Kansas Public Employees Retirement System v. Reimer & Koger Associates, Inc.

• Citation: 936 P.2d 714,262 Kan. 110
• Decision Date: 18 April 1997
• Docket Number: No. 75497,75497
• Parties: KANSAS PUBLIC EMPLOYEES RETIREMENT SYSTEM, Plaintiff, v. REIMER & KOGER ASSOCIATES, INC., Defendant/Appellant/Cross-appellee, and Gage & Tucker, L.C., Defendant/Appellee/Cross-appellant.
• Court: United States State Supreme Court of Kansas

Page 714

936 P.2d 714

262 Kan. 110

KANSAS PUBLIC EMPLOYEES RETIREMENT SYSTEM, Plaintiff, v. REIMER & KOGER ASSOCIATES, INC., Defendant/Appellant/Cross-appellee, and Gage & Tucker, L.C., Defendant/Appellee/Cross-appellant.

No. 75497.

Supreme Court of Kansas.

April 18, 1997.

Syllabus by the Court

1. The Kansas Public Employees Retirement System (KPERS) settlement statute, K.S.A.1995 Supp. 74-4904a, provides protection for a defending party who enters into a settlement agreement with KPERS and obtains judicial approval of the settlement. The settling party is discharged from all liability for contribution or noncontractual indemnity as to any other individual or entity.

2. Any cross-claim that asserts an affirmative claim must be filed within the applicable period of the statute of limitations.

3. The phrase "substantial injury" in K.S.A. 60-513(b) has been construed to mean "actionable injury."

4. In general, a cause of action accrues so as to start the running of the statute of limitations as soon as the right to maintain a legal action arises. The true test to determine when an action accrues is that point in time at which the plaintiff could first have filed and prosecuted his or her action to a successful conclusion.

5. The general rule is that a cross-claim of any nature is barred as to affirmative relief if such cross-claim is barred by the statute of limitations at the time of the filing of the plaintiff's action.

6. Where a defendant files a cross-claim seeking affirmative relief against another defendant in an action arising out of the same incident pleaded by the plaintiff in its petition, and where the original petition was filed within the 2-year period of the statute of limitations, but the cross-claim was not filed until after the 2-year limitations period had run, the cross-claim is barred by the statute of limitations.

7. A trial court's reason for its decision is immaterial if the ruling is correct for any reason.

Brian G. Boos, of Yeretsky & Maher, L.L.C., Kansas City, Missouri, argued the cause, and James M. Yeretsky and Gregory F. Maher, of the same firm, were with him on the briefs, for appellant/cross-appellee.

Kurt L. Schultz, of Winston & Strawn, Chicago, IL, argued the cause, and Dan K. Webb and Jerome W. Pope, of the same firm, and Mark L. Bennett, Jr., of Bennett & Dillon, L.L.P., Topeka, were with him on the briefs, for appellee/cross-appellant.

DAVIS, Justice:

On December 6, 1996, this court decided KPERS v. Reimer & Koger Assocs., Inc., 261 Kan. 17, 927 P.2d 466 (1996) (KPERS I ), which involved two actions filed by the Kansas Public Employees Retirement System (KPERS) against various defendants for its investment losses in Sharoff Food Service, Inc., (Sharoff) and Tallgrass Technologies Corporation (Tallgrass). This appeal involves a cross-claim between two defendants in the action regarding KPERS's losses in Tallgrass. We affirm the trial court's dismissal of the cross-claim but for different reasons than are advanced by the trial court.

A brief statement of the facts, as well as some procedural history, is helpful to crystalize the issues we are called upon to decide in this appeal. KPERS filed two separate actions against Reimer & Koger and other defendants for losses suffered from its investment in Sharoff, approximately $9 million, and from its investment in Tallgrass, approximately $14.5 million. Reimer & Koger was an investment advisor and had the discretion to invest the KPERS money. Reimer & Koger employed the law firm of Gage & Tucker, L.C., to represent KPERS, draft documents, and otherwise assist Reimer & Koger in consummating the Tallgrass transaction.

In May 1994, the Kansas Legislature enacted the KPERS settlement statute, K.S.A.1995 Supp. 74-4904a, which provides protection for a defending party who enters into a settlement agreement with KPERS and obtains judicial approval of the settlement. The settling defendant is discharged from "all liability for contribution or noncontractual indemnity" as to any other individual or entity. K.S.A.1995 Supp. 74-4904a(1). See KPERS I, 261 Kan. at 22-23, 927 P.2d 466.

Pursuant to the above statute, Gage & Tucker, which had been granted leave by the court to intervene as a defendant in the Tallgrass case, settled with KPERS for its loss in Tallgrass for $2.5 million. The separate KPERS actions for losses in Sharoff and Tallgrass were consolidated before the Shawnee County District Court. Both cases were the subject of an interlocutory appeal to this court on the questions of whether Reimer & Koger's cross-claims against Gage & Tucker for contribution and noncontractual indemnity were discharged by the KPERS settlement statute, K.S.A.1995 Supp. 74-4904a, and whether K.S.A.1995 Supp. 74-4904a was constitutional. We answered yes to both questions. KPERS I, 261 Kan. at 28-44, 927 P.2d 466.

At the time the appeal we now consider was argued, this court had not yet decided KPERS I, 261 Kan. 17, 927 P.2d 466. Because our decision affected this appeal we, by order dated December 18, 1996, offered the parties an opportunity to submit additional written arguments. The parties filed supplemental briefs.

The cross-claim in this case filed by Reimer and Koger against Gage & Tucker consists of two counts. Each count alleges that Gage & Tucker was retained by Reimer & Koger to represent Reimer & Koger in connection with the Tallgrass investments.

In Count I, entitled "Negligence and Breach of Fiduciary Duty," Reimer & Koger asserts two claims. First, Reimer & Koger alleges that if it is found liable to KPERS for any damage, then Gage & Tucker breached its duty of care and/or fiduciary duty to Reimer& Koger, and by that breach, caused or contributed to the damage to KPERS. On that basis, Reimer & Koger seeks indemnity and/or contribution from Gage & Tucker for any judgment KPERS may obtain against Reimer & Koger. The second claim alleges legal malpractice sounding in tort against Gage & Tucker for loss of fees, income, and damages to Reimer & Koger's reputation resulting from the KPERS termination of Reimer & Koger. This claim is asserted as follows:

"12. In addition to the foregoing indemnification and/or contribution claims, to the extent that the acts, omissions, negligence, and fault of Gage & Tucker are found to have caused any damage to KPERS, then such acts, omissions, negligence and fault caused and/or contributed to KPERS' termination of R & K as an investment advisor and thereby caused R & K damages in the loss of fees, income and damage to reputation."

In Count II, entitled "Breach of Contract," Reimer & Koger also set forth two claims: First, Reimer & Koger stated that Gage & Tucker entered into a contract with Reimer & Koger to provide Reimer & Koger with sound and appropriate legal services in connection with the Tallgrass investments; if Reimer & Koger is adjudged to be liable to KPERS, then Gage & Tucker has breached its contract with Reimer & Koger by failing to properly advise Reimer & Koger. Reimer & Koger seeks indemnification and/or contribution from Gage & Tucker for any amount it is adjudged to be liable to KPERS. Second, Reimer & Koger asserts a claim for legal malpractice sounding in breach of contract. In this legal malpractice claim, Reimer & Koger alleges that if Gage & Tucker's breach of its contract with Reimer & Koger is found to have caused any damage to KPERS, then that breach caused and/or contributed to the KPERS termination of the investment agreement on May 24, 1991, thereby causing Reimer & Koger to lose fees and income and suffer damage to its reputation.

A careful reading of the cross-claim demonstrates that the tort claims set forth in Count I are repeated in Count II, with the exception that in Count II, the claims are alleged to be based upon a contract between Reimer & Koger and Gage & Tucker. However, the nature of the contractual claims set forth in Count II sound in tort rather than in contract. The essence of the action in Count II is not dependent upon the breach of specific provisions of a contract but rather is based upon a breach of duty imposed by law. Even though there is a contract between the parties, the action sounds in tort, based upon a breach of duty imposed by law. Malone v. University of Kansas Medical Center, 220 Kan. 371, 375, 552 P.2d 885 (1976); see Bonin v. Vannaman, 261 Kan. 199, 209-11, 929 P.2d 754 (1996); Hunt v. KMG Main Hurdman, 17 Kan.App.2d 418, 839 P.2d 45 (1992).

We said in Tamarac Dev. Co. v. Delamater, Freund & Assocs., 234 Kan. 618, 619-20, 675 P.2d 361 (1984), that the difference between a tort and contract action is that a breach of contract is a failure of performance of a duty arising or imposed by agreement; whereas, a tort is a violation of a duty imposed by law. In Tamarac Dev. Co.,we concluded that the cause of action was based upon an oral contract calling for a specific result. Thus, the 3-year statute of limitations applied instead of the 2-year statute of limitations based upon negligence. 234 Kan. at 622-23, 675 P.2d 361.

We discussed the difference between tort and contract actions in legal malpractice cases in Pancake House, Inc. v. Redmond, 239 Kan. 83, 716 P.2d 575 (1986). That case involved an action filed against attorneys for negligence, breach of a fiduciary duty, and breach of implied contract. The plaintiff argued that its action was contractual and the 3-year statute of limitations applied. The defendants contended that the cause of action was tort-based and the 2-year statute of limitations had run. Our discussion in Pancake House, Inc., is instructive in this case:

"A breach of contract may be said to be a material failure of performance of a duty arising under or imposed by agreement. A tort, on the other hand, is a violation of a duty imposed by law, a wrong independent of contract. Torts can, of course, be committed by parties to a contract. The question to be determined here is whether the actions or...