265 Kan. 271
(962 P2d 405)
No. 75,834
RICHARD B. YORK and VESTA L. YORK, Husband and Wife, Appellees/Cross-appellants, v. INTRUST BANK, N.A., a federally chartered banking corporation, Appellant/Cross-appellee, and LOST CREEK ESTATES, INC., a Kansas corporation; J.W. RUSSELL; MARGE DELMAR; PLAZA DEL SOL REAL ESTATE, INC., a real estate firm; SHARON WEST; BREEZY LAKE HOMEOWNERS ASSOCIATION, a nonprofit corporation, and THE ARCHITECTURAL CONTROL COMMITTEE FOR BREEZY LAKE HOMEOWNERS ASSOCIATION, Defendants.
SYLLABUS BY THE COURT
1. The effect of a release or covenant not to sue is a legal question, over which we have unlimited review. Insofar as factual matters pertain to whether a defendant was an active or passive tortfeasor, which has bearing on the legal question of the effect of the settlement, we apply a mixed standard of review. Thus, we apply a substantial competent evidence test to the factual findings and then decide if those findings support the legal conclusions.
2. The law is well settled in Kansas that the execution of a covenant not to sue does not result in a release of claims against all other joint tortfeasors.
3. A release or covenant not to sue an agent also releases a principal who is purely vicariously liable for imputed negligence under a theory of respondeat superior. Such a release or covenant not to sue does not release a principal who is independently liable for its own actions and not merely for the conduct of other actors.
4. Although all participants in a conspiracy may be held vicariously liable for acts injuring others committed while in furtherance of a conspiracy, all participants are directly liable for injuries to others which are the objects of the conspiracy, regardless of whether the participants were active or passive conspirators.
5. When a lender regularly acquires collateral upon default which it sells to consumers, the lender is engaging in consumer transactions in the ordinary course of its business and is a "supplier" as defined by K.S.A. 50-624(i) of the Kansas Consumer Protection Act.
6. When a verdict is challenged for insufficiency of evidence or as being contrary to the evidence, it is not the function of this court to weigh the evidence or pass on the credibility of the witnesses. If the evidence, with all reasonable inferences to be drawn therefrom, considered in the light most favorable to the prevailing party, supports the verdict, it will not be disturbed on appeal.
7. The Kansas Consumer Protection Act prohibits suppliers from engaging in any deceptive acts or practices in connection with a consumer transaction. A deceptive act includes the willful use, in any oral or written representation, of exaggeration, falsehood, innuendo, or ambiguity as to a material fact, regardless of whether any consumer has in fact been misled. A material fact is one to which a reasonable person would attach importance in determining his or her choice of action in the transaction involved.
8. There is no requirement that a person or entity willfully violate the Kansas Consumer Protection Act in order to find a violation of the Act under K.S.A. 50-626. Rather, K.S.A. 50-626 prohibits suppliers from engaging in deceptive acts, including the willful use, in any oral or written representation, of a falsehood as to any material fact.
9. The five elements necessary for a conspiracy to exist are: (1) two or more persons; (2) an object to be accomplished; (3) a meeting of minds in the object or course of action; (4) one or more unlawful overt acts; and (5) damages proximately caused by those acts.
10. Although agents or employees acting only in their official capacities on behalf of a corporate defendant and whose acts are considered those of the corporation may not form a conspiracy with the corporation, separate entities who contract with a corporation and pursue their own interests do not act in an official capacity of the corporation and may conspire with it.
11. In proving the existence of a meeting of the minds in a conspiracy, a plaintiff is not required to prove an actual agreement. Rather, circumstantial evidence of the agreement is universally recognized as the proper means of proving a conspiracy. Thus, a conspiracy may be proven by either showing the conspiracy itself or by showing the separate acts of the conspirators involving the same purpose or object.
12. The elements necessary to find a defendant liable for aiding and abetting others are: (1) The party whom the defendant aids must perform a wrongful act causing injury; (2) at the time the defendant provides assistance, he or she must be generally aware of his or her role in part of an overall tortious or illegal activity; and (3) the defendant must knowingly and substantially assist in the principal violation.
13. The six factors to be used to determine whether a defendant knowingly provided substantial aid to a tortfeasor are : (1) the nature of the act encouraged by the defendant; (2) the amount of the defendant's assistance; (3) the defendant's presence or absence at the time of the tortious act; (4) the defendant's relation to the other party; (5) the defendant's state of mind; and (6) the duration of the defendant's assistance.
14. A remittitur is, in effect, a post-trial settlement negotiation where the court utilizes its discretion to reduce what it believes to be an excessive judgment to one which it believes both parties should accept.
15. Where a verdict is reduced by a remittitur on motion of the party against whom the verdict was entered, said party has neither consented to nor acquiesced in the new judgment and is not barred from appeal. However, when a party rejects the benefit of the remitted verdict and appeals, the party who accepted the remittitur rather than undertaking the expense of a new trial is not barred from raising the propriety of the remittitur and other issues on a cross-appeal.
16. Cross-appeals of remittiturs should be permitted when the party for whom the remittitur was granted appeals on other grounds. Judicial economy is best achieved by reviewing the remittitur judgment at the same time other issues in the case are resolved. A new trial may be completely avoided if the trial court's order is found erroneous and the original verdict is reinstated. Moreover, such a rule encourages the appellant to pursue only meritorious appeals because of the chance that the appellate court may reinstate the original verdict while ruling against the appellant on all other issues.
17. A party is entitled to recover only his or her actual damages less those he or she might have reasonably prevented; however, the doctrine of avoidable consequences is simply one of good faith and fair dealing. The injured party need not undertake extraordinary efforts or do what is unreasonable or impracticable in an effort to minimize damages.
18. When the sufficiency of the evidence supporting a jury determination that punitive damages should be awarded is challenged, our standard of review is the same as on any other issue where the evidence is alleged to be insufficient, except that we must find that the substantial evidence supporting the punitive damages finding is clear and convincing.
19. The reasonable value of attorney fees rests within the sound discretion of the trial court, and the trial court's determination will not be disturbed in the absence of an abuse of discretion. If the trial court's award of fees is supported by substantial competent evidence, there is no abuse of discretion.
20. Statutory attorney fees constitute a remedy under the Kansas Consumer Protection Act which is in addition to and separate from the allowance of damages under K.S.A. 50-634(b).
21. In the present case, there is substantial evidence to support the trial court's award of attorney fees. It was clearly necessary for all of the underlying facts of the transaction to be fully developed in order to prosecute the Kansas Consumer Protection Act claim, which is inextricably intertwined with the single transaction which is the subject of this litigation.
22. Our standard of review over whether the trial court erred in granting a remittitur is one of abuse of discretion, not whether substantial evidence supported the jury verdict.
23. The trial court erred in computing a lump-sum amount of damages which could be applied at the beginning of the loan to reduce the amount of increased interest expense when payments on the loan had already been made for 14 months at the time the damages reduction was computed.
24. When a right of action is once satisfied, it ceases to exist. If part satisfaction has already been obtained, further recovery can only be had of a sum sufficient to accomplish satisfaction. It is not necessary that the party making payment in partial satisfaction was in fact liable. Anything received on account of the injury inures to the benefit of all and operates as a payment pro tanto. The plaintiff is entitled to only one satisfaction from whatever source it may come.
25. A covenant not to sue one joint tortfeasor does not release other joint tortfeasors; however, anything received by way of a covenant not to sue operates as a payment pro tanto upon any judgment obtained against the others.
26. The imposition of joint and several liability for punitive damages is contrary to the purpose for which punitive damages are awarded. Punitive damages are awarded to punish the wrongdoer. Each wrongdoer is liable to pay the punitive damages assessed against it. The amount of the award is to be calculated with the individual defendant's financial status and conduct in mind. Joint and several liability undermines these considerations and therefore is unavailable. A defendant is not entitled to apply a pro tanto credit to any amount awarded as punitive damages or to apply a pro tanto credit of any amount previously recovered which was specifically allocated as punitive damages.
27. The allowance of reasonable attorney fees necessarily includes expenses, notwithstanding that K.S.A. 50-634(e) does not expressly state that "expenses" are included.
Appeal from Sedgwick district court; TIMOTHY G. LAHEY, judge. Opinion filed June 5, 1998. Affirmed in part, reversed in part, and remanded with instructions.
Thomas D. Kitch, of Fleeson, Gooing, Coulson & Kitch, L.L.C., of Wichita, argued the cause, and Lyndon W. Vix and Kent A. Meyerhoff, of the same firm, were with him on the briefs for appellant/cross-appellee.
Lee H. Woodard, of Woodard, Blaylock, Hernandez, Roth & Day, of Wichita, argued the cause, and John L. Carmichael, of Wilson, Lee & Gurney, of Wichita, was with him on the briefs for appellees/cross-appellants.
The opinion of the court was delivered by
LARSON, J.: This is a multiple issue appeal and cross-appeal raising questions of fraud, conspiracy, aiding and abetting, violations of the Kansas Consumer Protection Act (KCPA), release, both compensatory and punitive damages, remittitur, pro tanto credit for settlements, and attorney fees.
Highly summarized, the issues we consider arose when Richard York and his wife, Vesta, sued numerous defendants in connection with activities arising out of undisclosed and hidden real estate and construction commission obligations on their purchase of a residential lot in a subdivision in Wichita, Kansas. Several defendants obtained summary judgment prior to trial, while others entered into a settlement agreement with the Yorks.
The Yorks' claims against the seller of the lot, InTrust Bank, N.A. (InTrust), proceeded to trial, and the jury awarded the Yorks actual damages of $113,411 and recommended punitive damages. InTrust moved for judgment notwithstanding the verdict, a new trial, or, in the alternative, a remittitur, plus credit on the judgment for amounts received by the Yorks in settlement.
After an evidentiary hearing, the trial court reduced the actual damages to $44,300, awarded attorney fees and costs of $46,383.28, and granted the Yorks punitive damages of $7,500, making a total award of $98,183.28. The court then entered a separate order crediting InTrust with the entire amount of a $65,000 settlement the Yorks received from other defendants, leaving InTrust responsible for a $33,183.28 judgment. The Yorks consented to the remittitur. InTrust did not and appealed, alleging error in various rulings of the trial court and insufficiency of the evidence supporting the verdict and damages. The Yorks then cross-appealed the remittitur order and the order crediting the amount received from the settlement agreements against the verdict.
The issues raised by the appeal and cross-appeal are as follows:
1. Did the trial court err in ruling InTrust was not released due to the covenant not to sue between the Yorks and the settling codefendants?
2. Did the trial court err in ruling InTrust was a "supplier" under the KCPA?
3. Was there substantial competent evidence that InTrust violated the KCPA?
4. Was there substantial competent evidence that InTrust conspired with or aided and abetted any other party in defrauding the Yorks?
5. Are the Yorks barred from cross-appealing the amount of damages due to their acceptance of the remittitur prior to InTrust filing a notice of appeal?
6. Was the amount of damages awarded to the Yorks appropriate?
A. Should the actual damages be limited to the amount of the build-job commission?
B. Was there substantial competent evidence to support a punitive damages award?
C. Was the amount of attorney fees awarded to the Yorks excessive?
7. If the Yorks' cross-appeal may be heard, the following additional questions exist:
A. Did the trial court err in granting a remittitur?
B. Did the trial court err in granting InTrust a pro tanto credit for the full amount received from the settlements with the other defendants?
C. Is InTrust entitled to an additional pro tanto credit for amounts received from the Yorks' settlement with the other defendants who had previously been granted summary judgment?
D. Should InTrust be precluded from receiving any credit for the settlement amounts paid to the Yorks?
E. Is InTrust entitled to a credit for the settlements with the other defendants against the amount of punitive damages assessed against it?
8. What amount, if any, should the Yorks be allowed for their attorney fees on appeal?
Factual statement
The complexity of the issues set forth above points to the necessity of a more detailed statement of the various relationships between the parties, as well as the transactions, which are central to this appeal.
InTrust, in the regular course of its banking business, takes real estate as collateral for loans. It is occasionally required to sell this real estate when it receives title as the result of defaulted loans. In the present instance, InTrust took a deed in lieu of foreclosure and thereby acquired land in a residential development, Lakeside Estates.
At the time InTrust acquired the Lakeside Estates property, it was being developed in two phases. Some homes had been constructed on Phase I, but the plat for Phase II had not been filed. InTrust officers Eastwood, Sayler, and Bunton determined the bank would recover the most money on its security by developing the property and selling individual lots over a 5- or 6-year period.
InTrust entered into negotiations with Jay Russell and his company, Lost Creek Estates, Inc., (collectively Russell) to develop Lakeside Estates. Russell was to be compensated by a development fee of 15% of the gross sales price for each Lakeside Estates lot sold. The parties entered into a written agreement in October 1992, which provided that no real estate commission would be paid by InTrust on the sale of lots. Russell had previously sent Sayler a memorandum recommending that the approved builders pay real estate commissions of 6% based upon the total sale price of the homes to be built on the lots. Eastwood testified he initially understood Russell would pay any real estate commissions out of his 15% development fee, but was informed by Russell that the commissions would be paid on the individual build jobs rather than by him.
Russell then entered into an agreement with Marge Delmar and her company, Marco Realty (collectively Delmar), giving Delmar the exclusive right to market the lots in Lakeside Estates. The agreement provided that no real estate commission would be paid by InTrust or Russell on the sale of any lot and that any commission due would be paid by the exclusive builders of Lakeside Estates on any homes they constructed on the property in the subdivisions.
Russell also granted four builders the exclusive right to build homes on the Phase I and Phase II Lakeside Estates lots. He entered into a builder's agreement with each, requiring the builders to pay Delmar, as the exclusive marketing company, a 6% commission based upon the cost of a built home. These agreements contained a confidentiality clause prohibiting disclosure of the terms of the contract to third parties, with the exception of lenders. The builders also signed exclusive right-to-sell agreements with Delmar, granting Delmar a 6% commission on the total cost of any speculative homes they constructed when sold.
By April 1993, InTrust was selling Lakeside Estates lots and executing contracts with the purchasers. These contracts were on a preprinted form provided by Delmar, with paragraph 25 of the agreement to be separately signed by all parties, stating: "This office, as a real estate brokerage firm, solicits real property listings from the seller. Since the seller pays our commission upon a sale closing, by law, we have a fiduciary responsibility to that seller."
In addition, Paragraph 14.A. of the agreement provided:
"This contract and any Builder Agreement between the parties hereto contain the entire agreement between Seller and Buyer and may not be amended or modified except by written agreement signed by Seller and Buyer. All statements and representatives [sic] made by the parties concerning the Property are set forth in this Contract and such Builder Agreement. No statement or representation not set forth herein or therein shall be binding on or enforceable against Seller or Buyer."
Eastwood was responsible for signing these contracts on behalf of InTrust. He testified to reading the first contract before signing. When Eastwood questioned Delmar about the statement regarding the payment of the real estate commission in the agency disclosure notice, he was informed that InTrust was paying a commission by paying the development fee to Russell.
With the foregoing background in existence, the Yorks began looking for a lot upon which to build a new home in 1993. They decided to purchase a lot in Lakeside Estates, met with Delmar, and agreed that Sharon West of Plaza del Sol Real Estate, Inc., (collectively West) would be involved as a cooperating realtor.
In August 1993, the Yorks and InTrust entered into a lot purchase contract for the sale of a lot for $30,500, with the agreement executed by the Yorks, Eastwood on behalf of InTrust, Delmar, and West. No builder's agreement was entered into, nor were copies of the builder's agreements between Russell and the exclusive builders provided to the Yorks. West presented the Yorks with a separate agency disclosure which stated her commission would come directly or indirectly from the seller.
Richard York testified that at the time of the purchase, he believed InTrust would be paying the real estate commission based on the selling price of the lot out of the proceeds of the sale. He understood that a realtor would be paid a commission on the basis of what he or she sold, be it a lot or a model or speculative home. He testified that had he known InTrust was not paying a commission on the sale of the property, he would have made further inquiry regarding the commission arrangement. He stated he would not have completed the contract had he known that the commission would be based on the cost of a custom home to be built on the property by York and his wife rather than on the lot price.
The Yorks' purchase of the property was set to close on October 29, 1993. The Yorks sold their home through West and moved into a rented duplex on September 29, 1993. On August 31, 1993, West informed the Yorks that Delmar had told her that neither she nor Delmar would receive a commission from InTrust, but rather that the builder would add the commission to the cost of the build job. The Yorks were surprised by this information and pointed out the agency disclosure clause in their purchase contract indicated that the seller, InTrust, was paying the commission. Richard York told West she was to be paid by InTrust, they would not pay a commission at a later time, and she needed to get this taken care of. York testified West indicated she agreed with him as to what the purchase contract said, and the matter was not mentioned again by West prior to closing.
Prior to closing on the lot, the Yorks met with the approved builders, then sought an architect to draw up blueprints for a custom home. The Yorks decided to deal directly with the builders rather than working through an agent and believed that neither West nor Delmar needed to be involved in the process, as the agents would not be providing any services. The Yorks then obtained a loan commitment, locking in an interest rate of 6% on a loan for $164,400, for a 15-year term, provided they closed on the transaction within 6 months. The Yorks paid a nonrefundable fee of $1,989 to obtain the commitment.
The Yorks inquired about extending the closing date on the purchase of the lot, but were advised by West that this could not be done. The closing statement did not reflect any deductions for a real estate commission. York testified this did not lead him to believe no commission was being paid by InTrust because he understood there were many methods in which the seller may pay a commission.
On November 1, 1993, the Yorks received a bid on the custom blueprints from builder Tony Zimbleman of $281,000, which included an itemized commission of $16,860. Four days later they received an unitemized bid from builder Mike George of $303,212. The Yorks attempted to discuss the commission with Zimbleman, but were simply told that was the way it worked. Richard York then obtained lower bids from suppliers and subcontractors so that they could proceed with Zimbleman supervising the construction for a flat fee.
On December 2, 1993, Zimbleman gave the Yorks a copy of the exclusive listing between Russell and Delmar, and the next day he gave them a blank copy of the builder's agreement he had signed with Russell. The Yorks sought advice from counsel, who wrote to Delmar on December 14, 1993, suggesting she had entered into a secret agreement in violation of the law. On December 16, 1993, Zimbleman wrote to the Yorks and withdrew as builder of their home. Zimbleman later told the Yorks he could build their home in a development other than Lakeside Estates, but would not build for them there at that time.
On December 28, 1993, the Yorks' attorney offered to release InTrust from liability and relinquish any claim to the property if it would refund the purchase price of the lot and any closing costs. InTrust responded by contending the purchase contract did not impose any responsibility on the bank regarding future construction arrangements. InTrust continued to execute purchase contracts that were essentially unchanged from the contract entered into with the Yorks.
The Yorks sued InTrust, Russell, Delmar, West, and the Lakeside Homeowners Association and Architectural Control Committee in March 1994. Shortly afterwards, the Yorks offered to put the commission Delmar sought in escrow pending the result of the lawsuit so they could start building their home and mitigate their damages. Delmar never accepted this offer.
In July 1994, the Yorks discovered Lakeside Estates was no longer using exclusive builders. The Yorks received permission from Russell to use a builder of their choice with no commission due Delmar, whose company was no longer the marketing company for Lakeside Estates. The Yorks obtained another loan commitment from the same lender as before, which agreed to apply their prior fee of $1,989 towards the new loan. However, the new loan commitment was for a 30-year loan for 8 1/4%, which could adjust up to 8 3/4% by the end of the commitment period, and the beginning interest rate was locked in for 7 years, after which it could increase by 2% per year up to a maximum rate of 14 1/2%.
After discovery, summary judgment was granted to West, the Lakeside Homeowners Association, and the Architectural Control Committee, but denied to InTrust, Delmar, and Russell. The court granted the Yorks' motion to amend their complaint to assert punitive damages. Shortly before trial, the Yorks settled with Delmar and Russell for $65,000, granting them a covenant not to sue.
The trial court submitted to the jury the Yorks' four claims against InTrust for fraud, civil conspiracy, aiding and abetting, and violation of the KCPA. The jury was also instructed to determine whether punitive damages should be allowed.
The jury found against InTrust on all claims except that of fraudulent inducement to purchase the lot and awarded damages of $96,111 for increased mortgage interest, $11,750 for increased construction costs and contractors' fees, $4,200 for temporary housing, and $1,350 for lost mortgage interest income tax deductions, totalling $113,411. The jury also determined that punitive damages should be awarded.
InTrust moved for judgment notwithstanding the verdict (JNOV), a new trial, or a remittitur. The Yorks moved for assessment of punitive damages, attorney fees, and costs.
Evidence of InTrust's financial condition and the amount of reasonable attorney fees was presented. The trial court denied InTrust's motion for JNOV, but ordered the Yorks to either accept a remittitur of damages to $44,300 or undergo a new trial on the issue of damages. The Yorks accepted, and the court reduced the amount of damages for increased mortgage interest to $27,000 and added in the remaining damage amounts to reach the $44,300 figure for actual damages.
The court also awarded punitive damages of $7,500, attorney fees of $45,000, and costs of $1,383.28. The court then entered a separate order crediting InTrust the entire amount of the $65,000 settlement with Russell and Delmar and entered a judgment against InTrust for $33,183.28.
InTrust elected not to accept the remittitur it had requested and filed a timely appeal. The Yorks cross-appealed. The Yorks also appealed the trial court's grant of summary judgment in favor of West, but later dismissed the appeal after a settlement was reached. Our jurisdiction is pursuant to K.S.A. 60-2102(a)(4) in a case transferred to us under K.S.A. 20-3018(c).
Was InTrust released by the settlements with Delmar and Russell?
InTrust raises a threshold issue that it is only vicariously liable as a conspirator or aider and abettor and that the Yorks released it from liability by settling with codefendants Russell and Delmar and executing a covenant not to sue. InTrust's contention relies on the rule that the release of a party who wrongfully injures another operates to release all those derivatively liable for the conduct of the party actually released.
The effect of a release or covenant not to sue is a legal question. Sade v. Hemstrom, 205 Kan. 514, 522, 471 P.2d 340 (1970). We have unlimited review over questions of law. KPERS v. Reimer & Koger Assocs., Inc., 262 Kan. 635, 643, 941 P.2d 1321 (1997). However, insofar as factual matters pertain to InTrust's role as either an active or passive tortfeasor, which has bearing on the legal question of the effect of the settlement, we must apply a mixed standard of review. Thus, we apply a substantial competent evidence test to the factual findings and then decide if those findings support the legal conclusions. See State Bd. of Nursing v. Ruebke, 259 Kan. 599, 611, 913 P.2d 142 (1996).
The law is well settled in Kansas that the execution of a covenant not to sue does not result in a release of claims against all other joint tortfeasors. Jacobsen v. Woerner, 149 Kan. 598, 601, 89 P.2d 24 (1939). InTrust does not dispute this rule or claim the document given by the Yorks to Delmar and Russell is a release and not a covenant not to sue.
InTrust's contention that the Yorks' settlement with Delmar and Russell had the effect of releasing it from liability is premised on the holding of Atkinson v. Wichita Clinic, P.A., 243 Kan. 705, 707, 763 P.2d 1085 (1988), that a release or covenant not to sue an agent also releases the principal. Atkinson involved a medical malpractice action against a doctor for negligence and his employer for imputed liability based on the doctrine of respondeat superior. We decided that a settlement with the doctor which included a hold harmless agreement insulating the doctor from any liability also satisfied any imputed or vicarious liability of the employer to the plaintiff. 243 Kan. at 714.
The Yorks do not disagree with the Atkinson rule, but simply contend it is not applicable in our case because InTrust actually participated in the wrong that harmed the Yorks. The Yorks point out the jury had to have found that Intrust acted independently and willfully in determining it violated the KCPA and in further finding that punitive damages were appropriate. Based on the instructions, the Yorks contend the jury found InTrust acted "with a designed purpose or intent . . . to do wrong or to cause an injury to another."
If the liability of InTrust is purely vicarious within the meaning of the cases cited in Atkinson (see Jacobson v. Parrill, 186 Kan. 467, 351 P.2d 194 [1960], and Wilkerson v. Lawrence, 193 Kan. 92, 391 P.2d 997 [1964]), the covenant not to sue would have the effect of discharging InTrust from liability notwithstanding the express clause stating the "Yorks expressly reserve the right to further prosecute the lawsuit against defendants InTrust Bank, M.B., Sharon West, and Plaza Del Sol Real Estate, Inc." If, however, the Yorks may successfully hold InTrust independently responsible for its own actions and not merely for the conduct of other actors, the covenant not to sue has no effect on InTrust's liability.
We do not appear to have any Kansas cases exactly on point, although the distinction between the arguments of the parties is partially shown by the result in Wilkerson,193 Kan. at 96, where it was held that the release of one agent released the principal's vicarious liability for that agent's actio