Opinion
No. 106,393.
2013-03-15
NORTH AMERICAN SAVINGS BANK, F.S.B., Appellee, v. DUGGAN HOMES, INC., et al., (John Duggan), Appellants.
Appeal from Johnson District Court; Kevin P. Moriarty, Judge. William J. Gotfredson, of Monaco, Sanders, Gotfredson, Racine & Barber, L.C., of Kansas City, Missouri, for appellants, and John M. Duggan, appellant pro se. Greg L. Musil, Robert J. Edwards, and Kelly D. Stohs, of Polsinelli Shughart PC, of Overland Park, for appellee.
MEMORANDUM OPINION
Appeal from Johnson District Court; Kevin P. Moriarty, Judge.
William J. Gotfredson, of Monaco, Sanders, Gotfredson, Racine & Barber, L.C., of Kansas City, Missouri, for appellants, and John M. Duggan, appellant pro se. Greg L. Musil, Robert J. Edwards, and Kelly D. Stohs, of Polsinelli Shughart PC, of Overland Park, for appellee.
Before ATCHESON, P.J., PIERRON, J., and LARSON, S.J.
PER CURIAM.
This case comes to us from a dispute over the terms of a settlement agreement intended to resolve several suits between Plaintiff North American Savings Bank and the defendants arising out of loans the bank made to the defendants to develop residential real estate in Johnson County and the Kansas City, Missouri, metropolitan area. The disagreement focuses on whether the real estate designated as the common areas of one development went to the bank or remained with the defendants under the settlement. Johnson County District Court Judge Kevin P. Moriarty determined that the written settlement failed to reflect the actual agreement he mediated, so he reformed the document to make clear that the disputed real estate belongs to North American Savings. We affirm that ruling and alternatively find that the dispute resolution provision of the settlement agreement would preclude the defendants' appeal.
The underlying transactions and litigation involving North American Savings and the defendants are largely irrelevant to their contentions about the settlement agreement itself and the district court's ruling resolving those differences. Defendants Duggan Homes, Inc., BW II Investments, L.C., Duggan Investments, Inc., SCV Investments, LLC, and John Duggan were affiliated in the real estate development business. The parties do not distinguish among the defendants in addressing the issues, and they are jointly represented. So we also treat them collectively and refer to them as the defendants. Some of the defendants borrowed money from North American Savings and others guaranteed those loans used to finance residential real estate construction. For reasons that are immaterial here, the defendants apparently defaulted on their obligations to North American Savings. The bank filed one suit in Johnson County, Kansas, and a second one in Clay County, Missouri, to collect those debts and to foreclose mortgages on the real estate. Two more related suits had been filed in Jackson County, Missouri.
In May 2010, the parties met with Judge Moriarty to mediate a settlement encompassing all four actions and any other legal disputes among them. Through Judge Moriarty's efforts, the parties reached a settlement. At the conclusion of the mediation, Judge Moriarty orally announced the terms on the record. The parties then reduced the agreement to writing in the form of an 18–page journal entry that they or their counsel and Judge Moriarty signed. The journal entry was filed with the district court on June 21, 2010, as a confidential document. The document itself characterizes the agreement as “a global settlement” and states its purpose as “memorializ[ing] and journaliz[ing] such settlement.”
The journal entry, thus, purports that it resolves all of the claims in the four suits and otherwise disposes of any legal disputes among the parties. Those portions of the written agreement bearing on this appeal address the division of the real estate foreclosed upon in the Clay County action and the mechanism for resolving disputes about the settlement itself. One section of the agreement entitled “Property Interests to NASB” provides, in part, that the bank is to receive “[a]ll of the Missouri property in the Montclair and Hills of Montclair subdivisions in Clay County, Missouri as sold by the trustee's sale on October 31, 2008....” Another section of the agreement entitled “Property Interests to Duggan Homes, Inc.” provides that the company is to receive good title to “Lot 95 in the Hills of Montclair subdivision in Clay County, Missouri....” The settlement agreement incorporates legal descriptions of the real estate going to North American Savings and to Duggan Homes but does not otherwise describe or allocate property in the Clay County subdivisions. In another section of the written settlement, the parties agree that “any controversy, claim or dispute regarding this Journal Entry shall be submitted to Judge Kevin Moriarty as the final and binding arbiter of such dispute.”
A snag indeed developed. A substantial portion of the land in the Montclair subdivisions had been designed as common areas and was not included in the 2008 trustee's sale. Nor was that land part of Lot 95, a single residential tract. North American Savings took the position that in the mediated settlement the parties intended it would get all of the property in Montclair subdivisions except for Lot 95 and the defendants would receive title to only Lot 95. The defendants didn't see it that way and argued the settlement agreement reserved to Duggan Homes both the common areas and Lot 95. The parties couldn't resolve their differences.
On April 19, 2011, counsel for North American Savings e-mailed a letter to Judge Moriarty, with copies to representatives of the defendants, asking that he exercise his authority “as arbiter” to resolve the dispute. The parties filed written submissions with Judge Moriarty, and he held a hearing on May 11, 2011. After reviewing the submissions and hearing argument, Judge Moriarty determined that the mediated settlement called for North American Savings to get all of the real estate in the Montclair subdivisions except for one lot that the defendants were to designate. Judge Moriarty reformed the written settlement agreement to reflect what he viewed as the actual understanding of the parties at the time of the mediation. A supplemental journal entry was filed to that effect. The defendants have appealed.
We turn first to the substantive issue of what the parties agreed to in mediation. Settlement agreements are a species of contract, and the general rules of contract law apply to them. Farm Bureau Mut. Ins. Co. v. Progressive Direct Ins. Co., 40 Kan.App.2d 123, Syl. ¶ 7, 190 P.3d 989 (2008). The doctrine of reformation permits a court to revise a written contract erroneously setting forth the parties' agreement to reflect the terms they actually offered and accepted. See Conner v. Koch Oil Co., 245 Kan. 250, 254, 777 P.2d 821 (1989) (recognizing and applying equitable remedy of reformation when a contract or other document fails to set forth accurately the intentions of the parties); Schlatter v. Ibarra, 218 Kan. 67, 70, 542 P.2d 710 (1975) (“[E]arly in [its] history,” Kansas embraced the equitable principle that a document intended to memorialize an agreement “could be reformed to conform to the original intention of all parties to the instrument, where a mutual mistake was made in describing the property and the instrument did not convey the property intended.”); In re Marriage of Jones, 22 Kan.App.2d 753, 761–62, 921 P.2d 839,rev. denied 260 Kan. 993 (1996).
In this instance, Judge Moriarty properly reformed the written agreement because it did not state the true settlement he had mediated. Two principal considerations well support reformation. First, at the conclusion of the mediation session, Judge Moriarty stated on the record the agreement of the parties. With respect to the Montclair subdivisions at issue in the Clay County suit, he stated: “Duggan Homes will be given one lot of their choice. In The Hills of Monte Claire [ sic ], there is one partially constructed home.... And when we do the journal entry, Mr. Duggan will select whatever lot he wishes, and it's anticipated it's going to be this partially constructed home.” He then referred to the remaining lots and “unplatted ground” and said the settlement called for “all of these properties ... going to North American Savings Bank, free and clear of any right, title, [or] interest of Duggan.” At the conclusion of Judge Moriarty's recitation of the agreement, nobody questioned his description of that aspect of the settlement. The parties did, however, request clarifications of several other points.
The mediated agreement Judge Moriarty outlined seems clear enough as to the Montclair subdivisions. The defendants were to identify a single lot in the Montclair subdivisions they would receive as part of the settlement. The problem arose because the written agreement described the property going to North American Savings as what had been included in the earlier foreclosure sale. In using that description, the parties incorrectly assumed the common areas had been included in the foreclosure sale. But they had not. The defendants argue that the description originated with North American Savings, so the bank should be stuck with it. But the language of the written agreement undoes that suggestion and furnishes the second reason reformation was appropriate.
As written, the settlement agreement fails to account for all of the real property included in the Montclair subdivisions. The general description of the property going to North American Savings as that included in the foreclosure sale leaves out the common areas. But the settlement agreement lists only Lot 95 as the defendants' property. So the settlement agreement, then, is silent as to common areas of the subdivisions—certainly an oddity for a “global settlement.” The way the written agreement is structured, the common areas should have been expressly listed in the section designated for property going to Duggan Homes or some other defendant. But it wasn't. The omission of any language directly dealing with the common areas points to a correctable defect in the agreement or, at the very least, an ambiguity.
The written agreement provides that it is the “joint work product of the parties” and, therefore, “no inference shall be drawn against a party” based on an ambiguity in the language. As a result, the defendants cannot snatch up the common areas simply because that property is not explicitly covered in the written agreement. And Judge Moriarty properly looked to the oral statement of the settlement announced at the mediation to resolve the ambiguity in the written agreement, since the parties intended the written agreement to embody the announced settlement. See Wood River Pipeline Co. v. Willbros Energy Services Co., 241 Kan. 580, 582, 738 P.2d 866 (1987). Judge Moriarty's statement of the settlement on the record at the mediation provides an excellent source of extrinsic evidence in discerning the parties' intent, whether used to reform the written agreement as an erroneous rendering of the true agreement or to resolve any ambiguity regarding the common areas. The defendants do not claim the parties further negotiated or revised the substantive terms of the settlement following the mediation, so Judge Moriarty's rendition may be accepted as accurate. The parties' communications after the mediation were aimed at capturing the already agreed upon terms in a written format.
Here, the record supports the conclusion that the written document incorrectly stated the negotiated settlement—the real agreement of the parties. Reformation properly may be used in that circumstance to correct the document. Accordingly, we find no fault with Judge Moriarty's decision to reform the written agreement or with his determination of the substance of the reformed agreement.
In addition, the dispute resolution provision in the settlement agreement precludes the defendants' appeal. As we have noted, the agreement selects Judge Moriarty “as the final and binding arbiter” of any dispute regarding the settlement agreement. That clause could be read either of two ways, and each bars this appeal. The differing readings depend upon the role Judge Moriarty is to serve as the “arbiter”—is he to resolve any conflict as a district court judge sitting in a judicial forum or as the parties' designated neutral in an alternative dispute resolution forum? The term “arbiter” could be applied to either. Merriam–Webster's Collegiate Dictionary 63 (11th ed.2003) (arbiter is “a person with power to decide a dispute”); Black's Law Dictionary 119 (9th ed. 2009) (“One with the power to decide disputes, such as a judge.”). The parties did not use the word “arbitrator,” which would more plainly invoke arbitration as the chosen dispute resolution process. But lay dictionaries appear to treat “arbiter” as a synonym of “arbitrator.” The American Heritage Dictionary of the English Language 91 (5th ed.2011) ( “arbiter” defined as “[o]ne agreed upon or appointed to judge or decide a disputed issue; an arbitrator”); Merriam–Webster's Collegiate Dictionary 63 (arbitrator “is one that arbitrates: arbiter”). And Black's Law Dictionary finds them closely related. Black's Law Dictionary 120 (“arbitrator” defined as “a neutral person who resolves disputes between parties”).
North American Savings raised the settlement agreement dispute in a way consistent with Judge Moriarty serving as an alternative dispute resolution neutral. The bank submitted a letter to him invoking his authority as the designated arbiter rather than filing a motion to enforce the settlement. But Judge Moriarty ultimate resolved the dispute by signing a journal entry filed in the case, something an arbitrator would not do.
Assuming Judge Moriarty acted as an arbitrator in deciding the dispute over the written settlement agreement, his decision was an arbitration award. A party dissatisfied with an arbitration award cannot directly appeal the award. The proper vehicle is an application filed in the district court to vacate the arbitration award on narrow statutorily provided grounds. See K.S.A. 5–412; 9 U .S.C. § 10 (2006). An adverse ruling on the application to vacate may then be appealed. The defendants here did not follow that process. (We need not decide whether the Kansas Arbitration Act or the Federal Arbitration Act would govern this dispute, since the process for challenging an award is functionally the same for both.) On that basis, the defendants' appeal should be dismissed, since an arbitration award is not itself an appealable order or judgment.
If the parties intended that Judge Moriarty resolve any disputes over the settlement agreement in his capacity as a district court judge, the contractual language making him the “final and binding” arbiter necessarily bars this appeal. His determination would be final and, thus, binding only if it could not be appealed. Courts have long recognized that parties to civil litigation may waive appellate review when they do so in fairly negotiated agreements for valuable consideration. In re Lybarger, 793 F.2d 136, 139 (6th Cir.1986); United States Consol. Seeded Raisin Co. v. Chaddock & Co., 173 F. 577, 579–80 (9th Cir.1909), cert. denied215 U.S. 591 (1910); Burke v. Burke, 52 Va.App. 183, 191–92, 662 S.E.2d 622 (2008) (collecting cases). This would be such an instance, thereby precluding defendants' appeal under the terms of the negotiated settlement.
Affirmed.