Opinion
No. 105,835.
2012-05-18
FARMERS STATE BANK, Wathena, Kansas, Appellee, v. William ORCUTT, aka, Bill Orcutt, Appellant, Marcelene Orcutt, Jason Orcutt, Robert Orcutt, aka Bobby Orcutt, Individually and Doing Business as A–1 Auto and metal Salvage, Inc., Farm and Home Equipment, Orcutt's Auto Sales, and A–1 Auto and Metal Salvage, Inc., Defendants.
Appeal from Doniphan District Court; John L. Weingart, Judge. Jeremiah Kidwell, Kidwell & Conkright, of Kansas City, Missouri, for appellant. Charles D. Baskins, of Euler Law Offices, LLP, of Troy, for appellee.
Appeal from Doniphan District Court; John L. Weingart, Judge.
Jeremiah Kidwell, Kidwell & Conkright, of Kansas City, Missouri, for appellant. Charles D. Baskins, of Euler Law Offices, LLP, of Troy, for appellee.
Before LEBEN, P.J., STANDRIDGE and ARNOLD–BURGER, JJ.
MEMORANDUM OPINION
PER CURIAM.
William Orcutt challenges the district court's refusal to issue a show cause order for indirect civil contempt against Farmers State Bank (Bank). He claims that once he presented an affidavit and motion which, if true, would support a finding of contempt against the Bank, the district court was required to issue the order to show cause and set it for an evidentiary hearing. In the alternative, he argues that even if the district court did have discretion regarding issuance of the order, the court abused its discretion in this case when it erroneously found that it lacked jurisdiction to decide the matter and when it failed to require the Bank to submit evidence related to its affirmative defenses of laches and waiver. We find that under the clear language of K.S.A. 20–1204a(a), the district court had discretion whether to issue a show cause order, but in this case the court abused its discretion in two ways. First, it based its decision on an erroneous legal conclusion, that it lacked jurisdiction to issue the order. And second, the court's alternative ruling that Orcutt's motion was barred by the doctrines of laches and waiver, was not supported by substantial competent evidence. Reversed and remanded with directions.
Factual and Procedural History
The Bank's lawsuit to foreclose on its security interests in Orcutt's personal property
In January 2006, Farmers State Bank sued Orcutt, his wife, his brother, and his son Jason, and several salvage and auto sales businesses in which they had an interest to foreclose its security interests in personal property that served as collateral for 42 promissory notes extended to them between August 20, 2001, and May 5, 2005. The notes were in default for a total in excess of $400,000. Shortly thereafter, the district court ordered delivery of certain collateral, which consisted primarily of numerous vehicles and farm equipment that constituted the inventory of the Orcutts' family businesses. The order included a 2001 Ford Taurus valued at $2,555 that is ultimately at issue in this appeal to the Bank.
The June 2006 agreed order to dispose of the collateral
In June 2006 the parties entered an agreed order allowing the Bank to sell the personal property in its possession. The order stated that the Bank had taken possession of the listed property and “the parties are jointly assembling the remainder of the property which can be located.” The parties agreed to allow the Bank to sell the property listed in a commercially reasonable fashion and to apply the net proceeds of the sale to the amount owing on the promissory notes. The 2001 Ford Taurus was again listed in the joint order as were all the other vehicles in the initial delivery order.
In February 2007 and April 2008, the Bank filed reports with the court concerning the proceeds received from its sale of the collateral, other personal property, and real property. Those reports did not specifically mention the 2001 Taurus and approximately 40 or 50 other vehicles that had been listed in the 2006 agreed order. The omission was apparently due to the fact that the Bank had been unable to locate those vehicles.
All claims against all parties were resolved by the end of 2007. Starting with Orcutt: the district court entered judgments totaling more than $400,000 in June and August of 2007 against Orcutt, individually, on all 42 counts of the Bank's petition. After proceeds the Bank received from the sale of the collateral, personal property, real estate, and insurance were offset against those judgments; a balance of $96,756.39 remained outstanding as of April 2008. Due to Orcutt's financial status, the Bank has not sought execution on the balance owing.
As for the remaining parties to the Bank's lawsuit—none of whom are parties to this appeal: the Bank obtained separate stipulated judgments against Orcutt's wife and his brother Robert (joint and several with Orcutt); it obtained a default judgment against the businesses; and it entered into a confidential settlement agreement with Orcutt's son, Jason, sometime around July 2006. As explained below, that settlement agreement ultimately underlies the issue on appeal. The agreement provided that in return for the conveyance of real estate Jason owned in St. Joseph, Missouri, the Bank agreed to dismiss the action against Jason and agreed not to file an action against his wife, Mandy Orcutt.
Postjudgment proceedings
The record reveals that in early 2009, Orcutt and his attorney began requesting documents from the record and inquiring of the court clerk whether the Bank had filed any release of judgment against Robert or Jason Orcutt in this case. A district court clerk's notes on the docket indicate that the Bank's counsel searched the court's record in March 2009 and determined that there was no release of judgment, but he told the clerk that “it was okay because they had an agreement.”
Around this same time, Orcutt also caused numerous other documents to be added to the court file, including:
• A notarized, but undated, affidavit concerning a car transfer signed by Mandy Orcutt. It states she received the 2001 Taurus in exchange for her signature on a settlement agreement, pursuant to which she and Jason transferred a warranty deed to their house to the Bank in return for the Bank's agreement to dismiss Jason from the lawsuit and to not commence any action against Mandy.
• A copy of the confidential settlement agreement signed by a Bank representative, Mandy, and Jason (which makes no mention of the 2001 Taurus).
On July 23, 2009, Orcutt filed a pro se “MOTION TO COMPEL [BANK] TO PRODUCE ANY AND ALL DOCUMENTS PERTAINING TO THE SAID 2001 FORD TAURUS REF: EXHIBIT # 41.” No journal entry was found disposing of that motion. However, a summary entry on the court's docket shortly thereafter states simply: “Case is completed and unappealed. Def. may file motion to compel in an active case.”
The contempt allegation at issue in this appeal
On May 26, 2010, Orcutt filed the motion for issuance of a show cause order at issue in this appeal. In his motion, Orcutt asked the district court to order the Bank to appear and show cause why it should not be held in contempt of the June 2006 agreed order which allowed the sale of the 2001 Taurus in a commercially reasonable fashion. He alleged the Bank had not sold the 2001 Taurus in a commercially reasonable manner and additionally had failed to report the transaction involving the Taurus to the trial court. In support, the motion stated that the Bank had instead “conveyed its interest in the 2001 Ford Taurus ... to secure a settlement agreement with Defendant Jason Orcutt and nonparty Mandy Orcutt” and “purposely withheld its knowledge of said transaction from the Court.” The motion further challenged the Bank's ability to otherwise execute upon Jason and Mandy's real property. Thus, Orcutt prayed that the court issue a show cause order; adjudge the Bank in contempt of the June 2006 agreed order; order “that the transaction involving the 2001 Ford Taurus ... be rescinded and declared void”; and order that the Taurus “be sold in a fashion that complies with [the agreed] order.”
Upon reviewing Orcutt's motion, the district court scheduled a hearing to determine whether a contempt citation should be issued and allowed the Bank the opportunity to file an objection to the motion. In its subsequently filed written response and objection, the Bank argued the court should strike Orcutt's motion primarily based on equitable principles of laches or waiver. In support, the Bank noted that Orcutt never filed any timely objections to the orders governing the sale of the personal property or to the Bank's reports of those sales. Nor had Orcutt appealed from the judgments entered against him. The Bank then generally alleged these delays would cause it prejudice if the court issued a show cause order.
At the hearing, the district court questioned counsel at length and also accepted proffers of evidence. For example, the court questioned counsel about: why the Taurus had not been included in the sale of the collateral; about what remedy it could fashion if it were to find the bank in contempt; about other possible avenues or causes of action Orcutt may have against the Bank with regard to the Taurus and other vehicles listed in the agreed order but not ultimately sold; and about the current status of the Bank's collection of any outstanding judgment against Orcutt, who the court understood to be judgment-proof as a result of a separate proceeding over which the court had presided.
The district court ultimately entered judgment denying Orcutt's motion to issue a show cause order. Additional details of the of court's judgment are discussed below, where necessary, in addressing the parties' arguments on appeal. This is Orcutt's appeal from that decision.
Analysis
The district court was not obligated to issue a show cause order upon Orcutt's motion
There is no dispute that the indirect civil contempt allegation lodged by Orcutt is procedurally governed by K.S.A. 20–1204a(a); see In re J.T.R., 47 Kan.App.2d 91, 96–97, 271 P.3d 1262 (2012). That statute provides:
“When an order in a civil action has been entered, the court that rendered the same may order a person alleged to be guilty of indirect contempt of such order to appear and show cause why such person should not be held in contempt if there is filed a motion requesting an order to appear and show cause which is accompanied by an affidavit specifically setting forth the facts constituting the alleged violation.” (Emphasis added.) K.S.A. 20–1204a(a).
According to Orcutt, based on this statutory language, “[a] court may deny a motion for contempt and refuse to issue an order to appear and show cause only if the motion is procedurally defective or the motion fails to state a claim for relief.” Stated another way, Orcutt claims that because his motion properly pleaded a request for a show cause order, the district court was legally obligated to issue such an order and conduct an evidentiary hearing on the factual contentions.
This threshold issue requires this court to interpret K.S.A. 20–1204a(a). Statutory interpretation involves a question of law subject to unlimited appellate review. Unruh v. Purina Mills, 289 Kan. 1185, 1193, 221 P.3d 1130 (2009).
The most fundamental rule of statutory construction is that the intent of the legislature governs if that intent can be ascertained. Bergstrom v. Spears Manufacturing Co., 289 Kan. 605, 607, 214 P .3d 676 (2009). An appellate court charged with interpreting a statute must first attempt to ascertain legislative intent through the statutory language enacted, giving common words their ordinary meanings. Padron v. Lopez, 289 Kan. 1089, 1097, 220 P.3d 345 (2009).
Orcutt maintains that K.S.A. 20–1204a(a) directs that he must both comply with the statutory procedure and allege facts sufficient to state a claim for contempt, but it “makes no provision for what a court must do if the facts alleged are sufficient or insufficient to rise to the level of contempt.” Thus, according to Orcutt, “it is only logical that a court must issue an order to appear and show cause when a contempt motion alleges facts that, if taken as true, constitute contempt, and such motion is in compliance with K.S.A. § 20–1204a.” Conversely, Orcutt asserts that a request to issue an order to appear and show cause must be denied if a contempt motion fails to allege facts that, if taken as true, constitute contempt. Regardless of how he frames it, the crux of Orcutt's position is that “may,” as used in K.S.A. 20–1204a(a), means “shall.”
We disagree. Giving common words their common meaning, we do not read anything into the context of the use of the word “may” in the statute to suggest that it should be interpreted as anything other than indicative of discretion between two alternatives, issue a show cause order or decline to issue a show cause order. While our courts have, at times, interpreted use of the term “shall” as directory rather than mandatory, the opposite is generally not the case, i.e., “may” has not been interpreted to mean “shall.” See State v. Raschke, 289 Kan. 911, 914–22, 219 P.3d 481 (2009). In State ex rel. Secretary of SRS v. Jackson, 249 Kan. 635, 642, 822 P.2d 1033 (1991), the Supreme Court discussed the definitions of “shall” and “may” and indicated its support of the language contained in Black's law dictionary that the word “may” is usually “ ‘employed to imply permissive, optional or discretional, and not mandatory action or conduct.’ “ In general, the word “may” will not be treated as a word of command unless the context or subject matter indicates it should be treated as such.
We are unable to locate any Kansas case in which the appellate courts have found that word “may” in a statute should be interpreted as mandatory rather than discretionary. Moreover, there is nothing in the plain language of K.S.A. 20–1204a(a) to suggest that by using the term “may” our legislature intended anything other than to provide that a court is permitted—but not required—to issue a show cause order upon the filing of a motion accompanied by an affidavit specifically setting out the facts that show an apparent violation of a court order. Accordingly, we reject Orcutt's first argument on appeal and find that the district court was not required to issue the show cause order that Orcutt requested, but could exercise its discretion.
Because we have found that the district court exercised its discretion in denying Orcutt's motion for a show cause order, we next examine Orcutt's alternative argument that the court abused its discretion. In a nutshell, Orcutt suggests that assuming the court had discretion to deny his motion, the district court abused its discretion because its decision is guided by an erroneous legal conclusion and was not supported by substantial competent evidence. See State v. Ward, 292 Kan. 541, 550, 256 P.3d 801 (2011), cert. denied132 S.Ct. 1594 (2012). We will examine each claim of error.
The district court had subject matter jurisdiction over the case
Orcutt first argues that the district court erroneously concluded it lacked subject matter jurisdiction. This argument concerns the district court's finding in judgment “that [Orcutt's] Motion is stale and that a sufficient amount of time has elapsed such that the Court does not have jurisdiction over this matter.”
Whether the district court had subject matter jurisdiction is a question of law subject to unlimited review on appeal. Back–Wenzel v. Williams, 279 Kan. 346, 347, 109 P.3d 1194 (2005).
Three essentials are necessary for a court to acquire jurisdiction:
“ First, the court must have general jurisdiction of the class of cases to which the one to be adjudged belongs; second, proper service of summons must be had upon the defendant or he voluntarily enters his appearance in the case, and third, the point decided must be, in substance and effect, within the issues framed by the pleadings.” Shriver v. Board of County Commissioners, 189 Kan. 548, 553, 370 P.2d 124 (1962).
There is no dispute that the court had jurisdiction over the foreclosure action between the Bank and Orcutt, that service was proper, and that as a part of the lawsuit, certain orders were entered. The clear language of K.S.A. 20–1204a(a) provides that when an order has been entered in a civil action, the court that entered the order retains jurisdiction to issue an order to show cause for contempt of that order. In addition, in Alpha Med. Clinic v. Anderson, 280 Kan. 903, 927, 128 P.3d 364 (2006), our Supreme Court held that the requirements in K.S.A. 20–1204a(a) that “ ‘the court that rendered’ an underlying order may address contempt allegations regarding that order” are jurisdictional, thereby making it clear that that the district court had jurisdiction to determine whether the Bank had violated court orders in the foreclosure case.
Therefore, the district court abused its discretion when it came to the erroneous legal conclusion that it lacked subject matter jurisdiction over Orcutt's contempt motion.
There was insufficient evidence to support the district court's findings of laches and waiver
Although the district court specifically found that it did not have jurisdiction due to the passage of time, it also found that “the arguments and findings of the [Bank] are persuasive and controlling” and incorporated them in its decision. The Bank specifically relied on Orcutt's failure to act and the doctrines of laches and waiver in its filings with the court. These are both equitable doctrines that do not affect the court's subject matter jurisdiction. Because a district court abuses its discretion when substantial competent evidence does not support a factual finding which is a prerequisite to a conclusion of law or upon which the exercise of discretion is based, we must examine whether there was substantial competent evidence to support the court's findings regarding the doctrines of laches and waiver. Ward, 292 Kan. at 550–51.
In State ex rel. Stovall v. Meneley, 271 Kan. 355, 388–89, 22 P.3d 124 (2001), the Kansas Supreme Court held:
“Laches is the neglect or omission to assert a right that, taken in conjunction with lapse of time and other circumstances, causes prejudice to an adverse party. [Citation omitted.] In order to invoke the doctrine of laches, the moving party must show that it has been prejudiced or put at disadvantage by the delay.”
Similarly, waiver is the voluntary and intentional relinquishment of a known right. The intention can be inferred from conduct. Lyons v. Holder, 38 Kan.App.2d 131, 138, 163 P.3d 343 (2007). These two equitable doctrines are affirmative defenses that can serve to bar recovery. K.S.A. 60–208; Strecker v. Wilkinson, 220 Kan. 292, 298, 552 P.2d 979 (1976). One claiming the application of an affirmative defense bears the burden of proof. See Holder, 38 Kan.App.2d at 140. Therefore, in this case, the Bank had the burden of proof. At the hearing, the district court had the parties proffer the evidence they would offer to support their opposing positions.
Laches is not mere delay, but delay that works to the disadvantage of another. Clark v. Chipman, 212 Kan. 259, 269, 510 P.2d 1257 (1973).The party asserting the application of laches, has the burden to prove that it has been prejudiced by the delay. Meneley, 271 Kan. at 389. The Bank did not present any evidence at the hearing that it was prejudiced by the delay in challenging the disposition of the Taurus. In its written response to Orcutt's motion it claimed that “the Defendant waited three years to raise his objection and that delay will prejudice the Plaintiff if the Order is issued.” But at the hearing there was no evidence presented as to how the delay would prejudice the Bank.
As to its theory of waiver, the Bank did not present any evidence that Orcutt voluntarily relinquished a known right. There was no evidence presented regarding when Orcutt may have learned of the confidential settlement agreement and when he obtained information that the Taurus may have been an undisclosed contingency to that agreement. Without such evidence, the Bank has not sustained its burden of establishing a voluntary relinquishment of a known right.
Accordingly, since there was not substantial competent evidence to support the district court's findings that the doctrines of laches and waiver prohibited it from issuing a show cause order, we find it abused its discretion in denying Orcutt's motion.
Reversed and remanded with directions to issue an order for the Bank to appear and show cause as to why it should not be found in indirect contempt and to conduct further proceedings pursuant to K.S .A. 20–1204a.