414 F.3d 1075 (9th Cir. 2005), 02-17525, Fanucchi & Limi Farms v. United Agri Products

Docket Nº:02-17525, 03-15913.
Citation:414 F.3d 1075
Party Name:FANUCCHI & LIMI FARMS, a general partnership, aka Fanucchi-Limi Farms Partnership # 2 Larry Fanucchi Richard Limi, Plaintiffs-Appellants, v. UNITED AGRI PRODUCTS, a corporation, Defendant-Appellee. Fanucchi & Limi Farms, a general partnership, aka Fanucchi-Limi Farms Partnership # 2 Larry Fanucchi Richard Limi, Plaintiffs-Appellants, v. United Agri
Case Date:July 14, 2005
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
FREE EXCERPT

Page 1075

414 F.3d 1075 (9th Cir. 2005)

FANUCCHI & LIMI FARMS, a general partnership, aka Fanucchi-Limi Farms Partnership # 2 Larry Fanucchi Richard Limi, Plaintiffs-Appellants,

v.

UNITED AGRI PRODUCTS, a corporation, Defendant-Appellee.

Fanucchi & Limi Farms, a general partnership, aka Fanucchi-Limi Farms Partnership # 2 Larry Fanucchi Richard Limi, Plaintiffs-Appellants,

v.

United Agri Products, a corporation, Defendant-Appellee.

Nos. 02-17525, 03-15913.

United States Court of Appeals, Ninth Circuit

July 14, 2005

Argued and Submitted Sept. 15, 2004.

Page 1076

[Copyrighted Material Omitted]

Page 1077

Thomas J. Anton and Jeffrey Wise, Thomas Anton & Associates, Bakersfield, CA, for the plaintiffs-appellants.

Elizabeth R. Jones, The Beatty Law Firm, Denver, CO, for the defendant-appellee.

Appeal from the United States District Court for the Eastern District of California; Robert E. Coyle, Senior Judge, Presiding. D.C. Nos. CV-00-06349-REC, CV-00-06349-REC/DLB.

Before: BEEZER, W. FLETCHER, and FISHER, Circuit Judges.

WILLIAM A. FLETCHER, Circuit Judge:

Fanucchi & Limi Farms, Larry Fanucchi, and Richard Limi (collectively "Fanucchi") sued United Agri Products Financial Services, Inc. ("United") for breach of contract and promissory fraud. The district court granted summary judgment to United. Fanucchi appeals from the grant of summary judgment, and from an associated grant of attorneys' fees. We conclude

Page 1078

that the novation theory providing one basis for Fanucchi's breach of contract claim should have survived summary judgment. Accordingly, we reverse and remand to allow the breach of contract claim to go forward on a novation theory. We otherwise affirm the summary judgment. Because we reverse part of the summary judgment, we vacate the order granting attorneys' fees.

I. Background

Larry Fanucchi, Richard Limi, and Linda Limi were general partners in Fanucchi & Limi Farms, in Kern County, California. Fanucchi financed its farming operations by borrowing against its future crop proceeds. In December 1994, United lent money to Fanucchi to finance its operating costs for 1995 ("the 1994 Loan"). The 1994 Loan was memorialized in several documents, including an Agricultural Loan Agreement, a Promissory Note, an Agricultural Security Agreement, separate Commercial Guarantees personally executed by Larry Fanucchi, Richard Limi, and Linda Limi, and a Notice of Final Agreement.

These documents set out the terms of the loan in considerable detail. The Agricultural Loan Agreement outlines the disbursement schedule, repayment terms, and circumstances under which the loan may be renewed in future years. The Agricultural Security Agreement establishes United's security interest in Fanucchi's crops. The Commercial Guarantees are individual loan guarantees by Larry Fanucchi, Richard Limi, and Linda Limi in the event United's security interest in the crops fails to cover the loan. The Notice of Final Agreement provides that the 1994 Loan incorporates all of the above documents.

The 1994 Loan documents contain language describing how the parties may modify the agreement. Both the Agricultural Loan Agreement and Agricultural Security Agreement have an integration clause that reads:

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

The three Commercial Guarantees also contain integration clauses requiring modifications to be in writing. Finally, the Notice of Final Agreement provides that (1) "the written loan agreement represents the final agreement between the parties," (2) "there are no unwritten oral agreements between the parties," and (3) "the written loan agreement may not be contradicted by evidence of any prior, contemporaneous, or subsequent oral agreements or understandings of the parties."

After Fanucchi and United entered into the 1994 Loan agreement, United increased the amount of the note from $700,000 to $800,000 on January 30, 1995; to $900,000 on March 1, 1995; and to $1,475,000 on September 18, 1995. All increases were made in writing and provided that "[t]he terms and conditions of [the original Promissory Note] will remain in full force and effect for this increase."

Fanucchi's 1995 crops failed. As a result, Fanucchi was unable to repay the 1994 Loan, and owed more than a million dollars to United. Fanucchi consulted with a United representative, Wayne Keese, and with bankruptcy counsel. According to the depositions of Larry Fanucchi ("Larry") and Richard Limi ("Richard"), Keese persuaded Fanucchi not to file for bankruptcy, but rather to continue farming. According to Larry and Richard's

Page 1079

depositions, Keese orally promised to subordinate United's debt to new crop financing loans from other lenders for up to five years. During this period, United's 1994 Loan would be repaid from the crop proceeds available after new crop loans were paid off. These proceeds were to be split on a 60/40 basis, with 60 percent going to United and 40 percent going to Fanucchi's other creditors. According to Larry's deposition, Keese said that if Fanucchi had paid its debt on the 1994 Loan down to $300,000 or $400,000 at the end of the five-year period, United would forgive that amount.

Keese testified in his deposition that "[w]e discussed pretty openly possibilities, options, of which bankruptcy was one." He stated, "[M]y approach always has been to--if you can work out an arrangement where they can continue to pay their debt in a reasonable period of time, I'm open and willing to listen to it." Keese confirmed that there was an oral agreement that after the new crop loans were paid off the remaining money would be split 60/40, but his recollection was that this was done only on a year-to-year basis. Keese stated that he did not recall discussing a five-year term during which Fanucchi could try to pay down its debt to United. Nor did he recall promising that United would forgive the debt at the end a five-year period should Fanucchi succeed in paying it down to a certain level: "I don't remember having any discussion of that ... that nature" (ellipsis in original).

The agreement operated as described by Larry and Richard for the crop years 1996 and 1997. New secured lenders were found for those years; those lenders were paid from the crop proceeds; and the remaining proceeds were divided 60/40 between United and Fanucchi's other creditors. There is ample undisputed evidence in the record to show this. For example, a January 5, 1997 letter from a United representative, Bruce Carter, to Southern California Cotton Financing ("Southern California Cotton") details United's agreement to subordinate its debt to enable Fanucchi to obtain other sources of crop financing for that year. The secured lenders for that year include Southern California Cotton, as well as the parents of Larry and Richard. The letter provides in part:

[A]ccording to the attached "Acknowledgment and Agreement," on behalf of United Agri Products Financial Services, I give the authority to Southern California Financing to pay the above mentioned sums to first, Southern California Cotton Financing, secondly to Mr. & Mrs. Fanucchi and thirdly to Mr. & Mrs. Limi, prior to funds coming to United Agri Products Financial Services, Inc. All funds in excess of the Southern California Cotton Financing, Fanucchi and Limi funds should come to United Agri Products Financial Services, Inc.

A May 12, 1997 letter from Carter to Daniel Rudnick, Fanucchi's attorney, similarly describes United's agreement:

This letter is to advise you that United Agri Products has agreed to split the profits from the 1997 Fanucchi-Limi Farms Partnership # 2 farming operations on a basis of 60% for United Agri Products and 40% for Fanucchi-Limi Farms. Profits should be defined as those monies left after the repayment of all 1997 operating loans, including interest, to Southern California Cotton Financing, and to both sets of parents[.]

Keese's employment at United terminated in early 1998. His last day on the payroll was March 31. Beginning in the spring of 1998, United was no longer willing to perform in accordance with the agreement described by Larry and Richard. Instead of subordinating to all of the lenders for the 1998 crop, United was willing

Page 1080

to subordinate only to Southern California Cotton. On April 17, 1998, Denise Fitzgerald wrote on behalf of United to Southern California Cotton, confirming that United had assigned its interest in the proceeds of the 1998 crop to Southern California Cotton up to the amount of its loan, and indicating that all the remaining proceeds from the 1998 crop were to be paid to United. Unlike in 1996 and 1997, United refused to subordinate to the parents of Larry and Richard. Jerry Simmons, who had been hired by United as the new credit manager in February or March 1998, testified at his deposition that it was his decision not to subordinate to the parents: "I don't subordinate to family members."

In August 2000, Fanucchi sued United in California Superior Court for breach of contract and promissory fraud. The gravamen of Fanucchi's breach of contract claim is that by promising substantially to change the terms of the 1994 Loan agreement, United induced Fanucchi not to declare bankruptcy after the failure of the 1995 crops. In return for Fanucchi's not declaring bankruptcy, United agreed in 1995 to subordinate its lien to crop loans by new lenders for the next five years, to take only 60 percent of the crop...

To continue reading

FREE SIGN UP