United States District Court, E.D. Virginia, Alexandria Division
CHARLES S. KUHN, Plaintiffs,
VISNIC HOMES, INC., et al., Defendants.
Ellis, III Judge
issue in this settled and dismissed, but still hard-fought
breach-of-contract case is a dispute concerning the
parties' compliance with their settlement agreement.
Plaintiffs have moved (1) to enforce a court order that
previously required compliance with the settlement terms, (2)
to reform the parties' settlement agreement, (3) for an
order sanctioning defendants, and alternatively, (4) for
relief from the dismissal order pursuant to Rule 60(b)
Fed.R.Civ.P. Because the pending motion has been fully
briefed and argued orally, and because the existing,
extensive record comprising approximately 90 exhibits is more
than adequate to resolve the dispute, the parties agreed to
submit the matter for determination on the record in lieu of
Charles and Stacey Kuhn (the "Kuhns"), are
residents of Loudon County, Virginia. Defendants are Visnic Homes,
Inc., a Maryland corporation in the business of new home
construction, and its founder and CEO Ted Visnic, Jr., a
Maryland resident (the "Visnics").
pending motion is but the latest chapter in this case, which
bids fair to become a modern Jarndyce v. Jarndyce
and to make judicial resolution of this matter a Sisyphean
task. Indeed, the saga began over a year ago as a
breach-of-contract action regarding the Visnics'
construction for the Kuhns of a custom, $5.7 million home in
Sterling, Virginia. After numerous discovery disputes, the
filing and withdrawing of counterclaims, defense
counsel's motion to withdraw,  a months-long stay of
proceedings, and a motion to enforce the parties'
settlement agreement, the Kuhns' counsel finally
submitted a joint motion for entry of an order dismissing all
remaining claims. This motion was granted, the parties'
agreed and proposed dismissal order was entered, and all
claims were dismissed with prejudice.
all this, the parties have returned yet again to litigate
their compliance with their settlement agreement, which the
parties executed on August 9, 2016. The contract, titled,
"Confidential Settlement and Mutual Release" (the
"Settlement Agreement"), contemplated that the
Visnics would pay the Kuhns $525, 000 in exchange for a
release of liability from any and all claims, including the
underlying causes of action. The first $25, 000 was due in
two payments of $10, 000 and $15, 000. See
Settlement Agreement ¶ 2. The bulk of the Visnics'
settlement obligation, $500, 000, is memorialized in a
Confessed Judgment Promissory Note. The Visnics agreed to
make monthly payments toward the $500, 000 over seven years.
In fact, the Visnics made only the initial $10, 000 payment
before defaulting on both the subsequent $15, 000 installment
and the first monthly payment.
Kuhns, to provide security for the $500, 000 promissory note
in the event of a default, insisted that the Visnics provide
deeds of trust on two parcels of real property, one in
Montana and one in Maryland. Specifically, the Settlement
Agreement requires that the Visnics
cause to be filed as security for the Confessed Judgment
Promissory Note with the Courts and appropriate governmental
authorities, with a copy to counsel for [the Kuhns], a Deed
of Trust on the parcel of property located in Chouteau
County, Montana (recorded as Parcel Number
19-3621-06-4-03-01-0000), and a Deed of Trust for the
residence and property located at 3647 Sycamore Valley Run,
Glenwood, Maryland 21738.
Agreement ¶ 2 (emphasis added). This provision is the
focus of the parties' current dispute. By now, the
parties have felled a small forest of trees litigating
whether the Visnics complied with this provision.
begin with, it is undisputed that the parcel number
identified in the Settlement Agreement-No.
19-3621-06-4-03-01-0000-represents an unencumbered parcel,
owned personally by Mr. Visnic, comprising a house and
20-acres of land in Montana. It is also undisputed, however,
that the Visnics did not execute a deed of trust on the
20-acre parcel with the house as required by ¶2 of the
Settlement Agreement. The Visnics instead executed a deed of
trust on two separate parcels, owned by Visnic Reserves, LLC,
that constitute 457 acres of land adjacent to the 20-acre
The 457-acre plot is subject to a $445, 000 mortgage executed
ten years ago, and the record indicates that the remaining
principal balance on that mortgage is approximately $200,
000. See D. Ex. 40. Importantly, the evidentiary
record and the Kuhns' briefs confirm that it was the
Kuhns' counsel who obtained and inserted into the
Settlement Agreement the parcel number identifying the
20-acre property. Specifically, the record reflects that the
Kuhns' counsel included the parcel number based on an
asset search that the Kuhns' counsel performed on Mr.
Visnic's Montana holdings. See, e.g., Kuhn v. Visnic
Homes, Inc., No. 1:16-cv-440 (E.D. Va. Feb. 17, 2017)
(Hr'g Tr.) at 7:24-8:1 ("[The Kuhns' Counsel]:
Because we put that parcel number from the asset search ... I
bear some responsibility for that."). Yet, the
Kuhns' counsel concedes that this search did not reflect
acreage, and there is no indication that the Kuhns'
counsel inquired further into the size of the parcel before
inserting the parcel number into the Settlement Agreement.
Thus the Kuhns, after deciding to identify the Montana
property by parcel number without visiting the land or
confirming the size of that parcel, now argue that they
believed that the 20-acre property specified in the
Settlement Agreement actually comprised both the 20-acre
parcel and the 457-acre parcel.
the parties executed the Settlement Agreement on August 9,
2016, this did not end the matter. On October 6, 2016, the
Kuhns filed a motion to enforce ¶ 2 of the Settlement
Agreement, contending that the Visnics had failed to execute
the deeds of trust within the contractually-required
timeframe. Thereafter, on October 21, 2016, following full
briefing and oral argument, an Order issued, directing the
execute the appropriate documents to file and record the
requisite Deeds of Trust on the Montana and Maryland
properties to secure the Confessed Judgment Promissory Note
... and provide copies to Plaintiffs, as set forth in ¶
2 of the Settlement Agreement....
Kuhn, No. 1:16-cv-440 (E.D. Va. Oct, 21, 2016) (the
"October 21 Order"). The October 21 Order further
required the parties to return on October 28, 2016 for a
hearing to ascertain whether the Visnics had complied with
the Settlement Agreement and whether dismissal would be
October 26, the Visnics provided the Settlement Agreement to
their local counsel in Montana for local counsel to prepare
and execute the appropriate deed of trust. Yet, the
Visnics' Montana counsel prepared and executed a deed of
trust on the 457-acre parcel-not the 20-acre parcel with a
house identified in the Settlement Agreement-which deed the
Visnics provided to the Kuhns. This mistake was in plain
view; significantly, the Montana deed of trust provided to
the Kuhns contained a legal property description (not a
parcel number) of the 457-acre parcel, which matches the
legal description in the pre-existing mortgage on that same
parcel. Moreover, Mr. Visnic had listed those 457-acres for a
sale price of $776, 900, and provided the Kuhns a copy of the
listing, which included the same, correct legal description
of the 457-acres. And although the 457-acre parcel was
subject to a bank mortgage and was not identified in the
Settlement Agreement, the Kuhns accepted the deed of trust on
the 457 acres without comment or objection at the time.
October 27, the parties requested a one-week continuance of
the October 28 hearing, which had been set for the purpose of
determining whether the Visnics had complied with the
Settlement Agreement. Thus, the hearing was rescheduled for
November 4, 2016. Thereafter, on November 3, 2016-on the eve
of the compliance hearing-the Kuhns' counsel filed a
joint motion for entry of a consent order of dismissal. In
this respect, counsel for the Kuhns indicated that the
scheduled compliance hearing was unnecessary and submitted a
joint, proposed consent order of dismissal. Thus, on November
3 the consent order was entered, dismissing all claims with
prejudice. See Kuhn, No. 1:16-cv-440 (E.D. Va. Nov.
3, 2016) (Order).
a week of the dismissal order, the Visnics defaulted on their
payment obligations under the Settlement Agreement, and on
November 8, 2016, the Kuhns provided the Visnics with a
notice of default. The Kuhns also threatened to foreclose on
the 457-acre parcel not specified in the Settlement
Agreement. In response, the Visnics did not object and indeed
agreed to sign a quitclaim deed in favor of the Kuhns on the
457-acre property. On November 22, 2016, Mr. Visnic signed
and delivered to the Kuhns the quitclaim deed on the 457-acre
parcel. Accordingly, the Kuhns are now the record owners of
457-acres of Montana property never identified in the
the Kuhns, despite having received a copy of the deed of
trust before they threatened to foreclose on it, contend that
November 22, 2016-the day Mr. Visnic signed the quitclaim
deed-was the first time they had notice that the Visnics had
failed to execute a deed of trust on the 20-acre parcel
listed in the Settlement Agreement. But this contention is
belied by the Kuhns' counsel's emails. Specifically,
on November 20, 2016, the Kuhns' counsel emailed Mr.
Visnic, forwarding him a draft quitclaim deed for the
457-acre property. See D. Ex. 27. In that email, the
Kuhns' counsel also requested tax information on Visnic
Reserve, LLC, which the Kuhns' counsel, based on their
record search, knew or should have known was the owner of the
457-acre parcel, but not the owner of the 20-acre parcel.
Id. Thus, contrary to the Kuhns' position, the
record reflects that the Kuhns, well before November 22, at
least had inquiry notice that they were poised to receive a
quitclaim deed for a parcel of land not specified in the
Settlement Agreement. Nevertheless, the Kuhns accepted both
the deed of trust and the quitclaim deed on the 457-acre
on November 28, 2016, the Kuhns filed a Confession of
Judgment in Loudoun County, Virginia. The Kuhns contend in
the Confession of Judgment action that the Visnics have
defaulted on their payment obligations, and that the Kuhns
are entitled to $723, 055.56-far more than the $500, 000
identified in the promissory note. In this respect, the Kuhns
apparently seek attorneys' fees and the amount of some
mechanics' liens placed on the Kuhns' residence.
See, e.g., D. Ex. 40. In response, the Visnics hired
new counsel to file a motion to set aside and dismiss the
Confession of Judgment action, or to direct the filing of a
bill of particulars. Specifically, the Visnics argue that
they should be credited for the value of the 457-acre parcel
they conveyed to the Kuhns, and that the confessed judgment
should not include the claimed attorneys' fees and
mechanics' liens, on the ground that those fees and liens
are not identified in the promissory note. See Id.
That action remains pending.
days later, on November 30, 2016, counsel for the Kuhns
apparently conceded that they were contractually entitled
only to the 20 acres identified in the Settlement Agreement.
See D. Ex. 28 at 2 (November 30, 2016 Email).
Specifically, the Kuhns' counsel wrote to Mr. Visnic:
As you know, you provided [the Kuhns] with the wrong
Deed of Trust, which secured the 477 acres
[sic] NOT included in the Settlement Agreement,
and which carries a significant Mortgage. We have now
confirmed that the Parcel listed in the Settlement Agreement
for the Montana property is actually the 20 acres and the
Id. (first emphasis added).
the Kuhns, having already accepted the "wrong" deed
of trust and a quitclaim deed on the 457-acre parcel
"NOT included in the Settlement Agreement, " listed
that property for sale for $650, 000. Id. (emphasis
in original). The Kuhns subsequently received an offer to
purchase the 457 acres for $430, 000, to which the Kuhns
recently countered with an offer to sell for $548, 000. Thus,
assuming that the principal balance on the mortgage totals
$200, 000, the Kuhns' sale of the 457-acres would satisfy
a substantial portion of the Visnics' debt.
on January 27, 2017, the Kuhns filed the instant motion on
the ground that the Visnics failed to execute a deed of trust
on the 20-acre property identified in the Settlement
Agreement. Meanwhile, the Visnics have offered to exchange,
and are still willing to exchange, the 20-acre parcel listed
in the Settlement Agreement for the 457 acres that the Kuhns
now own and seek to sell, a proposal that would give full
force and effect to the terms in the Settlement Agreement.
Yet, despite the Settlement Agreement's terms, and their
counsel's November 30 email stating that the Visnics
executed the "wrong Deed of Trust, " the Kuhns now
maintain that they are entitled to all 477 acres-the 20-acre
parcel with the house and the 457-acres never identified in
the Settlement Agreement.
February 17, 2017, the parties presented oral argument on the
Kuhns' motion, and a second hearing was scheduled for May
4, 2017 to provide the parties an opportunity to present
testimony regarding their settlement negotiations. On May 4,
however, the parties appeared and agreed that the matter
could appropriately be resolved on the robust documentary
record without the necessity of calling counsel as fact
issue now on the Kuhns' motion are their requests for (1)
equitable reformation of the Settlement Agreement to provide
that the Kuhns are entitled to both the 457-acre parcel never
identified in the Settlement Agreement and the 20-acre
parcel, (2) an order requiring defendants to comply with the
October 21, 2016 Order that mandated compliance with the
Settlement Agreement, and (3) sanctions against the Visnics.
Alternatively, the Kuhns seek relief pursuant to Rule 60(b),
namely, an order vacating the dismissal of this action and
reviving the underlying lawsuit. See Rule 60(b),
Fed. R. Civ. P.
Kuhns' motion requires analysis of five issues: (1)
whether subject matter jurisdiction exists; (2) whether
equity supports reformation of the Settlement Agreement; (3)
whether the Kuhns are entitled to an Order requiring the
Visnics to execute a deed of trust on the 20-acre parcel; (4)
whether a Rule 60 Order is appropriate; and (5) whether
sanctions should be imposed. Each subject is separately
begins, as it must, with subject matter jurisdiction. The
Kuhns claim that ancillary jurisdiction exists over their
motion because the Kuhns seek to enforce the October 21
Order, which instructed the Visnics to execute deeds of trust
on the parcel number identified in ¶ 2 of the Settlement
Agreement. For the reasons that follow, there is subject
matter jurisdiction to adjudicate this dispute.
Supreme Court in Kokkonen v. Guardian Life Insurance Co.
of America has set forth a straightforward framework for
analyzing a district court's ancillary jurisdiction.
See511 U.S. 375 (1994). There, the Supreme Court
noted that "ancillary jurisdiction" comprises two
separate "heads, " or categories: (1) jurisdiction
over "factually interdependent" claims and (2)
jurisdiction allowing a court to "function successfully,
that is, to manage its proceedings, vindicate its authority,
and effectuate its decrees[.]" Id. at 380-81.
The first category of ancillary jurisdiction-power over
factually z'wferdependent claims-does not apply here, as
the Visnics' alleged flouting of the Settlement Agreement
does not turn on whether the Visnics also breached a
construction contract, the ...