Opinion
CV 01-1124-BR.
August 17, 2004
DAVID P. ROSSMILLER, Dunn Carney Allen Higgins Tongue LLP Portland, OR, Attorneys for Plaintiff.
JOSEPH C. ARELLANO, DANIEL L. KEPPLER, Kennedy, Watts, Arellano Ricks LLP Portland, OR, Attorneys for Defendant James W. Toma.
STEVEN O. ROSEN, ELIZABETH M. CLINE, The Rosen Law Firm, Portland, OR
EDWARD S. ZUSMAN, KEVIN K. ENG, Liner Yankelevitz Sunshine Regenstreif LLP San Francisco, CA, Attorneys for Defendant United Pacific Securities.
OPINION AND ORDER
This matter comes before the Court on Defendant United Pacific Securities' Motion for Summary Judgment, or in the alternative, Partial Summary Judgment (#99); United Pacific's Objections to Plaintiff's Evidence (#127); and Plaintiff Arthur S. Elston's Motion for Summary Judgment (#110) against Defendant Toma's Counterclaim for Breach of Contract.
For the following reasons, the Court DENIES United Pacific's Motion for Summary Judgment, or in the alternative, Partial Summary Judgment; GRANTS in part and DENIES in part United Pacific's Objections to Evidence; and GRANTS Elston's Motion for Summary Judgment against Defendant Toma's Counterclaim for Breach of Contract.
BACKGROUND
Elston originally filed this action on March 14, 2001, in the United States District Court for the District of Colorado against Defendants Toma, United Pacific, and Skylink Communications Corporation. Elston alleged claims arising from Defendants' participation in the sale of telecommunications securities to Elston. On July 23, 2001, the action was transferred to this district, and on December 17, 2001, a default judgment was entered against Skylink. In March 2002, the action was dismissed without prejudice pursuant to the stpulation of the parties. On August 28, 2003, however, the Court granted Elston's Motion to Vacate the Judgment of Dismissal and reinstated the action.Elston's operative pleading is his Fifth Amended Complaint, in which he alleges he paid $500,000 to Toma for 250,000 shares of Skylink on or about March 26, 1998. Elston alleges United Pacific acted as a securities broker through its agents Joe Miller and David Mowatt and recommended that Elston purchase the Skylink stock owned by Toma. Elston also alleges Toma fraudulently and/or negligently induced him to purchase the stock by stating the $500,000 that Elston paid Toma for the stock would be used as "bridge-financing" to assist in paying a New York investment house to underwrite an initial public offering (IPO). The IPO purportedly would increase the value of Elston's investment from $2 a share to $22 a share. Elston alleges Toma and United Pacific, however, knew at the time Elston purchased the shares that Skylink was in no financial condition to make an IPO. In addition, Elston alleges Defendants were "sellers" of Toma's shares of Skylink stock, and United Pacific materially aided and participated in the sale of those shares to Elston.
Relying on these allegations, Elston asserts five state law claims against Toma and United Pacific: Violation of Oregon's securities law, fraud, negligent misrepresentation, breach of contract, and breach of fiduciary duty. Toma and United Pacific each deny Elston's allegations and separately assert affirmative defenses based on statutes of limitation, estoppel, and misrepresentation. Toma also asserts a Counterclaim against Elston for breach of contract.
Jurisdiction of these claims is based on the diversity of the parties' citizenship pursuant to 28 U.S.C. § 1332.
STANDARDS
Fed.R.Civ.P. 56(c) authorizes summary judgment if no genuine issue exists regarding any material fact and the moving party is entitled to judgment as a matter of law. The moving party must show the absence of an issue of material fact. Leisek v. Brightwood Corp., 278 F.3d 895, 898 (9th Cir. 2002). In response to a properly supported motion for summary judgment, the nonmoving party must go beyond the pleadings and show there is a genuine issue of material fact for trial. Id.
An issue of fact is genuine "`if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Villiarmo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). The Court must draw all reasonable inferences in favor of the nonmoving party. Id. A mere disagreement about a material issue of fact, however, does not preclude summary judgment. Jackson v. Bank of Haw., 902 F.2d 1385, 1389 (9th Cir. 1990). When the nonmoving party's claims are factually implausible, that party must come forward with more persuasive evidence than otherwise would be required. Blue Ridge Ins. Co. v. Stanewich, 142 F.3d 1145, 1147 (9th Cir. 1998) (citation omitted).
The substantive law governing a claim or a defense determines whether a fact is material. Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000). If the resolution of a factual dispute would not affect the outcome of the claim, the court may grant summary judgment. Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 919 (9th Cir. 2001).
UNITED PACIFIC'S OBJECTIONS TO EVIDENCE
United Pacific objects to all 20 Concise Statements of Material Fact asserted by Elston in opposition to United Pacific's Motion for Summary Judgment. Elston's Concise Statements relate to the following issues: (1) Elston's interactions with United Pacific and David Mowatt, an investment advisor who had an exclusive agency relationship with United Pacific; (2) United Pacific's interactions with Skylink; (3) Skylink's actual financial condition at the time Elston purchased Toma's shares; and (4) Elston's interaction with Toma and Skylink.United Pacific objects to Elston's evidence on several grounds, including relevancy, hearsay, misstatement of testimony, lack of authentication, and legal conclusion.
The Court finds United Pacific's relevancy objections are not well-taken because the nature and extent of the relationships between the parties are material in this case, especially when evaluating the factual record in the light most favorable to the nonmoving party.
In addition, with the exception of Concise Statements ¶¶ 10 and 13, the Court finds United Pacific's hearsay objections lack merit. Concise Statements ¶¶ 1 and 5 are not hearsay, and Concise Statements ¶¶ 9, 16, and 17 appear to be admissions of parties or their agents. The Court, however, agrees with United Pacific that notes written by a nonparty institutional investor, Hexagon Investments, are hearsay for the purposes of the pending Motion, and the Court, therefore, disregards that evidence.
The Court also finds United Pacific's assertion that Elston misstates testimony in his Concise Statement is without basis. In any event, Elston's alleged mischaracterization of testimony would affect only the weight given to the testimony by the Court rather than the admissibility of the testimony.
Finally, the Court finds United Pacific's objection to and characterization of Elston's Concise Statement ¶ 19 as a legal conclusion is erroneous. The statement, "At the meeting, Elston learned for the first time that Schroder's was no longer in the IPO picture," is a statement of fact rather than a legal conclusion.
In summary, the Court denies United Pacific's Objections to Plaintiff's Evidence except those Concise Statements relating to notes made by Hexagon Investments.
UNITED PACIFIC'S MOTION FOR SUMMARY JUDGMENT
United Pacific moves for Summary Judgment or Partial Summary Judgment against Elston's claims on multiple grounds. The gravamen of each ground relies on the following "undisputed facts": (1) Elston represented he was fully informed of all risks involved in the purchase of Toma's shares; (2) Toma disclosed to Elston that there was substantial risk in the investment; (3) Elston knew of his potential claims for securities fraud, common law fraud, breach of contract, breach of fiduciary duty, and negligence as early as October 1998 when Skylink failed to make an IPO; (4) United Pacific did not materially aid or participate in the sale of Toma's shares to Elston; (5) United Pacific did not know of any alleged misrepresentations made by Toma nor did it misrepresent facts to Elston; and (6) United Pacific did not have a special or fiduciary relationship with Elston.
After a thorough review of the record in the light most favorable to Elston, however, the Court concludes there are genuine issues of material fact that preclude summary judgment or partial summary judgment on any of the grounds asserted by United Pacific. The genuine issues of material fact include, but are not limited to, (1) whether Skylink and Toma, aided by United Pacific, misrepresented to Elston the likelihood of Skylink proceeding with an IPO in light of Skylink's financial condition; (2) the nature and extent of the relationship between United Pacific and Skylink; (3) the nature and extent of the relationship between United Pacific and Elston; (4) United Pacific's knowledge of Skylink's alleged precarious financial condition; (5) the nature and extent of United Pacific's participation in the sale of stock to Elston; (6) the nature and extent of alleged misrepresentations by United Pacific to Elston regarding the status of the IPO; and (7) when Elston received sufficient knowledge of his claims for purposes of United Pacific's time-limitation defenses.
Accordingly, the Court denies United Pacific's Motion for Summary Judgment, or in the alternative, Partial Summary Judgment.
ELSTON'S MOTION FOR SUMMARY JUDGMENT
Elston moves for summary judgment against Toma's counterclaim for breach of contract. Elston entered into a Purchase Agreement with Toma to buy Toma's Skylink shares. In that Agreement, Elston made representations and warranties that he had conducted an independent investigation before deciding to purchase Toma's shares, he had received relevant documents disclosing the risks involved in the purchase, and he was an accredited investor. The Purchase Agreement also included the following indemnification provision:
The sale of the Securities to the undersigned will be based upon the representations and warranties set forth herein and by other statements made by the undersigned. The undersigned agrees to indemnify and hold harmless the Seller, the Issuer and its directors, managers, officers, employees, agents, attorneys, successors and assigns from and against any and all loss, damage, liability or expense, including costs and reasonable attorney fees, suffered or incurred by any of them by reason of, or in connection with, any misrepresentations made by the undersigned in this Agreement, any breach by the undersigned of warranties and/or failure by the undersigned to fulfill any covenants or agreements set forth herein or arising out of the sale or distribution of any Securities by the undersigned in violation of any applicable federal or state securities laws.
Pl.'s Mem., Rossmiller Aff., Ex. A at ¶ 10.
According to Toma, Elston represented and warranted that he was a sophisticated investor who had fully investigated the risks involved in his purchase of Toma's shares. Toma asserts Elston's allegations in his Complaint are contrary to those representations, and Toma has suffered losses in the form of expenses and attorneys' fees incurred in defending against this action.
Elston asserts no genuine issue of material fact exists as to (1) the indemnification provision in the Purchase Agreement, which "does not address the resolution of disputes between Elston and Toma over the securities sale," or (2) any breach by Elston of representations and warranties he made in the Purchase Agreement.
The essence of Toma's counterclaim is that Elston agreed to pay Toma's litigation expenses if Elston brought an action against Toma for deceiving Elston regarding the risks and nature of the investment he made when he purchased Toma's Skylink stock. Toma contends this indemnification provision in the Purchase Agreement is consistent with the warranties and representations in the Purchase Agreement made by Elston.
In Layman v. Combs, the Ninth Circuit addressed a substantially similar indemnification provision, applied California law on contract interpretation, and held "the indemnification required by the clause . . . does not extend to fees or damages incurred in defending claims brought by the subscribing indemnitor." 994 F.2d 1344, 1353 (9th Cir. 1993). The court stated:
A person who contracts to pay an opponent's attorneys' fees if she sues unsuccessfully is agreeing to a departure from the standard American rule that a party prevailing in a lawsuit is not entitled to recover fees from the loser. It is not too much to ask that a clause effectuating such a deviation from the norm be explicit.Id. at 1352. The court noted the indemnification clause did not provide that the investor must pay the defendants' fees if the investor breached a warranty by suing the sellers. The court found the "literal terms [of the indemnification agreement] would require the plaintiffs to pay the defendants' judgment and attorneys' fees even if the plaintiff prevailed!" Id. The court noted "the absurdity of such a result." Id. See also In re Integrated Resources, 815 F. Supp. 620, 677 (S.D.N.Y. 1993) (an agreement to indemnify subscriber for attorneys' fees and expenses incurred in defending against an investor's securities fraud action must be clear and specific).
Although the parties in this case agree Oregon law controls Toma's Counterclaim for breach of contract, it appears there is not any Oregon appellate decision directly on point. Thus, this Court must predict how the Oregon Supreme Court would resolve the issue. See Myers, Inc. v. City and County of San Francisco, 253 F.3d 461, 473 (9th Cir. 2001). The Court notes the Layman court applied the California rule that "a court interpreting a contract should `look for expressed intent under an objective standard.'" Layman, 994 F.2d at 1350 n. 3. As cited by the parties, Oregon law on contract interpretation is not inconsistent with this approach. In any event, this Court finds the Layman analysis persuasive and concludes the Oregon Supreme Court would apply the same general principles under the circumstances of this case.
Here the Court concludes the indemnification provision in the Purchase Agreement between Toma and Elston does not explicitly provide that Toma is entitled to recover his attorneys' fees and costs incurred in defending this action even if Elston breached his warranties and representations. Accordingly, the Court grants Elston's Motion for Summary Judgment against Toma's Counterclaim for Breach of Contract.
In light of this disposition, the Court need not address whether Elston, in fact, breached the warranties and representations he made in the Purchase Agreement.
CONCLUSION
For these reasons, the Court DENIES Defendant United Pacific's Motion for Summary Judgment, or in the alternative, Partial Summary Judgment (#99); GRANTS in part and DENIES in part United Pacific's Objections to Evidence (#127); and GRANTS Plaintiff Elston's Motion for Summary Judgment against Defendant Toma's Counterclaim for Breach of Contract (#110).IT IS SO ORDERED.