Terra Venture, Inc. v. JDN Real Estate-Overland Park, L.P.

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
April 7, 2006
UNITED STATES COURT OF APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT

TERRA VENTURE, INC.; TERRA
VENTURE REALTY, INC.,
Plaintiffs - Appellants,
v. No. 04-3492
JDN REAL ESTATE-OVERLAND
PARK, L.P., a Georgia Limited
Partnership; JDN REALTY
CORPORATION, a Georgia
corporation; JDN DEVELOPMENT
COMPANY, INC., a Delaware
corporation; BELLE MEADE
ACQUISITION CORPORATION, a
Georgia corporation; DEVELOPERS
DIVERSIFIED REALTY
CORPORATION,
Defendants - Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
(D.C. No. 02-CV-2593 GTV)

William M. Modrcin (Erin N. Schmidt with him on the briefs), Stinson Morrison
Hecker LLP, Kansas City, Missouri, for Plaintiffs-Appellants.

Robert W. Tormohlen (Leland H. Corley with him on the brief), Lewis Rice &
Fingersh, L.C., Kansas City, Missouri, for Defendants-Appellees.

Before LUCERO, McKAY, and McCONNELL, Circuit Judges.
McKAY, Circuit Judge.

This lawsuit concerns the division of labor and capital associated with 100

acres of undeveloped property in Overland Park, Kansas. Originally, Plaintiffs

entered into an agreement to purchase this plot of land from a company called

Ranch Mart, Inc. However, before closing with Ranch Mart, Plaintiffs entered

into an agreement with Defendants whereby Plaintiffs assigned their rights and

interests in the land to Defendants (“Assignment Agreement”). Plaintiffs

conveyed all of their rights in the land to Defendants, and Defendants became the

owners of the property.

The plan was to develop the land as commercial real estate. Plaintiffs

signed an additional agreement with Defendants which appointed Plaintiffs as the

exclusive selling and leasing agent for the project, paid to Plaintiffs a $300,000

development fee, and offered a conditional earnout fee to Plaintiffs, payable only

if the project achieved certain profits levels (“Fee Agreement”). Defendants paid

the development fee to Plaintiffs, reimbursed Plaintiffs for pre-development

expenses, and paid Plaintiffs in excess of $250,000 in market commissions on

sales and leases of property within the project.

Notably, the Fee Agreement indicated that the project should be referred to

as a “joint venture” of Plaintiffs and Defendants in “press releases in industry and

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financial publications . . . .” Memorandum and Order, 6 (D. Kan. Oct. 14, 2004).

The Fee Agreement also contained several “Miscellaneous” clauses, including the

following:

8.e. This Agreement contains the entire agreement of the parties
hereto with respect to the subject matter hereof, and no
representations, inducements, promises, or agreements, oral or
otherwise, between the parties not embodied herein or incorporated
herein by reference shall be of any force or effect.
8.g. No amendment to this Agreement shall be binding on any of the
parties hereto unless such amendment is in writing and is executed by
the party against whom enforcement of such amendment is sought.
8.h. Time is of the essence of this Agreement.

Id. (emphasis added).

Plaintiffs claim that they were led to believe, through oral representations,

that Defendants would develop the property and that the construction period

would last about one year. See id. at 7. It is uncontroverted, however, that the

Fee Agreement contained no express provision requiring Defendants to develop

the property at all, much less within a finite time. Nonetheless, Defendants did

take on the development and construction of the property. The project suffered

numerous delays, some of which might have been caused when the Securities and

Exchange Commission forced the CEO of one of Defendant companies to resign.

At present, there are several retailers and businesses located on the property.

Plaintiffs maintain that Defendants were expressly obligated to develop this

property within a finite time and that their failure to adequately perform breached

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both their contractual and fiduciary duties. Plaintiffs argue that they are also

owed for leasing commissions and an accounting.

The district court granted summary judgment for Defendants on all claims,

and it is from this judgment which Plaintiffs now appeal. The district court

properly applied Kansas law to this diversity jurisdiction case.

We review grants of summary judgment de novo, “applying the same legal

standard used by the district court.” Cirulis v. UNUM Corp., 321 F.3d 1010, 1013

(10th Cir. 2003). Under Federal Rule of Civil Procedure 56(c), summary

judgment is appropriate “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.” In order to determine whether the case presents any

issue of material fact, “we view the evidence and draw all reasonable inferences

therefrom in the light most favorable to the party opposing summary judgment . . .

.” Martin v. Kansas, 190 F.3d 1120, 1129 (10th Cir. 1999). “A fact is ‘material’

if, under the governing law, it could have an effect on the outcome of the

lawsuit,” and “[a] dispute over a material fact is ‘genuine’ only if a rational jury

could find in favor of the nonmoving party on the evidence presented.” Sports

Unlimited, Inc. v. Lankford Enters., Inc., 275 F.3d 996, 999 (10th Cir. 2002). To

avoid summary judgment, the nonmovant must make a showing sufficient to

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establish an inference of the existence of each element essential to the case with

respect to which that party has the burden of proof. Celotex Corp. v. Catrett, 477

U.S. 317, 321 (1986); Foster v. AlliedSignal, Inc., 293 F.3d 1187, 1192 (10th Cir.

2002). Further, we may “affirm a grant of summary judgment on grounds other

than those relied on by the district court when the record contains an adequate and

independent basis for that result.” Bones v. Honeywell, Int’l, Inc., 366 F.3d 869,

875 (10th Cir. 2004).

Plaintiffs argue that the district court erred in determining that Defendants

had no duty to develop the property. Our review of the record supports that no

provision in the Fee Agreement or Assignment Agreement obligated Defendants

to develop the property. Where, as here, a contract is unambiguous, we will not,

under the guise of contract interpretation, write a new contract for the parties to

achieve some perceived equitable result for which the parties themselves did not

bargain. Meiners v. Univ. of Kan., 239 F. Supp. 2d 1175, 1199 (D. Kan. 2002),

aff’d, 359 F.3d 1222 (10th Cir. 2004); Wood River Pipeline Co. v. Willbros

Energy Servs. Co., 738 P.2d 866, 871 (Kan. 1987) (“[W]ords cannot be written

into the agreement imparting an intent wholly unexpressed when it was

executed.).

In addition, the Fee Agreement contained a clause that expressly limited

any oral representations or “understandings” from being given force or effect.

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See Memorandum and Order, 6. Therefore, while in instances where the contract

is unambiguous and we determine the meaning of the contract exclusively from

the document itself, we are even more firmly bound here by a clause which

expressly prohibits incorporating verbal representations into the contract.

Plaintiffs also point to the “time is of the essence” provision in paragraph

8(h) of the Fee Agreement to suggest that it reflect the parties’ intention that

Defendants develop the project in a “timely” manner. This suggestion misses the

mark: the “time is of the essence provision” applies only to obligations actually

created in the Fee Agreement, not to nonexistent terms. As the Second Circuit

explained:

A “time is of the essence” clause in a contract does not in itself
ordinarily impose an independent time constraint on one or both of
the parties to the contract. Its commonly understood meaning is that
insofar as a time for performance is specified in the contract, failure
to comply with the time requirement will be considered to be a
material breach of the agreement.

Retrofit Partners I, L.P. v. Lucas Indus., Inc., 201 F.3d 155, 160 (2d Cir. 2000).

Alternatively, Plaintiffs claim that having once begun developing the

property, Defendants assumed a duty to continue under the implied covenant of

good faith and fair dealing.

[I]n order to prevail on an implied duty of good faith and fair dealing
theory under Kansas law, plaintiffs must (1) plead a cause of action
for breach of contract, not a separate cause of action for breach of
duty of good faith, and (2) point to a term of the contract which the
defendant allegedly violated by failing to abide by the good faith

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 spirit of that term.

Wayman v. Amoco Oil Co., 923 F. Supp. 1322, 1359 (D. Kan. 1996) (internal

quotations omitted). “The implied covenant is derivative in nature in that it does

not create or supply new contract terms, but it grows out of existing ones.”

Kindergartners Count, Inc. v. DeMoulin, 249 F. Supp. 2d 1233, 1243 (D. Kan.

2003); Bank IV Salina, N.A. v. Aetna Cas. & Sur. Co., 810 F. Supp. 1196, 1204

(D. Kan. 1992) (“The duty of good faith assumes the existence of a contractual

right; it does not create one.”). We agree with the district court that, because “the

Fee Agreement did not impose an obligation for Defendants to develop the land,

such an obligation cannot be created through application of the implied

covenant.” Memorandum and Order, 19.

Plaintiffs have attempted to make an impossible and impermissible leap

from the parties’ understanding that Defendants might develop the project to the

creation of an express provision obligating Defendants to develop the project

within a specific time. We cannot conclude that Defendants’ failure to develop

the property at a particular rate of time breached any contract provision.

Plaintiffs next argue that Defendants breached their fiduciary duty by

failing to develop the property in a timely manner. Under Kansas law, “[a]

fiduciary relation . . . exist[s] in cases where there has been a special confidence

reposed in one who, in equity and good conscience, is bound to act in good faith

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and with due regard to the interests of the one reposing the confidence.” Denison

State Bank v. Madeira, 640 P.2d 1235, 1237 (Kan. 1982). Kansas courts have

recognized two types of fiduciary relationships:

(1) those specifically created by contract such as principal and agent .
. . and those created by formal legal proceedings such as guardian
and/or conservator . . . and (2) those implied in law due to the factual
situation surrounding the involved transactions and the relationship
of the parties to each other and to the questioned transactions.

Id. at 1241 (emphasis added). We have held that “conscious assumption of the

alleged fiduciary duty is a mandatory element under Kansas law.” Rajala v.

Allied Corp., 919 F.2d 610, 615 (10th Cir. 1990). An ordinary business

relationship should not be construed as a fiduciary relationship, absent clear

intent by the parties. Gottstein v. Nat’l Ass’n for Self Employed, 53 F. Supp. 2d

1212, 1222 (D. Kan. 1999) (citing Denison, 640 P.2d at 1243-44).

We first consider whether the parties, by calling the project a “joint

venture” in press releases, created a fiduciary relationship. We note that “[u]nder

Kansas law, in general, a ‘fiduciary duty’ exists among joint venturers.” In re

Klippel, 183 B.R. 252, 259 (Bankr. D. Kan. 1995) (citing First Nat’l Bank &

Trust v. Sidwell Corp., 678 P.2d 118 (Kan. 1984)). We do not believe the record

supports a finding that Plaintiffs and Defendants had, in fact, formed a joint

venture at all. “A joint adventure is defined in general terms to be a special

combination of two or more persons devoted to a specific enterprise in which

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profit is jointly sought without actual partnership or corporate designation. The

relationship may arise from express contractual provisions or out of acts and

conduct.” Opco, Inc. v. Scott, 321 F.2d 471, 473 (10th Cir. 1963) (citation

omitted). “When the relationship of joint adventurers exists, the parties stand in a

close relationship of trust and confidence and are bound by the same standards of

good conduct and square dealing as are required of partners.” Amoco Prod. Co. v.

Charles B. Wilson, Jr., Inc., 976 P.2d 941, 949 (Kan. 1999) (quotation omitted).

The factors for determining whether a joint venture exists are:

(1) the joint ownership and control of property; (2) the sharing of
expenses, profits, and losses, and having and exercising some voice
in determining the division of net earnings; (3) a community of
control over and active participation in the management and direction
of the business enterprise; (4) the intention of the parties, express or
implied; and (5) the fixing of salaries by joint agreement.

Modern Air Conditioning, Inc. v. Cinderella Homes, Inc., 596 P.2d 816, 823

(Kan. 1979).

Plaintiffs admit that there was no joint ownership and control of the

property. As to the second factor, it is noted that Defendants paid all expenses on

the project and reimbursed Plaintiffs for pre-development expenses incurred.

While Plaintiffs were eligible for a conditional earnout fee, they received a

$300,000 development fee regardless of whether the project lost money, and

Plaintiffs had no voice in determining the division of net earnings. With respect

to the third factor, Plaintiffs had very little control over the project (no veto or

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approval of leases or sales, no role in development of property) other than being

the exclusive marketing agent of the property. The fourth factor, the intention of

the parties, points to their holding themselves out to the public (in press releases)

as a joint venture, but they made no other substantive step to form this

relationship. Finally, the fifth factor, the fixing of salaries, is not met because

Plaintiffs had no control over the salaries paid to Defendants.

Based on the analysis of the above factors, we agree with the district court

that the parties did not intend to form a joint venture and, therefore, that

Defendants did not undertake a fiduciary duty.

We next consider whether a fiduciary duty existed by virtue of the parties’

conduct–a fiduciary duty implied in law. Plaintiffs claim that, because

Defendants controlled so very much of the project (the development, leases and

sales, and potential earnout fee), Defendants assumed a duty to act on behalf of

Plaintiffs. But the record supports that Defendants were acting in their own

financial interests and not with any paternal consideration for Plaintiffs’

pecuniary gain. We do not presume the existence of fiduciary duties and extend

them to commercial transactions, where parties deal at arm’s length for their

mutual profit. PulseCard, Inc. v. Discover Card Servs., Inc., 917 F. Supp. 1488,

1493 (D. Kan. 1996). The fiduciary relationship is one that is unique and

extremely useful in our society; we will not determine that it is “implied in law”

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with great ease or frequency, and certainly not with the facts alleged by Plaintiffs

in this case.

Finally, Plaintiffs contend that “[t]he district court granted summary

judgment in favor of [Defendants] on plaintiffs’ claims for leasing commissions

and an accounting solely on the basis that it had determined that [Defendants] had

no duty to develop the property.” Aplt. Br. at 37 (emphasis added). The district

court based its decision on more than its finding of no duty. Plaintiffs bear the

burden of presenting, with reasonable certainty, their damages for loss of future

profits. See Source Direct, Inc. v. Mantell, 870 P.2d 686, 694 (Kan. 1994). The

district court twice admonished Plaintiffs for failing to present evidence sufficient

for the court to review a claim for damages. See Memorandum and Order, 24.

Here, we are left in the same quandary; Plaintiff’s entire argument that they are

owed an accounting comprises two sentences of their thirty-seven-page brief and

fails to direct this court to any relevant document or citation to any legal

authority. In addition, Plaintiff’s district-court-submission of a pro forma dated

February 10, 1999, as the sole evidentiary support for damages is blatantly

speculative and problematic. See MLK, Inc. v. Univ. of Kan., 940 P.2d 1158,

1162 (Kan. 1997); Source Direct, 870 P.2d at 693. We therefore affirm the

district court’s grant of summary judgment to Defendants with respect to the

leasing commissions and accounting claims.

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We AFFIRM the judgment of the district court.

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