Opinion
Nos. 106,588 106,882 106,883.
2013-05-3
ENTERPRISE BANK & TRUST, Appellee, v. BARNEY ASHNER HOMES, INC.; Daniel H. Waldberg; and Bernard Ashner, Appellants. Enterprise Bank & Trust, Appellee, v. Eben, L.L.C.; Daniel H. Waldberg; and Brenda Waldberg, Appellants. and Enterprise Bank & Trust, Appellee, v. DR Builders, L.L.C.; Daniel H. Waldberg; and Robert P. Levitch, Appellants.
Consolidated appeals from Johnson District Court; [No. 106,588] David W. Hauber and [Nos. 106,882 and 106,883] Gerald T. Elliott, Judges. John M. Duggan and Devon A. Anliker, of Duggan, Shadwick, Doerr & Kurlbaum, P.C., of Overland Park, for appellants. Kristie Remster Orme, Adam J. Gasper, and Linda McFee, of McDowell, Rice, Smith & Buchanan, P.C., of Kansas City, Missouri, for appellee.
Consolidated appeals from Johnson District Court; [No. 106,588] David W. Hauber and [Nos. 106,882 and 106,883] Gerald T. Elliott, Judges.
John M. Duggan and Devon A. Anliker, of Duggan, Shadwick, Doerr & Kurlbaum, P.C., of Overland Park, for appellants. Kristie Remster Orme, Adam J. Gasper, and Linda McFee, of McDowell, Rice, Smith & Buchanan, P.C., of Kansas City, Missouri, for appellee.
Before LEBEN, P.J., ATCHESON, J., and BUKATY, S.J.
MEMORANDUM OPINION
ATCHESON, J.
In three cases consolidated for appeal, Plaintiff Enterprise Bank & Trust sued affiliated corporations and individuals to collect on promissory notes and guaranties given to secure business loans. The defendant corporations and individuals asserted counterclaims and defenses that two Johnson County District Court judges rejected. Based on the loan documents governing those financial transactions, including choice-of-law provisions requiring the use of Missouri law, and relevant conflict-of-law principles, we affirm the judgments in favor of Enterprise Bank. We also take up Enterprise Bank's motions to recover attorney fees and costs for this appeal.
In short, we find that the substantive law of Missouri applies to the loan transactions between Enterprise Bank and the Defendants. As reflected in Mo.Rev.Stat. § 432.047 (2000 ed., 2012 Supp.), the Defendants cannot base counterclaims or defenses in these collection actions on oral representations of officers or agents of Enterprise Bank. The Defendants relied largely on such representations in an effort to modify or extinguish their obligations under promissory notes and commercial guaranty agreements with Enterprise Bank. The bulk of this decision deals with the choice-of-law considerations that dominate the issues on appeal. We also address other points the Defendants have raised and find them unavailing. We affirm the district court judgments entered in favor of Enterprise Bank. Finally, on Enterprise Bank's request for attorney fees on appeal, we grant that request, less expenses the Defendants correctly disputed.
Before turning to the legal analysis, we outline pertinent provisions of the notes and guaranties and the factual background in each case. That entails a certain amount of unavoidable repetition because the documents are generally similar and in most relevant aspects identical. We also dispense with much of the procedural history of the cases in the district court. The parties are well familiar with the voluminous record they have created in each of the cases and the particulars of the district court decisions. Although that expanse of legal argument and the resulting rulings broadly inform our review, they need not be catalogued or detailed here.
Factual and Procedural Background
Enterprise Bank v. Barney Ashner Homes, Inc., et al., No. 106,588
In August 2006, Defendant Barney Ashner Homes, a company specializing in residential construction, obtained two loans from NorthStar Bank, a predecessor in interest to Enterprise Bank. Company representatives signed deeds of trust on property in Kansas City, Missouri, used as collateral for the loans and promissory notes. In December 2006, the company obtained a third loan from what had become Enterprise Bank and approved another note. At that time, Defendants Barney Ashner and Daniel Waldberg, who are principals in the company, each signed a “commercial guaranty” of the company's debt.
Representatives of Barney Ashner Homes periodically signed replacement promissory notes presumably corresponding to the company's indebtedness to Enterprise Bank. In February 2009, Ashner signed the notes at issue here as the agent of Barney Ashner Homes, The commercial guaranties that Ashner and Waldberg signed remained in effect.
The construction company defaulted on the loans. Enterprise Bank foreclosed on and sold the real property collateralizing the loans. Eventually, Enterprise Bank sued Barney Ashner Homes, Ashner, and Waldberg in Johnson County District Court to collect the balance remaining on the February 2009 promissory notes and to enforce the commercial guaranties against Ashner and Waldberg. In response to the suit, the Defendants answered and counterclaimed against Enterprise Bank. Before discussing the suit, we identify portions of the financial documents that figure in the points on appeal.
The promissory notes from Barney Ashner Homes are identical and include the following provisions:
•A choice-of-law clause stating: “Governing Law. This Note will be governed by ... the laws of the State of Missouri without regard to its conflicts of law provisions. This Note has been accepted by the Lender in the State of Missouri.”
•A clause disavowing any oral agreements and declaring the note to be a fully integrated recitation of rights and obligations:
“ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE, REGARDLESS OF THE LEGAL THEORY UPON WHICH IT IS BASED THAT IS IN ANY WAY RELATED TO THE CREDIT AGREEMENT. TO PROTECT YOU (BORROWER(S)) AND U.S. (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH GOVERNING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE LATER AGREE IN WRITING TO MODIFY IT.”
•The borrower's waiver of a right to jury trial.
The commercial guaranties Ashner and Waldberg personally signed are identical. Each includes the following provisions:
•A clause making the guarantor (Ashner or Waldberg) principally liable on the debt by requiring that he: “unconditionally guarantees full and punctual payment ... of the Indebtedness of Borrower [Barney Ashner Homes].... This is a guarantee of payment ... so Lender can enforce this Guaranty against Guarantor even when Lender has not exhausted Lender's remedies against anyone else obligated to pay the indebtedness....”
•A clause extending the agreement to future loans to Barney Ashner Homes:
“THIS IS A ‘CONTINUING GUARANTY’ UNDER WHICH GUARANTOR AGREES TO GUARANTEE THE FULL AND PUNCTUAL PAYMENT, PERFORMANCE AND SATISFACTION OF THE INDEBTEDNESS OF BORROWER TO LENDER, NOW EXISTING OR HEREAFTER ARISING OR ACQUIRED ON AN OPEN AND CONTINUING BASIS.”
•A clause incorporating related loan documents into the guaranty:
“This Guaranty, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in the Guaranty. No alteration of or amendment to this Guaranty shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.”
•The phrase “Related Documents” is a term defined in the guaranty agreement to mean “all promissory notes, credit agreements, loan agreements, ... mortgages, deeds of trust ..., and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness.”
•A choice-of-law clause providing: “This Guaranty will be governed by ... the laws of the State of Missouri without regard to its conflicts of law provisions. This Guaranty has been accepted by Lender in the State of Missouri.”
•The Guaranty Agreement allows Enterprise Bank to recover “reasonable costs” including attorney fees against the guarantor in any action to collect the indebtedness.
•A clause superseding any earlier or contemporaneous oral agreements: “This written agreement is the final expression of the agreement between Lender and Guarantor and may not be contradicted by evidence of any prior oral agreement or of a contemporaneous oral agreement between lender and Guarantor.” That section also provided a place to list “nonstandard terms,” including any oral agreements. No such terms or agreements were listed. The guarantor (either Ashner or Waldberg) then initialed that section as indicated on the form.
The Defendants' counterclaims rested on oral representations an officer of Enterprise Bank purportedly made after the February 2009 promissory notes were signed. According to the Defendants, the bank officer told the defendants the notes would not be called so long as the interest on the indebtedness was paid. They contend the bank officer made other oral representations indicating Enterprise Bank would refrain from taking legal action on the notes or the guaranty agreements or would reduce the amount of the indebtedness. The Defendants argued various contract and tort theories, including fraud. The Defendants also asserted numerous affirmative defenses.
In seeking dismissal of the counterclaims in pretrial motions filed with the district court, Enterprise Bank did not dispute the representations attributed to its officer. District Court Judge David W. Hauber granted the motion to dismiss. He later entered summary judgment against the Defendants for the balances due on the notes and awarded attorney fees to Enterprise Bank, as permitted in the documents. The Defendants timely appealed. Enterprise Bank v. Eben, LLC; Daniel W. Waldberg; and Brenda Waldberg, No. 106,833
This case fits the same general pattern of Barney Ashner Homes in that Enterprise Bank's predecessor made loans to Eben, a limited liability corporation involved in the construction business, and took promissory notes in August 2006. The bank also received deeds of trust on two pieces of real estate in Kansas City, Missouri, as collateral. The promissory notes were periodically renewed and came due in 2009. Daniel Waldberg signed the notes at issue here on behalf of Eben. He and Brenda Waldberg were affiliated with the corporation. Each of them signed a commercial guaranty of the loans to Eben.
The promissory notes were drafted using the same form as those for Barney Ashner Homes and contain the same language we have already outlined. The commercial guaranties contain the same language as those Daniel Waldberg and Ashner signed for Barney Ashner Homes' liability, except they omit the clause stating the guaranty reflects the final agreement of the parties and documenting the absence of nonstandard terms.
The litigation developed much the same way as the Barney Ashner Homes case as well. Eben could not make the payments on the indebtedness, and Enterprise Bank foreclosed on and sold the real estate put up as collateral. The bank then sued Eben, Daniel Waldberg, and Brenda Waldberg for the remaining amount due. The defendants made the same sort of counterclaims and raised the same sort of defenses as the Barney Ashner Homes defendants did, relying on comparable representations of the Enterprise Bank officer. Waldberg also alleged that at the request of Enterprise Bank he opened an account there into which he deposited $60,000 to $70,000. The money was applied to the loans or to maintain the properties pledged as collateral. Waldberg contends he set up the account only because the bank officer told him the notes would be extended if he did. In this case, District Court Judge Gerald T. Elliott dismissed the counterclaims and granted Enterprise Bank's motion for summary judgment based on the notes and guaranty agreements. Judge Elliott awarded attorney fees to the bank. The Defendants timely appealed the judgments against them. Enterprise Bank v. DR Builders, LLC; Daniel H. Waldberg; and Robert P. Levitch, Case No. 106, 883
This case follows a narrative that parallels the other two. In 2003, DR Builders obtained financing from Enterprise Bank's predecessor for its home construction business and provided two promissory notes and deeds of trust on two properties in Kansas City, Missouri. The bank periodically renewed or extended the notes. They were payable in March 2009. Both Waldberg and Levitch signed the notes on behalf of DR Builders. In 2003, Waldberg and Levitch each signed a commercial guaranty taking on personal liability for the debt.
The promissory notes and guaranty agreements contain the same material language as the documents in Eben and Barney Ashner Homes with the exception of the clause in the Barney Ashner Homes guaranties regarding the writing being the final agreement of the parties and documenting the absence of nonstandard terms.
DR Builders defaulted on its payment obligations on the loans, so Enterprise Bank called the promissory notes, foreclosed on the real estate given as collateral, and then filed suit against the company on the note and against Waldberg and Levitch on their guaranty agreements. The Defendants filed comparable counterclaims and defenses. Waldberg asserted that the same bank officer had agreed to continue the notes if DR Builders made interest payments alone without reducing the principal owed. And he alleged the bank officer said the notes could be paid off for $115,000 each, even though the face amount was somewhat more. Judge Elliott dismissed the counterclaims and entered summary judgment for Enterprise Bank on the notes and the guaranty agreements. He also awarded attorney fees to the bank. The Defendants timely appealed.
Legal Analysis
1. Setting the Stage
This court consolidated the cases following appeal because of the common issues and parties. Enterprise Bank, of course, is the plaintiff in each case. The bank is a Missouri corporation headquartered in St. Louis, with branches in that state, Kansas, and Arizona. Daniel Waldberg is a defendant common to all three cases. He is also affiliated with each of the corporate defendants. All of the defendant business entities were incorporated in Kansas. Waldberg supplied an affidavit in each of the district court cases outlining the representations of the Enterprise Bank officer upon which the Defendants contend they relied and upon which their affirmative defenses and counterclaims for the most part rest.
Two statutes—one enacted in Missouri, Mo.Rev.Stat. § 432.047, and one enacted in Kansas, K.S.A. 16–118—also figure prominently in the resolution of the legal disputes between Enterprise Bank, on the one hand, and the Defendants, on the other. Although the statutes differ in some particulars, they share the common purpose of limiting the ability of debtors to escape written obligations on business loans from commercial lenders by relying on oral representations from agents of those lenders purporting to modify or extinguish those obligations. The measures essentially operate as statutes of fraud that deprive oral statements related to covered loan transactions of any legal force.
As a practical matter, the statutes take away the ability of a debtor to delay a collection case and force a trial simply by alleging an agent of a lender made oral representations at odds with the loan documents, thereby furnishing the basis for a defense or counterclaim. Absent those statutes, a lender's denial of those representations commonly would create a disputed issue of material fact, precluding summary judgment and requiring a trial. When either of those statutes applies, however, oral representations—even if they actually were made—cannot furnish a legally viable defense or counterclaim in a commercial lender's action to collect a business debt. Because of their importance in sorting out the choice-of-law questions that drive the legal issues in this case, we set forth and discuss in some detail the Kansas and Missouri statutes.
Before doing so, we outline the standard of review we apply. Defendants devote the bulk of their briefing to the summary judgment rulings entered against them in the district court. In reviewing a district court's decision to grant summary judgment, we use a de novo standard affording no deference to that ruling. We apply the same standards to the evidentiary record by resolving all factual disputes in favor of the party opposing summary judgment and taking the evidence in a light most favorable to that party. If the admissible evidence demonstrates factual disputes that would affect the outcome at trial, the motion should be denied. See Shamberg, Johnson & Bergman, Chtd. v. Oliver, 289 Kan. 891, 900, 220 P.3d 333 (2009).
On appeal, the Defendants submit that the district court rulings on Enterprise Bank's motions to dismiss various counterclaims rise or fall on the applicability of Mo.Rev.Stat. § 432.047 and the resulting exclusion of the oral representations of the Bank's agent. We accept that characterization of the issue. In reviewing a motion to dismiss on the pleadings under K.S.A. 60–212(c), an appellate court asks whether the facts alleged or admitted in the pleadings demonstrate no theory of relief for the party asserting the claim or an insuperable legal bar to relief. See Rector v. Tatham, 287 Kan. 230, Syl. ¶ 1, 195 P.3d 364 (2008) (dismissal proper only if factual allegations fail to establish any theory of recovery); Nelson Energy Programs v. Oil & Gas Technology Fund, 36 Kan.App.2d 462, 472, 143 P.3d 50 (2006) (noting the same standard should be applied under both K.S.A. 60–212(b)(6) for failure of petition to state a claim and K.S.A. 60–212(c) for judgment on the pleadings). In their counterclaims, the Defendants alleged generally representations and conduct of agents of Enterprise Bank that altered the terms of the promissory notes and commercial guaranties. As the Defendants acknowledge, their position effectively fails if Mo.Rev.Stat. § 432.047 applies.
In general terms, the Defendants' claims and defenses hinge on the whether those oral representations amount to admissible, competent evidence or whether the governing statutory law precludes consideration of oral statements to vary the loan documents. If the statements are out, so are the Defendants' claims and defenses for all practical purposes. To resolve that issue, we set out both the Kansas statute and the Missouri statute and look at how choice-of-law principles and the choice-of-law clauses in the promissory notes and the commercial guaranties interact.
In its entirety, K.S.A. 16–118 provides:
“(a) A debtor or a creditor may not maintain an action for legal or equitable relief or a defense, based in either case upon a failure to perform on an alleged credit agreement, unless the material terms and conditions of the agreement are in writing and signed by the creditor and the debtor.
“(b) All credit agreements shall contain a clear, conspicuous and printed notice to the debtor that states that the written credit agreement is a final expression of the credit agreement between the creditor and debtor and such written credit agreement may not be contradicted by evidence of any prior oral credit agreement or of a contemporaneous oral credit agreement between the creditor and debtor. A written credit agreement shall contain a sufficient space for the placement of nonstandard terms, including the reduction to writing of a previous oral credit agreement and an affirmation, signed or initialed by the debtor and the creditor, that no unwritten oral credit agreement between the parties exists.
“(c) Failure to comply with provisions of subsections (a) and (b) shall preclude an action or defense based on any of the following legal or equitable theories: (1) An implied agreement based on course of dealing or performance or on a fiduciary relationship; (2) promissory or equitable estoppels; (3) part performance; or (4) negligent representation.”
As defined in K.S.A. 16–117(b) and (d), the statute covers banks, savings and loan associations, and similar financial institutions. Enterprise Bank is a covered financial institution. The statute applies to a limited range of “credit agreements” defined in K.S.A. 16–117(a). The definition excludes “promissory notes” and “guaranty agreements” among other instruments. But in construing an earlier version of K.S.A. 16–118, the Kansas Supreme Court held that “[a]n oral promise on the part of a lender to extend credit in the future may not be considered a modification of a debtor's prior promissory note,” making that promise a covered credit agreement. Bittel v. Farm Credit Svcs. of Central Kansas, P.C.A., 265 Kan. 651, Syl. ¶ 2, 962 P.2d 491 (1998) (citing K.S.A. 16–117[a] ). That part of Bittel remains good law. Several other aspects of the Bittel decision prompted the Kansas Legislature to amend K.S .A. 16–118 by clarifying the scope of subsection (a) and adding subsection (c), effectively limiting or legislatively overruling contrary language in the decision. We discuss later the implications of those changes for this appeal.
In pertinent part, Mo.Rev.Stat. § 432.047 (2000 ed., 2012 Supp.), provides:
“2. A debtor may not maintain an action upon or a defense, regardless of legal theory in which it is based, in any way related to a credit agreement unless the credit agreement is in writing, provides for the payment of interest or for other consideration, and sets forth the relevant terms and conditions.
“3. (1) If a written credit agreement has been signed by a debtor, subsection 2 of this section shall not apply to any credit agreement between such debtor and creditor unless such written credit agreement contains the following language in boldface ten-point type: ‘Oral agreements or commitments to loan money, extend credit or to forbear from enforcing repayment of a debt including promises to extend or renew such debt are not enforceable, regardless of the legal theory upon which it is based that is in any way related to the credit agreement. To protect you [borrower(s) ] and us [creditor] from misunderstanding or disappointment, any agreements we reach covering such matters are contained in this writing, which is the complete and exclusive statement of the agreement between us, except as we may later agree in writing to modify it.’
“(2) Notwithstanding any other law to the contrary in this chapter, the provisions of this section shall apply to commercial credit agreements only and shall not apply to credit agreements for personal, family, or household purposes.”
The Missouri statute applies to commercial credit agreements broadly defined to include “an agreement to lend or forbear repayment of money” or “otherwise extend credit.” Mo.Rev.Stat. § 432.047.1; see Mo.Rev.Stat. § 432.047.3. (2).
The promissory notes at issue in these cases contain the required statutory notification outlined in Mo.Rev.Stat. § 432.047.3.(1). In turn, the commercial guaranty agreements expressly incorporate by reference the promissory notes as contractually defined “related documents.” As a result, the Defendants obligated on the guaranties received, at the very least, constructive notice of the statutory limitation on oral representations. They had a duty to apprise themselves of the promissory notes as sophisticated parties to a commercial lending arrangement. Their vigilance would seem to be a matter of entrepreneurial prudence, since the guaranties obligated them on both existing and future debt. See Mercantile Bank, N.A. v. Loy, 77 S.W.3d 93, 95 (Mo.App.2002) (recognizing “continuing guaranty” covering “a series of possible transactions between the debtor and creditor”). For those reasons, we reject the Defendants' arguments they could not be subject to Mo.Rev.Stat. § 432.047 because the statutory notice did not appear in the text of the commercial guaranties and because those agreements were signed well before the promissory notes upon which Enterprise Bank sued.
We note in passing that Mo.Rev.Stat. § 432.047 applies to debtors rather than guarantors. We needn't plumb whether the Missouri Legislature meant to draw some distinction between the two and to exclude a party only secondarily liable on a debt as a guarantor. See Mercantile Bank, 77 S.W.3d at 95 (noting generally the secondary liability of guarantor without reference to Mo.Rev.Stat. § 432.047); Terwilliger v. Terwilliger, 206 F.3d 240, 246–47 (2d Cir.2000) (secondary liability of guarantor triggered only when the primary obligor has defaulted). First, the Defendants do not make that argument. And given the terms of the guaranty agreements, it would have been unsuccessful. Under the commercial guaranties, Enterprise Bank could seek payment from the guarantors without first having proceeded against the business entities receiving the loan proceeds. Those guaranty agreements, then, impose primary liability on the guarantors, making them codebtors. See Mercantile Bank, 77 S.W.3d at 98;Matter of Clary House, Inc., 11 B.R. 462, 466 (Bankr.W.D.Mo.1981).
2. Choice–of–Law Principles
Resolving these cases rests on how K.S.A. 16–118 and Mo.Rev.Stat. § 432.047 may apply to the financial transactions and, in particular, the Defendants' asserted defenses and counterclaims. The applicability of those statutes triggers an involved choice-of-law problem. Because the suits were filed in Johnson County District Court, Kansas becomes the forum state, and its choice-of-law rules apply. See Nat'l Union Fire Ins. v. Standard Fusee, 940 N.E.2d 810, 813 (Ind.2010) (choice-of-law rules of jurisdiction in which suit filed govern); Smith v. Alza Corp., 400 N.J.Super. 529, 542, 948 A.2d 686 (2008); see also Security Storage Properties v. Safeco Ins. Co. of America, 2010 WL 1936127 (D.Kan.2010) (unpublished opinion) (In a suit before the federal court on diversity jurisdiction, Kansas, as the forum state, supplies the substantive law including choice-of-law rules.). In the promissory notes and commercial guaranties, the parties have agreed Missouri law governs those documents. We, therefore, have to determine the correct interplay of Kansas choice-of-law principles with a contractual provision applying another state's law, and we must do so in the context of substantive claims the Defendants have raised based on tort and contract theories.
The Kansas choice-of-law rule favors enforcing the decision of contracting parties to designate another jurisdiction's substantive law to govern their agreement. Brenner v. Oppenheimer & Co., 273 Kan. 525, 539, 44 P.3d 364 (2002) (“Where the parties to a contract have entered an agreement that incorporates a choice of law provision, Kansas courts generally effectuate the law chosen by the parties to control the agreement.”); Fleetwood Enterprises v. Coleman Co., 37 Kan.App.2d 850, 861, 161 P.3d 765 (2007). As a general proposition, that seems unremarkable. When sophisticated parties possessed of roughly equivalent bargaining power negotiate a set of understandings covering a commercial transaction, the courts commonly will enforce the arrangement the parties have crafted for themselves. See Hall v. Sprint Spectrum L.P., 376 Ill.App.3d 822, 826, 315 Ill.Dec. 446, 876 N.E.2d 1036 (2007) (discussing freedom to contract in context of choice-of-law clause).
There are, however, exceptions to the choice-of-law rule favoring contractual clauses designating a body of substantive law to regulate the parties' relationship. The Brenner court suggested that a choice-of-law provision might be constitutionally suspect if it called for using substantive legal principles from a jurisdiction having no connection to the underlying transaction or the extant dispute. Brenner, 273 Kan. at 534–35, 44 P.3d 364 (noting constitutional due process considerations in applying Kansas law after finding contractual provision selecting New York law to be void as contrary to public policy). Other courts have similarly recognized that a choice-of-law provision may be rejected if the law has no relationship to the parties or their contractual transaction and its selection otherwise appears arbitrary or without reason. Kunda v. C.R. Bard, Inc., 671 F.3d 464, 467 (4th Cir.2011); Bank of New York v. Janowick, 470 F.3d 264, 270 n. 3 (6th Cir.2006), cert. denied552 U.S. 825, 128 S.Ct. 195, 169 L.Ed.2d 36 (2007) (declining to apply contractual choice-of-law provision because none of the parties were located in the chosen state and the transactions at issue bore no relationship to that state); Hall, 376 Ill.App.3d at 825–26, 315 Ill.Dec. 446, 876 N.E.2d 1036; see Restatement (Second) of Conflict of Laws § 187(2)(a) and comment f (1969). The Kansas Supreme Court has, in rare instances, refused to use the parties' self-selected law when it wholly undercuts this state's settled public policy. Brenner, 273 Kan. at 540–41, 44 P.3d 364. The exception, however, is a narrow one. Alexander v. Beech Aircraft Corp., 952 F.2d 1215, 1223 (10th Cir.1991). And it comes into play only when enforcing the foreign law would contravene a prominent public policy—some inconsistency between the chosen law and the forum state's law is not enough. Alexander, 952 F.2d at 1223 (citing Restatement (Second) of Conflict of Laws § 90 [1969] ), see Kunda, 671 F.3d at 467–68;Teran v. GB Intern., S.P.A., –––F.Supp.2d ––––, No. 11–2236–JAR, 2013 WL 328955, at *8 (D.Kan.2013); Benedictine College v. Century Office Products, 866 F.Supp. 1323, 1328 (D.Kan.1994). Neither exception applies.
Missouri bears a significant relationship to the transactions. Enterprise Bank is headquartered there. See Hall, 376 Ill.App.3d at 826, 315 Ill.Dec. 446, 876 N.E.2d 1036;Restatement (Second) of Conflict of Laws § 187, comment f (principal place of business of one of the parties indicates sufficient relationship to law of that place). Enterprise Bank represented that it accepted the guaranty agreements in that state, and the corporate Defendants pledged Missouri real property as collateral for the loans. Accordingly, the financial dealings between Enterprise Bank and the Defendants had a tangible connection to Missouri, so it could not be said the contractual choice of that state's law was arbitrary or unreasoned.
As we have indicated in discussing the promissory notes and commercial guaranties, Mo.Rev.Stat. § 432.047 would apply to the transactions between Enterprise Bank and the Defendants, assuming it satisfies the Kansas choice-of-law rule. We, therefore, analyze Mo.Rev.Stat. § 432.047 as it compares to Kansas public policy regarding oral representations alleged to be part of commercial loan arrangements. In making that determination, we necessarily delve deeply into the merits of the disputes between Enterprise Bank and the Defendants.
As defined in Mo.Rev.Stat. § 432.047, the transactions involved covered credit agreements for commercial loans rather than for personal, family, or household purposes. The individual Defendants signing the commercial guaranties are debtors within the meaning of the statute. The promissory notes contain the required statutory notice and have been incorporated into the guaranty agreements. In short, should Missouri law apply, Mo.Rev.Stat. § 432.047 regulates the transactions between Enterprise Bank and the Defendants.
Under Mo.Rev.Stat. § 432.047.2, a debtor cannot assert a claim or defense related to a credit agreement unless the “relevant terms and conditions” are in writing. We take the statute to mean what it says. State ex rel. Valentine v. Orr, 366 S.W.3d 534, 540 (Mo.2012) (A court should construe a statute in conformity with the plain meaning of its words unless the result is ambiguous or absurd.); Ryser v. State, 295 Kan. 452, 458, 284 P.3d 337 (2012) (Courts look to the plain language of a statute to discern its meaning.). Because Kansas and Missouri apply the same “plain meaning” rule of statutory construction, we are spared the vaguely intriguing academic problem of sorting out how choice-of-law principles would establish the governing rules of statutory construction in a case such as this. At first blush, we suppose the rules of the state supplying the substantive law to be construed ought to apply if for no other reason than the legislature theoretically would have enacted the measure in light of those rules and not the rules of some foreign jurisdictions. See Western Video Collectors v. Mercantile Bank, 23 Kan.App.2d 703, 705–06, 935 P.2d 237 (1997) (“[G]eneral choice of law provisions in contracts incorporate only substantive law and do not displace procedural law of the forum state.”). Here, that would call for using Missouri's plain meaning rule, although the result would be the same under the Kansas rule.
The operative language in Mo.Rev.Stat. § 432.047.2 is especially broad and prohibits a debtor from raising defenses or claims related to a credit agreement unless the agreement is in writing. That means oral representations of the type the Defendants assert the officer of Enterprise Bank made cannot provide a factual or legal foundation for defenses or claims arising out of the financial transactions embodied in the promissory notes and commercial guaranty agreements. The statute precludes both contract and tort claims that rely on oral representations. The Missouri Court of Appeals recently pointed out the extraordinarily broad reach of Mo.Rev.Stat. § 432.047 in extinguishing such claims: The statutory language “demonstrates the legislature's intent to eliminate all claims and defenses relating to a credit agreement if that credit agreement is not in writing.” BancorpSouth Bank v. Paramont Properties, 349 S.W.3d 363, 367 (Mo.App.2011). In that case, the court rejected the debtor's claims based on purported “oral promises of forbearance and modifications” to written credit agreements because the oral representations had no legal force under Mo.Rev.Stat. § 432.047. 349 S.W.3d at 365, 368. Other courts have found the Missouri Legislature broadly intended Mo.Rev.Stat. § 432 .047 to preclude a debtor's efforts to thwart collection of commercial loans based on purported oral statements of the lenders' agents. See Smithville 169 v. Citizens Bank & Trust Co., No. 4:11–CV–0872–DGK, 2013 WL 434028, at *2–3 (W.D.Mo.2013) (so holding and citing other unpublished federal district court cases); BancorpSouth Bank v. RWM Properties II, LLC, No. 4:11CV000373 JCH, 2011 WL 4435271, at *2–3 (E.D.Mo.2011).
For choice-of-law purposes, we must determine if Mo.Rev.Stat. § 432.047 contravenes the well-established public policy of Kansas, recognizing that there need not be absolute or even near complete symmetry between that statute and this state's public policy. The question really probes whether the Missouri statutory scheme substantially undercuts Kansas public policy. A state's public policy may be found in constitutional provisions, statutes, and prominent common-law precedent, among other sources. Here, K.S.A. 16–118 and the companion definitions in K.S.A. 16–117 reflect legislative enactments on subject matter parallel to Mo.Rev.Stat. § 432.047 and, thus, offer a significant guide to Kansas public policy in restricting a debtor's use of a lender's purported oral representations to fashion defenses and counterclaims in collection actions.
As we have already explained, K.S.A. 16–117(a), defining covered credit agreements, has been construed in Bittel to include oral representations of the sort the Defendants have attributed to Enterprise Bank's agent. That interpretation of the statutory language takes on considerable weight in light of the legislative amendments of K.S.A. 16–118 to limit other parts of the Bittel decision. Had the legislature found Bittel's interpretation of the covered agreements to be erroneous, it presumably would have amended additional parts of the statutory scheme as a corrective, particularly the definition in K.S.A. 16–117(a). The legislature did not. Under those circumstances, legislative reenactment of K.S.A. 16–117 and K.S.A. 16–118 without altering the “covered agreement” language provides notable strength to that part of Bittel construing the language. See Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N .A., 511 U.S. 164, 185, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994); Scalia & Garner, Reading Law: The Interpretation of Legal Texts, 322 (2012) (“If a word or phrase [of a statute] has been authoritatively interpreted by the highest court in a jurisdiction ..., a later version of that act perpetuating the wording is presumed to carry forward that interpretation.”); cf. Norsk Hydro Canada, Inc. v. United States, 472 F.3d 1347, 1356 n. 15 (Fed.Cir.2006) (“[I]t is highly questionable whether legislative inaction in response to any particular judicial decision construing a statute should be presumed to reflect affirmative approval.”).
Given the definition of credit agreements in K.S.A. 16–117, the oral representations the Defendants attribute to Enterprise Bank come within the scope of K.S.A. 16–118. To that extent, Kansas public policy is consistent with Mo.Rev.Stat. § 432.047. Both states' statutes apply to the oral representations at issue here. But Mo.Rev.Stat. § 432.047 covers a broader range of debtor-creditor relationships and transactions than does K.S.A. 16–118. We do not mean to suggest that Kansas public policy necessarily would be offended if a Kansas court enforced Mo.Rev.Stat. § 432.047 against a party to a credit agreement to which K.S.A. 16–118 does not apply. That question is not before us, and we do not decide it.
Having determined that K.S.A. 16–118 would apply to the oral representations, we look at the operation of K.S.A. 16–118 to see if its treatment of those representations is so different from Mo.Rev.Stat. § 432.047 to require the conclusion those statutes reflect repugnant public policies in that respect. The first two subsections of K.S.A. 16–118 seem straightforward. Under K.S.A. 16–118(a), neither a creditor nor a debtor may maintain an action or defense grounded in law or equity related to the performance of a credit agreement unless the material terms of the agreement appear in a writing both parties have signed. The section effectively renders oral credit agreements unenforceable as a practical matter. The language of Mo.Rev.Stat. § 432.047.2 is to the same effect, although the Missouri statute applies only to claims or defenses a debtor may assert and covers a broader array of credit arrangements. As those statutory sections would be applied to the facts of this case, we see no public policy conflict.
As provided in K.S.A. 16–118(b), a written credit agreement must contain a conspicuous notice that the document reflects a fully integrated statement of the agreed-upon terms and that those terms may not be contradicted by an earlier or contemporaneous oral understanding. The written agreement also must contain a space for the inclusion of “nonstandard terms” and must include an acknowledgment that the parties have no oral credit agreements. Because the Defendants rely on an oral credit agreement—reflected in the purported representations of Enterprise Bank's agent and as defined in Bittel, 265 Kan. 651, Syl. ¶ 2–K.S.A. 16–118(b) does not come into play. 265 Kan. at 657–58, 962 P.2d 491 (“The legislative history of the Act makes clear that the intent of the legislature to bar actions on oral credit agreements.”). Although Mo.Rev.Stat. § 432.047 covers the written promissory notes and commercial guaranties as defined “credit agreements” and the definition of “credit agreements” in K.S.A. 16–117 excludes them, that difference does not necessarily implicate a public policy conflict at all. And it plainly does not in this case. As we have stated, the Defendants rely on purported oral representations to launch their principal defenses and counterclaims. And both states' statutory schemes treat those sorts of representations as unenforceable. That Missouri would deny legal effect to the oral representations as impermissible modifications of written credit agreements complying with the notice requirements of Mo.Rev.Stat. § 432.047.2, as opposed to treating them as free-standing credit agreements, as Kansas does, makes very little practical difference. The net result is the same here.
Even if we were looking at only the written promissory notes and commercial guaranties in this case, we would not be inclined to find the more expansive definition of credit agreements in Mo.Rev.Stat. § 432.047 to be so different from Kansas law to suggest Mo.Rev.Stat. § 432.047 violates this state's public policy. For example, Mo.Rev.Stat. § 432.047 applies only to commercial lending transactions and expressly excludes credit agreements “for personal, family, or household purposes,” placing it in line with K .S.A. 16–117 and K.S.A. 16–118. Both statutory schemes also require covered written credit agreements to contain prominent notices to debtors that oral statements or representations different from the terms in the documents cannot be enforced. K.S.A. 16–118(b); Mo.Rev.Stat. § 432.047.3.(1). The variances in scope of coverage between the Kansas and Missouri statutes reflect legislative tailoring in developing targeted approaches to a common problem—business debtors using real or imagined oral statements from agents of commercial lenders to delay and otherwise confound legitimate collection actions to remedy breaches of written agreements. Those differences reflect quotidian legislative decisionmaking rather than pronouncements of profound or immutable public policy. See Restatement (Second) of Conflict of Laws § 187, comment g (1969) (statute declaring a particular type of agreement illegal or protecting against “oppressive use of superior bargaining power” illustrative of public policies that would override a contractual choice-of-law clause).
Subsection (c) of K.S.A. 16–118 provides that if the parties to a credit agreement fail to comply with subsections (a) and (b)—that their agreement be in writing and provide notice that oral statements lack legal force—then no claim may be based on a course of dealing or performance, a fiduciary relationship, promissory or equitable estoppel, part performance, or negligent representations. The section has no direct application here. It only kicks in if the parties violate both subsection (a) and subsection (b). In other words, a party must be relying on a written credit agreement that lacks the notices set out in subsection (b). Here, however, the Defendants rely on, and we are concerned about, the purported oral representations of the Enterprise Bank officer. Because those representations were never reduced to writing, they fail to comply with subsection (a). Subsection (b) regulating the content of written credit agreements is inapplicable. In turn, subsection (c) does not apply either. When it comes to oral representations that constitute credit agreements-and here the purported statements of the Enterprise Bank officer amounted to credit agreements under both statutes-there is no clash of public policy between Kansas and Missouri. Those representations cannot supply the legal basis for a debtor's claim or defense.
In short, with the passage of K.S.A. 16–117 and K.S.A. 16–118, the Kansas Legislature meant to bar the enforcement of covered oral credit agreements and to severely limit claims and defenses that could be asserted in suits based on covered written credit agreements. The oral agreements upon which the Defendants rely are covered under those statutes. For choice-of-law purposes in this case, we find that Mo.Rev.Stat. § 432.047 does not conflict with Kansas public policy. In turn, the provisions in the promissory notes and the commercial guaranties calling for the use of Missouri law may be enforced with respect to any contract or other nontort based theories the Defendants have asserted in support of their affirmative defenses or counterclaims. We separately analyze the tort related issues later because, in addition to the fundamental choice-of-law principles, the courts look at the scope of the clause and the nature of the claims.
3. Analyzing Defendants' Nontort Counterclaims and Defenses
Given the facts here and our interpretation of K.S.A. 16–118 and Mo.Rev.Stat. § 432.047, this case appears to present what is often termed a false conflict on the Defendants' nontort claims and defenses: The substantive law of the forum state (Kansas) and the substantive law of the chosen state (Missouri) yield the same outcome. See Brenner, 273 Kan. at 535, 44 P.3d 364 (“ ‘Where there is no difference between the laws of the forum state and those of the foreign jurisdiction, there is a “false conflict” and the court need not decide the choice of law issue.’ “ [quoting Lucker Mfg. v. Home Ins. Co., 23 F.3d 808, 813 (3d Cir.1994) ] ). In analyzing the contract-based issues, we could then apply the law of either state because they are functionally no different as to oral representations of the sort the Defendants advance. The more cautious approach, however, suggests relying on the conflict analysis and the more general determination that Missouri law does not violate the public policy of Kansas—not that its law operates identically to Kansas law creating a false conflict—so we proceed in that manner.
The choice-of-law language in both the promissory notes and the commercial guaranties state Missouri law is to “govern” those agreements. In turn, that language requires the application of Mo.Rev.Stat. § 432.047 to any dispute about the meaning or legal effect of the notes and guaranties. The Defendants obviously argue the oral representations of the Enterprise Bank officer modify or supersede the substantive provisions of those agreements, thereby triggering the choice-of-law clause and the use of Missouri law. As we have already pointed out, Mo.Rev.Stat. § 432.047 strips the oral representations of any legal force as to nontort affirmative defenses and counterclaims related to Enterprise Bank's actions to collect money due on the notes. That is true even assuming the Enterprise Bank officer actually made the statements in the manner the Defendants have alleged.
In their respective answers, the Defendants asserted defenses of agreement, waiver, laches, estoppel, and breach of contract. Apart from evidence related the oral representations of the Enterprise Bark officer, the Defendants offered nothing directly establishing those defenses, so the district court judges properly entered judgment against the Defendants on them. The Defendants also asserted twin defenses of misrepresentation and setoff based on fraud, both resting on related tort counterclaims. We defer our discussion of them.
As to nontort counterclaims, the Defendants asserted a “course of dealing” based on oral representations or conduct of Enterprise Bank officers that purportedly altered the terms of the written instruments. They next argued Enterprise Bank's multiple failures to act in conformity with the oral representations breached of the actual contractual relationships and promissory estoppel barred Enterprise Bank from enforcing the terms of the written loan documents. They also asserted a counterclaim for unjust enrichment on the theory Enterprise Bank benefited unfairly from its officer's oral representations. All of those counterclaims depend upon oral representations or conduct for their viability. Under Mo.Rev.Stat. § 432.047, those representations and conduct have no legal force. A debtor may assert counterclaims or defenses in a collection action based only on the written terms contained in the credit agreements. The district courts, therefore, correctly entered judgment against the Defendants on those counterclaims.
4. Analyzing Defendants' Tort Based Counterclaims and Defenses
The Defendants asserted three counterclaims grounded in tort: negligent misrepresentation, tortious interference with business expectancies, and fraud. Each of those theories factually depended upon the oral representations of the Enterprise Bank officer. If those representations cannot be considered as a matter of law, then the tort counterclaims and the related affirmative defenses of misrepresentation and setoff also fail. As we explain, resolution of the choice-of-law issues precludes the Defendants' use of those statements to advance tort-based theories. Accordingly, we do not detail the legal elements of each tort claim.
We turn to the choice-of-law clauses in the promissory notes and commercial guaranties calling for the use of Missouri law and ask whether they may be enforced as to the tort claims. Again, Brenner, 273 Kan. at 548–49, 44 P.3d 364, sheds a fair amount of light on the issue. The court stated that a choice-of-law clause in a contract generally will be enforced in Kansas so long as the agreed-upon law does not violate this state's well-established public policy. In Brenner, the court found that a clause applying New York law to securities transactions violated Kansas public policy by excluding the application of this state's blue sky statutes. The court found the rigorous Kansas statutes were aimed at eliminating fraud in those transactions and represented a strong public policy that would be thwarted if the comparatively lax New York laws governed. 273 Kan. at 548–49, 44 P.3d 364. The court emphasized the Kansas blue sky statutes had been passed to prevent fraud. 273 Kan. at 543, 44 P.3d 364. By implication at least, Brenner indicates contracting parties may agree to choice-of-law provisions affecting claims based on fraud and (presumably) other tortious conduct, so long as the chosen law does not substantially conflict with Kansas public policy.
We have found no Kansas appellate case directly addressing the efficacy of a choice-of-law contract clause incorporating the laws of another state for purposes of tort claims. Other jurisdictions, however, generally will enforce such clauses in contracts arising from business relationships between sophisticated parties, subject to public-policy considerations similar to those outlined in Brenner. See Cerabio LLC v. Wright Med. Tech., 410 F.3d 981, 987 (7th Cir.2005) (parties may enter into contractual choice-of-law provision covering tort claims if their intent to do so is clear); Spinozzi v. ITT Sheraton Corp., 174 F.3d 842, 846 (7th Cir.1999) (“[C]ontractual choice of tort law provisions are generally enforceable.”); Paul Business Systems v. Canon U.S.A., Inc., 240 Va. 337, 342–44, 397 S.E.2d 804 (1990) (When a choice-of-law clause has been fairly negotiated between the parties, it will be given effect as to any covered claims including torts.)
The choice-of-law language in the promissory notes and the commercial guaranties may be characterized as “narrow” and, thus, inapplicable to many tort claims that might have arisen between Enterprise Bank and the Defendants. See Cooper v. Meridian Yachts, Ltd., 575 F.3d 1151, 1162 (11th Cir.2009) (discussing differences in wording and legal effect of “broad” and “narrow” choice-of-law clauses); Benchmark Electronics, Inc. v. J.M. Huber Corp., 343 F.3d 719, 727 (5th Cir.2003) (applying Texas law); Green Leaf Nursery v. E.I. DuPont De Nemours, 341 F.3d 1292, 1300–01 (11th Cir.2003) (narrow choice-of-law clause construed). A narrow choice-of-law clause, by its terms, selects the body of substantive law governing the particular contract in which it appears or the dealings of the parties in a specific transaction. A broad clause reaches a greater range of activity between the consenting parties, often covering anything related to their existing relationship. The United States Court of Appeals for the Eighth Circuit observed that a broad choice-of-law clause governs “ ‘all rights and duties ... in any way related to the subject matter of the [applicable] contract,’ “ whereas under a narrow clause the chosen law “ ‘will be applied to [govern and] construe the contract.’ “ Inacom Corp. v. Sears, Roebuck & Co., 254 F.3d 683, 687–88 (8th Cir.2001) (quoting Caton v. Leach Corp., 896 F.2d 939, 943 n. 3 [5th Cir.1990] ). In Cooper, for example, a broad clause—worded to cover “all disputes arising out of or in connection with” the contract for construction of a yacht—encompassed an indemnification action related to a suit for personal injuries caused by the boat's defective dumbwaiter. 575 F.3d at 1162. The choice-of-law language in the promissory notes and commercial guaranties is plainly not so encompassing.
But courts have held that narrow choice-of-law clauses establishing the law “governing” or “construing” the documents in which they appear, nonetheless, encompass tort claims directly related to or affecting the rights and obligations created or memorialized there. Holden Farms, Inc. v. Hog Slat, Inc., 347 F.3d 1055, 1061 (8th Cir.2003) (narrow choice-of-clause applies to tort claims requiring interpretation of contract); Watkins & Son Pet Supplies v. IAMS Co., 254 F.3d 607, 611 (6th Cir.2001) (narrow choice-of-law clause applies to tort based on allegedly false promises of future performance related to contract obligations); Moses v. Business Card Exp., Inc., 929 F.2d 1131, 1140 (6th Cir.1991) (narrow choice-of-law clause applies to fraud claim “seeking to avoid enforcement of the contract itself); Amakua Development LLC v. Warner, 411 F.Supp.2d 941, 955 (N.D.Ill.2006) (Under Illinois law, “regardless of the breadth of the choice of law provision, tort claims that are dependent upon the contract are subject to a contract's choice of law provision,” and the court will consider the following factors in making that determination: (1) the claim is “based on the construction and interpretation of the contract;” (2) “the tort is closely related to” the contractual arrangement; and (3) “the tort could not exist without the contract.”); cf. Lambert v. Kysar, 983 F.2d 1110, 1121–22 (1st Cir.1993) ( “The better general rule ... is that contract-related tort claims involving the same operative facts as a parallel claim for breach of contract should be heard in the forum selected by the contracting parties.”). The Restatement (Second) of Conflict of Laws § 6(2)(c) (1969) is consistent with that view and recognizes “the protection of justified expectations” to be a material factor in resolving choice-of-law issues. Those expectations entail an “important value,” and to further that objective, parties should be “free within broad limits to choose the law to govern” their agreements. The Restatement (Second) of Conflict of Laws § 6, comment g, p. 15.
This is a case where both the rule and the choice-of-law clauses should be applied to the tort claims since they are inextricably tied to the specific debtor-creditor transactions otherwise being litigated. The Defendants' counterclaims and defenses sought to substantially change or void substantive terms of the promissory notes and commercial guaranties. Those claims were not ancillary or peripherally related to the documents or the loan transactions; they took direct aim at the rights and obligations embodied there. Nor did the claims factually arise from some other aspect of a general debtor-creditor relationship or from independent business dealings between the Defendants and Enterprise Bank.
Substantive Missouri law, as required by the choice-of-law clauses, governs the tort-based counterclaims and defenses. And, therefore, Mo.Rev.Stat. § 432.047 applies. The statute precludes consideration of the oral representations or conduct of Enterprise Bank agents to establish any counterclaim or defense, including torts, in the collection actions. Without that evidence, those claims fail. In turn, the district courts properly denied the Defendants relief on them.
5. Other Issues
The Defendants have presented several issues not directly dependent upon the oral representations they attribute to Enterprise Bank's agent. We address them.
The Defendants counterclaimed for an equitable accounting from Enterprise Bank. Under Missouri law, a party may request an equitable accounting—a court-ordered review of another party's financial and business records—if there is a need for the information, the accounts are “complicated,” the parties had a fiduciary relationship, and there is no adequate legal remedy. Cook v. Martin, 71 S.W.3d 677, 679 (Mo.App.2002). Each of those elements must exist. Shaner v. System Integrators, Inc., 63 S.W.3d 674, 677 (Mo.App.2001). The Defendants submitted an accounting was necessary to determine how Enterprise Bank credited payments made on the loans. The counterclaim failed in several respects. First, the Defendants, as debtors, did not occupy a fiduciary relationship with Enterprise Bank, as their creditor. Hall v. NationsBank, 26 S.W.3d 295, 297 (Mo.App.2000) (“[T]he relationship between a borrower and a lender is that of a debtor and creditor, rather than a fiduciary relationship.”); see Shaner, 63 S.W.3d at 677–78. Also, it was not apparent that usual discovery tools would have failed to unearth the desired information about how payments had been credited. 63 S.W.3d at 678–79. And the Defendants had an adequate legal remedy in the form of a breach of contract action against Enterprise Bank based on the written documents. That the Defendants could not factually support a proper breach of contract claim didn't permit them to substitute an equitable accounting. The counterclaim was properly dismissed.
The Defendants asserted as a defense Enterprise Bank's breach of an implied covenant of good faith and fair dealing in the loan agreements. Both Kansas and Missouri recognize such implied covenants. First Natl Bank of Omaha v. Centennial Park, 48 Kan.App.2d ––––, Syl. ¶ 17, ––– P.3d ––––, No. 108,315, 2013 WL 1173914 (2013) (covenant will be implied in all contracts except those for at-will employment); Newco Atlas v. Park Range Const., 272 S.W.3d 886, 893 (Mo.App.2008). And both states recognize one party breaches the covenant only when it impairs or impedes the other party's ability to perform or denies that party rights and benefits due under the contract. First Natl. Bank of Omaha, 2013 WL 1173914, Syl. ¶ 17;Newco Atlas, 272 S.W.3d at 893 (“This covenant imposes a duty on each party ‘to cooperate with the other to enable performance and achievement of the expected benefits' of a contract.”) (quoting Slone v. Purina Mills, Inc., 927 S.W.2d 358, 368 [Mo.App.1996] ); City of St. Joseph v. Lake Contrary Sewer, 251 S.W.3d 362, 371 (Mo.App.2008) (“ ‘There can be no breach of the implied promise or covenant of good faith and fair dealing where the contract expressly permits the actions being challenged, and the defendant acts in accordance with the express terms of the contract.’ “ [quoting 23 Williston & A. Lord, A Treatise on the Law of Contracts § 63.22, p. 516 (4th ed.2002) ] ). Here, we apply Missouri law based on the choice-of-law clause in the lending documents, although this looks to be another false conflict in that Kansas treats covenants of good faith and fair dealing in the same way.
Enterprise Bank did not deprive the Defendants of benefits due them under the written promissory notes or commercial guaranties or keep the Defendants from performing under those agreements. To the contrary, the thrust of the Defendants' position throughout these cases has been that Enterprise Bank orally modified the agreements and then failed to abide by those modifications. As we have held, the oral representations have no legal force. In turn, Enterprise Bank did not violate any implied covenant of good faith and fair dealing with respect to the terms of the written loan documents.
The Defendants contend an e-mail from Enterprise Bank's vice president to Daniel Waldberg recommending a real estate agent to help sell some of the residential properties Eben, LLC, had mortgaged amounted to ratification of the asserted oral modifications of the loan documents. The e-mail merely provides the individual's name and cell phone number and indicates he has had success selling residential properties in Jackson County, Missouri. When the e-mail was sent in mid-June 2009, the promissory notes for the loans to Eben were not yet due, so the assistance was consistent with the existing relationship between the parties rather than confirming some material change.
Moreover, the referral of a possible real estate agent cannot, as a matter of law, amount to ratification of material changes in payment obligations under the promissory notes and commercial guaranties. Under Missouri law, ratification confirms earlier conduct that failed to create a valid contract, thereby creating a binding agreement. Murphy v. Jackson Nat. Life Ins. Co., 83 S.W .2d 663, 668 (Mo.App.2002). The person confirming the conduct must do so with full knowledge of the circumstances. 83 S.W.3d at 668. The e-mail, however, manifests no confirmation of the broad changes in the debtor-creditor relationship the Defendants allege. No reasonable fact-finder could discern such a message from the communication.
We also question whether ratification would present a viable theory under Mo.Rev.Stat. § 432.047 to render an otherwise ineffective oral credit agreement binding. The statute, of course, precludes any “legal theory” a debtor offers related to a credit agreement unless the agreement sets forth in writing the operative terms and conditions. The e-mail contains neither terms and conditions nor so much as a vague reference to some credit agreement. So the Defendants' argument could not overcome Mo.Rev.Stat. § 432.047, even if the e-mail might evince ratification of an oral agreement, though it plainly does not.
The Defendants contend Enterprise Bank failed to mitigate its damages in foreclosing on the real estate pledged as collateral for the loans. They claim Enterprise Bank ultimately sold the properties far below their appraised value and for less than the amount it successfully bid for them at foreclosure. The Defendants offer no evidence of anything amiss in the foreclosure process or the amounts Enterprise Bank bid. Even if there were, the Defendants' remedy lay in setting aside the sale. See Lindell Trust Co. v. Lieberman, 825 S.W.2d 358, 360 (Mo.App.1992). Under Missouri law, the lender's recoverable deficiency is the difference between the amount due on the defaulted loan and the amount paid at foreclosure, not the amount realized on a later sale to a third party. See 825 S.W.2d at 360. The Defendants have not demonstrated Enterprise Bank did otherwise, so the mitigation claim was properly denied.
The Defendants have asserted other arguments suggesting the district court failed to make adequate findings, including Enterprise Bank's reliance on the commercial guaranties in making the loans; that the deeds of trust do not contain the notice required under Mo.Rev.Stat. § 432.047 regarding oral representations, although the promissory notes incorporated by reference in the commercial guaranties do; and that the guaranties were not signed at the same time as the notes, although they were, by their terms, continuing and applicable to future loans. We have already mentioned and tacitly rejected several of those issues in our analysis. But to avoid any ambiguity about them, we have carefully considered the remaining points in the Defendants' briefing and find them to be without merit.
Enterprise Bank's Motions for Attorney Fees
After oral argument, Enterprise Bank timely filed motions for attorney fees and expenses incurred in the appeal of the three district court judgments. Enterprise Bank sought fees and expenses of $22,432.51 in Eben, reflecting 57.1 hours of attorney work; fees and expenses of $16,493.43 in Barney Ashner Homes, reflecting 19.2 hours of attorney work; and fees and expenses of $13,332.53 in DR Builders, reflecting 28.7 hours of attorney work for a request totaling $52,258.47 based on 105 hours of professional time. The motions were supported by affidavits and detailed billing records outlining the work done on the appeal, the lawyer performing the work, and the hourly rate for the particular lawyer, along with brief descriptions of the tasks. The expenses were similarly itemized.
Enterprise Bank seeks the attorney fees and expenses relying on clauses in the promissory notes and commercial guaranties allowing recovery of those costs in connection with the collection of the underlying loans. Both Kansas and Missouri recognize and enforce contractual agreements allowing a party to recover attorney fees. Hawkinson v. Bennett, 265 Kan. 564, 575, 962 P.2d 445 (1998); Town Center Shopping Center v. Premier Mortgage Funding, Inc., 37 Kan.App.2d 1, 10, 148 P.3d 565 (2006), rev. denied 283 Kan. 933 (2007); Magna Bank of Madison Cty. v. W.P. Foods, 926 S.W.2d 157, 162–63 (Mo.App.1996). As provided in Supreme Court Rule 7.07(b) (2012 Kan. Ct. R. Annot. 66), an appellate court may award attorney fees if the district court had authority to do so. By virtue of the contractual provisions, the district court had that authority.
In a joint response opposing the fee request, the Defendants do not contest the contractual right of Enterprise Bank to appropriate attorney fees and expenses. Nor do they dispute the reasonableness of the hourly rates for the work Enterprise Bank's lawyers have done in the case. The Defendants raise two challenges to the requested fees and expenses.
First, the Defendants question the appropriateness of $680.71 in expenses related directly to garnishment proceedings and other collection efforts rather than to this appeal. The point is well taken, and Enterprise Bank withdrew those expenses in its reply, saying they had been inadvertently included. We, therefore, discard that portion of the request.
Second, the Defendants contend 105 hours of lawyer time (and the resulting fees) for the appeal is excessive in this case given the amount in controversy and the overlapping issues in the three district court cases. The Defendants do not challenge any specific tasks included in the time records as improper or excessive but submit the overall time to be unjustified. They cite LPP Mortg., Ltd. v. Martin, Inc., 224 S.W.3d 50, 56–57 (Mo.App.2007), as supportive of their argument. We are unpersuaded.
The Defendants argue that the combined defaulted loan amounts come to about $234,377 and, therefore, a fee award of $51,577.76 (the requested amount less the withdrawn expenses) for the appeal simply would be unreasonable. But, as Enterprise Bank points out, the district court judgments also include more than $152,000 in attorney fees awarded for work at the trial level. More than $77,900 in interest has accrued on the unpaid obligations, and interest continues to accumulate. So the total amount in play actually exceeds $460,000. We are not disposed to say some given ratio between the judgment amount and an attorney fee request necessarily demonstrates unreasonableness, especially when the fee award results from a contractual provision in an arm's-length commercial lending agreement.
The Defendants offer LLP Mortgage as a case supportive of that kind of argument. But their reliance is misplaced. The Missouri Court of Appeals affirmed a circuit judge's award of $35,000 in attorney fees to the plaintiff on a judgment of about $779,000, thereby reducing the request by about $86,000. The appellate court found no abuse of discretion largely because the record was bereft of evidence supporting the requested fees and the circuit judge provided reasoning as to the actual award. 224 S.W.3d at 56–57 & n. 6 (Noting the absence of evidence as to the time the lawyers expended or their hourly rates and the lack of findings of fact and conclusions of law from the circuit judge on the fee issue, the appellate court determined it had “no basis in the record to meaningfully review” the award.). The appellate decision in LLP Mortgage lends no support to the Defendants' position that Enterprise Bank's fee request was excessive given the amount of money at stake.
There certainly could be cases in which an attorney fee request might be unreasonable in light of the amount at issue. And a court would be free to reduce a demonstrably excessive fee request taking that into account as a factor. Simply looking at the numbers, however, this is not such a case. We can and do take notice of the lengthy and extraordinarily detailed appellate briefs the Defendants filed in each of these cases before they were consolidated. The Defendants were certainly within their rights and the court rules to do so. And while many of the arguments and facts were common to the cases, Enterprise Bank was left with a laborious, time-consuming task in responding on appeal. We are not prepared to say the 105 hours Enterprise Bank's lawyers spent on the appeal is unreasonable by some obvious magnitude based on the hours alone.
The Defendants have not challenged particular billing entries as unwarranted. In a case where attorney fees are awarded based on the contractual agreement of the parties, we have no independent duty to peruse the itemized statements for reasonableness in the absence of particularized objections, as we might under a statute granting fees to a prevailing party to support litigation serving the public good in addition to purely private interests. See Hensley v. Eckerhart, 461 U.S. 424, 433–34, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983) (Once a party prevails on a federal civil rights claim, “it remains for the district court to determine what [attorney] fee is ‘reasonable’ “ under 42 U.S.C. § 1988). If the Defendants quarreled with certain components of the attorney fee request, it was incumbent upon them to say so, as they did with some of the expenses.
We, therefore, find Enterprise Bank's request for $51,577.76 in attorney fees and expenses for this consolidated appeal to be appropriate. We enter judgment for Enterprise Bank for that amount apportioned to each case, less the improperly requested expenses, as follows:
in No. 106,882, $22,205.60 jointly and severally against Eben, LLC; Daniel H. Waldberg; and Brenda Waldberg;
in No. 106,588, $16,266.53 jointly and severally against Barney Ashner Homes, Inc.; Daniel H. Waldberg; and Bernard Ashner; and
in No. 106,883, $13,105.63 jointly and severally against DR Builders, LLC; Daniel H. Waldberg; and Robert Levitch.
Affirmed.