Jones v. Community Bank of Wichita

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NOT DESIGNATED FOR PUBLICATION

No. 115,088

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

SUE ANN JONES,
Appellee,

v.

COMMUNITY BANK OF WICHITA
Defendant,

and

JAN COLVIN and ROBERT COLVIN,
Appellants.

MEMORANDUM OPINION

Appeal from Sedgwick District Court; TIMOTHY H. HENDERSON, judge. Opinion filed March 3,
2017. Reversed.

Steven R. Smith, of Gates Shields Ferguson Hammond, P.A., of Overland Park, for appellants.

Matthew A. Spahn, of Martin, Pringle, Oliver, Wallace & Bauer, L.L.P., of Wichita, for appellee.

Before BRUNS, P.J., MCANANY and BUSER, JJ.

Per Curiam: This action arises out of an unfortunate dispute between sisters Jan
Colvin and Sue Ann Jones after the death of their mother, Patricia Robinson. Jan is
married to Robert Colvin. She and Robert were the sole members of Fairchild Interiors
and Design, L.L.C., which engaged in retail furniture sales and interior design in Wichita.
The Wichita shop was Jan's dream since she was 14 years old. Her sister, Sue Ann,
worked with her at this store.

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In August 2009, Patricia Robinson invested in a $200,000 certificate of deposit
issued by the Community Bank of Wichita (Community Bank). The CD was issued to
Patricia and Jan in joint tenancy. Sue Ann had no interest in the CD. The CD was
obtained in order to provide security for a $250,100 loan issued by the Community Bank
in August 2009 to Robert and Jan to finance their store in Wichita. The assignment of the
CD to the Community Bank provided that one of the conditions of default would be the
Community Bank's determination that payment of the loan was impaired for any reason.
Along with the pledged CD, repayment of the loan was personally guaranteed by Robert.
In December 2009, the shop opened for business in Wichita.

In April 2010, Patricia died. Her daughters, Jan and Sue Ann, were her sole heirs.
With Patricia's death, Jan became the sole surviving owner of the CD pledged to the
Community Bank.

Patricia's estate included a $6,531.38 checking account at Guaranty Bank and
Trust Company of Denver, Colorado (Guaranty Bank). The account was payable upon
death to Sue Ann and Jan. In May 2010, Robert contacted Guaranty Bank about the
account. He was told that Sue Ann and Jan would have to provide written and notarized
instructions before the funds could be disbursed. Upon receiving these instructions, the
Guaranty Bank, after deducting a social security payment to Patricia for the month of her
death, transferred the $4,864.38 net balance in Patricia's account to the Colvins' checking
account.

Sue Ann did not receive any of the proceeds from this account. Sue Ann would
later contend at trial that she did not sign the authorization for this transfer. To the
contrary, Jan testified at trial that both she and Sue Ann signed the notarized letter
authorizing the transfer. Sue Ann testified that these funds were supposed to be used to
pay her mother's final bills, but not all of these expenses were paid. An American Express
bill, a headstone bill, and medical expenses remained unpaid. But she did not present any
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evidence that these funds were used to pay something other than her mother's final
expenses.

Shortly after Patricia's death, Robert prepared an accounting of the assets in
Patricia's estate. Both Jan and Sue Ann received copies. The accounting provided that Jan
and Sue Ann were each entitled to a $100,000 CD at the Community Bank. The
accounting also provided that the funds from Patricia's account held in the Colvins'
checking account would be used to partially satisfy Patricia's outstanding debts.

According to Sue Ann, Robert claimed that she and Jan individually owned
separate $100,000 CDs. There never were separate $100,000 CDs, just the single
$200,000 CD pledged to the Community Bank. Robert testified that the accounting
statement was not intended to falsely represent that two separate CDs existed. Rather, the
accounting statement "was meant to show that it was [$100,000] that would have been for
each person."

In October 2010, Jan made a $100,000 gift to Sue Ann by adding Sue Ann as a
joint owner of the $200,000 CD pledged to the Community Bank. Sue Ann signed an
assignment agreement of the CD in which she acknowledged that the CD was pledged as
collateral for the Fairchild loan. Sue Ann also signed a third-party agreement which
stated that her interest in the CD could be used to satisfy the Fairchild loan.

"I agree to give you a security interest in the Property that is described in the Security
Agreement section. I agree to the terms of this Loan Agreement, but I am in no way
personally liable for payment of the debt. This means that if the Borrower defaults, my
interest in the secured Property may be used to satisfy the Borrower's debt."

Sue Ann conceded that the CD was collateral for the loan and, in the event of default, its
proceeds could be used to satisfy any outstanding loan balance. She understood she
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would be entitled to her half of the CD only when the CD was no longer pledged as
collateral for the loan.

Fairchild's Wichita store proved not to be profitable. The housing crisis that
followed the beginning of the Great Recession in 2008 adversely affected the business.
"[T]he store wasn't making any money. It made money about one of the 24 months we
were open."

In October 2010, Robert was in the process of seeking an SBA loan through the
government's SKID loan process. He hoped to obtain a new loan with a longer payout.
Fairchild was making interest-only payments on the Community Bank note. "[W]e
weren't able to pay down any principle [sic] on the note." In December 2010, Robert sent
Sue Ann an email in which he discussed the Community Bank loan, the store's
inadequate financial performance, and his hope to refinance the loan.

In January 2011, Robert met with the Community Bank to discuss Fairchild's
financial performance. Fairchild's 2010 third quarter had been "decent," but the
"Christmas season wasn't what [he] thought it was going to be." Robert and the
Community Bank had numerous discussions regarding solutions for paying off the loan.
Sue Ann was not a party to any of these discussions. Robert told Community Bank that
the SKID loan had been approved, but not for enough to retire Fairchild's note to
Community Bank. Robert told the Community Bank that "I would not be able to make
the principle [sic] payment when the note came due in March." No solution was found so
the Community Bank called the loan, liquidated the CD, and applied the $200,000
proceeds to the loan, leaving an unpaid balance of about $50,000.

The Colvins ultimately consolidated this remaining $50,000 loan balance with
another outstanding loan from the Community Bank, leaving a total loan balance of
$102,187.57. This loan was renewed by the Community Bank with a $79,761.31 balance.
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The renewal note remained unpaid, and the Community Bank is currently suing Robert
on this note.

The Fairchild Company closed the Wichita store in September 2011. Sue Ann
later purchased the name of the failed business and opened her own design firm in
Augusta, named Fairchild Interiors and Design. Sue Ann testified that not receiving a
share of the $200,000 CD did not impede her ability to open the new shop.

Sue Ann learned of these events in February 2012. She would later contend that
Community Bank's calling the loan and liquidating the CD was prompted and encouraged
by Robert. Robert denied this claim and contended that he was working hard to refinance
the loan in order to "buy more time for the company."

In January 2013, Sue Ann filed suit against Community Bank, Robert, and Jan.
The Colvins retained counsel to defend against Sue Ann's claims. Sue Ann's claims
included a claim of fraud against Robert. Robert denied any fraud and moved the court to
dismiss this claim for failure to plead the fraud claim with particularity and failure to
show detrimental reliance. Sue Ann responded that the fraud consisted of Robert
directing the Community Bank to apply the CD's proceeds to the loan balance. The
district court overruled Robert's motion to dismiss.

In August 2014, the court granted the motion of the Colvins' attorney for leave to
withdraw as their counsel. From that point forward, including the jury trial, the Colvins
proceeded pro se.

In May 2015, the court issued an agreed pretrial order in which Sue Ann
contended that Community Bank liquidated the CD at Robert's direction and applied its
proceeds to the outstanding loan balance. She claimed that Robert's actions constituted
fraud, breach of duty, negligence, and unjust enrichment by "paying down" the Fairchild
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loan. She also claimed a civil conspiracy between the Community Bank and the Colvins
to liquidate the CD and apply its proceeds to the outstanding loan balance and that the
Colvins aided and abetted Community Bank in converting the CD. She claimed damages
of $200,000 but did not allege any specific harm. Sue Ann settled her claims against the
Community Bank before trial.

Sue Ann also claimed that Jan forged her name on the letter instructing the
Guaranty Bank to transfer their mother's remaining checking account funds to the
Colvins. Sue Ann asserted that she did not consent to, or sign, the letter. Sue Ann claimed
that she sustained $6,531.38 in damages as a result of Jan's actions.

Robert moved for summary judgment. The district court denied his motion in
October 2015.

Following a jury trial in November 2015, and the return of the jury's verdict, the
district court entered judgment against Robert in the sum of $100,000 on Sue Ann's
theories of unjust enrichment, conversion, fraud, civil conspiracy, and aiding and
abetting. Interestingly, the court entered no judgment in favor of Sue Ann on her
negligence claim, notwithstanding the jury's finding that Robert was 90% negligent in the
transaction.

The court entered judgment against Jan in the sum of $2,432.19 on Sue Ann's
claim of conversion. This appeal followed.

In this appeal, the Colvins raise issues regarding the district court's denial of their
motion for judgment on the pleadings, the district court's denial of Robert's summary
judgment motion, and the district court's failure to make findings and conclusions in
denying Robert's summary judgment motion. But these issues are subsumed into the
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overriding issue of whether the district court erred in submitting Sue Ann's claims to the
jury.

As conceded in oral argument before us, the current claim on appeal that Sue
Ann's claims should not have been submitted to the jury is the equivalent of arguing that
the evidence educed at trial was insufficient to support the jury's verdicts on the various
counts. The sufficiency of the evidence is a matter which we may consider on appeal
regardless of whether it was raised before the trial court. See Alford Ranches, LLC v.
TGC Indus., Inc., No. 112,375, 2015 WL 9591354, at *8 (Kan. App. 2015) (unpublished
opinion) (citing State v. Farmer, 285 Kan. 541, 545, 175 P.3d 221 [2008]). In considering
the sufficiency of the evidence to support Sue Ann's various claims, we do not reweigh
the evidence or pass on the credibility of the witnesses. If the evidence, considered in the
light favoring Sue Ann, supports the verdict, we will not disturb it on appeal. See Wolfe
Electric, Inc. v. Duckworth, 293 Kan. 375, 407, 266 P.3d 516 (2011). In doing so, we
consider uncontroverted evidence of Robert and Jan. See Walborn v. Stockman, 10 Kan.
App. 2d 597, 600, 706 P.2d 465 (1985) ("[A] factfinder cannot disregard uncontroverted
and unimpeached testimony or the only evidence upon a material question in controversy
and return a verdict in direct opposition.").

Fraud

With respect to Sue Ann's fraud claims, our Supreme Court stated in Alires v.
McGehee, 277 Kan. 398, 403, 85 P.3d 1191 (2004): "The elements of an action for fraud
include an untrue statement of fact, known to be untrue by the party making it, made with
the intent to deceive or with reckless disregard for the truth, upon which another party
justifiably relies and acts to his or her detriment." Thus, a cause of action for fraud
requires proof of the following five elements:

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"(1) The defendant made false representations as a statement of existing and material
fact; (2) the defendant knew the representations to be false or made them recklessly
without knowledge concerning them; (3) the defendant made the representations
intentionally for the purpose of inducing another party to act upon them; (4) the other
party reasonably relied and acted upon the representations; (5) the other party sustained
damages by relying upon the representations." Stechschulte v. Jennings, 297 Kan. 2, 19,
298 P.3d 1083 (2013).

In accord is our civil pattern instruction, PIK Civ. 4th 127.40, which identifies the
essential elements required to sustain a fraud claim:

"1. That false (or untrue) representations were made as a statement of existing and material fact.
"2. That the representations were known to be false (or untrue) by the party making them, or were
recklessly made without knowledge concerning them.
"3. That the representations were intentionally made for the purpose of inducing another party to
act upon them.
"4. That the other party reasonably relied and acted upon the representations made.
"5. That the other party sustained damage by relying upon them."

Sue Ann asserted a claim for fraud against Robert based upon the following:

 Jan and Sue Ann were owners of a $200,000 CD held with Community Bank.
 The Colvins, as managing members of Fairfield Interiors, signed an assignment of
the CD.
 Sue Ann signed the assignment and was listed as a secured party.
 The assignment specifically listed the CD as collateral for the loan.
 On January 21, 2011, Robert directed Community Bank to liquidate the CD and
apply its proceeds to loan's outstanding balance.
 Neither Community Bank nor the Colvins notified Sue Ann in writing that the
CD's proceeds were applied to the loan's outstanding balance.
 Sue Ann did not authorize liquidation of the CD.
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 Robert did not have any ownership interest in the CD.
 Sue Ann suffered $200,000 in damages as a result of Robert's actions.

Based on our review of the trial transcript, with respect to Robert's dealings with
the Community Bank, we find no evidence of a false statement that encouraged the
Community Bank to liquidate the CD and apply the proceeds to the loan balance. Indeed,
Sue Ann does not even allege that a false statement was made in this transaction. Robert
testified that the store was not profitable, having made money only 1 month out of 24.
The housing industry was greatly affected by the recession during this period. Robert
sought to refinance the debt through the SBA but was unable to obtain a loan that would
pay off the outstanding loan. Community Bank was receiving interest-only payments on
the loan, and it was clear that the borrower would not be able to pay down the principal
when the note became due. Sue Ann does not challenge the truth of any of these
representations.

Besides, these representations were to the Community Bank, not to Sue Ann. As
the plaintiff, it was her burden to present evidence that she acted upon some materially
false statement by Robert to her detriment. An essential element of actionable fraud is the
plaintiff's reliance on a false statement to his or her detriment. Nichols v. Kansas Political
Action Comm., 270 Kan. 37, 53, 11 P.3d 1134 (2000).

"'It is an elementary rule of the law of fraud, regardless of the form of relief sought, that
in order to secure redress because of false representations it is not enough to show merely
that they were material, that they were known to be false and that they were made with
intent to deceive, but it must also be shown that they did actually mislead and deceive, or,
in other words, that they were relied upon by the complaining party to his detriment.
Where a plaintiff seeks to recover because of the fraud of the defendants, based upon
false representations, it is incumbent upon him to allege and prove what representations
were made, that they were false, that he believed them to be true, and that he relied and
acted upon them to his detriment.' [Citation omitted.]" 270 Kan. at 53.
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The only claimed misrepresentation from Robert to Sue Ann was Robert's
assertion in the email that there were two separate $100,000 CDs, rather than one
$200,000 CD. Sue Ann fails to establish that this misstatement was material. But more
importantly, she alleges no detrimental reliance on this claimed misstatement. There is no
evidence whatsoever about actions she took or acts she refrained from engaging in on
account of this representation by Robert. Without some evidence of detrimental reliance,
there was insufficient evidence to support Sue Ann's claim of fraud.

Sue Ann's interest in the CD was a gift from her sister, Jan. At the time of the gift,
and throughout the remainder of the events leading to this fraud claim, the CD was
pledged as security for the Community Bank's loan. As noted earlier, Sue Ann conceded
that the CD was collateral for the loan and, in the event of default, its proceeds could be
used to satisfy any outstanding loan balance. She understood she would be entitled to her
half of the CD only when the CD was no longer pledged as collateral for the loan. The
loan secured by the CD was in the principal amount of $250,100. During the life of the
loan, no payments were ever made to reduce the principal balance. Thus, at all times
during the life of the loan the loan balance which encumbered the CD exceeded the value
of the $200,000 CD.

The CD had no net equity value so long as it was subject to the Community Bank's
security interest. There is no evidence to dispute Robert's testimony regarding the failure
of the business. There is no dispute that the note was scheduled to come due 2 months
after the Community Bank's action. Further, there is no evidence that Robert or Fairchild
had the ability to pay off the note when due, to avoid the inevitable foreclosure of the
collateral and to free the CD from the Community Bank's security interest so as to give
the CD value in the hands of Jan and Sue Ann. In other words, there is no evidence that
but for Robert's actions, Sue Ann would have realized any proceeds from the CD.

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To the contrary, the evidence was that after the CD was liquidated and the
proceeds applied to the loan, there remained an unpaid balance of about $50,000. This
remaining balance was consolidated with another outstanding loan into a $102,187.57
loan. This loan was reduced to a $79,761.31 balance but never satisfied, resulting in the
current suit by the Community Bank against Robert on this note. With this undisputed
evidence, it is apparent that the original Community Bank promissory note would not
have been paid off so as to eliminate the security interest against it and to permit Sue Ann
to enjoy any proceeds from the CD. The CD had no real value until that happened. Thus,
Sue Ann fails to show that she sustained any damages as a result of the claimed
fraudulent conduct of Robert.

Conversion

Sue Ann also asserted claims of conversion against both Robert and Jan. The
conversion claim against Robert arises out of the Community Bank's liquidation of the
CD and applying the proceeds to the outstanding loan. The conversion claim against Jan
arises out of the disposition of the proceeds from her mother's account at the Guaranty
Bank in Denver.

Conversion is the "'unauthorized assumption or exercise of the right of ownership
over goods or personal chattels belonging to another to the exclusion of the other's
rights.'" Armstrong v. Bromley Quarry & Asphalt, Inc., 305 Kan. 16, 22, 378 P.3d 1090
(2016). As stated in PIK Civ. 4th 124.81, "The measure of damages for conversion of
personal property is the fair and reasonable market value of the property converted at the
time of the conversion." See Nelson v. Hy-Grade Construction & Materials, Inc., 215
Kan. 631, 635, 527 P.2d 1059 (1974). As noted above, at the time the Community Bank
liquidated the CD and applied the proceeds to the loan, the CD had no net value. It was
pledged to secure the loan, and the loan balance at all times exceeded the value of the
loan. Sue Ann failed to establish any damages on her conversion claim against Robert.
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With respect to Sue Ann's conversion claim against her sister, Jan was a co-
recipient of this payable-on-death account. The uncontradicted evidence was that the
money was supposed to be used to pay their mother's final expenses. Sue Ann testified
that there remained unpaid an American Express bill, a headstone bill, and medical
expenses. Sue Ann conceded that her mother's funeral expenses were paid, albeit rather
late. Given the relatively paltry sum received from the Guaranty Bank, it is hardly
unexpected that some final expenses remained unpaid.

But there is no evidence that the funds in Jan's hands were used to pay something
other than their mother's final expenses. There is no evidence that Sue Ann's share of her
mother's estate was diminished by Jan's actions. There is no evidence that claims were
made against their mother's estate for expenses that Jan should have paid out of the funds
she received from Guaranty Bank. There is no evidence that Sue Ann paid expenses that
Jan should have paid out of the Guaranty Bank account proceeds. The only evidence is
that Jan honored the intent of the sisters to apply the Guaranty Bank proceeds to their
mother's final expenses. Without a contrary showing we fail to find sufficient evidence in
the record to support the judgment against Jan for conversion.

Unjust Enrichment

The court also entered judgment against Robert on the theory of unjust
enrichment. Unjust enrichment arises when (1) a benefit has been conferred upon the
defendant, (2) the defendant retains the benefit, and (3) under the circumstances, the
defendant's retention of the benefit is unjust. Estate of Draper v. Bank of Am., N.A., 288
Kan. 510, 518, 205 P.3d 698 (2009). Sue Ann claims Robert was unjustly enriched when
he caused the Community Bank to foreclose on the collateral, thereby reducing his
exposure on the loan which he personally guaranteed. But when viewed in the context of
the facts surrounding this loan transaction, it is apparent that calling the note and
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liquidating the collateral was inevitable. Thus, we are satisfied that the evidence was
insufficient to establish that Robert was unjustly enriched.

It is clear from the uncontradicted evidence that foreclosure on the collateral was
inevitable. In January 2011, Robert met with the Community Bank to discuss Fairchild's
financial performance. Fairchild's 2010 third quarter had been "decent," but the
"Christmas season wasn't what [he] thought it was going to be." Robert told Community
Bank that the SKID loan had been approved, but not for enough to retire Fairchild's note
to Community Bank. Robert told the Community Bank that "I would not be able to make
the principle [sic] payment when the note came due in March." There was no evidence
that Fairchild or Robert had the wherewithal to pay the note when due. Calling the note
and foreclosing on the collateral clearly was inevitable. Robert would have received the
claimed benefit from foreclosure of the collateral regardless of how that foreclosure came
about. Based on these uncontroverted facts, we conclude that there was no evidence to
support a judgment for unjust enrichment.

Civil Conspiracy

Sue Ann obtained a judgment against Robert based on the theory that Robert
engaged in a civil conspiracy with the Community Bank in foreclosing on the collateral.
The elements of civil conspiracy are:

"'(1) two or more persons; (2) an object to be accomplished; (3) a meeting of the minds in
the object or course of action; (4) one or more unlawful overt acts; and (5) damages as
the proximate result thereof.' [Citation omitted.] Conspiracy is not actionable without
commission of some wrong giving rise to a cause of action independent of the
conspiracy." Stoldt v. City of Toronto, 234 Kan. 957, 967, 678 P.2d 153 (1984) (quoting
Citizens State Bank v. Gilmore, 226 Kan. 662, Syl. ¶ 7, 603 P.2d 605 [1979]).

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Viewing the evidence in the light favoring Sue Ann, the prevailing party, there
still remains no evidence of any damages suffered as a result of Robert's claimed conduct.
Without this, the evidence is insufficient to support a verdict based on a civil conspiracy.

Aiding and Abetting

The elements of civil aiding and abetting are:

"'(1) the party whom the defendant aids must perform a wrongful act that causes an
injury; (2) the defendant must be generally aware of his role as part of an overall illegal
or tortious activity at the time that he provides the assistance; (3) the defendant must
knowingly and substantially assist the principal violation.'" State ex rel. Mays v.
Ridenhour, 248 Kan. 919, 936, 811 P.2d 1220 (1991).

"A civil conspiracy involves an agreement to participate in a wrongful activity,
while aiding and abetting focuses on whether a defendant knowingly gave 'substantial
assistance' to someone who performed wrongful conduct." 248 Kan. at 936.

Sue Ann failed to present any evidence that the Community Bank engaged in
wrongful conduct. Regardless whether Robert induced the Guaranty Bank to call the note
and foreclose on the collateral, the assignment of the CD provided that one of the
conditions of default would be the Community Bank's determination that payment of the
loan was impaired for any reason. It is clear from the uncontradicted evidence that the
Community Bank's position was impaired by the borrower's inability to meet any of its
principal payment obligations and the uncontroverted fact that the borrower would be
unable to satisfy the loan when it came due a short time later. Further, there was no
showing that the guarantor had the ability to meet his obligation under the guaranty.

Finally, an action based on aiding and abetting requires a showing of damages.
Aiding and abetting requires a wrongful act that causes injury. As demonstrated above,
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there is no evidence of injury or damages to support a claim of aiding and abetting.
Accordingly, there is insufficient evidence to support a judgment against Robert on this
theory of liability.

Conclusion

Based on the analysis above, the remaining claims by Robert and Jan on appeal
are now moot, and we need not address them. There being insufficient evidence to
support the judgments rendered against Robert and Jan in this matter, all those judgments
are reversed.

Reversed.