Galardi v. Naples Polaris, LLC

• Decision Date: 18 July 2013
• Docket Number: No. 58261.,58261.
• Parties: Jack GALARDI, an Individual; and Birdie, LLC, a Nevada Limited Liability Company, Appellants, v. NAPLES POLARIS, LLC, a Nevada Limited Liability Company, Respondent.
• Court: Nevada Supreme Court

301 P.3d 364

129 Nev. Adv. Op. 33

Jack GALARDI, an Individual; and Birdie, LLC, a Nevada Limited Liability Company, Appellants,

v.NAPLES POLARIS, LLC, a Nevada Limited Liability Company, Respondent.

No. 58261.

Supreme Court of Nevada.

May 16, 2013.

Reconsideration En Banc Denied July 18, 2013.

Armstrong Teasdale LLP and Bruce A. Leslie and Bret F. Meich, Las Vegas, for Appellants.

Holland & Hart, LLP, and J. Stephen Peek, Timothy A. Lukas, and Tamara Reid, Reno, for Respondent.

BEFORE PICKERING, C.J., HARDESTY and SAITTA, JJ.

OPINION

By the Court, PICKERING, C.J.:

This dispute arises out of a written option contract. Under the contract, respondent Naples Polaris had the right to purchase Las Vegas real property from appellants Jack Galardi and Birdie, LLC (together, Galardi), for $8 million “cash.” The property was subject to a deed of trust securing approximately $1.3 million in debt. The question is whether Naples or Galardi must pay off the $1.3 million debt. Specifically, does the option contract require Galardi to deliver clear title, meaning Galardi must remove the $1.3 million encumbrance for a net $6.7 million option price? Or does it contemplate that Naples take title subject to preexisting encumbrances, so that Galardi receives the full $8 million option price?

The district court granted summary judgment to Naples. Galardi appeals and we affirm.

I.

Naples acquired its option rights by assignment from Galardi's lessee, French Quarter, a nonparty. The deed of trust securing the $1.3 million debt predated the option. French Quarter was operating a topless club on the property but losing money and filed for bankruptcy protection. We simplify the facts slightly, but what happened next is the bankruptcy trustee lined up a fourth party to acquire the property and Naples' option. The price was handsome—enough to pay off the $1.3 million encumbrance, to give Galardi the full $8 million option price he demanded, and to generate surplus funds for Naples and French Quarter's creditors.

Naples and Galardi welcomed the Bankruptcy court sale. But they could not agree on whether the $1.3 million needed to retire the preexisting encumbrance against the property should come out of Naples' or Galardi's share of the sale proceeds. They stipulated to let the sale close, with Galardi receiving $8 million and Naples reserving the right to sue Galardi in state court for the $1.3 million. This suit over the proper interpretation of the option contract followed, which the district court decided on cross-motions for summary judgment.

The option contract is in writing and includes an integration clause. The contract is silent as to preexisting encumbrances in general and the $1.3 million debt in particular. It says simply:

Buyer [Naples] shall have an option to purchase the above described real estate for the sum of $8,000,000 (Eight Million Dollars) cash.... Buyer [Naples] shall pay all costs of transfer and closing whereby Seller [Galardi] shall receive full purchase price.

In their motions for summary judgment, both sides argued that the option contract, as written, unambiguously favored its position. Each focused on the phrase, “Buyer shall pay all costs of transfer and closing whereby Seller shall receive full purchase price.” Galardi argued that “costs of transfer and closing” encompasses preexisting indebtedness, so that he receives the $8 million “full purchase price” with no deductions. Naples countered that “costs of transfer and closing” refers to transaction costs such as recording fees and transfer taxes, not encumbrances. In Naples' view, if Galardi meant for Naples to take title subject to preexisting encumbrances, he needed to write the option contract to say so specifically.

Both Naples and Galardi supported their readings of the contract with testimonial evidence. Galardi offered excerpts from his deposition, in which he testified that he understood that the deal would net him $8 million; that French Quarter (later Naples, as French Quarter's assignee) would “pick up the bank note, clean it up, send me $8 million and I'm gone.” Naples offered an expert affidavit from Diane Erickson, past president and current certification chair for the Nevada Escrow Association with considerable Nevada real estate industry experience. Addressing the contract provision that “Buyer shall pay all costs of transfer and closing,” Ms. Erickson opined that in the real estate industry, “[c]losing costs are separate and apart from the purchase price and normally consist of the title policy fee, escrow fee, real property transfer tax, recording fees, etc.” She further opined, based on her “experience in the industry, that whenever real property is transferred, it is always given to the purchaser free and clear of any encumbrances or liens, unless the agreement specifically states that it is to be acquired ‘subject to’ the existing encumbrance, and the buyer specifically agrees to take over the payments of the existing loan.”

Galardi did not dispute the real-estate-industry usages and customs detailed in the Erickson affidavit. He argued instead that the district court could only consider the Erickson affidavit if it deemed the contract ambiguous and that, if the contract were ambiguous, it would take a trial to resolve the ambiguity. The district court disagreed. It deemed the contract unambiguous when considered in light of the trade usages described in the Erickson affidavit; it rejected the deposition testimony offered by Galardi as insufficient to create a genuine issue of material fact. The district court thus granted summary judgment to Naples and denied Galardi's cross-motion for summary judgment.

II.

“[I]n the absence of ambiguity or other factual complexities,” contract interpretation presents a question of law that the district court may decide on summary judgment, Ellison v. Cal. State Auto. Ass'n, 106 Nev. 601, 603, 797 P.2d 975, 977 (1990), with de novo review to follow in this court. May v. Anderson, 121 Nev. 668, 672, 119 P.3d 1254, 1257 (2005). Whether a contract is ambiguous likewise presents a question of law. Margrave v. Dermody Props., 110 Nev. 824, 827, 878 P.2d 291, 293 (1994). A contract is ambiguous if its terms may reasonably be interpreted in more than one way, Anvui, LLC v. G.L. Dragon, LLC, 123 Nev. 212, 215, 163 P.3d 405, 407 (2007), but ambiguity does not arise simply because the parties disagree on how to interpret their contract. Parman v. Petricciani, 70 Nev. 427, 430–32, 272 P.2d 492, 493–94 (1954) (concluding that summary judgment was appropriate because the interpretation offered by one party was unreasonable and, therefore, the contract contained no ambiguity), abrogated on other grounds by Wood v. Safeway, Inc., 121 Nev. 724, 121 P.3d 1026 (2005). Rather, “an ambiguous contract is ‘an agreement obscure in meaning, through indefiniteness of expression, or having a double meaning.’ ” Hampton v. Ford Motor Co., 561 F.3d 709, 714 (7th Cir.2009) (quoting Whiting Stoker Co. v. Chicago Stoker Corp., 171 F.2d 248, 251 (7th Cir.1948)).

Citing Dickenson v. State, Dep't of Wildlife, Galardi argues that the district court erred in considering Naples' expert evidence of trade usage and industry custom because it did not first declare the option contract ambiguous. 110 Nev. 934, 937, 877 P.2d 1059, 1061 (1994) (“If there is an ambiguity requiring extrinsic evidence to discern the parties' intent, summary judgment is improper. However, if no ambiguity exists, the words of the contract must be taken in their usual and ordinary signification.” (internal citation omitted)). Galardi argues that the district court compounded its error, adding insult to injury, when it deemed the deposition excerpts he submitted about how he understood the deal terms insufficient to generate a genuine issue of material fact. But see Kaldi v. Farmers Ins. Exch., 117 Nev. 273, 281, 21 P.3d 16, 21 (2001) (when an integrated written contract is unambiguous, “parol evidence may not be used to contradict [its] terms”).

Galardi's arguments track the former common-law rule that trade usage and industry “custom can only supply incidents to a contract when the contract is ambiguous on the point to which the party seeks to apply the custom.” 12 Richard A. Lord, Williston on Contracts § 34:7 (4th ed. 2012). But this rule has lost adherents over time. Id. Modernly, courts consult trade usage and custom not only to determine the meaning of an ambiguous provision, but also to determine whether a contract provision is ambiguous in the first place. ¹See, e.g.,Restatement (Second) of Contracts § 220 cmt. d (1981) (“[U]sage relevant to interpretation is treated as part of the context of an agreement in determining whether there is ambiguity or contradiction.... There is no requirement that an ambiguity be shown before usage can be shown....”); 5 Margaret N. Kniffin, Corbin on Contracts § 24.13, at 121 (rev. ed. 1998) (“Seldom should the court hold that the written words of a contract exclude evidence of the custom, since even what are often called ‘plain’ meanings are shown to be incorrect when all the circumstances of the transaction are known; and usages and customs are a part of those circumstances by which the meaning of words is to be judged.”).

Contract interpretation strives to discern and give effect to the parties' intended meaning. Id. at 118–19. Words derive meaning from usage and context. “It would be passing odd to forbid people to look up words in dictionaries, or to consult explanatory commentaries that, like trade usage, are in the nature of specialized dictionaries” in interpreting a written contract. Matter of Envirodyne Indus., 29 F.3d 301, 305 (7th Cir.1994). We thus conclude, as other modern courts have, that “[a]mbiguity is not required before evidence of trade usage ... can be used to ascertain” or illuminate contract terms. Puget Sound Fin., LLC v. Unisearch, Inc., 146 Wash.2d 428, 47 P.3d 940, 943 (2002); accord...