Cohen v. Battaglia

• Decision Date: 08 February 2013
• Docket Number: No. 99,793.,99,793.
• Citation: 293 P.3d 752
• Parties: Barton J. COHEN, as Trustee of the Barton J. Cohen Revocable Trust, and A. Baron Cass, III, as Trustee of the A. Baron Cass Family Trust, u/t/a dated March 22, 1989, as amended, Appellants, v. Marion BATTAGLIA, Appellee.
• Court: Kansas Supreme Court

293 P.3d 752

Barton J. COHEN, as Trustee of the Barton J. Cohen Revocable Trust, and A. Baron Cass, III, as Trustee of the A. Baron Cass Family Trust, u/t/a dated March 22, 1989, as amended, Appellants,

v.Marion BATTAGLIA, Appellee.

No. 99,793.

Supreme Court of Kansas.

Feb. 8, 2013.

Syllabus by the Court

1. Whether a district court erred by granting a motion to dismiss for failure to state a claim is a question of law subject to unlimited review.

2. When a district court has granted a motion to dismiss for failure to state a claim, an appellate court must accept the facts alleged by the plaintiff as true, along with any inferences that can reasonably be drawn therefrom. The appellate court then decides whether those facts and inferences state a claim based on plaintiff's theory or any other possible theory. If so, the dismissal by the district court must be reversed.

3. Factual disputes cannot be resolved in ruling on dispositive motions.

R. Pete Smith, of McDowell, Rice, Smith & Buchanan, P.C., of Kansas City, Missouri, argued the cause, and Alleen Castellani VanBebber, of the same firm, was with him on the briefs for appellants.

E. Ann Wright, of The Accurso Law Firm, of Kansas City, Missouri, argued the cause, and Louis C. Accurso, of the same firm, was with her on the briefs for appellee.

The opinion of the court was delivered by NUSS, C.J.:

The trial court dismissed the claims of two trustees alleging Marion Battaglia tortiously interfered with their existing contracts and prospective business relationships. A Court of Appeals panel affirmed the dismissal but on a different ground. We granted review and now reverse because the panel inappropriately resolved factual issues on a dispositive motion. We therefore remand to the trial court for additional proceedings.

FACTS

According to the trustees' amended petition, the salient facts are as follows:

Defendant Marion Battaglia owned a 20 percent interest in Baron Development Company, LLC (BDC), a Kansas limited liability company. He also owned 2,222 shares of common stock in The Baron Automotive Group, Inc. (BAG). The balance of the BDC membership interest and the BAG common stock shares were owned by A. Baron Cass and the Barton J. Cohen Revocable Trust.

On August 30, 2005, Battaglia sold his BDC stock to Cass and the Cohen Trust. Battaglia also contemporaneously sold his BDC membership interest to BDC via a “Redemption Transaction.” Per its terms, BDC paid Battaglia $419,809 in cash and issued a promissory note for $1,259,434. Under a related “Pledge Agreement,” the note was secured for Battaglia by a first-priority security interest in his 20 percent membership interest in BDC.

Per the “Pledge Agreement,” the BDC promissory note to Battaglia became due and payable in full if either BDC or BAG were ever sold to an unrelated party. Per that agreement, BDC further promised not to sell any portion of Battaglia's security interest in membership with BDC without his consent. But his consent was no longer required once all of the obligations under the note were performed and the “[t]ermination date” of the agreement was reached.

After these transactions with Battaglia were completed, Cass transferred all of his interests in BDC and BAG to the A. Baron Cass Family Trust.

In October 2006, the Cohen and Cass trustees and BAG made an agreement with Group 1 Automotive, Inc. (Group 1). Per the agreement, (1) trustees would sell to Group 1 100 percent of the membership interests in BDC (including Battaglia's 20 percent security interest) and (2) BAG would sell to Group 1 all of its assets. The trustees believed Battaglia's consent was not required because the sale of the BDC interests would occur simultaneously with full payment of the promissory note to him.

Once Battaglia learned of the sale agreements, however, he insisted on knowing the purchase price and other details. The trustees refused the request because Battaglia was not a “seller” under the sale agreements, the transactions with Group 1 were confidential, and disclosure of such information might jeopardize the agreements. Battaglia responded by arguing that he was entitled to copies of the sale agreements because of his presidency of BAG and his security interest in BDC. Counsel for trustees and BAG countered that Battaglia was not entitled to see the documents because Battaglia was not a shareholder of BAG, a member of BDC, or a director of either. He therefore had no interest except as the holder of a promissory note.

Battaglia knew that the sales transaction was supposed to close on January 16, 2007. So 4 days earlier his attorney, Louis C. Accurso, filed a civil action in the circuit court of Jackson County, Missouri, naming Cohen, the Cohen Trust, Cass, BAG, and BDC as defendants (the Missouri action). Among other things, the suit alleged that the trustees breached their fiduciary duties to Battaglia by engaging in self-dealing and financially manipulating BAG and BDC in order to dilute Battaglia's ownership interest. That same day, Accurso faxed to Group 1's general counsel a copy of the Missouri action along with the following letter: “Please find enclosed a file-stamped copy of a lawsuit filed today on behalf of Marion Battaglia. If you have any questions or comments, please do not hesitate to contact me.”

After receiving the letter and a copy of the Missouri action from Battaglia's attorney, Group 1 refused to close the transaction without altering the agreements to include a supplemental indemnification agreement from BDC, the Cohen Trust, and the Cass Trust. Group 1 also now required that $2,500,000 be placed in escrow for its benefit. Their demands were met, with the trustees allegedly incurring substantial attorney fees as a result.

After closing, the Cohen and Cass trustees filed the instant lawsuit against Battaglia. They alleged claims for tortious interference with a contract, tortious interference with a business expectancy, and also requested specific performance of the “pledge agreement.” Included in their claims was an allegation that Accurso's conduct in “[s]ending the letter and a copy of the petition for the Missouri action served no purpose except to interfere with the sale transactions.”

The trial court dismissed the specific performance claim for lack of subject matter jurisdiction because the claim was so intertwined with those in Battaglia's Missouri action. That claim's dismissal was never appealed and is no longer in issue.

Battaglia filed a motion to dismiss the two remaining tortious interference claims under K.S.A. 60–212(b), which the trial court ultimately granted. The court's decision was based in part on § 773 of the Restatement (Second) of Torts (1979). The trustees appealed.

The Court of Appeals panel rejected the rationales of the district court. But the panel nevertheless affirmed the dismissal on a different ground, i.e., § 772 of the Restatement (Second) of Torts (1979). See Cohen v. Battaglia, 41 Kan.App.2d 386, 387–89, 202 P.3d 87 (2009). We granted the trustees' petition for review and obtain jurisdiction over their § 772 issue under K.S.A. 20–3018(b). But Battaglia did not file a cross-petition for review of the panel's rejection of the trial court's various rationales which had favored him.

ANALYSIS

Issue: At the time the instant suit was filed, the Court of Appeals was not in a position to decide the truth of the claims set out in the Missouri action.

Standard of Review

Whether a district court erred by granting a motion to dismiss for failure to state a claim is a question of law subject to unlimited review. Campbell v. Husky Hogs, 292 Kan. 225, 227, 255 P.3d 1 (2011). Additionally, when a district court has granted a motion to dismiss for failure to state a claim, an appellate court must accept the facts alleged by the plaintiff as true, along with any inferences that can reasonably be drawn therefrom. The appellate court then decides whether those facts and inferences state a claim based on plaintiff's theory or any other possible theory. If so, the dismissal by the district court must be reversed. Zimmerman v. Board of Wabaunsee County Comm'rs, 293 Kan. 332, 356, 264 P.3d 989 (2011).

Analysis

In the trustees' amended petition, they allege that Battaglia committed tortious interference with a contract and tortious interference with a prospective business relationship by both filing the Missouri lawsuit and then later faxing to Group 1 a suit copy with an attached invitation to inquire. “While these torts tend to merge somewhat in the ordinary course, the former is aimed at preserving existing contracts and the latter at protecting future or potential contractual relations.” Turner v. Halliburton Co., 240 Kan. 1, 12, 722 P.2d 1106 (1986).

The elements of tortious interference with a contract are: (1) the contract; (2) the wrongdoer's knowledge thereof; (3) his intentional procurement of its breach; (4) the absence of justification; and (5) damages resulting therefrom. Burcham v. Unison Bancorp, Inc., 276 Kan. 393, 423, 77 P.3d 130 (2003).

Similarly, the elements of tortious interference with a prospective business advantage or relationship are: (1) the existence of a business relationship or expectancy with the probability of future economic benefit to the plaintiff; (2) knowledge of the relationship or expectancy by the defendant; (3) a reasonable certainty that, except for the conduct of the defendant, plaintiff would have continued the relationship or realized the expectancy; (4) intentional misconduct by defendant; and (5) incurrence of damages by plaintiff as a direct or proximate result of defendant's misconduct. Burcham, 276 Kan. 393, Syl. ¶ 15, 77 P.3d 130.

In the trial court's order addressing Battaglia's motion to dismiss these particular claims, it rejected two of Battaglia's three arguments: (1) the trustees failed to show that there was a breach of contract, and (2) Battaglia did not have specific knowledge of the terms of the...