Comeau v. Rupp
| Decision Date | 15 April 1991 |
| Docket Number | Civ. A. No. 86-1531-T. |
| Citation | 762 F. Supp. 1434 |
| Parties | Roger L. COMEAU; David L. Comeau; Charles G. Comeau; Rooks County Savings Association; and Federal Savings and Loan Insurance Corporation (as successor in interest to Rooks County Savings Association); and Rupp Financial Corporation, Plaintiffs, v. Terry RUPP; C.F. Rupp; Farmers National Bank; Alexander Grant & Co., Defendants, Grant Thornton, (formerly Alexander Grant & Co., a partnership); and Fox & Company, a partnership, Defendant-Counterclaimants and Cross-Claimants. GRANT THORNTON and Fox & Company, Third Party Plaintiffs, v. Mimi KRUSE; Jack Curtis; George Ostmeyer; Bryan Ronck; and A.J. Schwartz, Third Party Defendants. |
| Court | U.S. District Court — District of Kansas |
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A.J. Schwartz, Ken M. Peterson, Morris, Laing, Evans, Brock & Kennedy, Wichita, Kan., Theresa L.F. Levings, Morrison, Hecker, Curtis, Kuder & Parrish, Kansas City, Mo., for plaintiffs.
Robert F. Lytle, Patrick D. Gaston, Bennett, Lytle, Wetzler, Winn & Martin, Prairie Village, Kan., Ron C. Campbell, John T. Conlee, Fleeson, Gooing, Coulson & Kitch, Wichita, Kan., Theodore A. Livingston, Jr., Mayer, Brown & Platt, Chicago, Ill., for defendants.
This matter is before the court on the motions of various parties to dismiss the claims of the third-party plaintiffs; to strike plaintiffs' claim for punitive damages; and to review an order of the magistrate. The action involves the legal fallout from the failure of the Rooks County Savings and Loan Association ("RCSA" or "the Association") in Plainville, Kansas. The court outlines the events leading to this litigation.
The RCSA was purchased in 1983 by certain members of the Rupp and the Comeau families, the respective families owning 70% and 30% of RCSA stock.1 By a stock sale agreement signed on August 27, 1985, and closed on February 10, 1986, the Comeaus bought the entire stock of the Rupps and thus came to acquire 100% of RCSA. The RCSA began experiencing increasing difficulties with its loan portfolio in early 1986. In June 1986, the Comeaus as individuals and the RSCA filed suit against the Rupps, alleging violations of the federal and state securities laws and state common law. The essence of these allegations is that the Rupps knew and withheld material facts from the Comeaus concerning the stock sale, and that the Comeaus are entitled to actual damages as well as rescission of the stock sale agreement. The Comeaus also filed suit against Farmers National Bank, which is owned and actively controlled by the Rupps. The basis of the suit against Farmers National is the allegation that it received the benefits of the alleged breach of the fiduciary duty owed by the Rupps to RCSA. The claims against the Rupps are not among the matters presently before the court.2
The Comeaus and RCSA subsequently amended their complaint to allege malpractice claims against defendants Grant Thornton and Fox & Company ("the Accountants" or "Auditors"). These defendants are partnerships in the practice of certified public accounting. Defendant Fox conducted the audit of RCSA's 1984 financial statements. In the spring of 1985, Grant Thornton and Fox and Company became affiliated with each other. Grant Thornton audited RCSA's financial statements for the years 1985 and 1986.
Under the Fourth Amended Complaint, the Accountants are alleged to have performed the 1984 and 1985 audits of RCSA recklessly and negligently. It is alleged that the Accountants certified the financial statements for the years 1984 and 1985 as conforming to generally accepted accounting principles, notwithstanding the Accountants' actual or constructive knowledge that RCSA's internal accounting controls were unreliable, and that certain loans represented unacceptable high risks. In reliance upon the Accountants' allegedly false certifications, the Comeaus and the RCSA allege that they have suffered substantial losses. More specifically, the Comeaus seek recovery from the Accountants for the purchase and redemption price of the stock, and for the amount corresponding to the diminution in the value of the Comeaus' minority ownership interest. The RCSA claims damages for losses on certain specific loans originating from the Halle Mortgage Company ("Halle loans")— which was the primary loan servicer for RCSA. Both plaintiffs also seek punitive damages from the Accountants. The claims of the plaintiffs against the Auditors are based on the federal securities laws, as well as state common law for breach of fiduciary duty, reckless and wanton conduct, and negligence.
Shortly after the Fourth Amended Complaint was filed, RCSA was declared insolvent, and the Federal Savings and Loan Insurance Corporation ("FSLIC") was appointed as receiver. Thus, FSLIC was substituted as plaintiff for the claims alleged by RCSA. Thereafter, on December 22, 1989, the Federal Deposit Insurance Corporation ("FDIC") was substituted for the FSLIC as the successor in interest to RCSA. The court will therefore refer to the FDIC and the FSLIC interchangeably throughout this order.
The Accountants filed an answer disputing all liability; raising affirmative defenses; alleging counterclaims against the Comeaus, RCSA and the FDIC as its successor; and alleging cross-claims against the Rupps. By order filed February 5, 1990, the magistrate allowed the Accountants to amend their answer to allege contributory negligence as an affirmative defense. The counterclaims and cross-claims of the Accountants, as amended, essentially allege that RCSA, the Comeaus, and the Rupps failed to disclose all documents and material information relating the financial condition of RCSA.3 Based on this failure, and under various and sundry legal theories, the Accountants seek indemnity4 from these parties for any amount that they may be held liable to the Comeaus and the RCSA. The Accountants have also filed a third-party complaint seeking indemnity from several third-party defendants, including A.J. Schwartz—an attorney for the Comeaus during the negotiations for the stock sale.
The FDIC, the Comeaus, and A.J. Schwartz move for dismissal of all claims for indemnity made against them by the defendant-Accountants.
Before addressing the arguments, it is important to note that all parties recognize the inapplicability of the Kansas comparative negligence statute, K.S.A. § 60-258a, to this case. In FSLIC v. Huff, 237 Kan. 873, 704 P.2d 372 (1985), the court held that an action seeking damages for economic loss is not within the purview of the Kansas comparative negligence statute, and that persons responsible for such losses are therefore jointly and severally liable. Id. at 879, 704 P.2d at 377. Although the Kansas legislature subsequently acted to repeal this particular holding of Huff, see 1987 Kan.Sess.Laws ch. 221, § 1, the Kansas Supreme Court has held that this amendment is not to be applied retroactively to claims that accrued before July 1, 1987. Wichita Fed. Savings & Loan Ass'n v. Black, 245 Kan. 523, 542, 781 P.2d 707 (1989). Thus, liability in this case is joint and several, and the allocation of fault is governed by the law of contributory negligence, indemnity, and contribution as it existed in Kansas prior to the adoption of K.S.A. § 60-258a.
"Indemnity" refers to a 100% shift in liability from the indemnitee to the indemnitor, whereas "contribution" implies a shift of only part of the loss to another. See generally Kennedy v. City of Sawyer, 228 Kan. 439, 454, 618 P.2d 788 (1980); Ellis v. Union Pacific R.R. Co., 231 Kan. 182, 185, 643 P.2d 158 (1982); Symons v. Mueller Co., 526 F.2d 13, 16-17 (10th Cir. 1975). In either case, the rights of the person seeking to shift responsibility to another are limited under Kansas law.
Indemnity may exist either through express agreement or may be implied. Haysville U.S.D. No. 261 v. GAF Corp., 233 Kan. 635, 642, 666 P.2d 192, 199 (1983). In this case, there is no express agreement, and therefore any claim for indemnity by the Auditors must rely on a theory of implied indemnity. Implied indemnity may arise in two situations: 1) where one personally without fault is made to pay for the tortious acts of another, such as in the case of the liability of a principal for the acts of the agent, or 2) where the negligence of the indemnitee can be characterized as "passive" or "secondary," as contrasted to the "active" or "primary" negligence of the indemnitor. E.g., Kennedy, 228 Kan. at 455, 618 P.2d 788.
The right to contribution is equally restrictive in Kansas, which "adheres to the common law rule that there is no right to contribution between joint tortfeasors." Alseike v. Miller, 196 Kan. 547, 550, 412 P.2d 1007 (1966). The only exception to this rigid rule is the statutory right to contribution between the joint judgment debtors of the plaintiff. McKinney v. Miller, 204 Kan. 436, 464 P.2d 276 (1970). That is, a right of contribution between joint tortfeasors exists only if these actors were sued by a plaintiff who has obtained a judgment against each. Unless a plaintiff has chosen to sue all potential defendants, the defendant against whom a plaintiff does obtain a judgment will never have any right to contribution against other joint tortfeasors who did not become a judgment debtor to the plaintiff. See generally Brown v. Keill, 224 Kan. 195, 197-98, 580 P.2d 867 (1980).
Applying these rules, it is clear that the Accountants can state no claim to contribution against any party not sued by plaintiffs. None of the Accountants' co-defendants have motions pending before the court, and the court therefore considers the viability of the Accountants' affirmative defense of contributory negligence and of their claims for indemnity.
The FDIC moves for dismissal of all claims for indemnity...
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