Claassen v. City of Newton

• Decision Date: 26 June 2015
• Docket Number: 111,445.
• Parties: R. Dwight CLAASSEN; Connie J. Claassen; Stanley L. Claassen; and Stanley L. Claassen and Janice D. Claassen, as Trustees of the Stanley L. Claassen Revocable Trust Dated June 6, 2008, Appellees, v. The CITY OF NEWTON, Kansas, a Municipal Corporation, Appellant.
• Court: Kansas Court of Appeals

353 P.3d 469 (Table)

R. Dwight CLAASSEN; Connie J. Claassen; Stanley L. Claassen; and Stanley L. Claassen and Janice D. Claassen, as Trustees of the Stanley L. Claassen Revocable Trust Dated June 6, 2008, Appellees
v.
The CITY OF NEWTON, Kansas, a Municipal Corporation, Appellant.

111,445.

Court of Appeals of Kansas.

June 26, 2015.

Neil R. Shortlidge, of Stinson Leonard Street LLP, of Kansas City, Missouri, and Patrick A. Edwards, of the same firm, of Wichita, for Appellant.

Lee Thompson and Deborah Thompson, of Thompson Law Firm, LLC, of Wichita, for Appellees.

Before MALONE, C.J., PIERRON and ATCHESON, JJ.

MEMORANDUM OPINION

PER CURIAM.

Following a bench trial, the Harvey County District Court found that an option contract the Defendant City of Newton entered into with the Claassen plaintiffs to buy some of their farmland for an industrial park was ambiguous as to the City's obligation to increase the purchase price to match what it later paid for other land for the project. The district court construed the option contract using extrinsic evidence and ordered the City to pay the Claassens based on a per-acre price for other land it bought after exercising the option. Although the pertinent part of the contract may have been difficult for someone without legal training to understand, the language was unambiguous. The contract provision required the City to buy the Claassens' property at the highest per-acre price it had paid for other land at the time it exercised the option. The district court, therefore, erred. We reverse and remand with directions that the district court enter judgment for the City on the Claassens' claim for a higher purchase price.

Factual and Procedural History

In late 2008, the City engaged Stanley Brodhagen, a local real estate agent, to acquire land to expand an industrial park to attract additional businesses. Brodhagen approached brothers Dwight Claassen and Stanley Claassen about purchasing 120 acres of farmland the Stanley L. Claassen Revocable Trust owned. [*] Given the controlling legal issues on appeal, we need not render a detailed factual narrative reflecting the trial evidence. The parties are well acquainted with those details.

[*]Plaintiffs in this case include the Trust and R. Dwight Claassen, Connie J. Claassen, Stanley L. Claassen, and Janice D. Claassen, all of whom have some interest in the land or the Trust. The plaintiffs are united in interest and have been jointly represented throughout these proceedings. We have no particular need to distinguish among them. We refer to the plaintiffs collectively as the Claassens.

The Claassen plaintiffs, acting through Dwight and Stanley, negotiated with Brodhagen and agreed to give the City a 6–month option to purchase the 120 acres at a price of $7,500 an acre. The City would pay $2,000 for the option. Brodhagen later characterized the per-acre price as well above market value for farmland. Nobody disagrees. The Claassens were aware the City intended to enter similar option contracts for other land in the vicinity, also to expand the industrial park. The Claassens wanted some assurance that as the first to contract with the City, they would not be stuck with the lowest per-acre price as other landowners successfully held out for more. They told Brodhagen they wanted a contract term that would require the City to compensate them using the highest per-acre price paid anyone else selling land for the project, regardless of when that sale took place. The parties have referred to such a contract provision as a “most favored nations” clause. Basically, a most favored nations provision requires Party A to modify its contract with Party B to include more beneficial terms Party A agrees to in later contracts with other parties. See Paulsen ex rel. N.L.R.B. v. All American Sch. Bus, 986 F.Supp.2d 142, 145 (E.D.N.Y.2013) ; Fisher Bros. v. Phelps Dodge Industries, Inc., 614 F.Supp. 377, 381 (E.D.Penn.1985).

The trial testimony indicated Brodhagen passed that information on to Robert Myers, the city attorney for Newton. Myers then drafted an option contract for the Claassen property. The relevant portion of the contract, as drafted, stated:

“Throughout the term of this Agreement, [the City] shall have the exclusive option to purchase the below-described real estate (‘Property’) for the sum of $7,500.00 per acre, said real estate being described as follows, to wit:

“[description omitted];

provided, however, that if [the City] also acquires other unimproved agricultural land in said Section at a per-acre price in excess of the per-acre price herein, then the per-acre price herein shall be increased to match the higher per-acre price.”

Brodhagen presented the option contract to the Claassens. They asked that the clause include any land the City purchased in Section 26 or Section 27 in addition to Section 22, where their property was located. The City agreed, and the necessary parties signed the revised option contract.

The City twice extended the option, paying the Claassens an additional $2,000 each time. During that period, the City acquired options to buy other land for the industrial park at $8,000 an acre. On February 17, 2010, the city commission authorized the exercise of those options and the option for the Claassen property—all at a price of $8,000 an acre. The City closed on the sales of the other tracts and then closed on May 3 with the Claassens.

While the City continued to hold the option for the Claassen property, a manufacturer expressed strong interest in relocating to the expanded industrial park if the City could acquire a particular tract of land owned by the Entz Trust. On January 8, 2010, the City entered into an option contract for the 77–acre Entz parcel at a price of $10,000 an acre. The City held the option for the Entz land through September 30, 2010.

The Claassens learned of the Entz option contract before closing their sale with the City and made a demand under the most favored nations clause for an adjusted price of $10,000 an acre. The City said the provision did not apply because it had not yet acquired the Entz land when it exercised the option to purchase the Claassens' land. Rather than hold up the sale and delay the expansion of the industrial park, the Claassens and the City agreed to close their deal, reserving the dispute over the application of the most favored nations clause and the proper purchase price—either $8,000 or $10,000 an acre. The City exercised its option to purchase the Entz property for $10,000 an acre on August 13, 2010, and closed that sale on August 20.

The Claassens filed this action in the district court in late 2010 alleging the City failed to comply with the terms of their option contract. The parties engaged in discovery and traded various pretrial motions. The district court held a 2–day bench trial in August 2013 and issued a detailed letter ruling about 5 months later. The district court found the governing contract language ambiguous and turned to extrinsic evidence to discern the parties' intent. The district court concluded that the most favored nations clause should be construed strictly against the City and in a way fulfilling the Claassens' expressed expectation to be paid based on a per-acre price matching the highest figure the City agreed to in buying any other land. The district court also found the City did not intentionally delay or otherwise manipulate the timing of the purchase of the Entz property to thwart the Claassens' contractual rights. The district court entered judgment for the Claassens for $240,000, reflecting an additional $2,000 an acre for their land. The City has appealed.

Legal Analysis

On appeal, the City presents several distinct grounds for reversal. The City first argues the most favored nations clause is unambiguous and did not require matching any per-acre price it paid after exercising the option to purchase the Claassen property. We begin there. And because we agree, we also end there. The City's other arguments are, as a result, superfluous, so we don't address them.

A contract is unambiguous “if the language ... is clear and can be carried...