A title company was awarded summary judgment in a case where the district court ruled claims against the title company were beyond the statute of limitations.
The court of appeals reversed the decision, however, and the Kansas Supreme Court upheld the appellate court’s reversal – but for different reasons than the appellate court used.
The case is LCL LLC v. James W. Falen v. Rice County Abstract & Title Co. (Supreme Court of Kansas, No. 115, 434).
The case stems from the omission of a reserved mineral interest in a deed, and its handling of a 2014 conveyance. In 2007, the James W. Falen Living Trust entered into a contract to convey approximately 200 acres of Rice County land to Sammy Dean. The Trust owned all of the surface rights and an undivided one-half mineral interest in the land. Rice County Abstract & Title Co. (RCAT) was the closing agent and the title insurer on the sale. It charged half of its fee to Dean and the other half to the Trust. It did not include any reference to the mineral reservation in the deed it prepared, although it had a copy of the sale contract.
The deed was filed and recorded in Rice County on Jan. 18, 2008. After the sale to Dean, the Trust transferred what all concerned believed was its mineral interest to the Trust’s beneficiaries. The beneficiaries, in turn, made several additional transfers of the interest among themselves, executing and recording mineral deeds and quitclaims with the Rice County Register of Deeds.
From January 2008 until August 2014, the Trust and its successors in interest continued to be paid royalties for mineral production from the land sold to Dean. The Trust and then its successors in interest also continued to pay all property taxes associated with that production.
In April 2014, LCL, LLC, a company formed by Ron Laudick and Cheryl Armstrong, agreed to buy the property from SDM2. Before this conveyance was finalized, Laudick sent Dean an email acknowledging “that the mineral rights do not go with the property.” RCAT again acted as the closing agent and title insurer for the 2014 transaction. Again, the deed prepared to record the conveyance did not note the Trust’s 2008 mineral right reservation.
When questions about the mineral reservation arose, RCAT conducted a title search and discovered that the 2008 deed had not included the reservation of the Trust’s mineral interest. RCAT did not contact the Trust or its successors in interest, but asked LCL to sign a corrected deed to remedy the omission. LCL refused.
The Trust’s successors in interest first learned of the brewing dispute in August 2014. Royalty payments to the Trust’s successors in interest were suspended by August 21, 2014.
The case at hand came after the Falens filed a third-party petition against RCAT, alleging RCAT had been negligent and had breached an implied contract by failing to include the mineral reservation in the deed it prepared and recorded for the 2008 sale.
RCAT moved for summary judgment on the Falens’ third-party claims. It argued that any injury to the Trust and the Falens occurred in January 2008 and thus the applicable two-year statute of limitations had expired.
After a hearing, the district judge granted summary judgment to RCAT on all of the Falens’ claims, saying, “the factual statements are clear [that] the event giving rise to the cause of action for contract occurred no later than the filing of the defective deed on Jan. 18, 2008. Suit in this matter was filed (through the Third Party Petition) on Dec. 1, 2014. This would be a period of 6 years, 317 days. ... Certainly if this matter was a contract claim, the longest of possible statute of limitations would be five years on a written contract, though there have been no factual allegations made by the [Falens] that there ever was a written contract between the parties. An implied contract would have a statute of limitations of three years.”
The Kansas Supreme Court said there were two inquiries relevant to determining when the statute of limitations on the Falens’ negligence claim began to run: (1) When did the Falens suffer an actionable injury — i.e., when were all the elements of the cause of action in place? and (2) When did the existence of that injury become reasonably ascertainable to them?
“The Court of Appeals’ decision focused mainly on the first question, the district judge on the second. We disagree with the answers arrived at by each,” the state supreme court wrote.
Taking the first question, the state supreme court wrote that the first injury occurred Jan. 18, 2008, when the deed for the Trust-to-Dean sale was filed and recorded. “As of this date, at a minimum, a cloud on their title to the mineral interest arose,” the court wrote. “The Falens suffered a substantial injury on Jan. 18, 2008, because demonstrating the existence of a mutual mistake justifying reformation of a deed is bound to be a costly process.”
In addition, although there is ample evidence in this case that the 2008 deed’s failure to reserve the mineral right was the product of the mutual mistake of the Trust and Dean, the Falens’ ability to seek reformation faced a five-year deadline, the court wrote.
“Thus the Falens’ substantial, actionable 2008 injury was compounded on Jan. 18, 2013, when their equitable cause of action for reformation would no doubt face a statute of limitations problem of its own, possibly one that would sap its legal potency,” the state supreme court wrote.
Then the court turned to the second question, which the district judge concentrated on his decision. The district judge noted that Kansas law requires that the Falens’ negligence claim have been brought within two years unless the fact of injury was not reasonably ascertainable until sometime after the act causing the injury.
In looking at the standard of “reasonably ascertainable,” the state supreme court turned to its 2016 ruling in Armstrong v. Bromley Quarry & Asphalt, Inc.
That case examined when the statute of limitations began to run for plaintiff Willis L. Armstrong’s trespass claim based on unauthorized subsurface mining. In the decision, the court wrote, “Because the mining occurred below ground level, [the defendant quarry company’s] intrusion upon the Armstrong property and theft of the rock would not have been immediately apparent to Armstrong, without more. And under these facts, that something more must have been the house shaking that Armstrong discerned to be from blasting somewhere on the property and the suspicions of unauthorized mining based on previous business dealings with [the defendant].”
The court determined that the shaking was a trigger for further investigation. The court sought to determine what, if anything, Armstrong could have done to ascertain the fact of the injury. The court wrote, “[I]t is undisputed Willis [Armstrong] obtained maps from the regulatory agencies, some of which Bromley Quarry had prepared. Without exception, those maps incorrectly showed there had been no mining on the Armstrong property. The [Court of Appeals] noted that after inspecting these maps, Willis did not try to get ‘his own survey or inspection of his property, he never had cores drilled, and did not ask any government agency for help during the time when his suspicions arose, although he did consider it.’ But what would cause a reasonably prudent landowner to take this additional action under the circumstances — after reviewing maps on file with regulatory agencies that showed no mining had occurred on his or her property? The limited record here does not explain that, and neither the panel nor the district court delved further into this to consider how that might impact the statute of limitations analysis. And the panel arrived at its conclusion [that summary judgment was proper] even though there is nothing in the record that informs whether such activities would have been possible, practical, or effective.”
RCAT argued that the Trust and Falens should have known or been aware of the injury in January 2008 after reviewing the deed. However, each said the deed was sent to them simply for their signatures as co-trustees; they were not expected to and did not review it; further, they did not understand that its technical language failed to effect the intended mineral right reservation for the Trust.
“If (the Trust and Falens) signed the deed without reviewing and understanding it, as they insist, then they did not have actual notice of its content,” the state supreme court wrote. “This genuine issue of material fact prevented summary judgment on RCAT’s actual notice theory. Instead, the district judge relied on RCAT’s ‘should have known’ argument that substantial injury to the Trust and the Falens was reasonably ascertainable on Jan. 18, 2008.”
RCAT argued at the appellate court level that the appellate court’s ruling in Bi-State Development was instructive. In that case, defendant Shafer, Kline & Warren, Inc. prepared a real estate plat for a business park of plaintiff Bi-State Development Co., Inc. The plat showed an easement, and the plat was presented to, and approved by, the city’s planning commission. Another version of the easement was executed by an agent of Bi-State and recorded. The discrepancy between the two versions of the easement went undiscovered until almost 10 years later, when a portion of the real estate was sold. Relying on case law charging a landowner with knowledge of zoning ordinances, the Bi-State panel concluded that the recording of the easement imparted constructive notice and started the running of the limitation period.”
However, the state supreme court said the Bi-State panel did not discuss how or when Bi-State’s duty to investigate the problem arose, and following Bi-State would ignore lessons from the state supreme court’s decisions in Hutton and Armstrong about the need for a trigger for further inquiry.
“If we were to follow the Bi-State panel’s lead in this case, we would equate constructive notice as a matter of law of the contents of a deed with a factual finding of reasonably ascertainable knowledge of a substantial, actionable injury from omission of a mineral interest reservation from that deed,” the court wrote. “We are unwilling to convert a question of fact into a question of law in this way.
“In this case, the existence of a recorded deed that does not mention the reserved mineral interest specifically is one piece of relevant evidence among all the facts and circumstances to be considered by the district court fact-finder in answering the ‘reasonably ascertainable’ question. Testimony from RCAT and from Gregory and Julie about their duties on receipt of the deed RCAT sent to them is additional relevant evidence. Certainly, as the Court of Appeals panel recognized, evidence of the Trust’s and the Falens’ continuing receipt of royalties and payment of taxes also will be relevant, particularly on the issue of whether the Trust’s or the Falens’ duty to investigate matters further should have been triggered under Hutto and Armstrong. The significance of the transfers among the Trust’s beneficiaries after the 2008 sale also must be considered.
“In short, the constructive notice of K.S.A. 58-2222 — which is about notice to the world, not to the parties to the real estate conveyance recorded via the instrument — tells only a part of a story still with two competitive sides. The statute is not, as a matter of law, outcome-determinative on what remains a question of fact.”
Thus, the court reversed the summary judgment on different reasons than those relied upon by the appellate court.
“The filing and recording of the 2008 deed did cause the Falens substantial, actionable injury, which means the injury occurred long before the royalty checks quit arriving. But, if the substantial injury was not, as a matter of fact, reasonably ascertainable by the Trust or the Falens before Dec. 1, 2012, the negligence claim is timely under K.S.A. 60-513(a)(4) and (b). We must remand to the district court for further proceedings,” the court concluded.