Estate of Rains v. Federal Deposit Ins. Corp., Civ. A. No. 87-1533-T.

• Decision Date: 03 May 1988
• Docket Number: Civ. A. No. 87-1533-T.
• Citation: 702 F. Supp. 1520
• Parties: ESTATE OF G.R. RAINS, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants, v. Jay EWING, Third Party Defendant.
• Court: U.S. District Court — District of Kansas

702 F. Supp. 1520

ESTATE OF G.R. RAINS, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants, v. Jay EWING, Third Party Defendant.

Civ. A. No. 87-1533-T.

United States District Court, D. Kansas.

May 3, 1988.

Michael J. Friesen, Garden City, Kan., for plaintiff.

M. Kathryn Webb, Morrison, Hecker, Curtis, Kuder & Parris, Wichita, Kan., Richard J. Rome, Hutchinson, Kan., for defendants and third party defendant.

OPINION AND ORDER

THEIS, District Judge.

This matter comes before the court on cross motions for summary judgment by the Federal Deposit Insurance Corporation (FDIC) and the Estate of G.R. Rains (Estate) concerning FDIC's claim to payment under two notes executed by G.R. Rains. The court does not believe oral argument would be helpful and denies plaintiff's request for argument. D.Kan.Rule 206(d). After careful consideration of the briefs, the court is prepared to rule.

The original plaintiff, G.R. Rains (Rains), sued the Boulevard State Bank (BSB), Nickerson State Bank (NSB), Gary Dinges and Paganica, Inc. in 1985 for the defendants' alleged failure to repay money they owed Rains. Rains allegedly made the loans for the benefit of Paganica, a Reno County country club which no longer conducts business. BSB counterclaimed for the balance of two loans it made to Rains during the same time period.

BSB failed in early 1987 and the Kansas State Bank Commissioner appointed FDIC to act as Receiver. FDIC in its corporate capacity purchased the unacceptable assets of BSB, which included the two notes executed by Rains in 1984. On March 27, 1987, Rains died.

The Estate contends in its motion for summary judgment that no defendant properly substituted the Estate for Rains pursuant to K.S.A. 60-225(a)(1) within the four months allowed by K.S.A. 59-2239(1), and FDIC is therefore barred from asserting its counterclaim. FDIC asserts that the statutory revival requirements were met and it is entitled to summary judgment on the two unpaid notes.

The court finds the following facts undisputed.

1. Rains executed a note to BSB for $100,000 on June 29, 1984. The note required Rains to repay the entire amount on August 28, 1984, plus interest at two percent over the prime rate.

2. Rains and Jay Ewing executed a note to BSB for $150,000 on June 29, 1984. The note required Rains and Ewing to repay the entire amount on August 28, 1984, plus interest at two percent over the prime rate.

3. Neither Rains nor Ewing have made any payments on either note.

4. Gilbert R. Rains died on March 27, 1987.

5. NSB filed a motion on April 8, 1987, which stated in material part: "Plaintiff, G.R. Rains, died in March, 1987. WHEREFORE, this Defendant prays that this action be dismissed, or that the lawful successor/representative of G.R. Rains be substituted in this action."

6. Rains' wife instituted probate proceedings on April 15, 1987. The Estate published the first notice to creditors on April 23, 1987.

7. The Reno County District Court, by Judge William F. Lyle, Jr., pursuant to NSB's April 8 motion, dismissed this action on April 24, 1987.

8. Rains, who did not receive notice of the April 24 hearing, filed a motion to vacate Judge Lyle's April 24 order on April 28.

9. Pauline Rains, wife of G.R. Rains, became executor of his estate on May 18, 1987.

10. FDIC filed a motion to substitute itself for BSB on May 28, 1987. Judge Lyle granted this motion on June 3, 1987.

11. On July 1, 1987, Judge Lyle conducted a telephone conference with counsel for Rains, FDIC, BSB and third party defendant Jay Ewing to take up the motion to vacate. A record of the hearing was not made. Judge Lyle, by affidavit, gave this recollection of the proceeding:

7. During the hearing, arguments of counsel were heard on the matter of the death of plaintiff G.R. Rains. I found that defendant Nickerson State Bank's alternative Motion to Substitute the Estate of Gilbert R. Rains should be granted, and the Order of Dismissal was set aside.

8. Plaintiff's counsel did not object to the substitution of the estate as proper party plaintiff.

9. At the time of the hearing, I entered an Order that the Estate of Gilbert R. Rains be substituted as party plaintiff in the action. I instructed Michael J. Friesen Rains' counsel to draft the Order to reflect the substitution.

Friesen's understanding of the telephone conference does not materially differ from Judge Lyle's. Friesen remembers that "(c)ounsel offered to draft pleadings substituting the estate and the court accepted said offer by stating `let's make that substitution.'"

The Estate's assertion that Friesen's affidavit controverts Judge Lyle's recollection that he entered an Order to substitute parties is not persuasive. Friesen's recollection of the colloquy between court and counsel reveals only a slight difference in language, not a difference in the court's decision to substitute parties. Moreover, Friesen's current assertions to the court are undercut by his admission on September 4, 1987, that "it was my understanding that I was to file such a motion to substitute after our telephone conference on July 1st,...."

13. FDIC's counsel wrote to counsel for all parties on July 8 and August 19, 1987. In both letters, FDIC reminded Friesen of the court's direction to him to draft the order of substitution.

14. On August 23, 1987, the four month statute of limitations imposed by K.S.A. 59-2239(1) expired.

15. On September 1, 1987, Friesen filed a motion to substitute the Estate and the state court set the motion for hearing on September 18, 1987. Friesen explained his purpose for filing the motion several days later in a letter to all counsel:

Although it was my understanding that I was to file such a motion to substitute after our telephone conference on July 1st, a closer reading of Ms. Webb's Order reveals that the matter has already been addressed. Nevertheless, to keep the file clean, I am sending Judge Lyle the enclosed Order and requesting that the hearing on this motion (set for September 18th at 11:00 a.m.) be removed from the docket.

16. On September 1, 1987, FDIC removed this action to federal court.

17. The pretrial order, filed October 22, 1987, directed Friesen to file a motion and proposed order to substitute the proper party. Friesen submitted these pleadings on October 28, 1987.

18. On November 7, 1987, the Estate for the first time asserted the defense of a failure to properly substitute parties in the instant motion for summary judgment. Two days later, Friesen withdrew the proposed order to substitute in an attempt to clarify the Estate's litigation posture.

I. REVIVAL OF A CLAIM AGAINST THE ESTATE

The party that wishes to maintain its claim against the estate of a deceased party must comply with several statutory steps. The litigant, like any other creditor of the estate, must make a demand against the estate. K.S.A. 59-2238(1). The demand must be made "within four months after the date of the first published notice to creditors." K.S.A. 59-2239(1). The litigant makes the demand by reviving the cause of action. K.S.A. 58-2238(1). "Substitution of parties and revivor of actions are different names for the same thing. The revivor of an action is in fact the substitution of new parties who have the right, under the substantive law, to go ahead with the prosecution or defense of the claim." Livingston v. Bias, 7 Kan. App.2d 287, 289, 640 P.2d 362 (1982).

Substitution of parties is governed by the three prerequisites of K.S.A. 60-225(a)(1). The statute states:

If a party dies and the claim is not thereby extinguished, the court shall on motion order substitution of the proper parties. The motion for substitution may be made by any party or by the successors or representatives of the deceased party or by any party (sic) and, together with the notice of the hearing, shall be served on the parties as provided in K.S.A. 60-205, and upon persons not parties in the manner provided for the service of a summons. Unless the motion for substitution is made within a reasonable time after the death is suggested upon the record by service of a statement of the fact of the death as provided herein for the service of the motion, the action shall be dismissed as to the deceased party.

K.S.A. 60-225(a)(1).

First, some party must file a suggestion of death. NSB's April 8 motion properly suggested the death of G.R. Rains. The second requirement is that a motion for substitution must be filed within a reasonable time after the suggestion of death. NSB's April 8th motion also moved for substitution of the proper party, the Estate, and fulfilled the timely filing requirement.

The last prerequisite of K.S.A. 60-225(a)(1) is that the moving party must serve a copy of the motion and a notice of the hearing to each party and the proposed substitute party. NSB's April 8th motion was properly served but Rains' counsel did not receive notice of the hearing. When the court reheard NSB's alternative motion to dismiss or substitute, the Estate's counsel received notice and appeared. He now complains that the service of the notice was improper because the attorney for the substitute party, the executor for the Estate, did not receive notice of the hearing. Dkt. no. 33 at 5-6.

The court cannot accept this argument for several reasons. First and foremost, the court finds that NSB and FDIC substantially complied with the service requirements of K.S.A. 60-225. The Kansas Code of Civil Procedure authorizes the use of the substantial compliance doctrine in reviewing the sufficiency of the service of process "if the court finds that, notwithstanding some irregularity or omission, the party served was made aware that an action or proceeding was pending in a specified court in which his or her person, status or property were subject to being affected." K.S. A. 60-204.

The court finds that the Estate "was made aware" of the hearing because its attorney appeared at the hearing. Michael Friesen litigat...