LCL, LLC v. Falen

• Decision Date: 17 February 2017
• Docket Number: No. 115,434,115,434
• Citation: 390 P.3d 571,53 Kan.App.2d 651
• Parties: LCL, LLC, v. James W. FALEN, in his capacity as Sole Trustee of The James W. Falen Living Trust U/A dated April 30, 2007; Julie D. Falen; Gregory A. Falen; and Maryl M. Wesolowski (Defendants/Third–Party Plaintiffs), Appellants, v. Rice County Abstract & Title Co., Inc. (Third–Party Defendant), Appellee.
• Court: Kansas Court of Appeals

53 Kan.App.2d 651

390 P.3d 571

LCL, LLC,

v.James W. FALEN, in his capacity as Sole Trustee of The James W. Falen Living Trust U/A dated April 30, 2007; Julie D. Falen; Gregory A. Falen; and Maryl M. Wesolowski (Defendants/Third–Party Plaintiffs), Appellants,

v.Rice County Abstract & Title Co., Inc. (Third–Party Defendant), Appellee.

No. 115,434

Court of Appeals of Kansas.

Opinion filed February 17, 2017

Gordon B. Stull and Josh V.C. Nicolay, of Stull, Beverlin, Nicolay & Haas, LLC, of Pratt, for appellants.

Jeffrey C. Baker, William P. Denning, and Kaitlin M. Marsh–Blake, of Sanders Warren & Russell LLP, of Overland Park, for appellee.

Before Malone, C.J., Standridge, J., and Hebert, S.J.

Standridge, J.:

The question presented on appeal is whether the applicable statute of limitations precludes James W. Falen, in his capacity as Sole Trustee of The James W. Falen Living Trust U/A dated April 30, 2007; Julie D. Falen; Gregory A. Falen; and Maryl M. Wesolowski (the Falens) from pursuing claims of negligence, breach of implied contract, and breach of fiduciary duty against Rice County Abstract & Title Company, Inc. (RCAT). The district court answered this question in the affirmative and, accordingly, entered summary judgment in favor of RCAT. We agree with the district court with regard to the Falens' claim alleging breach of implied contract. But we find the statute of limitations does not prevent the Falens from pursuing their claims of negligence and breach of fiduciary duty. As such, we reverse the summary judgment in favor of RCAT on those two claims and remand so the case can proceed accordingly.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff LCL, LLC (LCL) originally filed this lawsuit against the Falens seeking to quiet title to an undivided one-half interest in mineral rights associated with 203.2 acres of surface farmland in Rice County, Kansas (the subject property). The Falens filed a counterclaim against LCL seeking to quiet title to those same mineral rights, but in their favor. The Falens also filed a third-party lawsuit against RCAT for negligence, breach of implied contract, and breach of fiduciary duty. The underlying suit and counterclaim seeking to quiet title ultimately settled. At that point, RCAT filed a motion for summary judgment in the third-party lawsuit based on the statute of limitations. After the motion was briefed, the court granted summary judgment to RCAT, ruling that the Falens were precluded from pursuing the claims alleged in the suit because the statute of limitations on each of them already had expired.

Because the district court granted summary judgment based solely on procedural grounds—the applicable statute of limitation precludes each of the claims asserted—the underlying merits of the Falens' claims of negligence and breach of implied contract are not issues on appeal. Nevertheless, a brief chronology of relevant facts in the record is helpful to our analysis of the procedural issue presented for decision.

• In 1971, Mary Louise Falen and James C. Falen (husband and wife) granted to Mary Louise's brother, John Weber, an undivided one-half ownership interest to minerals associated with the subject property.

• In 1982, Mary Louise (now a single person) and John and Moralee Weber, each owning an undivided one-half interest to minerals associated with the subject property, signed an Oil and Gas Lease in favor of Bert J. Fisher. The 1982 Oil and Gas Lease granted Fisher the right to use the subject property to discover and extract minerals for a term of years in exchange for royalty payments in equal proportion to Mary Louise and John and Moralee consistent with their ownership rights to the minerals in the subject property.

• In 1992, Mary Louise created the Mary Louise Falen Trust (MLF Trust), naming Gregory A. Falen and Julie D. Falen as co-trustees. At some point between 1992 and 2007, Mary Louise transferred into the MLF Trust the entire surface of the subject property and an undivided one-half interest in the minerals.

• On June 1, 2007, the MLF Trust entered into a listing agreement with Farmer's National Company to sell the surface land of the subject property. The listing agreement provided that " ‘[a]ll minerals currently owned by the seller will be retained as long as minerals are produced and for a period of 20 years after production has ceased.’ " An advertising brochure was produced for the property and included a statement that " ‘[s]eller will retain all owned mineral rights.’ "

• On November 20, 2007, the MLF Trust entered into a contract to convey the property listed for sale to Sammy Dean (MLF Trust–Dean Contract). The MLF Trust–Dean Contract provided that the MLF Trust would retain all mineral rights for 20 years after production ceases.

• On December 13, 2007, RCAT issued to Dean a title insurance commitment effective December 13, 2007. Section B(II) of the MLF/Dean Title Commitment noted the following exceptions to title:

"10. Terms and conditions of that (producing) Oil & Gas Lease, dated August 10, 1982, recorded in Vol. 98 O & G, on page 583, executed in favor of BERT J. FISHER, leasing subject premises, for a term of three years from this date, and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee, evidence of which appears of record to extend said lease.

....

"12. An undivided 1/2 interest in and to all oil, gas and other minerals of whatever kind and nature in, on and under subject premises; as reserved by other than the record title holder in that Warranty Deed, filed August 18, 1971, recorded in Vol. 132, on page 611."

• At some point prior to January 18, 2008, RCAT drafted a deed of sale to convey the property identified in the MLF Trust–Dean Contract from the MLF Trust to Dean. Gregory A. Falen and Julie D. Falen (as co-trustees of the MLF Trust) signed the deed of sale drafted by RCAT.

• On January 18, 2008, RCAT filed and recorded the fully executed deed of sale with the Register of Deeds in Rice County. The deed of sale failed to include the language from the listing agreement and the MLF Trust–Dean Contract providing that the MLF Trust would retain all mineral rights for 20 years after production ceases.

• After the MLF Trust–Dean deed of sale was filed and recorded with the Register of Deeds in Rice County on January 18, 2008, the MLF Trust continued to receive royalties and paid property taxes on those royalties as it had before the 2008 sale.

• On March 6, 2008, Dean and his wife conveyed their interest in the subject property to SDM Properties2, LLC (SDM2), and a deed of this transaction was recorded on March 11, 2008. This deed was recorded in the Rice County Register of Deeds office.

• On April 21, 2008, the MLF Trust transferred its right to a one-half undivided ownership interest to the minerals on the subject property to the Falens.

This deed was recorded in the Rice County Register of Deeds office. After this deed was recorded, the Falens received royalties and paid property taxes on those royalties as the MLF Trust had since 1992 through April 21, 2008, and did so without interruption until August 1, 2014, which is when LCL first claimed title to the undivided one-half ownership interest to minerals associated with the subject property at issue.

• On May 27, 2010, James W. Falen executed and recorded a quit claim deed to the James W. Falen Living Trust U/A dated April 30, 2007, in which he transferred ownership of his mineral interests in the subject property to his Trust. This deed was recorded in the Rice County Register of Deeds office.

• On May 31, 2012, Greg Falen executed and recorded an Executor's Mineral Deed of Distribution for the purpose of transferring mineral interests in the subject property owned by Lisa C. Falen, who had died. Lisa's mineral interests were transferred in equal parts to the surviving owners: James W. Falen as Trustee of the James W. Falen Living Trust U/A dated April 30, 2007, Julie D. Falen, Gregory A. Falen, and Maryl M. Wesolowski. This deed was recorded in the Rice County Register of Deeds office.

• On July 5, 2012, James W. Falen executed and recorded another quit claim deed to the James W. Falen Living Trust U/A dated April 30, 2007, in which he transferred ownership of his mineral interests in the subject property to his Trust. This deed was recorded in the Rice County Register of Deeds office.

• In 2014, Sammy Dean (on behalf of SDM2) agreed to sell its interest in the subject property to Ron and Paula Laudick (husband and wife) and Cheryl and Gregg Armstrong (husband and wife) (collectively LCL). In an e-mail dated April 8, 2014, memorializing the terms of the agreement, Ron Laudick stated: " ‘[We] understand that the mineral rights do not go with the property.’ "

• RCAT was chosen to act as both the title insurance agent and the closing agent for the SDM2/LCL sale.

• On April 20, 2014, RCAT issued a title insurance commitment to LCL indicating that SDM2 was the fee simple owner of the subject property. The SDM2/LCL Title Commitment, however, excluded from its obligation:

"2. Terms and conditions of that (producing) Oil & Gas Lease, dated August 10, 1982, recorded in Vol. 96 O & G, on page 583, executed in favor of BERT J. FISHER, leasing subject premises, for a term of three years from this date, and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee, evidence of which appears of record to extend said lease.

....

"4. An undivided 1/2 interest in and to all oil, gas and other minerals of whatever kind and nature in, on and under subject premises; as reserved by other than the record title holder in that Warranty Deed, filed August 18, 1971, recorded in Vol. 132, on page 611."

• On April 24, 2014, SDM2 entered into a written contract to convey its interest in the subject property to LCL signed by managing member Ron Laudick (SDM2–LCL Contract). The SDM2–LCL Contract failed to include the language from the April 8, 2014, e-mail

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