Opinion
Civil Action No. 3:99-CV-2641-L MAR 27 2001
March 27, 2001
MEMORANDUM OPINION AND ORDER
Before the court are Plaintiffs' Motion for Partial Summary Judgment, filed January 2, 2001, and Unopposed Motion for Leave to File Amended Pleading, filed March 12, 2001. The court notes that the proposed amended pleading only reduces the scope of the complaint, dropping Plaintiff's claims of fraudulent transfer and conversion, alter ego, rescission and accounting against all Defendants and dropping all claims against Byrd Energy Company. The court welcomes decisions by the parties to narrow the scope of issues for trial, and notes that the motion for leave to file is unopposed. The court therefore grants the motion pursuant to Fed.R.Civ.P. 15(a). The clerk is directed to file Plaintiffs' First Amended Complaint, submitted with the motion for leave to file. Because the First Amended Complaint only narrows the scope of issues, there is no need or right to amend or supplement Defendants' Original Answer. See Tralon Corp. v. Cedarapids, Inc., 966 F. Supp. 812, 832 (N.D. Iowa 1997).
Plaintiffs also move for partial summary judgment on their breach of contract claim. As a result of the amended pleading, only the breach of contract claim remains, so the motion is no longer merely for partial summary judgment; it is dispositive of the sole remaining claim. Defendants have not filed an opposition to the motion for summary judgment. After careful consideration of the motion, brief, evidence submitted, and applicable law, the court grants the motion.
The standard motion practice in the Northern District of Texas is that "[a] response and brief to an opposed motion must be filed within 20 days from the date the motion is filed," and "[u]nless otherwise directed by the presiding judge, oral argument on a motion will not be held." See Local Rule 7.1(e), (g). Attorneys appearing in this district are expected to know and follow the local rules; the court does not "babysit" counsel. Defendants have not explained their failure to file a response and brief.
I. Factual and Procedural Background
The facts contained herein are either undisputed or, where they are disputed, presented in the light most favorable to Defendants as the nonmovants. Defendants' failure to file a response to the motion for summary judgment has hampered the court's efforts in this regard, but is offset to some degree by the proposed pretrial order submitted by the parties jointly.
This action arises from an oil and gas drilling project by Byrd Energy Corporation ("Byrd") in Hoffman Field, Duval County, Texas. Defendants Brady Baxter (an officer of Byrd) and Robert Baxter raised financing for the project through a limited partnership. Among the investors that Defendants solicited were Plaintiffs William and Carol Ayres, who invested $185,670. As an inducement to the limited partners, Defendants executed an Indemnity and Guarantee Agreement ("the Guarantee"), dated November 26, 1991 and amended April 14, 1992. The Guarantee gave the limited partners the option, at the end of one year after the formation of the partnership, to have Defendants acquire or "buy-out" their partnership interest at the original purchase price less any cash distributions. In effect, Defendants personally guaranteed the return of the limited partners' investment if they chose not to continue in the partnership. Upon demand, payments would be made within ninety days, accruing interest at the lesser of the Nevada Legal Rate or twelve percent (12%) compounded monthly beginning with the expiration of the ninety day period. Defendants confirmed by letter dated August 11, 1992 that the Agreement covered the entire $185,670 invested by Plaintiffs. Defendants also solicited a $25,000 loan from the Plaintiffs to Byrd. A General Promissory Note and Deed of Trust ("the Note"), dated August 11, 1992, provided that Defendants would make monthly payments of $3,000 to Plaintiffs starting October 15, 1992 (applied first to interest then to principal) with the remaining balance due in full on January 15, 1993. Past due sums were to bear interest at the rate of fifteen percent (15%) per annum.
Byrd was originally a defendant in this action, but all claims were dropped in the First Amended Complaint, which is now the operative pleading. (This decision by Plaintiffs was apparently motivated by the fact that all of Byrd's corporate records and documents have been destroyed in the regular course of business.) Future references to "Defendants" include only the remaining Defendants, Robert Baxter and Brady Baxter, unless the context indicates otherwise.
Plaintiffs do not identify when the $3,000 payment was made. The court assumes for purposes of calculating the judgment amount that the $3,000 represents a timely payment of the first principal payment, since that is the minimum amount consistent with the evidence submitted by Plaintiff. The court also construes the Note, which references interest on " past due sums," as only applicable as payments came due, not on the entire principal balance. Because there is no reference in the Note to compounding, the court construes the Note as providing for simple interest.
The oil and gas drilling project evidently was unsuccessful, and Plaintiffs lost their entire $185,670 investment as well as the $25,000 they loaned to Byrd. Plaintiffs claim (and Defendants apparently dispute) that, through their attorney for the transaction, James Ririe ("Ririe"), they made demand for rescission of the investments in full by letter dated August 26, 1993 to Defendants. Defendants made only one payment, totaling $3,000, on the Note and no payments pursuant to the Guarantee. After several communications between Plaintiffs and Defendants, Defendants sent a letter to Ririe (on behalf of Plaintiffs, among others) on March 2, 1997, stating:
The purpose of this letter is to reaffirm our obligation and indebtedness to the referenced parties in accordance with our written agreements concerning certain oil and gas investments in Duval County, Texas and DeBaca County, New Mexico.
By this letter, we fully intend to pay our obligation to you and do not intend to assert a limitations defense.
Having still received no payments on the Guarantee and Note (other than the original $3,000 payment on the Note), Plaintiffs filed this action against Defendants on March 16, 1999 in the Eighth Judicial District Court for the County of Clark, State of Nevada. The action was removed to the United States District Court for the District of Nevada on June 8, 1999, and subsequently transferred to this court on November 1, 1999 pursuant to 28 U.S.C. § 1404(a).
The court construes the First Amended Complaint (not a model of clarity) as claiming breach of the Guarantee and the Note or, in the alternative, breach of the contract created by Defendants' reaffirmation of those obligations by their letter of March 2, 1997. Defendants' Original Answer, in addition to denying some of Plaintiffs' allegations, asserts affirmative defenses of statutes of limitations, laches, and lack of or failure of consideration.
II. Summary Judgment Standard
Summary judgment shall be rendered when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Ragas v. Tennessee Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998). A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary judgment, the court is required to view all inferences drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Ragas, 136 F.3d at 458.
Once the moving party has made an initial showing that there is no evidence to support the nonmoving party's case, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Mere conclusory allegations are not competent summary judgment evidence, and thus are insufficient to defeat a motion for summary judgment. Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996). Unsubstantiated assertions, improbable inferences, and unsupported speculation are not competent summary judgment evidence. See Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.), cert. denied, 513 U.S. 871 (1994). The party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his claim. Ragas, 136 F.3d at 458. Rule 56 does not impose a duty on the court to "sift through the record in search of evidence" to support the nonmovant's opposition to the motion for summary judgment. Id., see also Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915-16 n. 7 (5th Cir.), cert. denied, 506 U.S. 832 (1992). "Only disputes over facts that might affect the outcome of the suit under the governing laws will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. Disputed fact issues which are "irrelevant and unnecessary" will not be considered by a court in ruling on a summary judgment motion. Id. If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to its case and on which it will bear the burden of proof at trial, summary judgment must be granted. Celotex, 477 U.S. at 322-23. III. Analysis A. Choice of Law
As a threshold issue, the court determines the appropriate law under which to analyze these claims. Although "a court ordinarily must apply the choice-of-law rules of the State in which it sits," "where a case is transferred pursuant to 28 U.S.C. § 1404(a), it must apply the choice-of-law rules of the State from which the case was transferred." Piper Aircraft Co. v. Reyno, 454 U.S. 235, 243 n. 8 (1981). Accordingly, the court must apply the choice of law rules of Nevada, which include the following:
It is well settled that the expressed intention of the parties as to the applicable law in the construction of a contract is controlling if the parties acted in good faith and not to evade the law of the real situs of the contract. Under [Nevada] choice-of-law principles, parties are permitted within broad limits to choose the law that will determine the validity and effect of their contract. The situs fixed by the agreement, however, must have a substantial relation with the transaction, and the agreement must not be contrary to the public policy of the forum.Sievers v. Diversified Mortgage Investors, 603 P.2d 270, 273 (Nev. 1979).
The Guarantee included a choice of law provision as follows: "This agreement shall be subject to the laws of the State of Nevada and, in the event of enforcement of this agreement, all parties agree to the jurisdiction of District Court, Clark County, Nevada, or if jurisdictional requirements are met, the United States District Court, District of Nevada." A guarantee agreement is not contrary to the public policy of Nevada, and the location of the lender constitutes a "substantial relation with the transaction" even when the loan is for a project located in another state. See Owens-Corning Fiberglas Corp. v. Texas Commerce Bank Nat'l Ass'n, 763 P.2d 335, 336 (Nev. 1988) (implied by the court's application of the choice of law provision in that agreement). Although the First Amended Complaint seeks damages for breach of contract rather than specific enforcement, the court concludes that this is still "enforcement of" the Guarantee, as Plaintiffs seek in damages exactly what would be paid if the court ordered specific performance. The court therefore concludes that Nevada law governs this action with respect to the Guarantee.
The Note does not contain a similar choice of law provision, but the court concludes that Nevada law should govern this action with respect to the Note as well. Nevada courts apply the principles of Restatement 2d of Conflict of Laws §§ 6, 188 in deciding the choice of law issue for an issue in contract that does not contain a choice of law provision. MGM Grand Hotel, Inc. v. Imperial Glass, Co., 65 F.R.D. 624, (D. Nev. 1974), rev'd on other grounds, 533 F.2d 486 (9th Cir. 1976). This is in essence a test of which state has "the most significant relationship to the transaction," Restatement 2d of Conflict of Laws § 188(1), taking into account the following contacts: "a)the place of contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; (e) the domicil [sic], residence, nationality, place of incorporation and place of business of the parties." Id § 188(2). The summary judgment evidence submitted only addresses two of these factors: the residence of the parties — Nevada for Plaintiffs and Texas for Defendants — and the place of performance. The place of performance for a promissory note is not the location where the loaned funds are used, but the place where payment on the note is to be made. The Note clearly designates this as Las Vegas, Nevada. Accordingly, the court concludes that Nevada law governs the Note as well. B. Breach of Contract
The March 2, 1997 letter also contains no choice of law provision, but it is so closely related to the Guarantee and the Note that the court concludes that it is appropriate to use the same state's law to evaluate Plaintiffs' claim with respect to all three documents.
The existence, validity, amount, and terms of the Guarantee and Note are undisputed, as are Defendants' failure to make payments thereon and the consequent injury to Plaintiffs. Defendants' obligation to pay Plaintiffs arising from the Note is unconditional and evident on the face of the Note. The only apparent issues concerning Plaintiffs' prima facie case for breach of contract are: 1) were Defendants obligated by the Guarantee to pay Plaintiffs for their investment in the project; and 2) does the March 2, 1997 letter constitute a valid contract as an acknowledgment of Defendants' original obligations.
1. Obligation to Pay Under the Guarantee
Defendants' payment obligations under the Guarantee were conditional upon notice or demand for buy-out. The requirement of demand or notice is a condition precedent to performance of the contract. "In pleading the performance or occurrence of conditions precedent, it is sufficient to aver generally that all conditions precedent have been performed or have occurred. A denial of performance or occurrence shall be made specifically and with particularity." Fed.R.Civ.P. 9(c) (emphasis added). "To meet its initial burden of showing the absence of a genuine issue of material fact, plaintiff as the moving party must make a prima facie showing on each of the elements essential to its case. Further, the plaintiff must show the absence of a genuine issue of material fact as to those affirmative defenses which have been preserved for trial by defendant. . . ." United Missouri Bank of Kansas City, N.A. v. Gagel, 815 F. Supp. 387, 391 (D. Kan. 1993).
It is not entirely clear what must be proved by Plaintiffs under these circumstances. The obligation by Defendants to pay is normally an element that Plaintiffs must prove. On the other hand, Defendants' Original Answer did not plead failure to make demand/notice specifically and with particularity, and Defendants inexplicably have made no attempt to amend their pleading. The issue therefore has not been preserved for trial. Plaintiffs have averred, both in the complaint and in the motion for summary judgment, that they gave notice. The court concludes that, when a defendant has not denied the performance or occurrence of a condition precedent with the specificity and particularity required by Fed.R.Civ.P. 9(c), the plaintiff's motion for summary judgment need not demonstrate the absence of a genuine issue of material fact, but need only state generally that conditions precedent have been satisfied, at which point the burden shifts to the defendant to demonstrate a genuine issue of material fact. "[T]he adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party." Fed.R.Civ.P. 56(e).
Plaintiffs have met their burden. Indeed, Plaintiffs have gone beyond a simple averment in the complaint that they satisfied all conditions precedent. Plaintiffs submitted as part of their summary judgment evidence a copy of the August 26, 1993 letter by which they demanded payment on the Guarantee. This is also supported by an affidavit by William Ayres in which he states that demand was made. The affidavit further states that Defendants responded to the demand and "repeatedly told us that they would pay us the money they owed us, and that they would not assert a statute of limitations defense." Plaintiffs also submitted a copy of the March 2, 1997 letter in which Defendants reaffirmed the obligation. If no demand had been made, of course, there would be no obligation to reaffirm. Because Plaintiffs have satisfied the pleading requirement and Defendants have not pleaded failure of conditions precedent with specificity and particularity, the court concludes that there is no genuine issue of material fact as to whether Plaintiffs gave notice under the Guarantee. 2. Acknowledgment of Debt or Obligation
The court notes that Defendants, in the proposed Joint Pretrial Order, assert that "[n]o written certified notice was given to Defendants," but that document was not submitted in connection with the motion for summary judgment and therefore is not considered by the court for purposes of this analysis. In addition, it constitutes a conclusory allegation without supporting evidence. Most importantly, the defense is not properly before the court. Defendants may not expand the scope of trial by asserting in the pretrial order a failure of condition precedent that was not properly pleaded with specificity and particularity in their answer, as required by Fed.R.Civ.P. 9(c). The inclusion of this defense in the pretrial order is null and void. If Defendants intended to contest whether notice was adequately given, the appropriate recourse would have been to file a motion for leave to file an amended answer and file a response to the motion for summary judgment. They did neither. The court makes no determination whether Defendants could have demonstrated justification for leave to file an amended answer, but their failure to even make the attempt is fatal.
Plaintiffs contend that Defendants' letter of March 2, 1997 constitutes an acknowledgment of the debt sufficient to create a new obligation by Defendants which can form the basis for their breach of contract claim in the event that a claim based on the Guarantee and/or the Note is held to be barred by the statute of limitations. "No acknowledgment or promise shall be sufficient evidence of a new or continuing contract whereby to take the case out of the operation of this chapter, unless the same be contained in some writing signed by the party to be charged thereby . . . ." Nev. Rev. Stat. 11.390. To meet the requirements of this provision, the acknowledgment must either "directly, distinctly and unqualifiedly admit" or "manifest [a] willingness or intent to pay the debt." Saye v. Paradise Memorial Gardens, Inc., 554 P.2d 274, 275 (Nev. 1976). The court concludes that the March 2, 1997 letter, submitted as part of Plaintiffs' summary judgment evidence and quoted above, clearly satisfies the requirements of Nev. Rev. Stat. 11.390 and constitutes a valid acknowledgment of the obligations of the Guarantee and Note. C. Affirmative Defenses 1. Statutes of Limitations
The statute of limitations for "[a]n action upon a contract, obligation or liability founded upon an instrument in writing" is six years. Nev. Rev. Stat. 11.190. "In determining whether a statute of limitations has run against an action, the time must be computed from the day the cause of action accrued. A cause of action `accrues' when a suit may be maintained thereon." Clark v. Robison, 944 P.2d 788, 789 (Nev. 1997). The Guarantee specified that payment would be made within ninety days of notice/demand, which took place (based on the summary judgment evidence) no earlier than August 26, 1993. A cause of action for breach of contract related to the Guarantee therefore did not accrue until November 24, 1993 at the earliest, and this lawsuit, filed on March 16, 1999, was within the six year statute of limitations.
The breach of contract concerning the Note apparently took place no earlier than October 15, 1992, when the first payment was due. The statute of limitations therefore may have expired as early as October 15, 1998, before this lawsuit was filed. The March 2, 1997 letter, however, constituted "a new or continuing contract whereby to take the case out of the operation of" the statute of limitations. See Nev. Rev. Stat. 11.390. Whether this provision "revives the cause of action only for another statutory limitations period," "creates a new and independent cause of action on that separate undertaking," or "`removes' the applicable statute of limitations," see 51 Am. Jur.2d Limitation of Actions § 303 (2000), is unclear. Under any interpretation of reaffirmations and acknowledgments known to the court, however, the acknowledgment of the obligation on March 2, 1997, combined with the six year limitation period, would permit this action filed just over two years later. 2. Laches
"Laches is an equitable doctrine which may be invoked when delay by one party works to the disadvantage of the other, causing a change of circumstances which would make the grant of relief to the delaying party inequitable." Building Constr. Trades Council of Northern Nevada v. State ex rel. Public Works Bd., 836 P.2d 633, 636-37 (Nev. 1992). Relevant considerations in deciding whether to apply the doctrine of laches are "(1) whether there was an inexcusable delay in [initiating the lawsuit], (2) whether an implied waiver arose from [Plaintiffs'] knowing acquiescence in existing conditions, and (3) whether there were circumstances causing prejudice to [Defendants]." Id. at 637. "The condition of the party asserting laches must become so changed that he cannot be restored to his former state. It is well-established that especially strong circumstances must exist to sustain the defense of laches when the statute of limitations has not run." Home Savings Ass'n v. Bigelow, 779 P.2d 85, 86 (Nev. 1989) (citations and internal quotation marks omitted). Plaintiffs assert that Defendants have no evidence to support such a defense, placing the burden on Defendants to come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Defendants have not done so, and therefore the court concludes as a matter of law that the doctrine of laches is unavailable here.
3. Lack of/Failure of Consideration
Defendants do not specify the basis for their affirmative defense of lack of or failure of consideration, and the court can discern none. The Note evidenced a loan of $25,000, which would clearly constitute consideration for the promise to pay. Plaintiffs allege, and support by means of the William Ayres affidavit, that the Guarantee was provided as an inducement for their investment in the drilling project, which seems clearly sufficient to constitute consideration. The only real question is whether additional consideration is needed for the acknowledgment letter. No such requirement is specified in Nev. Rev. Stat. 11.390 and Nevada courts apparently have not directly addressed this issue. "In the absence of controlling Nevada law, a federal court sitting in diversity must use its own best judgment in predicting how the Nevada Supreme Court would decide the substantive issue. In performing that function, this Court may be aided by reviewing well-reasoned decisions from other jurisdictions." Interstate Commercial Bldg. Serv., Inc. v. Bank of America Nat'l Trust Savings Ass'n, 23 F. Supp.2d 1166, 1171 (D. Nev. 1998).
Other jurisdictions support treating either the original obligation or the moral obligation to pay one's debts as adequate consideration. "The original debt is generally considered to be a sufficient legal consideration for a subsequent new promise to pay it, whether the new promise is made before or after the bar of the statute is complete. In some jurisdictions, if the new promise is made after the debt is barred, the new promise usually is not based on the antecedent legal obligation, but rests upon the moral obligation to pay the barred debt." 51 Am. Jur.2d Limitation of Actions § 312 (2000) (footnotes omitted). Alternatively, the acknowledgment is seen as not creating a new contract but merely removing the bar of the statute of limitations, in which case consideration would be unnecessary. "Because the running of a statute of limitations on a debt does not extinguish the debt, but merely bars the remedy for the recovery of the debt, a new promise to pay a debt, or an unqualified acknowledgment of a debt, from which a promise to pay may be implied, tolls or removes the bar of the statute of limitations, if it meets certain requirements." Id. § 301 (footnotes omitted). The court is persuaded by the consistent treatment of those jurisdictions that have addressed the issue and believes that Nevada courts, if presented with the issue, would rule either that no consideration is required for the acknowledgment or that the obligations of the Guarantee and Note provide the requisite consideration.
IV. Conclusion
Plaintiffs have submitted summary judgment evidence supporting their breach of contract claim, and Defendants have submitted none in rebuttal. Two of the affirmative defenses asserted by Defendants in their Original Answer, statute of limitations and lack of consideration, are inapplicable in these circumstances as a matter of law. As to the affirmative defense of laches, Plaintiffs have asserted that there is no evidence in the record to support it, and Defendants have failed to submit summary judgment evidence sufficient to establish a genuine issue of material fact. The court therefore concludes that there is no genuine issue of material fact as to the breach of contract claim and Plaintiffs are entitled to judgment as a matter of law. Plaintiffs' Motion for Partial Summary Judgment is therefore granted. Because all other causes of action were dropped from Plaintiffs' First Amended Complaint, there is nothing remaining for trial. Accordingly, the remaining pretrial deadlines, the pretrial conference, and the trial setting as established in the court's Scheduling Order of February 7, 2000 are hereby vacated. Judgment will issue by separate document.
Plaintiffs in their First Amended Complaint also requested attorney's fees. The court sees no need for a trial on this sole remaining issue. Plaintiffs may file a motion for attorney's fees with supporting documentation if they wish.