Opinion
No. 110,444.
2015-04-29
SKYSCAPES OF CASTLE PINES, LLC, Appellee, v. Kenneth FISCHER, Appellant.
Appeal from Pottawatomie District Court; Gary L. Nafziger, Judge.David P. Troup, of Weary Davis, L.C., of Junction City, for appellant.Terry A. Iles, of Law Office of Terry A. Iles, of Topeka, for appellee.
Appeal from Pottawatomie District Court; Gary L. Nafziger, Judge.
David P. Troup, of Weary Davis, L.C., of Junction City, for appellant. Terry A. Iles, of Law Office of Terry A. Iles, of Topeka, for appellee.
Before ATCHESON, P.J., HILL and ARNOLD–BURGER, JJ.
MEMORANDUM OPINION
PER CURIAM.
Skyscapes of Castle Pines, LLC, a limited liability company set up to pursue a real estate venture, sued Dr. Kenneth Fischer, M.D., one of the participants in the company, after he refused to make sizeable capital contributions. On cross motions for summary judgment, the Pottawatomie County District Court entered judgment in favor of Skyscapes for the amount of the contributions and litigation expenses, including attorney fees, as provided in the company's operating agreement. Dr. Fischer has appealed. The plain language of the operating agreement afforded Skyscapes various remedies against a participant refusing calls for capital contributions, including suing for the amount due. The district court, therefore, ruled correctly, and we affirm.
As framed on appeal, Dr. Fischer principally argues that the operating agreement does not permit Skyscapes to sue a participant for delinquent capital contributions. As a secondary argument, Dr. Fischer contends the district court should not have granted summary judgment on the amount actually due the company on its calls for additional capital. Neither argument has legal traction.
The standards for appellate review of summary judgments are well-settled. As the party seeking summary judgment, Skyscapes has the obligation to show, based on appropriate evidentiary materials, there are no disputed issues of material fact and judgment, therefore, could be entered in its favor as a matter of law. Thoroughbred Assocs. v. Kansas City Royalty Co., 297 Kan. 1193, Syl. ¶ 2, 308 P.3d 1238 (2013); Shamberg, Johnson & Bergman, Chtd. v. Oliver, 289 Kan. 891, 900, 220 P.3d 333 (2009); Korytkowski v. City of Ottawa, 283 Kan. 122, Syl. ¶ 1, 152 P.3d 53 (2007). In essence, the movant argues there is nothing for a jury or a trial judge sitting as factfinder to decide that would make any difference. The district court must view the evidence most favorably to the party opposing the motion, here Dr. Fischer, and give that party the benefit of every reasonable inference that might be drawn from the evidentiary record. See Thoroughbred Assocs., 297 Kan. 1193, Syl. ¶ 2; Shamberg, 289 Kan. at 900. An appellate court applies the same standards in reviewing the entry of a summary judgment. Thoroughbred Assocs., 297 Kan. 1193, Syl. ¶ 2.
Because the material facts supporting summary judgment must be undisputed—if one or more of those fact were disputed, judgment properly could not be entered—the district court's decision to grant judgment necessarily presents a question of law subject to unlimited review on appeal. See Hansford v. Silver Lake Heights, 294 Kan. 707, 710, 280 P.3d 756 (2012); Golden v. Den–Mat Corp., 47 Kan.App.2d 450, 460, 276 P.3d 773 (2012) (“Because entry of summary judgment amounts to a question of law—it entails the application of legal principles to uncontroverted facts—an appellate court owes no deference to the trial court's decision to grant the motion and review is unlimited.”).
We briefly recount the underlying facts in that light, recognizing the parties know the evidentiary record and the primary issue on appeal turns on the construction of the operating agreement. Ten participants, including Dr. Fischer, set up Skyscapes in 2005 for the purpose of acquiring, developing, and selling three exclusive residential properties in Colorado. As touted to Dr. Fischer, the venture would require no out-of-pocket investment—the money necessary to develop the real estate would be borrowed using the properties as collateral backed by personal guarantees from the participants. Dr. Fischer has disclaimed any expertise in real estate investment or development.
With financing in place, Skyscapes moved ahead. But, as with many land ventures launched during that time, Skyscapes collapsed along with the real estate market generally. The company made a series of capital contribution calls totaling $183,000 for each participant. Dr. Fischer paid the first one for $3,000 and did nothing in response to the rest. Skyscapes sued Dr. Fischer for the unpaid $180,000 and litigation costs. The district court entered summary judgment for Skyscapes. Dr. Fischer has timely appealed.
As we have indicated, Dr. Fischer argues on appeal that the operating agreement limited the remedies available to Skyscapes to deal with delinquent capital contributions and precluded this action. And he argues factual disputes remain as to the proper amount due Skyscapes. We take those points up in that order. If Dr. Fischer were correct as to the first, the second would be moot.
The operating agreement is a contract. Courts construe unambiguous written contracts as a matter of law based on their plain language. Shamberg, 289 Kan. at 900. In discerning the meaning of a written contract, a court should consider the whole agreement rather than isolated or selected portions of it. See Thoroughbred Associates, LLC, 297 Kan. at 1206; Marquis v. State Farm Fire & Cas. Co., 265 Kan. 317, 324, 961 P.2d 1213 (1998).
Dr. Fischer relies on article 6 of the operating agreement governing capital contributions. That article contains nine designated sections dealing with various aspects of capital contributions. Under 6.3, dealing with the failure of a participant to make a capital contribution, the other participants “have the right, but not the obligation” to pay the delinquent amount in proportion to their respective interests in the company. If the participants choose to do so, the ownership interests in the company are to be adjusted, as provided in section 6.5, to reflect the change in capital contributions. In effect, the delinquent participant's interest in the company will be reduced.
There appears to be no particular disagreement about the availability of that remedy or the mechanics of its application. Dr. Fischer, however, argued to the district court and reiterates to us that sections 6.3 and 6.5 provide the exclusive remedy when a participant refuses to make a required capital contribution. Skyscapes has taken exception to that construction of the operating agreement. The company contends the process by which participants can make up for a delinquent contribution with a concomitant recalibration of interests in the company simply describes one available remedy. The company says a civil action against the defaulting participant for a breach of operating agreement is another.
Skyscapes has the better of the debate. First, nothing in article 6 suggests the remedy outlined in sections 6.3 and 6.5 is intended to be exclusive. Especially given other sections of the operating agreement, we would expect to see that sort of explicit statement if the participants intended to create an exclusive remedy. That omission is telling.
Section 4.2 of the operating agreement provides that participants “will not be personally liable for any debts or losses of the [c]ompany beyond ... capital contributions and any obligation ... under [s]ection 6.2 ... to make capital contributions.” Although phrased in the negative, section 4.2 imposes personal liability on the participants for delinquent capital contributions. Imposition of personal liability also entails means of rectifying that liability. An action for breach of contract would be a way of directly addressing the personal liability of the delinquent participant. Conversely, diluting that participant's interest in the company to offset additional contributions from the other participants making up the shortfall in capital contributions doesn't really extinguish a personal liability. It actually amounts to an intracompany adjustment of ownership interest, as opposed to a personal obligation. Section 4.2 imposes categorical personal liability for unpaid capital contributions extending beyond the remedy in sections 6.3 and 6.5.
Section 11.8 of the operating agreement reinforces that reading of Section 4.2. Section 11.8 essentially preserves equitable and legal remedies for any breach of the operating agreement. In its first sentence, the section states: “The rights and remedies of the parties hereunder shall not be mutually exclusive.” The section also specifically preserves equitable remedies, noting that money damages (a remedy at law) might be inadequate in some instances. The language of section 11.8 goes on to emphasize the intent of participants to retain both legal and equitable remedies. In its concluding sentence, section 11.8 provides, in part: “[N]othing herein contained is intended to ... limit ... any right or rights at law or by statute or otherwise of a party aggrieved as against another party for a breach or threatened breach of any provision” of the agreement.
The wording and intent of section 11.8 seem unmistakable. The parties meant to retain as broad an array of remedies as possible for breaches of the operating agreement. And the language undercuts any reasoned argument that sections 6.3 and 6.5 provide the only remedy for the failure of a participant to make a capital contribution. Preserving multiple remedies reflects a sensible reading of the operating agreement. The readjustment-of-interests remedy in sections 6.3 and 6.5 would be singularly ineffective in circumstances such as those presented here. If Skyscapes looked to be a bad investment at the point a call for additional capital went out, a participant would have a strong economic incentive to avoid complying. The remaining participants wouldn't be too happy about making up the delinquency and, thereby, garnering a greater interest in what had turned into a losing proposition. Suing to collect the delinquent contribution likely would be a preferable remedy. So it seems unlikely the operating agreement would have been written to limit the participants' remedies that way.
As a practical matter, the financing was structured to encourage payment of capital contribution calls—the participants had signed personal guaranties for the loans, so they would be on the hook if Skyscapes defaulted. But the financial arrangements were separate from the terms of the operating agreement and could have been handled in any number of ways. The financing doesn't alter the proper legal interpretation of the terms of the operating agreement.
The statutory scheme in Kansas regulating limited liability companies allows an operating agreement to impose a “penalty” of the sort contained in sections 6.3 and 6.5 against a participant defaulting on a capital contribution call. K.S.A. 17–76,100(c). But nothing in K.S.A. 17–76,100 limits the available remedies or declares that penalty to be the sole remedy if it is included in an operating agreement. Dr. Fischer can find no sanctuary in the governing statutes.
Dr. Fischer mistakenly relies on Canyon Creek Development v. Fox, 46 Kan.App.2d 370, 263 P.3d 799 (2011), to support his position. The limited liability company in that case had an operating agreement containing provisions that were legally equivalent to sections 6.3 and 6.5 of the Skyscape agreement. The Canyon Creek court concluded that the language of the operating agreement in that case limited the remedy for a participant's default in making a capital contribution to allowing the other participants to pay the delinquency and, in turn, to commensurately increase their interest in the company. 46 Kan.App.2d at 383. The court, however, recognized that a civil action for breach of contract to recover the amount of the delinquent contribution generally would be a legally permissible remedy. 46 Kan.App.2d at 382–83. Litigation was unavailable to Canyon Creek Development because it had not been included as a remedy in the operating agreement. 46 Kan.App.2d at 383.
But the Canyon Creek Development operating agreement was materially different from the one binding the Skyscape participants, and, therefore, the outcome of that case does not control here. First, nothing in the Canyon Creek decision suggests the operating agreement at issue there contained a provision comparable to section 11.8 that plainly preserves legal and equitable remedies available through civil actions for breaches of the agreement. Dr. Fischer suggests that we should infer the Canyon Creek Development agreement also contained such a provision because its language is otherwise similar to or the same as the Skyscapes operating agreement. We decline to make that inference. The appellate decision in Canyon Creek makes no mention of a clause like section 11.8. We must presume the panel recounted the pertinent facts in the decision and, thus, would have mentioned such a provision. We cannot presume the existence of unstated facts in Canyon Creek to make that decision and its holding analogous to what is before us in this case. Nor could we conjure phantom facts for Canyon Creek to distinguish that decision. We must take the relevant facts in Canyon Creek to be the recited facts—nothing more and nothing less.
Second, the language in the Canyon Creek operating agreement addressing participants' personal liability for company obligations—corresponding to section 4.2 of the Skyscapes operating agreement—is considerably more restrictive. The Canyon Creek Development agreement confines personal liability to capital contributions alone. 46 Kan.App.2d at 376. The operating agreement here expressly extends personal liability to unpaid capital contribution calls. As we have said, that provision supports civil litigation as an alternative remedy to redress delinquent contributions. It also undercuts Dr. Fischer's argument that we should treat the operating agreements here and in Canyon Creek as photocopy equivalents in which only the names have been changed. In short, the terms of the operating agreement in Canyon Creek related to capital contributions and remedies for delinquent contributions are substantively different from those terms in the Skyscape agreement. So Canyon Creek does not control here.
The district court correctly ruled that the Skyscapes operating agreement permits a civil action against a participant to collect the amount of his or her delinquent cash contributions.
For his second point on appeal, Dr. Fischer contends he demonstrated disputed issues of material fact as to the proper amount of the unpaid capital contributions, precluding summary judgment on the extent of his liability. Again, we disagree. Dr. Fischer has failed to demonstrate summary judgment was improper.
In support of its motion for summary judgment, Skyscapes submitted the affidavit of Robert Pottroff, the managing participant of the company, stating that the capital contribution calls to each participant were necessary to the continued operation of the venture in the face of the collapsing real estate market. The affidavit is skimpy on details but is legally sufficient to establish the capital contribution calls were authorized and necessary. The affidavit also established that Dr. Fischer had delinquent capital contributions of $180,000.
In his response to Skyscapes' motion, Dr. Fischer included his own affidavit that both recounts representations Pottroff purportedly made to get him to participate in the company and questions some operating decisions, particularly related to the sale of one of the lots that fell through and to what he characterizes as largely unexplained financial losses. But as to the capital contribution calls themselves, Dr. Fischer says that Pottroff has been “unwilling to answer questions” about the company's expenses and payments. In turn, Dr. Fischer submits in his affidavit: “If they were good faith expenditures, [Pottroff] should not be reluctant to be questioned about them.” Beyond that rhetorical statement, Dr. Fischer offers no evidence suggesting the capital contribution calls were for illegitimate purposes or otherwise improper. The sort of general contention or opinion Dr. Fischer advances is not an evidentiary representation sufficient to demonstrate a disputed issue of material fact as to the legitimacy of the calls for capital contributions.
A panel of this court recently discussed what is required to establish an evidentiary dispute precluding summary judgment:
“Affidavits used to support or oppose summary judgment must “set forth specific facts.” RAMA Operating Co. v. Barker, 47 Kan.App.2d 1020, Syl. ¶ 6, 286 P.3d 1138 (2012). So “mere conclusory denials ... are not sufficient to place a factual statement [offered in support of summary judgment] in dispute.” 47 Kan.App.2d 1020, Syl. ¶ 6; see Skrzypczak v. Roman Catholic Diocese of Tulsa, 611 F.3d 1238, 1244 (10th Cir.2010) (party opposing summary judgment may not rely on “conclusory” affidavits but must set forth facts that would be admissible as evidence at trial); Fischer v. Forestwood Co., Inc., 525 F.3d 972, 978 (10th Cir.2008) (“ ‘affidavit evidence’ “ submitted in opposition to summary judgment may fail to create a material factual dispute if it is “ ‘nonspecific ... vague, conclusory, or self-serving’ ”) (quoting Piercy v. Maketa, 480 F.3d 1192, 3197–98 [10th Cir.2007] ). The information in an affidavit would have to be admissible evidence at trial if the affiant were testifying. So bare opinions, unsupported generalizations, and broad summaries cannot stave off summary judgment.” Somrak v. Junghans Agency, Inc., No. 107,973, 2013 WL 5422319, at *2 (Kan.App.2013) (unpublished decision).
Without belaboring the point, Dr. Fischer's statement regarding the lack of information about Skyscape's finances, even if accepted as true, doesn't constitute evidence that some or all of the capital contribution calls were improper. Nor does his assertion that Pottroff refuses to answer questions about those finances amount to anything more than speculation about the legitimacy of the capital contribution calls. Dr. Fischer, therefore, failed to provide evidence precluding summary judgment on the amount of his delinquency.
Dr. Fischer also argues that summary judgment should not have been granted because he had not yet had the chance to depose Pottroff. The appellate record indicates that Dr. Fischer timely sought to depose Pottroff and was met with a variety of excuses resulting in postponements of the deposition. When Skyscapes filed for summary judgment, Pottroff still had not been deposed.
It is often said that summary judgment should not be granted if discovery remains unfinished. See Hauptman v. WMC, Inc., 43 Kan.App.2d 276, 297, 224 P.3d 1175 (2010). But that is hardly an ironclad rule. 43 Kan.App.2d at 297. As provided in K.S.A. 60–256(c), a motion for summary judgment may be filed before discovery has been completed. If the party opposing the motion needs additional discovery, including depositions, to fairly respond, he or she may request an order extending the time for filing any opposition. K.S.A. 60–256(f). Although Dr. Fischer sought and received a 14–day continuance to respond to the summary judgment motion, he did not cite the need to depose Pottroff or request an extension under K.S.A. 60–256(f) for that purpose. See Chesbro v. Board of Douglas County Comm'rs, 39 Kan.App.2d 954, 959–60, 186 P.3d 829 (2008). Because Dr. Fischer did not avail himself of K.S.A. 60–256(0, he cannot complain on appeal that he lacked the opportunity to develop evidence necessary to controvert Skyscapes' summary judgment presentation regarding the amount of his delinquent capital contributions.
Affirmed.