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Kuhn v. Visnic Homes, Inc.

United States District Court, E.D. Virginia, Alexandria Division

May 22, 2017

CHARLES S. KUHN, Plaintiffs,
v.
VISNIC HOMES, INC., et al., Defendants.

          MEMORANDUM OPINION

          T. S. Ellis, III Judge

         At 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 presenting testimony.

         I.

         Plaintiffs, Charles and Stacey Kuhn (the "Kuhns"), are residents of Loudon County, Virginia.[1] 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").

         The 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, [2] 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.

         Despite 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.[3]

         The 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.

         Settlement 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.

         To 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.[4] 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 lot.[5] 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.").[6] 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.[7]

         Although 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 Visnics to

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 appropriate. Id.

         On 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.

         On 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).

         Within 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.[8] 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 Settlement Agreement.

         Oddly, 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 parcel.

         Thereafter, 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.

         Two 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][9] 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 house, unencumbered.

Id. (first emphasis added).

         Yet, 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.

         Subsequently, 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.

         On 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 witnesses.

         II.

         At 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.

         The 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 addressed.

         A. Jurisdiction

         Analysis 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.

         The 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 ...


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