WCK v. Ritchie Corp.

• Decision Date: 22 April 2010
• Docket Number: 812.,No. 101,101
• Citation: 228 P.3d 429
• Parties: WASTE CONNECTIONS OF KANSAS, INC., Appellant, v. RITCHIE CORPORATION, Appellee.
• Court: Kansas Court of Appeals

228 P.3d 429

WASTE CONNECTIONS OF KANSAS, INC., Appellant, v. RITCHIE CORPORATION, Appellee.

No. 101,812.

Court of Appeals of Kansas.

April 22, 2010.

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Steven D. Gough and Donald N. Peterson, II, of Withers, Gough, Pike, Pfaff & Peterson, LLC, of Wichita, for the appellant.

Ken M. Peterson and Will B. Wohlford, of Morris, Laing, Evans, Brock & Kennedy, Chartered, of Wichita, for the appellee.

Before STANDRIDGE, P.J., PIERRON, J., and BUKATY, S.J.

PIERRON, J.

Waste Connections of Kansas, Inc. (WCK), appeals a summary judgment ruling in favor of Ritchie Corporation (Ritchie) concerning the amount of the purchase price owed when Waste Connections exercised its right of first refusal for the purchase of a waste transfer station.

As both parties requested summary judgment, the facts are for the most part established and uncontradicted. Rather, both parties interpret the facts in favor of their respective positions.

WCK is a Delaware corporation authorized to do business in Kansas. WCK is the successor in interest to BFI Waste Systems of North America, Inc. (BFI). Ritchie is a Kansas corporation based in Wichita. Ritchie is the owner of real estate in Sedgwick County that contains a landfill and also a waste transfer station. The first critical event in this case was the sale of the transfer station from Ritchie to BFI.

On December 29, 1998, Ritchie and BFI entered into a real estate contract for the sale of the 16.8 acres containing the transfer station. In conjunction with the real estate contract, the parties entered into an escrow agreement stating that BFI had the right to operate a nonhazardous solid waste transfer station for 35 years. As compensation for the sale, the escrow agreement provided that BFI would make quarterly payments to Ritchie of 35 cents per ton of nonhazardous solid waste processed at the transfer station. Additionally, Ritchie retained a reversionary interest in the transfer station by virtue of the fact that upon expiration of the escrow agreement, the escrow agent was required to record the deed back in Ritchie's name. The critical piece of the escrow agreement is the right of first refusal given to BFI. It provides in full:

"Right of First Refusal. At all times this escrow agreement is in effect Buyer shall have a right of first refusal with respect to Seller's interest in this escrow agreement, including without limitation Seller's reversionary interest in the Property, however designated, to the effect that upon receipt by Seller of any offer to purchase Seller's interest in this Agreement or the Property by a third party, Seller shall give written notice to Buyer of the fact and terms of such third party offer. Buyer shall have forty-five (45) days after its receipt of such notice to notify Seller in writing of its election to purchase such interest(s) on such financial terms (the `Election Term'). In the event Buyer does not notify Seller of its election to purchase such interest(s), then Seller may sell such interest(s) on such identical terms to such third party so long as such sale is consummated within ninety (90) days after such Election Term. If such sale to the third party is not consummated within such period, then the Buyer shall again have the right of first refusal to purchase such interest(s) prior to any sale to any third party. This right of first refusal shall specifically not apply to any transfer or assignment by Seller to an affiliate of Seller or to any stockholder of Seller or any of their affiliates."

The escrow agreement also provided for the payment of attorney fees to the prevailing party in case of a dispute over the agreement.

The escrow agreement was amended in 2001 to reflect an increase in the amount of the per-tonnage quarterly payment from 35 cents to 52 cents and to also install a rate increase of 7.5% every 5 years. In consideration for the rate increase, Ritchie agreed not to file a petition for annexation or consent to annexation by the city of Wichita with respect to the landfill property contiguous, in part, to the transfer station. Ritchie also agreed to use its best efforts to maintain use of the adjacent property separating the transfer station and the landfill as "Land Devoted to Agricultural Use."

The next critical event in this case occurred on June 22, 2007, when Ritchie entered into an asset purchase agreement with Cornejo & Sons, Inc. (Cornejo), for purchase of the landfill and also purchase of Ritchie's rights and obligations in the transfer station as outlined in the escrow agreement. In 2007, Cornejo approached Ritchie about purchasing the landfill. However, Ritchie wanted a package deal for sale of both the transfer station and the landfill at a cost of $5.5 million ($3.5 million for the landfill and $2 million for the transfer station). Cornejo countered that it was only interested in the landfill and would pay $3.5 million for the landfill. For the package deal, Cornejo counteroffered $4.95 million.

On the one hand, Ritchie independently estimated the value of the interest in the transfer station based on a discounted cash flow analysis was $2 million. On the other hand, Cornejo estimated the value of the interest in the transfer station was $1.45 million. Tom Ritchie testified in his deposition as follows:

"Q. Your company would have been willing to accept $1.45 million for the transfer station interest and $3.5 million for the landfill as a package deal with Cornejo; isn't that right?

. . . .

"A. That is correct but what we actually agreed to is fully contained in its entirety within the asset purchase agreement."

The parties agreed on a price for the package deal of $4.95 million. Cornejo testified that it did not care how the $4.95 million was allocated for the purchase as long as Cornejo could buy the landfill for $3.5 million. Tom Ritchie also testified that it was Ritchie's idea to allocate $2 million of the package deal to the transfer station. Ritchie and Cornejo came to an agreement as provided in the asset purchase agreement. The critical language in the asset purchase agreement with regard to WCK's right of first refusal in the escrow agreement was obviously the purchase price of the transfer station. Under the terms of the asset purchase agreement, the price was as follows:

"2.1 Purchase Price and Payment. The purchase price for the entirety of the Assets shall be Four Million Nine Hundred Fifty Thousand Dollars ($4,950,000), payable in cash or certified funds at Closing, of which Two Million Dollars ($2,000,000) will be allocated to and paid to Ritchie Corporation for the purchase of its rights and the assumption of its obligations under the Escrow Agreement.

"In the event that Waste Connections of Kansas, Inc. shall, upon receipt of due and proper notice from Sellers, elect to exercise its right of first refusal under the Escrow Agreement, the parties agree that the purchase price for the remaining Assets shall be Three Million Five Hundred Thousand Dollars ($3,500,000.00), payable in cash or certified funds at Closing."

By letter dated June 27, 2007, Ritchie notified WCK of Cornejo's offer to purchase the transfer station interest and attached a copy of the asset purchase agreement. The letter stated:

"Ritchie Corporation has received an offer to acquire its interest in the escrow agreement for $2,000,000.00 cash as specified in the attached Asset Purchase Agreement. Waste Connections of Kansas, Inc. holds a Right of First Refusal pursuant to Section 21(m) of the Escrow Agreement, and on behalf of my client, Ritchie Corporation, this correspondence shall serve as notice of the facts and terms of the referenced third-party offer."

On August 2, 2007, Robert Epstein, WCK's attorney, had a phone conversation with Terry Pilgreen, Ritchie's attorney, and advised him that WCK had a dispute over the value of the transfer station and that WCK thought the pricing on the transfer station should be $1.45 million, not $2 million. Epstein followed up his phone conversation with Pilgreen with the following letter:

"The purpose of this letter is to advise you that Waste Connections of Kansas, Inc. has elected to exercise its option to purchase Ritchie Corporation's interest in the Wichita Transfer Station property pursuant to the provisions of the Escrow Agreement.

"Please advise your client that Waste Connections of Kansas has exercised its option to purchase. There are certain matters with respect to the contract which I believe we need to discuss in greater detail. Please contact me upon your receipt of this letter so that we may proceed to complete this purchase and sale. We would like to schedule a conference call to discuss certain matters relating to this transaction."

Additional correspondence and communications occurred between Ritchie and WCK, including some correspondence with Cornejo, concerning the right of first refusal and the appropriate price. By letter dated September 13, 2007, WCK again informed Ritchie that it disputed the price owed under the right of first refusal and that the appropriate price was $1.45 million, not $2 million. In conjunction with the September 13 letter, WCK delivered a certified check to the escrow agent in the amount of $2 million to "acquire all of Ritchie's interest in the escrow agreement and the assumption of Ritchie's obligations under the escrow agreement." The September 13 letter also stated:

"Waste Connections' delivery of this check is subject to its express reservation of its rights to determine the proper price payable for its exercise of the Right of First Refusal is $1,450,000.00, rather than $2,000,000.00 as claimed by Ritchie, which reservation includes all remedies that are available upon such a determination."

On September 28, 2007, the parties held a closing for the escrow agreement where Ritchie's rights and interest in the transfer station were transferred to WCK in exchange for the...