T.S.I. Holdings, Inc. v. Jenkins, 74226
| Decision Date | 20 September 1996 |
| Docket Number | No. 74226,74226 |
| Parties | T.S.I. HOLDINGS, INC., Plaintiff/Appellee/Cross-Appellant, v. Lawrence S. JENKINS and Roger W. Hood, M.D., Defendants/Counterclaim Plaintiffs/Appellants/Cross-Appellees, v. T.S.I. HOLDINGS, INC., Ameritank, Inc., Garsite/TSR, Inc., T.S.I. Refuelers, Inc., Hewitt Hose, Inc. USA, National Refueler Leasing Corp., New Progress Inc., Tri-State Tank Corporation, Tri-State Tank West, Inc., Melvyn Paul, Marcia Paul, Phillip Hodes and Barbara Hodes, Counterclaim Defendants/Appellees, v. CITICORP VENTURE CAPITAL, LIMITED, and Citibank, N.A., Additional Counterclaim Defendants/Appellees. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. In ruling on a motion for a directed verdict, a trial court is required to resolve all facts and inferences reasonably to be drawn from the evidence in favor of the party against whom the ruling is sought and, where reasonable minds could reach different conclusions based on the evidence, the motion must be denied. A similar analysis must be applied by an appellate court when reviewing the grant or denial of a motion for directed verdict.
2. Whether a party should be excused from its obligations under a written agreement because of the doctrine of impracticability of performance (including impossibility of performance and commercial frustration) is a question of law.
3. Appellate review of questions of law is unlimited.
4. Under the facts of this case, where a written agreement to sell stock in a close corporation covered the possibility of nonperformance by a third party, and buyers and sellers controlled their risk by language in the agreement, the doctrine of impracticability of performance is not applicable.
5. In a case involving a written agreement to sell stock in a close corporation, the record is reviewed and it is held: (A) In relation to the declaratory judgment action filed by sellers to determine the expiration date of a written agreement: (1) neither the clean hands doctrine nor any breaches by sellers affect interpretation of the agreement, (2) the standard of review as to the existence of an actual controversy is abuse of discretion, (3) while the parties' dispute over the expiration date of the agreement remained unresolved, the sellers' declaratory judgment claim was not moot and the district court did not abuse its discretion in ruling for sellers, (4) circumstances suggest that time was of the essence in the agreement, (5) the directed verdict for buyers on sellers' fraud claims is affirmed, and (6) the award of attorney fees and costs to sellers is reversed; (B) in relation to buyers' claim of tortious interference with the agreement, summary judgment entered against buyers is reversed; and (C) in relation to buyers' counterclaim for breach of the agreement, the directed verdict for sellers is reversed because issues for the jury remain concerning whether sellers violated the best efforts and nondisclosure provisions of the agreement.
Lawrence M. Berkowitz, of Stinson, Mag & Fizzell, P.C., Kansas City, MO, argued the cause, and Heather S. Woodson, of the same firm, of Overland Park, was with him on the briefs for appellants/cross-appellees.
Leonard B. Rose, of Rose, Brouillette & Shapiro, P.C., of Kansas City, MO, argued the cause, and Michael D. Strong, of the same firm, was with him on the brief for appellee/cross appellant T.S.I. Holdings, Inc., and counterclaim defendants/appellees T.S.I. Holdings, Inc., Ameritank, Inc., Garsite/TSR, Inc., T.S.I. Refuelers, Inc., Hewitt Hose, Inc. USA, National Refueler Leasing Corp., New Progress, Inc., Tri-State Tank Corporation, Tri-State Tank West, Inc., Melvyn Paul, Marcia Paul, Phillip Hodes, and Barbara Hodes.
Kevin F. Kostyn, of Whitman Breed Abbott & Morgan, of New York City, argued the case, and Edward R. Spalty and John A. Vering III, of Armstrong, Teasdale, Schlafly & Davis, of Kansas City, MO, were with him on the brief for counterclaim defendants/appellees Citicorp Venture Capital, Limited, and Citibank, N.A.
This is a contract case, rich in issues, arising from an attempt to sell stock in a closely held corporation. The appeal involves a written agreement (Agreement) in which T.S.I. Holdings, Inc. (TSI), a holding company, its subsidiaries and shareholders, as sellers, agreed to sell a controlling portion of TSI voting common stock to Lawrence S. Jenkins and Roger W. Hood, M.D., as buyers. The March 22, 1993, closing date passed, and the sale never closed.
The primary question is whether sellers, in defending against buyers' breach of contract claim, may rely on their performance being excused as impossible, impracticable, and commercially frustrated. Additional questions are: (1) When did the Agreement terminate; (2) was time of the essence; (3) is the clean hands doctrine applicable; (4) is there a jury issue as to whether sellers breached the Agreement by failing to use best efforts and violating a nondisclosure provision; (5) are the claims of fraudulent misrepresentation and fraud by silence valid; (6) does the claim of tortious interference survive summary judgment; and (7) was the award of costs and attorney fees proper under the Agreement?
A brief litigation prologue will be helpful in linking the issues with their resolution. TSI began this suit against buyers by seeking a declaratory judgment that, among other things, the Agreement had expired by its terms on March 22, 1993. TSI also alleged that buyers tortiously interfered with a business expectancy by chilling negotiations between TSI and Citicorp Venture Capital, Limited (CVC). Buyers filed a counterclaim against TSI and added the other sellers as additional counter-defendants. The counterclaim sought specific performance and a declaration that the Agreement was still in effect.
Buyers amended their counterclaim to assert, among other things, a claim for breach of contract against sellers and added a claim for tortious interference against CVC and Citibank, N.A. (Citibank). In their amended counterclaim, buyers abandoned their allegation that the Agreement was still in effect and could be specifically performed. TSI later amended its petition to add fraudulent misrepresentation and fraud by silence claims against buyers. TSI withdrew its claims against buyers for tortious interference.
The district court granted CVC and Citibank's motion to sever. The respective claims of TSI and buyers went to trial. At the close of TSI's case, the district court ruled as a matter of law on TSI's declaratory judgment claim that: (1) the closing date of the Agreement could only be extended by mutual consent, (2) there was no mutual consent to extend the closing beyond March 22, 1993, and (3) the Agreement expired by its own terms on March 22, 1993. The district court also granted buyers' motion for a directed verdict against TSI's fraudulent misrepresentation and fraud by silence claims. After the fifth day of trial, the district court granted sellers' motion for a directed verdict against buyers' counterclaim for breach of contract on the basis of impossibility or impracticability of performance and commercial frustration.
Later, the district court granted CVC and Citibank's motion for summary judgment on buyers' tortious interference claim, based on its prior holding that the Agreement could not be performed. However, the district court suggested that were it not for the application of the doctrines of impracticability and commercial frustration, buyers would have been entitled to a trial on their tortious interference claims against CVC and Citibank.
The district court denied buyers' motion for a new trial and granted TSI's motion for attorney fees and costs.
The issues in buyers' appeal are whether the district court erred in ruling that: (1) sellers' performance was excused under the doctrines of impossibility, impracticability, or commercial frustration, (2) the Agreement expired on March 22, 1993, (3) CVC and Citibank are entitled to summary judgment, and (4) TSI is entitled to attorney fees and costs.
The issues in the TSI cross-appeal are whether the district court erred in entering a directed verdict against TSI on its claims against buyers for: (1) fraudulent misrepresentation and (2) fraud through silence.
Jurisdiction is based on our transfer of the case from the Court of Appeals. K.S.A. 20-3018(c).
We affirm the declaratory judgment in favor of TSI. The Agreement expired on March 22, 1993. We reverse and remand on the other three issues in buyers' appeal. The facts when reviewed under the language of the Agreement do not establish impracticability of performance or commercial frustration. We affirm on the two issues in TSI's cross-appeal.
TSI is a Kansas City, Kansas, company principally involved in the manufacture and installation of tanks on trucks used for delivery of diesel fuel, liquid propane, and gasoline. Melvyn Paul is the chief executive officer of TSI and the owner of 75% of its issued and outstanding stock. Phillip Hodes owned the remaining 25% of TSI's stock. TSI is considered to be in a small, or "niche," industry in which it enjoys a dominant position.
Buyers are local investors who contracted under the Agreement with sellers (TSI and its subsidiaries, Ameritank, Inc.; Garsite/TSR, Inc.; T.S.I. Refuelers, Inc.; Hewitt Hose, Inc. USA; National Refueler Leasing Corp.; New Progress, Inc.; Tri-State Tank Corporation; Tri-State West, Inc.; and shareholders Melvyn Paul, Marcia Paul, Phillip Hodes, and Barbara Hodes) to purchase 51% of the issued and outstanding stock of TSI.
By mid-1992, Paul recognized that without an infusion of cash and new management, TSI would not grow. He began to consider securing an investor for his company. Paul discussed TSI's needs with Fehmi Zeko, Jr., the son of a local long-time family friend. Zeko was then employed with Citibank in New York. TSI needed more capital, was...
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