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State ex rel. Calan v. Kemp Stone, Inc.

Court of Appeals of Oklahoma, Division II

November 1, 2017

STATE OF OKLAHOMA ex rel.; JAYCEE CALAN; LUCILLE CALAN; KACE CALAN; JOHN E. KENDALL, JR.; JACQUELYNE KENDALL; DAVID F. HIEBERT, JR.; EDWINA C. HIEBERT; KATHRYN WEATHERBY; JAIME MILLS; and TRAVIS MILLS, Plaintiffs/Appellees,
v.
KEMP STONE, INC., Defendant/Appellant, and CITY OF MIAMI; RUDOLPH SCHULTZ; SCOTT TRUSSLER; TERRY ATKINSON; JOHN DALGARN; BRENT BRASSFIELD; DENNY CRETE, LLC; SCURLOCK INDUSTRIES OF MIAMI, INC.; TRI-STATE ASPHALT, INC.; NEECE CONCRETE CONSTRUCTION; TEETER'S PAVING, LLC; BELL CONTRACTING, INC.; APAC-CENTRAL, INC.; ANDERSON ENGINEERING, INC.; SERVICE SOLUTIONS, INC.; COLLINS CONSTRUCTION CO. OF MIAMI, INC.; BLEVINS ASPHALT CONSTRUCTION CO., INC.; T-G EXCAVATING, INC.; VANCE BROTHERS, INC.; JOHN DOES 1-20, other persons and/or entities who were awarded bids pursuant to the street project in excess of $50, 000.00, Defendants.

          Mandate Issued: 05/24/2018

          APPEAL FROM THE DISTRICT COURT OF OTTAWA COUNTY, OKLAHOMA HONORABLE CARL GIBSON, TRIAL JUDGE

          Zachary T. Barron, Bradford D. Barron, THE BARRON LAW FIRM, PLLC, Claremore, Oklahoma and Kevin Dodson, DODSON LAW OFFICE, Pryor, Oklahoma, for Plaintiffs/Appellees

          Bryan A. Rock, K. ELLIS RITCHIE, P.C., Pryor, Oklahoma, for Defendant/Appellant

          KEITH RAPP, JUDGE

         ¶1 The defendant, Kemp Stone, Inc. ("Kemp Stone") appeals an Order denying its request that attorney fees and costs be assessed against the plaintiffs, The State of Oklahoma ex rel. Jaycee Calan, Lucille Calan, Kace Calan, John E. Kendall, Jr., Jacquelyne Kendall, David F. Hiebert, Jr., Edwina C. Hiebert, Kathryn Weatherby, Jaime Mills, and Travis Mills (collectively "Taxpayers").

         BACKGROUND

         ¶2 This appeal arises from a qui tam action brought by Taxpayers and their inclusion of Kemp Stone in their lawsuit. [1] Kemp Stone claimed that the lawsuit was frivolous as to Kemp Stone, thereby entitling it to attorney fees and costs. [2]

         ¶3 On September 26, 2011, the City of Miami, Oklahoma ("City") received a qui tam notice signed by ten persons (a sufficient number then) including Taxpayers. The notice complained that a City street project ("Project") funded by a sales tax was being unlawfully carried out. The basis of the claim was that the City took bids, used the bids as contracts, and paid out more than $50, 000.00 to contractors. All of this was claimed to be in violation of the law concerning municipal contracts and competitive bidding statutes.

         ¶4 On November 23, 2011, the City filed a declaratory judgment action. Taxpayers intervened and added the qui tam action against City and named entities including Kemp Stone. The intervention petition contained detailed allegations regarding City's actions pertaining to the Project and the claimed unlawful acts by City's officials. The intervention petition alleged that the named entities received unspecified amounts of money from City for the Project and that such money should be repaid to City. The entities were not immediately served because City and Taxpayers engaged in mediation. The mediation was unsuccessful and City dismissed its declaratory judgment action before intervention was granted. Subsequent proceedings not relevant here culminated with Taxpayers filing this qui tam action. [3]

         ¶5 The qui tam petition recited the history of the intervention petition and alleged City's violations regarding the Project. [4] The petition named the entities, including Kemp Stone, and alleged:

In furtherance of the Street Project it [Kemp Stone] submitted and was awarded a construction bid in excess of $50, 000. However, it failed to enter into [a] public construction contract with the City prior to performing working and/or providing materials. Despite this Kemp Stone, Inc. received at least $50, 000 for performing work and/or providing materials

         City filed its Answer. [5] The Answer admitted that Kemp Stone submitted a bid and performed work. City's Answer denied the remainder of the allegations about Kemp Stone.

         ¶6 Kemp Stone's Amended Answer [6] denied all allegations against it. Kemp Stone alleged that it did have a contract for all of its work and materials. However, Kemp Stone denied submitting a bid or being paid any money on the Project.

         ¶7 Kemp Stone submitted request for admission to City. In response, City admitted that Kemp Stone neither submitted a bid nor had a bid approved regarding the Project and that Kemp Stone did not have a contract pertaining to the Project. [7] Counsel for Kemp Stone wrote to counsel for Taxpayers a letter dated May 8, 2015, in which he advised of the receipt of City's discovery request submitted by Kemp Stone and enclosed a copy. [8] Counsel described the discovery response as establishing that Kemp Stone had nothing to do with the Project. He also advised that City's attorney stated that City would amend its Answer to conform to its discovery response about Kemp Stone. City did not file the amendment.

         ¶8 Kemp Stone filed a motion for summary judgment based upon its position that it was not a bidder/contractor on the Project.

         ¶9 Prior to the hearing on Kemp Stone's summary judgment motion, Taxpayers dismissed the action as to Kemp Stone. Kemp Stone then sought attorney fees and costs on the ground that Taxpayers brought a frivolous lawsuit against Kemp Stone because Kemp Stone never had anything to do with the Project that could be considered actionable.

         ¶10 Taxpayers defended on the basis that a reasonable investigation preceded the filing and that the investigation revealed the existence of a claim against Kemp Stone. The investigation included an interview with City's chief financial officer ("CFO"). Taxpayers' claims about City's acts were confirmed in an audit performed by the State of Oklahoma State Auditor and Inspector. Taxpayers further argued that events following the filing served to confirm the existence of a claim, citing such as the City's Answer and its failure to amend the Answer.

         ¶11 In summary, the trial court had the following sequence of events to consider when making its ruling regarding whether the action against Kemp Stone was frivolous.

Taxpayers' Demand, Record p. 1123. Dated September 26, 2011. Set out specific unlawful acts and demands recovery of funds expended by City, but does ...

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