2014. However, Harder continued to generate attorney fees after that date because she had to defend against Foster's motion to alter, amend, and set aside and for judgment as a matter of law and Foster's challenges to the district court's granting of Harder's first motion for attorney fees.

         The district court heard the motion on May 4, 2016. Harder began by noting that after the first award of attorney fees Foster filed motions attempting to set aside the verdict and the court's award of attorney fees. Then, Harder reminded the court that the Residential Real Estate Sale Contract required the defaulting party to reimburse the nondefaulting party for all attorney fees and expenses incurred "in connection with the default." Foster argued that the court should deny the motion because Harder was attempting to collect fees incurred postjudgment and that the fees were "not related to the default, they're related to various and assorted motions that were filed by both parties, and responses." Foster argued that the default had been finalized in the court's December 10, 2014, journal entry reflecting the jury verdict.

         The district judge noted that most of the work the attorneys had done was related to the first motion for attorney fees and the confusion over whether or not parties intended the claim for attorney fees to be included in the pretrial order. The judge recalled the "comedic series of . . . errors" that gave rise to the issues in the first motion for attorney fees: the court's inadvertent mistake in failing to include the attorney fees issue on the pretrial order despite its appearance on Harder's pretrial questionnaire; the mistaken recollection that the parties had agreed to determine the attorney fees issue after the trial; and the amount of time spent looking for evidence to support the recollection. The district judge then held that "none of this had anything to do with actions of the defendant" and that "[t]he jury verdict had nothing to do with the attorney's fees." Based on this, the district judge denied Harder's second request for attorney fees. The judge stated that "the amount of time that was devoted really related to certain failures of [Harder]'s counsel to present a record supporting the award of attorney's fees." The judge characterized Foster's actions as "legitimate and meritorious positions to advocate. And they were not related to the default but were related to actions in the course of the litigation."

         In February 2015, after the district court had awarded Harder attorney fees but before Foster filed his motions contesting the attorney fees award, Harder initiated a second lawsuit against Foster (the 2015 case). This time, Harder filed a petition to set aside fraudulent conveyances. Harder's petition alleged that Foster had used the $405, 000 in proceeds from selling his property to purchase a house and a car. Foster then gave the house and car, as well as the remaining proceeds from the property sale, to his children for no consideration. Harder alleged that these transfers resulted in Foster becoming insolvent. Harder ultimately included Foster's children and son-in-law in the petition to force them "to return funds wrongfully transferred to them by Ronald Foster." Harder later filed a motion requesting leave to file an amended petition to include a claim for punitive damages.

         Foster died in September 2015 and his estate was substituted as a party.

         In March 2016, Foster's estate paid $309, 017.14 to the district court, which ordered payment of the funds to Harder. In July 2016, Foster filed a motion for summary judgment on Harder's fraudulent conveyances petition. Foster argued that Harder's case was moot because her judgment had been satisfied.

          The district court heard Harder's motion to amend her petition to add punitive damages and Foster's motion for summary judgment on September 7, 2016. The district judge asked Harder how satisfaction of the judgment had not extinguished her claim, stating "once you lose that status as a judgment creditor by the payment of your judgment, you have no cause of action to set aside any transfers that [Foster]'s made because your judgment's been paid." Harder disputed that the judgment had been fully paid, noting that her second motion for attorney fees in the 2013 case was on appeal and could result in the judgment being increased. But, even if the judgment was satisfied, Harder argued that the UFTA recognized her as a creditor because she was "still owed funds in attempting to set aside these transfers." Harder explained that Foster transferred his assets for no consideration the day after he received the demand letter, and that if she had not initiated suit to set aside the transfers, she likely never would have been paid. The district judge kept returning to the point that the judgment for the 2013 case had been satisfied in full. Harder explained that "the damages that are sought in this case have nothing to do with the judgment or attorney's fees that have been sought in the 2013 case." Harder argued that she incurred damages because Foster took "steps to hinder, delay, and . . . defraud" Foster by transferring his assets-had Foster kept the money from the property sale in his bank account Harder could have issued a simple garnishment check.

         The district judge granted Foster's motion for summary judgment. The district court held that payment of the judgment extinguished Harder's fraudulent conveyance claim. The district judge ruled that, despite the fact that Harder's second motion for attorney fees was on appeal, there was still a final judgment in the 2013 case and it had been paid in full. The judge also ruled that there was no statutory basis for awarding Harder "expenses associated with prosecuting the present action." The district court also denied Harder's motion to amend her petition to add a claim for punitive damages because "[w]ithout actual damages a party cannot recover just punitive damages."

          Harder's 2013 and 2015 cases were consolidated for this appeal. Harder appeals the district court's decision to deny her second motion for attorney fees in the 2013 case. Harder also appeals the district court's grant of summary judgment to Foster and the district court's denial of her ...


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