IN THE DISTRICT COURT OF SHAWNEE COUNTY, KANSAS
DIVISION FOUR
THE STATE OF KANSAS, ex rel. )
KANSAS HIGHWAY PATROL, )
)
Plaintiff, )
)
v. ) Case No. 01 C 1498
)
BILLARD PROPERTIES, L.L.C., )
)
Defendant. )
_________________________________)
MEMORANDUM DECISION AND ORDER
The above-captioned matter comes before the Court on Plaintiff’s and Defendant’s Motions for Summary Judgment pursuant to K.S.A. 60-256. After careful consideration, the Court concludes as follows:
PARTIES’ JOINT STATEMENT OF STIPULATED FACTS
1. On June 1, 2000, Plaintiff issued a Request for Proposal (RFP) for the design and construction of a fleet maintenance facility in Topeka, Kansas.
2. A Procurement Negotiating Committee (PNC) was appointed to assist Plaintiff in evaluating bids and negotiating for the design and construction of the fleet maintenance facility. The PNC consisted of Sharon Marcum from the Department of Administration, Division of Facilities Management, Brenda Schmidt from the Kansas Highway Patrol, and then Secretary of Administration Dan Stanley.
3. On or about July 21, 2000, Dean Ferrell, a representative of Ferrell Construction of Topeka, Inc. (Ferrell Construction), submitted a bid proposal to Plaintiff in response to the RFP. The bid proposal included an explanatory cover letter, bid bond, and a $125,000 Certificate of Deposit (CD) signed over to the State by Jack Brier.
4. The cover letter of the proposal states: “a Bid Bond is attached in the amount of 5% of the ‘design and construction’ of this proposal. Also attached is a Certificate of Deposit in the amount of $125,000 to cover 5% of the most expensive parcel of land.”
5. Section 5.4 of the RFP states in pertinent part:
“Bid Guaranty: The Director of Purchases requires that a bid and/or performance guaranty in the amount of five percent (5%) of the base bid be submitted by all vendors to ensure faithful performance with the conditions of this Request and/or ensuing contract. A bid and/or performance guaranty must be one of the following:
(a) certified or cashier check or certificate of deposit payable to the State; or
(b) a properly executed bid or performance bond payable to the State.
A check or certificate of deposit bid guaranty shall be returned after a vendor has entered into a binding contractual relationship with the State unless the guaranty shall serve as a performance guaranty. If the successful vendor fails or refuses to enter into a written contract, the State shall retain as liquidated damages the bid guaranty.”
Also, Section 5.6 of the RFP states in pertinent part:
“Performance Bond: The Successful Contract shall file with the Director of Purchases a Performance Bond in an amount equal to one hundred percent (100%) of the price bid as security for the faithful performance of this contract and as security for the payment of all persons performing labor and furnishing materials in connection with this proposal.
The guaranty shall be returned to the Contractor upon the completion of this contract subject to total or partial forfeiture for failure to perform
adequately the terms of this contract. If damages exceed the amount of the guaranty, the State may seek additional damages.”
6.The cover letter referenced in Paragraph 4 above further reads that the bid proposal was being submitted “on behalf of a joint venture consisting of Jack Brier, Brier Development Company, Inc., Schwerdt Design Group, Inc., and Dean Ferrell, Ferrell Construction of Topeka, Inc.” These individuals subsequently formed Billard Properties, L.L.C., Defendant in the case before this Court. At a later date, J. Richard “Dick” Pratt joined the L.L.C. as a minority member and managing member.
7. After reviewing bids and conducting further negotiations, the PNC chose the bid submitted on behalf of the Defendant.
8. On November 13, 2000, Jay Oyler of the Department of Administration’s Division of Purchases sent a letter to Ferrell Construction requesting that Ferrell “re-visit three portions of” Ferrell’s Fleet Facility proposal. The letter also asked that Ferrell include a provision whereby Plaintiff could “exercise a buyout option during the first year of the lease”, and further states:
“No option is included to purchase the land surrounding the building. The original proposal was to own no less than 17 acres. The negotiations included a revision to expand the land to 26 acres. However, the revised proposal would limit the land to seven acres. This change significantly restricts, if not eliminates, the ability of the KHP to plan any future projects at this location. That future planning is a key element of this proposal.”
9. Ferrell Construction responded to Jay Oyler’s November 13, 2000 communication by letter dated November 15, 2000, which stated that Ferrell “amended our proposal... to include the same purchase option at the end of Year One or Year Two. We have also added an additional option to purchase at occupancy.” The letter further states that “[w]e have included in our new numbers, the land and all of the related costs to purchase the approximate 25 plus acres” and that “[o]ur proposal includes the approximately 25 plus acres we discussed.”
10. The Ferrell letter goes on to further explain reasons for increased project development costs. The letter states in pertinent part:
“Our proposal in July detailed a cost of $3,468,728 without any land. At that time we did not have an option to purchase the land, just a land lease. From our meetings and discussions, we have included in our new numbers, the land and all the related cost to purchase the approximate 25 plus acres, an add of $207,486. We have included the cost to option the additional land we would like to purchase beyond the original 17 acres.”
11. In November 2000, Plaintiff as Lessee, and Defendant as Lessor, signed an agreement (Lease Agreement) with provisions for the lease of the Fleet Facility. On November 20, 2000, J. Richard Pratt executed the Lease Agreement on behalf of Defendant. On November 17, 2000, Walter Darling executed on behalf of Plaintiff. On January 3, 2001, the Lease Agreement was approved through the signature of then Secretary of Administration Dan Stanley. The Lease Agreement was also signed by Dale Brunton, Director of Accounts and Reports for the Department of Administration, on January 5, 2001; Daniel J. Carroll, an attorney with the Department of Administration, on November 17, 200; and Joe M. Fritton, Director of Facilities Management for the Department of Administration, on December 12, 2000.
The Lease Agreement states: “[N]o lease agreement is effective nor may expenditure be made until the agreement has been signed and the required approvals affixed” and the Lease Agreement must be “submitted for the approval of the Department of Administration.”
Special Provision 12 of the Lease Agreement states:
“Lessor grants to lessee options to purchase (building and land) as stated below:
• At the point of occupancy, and for a period of six months thereafter, lessee may, by providing notice at least 30 days prior to occupancy, purchase land, buildings, and furnishings for a price of $4,100,000, or $51.18 per square foot, whichever is less;
• At the end of year one and the end of year two lessee may purchase land, buildings, and furnishings for a price of $4,145,510, or $51.81 per square foot, whichever is less; . . .”
Special Provision 12 also states:
“For purposes of this Lease, the land described as available for purchase includes approximately 26 acres to the south and east of the last proposed site of the Fleet Maintenance and Storage Building, bounded by Strait Street on the west and Sardou on the south and east.”
12. During the negotiations, Defendant requested the language of the purchase option include a 30-day notice provision, and Plaintiff knew the purpose of this provision was to allow Defendant to make financing decisions and to save money regarding its financing arrangements.
13. On December 26, 2000, Defendant and the Metropolitan Topeka Airport Authority (MTAA) executed a lease document (MTAA Lease) whereby MTAA agreed to lease to Defendant “approximately seven (7) acres of land at Philip Billard Airport, Topeka, Kansas.” On January 3, 2001, Defendant and MTAA entered into two separate option agreements (MTAA Option One and MTAA Option Two) whereby MTAA agreed to lease to Defendant approximately nineteen (19) acres of land in two separate tracts that are collectively contiguous to the original seven acres of land leased in the MTAA Lease. MTAA Option One and MTAA Option Two were incorporated into the MTAA Lease, and each document contained purchase options.
14. The MTAA Lease gave Defendant the authority to assign Defendant’s rights under the MTAA Lease with written permission of the MTAA.
15. Defendant never obtained “permanent financing” for the fleet maintenance facility and continued with more “interim or temporary” construction financing.
16. The MTAA Lease also gave Defendant the right to exercise purchase options that allow Defendant to enter into real estate agreements with the MTAA by which the land identified for lease in the MTAA Lease, MTAA Option One and MTAA Option Two can be pruchased.
17. On April 4, 2001 Plaintiff, in order to obtain legislative and gubernatorial approval to purchase the land and building at Billard Airport, requested an “Amendment to the Governor’s Budget.” The financing options proposed to the Governor included either issuing bonds or purchasing the building outright. The request stated: “The Highway Patrol requests bond authority to acquire the building, save the state a portion of the interest cost, and avoid the need to locate the large amount of money needed to make a one-time buy-out possible.”
18. The Kansas Legislature passed Chapter 216, Section 49 of the 2001 Kansas Session Laws in response to Plaintiff’s request pertaining to acquisition of the land and building.
19. Article VI of the MTAA Lease between Defendant and the MTAA included the following provisions:
“C) Purchase price shall be paid in cash, not less than Thirty (30) days subsequent to the receipt by Lessor of the Lessee written notification of exercising its Option to Purchase.
D) If Lessee exercises its Option to Purchase, the Option to Purchase must be for the entire Premises. The Lessee shall have no right to exercise an Option to Purchase only a portion of the leased Premises.
E) Lessee will accept the Premises by a Quitclaim Deed subject to all the then existing zoning and subject to all applicable Federal Aviation Administration regulations, all easements and restrictions of record, including all reservations and restrictions as set forth in Article XXII Subparagraph A, B, and C of this Lease.
F) Lessee’s use of the Premises shall not, at any time, prevent or interfere with the use of Philip Billard Airport as an airport facility.
G) Lessor shall not be required to provide title insurance to Lessee.”
20. On August 22, 2001, a letter was forwarded from Colonel Brownlee of the Kansas Highway Patrol (Plaintiff and KHP) to Defendant. The letter stated:
“This letter is to officially inform you of this agency’s intent to exercise Special Provision 12 in our lease, which states, ‘Lessor grants to Lessee options to purchase the premises (building and land) as stated below:
• At the point of occupancy, and for a period of six months thereafter, lessee may, by providing notice at least 30 days prior to occupancy, purchase land, buildings, and furnishings for a price of $4,100,000, or $51.18 per square foot, whichever is less; . . .’
“In accordance with authority granted this agency by the Governor and Legislature in Section 49 of Chapter 216 of the 2001 Session Laws of Kansas, this agency will request that the Kansas Development Finance Authority issue bonds to finance this acquisition. If you have any questions, please contact Mr. Walter Darling, of my office.”
21. Arthur Griggs, Legal Counsel for the Department of Administration, testified that Plaintiff knew Defendant had options to purchase the MTAA land, because procuring the options was part of negotiations when Plaintiff was considering Defendant’s proposal to develop the Fleet Facility. Mr. Griggs further testified that Plaintiff had procured copies of Defendant’s MTAA Lease and MTAA options in early September 2001.
22. On or about August 24, 2001, Mr. Pratt and Mr. Brier received the August 22, 2001 letter from Colonel Brownlee. Colonel Brownlee testified that Mr. Darling drafted the text of the letter and prepared it for Colonel Brownlee’s signature.
23. Plaintiff’s Petition for Declaratory Judgment and Specific Performance states that the parties “entered into a Real Estate Lease Agreement... on or about January 3, 2001.” This date coincides with the date of Secretary Stanley’s approval.
24. On August 13, 2001, a written story regarding the Fleet Facility project appeared in the Topeka Capital-Journal. The article refers to an interview with Mr. Darling, Chief Financial Officer of the KHP. A portion of the story reads: “Darling said the patrol was looking to exercise the buy-out option . . . .”
25. Prior to leaving office on or around September 1, 2001, Secretary of Administration Dan Stanley, by letter to Colonel Brownlee dated August 22, 2001, raised concerns over the Plaintiff’s immediate acquisition of the fleet maintenance building. Defendant also received a copy of Secretary Stanley’s letter. The body of Secretary Stanley’s letter states:
“With interest I read the article in the Topeka Capital Journal concerning the progress of your new facility being constructed at Billiard. The Department of Administration is pleased to have been of assistance to you in bringing this project to fruition. I did note your desire to bond this project and while we support that decision, if it proves cost effective, it would be my preference that you not consider an acquisition for one year after occupancy for several reasons. First, it is imperative the landlord be held responsible for any and all issues which might arise during the first year of occupancy in conjunction with any construction defects or contractor warranty items. While I am not suggesting there will be any issues, prudence dictates that we preserve our protective options.
“Second, there are several other issues concerning potential future use and expansion that should be resolved before a bonding decision is executed. As the state has recently acquired a new plane, it is time to consider consolidation of the aircraft operations, storage, and maintenance of all state aircraft into a single facility. Also, your planning with respect to Troop B and other consolidations you may have in mind should be fully explored. As you know, all of these issues may affect any Billard acquisition which you are contemplating.
“Should you desire more discussions about the timing of the transactions described in this letter, or any others, please do not hesitate to call me.”
26. On October 3, 2001, Secretary of Administration Joyce Glasscock requested in writing that the KDFA issue bonds to finance the Plaintiff’s acquisition of the Fleet Facility.
27. On October 9, 2001, Plaintiff submitted a cover letter and “Draft Real Estate Sales Agreement” to Defendant for the purpose of negotiating the transfer of land and building. Defendant received the letter and proposed agreement on or about October 11, 2001.
28. On October 23, 2001, Defendant advised Plaintiff that Defendant believed the August 22, 2001 letter of intent to exercise its option was invalid.
29. On October 31, 2001, Plaintiff corresponded with Defendant by letter and attached various provisions of the RFP, a draft Petition for Declaratory Judgment and Specific Performance, and two Quitclaim deeds, one from MTAA to Defendant and one from the Defendant to Plaintiff.
30. At least six (6) months immediately before the date of Colonel Brownlee’s August 22, 2001 letter to Defendant, neither Colonel Brownlee nor Mr. Darling spoke directly with then-Secretary of Administration Dan Stanley regarding exercising an option to purchase the Fleet Facility at occupancy of the facility.
31. On November 1, 2001, Plaintiff contacted Defendant and advised that Plaintiff was close to having completed the appraisals required by K.S.A. 75-3043a and anticipated tendering payment during the week of November 5, 2001.
32. Colonel Brownlee testified that when Plaintiff mailed its purported notice of “intent to exercise” no financing was in place through the KDFA to purchase the property.
33. Defendant responded to Plaintiff’s November 1, 2001 correspondence by letter dated November 5, 2001, which stated in part: “Any purported exercise arising out of the August 22, 2001, letter is not an unconditional exercise within the required timeframe, and therefore, is ineffective.” Defendant also included a draft Real Estate Sale Contract proposing a closing date of April 1, 2002.
34. In addition to proposing a closing date of April 1, 2002, the draft Real Estate Sales Contract submitted by Defendant on November 5, 2001 offered to convey Defendant’s “leasehold interest” in the disputed land.
35. By letter dated October 3, 2001, Defendant offered to change the terms of the Lease Agreement to allow Plaintiff to exercise an option to purchase at any time between occupancy and the end of the second year of occupancy.
36. On November 9, 2001, Plaintiff sent a letter to Defendant’s counsel. No cash, cashier’s check, or other form of payment accompanied the letter. The letter stated:
“This letter is our tender of the $4.1 million purchase price for the above building in accordance with the option to purchase Special Provision 12 of the Real Estate Lease Agreement between your client, Billard Properties, L.L.C. and the Kansas Highway Patrol.
“As of this date, we are ready and willing to purchase the property from your client. Unless you confirm, in writing, by November 14, 2001, that Billard Properties, L.L.C. will close on this transaction within thirty days of today, then the KHP will file an action for Declaratory Judgment and Specific Performance. We also reserve the right to file an action to confirm our belief that rent should cease, or be credited against the purchase price, for the time period from our tender date to the date of closing.”
37. Secretary Glasscock and Colonel Brownlee discussed the KHP’s desire that Secretary Glasscock request bond financing to exercise the purchase option. Prior to requesting bond financing, Secretary Glasscock required the KHP to inform her of the pros and cons of such a transaction.
38. On or about September 6, 2001, and after sending the purported notice of Plaintiff’s “intent to exercise” the purchase option, Colonel Brownlee sent a letter to Secretary Glasscock presenting the “Benefits” and “Disadvantages” of acquiring the Fleet Facility “upon possession.”
39. By letter dated October 3, 2001, Secretary Glasscock requested that the KDFA issue bonds to fund the acquisition of the Fleet Facility.
40. On November 14, 2001, Defendant reiterated its position that the Lease Agreement grants Plaintiff only an option to purchase the “premises subject to the lease” which Defendant stated would mean the “building and my client’s leasehold interest in the land.”
41. On September 28, 2001, Barbara Schilling, Architectural Project Manager of the Kansas Division of Architectural Services, inspected the Fleet Facility to determine if it was ready for KHP occupancy. By letter to Mr. Darling dated October 3, 2001, Ms. Schilling stated:
“I am attaching a punch list from my inspection of Friday, September 28, 2001. All items on the list are minor and should not prevent you from moving into the building. The critical items for moving into the building would be an active fire suppression system, ADA compliance and life safety issues. These items are all completed at this time.
“If you have any concerns over any of the items listed on the punch list, please call me.”
42. On November 15, 2001, Plaintiff acknowledged Defendant’s November 14, 2001 correspondence and objected to several items, including the proposed 180 days to closing that Defendant had offered.
43. On October 1, 2001, Defendant faxed to Plaintiff a Temporary Certificate of Occupancy for the Fleet Facility.
44. On November 26, 2001, Plaintiff responded to Defendant’s contention that Plaintiff only had an option to purchase Defendant’s leasehold interest by providing a copy of the November 15, 2000 correspondence from Ferrell Construction indicating the Highway Patrol would have the “option for six months to purchase the land, which is approximately 25 acres plus and the building for the sum of $4.1 million . . . .”
45. No written response to Plaintiff’s November 26, 2001 letter was received by Plaintiff from Defendant until January 30, 2002.
46. Defendant’s offer to change terms, pursuant to the October 3, 2001 letter of Paragraph 36, above, was conditioned upon Plaintiff’s agreeing that KHP’s date of occupancy was not later than September 28, 2001, the date Ms. Schilling inspected the Fleet Facility.
47. On February 26, 2002, Plaintiff contacted Defendant and inquired whether it had any interest in pursuing settlement of the disputed issues and also proposed new settlement terms.
48. Plaintiff did not accept Defendant’s offer to change the Lease Agreement’s terms as proposed in Defendant’s October 3, 2001 letter and has consistently disputed the date of Plaintiff’s occupancy of the Fleet Facility. Defendant has maintained that rent should be paid for the period from September 28, 2001 through October 7, 2001, while Plaintiff argues that it is only responsible for rent from a period beginning on October 8, 2001. The parties continue to dispute the date when occupancy occurred.
49. Rent payments owed by Plaintiff under the Lease Agreement were $40,844.68 per month, as calculated pursuant to Special Provision 11, which states:
“Lease payments per square foot are set forth as follows:
• Year 1-2 $6.08
• Year 3-6 $6.88
• Year 7-10 $7.18
• Year 11-13 $7.42
• Year 14-15 $7.56
• Year 16-20 $7.99
“Monthly or annual payment amounts will be determined using the square foot rates above, applied to the final square footage of the building. Lessee may determine the method of payment (monthly or annual) to be used. If the lease is terminated pursuant to paragraph 9 of this agreement, any unearned lease payments will be refunded to the lessee on a pro-rata basis. Lease payments and the lease term will not begin until the lessee occupies the premises.”
50. On October 9, 2001, Defendant’s original counsel notified Plaintiff by letter that Counsel would be representing Defendant, was reviewing previous correspondence between the parties and requested Plaintiff’s return of the CD provided by Mr. Brier as previously detailed in Paragraphs 2 & 4 above.
51. Commencing with the disputed rent payment for January 2002 and through September 2002, Plaintiff has paid into Court the amount of $40,844.68 per month for a total of $367,602.12. Plaintiff has also paid into Court the amount of $45,510.00, which represents the difference in the purchase price of the disputed property between purchase at occupancy and purchase at the end of one year of occupancy.
52. On or about October 13, 2001, Defendant received a letter from Plaintiff written by Dan Carroll, attorney at the Department of Administration, denying Defendant’s request that the CD be returned, and suggesting that the CD was submitted in lieu of a performance bond.
53. The parties have filed various motions during the course of this litigation. Specifically, Defendant filed a Motion for Deposit of Funds on May 30, 2002, to which Plaintiff and Defendant exchanged responses and replies, and Plaintiff filed a Motion to Compel Transfer of Property on July 17, 2002, to which Defendant answered and which the Court set for hearing on August 21, 2002.
54. On or about August 16, 2002, Defendant and Plaintiff entered into an agreement to convey the disputed property. The parties have preserved several issues for determination through litigation, pursuant to the terms of a letter from Robert North to Louis Eisenbarth dated August 16, 2002, as clarified by a letter from Louis Eisenbarth to Robert North dated August 19, 2002.
55. Paragraph 11 of the proposed Real Estate Sales Agreement included in Plaintiff’s correspondence of October 9, 2001, gives Plaintiff the “unilateral option” of terminating the agreement if bond financing is not made available.
56. Plaintiff’s proposed Real Estate Sales Agreement included in Plaintiff’s correspondence of October 9, 2001, requires the Department of Administration’s Director of Purchases’ approval to purchase the property.
57. Plaintiff’s proposed Real Estate Sales Agreement included in Plaintiff’s correspondence of October 9, 2001 asks that Defendant convey Defendant’s “right, title and interest to the Property”, requires that Defendant execute a “Warranty Deed”, and requires Defendant provide title insurance to Plaintiff.
58. Mr. Griggs testified that the proposed Real Estate Sales Agreement included in Plaintiff’s correspondence of October 9, 2001 was submitted to allow the parties to mutually agree to “[t]he details” of the conveyance, including the “closing date, matters pertaining to title insurance, time and place of closing. . . [and the] . . . type of deed.”
59. On or about October 26, 2001, Defendant received a letter from Mr. Griggs, which stated in pertinent part:
“Obviously, there are contingencies that have to be met before we can purchase the property. Those contingencies in no way effect the sufficiency of the notice provided by the State. The August 22, 2001 letter... gave sufficient legal notice of the Highway Patrol’s intent to exercise the purchase option as required by the lease agreement.”
And, further stated:
“If your client, for whatever reason, will not cooperate, we are prepared to tender performance of the purchase option, cease paying rent, and file a lawsuit against your client seeking a declaratory judgment and specific performance.”
60. On October 29, 2001, Defendant’s counsel sent a letter to Mr. Griggs informing him that Defendant’s counsel was willing to meet to discuss the parties’ disagreement regarding the validity of Colonel Brownlee’s purported notice; stated Defendant’s position that “[t]he lease agreement grants the State an option to purchase the interests which Billard Property Group, LLC has in the leased premises...”; and stated Defendant’s desire that the disputes regarding Plaintiff’s date of occupancy and Plaintiff’s refusal to return the CD be resolved.
61. Plaintiff’s rent payments for October and November 2001 were based on an incorrect square footage for the Fleet Facility, resulting in payments that were lower than Defendant’s expectations. Mr. Pratt notified Mr. Darling of the disparity. Plaintiff asked Ms. Schilling to check the square footage provided by Schwerdt Design Group and determine if Defendant’s claims as to the square footage and rent payments were accurate.
62. In a letter to Defendant dated November 1, 2002, Mr. Griggs stated that Plaintiff “accepts the 80,614.5 square foot calculation provided by the Schwerdt Design Group. The October and November rent payments will be adjusted accordingly and paid to Billard Properties, L.L.C.”
63. Mr. Griggs testified that financing necessary to purchase the disputed property was not “funded” until November 2, 2001.
64. On Friday, November 2, 2001, Defendant’s counsel sent a letter to Mr. Griggs that stated:
“I have been authorized to draft and submit to you a real estate purchase agreement with regard to my client’s property interest in the Highway Patrol Building at Billard Airport. We do not, however, concede that the notice given by your clients was adequate to fulfill the requirements of the purchase option. We merely want to see this transaction proceed.”
65. On Monday, November 5, 2001, Defendant’s counsel sent Mr. Griggs a letter reiterating Defendant’s position that Colonel Brownlee’s purported notice of intent was not sufficient, and attaching a proposed agreement to sell Defendant’s interest in the disputed property. The proposed agreement purports to “sell and convey any and all of [Defendant’s] leasehold interest” and further states that Defendant will deliver to Plaintiff a “duly executed and acknowledged Special Leasehold Warranty Deed . . . .”
66. By letter dated November 8, 2001, Mr. Griggs did not accept Defendant’s proposal of November 5, 2001, offering to convey Defendant’s leasehold interest, and stated Plaintiff expected Defendant to exercise its MTAA options and deliver “fee” title to the disputed property. Mr. Griggs’ correspondence stated that Plaintiff did not, at that time, have a completed appraisal of the disputed property as required by K.S.A. 75-3043a, but expected to “receive the appraisal . . . this week.”
67. As of the November 9, 2001 letter of Mr. Griggs regarding tender of payment, Defendant had not received the October and November rent adjustments promised in Mr. Griggs’ November 1, 2001 letter.
68. On November 14, 2001, Defendant’s counsel sent a letter to Mr. Griggs reiterating that Defendant was “committed to the sale” to Plaintiff, and asking Plaintiff to submit proposed changes to Defendant’s proposed agreement of November 5, 2001.
69. Defendant further explained that Defendant’s interest in the disputed property was subject to the lease between Defendant and the MTAA and stated: “There is no language in the lease or option provision which requires my client to exercise its option to purchase the real estate from the MTAA. The Highway Patrol was very aware of the nature of my client’s leasehold interest in the land.”
70. On November 15, 2001, Plaintiff submitted a letter and another draft contract to Defendant that required Defendant to deliver a “Warranty Deed” to the disputed property. Plaintiff’s letter stated in part: “There are several issues over which the parties continue to disagree and which will require a court to resolve.”
71. Mr. Griggs testified that the Lease Agreement between the Plaintiff and Defendant does not contain a description of the title to be conveyed from Defendant to Plaintiff.
72. On or about May 31, 2002, Mr. Griggs provided a copy of a facsimile from Capital Title Insurance Company, L.C., of a draft title commitment purporting to provide terms under which Capital Title would insure Plaintiff’s title in the disputed property. Said commitment was conditioned upon the MTAA and Defendant providing “Warranty Deeds.”
STANDARD OF REVIEW
K.S.A. 60-256 governs Motions for Summary Judgment. It provides in pertinent part:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, 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.
K.S.A. 60-256(c). See also McGee v. Chalfant, 248 Kan. 434, 806 P.2d 980 (1991); Schmidt v. HTG, Inc., 265 Kan. 372, 961 P.2d 677 (1998).
The burden on the movant is a strict one. A party opposing summary judgment has a duty to come forward with sufficient facts to demonstrate the existence of a genuine issue of material fact for trial. See K.S.A. 60-256(e); Morrison v. Watkins, 20 Kan. App. 2d 411, 416, 889 P.2d 140 (1995). A party opposing a motion for summary judgment must come forward with evidence to establish a dispute as to a material fact. Irvin v. Lindall E. Smith, M.D., 31 P.3d 934, 940 (2001).
ANALYSIS
Plaintiff’s Option to Purchase
Defendant proffers that Plaintiff failed to provide sufficient notice of its intent to exercise the purchase option because: Colonel Brownlee’s August 22, 2001 letter did not contain payment, it did not specify a date for closing, it did not specify the nature of title to be conveyed, the letter itself was “conditional”, and that it was not an actual exercise of the option. This Court does not accept these assertions. It is also important to note that while this judicial opinion is made lengthy by the stipulated facts portion, the two primary issues in this case are very straightforward. As such, this Court will attempt to keep the analysis in this matter concise.
The Kansas Supreme Court held in Anderson v. Overland Park Credit Union, 231 Kan. 97, Syl. 2 (1982) that, “an option agreement to sell and convey becomes absolute and binding on both parties when the option is accepted by the vendee within the time and on the terms specified.” Moreover, it is required that the acceptance of an offer to sell under an option must only be exercised in accordance with the terms of the offer, which includes time limitation. This does not however necessitate that the option be exercised, title papers examined, purchase price paid, and the sale closed within the option period, unless those requirements are indicated in the option agreement. Loose v. Brubacher, 219 Kan. 727 (1976).
Defendant also argues that because Colonel Brownlee stated in his letter Plaintiff’s intention to exercise the purchase option, rather than overtly expressing the intent, the letter fails to provide sufficient notice of the purchase because of some conditional nature. It is well settled law that “[N]otice of intent to exercise an option is sufficient to bind the optioner.” Id, at 732.
The Anderson Court also set forth the rule that all “essential terms” within an option agreement be specified and that nonessential terms may be imposed by law. Anderson, 231 Kan. at 104. The essential terms specified in the Lease Agreement were the names of the parties, the description of the real estate and the consideration to be paid. It was also not necessary for Plaintiff to have included payment in the August 22, 2001 letter because Special Provision 12 of the Lease Agreement did not provide for that action. “Payment or tender of a contract price is not essential to acceptance unless the option agreement makes such payment a condition precedent to or a part of or necessary to the exercise of the option. In such a case, payment may be made within a reasonable time after acceptance.” Loose, supra, Syl. 3. As such, Plaintiff’s November 9, 2001 letter of tender was sufficient.
Defendant’s argument that Colonel Brownlee, as the acting head of the KHP, lacked authority to exercise the purchase option is an incorrect interpretation of state agency authority. The KHP, as an agency in the executive branch, possesses implied powers which enable that agency to conduct its everyday business. Implied powers are “such additional powers as are necessary for the due and efficient exercise of the powers expressly granted, or as may be fairly implied from the statute granting the express powers.” State ex rel. v. Younkin, 108 Kan. 634, 638 (1921) (quoting Comm’rs of Brown co. v. Barnett, 14 Kan. 627).
In addition to the implied powers that Plaintiff has in its possession, as of August 22, 2001, (1) the Governor’s Office, (2) the Budget Division, (3) the Legislature, and (4) the Secretary of Administration, along with the Directors of the Divisions of Purchases, Facilities Management, and Accounts and Reports had already approved the Plaintiff’s acquisition of the land and building. A state agency has implied powers to do everything necessary to carry out the power bestowed upon it by the Legislature. As of the date the letter was sent, Plaintiff had express approval from the Legislature in Chapter 216, Section 49 of the 2001 Session Laws through the issuance of bonds and implied authority to acquire the building and land.
Furthermore, in the event that funding would not have been approved through the Legislature, it is apparent that Plaintiff had alternative financing arrangements. Those financing arrangements included borrowing funds from the Pooled Money Investment Board and purchasing the property out of its operating budget.
Defendant, it order to further the argument that Colonel Brownlee lacked authority to exercise the purchase option, also relies on a letter from then Secretary of Administration Dan Stanley to Colonel Brownlee dated August 22, 2001. The content of Stanley’s letter centers on questioning Colonel Brownlee’s timeliness in exercising the purchase option based on other potential state needs. In no way does this letter defeat Colonel Browlee’s authority or his letter to exercise the purchase option. It merely reflects his concerns after reading an article in the newspaper regarding KHP’s intent to purchase the building.
The Court is left to ponder why Defendant was even sent a copy of an intra-agency letter expressing Stanley’s concerns. While it has been suggested by the Plaintiff that Stanley’s close personal relationship with some of the partners of Billard may be at play, there has been no evidence put forth that supports the Court making such a finding. In spite of its contents, however, this letter does not in any way further Defendant’s attempt to portray Colonel Brownlee as somehow lacking the authority to exercise the purchase option. Stanley’s letter was one merely contemplating potential future events.
While this portion of the dispute centers on the level of acceptance that must be attained to exercise the purchase option in the Lease Agreement, it is clear to this Court that Colonel Brownlee, in his August 22, 2001 letter, gave adequate legal notice of Plaintiff’s intent to exercise the purchase option.
The basis of decision on this issue flows directly from the language contained in Special Provision 12 of the Lease Agreement itself. That language, which is already presented above, again reads as “At the point of occupancy, and for a period of six months thereafter, lessee may, by providing notice at least 30 days prior to occupancy, purchase land, buildings, and furnishings for a price of $4,100,000 or $51.18 per square foot, whichever is less . . . .” This provision, through its literal interpretation, simply states that if Plaintiff gives sufficient notice within a specific time frame that the option to purchase would then be effective. The question of whether the notice was adequate has been answered in the affirmative, meaning that the details of that purchase were apparently to be negotiated over a period of time commencing after the notice was effective.
It is also important to note that if the parties’ positions were somehow reversed, this case could turn out differently, but would be premised on the same legal principles. This Court could envision a situation where Plaintiff had given identical notice, as in the present situation, to exercise the purchase of said property and then decided to back out. Defendant then sues in order to force Plaintiff to complete the sale. In this hypothetical situation, the Defendant would then prevail because Plaintiff’s notice to exercise the purchase option was sufficient.
Date of Occupancy
Special Provision No. 11 to the Lease Agreement states “Lease payments and the lease term will not begin until the Lessee occupies the premises.” Occupancy is defined as “The act, state or condition of holding, possessing, or residing in or on something; actual possession, residence, or tenancy, esp. of a dwelling or land. Black’s Law Dictionary 883 (Abridged 7th ed. 2000). Similarly, an occupant is defined as “One who has possessory rights in, or control over certain property or premises. Id.
The second issue of this dispute is simply a question of when Plaintiff became the occupant of the Fleet Facility. Defendant contends that Plaintiff occupied the premises as of September 28, 2001 because an occupancy permit was issued on that date for the Fleet Facility. Additionally, Defendant maintains Plaintiff occupied the premises in late September because supplies and equipment were moved into the Fleet Facility prior to October 8, 2001, which is the date Plaintiff claims that occupancy began.
Contrary to Defendant’s claims, Plaintiff states that even after a permit for occupancy had been issued, there were still a number of items that had not been completed which actually prevented occupancy. Once notification that the building was suitable for occupation, Plaintiff received a letter on October 4, 2001 from Barbara Schilling, Department of Administration, Architectural Project Manager, to Mr. Darling of the KHP (Plaintiff), which was dated October 3, 2001. After receiving this letter which stated that the Fleet Facility was ready for occupancy, Mr. Darling then advised Defendant on October 5, 2001 that Plaintiff would move in on the following workday, which was October 8, 2001. In short, Plaintiff acted with reasonable diligence in notifying Defendant that it was ready to occupy the Fleet Facility once the letter from Ms. Schilling had been received.
It is important to note that Plaintiff did not receive a key to the Fleet Facility until October 8, 2001. Equally important, the supplies and equipment Defendant claims Plaintiff stored on the site merely consisted of fire alarm equipment, air compressor parts, toilet paper, broom sticks and squeegees for cleaning purposes. Moreover, it is also significant that no staff of Plaintiff’s were stationed at the Fleet Facility prior to October 8, 2001. Based on these submitted facts, the Court finds that Plaintiff did not effectively occupy the premises of the Fleet Facility until October 8, 2001.
It is clear to this Court that based on the language in Special Provision No. 11, Plaintiff could not have been an occupant of the Fleet Facility prior to October 8, 2001. The act of occupying signifies that one has possession of a certain area. Likewise, the role of an occupant is one that encompasses possessory control over that area or premises.
In this case, Plaintiff merely had a variety of cleaning supplies, fire alarm equipment and parts for an air compressor on the premises. Prior to October 8, 2001, Plaintiff had no staff members assigned to the Fleet Facility. In short, there was no true affirmative act made on the part of Plaintiff to occupy the site in question prior to October 8, 2001. In fact, Plaintiff gave notice to Defendant that no attempt at occupation of the premises until October 8, 2001.
However, the most important fact submitted to this Court is that Plaintiff did not have a key with which to enter and exit the premises at will. The mere fact of a party possessing a key to an area is a symbol of that party exercising control over the premises or at the very least the right to come and go at will. It has not been presented to this Court that Plaintiff possessed that right until October 8, 2001 and the mere presence of a few supplies in the Fleet Facility rise to the level of actual occupation.
For all relevant purposes, Plaintiff occupied the Fleet Facility as of October 8, 2001, when it received a key to the premises. There is no genuine dispute of facts here which would preclude summary judgment in favor of Plaintiff.
CONCLUSION
This Court acknowledges that this has been a bitter and protracted dispute between Plaintiff and Defendant over a period of time. However, the law is clear and coupled with the stipulated facts have convinced this Court that this matter can attain resolution through the parties’ motions for summary judgment. It is also important to again note that while the parties have raised a plethora of issues and arguments, there are essentially only two issues to be addressed, from which all other sub-issues originate.
Based on the foregoing reasons, the Court finds and concludes that Plaintiff sufficiently exercised its option to purchase and therefore all rents ceased as of the November 9, 2001 letter of tender and all rentals paid after that date to Defendant are hereby ordered to be returned to Plaintiff by the Clerk of the District Court. In addition, Plaintiff is entitled to the amount which constitutes the difference in exercising the purchase option at the point of occupancy and after year one. As such, Defendants are entitled to $44,313.72, the amount of rent paid from October 8, 2001 to November 9, 2001. This amount is calculated based upon a per day rental rate of $1,342.84 (based upon an annual rent of $490,136.16 divided by 365 days). All remaining funds paid in to the Clerk of the District Court shall be returned to Plaintiff.
The Court also finds and concludes that Plaintiff effectively occupied the Fleet Facility on and not prior to October 8, 2001. Coupled with this decision and according to Special Provision No. 11 of the Lease Agreement, lease payments are deemed to have began with Plaintiff’s occupation of the Fleet Facility on October 8, 2001.
This Memorandum Decision and Order shall serve as the Order of the Court, no further journal entry being required. Dated this ______ day of January 2003.
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Eric S. Rosen
District Court Judge