Opinion
No. 105,487.
2012-08-17
MONARCH TRANSPORT, LLC, Appellee, v. FKMT, LLC, Scot Crader, and Troy Renkemeyer, Appellants, and Renkemeyer Campbell & Weaver, LLP, Defendant. Peoples Bank, Plaintiff, v. United States of America, State of Kansas Department of Revenue, Monarch Transport, LLC, and FKMT, LLC, Defendants. SMR Holdings, LLC, Appellant, v. David Kleinbeck and Thomas Kleinbeck, Appellees.
Appeal from Johnson District Court; Kevin P. Moriarty, Judge. Scott A. Hunter, of Hunter Law Office, LLC of Kansas City, Missouri, for appellants FKMT, LLC; Scot Crader; Troy Renkemeyer; and SMR Holdings, LLC. Thomas M. Franklin, of The Franklin Law Firm of Kansas City, Missouri, for appellees David Kleinbeck; Thomas Kleinbeck; and Monarch Transport, LLC.
Appeal from Johnson District Court; Kevin P. Moriarty, Judge.
Scott A. Hunter, of Hunter Law Office, LLC of Kansas City, Missouri, for appellants FKMT, LLC; Scot Crader; Troy Renkemeyer; and SMR Holdings, LLC. Thomas M. Franklin, of The Franklin Law Firm of Kansas City, Missouri, for appellees David Kleinbeck; Thomas Kleinbeck; and Monarch Transport, LLC.
Before MALONE, P.J., MARQUARDT, J. and KNUDSON, S.J.
MEMORANDUM OPINION
PER CURIAM.
This appeal arises from claims surrounding the sale and subsequent failure of a trucking company known as Monarch Transport. The litigation before the district court involved three different cases that were consolidated for trial, many parties, and a host of claims and counterclaims. The main parties to this appeal are appellants FKMT, LLC (Old Monarch) and its principals, Troy Renkemeyer and Scot Crader, on the one side, and appellees Monarch Transport, LLC (New Monarch) and its principals, Thomas Kleinbeck and David Kleinbeck, on the other. SMR Holdings, LLC, a separate company owned by Renkemeyer, is also a party to this appeal.
Factual and Procedural Background
Renkemeyer and Crader are childhood friends. Renkemeyer is a lawyer and a certified public accountant, and Crader has a background in business and management. In 2004, Renkemeyer and Crader decided to start a trucking company, although neither had experience in the trucking industry. The company—Old Monarch—was incorporated under the name “Monarch Transport, LLC.” Crader handled the day-to-day operations, while Renkemeyer secured financing and handled some tax issues.
In late 2006, Renkemeyer and Crader decided to sell the company. According to Renkemeyer, he would start or acquire a business, grow it, and then sell it for a profit. He testified that the company had grown significantly and that he and Crader believed it was a good time to list it for sale. But as New Monarch later alleged, the real reason for the sale was because the trucking company was in serious financial trouble.
Regardless of the reasons motivating the sale, Crader and Renkemeyer listed the trucking company with Sunbelt Realtors, a business broker. Brothers Thomas Kleinbeck and David Kleinbeck were looking for business opportunities and were interested in the trucking company's listing. In August 2007, Thomas contacted Sunbelt and asked for financial information about the company, which Sunbelt provided. The Kleinbecks set up a meeting with Renkemeyer to obtain further information and discuss the possible sale of the company. According to Thomas, Renkemeyer lied about or failed to disclose vital information during this meeting. Renkemeyer denied lying about or withholding information. He further testified that the Kleinbecks were not interested in the trucking company's liabilities because any sale would be an asset sale only and thus they would not be assuming the trucking company's liabilities.
In mid-September 2007, the Kleinbecks toured the trucking company's facilities along with their banker at UMB Bank. During the tour, the Kleinbecks met with Crader and asked him to stay on as general manager after the sale. The Kleinbecks believed Crader would be able to handle many issues related to the sale, such as making sure that insurance was available and registering with tax authorities.
The Kleinbecks had a second meeting with Renkemeyer, during which they discussed the possibility of buying the name “Monarch Transport, LLC” from Old Monarch in order to maintain customer relationships and business goodwill. The Kleinbecks expressed concern that the name purchase could cause confusion and result in payments owing to New Monarch to be paid to Old Monarch, and vice versa, but the parties ultimately agreed to the name purchase. It is undisputed that the parties agreed to periodically get together and “settle up” any misdirected payments. According to David Kleinbeck, the reconciliation could be easily accomplished because Crader, who was staying on as the general manager for New Monarch, would have access to the accounting systems for both Old Monarch and New Monarch.
On September 27, 2007, an asset purchase agreement was executed. New Monarch agreed to purchase the assets of Old Monarch, excluding Old Monarch's accounts receivable for loads shipped on or before September 30, 2007, the closing date of the sale. The total purchase price was $2.5 million, with $2.1 million to be paid at closing. New Monarch financed this portion of the purchase price through a loan with UMB Bank. The remaining $400,000 was financed through a promissory note, personally guaranteed by the Kleinbecks, which was held by SMR Holdings, LLC, a separate company owned by Renkemeyer.
On September 28, 2007, the parties executed an addendum to the asset purchase agreement, agreeing to the sale of the name “Monarch Transport, LLC.” On October 4, 2007, Old Monarch filed with the Kansas Secretary of State, officially changing its name from “Monarch Transport, LLC” to “FKMT, LLC.” The next day, New Monarch officially changed its name from “Osage Holdings, LLC” to “Monarch Transport, LLC.”
On October 3, 2007, 1 day before the official name change, Old Monarch set up a new deposit account (Account 347) at Peoples Bank under the name “Monarch Transport, LLC” and using Old Monarch's taxpayer identification number. Renkemeyer and Crader were signatories on the account, and the contact information for the account was soon thereafter switched to Renkemeyer's law offices (RCW law offices) rather than the headquarters of the trucking company. Renkemeyer testified that they “didn't really think about” the fact that Account 347 was opened under the name “Monarch Transport, LLC”—it was simply quicker and easier to use that name because Peoples Bank already had all the relevant paperwork and organizational documents. Furthermore, invoices were sent to Old Monarch's customers under the name “Monarch Transport, LLC,” and Renkemeyer believed that any incoming checks made out to “Monarch Transport, LLC” could only be deposited into Account 347 under that name.
According to Renkemeyer, the reason for closing Old Monarch's existing deposit account at Peoples Bank and opening Account 347 was to prevent unwanted automatic withdrawals from Old Monarch's previous vendors. Account 347 would also receive payments for Old Monarch's remaining accounts receivable. It was set up as a lockbox account, meaning that customers would remit their payments to a P.O. Box, which was located in Overland Park and rented by Peoples Bank. Employees of Peoples Bank would collect the payments from the P.O. Box and deposit them into the account on the day they were received. Evidently, the P.O. Box used for Account 347 was the same P.O. Box used to receive payments into Old Monarch's old deposit account.
Account 347 was subject to a special arrangement between Peoples Bank and Bank of the West. After the sale closing, Old Monarch used the $2.1 million in immediate proceeds to pay off many of its debts, including the equipment loans owed to Bank of the West. But Old Monarch still owed Bank of the West approximately $1.4 million on the line of credit secured by Old Monarch's accounts receivable. Renkemeyer thus authorized Peoples Bank to wire all payments made into Account 347 directly to Bank of the West. The payments were to be applied toward the outstanding balance of Old Monarch's line of credit.
On October 10, 2007, Crader filed an electronic funds transfer (EFT) form with Delphi, Old Monarch's largest customer representing about 25 percent of Old Monarch's business, instructing them to make payments owing to “Monarch Transport, LLC”—the name by this time owned by New Monarch—into Account 347. The EFT form also used the address and telephone number, formerly belonging to Old Monarch, that had been assumed by New Monarch. Payments from Delphi to Old Monarch had previously been made by EFT rather than paper check, and according to Crader this new EFT form was filed simply to ensure that payments owing to Old Monarch were deposited into the new Account 347 rather than Old Monarch's old deposit account. When asked why he used New Monarch's name, address, and phone number on the form, Crader stated that he “[didn't] recall his thought process ..., I filled it out and I signed it.”
According to Thomas Kleinbeck, he had instructed Crader at the very beginning of October—before Crader filed the EFT form—to contact Delphi and switch Delphi's payment method to paper check rather than EFT. The purpose of the switch was to ensure that Delphi's payments to Old Monarch and New Monarch were kept separate. Crader denied that Kleinbeck ever instructed him to work with Delphi to switch their payment method; rather, he assumed Kleinbeck would be responsible for that task.
Also on October 10, 2007, New Monarch opened a deposit account at UMB Bank with a similar lockbox arrangement. Since UMB Bank had extended New Monarch a line of credit, secured by New Monarch's accounts receivable, UMB Bank wanted payments owing to New Monarch to be funneled directly into UMB Bank's P.O. Box located in Kansas City, Missouri.
In the weeks after the sale, Crader and other New Monarch employees implemented a system for keeping Old Monarch and New Monarch invoicing (both outgoing invoices as well as incoming payment receipts) separate. Old Monarch had used accounting software, McLeod, which was also used by New Monarch after the sale. Each company had different ledgers within the program in order to keep invoicing separated. Outgoing invoices were managed by the same employee for both Old Monarch and New Monarch. The outgoing invoices for each company were supposed to be easily distinguishable because Old Monarch's invoices started with a 2, whereas New Monarch's invoices started with 3. Although there was some discussion about using six digits for New Monarch's invoices as opposed to the five digits used for Old Monarch's invoices, that distinction was never implemented and New Monarch also used five-digit invoices. In any case, brightly colored letters were sent out along with New Monarch's invoices, informing customers of the change in ownership and new remittance address to the P.O. Box in Kansas City, Missouri.
With respect to tracking incoming payment receipts, Crader was responsible for entering that information into the McLeod software for part of his time at Old Monarch and for approximately the first month at New Monarch. Crader testified that for Old Monarch, when he received an incoming payment receipt that contained a check skirt or otherwise indicated which invoice the customer was paying, he would apply the payment to that particular invoice in the McLeod ledger. But if an incoming payment receipt did not indicate which invoice the customer was paying, Crader simply applied the payment to the customer's oldest outstanding invoice.
During the first month for New Monarch, Crader undertook the same process for incoming payment receipts that had been paid into New Monarch's UMB Bank account, entering those payments into the New Monarch ledger. He also continued to handle incoming payment receipts for Old Monarch. Crader would go over to the RCW law offices and collect or make copies of the deposit information for Account 347 (including copies of checks and check skirts) that Peoples Bank had forwarded to RCW. Crader would then enter that information into the Old Monarch ledger. He denied seeing any payment receipts for 3–series (New Monarch) invoices come through Account 347 during that month, but he admitted that there was a lot going on during the transition and he did not “have [his] magnifying glass on walking through the company looking [for] a 3–series invoice.” Nonetheless, the evidence at trial showed that Crader had received an e-mail from Delphi indicating that many 3–series invoices were scheduled to be paid.
Around the end of October or beginning of November 2007, Thomas Kleinbeck asked Crader to scale back his work on Old Monarch and instead focus on New Monarch. After that time, Crader no longer kept track of the incoming payment receipts for deposits made into Account 347. From that point forward, an employee at RCW (where Account 347 deposit information was being sent) tracked incoming payment receipts on a spreadsheet. As incoming payment receipts from Account 347 were forwarded to RCW, an employee would subtract the customer's payment from their outstanding balance. Renkemeyer denied knowing that any of the incoming payment receipts were for 3–series invoices, in part due to the confusion as to how Old Monarch and New Monarch invoices were to be differentiated— i.e., by starting with a 2 or 3 versus using a five-digit or six-digit number. Renkemeyer admitted that nobody at RCW actually looked at or wrote down the invoice numbers before attributing payments on the spreadsheet because he figured those issues would be resolved when the two companies “settled up” as agreed, using source information such as copies of checks and check skirts.
On or about November 5, 2007, New Monarch sent a letter to Old Monarch seeking about $300,000 for costs and lost revenues due to Old Monarch's alleged failure to disclose certain information prior to the sale, such as employee problems, financial difficulties with several vendors, and the disrepair or inoperability of multiple trucks. Old Monarch sent a letter in response, denying some of the allegations but admitting others. Within a few days, a meeting was held between Thomas Kleinbeck (along with New Monarch's lawyer) and Renkemeyer. The parties reached an agreement during the meeting, and Renkemeyer prepared a written “Settlement Agreement and Mutual General Release.” Kleinbeck testified that based on the information he and his brother had at that point, they were satisfied with the document and signed the settlement agreement and release.
The situation between Old Monarch and New Monarch deteriorated rapidly after the parties signed the settlement agreement and release. Thomas Kleinbeck testified that around mid-November 2007, he asked Crader if Old Monarch was receiving any of the payments meant for New Monarch. According to Kleinbeck, Crader did not think Old Monarch had received any misdirected payments but said he would check with Renkemeyer. Likewise, Kleinbeck asked Renkemeyer the same question, and Renkemeyer stated that he would have to check with Crader. Kleinbeck testified that neither man got back to him on the issue. It was around this time that New Monarch first learned of the existence of Account 347.
By early December 2007, New Monarch had not received several payments that it was expecting, including a large payment from Delphi for loads that had been shipped in early October 2007, and Thomas Kleinbeck asked Crader to contact customers about missing payments. Crader acknowledged that Kleinbeck had asked him to follow up on the missing payments and testified that he had met with the employee at New Monarch responsible for billing, but he did not otherwise recall what he had done in response to Kleinbeck's request. Unsatisfied with Crader's apparent lack of action, Kleinbeck began contacting customers and learned that some customers had made payments on New Monarch invoices, but those payments had not been received by New Monarch. At this point, Kleinbeck believed that New Monarch was being defrauded, likely by Crader and Renkemeyer.
On December 5, 2007, Renkemeyer, on behalf of RCW, sent a letter to Old Monarch clients in an attempt to collect remaining accounts receivable. In that letter, he stated that Old Monarch used five-digit invoice numbers, whereas New Monarch used six-digit invoice numbers; he did not explain that Old Monarch invoices started with a 2 and New Monarch invoices started with a 3. As a result of that letter, Old Monarch received more payments into Account 347, as well as some payments made out to RCW which were then forwarded to Account 347. At least some of those payments appeared to be for 3–series invoices.
At the end of December 2007, New Monarch decided to suspend operations for about 1 week over the holidays. Thomas Kleinbeck testified that New Monarch had not received the invoice payments it had expected—in particular, a large payment expected from Delphi—and had been forced to take out an additional loan from UMB Bank to fund operating expenses. Kleinbeck admitted that many employees were unhappy with the decision. Crader also testified that many employees were unhappy with the decision and had either quit or been sent home.
In early January 2008, when New Monarch again did not receive a large payment that it was expecting from Delphi, Thomas Kleinbeck e-mailed Renkemeyer and stated that he had discovered about $90,000 of Delphi payments that should have gone to New Monarch were instead deposited in Account 347. Renkemeyer replied that Old Monarch had only received about $10,000 into Account 347 over the last month and that, as he understood, the payments were for Old Monarch invoices. Renkemeyer also e-mailed David Kleinbeck, stating that there was obviously a big mistake about the amounts New Monarch thought had been deposited into Account 347 because Old Monarch had not received nearly the amount claimed. According to David, New Monarch had started to receive information from its customers as part of Thomas Kleinbeck's inquiry into the missing payments, including a copy of a payment of a New Monarch invoice that was deposited into Account 347. David Kleinbeck claimed that when he confronted Crader with this document, Crader denied knowing who owned Account 347.
Around mid-January 2008, New Monarch engaged counsel to work with Old Monarch on the issue of missing or misdirected payments, but an agreement could not be reached. In February 2008, New Monarch fired Crader. Around that time, New Monarch stopped making payments on the seller carryback promissory note held by SMR Holdings. By May 2008 the trucking company was shut down. According to New Monarch, the company's failure was due to lack of operating capital caused by Old Monarch's diversion of invoice payments. According to Old Monarch, the failure was due to a poor business plan and mismanagement by New Monarch, leading to the resignation of many key employees.
Old Monarch and New Monarch each made their own determinations regarding the diversion of invoice payments. Old Monarch took the position that any payment that had either come into Account 347 or been sent to RCW but was not substantiated by any check skirt or other source documentation indicating the specific invoices for which the payment was intended, clearly belonged to Old Monarch and could be applied against the customer's balance owing to Old Monarch. Furthermore, Old Monarch took the position that any payment it had received— even if check skirts or source documentation indicated that all or part of the payment was intended for a 3–series invoice—also belonged to Old Monarch if the customer had any outstanding balance owed to Old Monarch. Any payment over the outstanding balance owed to Old Monarch would be considered as belonging to New Monarch. Renkemeyer and Crader acknowledged that Old Monarch relied only on the check skirts and source documentation provided by Peoples Bank, and where the payment was received without any source documentation, they did not attempt to obtain any additional information from customers regarding the invoices they had intended to pay. Using this methodology, Old Monarch calculated that it owed New Monarch $127,434.90, less any amount that New Monarch owed to Old Monarch.
In contrast, New Monarch took the position that it should receive any payments that customers had indicated were intended to pay 3–series invoices, whether that intent was manifested through the check skirts and source documentation provided by Peoples Bank or whether the customer had provided that information in response to specific requests made by Thomas Kleinbeck. Using this methodology, New Monarch calculated that Old Monarch owed it $648,028.81. New Monarch also believed that Crader had fraudulently marked these 3–series invoices as paid in New Monarch's McLeod ledger.
The pretrial conference was held on December 28, 2009. A jury trial was held on January 11–15 and 19–22, 2010. The claims at issue included (1) New Monarch's claims against Old Monarch, Renkemeyer, and Crader for breach of fiduciary duty in relation to the diversion of invoice payments and (2) SMR Holdings' claims against New Monarch, Thomas Kleinbeck, and David Kleinbeck for failure to pay on the seller carryback promissory note. At the close of all evidence, Old Monarch, Renkemeyer, and Crader moved for judgment as a matter of law, arguing that all claims against them were barred by the terms of the settlement agreement and release and that there was insufficient evidence for a reasonable jury to find that Old Monarch, Renkemeyer, and Crader were fiduciaries of New Monarch and each had breached their fiduciary duty regarding invoice payments. SMR Holdings also moved for judgment as a matter of law, arguing that the undisputed evidence showed that the seller carryback promissory note was in default and that New Monarch, Thomas Kleinbeck, and David Kleinbeck owed $427,618.56 in unpaid principal and interest. The district court denied all motions.
During the jury instructions conference, Old Monarch objected to Instructions 10 and 11, which concerned whether Renkemeyer and Crader had improperly diverted invoice payments under a theory of breach of fiduciary duty. Old Monarch disputed the district court's finding that, as a matter of law, Renkemeyer and Crader were fiduciaries of New Monarch. Old Monarch also argued that the instructions erroneously implied that New Monarch could recover under this theory by showing mere negligence as opposed to intentional acts. Renkemeyer and Crader objected to Instruction 16, which permitted punitive damages if the jury found that either man had acted in a fraudulent matter in relation to the diversion of invoice payments. Finally, Old Monarch requested that the district court include a jury instruction which stated: “It is the law of this state that if a debtor does not direct how a payment should be applied when it makes payment to a creditor, the creditor may apply the payment as it desires.” The district court overruled the objections to Instructions 10, 11, and 16 and refused to include Old Monarch's requested instruction.
The claims were then submitted to the jury. The jury found Old Monarch, Renkemeyer, and Crader liable for breach of fiduciary duty in relation to the diversion of invoice payments and awarded damages in the amount of $647,000 to New Monarch. The jury also found that Renkemeyer had acted in a fraudulent matter such that punitive damages should be awarded. Finally, the jury found that the seller carryback promissory note should be enforced against New Monarch, Thomas Kleinbeck, and David Kleinbeck and awarded damages in the amount of $350,000 to SMR Holdings.
On March 5, 2010, Old Monarch, Renkemeyer, and Crader filed a motion to apply the settlement agreement and release, arguing that the damages awarded by the jury for diversion of invoice payments should be reduced by the amount of payments allegedly diverted on or before the date of the settlement agreement and release. The district court denied the motion.
On May 18 and August 2, 2010, the district court held hearings on the amount of punitive damages to be awarded against Renkemeyer. In the context of determining how Renkemeyer's actions had adversely affected New Monarch and the Kleinbecks, New Monarch offered evidence that the State of Kansas had filed tax warrants against New Monarch and the Kleinbecks for unpaid taxes stemming in part from the time the trucking company was still owned by Old Monarch. Renkemeyer stated that he had never seen the tax warrants before but conceded that some of the taxes were for years when Old Monarch was in operation. Renkemeyer believed it was New Monarch's responsibility to contact the State and explain the mixup, but he offered to submit an affidavit to the State, if necessary, confirming when the sale took place. The district court placed the responsibility on Renkemeyer, on behalf of Old Monarch, to contact the State and get the issue resolved. Finally, the district court awarded punitive damages against Renkemeyer in the amount of $150,000.
The journal entry of judgment was filed on September 23, 2010. On October 7, 2010, Old Monarch, Renkemeyer, and Crader filed a renewed motion for judgment as a matter of law or alternatively a new trial and a motion to alter or amend the judgment. SMR Holdings also filed a renewed motion for judgment as a matter of law or alternatively a motion to alter or amend the judgment. Following a hearing, the district court denied all postjudgment motions. Old Monarch, Renkemeyer, Crader, and SMR Holdings timely appealed.
Motion for Judgment as a Matter of Law on the Breach of Fiduciary Duty Claim
Old Monarch, Renkemeyer, and Crader argue that the district court erred in denying their motion and renewed motion for judgment as a matter of law on the breach of fiduciary duty claim because no reasonable jury could find that New Monarch had proven all the elements for a breach of fiduciary duty. They specifically deny that (1) each owed a fiduciary duty to New Monarch and (2) each breached that fiduciary duty. Renkemeyer and Crader also argue that they cannot be held personally liable for any breach by Old Monarch. New Monarch argues that the district court correctly determined as a matter of law that Old Monarch, Renkemeyer, and Crader each owed it a fiduciary duty and that there was sufficient evidence for the jury to find that each had breached their duty.
A district court's decision on a motion for judgment as a matter of law under K.S.A. 60–250 is reviewed under the former directed verdict standard of review. National Bank of Andover v. Kansas Bankers Surety Co., 290 Kan. 247, 267, 225 P.3d 707 (2010). When ruling on a motion for directed verdict, the district court must resolve facts and inferences reasonably drawn from the evidence in favor of the party against whom the directed verdict is sought. Where reasonable minds could reach different conclusions based on the evidence, the motion must be denied. This court applies a similar analysis when reviewing the district court's grant or denial of a motion for directed verdict. When no evidence is presented on an issue or where evidence is undisputed and the minds of reasonable persons may not draw differing inferences or arrive at opposing conclusions, it is a question of law for the court's determination. Deal v. Bowman, 286 Kan. 853, 858, 188 P.3d 941 (2008). A. Existence of a Fiduciary Duty
A fiduciary relationship exists 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 interests of the one reposing confidence. Linden Place v. Stanley Bank, 38 Kan.App.2d 504, 509, 167 P.3d 374 (2007). There are two types of fiduciary relationships: (1) those specifically created by contract, such as principal and agent and attorney and client, 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. The determination of the existence of a fiduciary relationship of the first category, though not without problems on occasion, is usually relatively simple. The second category becomes more difficult to determine and must depend upon the facts in each case. Denison State Bank v. Madeira, 230 Kan. 684, 691, 640 P.2d 1235,modified on other grounds230 Kan. 815, 640 P.2d 1235 (1982).
The existence or nonexistence of a fiduciary relationship is an evidentiary question which must be determined from the facts in each case; and, therefore, the scope of appellate review is to ascertain only whether there is substantial competent evidence to support the finding of the trial court. In re Estate of Relihan, 4 Kan.App.2d 277, 279, 604 P.2d 1219,rev. denied 227 Kan. 927 (1980). In passing upon a trial court's determination of the existence or nonexistence of a fiduciary relationship, an appellate court is required to consider the evidence in its most favorable aspect in relation to the party who prevailed in the court below. Olson v. Harshman, 233 Kan. 1055, 1057, 668 P.2d 147 (1983); Wilson v. Wilson, 37 Kan.App.2d 564, 576, 154 P.3d 1136 (2007).
Old Monarch
There was ample uncontested evidence at trial which would support the conclusion that Old Monarch owed a fiduciary duty to New Monarch with respect to receiving invoice payments. Renkemeyer and the Kleinbecks each testified that, both before and after the asset sale, the parties had discussed many times the likelihood that Old Monarch would receive payments on New Monarch invoices and vice versa and that they would need to periodically settle up to ensure that each company received the payments they were due. Renkemeyer even admitted that the issue of how to deal with any misdirected payments was “one of the hot points of negotiation” of the asset sale. There was plainly an undertaking by Old Monarch to act in good faith and with due regard to New Monarch's interests with respect to any misdirected invoice payments.
At least one Kansas case supports the proposition that a corporation that has agreed to collect money on another's behalf acts as an agent and thus owes a fiduciary duty commensurate to the scope of the agency relationship. In Gillespie v. Martin, Pringle, Oliver, Wallace & Swartz, 258 Kan. 91, 899 P.2d 478 (1995), a law firm agreed to handle the sale of certain oil and gas leases, collect the proceeds from the sale, and distribute the proceeds to the various parties with an interest in those leases. One of those parties disputed the manner in which the proceeds were distributed and filed suit against the law firm for breach of fiduciary duty. Our Supreme Court agreed with the district court that the law firm was acting as an agent and thus owed a fiduciary duty to all parties involved because it was responsible for the collection and disbursement of the sale proceeds. 258 Kan. at 96–97. The court found that the law firm had erred in the distribution of the proceeds and had thus breached its fiduciary duty. 258 Kan. at 98–99.
Old Monarch attempts to distinguish Gillespie on the grounds that the law firm in Gillespie had expressly agreed to actively collect funds on behalf of the party claiming breach of fiduciary duty, whereas here Old Monarch never agreed to actively solicit payments on behalf of New Monarch. But this is a distinction without a difference. Even if Old Monarch did not actively solicit payments on behalf of New Monarch, it certainly anticipated that it would passively receive misdirected New Monarch payments and would need to keep track of and account for those payments when the two companies settled up. There was sufficient evidence at trial from which a reasonable jury could conclude that Old Monarch was an agent for New Monarch with respect to any misdirected payments and thus owed New Monarch a corresponding fiduciary duty.
Renkemeyer
Because there was ample evidence at trial that Old Monarch owed a fiduciary duty to New Monarch with respect to receiving invoice payments, there was also ample evidence that Renkemeyer owed a fiduciary duty while acting on behalf of Old Monarch as a principal. Since a corporation is a fictional person, it may only “act” through natural persons, such as its officers and agents. See Dean Operations, Inc. v. One Seventy Assocs., 257 Kan. 676, 680, 896 P.2d 1012 (1995); Lokay v. Lehigh Vall. Co–Op. Farmers, Inc., 342 Pa.Super. 89, 97, 492 A.2d 405 (1985) (“A corporation is a creature of legal fiction, and must ‘act’ through its officers, directors or other agents.”). It stands to reason that if a corporation owes a fiduciary duty, then its officers and other agents owe that fiduciary duty while acting on behalf of the corporation.
Renkemeyer contends there was no contractual relationship giving rise to a fiduciary duty because he was not New Monarch's attorney and because the agreement to settle up was not made by him personally but by Old Monarch. But even if the agreement to settle up was only between New Monarch and Old Monarch, Renkemeyer still owed a fiduciary duty while acting on Old Monarch's behalf under the agreement. Renkemeyer also argues that testimony by both Thomas and David Kleinbeck established that they did not trust him and therefore could not have placed any “special confidence” in him. But the evidence plainly showed that New Monarch expected that Old Monarch would receive some misdirected payments and New Monarch trusted that Renkemeyer on behalf of Old Monarch would accurately account for those payments, regardless of the Kleinbecks' personal opinions of Renkemeyer. Thus, a reasonable jury could have found that Renkemeyer owed a fiduciary duty to New Monarch with respect to receiving invoice payments.
Crader
Like Renkemeyer, Crader was a principal of Old Monarch and, while acting on behalf of Old Monarch, had a fiduciary duty to New Monarch with respect to receiving invoice payments. Although Crader may not have been present at the meeting during which the agreement to settle up had been made, he was aware of the arrangement. Furthermore, Crader was New Monarch's general manager and in that capacity owed fiduciary duties to New Monarch. See Emprise Bank v.. Rumisek, 42 Kan.App.2d 498, Syl. ¶ 12, 215 P.3d 621 (2009), rev. denied 290 Kan. 1093 (2010) (“Corporate officers and managers have a fiduciary duty to act in the best interests of their corporation.”).
Crader argues, as Renkemeyer does, that the agreement to settle up was only between Old Monarch and New Monarch and thus he did not owe any fiduciary duty arising from the agreement. He further argues that the Kleinbecks did not trust him and could not have placed “special confidence” in him. Crader's arguments likewise fail.
As to Crader's contention that he was a general manager of New Monarch in name but not in fact due to the increasing strictures that Thomas Kleinbeck placed on Crader's job performance, there was sufficient evidence at trial that Crader undertook managerial responsibilities for at least the first month or two after the change in ownership. Crader testified that, to the best of his ability, he continued to perform tasks that would customarily be performed by general management, although those tasks were eventually reduced. Jacque Schaedler, an employee of both Old Monarch and New Monarch, also testified that she continued to report to Crader, although she noticed that his duties were “gradually” reduced. Thus, a reasonable jury could have found that Crader owed a fiduciary duty to New Monarch both as a general manager of New Monarch and while acting on behalf of Old Monarch with respect to receiving invoice payments. B. Breach of a Fiduciary Duty
There was also ample evidence at trial from which a reasonable jury could have concluded that Renkemeyer and Crader (and consequently, Old Monarch) breached the fiduciary duty owed to New Monarch with respect to receiving invoice payments. First, Old Monarch—with Renkemeyer and Crader as signatories—opened Account 347 under the name “Monarch Transport, LLC,” even though they had already agreed to sell that name to New Monarch. Crader filed an EFT form with Delphi, instructing Delphi to wire payments to “Monarch Transport, LLC” into Account 347 but using New Monarch's contact information and failing to explain that only payments meant for Old Monarch should go to Account 347. Renkemeyer sent out a collection letter that erroneously explained that the difference between Old Monarch and New Monarch invoices was five versus six digits, which led to at least some 3–series invoices being paid to Old Monarch. Even if Renkemeyer and Crader did not take these actions to intentionally misdirect New Monarch payments, a reasonable jury could have found that Renkemeyer and Crader should have known these actions would increase the likelihood of misdirected payments and thus constituted a breach of fiduciary duty.
Second, neither Crader nor Renkemeyer kept track of which invoices were being paid into Account 347 or sent to RCW. Crader admitted that when he was keeping track of payments made into Account 347 during October 2007, he did not specifically look for 3–series invoices. And when Renkemeyer took over those duties in November 2007, he candidly stated that he made no attempt to track which invoices were being paid. Instead, he simply credited all payments against the outstanding balance that the customer owed to Old Monarch, figuring everything would be resolved later by looking at the source documentation. Renkemeyer and Crader both admitted that Old Monarch did not on its own initiative contact customers to find out which invoice was being paid when source documentation was missing. Furthermore, Renkemeyer had arranged for payments into Account 347 to be forwarded directly to Bank of the West, without any apparent effort to ensure that payments on New Monarch invoices were withheld or otherwise accounted for. From this evidence, a reasonable jury could conclude that Renkemeyer and Crader did not make adequate efforts to track incoming invoice payments and thus each breached their fiduciary duty.
Third, Thomas Kleinbeck testified that around the end of November 2007, he confronted Crader and Renkemeyer about potentially missing New Monarch payments, but each man denied knowing anything and stated he would have to check with the other. Kleinbeck testified that neither man ever got back to him on the issue. Additionally, Kleinbeck asked Crader to follow up with customers about the missing payments, and Crader admitted that he did little except pass that request on to another employee. When Kleinbeck again confronted Renkemeyer about missing payments in early January 2008, Renkemeyer replied that Old Monarch had only received about $10,000 into Account 347 over the past 3 or 4 weeks. But even excluding the large Delphi payment made into Account 347 in early December 2007, the evidence at trial showed that tens of thousands of dollars had been deposited into Account 347 that month. Finally, David Kleinbeck testified that Crader had denied knowing of the existence of Account 347. From this evidence, a reasonable jury could conclude that Renkemeyer and Crader either deliberately misled New Monarch or failed to adequately investigate once the missing payments were brought to their attention and thus each breached their fiduciary duty. C. Personal Liability of Renkemeyer and Crader
Finally, there was sufficient evidence at trial from which a reasonable jury could conclude that Renkemeyer and Crader should be held personally liable on the breach of fiduciary duty claim. Under Kansas law, a member or manager of a limited liability company generally cannot be held personally liable for the company's torts:
“Except as otherwise provided by this act, the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the limited liability company, and no member or manager of a limited liability company shall be obligated personally for any such debt, obligation or liability of the limited liability company solely by reason of being a member or acting as a manager of the limited liability company.” (Emphasis added.) K.S.A. 17–7688(a).
Nevertheless, it is well established that a member or manager is personally liable for corporate wrongs where the individual participated in, approved or sanctioned the wrongful action, had knowledge amounting to acquiescence to the action, made a false representation as to material matters in connection with the action, or willfully participated in acts of fraud or deceit. See Patrons State Bank & Trust Co. v. Shapiro, 215 Kan. 856, 862, 528 P.2d 1198 (1974); State ex rel. Stephan v. Commemorative Services Corp., 16 Kan.App.2d 389, 400, 823 P.2d 831 (1991), rev. denied 250 Kan. 806(1992).
Here, Renkemeyer and Crader argue that all actions they took were as members and agents of Old Monarch and since they did not owe a fiduciary duty to New Monarch except as members and agents of Old Monarch, they cannot be held personally liable. But this argument misses the point. It is clear that regardless of whether a corporate officer personally benefits from his or her wrongdoing on behalf of the corporation, he or she may be held personally liable if the officer participated in the wrongdoing. As discussed above, Renkemeyer and Crader both extensively participated in actions which could reasonably be construed as a breach of the fiduciary duty they owed by Old Monarch. Thus, a reasonable jury could have found them personally liable.
For the above reasons, the district court did not err in denying Old Monarch, Renkemeyer, and Crader's motion and renewed motion for judgment as a matter of law on the breach of fiduciary duty claim.
Punitive Damages
Renkemeyer argues that the district court erred in denying his motion for judgment as a matter of law and overruling his objection to Jury Instruction 16 on the issue of punitive damages because no reasonable jury could have awarded actual damages against him or found by clear and convincing evidence that he had acted in a fraudulent manner. New Monarch argues that there was a basis to award actual damages and that there was clear and convincing evidence that Renkemeyer acted in a fraudulent manner.
We have previously set forth an appellate court's standard of review on a district court's decision to grant or deny a motion for judgment as a matter of law. See Deal, 286 Kan. at 858. With respect to issues raised to the district court regarding jury instructions, this court employs the following standard of review:
“The trial court is required to properly instruct the jury on a party's theory of the case. Errors regarding jury instructions will not demand reversal unless they result in prejudice to the appealing party. Instructions in any particular action are to be considered together and read as a whole, and where they fairly instruct the jury on the law governing the case, error in an isolated instruction may be disregarded as harmless. If the instructions are substantially correct and the jury could not reasonably have been misled by them, the instructions will be approved on appeal. [Citation omitted.]” Wood v. Groh, 269 Kan. 420, 423–24, 7 P.3d 1163 (2000).
With respect to punitive damages, Jury Instruction 16 stated in relevant part:
“If you award New Monarch actual damages for ... improper diversion of freight invoice payments, then you may consider whether punitive damages should be allowed against Renkemeyer.... Punitive damages may be allowed in the jury's discretion to punish a defendant and to deter others from like conduct.
“The burden is on New Monarch to prove by clear and convincing evidence that Renkemeyer ... acted as claimed. Clear and convincing evidence means evidence that is certain, unambiguous and plain to the understanding and so reasonable and persuasive as to cause you to believe it.
“If you find Renkemeyer ... did one or more of the acts claimed by New Monarch you should then determine whether clear and convincing evidence has been presented that Renkemeyer ... acted in a fraudulent manner. If you determine punitive damages should be allowed, your finding should be entered in the verdict form.”
Here, there was evidence that Renkemeyer opened Account 347 under the name “Monarch Transport, LLC” even after Old Monarch had agreed to sell the name to New Monarch. Further, the evidence showed that Renkemeyer had arranged for payments made into Account 347 to be transferred to Bank of the West, without making any attempt to first determine whether those were payments owed to New Monarch. While Renkemeyer was in charge of tracking incoming invoice payments, he credited payments against the customer's outstanding balance to Old Monarch without first verifying that those payments were intended for Old Monarch.
Furthermore, when sending out collection letters in December 2007, Renkemeyer misinformed customers as to how Old Monarch versus New Monarch invoices were distinguished. There was testimony by Thomas Kleinbeck that, if believed, indicated that Renkemeyer had been informed about missing payments in November 2007 but either did nothing to investigate or deliberately stalled the investigation. Finally, Renkemeyer stated in early January 2008 that only $10,000 had been received into Account 347 over the past month, whereas the evidence at trial showed that substantially more money had been received into the account.
Although Renkemeyer offered explanations for each of these actions, there was sufficient evidence for a reasonable jury to make inferences and conclude that Renkemeyer had acted in a fraudulent manner. Jury Instruction 16 is clear, accurately states the law with respect to punitive damages, and could not reasonably have misled the jury. We conclude the district court did not err in denying Renkemeyer's motion for judgment as a matter of law and overruling his objection to Jury Instruction 16.
Jury Instructions 10 and 11
Renkemeyer and Crader argue that the district court erred in overruling their objections to Jury Instructions 10 and 11 because the instructions erroneously stated that Renkemeyer and Crader were fiduciaries of New Monarch as a matter of law and erroneously stated that they undertook to receive New Monarch payments and settle up with New Monarch while using the name “Monarch Transport, LLC.” They also argue that the instructions were misleading because the instructions implied that New Monarch could recover under a breach of fiduciary duty theory by showing mere negligence as opposed to intentional misconduct. New Monarch argues that the district court properly found that Renkemeyer and Crader were fiduciaries as a matter of law and that the instructions accurately and fairly stated the law as applied to the facts of the case.
We have previously set forth an appellate court's standard of review regarding the district court's jury instructions. If the instructions are substantially correct and the jury could not reasonably have been misled by them, the instructions will be approved on appeal. Wood, 269 Kan. at 423–24.
Jury Instruction 10 states in relevant part:
“The Court has found, as a matter of law, that a fiduciary relationship existed between New Monarch and Renkemeyer because he undertook to receive New Monarch's payments and to ‘settle up’ with New Monarch while using the name ‘Monarch Transport, LLC’
....
“1. A fiduciary has the duty to act in good faith and with due regard to the interests of the party placing confidence in him. In this case New Monarch claims this duty was breach by Renkemeyer in the following manner:
— Renkemeyer knew or should have known that he and Crader were improperly receiving New Monarch invoice payments through Account 347 and the law firm accounts, and
— Crader and Renkemeyer concealed the payments to New Monarch or intentionally did not identify or record and deliver payments to New Monarch....”
Jury Instruction 11 states in relevant part:
“The Court has found, as a matter of law, that a fiduciary relationship existed between New Monarch and Crader because he was New Monarch's general manager and he undertook to receive New Monarch's payments and to ‘settle up’ with New Monarch while using the name ‘Monarch Transport, LLC’
....
“1. A fiduciary has the duty to act in good faith and with due regard to the interests of the party placing confidence in him. In this case New Monarch claims this duty was breach by Crader in the following manner:
— Crader knew or should have known that he and Renkemeyer were improperly receiving New Monarch invoice payments through Account 347 and the law firm accounts, and
— Crader and Renkemeyer concealed the payments to New Monarch or intentionally did not identify or record and deliver payments to New Monarch....”
With respect to whether the district court erred in finding that Renkemeyer and Crader were fiduciaries as a matter of law and instructing the jury accordingly, it is true that the existence of a fiduciary relationship is a question of fact. In re Estate of Farr, 274 Kan. 51, 72, 49 P.3d 415 (2002). But a question of fact may be taken from the jury where evidence is undisputed and the minds of reasonable persons may not draw differing inferences or arrive at opposing conclusions. Deal v. Bowman, 286 Kan. 853, 858, 188 P.3d 941 (2008); see also PIK Civ. 4th 125.01, Notes on Use (“The Committee is of the opinion that the existence of a fiduciary relationship will rarely be a question of fact to be submitted to a jury.”).
Although many disputed facts were presented at trial, the evidence concerning the relationship between the parties and their respective duties under the purchase agreement was undisputed. As previously discussed, the evidence was undisputed that Old Monarch and New Monarch agreed to settle up regarding misapplied invoice payments. Furthermore, both Renkemeyer and Crader admitted that they were acting on behalf of Old Monarch when taking actions related to receiving and tracking invoice payments. The only reasonable conclusion to be drawn from this evidence is that Old Monarch owed a fiduciary duty to New Monarch and thus Renkemeyer and Crader owed that fiduciary duty while acting on behalf of Old Monarch. Further, the undisputed evidence showed that Crader acted as general manager of New Monarch for at least 1 or 2 months after the asset sale. Thus, the district court did not err in finding that Renkemeyer and Crader were fiduciaries as a matter of law.
As to the allegedly inaccurate factual statements in Jury Instructions 10 and 11, it is clear that the instructions substantially comport with the evidence at trial and could not have reasonably misled the jury. Old Monarch anticipated that it would receive some New Monarch invoice payments and agreed to settle up with New Monarch regarding any misdirected payments. Renkemeyer and Crader, as principals of Old Monarch, were bound to act in compliance with this obligation while acting on behalf of Old Monarch. Thus, the district court did not err in overruling Renkemeyer and Crader's objections to the factual statements in Jury Instructions 10 and 11.
Finally, Renekemeyer and Crader cite no authority for the proposition that a party may only recover under a breach of fiduciary duty by showing intentional, as opposed to merely negligent, misconduct. Rather, it is clear that under Kansas law the party claiming a breach of fiduciary duty does not need to show intentional misconduct. Estate of Draper v. Bank of America, 288 Kan. 510, 519, 205 P.3d 698 (2009) (“Constructive fraud is “ ‘a 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, and neither actual dishonesty [n]or purpose or intent to deceive is necessary.’ “ [Citation omitted.]”) Thus the jury could not have reasonably been misled by the language of Jury Instructions 10 and 11 implying that New Monarch could recover for breach of fiduciary duty based on Renkemeyer and Crader's negligent behavior and the district court did not err in overruling their objections to the instructions.
Requested Jury Instruction on a Creditor's Right to Apply a Debtor's Payment
Old Monarch, Renkemeyer, and Crader argue that the district court erred in refusing to give their requested jury instruction, which stated: “It is the law of this state that if a debtor does not direct how a payment should be applied when it makes payment to a creditor, the creditor may apply the payment as it desires.” They argue that the instruction would have assisted the jury on a material issue—namely, their contention that Old Monarch could apply payments to a customer's oldest outstanding invoices when the customer did not specify which invoice it was paying. New Monarch argues that the instruction would have misled the jury by implying that Old Monarch had the right to apply any payments it received against the customer's outstanding balance owed to Old Monarch, regardless of whether the payment was actually intended for New Monarch.
Our Supreme Court recently clarified the standard to be applied in a civil case when a party has requested an instruction. The district court is required to give an instruction supporting a party's theory if the instruction has been requested and there is evidence supporting the theory which, if accepted as true and viewed in a light most favorable to the requesting party, is sufficient for reasonable minds to reach different conclusions based on the evidence. Puckett v. Mt. Carmel Regional Med. Center, 290 Kan. 406, 419, 228 P.3d 1048 (2010). Where there was a timely and specific objection to the district court's giving or failure to give an instruction, an appellate court applies the same standard as the district court. Furthermore, even if the evidence supports the giving of an instruction, the instruction must still accurately and fairly state the law as applied to the facts of the case. This is a question of law over which an appellate court exercises unlimited review. 290 Kan. at 419.
The requested jury instruction is a correct statement of Kansas law. See, e.g., Dallas v. Dallas, 236 Kan. 92, 95, 689 P.2d 1184 (1984) (“ ‘If a debtor owes a creditor more than one debt, in the absence of a direction from the debtor to the creditor as to how a payment is to be applied, the creditor may elect to apply it to any debt he chooses.’ ”). Further, there was evidence that Crader, while working solely for Old Monarch, would apply payments made by Old Monarch customers to the customer's oldest outstanding invoice if the customer did not specify for which invoice the payment was intended. Thus, the evidence at trial would normally have supported the giving of the instruction.
Nevertheless, under the particular facts of this case, there is a very high likelihood that the requested jury instruction would have misled the jury. Although New Monarch was critical of Old Monarch's accounting practices before the asset sale in that it contended those practices inflated Old Monarch's accounts receivable, the much bigger issue at trial was Old Monarch's accounting practices related to payments received after the asset sale, when some of those payments were intended for New Monarch invoices. The instruction makes no distinction between these two factual scenarios—Old Monarch's application of payments to which it clearly had rights versus Old Monarch's application of payments that could have belonged to New Monarch—and thus the jury could have incorrectly applied the instruction to the latter scenario. The instruction did not fairly and accurately state the law as applied to the facts of the case, and thus the district court did not err in refusing to give the instruction.
Summaries of Deposits Made into Account 347 and Payments Sent to RCW
During trial, New Monarch introduced spreadsheets prepared by Thomas Kleinbeck that summarized deposits made into Account 347 and payments sent to RCW between October 2007 and April 2008. Kleinbeck explained that using source documentation from Peoples Bank, information turned over by Old Monarch during trial discovery, and information received from New Monarch customers in response to specific requests made by Kleinbeck, he determined which payments were for New Monarch invoices and thus how much money Old Monarch had received that properly belonged to New Monarch. Old Monarch objected to the admission of these summaries on the grounds that they were partially based on inadmissible hearsay, but the district judge overruled the objection:
“I think that [Thomas Kleinbeck's] other testimony was that he actually not only called but actually looked at the invoices that went out and correlated them to the account like if there was $3900, he would find an invoice that went out to them for $3900 and found out what it was. It was just an extrapolation of looking at the documents that were kept in the ordinary course of business.”
This court applies a multistep analysis when reviewing a district court's decision on the admission of evidence. The first question is relevance. K.S.A. 60–401(b) defines relevant evidence as evidence having any tendency in reason to prove any material fact, i.e., evidence that is probative and material. On appeal, the question of whether evidence is probative is judged under an abuse of discretion standard whereas materiality is judged under a de novo standard. Under the second step of the analysis, the district court determines which rules of evidence or other legal principles apply. On appeal, this conclusion is reviewed de novo. Under the third step of the analysis, the district court applies the applicable rule or principle. This court's standard of review of the third step depends upon the rule or principle applied: some grant the district court discretion whereas others raise matters of law. Finally, an analysis under K.S.A. 60–445 may be required. Under that statute, a district court may in its discretion exclude evidence when the probative value is substantially outweighed by the risk of unfair surprise to the opposing party. On appeal, this determination is reviewed for abuse of discretion. See State v. Shadden, 290 Kan. 803, 817–18, 235 P.3d 436 (2010).
K.S.A. 60–460 states in relevant part:
“Evidence of a statement which is made other than by a witness while testifying at the hearing, offered to prove the truth of the matter stated, is hearsay evidence and inadmissible except:
....
“(m) Business entities and the like. Writings offered as memoranda or records of acts, conditions or events to prove the facts stated therein, if the judge finds that (1) they were made in the regular course of business at or about the time of the act, condition or event recorded and (2) the sources of information from which made and the method and circumstances of their preparation were such as to indicate their trustworthiness.”
Here, the district court found that the summaries were not inadmissible hearsay because, even though Thomas Kleinbeck had testified that they were partially based on information received in response to specific requests and not recorded in the ordinary course of business, Kleinbeck's other testimony made clear that the information was extrapolated from documents that were kept in the ordinary course of business— i.e., deposits made into Account 347 and records of payments sent to RCW, invoices sent by New Monarch, and payment records kept by New Monarch customers. We agree with the district court's reasoning and conclude the district court did not err in admitting the summaries over Old Monarch's hearsay objection.
Evidence that the Kleinbecks Personally Guaranteed New Monarch's Loans
At trial, the district court admitted testimony that the Kleinbecks had personally guaranteed New Monarch's loans at UMB Bank and that the Kleinbecks would be liable for the remaining balance of the loans after the sale of New Monarch's assets and collection of its accounts receivable. Old Monarch objected on relevance grounds, but the district court overruled the objection. On appeal, Old Monarch argues that the evidence of the Kleinbecks' personal guarantee was irrelevant because the Kleinbecks personally (as opposed to New Monarch) had no damages claim against Old Monarch and thus the evidence was not probative for any material fact. New Monarch argues that the question of what caused the trucking company to fail was a major issue at trial. New Monarch contends that evidence of the Kleinbecks' personal guarantee showed that they did not have unlimited means of providing operating capital (and thus keeping the trucking company running) without collecting invoice payments.
We have previously set forth an appellate court's analysis when reviewing a district court's decision on the admission of evidence. See Shadden, 290 Kan. at 817–18. Evidence bearing upon the cause of the truck company's failure was clearly material; if the jury would have found that the failure was due to New Monarch's mismanagement, rather than due to the lack of operating capital caused by Old Monarch's improper diversion of invoice payments, then it would have been inappropriate for the jury to award damages stemming from the loss of the entire company rather than damages related to the amount of money actually diverted. The evidence that the Kleinbecks had personally guaranteed the UMB Bank loans and invested a substantial amount of their own money is probative because it had a tendency to show that the Kleinbecks did not have alternative means of raising operating capital— i.e., by taking out more loans or making more personal investments—and thus that the failure of the trucking company was due to the diversion of invoice payments and consequent lack of operating capital rather than the Kleinbecks' mismanagement. We conclude the district court did not err in admitting evidence that the Kleinbecks had personally guaranteed New Monarch's loans at UMB Bank.
Settlement Agreement
Old Monarch, Renkemeyer, and Crader argue that the district court erred in denying their motion and renewed motion for judgment as a matter of law, motion to apply settlement agreement, and motion to alter or amend judgment because the broad language of the settlement agreement and release precluded recovery for all claims arising before the date of the agreement. They specifically contend that the damages awarded by the jury for diversion of invoice payments should be reduced by $163,635.06, the amount of payments allegedly diverted before the date of the settlement agreement and release.
New Monarch contends that the terms of the settlement agreement and release cannot reasonably be construed as applying to any claim for the diversion of invoice payments, as both Renkemeyer and Crader had testified that Old Monarch's intention to settle up regarding invoice payments extended well beyond November 2007 when the settlement agreement was signed. New Monarch also argues that the jury's award of $647,000 was fair and just compensation for the damage it sustained as a result of the diversion of payments and that the jury's award cannot be altered.
We have previously set forth an appellate court's standard of review on a district court's decision to grant or deny a motion for judgment as a matter of law. See Deal, 286 Kan. at 858. To the extent that resolution of this issue requires contractual interpretation of the settlement agreement and release, an appellate court's review is unlimited. Shamberg, Johnson & Bergman, Chtd. v. Oliver, 289 Kan. 891, 900, 220 P.3d 333 (2009). “The primary rule for interpreting written contracts is to ascertain the parties' intent. If the terms of the contract are clear, the intent of the parties is to be determined from the contract language without applying rules of construction. [Citation omitted.]” Carrothers Constr. Co. v. City of South Hutchinson, 288 Kan. 743, 751, 207 P.3d 231 (2009).
The settlement agreement and release states in relevant part:
“1. Settlement. [Old Monarch] agrees to pay [New Monarch] and [New Monarch agrees to accept $29,672.00 ... from [Old Monarch] in full satisfaction of any and all matters related to [the asset purchase agreement and sale of assets], or arising between the parties in any other matter, except for [issues related to SMR Holdings' claim on the seller carryback promissory note].
....
“3. Mutual Release. Except with respect to the obligations of the parties arising hereunder and any [issue related to the seller carryback promissory note], for good and valuable consideration, receipt of which is hereby acknowledged, each party does hereby release and forever discharge the other party ... from any and all claims ... of every nature, character and description known or unknown, which each party now own or hold, or have at any time heretofore owned or held, or may at any time own or hold, whether based on contract, tort, statutory or other legal or equitable theory of relief, including, without limitation, any [c]laim ... arising out of or related to [the asset purchase agreement or sale of assets].”
On the one hand, the language of the settlement agreement and release is unambiguous and appears to, at the least, preclude recovery for claims arising prior to the date of the settlement agreement and release. On the other hand, Renkemeyer acknowledged that the intent to settle up regarding invoice payments continued after the execution of the agreement. In fact, based on Renkemeyer's testimony that he believed Old Monarch would not receive any payments meant for New Monarch until about December 2007 at the earliest, it would have been impossible for the parties to settle up prior to that date. Therefore, the settlement agreement and release cannot reasonably be construed as discharging Old Monarch's and New Monarch's fiduciary duties to each other to settle up.
Given that the fiduciary duty to settle up clearly extended beyond the date of the settlement agreement and release and that the jury found in favor of New Monarch on its breach of fiduciary duty claims, the jury was entitled to award damages as would fairly and justly compensate for the breach. Thus, the district court did not err in denying Old Monarch, Renkemeyer, and Crader's motion and renewed motion for judgment as a matter of law, motion to apply settlement agreement, and motion to alter or amend judgment and in refusing to reduce the jury's award against them on the breach of fiduciary duty claim.
District Court's Order for Renkemeyer to Resolve the Kansas Tax Warrants
Renkemeyer argues that the district court either lacked jurisdiction or abused its discretion in ordering him to take action to resolve the State of Kansas' tax warrants against New Monarch that were partially attributable to Old Monarch where (1) the tax issue was not included in the pretrial order or litigated at trial and (2) the State of Kansas was not a party to the litigation at the time of the district court's order. New Monarch argues that judgment had not yet been entered at the time of the district court's order and therefore the district court had jurisdiction to order equitable relief, including jurisdiction to order Renkemeyer to take action to ensure that New Monarch was not responsible for taxes attributable to Old Monarch.
Whether jurisdiction exists is a question of law over which an appellate court's scope of review is unlimited. Kansas Medical Mut Ins. Co. v. Svaty, 291 Kan. 597, 609, 244 P.3d 642 (2010). If the district court had jurisdiction to order injunctive relief, an appellate court reviews the order for abuse of discretion. See Board of Leavenworth County Comm'rs v. Whitson, 281 Kan. 678, 683, 132 P.3d 920 (2006).
The purpose of the pretrial conference is to eliminate the element of surprise from trials and to simplify the issues and procedure by full disclosure to all parties of the anticipated evidence and factual and legal issues. The pretrial order under K.S .A. 60–216(e) controls the course of the action unless modified to prevent manifest injustice. An issue or claim for relief that is not contained in the pretrial order should not be entertained by the district court. McCain Foods USA, Inc. v. Central Processors, Inc ., 275 Kan. 1, 18–19, 61 P.3d 68 (2002). It is well-established that a district court has jurisdiction to decide only such issues as are raised by the pleadings or defined in the pretrial order, with the limited exception of new issues raised by evidence to which there is no objection. McAdam v. Fireman's Fund Insurance Co., 203 Kan. 123, 126–27, 452 P.2d 851 (1969).
The parties agree that the issue of the State of Kansas' tax warrants against New Monarch for unpaid sales and compensating use taxes was not raised until the posttrial hearing on punitive damages. At that hearing, Renkemeyer indicated that he had been unaware of those tax warrants until that very day, but he did concede that they appeared to be partially attributable to Old Monarch and did not object to the admission of the tax warrants into evidence. The district court ordered Renkemeyer to contact the Kansas tax authorities and explain the asset sale so that, based on the date of the asset sale, the tax authorities would attribute taxes to the correct company. The district court clarified that it was not ordering Old Monarch to pay the taxes and that it merely wanted to ensure that the tax authorities were “tagging the right person.”
It appears that because the issue of the State of Kansas' tax warrants against New Monarch was not included in the pretrial order, the district court would normally be precluded from entertaining and making an order on that issue. Nevertheless, when the issue was raised at the punitive damages hearing, Renkemeyer did not object to the admission of the tax warrants and even conceded that the outstanding taxes appeared to be partially attributable to Old Monarch. The district court's order was based on uncontested evidence and falls within the limited exception to the rule that a district court had no jurisdiction over issues not contained in the pretrial order. Thus, the district court had jurisdiction to make the order.
Since the district court had jurisdiction to make the order, this court reviews its decision for abuse of discretion. In this context, an abuse of discretion occurs when the action is arbitrary, fanciful, or unreasonable. Such an abuse of discretion means no reasonable person would have taken the action of the district court. Unruh v. Purina Mills, 289 Kan. 1185, 1202, 221 P.3d 1130 (2009). Here, the district court explained that its order was intended to resolve the tax warrant issue as between Old Monarch and New Monarch and prevent another lawsuit between the parties over such a small amount of money (about $12,000). It cannot be said that no reasonable person would have taken the same action, and thus the district court did not abuse its discretion.
Judgment in Favor of SMR Holdings
Finally, SMR Holdings argues that the district court erred in denying its motion and renewed motion for judgment as a matter of law and motion to alter or amend judgment on its claim that New Monarch and the Kleinbecks had defaulted on the seller carryback promissory note. SMR Holdings contends that the uncontroverted evidence at trial showed that New Monarch and the Kleinbecks were in default and further established that the proper measure of damages was $427,618.56, plus additional prejudgment interest, attorney fees, and expenses. SMR Holdings asserts that the district court should have either entered judgment as a matter of law for this amount or altered the jury award to reflect the proper measure of damages. New Monarch and the Kleinbecks argue that the jury's award of $350,000 was within the range of evidence and that therefore the district court properly refused to alter the jury's award.
We have previously set forth an appellate court's standard of review on a district court's decision to grant or deny a motion for judgment as a matter of law. See Deal v. Bowman, 286 Kan. 853, 858, 188 P.3d 941 (2008). Although the evidence at trial was undisputed that New Monarch and the Kleinbecks had stopped paying on the seller carryback promissory note and were in default, they raised at least one factual defense—namely, that Renkemeyer, as a principal of SMR Holdings, had improperly diverted New Monarch's invoice payments and made it impossible for New Monarch and the Kleinbecks to perform under the promissory note. The diversion of invoice payments was clearly a major issue contested at trial, one upon which reasonable minds could differ, and thus the district court did not err in denying SMR Holdings' motion and renewed motion for judgment as a matter of law.
As for the district court's refusal to either enter an award or amend the jury's award for the full amount of damages allegedly proven—$427,618.56, plus additional prejudgment interest, attorney fees, and expenses—New Monarch argued below that the amount of damages was not uncontroverted and that SMR Holdings had not identified specific evidence that would provide a basis for overriding the jury's award. Furthermore, New Monarch argued that SMR Holdings' figure appeared to be based on the full amount originally owed under the promissory note, whereas the evidence at trial showed that New Monarch and the Kleinbecks had in fact made several payments and did not cease payments until February 2008. Reasonable minds could differ as to the amount of damages proven, and therefore the district court did not err in refusing to enter judgment for the entire amount alleged by SMR Holdings.
Lastly, there is no fixed standard for measuring the adequacy or inadequacy of a verdict, and the question must be decided on the particular facts of each case. Lehar v. Rogers, 208 Kan. 831, 836, 494 P.2d 1124 (1972). Given the evidence that New Monarch had made at least some payments on the seller carryback promissory note, the jury's award of $350,000 cannot be said to be inadequate as a matter of law. We conclude the district court did not err in denying SMR Holdings' motion to alter or amend the judgment and increase the amount of damages awarded.
Affirmed.