Batman v. Deutsch

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NOT DESIGNATED FOR PUBLICATION

No. 117,101

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

MARILYN E. BATMAN,
Trustee of the BATMAN REVOCABLE TRUST NO. 1,
Appellee/Cross-appellee,

v.

KENT A. DEUTSCH, d/b/a DEUTSCH OIL COMPANY,
Appellee/Cross-appellant,

v.

ROBRO ROYALTY PARTNERS, LTD., a Texas Limited Partnership, and BITTER END
ROYALTIES, LP,
Appellants/Cross-appellees.


MEMORANDUM OPINION

Appeal from Stafford District Court; RON SVATY, judge. Opinion filed August 24, 2018.
Affirmed.

Trevor C. Wohlford and Will B. Wohlford, of Morris, Laing, Evans, Brock & Kennedy, Chtd., of
Topeka, for appellants/cross-appellees.

Kevin M. McMaster, of McMaster & McMaster LLC, of Wichita, for appellee/cross-appellant
Kent Deutsch, d/b/a Deutsch Oil Company.

Mark A. Rondeau, of Watkins Calcara, Chtd, of Great Bend, for appellee/cross-appellee
Marilyn E. Batman.

Before LEBEN, P.J., STANDRIDGE, J., and RYAN W. ROSAUER, District Judge, assigned.

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PER CURIAM: In 2003, Kent A. Deutsch, d/b/a Deutsch Oil Company (Deutsch),
acquired an oil and gas lease to an 80-acre tract of real property in Stafford County,
Kansas. Oliver and Marilyn Batman owned the surface rights to the property, but the
mineral rights were split between the Batmans (and later, their trust) and the original
owner of the property, who had retained mineral rights to a 10-acre tract of land
surrounding an oil well. Deutsch sold the production from that well to a third-party
purchaser, who then paid out royalties from the well to the owner. In 2012, Deutsch
drilled a second well on the property. The mineral rights to this second well were owned
by the Batmans' trust. Unaware that title to the minerals from the first well and the second
well were held by two different owners, Deutsch commingled production from both wells
and sold it to the purchaser, who paid out royalties to the current owner of the mineral
rights in the 10-acre tract, Robro Royalty Partners, Ltd. (Robro) and Bitter End Royalties,
LP (Bitter End).

Marilyn, as Trustee of the Batman Revocable Trust No. 1, filed claims for breach
of contract and conversion against Deutsch. Deutsch filed a third-party petition
impleading Robro and Bitter End under the equitable theory of unjust enrichment, and the
Trust later amended its petition to include cross-claims for conversion and unjust
enrichment against Robro and Bitter End. Following a bench trial, the district court
entered judgment in favor of the Trust against Deutsch for breach of contract and against
Robro and Bitter End for unjust enrichment. The court entered judgment against Deutsch
in the amount of $157,099.10, with Robro and Bitter End, under theories of constructive
trust and joint and several liability, liable for $25,037.02 and $113,111.35, respectively.

On appeal, Robro and Bitter End raise several arguments challenging the validity
of Deutsch's third-party petition, the district court's finding of unjust enrichment, and the
district court's award of damages. Deutsch cross-appeals, arguing primarily that the
Batmans' failure to comply with the "change in ownership" provision in the oil and gas
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lease constitutes an absolute defense to the Trust's breach of contract claim and that the
district court erred in admitting alleged hearsay testimony into evidence.

FACTS

On October 1, 1983, Helen Morrison conveyed to Ralph Stalcup an 80-acre tract
of real property located in Stafford County. This property was subject to a 1967 oil and
gas lease (the Morrison Lease) entitling the lessor to a one-eighth royalty. The original
lessor had drilled an oil well on the property in 1970. In the general warranty deed
conveying the property, Morrison reserved mineral rights to a 10-acre tract surrounding
the oil well (the Morrison A tract).

On October 27, 1983, Stalcup conveyed the property to the Batmans, subject to
"oil and gas leases and mineral reservation of record." Accordingly, the Batmans owned
the surface rights of the entire 80-acre tract and mineral rights to the 70 remaining acres
not reserved by Morrison (the Morrison B tract). In 1989, the Batmans conveyed their
ownership of the property to themselves as trustees of the Batman Revocable Trust No. 1
(the Trust). The Trust's ownership of this property continued during all times relevant to
this appeal.

Deutsch acquired the Morrison Lease in 2003. Deutsch's responsibility under the
lease was to pull oil from the property and deliver royalties to the proper owners. At the
time Deutsch acquired the lease, Morrison was the owner of the mineral rights to the
Morrison A tract and the Trust was the owner of the mineral rights to the Morrison B
tract. In 2005, Larry and Helen Morrison conveyed the mineral interest in the Morrison A
tract to Eastland Royalty Partners (Eastland). In 2008, Eastland conveyed 28% of its
interest to Robro and 72% of its interest to Bitter End. In 2009, Robro conveyed 43.075%
of its interest to Vendetta Royalty Partners, Ltd. (Vendetta).

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In 2008, Deutsch entered into a crude oil purchase agreement with Sunoco
Partners Marketing & Terminals L.P. (Sunoco) to sell the oil production from the
Morrison A well. Under the terms of the agreement, Sunoco purchased the production
and paid out royalties from the Morrison A well in accordance with division orders that
directed payments to the owners. In the agreement, Deutsch warranted and guaranteed
free and clear title to the oil sold and stated that Deutsch would hold Sunoco "harmless
from and against any and all cost, damage and expense suffered and incurred by reason of
any failure of the title so warranted or any inaccuracy in the representation of [Deutsch]'s
right and authority to sell said crude oil made herein." Likewise, the division order
covering the Morrison A well provided that the owners of the mineral rights agreed to
indemnify and hold Sunoco harmless "'from all liability resulting from payments made to
the owner in accordance with such division of interest, including but not limited to
attorney's fees or judgements in connection with any suit affecting the owner's interest to
which Sunoco Mktg. is made a party.'"

In late 2012, Deutsch drilled a well on the Morrison B tract. The well, referred to
as the Morrison B well, began producing oil in January 2013 and continued to do so until
it was shut down sometime in March or April 2014. During this time, Deutsch
commingled production from that well with production from the Morrison A well,
unaware that title to the minerals was split between the Morrison A and B tracts. As a
result, Sunoco purchased the production and paid out royalties from both the Morrison A
and B wells to Robro, Bitter End, and Vendetta.

In early 2014, Deutsch made plans to drill a second well on the Morrison B tract,
the Batman-Morrison No. 1 well. In doing so, Deutsch obtained a title opinion on the
property. According to Deutsch, it was only after receiving this title opinion that Deutsch
learned the mineral interests in the Morrison Lease tract were split and that the Trust was
entitled to all of the royalties from the Morrison B well. Deutsch contacted the Batman
family to inform them of the error and promised to recoup the royalties to which they
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were entitled. Deutsch then sent letters to Robro, Bitter End, and Vendetta explaining that
they had been mistakenly paid royalties for production from the Morrison B well, which
was owned by the Trust, from January 2013 through March 2014. Deutsch enclosed a
spreadsheet with each of the letters he sent that identified allocation of production and
income from the Morrison A and B wells and set forth the amount overpaid to each
company. Based on these spreadsheets, Deutsch requested reimbursement in the
following amounts: $26,249.71 from Robro, $118,419.74 from Bitter End, and
$19,802.41 from Vendetta.

After Deutsch's attempts to recoup the royalty payments were unsuccessful and
after Vendetta entered receivership in Texas, Deutsch filed suit against Robro and Bitter
End in Stafford County, alleging that Robro and Bitter End were unjustly enriched
because the royalties rightly belonged to the Trust. Robro and Bitter End removed the
case to federal court and moved to dismiss the action for failure to state a claim. While
that case was pending in federal court, Marilyn, as Trustee of the Trust, filed a breach of
contract action against Deutsch in Stafford County, requesting reimbursement of the
royalty payments in the amount of $157,099.10, as well as prejudgment interest. Deutsch
timely answered and filed a third-party petition impleading Robro and Bitter End under
the equitable theory of unjust enrichment. The federal court subsequently stayed
Deutsch's case pending resolution of the case in Stafford County.

The Trust later amended its petition to include claims of conversion and
negligence against Deutsch and cross-claims for conversion and unjust enrichment
against Robro and Bitter End. Robro and Bitter End moved for dismissal, while the Trust
and Deutsch each filed competing motions for summary judgment. The district court
denied each of these motions. Before trial, the Trust abandoned its negligence claim
against Deutsch. In addition, the Trust and Deutsch stipulated that the Trust should have
received $157,099.10 in royalty payments from the Morrison B well. The case proceeded
to a bench trial on the Trust's breach of contract and conversion claims against Deutsch,
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the Trust's cross-claims for conversion and unjust enrichment against Robro and Bitter
End, and Deutsch's unjust enrichment claim against Robro and Bitter End.

After hearing testimony and receiving evidence, the district court entered
judgment in favor of the Trust against Deutsch for breach of contract and against Robro
and Bitter End for unjust enrichment. The court entered judgment against Deutsch in the
amount of $157,099.10, with Robro and Bitter End under theories of constructive trust
and joint and several liability, liable for $25,037.02 and $113,111.35, respectively. Robro
and Bitter End timely appeal from the district court's judgment. Deutsch cross-appeals.

ANALYSIS

Consistent with the district court's journal entry, we will first address Deutsch's
arguments on cross-appeal. Deutsch argues the district court erred by: (1) denying his
motion for summary judgment, (2) denying his motion for judgment as a matter of law
following the close of evidence at trial, (3) entering judgment in favor of the Trust, and
(4) admitting alleged hearsay testimony into evidence.

Next, we will address the following claims made by Robro and Bitter End on
appeal, but in a slightly different order from their brief: (1) The district court erred in
allowing Deutsch to proceed on a third-party claim, (2) the district court erred in entering
judgment against them for unjust enrichment, and (3) the district court's damage award
was not supported by substantial competent evidence.

Finally, we briefly will address the Trust's claim that the district court's award
should have included prejudgment interest.



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STANDARD OF REVIEW

The case was tried to the district court, sitting without a jury, so the parties' factual
disputes were resolved by the district court. On appeal, we look to see whether the district
court's factual findings are supported by substantial competent evidence. Schoenholz v.
Hinzman, 295 Kan. 786, 792, 289 P.3d 1155 (2012). Evidence is substantial if a
reasonable person could accept it as sufficient to support a conclusion. In determining
whether substantial competent evidence supports the district court's findings, appellate
courts disregard any conflicting evidence or other inferences that might be drawn from
the evidence. After we review the district court's factual findings, we independently
review its legal conclusions. Gannon v. State, 298 Kan. 1107, 1175-76, 319 P.3d 1196
(2014).

1. Deutch's cross-appeal

Although Deutsch raises four separate arguments on appeal, we will combine the
first three arguments—whether the district court erred in denying Deutsch's motion for
summary judgment, in denying his motion for judgment as a matter of law, and in
entering judgment in favor of the Trust—into one issue because they are all premised on
the same legal argument. Specifically, Deutsch asserts that the Batmans' and/or the
Trust's failure to comply with the "change in ownership" provision in the Morrison Lease
is an absolute defense to the Trust's breach of contract claim.

Deutsch moved for summary judgment on all three of the Trust's original claims—
breach of contract, conversion, and negligence. On appeal, Deutsch alleges that the
district court erred in denying his motion with respect to all three claims. But the Trust
abandoned its negligence claim prior to trial, and the district court did not find Deutsch
liable for conversion, so the court's summary judgment rulings on these issues are moot.
Because the district court ultimately resolved the breach of contract claim after a full trial
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on the merits, the district court's decision to deny summary judgment on that issue is now
moot.

It is also unnecessary to separately review Deutsch's claim that the district court
erred in denying his motion for judgment as a matter of law mid-trial because the court
denied this motion after the close of all the evidence as well. And, although Deutsch
contends that he was entitled to judgment as a matter of law on both the breach of
contract claim and the conversion claim, the district court did not find Deutsch liable for
conversion. As a result, the only remaining issue is whether the district court erred in
entering judgment in favor of the Trust for breach of contract at the close of all evidence.
We then separately address Deutsch's claim that the district court erred in admitting
alleged hearsay testimony into evidence.

a. Breach of contract

The elements of a breach of contract claim in Kansas are: "(1) the existence of a
contract between the parties; (2) sufficient consideration to support the contract; (3) the
plaintiff's performance or willingness to perform in compliance with the contract; (4) the
defendant's breach of the contract; and (5) damages to the plaintiff caused by the breach."
Stechschulte v. Jennings, 297 Kan. 2, 23, 298 P.3d 1083 (2013).

Deutsch does not challenge the evidence relating to a specific element of breach of
contract. Rather, Deutsch relies on the change in ownership provision in the Morrison
Lease to argue that the Batmans' failure to provide him with notice of their ownership of
the Morrison B mineral rights absolves him of any liability under the lease. The change in
ownership provision in the Morrison Lease provides, in relevant part:

"If the estate of either party hereto is transferred . . . or if the rights hereunder of
either party hereto are vested by descent or devise, the covenants hereof shall extend to
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and be binding on the heirs, devises, executors, administrators, successors, or assigns, but
no change in the ownership of said land or of any right hereunder shall be binding on the
lessee until after lessee has been furnished with the original or a certified copy thereof of
any transfer by lessor."

In entering judgment in favor of the Trust, the district court rejected Deutsch's
reliance on the change in ownership provision, reasoning that because Sunoco, not
Deutsch, was the payor of royalties due under the lease, Deutsch could not invoke the
change in ownership provision. The court also concluded that Deutsch had failed in its
obligation to establish proper title. On appeal, Deutsch argues that the district court's
ruling was erroneous because it improperly limited application of the change in
ownership provision to a payor and because it imposed a nonexistent duty on him to
check title before royalty payments were made.

"'The change of ownership clause is almost invariably present in the oil and gas
lease forms in common use, and such clause usually provides that no change of
ownership of the right to receive royalty shall be binding upon the lessee until after a
prescribed period of time after [the lessee] has received notice of such change of
ownership in the manner also prescribed by the clause. Such clause is designed to permit
the lessee to make payments provided for in the lease without being exposed to the risk of
being required to pay royalty to a grantee of the lessor after the royalty has been paid in
accordance with the former ownership. Thus, although a new owner is entitled to receive
royalties as against [the] grantor, the lessee is not liable to the new owner for the
payment of royalty until [having] been provided with the notice or evidence of change of
ownership prescribed by the change of ownership clause.'" Brubaker v. Branine, 237
Kan. 488, 493, 701 P.2d 929 (1985) (quoting 3 Kuntz, Law of Oil and Gas § 45.3
[1967]).

But the change in ownership provision of the lease does not provide Deutsch with
a defense to the Trust's breach of contract claim because it is inapplicable under the facts
presented here. Although Deutsch claims the Batmans' failure to provide him with notice
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of their ownership of the Morrison B mineral rights absolves him of any liability under
the lease, the record reflects that there was no change in ownership with respect to the
Morrison B tract mineral rights after Deutsch acquired the lease in 2003. The Batmans
acquired their mineral interest in the Morrison B tract in 1983 and conveyed their interest
to the Trust in 1989. The Trust continued to hold this interest during all times relevant to
this appeal, including when Deutsch acquired the lease in 2003 and when the Morrison B
well was producing oil in 2013 and 2014. Deutsch's claim that a lessee should be
absolved of liability under a lease based on a lack of notice of change in ownership is
without legal merit when, like here, the ownership at issue was already in place at the
time the lessee acquired rights under the lease. Although for reasons different than those
relied on by the district court, we agree with the district court's finding that the change in
ownership provision does not provide Deutsch with a valid defense to the Trust's breach
of contract claim. See Gannon v. State, 302 Kan. 739, 744, 357 P.3d 873 (2015) (if
district court reaches correct result, its decision will be upheld even though it relied upon
wrong ground or assigned erroneous reasons for its decision).

b. Hearsay

During Deutsch's testimony, the Trust's counsel elicited testimony about a
conversation he had with Oliver in January or February 2013. Counsel asked Deutsch if
Oliver had represented that he owned the minerals under the Morrison B tract, and
Deutsch's counsel objected based on hearsay. The district court overruled the objection,
and Deutsch stated that Oliver told him that he "might have interest in that lease."
Deutsch further testified that he advised Oliver to give him some sort of documentation to
verify his rights as soon as possible, but Deutsch never received any such documentation.
Deutsch argues the district court erred in allowing this testimony into evidence and in
relying upon it to find that, as a result of this conversation, Deutsch had a duty to
establish proper title to the Morrison B tract mineral rights.

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K.S.A. 2017 Supp. 60-460 defines hearsay as a "statement which is made other
than by a witness while testifying at the hearing, offered to prove the truth of the matter
stated." Hearsay is inadmissible, subject to certain exceptions. K.S.A. 2017 Supp. 60-460.
An appellate court reviews the district court's admission or exclusion of alleged hearsay
statements for an abuse of discretion. See State v. Seacat, 303 Kan. 622, 634, 366 P.3d
208 (2016). A district court's action constitutes an abuse of discretion if (1) no reasonable
person would take the view adopted by the district court; (2) it is based on an error of
law; or (3) it is based on an error of fact. Wiles v. American Family Life Assurance Co.,
302 Kan. 66, 74, 350 P.3d 1071 (2015).

Here, Oliver's statement that he might have an interest in the lease was introduced
as evidence to establish that Deutsch had notice of Oliver's potential interest in the lease
and was not introduced to prove that Oliver actually had an interest in the mineral lease.
Because it was not introduced to prove the truth of the matter asserted, the statement did
not qualify as hearsay.

2. Robro and Bitter End's direct appeal

On appeal, Robro and Bitter End assert that (a) the district court erred in allowing
Deutsch to proceed on his third-party claim, (b) the district court erred in entering
judgment against them based on unjust enrichment, and (c) the district court's damage
award was not supported by substantial competent evidence.

a. Third-party claim

Robro and Bitter End argue that the district court erred in allowing Deutsch to
proceed on a third-party claim. First, Robro and Bitter End suggest Deutsch lacked
standing to bring a claim against them. Even if Deutsch had standing, Robro and Bitter
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End allege the district court erred in denying their motion to dismiss Deutsch's petition
for failure to state a claim for relief.

(1) Standing

The Kansas Constitution imposes a case-or-controversy requirement, part of which
is a component of a court's subject matter jurisdiction, or standing. Sierra Club v. Moser,
298 Kan. 22, 29, 310 P.3d 360 (2013); State ex rel. Morrison v. Sebelius, 285 Kan. 875,
895-96, 179 P.3d 366 (2008). Standing is "'a party's right to make a legal claim or seek
judicial enforcement of a duty or a right.'" KNEA v. State, 305 Kan. 739, 746, 387 P.3d
795 (2017). To have standing, a party "must demonstrate that he or she suffered a
cognizable injury and that there is a causal connection between the injury and the
challenged conduct." Board of Sumner County Comm'rs v. Bremby, 286 Kan. 745, 761,
189 P.3d 494 (2008). "[I]f a person does not have standing to challenge an action or to
request a particular type of relief, then 'there is no justiciable case or controversy' and the
suit must be dismissed." 286 Kan. at 750. Because standing is a jurisdictional question, it
may be raised by the parties or by the court at any time and is one over which we exercise
unlimited review. See FV-I, Inc. v. Kallevig, 306 Kan. 204, 211, 392 P.3d 1248 (2017).

We easily can resolve the question of standing. Deutsch can claim injury based on
the fact that the Trust filed a breach of contract action against him seeking the recovery of
its royalty payments. Deutsch is being sued by the Trust for royalty payments he never
received that allegedly were paid to Robro and Bitter End. The Trust's lawsuit constitutes
a cognizable injury. Robro and Bitter End refused to return the royalty payments to which
they were never entitled. This refusal is the challenged conduct. Because there is a causal
connection between Deutsch's injury (lawsuit seeking recovery of royalty payments) and
the challenged conduct (Robro and Bitter End's refusal to return the royalty payments),
Deutsch had standing to file a third-party claim impleading Robro and Bitter End.

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(2) Motion to dismiss

When reviewing a motion to dismiss based on the pleadings, this court considers
the well-pleaded facts in a light most favorable to the plaintiff and assumes as true those
facts and any inferences reasonably drawn from them. When the well-pleaded facts state
any claim upon which relief can be granted, dismissal is improper. Cohen v. Battaglia,
296 Kan. 542, 546, 293 P.3d 752 (2013). This court has the duty of determining whether
the facts and inferences support a claim "'not only on the theory which may be espoused
by the plaintiffs, but on any possible theory we can divine.'" 312 Education Ass'n v.
U.S.D. No. 312, 273 Kan. 875, 882, 47 P.3d 383 (2002). We will not resolve any factual
disputes when deciding a motion to dismiss for failure to state a claim. Dismissal of a
lawsuit is proper only when the allegations in the petition clearly demonstrate the
plaintiff does not have a claim. See Steckline Communications, Inc. v. Journal Broadcast
Group of KS, Inc., 305 Kan. 761, Syl. ¶ 2, 388 P.3d 84 (2017).

Deutsch's petition alleged, in relevant part:

"8. Deutsch drilled and completed an oil well known as the '[Morrison B]' as a
producer of oil in January 2013 on the acreage described in paragraph 6, above. [Marilyn]
alleges Deutsch caused the crude purchasing company, [Sunoco] to incorrectly pay a
portion of the 1/8th royalty from the [Morrison B] well to [Robro and Bitter End] for the
time period from January 2013 to March 2014, for which [Marilyn] seeks judgment
against Deutsch.
"9. As a result of the allegedly mistaken payments, [Robro] received $25,073.02,
and [Bitter End] received $113,111.35, of the royalty income which [Marilyn] alleges
should have been paid to the Trustee of the Batman Revocable Trust No. 1. As a part of
the Sunoco Division Orders signed by [Robro and Bitter End], they agreed to indemnify
the crude purchasing company for any payments made to them to which they were not
entitled.
"10. The Trustee of the Batman Revocable Trust No. 1 has made a claim against
Deutsch based on the promises contained in the above oil and gas lease for the royalty
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income paid incorrectly to [Robro and Bitter End] and alleging Deutsch is indebted to the
Trustee in the full amount of all royalty income paid to [Robro and Bitter End].
"11. If the allegations made by [Marilyn] against Deutsch are valid and this Court
holds that the royalty from the [Morrison B] well is the rightful property of the Batman
Revocable Trust, then by implication, [Robro and Bitter End] have been unjustly
enriched by Deutsch."

The elements of an unjust enrichment claim are: (1) the plaintiff conferred a
benefit on the defendant; (2) the defendant appreciated or acknowledged the benefit; and
(3) under the circumstances, it would be inequitable to allow the defendant to retain the
benefit without paying for its value. Haz-Mat Response, Inc. v. Certified Waste Services
Ltd., 259 Kan. 166, 177, 910 P.2d 839 (1996). A constructive trust is a remedy that arises
where "'a person holding title to property is subject to an equitable duty to convey it to
another on the ground that he [or she] would be unjustly enriched if he [or she] were
permitted to retain it.'" Estate of Draper v. Bank of America, 288 Kan. 510, 518, 205 P.3d
698 (2009).

Considering the well-pleaded facts in a light most favorable to the plaintiff and
assuming as true those facts and any inferences reasonably drawn from them, we find the
facts and inferences alleged by Deutsch support a valid claim of unjust enrichment
against Robro and Bitter End. The district court did not err in denying the motion to
dismiss.

b. Unjust enrichment

The district court entered judgment against Robro and Bitter End on grounds of
unjust enrichment and imposed a constructive trust as a remedy: "[Robro and Bitter End]
admitted that they received royalty payments from the Morrison B well that they were not
entitled to, because they should have been paid to Plaintiff, Batman Trust, and that it
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would be unfair for them to keep the payments." In addition, the court held that Robro
and Bitter End had waived any defense to a claim of unjust enrichment.

Robro and Bitter End challenge the district court's ruling on several grounds.
Specifically, Robro and Bitter End assert (1) the court's judgment was improperly based
on an impleader cause of action that actually constituted an inauthentic pass-through
claim, (2) the court's judgment was improperly founded on the tort of conversion, (3) the
judgment based on unjust enrichment was improper because the Trust had an adequate
remedy at law against Deutsch, (4) the court's judgment was precluded by the voluntary
payment rule, (5) the court's finding that they admitted to being unjustly enriched was not
supported by substantial competent evidence, (6) they did not waive a bona fide
purchaser defense, and (7) the payments they received from Sunoco are not fairly
traceable to the Trust's share of the commingled production.

The district court is given wide discretion in deciding on the appropriate equitable
remedy, and the court's decision is subject to reversal only when no reasonable person
would agree with it. See Cousatte v. Lucas, 35 Kan. App. 2d 858, 867-68, 136 P.3d 484
(2006).

(1) Impleader

Robro and Bitter End assert Deutsch's impleader action constituted an "inauthentic
pass-through claim." Robro and Bitter End argue that because they had no contractual
relationship with Deutsch, and therefore no derivative liability for the Trust's claim
against Deutsch, his impleader action constituted an "inauthentic pass-through claim."

The Kansas Rules of Civil Procedure recognize third-party claims. K.S.A. 2017
Supp. 60-214(a)(1) provides that "[a] defending party may, as a third-party plaintiff,
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serve a summons and petition on a nonparty who is or may be liable to it for all or part of
the claim against it." The Kansas Supreme Court has stated that

"the language addressing third-party actions under K.S.A. 60-214(a) pertains to
procedure only and does not create any substantive rights. The statute relates generally to
the subjects of reimbursement, indemnity, or contribution, but it creates no substantive
right to the same. There must be some substantive basis for the third-party claim before
one can utilize the procedure of K.S.A. 60-214(a). Third-party practice is simply a
permissive procedural device whereby a party to an action may bring in an additional
party and bring a claim against such party, because of a claim that is being asserted
against the original party. It has been said that the general purpose of the practice is to
avoid circuity of action and to dispose of the entire subject matter arising from one set of
facts in one action, thus administering complete and evenhanded justice expeditiously
and economically." Kansas Bd. of Regents v. Skinner, 267 Kan. 808, 812-13, 987 P.2d
1096 (1999).

Here, Deutsch did not make a direct claim for indemnity against Robro and Bitter
End; rather, Deutsch brought a claim of unjust enrichment based on any liability he might
have to the Trust. Because the Trust's claims against Deutsch and Deutsch's unjust
enrichment claim against Robro and Bitter End arose from the same set of facts,
combining the two sets of claims into one lawsuit was proper. As a result, Deutsch's
claim against Robro and Bitter End constituted a valid impleader action.

(2) Conversion

Preliminarily, Robro and Bitter End note that the district court relied on equity to
enter judgment against them. Nevertheless, they argue that the court's judgment was
erroneous to the extent that it was founded on the tort of conversion. But the district court
did not find Robro and Bitter End liable for conversion. The court stated that although a
conversion claim may be had against a person or entity that mistakenly received royalty
payments, "because of the admission of [Robro and Bitter End,] this Court, sitting in
17
equity, can find for [the Trust] without applying the specific elements of conversion."
Therefore, we need not address this issue.

(3) Adequate remedy at law

Robro and Bitter End argue that the district court's judgment was erroneous
because unjust enrichment and the remedy of constructive trust are equitable in nature
and are not available if there is an adequate remedy at law. Robro and Bitter End contend
that because the Trust had an adequate remedy at law—a breach of contract claim against
Deutsch—the equitable judgment against them was improper.

Kansas courts generally do not allow equitable remedies when there is an adequate
remedy at law. Under this principle, a claim must first be made against the one who
violated a duty, and a remedy at law must be unavailable before equitable relief is
allowed. Nelson v. Nelson, 288 Kan. 570, 597, 205 P.3d 715 (2009).

Robro and Bitter End's argument is misplaced. Whether the Trust had an adequate
remedy at law against Deutsch is irrelevant under the circumstances of this case because
Deutsch also brought an unjust enrichment claim against Robro and Bitter End. The
district court found Deutsch liable for the Trust's damages, but Deutsch did not receive
any of the royalty payments at issue. Deutsch asserted that Robro and Bitter End
improperly received the royalty payments. It cannot be said that Deutsch had an adequate
remedy at law because his only contractual relationship was with Sunoco, which is not a
party to this case. Deutsch had no contractual relationship with Robro and Bitter End. As
a result, the district court did not err in granting both legal relief to the Trust and
equitable relief to Deutsch.



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(4) Voluntary payment

Robro and Bitter End next argue that Deutsch is not entitled to recovery of the
royalty payments because he voluntarily directed payment of the Morrison B royalties to
them.

"'Where as a result of good faith mistake royalty has been paid to a person not
entitled to receive same or where excessive payments have been made in good faith, it is
generally held that the lessee (or purchaser) who has made such payments may recover
from the payee the payments to which he [or she] was not entitled. However a voluntary
overpayment not caused by mistake may not be recovered.'" Waechter v. Amoco
Production Co., 217 Kan. 489, 515, 537 P.2d 228 (1975) (quoting 3 Williams, Oil and
Gas Law § 657, p. 712).

Although Robro and Bitter End incidentally raised this argument in their answer to
Deutsch's petition, there is no indication in the record that they presented any substantive
argument on this issue to the district court. Generally, an appellate court will not consider
an argument for the first time on appeal. Wolfe Electric, Inc. v. Duckworth, 293 Kan. 375,
403, 266 P.3d 516 (2011). Although there are several exceptions to this general rule,
Robro and Bitter End do not acknowledge their failure to substantively address this issue
below or otherwise argue that any of these exceptions apply to justify our consideration
of the issue. See In re Estate of Broderick, 286 Kan. 1071, 1082, 191 P.3d 284 (2008).

In any event, the voluntary payment rule is inapplicable under the facts present
here. The voluntary payment rule applies in cases involving "'a person who has full
knowledge of the facts.'" Waechter, 217 Kan. at 515 (quoting 3 Kuntz, Oil and Gas [A
Revision of Thornton] § 42.8, p. 405). Any suggestion that Duetsch directed payment of
the royalties at issue to Robro and Bitter End with an awareness that they belonged to the
Trust is not supported by the record. This argument necessarily fails.

19
(5) Admission of unjust enrichment

Robro and Bitter End next take issue with the district court's finding that they
admitted to receiving royalty payments to which they were not entitled and which would
be unfair for them to keep. Robro and Bitter End claim that this finding is not supported
by substantial competent evidence.

The district court's finding that Robro and Bitter End admitted to being unjustly
enriched appears to be based on the trial testimony of Kelly Lowry, a land supervisor for
Robro and Bitter End. As a land supervisor, Lowry reviewed title, executed division
orders, and managed oil and gas assets. Upon questioning by Deutsch's counsel, Lowry
testified, in relevant part:

"Q: And sitting here today, you have to admit that Robro, Bitter End received royalty
payments from a well that they didn't have a royalty interest in. True?
"A: Well, that's—Mr. Deutsch said that there was a second—there was a second well.
We know that, and that the wells went to—the production went to a common tank
battery, yes.
"Q: And that resulted in you getting the royalty payments, right?
"A: Yes.
"Q: Which you weren't entitled to, right?
"A: Yes.
"Q: It wouldn't be fair for you to keep those, would it?
"A: Of course not. It's not right to keep something that's not yours.
"Q: But you haven't given it back yet. True?
"A: We haven't been shown—proven what that commingled amount is."

Robro and Bitter End assert that the district court's reliance on this testimony is
misplaced and taken out of context. Robro and Bitter End rely on the part of Lowry's
testimony stating that Deutsch had provided no objective basis for the amount allegedly
overpaid, that her information indicated that Sunoco's payments were properly disbursed,
20
and that Sunoco's absence in the case exposed Robro and Bitter End to the risk of double
liability. Robro and Bitter End suggest that Lowry's testimony simply admitted that they
were willing to consider resettling the payments with Sunoco upon satisfactory proof.

Contrary to Robro and Bitter End's assertions, testimony relating to Lowry's
concerns about the amount of royalty overpayment or the risk of double liability does not
negate her testimony establishing the elements of unjust enrichment. As earlier stated,
these elements are: (1) the plaintiff conferred a benefit on the defendant; (2) the
defendant appreciated or acknowledged the benefit; and (3) under the circumstances, it
would be inequitable to allow the defendant to retain the benefit without paying for its
value. Haz-Mat Response, Inc., 259 Kan. at 177. In addition to the testimony outlined
above, Lowry also testified to the following upon questioning by the Trust's counsel:

"Q: So earlier when you said at first we weren't comfortable that we really knew the
facts, as you sit here today, don't you admit that the oil that was produced by the
Morrison B well should have been paid to my client's credit and not to Robro's? You
admit that, don't you?
"A: The oil produced from the Morrison B should have been paid to the Batmans, yes.
"Q: Okay, and if it was mistakenly paid to you, I'm not talking about whose fault it is.
I'm not suggesting it's your fault. I'm certainly not suggesting it's my client's fault, but I
don't care whose fault it is. If it was paid to you, wouldn't you agree that you have an
obligation to pay it back to the people who rightfully are entitled to that?
"A: Well, we don't have those—those funds. Those—they were paid—if funds were
paid to us, they have been distributed out to limited.
. . . .
"Q: Okay. Let me circle back around. I mean, even though you may have already spent
the money you got, wouldn't you agree that, in fairness, in equity, our clients should get
that money because it wasn't your money to start with, whatever that amount is? You
would agree with that, wouldn't you?
"A: Yes, whatever for that well, yes."

21
Lowry's testimony established that (1) Robro and Bitter End received royalty
payments belonging to the Trust, (2) Robro and Bitter End understood the royalty
payments belonged to the Trust, and (3) it would be inequitable for Robro and Bitter End
to retain the royalty payments. As a result, the district court's finding that Robro and
Bitter End admitted they had been unjustly enriched is supported by substantial
competent evidence.

(6) Bona fide purchaser defense

Robro and Bitter End argue that the district court could not impose a constructive
trust against them because they were bona fide purchasers of the royalty payments at
issue. Robro and Bitter End also challenge the district court's finding that they waived a
bona fide purchaser defense.

A bona fide purchaser is one who receives property in good faith for value. The
law protects bona fide purchasers; a court cannot impose a constructive trust when a bona
fide purchaser has purchased the property to be held in constructive trust. See
Restatement (First) of Restitution § 172 (1937).

Notably, Robro and Bitter End only incidentally raised this argument below in
their answer to Deutsch's petition. But there is no indication in the record that they made
any substantive argument on this issue before the district court. As a result, there is
substantial competent evidence to support the district court's finding that Robro and
Bitter End waived a bona fide purchaser defense.

But even if Robro and Bitter End did not waive this argument below, they still are
not entitled to relief on this basis because they did not give value for the right to receive
royalties from the Morrison B well. Rather, Robro and Bitter End gave value only for the
22
right to receive royalties from the Morrison A well. Robro and Bitter End do not have a
valid bona fide purchaser defense.

(7) Payments traceable to Trust's share of commingled production

Robro and Bitter End argue that the court could not impose a constructive trust
against them because the royalty payments they received from Sunoco are not clearly
traceable to the Trust's share of the commingled oil production. Specifically, Robro and
Bitter End claim that the quantity of production attributable to the Morrison B well lost
any means of identification when mixed with production from the Morrison A well
because the production flows from the two wells were not segregated, metered, or tested.

"[A] constructive trust is essentially a tracing remedy, allowing recovery of the
specific asset or assets taken from the plaintiff." Nelson, 288 Kan. at 580; see Woods v.
Duval, 151 Kan. 472, 480, 99 P.2d 804 (1940) (declining to impose constructive trust
where plaintiff could not show that oil royalties paid to testator could be clearly traced
into hands of her beneficiary).

Here, there is evidence that a reasonable person could accept as adequate to
support the conclusion that the royalty payments Robro and Bitter End received could be
traced to the production from the Morrison B well. Deutsch testified and presented
evidence that from 2008 to 2012, the average production of the Morrison A well was two
barrels of oil a day. Deutsch also testified and presented evidence that the production
attributed to the Morrison A well increased significantly starting in January 2013, when
the Morrison B well began producing. Lowry, who worked for Robro and Bitter End,
agreed that production out of the Morrison A well was small and she had no information
that it ever produced more than two barrels of oil per day. Lowry also testified that in the
five years prior to 2013, oil production from the Morrison A well had never reached
1,000 barrels per year. Lowry stated that production increased to 14,306 barrels in 2013.
23
The royalty payments at issue received by Robro and Bitter End are traceable to
production from the Morrison B well.

c. Damages

Finally, Robro and Bitter End challenge the basis for the district court's damage
award. Specifically, they claim that the court improperly relied on a "pre-suit liquidation
agreement" between the Trust and Deutsch because there was no basis in the record to
support a finding that this was the actual amount of the Trust's damages.

Prior to trial, the Trust and Deutsch stipulated that the Trust should have received
royalties in the amount of $157,099.10 from the Morrison B well. At trial, Deutsch
testified that he came up with this amount by determining that the average production for
the Morrison A well in 2012 was two barrels of oil per day. Deutsch then looked at the
production after the Morrison B well began producing and subtracted two barrels a day as
credit for the Morrison A well, leaving the remaining production to be credited to the
Morrison B well. Deutsch testified that he had a spreadsheet prepared which used
production reports and purchasing statements to determine the allocation of the amounts
owed for the Morrison B production. Karri Knox-Wolken, who did accounting work for
Deutsch, testified that she prepared the spreadsheet at Deutsch's request by reviewing the
production data and purchasing statements relating to both the Morrison A and B wells to
calculate the production attributable to each. Knox-Wolken testified that the method used
was consistent with generally accepted accounting principles. The district court admitted
the spreadsheet into evidence. The spreadsheet provided that Robro had been overpaid by
$25,073.02; that Bitter End had been overpaid by $113,111.35; and that Vendetta had
been overpaid by $18,914.73. This amount totaled $157,099.10 and represented the
amount owed to the Trust.

24
Robro and Bitter End challenge Deutsch's calculations as conclusory on grounds
that the wells were not properly located within the surface boundaries of the Trust's lease;
Deutsch failed to produce production data, gauge reports, or well maintenance data
supporting his calculations; Deutsch used improper data points to construct separate daily
production rates from the Morrison A and B wells; and Deutsch and Knox-Wolken were
not qualified to testify on this subject matter.

Robro and Bitter End raised these issues during cross-examination of both
Deutsch and Knox-Wolken. Their arguments on appeal are no more than an invitation to
reweigh the evidence, which we cannot do. "It is not our function to weigh conflicting
evidence, pass on the credibility of witnesses or redetermine questions of fact and our
only concern is with evidence which supports the trial court's findings and not with
evidence which might have supported contrary findings." Care Display, Inc. v. Didde-
Glaser, Inc., 225 Kan. 232, 237, 589 P.2d 599 (1979).

Evidence of damages need not be precise; all that is required is some reasonable
basis for computing the damage award. See Martinez v. Milburn Enterprises, Inc., 290
Kan. 572, 611, 233 P.3d 205 (2010). A reasonable person could have accepted the
evidence outlined above as sufficient to represent the Trust's amount of damages and to
provide an adequate legal basis for the district court's judgment.

3. The Trust's cross-appeal

The Trust challenges the district court's judgment on grounds that it is entitled to
prejudgment interest on the damages awarded under K.S.A. 16-201.

The Trust's petition included a claim for prejudgment interest, but the district
court's award did not include prejudgment interest. Following the district court's entry of
judgment, the Trust filed a notice of cross-appeal with the district court. But the Trust did
25
not timely docket its appeal with this court, and we denied the Trust's motion to docket
out of time.

Because the Trust did not comply with the procedural requirements to be a cross-
appellant, its challenge to the district court's failure to enter an award of prejudgment
interest is not properly before this court. See Kansas Supreme Court Rules 2.04(a)(2) and
2.041(a) (2018 Kan. S. Ct. R. 15, 17).

Affirmed.