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No. 101,424 IN THE COURT OF APPEALS OF THE STATE OF KANSAS DEUTSCHE BANK NATIONAL TRUST CO. Appellee, v. DOUGLAS SUMNER, et al., Appellants, and BOARD OF COUNTY COMMISSIONERS OF RENO COUNTY, et al., Defendants. DOUGLAS SUMNER and CAROL SUMNER, Appellants, v. AMERIQUEST MORTGAGE COMPANY and GWENDOLYN CREEL, Appellees. SYLLABUS BY THE COURT 1. One sued to collect a debt may assert, as recoupment or setoff, any counterclaim for violation of the federal Truth in Lending Act regardless of the applicable 1-year statute of limitation.

2. There is nothing in the federal Truth in Lending Act that precludes applying the equitable principles of estoppel and waiver.

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3. For equitable estoppel to bar a party's claims, the acts, representations, admissions, or silence of the party when that party had a duty to speak must have induced the other party to believe certain facts existed. The other party must also show that it rightfully relied and acted upon such belief and would now be prejudiced if the party to be estopped were permitted to deny the existence of such facts. In other words, for equitable estoppel to apply, the party asserting it must at least show: (1) misrepresentation and (2) detrimental reliance.

4. Under the facts of this case, the Sumners should be equitably estopped from claiming rescission because they acted at all times in a manner inconsistent with rescission by insisting on prompt consummation of the transactions, accepting the loan proceeds, making loan payments without protest, and filing a counterclaim to the foreclosure action seeking to reinstate the transaction.

5. A party with full knowledge of the facts that accepts the benefits of a transaction or contract may not subsequently take an inconsistent position to avoid corresponding obligations or effects. The doctrine of equitable estoppel requires consistency of conduct, and a litigant is estopped and precluded from maintaining an attitude with reference to a transaction wholly inconsistent with the party's previous acts and business connection with such transaction.

6. Both Kansas appellate courts have recognized the severity of judgment by default as a sanction for failure to comply with discovery orders, and each court has emphasized the importance of careful exercise of judicial discretion before imposition of that

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sanction. Dismissal of a lawsuit or claim should only be used as a last resort when other lesser sanctions are clearly insufficient to accomplish the desired end.

7. Our Supreme Court has identified the following tests in determining whether the district court has abused its discretion in granting default judgment for failure to comply with discovery orders: (1) Does the discoverable material go to a dispositive issue in the case? (2) Are alternative sanctions sufficient to protect the party seeking discovery available? and (3) Is the requested information merely cumulative or corroborative?

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Applying the factors suggested by our Supreme Court, the dismissal sanction was appropriate under the facts of this case. First, the depositions of the Sumners went to a dispositive issue in this case. Second, alternative sanctions were not sufficient to protect Deutsche Bank from further delay and harassment given the extent and persistence of the Sumners' conduct. Third, the request to depose the Sumners was not cumulative of other evidence, but rather critical to understanding and testing the counterclaims made against Deutsche Bank.

9. The better practice is for the trial judge to warn the litigants and counsel that a failure to obey a discovery order may lead to the ultimate sanction of dismissal of claims before invoking this extreme sanction. Notwithstanding the better practice, such a notice is not a prerequisite to the dismissal sanction.

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10. Litigants and counsel may not engage in an obvious pattern of delay and harassment with impunity in Kansas courts.

Appeal from Reno District Court; TIMOTHY J. CHAMBERS and JOSEPH L. MCCARVILLE, III, judges. Opinion filed October 29, 2010. Affirmed.

Barry L. Arbuckle, of Wichita, for appellants.

Clayton T. Norkey, of Shook, Hardy & Bacon LLP, of Kansas City, Missouri, for appellees.

Before GREENE, P.J., GREEN and STANDRIDGE, JJ.

GREENE, J.: Doug and Carol Sumner appeal the district court's dismissal of their claims under the federal Truth in Lending Act (TILA) and the Kansas Consumer Protection Act (KCPA), which they had filed as counterclaims in response to a foreclosure action by Deutsche Bank National Trust Company (Deutsche Bank) on their residence in Hutchinson. They argue that the district court erred in ruling their TILA claims were barred either by the statute of limitations or equitable estoppel and that the court erred in dismissing their remaining claims under the KCPA due to discovery abuse. We hold that some of the Sumners' claims were erroneously dismissed but all were subject to dismissal as an appropriate discovery sanction. Accordingly, we affirm the district court.

FACTUAL AND PROCEDURAL BACKGROUND On September 23, 2004, the Sumners closed on a home loan with Ameriquest Mortgage Company (AMC) for the principal amount of $180,000 at 9.5% variable interest secured by a mortgage on their home on Obee Road in Hutchinson, Kansas. Later, the Sumners would claim that AMC's employee, Gwendolyn Creel, told them the 4

loan would be a 30-year fixed rate mortgage with a 6.5% interest rate. The Sumners also claimed Creel promised to provide insurance on the home as part of the mortgage package.

The Sumners' loan was assigned by AMC to Deutsche Bank in June 2006. The servicing of the Sumners' loan was later assigned, sold, or transferred from AMC to Citi Residential Lending, Inc.

In March 2005, AMC began sending the Sumners notices that their account was overdue, and in July 2005, suit was filed to foreclose on the mortgage. The Sumners filed individual answers and counterclaims pro se to the petition in September 2005, claiming slander, slander per se, libel, libel per se, and fraud (these claims were all abandoned upon the filing of an amended counterclaim). Notably, the answers included a request for payment of money damages, a count entitled "set-off," and a demand for "an Order requiring plaintiff to reinstate plaintiff's note and mortgage."

Deutsche Bank replied to Doug Sumner's answer and counterclaim in October 2005, but served the answer only on Doug at his joint address with Carol. She then moved for default judgment because of Deutsche Bank's failure to answer her separate, albeit identical, answer and counterclaim. Deutsche Bank's counsel admitted that "[d]ue to inadvertence and/or excusable neglect," Carol's answer and counterclaim was "misplaced and Plaintiff failed to timely file its Answer thereto." Deutsche Bank subsequently filed an answer to Carol's counterclaim, and Deutsche Bank substituted new counsel in the case.

The Sumners objected to Deutsche Bank's substitution of counsel and belated answer, and the parties held a telephonic conference on the Sumners' objection. Even though Carol was not joined in the phone conference, the district court ruled that the Sumners could file their counterclaims out of time; the Sumners' motion for default 5

judgment based on the belated answer to Carol's counterclaim was denied; and the Sumners' objection to substitution of Deutsche Bank's counsel was also denied.

In June 2006, Doug filed a motion for leave to file an amended answer, counterclaim, and third-party petition. He requested a hearing be held on June 29, 2006. The Sumners then filed a motion to continue the requested hearing "for at least ninety (90) days, and or until such time as this defendant has retained legal representation." Doug wrote to Deutsche Bank's counsel that "I believe that with counsel, the Court and yourself will definitely benefit greatly, by fewer delays caused by our no longer moving pro se in this action." The Sumners eventually retained counsel, who then requested the scheduled hearing be continued.

Counsel for the Sumners then filed an amended answer with a counterclaim and cross-claims. The amended filing was made in August 2006; it included a counterclaim against Deutsche Bank, AMC, and Creel, based on violations of the TILA, and the KCPA, and sought damages, statutory penalties, rescission, and other relief.

Deutsche Bank responded to the counterclaim with a motion to dismiss, which was granted by the district court as to the TILA claims because they were filed outside of TILA's 1-year statute of limitations. The court found that only the Sumners' KCPA claims survived Deutsche Bank's motion to dismiss.

Mediation was attempted in October 2006. According to the Sumners, the parties "made progress in the mediation but Ameriquest [AMC] insisted upon an inspection and appraisal of the house prior to completion of the mediation." The inspection did not take place as scheduled, in part because Carol wanted to "put the house in better order." After that, mediation apparently broke down, with the Sumners claiming "Ameriquest has failed and refused to continue negotiations in good faith and has misled the Sumners regarding their willingness to negotiate." 6

In January 2007, the district court allowed the Sumners' counsel to withdraw from the case. The Sumners said that it would take them at least 90 days to obtain new counsel, and in April 2007, Barry L. Arbuckle entered his appearance as the Sumners' new counsel. Arbuckle subsequently requested an additional 90 days to complete discovery and a continuance in the trial setting until September 2007. Notably, the Sumners' previous counsel filed an attorney's lien against the Sumners for $10,897.55.

Deutsche Bank first attempted to depose the Sumners on July 12, 2006. They were never deposed despite numerous attempts. When they sought to continue their depositions after the seventh formal notice in March 2008, the district court ordered them to submit to depositions by March 20, 2008, and to file documentary evidence to support their most recent alleged inability to be sworn for deposition. These orders went unheeded.

The perpetual delay caused Deutsche Bank to file a motion to compel discovery and several motions for sanctions against the Sumners for their failure to comply with discovery requests. When the court finally ruled on Deutsche Bank's motion for sanctions, Judge Timothy J. Chambers stated that "[t]he continual course of conduct of the Defendants [the Sumners] in this case is found by the Court to be willful and deliberate, interfering in the efficient administration of justice." Chambers wrote:

"It is with reluctance the Court makes its ruling, but after careful consideration of the appropriate standards to be applied and pursuant to K.S.A. 60-237, the Court grants the motion for sanctions of the Plaintiff and dismisses with prejudice the remaining claim of the Defendants as well as granting summary judgment on the claim of the Plaintiff."

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Judge Chambers issued the order imposing sanctions against the Sumners after they moved to disqualify him, but he later recused himself from the case. Judge Joseph L. McCarville, III, was assigned to the case after Chambers' recusal.

McCarville held a telephone conference on May 23, 2008, to discuss Chambers' order of sanctions against the Sumners. McCarville noted that Chambers' "conclusions are supported in the record. They're logical." Chambers' ruling, McCarville stated, "was not based upon merely what happened in the first part of March of 2008, but it was as a result of that being more or less the final straw." McCarville adopted Chambers' decision effectively upholding the grant of summary judgment to Deutsche Bank and dismissing the Sumners' remaining claims with prejudice, as well Chambers' decision to dismiss the Sumners' TILA claims.

The Sumners then moved to have McCarville disqualified from the case. The motion was denied, and the court ordered the foreclosure and sale of the Sumners' home.

The Sumners timely appeal.

DID THE DISTRICT COURT ERR IN DISMISSING THE SUMNERS' PURPORTED CLAIMS FOR RECOUPMENT AND SETOFF? The Sumners argue the district court improperly dismissed their claims under the TILA. In dismissing the TILA claims, the court noted: "Truth in Lending Act claims have a 1-year statute of limitations. . . . The claims were filed well in excess of the oneyear limitation. Even if the claims related back to the original counterclaim, the claims would still fall outside the one-year statute of limitations."

Both parties agree that the district court's interpretation of the TILA's statute of limitations is subject to unlimited review because it involves a question of law. See Law 8

v. Law Company Building Assocs., 42 Kan. App. 2d 278, 283-84, 210 P.3d 676 (2009), rev. granted on other grounds 290 Kan. __ (September 7, 2010).

The Sumners argue their claims for recoupment or setoff are not barred by the 1year statute of limitations under the TILA. They rely on 15 U.S.C.

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