Opinion
No. 108,380.
2013-08-30
FIRST NATIONAL BANK, Appellee, v. Brian L. CUNNINGHAM and Kristy Cunningham, Appellants, and Cunningham Energy, Inc., Farmers & Merchants Bank of Long Beach, Balboa Capital Corporation, and Banc of America Leasing & Capital, LLC, Defendants.
Appeal from Montgomery District Court; Frederick William Cullins, Judge. Nicholas R. Grillot, of Redmond & Nazar, L.L.P., of Wichita, for appellants. Jeffrey A. Chubb, of Emert, Chubb & Gettler, LLC, of Independence, for appellee.
Appeal from Montgomery District Court; Frederick William Cullins, Judge.
Nicholas R. Grillot, of Redmond & Nazar, L.L.P., of Wichita, for appellants. Jeffrey A. Chubb, of Emert, Chubb & Gettler, LLC, of Independence, for appellee.
Before BRUNS, P.J., McANANY and SCHROEDER, JJ.
MEMORANDUM OPINION
PER CURIAM.
Brian L. Cunningham and Kristy Cunningham come before this court asking for reversal of the summary judgment granted to First National Bank (FNB). We have carefully reviewed the record, including FNB's motion for summary judgment and the Cunninghams' reply. We find the Cunninghams failed to controvert FNB's statement of uncontroverted facts, resulting in the district court being presented no material facts in dispute to deny summary judgment. See Supreme Court Rule 141 (2012 Kan. Ct. R. Annot. 247). We affirm.
Facts
Cunninghams' Mortgages and Bankruptcy
In 2006, the Cunninghams, with the purchase of their home, obtained a note and mortgage from First National Bank (FNB). A second note and mortgage was obtained from FNB in 2007. The Cunninghams filed for Chapter 7 bankruptcy in 2010. With the bankruptcy court's approval, the Cunninghams reaffirmed the promissory note in January 2011; however, they still could not make their payments.
In July 2011, the Cunninghams offered their house for sale. In September, FNB contacted a realtor, Sandy Rollins, to help the Cunninghams sell their house. Based on what FNB told her, Rollins understood the listing price would be $649,000. Rollins found potential buyers, the O'Malley's, who offered to buy the house for $649,000. The Cunninghams rejected the offer but continued to negotiate.
Without the aid of Rollins, the Cunninghams found Tim Valentine. Valentine offered $750,000 for the property, partially funded by trade dollars. His offer was never finalized and, when Valentine discovered the O'Malleys were interested, he withdrew his offer.
Later, the O'Malleys agreed to pay $750,000 but wanted all of the Cunninghams' mineral rights. The O'Malleys submitted a contract to the Cunninghams, but the Cunninghams never signed it. Before signing the O'Malleys' contract, the Cunninghams sought a ruling from the bankruptcy court that their equity in the house would not be part of the bankruptcy estate. The O'Malleys discovered another business opportunity and withdrew their offer before the Cunninghams signed the contract.
The Cunninghams claim FNB interfered and caused both buyers to withdraw their offers by proposing to sell either one of them the note and mortgage for the balance due. The Cunninghams assert this action caused the buyers to pause and reconsider their offers, as the amount proposed by FNB was substantially below the negotiated price.
FNB admitted it offered to sell its note and mortgages to both Valentine and the O'Malleys for the balance owed, which was public record in the bankruptcy proceedings. Both parties declined. The Cunninghams never had a written contract with Valentine. FNB submitted an affidavit from Valentine stating he did not end negotiations with the Cunninghams based on any communication with FNB. FNB also produced an affidavit from Mike O'Malley reflecting he never had a signed contract with the Cunninghams and withdrew the offer because of a new business opportunity, not because of any contact with FNB.
Bankruptcy Court's Ruling and Order for Relief from Automatic Stay
In October 2011, the bankruptcy court found the equity in the house was exempt as Cunninghams' homestead. By this time, both buyers had backed out of the purchase. FNB sought relief from the automatic stay, and the Cunninghams consented to an order lifting the automatic stay to allow the foreclosure to proceed.
FNB's Petition to Foreclose and Cunninghams' Counterclaims
On January 23, 2012, FNB filed its foreclosure petition. In its pleading, FNB recognized the Cunninghams' pending bankruptcy case. FNB's petition stated: “[N]o money judgment entered herein shall be enforced against them during the pendency of his [ sic ] bankruptcy action. Should Brian L. Cunningham or Kristy Cunningham receive a discharge in bankruptcy, then a money judgment entered herein against said discharged debtor would be an in rem judgment.”
The Cunninghams timely responded to FNB's petition by denying FNB's various claims for relief. The Cunninghams also filed two counterclaims against FNB. First, the Cunninghams alleged FNB had violated the automatic stay under 11 U.S.C. § 362 (2006) by attempting to obtain a personal judgment against the Cunninghams, not the in rem judgment the bankruptcy court permitted. Second, the Cunninghams alleged FNB tortiously interfered with an expected business advantage by disclosing to Valentine and the O'Malleys the balance on the Cunninghams' mortgage was significantly less than the price for the property.
FNB's Motion to Dismiss and/or for Summary Judgment
FNB filed a motion to dismiss and/or for summary judgment on both of the Cunninghams' claims. FNB denied it had violated the bankruptcy stay and argued its petition would lead to an in rem judgment, not an in personam judgment, upon the Cunninghams receiving a discharge in bankruptcy. If the Cunninghams did not receive a discharge, then FNB would be entitled to an in personam judgment.
FNB admitted offering to sell the note and mortgage to both Valentine and the O'Malleys for the amount owed, but it denied tortiously interfering with an expected business advantage. Both buyers stated that their decisions to withdraw their offers were not influenced by FNB. FNB claimed the Cunninghams' financial difficulty was public and apparent with their pending bankruptcy. Furthermore, FNB argued that its communication with the prospective buyers was truthful, and the communication of truthful information cannot be the basis for a claim of tortious interference with an expected business advantage. FNB attached several exhibits to its motion to dismiss and/or for summary judgment, including affidavits from the prospective buyers and FNB's president.
In response to the motion to dismiss and/or for summary judgment, the Cunninghams claimed FNB's motion should be treated as a motion for summary judgment rather than as a motion to dismiss. The Cunninghams argued K.S.A.2012 Supp. 60–212(b)(6) requires a court to consider only the well-pled facts in considering a dismissal, and the facts should be viewed in a light most favorable to the party raising a claim, including inferences drawn from those facts. Because the Cunninghams provided evidence in their pleadings that FNB attempted to collect a debt and interfered with the sale of the property, the Cunninghams alleged a dismissal was unwarranted. The Cunninghams claimed the exhibits were matters outside of the pleadings, causing the motion to be treated as a motion for summary judgment. As a summary judgment motion, the Cunninghams argued the motion should be denied because a review of the pleadings alone could not decide the case and discovery was not yet complete. The Cunninghams asserted their counterclaims established a genuine dispute of material facts and, therefore, summary judgment was inappropriate.
Next, the Cunninghams argued FNB, in seeking a personal judgment, violated the automatic stay of their bankruptcy proceeding creating a material fact issue to deny FNB's motion for summary judgment. The Cunninghams stated the automatic stay prevents creditors from collecting or attempting to collect a debt through a personal judgment and the bank could only pursue an in rem judgment in the foreclosure.
Finally, the Cunninghams argued their counterclaims asserted sufficient facts to warrant denial of FNB's motion for summary judgment. The Cunninghams contended:
• Their house would have sold if not originally offered at the incorrect price of $649,000;
• FNB knew about the Cunninghams attempts to sell the house;
• FNB improperly provided information to prospective buyers; and
• The communication of truthful information is not an absolute bar to a tortious interference claim.
The Cunninghams pointed to the seven-factor test from the Restatement (Second) of Torts § 767 (1977) as proof the case needed to be considered on its merits. Also cited are related Restatement (Second) of Torts §§ 776, 776B, and 772(a) (1977).
Hearing and Entry of Judgment
At the hearing on the motion to dismiss and/or for summary judgment, FNB argued it was not pursuing an in personam judgment. FNB argued that it was an in rem judgment and the judgment would be used only if the Cunninghams did not receive a discharge in their bankruptcy. In regards to the Cunninghams' claim of tortious interference, FNB relied on Cohen v. Battaglia, 41 Kan.App.2d 386, 202 P.3d 87 (2009), rev'd296 Kan. 542, 293 P.3d 752 (2013), to demonstrate that the truthfulness of FNB's contact with the prospective buyers protected the bank from a tortious interference claim.
The Cunninghams responded that their counterclaim regarding a violation of the automatic stay in bankruptcy was also a defense asserted to the foreclosure. The Cunninghams claimed that allowing FNB to file such a petition, even for the sake of convenience, would be contrary to the automatic stay and the actual order issued by the bankruptcy court. The Cunninghams also disputed FNB's assertion that truth was an absolute bar to tortious interference of prospective business expectancy. Because there were material issues of fact and FNB produced evidence not found in the Cunninghams' pleadings, the Cunninghams asked the court to deny FNB's motion to dismiss.
In an agreed-upon journal entry, the district court foreclosed the two mortgages and granted an in rem judgment for the note amount, interest, and costs of the action. Subsequently, the district court granted FNB's summary judgment motion on the tortious interference with an expected business advantage claim relying on Cohen, 41 Kan.App.2d at 402, stating: “The information that FNB provided to prospective buyers of their note and mortgage with the Cunninghams was truthful. Tortious interference claims cannot be predicated on the defendant's communication of truthful information.” Because Cohen applied, the court did not need to engage in a balancing test.
The district court found FNB violated the automatic stay by seeking both in personam and in rem relief, even if one might be contingent on a discharge in bankruptcy not being granted. However, the court held that the violation “clearly was not intentional” and the language of the petition “was clearly written in an effort to avoid a willful violation of the bankruptcy court's order.” Because the violation was not intentional and caused the Cunninghams no injury, the district court granted summary judgment in favor of FNB on the Cunninghams' claim that FNB violated the stay.
The Cunninghams timely appeal.
Analysis
Did the District Court Err in Granting Summary Judgment to FNB on the Cunninghams' Counterclaims for Tortious Interference with an Expected Business Advantage and Violation of the Bankruptcy Stay?
Standard of Review
FNB's motion presented the district court with two distinct alternatives: dismissal or summary judgment. As the standard of review on appeal for each alternative is different, determining how the district court addressed the motion is essential.
The Cunninghams correctly argue their claims were sufficient to survive a motion to dismiss. The district court is limited to considering only the pleading on a motion to dismiss. Here, the district court considered more than the pleadings, denied the motion to dismiss, and proceeded to consider FNB's motion for summary judgment. The district court granted FNB's motion for summary judgment and that controls our standard of review.
When the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law, summary judgment is appropriate. The district court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. To preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal, the same rules apply; summary judgment must be denied if reasonable minds could differ as to the conclusions drawn from the evidence. O'Brien v. Leegin Creative Leather Products, Inc., 294 Kan. 318, 330, 277 P.3d 1062 (2012).
As a general rule, summary judgment in a pending case should not be granted until discovery is complete. However, if the facts pertinent to the material issues are not disputed, summary judgment may be appropriate even when discovery is unfinished. Hauptman v. WMC, Inc., 43 Kan.App.2d 276, 297, 224 P.3d 175 (2010). Furthermore, a court should be cautious in granting a motion for summary judgment when resolution of the dispositive issue requires a determination of the state of mind of one or both parties. Smith v. Farha, 266 Kan. 991, 997, 974 P.2d 563 (1999); Downing v. Kingsley, 43 Kan.App.2d 30, 36–37, 221 P.3d 115 (2009), rev. denied 291 Kan. 910 (2011). We must look at the evidence in a light most favorable to the Cunninghams, and the Cunninghams must come forward with evidence to establish a dispute as to a material fact. See Osterhaus v. Toth, 291 Kan. 759, 768, 249 P.3d 888 (2011).
Did the District Court Err in Granting Summary Judgment on the Cunninghams' Counterclaim for Tortious Interference with an Expected Business Advantage?
In their counterclaim, the Cunninghams argued FNB had tortiously interfered with an expected business advantage. Kansas recognizes this claim as a cause of action and has discussed five requirements:
“ ‘(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 cause of defendant's misconduct.
‘Both tortious interference with a contract and tortious interference with contractual expectations or a prospective business advantage are predicated on malicious conduct by the defendant. While 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.’ “ Burcham v. Unison Bancorp, Inc., 276 Kan. 393, 424–25, 77 P.3d 130 (2003) (quoting Turner v. Halliburton Co., 240 Kan. 1, 12, 722 P.2d 1106 [1986] ).
To determine whether a defendant's conduct was improper, the Kansas Supreme Court has advocated a seven-factor test:
“ ‘(1) the nature of the defendant's conduct; (2) the defendant's motive; (3)the interests of the other with which the defendant's conduct interferes; (4) the interests sought to be advanced by the defendant; (5) the social interests in protecting the freedom of action of the defendant and the contractual interests of the other; (6) the proximity or remoteness of the defendant's conduct to the interference; and (7) the relations between the parties.’ “ Burcham, 276 Kan. at 425 (quoting Reebles, Inc. v. Bank of America, N.A., 29 Kan.App.2d 205, 212, 25 P.3d 871,rev. denied 272 Kan. 1491 [2001] ).
See Turner, 240 Kan. at 14 (citing Restatement [Second] of Torts § 767).
In their response to FNB's motion for summary judgment, the Cunninghams had to come forth with specific facts regarding how FNB tortiously and maliciously interfered with an expected business advantage and why its activities were improper when only public information was disclosed. The Cunninghams failed to articulate these facts in their response. FNB admitted it made proposed offers to both prospective buyers. In affidavits, both prospective buyers stated that their contact with FNB had no effect on their decisions to withdraw their offers to purchase the Cunninghams' house.
In Cohen, the Supreme Court addressed the liability of Battaglia for statements that are true. The Court of Appeals' decision affirming the district court was reversed because the panel effectively made a factual determination by considering facts outside the pleadings, which is inappropriate on a motion to dismiss; factual issues cannot be resolved on a dispositive motion. A district court cannot go outside the pleadings when deciding on a motion to dismiss. The issues in Cohen are different from the Cunninghams'. See, 296 Kan. at 549.
There was no admission of truthfulness in Cohen. FNB admits its statements to the prospective buyers and documented that the statements were true. The Cunninghams admit the statements made by FNB were true but failed to show how the statements were malicious. Once the Cunninghams admitted in their response that the statements by FNB were true, they eliminated any uncontroverted facts to create a material fact in dispute.
The Cunninghams presented no material facts in dispute to the district court in response to the FNB's motion for summary judgment. The record reflects discovery had not been completed, and the Cunninghams advised the district court of this fact. However, the Cunninghams failed to ask the district court to deny the motion for summary judgment until discovery was complete. The Cunninghams allowed the matter to proceed on FNB's motion for summary judgment. The Cunninghams failed to controvert material facts pursuant to Supreme Court Rule 141 (2012 Kan. Ct. R. Annot. 247). The Supreme Court recently said in Frick v. City of Salina, 290 Kan. 869, Syl. ¶ 6, 235 P.3d 1211 (2010): “When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case.”
We recognize the application of Supreme Court Rule 141 and its supporting caselaw can be harsh, but if not followed it has this result. The Cunninghams failed to controvert FNB's contentions on the motion for summary judgment or to present additional controverted material facts. The district court had uncontroverted facts before it and accordingly granted FNB's motion for summary judgment. We cannot say reasonable minds could differ as to the conclusion drawn from the uncontroverted facts. See Osterhaus, 291 Kan. at 768.
Did the District Court Err in Granting Summary Judgment on the Cunninghams' Counterclaim for Violation of the Bankruptcy Stay?
The parties raise several issues with regard to the violation of the automatic stay in bankruptcy. The first and dispositive issue is whether this court should exercise jurisdiction over an alleged violation of a bankruptcy stay. FNB cites two federal cases for our consideration, Halas v. Platek, 239 B.R. 784, 792 (N.D.Ill.1999), and MSR Exploration, Ltd. v. Meridian Oil Inc., 74 F.3d 910 (9th Cir.1996), to argue federal courts have ruled bankruptcy courts have exclusive jurisdiction for sanctions of a stay violation, thereby making a ruling by this court improper. The Cunninghams counter with Justice Commeth, Ltd. v. Lambert, 426 F .3d 1342, 1343 (11th Cir.2005), and In re Kearns, 161 B.R. 701, 704 (D.Kan.1993), which show state courts have concurrent jurisdiction to determine whether an action is subject to a bankruptcy stay and whether damages for violation of the automatic stay are appropriate.
We find the better practice would be for this court to decline jurisdiction and leave it to the bankruptcy court to address the violation of the stay order.
Conclusion
The Cunninghams failed to controvert FNB's statement of uncontroverted facts and allowed FNB to proceed on its motion for summary judgment. The Cunninghams could have avoided this result by setting forth material facts in dispute in response to FNB's motion for summary judgment. The Cunninghams did not, and the district court correctly ruled with the facts before it. We affirm the granting of summary judgment. We decline to accept jurisdiction to address a possible violation of the bankruptcy stay and dismiss this issue finding the best course of action is for that issue to be resolved by the bankruptcy court.
Affirmed in part and dismissed in part.