Opinion ID: 618830
Heading Depth: 1
Heading Rank: 23

Heading: Did KPG act in good faith and a commercially reasonable manner in seeking a final management contract?

Text: HV also argues that genuine issues of material fact existed as to whether KPG acted in good faith and with commercially reasonable efforts in seeking to obtain a final, binding management contract with the Lottery Commission. In support, HV asserts that even before [Penn National] saw the Downstream casino, it had decided to abandon the proposed casino on the Subject Property unless it was also able to build and operate a casino in the south central gaming zone. Aplt. Br. at 55. Indeed, HV asserts that Penn [5] acted in bad faith because it us[ed] Cherokee as a bargaining chip to obtain the Sumner contract while having no intent to `obtain' the Cherokee final contract unless it received both. Id. at 56. The duty of good faith has been defined under Kansas law as honesty in fact. Gillenwater v. Mid-Am. Bank & Trust Co., 19 Kan.App.2d 420, 870 P.2d 700, 704 (1994). Although the Kansas courts have not defined the phrase commercially reasonable efforts, they have held that the reasonable efforts standard often used in contracts is one `that has diligence as its essence, but falls short of the standard required of a fiduciary. T.S.I. Holdings, Inc. v. Jenkins, 260 Kan. 703, 924 P.2d 1239, 1250 (1996) (quoting Restatement (Second) of Agency § 13, cmt. a (1957)). Good faith and reasonableness are usually questions of fact, Estate of Draper v. Bank of Am., N.A., 288 Kan. 510, 205 P.3d 698, 712 (2009), but may be decided as a matter of law under proper circumstances, Gillenwater, 870 P.2d at 704; see Draper, 205 P.3d at 712 (same). In this case, the initial, and ultimately fatal, problem with HV's arguments is that Penn National was not a party to the Sale Contract with HV. Thus, Penn National's actions in seeking to have a separate subsidiary appointed as the lottery gaming facility manager for the south central gaming zone are at best only marginally relevant to the critical question of whether KPG, which was a party to the Sale Contract, fulfilled its obligations of acting in good faith and employing commercially reasonable efforts in seeking a final, binding management contract for the southeast gaming zone. Even assuming, for purposes of argument, that Penn National's actions were relevant, the evidence that HV cites in support of its assertions is, at best, meager. HV first asserts that, although Penn National originally had no intention of applying in the south central zone because it believed the Review Board would not award two contracts to the same manager, Penn National later changed its mind after learning that the Quapaw were attempting to finance the [then-proposed] Downstream Casino. Id. HV argues that [t]he only logical reason Penn [National] would change its mind about its chances to obtain two management contracts is that it thought its apparent willingness to develop the Cherokee casino would persuade the Review board to award it both. Id. at 56-57. Assuming this to be true, it is unclear precisely how this would allow the jury to find that KPG failed to act in good faith in seeking a final, binding management contract for the southeast gaming zone. HV next asserts that when KPG entered into the Sale Contract in September 2007, it knew that Quapaw had been successful in financing its casino and Snyder, who was in charge of Penn[] [National's] efforts in Kansas, testified that he then believed that [the proposed] Cherokee [casino] was no longer economically viable. Id. at 57 (citing Aplt.App. at 106-108). Although the record does establish that Snyder was long skeptical of the economic viability of the proposed casino, this does nothing to undercut the fact that KPG took numerous, substantial, and expensive steps towards obtaining a final, binding management contract for the southeast gaming zone. Further, as the district court correctly noted, nothing in the record indicates that KPG would have withdrawn from the southeast gaming zone had Penn Sumner been awarded the lottery gaming facility management contract for the south central gaming zone. In short, nothing in the record indicates that either Penn National or KPG were insincere or dishonest in promoting their southern strategy. HV also contends that KPG abandoned talks with Hall directed toward Hall providing part of the required capital investment and declined to seek any changes in the management contractsuch as further back-loading of the investmentwhen given the opportunity before the Review Board to do so. Id. Thus, HV argues, it failed to use `every effort' a reasonable business entity would make under the circumstances. Id. (quoting Castle Props. v. Lowe's Home Ctrs., Inc., No. 98 CA 185, 2000 WL 309395, at  (Ohio Ct.App. Mar. 20, 2000)). HV fails, however, to point to any evidence that would reasonably establish that a contribution by Hall toward the required capital investment, or further back-loading of that investment, would have significantly improved the potential return on KPG's investment or, in turn, altered KPG's determination that the proposed casino was not economically viable. Thus, a jury could not reasonably have found that KPG was required to take either of these steps in fulfilling its contractual duties under the Sale Contract. Finally, HV contends that all of this evidence supports an inference that Penn[] [National's] plan was to block other southeast zone applicants and then to hold HV['s] ... property and the Cherokee Casino hostage to its plan to obtain the Sumner County contract. Aplt. Br. at 58. In other words, HV argues, Penn [National] hoped Cherokee would be its ticket with the Review Board to get the south central contract over its three rivals in that zone, and in doing so it failed to act in good faith towards HV. Id. at 59. We agree, however, with the rationale offered by the district court in rejecting this same contention: The court finds no evidence to support such a contention. The record before the court shows that KPG adopted this strategy when it believed that a standalone casino in Cherokee County was not economically viable. Once that decision was made, KPG engaged in considerable efforts to pursue the Southern Strategy. Members of HV were aware of KPG's efforts and readily supported KPG at that time. The efforts of HV to rewrite or reinterpret the events that occurred at that time lack support. KPG clearly linked the casinos in the two counties as a final effort to make the Cherokee County project viable. HV has failed to produce any evidence that KPG would not have proceeded in Cherokee County had it been approved in Sumner. In sum, the court finds nothing to support HV's position concerning KPG's Southern Strategy. Addendum to Aplt. Br. at 23-24. In sum, the evidence in the record points in only one direction: that Penn National acted in good faith in proposing the southern strategy of having its subsidiaries manage casinos in both Cherokee and Sumner counties, and that this was indeed the only viable way of profitably operating a casino in Cherokee County, given the significant competition that such a casino would have faced from the Downstream Casino. Thus, we conclude that reasonable jurors could not have found, based upon the existence of that southern strategy, that KPG failed to use good faith, commercially reasonable efforts to obtain a final, binding management contract for the southeast gaming zone.