Law Co. Building Associates v. Law

• Decision Date: 12 July 2019
• Docket Number: No. 118,752,118,752
• Citation: 444 P.3d 376 (Table)
• Parties: LAW COMPANY BUILDING ASSOCIATES, a Kansas Limited Partnership, and The Law Company, Inc., Appellees, v. Margaret Russell LAW, Appellant.
• Court: Kansas Court of Appeals

444 P.3d 376 (Table)

LAW COMPANY BUILDING ASSOCIATES, a Kansas Limited Partnership, and The Law Company, Inc., Appellees,

v.Margaret Russell LAW, Appellant.

No. 118,752

Court of Appeals of Kansas.

Opinion filed July 12, 2019

F. James Robinson, Jr. and Scott M. Hill, of Hite, Fanning & Honeyman, LLP, of Wichita, for appellant.

Roarke R. Gordon, Ron L. Campbell, and Lyndon W. Vix, of Fleeson, Gooing, Coulson & Kitch, L.L.C., of Wichita, for appellees.

Before Powell, P.J., Leben, J., and Kevin Berens, District Judge, assigned.

MEMORANDUM OPINION

Powell, J.:

This appeal arises from a declaratory judgment action by Law Company Building Associates (LCBA) and The Law Company, Inc. (collectively referred to as the Plaintiffs), asking the district court to find that they properly calculated Margaret Russell Law's equity participation share of a real estate sale under a financing agreement entered into between them. Following the parties' cross-motions for summary judgment, the district court granted the Plaintiffs summary judgment, concluding that Margaret's 11% equity participation share from the $5,600,000 sale of real estate amounted to $242,039 under the terms of the financing agreement. Margaret disagrees, claiming: (1) Under the terms of the financing agreement improper offset amounts were applied to the sale price before calculating her equity participation share, (2) the Plaintiffs breached the financing agreement, and (3) she is entitled to an additional $294,588.52 with attorney fees and late charges for the Plaintiffs' untimely payment of her equity participation share.

For the reasons more fully explained below, we agree with Margaret that certain offsets should not have been applied to the sale price of the real estate before calculating her equity participation share. We also hold that the financing agreement is ambiguous as to the limitations placed on capital expenditures that may be offset from the sale price. Given that ambiguity, we cannot determine whether the Plaintiffs' other claims for capital expenditure offsets are valid without parol evidence, thus creating issues of material fact precluding summary judgment. Finally, we hold that although Margaret is entitled to additional amounts for her equity participation share from the sale of the real estate, the district court did not err in finding she is not entitled to attorney fees and late charges as part of her costs of collection.

Accordingly, while we affirm the district court's denial of Margaret's claims for attorney fees and late charges, we reverse the district court's grant of summary judgment to the Plaintiffs and remand for further proceedings consistent with this opinion.

FACTUAL AND PROCEDURAL BACKGROUND

This appeal arises from the Plaintiffs' declaratory judgment action asking the district court to find that Plaintiffs properly calculated Margaret's equity participation share under a financing agreement entered into between them. Following the parties' cross-motions for summary judgment, the district court granted the Plaintiffs summary judgment, concluding that Margaret's 11% equity participation share from the $5,600,000 sale of the Riverview Building amounted to $242,039. Margaret disagrees and this appeal followed. The following facts are relevant to this appeal.

A Summary of Margaret's Equity Participation

Margaret and her late former husband founded The Law Company. After the dissolution of her marriage in 1979, Margaret received stock in The Law Company that she later exchanged for ownership of the Market Street Building, an office building in Wichita, Kansas, that The Law Company occupied. Margaret and The Law Company entered into a lease agreement, which expired on December 31, 2004, giving Margaret the authority to sell or lease the building to a third party at the end of the term.

In 1980, The Law Company desired more office space and sought to build the Riverview Building in Wichita with the use of industrial revenue bonds (IRBs) issued by the City of Wichita. The Law Company formed LCBA, a Kansas limited partnership, for the purpose of holding title to the Riverview Building. City of Wichita Ordinance No. 37-813 dated March 1, 1982, issued IRBs in a principal amount of $4,200,000. Due to the IRB requirements, the City assumed ownership of the Riverview Building and leased it to LCBA under the IRB Lease dated March 1, 1982. The IRB Lease term was for " ‘twenty (20) years, commencing as of the date of this Lease and ending on March 1, 2002, or until the principal of the IRB and all interest thereon shall have been paid or provisions made for the payment thereof.’ " As the principal tenant, LCBA agreed to guarantee the IRB payments and to fund any cost overruns. The Law Company, which would occupy the building, was the master subtenant and also agreed to guarantee the IRB payments.

On January 12, 1984, Margaret and the Plaintiffs entered into a financing agreement in which Margaret agreed to sell her interest in the Market Street Building to LCBA, so LCBA could resell the building, if needed, to help finance the Riverview Building's construction. Margaret also agreed to cancel the Market Street lease with The Law Company when ownership transferred to LCBA. In exchange, LCBA granted Margaret equity participation rights in the Riverview Building that mainly consisted of an 11% share in the proceeds of any future sale or refinancing of the building.

According to the financing agreement, LCBA also agreed to execute a promissory note in the amount of $406,836, secured by a mortgage, which required LCBA to make monthly payments to Margaret. Margaret's equity participation in the Riverview Building was reflected in the promissory note, the security agreement, and the mortgage. The financing agreement detailed how to calculate the amount of Margaret's 11% equity participation share in the event of a sale or refinance of the Riverview Building (referred to as the IRB Project) under Paragraph 4(a):

"4. Equity Participation Rights:

(a) Assets Subject to Participation. The holder of the Equity Participation (the ‘Equity Participant’) shall be entitled to 11% of a sum (hereinafter referred to as the ‘Sale Balance’ or ‘Refinancing Balance’ as the context requires) equal to the gross proceeds of a Sale or Refinancing (as defined in Paragraph 5 hereof) of the IRB Project net of the following items:

(i) all direct costs of such Sale or Refinancing;

(ii) any amounts paid to discharge the principal of the IRB if same is to be discharged in connection with such Sale or Refinancing;

(iii) any amounts paid to discharge the principal of the Loan if same is to be discharged in connection with such Sale or Refinancing;

(iv) any amounts paid to discharge the principal of any other loan which may be made for Capital Expenditures (as hereinafter defined) made in connection with the IRB Project or acquisition thereof by LCBA or any of its Affiliates, excluding any loan made for operating expenses and any loan described by clause (v) below; and

(v) the principal amount of capital contributed or loaned to LCBA by [The Law Company] or any of its Affiliates for Capital Expenditures made in connection with the IRB Project or acquisition thereof by LCBA or any of its Affiliates, returned without interest, but excluding any equity invested or loans made for operating expenses."

Paragraph 5(b) of the financing agreement defined capital expenditure as

"any ‘Construction Cost,’ as that term is defined by Section 4.7 of the IRB Lease, which is paid by LCBA or by any of its Affiliates, exclusive of builder's overhead or profit if payable to [The Law Company] or to any of its Affiliates, and exclusive of tenant improvements which are not financed by the IRB. Further, in no event shall any legal expenses incurred by LCBA or any of its Affiliates on its behalf in connection with preparation or performance of this Agreement be deemed a Capital Expenditure."

Section 4.7 of the IRB Lease, which governed LCBA's (Tenant) leasing of the Riverview Building (Project) from the City (Landlord), defined construction cost:

"The term ‘Construction Cost’ shall be construed to include all of the following costs and expenses paid or incurred subsequent to August 12, 1980: (i) all costs and expenses necessary or incident to the acquisition of the Land and such of the Improvements as are constructed, installed or in progress at the date of such acquisition; (ii) all costs and expenses of every nature incurred in constructing, purchasing and/or installing the Improvements and completing the Project, including the machinery and equipment constituting a part of same and referred to in Section 4.5 hereof, including interest paid or to be paid by Tenant during construction; (iii) any and all expenses incurred by Landlord or Tenant, including those prior to the sale of the Bond, for planning, development and design, and all expenses for architects' and engineering fees; the fees and expenses of Tenant's employees and consultants, surveys, attorneys' fees, and other items necessary to the commencement of construction, including advances to contractors and others by Tenant; (iv) all other expenses necessary or incident to the construction and completion of the Project; and (v) any and all expenses of whatever nature incurred in connection with the issuance and sale of the Bond, including but not limited to underwriting expenses incurred subsequent to August 12, 1980 and which qualify as expenditures paid or incurred in accordance with Section 103(b) of the Code and Treasury Regulations promulgated pursuant thereto. Landlord hereby agrees to pay for, but solely from the Construction Fund, and hereby authorizes and directs the Fiscal Agent to pay for, but solely from the Construction Fund all Construction Costs, upon receipt by the Fiscal Agent of a certificate of the Project Manager, requesting a specified sum of money, and describing in reasonable detail the Construction Costs which forms the basis for said

...