Daggett v. Board of Public Utilities

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No. 104,835

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

E. LEON DAGGETT,
Appellant,

v.

BOARD OF PUBLIC UTILITIES OF THE UNIFIED GOVERNMENT OF
WYANDOTTE COUNTY/KANSAS CITY, KANSAS,
Appellee.


SYLLABUS BY THE COURT

1.
A breach of contract is a material failure of performance of a duty arising under or
imposed by agreement.

2.
Summary judgment is appropriate when there is no genuine issue as to any
material fact and the moving party is entitled to judgment as a matter of law.

3.
The primary rule for interpreting written contracts is to ascertain the parties' intent.
If the contract's terms are clear, the parties' intent is to be determined from the contract
language without applying rules of construction.

4.
An interpretation of a contractual provision should not be reached merely by
isolating one particular sentence or provision but by construing and considering the entire
instrument from its four corners.

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5.
A contract must be interpreted in light of its provisions, and every provision must
be construed, if possible, to be consistent with every other provision and to give effect to
all.

6.
A contract should be strictly construed against the drafter of the contract and
liberally construed toward the other party.

Appeal from Wyandotte District Court; DAVID W. BOAL, judge. Opinion filed September 16,
2011. Reversed and remanded with directions.

Mark Beam-Ward, of Beam-Ward, Kruse, Wilson, Wright & Fletes, LLC, of Overland Park, for
appellant.

Carl A. Gallagher, of McAnany, Van Cleave & Phillips, P.A., of Kansas City, for appellee.

Before HILL, P.J., GREEN and BRUNS, JJ.

GREEN, J.: E. Leon Daggett appeals from the trial court's ruling in favor of the
Board of Public Utilities (BPU) on his breach of contract claim. On appeal, the BPU
argues that this court does not have jurisdiction to hear this appeal because Daggett failed
to timely file his appeal. We disagree. Daggett contends that the BPU breached the
settlement agreement when it failed to ensure that Daggett received the benefit of its
contributions to the pension plan. We agree. Accordingly, we reverse and remand to the
trial court with directions to grant summary judgment in favor of Daggett for breach of
contract and to calculate damages.

Daggett was the general manager of the BPU for 10 years. Daggett was terminated
from his employment on December 21, 2005. On March 22, 2006, the BPU drafted a
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settlement and release agreement that would pay Daggett's salary, deferred compensation,
and pension contributions through June 30, 2008.

On July 1, 2008, when Daggett attempted to receive his pension benefits, he
discovered that the pension contributions paid by the BPU were not in his account. The
pension contributions made by Daggett had been deducted from his paychecks, and the
BPU also made its contributions to the pension fund; however, those contributions were
not accepted by the pension fund. The record does not indicate why the contributions
were not accepted or what happened to the contributions after they were rejected. At oral
argument, the BPU admitted that the contributions it made to the pension plan on behalf
of Daggett were returned to the BPU and that Daggett's contributions were returned to
him. As a result, Daggett receives approximately $1,000 less a month than he would have
received if the contributions had been accepted.

Daggett sued the BPU claiming, among other things, breach of contract. Daggett
moved for summary judgment, which the trial court denied. The trial court found that the
BPU made the required contributions to the pension fund, and, therefore, it did not breach
the settlement agreement between Daggett and the BPU.

Does this Court Have Jurisdiction to Consider the Merits of this Appeal?

The BPU filed a motion to dismiss Daggett's appeal before our court. The BPU
argued that Daggett failed to timely file his appeal. The BPU maintained that the trial
court entered a final order on the merits on June 15, 2010, which made Daggett's appeal
filed on August 12, 2010, untimely. Our court denied the motion and held that the
judgment below was not final until the ruling on the motion for attorney fees.

In its brief, the BPU again argues that this court does not have jurisdiction because
Daggett failed to timely file his appeal. The BPU does not raise any new arguments in its
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brief, and it relies on the same authority that it cited to in its motion to dismiss. Because
our court already addressed this issue when it denied the motion, we will not address it
again. We will simply reiterate our holding that this court has jurisdiction to hear this
appeal because Daggett's judgment was not final until the ruling on the motion for
attorney fees had been decided.

Did the BPU Breach the Settlement Agreement?

Daggett contends that the BPU breached the settlement agreement when it failed
to make contributions to the pension account for Daggett's benefit. There is no dispute
that the BPU paid the contributions; however, Daggett argues that the BPU breached the
settlement agreement because he did not receive the benefit of those contributions.
Daggett maintains that the intent of the settlement agreement was for him to receive a
benefit from the contributions and because that did not happen, the agreement was
breached.

A breach of contract is "a material failure of performance of a duty arising under
or imposed by agreement." Malone v. University of Kansas Medical Center, 220 Kan.
371, 374, 552 P.2d 885 (1976). Where there are no disputed material facts, the
determination of whether a party breached the contract is a question of law and is
appropriate for summary judgment. City of Topeka v. Watertower Place Dev. Group, 265
Kan. 148, 154, 959 P.2d 894 (1998). Where there are no disputed facts and the appellate
court is required to interpret and give legal effect to a written contract, appellate review
of an order regarding summary judgment is de novo. Katzenmeier v. Oppenlander, 39
Kan. App. 2d 259, 263, 178 P.3d 66, rev. denied 286 Kan. 1178 (2008).

"The primary rule for interpreting written contracts is to ascertain the parties'
intent. If the terms of the contract are clear, the intent of the parties is to be determined
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from the contract language without applying rules of construction." Carrothers Constr.
Co. v. City of South Hutchinson, 288 Kan. 743, 751, 207 P.3d 231 (2009).

Further, the interpretation of a contractual provision should not be reached merely
by isolating one particular sentence or provision but by construing and considering the
entire contract from its four corners. City of Arkansas v. Bruton, 284 Kan. 815, 832-33,
166 P.3d 992 (2007). "'The law favors reasonable interpretations, and results which
vitiate the purpose of the terms of the agreement to an absurdity should be avoided.
[Citations omitted.]'" Wichita Clinic v. Louis, 39 Kan. App. 2d 848, 853, 185 P.3d 946,
rev. denied 287 Kan. 769 (2008).

Interpretation of Settlement and Release Agreement

In his brief, Daggett contends that the intent of the parties is clear in that the
pension contributions were to be made to benefit Daggett. Daggett argues that because he
did not receive the benefit of those contributions, the BPU failed to perform a duty
arising under the agreement. Daggett further contends that the intent of the agreement
was not for the BPU to make meaningless contributions, only to have them returned to
the BPU 2 1/2 years later.

On the other hand, the BPU argues that it complied with the settlement agreement
because it made the contributions each month as required. The BPU contends that all it
was required to do was to make those contributions and that what happened to those
contributions after it made them was out of its control.

As a general rule, a contract must be interpreted in light of its provisions, and
every provision must be construed, if possible, to be consistent with every other provision
and to give effect to all. Wiles v. Wiles, 202 Kan. 613, 619, 452 P.2d 271 (1969). The
terms of a contract should be construed to give effect to the intention of the parties when
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they entered into the contract, and this must be determined from the four corners of the
contract itself. 202 Kan. at 619.

The first applicable portion of the Settlement and Release Agreement is section
1(c), which provides as follows: "Until June 30, 2008, Mr. Daggett and the Board shall
continue to make contributions for the benefit of Mr. Daggett to the pension plan
currently administered by the Board and Pension Trustees of the Board in such amounts
as are prescribed for all employees of the Board." (Emphasis added.)

The Settlement and Release Agreement further states in Section 20 that the parties
agree to cooperate in good faith. Section 20 provides as follows:

"The Board and Mr. Daggett agree to cooperate in good faith to effectuate all the terms
and conditions of this Agreement, including doing or causing their agents and attorneys
to do whatever is reasonably necessary within the contemplation of this Agreement to
effectuate the signing, delivery, execution, filing, recording, and entry of any documents
as may be necessary to conclude any outstanding claims, to release the parties as
contemplated herein, to dismiss with prejudice any pending actions, and to otherwise
perform the terms specified in this Agreement."

The trial court ruled in favor of the BPU and held that because the BPU made the
contributions to the pension fund, it upheld its end of the bargain. The trial court stated:
"The Defendant [the BPU] agreed to make the payments and it made the payments and
the fact that the pension fund refused to accept the payments had nothing to do with the
issue of whether Defendant had breached its agreement."

In the trial court's memorandum order denying plaintiff's [Daggett] motion to
reconsider, the court stated:

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"The Defendant, it is agreed by the parties, made the payments. In so doing, the
Defendant met its contractual obligation. That seemed to be so obvious that the Court
attempted to assure itself that there was not some subtlety that was being overlooked,
thus the concededly unnecessary wanderings among legal theories in that portion of the
opinion."

The trial court's legal conclusion is contrary to the intent of the parties.

The trial court has a duty to ascertain the intent of the parties in a contract dispute.
It clearly failed to do so in this case. The trial court somehow disconnected the BPU's
duty to make the contributions from what the contributions were being made for. The
only way to reach the trial court's conclusion is to completely ignore the phrase "for the
benefit of Mr. Daggett." The trial court's interpretation implicitly renders superfluous the
statement "the Board shall continue to make contributions for the benefit of Mr. Daggett."

Although it is undisputed that the BPU made the required contributions to the
pension fund, the question then becomes whether those contributions, accepted or not,
satisfied BPU's contractual obligations to Daggett.

The key language to focus on in the settlement agreement is "for the benefit of Mr.
Daggett." As stated earlier, the BPU complied with the agreement by making the required
contributions; however, Daggett did not receive the benefit of those contributions. In fact,
the BPU's contributions were returned to the BPU instead of to Daggett after the pension
board rejected them. The term "benefit" is not defined in the agreement; therefore, a
dictionary definition can be used to determine the common meaning of the term.
"Benefit" is defined as follows: "a payment or service provided for under an annuity,
pension plan, or insurance policy." Merriam-Webster's Collegiate Dictionary 114 (11th
ed. 2003).

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Daggett entered into this settlement agreement with the understanding that these
monthly pension contributions would increase his pension payout in the future. Looking
at the actual contract, the restrictive phrase in section 1(c) is "for the benefit of Mr.
Daggett." The nearest antecedent is "contributions." This restrictive phrase defines the
limits and purposes of the contributions. Moreover, because the BPU wrote the settlement
agreement, it is construed strictly against the BPU and liberally toward Daggett. See
Dearborn Motors Credit Corp. v. Neel, 184 Kan. 437, 449, 337 P.2d 992 (1959) (contract
construed strictly against the writer and liberally toward the other party).

Additionally, section 3 of the settlement agreement states as follows:

"Until June 30, 2008, Mr. Daggett has the option to request, upon sixty (60) days written
notice, the payment of the remaining value of his annual compensation as set forth in
paragraph 1(a) in a single lump sum amount. In the event that Mr. Daggett exercises this
option, the compensation and benefits provided in paragraphs 1(a), 1(b), 1(c), and 2 of
this Agreement shall terminate upon the date the lump sum payment is made."

Daggett agreed to receive his salary compensation on a monthly basis in exchange
for the BPU's continued contributions to Daggett's pension fund. The BPU's failure to
properly make those "contributions for the benefit of Mr. Daggett" took away the benefit
that Daggett was supposed to receive. Therefore, Daggett is in no better position today,
after spreading out his salary payments, than he would have been had he received a lump
sum back in June 2008. Daggett essentially waited 2 1/2 years to receive his full salary
for nothing.

Based on the settlement agreement, the only way to terminate the BPU's duty to
contribute to the pension fund for Daggett's benefit would be for Daggett to request a
lump sum payment. Daggett did not request a lump sum payment; therefore, the BPU was
still required to make pension contributions "for the benefit of Mr. Daggett."

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The contract clearly states that the pension plan was "currently administered by the
Board and Pension Trustees of the Board." This means that both the BPU and the pension
trustees were aware of each other; therefore, even if the Board complied by making the
contributions, it would appear that the pension trustees would have told the Board that the
contributions were not being accepted. Moreover, the pension trustees could be
considered an agent of the BPU because their main purpose was to establish a retirement
plan for the employees of the BPU. "[A]n agent has a duty, not only to make no
misstatements of fact, but also to disclose to the principal all material facts fully and
completely." Merchant v. Foreman, 182 Kan. 550, 556, 322 P.2d 740 (1958). Once the
BPU discovered that its contributions were not being accepted, it was then required,
under section 20 of the settlement agreement, to find an acceptable alternative to fulfill its
contractual obligations to Daggett. It failed to do so.

It is disingenuous for the BPU to argue that it did what it was required to do, and,
therefore, it is not liable for breach of contract. It would not be a reasonable interpretation
of the settlement agreement to find that the intent of the parties was simply for the BPU
to make the contributions without any concern with whether those contributions were
accepted. This interpretation completely ignores the words "for the benefit of Mr.
Daggett." As the caselaw requires, a contract should not be interpreted merely by
isolating one particular sentence or provision. Reading this contract as a whole, it is clear
that the contributions had a specific purpose, and that purpose was to benefit Daggett.
Thus, it was reasonable for Daggett to expect that the monthly pension contributions
would continue to go into the pension fund to increase his eventual payout so long as he
did not exercise his option, under section 3 of the settlement agreement, to request the
payment of the remaining value of his annual compensation in a single lump sum
payment. And he did not exercise this option.

The fact that the BPU wrote the contract weighs in favor of the previously
mentioned interpretation. Such an interpretation is supported by a common-law rule that
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a court should construe the terms of a writing against the drafter. Mastrobuono v.
Shearson Lehman Hutton, Inc., 514 U.S. 52, 63, 115 S. Ct. 1212, 131 L. Ed. 2d 76
(1995). The purpose for the rule "is to protect the party who did not choose the language
from an unintended or unfair result." 514 U.S. at 63. Giving the BPU the benefit of its
own interpretation would subject Daggett to an unfair result. Daggett would lose his
increased pension benefit, which under the contract he fully expected to receive.

As stated earlier, a breach of contract is "a material failure of performance of a
duty arising under or imposed by agreement." Malone v. University of Kansas Medical
Center, 220 Kan. 371, 374, 552 P.2d 885 (1976). Therefore, because the BPU failed to
ensure that the contributions made benefited Daggett, it breached the settlement
agreement. Because there is insufficient evidence in the record to calculate damages, we
remand to the trial court to determine damages.

Reversed and remanded to the trial court with directions to grant summary
judgment in favor of Daggett for breach of contract and to calculate damages.

* * *

BRUNS, J., concurring: I agree with my colleagues regarding the interpretation of
the settlement and release agreement entered into by the parties in March 2006. I also
agree that this case should be remanded to the district court to determine the appropriate
amount of damages. In reaching this decision, however, I would simply rely upon the
plain and unambiguous language of the contract.

This case involves a negotiated settlement and release between experienced parties
(a public utility company and its former general manager) who were represented by legal
counsel. See Kansas City Structural Steel Co. v. L.G. Barcus & Sons, Inc., 217 Kan. 88,
95, 535 P.2d 419 (1975) ("None of the parties here involved were neophytes or babes in
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the brambles of the business world."). Accordingly, I do not believe we have sufficient
evidence in the record to conclude that the settlement and release agreement should be
strictly construed against BPU, nor do I believe we need to reach this issue.

The common definition of the word "benefit" is "an advantage." American
Heritage Dictionary 168 (4th ed. 2006). Because BPU's payments to the pension plan
were not accepted and BPU kept the money that was returned by the pension plan,
Daggett did not receive the advantage or benefit of the bargain. Thus, it is not necessary
to apply rules of construction in this case. See Carrothers Constr. Co. v. City of South
Hutchinson, 288 Kan. 743, 751, 207 P.3d 231 (2009) (If the contract's terms are clear, the
parties' intent is to be determined from the contract language without applying rules of
construction.).