Leathers v. LeathersLeathers v. Leathers
I. INTRODUCTION
This case involves a dispute over the ownership of mineral rights appurtenant to several tracts of land located in Haskell County, Kansas, as well as the royalties due on those mineral rights. Michael Leathers and his brother Ronald Leathers each inherited half of these mineral rights from their mother.1 But an error in a quit claim deed subsequently executed between the brothers left it unclear whether Ronald‘s one-half interest in the mineral estate had been conveyed to Michael.
In January 2007, Michael filed a lawsuit seeking to quiet title to the disputed one-half interest and related royalties. As defendants, Michael named Ronald; Ronald‘s ex-wife, Theresa Leathers; James Holden, as Trustee for an entity called the Dirt Cheap Mine Trust; various energy companies, as producers of natural gas from the mineral rights; and the United States, on behalf of the Internal Revenue Service (“IRS“), as a holder of tax liens on any property owned by Ronald.
In a series of orders spanning several years, the district court (1) reformed the quit claim deed to reflect that Ronald had reserved his one-half interest in the mineral estate; (2) awarded half of Ronald‘s one-half interest (i.e., a one-quarter interest) to Theresa, pursuant to Ronald and Theresa‘s divorce decree; and (3) held that Ronald owed approximately $1.5 million to the IRS and that the IRS‘s tax liens had first priority to any present and future royalties due to Ronald from his remaining one-quarter mineral interest.
Ronald filed a timely appeal (Case No. 15-3264), and Holden and Joe Alfred Izen, Jr., the attorney for the Dirt Cheap Mine Trust, filed a separate appeal (Case No. 15-3280). The appeals were briefed and argued separately, and they largely raise independent issues. Nonetheless, because both appeals arise from a common, complicated factual and procedural background, we consolidate them for disposition and consider both appeals in this Opinion. For
II. BACKGROUND
A. Factual History
1. The Mineral Interests
Michael Leathers and Ronald Leathers are brothers, and Louise Leathers was their mother. Louise owned 2.5 sections of land in Haskell County, Kansas (the “Property“). In 1973, Michael, Ronald, and Louise signed a partnership agreement forming a general partnership called the Leathers Land Company. Louise transferred the surface estate of the Property to the partnership, but she reserved ownership of the appurtenant mineral estate. When Louise died in 1991, ownership of the mineral estate passed to Michael and Ronald in equal shares. Michael and Ronald also each became 50 percent owners of the Leathers Land Company.
In 1996, Michael invoked a mutual buy-out provision of the partnership agreement in order to purchase Ronald‘s 50 percent share of the Leathers Land Company‘s assets. This move led to a dispute between the brothers which ended in a state-court judgment ordering Ronald to convey his 50 percent interest in the surface estate of the Property to Michael. On May 11, 1998, Ronald signed a quit claim deed (the “Quit Claim Deed” or the “Deed“) which transferred all of Ronald‘s interest in the Property to Michael. Critical here, the Deed did not expressly reserve Ronald‘s 50 percent interest in the Property‘s mineral estate. The Deed was recorded in Haskell County.
In June 2000, Ronald‘s wife, Theresa Leathers, filed for divorce in Kansas state court. In connection with the divorce, Theresa filed a Notice of Lis Pendens with the Register of Deeds in Haskell County, specifically referencing the Property.2
While the divorce was pending, Michael began hearing from several energy companies about issues with the title to the mineral rights in the Property. In September 2000, a representative from Chesapeake Energy Company (“Chesapeake“) told Michael that the Deed had not reserved to Ronald any mineral rights appurtenant to the Property. The representative tried to contact Ronald as well, but Ronald did not respond.
In October 2001, Anadarko Petroleum Corporation (“Anadarko“) contacted Michael about future royalty payments on production from a new well. A division order included in the correspondence stated that Ronald held “no interest” in the mineral rights appurtenant to the Property, that Michael owned 50 percent of the rights, and that another entity owned the other 50 percent. Anadarko asked Michael to make any necessary corrections to the division order before signing and returning it. Michael edited the division order to show that he and Ronald each owned 50 percent of the mineral rights, and he sent it to Anadarko along with a letter explaining that this reflected the accurate ownership of the mineral estate and also noting his belief that Theresa would receive half of Ronald‘s share in their pending divorce. Michael also sent a copy of the letter to Theresa‘s attorney.
In subsequent communications, Anadarko told Michael (1) that he would need to transfer 50 percent of the mineral rights to Ronald in order to fix the problem created by the Deed, (2) that Anadarko had sent a
In January 2002, Michael began receiving, and depositing in his bank account, royalty payments from the new Anadarko well. That same month, Ronald stopped receiving royalty payments from Chesapeake. Ronald called Chesapeake and was informed of the title problem.
In May 2002, Michael testified in Ronald and Theresa‘s divorce case regarding the ownership, and value, of the mineral interests in the Property. Despite the unresolved title problem, Michael testified that Ronald owned half of the mineral rights. On July 5, 2002, the divorce court entered a divorce decree which awarded Theresa a 25 percent interest in the mineral rights in the Property (i.e., half of Ronald‘s 50 percent interest). The divorce court did not reform the Deed to reflect a reservation of mineral rights to Ronald.
Confusion over ownership of the mineral estate and entitlement to royalty payments persisted for several more years. Theresa advised Ronald in 2003, and again in 2004, that she was not receiving royalty checks from Chesapeake, due to Chesapeake‘s concern about the title problem. In April 2004, Michael received his first royalty payment for production from another new Anadarko well, which he deposited in his bank account. In early November 2005, Ronald sent Michael a letter in which Ronald claimed he recently had discovered the problem with the Deed and believed Michael had been receiving royalty payments that should have been paid to him. Michael responded about a week later, noting that Ronald was informed of the Deed problem in October 2001 and that Theresa‘s attorney was informed later that year. Michael offered to help investigate any problems with Ronald‘s royalty payments if Ronald provided more information, and he agreed to execute a new quit claim deed conveying to Ronald and Theresa in equal shares the one-half mineral interest Ronald had inherited. Ronald did not respond to this offer.
In December 2006, Michael determined that Ronald and Theresa were not receiving royalty payments on production from several wells and came to believe he had received payments belonging to one or both of them.
2. The IRS Tax Liens
Ronald did not file tax returns during the years 1997 through 2005, but the IRS determined that he owed, and so assessed against him, federal income tax for those years. The IRS then filed several Notices of Federal Tax Liens in Haskell County, Kansas, thereby effectively encumbering the Property. In April 2005, and again in September 2006, the IRS filed a tax lien for tax years 1997 through 2002. In November 2007, the IRS completed and mailed to Ronald a tax assessment for the years 2003 through 2005. In February 2008, the IRS filed a tax lien for Ronald‘s tax liabilities from those years. All told, the IRS concluded that Ronald owed more than $900,000 in income tax, not including interest or penalties.
3. The Dirt Cheap Mine Trust
After receiving notice of the first tax liens, Ronald enlisted the services of James Holden to help Ronald protect his assets. Holden drafted and, on October 6, 2006, executed a “Contractual Trust Agreement” which created a trust called “The Dirt Cheap Mine” (the “Dirt Cheap Mine Trust” or the “Trust“), ostensibly to “provide a retirement vehicle for Ronald Roy Leathers.” The agreement appointed Holden as Trustee for the Dirt Cheap
That same day, Ronald signed a notarized document entitled “Irrevocable Assignment of Chose(s) in Action” whereby he “convey[ed] all right, title and interests to [the mineral rights he had inherited] and ‘chose(s) in action’ flowing from said ‘mineral rights‘” to the Trust. The Trust allegedly was created to recover Ronald‘s portion of the mineral rights appurtenant to the Property and any royalties mistakenly paid to Michael. But Ronald and Holden both would later concede that the Trust was created to shield Ronald‘s assets from the IRS.
4. The Texas Reformation Action
On October 20, 2006, an attorney named Joe Alfred Izen, Jr., filed a lawsuit on behalf of Ronald and Holden in Texas state court against Michael; Michael‘s wife, Nancy Leathers; Anadarko; Pioneer Natural Resources, USA, Inc.; OXY USA Inc.; and Coastal Petroleum, Inc. The lawsuit sought to reform the Quit Claim Deed, to recover royalty payments that should have been paid to Ronald, and to recover damages from Michael. The Texas case was later dismissed for lack of subject matter jurisdiction because it was deemed an in rem action affecting the Property located in Kansas.
Meanwhile, on October 23, 2006, Holden signed a notarized document that appointed and retained Izen “to represent the financial interests of [the] Trust.” In exchange for Izen‘s services, the document awarded Izen 45 of the remaining 55 units of Participation in the Trust. On October 27, 2006, Holden executed an “Attorney Consultation and Fee Contract” with Izen on behalf of the Trust, under which the Trust retained Izen for a contingent fee of 45 percent of any amount collected from Michael, Michael‘s wife Nancy, and Theresa. Ronald was not a party to either agreement.
5. The Oxy Interpleader Action
On February 26, 2007, one month after Michael initiated the present case (which is addressed below), OXY USA Inc. (“Oxy“) filed an interpleader action in the United States District Court for the Southern District of Texas, naming Michael, Nancy, Ronald, Holden, and the IRS as defendants. Oxy was holding approximately $25,000 in suspended royalty payments owed on the disputed one-half mineral interest and sought the assistance of the court in determining who was entitled to the money.
Michael and Nancy disclaimed any interest in the royalty payments. That left the IRS, on the one hand, and Ronald and Holden, on the other, with competing claims to the money. The district court concluded, and the attorney for Ronald and Holden seemingly conceded, that Holden was a “fake trustee,” that there was “no substance to the [Dirt Cheap Mine Trust],” and that the Trust was a “fake trust.” Therefore, the district court concluded the IRS had the superior claim to the money.
Ronald and Holden appealed, and the United States Court of Appeals for the Fifth Circuit affirmed in an unpublished opinion. See OXY USA Inc. v. Holden, 306 Fed.Appx. 69 (5th Cir. 2009) (per curiam) (unpublished). As relevant here, the Fifth Circuit stated that “[t]he parties conceded
B. Procedural History
1. The Present Case, Generally
On January 5, 2007, Michael filed three separate actions in the Kansas state district court located in Haskell County (the “state court“), seeking to quiet title to the disputed one-half mineral interest and the suspended royalties, pursuant to
Ronald and Holden initially were represented by local counsel, who filed answers, counterclaims, and crossclaims on their behalf. Then, in March 2007, Izen was admitted pro hac vice to represent Ronald and Holden in the case.
In December 2007, Michael discovered the IRS had filed tax liens against Ronald and moved to amend his petition and to add the United States as a necessary party. His motions were granted, and on June 16, 2008, Michael filed an amended petition, naming the United States as a party potentially claiming an interest in the disputed mineral rights and royalties. The United States filed a notice of removal on July 16, 2008, and the case was removed to the United States District Court for the District of Kansas (the “district court“).
Before and after the amended petition was filed and the case removed, the parties submitted various answers, counterclaims, and crossclaims. Because many of these separate actions are relevant to the issues on appeal, we summarize them briefly here.
a. Ronald and Holden
In February 2007, Ronald and Holden filed an answer to Michael‘s original quiet title petitions in which they asserted affirmative defenses and brought counterclaims, crossclaims, and third-party actions. Among the defenses asserted were (1) reformation, asking that the Deed be reformed to reflect the parties’ intention that Ronald would retain the one-half mineral interest he had inherited; and (2) unjust enrichment, stating that Michael paid nothing for the erroneously transferred mineral interest and was unjustly enriched by his retention of the interest and receipt of associated royalty payments.
They also asserted four causes of action as either a counterclaim or a crossclaim:
- Restitution and/or Recovery of Legal Damages—First, the response asserted a counterclaim against Michael and the energy companies for a decree of restitution ordering that any royalties attributable to the disputed one-half interest (whether disbursed or held in suspense) be paid to Holden (not Ronald), since Ronald allegedly assigned his interest to the Trust.
- Breach of Fiduciary Duty and Imposition of Constructive Trust—Second, the response asserted a counterclaim against Michael, alleging Michael owed Ronald a fiduciary duty under Kansas law and breached that duty in various ways.
- Decree for Complete Accounting—Third, the response asked for a decree directing all other parties, except Theresa, to prepare and file with the district court a complete accounting of all payments made, due, or received, which are attributable to the disputed one-half interest.
- Declaratory Judgment or Equitable Decree—Finally, as a crossclaim against
Theresa, the response asserted Ronald and Holden are entitled to a decree finding that, to the extent they successfully recover the mineral interest, royalty money, or other damages, they should recover those damages free of any claim of Theresa. Ronald and Holden asserted that, due to the Deed, Ronald did not own the mineral interest at the time of Theresa and Ronald‘s divorce. They therefore claimed the divorce court lacked authority to award Theresa a share of the mineral interest in the decree because it was not marital property.
Ronald and Holden summarized their requested relief in a list of 15 items, which included reformation of the Deed and an order declaring that the disputed one-half interest and related royalties are now owned by Holden, as Ronald‘s assignee. Neither Ronald nor Holden filed a response to Michael‘s amended petition.
b. Theresa
In February 2007, Theresa filed answers to Michael‘s original petitions, requesting that the court enter a decree quieting title, assigning her a 25 percent interest in the mineral rights, and ordering the energy companies to pay her the corresponding portion of the suspended royalties. On July 30, 2008, Theresa filed in the state court an “Answer/Cross-claim/Counter-claim” to Michael‘s amended petition. Because the United States had removed the case already, this pleading was not transferred to the district court. Theresa then filed a notice of her pleading in the district court, with the pleading attached.
Theresa organized her counterclaim against Ronald and Holden, and crossclaim against Michael, under the same heading, generally asserting that (1) she is entitled to a judgment declaring her the owner of 25 percent of the mineral rights appurtenant to the Property, contrary to Michael‘s claim; (2) Ronald is barred by res judicata from asserting claims against her that conflict with the divorce decree; (3) Ronald and Holden‘s claims against her should be disallowed because they are meritless; (4) she should be awarded fees associated with defending against Ronald and Holden‘s claims; (5) the court should order an accounting, similar to that requested by Ronald and Holden; and (6) the court should order that her interest in the mineral estate and royalties is free of any claim by the IRS.
c. The United States
After removing the case to federal court, the United States filed its first answer to Michael‘s amended petition on August 18, 2008. On June 21, 2010, the government filed an amended answer in which it asserted a single crossclaim against Ronald. Specifically, the government brought a civil action under
2. Bifurcation, and First Round of Dispositive Motions in the Quiet Title Phase
In November 2008, the district court granted the parties’ joint motion for separate trials, ruling that the case should be bifurcated. The court determined that the quiet title issues, including Ronald and Holden‘s, and Theresa‘s, respective counterclaims and crossclaims, should be addressed in the first phase of the litigation.
Between March and April of 2009, Theresa, Michael, and Ronald and Holden each filed motions for summary judgment regarding the first-phase issues and claims. On May 13, 2010, after the motions were fully briefed and heard, the district court issued a comprehensive order granting Theresa‘s motion, and granting in part and denying in part both Michael‘s, and Ronald and Holden‘s, motions (“May 2010 Order“). We now summarize the parties’ arguments, and the district court‘s findings, with respect to the issues relevant to the present appeals.
a. Reformation and Quiet Title
Theresa moved for summary judgment, asking the court to grant Michael‘s request for quiet title. Specifically, Theresa argued the court should (1) reform the Deed to reflect the parties’ original intention that Ronald would reserve his one-half mineral interest, and (2) enforce the divorce decree by awarding her half of Ronald‘s 50 percent mineral interest. Michael did not oppose Theresa‘s requested relief. Although Ronald and Holden also sought reformation of the Deed to reflect the parties’ intent that Ronald retain his 50 percent interest in the mineral estate, they opposed on several grounds Theresa‘s claim to a one-quarter portion of the mineral rights.
The district court determined reformation was appropriate under Kansas law due to mutual mistake because both Michael and Ronald intended that Ronald would retain his one-half interest in the mineral estate when he conveyed his one-half interest in the surface estate to Michael by the Deed. The district court further concluded that the reformation related back to the date the Deed was executed—May 11, 1998—and took effect from that date forward, binding all but good faith purchasers in any subsequent transactions.
The district court then quieted title to the mineral rights in the following shares: 50 percent to Michael, 25 percent to Ronald, and 25 percent to Theresa in accordance with the divorce decree. In doing so, the court rejected Ronald and Holden‘s various arguments opposing Theresa‘s claim. First, it disposed of their argument that the divorce court lacked authority to award Theresa an interest in the mineral rights because, per the mistake in the Deed, Ronald did not own the rights at the time of the divorce. The district court found, to the contrary, that Ronald owned the mineral rights at the time of the divorce because the reformation related back to the date the Deed was signed, which occurred before entry of the divorce decree.
Next, the court rebuffed several of Ronald and Holden‘s arguments premised on the notion that Theresa was attempting to reopen, modify, and/or set aside the divorce decree—e.g., arguments invoking a statute of limitations bar, the domestic relations exception to federal jurisdiction, and other jurisdictional limitations—because the court concluded Theresa was not attempting to do any of those things. Rather, Theresa was asking the court to enforce the divorce decree as written. And the district court determined the divorce court‘s judgment should be given preclusive effect because Ronald and Theresa had a fair opportunity to litigate their claims in the divorce proceeding. Thus, the district court concluded that, to the extent Ronald and Holden were attempting to relitigate the divorce court‘s award of half Ronald‘s mineral interest to Theresa, their claim was barred by res judicata and full-faith-and-credit principles.
Michael, and Ronald and Holden, filed cross motions for summary judgment on Ronald and Holden‘s claim for unjust enrichment and their request that the court impose a constructive trust on royalties which belonged to Ronald but were paid to Michael.4 Michael argued the unjust enrichment claim failed as a matter of law because Ronald did not confer a benefit on him, the claim was barred by the doctrine of unclean hands, the claim was barred by the statute of limitations, and Ronald could not recover on the claim in any event because he had transferred his interest to the Dirt Cheap Mine Trust.
The district court determined that summary judgment was not warranted on the unjust enrichment claim because a reasonable jury could find (1) a benefit was conferred on Michael, (2) Michael had an appreciation or knowledge of that benefit beginning in December 2006, and (3) Michael retained or accepted that benefit when he deposited certain disputed royalty payments in his bank account. Turning to Michael‘s unclean hands defense, the court concluded a jury should decide, based on the evidence, whether Ronald acted with unclean hands. Next, the court determined the unjust enrichment claim was not barred by Kansas‘s three-year statute of limitations because the limitations period did not begin to run until Michael knew of the misapplied royalty payments, which a jury could find to be December 20065—within the limitations period.6
3. Culmination of the Quiet-Title Phase
Following the May 2010 Order, the parties participated in a pretrial conference, and on July 12, 2011, the district court issued a pretrial order which, among other things, defined the scope of the remaining factual and legal issues in the quiet title stage. Around this time, the parties submitted various additional dispositive motions.
Theresa moved for summary judgment on her remaining claim of unjust enrichment against Michael. In late July 2011, Ronald and Holden filed a “First Amended Counter-claim and Cross-claim” in which they reasserted many of their prior claims addressed in the May 2010 Order and pleaded counterclaims for conversion and fraud-by-silence against Michael. They then moved for summary judgment on the conversion and fraud-by-silence claims. Michael filed a motion to dismiss or for summary judgment on those counterclaims.
On May 29, 2012, the district court issued an order addressing these and other motions (“May 2012 Order“). It denied Theresa‘s motion for summary judgment against Michael on her unjust enrichment claim “essentially for the same reasons as
After the energy companies had submitted their royalty accountings, Michael filed another motion for summary judgment requesting that the district court limit his monetary exposure on the unjust enrichment claims. On August 28, 2013, the district court granted Michael‘s motion (“August 2013 Order“). The court found that the amount of money received by Michael which should have been paid to Ronald and Theresa was $32,665.96 and that this figure represented Michael‘s maximum liability on the unjust enrichment claims. Because Ronald and Theresa each were entitled to half of that amount, Michael‘s maximum liability on each claim was $16,332.98.
Theresa died at some point during the litigation, and the representative of her estate accepted an offer of judgment from Michael for $16,332.98. The district court entered judgment against Michael for this amount in December 2013. Although Ronald and Holden‘s parallel claim initially was set for an October 2014 bench trial, along with tax issues from the second stage of the case, the bench trial was postponed when the court learned that Ronald had filed for bankruptcy in Colorado. Thereafter, Holden accepted an offer of judgment from Michael for $16,332.98, and on September 2, 2015, the district court approved a stipulated order of partial judgment resolving the unjust enrichment claim in favor of Holden and against Michael. The stipulated order declared that Holden held the unjust enrichment claim by virtue of Ronald‘s assignment of his choses in action to the Trust in 2006. The district court later noted that Ronald “has waived or is estopped from challenging Holden‘s settlement of the unjust enrichment claim with [Michael], based on Ronald‘s representation that Holden was his assignee on this claim.” These judgments disposed of the unjust enrichment claims and brought the quiet title phase of the bifurcated proceedings to an end.
4. The Tax Phase
As noted above, after the United States removed this case to federal court, it filed a crossclaim against Ronald seeking to reduce Ronald‘s outstanding tax debt to judgment. Ronald and Holden filed an answer to the crossclaim in which they raised various affirmative defenses and sought attorney fees “they incurred in proving ownership of the mineral interests in question against which the United States purports to assert a lien.”
On November 28, 2012, the United States moved for summary judgment on its crossclaim and for dismissal of Ronald and Holden‘s claim for attorney fees. The government submitted exhibits showing that Ronald failed to pay income taxes from 1997 to 2005 and that, as of September 21, 2012, he owed the IRS $1,561,117.06. Ronald and Holden, through Izen, opposed the motion on various grounds. They asserted that, even if the IRS had a valid claim to royalty payments from Ronald‘s mineral interest, Izen‘s contingent fee agreement with the Trust gave him a superpriority lien on any recovery by the Trust over and above any tax lien, pursuant to
The district court also concluded that all royalties found owing to Ronald would be subject to the IRS tax liens, but it did not finally determine the priority of those liens vis-a-vis other claims. The court rejected the government‘s contention that the “fake trust” findings made in the Oxy interpleader action collaterally estopped Ronald and Holden from arguing Ronald‘s assignment to the Trust gave the Trust a valid claim to the royalties. Specifically, the court concluded the finding of the Texas federal court—that Ronald and Holden had conceded the Trust was a “sham“—did not represent a final adjudication on the merits of the Trust‘s validity because the validity of the Trust was not actually litigated in that case. The court reserved the issue for trial, “express[ing] no opinion ... on the validity of the trust or the purported assignment by Ronald.” And the district court granted the government‘s summary judgment motion with respect to Izen‘s claim for attorney fees under
Next, in December 2013, the United States filed a motion for summary judgment seeking to foreclose its tax liens and establish their priority. Holden (apparently without Ronald) filed a cross motion for partial summary judgment. On February 27, 2014, the district court issued an order granting in part and denying in part the United States’ motion and denying Holden‘s (“February 2014 Order“). The court concluded that the tax lien for the years 1997 and 1999 through 2002, which the IRS first filed in April 2005, had first priority to the royalties from Ronald‘s share of the mineral interest, and that Holden had conceded as much. But the court determined there was a triable issue of fact as to the priority of the lien for the years 2003 through 2005. Because Ronald purportedly transferred his mineral interest and choses in action to the Trust in October 2006, and the IRS did not file a lien on the 2003-2005 taxes until 2008, the court explained that the lien for those years would not be valid against the Trust “unless [the United States] establishes that Ronald fraudulently transferred his interest to the trust.”
Thus, the parties prepared and submitted briefing for a bench trial on the remaining issues in the case: (1) the United States’ claim against Ronald for unpaid taxes from 1998; (2) the validity of the Dirt Cheap Mine Trust and/or Ronald‘s October 2006 transfer to it; and (3) Izen‘s renewed request for attorney‘s fees pursuant to
First, the court held that the United States was entitled to judgment on its claim against Ronald for $192,205.24 in unpaid taxes from 1998. Second, the district court found that “Ronald‘s transfer of the chose-in-action involving his mineral rights to the trust (as well as the transfer of the mineral rights, to the extent he purported to transfer them) constituted a fraudulent transfer with respect to his tax
Finally, the district court granted Izen‘s request for attorney fees, in part. Izen requested a total of $164,178.16 in fees and costs, but the court awarded him a total of $39,689.88. Pursuant to
5. Post-Judgment
The September 2015 Order disposed of all remaining issues in the case. On the same day the order was issued, the court entered a judgment which briefly summarized its various rulings throughout the bifurcated proceedings. On October 23, 2015, Holden and Izen together filed a “motion for new trial and motion for amended and/or additional findings,” and Izen separately filed a “motion for rehearing or new trial and motion for amended and/or additional findings.” The district court denied both motions on November 19, 2015.
Ronald filed a timely appeal from the district court‘s judgment, and Holden and Izen jointly filed a separate appeal. Although the three acted together in the district court, with Izen representing both Ronald and Holden in his capacity as Trustee, their interests are not aligned on appeal. Theresa‘s appellate interests are being pursued by her successors, Ronda R. Olson and Rustin R. Leathers, but for the sake of clarity, we continue to refer to the claims as Theresa‘s. We have jurisdiction under
In the interest of clarity, we address the substantive aspects of the two appeals separately, beginning with Ronald‘s appeal before turning to Holden and Izen‘s. For the reasons set forth below, we affirm the district court‘s judgment on all grounds.
III. CASE NO. 15-3264, RONALD‘S APPEAL
Ronald lists ten issues in the statement of issues section of his brief, but the argument section does not address each issue. We have identified the issues Ronald actually briefs as: (1) the state court lacked subject matter jurisdiction over the initial quiet title actions because Michael did not have standing, and therefore the state court‘s orders are void; (2) the district court also lacked subject matter jurisdiction; (3) Izen‘s simultaneous representation of Ronald and Holden created a conflict of interest; (4) the Dirt Cheap Mine Trust is a sham trust; (5) Ronald‘s mineral interest and royalties were taken in violation of due process; and (6) the district court erred in
A. The State Court‘s Jurisdiction
Ronald first contends that Michael lacked standing to bring the underlying quiet title actions in Kansas state court and that the state court therefore lacked subject matter jurisdiction.7 Specifically, Ronald argues Michael had no legitimate claim to the one-half mineral interest and therefore could not bring an action under the Kansas quiet title statute,
“[S]tanding is a jurisdictional issue in Kansas.”9 Mid-Continent Specialists, Inc. v. Capital Homes, L.C., 279 Kan. 178, 106 P.3d 483, 488 (2005). “The issue of whether a party has standing in a judicial action ... presents a question of law.” Sierra Club v. Moser, 298 Kan. 22, 310 P.3d 360, 367 (2013). Like other jurisdictional issues, we review questions of standing de novo. Meyer v. Christie, 634 F.3d 1152, 1156 (10th Cir. 2011); accord Mid-Continent Specialists, 106 P.3d at 488.
Under Kansas law, “[s]tanding to sue means that a party has a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy.” Dutoit v. Bd. of Cty. Comm‘rs, 233 Kan. 995, 667 P.2d 879, 887 (1983). A plaintiff must satisfy both the relevant statutory standing requirements, if any, as well as traditional or common-law standing requirements. See Moser, 310 P.3d at 367-69. “[T]o demonstrate common-law or traditional standing, a person suing individually must show a cognizable injury and establish a causal connection between the injury and the challenged conduct.” Id. at 369.
Kansas‘s quiet title statute creates a “[r]ight of action” that “may be brought by any person claiming title or interest in personal or real property, including ... mineral or royalty interests, against any person who claims an estate or interest therein adverse to him or her, for the purpose of determining such adverse claim.”
Here, Michael had standing under
Ronald seeks to confute Michael‘s standing by arguing, essentially, that Michael either (1) could not “claim” the one-half mineral interest because the divorce court had already distributed that interest and Michael had testified in the divorce case that Ronald owned the interest; or (2) did not “claim” the interest because he eventually changed his position and conceded to the interest being allocated to Ronald and Theresa. Ronald also seems to argue that Michael could not or did not claim ownership of the one-half mineral interest because the interest was never transferred to Michael in the first place.
But these arguments ignore several critical and undisputed facts. First, the Deed did transfer Ronald‘s one-half mineral interest in the Property to Michael, as the district court concluded. Although the district court further found that this transfer was unintended, the Deed nonetheless made Michael the legal owner of 100 percent of the mineral estate in the Property. And because the Deed had not yet been reformed at the time of the divorce decree, the divorce court‘s allocation of one-half of the mineral estate between Ronald and Theresa further clouded title. Michael‘s testimony in the divorce case reflects that he knew there was a title problem but believed it eventually would be resolved in Ronald‘s favor. By the time Michael filed his quiet title action, he had revised his position to claim ownership of the entire mineral estate based on the Deed. In short, Michael had a valid claim to the disputed mineral interest by virtue of the Deed, and Ronald‘s contention to the contrary is meritless.
Nor does Michael‘s eventual desertion of his claim to the interest deprive him of standing, which is measured as of the time a plaintiff files suit. See U.S. Bank Nat‘l Ass‘n v. McConnell, 48 Kan. App.2d 892, 305 P.3d 1, 6-8 (2013); accord Davis v. Fed. Election Comm‘n, 554 U.S. 724, 734, 128 S.Ct. 2759, 171 L.Ed.2d 737 (2008) (“[T]he standing inquiry remains focused on whether the party invoking jurisdiction had the requisite stake in the outcome when the suit was filed.” (emphasis added)); Brown v. Buhman, 822 F.3d 1151, 1164 (10th Cir. 2016). Although Ronald alleges that Michael abandoned his pursuit of the half interest in the mineral estate “[o]ne week after the filing of his amended petition,” Ronald fails to mention that the amended petition was itself filed more than a year after the initial quiet title petitions. Ronald points to no authority suggesting
Ronald also ignores the fact that Michael‘s change in position occurred after Ronald himself had asserted various counterclaims and crossclaims and had asked the state court to reform the Deed and quiet title to the disputed interest. In Kansas, “[a]s a general rule a ... counterclaim or cross-claim has the nature, characteristics and effect of an independent action or suit by one party against another. Accordingly, ... a demand pleaded by way of a ... counterclaim or cross-claim is regarded as an affirmative action....” Mynatt v. Collis, 274 Kan. 850, 57 P.3d 513, 525 (2002) (internal quotation marks omitted). Ronald does not dispute the state court‘s jurisdiction over these independent claims seeking the same relief as Michael‘s initial actions. Thus, even if we were convinced that Michael‘s decision mid-litigation to relinquish his claim to one-half of the mineral estate affected the state court‘s jurisdiction over Michael‘s
We therefore reject Ronald‘s argument that the state court lacked subject matter jurisdiction and his corresponding claim that the state court‘s orders are void.
B. The District Court‘s Jurisdiction
Ronald also contends the federal district court lacked subject matter jurisdiction and that its orders, too, are void. Reviewing the issue de novo, see Knight v. Mooring Capital Fund, LLC, 749 F.3d 1180, 1183 (10th Cir. 2014), we reject Ronald‘s arguments and conclude the district court had jurisdiction.10
Ronald first argues that the district court lacked jurisdiction because the state court lacked jurisdiction, due to Michael‘s alleged lack of standing. Because we have concluded that the state court did have jurisdiction, we reject this contention.
Next, Ronald seems to assert that the district court did not have federal question jurisdiction over the Kansas quiet title claims. But the district court‘s assertion of subject matter jurisdiction did not rest on federal question jurisdiction. When Michael learned of the federal tax liens on Ronald‘s property and added the United States as a necessary party to the state-court litigation, he did so under the authority of
Finally, Ronald spends two or three sentences articulating his belief that the district court was precluded by “the doctrines of res judicata and Rooker-Feldman” from reforming the Quit Claim Deed because the prior divorce decree already established that Ronald owned the one-half mineral interest. While it is not apparent how these arguments relate to the district court‘s subject matter jurisdiction, we need not dwell on that question because both points can be rejected on the merits.
The res judicata contention is inadequately briefed and therefore waived, as Ronald cites no legal authority and offers no explanation beyond his bare assertion that res judicata precludes reformation in this case. See United States v. Pursley, 577 F.3d 1204, 1228 (10th Cir. 2009) (rejecting an argument a party “mention[ed], but d[id] not justify,” and did “not cite a single case to support,” under “the principle that arguments inadequately briefed in the opening brief are waived” (alteration and internal quotation
The argument concerning Rooker-Feldman—a doctrine Ronald recognizes “is not a jurisdictional matter“—fails for equally straightforward reasons. ”Rooker-Feldman precludes federal district courts from effectively exercising appellate jurisdiction over claims actually decided by a state court and claims inextricably intertwined with a prior state-court judgment.” Mo‘s Express, LLC v. Sopkin, 441 F.3d 1229, 1233 (10th Cir. 2006) (internal quotation marks omitted). The doctrine “is confined to ... cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005). Here, the quiet title and reformation claims were not addressed by the state divorce court, and the district court did not review or reject the divorce court‘s judgment. Furthermore, as a non-party to the state divorce proceedings, Michael cannot be deemed a state court “loser.” The Rooker-Feldman doctrine therefore does not apply.
Thus, we conclude the district court had jurisdiction and reject Ronald‘s various arguments to the contrary.
C. Conflict of Interest
Ronald‘s next complaint is that Izen had an undisclosed conflict of interest and should not have been representing Ronald in the district court proceedings. Ronald‘s treatment of this claim in his brief begins with a page-long quote of paragraphs (a) and (b) of ABA Model Rule of Professional Conduct 1.7. Paragraph (a) forbids representation that involves a concurrent conflict of interest, and paragraph (b) lists circumstances under which the representation may proceed despite a concurrent conflict. See Model Rules of Prof‘l Conduct r. 1.7(a)-(b) (Am. Bar Ass‘n 2014). Immediately following this excerpt, Ronald contends that Izen “violated every subsection.”
We need not decipher the particulars of Ronald‘s argument or decide whether a conflict existed because, regardless, this issue is inadequately briefed and is not properly before us. Aside from the quoted ABA Rule, Ronald cites to no legal authority, and his discussion consists largely of tangential references to other substantive areas of the case. Cf. Birch v. Polaris Indus., Inc., 812 F.3d 1238, 1249 (10th Cir. 2015) (declining to consider argument as “unsupported and inadequately briefed” where the allegations offered in support of the argument were “in most cases vague, confusing, conclusory, and unsupported by record evidence“).14 Plus, this argument is forfeited because Ronald
D. Limitation on Unjust Enrichment Liability
Finally, Ronald argues the district court erred in concluding that Michael‘s liability for unjust enrichment should be limited to misapplied payments he received in or after December 2006, which the district court found to be the point at which Michael realized he was being overpaid. The district court based this determination on the second element of an unjust enrichment claim under Kansas law, which requires that “the defendant appreciated and has knowledge of the benefit” conferred on him by the plaintiff.16 See Univ. of Kan. Hosp. Auth. v. Bd. of Comm‘rs, 299 Kan. 942, 327 P.3d 430, 441 (2014). But according to Ronald, knowledge is a prerequisite for an unjust enrichment claim to accrue and for the statute of limitations to commence, but it is not a limit on restitution of amounts received before the defendant gained that knowledge. Ronald maintains the district court erred in giving the requirement the latter effect.17
But the argument also fails because Ronald cannot raise it. Ronald is not the real party in interest for the unjust enrichment claim because he assigned his choses in action to Holden, who settled the claim through a stipulated judgment. See Wade v. EMCASCO Ins. Co., 483 F.3d 657, 674-75 (10th Cir. 2007) (“Kansas law requires that every legal action be prosecuted by the real party in interest.... Where the injured party assigns all of his rights to a third party, the assignee becomes the real party in interest and the assignor can no longer pursue a claim on his own behalf.“). Ronald does not contest that a claim for unjust enrichment is an assignable chose in action under Kansas law. See Bolz v. State Farm Mut. Auto. Ins. Co., 274 Kan. 420, 52 P.3d 898, 901 (2002) (“It has long been recognized in Kansas that all choses in action, except torts, are assignable.“); Regal Ware, Inc. v. Vita Craft Corp., 653 F.Supp.2d 1146, 1151 (D. Kan. 2006) (“[U]njust enrichment is a quasi-contractual remedy, not a tort.“). Nor does he address, let alone offer a reason for us to reject, the district court‘s conclusion that he “has waived or is estopped from challenging Holden‘s settlement of the unjust enrichment claim with [Michael], based on [his] representation that Holden was his assignee on this claim.”
Because this argument is inadequately briefed, and because the unjust enrichment claim has been assigned and settled, we reject Ronald‘s challenge to the district court‘s statute of limitations ruling with respect to that claim.
* * *
For the reasons set forth above, we conclude Ronald has raised no valid challenge to the district court‘s rulings. We therefore affirm the district court‘s judgment on all grounds raised in Case No. 15-3264. Having done so, we now turn to the substantive issues raised in Case No. 15-3280.
IV. CASE NO. 15-3280, HOLDEN AND IZEN‘S APPEAL
In their separate appeal, Holden and Izen present eight issues for our consideration. Distilled and grouped together where sensible, their arguments are as follows: (1) the district court erred in allocating to Theresa 25 percent of the mineral rights appurtenant to the Property; (2) the district court erred in concluding Ronald and Holden‘s conversion counterclaim was barred by the statute of limitations; (3) the district court erred, both procedurally and substantively, in determining that Ronald‘s transfer of his choses in action to the Dirt Cheap Mine Trust was fraudulent with respect to Ronald‘s tax debt to the IRS; and (4) the district court abused its
Addressing these arguments in turn, we reject them all and affirm the district court‘s decision in full.
A. Arguments Concerning Theresa‘s Interest
Holden and Izen begin with several arguments for why the district court erred in awarding Theresa half of Ronald‘s one-half mineral interest based on the state divorce decree. The premise on which all these arguments rest is Holden and Izen‘s belief that the divorce court‘s distribution of the mineral interest between Ronald and Theresa was void because, due to the error in the Quit Claim Deed, Ronald did not then own the interest. According to Holden and Izen, the district court therefore effectively reopened and corrected or modified the divorce decree when it allocated half of Ronald‘s interest to Theresa. This, they argue, was impermissible both under the applicable statute of limitations and because of a jurisdictional bar.
But the key assumption underlying Holden and Izen‘s arguments—i.e., that the divorce court‘s division of the mineral interest is void because Ronald did not own the interest at the time of the divorce—is flawed. Holden and Izen fail to acknowledge the district court‘s conclusion that, because the reformation of the Deed relates back to the Deed‘s execution, Ronald did own the interest during the divorce and the divorce court therefore had authority to distribute half of that interest to Theresa. As we now explain, the district court‘s conclusion is correct, and as a result, Holden and Izen‘s arguments necessarily fail. We review the district court‘s legal conclusions de novo. Smalley & Co. v. Emerson & Cuming, Inc., 13 F.3d 366, 367 (10th Cir. 1993) (“When considering a grant of summary judgment we review the district court‘s conclusions of law de novo.... “).
Under Kansas law, “[r]eformation is an equitable remedy available to correct mutual mistakes of fact.” Conner v. Koch Oil Co., 245 Kan. 250, 777 P.2d 821, 825 (1989). “When a mutual mistake is made in describing property in a deed and the instrument does not convey the property intended, the deed may be reformed to conform to the parties’ original intentions.” Unified Gov‘t of Wyandotte Cty./Kan. City v. Trans World Transp. Servs., L.L.C., 43 Kan.App.2d 487, 227 P.3d 992, 997 (2010). “This is because when property is included in a deed by mutual mistake and the parties never intended such property to be conveyed, the grantor is under no obligation to convey such property, and the grantee has no right to retain such property.” Id. Here, the district court concluded that neither Michael nor Ronald intended for Ronald to convey his one-half mineral interest when he executed the Quit Claim Deed, and that the failure of the Deed to reserve Ronald‘s mineral interest was a mutual mistake. The court accordingly reformed the Deed such that Ronald‘s one-half mineral interest was reserved to him. Holden and Izen do not contend reformation for mutual mistake was improper.18 But their arguments neglect one of that doctrine‘s principal consequences.
In Kansas, as elsewhere, “reformation of an instrument relates back, and takes effect from, the time of its original execution, and binds all entities except innocent purchasers for value.” Conner, 777 P.2d at 825; see also 66 Am. Jur. 2d Refor
Although we have found no Kansas case dealing directly with a court‘s prior disposition of property belonging to a party whose ownership of the property was only later validated upon reformation, the district court‘s ruling here follows naturally from the relation-back rule as stated and applied in Conner. See 777 P.2d at 823-26. And that ruling is supported by this court‘s and other courts’ decisions applying Colorado and Oklahoma law, which embrace the same relation-back principle as Kansas law.19 See, e.g., Chapman v. Denman, 190 Fed.Appx. 640, 644 (10th Cir. 2006) (unpublished) (applying Colorado law) (“[P]laintiff argues that Pitkin County never owned the [land] until 2004 when the district court entered its order reforming the treasurer‘s deed. To the contrary, the reformed deed was retroactive to 1954, and from that point forward the [land] was owned by the County....“); accord Bd. of Comm‘rs v. Timroth, 87 P.3d 102, 109 (Colo. 2004); Foley v. Worthington, 202 Okla. 23, 209 P.2d 871, 871-72 (1949).
For these reasons, the district court correctly determined that Ronald owned the one-half mineral interest when the divorce decree was entered in 2002 because the reformation of the Deed related back to May 11, 1998. It follows from this conclusion that Holden and Izen‘s principle arguments against Theresa‘s entitlement to half of Ronald‘s mineral interest must fail.
Their first contention is that Theresa‘s claims are barred by the one-year statute of limitations on requests for relief from final judgments, contained in
Holden and Izen‘s second contention is also premised on the misconception that the district court had to reopen and modify the divorce decree to award Theresa 25 percent of the mineral rights. They argue that, under the “domestic relations exception” to federal jurisdiction, the district court lacked jurisdiction to reopen and modify the divorce decree such that it validly distributed half of Ronald‘s interest to Theresa. The domestic relations exception divests federal courts of the power to issue divorce, alimony, and child custody decrees. Ankenbrandt v. Richards, 504 U.S. 689, 703, 112 S.Ct. 2206, 119 L.Ed.2d 468 (1992). But as we have explained, and as the district court itself stated, Theresa did not ask the district court to reopen, reissue, correct, or modify Theresa and Ronald‘s divorce decree, and the court did none of those things. Rather, the court enforced the divorce decree according to its terms. The Supreme Court has long “sanctioned the exercise of federal jurisdiction over the enforcement of [a domestic-relations] decree that ha[s] been properly obtained in a state court of competent jurisdiction.” See Marshall v. Marshall, 547 U.S. 293, 307, 126 S.Ct. 1735, 164 L.Ed.2d 480 (2006) (quoting Ankenbrandt, 504 U.S. at 702, 112 S.Ct. 2206). Thus, the domestic relations exception is not applicable.
Finally, Holden and Izen argue that the mineral interest and associated royalties distributed to Theresa should be subject to the federal tax liens on Ronald‘s property. This argument also hinges on the premise that the award of 25 percent of the mineral interest and royalties to Theresa in the divorce decree is invalid. If, as they contend, the divorce decree is void, then Ronald owns 50 percent of the mineral estate after reformation and any tax liens should attach, if at all, to the entire 50 percent interest. But we reject Holden and Izen‘s argument that the divorce decree was void and the award to Theresa invalid. And because the United States has not otherwise attempted to recover any of Ronald‘s tax debt from Theresa‘s 25 percent mineral interest and has expressly disclaimed any right it may have had to enforce the federal tax liens against her interest, Theresa‘s interest is not subject to the IRS‘s liens.
Accordingly, we affirm the district court‘s determinations on summary judgment that Theresa is entitled to 25 percent of the mineral rights appurtenant to the Property and that her interest is not subject to the tax liens.
B. Conversion Counterclaim
Holden and Izen next argue that the district court erred in finding Holden and Ronald‘s conversion counterclaim barred by the two-year statute of limitations set forth in
The district court rejected this argument in its May 2012 Order, finding that the facts here do not require a demand to trigger the statute of limitations. Instead, the court reasoned that the limitations period began to run when the alleged conversion became “reasonably ascertainable” to Ronald. Because the court determined that this occurred in 2002, it concluded that the statute of limitations expired well before the 2007 filing of the counterclaim. Reviewing the district court‘s decision de novo, Burton v. R.J. Reynolds Tobacco Co., 397 F.3d 906, 914 (10th Cir. 2005) (“Review of the district court‘s application of the statute of limitations is de novo.“), we agree that the conversion action is time-barred.22
The tort of conversion is defined in Kansas as “the unauthorized assumption or exercise of the right of ownership over goods or personal chattels belonging to another to the exclusion of the other‘s rights.” Bomhoff v. Nelnet Loan Servs., Inc., 279 Kan. 415, 109 P.3d 1241, 1246 (2005). “A conversion may be based upon the detention of or unreasonable withholding of possession from one who has the right to possess it.” Queen v. Lynch Jewelers, LLC, 30 Kan.App.2d 1026, 55 P.3d 914, 921 (2002) (citing 18 Am. Jur. 2d Conversion § 47). “Under Kansas law, conversion is a strict liability tort. The required intent is shown by the use or disposition of property belonging to another, and knowledge or ignorance as to ownership of the property is irrelevant.” Millennium Fin. Servs., L.L.C. v. Thole, 31 Kan.App.2d 798, 74 P.3d 57, 64 (2003) (alterations and internal quotation marks omitted).
The statute of limitations for conversion is two years. See
As noted above, the district court found, with ample record support, that Michael‘s
Holden and Izen rely on an exception to the “reasonably ascertainable” standard, claiming that the limitations period could not begin to run until after Ronald made demand on Michael to turn over the misdirected royalty payments. As support for this argument, they cite to the Kansas Court of Appeals’ decision in Clark Jewelers v. Satterthwaite, a case in which a jewelry store sued to foreclose a security interest in a bridal set that had been given by the purchaser to his spouse. See 8 Kan.App.2d 569, 662 P.2d 1301, 1303 (1983). The trial court in that case apparently construed the store‘s claim as one for conversion and then determined that the claim was barred by the two-year statute of limitations, which the trial court found was triggered on the date the balance of the purchase money for the bridal set was due. Id. at 1303-04.
The Kansas Court of Appeals disagreed that a claim for conversion accrued at that time. The court, finding that the spouse rightfully and lawfully had possession of the bridal set when she received it, determined that her husband‘s subsequent default did not automatically render her possession wrongful. Id. at 1304. It reasoned that “[b]ecause ... [the spouse] rightfully came into possession of the bridal set, she was entitled to retain possession of that property until such time as [the jewelry store] had gained the right to repossess, had made demand upon her, and she had refused to deliver the bridal set to [the store]. Then and only then could [she] have committed the tort of conversion.” Id. at 1304-05 (emphasis added). The court therefore concluded the statute of limitations began to run not when the outstanding balance was due, but rather when the jewelry store‘s president later visited the spouse‘s home to demand that she return the bridal set. Id. at 1305.
The reasoning in Clark Jewelers tracks the general principle that, under certain circumstances, a “demand and refusal” is required before the tort of conversion can be considered complete. See 18 Am. Jur. 2d Conversion § 105 (“Where a demand for the return of the property is necessary to make the tort of conversion complete, the statute of limitations does not begin to run until the demand has been duly made, and the defendant has wrongfully refused to surrender the property.” (footnote omitted)). For instance, “[a] demand is absolutely necessary where the original taking was lawful, the defendant was rightfully in possession, and there was no assumption of ownership, wrongful use, or any act of conversion, prior to the demand.” Id. § 75 (footnotes omitted).
But here, the district court distinguished Clark Jewelers and this category of cases, reasoning that a demand is not a necessary part of the conversion claim in this case because “[i]f Michael possessed royalty payments that belonged to Ronald, then his possession was unlawful or wrongful from the time Michael received possession of the property, not when Ronald made a demand for the return of the money.”
Holden and Izen dispute the district court‘s effort to distinguish Clark Jewelers, arguing that Michael‘s possession was not “unlawful” because he came “into innocent possession of” the misapplied royalty payments “by mistake.” But this reasoning misses the mark. As noted above, Kansas
The demand-and-refusal requirement in Clark Jewelers makes sense in light of these principles. Because the defendant there was entitled to possess the bridal set on the date she received it, see Clark Jewelers, 662 P.2d at 1304, her affirmative act of taking possession on that date did not relate to property “belonging to another,” and it was neither “unauthorized” nor “to the exclusion of [an]other‘s rights,” see Bomhoff, 109 P.3d at 1246. Thus, because the Clark Jewelers defendant took the property with an affirmative right to possess it, she did not commit an act sufficient to constitute conversion until the jewelry store demanded its return and she refused. See Restatement (Second) of Torts § 224 cmt. a (“[W]ithholding possession by an unqualified refusal to surrender [property] on demand is a sufficient act to constitute a conversion....“); id. § 237 cmt. e (explaining that, in a conversion-by-demand-and-refusal situation, “[t]he conversion consists in the unlawful detention of the [property], and not in the manner in which possession was originally acquired“); see also Goodbody & Co., Inc. v. McDowell, 530 F.2d 1149, 1151 (5th Cir. 1976) (“[W]here the defendant‘s original possession is not wrongful, conversion is complete when the rightful owner demands the return of the property and is refused.“).
Here, by contrast, Michael never had an affirmative right to possess the misdirected royalty payments. So, when Michael took the intentional, affirmative step of depositing them into his bank account, he engaged in “the unauthorized assumption or exercise of the right of ownership over goods or personal chattels belonging to [Ronald and Theresa] to the exclusion of [Ronald‘s and Theresa]‘s rights.” See Bomhoff, 109 P.3d at 1246. Thus, the tort of conversion was complete.
And because conversion is a strict liability tort under Kansas law, Millennium Fin. Servs., 74 P.3d at 64; accord First Nat‘l Bank of Amarillo v. Sw. Livestock, Inc., 859 F.2d 847, 850 (10th Cir. 1988), it matters not that Michael‘s possession may have been the product of an innocent mistake. As long as an intentional act of control occurred, it is irrelevant for purposes of conversion that Michael did not know the royalties actually belonged to Ronald or Theresa. See Nelson v. Hy-Grade Constr. & Materials, Inc., 215 Kan. 631, 527 P.2d 1059, 1062 (1974) (“The intent required is simply to use or dispose of the goods, and knowledge or ignorance of the actor as to their ownership has no influence in deciding the question of conversion.“); Restatement (Second) of Torts § 223 cmt. b (“If the actor has the intent to do the act exercising dominion or control, ... he is not relieved from liability by his mistaken belief that he had possession of the chattel or the right to possession, or that he is privileged to act.“); 18 Am. Jur. 2d Conversion § 3 (“The act constituting ‘conversion’ must be an intentional act, but it does not require wrongful intent.” (footnote omitted)).
We therefore agree with the district court that this is not a case where a demand was needed for a cause of action for conversion to accrue. Rather, the district court properly followed the general rule
C. Fraudulent Transfer
Holden and Izen next challenge the district court‘s determination that Ronald‘s transfer of his interests to the Dirt Cheap Mine Trust was fraudulent with respect to Ronald‘s tax debt to the IRS. Specifically, they argue that (1) the district court should not have considered the United States’ fraudulent-transfer argument because it was not included in the pretrial orders, and (2) even if the argument was properly entertained, the district court erred in concluding the transfer was fraudulent.23 Addressing each of these arguments separately, we affirm the district court‘s ruling on this issue.
1. The District Court‘s Decision to Address Fraudulent Transfer
Holden and Izen first argue that the district court should not have considered the fraudulent-transfer issue because the United States “failed to raise a claim for fraudulent transfer in the Pretrial Orders.” In response, the United States concedes that its fraudulent-transfer argument was not explicitly included in any pretrial order but maintains the argument was simply a legal theory supporting its claim of first priority to royalty payments due on Ronald‘s mineral interest. As such, and because Holden and Ronald had sufficient notice of the argument and responded to it below, the United States maintains it was proper for the district court to consider whether the transfer here was fraudulent.
We review for abuse of discretion a trial court‘s decision to address or not to address an issue on the basis of a pretrial order. See Grant v. Brandt, 796 F.2d 351, 355 (10th Cir. 1986); see also In re Rafter Seven Ranches L.P., 546 F.3d 1194, 1200, 1203-04 (10th Cir. 2008) (reviewing for abuse of discretion a bankruptcy court‘s decision to consider an issue not identified in the pretrial order or other pleadings). “Under the abuse of discretion standard, the decision of a trial court will not be disturbed unless the appellate court has a definite and firm conviction that the lower court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances.” In re Nat. Gas Royalties Qui Tam Litig., 845 F.3d 1010, 1017 (10th Cir. 2017) (internal quotation marks omitted). We find no abuse of discretion here.
Claims or theories that are not included in the pretrial order usually are waived. Wilson v. Muckala, 303 F.3d 1207, 1215 (10th Cir. 2002). But it is also true that “a pretrial order should be liberally construed to cover any of the legal or factual theories that might be embraced by its language.” Koch v. Koch Indus., Inc., 203 F.3d 1202, 1220 (10th Cir. 2000) (internal quotation marks omitted). In particu
Here, the second revised pretrial order summarizes the United States’ position in part as follows:
The United States seeks an order determining the priority of its tax liens that arose from the tax assessments imposed against Ronald Leathers. It seeks a judgment ordering payment to the United States of those royalty sums currently being held by the co-defendant oil and gas operating companies but otherwise payable to Ronald Leathers (or his purported assignee the Dirt Cheap Mine Trust).
As the government points out, proving that Ronald‘s transfer to the Trust was fraudulent is one approach by which the government could establish its claim to a superior lien priority. See In re Krause, 637 F.3d 1160, 1163-64 (10th Cir. 2011). Thus, taking account of the pretrial order‘s generalized description of the United States’ position as simply seeking a determination of the priority of its liens, and construing the pretrial order liberally, we think the government‘s fraudulent-transfer argument qualifies as a “theor[y] that might be embraced by [the pretrial order‘s] language” and that is therefore covered by the order. See Koch, 203 F.3d at 1220 (internal quotation marks omitted).
Moreover, the district court‘s decision to resolve the fraudulent-transfer argument does not conflict with the underlying purpose served by requiring issues to be set forth in pretrial orders. “[T]he primary purpose of pretrial orders is to avoid surprise by requiring parties to ‘fully and fairly disclose their views as to what the real issues of the trial will be.‘” Zenith Petroleum Corp. v. Steerman, 656 Fed. Appx. 885, 887 (10th Cir. 2016) (unpublished) (quoting Cortez v. Wal-Mart Stores, Inc., 460 F.3d 1268, 1276 (10th Cir. 2006)). Here, there was no surprise: Holden and Ronald received nearly two years’ notice of the government‘s fraudulent-transfer theory, and they responded to it on several occasions.
At the latest, the United States first alleged its belief that the transfer was fraudulent in its December 2013 motion for summary judgment to foreclose its liens. Ronald and Holden addressed the validity of the assignment in their cross-motion for partial summary judgment and in their response to the government‘s motion. And in its February 2014 Order granting in part and denying in part summary judgment, the district court stated that “[t]he IRS cannot attach its lien to the trust‘s share of the royalties from the mineral interest unless it establishes that Ronald fraudulently transferred his interest to the trust.” (Emphasis added.) Then, prior to what was initially scheduled as an October 2014 bench trial, both parties submitted additional briefing that addressed the issue, and the district court later noted that the validity of the assignment was one of the few issues that had been set for that scheduled trial. Although almost another full year passed before the bench trial was actually held and the issue actually determined, the government had adequately and consistently asserted its position that the transfer was fraudulent in support of its claim to priority.
For all these reasons, we conclude that the district court did not abuse its discretion in choosing to decide the fraudulent-transfer issue. See Rafter Seven Ranches, 546 F.3d at 1203-04 (rejecting contention that lower court abused its discretion in deciding case on issue not identified in pretrial order because court‘s decision “was based on the general issues and prin
2. The District Court‘s Finding that the Transfer was Fraudulent
Holden and Izen next argue the district court‘s finding that the transfer to the Trust was fraudulent is clearly erroneous and should be reversed. Specifically, they claim that Ronald‘s assignment to the Trust is not voidable because Holden was a “good faith” transferee who gave “reasonably equivalent value” and that there was insufficient evidence that Holden harbored fraudulent intent. We are not persuaded.
We review “the district court‘s factual findings, made after a bench trial, for clear error; and its legal conclusions de novo.” Orient Mineral Co. v. Bank of China, 506 F.3d 980, 1001 (10th Cir. 2007). “Whether a debtor transferred his property with intent to defraud creditors is a finding of fact.” In re Seay, 215 B.R. 780, 788 (10th Cir. BAP 1997); see also In re M & L Bus. Mach. Co., 84 F.3d 1330, 1338 (10th Cir. 1996) (concluding lower court‘s finding of good faith on the part of the transferee is primarily factual and should be reviewed for clear error). Findings of fact are only clearly erroneous if “they are without factual support in the record or the appellate court, after reviewing the evidence, is firmly convinced that a mistake has been made.” Weston v. Harmatz, 335 F.3d 1247, 1252 (10th Cir. 2003).
The IRS is authorized under
Kansas law and federal law are virtually identical with respect to identifying fraudulent transfers. Under Kansas law, a transfer made by a debtor is fraudulent as to a creditor if the debtor makes the transfer “[w]ith actual intent to hinder, delay or defraud” the creditor.
Here, the district court concluded that Ronald transferred his choses in action to the Trust with the actual intent to defraud the United States of his overdue tax bill. See
Nor is there a material issue of fact regarding whether Holden qualifies as “a person who took in good faith and for a reasonably equivalent value” and who therefore could salvage the transfer. See
The whole purpose of the trust was one thing, and that was to provide some kind of protection regarding the IRS for future payments, et cetera. It‘s very complex, as I‘m sure you know, but once an assignment is done, then it changes IRS‘s reach, and that was the purpose. The purpose of the trust was not to sue Mike Leathers. He [Ronald] could have done that directly with Joe [Izen]. That wasn‘t the purpose. The purpose was to afford some protection for any recovery that did occur for Mr. Ron Leathers and his three children.
Holden and Izen do not offer a good-faith explanation for this statement or any of the other evidence the district court relied upon in concluding the transfer was fraudulent with respect to Ronald‘s tax debt.
In short, the district court did not err, let alone clearly err, in finding Ronald‘s transfer to the Trust was fraudulent as to Ronald‘s debt to the IRS. We therefore agree with the district court that the IRS‘s tax lien for the years 2003 through 2005 takes priority over any interest the Trust might claim in minerals and royalties awarded to Ronald, and we affirm the grant of summary judgment to the United States on this issue.
D. Attorney Fees
The remaining issues raised in Holden and Izen‘s appeal relate to Izen‘s request for attorney fees under
A federal tax lien normally has priority over later-filed competing liens under a “first in time, first in right” rule. United States v. Wingfield, 822 F.2d 1466, 1473 (10th Cir. 1987). However, Congress has provided in
In the district court, Izen asserted he was entitled to a superpriority award of attorney fees under
On appeal, Izen challenges both of these determinations. Addressing these challenges in turn, we conclude they both are meritless.
1. Contingency Fee Contract
Izen first argues the district court erred in declining to enforce his contingency fee agreement with the Dirt Cheap Mine Trust. He notes that the Trust assigned him a 45 percent interest in any chose in action used to recover Ronald‘s mineral interest and associated royalties, and he argues this assignment is legally enforceable and entitles him to collect as a fee 45 percent of the value of the minerals and royalties.
But Izen ignores the district court‘s conclusion that his fee agreement with the Trust is not enforceable against the judgment obtained for Ronald because Ronald was not a party to that agreement and Izen and Ronald did not enter into any similar agreement of their own. Izen argued below that he was entitled to fees under the contingency contract because Ronald had orally adopted that contract in his deposition testimony. But the district court rejected this argument because Kansas Rule of Professional Conduct 1.5 states that, in order to be valid, contingency fee agreements must be in writing. See Kan. R. Prof‘l Conduct 1.5(d). Izen does not challenge this determination on appeal, which is fatal to his claim.
Moreover, as the United States points out, Izen is not entitled to any fees under
2. The District Court‘s Fees & Costs Award
Izen next argues the district court “violated [
Although the district court determined that Ronald had no formal fee agreement with Izen, it concluded Ronald did authorize Izen to act as his attorney in this case and that Izen therefore was eligible to recover fees and costs under
Izen‘s challenge to this award on appeal is essentially that the district court took too strict a view of what fees contributed to securing a judgment from which Ronald‘s tax obligations could be satisfied. He argues generally that the applicable standard should focus on which actions “reasonably contributed” to the judgment, rather than “led directly” to it. But the only specific example he gives of fees and costs recoverable under the proposed standard are the fees related to the Texas state-court action dismissed for lack of jurisdiction, and the “costs” associated with paying local counsel. These arguments fall well short of showing any abuse of discretion on the district court‘s part. See Nat. Gas Royalties, 845 F.3d at 1017.
First, the district court recognized correctly that
And while Izen does challenge the court‘s decision to exclude fees incurred in connection with the prior Texas state-court action that Izen filed on Ronald and Holden‘s behalf, his assertion that without the
V. CONCLUSION
We reject the arguments raised by Ronald in Case No. 15-3264, and by Holden and Izen in Case No. 15-3280, and affirm the district court‘s judgment in all respects.