Fannie Mae v. Schieber

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NOT DESIGNATED FOR PUBLICATION

No. 115,449

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

FANNIE MAE,
Appellee,

v.

DAVID G. SCHIEBER,
Appellant.


MEMORANDUM OPINION

Appeal from Sedgwick District Court; STEPHEN J. TERNES, judge. Opinion filed June 16, 2017.
Affirmed.

Jennifer M. Hill, of McDonald Tinker PA, of Wichita, for appellant.

Nicholas J. Zluticky, of Stinson Leonard Street LLP, of Kansas City, Missouri, for appellee.

Before ARNOLD-BURGER, C.J., ATCHESON, J., and FAIRCHILD, S.J.

Per Curiam: David G. Schieber was a guarantor of the obligations imposed on 1
Ashbury Court Partners, LLC (Ashbury), under the terms of a note and personal
guarantee that was assigned to Fannie Mae. Ashbury defaulted on the note, and Schieber
became personally liable for the entire amount owed to Fannie Mae. The district court
granted Fannie Mae summary judgment against Schieber and several other defendants.
Because he was not properly served, Schieber was not a party to the case at the time the
district court granted summary judgment. After properly serving Schieber with the
amended petition, Fannie Mae again moved for summary judgment. The district court
again granted summary judgment to Fannie Mae, relying on the law of the case to adopt
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the findings it made in its decision granting Fannie Mae's first motion for summary
judgment. Although we find that the trial court should not have applied the law of the
case doctrine, we find that the district court ultimately did not err in granting Fannie Mae
summary judgment.

FACTUAL AND PROCEDURAL BACKGROUND

In November 2008, Ashbury and Wells Fargo Bank entered into a loan
transaction. Ashbury executed a multifamily note in favor of Wells Fargo and a
multifamily mortgage, assignment of rents, and security agreement (the mortgage), which
granted Wells Fargo a mortgage lien on real estate located in Wichita, Kansas, and a
security interest in the personal property described in the mortgage. As further security,
the Key Principals—Schieber, Ross Meyeraan, Dr. Allen Thomashefsky, and Hillary
Best—each executed a personal liability acknowledgement. Under the acknowledgement,
each Key Principal agreed to "absolutely, unconditionally, and irrevocably" guarantee
payment of the entire amount owed under the note. Wells Fargo then assigned the note
and the mortgage to Fannie Mae.

Section 9(c) of the note provided that the Key Principals would be personally
liable for the entire amount owed under the note if, among other things, a transfer
constituting an event of default under the mortgage occurred. The mortgage defined such
a transfer as: (1) "a Transfer of a Controlling Interest in any entity which owns, directly
or indirectly through one or more intermediate entities, a Controlling Interest in
Borrower"; or (2) "a Transfer of all or any part of Key Principal's ownership interests
(other than limited partnership interests) in Borrower or in any other entity which owns,
directly or indirectly through one or more intermediate entities, an ownership interest in
Borrower." A transfer of a controlling interest was defined as "a Transfer of any
membership or other ownership interest which would cause the Initial Owners to own
less than 51% of all membership or other ownership interests in such entity."
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Ashbury defaulted on the note by failing to make the required monthly payments.
Fannie Mae notified Ashbury that it was exercising its right to accelerate repayment and
that the entire amount of the note was immediately due. A couple of months later, Fannie
Mae filed a petition seeking foreclosure of the mortgage and the appointment of a
receiver. Ashbury filed for bankruptcy. Fannie Mae contested confirmation of Ashbury's
plan of reorganization and sent interrogatories to Ashbury. Meyeraan, acting on behalf of
Ashbury, answered the interrogatories and disclosed that at the time the note and
mortgage were executed RTD Investments I, LLC, owned 51% of Ashbury. Meyeraan
also disclosed that between November 14, 2009, and August 1, 2011, he transferred
11.65% of his membership interest to RTD Investments and Thomashefsky transferred
his entire 13.35% membership interest to RTD Investments. Fannie Mae did not give
either Meyeraan or Thomashefsky permission to make these transfers.

Because of Meyeraan's answers to its interrogatories, Fannie Mae filed an
amended petition, seeking to hold the Key Principals personally liable for the amount
owed under the note. Ashbury, Thomashefsky, and Best answered Fannie Mae's amended
petition. Meyeraan filed for bankruptcy. Schieber was not properly served with the
amended petition, and, in a letter to the district court, Schieber's attorney explained that
Schieber would not file an answer unless Fannie Mae properly served him. Fannie Mae
moved for summary judgment against Ashbury, Thomashefsky, and Best. In their
response to the motion for summary judgment, Ashbury, Thomashefsky, and Best
attempted to controvert Fannie Mae's statement of uncontroverted facts by relying on a
sworn declaration from Meyerraan. In the sworn statement Meyeraan contradicted his
previous answers to Fannie Mae's interrogatories in the bankruptcy case by swearing that
his and Thomashefsky's interests in RTD Investments were the same at that time as they
had been when the note and mortgage were executed. The district court granted summary
judgment against Ashbury and Thomashefsky and a default judgment against Schieber.
Fannie Mae eventually settled with Thomashefsky and Best.

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Having obtained a judgment against Schieber, Fannie Mae sought to domesticate
the judgment in Oregon, where Schieber lives. The Oregon court granted Schieber's
motion to vacate, finding that the judgment was void because the district court had not
acquired personal jurisdiction over him since he was not properly served with process.
Fannie Mae appealed the order to the Oregon Court of Appeals. While the appeal was
pending, Fannie Mae served Schieber with its amended petition. Fannie Mae then filed a
motion with the district court, requesting that the district court declare that the initial
service of process on Schieber was proper and that the judgment against Schieber was
valid and enforceable. After the district court denied its motion, Fannie Mae dismissed
the Oregon appeal and moved forward with its case against Schieber in Sedgwick County
District Court.

In October 2014, more than 2 years after it had been filed, Schieber answered
Fannie Mae's amended petition. Fannie Mae eventually filed a motion for summary
judgment. In his response, Schieber relied on Meyeraan's declaration to controvert Fannie
Mae's statement of facts and presented new legal arguments. The district court ultimately
granted Fannie Mae's motion for summary judgment on the issue of Schieber's liability
but denied summary judgment on the issue of damages. In its order, the district court
stated that while collateral estoppel did not apply, the law of the case doctrine did apply
and it was bound by its ruling on Fannie Mae's first motion for summary judgment.

Schieber timely appeals the district court's decision to grant summary judgment on
the issue of liability.

DID THE DISTRICT COURT ERR IN APPLYING THE LAW OF THE CASE DOCTRINE?

Whether a district court appropriately applied the law of the case doctrine is a
legal question subject to this court's unlimited review. State v. Parry, 305 Kan. 1189,
1193-94, 390 P.3d 879 (2017). The doctrine of law of the case provides that issues that
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have already been decided should not be relitigated in a later stage of the same case. See
Thoroughbred Assocs. v. Kansas City Royalty Co., 297 Kan. 1193, 1212, 308 P.3d 1238
(2013). The doctrine's purpose is "to avoid indefinite relitigation of the same issue, to
obtain consistent results in the same litigation, to afford one opportunity for argument and
decision of the matter at issue, and to assure the obedience of lower courts to the
decisions of appellate courts." State v. Collier, 263 Kan. 629, Syl. ¶ 2, 952 P.2d 1326
(1998). While application of the doctrine is discretionary, issues should be relitigated
only if the previous decision was clearly erroneous or relitigation would prevent manifest
injustice. See Venters v. Sellers, 293 Kan. 87, 99, 261 P.3d 538 (2011).

In this case the district court applied the law of the case doctrine to support its
finding that Scheiber was liable for payment of the balance of the note. Fannie Mae's
amended petition listed Schieber as a defendant. However, Fannie Mae failed to properly
serve him, and Schieber was not a party at the time the district court first granted
summary judgment to Fannie Mae. It was only after Fannie Mae realized that it would be
unable to enforce the previous judgment that it properly served Schieber. Federal courts
have held that when a complaint is amended to add additional parties, "'[t]he law of the
case doctrine should not be read so rigidly that it precludes a party from raising an
argument that it had no prior opportunity to raise.' [Citations omitted.]" Hamilton v.
Leavy, 322 F.3d 776, 787 (3d Cir. 2003); see also In re Grasso, No. 14-1741, 2014 WL
3389119, at *3 (E.D. Penn. 2014) (unpublished opinion) ("when a new party is added to a
proceeding, a prior determination does not constitute law of the case as to the new
party"). Because Schieber was a new party to the case, the law of the case doctrine did
not apply to any decision made prior to Schieber being properly served with process.

As a result of the district court applying the law of the case, Schieber did not have
the opportunity to raise his own arguments. Although Fannie Mae claims otherwise,
Schieber raised arguments that the previous defendants did not. In other contexts, this
court has defined "'manifest injustice'" as "'obviously unfair' or 'shocking to the
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conscience.'" Ludlow v. State, 37 Kan. App. 2d 676, 686, 157 P.3d 631 (2007) (quoting
State v. Cramer, 17 Kan. App. 2d 623, 635, 841 P.2d 1111 [1992], rev. denied 252 Kan.
1093 [1993]). To assure basic fairness in each case, the requirements of due process vary.
Kempke v. Kansas Dept. of Revenue, 281 Kan. 770, 776, 133 P.3d 104 (2006). But the
elements of procedural due process generally are "notice and an opportunity to be heard
at a meaningful time and in a meaningful manner." Alliance Mortgage Co. v. Pastine,
281 Kan. 1266, 1275, 136 P.3d 457 (2006). Not affording Schieber an opportunity to be
heard was obviously unfair, making it necessary to relitigate the summary judgment issue
to prevent manifest injustice. The district court therefore erred in applying the doctrine of
the law of the case.

DID THE DISTRICT COURT ERR IN GRANTING SUMMARY JUDGMENT TO FANNIE MAE?

When it reviews whether summary judgment was appropriate, this court applies
the same rules as the district court. Stanley Bank v. Parish, 298 Kan. 755, Syl. ¶ 1, 317
P.3d 750 (2014). A motion for summary judgment should be granted when the pleadings
and evidence show "there is no genuine issue as to any material fact and that the movant
is entitled to judgment as a matter of law." K.S.A. 2016 Supp. 60-256(c)(2). All facts and
inferences reasonably drawn from the evidence must be resolved in favor of the party
against whom summary judgment is sought. A party opposing a motion for summary
judgment must present evidence showing that a material fact is disputed. Disputed facts
"must be material to the conclusive issues in the case." 298 Kan. 755, Syl. ¶ 1. If
reasonable minds can come to different conclusions based on the evidence, summary
judgment must be denied. 298 Kan. 755, Syl. ¶ 1.

Schieber first argues that a genuine issue of material fact existed because the only
evidence Fannie Mae offered that demonstrated a transfer of interest had taken place was
Meyeraan's answers to the interrogatories in the bankruptcy case, which he later refuted
in his sworn declaration. However, "[a]n affidavit cannot be used to controvert a prior
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sworn statement in order to create an issue of material fact and defeat a motion for
summary judgment." Bacon v. Mercy Hosp. of Ft. Scott, 243 Kan. 303, 314, 756 P.2d 416
(1988). In his answers to Fannie Mae's interrogatories in the bankruptcy case, Meyeraan,
acting on behalf of Ashbury, admitted that he and Thomashefsky had transferred interests
in RTD Investments. He later signed a sworn statement in support of the other
defendants' response to Fannie Mae's first motion for summary judgment, averring that
his and Thomashefsky's interests in RTD Investments were the same as they had been
when the note and mortgage were executed. Because it appears that the purpose of
Meyeraan's second declaration was to controvert his prior sworn statement, Schieber
cannot use the second declaration to create an issue of material fact.

Schieber further argues that a genuine issue of fact existed because Fannie Mae
failed to present evidence showing when exactly the transfers occurred. He claims the
date of transfer is relevant because if the transfers occurred after Fannie Mae declared a
default, the Key Principals were no longer bound by the mortgage contract. To be
genuine, however, an issue of fact must have "legal controlling force as to the controlling
issue." Northern Natural Gas Co. v. ONEOK Field Services Co., 296 Kan. 906, 934, 296
P.3d 1106, cert. denied 134 S. Ct. 162 (2013). Schieber, as the party opposing summary
judgment, had the burden of showing that the Key Principals were free under the
mortgage contract to make transfers if the transfers occurred after Fannie Mae declared a
default. See Parish, 298 Kan. 755, Syl. ¶ 1.

In Kansas the mortgage is not merged into the judgment until the mortgage is
foreclosed. See Federal Land Bank of Wichita v. Brown, 15 Kan. App. 2d 302, 305, 807
P.2d 702, rev. denied 248 Kan. 995 (1991). According to Meyeraan's answers to Fannie
Mae's interrogatories, the transfers occurred sometime before August 1, 2011. As a result,
the Key Principals were bound by the mortgage contract until August 31, 2012, when the
district court granted Fannie Mae's first motion for summary judgment.
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While he cited legal treatises and federal cases as support for this position in his
response to Fannie Mae's motion for summary judgment, on appeal Schieber does not
cite any legal authority or point to any relevant provision of the applicable contracts to
support his argument. Schieber's failure to cite pertinent authority is akin to failing to
brief the issue. See University of Kan. Hosp. Auth. v. Board of Comm'rs of Unified Gov't,
301 Kan. 993, 1001, 348 P.3d 602 (2015).

Schieber finally argues that a genuine issue of material fact existed because
although it relied on Meyeraan's answers to its interrogatories from the bankruptcy case,
Fannie Mae disclosed in its answers to Schieber's interrogatories that one of its senior
asset managers was the only person to have information relevant to the claims. "But
interrogatory answers are not binding judicial admissions—they are just evidence, like
any other evidence that the court may consider." M&I Bank v. Cookies on Demand,
L.L.C, No. 104,737, 2012 WL 686714, at *3 (Kan. App. 2012) (unpublished opinion).
Fannie Mae also made it clear in its motion for summary judgment, which was filed
before it answered Schieber's interrogatories, that it was relying on Meyeraan's answers
to its interrogatories from the bankruptcy case. Also, Schieber cannot claim that
Meyeraan did not have relevant information about the claims because he relied on
Meyeraan's declaration in opposing summary judgment. Thus, even though it should not
have applied the law of the case doctrine, the district court ultimately did not err in
granting summary judgment to Fannie Mae. See Gannon v. State, 302 Kan. 739, 744, 357
P.3d 873 (2015) (district court right for wrong reason).

Affirmed.