Waste Connections of Kan., Inc. v. Ritchie Corp.

• Decision Date: 22 March 2013
• Docket Number: No. 101,812.,101,812.
• Parties: WASTE CONNECTIONS OF KANSAS, INC., a Delaware Corporation, Appellant, v. RITCHIE CORPORATION, a Kansas Corporation, Appellee.
• Court: Kansas Supreme Court

296 Kan. 943

298 P.3d 250

WASTE CONNECTIONS OF KANSAS, INC., a Delaware Corporation, Appellant,

v.RITCHIE CORPORATION, a Kansas Corporation, Appellee.

No. 101,812.

Supreme Court of Kansas.

March 22, 2013.

Syllabus by the Court

1. Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal, we apply the same rules and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied.

2. Kansas statutes authorizing declaratory judgment actions are remedial and meant to be liberally construed to settle and provide relief from uncertainty and insecurity with respect to disputed rights, status, and other legal relations. Nevertheless, a court may decline to render or enter a declaratory judgment if it will not terminate the uncertainty or controversy giving rise to the proceeding.

3. The primary rule for interpreting written contracts is to ascertain the parties' intent. If the terms of the contract are clear, the intent of the parties is to be determined from the language of the contract without applying rules of construction. If, on the other hand, the court determines that a written contract's language is ambiguous, extrinsic or parol evidence may be considered to construe it. If the language of a contract is ambiguous, and the intent of the parties cannot be ascertained from undisputed extrinsic or parol evidence, summary declaratory judgment is inappropriate.

4. Whether a contract has been formed by an exchange of writings is a question of law. Whether a contract has been breached is a question of fact.

5. Inherent in every Kansas contract, except an employment-at-will contract, is a duty of good faith and fair dealing. Whether the duty of good faith and fair dealing has been violated raises a question of fact.

6. The duty of good faith and fair dealing is an implied undertaking in every contract on the part of each party that he or she will not intentionally and purposely do anything to prevent the other party from carrying out his or her part of the agreement, or do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. Ordinarily, if one exacts a promise from another to perform an act, the law implies a counterpromise against arbitrary or unreasonable conduct on the part of the promisee. However, essential terms of a contract on which the minds of the parties have not met cannot be supplied by the implication of good faith and fair dealing.

7. A binding contract to buy property is not formed by an exchange of letters between counsel for the owner and counsel for a right of first refusal holder, when the letters and an enclosed Asset Purchase Agreement between the seller and a third party are ambiguous and fail to evidence a meeting of the seller's and the right holder's minds on the essential price term. 8. A holder of a right of first refusal does not waive and is not estopped from asserting its right to contest the price that must be paid upon exercise of its right, when it indicates that certain aspects of the seller's notice of a third party's offer for the encumbered property remain for discussion and later executes and secures the seller's execution of a Right of First Refusal and Release of Escrow and a Reservation of Rights that explicitly describe the price dispute.

9. In a right of first refusal situation, each party gives up something in exchange for increased certainty of opportunity to make a deal. The seller gives up its chance to negotiate with the holder of the right of first refusal for a price higher than the one a third party is willing to offer. The holder of the right of first refusal gives up its chance to negotiate with the seller for a price lower than one the seller is willing to accept from a third party. The key to activation of a holder's right of first refusal is mutual willingness to enter into a sale at a specific price satisfactory to both the third party and the seller. The seller may not force a purchase by the holder of the right of first refusal at a higher price. The holder of the right of first refusal may not force a sale to it at a lower price. The nature of a right of first refusal agreement means that neither the seller nor the right holder remains free to exercise unfettered business judgment to use sale of the subject property or other asset to maximize profit or shareholder value. Each has voluntarily constrained such judgment and taken on obligations to the other.

10. Language in the right of first refusal at issue in this case bound the seller to convey any offer it was willing to accept from a third party to the right holder. The offer did not need to be reduced to writing by the third party or set forth in an executed Asset Purchase Agreement to trigger the seller's obligation to communicate it in writing and then accept the specified amount in a purchase by the right holder.

11. Package deal status is not a barrier to activation of a right of first refusal on a portion of the property or single asset in the package.

12. In this case, breach of contract through a violation of the duty of good faith and fair dealing was only one of the possible breaches alleged by the right of first refusal holder. Genuine issues of material fact remain for trial on the breach of contract action, and the case must be remanded for further proceedings in the district court.

13. A claim for breach of a right of first refusal in a contract is not solely dependent upon the mere existence of a package deal alternative or upon the seller's involvement in setting the portion of the package price attributable to the encumbered property. Package deals in which a portion of the subject property is subject to a right of first refusal have the potential for artificial allocations to defeat or promote exercise of the right, but whether the allocation in a particular package deal is artificial and whether the seller's role in arriving at it constituted violation of the duty of good faith and fair dealing are just two possibilities for breach.

14. When an appeal from summary judgment in a breach of contract action leads to reversal and remand because of the existence of genuine issues of material fact, there is no prevailing party; and an award for costs, expenses, and reasonable attorney fees incurred in the district court and reasonable attorney fees incurred on appeal under contract language providing for such an award to the prevailing party is premature.

Steven D. Gough, of Withers, Gough, Pike, Pfaff & Peterson, LLC, of Wichita, argued the cause, and Donald N. Peterson, II, of the same firm, was with him on the briefs for appellant.

Ken M. Peterson, of Morris, Laing, Evans, Brock & Kennedy, Chartered, of Wichita, argued the cause, and Will B. Wohlford, of the same firm, was with him on the briefs for appellee.

The opinion of the court was delivered by BEIER, J.:

This is a $550,000 price dispute arising out of plaintiff's right of first refusal to purchase a Wichita waste transfer station from defendant. The catalyst was a third-party's agreementto buy the transfer station and an adjoining landfill as a package deal or to buy the landfill alone.

The district court judge granted summary judgment to defendant Ritchie Corporation (Ritchie). A panel of our Court of Appeals reversed the summary judgment in Ritchie's favor, ruled that summary judgment should have been granted to plaintiff Waste Connections of Kansas, Inc. (Waste Connections), and ordered remand to the district court for determination of attorney fees. Waste Connections of Kansas, Inc. v. Ritchie Corp., 43 Kan.App.2d 655, 228 P.3d 429 (2010). We granted Ritchie's petition for review.

Ritchie now argues that the Court of Appeals erred by discounting the role of Ritchie's business judgment when evaluating Waste Connections' breach of contract claim for violation of the implied duty of good faith and fair dealing, by holding that Waste Connections is not contractually obligated to pay $2 million for the station, and by disregarding controverted facts that should prevent judgment as a matter of law in Waste Connections' favor.

Our review of the record and analysis of the legal issues leads us to reverse the judgment of the district court, reverse the decision of the Court of Appeals, and remand the entire case to the district court for further proceedings.

Factual and Procedural Background

On December 29, 1998, Ritchie conveyed title to a 16.8–acre tract of land in Sedgwick County to BFI Waste Systems of North America, Inc. (BFI). On the same day, Ritchie and BFI entered into an Escrow Agreement that entitled BFI to operate the property as a nonhazardous waste transfer station. BFI was required to make quarterly payments to Ritchie based on a per-ton amount of waste material processed at the transfer station. Under the Escrow Agreement, BFI had the right to operate the transfer station for an initial period of 35 years.

The Escrow Agreement provided that an escrow agent would redeliver a deed from BFI to Ritchie conveying title to the property back to Ritchie at the end of BFI's right to use the transfer station (Ritchie's “reversionary interest”). Ritchie granted BFI a right of first refusal with respect to Ritchie's entire...