Opinion
No. 02-4042-SAC
September 25, 2003
MEMORANDUM AND ORDER
The case comes before the court on the defendants' motion for partial summary judgment (Dk. 70) and the plaintiff's motion for summary judgment (Dk. 71). Asserting multiple theories of Kansas tort law, the plaintiff seeks to recover for a series of allegedly illicit transactions between the defendants and some of the plaintiff's employees. The parties agree that diversity jurisdiction exists and that Kansas law governs.
SUMMARY JUDGMENT STANDARDS
A court grants a motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure if a genuine issue of material fact does not exist and if the movant is entitled to judgment as a matter of law. The court is to determine "whether there is the need for a trial-whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). "Only disputes over facts that might affect the outcome of the suit under the governing law will . . . preclude summary judgment." Id. There are no genuine issues for trial if the record taken as a whole would not persuade a rational trier of fact to find for the nonmoving party. Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). More than a "disfavored procedural shortcut," summary judgment is an important procedure "designed 'to secure the just, speedy and inexpensive determination of every action.' Fed.R.Civ.P. 1." Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). The court must view the evidence of record and draw all reasonable inferences in the light most favorable to the nonmovant. Thomas v. International Business Machines, 48 F.3d 478, 484 (10th Cir. 1995).
The initial burden is with the movant to "point to those portions of the record that demonstrate an absence of a genuine issue of material fact given the relevant substantive law." Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir.), cert. denied, 506 U.S. 1013 (1992). If this burden is met, the nonmovant must "set forth specific facts' that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant." Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998). (citations omitted). "To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein." Id. A party relying on only conclusory allegations cannot defeat a properly supported motion for summary judgment. White v. York Intern. Corp., 45 F.3d 357, 363 (10th Cir. 1995). "It is well settled in this circuit that we can consider only admissible evidence in reviewing an order granting summary judgment." Gross v. Burggraf Constr. Co., 53 F.3d 1531, 1541 (10th Cir. 1995). The nonmovant's burden is more than a simple showing of "some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. "All material facts set forth in the statement of the movant shall be deemed admitted for the purpose of summary judgment unless specifically controverted by the statement of the opposing party." Vasquez v. Ybarra, 150 F. Supp.2d 1157, 1160 (D. Kan. 2001) (citing See Gullickson v. Southwest Airlines Pilots' Ass'n, 87 F.3d 1176, 1183 (10th Cir. 1996) (applying local rules of District of Utah)); see also D. Kan. Rule 56.1(b)(1).
STATEMENT OF UNCONTROVERTED FACTS
1. Dodson International Parts, Inc. ("Dodson, Inc.") is a privately owned Kansas corporation formed in 1984 to operate as an aviation salvage business buying and selling used and salvaged aircraft parts. Robert Lee Dodson, Jr. is the President of Dodson, Inc. At all times relevant to this lawsuit, Phil Altendorf was the President of Dodson, Inc.'s helicopter division, and Jeff Altendorf was Vice-President of the same division. Phil and Jeff are the stepbrothers of Robert Lee Dodson, Jr.
2. Prior to 1998 and through the dates of the transactions alleged in this lawsuit, MRP Enterprises, Inc. was doing business as Action Aircraft Parts and was a customer of Dodson, Inc. Mary and Jerry Hiatt were the officers and shareholders of MRP Enterprises, Inc. and owned 55% and 45% of the shares respectively. In 2002, MRP Enterprises, Inc. converted into Action Aircraft, L.P. (It is a controverted fact whether the plaintiff was on notice that the defendants were acting in a corporate capacity when they participated in the transactions.)
3. At all times relevant to the transactions alleged in this lawsuit, Mary and Jerry Hiatt knew that Phil and Jeff Altendorf were employees of Dodson, Inc. and that they were in charge of Dodson, Inc.'s helicopter division.
4. An important part of Dodson, Inc.'s business was to submit salvage bids on damaged or downed fixed wing aircraft and helicopters. In locating them, Dodson, Inc. relied primarily on invitations or solicitations from insurers or owners of the damaged or downed aircraft and helicopters. (The plaintiff has not come forth with evidence supported by a proper foundation to establish that the solicitations were "based upon the relationship, trust, and reputation that Dodson, Inc. had developed over the years.") It was Dodson, Inc.'s business practice that upon receipt of a bid solicitation or offer to sale it would send one or more employees, including Phil and Jeff Altendorf, to the site of the aircraft or helicopter. The employees would inspect and determine the condition of the aircraft or helicopter and advise Robert Lee Dodson, Jr. or others with the plaintiff whether to submit a bid and what amount to bid.
5. If its bid was accepted, Dodson then either salvaged the parts or had the parts repaired and restored before selling. (The record provided in the summary judgment filings do not establish as an uncontroverted fact that the plaintiff purchased, repaired and sold whole aircraft and/or helicopters as part of its business).
6. Action Aircraft Parts did not receive solicitations for bids or offers to sale from insurance companies. Nor was it in the business of buying complete aircraft.
7. As employees in charge of the plaintiff's helicopter division, Phil and Jeff Altendorf were responsible for locating and purchasing aircraft for the plaintiff, receiving solicitations or offers from insurers and owners and forwarding them to Dodson, Inc., and selling certain helicopter inventory of the plaintiff.
8. In 1998, while still employed by Dodson, Inc., Phil and Jeff Altendorf formed a limited liability company, Circle H, L.L.C., without the knowledge, approval, authorization or consent of Robert Lee Dodson, Jr. or the plaintiff. On their own and through Circle H, Phil and Jeff Altendorf entered into business transactions and/or relationships with the defendants.
C-20-R Engine
9. Phil Altendorf went to Korea to pick up a Bell 214B aircraft that the plaintiff had purchased from the insurance company, Lloyds of London. In retrieving the aircraft and its logbooks, he dealt with Jong Sub Lee, an employee of Hongick Air Service, which was the prior owner of the aircraft. While talking with Mr. Lee, Phil Altendorf learned that Hongick also had a C-20-R engine for sale.
10. Phil Altendorf testified that he negotiated and purchased the C-20-R engine for Circle H, that the defendants did not provide any of the purchase price, and that the defendants did not know of the engine until after he had completed the purchase.
11. By at least January of 1998, Phil Altendorf and/or Altendorf Investments and/or Circle H placed the engine on consignment with Action Aircraft Parts. When the engine was later sold, the net sale proceeds were split with 70% or $56,150.60 going to Phil Altendorf and/or his business entities and 30% or $30,914.26 going to Action Aircraft Parts.
12. At the time of this transaction, Mary and Jerry Hiatt knew Phil Altendorf was employed by the plaintiff and further knew his duties included the location of helicopters and parts for resale by the plaintiff.
C-30-P Engine-Serial No. 895671
13. No later than January 15, 1998, the plaintiff sold to Action Aircraft Parts a C-30-P helicopter engine for $50,000. Phil Altendorf was the employee who negotiated and completed the sale on behalf of the plaintiff.
14. When he learned in January of 1998 of this sale, Robert Dodson Jr. was upset with Phil Altendorf for selling the engine for only $50,000. Robert Dodson, Jr. believed the C-30-P engine was worth $75,000 when it was sold.
15. Action Aircraft Parts subsequently sold the engine for approximately $80,000 to Northern Turbine Services. Because Phil Altendorf had provided the defendants with the referral of Northern Turbine Services, the defendants paid him a commission of $15,000 on January 16, 1998. Only after the taking of Mary Hiatt's deposition did the plaintiff learn that the $15,000 paid to Phil Altendorf was a sales referral commission.
16. Robert Dodson Jr. avers that Northern Turbine Services was one of the plaintiff's existing customers prior to 1998. Phil Altendorf testified he had no recollection of ever selling anything to Northern Turbine Services but that he was not involved in sales and that he never personally handled any deals with Northern Turbine Services.
17. At the time of this transaction, Mary and Jerry Hiatt knew Phil Altendorf was employed by the plaintiff and further knew his duties included selling aircraft parts.
Bell 212 Transmission
18. In July of 1998, as evidenced by the defendant's purchase order, Action Aircraft Parts purchased a Bell 212 transmission from the plaintiff through Phil Altendorf. Based on the manual, Phil Altendorf considered the transmission to be scrap with little value and believed that $3,000 was a good selling price. In November of 1998, the plaintiff invoiced Action Aircraft Parts for $3,000 for the transmission.
19. After the defendants purchased the transmission, they had it inspected and tested by another company which determined that the transmission was repairable and not scrap. In August of 1998, Action Aircraft Parts sold the transmission to Eagle Copters for $90,000. Phil Altendorf and/or Circle H provided the defendants with the sales referral of Eagle Copters, and the defendants paid them commissions of $34,501.50 in August and $7,500 in November for this referral. (The plaintiff argues the Altendorfs knew the transmission was not scrap or they would not have been entitled to any commissions for the sales referral.)
20. At the time of this transaction, Mary and Jerry Hiatt knew Phil Altendorf was employed by the plaintiff and further knew his duties included selling aircraft parts.
C-47 Engine
21. The plaintiff purchased a Bell 407 helicopter from Interamericana de Seguros, S.A., for a total of $170,000 on December 19, 1997. This helicopter consisted of the airframe, a C-47 engine, rotor brake, particle separator, VHF provisions, transponder, radio, and dual controls.
22. At least one month before the plaintiff's purchase, Phil Altendorf contacted Jerry Hiatt of Action Aircraft Parts about purchasing the C-47 engine and received an offer for $170,000. Phil Altendorf did not contact any other customers about purchasing the engine and had not received any other offers. It was necessary in this transaction to "presell" the parts of the Bell 407 to help with financing the purchase. At least one month prior to December 19, 1997, the plaintiff accepted Action Aircraft Parts's offer and verbally agreed to sell it the C-47 engine for $170,000. The purchase was completed on January 13, 1998.
23. Action Aircraft Parts sold the C-47 engine to International Turbine Parts for $230,000. Because Phil Altendorf and/or Circle H provided the defendants with the sales referral of International Turbine Parts, Altendorf or Circle H received a sales commission on January 14, 1998, for $30,000. International Turbine Parts was an existing customer of the plaintiff.
24. At the time of this transaction, Mary and Jerry Hiatt knew Phil Altendorf was employed by the plaintiff and further knew his duties included selling aircraft parts.
C-30-P Engine-Serial No. 895654
25. The defendants learned from their Mexican contacts that a C-30-P engine was for sale. Jerry Hiatt contacted Phil Altendorf about this opportunity. In December of 1998, the defendants purchased this C-30-P engine from Compos Sui for $50,275.00. The Altendorfs and/or Circle H contributed one-half of the purchase price. When the defendants then sold the engine, they split the profits of $63,350.36 with the Altendorfs. At the time of this transaction, Mary and Jerry Hiatt knew the plaintiff employed Phil Altendorf as president of its helicopter division with duties that included locating helicopters and parts for resale.
Two C-30-S Engines
26. In May of 1999, the plaintiff purchased from Nordic Air Claims a S-76 helicopter that had two C-30-S engines. Sometime prior to this purchase, Phil Altendorf for the plaintiff had "presold" or had verbally agreed to sell the two engines to the defendants for $145,000. Phil Altendorf contacted only the defendants about the purchase of these engines and had received no other offers.
27. In July of 1999, the plaintiff completed the sale of the two engines to the defendants for $145,000. Robert Dodson, Jr. authorized Phil Altendorf to sell the engines for $175,000, and when he learned in July of 1999 that the selling price was $145,000, he chastised Phil Altendorf.
28. On or about July 13, 1999, the defendants sold the two engines to Rotocraft Technologies for $230,000. The defendants paid Phil Altendorf and/or Circle H a commission of $21,250 for the referral of this customer. At the time of this transaction, Mary and Jerry Hiatt knew the plaintiff employed Phil Altendorf as president of its helicopter division with duties that included sales.
Fair Market Value
29. The defendants submit a written report from their expert witness who opines that the fair market value of the C-30-P and C-30-S engines was no more than $30,000 each and that the fair market value of the C-47 engine was no more than $50,000. The plaintiff argues the expert's opinion on fair market value is controverted by the actual selling prices that the defendants were able to obtain on these engines.
30. Phil Altendorf testified that Robert Dodson, Jr. approved all bids and approved those sales that exceeded a certain amount and that this amount fluctuated with the condition of the company.
PLAINTIFF'S CLAIMS
For each of these six transactions discussed above, the plaintiff asserts the following legal theories of recovery: (1) conspiracy to participate in a breach of trust; (2) unfair competition; (3) tortious interference with prospective business advantage and employment relationship; (4) fraud by silence; (5) unjust enrichment; and (6) participation in the Altendorfs' breach of fiduciary duty.
STATUTE OF LIMITATIONS
LENGTH
The parties agree the two-year statute of limitations in K.S.A. 60-513 govern the different theories except the theory of unjust enrichment. The defendants argue the three-year limitations period in K.S.A. 60-512 governs the unjust enrichment theory, while the plaintiff advocates the four-year provision found in K.S.A. 84-2-725. The court will apply the three-year limitation period of K.S.A. 60-512 to the unjust enrichment theory, as two of the alleged transactions do not involve any sale arrangement between the plaintiff and the defendants and as the remaining transactions turn on allegations sounding more in tort for unjust enrichment than in any breach of a contract for sale and recovery for that breach. See Socophi S.P.R.L. v. Airport Systems International, Inc., 2001 WL 474301, at *4 (D. Kan. Apr. 19, 2001), aff'd, 30 Fed. Appx. 862, 2002 WL 220604 (10th Cir. Feb. 13, 2002); Atlas Industries, Inc. v. National Cash Register Co., 216 Kan. 213, 217, 531 P.2d 41 (1975).ACCRUAL
A statute of limitations begins to run when a claim accrues. Pancake House, Inc. v. Redmond, 239 Kan. 83, 87, 716 P.2d 575 (1986). For those causes of actions covered by K.S.A. 60-513, they are not deemed to have accrued:
until the act giving rise to the cause of action first causes substantial injury, or, if the fact of injury is not reasonably ascertainable until some time after the initial act, then the period of limitation shall not commence until the fact of injury becomes reasonably ascertainable to the injured party, but in no event shall an action be commenced more than 10 years beyond the time of the act giving rise to the cause of action.
K.S.A. 60-513(b). Kansas courts construe the phrase, "substantial injury," to mean "actionable injury." Roe v. Diefendorf, 236 Kan. 218, Syl. ¶ 2, 689 P.2d 855 (1984). "The rule which has developed is: The statute of limitations starts to run 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." Id. at 222. "[T]he term 'reasonably ascertainable,' . . ., suggests an objective standard based upon an examination of the surrounding circumstances." P.W.P. v. L.S., 266 Kan. 417, 425, 969 P.2d 896 (1998). "Inherent in 'to ascertain' is 'to investigate.'" Davidson v. Denning, 259 Kan. 659, 675, 914 P.2d 936 (1996). When there is reason to suspect a wrongful act and when there exists information "that is available through a reasonable investigation of sources" from which the wrongful act can be determined, the limitations period will start. Id. at 675-76. In short, "Kansas 'fact of injury' standard postpones the running of the limitations period until the time the plaintiff is able to determine that her injury may be caused by some act of the defendant." Benne v. International Business Machines Corp., 87 F.3d 419, 427 (10th Cir. 1996).
The use of "substantial injury" in K.S.A. 60-513(b) is not intended to require that a plaintiff must have knowledge of the full extent of his injuries before the statute of limitations commences. Roe v. Diefendorf, 236 Kan. at 222. It does require that the plaintiff experience a "sufficient ascertainable injury [as] to justify an action for recovery of the damages." Id. The extent of the injury is legally irrelevant, for a plaintiff is entitled to recover so long as "the injury is the fault of another. Id. "The true test to determine when an action accrues is that point in time at which the plaintiff could first have filed and prosecuted his action to a successful conclusion." Kansas Public Employees Retirement System v. Reimer Koger Assocs., Inc., 262 Kan. 110, 116, 936 P.2d 714 (1997) (quoting Pancake House, Inc., 239 Kan. at 87).
If after examining all the surrounding circumstances, the court finds the evidence in dispute over when plaintiff's injury became reasonably ascertainable as so defined above, then the issue is one for the jury. Gilger v. Lee Const., Inc., 249 Kan. 307, 311, 820 P.2d 390 (1991). On the other hand, if no genuine issues of material fact surround the onset date of the plaintiff's injury, then summary judgment is appropriate. Id.
The statute of limitations for fraud begins to run when "the fraud is discovered." K.S.A. § 60-513(a)(3). Discovery has been said to occur when the injured party gains actual knowledge of the fraud or when the fraud could have been discovered with reasonable diligence. Augusta Bank Trust v. Broomfield, 231 Kan. 52, 62-63, 643 P.2d 100 (1982). Mere suspicion of wrong is not sufficient. Id. A person must be aware of enough facts indicating fraud that a reasonably prudent person would investigate. See Wolf v. Brungardt, 215 Kan. 272, 281, 524 P.2d 726 (1974). Further, the Kansas Supreme Court has explained that while a party's suspicions may have been aroused, that party "may be lulled into confidence by certain representations and forego any further investigation." Broomfield, 231 Kan. at 63 (citation omitted). Because the statute of limitations is still not triggered until the claim accrues, a plaintiff alleging fraud must file the action within two years of discovering the fraud if an ascertainable injury was suffered at the time and if none was, then within two years of when a substantial injury resulting from the fraud is reasonably ascertainable. Bryson v. Wichita State University, 19 Kan. App. 2d 1104, 1107, 880 P.2d 800, rev. denied, 256 Kan. 994 (1994).
For the unjust enrichment theory under K.S.A. 60-512, the claim accrues when the elements are present and the plaintiff could have filed and maintained a successful suit. Pancake House, Inc., 239 Kan. at 87. The basic elements of unjust enrichment are: (1) the plaintiff conferred a benefit on the defendant; (2) the defendant knows of or appreciates the benefit received; and (3) the defendant accepts or retains the benefit under circumstances that make it inequitable. Haz-Mat Response, Inc. v. Certified Waste Services Ltd., 259 Kan. 166, 177, 910 P.2d 839 (1996).
ARGUMENT AND ANALYSIS C-30-P Engine, Serial No. 895671
The defendants argue that the plaintiff had actual notice of its injury by no later than January 1998 when Robert Dodson, Jr. learned that Phil Altendorf had sold this engine to Action Aircraft for $50,000 which was $25,000 less than what Dodson believed the engine was worth. The defendants alternatively contend this knowledge was enough to prompt a reasonable person to inquire further as to why this engine was sold for this price. The plaintiff counters that this sale to Action Aircraft Parts, one of the plaintiff's existing customers, revealed nothing wrong and raised no suspicion of wrongdoing by Action Aircraft Parts. The plaintiff further points out that the defendants offer no uncontroverted facts to establish the plaintiff's knowledge of the defendants separately transacting business with the Alterndorfs or paying commission fees or sales referral fees to the Altendorfs.
It is true that in January of 1998 the plaintiff believed it had lost $25,000 on the sale of engine, but this uncontroverted fact alone does not establish as a matter of law that the plaintiff was able to determine this loss was caused by some act of the defendants rather than simply the poor business judgment of the plaintiff's own employee. The defendants have not carried their burden in this summary judgment proceeding of proving that the plaintiff had reason to suspect the defendants of wrongdoing and that the plaintiff through a reasonable investigation of sources would have determined or discovered the defendants' wrongful actions more than two years prior to filing this suit. The court denies summary judgment on this ground.
Two C-30-S Engines
Concerning this transaction, the defendants seek summary judgment on all claims governed by a two-year statute of limitations. The defendants argue Robert Dodson, Jr. knew no later than July 1999 that the plaintiff had been injured because Phil Altendorf had sold these engines for $145,000 which was $30,000 less than Dodson's approved sales price. Alternatively, the defendants insist the injury was reasonably ascertainable. Similar to its position on the C-30-P engine, the plaintiff points to the fact that a sale of engines to an existing customer reveals nothing wrong on its face and raises no suspicion of wrongdoing on the part of Action Aircraft Parts. The plaintiff also highlights the defendants' failure to offer any uncontroverted facts establishing that the plaintiff knew or should have known more than two years before filing this action that the defendants had engaged in separate transactions with the Alterndorfs or paid commission fees or sales referral fees to the Altendorfs.
Like the C-30-P engine claims, the court is not persuaded that the defendants have sustained their summary judgment burden on the two C-30-S engine claims. There are genuine issues of material fact concerning whether the plaintiff had reason to suspect the defendants of wrongdoing and whether the plaintiff through a reasonable investigation of sources would have determined or discovered the defendants' wrongful actions more than two years prior to filing this suit. The court denies summary judgment on this argument.
Unjust Enrichment
For the reasons stated above, the court applies the three-year statute of limitations of K.S.A. 60-512 to the plaintiff's claims on this theory. To avoid the bar of this shorter limitations period, the plaintiff argues the defendants were existing customers and are subject to running account exception found in Sheldon Grain Feed Co. v. Schuetz, 207 Kan. 108, 109 483 P.2d 1033 (1971), which is expressed in these terms:
Items of a mutual, open, running account which are within the period of the statute of limitations draw after them items beyond that period. In such cases, the statute of limitation does not run against each item separately, but only against the balance due. It commences to run from the time the last item is rightfully credited to the party against whom the balance is due. (citations omitted). In such case the last item so credited to the party against whom the balance is due is not payment of any particular item against him, but is in a sense treated as part payment of every item rightfully charged against him in the entire account.207 Kan. at 109. There are no facts of record to support applying this exception here. The plaintiff offers no proof that a mutual, open running account with the defendants was used in the transactions alleged in this case. Nor is there proof of a charge to that account within the limitations period. Thus, the uncontroverted facts appearing in the defendants' motion establish they are entitled to summary judgment on the plaintiff's unjust enrichment theory on all claims except for the two C-30-S engines.
TORTIOUS INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE
Theory and Claim
The plaintiff pleads this as a theory of recovery for each of its claims. As alleged in the pretrial order, this theory is first alleged in the factual contentions as the defendants having "tortiously interfered with Plaintiff's employment contracts and relationships with the Altendorfs and prospective business advantage." (Dk. 76, p. 8). Later in the "Theories of Recovery" section, this theory is alleged in these terms: "The Defendants tortiously interfered with Plaintiff's contractual relationship with the Altendorfs and with Plaintiff's prospective economic advantages by using Plaintiff's employees to divert Plaintiff's business opportunities to Defendants, and Plaintiff was damaged because it lost business opportunities and profits." (Dk. 76, p. 21). Finally, as to this particular theory of recovery for tortious interference with prospective business advantage and employment relationship, the pretrial order lays out the essential elements and includes the issues of fact related to this theory. (Dk. 76, pp. 35-42).Governing Law
"Kansas law recognizes that one who, without justification, induces or causes the breach of a contract to which it is not a party will be answerable for damages caused thereby." Classic Communications v. Rural Telephone Service Co., Inc., 956 F. Supp. 910, 921 (D. Kan. 1997) (citing Turner v. Halliburton Co., 240 Kan. 1, 722 P.2d 1106 (1986)). The plaintiff must prove the following five elements to recover:
1. The existence of a contract between the plaintiff and a third party;
2. The defendant's knowledge thereof;
3. The defendant's intentional procurement of the contract's breach;
4. The absence of justification for procuring the breach; and
5. Damages resulting from the breach.
L M Enterprises, Inc. v. Bei Sensors Systems, Co., 45 F. Supp.2d 879, 886 (D. Kan. 1999) (citations omitted), aff'd, 231 F.3d 1284 (10th Cir. 2000).
Kansas law likewise recognizes a claim for tortious interference with a prospective business advantage. See Noller v. GMC Truck Coach Div., 244 Kan. 612, 620, 772 P.2d 271 (1989) (citing Turner v. Halliburton Co., 240 Kan. at 12). The plaintiff's burden consists of five elements:
(1) the existence of a business relationship or expectancy with the probability of future economic benefit to the plaintiff; (2) knowledge of the relationship or expectancy by the defendant; (3) that, except for the conduct of the defendant, plaintiff was reasonably certain to have continued the relationship or realized the expectancy; (4) intentional misconduct by defendant; and (5) damages suffered by plaintiff as a direct or proximate result of defendant's misconduct.Macke Laundry Service Ltd. Partnership v. Mission Associates, Ltd., 19 Kan. App. 2d 553, 561, 873 P.2d 219 (quoting Turner, 240 Kan. at 12), rev. denied, 255 Kan. 1002 (1994)
Based on what appears in the pretrial order, the court construes plaintiff's theory as both a claim for tortious interference with the employment contract of the Altendorfs and tortious interference with prospective business advantage. Although "these torts tend to merge somewhat in the ordinary course, the former is aimed at preserving existing contracts and the latter at protecting future or potential contractual relations." Turner v. Halliburton Co., 240 Kan. at 12.
Arguments C-20-R Engine
The defendants argue the plaintiff is unable to prove that it had any business relationship or expectancy with Mr. Lee or Hongick Air Service Company, that the defendants knew of this relationship or expectancy, that any such relationship or expectancy was reasonably certain to continue but for the defendants' conduct, that the defendants engaged in any intentional misconduct, or that the plaintiff suffered damages as a result of the defendants' conduct. Saying the defendants have misstated its claim, the plaintiff points to its employment relationship with Phil Altendorf, to Altendorf' duties to locate helicopters and parts for resale, to the plaintiff's business expectancy that while Altendorf was in Korea on behalf of the plaintiff that he would present the engine as a business opportunity for the plaintiff, and to the defendants' knowledge of Phil Altendorf's relationship and responsibilities to the plaintiff.
C-47 Engine
Relying on their agreement to purchase this engine for $170,000 prior to the plaintiff ever bidding on and purchasing the helicopter and also relying on Phil Altendorf's decision to contact only the defendants for a bid on the engine, the defendants say the plaintiff cannot prove any expectancy or relationship between it and the International Turbine Service, the company which later purchased the engine from the defendants. The plaintiff responds that it had a business expectancy that its employee, Phil Altendorf would solicit the highest bid from all of its customers and not accept a low bid in order to obtain a larger referral fee from the defendant.
Two C-30-S Engines
Relying on facts similar to the C-47 Engine situation, the defendants argue the same position that the plaintiff cannot prove an expectancy or relationship with Rotorcraft Technologies, the company which purchased the engines from the defendants. The plaintiff similarly responds that it had a business expectancy in Phil Altendorf soliciting the highest bid for the engines and not engaging in a secret transaction with the defendants.
Analysis
The plaintiff accuses the defendants of "misstat[ing]" its claim of tortious interference and offers that its claim is "for tortious interference with prospective business advantage and employment relationship." (Dk. 75, p. 20). It appears, however, from its response to the defendants' arguments, that the plaintiff has overstated its tortious interference claim on these transactions. The plaintiff neither articulates nor offers evidence of a business relationship or expectancy with the seller of C-20-R engine or with the eventual purchasers of C-47 engine and the two C-30-S engines. In each instance, the plaintiff's brief relied on its relationship and contractual expectancy in Phil Altendorf as an officer and employee of the plaintiff. Consequently, the defendants are entitled to summary judgment on the plaintiffs' theory of tortious interference with prospective business advantage concerning these three transactions. As far as summary judgment on the plaintiff's theory of tortious interference with Altendorfs' employment contract, the court need not concern itself with this theory, because the defendants' motion does not address it.
UNJUST ENRICHMENT
Only one claim, the two C-30-S engines, is not barred by the three statute of limitations applicable to this theory. As previously stated, the elements of this theory are: (1) the plaintiff conferred a benefit on the defendant; (2) the defendant knows of or appreciates the benefit received; and (3) the defendant accepts or retains the benefit under circumstances that make it inequitable. Haz-Mat Response, Inc. v. Certified Waste Services Ltd., 259 Kan. at 177.
Arguments and Analysis
The defendants ask for summary judgment arguing that the circumstances are not inequitable for them to accept and retain the profit from buying the engines for $145,000 from the plaintiff and then selling the same engines for $230,000 to Rotocraft Technologies. The defendants emphasize that Phil Altendorf accepted their bid without seeking other bids and agreed to sell the engines before ever purchasing the helicopter in order to finance the purchase. Having provided the plaintiff with the funds for purchasing the helicopter, the defendants doubt that their subsequent profit from selling the engines could be termed inequitable.
The plaintiff counters that the inequitable circumstances are established by the defendants' complicity in the Altendorfs' wrongdoing of selling the engines for less than their value and in providing the defendants with a sales referral that earned him a commission of $21,250. "If the transaction had been arms length, there would have been no need for the Defendants to agree or to pay the Altendorfs a sales referral fee." (Dk. 75, p. 30).
Based on the summary judgment record, the court is unable to say as a matter of law that the circumstances of this transaction are equitable. There are questions of material fact as to whether the plaintiff needed to sell the engines to finance its purchase of the helicopter, what was the fair market value of the engines, and whether the defendants so participated in or encouraged the Altendorfs' alleged wrongdoing. The defendants have not shown they are entitled to summary judgment on this claim.
FRAUD BY SILENCE
Governing Law
Under Kansas law, a plaintiff claiming fraud by silence must prove the following by clear and convincing evidence:
(1) that defendant had knowledge of material facts which plaintiff did not have and which plaintiff could not have discovered by the exercise of reasonable diligence; (2) that defendant was under an obligation to communicate the material facts to the plaintiff; (3) that defendant intentionally failed to communicate to plaintiff the material facts; (4) that plaintiff justifiably relied on defendant to communicate the material facts to plaintiff; and (5) that plaintiff sustained damages as a result of defendant's failure to communicate the material facts to the plaintiff.Miller v. Sloan, Listrom, Eisenbarth, Sloan and Glassman, 267 Kan. 245, 978 P.2d 922 (1999) (citations omitted). The critical element to prove is that the defendant was under an obligation to communicate material facts to the plaintiff. DuShane v. Union Nat'l Bank, 223 Kan. 755, 760, 576 P.2d 674, 678-79 (1978); OMI Holdings, Inc. v. Howell, 260 Kan. 305, 345, 918 P.2d 1274, 1299 (1996). "Suppression of a material fact is not fraudulent unless the silent party is under some legal obligation to disclose." Flight Concepts Ltd. Partnership v. Boeing Co., 38 F.3d 1152, 1158 (10th Cir. 1994) (citation omitted). The question of what gives rise to a legal or equitable obligation to communicate is not always an easy question to resolve, but generally the duty must arise from a relationship existing between the parties when the suppression or concealment is alleged to have occurred." DuShane, 223 Kan. at 760. The obligation to disclose generally may arise in two situations: "(1) a contracting party who has superior knowledge, or knowledge that is not within the reasonable reach of the other party, has a legal duty to disclose information material to the bargain; and (2) parties in a fiduciary relationship must disclose material information to one another." Zhu v. Countrywide Realty, Co., Inc., 165 F. Supp.2d 1181, 1202 (D. Kan. 2001) (quoting Plastic Packaging Corp. v. Sun Chemical Corp., 136 F. Supp.2d 1201, 1205 (D. Kan. 2001) (citing DuShane v. Union Nat'l Bank, 223 Kan. at 760; Denison State Bank v. Madeira, 230 Kan. 684, 691-93, 640 P.2d 1235 (1982)); see OMI Holdings, Inc. v. Howell, 260 Kan. 305, 347, 918 P.2d 1274 (1996) (Equity and good conscience alone are not enough to impose a duty to disclose, but a duty may arise when the party "'knows that the other is about to enter into the transaction under mistake as to such facts, and that the other, because of relationship between them, the customs in trade, or other objective circumstances, would reasonably expect disclosure of such facts.'" (quoting Boegel v. Colorado Nat. Bank of Denver, 18 Kan. App. 2d 546, 560, 857 P.2d 1362, rev. denied, 253 Kan. 856 (1993)). The determination of any contractual or fiduciary duty to disclose is based on the facts and circumstances of each case. Plastic Packaging Corp, 136 F. Supp.2d at 1205 (citing Ensminger v. Terminix Intern. Co., 102 F.3d 1571, 1574 (10th Cir. 1996)).
Arguments and Analysis C-20-R Engine and C-30-P Engine (Serial No. 895654)
The defendants assert the plaintiff is unable to establish any obligation on their part to disclose material facts about these transactions. It is uncontroverted that Phil Altendorf purchased the C-20-R engine without assistance from the defendants and that the defendants did not know of this engine until after Altendorf had purchased it. The plaintiff was not a party to or involved in Altendorf's consignment transaction with the defendants. Concerning the C-30-P engine, the defendants and the Altendorfs purchased this engine from Compos Sui, and the plaintiff had no interest in the engine and was not party or otherwise involved with the transaction. Thus, as to both transactions, the plaintiff and the defendants had no relationship, contractual or fiduciary, with respect to the purchase or the sale of those engines.
In response, the plaintiff does not attempt to articulate any factual or legal basis for a relationship arising out of either transaction. The plaintiff, instead, points to the defendants' knowledge of Altendorfs' employment with the plaintiff and the defendants' choice not to communicate Altendorfs' fraudulent activity to the plaintiff. The plaintiff's contention is a vague effort to create a duty to disclose from equity or good conscience. That the defendants had been customers of the plaintiff in other transactions and had gained knowledge of the plaintiff's operations as a result are not circumstances creating a relationship which Kansas courts have recognized as including a legal duty to disclose about other transactions to which the plaintiff was not a party. From the uncontroverted facts concerning these two transactions, it appears the plaintiff is unable to articulate an obligation on the defendants' part to disclose material facts. The defendants are entitled to summary judgment on the theory of fraud by silence on the claims of the C-20-R engine and the C-30-P engine (Serial No. 895654).
UNFAIR COMPETITION
The defendants contend the plaintiff's claims of unfair competition are not cognizable in Kansas, because they are outside the realm of intellectual property law. The defendants rely on Altrutech, Inc. v. Hooper Holmes, Inc., 1998 WL 398231, at *2-*3 (D. Kan. Jan. 26, 1998), and Wichita Clinic v. Columbia/HCA Healthcare Corp., 45 F. Supp.2d 1164 (D. Kan. 1999), for the rule that the tort of unfair competition in Kansas applies only to claims of misuse of intellectual property. Because the plaintiff's claim here does not involve intellectual property, the defendants ask for summary judgment on this claim.
The plaintiff responds that the federal district courts in Kansas are divided on this issue and that another federal district court judge has predicted that the Kansas Supreme Court would "allow an unfair competition claim based on misuse of trade secrets and other confidential business information." Airport Systems Intern., Inc. v. Airsys. ATM, Inc., 144 F. Supp.2d 1268, 1270 (D. Kan. 2001). The plaintiff characterizing its unfair competition claims as "arising out of the use of confidential business information provided by the Altendorfs." (Dk. 75, p. 32).
The court need not decide on which side of this issue it would come down, for the plaintiff has not pleaded a claim of unfair competition based on the misuse of confidential information. The theory of unfair competition set forth in the pretrial order does not include any issue of fact that the defendants misused the plaintiff's confidential business information. Instead, the pretrial order simply states that the defendants and Altendorfs engaged in the different transactions "for the purpose and in such a way as to be unfair and detrimental to Plaintiff." (Dk. 76, p. 32). In articulating its burden of proof under this theory, the plaintiff asserts it need only prove that "[t]he business transactions entered into between Defendants and the Altendorfs as officers and employees of Plaintiff, were intentionally entered for the purpose and in such a way as to be unfair and detrimental to Plaintiff." Id. Having never pleaded an unfair competition theory based on the misuse of confidential information, the plaintiff cannot avoid summary judgment. The defendants are entitled to summary judgment on this theory of recovery.
RATIFICATION
The defendants argue the plaintiff is unable to recover on any theory on its claims for the C-30-P (Serial No. 895671) and the two C-30-S engines, because it ratified both transactions when instead of repudiating Phil Altendorf's unauthorized sales to the defendants it retained the sale proceeds. The plaintiff counters that its failure to repudiate either transaction is not ratification, as the plaintiff did not know of the secret arrangements between the Altendorfs and the defendants that resulted in Altendorfs being paid a commission fee for making a sales referral.
Kansas law on "ratification holds that upon acquiring knowledge of an agent's unauthorized act, a principal should promptly repudiate the act; otherwise it will be presumed that he has ratified and affirmed the act." BioCore, Inc. v. Khosrowshahi, 41 F. Supp.2d 1214, 1231-1232 (D. Kan. 1999) (citing Schraft v. Leis, 236 Kan. 28, 37, 686 P.2d 865 (1984)). Ratification can occur either by the acceptance of benefits or by the failure to repudiate the transaction. Vanier v. Ponsoldt, 251 Kan. 88, 106, 833 P.2d 949 (1992). In defining ratification, Kansas law emphasizes that it is "the acceptance of the result of an act with an intent to ratify, and with full knowledge of all the material circumstances." Prather v. Colorado Oil Gas Corp., 218 Kan. 111, 117, 542 P.2d 297 (1975) (citations omitted); see E.F. Corp. v. Smith, 496 F.2d 826, 829 (10th Cir. 1974) ("For ratification to be efficacious, it must be made with knowledge of the material facts"); Clark v. Associates Commercial Corp., 149 F.R.D. 629, 635 (D. Kan. 1993) ("acceptance of benefits is not ratification if principal does not have knowledge of the material facts surrounding the transaction") (quoting 3 Am. Jur.2d Agency § 195 (rev. ed. 1986)). A fuller statement of this rule is found in an earlier decision from the Kansas Supreme Court:
The Court found that plaintiff did not have the intent to ratify when he accepted the sublease deposit refund check. 218 Kan. at 117. The plaintiff "was falsely told he had no contract, and believing the representation to be true he responded as if he had no valid sublease." Id.
As a general rule, in order that a ratification of an unauthorized act or transaction of an agent may be valid and binding, it is essential that the principal have full knowledge, at the time of the ratification, of all material facts and circumstances relative to the unauthorized act or transaction, or that some one authorized to represent the principal, except the agent, have such knowledge, unless the principal is willfully ignorant or purposely refrains from seeking information.Allison v. Borer, 131 Kan. 699, 704, 293 P. 769 (1930) (quoting 2 C.J. 476, 477). The intent of the party who is alleged to have ratified an act is generally a question of fact for the jury. Cherryvale Grain Co. v. First State Bank of Edna, 25 Kan. App. 2d 825, 830-31, 971 P.2d 1204 (1999).
There are genuine issues of material fact that preclude summary judgment on the issue of ratification. One issue is whether the plaintiff had sufficient knowledge of the material facts so as to be capable of ratifying the sale of the engines. Another is whether the plaintiff intended to ratify the sales regardless of any secret arrangements between the Altendorfs and the defendants. The court denies the defendants' motion for summary judgment on this ground.
PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
As there appears to be no real benefit in analyzing the plaintiff's motion in detail, the court will not lengthen this order with a discussion of the plaintiff's claims and the genuine issues of material facts surrounding each claim. Simply put, the success of the plaintiff's motion depends largely upon resolving factual issues ( e.g., intent and agreement) on which the courts agree that summary judgment is generally inappropriate. Instead of coming forth with the evidence and arguments to show that its case is an exception to this general rule, the plaintiff's filings offer a cursory analysis of the elements and the relevant facts and relies only on inferences over which finders of fact could reasonably disagree. After reviewing the parties' memoranda, the court is satisfied that there are multiple genuine issues of material fact that preclude summary judgment on each of the plaintiff's claims. In addition, the court already has determined that genuine issues of material fact exist as to the defendants' challenges to the statutes of limitation and ratification. The court denies the plaintiff's motion for summary judgment.
IT IS THEREFORE ORDERED that the defendants' Motion for Partial Summary Judgment (Dk. 70) is granted on the statute of limitations bar to the plaintiff's unjust enrichment theory on all claims except for the two C-30-S engines; on the theory of tortious interference with prospective business advantage on the claims concerning the C-20-R engine, the C-47 engine, and the two C-30-S engines; on the theory of fraud by silence on the claims concerning the C-20-R engine and the C-30-P engine (serial no. 895654); on the theory of unfair competition as to all claims; and it is denied in all other respects;
IT IS FURTHER ORDERED that the plaintiff's motion for summary judgment (Dk. 71) is denied.