IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 91,311
EVENSON TRUCKING CO.,
Appellant,
v.
FRED ARANDA,
Appellee.
SYLLABUS BY THE COURT
1. When an appellate court reviews a district court's decision to impose sanctions under K.S.A. 2004 Supp. 60-211, its function is to determine whether substantial competent evidence supports the trial court's findings of fact that the statutory requirements for sanctions are present.
2. Under the facts of this case, substantial competent evidence supports the district court's findings that the statutory requirements for sanctions were present.
Review of the judgment of the Court of Appeals in an unpublished decision filed December 23, 2004. Appeal from Morton district court; TOM R. SMITH, judge. Judgment of the Court of Appeals reversing the district court is reversed. Judgment of the district court is affirmed. Opinion filed February 3, 2006.
Daniel G. Menzie, of Klenda, Mitchell, Austerman & Zuercher, L.L.C., of Wichita, argued the cause, and Stephen L. Brave, of the same firm, was on the brief for appellant.
William J. Graybill, of Graybill, Witcher & Ambrosier, of Elkhart, argued the cause and was on the brief for appellee.
The opinion of the court was delivered by
NUSS, J.: This case concerns the propriety of court-ordered sanctions against a party. Evenson Trucking Co. (Evenson) filed suit against Fred Aranda for damages to its truck. After the suit was dismissed with prejudice, Aranda filed for sanctions against Evenson, which the district court imposed pursuant to K.S.A. 2004 Supp. 60-211(c). The Court of Appeals reversed the award in Evenson Trucking Co. v. Aranda, No. 91,311, unpublished opinion filed December 23, 2004. We granted Aranda's petition for review under K.S.A. 60-2101(b).
The primary issue on appeal is whether the district court erred in imposing sanctions. This determination requires the answers to two different questions as follows:
1. What standard of review applies?
2. Are the district court's findings of fact supported by substantial competent evidence?
We affirm the district court.
FACTS
On September 10, 1999, a semi-truck owned by Evenson struck a horse while the truck was traveling on a public highway in Morton County. Jason LaRue of the sheriff's office arrived at the scene approximately 16 minutes later. He later filed an accident report that stated the truck was traveling southbound on K-27 when the horse ran onto the roadway causing a collision. The report indicated that the collision caused over $500 in property damage and that the horse belonged to Fred Aranda.
Aranda testified that he later received a demand letter addressed to him at P.O. Box 977, Elkhart, Kansas, from Robert Lasowski, the recovery supervisor for American International Recovery, Inc. (American International) of Parsippany, New Jersey, on behalf of Evenson's insurer, National Union Fire Insurance Company. The letter stated in relevant part:
"November 10, 1999
"Fred Aranda
"P.O. Box 977
"Elkhart, KS 67950
"RE: INSURED: Evenson Trucking
CLAIMANT: Fred Aranda
FILE NUMBER: 197-009498
DATE OF LOSS: 09-10-99
AMOUNT:$8,730.73
"Dear Mr. Aranda:
"We are the recovery agents for National Union Fire. Ins. Co., who has made payment to their policyholder for damages arising out of the above-cited occurrence. Our investigation of this loss has determined that you are responsible for these damages. Since our client is the equitable subrogee of its insured, we request payment on their behalf of this subrogated interest in the above-captioned amount.
"If you are insured, it is suggested for your protection that you immediately contact your insurance carrier with this information. In addition, please enter the name, address and policy number of your insurance carrier at the bottom of this page, and return this information immediately to the address listed above. If you are uninsured, or self-insured, contact the undersigned to arrange for payment. Otherwise, please send your check or money order, made payable to National Union Fire Ins. Co., in the enclosed self-addressed envelope.
"If there is a reason for not paying this claim, please explain fully, IN WRITING, WITHIN 30 DAYS.
"Very truly yours,
"Robert Lasowski
"Recovery Supervisor" (Emphasis added.)
Aranda testified he later prepared a letter of denial to Lasowski's attention at American International in Atlanta, Georgia, – not Lasowski's address in Parsippany, New Jersey. His letter stated:
"P.O. Box 75
"Elkhart, KS 67950
"December 03, 1999
"American International Recovery, Inc.
"P.O. Box 105795
"Atlanta, GA 30348-9864
"ATTN: Robert Lasowksi - Recovery Supervisor
"Dear Mr. Lasowski:
"As requested I am writing in regards to correspondence received from your company dated November 10, 1999. Pertaining to File Number 197-009498, in which your company indicates that I am responsible for damages incurred in the amount of $8730.73.
"I do not feel that I am the person responsible for these damages. I am not the legal owner of the horse that was struck during this occurrence. Nor am I the legal land owner of the property from where the horse allegedly came from. Due to these facts I disagree with the findings of your company's investigation. Payment of this claim will not be made at this time.
"I would greatly appreciate your quick resolution to this situation. Thank you in advance for your cooperation.
"Sincerely,
"Fred Aranda"
Aranda testified that he mailed the letter, prepared for Lasowski's attention at American International in Atlanta, in the self-addressed envelope that Lasowski had enclosed in his November 10, 1999, demand letter. While he did not look at the address printed on Lasowski's self-addressed envelope prior to mailing, he believed that he drafted the letter to Lasowski in Atlanta using the same address that appeared on the provided envelope. Aranda testified concerning the company's receipt of his denial letter as follows:
"Q. Did you attempt to call American National Recovery [sic] at their phone numbers up there --
"A. No.
"Q. -- and confirm receipt of the letter?
"A. No, because it was -- I sent it to -- I sent it by -- oh, what do you call that where they notify you if they've received it?
"Q. Do you have the --
"A. Certified.
"Q. You have the receipt from the certified mail?
"A. Yes, I do.
"Q. Did you bring it with you?
"A. No.
"Q. Have you provided that to your attorney?
"A. I believe so.
"Q. Do you know why he didn't produce it during discovery?
"A. I don't."
Over the next 16 months, American International and two law firms made telephone calls and left messages for Aranda to return the calls. They also sent four additional demand letters (dated February 1, 2000, May 11, 2000, June 19, 2000, and March 30, 2001), to Aranda at P.O. Box 977, Elkhart, Kansas, 67950, the address on Lasowski's original demand letter. Aranda testified that with the exception of the original letter, he did not receive any of the other demand letters or communications until he was served with summons for the lawsuit. He also testified that he changed his address from P.O. Box 977 to P.O. Box 75, Elkhart, Kansas, in late 1999 and speculated that Lasowski's November 10 letter had been forwarded to him by the postal service.
The latest letter, dated March 30, 2001, was from the law firm of Turner & Boisseau and drafted by legal assistant Trudy Moore for the signature of attorney Jeffery Row. It stated that the firm was retained by Evenson.
"to represent them concerning the damage done to their vehicle due to your alleged negligence . . . .
. . . .
"Unless you notify us within thirty (30) days after receipt of this letter that the validity of this debt, or any portion of it, is disputed, we will assume that the debt is valid. If you do notify us of a dispute, we will obtain verification of the debt and mail it to you."
Two months later, on May 30, Turner & Boisseau dissolved. Its attorneys and staff members joined Klenda, Mitchell, Austerman & Zuercher, LLC (Klenda, Mitchell).
Approximately 1 month later on July 2, 2001, Evenson filed suit against Aranda because he "negligently allowed a horse to run at large, north of Elkhart, Morton County, Kansas, and as a direct and proximate result of defendant's negligence, plaintiff suffered damages in the amount of $8,730.73." The petition further alleged that "[A]lthough demand has been made upon said defendant for payment of the balance, defendant has failed, refused and neglected to pay the same." While the record on appeal is silent on who prepared the petition, it was signed by attorney Eldon L. Boisseau of Klenda, Mitchell.
On August 24, 2001, Aranda filed an answer denying liability and alleging he did not "own or control the horse in question."
According to the deposition testimony of Klenda, Mitchell's legal assistant Moore, she was the person primarily responsible to ascertain what the accident facts were. She testified she had never tried to contact the Morton County sheriff's office prior to the petition filing on July 2, 2001. Moore also testified that 2 months later, September 10, 2001, was the first time she spoke with the sheriff's office. She called and asked a female dispatcher for a copy of the "accident report, the investigative report." When the dispatcher faxed the accident report, Moore called back and asked that same person for the entire file because she had received only the accident report. The dispatcher relayed that the accident report was all the sheriff's office had.
Moore also testified that she called the sheriff's office the next day, September 11, 2001, at 8:14 a.m. She spoke with someone that she recalled as Officer LaRue to ask how he knew the horse belonged to Aranda. According to Moore, LaRue replied that "it was a small community and everybody pretty much knew what everybody else had or what animals belonged to who, and he knew that horse belonged to Mr. Aranda."
Moore further testified that she also called the sheriff's office on September 12 to see if there was a city or county ordinance that forbade animals to run at large. She never talked to the sheriff's office again. That same day she called the clerk of the district court, the county clerk, and the county attorney regarding "containment of farm animals" and learned there were no ordinances prohibiting animals running at large.
Other parts of Moore's testimony, however, are less clear because several times she testified that her telephone calls to the sheriff's office and other Morton County authorities were done before the suit was filed on July 2, 2001. For example, she testified she made the initial call on September 10 because: "We hadn't had any contact [with Aranda]. And I was instructed to pursue it further, do an investigation that might need to be done, in order for us to go ahead and make sure that we were comfortable with the information we had to file a petition." (Emphasis added.)
She continues this refrain:
"Q. Okay. So the purpose of your calls to the sheriff's department was to make sure that the information that you -- verify the information that you had to support so you could go ahead and file your petition?
"A. Correct.
"Q. Okay. To your knowledge had any of that investigation been done prior to your beginning your contact with the sheriff's department?
"A. I don't know.
. . . .
"Q. And these items that you have described as your involvement with this file, as I understand it from your testimony you do that as a matter of course to make sure everything is lined up so you can get your petition filed and go ahead with the lawsuit?
"A. Correct.
. . . .
"Q. Then other than that letter [March 30, 2001, demand to Aranda drafted by Moore for her law firm] and the investigation that you conducted with your conversations with the Morton County sheriff's department, did you have any other involvement with the file prior to the petition being filed?
"A. Yes, I did.
"Q. Okay. What would that have been?
"A. A telephone call to the district clerk's office -- I am sorry -- yeah, the district clerk's office checking on an [animal containment] ordinance and a call to the county attorney's office checking on the ordinance." (Emphasis added.)
On cross-examination by her employer, she reiterates that her telephone calls to the sheriff's office and other Morton County authorities, which she testified had occurred in September, had been made before the suit was filed in July:
"Q. [by Mr. Stephen L. Brave]: Prior to the filing of the lawsuit did you discuss the findings of your investigation with any attorneys?
"A. Yes, I did.
"Q. Do you remember who you spoke with?
"A. I believe I spoke with you and prior -- well, to you.
"Q. Do you remember if you spoke with [employing attorney] Eldon Boisseau?
"A. I may have.
"Q. And did you relate the findings of your investigation?
"A. Yes, I did.
"Q. Do you recall what you told either myself [Mr. Brave] or Mr. Boisseau were the results of your investigation?
"A. Yes, I do.
"Q. For the record --
"A. What I told you guys would be that I had made the telephone calls, and the police department verified that it was Mr. Aranda's horse, that there wasn't any further investigative reports, and that I had tried to find out whether or not there was an ordinance against the animal running at large, and I had not found that out." (Emphasis added.)
When asked, "How did you originally know or what led you to believe that Fred Aranda was the owner of the horse?" Moore testified, "It was on the police report." She also testified that no letters from Aranda were contained in the materials forwarded by the insurance company, which suggests the law firm had received some files.
However, although she testified she had spoken with LaRue on September 11, her annotations on the firm's telephone bill, a deposition exhibit, show that this particular conversation occurred on September 26.
According to LaRue's testimony, he had never been contacted by Moore or anyone else from Wichita. He stated that the sheriff's office logs its incoming calls and he reviewed the call logs for 1999, 2000, and 2001. He found no call log entry indicating that a phone call was received from Trudy Moore for him. He also testified that he has no recollection of ever talking with Trudy Moore. He further did not believe that the sheriff's dispatch ever told him that anyone from Wichita had called regarding the accident. At no time after he wrote his report on September 10, 1999, did anyone except Aranda's counsel ever ask him if Aranda owned the horse.
On October 15, 2001, verified answers to Aranda's interrogatories were signed by Evenson's attorney Todd Allison. They provide, among other things:
"3. Please identify by name and address and job title, each person who investigated on your behalf the facts of the incident on September 10, 1999, on which your Petition is based.
"ANSWER: Plaintiff has not had anyone investigate this incident on their behalf. Morton County Under Sheriff, J. [LaRue], however did investigate this accident and filed a report which Plaintiff has relied upon.
"4. For each person identified in Paragraph 3 above, please describe all acts, actions or activities that person did in the course of their investigation of the facts of the incident of September 10, 1999, on which your Petition is based.
"ANSWER: Plaintiff has not had anyone investigate the incident on his behalf. The actions of Under Sheriff [LaRue] are contained in his report.
. . . .
"7. Please describe the efforts made by you to determine that the Defendant owned or controlled the horse described in Paragraph 3 of your Petition.
"ANSWER: Accident Investigative Report by Morton County Under Sheriff [LaRue] named Fred Aranda as the owner of the deceased horse that was the cause of this accident."
The answers do not specify at what point Evenson received LaRue's accident report, e.g., before or after suit was filed, and therefore cannot disclose whether Evenson relied upon the report in preparing and filing the petition. These interrogatory answers were later provided to the district court as Aranda's Exhibit 5 at the sanctions hearing on June 12, 2003.
On October 29, 2001, verified answers to Aranda's interrogatories were signed by Evenson's vice president and by someone for attorney Eldon Boisseau. The interrogatories and answers are identical to those of October 15, 2001, described earlier in the opinion. These also were later provided to the district court as Aranda's Exhibit 5 at the June 12, 2003, sanctions hearing.
On April 11, 2002, attorney Erin Syring of Klenda, Mitchell filed Plaintiff's Motion to Dismiss without prejudice. On April 23, Defendant's Response was filed, asking for dismissal with prejudice and costs awarded to Aranda. He argued that dismissal with prejudice was warranted because while Aranda had notified Evenson via his letter of December 3, 1999, that he did not own the horse, Evenson failed to conduct any discovery addressing Aranda's denial of the allegations until November 19, 2001. In support, Aranda attached as Exhibit C a copy of Plaintiff's Answers to Defendant's Interrogatories, which were not dated or signed but which identified in handwriting on the signature page Stephen L. Brave as the attorney of the plaintiff.
Although responding to the same interrogatories mentioned earlier, this document contains slightly different answers than the one provided and signed by Evenson's attorney Todd Allison on October 15, 2001, and the one containing the verified signature of Evenson's vice president on October 29, 2001. Unlike the signed answers, these specifically express that the plaintiff relied upon the findings in the undersheriff's report to prepare the petition. They also clarify that Evenson did not independently investigate the accident. Additions are in italics as follows:
"3. Please identify by name and address and job title, each person who investigated on your behalf the facts of the incident on September 10, 1999, on which your Petition is based.
"Answer: The Plaintiff has not had anyone independently investigate this incident on its behalf. Morton County Under Sheriff, J. [LaRue], however, did investigate this accident and filed a report containing his findings, which Plaintiff has relied upon in preparing its Petition.
"4. For each person identified in Paragraph 3 above, please describe all acts, actions or activities that person did in the course of their investigation of the facts of the incident of September 10, 1999, on which your Petition is based.
"Answer: The actions of Under Sheriff [LaRue] are contained in his report. [Omitting the earlier statement that 'Plaintiff has not had anyone investigate the incident on his behalf.']
. . . .
"7. Please describe the efforts made by you to determine that the Defendant owned or controlled the horse described in Paragraph 3 on your Petition.
"Answer: Plaintiff reviewed the Accident Investigative Report prepared by Morton County Under Sheriff [LaRue], which names Fred Aranda as the owner of the deceased horse that was the cause of this accident. Plaintiff has also contacted a dispatcher for the Morton County Sheriff's Office, who also reported that the Defendant owned the horse which caused this accident." (Emphasis added.)
During a pretrial conference on April 24, 2002, the parties, through Evenson counsel Stephen L. Brave and Aranda's William Graybill, orally agreed to a dismissal with prejudice and the costs to be taxed to the plaintiff. The court approved. Among other things, Evenson's counsel stated:
"Your Honor, at this point, I don't see why we wouldn't agree to dismiss it with prejudice. I don't think -- you know, we did do discovery in this case. We had a sheriff's report. The sheriff's report of this accident claimed that Mr. Aranda was the owner of the horse. We spoke to -- it wasn't the sheriff, it was an undersheriff named LaRue that we contacted. At that point, he said, 'Yeah, I'm going to stand by the report.' We did send off written discovery to defendant. He responded back saying, you know, 'It's not my horse, I had nothing to do with this.'
"And at that point, we contacted the sheriff again, it's my understanding. I didn't do it personally. And at that point -- well, the sheriff is like, 'Well, that may be the case.' That's the reason we filed this motion [to dismiss], is there's no way we're going to be able to, you know, go through the full discovery for a case that's worth $8,000. The client doesn't want to do it. It's not worth it." (Emphasis added.)
Shortly thereafter, on May 3, 2002, Aranda filed a motion to determine costs and for sanctions against Evenson pursuant to K.S.A. 2004 Supp. 60-211. Essentially reiterating his April 23 response, Aranda alleged that Evenson failed to make a "reasonable inquiry" as to the ownership of the horse in question after Aranda disclaimed ownership in December 1999. He attached the copy of the Plaintiff's Answers to Defendant's Interrogatories, signed by someone for Boisseau and containing the Verification page signed and sworn to by the vice president of Evenson.
Approximately 1 month later, on June 7, 2002, Aranda served a notice to take the deposition of Evenson attorneys Eldon Boisseau, Erin Syring, and Todd Allison on June 14, 2002, and issued subpoenas for their attendance. On June 10, 2002, the plaintiff fax filed a motion to quash.
On June 17, 2002, a journal entry was filed dismissing Evenson's original suit with prejudice in confirmation of the oral dismissal on April 24, 2002. Costs were assessed to the plaintiff. This filing left for resolution only Aranda's motion to determine costs and for sanctions.
On June 19, 2002, Evenson filed a motion for protective order regarding the proposed depositions of Boisseau, Syring, and Allison. It asked for Aranda to pay its reasonable attorney fees incurred in filing/preparing the motion, alleging that because the case had been dismissed with prejudice, it was pointless to proceed with discovery. Evenson later told the court that none of the three attorneys would be testifying at the hearing on Aranda's motion for sanctions.
Based upon this representation and to avoid the problems in allowing "opposing counsel to depose opposing counsel," on July 8, 2002, the court signed a journal entry quashing the subpoenas and granting the protective order. However, it allowed some discovery to proceed on the issue of sanctions:
"At the time of oral argument counsel for the Plaintiff stated that actions taken by a paralegal investigating the Plaintiff's claim against the Defendant was done by the paralegal making a telephone call to a deputy sheriff in Morton County.
"That being the case and, if this is indeed the defense raised by the Plaintiff, that paralegal who is going to testify in this proceeding could certainly be deposed if the Defendant chose to do so as to the actions taken by her and her proposed testimony, if any, to be offered in response to the Defendant's Motion."
Accordingly, approximately 8 months later, on March 19, 2003, Aranda's counsel eventually deposed the paralegal, Moore, as excerpted earlier in the opinion.
On June 5 and 11, 2003, Evenson then filed its own Motion for Sanctions and Memorandum pursuant to K.S.A. 2004 Supp. 60-211. It attached as Exhibit B the copy of the unsigned Plaintiff's Answers to Defendant's Interrogatories containing attorney Stephen L. Brave's name – the same document that Aranda had supplied to the court on April 23, 2002, as an exhibit to its Response to Plaintiff's Motion to Dismiss. As mentioned, the answers clearly express plaintiff's reliance upon the findings in the undersheriff's report in preparing the petition.
On June 12, a hearing was conducted regarding the parties' opposing motions for sanctions. The court heard testimony, including Aranda and Undersheriff Jason LaRue, and received exhibits – letters and interrogatory answers, documents detailing Aranda's and Evenson's attorney fees, and the deposition transcript of Moore with attached telephone records showing calls to the sheriff's office in September 2001. Among other things, LaRue also testified that although his report showed Aranda was the horse owner, he could not recall how he came up with that information. He also testified that his report did not indicate anyone one was negligent and that he saw no indication in his investigation that the horse was actually on the highway as the result of someone's negligence.
Evenson sought to admit certain demand letters as exhibits, arguing they were party admissions "since, you know, the party's [Evenson] agent [attorneys and American International] wrote them."
On July 8, 2003, the court filed a seven-page journal entry awarding sanctions to Aranda. Among other things, the court found that LaRue made no inquiries or investigation to support his allegation that Fred Aranda was the owner and it was unknown why he believed Aranda was the owner; that Aranda received the November 10, 1999, letter from American International; that the letter indicated American International was an agent for National Union Fire Insurance Company with an Atlanta address; that Aranda wrote a letter dated December 3, 1999, addressed to American International at the Atlanta address to the attention of the name on the demand letter from American International; that Aranda's letter indicated his address was P.O. Box 75, Elkhart; and that Aranda's letter denied he was the owner of the land or the horse and therefore denied payment.
The court also found Aranda's address had changed from Box 977 to Box 75 sometime late in 1999; that further demand letters were sent to Aranda at Box 977 by American International, a New Jersey law firm, and finally a letter was sent dated March 30, 2001, from Turner and Boisseau; and that Aranda received none of these letters. The court also found that suit was filed against Aranda on July 2, 2001, and he denied liability and ownership and control of the horse in his answer.
Regarding Evenson's presuit knowledge of the horse ownership, the court further found
"During discovery, after the filing of the Defendant's Motion for Sanctions, the paralegal, working for counsel for the Plaintiff, was deposed and testified that part of her job duties was the investigation of claims to be made before suit was filed. It is clear she made no investigation before filing of the suit excepting the drafting of the demand letter while still in the employ of Turner & Boisseau. This paralegal did not explain how she had determined the P.O. Box 977 number as being Aranda's address. [But] [t]his witness testified that she had received the file forwarded to the law firm from the insurance company.
"On September 10, 2001, September 11, 2001, and September 12, 2001, a paralegal from the Plaintiff's law firm placed phone calls to the Morton County Sheriff's office, the Morton County Attorney's Office, and the Morton County Clerk's.
"The first call placed by the paralegal in charge of the investigation was made on September 10, 2001, and she asked for a copy of the accident report.
"On September 11, 2001, the paralegal then called the deputy who investigated the accident to verify details of the accident report.
. . . .
"It is very clear that no one in the law firm made any investigation prior to the filing of the lawsuit, other than sending the one demand letter to the wrong address.
"At the time the Defendant's Motion for sanctions was heard by this Court [June 12, 2003], the Plaintiff presented no evidence other than a copy of the accident report and a copy of their claim for attorney fees for their Motion for Sanctions to be applied against the Defendant for filing a frivolous motion.
"The counsel for the Plaintiff made the statement [in the April hearing] that the reason the suit was abandoned and dismissed with prejudice was because it was not economically feasible to litigate the case to prove that Aranda was the owner or in control of the horse that caused the accident.
"If it was not economically feasible to pursue the case to prove negligence on behalf of Aranda, the question then becomes why was the case filed in the first place?
. . . .
"If the counsel for the Plaintiff received the insurance file as they claim they did, they should have seen Aranda's letter in there, and then made reasonable inquiry before filing this suit, which they did not do.
"The paralegal in charge of the pre-suit investigation did not even obtain the accident report until September 10, 2001. This lawsuit had been filed on July 2, 2001, over sixty days before the paralegal got the accident report upon which the Plaintiff relies for their claim against Aranda." (Emphasis added.)
After citing Bus. Opportunities Unlimited, Inc., v. Envirotech Heat. & Cooling, Inc., 26 Kan. App. 2d 616, 992 P.2d 1250 (1999), the court concluded that no reasonable presuit inquiry had been made and Aranda should be awarded costs and expenses for attorney fees in the amount of $9,837.85 with interest against Evenson pursuant to K.S.A. 2004 Supp. 60-211. It also denied Evenson's Motion for Sanctions.
Evenson filed a motion for reconsideration which was heard on August 27, 2003. On September 1, 2003, the court filed its order denying reconsideration. It specifically found:
"After hearing oral argument and reading the Plaintiff's Motion for Reconsideration, this Court has reviewed the evidence here