Opinion
No. 106,854.
2013-02-8
D. LIGHTNER FARMS, INC., Appellant, v. Gerald LIGHTNER, Kyle Lightner, and, Vivian Wehkamp, Appellees.
Appeal from Finney District Court; Wendel W. Wurst, Judge. Jeffery L. Carmichael and Derek L. Park, of Morris, Laing, Evans, Brock & Kennedy, Chartered, of Wichita, for appellant. James D. Oliver, of Foulston Siefkin LLP, of Overland Park, Daniel H. Diepenbrock, of Law Office of Daniel H. Diepenbrock, of Liberal, and John M. Lindner, of Lindner & Marquez, of Garden City, for appellees.
Appeal from Finney District Court; Wendel W. Wurst, Judge.
Jeffery L. Carmichael and Derek L. Park, of Morris, Laing, Evans, Brock & Kennedy, Chartered, of Wichita, for appellant. James D. Oliver, of Foulston Siefkin LLP, of Overland Park, Daniel H. Diepenbrock, of Law Office of Daniel H. Diepenbrock, of Liberal, and John M. Lindner, of Lindner & Marquez, of Garden City, for appellees.
Before MALONE, C.J., HILL and BRUNS, JJ.
MEMORANDUM OPINION
PER CURIAM.
D. Lightner Farms, Inc., (the Corporation) filed a lawsuit against three of its shareholders, Gerald Lightner, Kyle Lightner, and Vivian Wehkamp (collectively the defendants). Specifically, the Corporation alleged that the some or all of the defendants—who are former officers and directors of the Corporation—breached their fiduciary duties, engaged in self-dealing, converted corporate assets, and breached a farm lease. In response, the defendants asserted a counterclaim for repayment of loans made to the Corporation and for recovery of other money allegedly owed to them by the Corporation. On appeal, the Corporation contends that the district court erred in finding that it failed to give statutorily required notice to terminate the farm lease and that it was obligated to repay loans made by Gerald, Kyle, and Vivian. Because we conclude that the district court did not err, we affirm the judgment.
Facts
The Corporation, which Dale Lightner and his wife Jessie Lightner formed in 1973, owned approximately 4500 acres of farmland. After Dale and Jessie were killed in an automobile accident in 1980, their stock in the Corporation was divided among their eight children. This distribution resulted in the following allocation: Lloyd Lightner—225.5 shares, Gerald Lightner—132.5 shares, Robert Lightner—132.5 shares, Phyllis Rush—102.5 shares, Vivian Wehkamp—102.5 shares, Edith Lightner—102.5 shares, Kyle Lightner—102.5 shares, and Irma Lightner–Reimer—102.5 shares.
Since the death of their parents, the relationship between the Lightner siblings has been both contentious and litigious. And, over the years, the Lightner family has formed various alliances. From 1980 to 1988, Lloyd Lightner served as president of the Corporation. In 1988, the shareholders removed Lloyd from office and elected Gerald Lightner as president. It appears that the Corporation followed few, if any, corporate formalities during Lloyd's tenure as president. But the shareholders subsequently ratified “all lawful acts of the corporation from its commencement in 1973 until August 31, 1988.” Similarly, each year from 1999 through 2007 the shareholders passed a resolution ratifying the actions taken by the officers and directors the previous year.
In 2005, after a vote, Irma replaced Gerald as president. At the same time, Kyle Lightner was removed as vice-president and Vivian Wehkamp was removed as secretary treasurer. At the time Irma became president, she was a party to a lawsuit filed against Gerald and Kyle alleging that they had engaged in breach of fiduciary duties and self-dealing as officers and directors of the Corporation. Ultimately, this court determined that Irma and two other members of the Lightner family who had intervened in the lawsuit did not have standing as individual shareholders to pursue the derivative action. See Lightner v. Lightner, 46 Kan.App.2d 540, 555, 266 P.3d 539 (2011).
For many years, Gerald and Kyle farmed land owned by the Corporation. From 1980 until 1993, Lloyd, Gerald, and Kyle fanned the land as partners. But in 1993, the farm lease was assigned to Gerald and Kyle as individuals. They also leased the farming, irrigation, and livestock equipment owned by the Corporation. On May 20, 1999, Gerald and Kyle entered into a 6–year farm and equipment lease. And in 2005, they entered into a new farm and equipment lease for a term to expire on March 1, 2011. Under the lease, Gerald and Kyle were to divide the crops and expenses with the Corporation on a 2/3 tenant and 1/3 landlord basis.
For a number of years after 1980, the shareholders loaned money to the Corporation so it would have adequate cash flow and liquidity. The Corporation's accountant kept track of the loans, and the Corporation would write each shareholder a check for the loan principal and interest at the end of each fiscal year. In turn, the shareholders would loan all or most of the principal back to the Corporation. At some point, the shareholders agreed to keep only their accrued interest plus 10% of the principal balance and loan the remainder back to the Corporation.
At the end of 1988, Lloyd Lightner received a check in excess of $250,000 but refused to loan the agreed amount back to the Corporation. Subsequently, the Corporation filed a lawsuit against Lloyd for breach of an oral agreement, which resulted in an order that Lloyd loan the money back to the Corporation. Moreover, the remaining shareholders reduced the shareholder loan withdrawal agreement to writing and signed it. The agreement stated that the shareholders would give the Corporation written notice if they wanted payment on their loans by March 1 of each year. The agreement also limited the annual payments to 10% of the loan principal plus interest.
The Corporation documented the shareholder loans on the corporate books, financial statements, and tax returns each year. In addition, the Corporation's accountant began keeping a ledger in 2000 in which she kept track of accrued interest, payments made, loan advances, and balances due on each shareholder loan. Furthermore, the Corporation executed promissory notes in 2004, which documented the Corporation's obligation for repayment of the principal amount of each loan together with interest at 5% per annum.
A review of the record reflects that the Corporation paid Edith's shareholder loan in full to help her with medical expenses. Similarly, the Corporation made annual payments to Irma for several years to assist her with college expenses. As a result, Irma's loan balance reduced from $33,597.04 in 1999 to $3,597.04 in 2005. And the Corporation agreed to cancel Irma's remaining loan indebtedness when she sold her stock to the Corporation in 2009. Likewise, the Corporation made several annual payments to Robert, which reduced its loan indebtedness to him from $55,213.93 in 1999 to $24,692.54 in 2005.
On January 27, 2006, Gerald, Kyle, Vivian, and Phyllis sent a written demand to the Corporation for payment on their loans. Gerald and Kyle subsequently withheld the crops and/or income owed to the Corporation under the farm lease in July 2006 and November 2006. In response, the Corporation placed a lien on the entire crop harvested from the corporate farmland and advised Gerald and Kyle that the lease—which was not set to expire until March 1, 2011—would be terminated effective March 1, 2007.
The Corporation filed the present lawsuit against Gerald, Kyle, and Vivian on November 29, 2006. Specifically, the Corporation asserted claims for breach of fiduciary duty, conversion of corporate assets, self dealing, and material breach of a lease agreement. The Corporation also requested that the court declare the farm lease with Gerald and Kyle to be void. The defendants responded by filing an answer and counterclaim, seeking repayment of the amounts they had loaned to the Corporation and other monetary damages.
On December 8, 2006, the Corporation sent a Notice of Termination of Lease to Gerald and Kyle. The notice claimed to terminate the farm and equipment lease as of March 1, 2007. Specifically, the notice alleged that Gerald and Kyle's had materially breached of the terms of the lease by failing to pay rent to the Corporation. It appears from the record that the notice was personally served on Gerald and Kyle on January 22, 2007.
On April 16, 2007, the district court entered a journal entry addressing various motions filed by the parties. The district court denied a motion for judgment on the pleadings filed by the Corporation because resolution of the issues presented involved matters outside the pleadings. The district court also refused to grant the Corporation's motion for permission to plant corn on the corporate farmland to the exclusion of Gerald and Kyle because it had not met the statutory requirements for eviction. Subsequently, the Corporation filed a motion to amend its petition to include a claim for ejectment against Gerald and Kyle. The district court granted the motion to amend, and the Corporation filed an amended petition on May 23, 2007.
On September 24, 2007, the district court entered a journal entry on a motion for partial summary judgment filed by the Corporation. The district court determined that although Gerald and Kyle breached the farm lease agreement, the Corporation could not eject them from the corporate farmland because the Corporation failed to comply with the notice requirements set forth in K.S.A. 58–2507. The district court denied a motion for reconsideration, and this court denied the Corporation's motion for permission to docket an interlocutory appeal regarding the issue of ejection.
On February 19, 2009, Judge Philip C. Vieux recused, and the case was reassigned to Judge Wendel W. Wurst. Over the next 2 years, Judge Wurst ruled on various motions presented by the parties. But the parties do not challenge any of these rulings in this appeal. On September 8, 2010, the Corporation once again asked the district court to eject Gerald and Kyle from the corporate farmland. In denying the motion, Judge Wurst found that the he could not decide the issue without first receiving evidence at trial.
Following a bifurcated bench trial held in March and August 2011, Judge Wurst entered a comprehensive 44–page journal entry on August 29, 2011. After weighing the conflicting evidence and considering the legal arguments presented by the parties, Judge Wurst awarded the Corporation a $41,621 judgment against Gerald and Kyle jointly and severally. Judge Wurst also awarded Gerald and Kyle a $24,629.99 judgment against the Corporation. Further, Judge Wurst awarded the defendants judgment for the principal and interest due on the loans they made to the Corporation in the following amounts: Gerald—$404,791.86; Vivian—$241,976.91; Kyle—$273,675.55. Although Judge Wurst later filed a separate journal entry dealing with disputes between the parties arising after the expiration of the farm lease on March 1, 2011, none of those issues are involved in this appeal.
Analysis
Issues Presented
There are two primary issues presented on appeal. First, whether the district court wrongfully determined that the Corporation's notice purportedly terminating the farm lease with Gerald and Kyle Lightner was defective. Second, whether the district court wrongfully determined that the Corporation was obligated to repay loans made to it by Gerald Lightner, Kyle Lightner, and Vivian Wehkamp. Notice of Termination
At the outset, we note that Gerald and Kyle Lightner assert that the issue regarding the notice of termination is moot because the farm lease expired—and the corporate farmland was surrendered—on March 1, 2011. But we believe it is appropriate to consider the issue on appeal because it potentially has an impact on the amount of damages awarded by the district court. Even though the Corporation is now in possession of the farmland, if the lease terminated before March 1, 2011, Gerald and Kyle may be liable for damages in trespass. Thus, we will consider this issue on the merits.
Because the farm lease entered into by the Corporation with Gerald and Kyle was for a term longer than 3 months, the provisions of K.S.A. 58–2507 apply. Specifically, K.S.A. 58–2507 states: “If a tenant for a period of three months or longer neglect or refuse to pay rent when due, ten days' notice in writing to quit shall determine the lease, unless such rent be paid before the expiration of said ten days.”
Here, the notice of termination of the lease sent by the Corporation to Gerald and Kyle on December 8, 2006, stated:
“In accordance with the statutory requirements of the state of Kansas which govern the termination of a farming lease, please be advised that D. Lightner Farms, Inc. as landlord and party to the lease executed May 20, 2004[,] is advising you of the termination of that lease effective March 1, 2007. This termination is due to your material breach of the terms of the lease which occurred when you interfered with the delivery to D. Lightner Farms, Inc. of the 1/3 portion of the proceeds of the harvested crops as rent for the land leased to you.”
The district court concluded that the language used by the Corporation in the notice of termination was not “by any stretch of the imagination sufficient to satisfy the statutory requirement for the notice as set forth in K.S.A. 58–2507.” We agree.
It is undisputed that the purpose of K.S.A. 58–2507 is to give a tenant an opportunity to cure his or her default within 10 days from the date the notice is served. The Corporation acknowledged this in its brief and at oral argument. Furthermore, the plain and unambiguous language of the statute makes this purpose clear. See O'Brien v. Leegin Creative Leather Products, Inc., 294 Kan. 318, 331, 277 P.3d 1062 (2012) (stating that courts do not need to resort to statutory construction when a statute is plain and unambiguous).
In support of its argument that the notice of termination was sufficient to comply with the provisions of K.S.A. 58–2507, the Corporation cites Norris v. McKee, 102 Kan. 63, 169 P. 201 (1917) and Douglass v. Parker, 32 Kan. 593, 5 P. 178 (1884). But neither of these cases state that a landlord does not have to inform a tenant what to do to cure an alleged default. Likewise, neither of these cases find that a landlord does not have to tell a tenant that he or she only has 10 days to cure an alleged default.
To substantially comply with a statute, there must be compliance with the essential matters necessary to assure that every reasonable objective of the statute is fulfilled. See Dodge City Implement, Inc. v. Board of Barber County Comm'rs, 288 Kan. 619, 639, 205 P.3d 1265 (2009) (quoting Orr v. Heiman, 270 Kan. 109, 113, 12 P .3d 387 [2000] ). In the present case, the notice of termination does not even mention K.S.A. 58–2507. Likewise, it does not state that the tenants have a right to cure the alleged default, it does not state the amount to be paid to cure the default, and it does not state the length of time the tenants have to cure. Accordingly, we conclude that the Corporation did not substantially comply with the essential matters necessary to assure the reasonable objectives of K .S.A. 58–2507. Repayment of Loans to Corporation
The Corporation contends that the district court erred in ordering repayment of loans made to it by Gerald, Kyle, and Vivian. In fact, the Corporation argues that Gerald, Kyle, and Vivian “have shown no evidence to indicate that the Corporation or Board of Directors intended the transactions ... to be loans instead of capital contributions.” We disagree.
We review the district court's findings of fact to determine if they are supported by substantial competent evidence and are sufficient to support its conclusions of law. See Hodges v. Johnson, 288 Kan. 56, 65, 199 P.3d 1251 (2009). Substantial competent evidence is such legal and relevant evidence as a reasonable person might regard as sufficient to support a conclusion. 288 Kan. at 65. Furthermore, we have unlimited review of conclusions of law. See American Special Risk Management Corp. v. Cahow, 286 Kan. 1134, 1141, 192 P.3d 614 (2008).
In the present case, the district court determined:
“1. The repayment of the loans to the Defendant shareholders is a legitimate obligation of the corporation.
“2. The existence and history of loans to the corporation by family member shareholders and heirs is amply evidenced by the testimony of all of the shareholders and accountant Beverly Messerly to the effect that monies received from life insurance, their parents['] wrongful death settlement, and estate distributions were regularly loaned to the corporation. Review of the Dale Lightner probate file accounting reflects that each heir received approximately $120,000 in distributions between 1981 and 1995.
“3. No one contends that the loans to the corporation were not made, although there is some criticism as to the manner in which they were documented. Beverly Messerly, accountant for Dale and Jessie Lightner, their estates, and Dale Lightner Farms, Inc., between the years 1976 and 1998 provides reliable and credible testimony as to the existence of the loans and as to the manner in which each shareholder's loan was annually updated, calculated, and documented through the ‘check swapping’ practice whereby the corporation would pay the loan in full in May of each year and the shareholder would create a new loan by loaning back to the corporation all or part of the loan which was paid off. This practice appears to have continued through 1998.
“4. Defendants Kyle Lightner and Vivian Lightner were able to produce good records in the form of canceled checks and deposit slips establishing actual numbers for monies loaned to the corporation and periodically repaid from the corporation pursuant to the ‘check swapping’ practice.
“5. When Lloyd Lightner failed to follow the unwritten understanding that each shareholder would make a new loan to the corporation for all or a substantial part of the loan annually repaid by the corporation in 1998, each of the seven brothers and sisters (shareholders/related parties) excepting only Lloyd, signed the December 28, 1989, written agreement as a creditor of D. Lightner Farms to limit their annual principal draw down to 10% of the total funds loaned to the corporation plus current accrued interest.
“6. Thereafter, between 1990 and 1999, the corporate financial statements prepared by the accountants from the corporate general ledger trace and document the shareholder and related party loan balances to the corporation for each of those years.
“7. When Susan Miller took over as accountant for the corporation in 1999, she prepared detailed ledgers which reflect all interest accrued, advances made, payments made, and corresponding balances for the shareholder loans through May 14, 2005. The interest payments made by the corporation on the loans which were made on monthly or annual bases, preclude application of the statute of frauds or statute of limitations to bar the corporate obligation to repay the loans.
“8. While it is acknowledged that the corporate bylaws provide that no loans or evidence of loans be issued unless authorized by the board of directors and that there was no specific authorization for the issuance of promissory notes signed by the president, the corporate minutes do reflect a duly authorized resolution ratifying the president's actions in issuing the promissory notes. Likewise, those notes are not without consideration.”
The district court then listed the amount of principal owed to Gerald, Kyle, and Vivian and determined that the Corporation owed each of them that amount plus interest at a rate of 5% per annum.
Based on our review of the record, we find substantial evidence upon which a reasonable factfinder could conclude that the shareholders—including Gerald, Kyle, and Vivian—made loans to the Corporation. Although the Corporation alleged that corporate formalities were not followed, there is evidence in the record that the shareholders ratified the officers and directors' actions. In particular, it appears from a review of the record that the shareholders passed a resolution ratifying the issuance of promissory notes for the amount loaned to the Corporation. Moreover, the record reveals that on December 28, 1989, each of the shareholders except Lloyd signed written agreement as creditors of the Corporation regarding repayment of the loans.
On appeal, the Corporation does nothing to refute the district court's findings of fact. As Gerald, Kyle, and Vivian point out, the Corporation does not support its argument with “a single citation to any evidence in the record disputing the court's findings or supporting [its] position that the moneys advanced by shareholders to the corporation were intended to be, or [were] ever treated by conduct or accounting or for tax purposes, as capital contributions for the purchase of stock.” The Corporation also fails to show that Gerald, Kyle, and Vivian were not entitled to repayment. Thus, we do not find the district court's decision regarding the repayment of the loans to be erroneous.
Affirmed.