First American Title Insurance Company v. McGonigle et al
Filing
183
MEMORANDUM DECISION. SEE ORDER FOR DETAILS. Signed by District Judge Monti L. Belot on 7/22/2013. (alm)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
JERRY AND GEORGIA MCGONIGLE,
)
)
)
Defendants/Third
)
-Party Plaintiffs
)
v.
)
)
)
ASTLE REALTY, et al.
)
)
Third Party Defendants.)
)
CIVIL ACTION
No.
10-1273-MLB
MEMORANDUM DECISION
I.
INTRODUCTION
This lawsuit arises out of a small-town real estate transaction
which expanded to include several parties other than just the sellers,
buyers and real estate professionals involved. Over time, some of the
parties resolved their various claims, leaving those by and between
the buyers and the real estate professionals. These were tried to the
court on April 23, 24 and 25, 2013.
This decision represents the
findings of fact and conclusions of law resulting therefrom.
Fed. R.
Civ. P. 52(a).
II.
FINDINGS OF FACT1
In 1959, the Panorama Dam was built by the Soil Conservation
Service now on land bordering Lakeview Road in Hutchinson, Kansas.
The dam is an earthen structure and is currently classified as a size
2, class c (high) hazard dam.
1
The dam is 14.6 feet high at the top
The facts set forth in this section consist of a general
overview of the facts of this case.
Additional facts will be
discussed, where appropriate, throughout the decision.
and the drainage area of the dam is 414 acres of water.
retention area of the lake is approximately 5 acres.
The water
V a r i o u s
documents and trial exhibits refer to Panorama Dam, Panorama Lake Dam
and/or Panorama Lake. This suggests that persons living in and around
Hutchinson would be familiar with the dam or lake by one or more of
those names.
This would seem especially true of owners of the
property and persons in the real estate business. At the trial, there
was considerable testimony about whether the dam was visible or
recognizable as a dam, as opposed to something else, yet no witness
was asked whether they had ever heard of Panorama Dam, Panorama Lake
Dam or Panorama Lake before this litigation ensued.
The court finds
this odd, especially given the principal parties involved, all of whom
are long-time residents of Hutchinson.
In 1977, Bill Rowland, June Rich and Dan and Kathy Rich2 built
a house on the land where the dam is located.
They entered into an
agreement with the City of Hutchinson which granted the City an
easement on their property in order to perform improvements on the dam
which were paid for by the City.
The agreement also required the
Riches
the
to
maintain
the
improvements were made.
dam
in
same
condition
after
the
In 1979, Dan Rich and others, sought to make
modifications to the dam.
The Riches submitted a plan and it was
approved by the City’s chief engineer.
On January 27, 1981, the Riches entered into another agreement
with the City (referred to as “agreement” or “1981 agreement”).
agreement stated, in part, as follows:
2
June and Kathy Rich are now deceased.
-2-
The
2.
Rich shall perform the following work, at their
sol expense, upon Panorama Dam:
a.
All grubbing on Panorama Dam. For purposes of
this Agreement, “grubbing” shall mean removal of trees
under six (6) inches in diameter, including the root
system thereof.
All trees to be so removed shall be
marked for identification by the City.
All grubbing
shall
be
accomplished
in
accordance
with
the
specifications contained in Attachment 1 hereto.
b.
Removal from Panorama Dam of all trees in excess
of six (6) inches in diameter.
All trees to be so
removed shall be marked for identification by the City.
All such tree removal shall be accomplished by cutting
the tree and poisoning the stump, all in accordance with
the specifications contained in Attachment 1 hereto.
(Exh. 412 at 1).
The agreement was filed with the Reno County
Register of Deeds.
In March 1981 and January 1982, letters were sent to Dan Rich
concerning his failure to follow through with his part of the
agreement.
The City informed Rich that it would take action and
complete the clearing of vegetation and large trees and assess the
cost against the property.
Rich never cleared the vegetation and
large trees in 1982 or at any time thereafter.
The City did not take
any independent action to remove the trees and vegetation.
In 1997 and again in 1999, the dam was inspected by Leonard
Bristow,
a
civil
Resources (“DWR”).
engineer
with
the
Kansas
Department
of
Water
In 1997, Bristow submitted a report finding that
the dam was not in compliance with the plan which had been submitted
in 1979. Bristow sent a letter to Dan Rich informing him that the dam
was not in compliance and included recommendations for work that
needed to be completed in order for the dam to be in compliance with
Kansas law.
in 60 days.
The letter informed Rich that he needed to take action
Rich, however, did not follow through with the DWR
-3-
recommendations.
The DWR did not have any further contact with Rich
until 1999.
On April 19, 1999, Bristow contacted Dan Rich and received
permission to go on his property to inspect the dam.3
On September
13, 1999, Bristow sent a letter to the Riches and informed them that
the dam was in violation of the Obstruction in Streams Act.
The
letter included a consent order to be signed by the Riches. The order
stated that the Riches would obtain the services of an engineer to
prepare plans for the dam and that changes and modifications would be
done in accordance with a permit issued by the chief engineer of the
The consent order was never signed by the Riches.4
DWR.
The DWR did
not take any further action or reinspect the dam.
In November 1999, the Riches obtained a title commitment by Old
Republic.5
The title policy did not disclose the agreement.
In May 2008, Dan and Mary Beth Rich approached Karen Gilliland,
a real estate broker for Astle Realty, about listing their home for
sale.
Gilliland began her career in real estate in 1982 and has been
friends with the Riches for several years.
Gilliland met with Dan
Rich at the property prior to listing it for sale.
While walking the
property with Gilliland, Rich stated that there was a dam on the
3
Rich testifed that this conversation did not take place. The
court, however, finds the documentation of the call and Bristow’s
testimony to be credible. Rich was not a credible witness on some
material issues.
4
Rich testified that he did not receive Bristow’s letters sent
in 1997 and 1999. The letters, however, were not returned to Bristow
and they were addressed to Rich’s home address.
5
There was no evidence introduced at trial concerning the reason
for the issuance of the 1999 title policy.
-4-
property and he had an agreement with the City to maintain the dam.
Rich informed Gilliland that he did not have a copy of the agreement
but that it was recorded.
Rich further told Gilliland that there had
never been any issues concerning the agreement.
Gilliland told Rich
that they needed to disclose all the information regarding the dam.
On May 6, 2008, the Riches completed the sellers’ property
disclosure statement.
Gilliland wrote the address on the disclosure
but did not fill out any other portion.
Gilliland does not recall
going over the disclosure with the Riches or answering any questions
regarding the disclosure but it was her practice to review the
disclosure after it was completed.
dam or the agreement.
The disclosure did not list the
The disclosure also failed to disclose
treatments for insects that had been completed by the Riches on
several occasions.6
On May 20, Gilliland met with the Riches and entered into a
formalized contract to list the property.
Gilliland and the Riches
signed an exclusive contract which lists Gilliland as a transaction
broker7 in the sale and entitles her to a five percent fee from the
sale.
The contract states that Gilliland would comply with the
Brokerage Relationships in Real Estate Transactions Act (BRRETA) and
that she would disclose all “adverse material facts actually known.”
(Exh. 429).
Gilliland’s practice is to disclose any adverse material
6
Gilliland was not aware that there had been pest treatments on
the property and there is no claim concerning the Rich’s failure to
disclose the past treatments.
7
K.S.A. 58-30,102(u) states: “Transaction broker means a broker
who assists one or more parties with a real estate transaction without
being an agent or advocate for the interests of any party to such
transaction. The term includes the broker's affiliated licensees.”
-5-
facts in writing.8
Gilliland listed the property on the MLS without
disclosing the existence of the dam or the agreement on the listing.
Jerry McGonigle drove down Lakeview Road and saw the property
was for sale. He stopped for a few minutes and observed all the trees
on the property. McGonigle told his wife, Georgia, about the property
and they both drove by to look at the property but did not go inside
the home.
The McGonigles then contacted Terry Brigman, a real estate
agent with Astle.
Jerry McGonigle told Brigman that he and his wife
had been to the property and would like to see the inside of the
house.
Brigman scheduled a showing.
Brigman
McGonigles.
visited
the
property
on
two
occasions
with
the
Dan Rich was at the property on one occasion and spoke
with Brigman and Jerry McGonigle but did not walk the property with
them.
Rich did not mention the dam or the agreement when Brigman was
at the property.
On the second visit, Brigman recalls pointing out
the earth structure to Jerry McGonigle.
However, Brigman does not
recall what he called it but believes that he said that it was an
embankment.
Brigman and Jerry McGonigle did not walk to the dam
because there were numerous trees on the dam and it was difficult to
enter that area.
Brigman and Jerry McGonigle did drive south on
Lakeview, the street next to the dam, and viewed the additional
acreage for sale south of the home.
Brigman and Jerry McGonigle did
not walk on the property south of the home but viewed it from the
street.
Brigman and Jerry McGonigle also walked an area north of the
home, which is referred to as a meadow.
8
However, there is no such requirement in BRRETA.
-6-
On July 31, 2008, the McGonigles entered into an exclusive buyer
agency agreement with Brigman as their “designated agent.”9
The
exclusive agreement required Brigman to disclose all known adverse
material facts to the McGonigles. At some point, Jerry McGonigle went
to the property by himself and met with Dan Rich.
They walked some
of the property and discussed the additional acreage available to the
south.
McGonigle asked about the ditches that were mowed and if Rich
was required to mow those ditches.
City mowed the ditches.
Rich informed McGonigle that the
Rich then told McGonigle about his agreement
with the City and that it required the owner to maintain the dam.10
There is no evidence, however, that Rich told McGonigle what it meant
to “maintain” the dam or that the agreement was a written, recorded
document.
This is significant because there is no question that Dan
Rich knew that the 1981 agreement was very specific in terms of his
maintenance obligation.
The court finds it reasonable to infer that
Rich did not disclose the details of the maintenance obligation
because they might discourage potential buyers.
Dan Rich did not
disclose other problems with the house which, at one time, were part
9
“Designated agent means a licensee affiliated with a broker who
has been designated by the broker, or the broker's duly authorized
representative, to act as the agent of a broker's buyer or seller
client to the exclusion of all other affiliated licensees.” K.S.A.
58-30,102(k).
10
McGonigle denied being told about the agreement or an
obligation to maintain the dam.
The court finds, however, the
statement about dam maintenance was relayed to McGonigle. Gilliland
testified, and the court finds her testimony credible, that Rich
called her after McGonigle’s visit and relayed their discussions which
included disclosing that there was an agreement to maintain the dam.
-7-
of the case.11
Prior to an offer being made, Gilliland met with Brigman to
discuss the property.
Gilliland and Brigman discussed the dam,
drainage and septic issues.
Gilliland told Brigman that there was an
agreement concerning the property in which the City had agreed to pay
for the dam and the Riches had agreed to maintain the dam.
Gilliland
does not recall if she specifically stated that the agreement was
recorded.
Brigman did not disclose the existence of the agreement to
the McGonigles and does not recall the contents of the meeting he had
with Gilliland.
Both Gilliland and Brigman testified that they
believed the agreement should have been disclosed to the McGonigles
prior to closing.
On August 5, 2008, Brigman went over the disclosure with the
McGonigles and prepared an offer for the property.
The McGonigles
offered $330,000 for the property and the additional 8.6 acres south
of the home.
The contract was accepted by the Riches but was
contingent on the completion of a home inspection.
however, did not have an inspection of the land.
The McGonigles,
The home inspection
was completed by Brent Voran and the preparations toward closing
continued.
On
August
8,
First
American
agreement to issue a title policy.
1981 agreement.
Title
prepared
a
preliminary
The policy did not disclose the
First American did not discover the existence of the
agreement because its procedures only required the examiner to view
11
These claims were resolved between the McGonigles and the
Riches by settlement.
Therefore, the court will not discuss the
expenditures incurred by the McGonigles in repairing their home.
-8-
recorded documents back to the date of the last issued policy on the
property. Because the 1999 title commitment did not disclose the 1981
agreement, the 1981 agreement likewise was not disclosed in the 2008
title policy prior to closing.
Both Gilliland and Brigman reviewed the title documents prior
to closing.
Gilliland expected the agreement to appear on the title
policy
did
but
not
take
any
action
after
receiving
the
title
documents. On October 9, 2008, the McGonigles closed on the property.
After moving into the home, numerous issues were discovered concerning
the home.
Also, the legal description of the land had been changed
prior to closing and the McGonigles were not aware of the change.12
On
December
17,
2008,
Jerry
McGonigle
received
a
letter
discussing a new residential development on a one acre parcel south
of the dam.
The McGonigles were very concerned with this potential
development because they believed they had purchased this acre in the
sale.13 The McGonigles received a call from a neighbor who stated that
the development would probably not proceed because of the integrity
of the dam.
Georgia McGonigle testified that this was the first time
that they had knowledge of a dam on their property.14
12
Jerry McGonigle
This issue was also resolved by settlement.
13
Ultimately, this land was deeded to the McGonigles in the
settlement.
14
The court finds as less than credible the McGonigles’
testimony that they did not know about the existence of the dam until
after purchasing the property. The photos taken at the time of the
purchase show a rather large body of water, some might call a lake,
some a pond, but its existence was important to the McGonigles. The
photos show a large number of trees bordering the lake or pond. It
may be that the McGonigles were unaware of the dam, as a dam, but
clearly they knew or should have known the water was being confined.
The court does accept the McGonigles’ testimony that they were not
-9-
spoke with Brian Clennan, the city engineer, who told him that the
plan would probably not be approved due to the current condition of
the dam.
Jerry McGonigle was surprised to learn that the dam was in
poor condition.
Jerry McGonigle went to the register of deeds office
and searched the property records and located the 1981 agreement.
On January 8, 2009, Kim Feldkamp, a DWR engineer, met with Jerry
McGonigle and Clennan at the dam.
The inspection of the dam revealed
that the principal spillway and outlet pipe were corroded.
It was
also apparent that the removal and cutting of trees required by the
1981 agreement was never completed.
DWR suggested that the principal
spillway and outlet pipe needed to be replaced.
DWR was concerned
about the brush and trees located on the dam and recommended that all
brush be cleared and the smaller trees be cut to the ground.
(Doc.
472).
After the inspection, Jerry McGonigle received various bids for
work on the dam.
The bids ranged from $300,000 to over one million.
In late 2009, Jerry McGonigle hired Mitzner’s Bobcat and Trenching to
deepen the lake by three feet in an attempt to add more water storage
area.
He paid $26,250 to Mitzner’s for the work.
On December 10, 2009, the McGonigles’ counsel sent a demand
letter to First American seeking reimbursement under the title policy
as a result of the failure to disclose the 1981 agreement. The letter
informed First American that the reconstruction of the dam would cost
at least $850,000. The claim was denied in January 2010. On July 27,
aware of the agreement to maintain the dam. As explained later in
this decision, it is not the dam, but the agreement, which is
significant.
-10-
2010, the McGonigles’ counsel sent a second letter reasserting their
claim.
On August 10, 2010, Clennan sent a letter to Jerry McGonigle
regarding the dam improvements.
He informed McGonigle that the City
expected him to hire a professional engineer in order to complete a
plan and specifications for work on the dam.
The City requested that
the dam repairs include pumping the water out of the lake, the removal
and replacement of the principal spillway, removal of all trees,
regrading the embankment and establishing good vegetation cover.
On August 16, 2010, First American filed this action seeking a
declaratory judgment that it did not have an obligation to pay for any
loss under the policy.
First American named the McGonigles, the
Riches and the City as defendants.
In response, the City sought
specific performance from the Riches and the McGonigles concerning the
1981 agreement.
The McGonigles filed claims against First American,
the Riches, Gilliland and Astle Realty.15
The
parties
Consultants
to
obtained
perform
recommendations.
an
the
services
inspection
of
of
MKEC
the
dam
Engineering
and
make
In August 2011, MKEC prepared a report which made
three recommendations.
That report was forwarded to DWR.
In
response, DWR issued a letter to Jerry McGonigle in October 2012. DWR
stated
that
the
McGonigles
could
pursue
any
recommendations in order to comply with Kansas law.
of
the
three
The first option
maintains the structure as a jurisdictional Class C dam and requires
15
In August 2012, the McGonigles filed an amended crossclaim and
added a breach of contract and negligence claims against Brigman.
The claims against Astle are not independent but rather due to
its relationship with Gilliland and Brigman as their employer.
-11-
a complete reconstruction of the dam, removal of trees and the root
system, and improvements to the spillway.
approximately $625,000.
The estimated cost is
The second option reduces the reservoir
volume so that it is no longer a jurisdictional dam but instead is
classified as a stream obstruction, which is defined as a structure
having a drainage area of 320 acres of water.
This option calls for
placing 8 acre feet of fill in the pond and removing the trees but not
the root system.
The estimated cost is approximately $590,000.
The
final option lowers the top of the dam by one to two feet, which
changes the classification of the dam to a stream obstruction.
The
trees and root system would be removed and a wave berm would be
installed
on
the
system.
The
cost
for
the
last
option
is
approximately $564,000.
At this time, DWR has not taken action against the McGonigles
for failing to comply with Kansas law.
If the McGonigles do not
comply with the October 2012 letter, DWR can take action by seeking
an administrative order.
On March 14, 2013, this court granted the City’s unopposed
motion for summary judgment. (Doc. 159). The City contended that its
breach of contract claims against the McGonigles and the Riches were
not actionable because Kansas law provides for DWR to have exclusive
jurisdiction of all dams.
In other words, the City’s agreement with
the Riches was never enforceable.
First American moved for summary
judgment on the basis that it could not breach its contract with the
McGonigles for failing to disclose the 1981 agreement because the
agreement is unenforceable. First American further argued that it was
not required to reimburse the McGonigles for any damages incurred in
-12-
bringing the dam into compliance with Kansas law because the title
policy excludes damages due to compliance with laws and regulations.
The court agreed and granted First American’s motion for summary
judgment.
(Doc. 159).
The court will now turn to its conclusions of law on the
remaining claims in this case.
III.
CONCLUSIONS OF LAW
A.
Fraud by Silence
The McGonigles contend that Gilliland committed fraud by failing
to disclose the existence of the dam and the agreement.
To establish
fraudulent nondisclosure or fraud by silence, the McGonigles must show
the following elements: (1) Gilliland had knowledge of material facts
which the McGonigles did not have and which they could not have
discovered by the exercise of reasonable diligence; (2) Gilliland was
under
an
obligation
to
communicate
the
material
facts
to
the
McGonigles; (3) Gilliland intentionally failed to communicate the
material facts to the McGonigles; (4) the McGonigles justifiably
relied on Gilliland to communicate the material facts; and (5) the
McGonigles sustained damages as a result of Gilliland’s failure to
communicate the material facts.
Kipp v. Myers, 753 F. Supp.2d 1102,
1107 (D. Kan. 2010)(citing Brennan v. Kunzle, 37 Kan. App.2d 365, 378
(2007)).
Fraud must be established by clear and convincing evidence.
Alires v. McGehee, 277 Kan. 398, 403, 85 P.3d 1191 (2004).
The McGonigles did not establish
by
clear
and
convincing
evidence any intentional omission of material facts by Gilliland. The
credible evidence at trial was that Rich informed Gilliland of the
existence of the dam and the recorded agreement with the City in which
-13-
Rich agreed to maintain the dam.
There was no evidence that any
further information was disclosed to Gilliland, i.e. what exactly was
meant by “maintain.”
Under the Brokerage Relationships in Real Estate Transactions
Act (BRRETA), K.S.A. 58-30,101, et seq., a seller's agent16 owes no
duty to a buyer except to disclose all adverse material facts actually
known
by
the
condition
of
agent,
the
including
property,
environmental
and
hazards,
material
defects.
physical
K.S.A.
58–30,106(d)(1)(emphasis supplied); Stechschulte v. Jennings, 298 P.3d
1083, 1099 (Kan. 2013).
Moreover, an agent has no duty to conduct an
independent inspection of the property or to verify the accuracy or
completeness of any statement by the seller.
K.S.A. 58–30,106(d)(2).
Therefore, Gilliland had no duty to verify Rich’s statement or to
retrieve
the
document
herself.
Gilliland’s
“competently pass[] on what [was] known.”
only
duty
was
to
Stechschulte, 298 P.3d at
1099.
Gilliland informed Brigman of the existence of the dam and
agreement.
Gilliland also told Brigman that the agreement imposed a
duty on the property owner to maintain the dam.
Pursuant to the
Exclusive Agency Agreement signed by the McGonigles and Brigman,
Brigman was acting as an agent for the McGonigles.
(Exh. 432)(“BUYER
retains and appoints BROKER as BUYER’S Exclusive Agent to assist BUYER
in the procurement of property and to negotiate terms and conditions
. . .”)
Kansas law is clear that knowledge of an agent is equivalent
to knowledge of the principal.
See City of Wichita v. U.S. Gypsum
16
A transaction broker has the same obligations concerning
disclosure of adverse material facts. K.S.A. 58-30,113(b)(2)(F).
-14-
Co., 828 F. Supp. 851, 867 (D. Kan. 1993)(citing Conner v. Koch Oil
Co., 245 Kan. 250, 254 (1989)(“A principal is charged with the
knowledge of an agent acting within the scope of his authority even
though the knowledge is not communicated to the principal.”))
Therefore,
disclosed
those
Gilliland
did
not
facts
the
McGonigles
to
omit
any
facts
through
because
their
she
agent.
Gilliland was not required to directly disclose the existence of the
agreement to the McGonigles because she had disclosed its existence
to Brigman.
Because
the
McGoingles
have
not
established
by
clear
and
convincing evidence that Gilliland intentionally failed to communicate
material facts, judgment is entered in favor of Gilliland on the
McGonigles’ fraud by silence claim against Gilliland and Astle.
B.
Negligent Misrepresentation by Gilliland
Next, the McGonigles claim Gilliland was negligent in failing
to disclose adverse material facts to the McGonigles.
This claim
fails for the same reasons that the McGonigles’ fraud by silence claim
fails. Gilliland disclosed everything she knew concerning the dam and
the agreement to the McGonigles’ agent and therefore cannot be found
to be negligent.
Judgment is therefore entered in favor of Gilliland and Astle
on the McGonigles’ negligence claim.
C.
KCPA Violation
The McGonigles final claim against Gilliand concerns a violation
of the Kansas Consumer Protection Act (KCPA).
The KCPA provides that
an “aggrieved consumer” may maintain a private right of action against
a supplier if: (1) the supplier willfully failed to state a material
-15-
fact; or (2) the supplier willfully failed to state, concealed,
suppressed, or omitted a material fact.
K.S.A. 50–634(a).
See K.S.A. 50–626(b)(3);
Because the McGonigles cannot prove that Gilliland
willfully failed to state a material fact or concealed a material
fact, judgment is entered in favor of Gilliland and Astle on this
claim.
D.
Breach of Contract against Brigman
The McGonigles contend that Brigman breached the exclusive
buyer’s agreement by failing to disclose the existence of the dam and
the 1981 agreement. The elements of a breach of contract are: (1) the
existence
of
a
contract;
(2)
sufficient
consideration;
(3)
the
McGonigles’ performance in compliance with the contract; (4) Brigman’s
breach of the contract; and (5) damages to the McGonigles caused by
Stechschulte v. Jennings, 298 P.3d 1083, 1099 (Kan.
the breach.
2013).
The first three elements have been met by a preponderance of
the evidence.
There was a written contract between Brigman and the
McGonigles. The contract required that Brigman act as the McGonigles’
designated agent in exchange for a fee.
The McGonigles complied with
their duties under the contract and Brigman received a fee after the
closing.
1.
Breach
Turning to the fourth element, the McGonigles claim that Brigman
breached his agreement to disclose the existence of the dam and the
agreement.
Paragraph 4(C) of the Exclusive Agency Agreement states
that the “BROKER will disclose to BUYER all adverse material facts
actually known by BROKER. . .”
(Exh. 432).
To establish Brigman
breached this provision, the McGonigles must show that Brigman knew
-16-
of the dam and/or the agreement and that those facts were adverse and
material.
Brigman testified that he knew there was some kind of
structure on the property but was not aware of what it was.
He
referred to it as an embankment and discussed it with Jerry McGonigle.
Brigman did not recall meeting with Gilliland and her disclosure of
the dam and the agreement.
The court finds Gilliland’s testimony to be credible that she
disclosed the dam and the agreement to Brigman.17
There is no dispute
that Brigman did not disclose the existence of the 1981 agreement to
the McGonigles.
The court must first find, however, that the fact of
the dam and the agreement were adverse and material.
This requires
separate consideration of the dam and the agreement.
The Exclusive Agency Agreement does not define adverse material
facts but does refer to Brigman’s obligations pursuant to BRRETA.
BRRETA requires agents to disclose any adverse material facts actually
known
by
the
condition
agent,
of
58–30,106(d)(1).
the
including
property,
environmental
and
material
hazards,
defects.
physical
K.S.A.
The statutory list is not exhaustive.
There was no evidence at trial that the presence of a dam,
standing alone, is an
adverse material fact.
Gilliland and Brigman
both testified that the dam or structure was out in the open and that
17
The discrepancy between Gilliland and Brigman’s testimony
regarding disclosure and the court’s acceptance of Gilliland’s
testimony must not be interpreted as a finding that Brigman lied.
In every jury trial the court instructs that “when weighing
conflicting testimony you should consider whether the discrepancy has
to do with a material fact or with an unimportant detail, and should
keep in mind that innocent misrecollection -- like failure
recollection -- is not uncommon.” The court accepts that Brigman
simply failed to recall the conversation.
-17-
a disclosure was not necessary.
Without any evidence that a dam, in
and of itself, would somehow be adverse to a property owner, the court
cannot find that the existence of the Panorama Dam was an adverse fact
requiring disclosure.
Moreover, the McGonigles did not testify that
the existence of the dam was material to their purchase, i.e. that
they would not have purchased the property if they had known that
there was a dam.
Rather, the McGonigles testified that their post-
purchase knowledge of the extensive work required on that particular
dam would have been material to their decision.
provided in the 1981 agreement.
That knowledge was
Therefore, judgment must be entered
in favor of Brigman on the McGonigles’ claim of breach of contract due
to Brigman’s failure to disclose the dam.
The existence of the 1981 agreement is a much different matter.
Brigman was told that the Riches had an agreement with the City to
maintain the dam.
McGonigles.
Brigman did not relay that information to the
Both Brigman and Gilliland testified that the McGonigles
should have been told about the existence of the agreement. The court
agrees.
An agreement which imposes a duty on the property owner is
an adverse fact.
The 1981 agreement requires the property owners do
more than just cut grass.
It imposes a duty on them to remove trees,
root systems of small trees and poison the stump of larger trees on
the dam. BRRETA does not require Brigman to investigate the existence
of the agreement and its details.
It does, however, require Brigman
to relay the information learned in his conversation with Gilliland.
Moreover, the existence of the 1981 agreement was material because the
McGonigles testified that they would have not purchased the property
had they known of the tremendous expense of maintaining the dam.
-18-
The
court accepts this testimony.
Therefore, the court finds that the McGonigles have established
that Brigman breached the buyer’s agreement by failing to disclose the
existence of the 1981 agreement.
2.
Damages
The fifth element requires the McGonigles to have incurred
damages as a result of the breach.
The McGonigles contend that they
have suffered the following damages: 1) an amount to bring the dam in
compliance with Kansas law; 2) wages of Tony Law; 3) $26,250 paid to
Mitzner’s to add fill to the lake and 4) loss of use of the property.
Kansas law limits recovery of damages as a result of a breach
of contract to “those damages which may fairly be considered as
arising in the usual course of things, from the breach itself, or as
may reasonably be assumed to have been within the contemplation of
both parties as the probable result of the breach.” Kansas State Bank
v. Overseas Motosport, Inc., 222 Kan. 26, 27, 563 P.2d 414 (1977).
Therefore, the McGonigles “were required to prove either that the
damages arose in the usual course of things, from the breach itself,
or that the damages were within the contemplation of the parties.”
Royal College Shop, Inc. v. N. Ins. Co. of N.Y., 895 F.2d 670, 679
(10th Cir. 1990).
A party may not recover damages that are not the
proximate result of the breach or that are “remote, contingent, or
speculative in character.”
Id.
Turning to the first claim, the McGonigles seek damages to
repair the dam and bring it into compliance with Kansas law.
Greg
Allison, a civil engineer with MKEC, introduced a report establishing
the
breakdown
of
costs
associated
-19-
with
bringing
the
dam
into
compliance.
The costs for each option outlined by MKEC are not in
dispute and range from $563,000 to $624,770.
(Exh. 493).
The
question becomes whether the McGonigles have established that the cost
to repair the dam embankment or rebuild the structure to change the
classification to a stream obstruction can “fairly be considered as
arising, in the usual course of things, from the breach” of the
buyer’s agreement.18
The McGonigles established that Brigman breached the agency
agreement for failing to disclose the existence of the 1981 agreement
requiring that the dam be maintained by the property owners.
There
is no evidence that Brigman, or Gilliland for that matter, knew that
the dam was not in compliance with Kansas law or the terms of the 1981
agreement.
The evidence was that Rich told Gilliland that he had to
maintain the dam.
The 1981 agreement required the Riches to remove
trees under six inches and cut trees larger than six inches and poison
the
stump.
There
is
no
additional
obligation
concerning
the
maintenance of the primary or auxiliary spillway, the need for
additional permits or payment of engineering expenses.
Even if
Brigman had disclosed the existence of the 1981 agreement, there is
no evidence that the McGonigles would have known that the dam needed
such additional extensive work.
Damages are to place the nonbreaching party in the position it
would have been in had the breach never occurred, “without allowing
that party a windfall.” State ex rel. Stovall v. Reliance Ins. Co.,
278 Kan. 777, 789 (2005).
Awarding damages to the McGonigles in the
18
There is no evidence that these damages were within the
contemplation of the parties.
-20-
amount of $624,770 would be a windfall.
Brigman failed to disclose
an agreement to maintain the dam, i.e. remove brush and vegetation,
not that the entire dam was in danger of failing and needed to be
entirely rebuilt. The court finds that awarding damages in the amount
that it would cost to rebuild the dam would not be fair and would
result in allowing the McGonigles a windfall. However, the court does
find that an award of damages in the amount to remove the trees is
fair and adequate and will place the McGonigles in the position they
would have been had the breach never occurred. The cost to remove the
trees is $202,500.
(Exh. 493 at 21).
This amount has been proven by
the McGonigles by undisputed evidence and is not remote, contingent,
or speculative.
Turning to the second claim, the McGonigles seek damages for the
wages of Jerry McGonigle’s employee, Tony Law.
The McGonigles have
not established that the wages of Law arise from the breach of the
buyer’s agreement or shown a reasonable basis for the computation of
those
damages.
English
Village
Properties,
Inc.
v.
Boettcher
&
Lieurance Constr. Co., 7 Kan. App.2d 307, 310–11, rev. denied 231 Kan.
799 (1982).
Jerry McGonigle testified that Law performed work that
he could not perform because he was investigating the issues with the
dam.
Jerry McGonigle paid Law wages for 735 hours of work.
Jerry
McGonigle did not establish his actions during those 735 hours or that
his activities during that time arose from the breach. Therefore, the
court finds that the damages incurred in paying Law’s wages are remote
and speculative.
Next, the McGonigles seek damages to reimburse the $26,250 paid
to Mitzner’s to excavate the lake.
-21-
McGonigle testified that he had
this work done because he felt he had to do something.
There is no
evidence, however, that this work was necessary to repair the dam or
to comply with the 1981 agreement.
Therefore, these damages do not
arise from the breach of the buyer’s agreement.
Finally, the McGonigles seek $100,000 for their loss of use of
the property. The McGonigles, however, have not proven these damages.
There is no evidence that they have lost the use of their property.
The only evidence at trial concerning the loss of use was that the
sight of the dam is distressing to them.
Emotional damages are not
recoverable in a contract action because they are speculative in
nature.
See Woodmen Acc. & Life Ins. Co. v. Bryant, 784 F.2d 1052,
1056-57 (10th Cir. 1986)(citing Restatement (Second) of Contracts §
353 (1981)).
Therefore, the claim for damages relating for loss of
use is denied.
Judgment on the McGonigles’ claim for breach of contract is
entered in favor of the McGonigles and against both Brigman and Astle
Realty, as Brigman’s employer, in the amount of $202,500.
The
McGonigles also seek reimbursement of attorney’s fees as allowed by
the contract.
(Exh. 432 at 3).
for fees by August 15, 2013.
The McGonigles may submit a motion
Any objection to the fees must by filed
by August 29.
E.
Negligence by Brigman
The McGonigles also assert that Brigman was negligent for
failing to disclose the existence of the dam and the agreement.
Brigman
contends
limitations.
that
this
claim
is
barred
by
the
statute
of
K.S.A. 60-513(a) sets out a two year statute of
limitations for negligence. “The statute of limitations starts to run
-22-
in a tort action at the time a negligent act causes injury if both the
act and the resulting injury are reasonably ascertainable by the
injured person.”
Moon v. City of Lawrence, 267 Kan. 720, 727, 982
P.2d 388, 394 (1999).
“In other words, a plaintiff . . . must file
his or her action within two years of discovering the [negligence] if
he or she suffered an ascertainable injury at that time.”
Inc. v. SunTrust Bank,
Evolution,
342 F. Supp. 2d 964, 972 (D. Kan. 2004).
In Bradley v. Val-Mejias, 379 F.3d 892, 898 (10th Cir. 2004),
the Tenth Circuit stated that the “phrase ‘reasonably ascertainable’
means that a plaintiff has the obligation to reasonably investigate
available sources that contain the facts of the [injury] and its
wrongful causation."
(citing Davidson v. Denning, 259 Kan. 659, 914
P.2d 936, 948 (1996)).
The McGonigles discovered the existence of the 1981 agreement
in February 2009 but did not move to amend their complaint until June
29, 2012.
In October 2009, the McGonigles retained counsel who then
sent a demand letter to First American on December 10, 2009.
In the
letter, the McGonigles’ counsel stated that the title company failed
to disclose the recorded agreement, the Riches also failed to disclose
the agreement and that the cost to repair the dam would be $850,000.
Therefore, the letter clearly shows that the McGonigles were aware of
a
failure
to
disclose
on
the
part
of
the
title
company
and,
potentially, the Riches, in December 2009.
The McGonigles claim that they were not aware of Brigman’s
failure to disclose until Gilliland’s deposition, which occurred in
2012.
There was no evidence, however, that the McGonigles attempted
to discover who or what other entity was involved in the failure to
-23-
disclose the agreement at the time that they discovered the injury in
late 2009.
There is also no evidence of concealment by Brigman.
Based on Gilliland’s testimony and her deposition, the McGonigles
would have discovered the knowledge of Brigman’s involvement had they
taken time to investigate and/or speak with Gilliland.
Because the
McGonigles did not reasonably investigate the facts surrounding the
failure to disclose, the court finds that the statute of limitations
on their claim began to run, at the latest, on December 10, 2009.
Therefore, the McGonigles negligence claim against Brigman should have
been filed by December 10, 2011, and it was not.
The McGonigles’ negligence claim against Brigman is accordingly
barred by the statute of limitations.
Judgment is entered in favor
of Brigman and Astle Realty on this claim.
IV.
CONCLUSION19
Judgment is entered in favor of Gilliland and Astle Realty on
the McGonigles’ claims of fraud, negligent misrepresentation and a
violation of the KCPA.
Judgment is entered in favor of Brigman and
Astle Realty on the McGonigles’ claim of negligent misrepresentation.
Judgment is entered in favor of the McGonigles’ on their claim against
Brigman and Astle Realty for breach of contract in the amount of
$202,500.
The McGonigles may submit a motion for attorney’s fees by
August 15, 2013.
Any objection to the fees must by filed by August
29.
19
The following motions are termed as a result of this
memorandum decision: Brigman’s motion for summary judgment (Doc. 122),
motion in limine (Doc. 158) and motion to strike the supplemental
witness disclosure (Doc. 168); and Gilliland’s motion for partial
summary judgment (Doc. 163).
-24-
A motion for reconsideration of this order is not encouraged.
Any such motion shall not exceed 5 double-spaced pages and shall
strictly comply with the standards enunciated by this court in Comeau
v. Rupp, 810 F. Supp. 1172, 1174 (1992).
The response to any motion
for reconsideration shall not exceed 5 double-spaced pages.
No reply
shall be filed.
IT IS SO ORDERED.
Dated this
22nd
day of July 2013, at Wichita, Kansas.
s/ Monti Belot
Monti L. Belot
UNITED STATES DISTRICT JUDGE
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