Opinion
109,757 110,501 110,502.
09-19-2014
ARBOR LAKE, LLC, Appellant, v. ENTERPRISE BANK & TRUST, Appellee, v. Ground Control Unlimited, L.L.C., Appellee. Enterprise Bank & Trust, as Successor in Interest to First National Bank of Olathe, Appellee, v. Steven VanLerberg, Successor Co–Trustee of the Albert C. VanLerberg Revocable Trust Agreement Dated 1/27/00, as may be Amended, et al., (Gregory D. Prieb, et al.), Appellants.
Lawrence L. Ferree, III, of Ferree, Bunn, Rundberg, Radom & Ridgway, Chtd., of Overland Park, and J. Donald Lysought, Jr., of Evans and Mullinex, P.A., of Shawnee, for appellant. Barry L. Pickens and J. Loyd Gattis, of Spencer Fane Britt & Browne LLP, of Kansas City, Missouri, for appellee Enterprise Bank & Trust.
Lawrence L. Ferree, III, of Ferree, Bunn, Rundberg, Radom & Ridgway, Chtd., of Overland Park, and J. Donald Lysought, Jr., of Evans and Mullinex, P.A., of Shawnee, for appellant.
Barry L. Pickens and J. Loyd Gattis, of Spencer Fane Britt & Browne LLP, of Kansas City, Missouri, for appellee Enterprise Bank & Trust.
Before STANDRIDGE, P.J., GREEN and ATCHESON, JJ.
MEMORANDUM OPINION
ATCHESON, J.
Introduction
In these cases consolidated on appeal, we pick over the legal remains of a failed multimillion dollar real estate project in Johnson County. We have been first asked to determine if the Johnson County District Court erred in finding the $3.1 million price paid for the property in a foreclosure sale to be reasonable. The issue boiled down to a battle between appraisers over the value of the property. There was substantial evidence to support the district court's finding, so we see no error. We next have been asked whether the district court erred in refusing to apply the proceeds of the sale to a judgment against the guarantors of a bank loan for the project. On this point, the district court should have relied on the terms of the judgment alone without considering the language of the guaranties because the judgment superseded those agreements. The district court, therefore, should have credited the sale proceeds in partial satisfaction of the judgment. We affirm in part, reverse in part, and remand to the district court to recalculate the guarantors' outstanding obligations on the judgment against them. We also rule on motions made in each case to recover attorney fees and costs incurred in the appeals.
We need not recount the sad history of the real estate venture. It foundered during the recent economic downturn, as did many other land development projects. Likewise, much of the legal battle over this venture has little or nothing to do with the issues before us. We dispense with a detailed rendition of that jousting. The parties know well those particulars. We pause, however, to identify the parties. Enterprise Bank is the successor-in-interest to First National Bank of Olathe, the financial institution that loaned the money for the project. Enterprise Bank has sought to recoup on the debt. Arbor Lake, LLC, was formed to step in and complete the development after another corporation couldn't continue. First National Bank essentially refinanced the project with Arbor Lake. Arbor Lake signed a promissory note for the loan. And the bank held a mortgage on the real property as collateral. Gregory D. Prieb, the Gregory D. Prieb Inter Vivos Trust, the Albert C. VanLerberg Revocable Trust, and Roger T. Campbell signed guaranty agreements obligating themselves for portions of the loan to Arbor Lake. Prieb and his trust guaranteed 25 percent of the loan to Arbor Lake, as did the VanLerberg Trust. Campbell guaranteed 12 1/2 percent of the loan.
At the times relevant to this litigation, the Arbor Lake project consisted of 26 acres of undeveloped land planned for commercial use, 43 acres of undeveloped land for single-family homes, and 29 lots already developed with homes. Ultimately, Arbor Lake fared no better than the corporation it replaced—it ceased work on the development and defaulted on the loan.
In No. 109,757, Enterprise Bank obtained a judgment against Arbor Lake and then foreclosed on the real property. The guarantors were not parties to that action. In Nos. 110,501 and 110,502, Enterprise Bank obtained a judgment against the guarantors. Arbor Lake unsuccessfully sought to intervene at the district court level. (Those two appeals are from the same district court action and were consolidated here before briefing.) The guarantors have been jointly represented and have advanced a unified position on appeal. We do not generally distinguish among them. After briefing and argument of the cases, Campbell dismissed his appeal.
The various amounts allegedly due and the judgments entered in the cases have been figured to the penny by the parties and the district court. We deal in round numbers because the precise computations have no bearing on the legal issues we decide and they otherwise simply bog down the discussion. In short, the exact figures are irrelevant at this juncture.
Analysis
Judicial Confirmation of Foreclosure Sale (No. 109,757)
In December 2012, Arbor Lake confessed judgment to Enterprise Bank for $5.3 million. The district court ordered foreclosure and sale of the Arbor Lake property. The sheriff's sale took place about 6 weeks after the confession of judgment. Enterprise Bank made the highest bid of $3.1 million and then sought a court order confirming the sale.
At the confirmation hearing, Enterprise Bank presented Daniel W. Craig, a real estate appraiser, who testified the bid price reflected a reasonable or fair value for the property. Arbor Lake countered with Kevin O'Bryan, also an appraiser, who concluded the price to be substantially below fair value. Arbor Lake, therefore, sought to set aside the sale. The district court confirmed the sale, effectively finding the bid price to be legally sufficient; credited that amount toward the judgment against Arbor Lake; and entered a deficiency judgment of about $2.2 million plus interest. Arbor Lake has appealed the confirmation order. That much of the narrative brings us to the appeal in No. 109,757.
Under K.S.A. 60–2415, governing foreclosure sales, a district court may refuse to confirm the sale “where the bid is substantially inadequate” or it may, among other options, hold a hearing to determine the property's “fair value” and require that value rather than the bid price be credited against the judgment.
In considering confirmation of a foreclosure sale, a district court exercises equitable powers and acts with broad discretion. See Olathe Bank v. Mann, 252 Kan. 351, 357, 845 P.2d 639 (1993) ; Citifinancial Mortgage Co. v. Clark, 39 Kan.App.2d 149, 151, 177 P.3d 986 (2008). A district court exceeds that sort of discretion if it rules in a way no reasonable judicial officer would under the circumstances, if it ignores controlling facts or relies on unproven factual representations, or if it acts outside the legal framework appropriate to the issue. See Northern Natural Gas Co. v. ONEOK Field Services Co., 296 Kan. 906, 935, 296 P.3d 1106, cert. denied 134 S.Ct. 162 (2013) ; State v. Ward, 292 Kan. 541, Syl. ¶ 3, 256 P.3d 801 (2011), cert. denied 132 S.Ct. 1594 (2012). As the party challenging the district court's ruling, Arbor Lake must establish an abuse of discretion. Northern Natural Gas Co., 296 Kan. at 935.
The “fair value” of real estate, as the term is used in K.S.A. 60–2415, reflects “the intrinsic value” of the property, taking into account all of the circumstances bearing on its worth at the time of the sale. Olathe Bank, 252 Kan. at 362–63 ; Citifinancial Mortgage Co., 39 Kan.App.2d at 153. But fair value does not automatically equate with market value, since there may be a substantially depressed market or no market at all—a circumstance that would account for the property being in foreclosure in the first place. Olathe Bank, 252 Kan. at 362. In many situations, however, fair value and market value may be comparable, as the Olathe Bank case itself illustrates. There, the court found the essentially undisputed fair market value of the property to reasonably reflect fair or intrinsic value and disallowed a discounted bid price based on the bank's belief it might be unable to resell the property for several years. 252 Kan. at 363. In sum, the considerations bearing on fair value are exceptionally broad and may be quite case specific. 252 Kan. at 361.
At the outset, Arbor Lake contends Craig, Enterprise Bank's appraiser, was required by Kansas law to follow the Uniform Standards of Professional Appraisal Practice and that he failed to do so, essentially rendering his expert opinion and report inadmissible in the confirmation hearing. We assume the first premise—application of the appraisal standards was legally required—without deciding it to be so. See K.S.A. 58–4121. But the standards set out general or “best practice” precepts effectively requiring appraisers to fully and fairly consider relevant information in rendering valuations. They do not establish specific methods to be used in undertaking an appraisal. Arbor Lake's attack on Craig's work, however, delved into the particulars of the methodology, the specific properties he considered as comparable in arriving at his valuation of the Arbor Lake real estate, and the omission of other properties that might be considered better comparables. Those are all matters falling outside the appraisal standards, so Arbor Lake's argument fails on its second premise that Craig failed to comply with those standards. Craig testified that he did adhere to those standards, and that testimony was undisputed.
Craig prepared his appraisal for Enterprise Bank before the foreclosure sale and valued the Arbor Lake property at $3.1 million. In turn, Enterprise Bank used that figure as the basis for its “fair value” bid at the sale. O'Bryan, Arbor Lake's appraiser, placed a fair value of $4.5 million on the property.
At the confirmation hearing, the district court faced a prototypical battle of experts. Both appraisers outlined their respective methods for valuing the property. Each of them separately valued the undeveloped commercial land, the undeveloped residential land, and the developed residential lots and then added those values to arrive at an overall dollar amount. Arbor Lake was particularly aggressive in criticizing Craig's approach to pricing the developed lots. Craig was thoroughly cross-examined about discrepancies between the comparable parcels he used to assess the fair value of the Arbor Lake lots and about other parcels that arguably could be considered more appropriate. O'Bryan was similarly challenged on cross-examination. Both experts parried in much the same way. They suggested the mix of commercial and residential and developed and undeveloped tracts made the Arbor Lake property unusual. So they had to make professionally reasonable adjustments to the various comparables used in their appraisals. At the end of the battle, each of the experts could be considered nicked-up. At the same time, each had defended his methodology against rigorous testing in front of the district court.
In a lengthy written decision, the district court carefully detailed its assessment of the testimony from Craig and O'Bryan. On the whole, the district court found materially greater fault with O'Bryan's approach and discounted his testimony and conclusions in favor of Craig's. The district court outlined particular problems with O'Bryan's appraisal. We needn't catalogue those here. By way of example, the district court found that some of the comparable property O'Bryan relied on to be quite distant from the Arbor Lake development and otherwise distinguishable in significant ways not readily justifying adjustments to make them suitable counterparts for valuation. The district court also found O'Bryan's predication of rapid acceleration in the real estate market—buoying sale prices and land values—to be overly optimistic. The district court didn't see anywhere near the same magnitude of difficulties in Craig's appraisal and concluded it to be realistic. In turn, the district court held that Enterprise Bank's bid price reflected a fair value for the Arbor Lake property, as supported by the appraisal.
We can find no abuse of discretion in the district court's determination. The district court understood and applied the correct legal principles, citing its authority under K.S.A. 60–2415, and the broad test for fair value in the Olathe Bank case. The hearing record contains substantial factual support for the district court's misgivings about Arbor Lake's appraisal of the property, though we recognize aspects of Enterprise Bank's appraisal were open to challenge, as well. Finally, then, we are left to ask if no other judicial officer would come to the same conclusion. We comfortably say that could not be so. Ultimately, given the record evidence, we would be hard pressed to find an abuse of discretion had the district court opted for either expert's conclusions. See McMahan v. Toto, 256 F.3d 1120, 1129 (11th Cir.2001) (“[U]nder an abuse of discretion standard there will be circumstances in which we would affirm the district court whichever way it went.”); Kleban v. Eghrari–Sabet, 174 Md.App. 60, 101–02, 920 A.2d 606 (2007).
We, therefore, affirm the district court's confirmation of the foreclosure sale on the bid price of $3.1 million and its entry of a deficiency judgment of about $2.2 million against Arbor Lake.
Crediting Proceeds of Foreclosure Sale (Nos. 110, 501 and 110, 502)
We now turn to the companion case on appeal in which Enterprise Bank has sought to collect from the guarantors. The narrow issue focuses on how the proceeds from the foreclosure sale should be credited against the guarantors' obligations. A few background facts are in order. First National Bank filed an action in Johnson County District Court against the guarantors to enforce their obligations under the guaranty agreements they had signed. Arbor Lake was not sued in that action. Enterprise Bank carried on the litigation when it succeeded First National Bank. The suit against the guarantors proceeded independently of the collection and foreclosure suit against Arbor Lake, although both were handled by the same district court judge. The district court entered a judgment against the guarantors in March 2012 for $4.9 million, plus interest, apportioned based on the percentage of the Arbor Lake indebtedness each agreed to guarantee. The guarantors appealed the judgment on an array of grounds. Another panel of this court turned back those arguments and affirmed. Enterprise Bank v. Prieb, No. 107,448, 2013 WL 1859202 (2013) (unpublished opinion) (Prieb I ).
After the district court confirmed the foreclosure sale of the Arbor Lake property, Enterprise Bank and the guarantors filed their respective proffers in this case, under Kansas Supreme Court Rule 186 (2013 Kan. Ct. R. Annot. 286), stating the amount necessary to satisfy the judgment entered against the guarantors as of a specified date. In making those proffers, each side had to set forth how the proceeds from the foreclosure sale should be credited against the guarantors' liability as established in the judgment against them. Enterprise Bank and the guarantors didn't agree, and each objected to the other's proffer. When that happens, Rule 186(e) requires the district court to “settle the amount to satisfy the judgment.” Here, the disagreement prompted detailed briefing and an extended oral argument to the district court.
The district court accepted Enterprise Bank's proffer that credited nothing to the guarantors for the $3.1 million the bank realized from the sale of the Arbor Lake property. In effect, Enterprise Bank and the district court ignored that recovery because it didn't satisfy in full the judgment against Arbor Lake. The guarantors have appealed that ruling.
Enterprise Bank took successive judgments—first against the guarantors and then against Arbor Lake—to recover the amount due on the defaulted loan. The judgments are in different amounts primarily because interest continued to accrue on the defaulted principle. So Enterprise Bank obtained a $4.9 million judgment against the guarantors and then, about 8 months later, a $5.3 million judgment against Arbor Lake. At that point, both the guarantors and Arbor Lake were judgment debtors of Enterprise Bank.
The general rule governing judgments provides that a payment to a judgment creditor reduces the liability of anyone legally obligated for the loss. Restatement (Second) of Judgments § 50(2) (1998) (“Any consideration received by the judgment creditor in payment of the judgment debtor's obligation discharges, to the extent of the amount of value received, the liability to the judgment creditor of all other persons liable for the loss.”); Scavenger Sale Investors, L.P. v. Bryant, 288 F.3d 309, 313 (7th Cir.2002) (“A judgment debtor always receives credit for any sums paid by him or third parties.”) (citing Restatement); In re Haugen, 998 F.2d 1442, 1451 (8th Cir.1993) ; see Conklin v. C.I.R., 897 F.2d 1027, 1029 (10th Cir.1990). The Kansas courts have recognized the rule with respect to joint tortfeasors, a context in which it more commonly comes into play. See York v. InTrust Bank, N.A., 265 Kan. 271, 311, 962 P.2d 405 (1998). The Restatement simply declares the principle this way: “A payment by one person liable for a loss reduces pro tanto the amount that the injured person is entitled to receive from other persons liable for the loss.” Restatement (Second) of Judgments § 50, comment c. And it applies when the harmed party has obtained multiple judgments against different defendants. See Restatement (Second) of Judgments § 50, ill. 3, 4.
The rule would call for treating the $3.1 million Enterprise Bank received in the foreclosure sale as a partial satisfaction of the judgment against the guarantors. The net proceeds of the sale (an amount we gather to be some less than $3.1 million because of taxes and other costs) would be credited against that judgment (adjusted upward for additional interest and downward for any other payments to Enterprise Bank in partial satisfaction of the guarantors' obligation). Using the available round numbers, the unsatisfied portion of the judgment would be $1.8 million, reflecting a credit of $3.1 million against the $4.9 million judgment. The guarantors would remain liable for the unsatisfied portion of the judgment to the extent of the percentage for each set forth in the judgment.
We believe that is how the district court should have treated the foreclosure sale proceeds in resolving the dispute between Enterprise Bank and the guarantors in determining the amount necessary to satisfy the judgment. The district court erred in that respect.
We now review the substantive reasons the district court gave for not applying the accepted rule outlined in Restatement (Second) of Judgments § 50(2) and the arguments Enterprise Bank advances for why the district court was right. The district court concluded that the mandate rule precluded applying the proceeds of the foreclosure sale to the judgment entered against the guarantors. We disagree. The mandate rule requires that a lower court follow the mandate or directive of a higher court that has reviewed a case when it conducts further proceedings in that case. See K.S.A. 60–2106(c) ; State v. DuMars, 37 Kan.App.2d 600, Syl. ¶ 1, 154 P.3d 1120, rev. denied 284 Kan. 948 (2007). The district court apparently concluded that crediting the sale proceeds would somehow alter the judgment entered against the guarantors and affirmed on appeal in Prieb I. But that is incorrect. As we have indicated, crediting the proceeds results in a partial satisfaction of the judgment against the guarantors—not a change in the amount of the judgment itself The mandate in Prieb I and the original judgment would be unaffected. The guarantors simply would then be required to pay less to satisfy the judgment in full, just as they would if one of them made a payment to Enterprise Bank in partial satisfaction of the judgment.
The district court also indicated the guarantors should not receive any credit against the judgment Enterprise Bank took against them until the judgment against Arbor Lake has been fully satisfied. The district court reasoned that until then the bank would not receive a double recovery. But the result conflicts with the judgment rule we have recognized to be applicable. Enterprise Bank similarly argues it has obtained two distinct judgments for distinct wrongful conduct and, therefore, money received in partial satisfaction of one judgment should not be credited against the other judgment. The argument, however, fails to recognize that the bank suffered a single injury. As the borrower, Arbor Lake had a contractual obligation to repay the loan, and it indisputably breached its duty. Likewise, the guarantors had separately agreed to repay portions of the loan. And none of them did so, breaching their own contractual duties to Enterprise Bank. But the bank, as the result of those contractual breaches, incurred one economic harm or legal injury—the loss of the money it had loaned for the project. The bank did not suffer distinct legal injuries. In other words, the $4.9 million judgment against the guarantors and the $5.3 million judgment against Arbor Lake redressed the same loss and, thus, overlapped each other. In that situation, the judgment rule treats a partial satisfaction of one of the judgments as a partial satisfaction of the other, since they remedy the same economic loss.
There is also a certain form-over-substance quality to Enterprise Bank's position. The bank could have sued Arbor Lake and the guarantors in a single action based on their contractual defaults and the common issues of fact and law. In that instance, a single judgment would have been entered, and the proceeds from the foreclosure sale would have been credited against that judgment. We fail to see why Enterprise Bank ought to be able to thwart that result by bringing separate actions seeking relief for the same legal injury. The judgment rule curtails that sort of procedural manipulation.
Enterprise Bank also argues that terms of the guaranty agreements negate the judgment rule. The guaranties provide that the amount the guarantors owe will not be reduced by any money the bank receives from the sale of any collateral until the outstanding obligation has been satisfied. So if the guarantors were paying Enterprise Bank under the terms of their agreements, they would be obligated to contribute their percentage of the loan balance until the bank had been made whole. Here, however, the guarantors weren't paying based on their contractual agreement to do so. They breached that duty. Enterprise Bank took a judgment against them because of that breach and has sought to enforce or collect on the judgment. The bank's argument misconstrues the legal effect of the judgment. The judgment supersedes and replaces the terms of the guaranty agreements in defining the legal relationship between Enterprise Bank and the guarantors. And nothing in the judgment negates the judgment rule.
Well-settled law recognizes that a judgment on a breached contract thereafter defines the parties' legal rights. The principle is commonly referred to as the merger doctrine. See In re A & P Diversified Technologies Realty, Inc., 467 F.3d 337, 341 (3d Cir.2006) (“Under the merger doctrine, a contract is deemed to merge with the judgment, thereby depriving a plaintiff from being able to assert claims based on the terms and provisions of the contractual instrument.”); Jack Henry & Associates, Inc. v. BSC, Inc., 753 F.Supp.2d 665, 670 (E.D.Ky.2010) (recognizing merger rule); Accubid v. Kennedy, 188 Md.App. 214, 232–33, 981 A.2d 727 (2009) (“Maryland's appellate courts have recognized that, under the rule of merger, ‘a simple contract is merged in a judgment or decree rendered upon it, and that all its powers to sustain rights and enforce liabilities terminated in the judgment or decree ....‘ ”) (quoting Jackson v. Wilson, 76 Md. 567, 571, 25 A. 980 [1893] ); American Nat. Bank v. Medved, 281 Neb. 799, 807, 801 N.W.2d 230 (2011) (“As a general rule, ‘[w]hen a claim on a contract is reduced to judgment, the contract between the parties is voluntarily surrendered and canceled by merger in the judgment and ceases to exist.’ ”); Production Credit Ass'n v. Laufenberg, 143 Wis.2d 200, 205, 420 N.W.2d 778 (Wis.App.1988) (“By operation of merger, upon entry of judgment, the contract sued upon loses all of its vitality and ceases to bind the parties to its execution.”). The term “merger doctrine” has been applied to other legal principles, as well. See Black's Law Dictionary 1138 (10th ed.2014). Neither the parties nor the district court discovered Kansas appellate decisions discussing this iteration of the merger rule. We have been no more successful. The district court surveyed authority from other jurisdictions and found the rule to be sound. Nobody in this case argues otherwise. We see no reason to reject the merger doctrine.[*]
[*]In some of its arguments, Enterprise Bank says the merger doctrine is simply a form of issue or claim preclusion that recognizes any causes of action a party might have against another party merge into a judgment entered in an action arising from a particular factual circumstance. The doctrine then prevents the injured party from bringing another action based on the same injury. The bank cites Taylor v. Sturgell, 553 U.S. 880, 892 n.5, 128 S .-Ct 2161, 171 L.Ed.2d 155 (2008), and State v. Ragland, 171 Kan. 530, 533, 233 P.2d 740 (1951), as illustrative of that merger doctrine. In that sense, however, the term is simply an antiquated one for res judicata. See Black's Law Dictionary 1504 (10th ed.2014) (defining res judicata and noting the concept has been known as “merger”). But the merger doctrine in this case is a different legal principle. See Black's Law Dictionary 1138 (10th ed.2014) (defining “merger,” especially in the sense outlined in use no. 10). In this respect, Enterprise Bank's argument rest either on a mistake or a misdirection.
Applied here, the merger doctrine precludes Enterprise Bank from using the terms of the guaranty agreements to modify or construe the judgment against the guarantors. In resolving a dispute over computing interest on a judgment, the Illinois Court of Appeals succinctly explained the merger doctrine's effect: “It is axiomatic that a contract governs pre-judgment interest while, once the contractual debt is merged into a judgment, the contract ceases to exist and the rate of interest is thereafter controlled by statute.” Shields v. State Emp. Retirement System, 363 Ill.App.3d 999, 1009, 844 N.E.2d 438 (2006). The same is true here. What Enterprise Bank now has is a $4.9 million judgment against the guarantors subject to the judgment rule, requiring they be credited with money the bank has received in satisfaction of the economic loss the judgment remedies. As we have explained, that includes the proceeds from the sale of the Arbor Lake property.
In addition, the judgment against the guarantors caps their liability to Enterprise Bank. That is, as the judgment reflects, each guarantor is liable for a percentage of that judgment corresponding to the percentage of the loan to Arbor Lake the guarantor agreed to repay. The judgment against the guarantors cuts off their liability for any interest accruing on the judgment against Arbor Lake and for any attorney fees Enterprise Bank incurred in efforts to enforce the judgment against Arbor Lake.
Courts recognize that in commercial contracts, such as between the bank and the guarantors, sophisticated parties can modify the effects of the merger doctrine or agree that it not apply at all. In re Riebesell, 586 F.3d 782, 794–95 (10th Cir.2009) ; In re A & P Diversified Technologies Realty, Inc., 467 F.3d at 343 ; Jack Henry & Associates, Inc., 753 F.Supp.2d at 670–71 (parties may “contract around” merger rule); Accubid, 188 Md.App. at 237. Enterprise Bank does not argue that the agreements with the guarantors include language limiting or waiving the doctrine.
But Enterprise Bank offers an alternative argument suggesting the court may review the pleadings in this case to construe the rights and obligations created in the judgment. In turn, the bank contends the guaranty agreements should be considered part of the pleadings. We are unpersuaded. The pleadings in a civil case consist of petitions and answers to claims. See K.S.A. 60–207(a). Although the bank attached the guaranty agreements to its petition, that doesn't make them pleadings. Even if they were considered part of the petition, the bank's broader premise is mistaken. Enterprise Bank would fashion a rule that then incorporates wholesale the terms and conditions of a contract into a final judgment remedying a breach of the contract—a proposition entirely antagonistic to the merger doctrine. As authority, Enterprise Bank cites Rice v. Vaughn, 107 Kan. 598, 193 P. 176 (1920), and Investment Co. v. Wyandotte County, 86 Kan. 708, 121 P. 1097 (1912). Those cases recognize no such proposition and might be fairly characterized as unusual in light of modern litigation practices.
In Rice, an ejectment action, the seller of land sought a court order removing the buyer from the property for failing to make a payment due under the contract of sale. On appeal, the court looked at the pleadings to fashion an equitable remedy under which the buyer would have to tender payment by a specified date, and if he failed to do so, an order of ejectment would become effective. But that doesn't advance Enterprise Bank's position that the terms of the guaranties were incorporated into and became part of the judgment entered against the guarantors and could be enforced as part of the judgment.
The Investment Co. case seems even farther afield. There, the plaintiff obtained a judgment against Wyandotte County. It then filed a mandamus action, which was the proceeding on appeal, to compel the county to impose a tax levy to pay the judgment. (Without reviewing century-old municipal government law, we surmise that apparently was how a party forced an unwilling city or county to pay a judgment back then.) The court specifically rejected the county's argument that it could examine the legal validity of the underlying judgment, effectively collaterally attacking the judgment. But the court held that it could review the judgment and the pleadings to determine the nature of the claim and whether it fell within certain limitations on the county's taxing authority for the year. So the case does nothing to help Enterprise Bank with its argument that the terms of the guaranties were or should be incorporated into the judgment against the guarantors.
In sum, the district court erred in not crediting the net proceeds from the sale of the Arbor Lake property as a partial satisfaction of the judgment against the guarantors. The amount should have been applied to the $4.9 million judgment before determining each guarantor's liability based on the percentage of the loan guaranteed. On remand, the district court should recalculate the Rule 186 satisfaction of judgment amounts in that way, assuming the parties still want such calculations. In addition, the parties and the district court should address and resolve the application of the merger doctrine in determining the rate of postjudgment interest and the guarantors' liability for Enterprise Bank's attorney fees incurred after entry of the judgment. See Shields, 363 Ill.App.3d at 1009 (postjudgment interest); Accubid, 188 Md.App. at 238–39 (attorney fees).
Enterprise Bank's Motions for Attorney Fees on Appeal
After oral argument, Enterprise Bank timely filed motions in both cases to recover its attorney fees and expenses on appeal under Kansas Supreme Court Rule 7.07(b) (2013 Kan. Ct. R. Annot. 67). The motions touched off a squall of submissions culminating in sur-replies. Rule 7.07(b) permits a party to recover attorney fees on appeal if the district court had the authority to award them. Enterprise Bank argues that in each of the cases the loan documents required Arbor Lake and the guarantors to pay attorney fees and costs associated with collection of the debt. Arbor Lake and the guarantors counter that the merger doctrine negates that contract language, precluding an award of attorney fees to enforce the judgments. They also challenge Enterprise Bank's requests as excessive. Because the merger doctrine extinguishes Enterprise Bank's contractual right to recover attorney fees, we deny the motions. We do not consider the alternative arguments.
As to Arbor Lake, Enterprise Bank cites language from the loan and the mortgage to support its right to postjudgment attorney fees. But those provisions specifically address attorney fees or other costs of enforcing the agreement—not later judgments. The same is true of the terms Enterprise Bank relies on in the guaranties to impose liability on the guarantors. That sort of terminology referring to the contracts is insufficient to create a right to recover attorney fees for enforcement of judgments. See In re A & P Diversified Technologies Realty, Inc., 467 F.3d at 343 ; Accubid, 188 Md.App. at 237. Courts will enforce contract provisions that either explicitly permit recovery of postjudgment attorney fees or more broadly abrogate the merger doctrine. Accubid, 188 Md.App. at 237. Enterprise Bank points to no such provisions applicable to Arbor Lake or the guarantors.
Enterprise Bank also contends the consent decree entered against Arbor Lake allows it to recover attorney fees for enforcing that judgment. We don't read the decree that way. A consent decree functionally reflects an agreed settlement of a legal dispute incorporated into a court order. In the decree, Enterprise Bank and Arbor Lake agreed that Arbor Lake would be responsible for the bank's attorney fees to that point, and the amount is included in the judgment. But nothing in the decree covers payment of postjudgment attorney fees. In contrast, however, the consent decree does expressly incorporate the interest rate on defaulted payments under the loan agreement as the postjudgment interest rate. That is a clear, enforceable example of language negating the impact of the merger rule. The parties could have—but apparently didn't—negotiate comparable treatment of postjudgment attorney fees.
Enterprise Bank contends Kansas courts have refused to apply the merger doctrine to preclude recovery of attorney fees for postjudgment collection efforts in contract cases. The Bank misconstrues the authority it cites. For example, in Moritz Implement Co. v. Matthews, 265 Kan. 179, 190, 959 P.2d 886 (1998), the court indicated the merger doctrine didn't prevent an award of attorney fees to a creditor for obtaining a judgment in a foreclosure action, as provided in the promissory note. Here, Enterprise Bank seeks attorney fees not for obtaining the judgment against the guarantors—but for enforcing the judgment, to which the merger doctrine does apply. The bank's reliance on In re Marriage of Ormsbee, 39 Kan.App.2d 715, 719, 186 P.3d 806 (2008), and Magstadtova v. Magstadt, 3 Kan.App.2d 1091, 1096–97, 77 P.3d 1283 (2003), is more remote still. Those cases address the district court's authority to grant a statutory award of attorney fees following entry of judgment. The courts recognized that the statutorily authorized attorney fees reflected “collateral matters” that could be considered after a judgment on the merits. 31 Kan.App.2d at 1096–97. The cases have nothing to say about the merger doctrine in breach of contract cases and don't even mention it. Under federal fee-shifting statutes enforcing laws advancing recognized public policies or interests, a prevailing plaintiff may recover attorney fees expended to enforce a favorable judgment. See Shaw v. AAA Engineering & Drafting, Inc., 213 F.3d 538, 544–45 (10th Cir.2000) (enforcement of judgment under False Claim Act); Sheet Metal Wkrs. H. & W. Tr. Fund v. Big D Serv., 876 F.2d 852, 854 (10th Cir.1989) (enforcement of judgment for employee benefit contributions under Employee Retirement Income Security Act [ERISA] ); Balark v. Curtin, 655 F.2d 798, 802–03 (7th Cir.1981) (enforcement of judgment in civil rights claim under 42 U.S.C. § 1983 ). Cases of that kind cannot be reasonably extrapolated to preclude the merger doctrine in actions arising from private contractual agreements when those agreements furnish the only possible basis for attorney fee awards.
Enterprise Bank also notes that the panel hearing Prieb I awarded the bank the attorney fees and costs it incurred on appeal and suggests the ruling requires a like result here. We disagree. First, in opposition to that attorney fee request, the guarantors did not raise the merger doctrine, so the panel neither considered nor ruled on its applicability. That alone legally distinguishes the award and renders it inapposite. The panel's decision to grant Enterprise Bank's motion in Prieb I cannot be taken as some authority that the merger doctrine must be inapplicable now. We suppose the merger doctrine may have been inapplicable in Prieb /because that appeal simply continued the guarantors' resistance to Enterprise Bank's efforts to obtain an enforceable judgment to remedy breaches of the guaranty agreements. We don't presume to decide the point. Regardless, Prieb /had nothing to do with Enterprise Bank's later efforts to enforce the judgment—a situation to which the merger doctrine does apply.
We deny Enterprise Bank's motions for attorney fees and expenses on appeal because it has failed to show any basis on which the district court could have awarded attorney fees for efforts to enforce the judgment against the guarantors. Rule 7.07(b), therefore, precludes recovery of attorney fees.
Conclusion
We affirm the district court's confirmation of the foreclosure sale. We reverse the district court's refusal to credit the proceeds from that sale in partial satisfaction of the judgment entered against the guarantors and, therefore, remand for further proceedings consistent with the directions in this decision. Finally, we deny Enterprise Bank's motions for attorney fees and expenses on appeal.
Affirmed in part, reversed in part, and remanded for further proceedings.