author: Gardner, J.:

text:
    Ashley STEPHENS, Special Administrator of the Estate of Randall D. Stephens, Appellant, v. Cindy L. AINSWORTH, Executrix of the Estate of William J. Lewis Jr., Appellee.
    No. 117,736
    Court of Appeals of Kansas.
    Opinion filed January 18, 2019.
    Ted E. Knopp, of Ted E. Knopp, Chtd., of Wichita, for appellant.
    Jerry D. Bogle, of Young, Bogle, McCausland, Wells & Blanchard, P.A., of Wichita, for appellee.
    Before Gardner, P.J., Atcheson and Powell, JJ.
   Gardner, J.:

This case asks us to determine who owns a cabin and 120 acres of land in Elk County. That property was purchased by Randall D. Stephens and William J. Lewis Jr., both of whom are deceased. The appellant is the administrator of Stephens' estate, and the appellee is the executor of Lewis' estate but for ease of reference we refer to the parties as Stephens and Lewis. The district court ruled that the Elk County property was never partnership property so it passed to Lewis under the deed when Stephens died. Stephens appeals arguing that the Elk County property was partnership property under Kansas' partnership statutes and was awarded to him in the partnership dissolution. Although the facts pose a close question, we uphold the district court's decision.

FACTUAL AND PROCEDURAL SUMMARY

Lewis and Stephens became friends in the 1970s and later married sisters. In the early 1990s, each had separate businesses. Lewis created Cytech and Stephens started a business called In-Tech. In-Tech moved into Cytech's building and operated there until 2003. In 1994, Lewis and Stephens started a general contracting business together for the primary purpose of building metal structures and began doing business as High Plains Construction. High Plains operated out of Cytech's building. Lewis and Stephens' partnership in High Plains, which is the focus of this case, was oral-no partnership agreement existed.

In 1995, Lewis and Stephens decided to build a cabin on land in Elk County owned by a mutual friend, Brian Schreck, after a previous farmhouse on Schreck's property burned down. The parties had used that property for hunting and recreation, as had their fathers before them. The new cabin was used for the mutual recreational use of the three friends and their guests. Lewis and Stephens bought 80 acres adjacent to the cabin in 1997, then purchased the 40-acre parcel that included the cabin in 2000.

Lewis and Stephens titled both parcels of land in their names personally as joint tenants with rights of survivorship without any mention of High Plains or any partnership and without any reference to themselves as partners. O'Rourke Title in Wichita prepared the deeds. The title agent for both closings advised Lewis and Stephens at closing that they were taking title as joint tenants with rights of survivorship and not as tenants in common. Lewis testified that he and Stephens wanted to take title to the land personally because they had no business or profit purpose in the property and it was intended for their personal recreational enjoyment.

The record does not reflect a specific date of dissolution of the partnership, but Lewis appears to have withdrawn from the partnership sometime between 2000 and 2003. Lewis testified that he ended his involvement in High Plains in 2000 or 2001 but that High Plains did business until around 2003. High Plains' last tax return was filed in 2003. Stephens concedes that the partnership was liquidated as early as 2001 and was wound up by 2004. Stephens' daughter testified that Lewis and Stephens were "severely acrimonious" by 2002 and High Plains dissolved then. She is likely correct. A partnership is dissolved where, among other circumstances, it is not reasonably practicable to carry on the partnership in conformity with the partnership agreement or with the business relationship between the partners. Dissolution in such a case is an equitable solution to the situation where "bitter and antagonistic feeling between partners has developed to the point that the partners cannot continue the partnership to their mutual advantage." Wallace v. Sinclair , 114 Cal. App. 2d 220, 228, 250 P.2d 154 (1952).

Upon dissolution, Lewis or Cytech owed High Plains, Stephens, and In-Tech $140,000 or more. All High Plains assets were divided and distributed by acquiescence of the partners, and all of High Plains' liabilities were settled. The record does not reflect the date at which all partnership affairs were wound up, but it was likely within a reasonable time after 2003.

When Stephens died in 2013 the Elk County property soon became the subject of litigation, with Stephens' family and Lewis both claiming exclusive ownership. Lewis sought possession of the property in accordance with his right as survivor under the deeds to the land since both deeds named Lewis and Stephens as joint tenants with the right of survivorship and made no reference to any partners or partnership. Stephens' family sought possession of the property as partnership property which had previously been distributed solely to Stephens, who had been residing on the property.

After a bench trial, the district court found that the Elk County property was never partnership property but was instead governed by the deed to the land, thus it had been owned individually by Lewis and Stephens as joint tenants with right of survivorship. As a result, the district court awarded the property to Lewis in 2016 as the surviving joint tenant. Lewis died in 2017. The administrator of Stephens' estate appeals.

Stephens contends that the district court failed to consider the proper characteristics of partnership property from the Uniform Partnership Act (UPA) of 1914 and the Revised Uniform Partnership Act of 1997 (RUPA)-both of which were effective at different times during the property transactions. He also contends that the court erred by focusing too much on whether the property served a business purpose and that the statute of limitations bars Lewis from relitigating the partnership debt and distribution of partnership property to Stephens.

STANDARD OF REVIEW

We review the district's court's findings of law de novo, meaning we give them no deference. Gannon v. State , 298 Kan. 1107, 1176, 1182, 319 P.3d 1196 (2014). But the district court's determination that the property was not partnership property is a finding of fact, made after an evidentiary bench trial. On appeal, we ask whether the district court's findings of fact are supported by substantial evidence, which we define as evidence that a reasonable person might accept as sufficient to support a conclusion.

Gannon , 298 Kan. at 1175, 319 P.3d 1196. "Findings that are supported by substantial evidence will be upheld by an appellate court even though evidence in the record would have supported contrary findings." Chowning v. Cannon Valley Woodwork, Inc. , 32 Kan. App. 2d 982, 987, 93 P.3d 1210 (2004) :

" 'In determining whether substantial competent evidence supports the district court's findings, appellate courts must accept as true the evidence and all the reasonable inferences drawn from the evidence which support the district court's findings and must disregard any conflicting evidence or other inferences that might be drawn from it. Accordingly, appellate courts do not reweigh the evidence or assess the credibility of witnesses. [Citations omitted.]' " Gannon v. State , 308 Kan. 372, 382, 420 P.3d 477 (2018).

Because this court refrains from weighing conflicting evidence, assessing witness credibility, or redetermining questions of fact, this standard of review can be outcome-determinative where, as here, the record contains conflicting evidence.

ANALYSIS

Which partnership statutes apply here?

Stephens and Lewis had no written partnership agreement and loosely operated High Plains as a d/b/a. But the facts show they nonetheless established a partnership, broadly defined as "an association of two or more persons to carry on as co-owners a business for profit." K.S.A. 56a-101(f). The existence of a partnership may be implied from the circumstances where it appears that the individuals involved have entered into a business relationship for profit, combining their property, labor, skill, experience, or money. Bass v. Bass , 814 S.W.2d 38, 41 (Tenn. 1991). Such is the case here. Lewis and Stephens entered a business relationship to construct metal structures for profit, combining their property, experience, or money in High Plains.

Our inquiry focuses on whether the Elk County property was partnership property. Because the parties had no partnership agreement to govern this determination, the RUPA governs: "To the extent the partnership agreement does not otherwise provide, this act governs relations among the partners and between partners and the partnership." K.S.A. 56a-103(a).

RUPA defines partnership property in four subsections of K.S.A. 56a-204. The first two provide:

"(a) Property is partnership property if acquired in the name of:
(1) The partnership; or
(2) One or more partners with an indication in the instruction transferring title to the property of the person's capacity as partner or of the existence of a partnership but without an indication of the name of the partnership.
"(b) Property is acquired in the name of the partnership by a transfer to:
(1) The partnership in its name; or
(2) One or more partners in their capacity as partners in the partnership, if the name of the partnership is indicated in the instrument transferring title to the property."

Because the deed to the Elk County property was titled in Stephens' and Lewis' names individually and did not mention the partnership or otherwise suggest any intent to transfer title to the partnership or to one of the partners, these two subsections do not apply.

Instead, K.S.A. 56a-204(c) and (d) control our determination of this case. Subsection (c) instructs us that property is presumed to be partnership property when purchased with partnership assets-even when the titling document does not so indicate:

"(c) Property is presumed to be partnership property if purchased with partnership assets, even if not acquired in the name of the partnership or one or more partners with an indication in the instrument transferring title to the property of the person's capacity as a partner or of the existence of a partnership."

"If partnership assets were used in the purchase, the property is presumed to be partnership property, notwithstanding the state of title." Hecker, The Kansas Revised Uniform Partnership Act , 68 J.K.B.A. 16, 20 (October 1999).

But if the property is acquired in the name of one or more of the partners without reference to the partnership or to the person as a partner and without use of partnership assets, the contrary presumption arises under subsection (d)-the property is presumed to be separate property.

"(d) Property acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person's capacity as a partner or of the existence of a partnership and without use of partnership assets, is presumed to be separate property, even if used for partnership purposes." K.S.A. 56a-204.

The Elk County property was acquired in the name of one or more partners, without an indication in the title of their capacity as partners or the existence of a partnership. The determining factor in these competing presumptions in this case is thus whether the property was purchased with partnership assets. See K.S.A. 56a-204(c), (d). Under these facts, if the property was acquired "without use of partnership assets," the presumption of separate property arises. But if the property was "purchased with partnership assets," the presumption is that the Elk County property is partnership property. Although Kansas cases have not examined this presumption, some other jurisdictions find that "the presumption can apply even when the partnership provides only a portion of the purchase price." Mogensen v. Mogensen , 273 Neb. 208, 216, 729 N.W.2d 44 (2007). See Bachand v. Walker , 455 N.W.2d 851, 855 (S.D. 1990) ; 59A Am. Jur. 2d, Partnership § 247. We use that approach here.

Before we examine that issue, we address Stephens' contention that the construction of the cabin in 1995 and the purchase of the 80 acres in 1997 predated the 1998 enactment of RUPA, so should be governed by the prior statute-the UPA. As to partnership property, the UPA provided:

"(a) All property originally brought into the partnership stock or subsequently acquired by purchase or otherwise, on account of the partnership, is partnership property.
"(b) Unless the contrary intention appears, property acquired with partnership funds is partnership property.
"(c) Any estate in real property may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership's name." K.S.A. 56-308 (Furse 1994).

We find no material difference between the two Acts, as applicable here. Under either Act, if the property was purchased with partnership funds, a presumption arises that the property was partnership property. Under either Act, the partners' intent controls, as the parties agree. This is explicit in the UPA's statement that property acquired with partnership funds is partnership property "unless the contrary intention appears," and is implicit in RUPA's rebuttable presumption that property purchased with partnership assets is partnership property.

Which presumption applies here?

Was the Elk County property purchased with High Plains funds so as to trigger the presumption of partnership ownership? Conflicting evidence was presented on this important topic. We separately address evidence regarding the cabin, the 80-acre tract, and the 40-acre tract.

The cabin

The cabin was built in 1995. Lewis, Stephens, and Schreck personally participated in building it. But High Plains was also involved in the construction of the cabin to some extent, as Lewis testified that some High Plains' employees worked on the cabin and some of the materials were purchased on High Plains' account-they likely received discounted materials from the company. Lewis testified that there was a business purpose for "running it through" High Plains.

Darrin Schmidt, bookkeeper for Cytech, In-Tech, and High Plains, testified that the money to fund construction of the cabin came "through High Plains ... through the building materials and labor ... and then [Stephens and Lewis] put any additional money in." He also testified to having heard more than one conversation between Stephens and Lewis in which they agreed that the expenses for "the ranch" were personal, and they intended to take those expenses out of High Plains' books and put them into their personal drawing accounts.

But Stephens' wife testified to the contrary-that High Plains built the cabin with High Plains funding and not with their personal money. Evidence thus conflicted as to whether the cabin was built with use of partnership assets.

80 acres

Lewis and Stephens purchased in 1997 an 80-acre parcel of land adjacent to the property on which the cabin sat. To do so, Lewis and Stephens obtained financing as individuals through Fredonia State Bank. The parties to the mortgage were Stephens, Lewis, and their respective wives, individually, without any reference to the partnership or to one's status as a partner.

But other testimony suggested that High Plains assets were used to purchase that property. In his deposition, Lewis testified that "[t]he 80-acre parcel was purchased by High Plains with [his] agreement." And High Plains paid the mortgage on the 80-acre property from 1997-1999, and paid the utilities until 2003. Evidence thus conflicted as to whether the 80 acres were purchased with use of partnership assets.

40 acres

Lewis and Stephens purchased the 40-acre parcel that included the cabin in 2000. Schreck retained the right to use the cabin and the right of first refusal upon its sale. Lewis and Stephens used a check from High Plains at closing. Yet Lewis testified that High Plains did not purchase the property; he and Stephens financed and purchased the property personally. He said "the source of money had to be borrowed personally by [Stephens and Lewis] to be able to take a check written by High Plains and for the closing." He described High Plains as "a vehicle" to which they transferred their personal money to purchase the property. Lewis and Schmidt consistently referred to funds going "through" High Plains, as though it were a mere conduit.

Lewis testified that although they used High Plains' checks for certain transactions, they adjusted the company's accounting records to ensure their personal money was actually used. Similarly, Schmidt testified that High Plains' accountant had told Lewis and Stephens that although High Plains wrote the check, he would "adjust it" to their drawing accounts or equity accounts.

But no such adjustment was apparently made. Schmidt could not verify that any such changes had been made on High Plains' books. Nor could Nikki Metzger, a CPA who helped perform accounting and tax services for Cytech, In-Tech, and High Plains from 1994 to 2003. She found no entries in High Plains' books and records moving expenses to the partners' individual accounts. Ryan Stephens (Stephens' son and a senior accounting manager for an investment company) also testified he found no such adjusting entries in High Plains' books. Evidence thus conflicted as to whether the 40 acres were purchased with use of partnership assets.

The presumption of separate property applies

The record contains testimony from which the district court could have found for either party on this crucial issue-sufficient evidence would have supported the district court's decision that the property was or was not purchased at least in part with High Plains' funds. The question remains one of fact to be determined by the district court, largely based on its credibility determinations. We find substantial competent evidence supporting the district court's conclusion that the cabin, the 80 acres, and the 40 acres were purchased with Lewis' and Stephens' personal funds, triggering the statutory presumption that the property was separate property. Because substantial competent evidence supports this finding, it is of no consequence that contrary evidence was adduced which, if believed, would have supported a different finding. See Gannon , 308 Kan. at 382, 420 P.3d 477.

Accordingly, we apply the presumption in K.S.A. 56a-204(d) :

"Property acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person's capacity as partners or of the existence of a partnership and without use of partnership assets, is presumed to be separate property, even if used for partnership purposes."

Was the presumption rebutted?

This presumption is a rebuttable presumption. RUPA creates a rebuttable presumption that property acquired with partnership funds is partnership property. Hecker, The Kansas Revised Uniform Partnership Act , 68 J.K.B.A. 16, 19 (October 1999). ("The UPA created a rebuttable presumption that property acquired with partnership funds was partnership property.") Similarly, RUPA's presumption of separate property is rebuttable. Kansas cases have not addressed how this presumption may be rebutted, so we briefly address two cases from other jurisdictions which illustrate how that may happen.

In In re Estate of Liike , 776 N.W.2d 662, 665 (Iowa App. 2009), the presumption of separate property was rebutted by proof that the partners treated the land as a partnership asset from the time it was transferred to them. The court found the partners signed a partnership agreement showing it was an asset of the partnership as of a certain date; one brother testified that it always was a partnership asset; two other knowledgeable witnesses testified that the brothers treated the land as a partnership asset and that one of them related on occasion that the farm was in a partnership; and no evidence showed either a dissolution of the partnership or a distribution of its assets.

In another case, the presumption of separate property was not rebutted when one partner originally owned the land and personally financed the overwhelming majority of the construction costs; the other partner was to be "reimbursed" for much of the money she spent to help the other finish the building; the accountant never treated the building as a partnership asset and was never instructed to do so by either party; but the partnership paid for insurance and taxes. Ferguson v. Holmes , No. A-08-442, 2009 WL 306314, at *6 (Neb. App. 2009) (unpublished opinion).

Various factors are relevant

In determining whether a party has rebutted the presumption, no single factor or combination of factors is dispositive. Ultimately, the partners' intentions control whether property belongs to the partnership. Mogensen , 273 Neb. at 216, 729 N.W.2d 44. See 59A Am. Jur. 2d Partnership § 244 - 245.

Our focus is on the partners' objective manifestations of intent. The partners are free to contribute to or to withhold from the partnership any property they choose. Our goal is to enforce their intent as best we can determine it from the facts established at trial.

Admissions

Stephens contends that certain statements by Lewis are controlling admissions which compel a finding that the property was owned by High Plains. These include Lewis' statements that High Plains paid for the cabin's construction, the mortgage, and utilities, and that the cabin was used to get everyone together, which could be considered a business purpose. Stephens contends that a party's admissions against interest are the strongest kind of evidence and override other factors. See City of Wichita v. Sealpak Co. , 279 Kan. 799, 802, 112 P.3d 125 (2005) (finding " '[a]dmissions against interest made by a party are the strongest kind of evidence' ").

As true as that general proposition of law may be, it does not apply here because Lewis' alleged admissions were contradicted. See Hiniger v. Judy , 194 Kan. 155, 165, 398 P.2d 305 (1965) (finding such admissions are binding and conclusive if uncontradicted or unexplained). Stephens' argument ignores contrary statements Lewis made, which could also be considered controlling admissions. These include Lewis' testimony that the parties merely used High Plains as "a vehicle" to which they transferred their personal money to purchase the property, that their intent was to use personal funds to purchase the property, that High Plains did not purchase the property, that he and Stephens financed and purchased the property personally, and that the cabin had no profit motive and was merely personal.

The district court could not find selected portions of Lewis' testimony to be controlling admissions against interest while discounting his contrary testimony. The district court heard all the evidence, including Lewis' conflicting testimony. It alone could judge the credibility of Lewis and all other witnesses and determine the weight of their statements. We decline Stephens' invitation to find only some of Lewis' statements to be dispositive and instead consider a variety of factors in determining the parties' intent regarding the Elk County property.

Various factors aid in determining intent

We determine the intent of the parties by considering all the pertinent facts and circumstances. The district court relied on the following factors to aid its determination: (1) the language of any partnership agreement; (2) the use of the property in the partnership business; (3) the listing of the property as an asset and of its mortgage as a liability in the partnership books and tax returns; (4) the construction of improvements on the property at partnership expense; (5) the payment of taxes and insurance premiums on the property out of partnership funds; (6) a party's declaration of intent, such as by letter or will, accompanying his or her act of entering the partnership; and, generally, (7) the parties' conduct with respect to the property.

The district court cited In re Estate of Grosboll , 315 P.3d 1284, 1290 (Colo. App. 2013) which used these factors. But Grosboll examined whether real property purchased by and held in the name of a single partner was a private or partnership asset. That is not the issue here. Nonetheless, the parties do not allege that use of the Grosboll factors is improper.

The district court properly focused on the intent of the parties. For example, it found "the purchase of the land and construction of the cabin and its use was never intended for a partnership purpose. Therefore it never became partnership property." It held that "[t]he intent of the parties, as discerned from the factual factors, is clear that the Elk County property was for the personal benefit of [Stephens and Lewis] and never served a business purpose." But the district court did not state how it applied the factors individually. Stephens contends the court misapplied the factors and erred in requiring the cabin itself to have served a business purpose. But if a district court reaches the right result, its decision will be upheld even though it relied upon the wrong ground or assigned erroneous reasons for its decision. Rose v. Via Christi Health System, Inc. , 279 Kan. 523, 525, 113 P.3d 241 (2005).

We examine the Grosboll factors individually, below, in determining whether evidence refutes the presumption that the Elk County property was personal and not partnership property. We then examine some additional factors relevant to this determination.

1) The language of any partnership agreement .

The record includes no evidence of any language in a partnership agreement, or of any partnership agreement.

2) The use of the property in the partnership business .

The record shows that the Elk County property was not used in the partnership business, which was primarily constructing metal structures. Instead, the property was used for recreational purposes only. Schmidt testified, however, that he had heard Lewis and Stephens orally agree on about four occasions that the two would share the cabin "50/50 amongst themselves as partners." Lewis said the cabin construction by High Plains was "a good way to incorporate the people and ... bring them out ... there," so Stephens argues that the cabin served the business purpose of engendering loyalty or goodwill among employees. But Lewis also testified that the cabin had no profit motive and was merely personal. Conflicting evidence was presented on this point. Substantial competent evidence supports the district court's determination that the Elk County property did not serve a business purpose, but that fact is not controlling.

3) The listing of the property as an asset and of its mortgage as a liability in the partnership books and tax returns .

The Elk County property was not listed as an asset of High Plains, nor was it listed as a liability in the partnership books or tax returns.

4) The construction of improvements on the property at partnership expense .

The sole improvement on the property was the cabin, which we have found was not constructed at partnership expense. Substantial evidence supports the district court's finding that the partnership was used as a mere conduit for personal funds, as it relates to the Elk County property.

5) The payment of taxes and insurance premiums on the property out of partnership funds.

The record contains no evidence about the payment of insurance premiums on the property but shows that High Plains paid property taxes on the cabin from 1995 until 1997.

6) A party's declaration of intent, such as by letter or will, accompanying his or her act of entering the partnership .

No such declaration of intent is in the record. The parties had an oral partnership and were apparently unconcerned with formalities such as writing any agreements or statements of intent. This factor is likely more useful when examining, as Grosboll did, whether real property purchased by and held in the name of a single partner is a private or partnership asset. The crucial time for purposes of our case, however, is not the date of entering the partnership but the date of constructing the cabin and purchasing the land. We examine that as a separate factor below.

7) The parties' conduct with respect to the property.

During the existence of the partnership, the parties used the property for hunting and other recreational uses.

After 2003, Lewis rarely visited the property yet he maintained a bedroom in the cabin while Stephens lived there. Although Lewis did not use the property often, no facts indicate that Stephens prevented him from doing so. Bill Baxter, a friend of the two since school days, thought Stephens had taken possession of the cabin. He understood from Stephens that Lewis had given up his ownership interest in the property to account for the money Lewis owed Stephens. While Lewis visited the property infrequently, Stephens began staying at the cabin regularly on weekends.

Stephens acted as if he owned the land in his personal capacity after 2003. That year, Stephens refinanced the two Fredonia State Bank mortgages into one mortgage in his name only. Stephens later gave neighbors permission to harvest trees off the land, signed oil and gas leases, and signed a water easement. Stephens received money from pasture rental which he put toward bills and improvements for the land. His daughter testified that her father took the property "as distribution ... from the demise of High Plains, the partnership, and ... the debt that [Lewis] owed [him]." She testified that Stephens used the property as his residence after his separate maintenance proceeding in 2010 until his death in 2013. Stephens treated the cabin as his primary residence and paid the mortgage, taxes, and utilities without contribution from High Plains or Lewis.

Stephens' widow testified that High Plains dissolved in or around 2000, and that Stephens had received the Elk County property in lieu of monetary payment of the debt that Lewis owed Stephens. She believed Stephens became the sole owner of the property about that time. But as noted above, others placed the date of dissolution around 2002-2004.

The timing of the events could support the conclusion that Lewis gave his interest in the Elk County property to Stephens as part of the distribution of partnership assets. But the facts could support a contrary inference instead. Because Stephens' name was on the mortgage of both properties, he was jointly and severally liable for its payment. Stephens knew that Lewis owed him over $140,000, and may have concluded that Lewis would not or could not pay the mortgage, so Stephens paid it. Thus Stephens' taking possession and paying the mortgage around the time of the partnership dissolution is not necessary because he had received that property as distribution of partnership assets.

Some evidence of the parties' intent is revealed by their treatment of a 2008 draft agreement regarding ownership of the property. That year, Stephens drafted and asked Lewis to sign a written agreement stating Lewis and his wife relinquished all ownership in the Elk County property. The agreement stated that it was between four parties: Stephens, Stephens' wife, Lewis, and Lewis' wife. It identified the Elk County property, then stated: "William J. Lewis Jr. and Carol Lewis relinquish all ownership in the above-described property. ... Each of the parties and their heirs shall enjoy lifetime hunting, fishing and recreational rights to the above described property." The agreement contained a signature line for each of the four individuals.

Lewis refused to sign the document. But if Lewis had already given his interest in that very property to Stephens during their earlier partnership dissolution, it is reasonable to infer that Lewis would have signed it. By drafting the agreement and asking Lewis to sign it Stephens expressly recognized that Lewis continued to believe in 2008 that Lewis owned the property. Yet Stephens made no reference in the agreement to the partnership or to Stephens' purported ownership of the property as a partnership asset that had been previously distributed to him during dissolution of the partnership. And he directed the agreement not to Lewis as his former partner but to Lewis and his wife individually. This draft agreement appears to evidence Stephens' belief in 2008 that Lewis still owned the property individually-it does nothing to assist his assertion that the partners intended for Stephens to own it by virtue of the partnership's distribution of assets during its earlier dissolution.

When Lewis refused to sign the ownership agreement, Stephens took no further formal or written measures to establish his sole ownership of the property, although he could easily have done so.

"[A] joint tenancy may be terminated by a party's action indicating his or her intent that the property no longer be owned as joint tenants. When dealing with real property owned by two individuals as joint tenants with rights of survivorship, one of the joint tenants may sever the joint tenancy by unilaterally executing a quitclaim deed to himself or herself. The execution and delivery of such a unilateral self-conveyance clearly demonstrates the tenant's intent to sever the joint tenancy. Reicherter v. McCauley , 47 Kan. App. 2d 968, 973, 283 P.3d 219 (2012)." Commerce Bank v. Posey , No. 110,789, 2014 WL 4231298, at *5 (Kan. App. 2014) (unpublished opinion).

Nothing like that happened in this case. At any time, Stephens could have severed his joint tenancy by conveying his interest to a third person or by self-conveying to himself. Hall v. Hamilton , 233 Kan. 880, 885, 667 P.2d 350 (1983) ; Reicherter v. McCauley , 47 Kan. App. 2d 968, 973, 283 P.3d 219 (2012). He did not do so, nor did he take any action that would have demonstrated his intent to sever the joint tenancy.

Two years later, Stephens claimed the property as his own in his and his wife's separation proceeding, which made no reference to any partnership property. In February 2010, Stephens filed for separate maintenance and received a quitclaim deed from his wife for the property. In Stephens' Domestic Relations Affidavit, he lists the Elk County property under "real estate" and as his residence. Stephens received 100% interest in the property in the division of assets in the Journal Entry of Judgment and Decree of Separate Maintenance.

Stephens treated the property similarly in his 2010 bankruptcy proceeding, which claimed the Elk County property as his homestead and his private residence. He made no reference to High Plains or to the property as partnership property. Stephens' bankruptcy filings do, however, reference an IRS lien against Lewis' interest in the property in an unknown amount.

In 2011, Lewis and his wife divorced and he received a quitclaim deed from his wife for the Elk County property. After Stephens died in 2013, Lewis sought to take possession of it and made various repairs and improvements to it.

Nothing in the parties' conduct with respect to the Elk County property during the existence of the partnership indicates they considered it to be partnership property. That makes it less likely that the property was a partnership asset awarded to Stephens during dissolution. The facts regarding the award of the property to Stephens during dissolution of the partnership in lieu of the money Lewis owed Stephens are equivocal.

We briefly address a few other factors we find relevant. See Standring v. Standring , 794 P.2d 1089, 1090-91 (Colo. App. 1990) ; Mogensen , 273 Neb. at 216-17, 729 N.W.2d 44 ; Leckrone v. Walker , No. M1998-00974-COA-R3-CV, 2002 WL 773147, at *3 (Tenn. App. 2002) (unpublished opinion).

8) The attribution of profits or losses from the property to the partnership.

Metzger testified that High Plains listed no property in Elk County, Kansas, as an asset on its tax returns for years 1994 to 2003, and High Plains made no entries on its adjusted trial balance or income tax returns for profit or loss for property in Elk County during those years. Those were the only years that the record shows the High Plains partnership arguably existed, thus we find no profits or losses from the property attributed to the partnership.

9) The use of partnership funds to maintain the property.

High Plains paid utilities until 2003. Otherwise, the record does not show that partnership funds were used to maintain the property.

10) Whether partnership books and accounts treat property as partnership property.

High Plains' books and accounts do not treat the property as partnership property except perhaps for deducting the expense of the cabin construction on its tax return.

Substantial evidence supports the district court's finding that the parties merely funneled their personal funds through High Plains and used the partnership as a mere "conduit for personal funds" so they could take "personal financial advantage of buying materials to construct the cabin at wholesale and charging the cost of constructing the cabin to High Plains creating a tax advantage."

11) The parties' statements, conduct, and writings when the property was acquired.

Two written documents were made when the property was acquired: the mortgages and the deeds. In 1997, when the 80-acre parcel was purchased, Lewis and Stephens obtained financing for it as individual mortgagors through Fredonia State Bank. The parties to the mortgage were Stephens, Lewis, and their wives. In 2000, when the 40-acre parcel was purchased, Lewis and Stephens did the same. Each time, the four individuals signed the mortgage individually, without any reference to their status as partners or to the existence of a partnership. And each time those individuals warranted that they were "lawfully seized of the estate ... and ha[d] the right to grant, bargain, convey, sell, mortgage and warrant the Property ... [and] that the Property is unencumbered, except for encumbrances of record." Nothing in the mortgages tends to show that the property was intended to be partnership property.

The deeds also support the district court's finding that the property was not intended to be treated as partnership property. The partnership existed before the cabin was built or the acreage was purchased and a partnership can hold title to real property. K.S.A. 56a-204(a)(1). Nonetheless, Lewis and Stephens did not refer to the partnership or to their capacity as partners on either title, evidencing their intent to hold the property individually. Instead, the 1997 deed to the 80 acres states that "William J. Lewis, Jr. and Randall L. Stephens" purchased the property as joint tenants with rights of survivorship and not as tenants in common." Similarly, the 2000 deed to the 40 acres states that "Randall L. Stephens and William J. Lewis, Jr." purchased the property as joint tenants with rights of survivorship and not as tenants in common."

Nor did the parties change either deed later when the partnership was dissolved and its assets were distributed, as one might expect had Lewis given his interest in the property to Stephens at that time.

Conclusion

When we review all these factors indicative of intent, we find some evidence cutting both ways. But we must accept as true the inferences that support the district court's findings of fact. State v. Orr , 262 Kan. 312, 322, 940 P.2d 42 (1997). We find substantial, competent evidence supporting the district court's tacit finding that the evidence fails to rebut the presumption that the Elk County property was personal property. Lewis obtained full and exclusive ownership in the property as the surviving joint tenant when Stephens died.

This remains the case, as that joint tenancy was not severed. See Campbell v. Black , 17 Kan. App. 2d 799, 804, 844 P.2d 759 (1993) (listing severance by mutual agreement of the parties, by course of conduct indicating tenancy in common, or by operation of law upon destruction of one or more of the required unities [time, title, interest, and possession] ). Thus the property is unified in Lewis' estate.

We find it unnecessary to address the additional theories on which the district court relied. Its decision is supported by substantial competent evidence and will not be disturbed. It heard the witnesses, judged their credibility, and weighed the competing evidence-matters we cannot revisit.

The statute of limitations does not bar this result

We briefly address Stephens' contention that the three-year statute of limitations for oral contracts in K.S.A. 60-512(1) bars Lewis from relitigating the partnership debt and distribution of partnership property to Stephens. But to do so, Stephens restyles the case, arguing that Lewis is untimely contesting the completed distribution of High Plains, which occurred before 2010. But Stephens, not Lewis, is the plaintiff in this case, and this argument rests on Stephens' unsuccessful assertion that the Elk County property was partnership property distributed to Lewis when High Plains was dissolved.

Affirmed.


source: Caselaw Access Project

author: Arnold-Burger, J.:

license: Public Domain

text:
    POWER CONTROL DEVICES, INC., and Personal Best, Inv., Appellants, v. Michael "Mick" W. LERNER and Lerner Law Firm, P.A., Appellees.
    No. 117,705
    Court of Appeals of Kansas.
    Opinion filed January 25, 2019
    Patrick A. Hamilton, of Hamilton Law Firm LLC, of Lenexa, for appellants.
    James C. Morrow, Marshall W. Woody, and Hillary Hyde, of Morrow Willnauer Church, LLC, of Kansas City, Missouri, for appellees.
    Before Arnold-Burger, C.J., Green, J., and Robert J. Frederick, District Judge, assigned.
   Arnold-Burger, J.:

In order to prevail in a claim of legal malpractice, "a plaintiff must establish the validity of the underlying claim by showing that it would have resulted in a favorable judgment in the underlying lawsuit had it not been for the attorney's error." Canaan v. Bartee , 276 Kan. 116, 120, 72 P.3d 911 (2003). This is commonly referred to as proving the "case within a case." Here Power Control Devices (PCD) hired Michael "Mick" W. Lerner to represent it in a federal court breach of contract lawsuit against Orchid Technologies Engineering and Consulting (Orchid). The federal district court overseeing the case dismissed it, holding that PCD failed to bring the claim within the statute of limitations. PCD then sued Lerner for legal malpractice, alleging that he was negligent by filing the suit after the statute of limitations had passed. A jury agreed and awarded damages to PCD.

But following the verdict, the district court granted Lerner's motion for judgment as a matter of law, overturning the jury verdict in favor of PCD, on the basis that PCD failed to prove that it would have succeeded against Orchid at trial. In the alternative, the district court judge conditionally granted Lerner a new trial based on a separate instructional error-in case his judgment of no liability was overturned on appeal. However, the judge did not err when he ruled in favor of Lerner. The case between PCD and Orchid was highly technical, yet PCD failed to present any expert testimony to establish that it would have been successful against Orchid if its lawsuit against Orchid had been timely. Accordingly, we affirm the district court's decision granting judgment as a matter of law to Lerner.

FACTUAL AND PROCEDURAL HISTORY

Lerner is an attorney licensed to practice law in Kansas. PCD hired Lerner to represent it in a lawsuit against Orchid. Now, PCD is suing Lerner and The Lerner Law Firm for malpractice. In order to understand the malpractice suit, we begin by examining the underlying litigation.

PCD's case against Orchid is examined.

PCD manufactures electronic devices. Its primary product is servo amplifiers, which are used to drive motors in products such as radar systems, cameras, surveillance systems, and weapons control systems.

In the early 2000s, PCD's Israeli representative informed PCD of an advanced technology that presented a potential business opportunity worth millions of dollars to PCD if PCD could design and sell it. The product was a brushless direct current motor controller used in a missile navigation system. Another company, ELMO, was already making the controller. ELMO supplied the controller to Rafael Aerospace, the largest aerospace company in Israel. Rafael Aerospace provided the specifications of the controller to PCD. It also provided the ELMO controller to PCD. PCD attempted to create the controller on its own but was unsuccessful due to its lack of technical expertise. As a result, PCD reached out to Orchid, an engineering firm, to see if Orchid could design the controller.

Michael Allmayer, PCD's vice president of marketing, emailed Orchid's president Paul Nickelsberg in January 2004 to begin discussing the project. Eventually, the parties entered into a contract. The contract provided that Orchid would design and create a prototype of a brushless DC motor controller (BLDC1). PCD did not provide the ELMO controller to Orchid or even show it to Orchid as part of the negotiations with Orchid. It did not want Orchid to reverse engineer the ELMO controller, it wanted one made from scratch based solely from the ELMO specifications.

While the contract mentioned three different phases of project development, it only contained the Phase 1 development plan. In Phase 1, Orchid was required to provide four BLDC1 prototype circuit boards to PCD. The boards had to be "assembled, debugged and delivered to [PCD]" pursuant to a schedule in the contract. There were numerous specifications in the contract. However, at the time the contract was written the specifications were still being developed so the contract specifications were expressly defined as merely "guidelines." The contract required PCD to "supply all prototype testing." The contract did not specify how the prototypes should be tested. The contract simply stated that Phase 1 would be completed when Orchid delivered the prototype boards to PCD.

Over the course of the next few months, Orchid worked on designing and programming the prototype. At the end of 2004, Orchid began sending prototypes to PCD. PCD would test them and give feedback to Orchid about what needed to be adjusted to comply with the specifications. Orchid ultimately sent four sets of prototypes.

Orchid sent its final prototypes to PCD on March 16, 2005. Orchid notified PCD that the prototypes were within specification and that it was ready to move on to the next phase of development. PCD tested the prototypes on April 4, 2005. PCD's tests showed that the prototypes were not within the specifications. Allmayer emailed Nickelsberg that day to inform Orchid of its test results.

"We took measurements on the BLDC output current, which I've attached. So far, we haven't been able to verify the correct gain structure for the BLDC. At the 1 Volt command, the output shows a gain of approximately 9. Have you been able to externally verify that the unit is producing a current gain of 3 for every volt input command?
"I'm interested in hearing your ideas on this."

After discussing the discrepancies in testing results, it was discovered that Orchid had been testing the total output current of the prototype current at the servo current node of the BLDC1 prototype while PCD measured the phase current of the prototype at the shunt current node. Orchid conducted more tests, including testing in the manner that it discovered PCD had been using. On April 29, 2005, Nickelsberg emailed Allmayer a report-the BLDC1 Control Discussion and Review (Report). In the Report, Nickelsberg again asserted that Orchid's BLDC1 was performing correctly when tested "using industry-standard constant current monitoring techniques." The Report went on:

"The current measured at the BLDC SERVO CURRENT node and the current measured at the SHUNT CURRENT nodes are not equivalent. The BLDC SERVO CURRENT node measures the actual amplifier output current. The SHUNT CURRENT nodes measure both forward and free-wheeling currents within the load. Once again, the measurements are not equivalent. The freewheeling currents in the load, measured at the shunt point present a false indication of the actual real current within the system."

Finally, the report stated that "very significant changes to the BLDC1 design will be required" if PCD wished to use the alternate phase current testing method. Allmayer explained that this Report was the first time he believed that Orchid would be unable to fulfill the contract.

When Orchid told PCD that PCD was measuring the prototypes incorrectly, PCD believed that Orchid was acting in good faith. PCD was relying on Orchid's expertise in design. It continued to work with Orchid even after the Report to remedy the issues.

As evidence of their continued discussion and cooperative working arrangement, PCD invited Nickelsberg to its plant to see, for the first time, a demonstration of the ELMO controller prototype provided by Rafael Aerospace. Nickelsberg visited the plant in August 2005. After witnessing the ELMO controller testing, according to Allmayer, Nickelsberg said, " 'Now I get it. I get what I missed. This is-this is a really special piece of product.' " Nickelsberg continued by stating, " 'Okay. I get it all now. Let me start probing experimental units and see what I can do to get you one that works.' "

Moreover, at the August demonstration, Nickelsberg indicated that even though the BLDC1 did not perform like the ELMO controller prototype, he believed the BLDC1 had value and was marketable. PCD personnel asked Nickelsberg if he would help PCD market the BLDC1 so PCD could make some money. Nickelsberg agreed and PCD suggested that the money made could be reinvested into the costs of building a new one from scratch. The parties agreed that would be a good idea. Orchid eventually sent PCD a new development plan. The new development plan would start the project over anew and would not use the technology that Orchid used in the original prototype designs-at additional cost to PCD. The parties continued to try to devise a way for the BLDC1 to work as hoped but they all finally determined it wasn't possible with the BLDC1 model.

Orchid did not follow through on its agreement to help PCD market the BLDC1. Everything was placed on hold. But, about a year later, PCD noticed that a picture and description of the BLDC1 was on the Orchid website-advertised as something Orchid designed and could manufacture for a customer. PCD believed this to be in violation of its confidentiality agreement with Orchid. PCD became concerned that Orchid was stealing its design. After several years, PCD decided to look for an attorney to bring a case against Orchid. On November 12, 2010, over five years after Orchid visited the PCD facility and discovered the need for a new development plan, PCD contacted Lerner. PCD and Lerner entered into a contract for Lerner to represent PCD. The contract was never reduced to writing. However, Lerner agreed at his malpractice trial that he had an obligation to PCD to file its lawsuit before the statute of limitations expired.

Lerner knew at the time he was hired that the statute of limitations would be a pressing issue in the case. Kansas' five-year statute of limitations for breach of contract claims had already expired. But, Orchid is a Massachusetts corporation and Massachusetts has a six-year statute of limitations.

Lerner believed that the statute of limitations would run on PCD's claims against Orchid on April 29, 2011-six years after the date Orchid sent the Report to PCD. He filed suit in the United States District Court for the District of Massachusetts on April 25, 2011. PCD contended that the contract required its method of testing. Orchid took the position that the prototypes worked and that it fulfilled its obligation under the contract when it delivered the prototypes. Orchid argued that once PCD accepted delivery of the prototypes, it then asked Orchid for something different.

The parties attempted mediation in May 2012, but it was not successful. The parties then began discovery. The case proceeded to a pretrial conference in March 2013, with the trial scheduled to occur the following month. At the pretrial conference, Orchid announced its intention to file for summary judgment based on the statute of limitations issue. The court postponed the trial and allowed the parties to file motions regarding summary judgment.

Orchid argued that PCD admitted in the joint pretrial memorandum that the alleged breach occurred on March 16, 2005. Orchid cited statements by PCD that it received Orchid's final design on March 16, 2005, and that it was aware that the design did not meet its specifications shortly thereafter. Orchid cited the parties' contract, which stated that the contract was finished with the delivery of the final prototypes. Orchid also argued that PCD made its final payment under the contract on April 4, 2005, which was outside of the statute of limitations period.

The federal district court granted Orchid's motion for summary judgment. It held that PCD discovered the breach of contract on April 4, 2005, when it tested the prototypes and found that they did not meet the contractual specifications. The court disregarded the Report because the parties' contract did not state that contract completion was contingent upon the receipt of such a report. Rather, the Report "simply confirmed what Power Control already suspected, i.e., that the prototypes did not meet plaintiff's standards." The court further stated that "[g]iven that the plaintiff only needed notice of its potential cause of action and not confirmation of breach from the defendant, it certainly had such notice prior to receiving the April 29th report."

PCD appealed to the First Circuit Court of Appeals. However, it decided not to pursue the appeal because the cost of appeal would exceed the damages it sought from Orchid. PCD and Orchid settled the case. The settlement included assurances regarding the protection of PCD's design and source code.

The current malpractice case is examined.

PCD filed suit against Lerner and The Lerner Law Firm in September 2015. The petition stated five causes of action: legal malpractice, breach of contract, breach of fiduciary duty, fraud, and negligent misrepresentation. The district court scheduled the case for a jury trial. The case proceeded to jury trial on the legal malpractice claim.

After evidence was presented, Lerner filed a motion for judgment as a matter of law. Lerner noted that PCD was not planning to present any expert testimony at trial. Without expert testimony, Lerner argued, PCD would be unable to prove that Orchid breached the contract in the underlying case. The district court took the motion under advisement and allowed the case to proceed to the jury.

Throughout the trial, there was a lot of conflicting testimony concerning whether Lerner was negligent in not filing the case before April 4, 2005, and whether the federal judge was correct in dismissing the case on that basis. Suffice it to say that reasonable minds could differ as to when the statute of limitations began to run in the underlying case. But following trial, the jury found that Lerner was negligent in providing legal services to PCD, and Lerner does not challenge that factual finding in this appeal.

The jury further found that Orchid breached its contract with PCD, and that PCD's lawsuit against Orchid would have been successful but for Lerner's negligence. It awarded PCD $279,067.35. The jury found that the value of the underlying breach of contract claim against Orchid was $58,977.50. The rest of the damages award was costs and expenses PCD incurred in bringing the underlying case against Orchid.

Lerner filed a renewed motion for judgment as a matter of law after the trial. The district court granted Lerner's motion and set aside the jury verdict. The court held that PCD failed to demonstrate that Orchid breached the underlying contract. The court stated that PCD failed to provide evidence regarding a contractual requirement for testing protocols. The court noted that PCD did not present expert testimony to prove its claim that Orchid breached the contract. The court rejected PCD's argument that Lerner's own testimony through the pleadings he filed and the discussions he had with PCD executives and lawyers could be used to prove that Orchid breached the contract.

In addition to granting Lerner's motion for judgment as a matter of law, the district court conditionally granted him a new trial based on invalid jury instructions. The court held that the jury instructions were insufficient insofar as they failed to instruct the jury on the proof necessary to establish the breach of contract claim between Orchid and PCD. The court also noted that a majority of the damages award, $220,089.85, was the amount that PCD spent on attorney fees and expenses in the underlying case against Orchid. The court held that attorney fees from an underlying case in a malpractice action are not recoverable. The court's reasoning was that such a recovery would amount to a double recovery for the plaintiff-the value of the underlying breach of contract claim plus the underlying attorney fees. Although, the court noted, the plaintiff would be entitled to recover attorney fees incurred in prosecuting the legal malpractice claim. Therefore, the court set aside that portion of the verdict. The court added that, should a new trial occur, any damages awarded at the new trial could not include the attorney fees and expenses incurred in the underlying case.

PCD appealed.

ANALYSIS

The district court did not err by granting Lerner's motion for judgement as a matter of law.

PCD's first argument on appeal is that the district court erred in granting Lerner's motion for judgment as a matter of law. The district court's primary basis for granting Lerner's motion was that PCD failed to prove that it would have prevailed against Orchid in the underlying case. Lerner asserts that this was the correct conclusion, and that PCD did not provide any evidence at trial that it would have prevailed against Orchid. Lerner argues that PCD failed on this point because it did not identify a material term in the contract that Orchid breached, and it did not have an expert witness who could testify as to how Orchid's prototypes failed to satisfy the contract. On the other hand, PCD argues that the district court did not consider all the evidence, and that it improperly weighed evidence in granting the motion. Specifically, PCD argues that Lerner's testimony provided "substantive evidence upon which the jury could determine if Orchid breached the Contract." PCD also cites Nickelsberg's statements as an "admission to PCD's principals that the prototypes did not meet the contractual specifications."

In reviewing the district court's decision, we apply the same standard as did the district court and review the motion de novo.

"A district court must deny a 60-260(a) motion if evidence exists upon which a jury could properly find a verdict for the nonmoving party. In evaluating the motion, a district court must resolve all facts and inferences reasonably to be drawn from the evidence in favor of the party against whom the ruling is sought. Where reasonable minds could reach different conclusions based on the evidence, the motion must be denied." Russell v. May , 306 Kan. 1058, Syl. ¶ 2, 400 P.3d 647 (2017).

To make a prima facie case for legal malpractice, PCD had to show: " '(1) the duty of the attorney to exercise ordinary skill and knowledge, (2) a breach of that duty, (3) a causal connection between the breach of duty and the resulting injury, and (4) actual loss or damage.' " Canaan , 276 Kan. at 120, 72 P.3d 911. Additionally, "a plaintiff must establish the validity of the underlying claim by showing that it would have resulted in a favorable judgment in the underlying lawsuit had it not been for the attorney's error." 276 Kan. at 120, 72 P.3d 911. The only element of legal malpractice at issue in this appeal is whether PCD would have prevailed against Orchid in the underlying claim.

The parties' primary dispute was whether the prototypes met the contractual specifications. Orchid tested the prototypes and believed that they met the specifications. PCD tested the prototypes and believed that they did not meet the specifications. In the underlying litigation, each side had experts prepared to testify. Orchid hired David Saar and PCD hired Michael Sidman. Saar testified in a deposition that Orchid tested the total output current of the prototype. This is different than measuring phase current. PCD believed that this testimony was key to its case because it asserted that the specifications in the contract related to phase current. PCD also planned to call Sidman in the underlying case. Sidman would testify that PCD used the proper testing method. Sidman personally tested the prototypes at PCD's plant.

The contract between Orchid and PCD did not specify how the prototypes were to be tested. Determining which party was correct, and thus who should have prevailed in the underlying litigation, required PCD to provide evidence that it was testing the prototypes correctly and in accordance with any industry standards that existed. However, its expert Sidman did not testify in the malpractice case. Furthermore, the district court judge held that Sidman's opinions were not allowed into evidence other than through his direct testimony because they were hearsay. PCD was attempting to prove its case through Lerner's hiring of Sidman as an expert in the case and Lerner's trust in Sidman's opinions, without actually calling Sidman to the stand to testify. PCD also failed to provide any evidence that its use of the phase current testing it conducted was performed correctly or even required by the contract.

We pause to note PCD's trial strategy throughout the case was to prove its underlying case against Orchid through Lerner. Because Lerner, as PCD's counsel, argued strenuously in pleadings and in meetings with Allmayer and others that he could prove Orchid violated the terms of the contract, then all of Lerner's pleadings and statements were evidence that Orchid breached the contract. This is a dangerous path and one that the district judge repeatedly and properly criticized. An attorney is an advocate for his or her client and is always trying to put the best case forward. But in a legal malpractice action, an attorney's opinion of the case, the attorney's pleadings or filings in the case, or even the attorney's puffing about his or her abilities to prevail, is not evidence of any of the claims made in the underlying lawsuit. As Judge Hauber so aptly put in his ruling granting judgment for Lerner as a matter of law:

"During oral argument, when asked to identify the witnesses or evidence that indicated PCD had shown a breach of contract, plaintiffs' counsel asserted that they had proved their case through Mr. Lerner's testimony, which he characterized as 'admissions.' The Court rejects this proposition. Lawyers must zealously represent their clients in all cases, but, as the standard instruction indicates, statements of counsel are not evidence. [PIK Civ. 4th 102.04.] Their statements may be useful to guide a jury on the issues, but their written submissions, arguments and briefs are not evidence, only advocacy. None are admissible evidence in the underlying case."

See Heinze v. Bauer , 145 Idaho 232, 238, 178 P.3d 597 (2008) ("statements made on behalf of a client in the course of representation are not personal admissions that may be used against the attorney in subsequent litigation"); Barcola v. Hourigan, Kluger & Quinn P.C. , 82 Pa. D. & C.4th 394, 411 (2006) ("If statements and arguments made by counsel in furtherance of a client's claim were routinely deemed to constitute binding admissions against a lawyer in a subsequent legal malpractice action, it could conceivably have a chilling impact upon the vigor and resulting effectiveness of counsel's advocacy.").

The only other evidence that PCD contends supports the jury verdict regarding breach of the PCD-Orchid contract is the Report itself, indicating that the two entities are using different testing methods and the statement made by Nickelsberg several months after the alleged breach, as relayed by Allmayer, " 'Now I get it. I get what I missed. This is-this is a really special piece of product. ... Okay. I get it all now. Let me start probing experimental units and see what I can do to get you one that works.' " But again, as Judge Hauber points out in his order:

"No explanation was provided as to what 'he got' or what he 'missed' or even whether it related to any contractual requirement or testing protocol. Mr. [Allmayer] could not provide foundation for an admission without describing, competently, and with foundation, what aspect of the device's performance somehow related to the ELMO or why it mattered. Following that trip, Mr. [Allmayer] testified that Mr. Nickelsberg sent a new proposal to create a BLDC2. The testimony read to the jury from his deposition established that he was an engineer. He testified that design is a 'process' and a prototype is a step along that process.
"When handed the [Report], Mr. Nickelsberg testified that he was involved in the testing and 'may have done them.' He was shown the graph of results of measurements of current from the prototype. He recounted his trip to PCD. When asked about the readings from the device, he said PCD 'indicated that there were readings that it seemed like they didn't understand or that weren't in accord with what they expected.' The testimony does not pinpoint any specific aspect of the 'readings.' He was asked about 'revisiting' the development plan after the August trip and he said he did not recall entirely why they were doing so other than the parties were 'trying to look for ways all through these few months to make something [for] PCD that was affordable and feasible.' When challenged as to whether Orchid was 'trying to meet the written specifications of the [original] development plan,' he responded: 'We had already met the written specifications of the development plan.' He then agreed that they were trying to do something 'beyond meeting those written specifications' with the new development plan. Finally, when Mr. Lerner kept challenging him about when Orchid was trying to meet the original specifications after [proposing] a revised development plan, he reiterated that they had met them and that PCD apparently 'wanted something different' to meet the same specifications.
"The foregoing fails to demonstrate a breach of contract in a case that required expert testimony to establish what was made, tested and how it mattered under the contract specifications. A party cannot unilaterally impose a requirement for testing in a certain manner [without] conveying the same by contract. There is no evidence of any contract provision, specifications or otherwise that was breached. Certainly, there is no evidence of damages as it relates to what was received versus what was expended.
"Plaintiffs never sought this Court's interpretation of any of the terms of the contract which can be interpreted as a matter of law. Osterhaus v. Toth , 291 Kan. 759, 768, 249 P.3d 888 (2011). Even the Pretrial Order fails to specify what aspect of the contract was breached. If the Court cannot interpret the contract to determine what precise issues should be submitted to the jury, then submitting any associated breach of contract claim would invite speculation."

To prove what is commonly referred to as "a case within a case," the plaintiff must present the case as it would have been presented separately to a judge or jury and the fact-finder must make a determination solely on the evidence presented regarding that underlying case. This can be done by bifurcating the two parts of the legal malpractice case. If not, there must be a clean demarcation between the two during the trial. In this case, the two issues were hopelessly combined and confused with little guidance to the jury regarding how to sort it out.

In sum, PCD did not present expert testimony in its malpractice case against Lerner. Under Kansas' rules of evidence, nonexperts cannot give opinions or inferences that are "based on scientific, technical or other specialized knowledge." K.S.A. 2017 Supp. 60-456(a). The engineering concepts in this case certainly qualify as scientific, technical, or other specialized knowledge. Thus, to prove the "case within a case," PCD needed to have an expert testify that Orchid failed to meet the contract specifications. See City of Arkansas City v. Bruton , 284 Kan. 815, 842-43, 166 P.3d 992 (2007) ("Interpretation of the engineering plans and specifications is not something that is within the common knowledge of the public; it is a matter that requires the technical explanation of an expert in the field."). The district court correctly found that expert testimony was necessary to prove the underlying case, and because it was not provided, we affirm the district court's entry of judgment for Lerner as a matter of law.

The district court did not err by refusing to instruct the jury on PCD's breach of contract claim against Lerner.

PCD also contends on appeal that the district court erred in not allowing its separate breach of contract claim to go forward. During the jury instructions conference, PCD asked the court to instruct the jury on its breach of contract claim. PCD cited Lerner's testimony, in which he testified that he had a contractual duty to file the case against Orchid within the statute of limitations, as a basis for the instruction. PCD argued that it should be able to recover the fees and expenses paid to Lerner under the contract. In other words, Lerner contracted to timely file a case, he breached the contract; therefore, PCD is entitled to a return of its attorney fees, unrelated to whether it would have prevailed in the underlying case. Accordingly, PCD argued that it would not have to prove that the underlying litigation with Orchid would have been successful to prevail on its breach of contract claim against Lerner. The district court held that the breach of contract theory was the same as the malpractice claim-failure to timely file the lawsuit against Orchid. The district court refused to instruct the jury on PCD's separate breach of contract claim, holding that PCD's claims against Lerner sounded in tort. PCD appealed the district court's ruling and makes the same arguments here as it did to the district court.

The standard of review for jury instruction issues has several parts. First, this court exercises unlimited review to determine whether the issue was preserved for appeal. Second, the court employs unlimited review of the record to determine if the requested instruction was legally and factually appropriate. Third, if the district court erred, this court must determine whether the error was harmless. State v. McLinn , 307 Kan. 307, 317, 409 P.3d 1 (2018). The "first and third step are interrelated in that whether a party has preserved a jury instruction issue will affect our reversibility inquiry at the third step." State v. Bolze-Sann , 302 Kan. 198, 209, 352 P.3d 511 (2015). If a party preserves the issue, as PCD did here, then the district court's error is reversible if this court determines there is a reasonable probability that the error affected the outcome of the trial in light of the entire record. State v. Louis , 305 Kan. 453, 457-58, 384 P.3d 1 (2016).

Having determined that PCD preserved this issue for appeal, the next step is determining whether a breach of contract instruction was legally and factually appropriate. The issue presents a question of law, and this court's review is unlimited. Hunt v. KMG Main Hurdman , 17 Kan. App. 2d 418, 419, 839 P.2d 45 (1992). There are a number of Kansas cases which discuss the issue. The Kansas Supreme Court has explained:

"Legal and medical malpractice generally constitute both a tort and a breach of contract. An action for liability of an attorney on the grounds of negligence for failure to discharge his professional duty to a client rests on the employment contract and therefore is contractual in nature. Where the act complained of is a breach of specific terms of the contract without any reference to the legal duties imposed by law upon the relationship created thereby, the action is contractual. Where the essential claim of the action is a breach of a duty imposed by law upon the relationship of attorney/client and not of the contract itself, the action is in tort." Pancake House, Inc. v. Redmond , 239 Kan. 83, 85-86, 716 P.2d 575 (1986).

The Kansas Supreme Court examined this distinction in Malone v. University of Kansas Medical Center , 220 Kan. 371, 552 P.2d 885 (1976). There, Rose Malone went to the University of Kansas Medical Center (KUMC) for treatment. After being examined, a physician gave her a prescription for an alleged infection and told her to return home. The next day, Malone became ill and suffered immense pain. An ambulance took her back to KUMC. Her uterus had ruptured and it caused a fetus she was carrying to die. Without her consent, doctors performed a total abdominal hysterectomy. Malone sued KUMC for breach of contract. One count of her petition alleged that when she first went to KUMC for treatment the parties entered into an express contract under which KUMC "agreed to provide 'complete, competent, and necessary medical treatment' for her." 220 Kan. at 372, 552 P.2d 885. Another count of her petition alleged that when she returned to the hospital the following day the parties entered into an express contract under which KUMC "agreed to provide 'only necessary, competent and authorized medical treatment' for [her]." 220 Kan. at 372, 552 P.2d 885. The district court dismissed Malone's petition, holding that her action was one in tort and not in contract. Malone appealed. The Kansas Supreme Court explained the distinction between contract and tort actions, stating: "A breach of contract may be said to be a material failure of performance of a duty arising under or imposed by agreement. A tort, on the other hand, is a violation of a duty imposed by law, a wrong independent of contract." 220 Kan. at 374, 552 P.2d 885. The court identified the primary issue as "whether the actions or omissions complained of constitute a violation of duties imposed by law, or of duties arising by virtue of the alleged express agreement between the parties." 220 Kan. at 374, 552 P.2d 885. The court noted that physicians could "enter into express contracts by which they bind themselves to warrant the success of treatment, or to otherwise obligate themselves above and beyond their ordinary duties." 220 Kan. at 374, 552 P.2d 885. Those contracts, the court noted, "may form the basis for breach of contract actions." 220 Kan. at 374, 552 P.2d 885. However, that was not the case with Malone's allegations. Malone's allegations were that KUMC failed to exercise the "reasonable care, skill, and diligence which the law requires of hospitals and physicians-regardless of any express contract therefor between the parties." 220 Kan. at 376, 552 P.2d 885. The court concluded that Malone's action clearly sounded in tort, and thus KUMC was immune from liability. 220 Kan. at 376, 552 P.2d 885 ; see also KPERS v. Reimer & Koger Assocs.,Inc. , 262 Kan. 110, 114-15, 936 P.2d 714 (1997) (holding that a breach of contract claim against a law firm was properly characterized as a tort action because it alleged that the firm failed to properly advise the plaintiff).

Malone can be contrasted with Juhnke v. Hess , 211 Kan. 438, 506 P.2d 1142 (1973). In that case Carl Juhnke sued attorney Herbert Hess for failure to timely file an appeal on Juhnke's behalf. Juhnke owned land which the City of Hutchinson condemned. A court-appointed appraiser awarded Juhnke $1,250. Juhnke hired Hess to file an appeal of the appraiser's award. But, Hess failed to file a timely appeal. Juhnke alleged that, had his appeal been timely filed, he would have received an award exceeding $50,000. Hess filed a motion to dismiss arguing that Juhnke's action sounded in tort, and that the two-year statute of limitations for tort actions had run. The district court agreed and granted Hess' motion to dismiss. Juhnke appealed, arguing that his claim was based on breach of contract and that the three-year statute of limitations for such causes of actions had not yet run. The Kansas Supreme Court agreed with Juhnke. It held that Hess' agreement to timely file the appeal, and Juhnke's agreement to pay him, was the consideration for the lawsuit. 211 Kan. at 441, 506 P.2d 1142. The "real basis of [Juhnke's] claim for relief [was] financial loss resulting from failure to discharge a contractual obligation (proof of which contract, breach and loss is another matter)." 211 Kan. at 441, 506 P.2d 1142. The court reversed and remanded the case. 211 Kan. at 442, 506 P.2d 1142.

Before analyzing the issue, it is worth noting that PCD did not present evidence of an express contractual promise by Lerner to file the case within the statute of limitations. The only evidence PCD presented was the following question and answer:

"Q: All right. And you had a legal and contractual obligation to Power Control Devices under the contract to file its lawsuit in a timely fashion, meaning before the statute of limitations expired.
"A: I've said so and I'll say it again, yes, absolutely."

As the Kansas Supreme Court has explained, an attorney's obligation to perform a legal duty is contractual in nature because the duty exists by virtue of the employment contract. Pancake House , 239 Kan. at 85-86, 716 P.2d 575. In that sense, Lerner had a contractual obligation to timely file PCD's lawsuit. But PCD did not provide evidence, as in Juhnke , that Lerner's promise to file suit was an express promise and part of the bargained-for consideration that formed the basis of PCD's contract with him.

This case is more akin to Malone than Juhnke . Lerner's duty to determine when the statute of limitations ran and timely file suit required him to exercise skill and judgment. PCD is alleging that Lerner failed to exercise the "degree of learning, skill, and care that a reasonably competent lawyer would use in similar circumstances." Canaan , 276 Kan. at 129, 72 P.3d 911. This is not a case where Lerner promised something above and beyond his ordinary duty. Such a promise may have formed the basis for a breach of contract action. See Malone , 220 Kan. at 374, 552 P.2d 885. PCD's claim in this case is that Lerner breached a duty imposed by law-the claim cannot be made "without any reference to the legal duties imposed by law upon the relationship created" by the employment contract between PCD

and Lerner. Pancake House , 239 Kan. at 86, 716 P.2d 575. Therefore, the district court did not err in failing to give a breach of contract instruction.

But even if the district court erred, the error was harmless. An error is harmless if this court determines that there is a reasonable probability that the error did not affect the outcome of the trial in light of the entire record. Louis , 305 Kan. at 457-58, 384 P.3d 1. The reason why any instruction error here would be harmless is because PCD failed to prove that the alleged breach of contract resulted in damages.

In order to prevail on a breach of contract claim, a plaintiff must prove:

"(1) the existence of a contract between the parties; (2) sufficient consideration to support the contract; (3) the plaintiff's performance or willingness to perform in compliance with the contract; (4) the defendant's breach of the contract; and (5) damages to the plaintiff caused by the breach." Stechschulte v. Jennings , 297 Kan. 2, 23, 298 P.3d 1083 (2013).

PCD argues that it is entitled to be reimbursed for the attorney fees it paid to Lerner, as well as the costs and expenses it incurred in bringing the suit. It asserts that it is not required to prove that it would have succeeded in the underlying litigation against Orchid in order to recover these damages. However, PCD does not provide support for its position. PCD does note that there are no cases which require plaintiffs in breach of contract cases against lawyers to prove that they would have prevailed in the underlying litigation. While this appears to be true, it is likely because such claims are properly characterized as tort claims (which do require such proof) and not as breach of contract claims.

"Generally speaking, when awarding contract damages, the goal is to put the nonbreaching party in the position he or she would have been in had the breach never occurred." Peterson v. Ferrell , 302 Kan. 99, 106, 349 P.3d 1269 (2015). Here, if the alleged breach had never occurred PCD still would have paid Lerner the attorney fees that PCD now requests as damages. Allowing PCD to seek those attorney fees would not put it in the same position it would have held had the suit against Orchid been timely filed. If the alleged breach had not occurred, PCD would have been able to proceed to trial against Orchid. PCD may have prevailed at trial. If that were the case, then the damages for Lerner's alleged breach of contract would have been the value of any judgment PCD would have obtained against Orchid. However, as discussed above PCD failed to prove that it would have prevailed in the underlying litigation. This means that any failure of the district court to instruct the jury on PCD's breach of contract claim was harmless error.

Based on our holding affirming the granting of judgment as a matter of law to Lerner, we need not address the district court's alternative findings related to a possible retrial.

Affirmed.