ARY JEWELERS v. Krigel

• Decision Date: 19 March 2004
• Docket Number: No. 89,543,89,543
• Parties: ARY JEWELERS, L.L.C., Appellant, v. SCOTT KRIGEL, INDIVIDUALLY AND AS TRUSTEE OF THE SCOTT W. KRIGEL REVOCABLE TRUST, Appellees.
• Court: Kansas Supreme Court

277 Kan. 464

85 P.3d 1151

ARY JEWELERS, L.L.C., Appellant, v. SCOTT KRIGEL, INDIVIDUALLY AND AS TRUSTEE OF THE SCOTT W. KRIGEL REVOCABLE TRUST, Appellees.

No. 89,543

Supreme Court of Kansas

Opinion filed March 19, 2004.

Barry L. Pickens, of Spencer Fane Britt & Browne, LLP, of Kansas City, Missouri, argued the cause, and Michael C. Leitch, of the same firm, was with him on the briefs for appellant.

Sanford P. Krigel, of Krigel & Krigel, P.C., of Kansas City, Missouri, argued the cause, and Karen S. Rosenberg, of the same firm, was with him on the briefs for appellees.

The opinion of the court was delivered by

NUSS, J.:

This case involves a dispute about interest accruing on escrowed funds. ARY Jewelers, L.L.C. (ARY) contracted to buy Krigel's, Inc., which owned and operated a jewelry business in several Midwestern states. After the sale failed, a Johnson County District Court granted summary judgment to ARY and ordered return of its $1.5 million in escrow. Scott Krigel, individually and as trustee of the Scott W. Krigel Revocable Trust which owned the company stock (collectively the Krigels), appealed not only the grant of summary judgment to ARY but also the denial of their own summary judgment motion based upon breach of contract.

After the Krigels' appeal was docketed, ARY filed a motion essentially seeking prejudgment and postjudgment interest at the Kansas statutory rates on its $1.5 million. The court denied the motion, and ARY appealed. After the Court of Appeals denied ARY's motion to consolidate, we transferred both cases on our own motion pursuant to K.S.A. 20-3018(c). We affirmed the district court's summary judgment for ARY on the substantive issues in ARY Jewelers v. Krigel, 277 Kan. 27, 82 P.3d 460 (2003) (ARY I).

We essentially ruled that under the express terms of paragraph 4(c) of the Stock Purchase Agreement (SPA), the SPA was null and void as of December 19, 2000, because of an unfulfilled financing condition.

Concurrent with the release of ARY I, we ordered the parties to submit supplemental briefs on the issue of prejudgment and postjudgment interest by January 30, 2004, since our holding the SPA null and void placed in doubt (1) the district court's ruling that per the SPA and related agreements the parties had "agreed" upon the interest rate and (2) the viability of the SPA's choice of law provision. The parties timely complied.

Accordingly, the central issue on this appeal is whether the district court correctly concluded that the parties had agreed upon the rate of interest to accrue on the escrowed funds and, if not, whether Missouri or Kansas law supplies the statutory rate of interest.

Other issues include whether the district court had jurisdiction to address the interest issue, whether interest is available in declaratory judgment actions, and whether the awarding of prejudgment and postjudgment interest is discretionary with the district court.

We hold that the district court had jurisdiction, but that it erred in holding the parties had agreed upon an interest rate. We therefore reverse and remand for a determination of the amount of interest accruing under the statutes as described in the opinion.

FACTS

Krigel's, Inc., a family-owned Kansas corporation operating jewelry stores across several Midwestern states, began having financial problems early in 2000 and soon became insolvent. Scott Krigel (Scott), on behalf of the Scott W. Krigel Revocable Trust, began to seek a buyer for the family business. On November 21, 2000, following extended negotiations with Gohar Husain, both Scott on behalf of his trust and Husain on behalf of ARY, signed the SPA, which underlies the dispute in this case and in its companion, ARY I. The SPA called for Krigel's, Inc., to file for Chapter 11 bankruptcy. After approval of the bankruptcy court and sale closing, ARY was to purchase all of the stock of Krigel's, Inc. According to SPA paragraph 1.(b), at the time of closing — which was to be no later than April 30, 2001 — the stock purchase price of $50,000, plus accrued interest, was to be paid in cash to Scott's trust from the $50,000 ARY escrowed at Assured Quality Title Company exclusively for that purpose. Upon closing, ARY was also to pay 60% of the debt owed to each of Krigel's, Inc.'s unsecured creditors and assume responsibility for or pay off all debt Krigel's, Inc., owed to its only secured creditor, Foothill Capital Bank (Foothill Capital).

The same day as the SPA's execution, Husain, again on behalf of ARY, and Scott, on behalf of himself and Krigel's, Inc., signed a Consulting and Noncompetition Agreement for Scott Krigel (consulting agreement). It required ARY to hire Scott as a consultant for up to 1 year and forbade him from competing with ARY in the area of existing Krigel's, Inc., stores for 2 years. In exchange for these considerations, ARY was to pay Scott the entire $1.45 million it placed in a second escrow account at Assured Quality Title exclusively for that purpose.

More specifically, both the consulting agreement at paragraph 9, and the SPA at paragraph 2, provided that at the time of closing, $950,000 for Scott's covenant not to compete, plus accrued interest, was to be paid to him from the escrowed funds. Additionally, paragraph 4 of the consulting agreement provided that $500,000 for Scott's consulting services was to be paid to him from the escrow in six equal monthly installments, with the first installment due at closing. It further provided that at the time of the final installment, Scott could "also withdraw all accrued interest on the $500,000."

Two other documents, the escrow agreements themselves, were also dated November 21, 2000, and were signed by ARY, Scott, and Assured Quality Title. Among other things, they provided Scott could direct the investment of ARY's funds with certain restrictions. The escrow agreement controlling the $1.45 million ARY deposited for Scott's services provided at paragraph 5:

"Escrowee [Assured Quality Title Company] shall invest and as necessary reinvest the Escrowed Funds in interest bearing securities issued, guaranteed or secured by the United States or the Federal Deposit Insurance Corporation as directed by Krigel for the account of Krigel."

The escrow agreement controlling the $50,000 ARY deposited for the stock purchase was essentially the same. It provided at paragraph 5:

"Escrowee [Assured Quality Title Company] shall invest and as necessary reinvest the Escrowed Funds in interest bearing securities issued, guaranteed or secured by the United States or the Federal Deposit Insurance Corporation as directed by Shareholder for the account of Scott W. Krigel."

The SPA provided at paragraph 9, and the consulting agreement at paragraph 19, that if ARY failed to provide proof of its ability to pay unsecured creditors prior to Krigel's, Inc.'s bankruptcy filing, or if it failed to pay the unsecured creditors on the effective date of the bankruptcy plan, then Scott and his trust would immediately be entitled "to receive all funds escrowed" pursuant to paragraphs 4 and 9 of the consulting agreement and paragraph 1(b) of the SPA.

The SPA also contains the "Foothill Capital financing condition" and provides at paragraph 4(c):

"(c) Within four weeks from the date hereof [December 19, 2000] Purchaser shall provide Seller with evidence of Foothill Capital's consent to the continued financing of Company's obligations to Foothill Capital. In the event Foothill Capital does not consent within the foregoing time period this Stock Purchase Agreement and related agreements shall be void and of no further effect." (Emphasis added.)

SPA Paragraph 8(a) provides that the SPA and "any other agreements referenced herein," i.e., the consulting agreement and two escrow agreements, "shall be governed and construed in accordance with the laws of the State of Missouri."

SPA Paragraph 8 continues at subsection (e) with integration language:

"Entire Agreement. This Agreement (including the Exhibits referred to herein) sets forth the entire Agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede[s] all prior agreements, arrangements, and understandings, whether written or oral, related to the subject matter hereof. No representation, promise, inducement or statement of intention has been made by any party hereto which is not embodied in the Agreement or in the Exhibits attached hereto or the written statements, certificates or other documents delivered pursuant hereto."

The consulting agreement expresses a similar message. Paragraph 13 states: "Entire Agreement. This Agreement contains the entire agreement of the parties hereto with respect to the matters set forth herein."

The transaction did not close by the specified date of December 19, 2000, but ARY and Krigel's, Inc., continued to negotiate with Foothill Capital to try to salvage the transaction. Finally, on March 28, 2001, ARY notified Krigel's, Inc., that if Foothill Capital did not approve continued financing on the same terms as Krigel's, Inc., had enjoyed prior to insolvency, ARY would consider the SPA void.

Two days later, on March 30, 2001, ARY failed to close on the SPA and failed to pay Krigel's, Inc.'s unsecured creditors. Because of ARY's alleged failure to perform, the next day Scott made a demand on Assured Quality Title for release of the escrowed $1.5 million per the default provisions of the agreements. ARY contested the demand and claimed the entire transaction void due to Foothill Capital's failure to agree to continued financing on the same terms as Krigel's, Inc., had enjoyed prior to insolvency. ARY consequently requested the Krigels provide Assured Quality Title with a "joint written instruction" to release the $1.5 million to ARY. The Krigels failed to do so.

ARY then filed a petition for declaratory judgment in Johnson County District Court essentially seeking a judgment declaring that the...