Kennedy v. Dawson

No

No. 98-583

IN THE SUPREME COURT OF THE STATE OF MONTANA

1999 MT 265

296 Mont. 430

989 P.2d 39

JAMES C. KENNEDY,

Plaintiff/Respondent/Cross-Appellant,

v.

MELVIN E. DAWSON, PETER FORMANEK,

JOHN DOES 1 AND 2, and all other persons

known who claim, or might claim right, title,

estate or interest in, or lien or encumbrance

upon, the real property described in the

Complaint, or any thereof, whether such claim

or possible claim, be present or contingent,

Defendants/Appellants.

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APPEAL FROM: District Court of the Fourteenth Judicial
District,

In and for the County of Meagher,

The Honorable Roy C. Rodeghiero, Judge presiding.

COUNSEL OF RECORD:

For Appellants:

Glenn E. Tremper and James E. Conwel, Church, Harris, Johnson &

Williams, P.C.; Great Falls, Montana

C. Thomas Cates, Burch, Porter & Johnson, P.L.L.C.;

Memphis, Tennessee

For Respondent:

Lance Lovell and Richard W. Josephson, Josephson & Fredericks;

Big Timber, Montana

Sean Smith and R. Dale Hughes, Dow, Lohnes & Alberton, P.L.L.C.;

Atlanta, Georgia

Submitted on Briefs: May 13, 1999

Decided: November 2, 1999

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Filed:

__________________________________________

Clerk

Justice Jim Regnier delivered the opinion of the Court.

¶ On June 12, 1997, James C. Kennedy filed a complaint against the Defendants in
the Fourteenth Judicial District Court, Meagher County. Over a year later, the
parties moved for summary judgment. Following a hearing on the motions for
summary judgment, the District Court granted summary judgment in favor of
Kennedy. The parties appeal from the District Court's decision. We affirm in part
and reverse in part.

¶ We restate the issues presented on appeal as follows:

¶ 1. Did the Appellants waive their right to appeal when they voluntarily satisfied the
District Court order without seeking a stay of execution and posting a supersedeas
bond?

¶ 2. Did the District Court err when it concluded that the right of first refusal had
been properly exercised?

¶ 3. Did the District Court err in awarding Dawson $100,000 pursuant to the profit
sweep provision of the agreement?

¶ 4. Did the District Court err when it declined to award Kennedy his attorney's fees
and costs as the prevailing party?

FACTUAL BACKGROUND

¶ In November 1973 Melvin E. Dawson, along with his wife, sold property located in
Meagher County, referred to as the "High Range," to A. C. and Shirley Warnack
and Kenneth McDonald (hereinafter Warnack/McDonald). As part of this
transaction, Warnack/ McDonald had also attempted to purchase additional

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property owned by Dawson located on the Smith River, known as the Tenderfoot,
but Dawson was unwilling to sell at that time. Instead, the Dawsons agreed to grant
Warnack/McDonald a right of first refusal on the Tenderfoot as part of the
transaction to purchase the High Range.

¶ This right of first refusal provided that if the Dawsons desired to sell the
Tenderfoot, Warnack/McDonald shall have the right of first refusal to purchase the
property on the same terms and conditions as any bona fide offer the Dawsons chose
to accept. This right further provided that Warnack/McDonald shall have 20 days
from the receipt of a copy of the offer within which to purchase the property on the
same terms and conditions as set forth in the bona fide offer.

¶ After 1973 Dawson received numerous inquiries from potential purchasers
regarding the Tenderfoot. In each instance, Dawson informed the potential
purchaser of the existence of the Warnack/McDonald right of first refusal and that
any offer he accepted would be subject to that right.

¶ In approximately 1991 Peter Formanek of Memphis, Tennessee became interested
in acquiring the Tenderfoot from Dawson. Formanek was aware of the Warnack/
McDonald right of first refusal on the Tenderfoot from the outset of his negotiations
with Dawson. Beginning in 1992 Formanek made written offers to Dawson for the
purchase of the Tenderfoot, but none of these offers was accepted by Dawson until
1996.

¶ In December 1993 Formanek forwarded a draft agreement to Dawson for the
purchase of the Tenderfoot. This draft agreement contained two provisions, which
were dubbed "the poison pill" by Formanek in a note to Dawson's counsel that
accompanied the draft agreement. The first provision, which has been referred to as
a profit sweep provision, provided that if the purchaser of the Tenderfoot were to
resell the property in excess of the $1,000,000 purchase price within three years,
Dawson would be entitled to the sale proceeds in excess of $1,000,000. The second
provision provided that if the purchaser or other owner of the Tenderfoot desired to
sell to anyone other than Formanek or his family within three years, Dawson would
have the right of first refusal to purchase the property on the same terms and
conditions.

¶ These poison pill provisions remained essentially unchanged in the various draft

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agreements exchanged between Formanek and Dawson from December 1993 to
December 1996, with the exception of an increase in the time period from three years
to five years. In December 1996 Dawson accepted a written contract from Formanek
for the purchase of the Tenderfoot.

¶ On December 27, 1996, Dawson's counsel notified Warnack/McDonald and their
attorney that Dawson had accepted a bona fide offer for the sale of the Tenderfoot
and that Warnack/McDonald had 20 days within which to exercise their right of first
refusal. Dawson's counsel also advised Warnack/McDonald that their office had
provided Dawson with the opinion that the Warnack/McDonald right of first refusal
was an unreasonable restraint upon Dawson's property. In addition, the letter stated
that Dawson was not waiving any right to claim that the right of first refusal was
ineffective or unreasonable in the future by providing notice of the offer to Warnack/
McDonald.

¶ On January 14, 1997, Warnack/McDonald's attorney informed Dawson's counsel
of Warnack/McDonald's intent to exercise their right of first refusal on the
Tenderfoot. This letter advised that Warnack/McDonald accepted and agreed to
purchase the Tenderfoot at the price and on the terms and conditions offered in the
Formanek/Dawson Agreement to Sell and Purchase Real Property. In addition,
Warnack/McDonald's attorney noted that the inclusion of the provisions contained in
paragraph 13 (the poison pill provisions) were an attempt to deny the Warnack/
McDonald right of first refusal and were an obvious effort to dissuade purchase of
the Tenderfoot by Warnack/McDonald.

¶ Immediately following Warnack/McDonald's exercise of their right of first refusal,
Dawson's counsel informed the escrow company of the exercise of the right of first
refusal. At the same time, Dawson's counsel directed the escrow company to accept
Warnack/ McDonald's earnest money and requested return of Formanek's earnest
money.

¶ On January 20, 1997, Warnack/McDonald's attorney forwarded a draft agreement
along with a letter of explanation to Dawson's counsel, containing certain proposed
changes to the Formanek/Dawson agreement. Warnack/McDonald's attorney
specifically omitted the paragraph containing the right of first refusal to Dawson
stating that it conflicted with the profit sweep provision and that it would revive the
Warnack/McDonald right of first refusal making it an unworkable and circuitous

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provision.

¶ More than a month later, on February 28, 1997, Dawson's counsel advised
Warnack/ McDonald's attorney that the draft agreement was acceptable in its form
with only a couple of changes and additions. This letter made no mention of the
omission of Dawson's right of first refusal in the draft agreement. In fact, this letter
indicated that in all other respects, the contract was just fine and that if Warnack/
McDonald's attorney would draft it with the suggested changes, Dawson's counsel
would have Dawson execute it.

¶ On March 4, 1997, Warnack/McDonald's attorney forwarded another draft
agreement, containing the suggested changes, to Dawson's counsel. On March 7,
1997, Dawson's counsel wrote to Warnack/McDonald's attorney requesting that the
previously omitted right of first refusal be reinstated. Following this request, counsel
for the parties exchanged correspondence discussing the propriety of Dawson's right
of first refusal.

¶ In mid-March 1997 Dawson's counsel received a letter from Kennedy's attorney
advising that Kennedy, a resident of Atlanta, Georgia, had been working with
Warnack/McDonald to acquire the Tenderfoot. This letter identified Kennedy and
set forth a settlement proposal to expedite a closing between Dawson and Warnack/
McDonald so that Kennedy could ultimately acquire the Tenderfoot from Warnack/
McDonald.

¶ Unbeknownst to Dawson or his counsel, Kennedy's attorneys in Atlanta had been
communicating with Warnack/McDonald's attorney regarding the exercise of the
right of first refusal in an attempt to acquire the Tenderfoot for Kennedy. As part of
these communications, Kennedy agreed to pay Warnack/McDonald $100,000 upon
closing if he was ultimately successful in acquiring the Tenderfoot.

¶ From mid-March through mid-April, 1997, the parties continued to prepare for
closing on the purchase and sale of the Tenderfoot. At no point did Dawson's counsel
object to Kennedy's involvement in the transaction. In early April 1997 Dawson's
counsel requested and received a copy of a research memorandum prepared by
Kennedy's attorneys analyzing the propriety of the provisions contained in
paragraph 13.

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¶ On April 15, 1997, Warnack/McDonald executed an assignment of their right of
first refusal on the Tenderfoot to Kennedy to allow Dawson to close the transaction
directly with Kennedy. On that same date, Kennedy's attorney contacted Dawson's
counsel and informed them of the assignment of the right of first refusal.
Subsequently, Kennedy signed the assignment on April 23, 1997, and it was recorded
in the Meagher County Clerk and Recorder's Office on April 29, 1997.

¶ In the meantime, on April 11, 1997, Formanek had sent a letter, along with $20,000
in earnest money, to Dawson requesting that Dawson honor their agreement and
convey the Tenderfoot to him. Formanek asserted that Warnack/McDonald and
Kennedy were attempting to induce Dawson to enter into an agreement that differed
from the Formanek/ Dawson agreement. Formanek emphasized the amount of time
and expense he had invested in negotiating their agreement and that he had resolved
to seek legal relief if the transaction could not be closed pursuant to their agreement.

¶ Dawson's counsel did not communicate with attorneys for Warnack/McDonald or
Kennedy until April 24, 1997, when they notified them that Dawson had conveyed
the Tenderfoot to Formanek. The reason given for the conveyance to Formanek was
that Warnack/McDonald or their assigns had not unconditionally exercised their
right of first refusal within 20 days from receipt of the offer.

¶ On April 30, 1997, Kennedy made a formal demand for conveyance of the
Tenderfoot. On May 13, 1997, Montana counsel for Formanek formally denied
Kennedy's demand for conveyance. As a result, Kennedy initiated this lawsuit
against the Defendants on June 12, 1997, for ejectment, breach of contract, tortious
interference, and to quiet title to the Tenderfoot.

¶ On July 7, 1998, the parties moved for summary judgment. Following a hearing on
the motions for summary judgment, the District Court granted summary judgment
in favor of Kennedy. In doing so, the District Court ordered that the property at
issue be reconveyed from Formanek to Dawson then to Kennedy; that Kennedy pay
Formanek the purchase price plus reimbursement for payment of Dawson's
attorney's fees; that Kennedy pay Dawson $100,000 under the profit sweep provision
of the agreement; that the remainder of Kennedy's claims be dismissed; that
summary judgment be entered against Defendants on all counts; and that each party
bear their own attorney's fees and costs.

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¶ Following entry of the judgment, counsel for the parties met in White Sulphur
Springs, Montana, on September 17, 1998, for a closing on the Tenderfoot in
accordance with the District Court's judgment. Prior to this meeting and reiterated
at the meeting, counsel for Dawson and Formanek informed Kennedy's attorney that
they would be filing a notice of appeal and lis pendens prior to the recording of any
deeds.

¶ At that point a dispute arose that resulted in the parties contacting the District
Court for guidance. As a result of these discussions and in contemplation of an
appeal, the parties entered into an Order of Closing setting forth an acceptable
sequence of events for satisfaction of the District Court's judgment. After title was
transferred to Kennedy, Formanek filed a notice of lis pendens on the property.
Kennedy filed a notice of satisfaction of judgment on September 29, 1998. The
parties appeal from the District Court judgment.

DISCUSSION

ISSUE 1

¶ Did the Appellants waive their right to appeal when they voluntarily satisfied the
District Court order without seeking a stay of execution and posting a supersedeas
bond?

¶ Kennedy has moved to dismiss this appeal on the basis that Dawson and Formanek
have waived their right to appeal by voluntarily satisfying the District Court
judgment. In response to this motion, Dawson and Formanek contend that they
involuntarily satisfied the judgment and that as such they have not waived their right
to appeal and were not required to seek a stay of execution of the judgment or post a
bond.

¶ This Court has previously determined that the distinction between voluntary and
involuntary satisfaction of a judgment "has meaning in ascertaining whether an
appeal is barred due to waiver." Turner v. Mountain Eng'g & Constr., Inc. (1996), 276
Mont. 55, 63-64, 915 P.2d 799, 804-05. "[W]here payment or performance of a
judgment by an appellant is involuntary, the appellant does not acquiesce to the
judgment and the right to appeal is not affected." Turner, 276 Mont. at 61, 915 P.2d
at 803 (citations omitted).

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¶ Following entry of judgment in this case, it is evident from the record that all
parties were cognizant of the contemplated appeal. Counsel for Dawson and
Formanek had communicated this fact to Kennedy's attorney and reiterated their
intent to appeal at the closing in satisfaction of the judgment. Discussion involving
this very issue at the closing prompted the parties to contact the District Court for
guidance on the matter. As a result of these discussions and in recognition of Dawson
and Formanek's expressed intent to appeal, the parties entered into an order of
closing setting forth the sequence of events for satisfaction of the District Court's
judgment. After Kennedy acquired title pursuant to the judgment, Formanek filed a
notice of appeal and lis pendens, effectively preserving the status quo pending appeal.

¶ The parties' course of conduct following entry of the judgment illustrates the
involuntary nature of Dawson and Formanek's satisfaction of the District Court's
judgment. Since their satisfaction of the judgment was involuntary, Dawson and
Formanek have not waived their right to appeal.

¶ In addition, Rule 7 of the Montana Rules of Appellate Procedure provides that "[u]
pon entry of a judgment or order in a civil case a party may apply to the district
court . . . for a stay of the execution of the judgment or order." (Emphasis added). It
does not require that a party seek a stay of execution. However, a party choosing not
to seek such a stay runs the risk of having his appeal become moot. See Turner, 276
Mont. at 60, 915 P.2d at 803 (citation omitted).

¶ "The issue of mootness is separate and distinct from the question of waiver of
appeal rights." Turner, 276 Mont. at 61, 915 P.2d at 803. In deciding whether a case
is moot, this Court determines whether it can fashion effective relief. Turner, 276
Mont. at 61, 915 P.2d at 803 (citations omitted). In this case, this Court can fashion
effective relief by ordering conveyance of the property to the prevailing party, inter
alia. Accordingly, Kennedy's motion to dismiss this appeal is denied and we turn our
attention to the substantive issues raised on appeal.

STANDARD OF REVIEW

¶ Our standard of review in appeals from summary judgment rulings is de novo. See
Motaire v. Northern Mont. Joint Refuse Disposal Dist. (1995), 274 Mont. 239, 242, 907
P.2d 154, 156 (citing Mead v. M.S.B., Inc. (1994), 264 Mont. 465, 470, 872 P.2d 782,
785). When we review a district court's grant of summary judgment, we apply the

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same evaluation as the district court based on Rule 56, M.R.Civ.P. See Bruner v.
Yellowstone County (1995), 272 Mont. 261, 264, 900 P.2d 901, 903. In Bruner, we set
forth our inquiry:

The movant must demonstrate that no genuine issues of material fact exist. Once this has
been accomplished, the burden then shifts to the non-moving party to prove, by more than
mere denial and speculation, that a genuine issue does exist. Having determined that
genuine issues of fact do not exist, the court must then determine whether the moving
party is entitled to judgment as a matter of law. We review the legal determinations made
by a district court as to whether the court erred.

Bruner, 272 Mont. at 264-65, 900 P.2d at 903 (citations omitted).

ISSUE 2

¶ Did the District Court err when it concluded that the right of first refusal had been
properly exercised?

¶ Dawson and Formanek contend that Warnack/McDonald's exercise of their right
of first refusal was improper. Dawson and Formanek assert that despite Warnack/
McDonald's initial acceptance of the terms and conditions of the Formanek/Dawson
agreement, Warnack/McDonald did not execute the agreement as proposed by
Formanek and accepted by Dawson. Instead Warnack/McDonald proposed a
different agreement omitting certain provisions.

¶ Kennedy asserts that Warnack/McDonald's initial exercise of their right of first
refusal was intended to be an unequivocal acceptance of the terms and conditions of
the Formanek/ Dawson agreement. However, Warnack/McDonald were not required
to agree to and accept commercially unreasonable provisions contained in the
Formanek/Dawson agreement in order to properly exercise their right of first refusal.

¶ The District Court concluded that Warnack/McDonald effectively exercised their
right of first refusal on January 14, 1997, when their attorney sent a letter to Dawson
and his counsel within 20 days of receipt of the offer. The District Court went on to
point out that Dawson and his counsel recognized the effective exercise of the right
by notifying the escrow company of such exercise and instructing it to accept
Warnack/McDonald's earnest money and return Formanek's earnest money. Based

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on these undisputed facts, the District Court found that a valid and enforceable
contract arose between Dawson and Warnack/McDonald for the sale of the
Tenderfoot at that time.

¶ A right of first refusal does not give the rightholder the power to compel an
unwilling owner to sell, but merely requires the owner, when and if he decides to sell,
to offer the property first to the rightholder at the stipulated price. See Lee v. Shaw
(1991), 251 Mont. 118, 121, 822 P.2d 1061, 1063. The preemptive right ripens into an
option when the owner elects to sell, at which point, the owner has the contractual
obligation to offer the property to the optionee on the same terms and conditions as
the offer made to him by a third party. See 77 Am. Jur. 2d Vendor Purchaser § 40
(1997).

¶ However, three exceptions to the requirement for the exact matching of terms have
been recognized:

First, and most obviously, the grantor of the right can waive exact matching . . . . Second,
proper names need not be matched . . . . Third, the grantor of the option may not act in bad
faith, which in this context means may not, for the purpose of discouraging the exercise of
the right, procure from the third party terms that the grantor knows are unacceptable to the
holder of the right of first refusal.

Miller v. LeSea Broad., Inc. (7th Cir. 1996), 87 F.3d 224, 227-28 (citations omitted).
These exceptions are necessary to ensure that each party to the contract receives the
benefit of his or her bargain.

¶ In addition, this Court has held that "every contract, regardless of type, contains
an implied covenant of good faith and fair dealing." Story v. City of Bozeman (1990),
242 Mont. 436, 450, 791 P.2d 767, 775. The Montana Legislature has set forth the
standard of conduct required by the implied covenant of good faith and fair dealing:
"honesty in fact and the observance of reasonable commercial standards of fair
dealing in the trade." § 28-1-211, MCA. "Each party to a contract has a justified
expectation that the other will act in a reasonable manner . . . ." Story, 242 Mont. at
450, 791 P.2d at 775. Thus, so long as the conditions of the sale are commercially
reasonable, imposed in good faith and not specifically designed to defeat the right of
first refusal, the rightholder will be obliged to match the offer if she wishes to
exercise her first refusal privilege. See Bernard Daskal, Rights of First Refusal and

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the Package Deal, 22 Fordham Urb. L.J. 461, 464-66 (Winter 1995).

¶ Formanek and Dawson negotiated the terms of their agreement for the purchase
and sale of the Tenderfoot over a four-year period. While it is evident from the
record Dawson wanted to prevent the Tenderfoot from being subdivided and prevent
someone from turning around and making a quick profit, it is apparent that
Formanek and Dawson specifically included provisions in their agreement to
discourage Warnack/McDonald from exercising their right of first refusal.
Formanek himself dubbed the profit sweep provision and right of first refusal to
Dawson as the "poison pill" in a note to Dawson's counsel:

We've made the changes you requested and tried to tighten the "poison pill" by giving Bud
[Dawson] a right of first refusal to keep Warnack from buying the property for someone
else. My hope in that case would be the property would revert to Bud then us.

In addition, Formanek testified in his deposition that his understanding of a poison pill
was that it was something designed to deter.

¶ In his January 14, 1997, letter advising of Warnack/McDonald's exercise of their
right of first refusal, Warnack/McDonald's attorney expressed his belief that the
inclusion of the poison pill provisions was no less than an attempt to deny his clients'
right of first refusal and dissuade them from purchasing the property. As holders of
a right of first refusal, Warnack/McDonald were well within their rights to challenge
the propriety of those provisions. Counsel for Dawson voluntarily engaged in
discussions with Warnack/ McDonald's attorney and later with Kennedy's attorney
concerning those provisions. These discussions involving the provisions that were
placed in the contract to discourage Warnack/ McDonald from exercising their right
of first refusal do not impact the effective exercise of the right of first refusal.
Accordingly, we conclude that the District Court did not err when it determined that
the right of first refusal had been properly exercised.

ISSUE 3

¶ Did the District Court err in awarding Dawson $100,000 pursuant to the profit
sweep provision of the agreement?

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¶ Kennedy contends that the profit sweep provision is only applicable to resales of
the Tenderfoot; therefore, Dawson is not entitled to the $100,000 paid by Kennedy to
Warnack/McDonald for the preclosing assignment of their right of first refusal. In
response, Formanek and Dawson assert that the assignment properly triggered the
profit sweep provision and that Kennedy conceded Dawson was entitled to the
$100,000 under the profit sweep provision.

¶ Paragraph 13 A of the Formanek/Dawson agreement provides as follows:

It is understood and agreed that if Buyer or any other owner of the Tenderfoot sells the
Tenderfoot, or any portion thereof, within five years following the date of closing of this transaction,
the Seller shall be entitled at closing of such sale, to receive a payment in the amount, if any, by which
the sale proceeds from such subsequent sale of the Tenderfoot exceeds the sum of $1,000,000.00.

(Emphasis added.) In addition, in his brief in support of his motion for summary judgment, Kennedy
stated:

In Count V, defendant Dawson alleges that he is entitled to some or all of the amount that would be paid
to Warnack/McDonald if Kennedy acquired the Tenderfoot. Kennedy does not dispute that if he obtains
title to the Tenderfoot, Dawson would be entitled to some amount under paragraph 13(A) of the sales
contract (the profit sweep provision). There is a factual dispute as to the amount to which Bud Dawson
would be entitled, but if that is the only issue remaining in the case after summary judgment in favor of
Kennedy, the issue can undoubtedly be negotiated amicably to resolution.

Then, at the hearing on the motions for summary judgment, Kennedy's attorney stated the following with
regard to the $100,000 payment:

Now, as we noted at the end of our initial summary judgment brief, Mr. Kennedy paid money to
Warnack and McDonald for them to have the right -- for him to have the right assigned to him.
Essentially it was $100,000.00. Now, if that comes under the profit sweep provision, I think we can all
work that out. I mean I suspect that I can call my client and have that $100,000.00 wired up here today
for the benefit of Mr. Dawson.

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¶ Warnack/McDonald as owners of a right of first refusal in the Tenderfoot eventually sold that right
to Kennedy for $100,000. This was in excess of the $1,000,000 purchase price ultimately paid by
Kennedy to Formanek for the Tenderfoot. Therefore, as recognized by Kennedy, Dawson was entitled
to payment of $100,000 under the profit sweep provision of the agreement. Accordingly, we conclude
that the District Court did not err when it ordered Kennedy to pay Dawson $100,000.

ISSUE 4

¶ Did the District Court err when it declined to award Kennedy his attorney's fees and costs as the
prevailing party?

¶ Kennedy asserts that he is entitled to an award of his attorney's fees and costs under the contract as
the prevailing party. Formanek and Dawson argue that Kennedy is attempting to enforce his rights as
an assignee under the 1973 contract for deed, which does not contain an attorney's fees provision.
Formanek and Dawson also claim that since Kennedy was required to pay Dawson $100,000, there is
no prevailing party in this case.

¶ Paragraph "14.B." of the agreement between Formanek and Dawson specifically addresses the
award of attorney's fees and costs to the prevailing party:

Attorney Fees If there is any litigation between the parties arising out of or in connection with this
agreement or the Tenderfoot, then the prevailing party in the litigation shall be entitled to receive an
award of the costs of the action, together with a reasonable attorney fee, as allowed by the court hearing
the litigation, in addition to any other relief awarded.

"Montana has long followed the rule that attorney's fees will not be awarded to a prevailing party
absent statutory or contractual authority for such an award." Dorwart v. Caraway, 1998 MT 191, ¶ 133,
290 Mont. 196, ¶ 133, 966 P.2d 1121, ¶ 133 (citing Tanner v. Dream Island, Inc. (1996), 275 Mont.
414, 429, 913 P.2d 641, 650). This Court has also held that "there is no prevailing party where both
parties gain a victory but also suffer a loss." Parcel v. Myers (1984), 214 Mont. 220, 224, 697 P.2d 89,
91-92 (citation omitted).

¶ Kennedy instituted this action against Formanek and Dawson to have a court determine ownership
of the Tenderfoot. The District Court awarded summary judgment in favor of Kennedy and against
Formanek and Dawson. As part of Kennedy's award of summary judgment, he was required to pay
Dawson $100,000 pursuant to the profit sweep provision of the agreement. As such, this payment
cannot be considered a loss to Kennedy; it was an obligation Kennedy was required to satisfy under
the agreement. Therefore, we conclude that the District Court erred when it failed to award Kennedy,
as the prevailing party, his attorney's fees and costs pursuant to the agreement.

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¶ Accordingly, we affirm in part and reverse in part the judgment of the District Court. We affirm the
District Court's determination that the right of first refusal had been properly exercised and that
Kennedy was required to pay Dawson $100,000 under the profit sweep provision of the agreement. We
reverse the District Court's order declaring that each party bear their own costs and attorney's fees
and remand this cause to the District Court for a determination of an award of costs and reasonable
attorney's fees to Kennedy as the prevailing party in accordance with the agreement.

¶ Affirmed in part, reversed in part and remanded.

/S/ JIM REGNIER

We Concur:

/S/ J. A. TURNAGE

/S/ W. WILLIAM LEAPHART

/S/ WILLIAM E. HUNT, SR.

/S/ KARLA M. GRAY

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