Craig v. Taco Maker, Inc., Case No. 1:12cv00125 DS

• Decision Date: 04 June 2014
• Docket Number: Case No. 1:12cv00125 DS
• Citation: Craig v. Taco Maker, Inc., Case No. 1:12cv00125 DS (D. Utah Jun 04, 2014)
• Parties: GIL L. CRAIG et al., Plaintiffs, v. THE TACO MAKER, INC., Et al., Defendants.
• Court: U.S. District Court — District of Utah

GIL L. CRAIG et al., Plaintiffs, v. THE TACO MAKER, INC., Et al., Defendants.

Case No. 1:12cv00125 DS

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH NORTHERN DIVISION

DATED: June 4, 2014

MEMORANDUM DECISIONAND ORDER

I. INTRODUCTION

Plaintiffs commenced this lawsuit seeking to collect unpaid money allegedly owed them after the sale of all the shares of The Taco Maker, Inc. to Defendants. Defendants counterclaimed based on various alleged misrepresentations, omissions, and breach of warranties by Plaintiffs relating to the stock sale.

Plaintiffs seek summary judgment dismissing Defendants' two counterclaims (Doc. #26, & #38) "on the grounds that Defendants were late in filing those claims because (1) the parties contractually agreed in writing upon a specific limitation of three (3) years to make claims for purposes of effectiveness of representations, warranties, covenants and agreements and indemnification therefor; (2) the relevant statutes of limitation have run; and, (3) laches." Mem. Supp. pp 1-2.

II. SUMMARY JUDGEMENT STANDARD

Under Fed. R. Civ. P. 56, summary judgment is proper only when the pleadings, affidavits, depositions or admissions establish there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law. The burden of establishing the nonexistence of a genuine issue of material fact is on the moving party.¹ E.g., Celotex Corp. v. Catrett, 477 U.S. 317 (1986). This burden has two distinct components: an initial burden of production on the moving party, which burden when satisfied shifts to the nonmoving party, and an ultimate burden of persuasion, which always remains on the moving party. See 10A C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 2727 (2d ed. 1983).

The central inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. If the nonmoving party cannot muster sufficient evidence to make out a triable issue of fact on his claim, a trial would be useless and the moving party is entitled to summary judgment as a matter of law. Celotex, 477 U.S. 242.

III. DISCUSSION

A. Three Year Contractual Limitations Period

To facilitate sale of the shares of The Taco Maker, Inc., a Stock Purchase Agreement ("SPA") "Dated as of October 4, 2006", was entered into by Plaintiffs and thepredecessor of Defendant The Taco Maker, Inc.² The SPA was signed by Tomas Torres as President of the predecessor corporation and was guaranteed by each of the four individually named Defendants.³ Additionally, TTM Acquisition, Inc. and three of the individual Defendants, Torres, Budet and Lausell, each signed personally as Makers on a Secured Promissory Note.⁴

Paragraph 11 of the SPA provides for a three (3) year contractual limitation period following the Closing regarding "[a]ll representations and warranties and all covenants andagreements set forth in this Agreement".⁵ SPA ¶ 11, Mem. Supp. at Ex. A. The Closing date occurred on October 16, 2006. Defendants' legal claims against Plaintiffs set forth in their Counterclaims were filed on January 7, 2013, and May 9, 2013, more than six years after the Closing Date.

Plaintiffs assert as the basis for their Motion that Defendants contractually agreed that they would lose all rights to rely upon any representations, warranties, covenants andagreements, including the right of setoff after a 3 year period following the closing date.⁶ As evidentiary support for their position, Plaintiffs have submitted a copy of the SPA which specifically provides for a contractual limitations period for three years following the closing date, which occurred on October 16, 2006.

Defendants admit having entered into the SPA and have offered no evidence that Section 11 of the SPA was ever amended, modified, or is not binding upon them. As Plaintiffs' note, under Utah law⁷ contractual limitations on the time to bring suit "if reasonable, are valid, binding and enforceable." Hoeppner v. Utah Farm Bureau Ins. Co., 595 P.2d 863, 865 (Utah 1979)(citation and internal quotation marks omitted).⁸ "Defendants admit that contractual limitations shortening the time for bringing suit are valid, if reasonable", Mem. Opp'n at 7, but offer no viable factual or legal position that the 3 year contractual limitation period is not reasonable.

The Court rejects in turn each of the following positions offered by Defendants inopposition to Plaintiffs' Motion.

1. Admissible/Authenticated Evidence

Defendants' first argument, that there is no admissible/authenticated evidence before the court supporting Plaintiffs' Rule 56 Motion is without merit. Defendants ignore Plaintiffs' clear citation to the record,⁹ see Mem. Supp. at 7, and they ignore that the SPA attached as Exhibit A to Plaintiff's Mem. Supp. (Doc. #57), is the same as Exhibit A attached to the Amended Complaint and Notice of Acceleration (Doc. #3), which Defendants previously admitted is an accurate copy of the SPA.¹⁰

The Court concludes, therefore, that Exhibit A attached to Plaintiff's Motion is of record, authenticated by admission and that the requirements of Fed. R. Civ. P. 56(c)(1) have been satisfied.

2. Rule 56(f) (now codified as Rule 56(d))

Defendants' next assertion, that under Fed. R. Civ. P. 56(f), now codified as Rule 56(d), the Motion should be denied without prejudice to allow for discovery of facts unavailable to them, is also rejected. The Tenth Circuit instructs that

a party seeking to defer a ruling on summary judgment under Rule 56(f) must provide an affidavit explain[ing] why facts precluding summary judgment cannot be presented. ... This includes identifying (1)the probable facts not available, (2)why those facts cannot be presented currently, (3)what steps have been taken to obtain these facts, and (4)how additional time will enable [the party] to obtain those facts and rebut the motion for summary judgment.

Valley Forge Ins. Co. v. Health Care Management Partners, Ltd., 616 F. 3d 1086, 1096 (10^th Cir. 2010)(citations and internal quotation marks omitted).

The Court agrees with Plaintiffs that the Sosa Affidavit (Doc. # 61-1) falls short of what is required to be entitled to the relief requested. Defendants "have not identified the probable facts they now claim are not available, They have not identified why those facts cannot be presented currently. They have not identified what steps they have taken to obtain these facts. Finally, they have not specified how additional time will enable them to obtain those facts and rebut the Motion for summary Judgment." Am. Reply at 7.

3. Set-Off

Defendants' next assertion, that a set-off may be raised as a defense to payment without regard to a statute of limitations, is likewise rejected.¹¹ Defendants have not citedany case law regarding the right to raise counterclaims for set-off when contractually precluded from so doing. See SPA ¶11.

While Utah law does create a limited exception for counterclaims normally barred by statute of limitations, as compared to contractual limitations, the claims may be offset only if they coexisted. Even applying case law applicable to statutory limitation periods to the facts of this case, the bar is not applicable. Application of this legal principle is clarified in United Pac. Ins. Co. v. Knudsen Constr., Inc., No. 2:97cv235C, 2001 WL 693997, at * 5-6 (D. Utah May 6, 2001).

Utah law does .... allow otherwise time-barred claims to be raised as a "setoff" against liability claims. Jacobsen v. Bunker, 699 P.2d 1208, 1210 (Utah 1985). "A defendant may therefore utilize a counterclaim, normally barred by the statue of limitations, to offset a plaintiff's claim, but only to the extent the claims equal each other." Coulon v. Coulon, 915 P.2d 1069, 1072 (Utah 1996). However, the claims may be offset only if they coexisted. See id. (emphasis added), citing Salt Lake City v. Telluride Power Co., 17 P. 2d 281, 286 (Utah 1932). On this point, Knudsen's "offset" argument fails because the claims at no time coexisted.

[T]he cross-demands must coexist; that is they must subsist in such a way that if one party had brought suit on his demand the other could have set up the demand he held against that of the plaintiff. There must be an overlapping of live demands in point of time. If the demand of one party becomes barred and is not subsisting as a cause of action when the demand of the other party comes into existence, the former demand is not available.

Telluride, 17 P. 2d at 285, quoting O'Neil v. Eppler, 162 P. 311, 312 (emphasis added). "[T]wo claims are coexistent and overlapping in point of time ... [if] both are subsisting claims before the statue of limitations has run against either. Id. at 286. Here ... the statute of limitations ran on Knudsen's counterclaim at the latest in 1994 - six years after Knudsen knew of any alleged problem with the escrow. The present action was filed in 1997,and therefore Knudsen's claimed "setoff" action against UP is at least three years too late.

United Pac. Ins. Co. v. Knudsen Constr., Inc. at *5-6.

The Court agrees with Plaintiffs that "[f]or purposes of fixing the time when the Plaintiffs' cause of action came into existence, the cause of action arose on April 1, 2012, the day after the Defendants failed to make the noted quarterly interest payment." Am. Reply at 11.¹² The Court further agrees with Plaintiffs that "any cross-demand for setoff governed by a statutory [or contractual] limitation of actions that expired before April 1, 2012 was no longer subsisting as a cause of action when the demand of Plaintiffs came into existence, and was therefore no longer available." Id. Here, Defendants contractually agreed that they would lose all rights to rely upon any representations and warranties, covenants and agreements, including the right of setoff after October 16, 2009.

4. Tolling

Defendants claims¹³ fit squarely within the parameters of the...