Stout v. Kanequip, Inc.

551 P.3d 260

Joseph STOUT and Katelyn Stout d/b/a Stout Construction Co., Appellants,

v.KANEQUIP, INC., Appellee.

No. 126,501

Court of Appeals of Kansas.

Opinion Filed June 28, 2024.

Appeal from Ford District Court; Andrew Stein, judge. Submitted without oral argument.

Peter J. Antosh, of Garcia & Antosh, LLP, of Dodge City, for appellants.

Patric S. Linden, Trevor Bond, and Ellen C.T. Mathis, of Case Linden Kurtz Buck P.C., of Kansas City, Missouri, for appellee.

Before Coble, P.J., Green, J., and Timothy G. Lahey, S.J.

Lahey, J.:

Joseph Stout and Katelyn Stout d/b/a Stout Construction Co. (the Stouts) sued KanEquip, Inc., over a dispute involving KanEquip’s unsuccessful attempts to repair the Stouts’ skid steer. When the Stouts’ expert witness failed to appear for his deposition, KanEquip sought discovery sanctions, including that the Stouts’ case be dismissed with prejudice. Between the time the motion was filed and the scheduled hearing date, the Stouts’ attorney, Terry J. Malone was suspended from the practice of law by the Kansas Supreme Court. He mailed written notice of his suspension to the Stouts and defense counsel as required by Supreme Court Rule 231, and he withdrew from the case six days before the hearing. When neither Malone nor the Stouts appeared at the sanction hearing, the district court granted KanEquip’s motion and dismissed the case with prejudice. Contending they were unaware of the motion or hearing date, the Stouts asked the district court to set aside the dismissal under K.S.A. 2022 Supp. 60-260(b)(1) and (b)(6). Although no evidence was presented refuting the Stouts’ lack of actual knowledge of the hearing, the district court denied their motion, concluding that Malone’s knowledge of the motion and hearing must be imputed to them. This appeal follows.

Based on the unusual factual circumstances of the case in which the Stouts became involuntarily pro se shortly before the sanctions hearing, along with the unrefuted evidence that the Stouts had no actual knowledge of the existence of the motion or hearing date, we find the district court erred by denying the Stouts’ motion to set aside the judgment. We reverse the decision of the district court and remand the case for further proceedings.

Factual and Procedural Background

The Stouts brought their skid steer to KanEquip, Inc., a mechanical repair shop, hoping to have engine problems fixed, which they believed were caused by contaminated diesel fuel. The Stouts later retrieved their skid steer from the repair shop—believing that KanEquip had repaired it—and they paid KanEquip $8,952.85 for its work. Almost immediately, though, the Stouts knew that KanEquip had not resolved the engine problems. So a few months later, the Stouts took the skid steer to a different repair shop, which made some additional repairs, though none involved the engine issues that KanEquip had been tasked with.

Since the skid steer still had engine problems, the Stouts brought it back to KanEquip. After looking at the machine, and attempting to repair it, KanEquip contacted the Stouts, explaining (1) that it could not fix the skid steer and (2) that the Stouts owed $9,007.19 for its attempted repair.

The Stouts initially refused to pay KanEquip, but they ended up paying their outstanding bill and reclaiming their skid steer. Soon after, the Stouts discovered that KanEquip could have fixed their skid steer with "only a simple repair." The Stouts hired Malone as their attorney and, in March 2021, filed this lawsuit against KanEquip for breach of contract, violation of the Kansas Consumer Protection Act (KCPA), fraud, and conversion. For each claim, the Stouts asserted that they sustained damages in excess of $75,000. KanEquip denied the Stouts’ claims and raised several affirmative defenses.

KanEquip filed a motion for judgment on the pleadings in June 2021. It was initially granted—Malone filed no response to the motion and failed to appear for the motion hearing. But ultimately, Malone was allowed to file a response out of time, and the motion to dismiss was resolved in January 2022. A status conference was held shortly after.

In June 2022, KanEquip filed a motion to strike expert disclosure for the Stouts’ failure to comply with the expert witness disclosure requirement in K.S.A. 2021 Supp. 60-226. In line with KanEquip’s request, the district court ordered sanctions against the Stouts on September 12, 2022, in the sum of $1,572.50 in attorney fees and costs to be paid within 30 days.

Less than a month later, on October 5, KanEquip again asked the district court to sanction the Stouts for another discovery violation. According to KanEquip’s attorney, after traveling to Colorado Springs, Colorado, for a scheduled deposition of the Stouts’ expert mechanic, the expert never appeared. KanEquip explained that the testimony of the expert mechanic involved "a dispositive issue in the case." And it stressed that "alternate sanctions [had] proven ineffective, and [that the expert’s] testimony [was] not cumulative nor corroborative." Then KanEquip cited K.S.A. 2022 Supp. 60-237(b)(2)(A)(v), which states that the district court may "dismiss[ ] the action or proceeding in whole or in part" for discovery violations, and it asked the court to dismiss the Stouts’ case for the discovery violations or award them costs and fees related to the Stouts’ expert failing to appear at his deposition.

The same day, KanEquip’s attorney submitted a notice of hearing stating that there would be a hearing on its motion for sanctions on November 8, 2022, at 11 a.m. The notice stated that it was sent by electronic filing to Malone. Six days before the hearing, on November 2, Malone submitted a notice of withdrawal under Kansas Supreme Court Rule 231 (2024 Kan. S. Ct. R. at 289).

Malone’s notice stated that our Supreme Court suspended him for 90 days, starting on October 14, 2022. Malone mailed a certified notice to the Stouts on October 27 explaining his suspension. In a letter dated October 28, Malone notified KanE quip’s attorney of his suspension, and stated: "I have notified my former clients accordingly, and will assist in the expeditious transfer of their files to new counsel at their direction. I will do everything within my present ability to minimize the impact of my suspension on the resolution of these cases." The notice does not contain any reference to or suggestion that Malone informed the Stouts about the upcoming November 8 hearing on discovery sanctions.

Neither Joseph nor Katelyn appeared at the November 8 hearing on KanEquip’s motion for sanctions, and they had no legal representation at the hearing since Malone was suspended from practicing law. Nonetheless, the district court proceeded with the sanctions hearing.

At the start of the hearing, the district court and KanEquip’s attorney discussed what they knew about Malone’s suspension. KanEquip’s attorney noted that the day before, Malone’s assistant left a voicemail asking "whether or not this hearing was still happening." She said that the assistant also said the Stouts were seeking to hire a new attorney but had not yet found one. KanEquip’s attorney explained she did not have a chance to return the call because she was out of her office all day, and therefore, did not know she had the voicemail until the end of the day.

The district court ultimately determined that because Malone had been suspended in mid-October, the Stouts should have known about the suspension and had enough time to decide whether they wanted to continue with their lawsuit against KanEquip. Thereafter, KanEquip’s attorney discussed the ongoing discovery issues, argued the Stouts were not meeting the burden to prosecute their case, and asked the district court to dismiss with prejudice.

In the end, the district court agreed with KanEquip and dismissed the Stouts’ claims against KanEquip with prejudice:

"So the Court finds that in light of the fact that parties—or [the Stouts are] not here today or made any effort to appear other than apparently a last-minute voicemail from Mr. Malone’s office, the Court finds that it is appropriate to grant the motion to dismiss this case with prejudice and it is going to make that its order. I will specifically just note that there are some unusual complications with defense counsel’s suspension for 90 days. That’s not necessarily attributable to the [Stouts] themselves. However, the Court finds that, you know, from the beginning of this case, they’ve been free to employ any attorney they wished, have retained and continue to retain Mr. Malone. There have been numerous discovery disputes, some of which have been litigated through motion to compel. Sanctions were originally ordered finally when it came to the Court’s attention, and upon the update that those sanctions have not been paid today, the Court finds that those options would be ineffective if that was imposed as the sanction here."

A few weeks later, the Stouts hired a new attorney—Peter J. Antosh—who entered his appearance for the Stouts on November 26, 2022. On March 3, 2023, Antosh moved to set aside the district court’s dismissal. That motion is the focus of the Stouts’ appeal.

The Stouts’ motion to set aside the dismissal of their claims with prejudice

Essentially, the Stouts’ motion asserted that they were unaware that a motion for sanctions had been filed or set for hearing on November 8. Rather, the Stouts first learned about these events when they received a copy of the district court’s November 9 journal entry dismissing their claims against KanEquip with prejudice in the mail.

Separate but essentially identical affidavits from Katelyn and Joseph were attached to the motion to set aside the dismissal. They asserted that prior to receiving a copy of the court’s November 9 order, they were unaware that (1) their lawsuit was in jeopardy of dismissal due to discovery deficiencies, (2) monetary discovery sanctions were owed in their lawsuit, and (3)...