In re WM Distribution, Inc.

• Decision Date: 29 June 2018
• Docket Number: No. 17-10535-j11,17-10535-j11
• Parties: IN RE: WM DISTRIBUTION, INC., Debtor.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of New Mexico

591 B.R. 52

IN RE: WM DISTRIBUTION, INC., Debtor.

No. 17-10535-j11

United States Bankruptcy Court, D. New Mexico.

Signed June 29, 2018

Michael K. Daniels, Albuquerque, NM, for Debtor.

MEMORANDUM OPINION

ROBERT H. JACOBVITZ, United States Bankruptcy Judge

THIS MATTER is before the Court on cross-motions for summary judgment¹ on Susan Jesmer d/b/a Native Trading Associates ("Jesmer")'s claim set forth in her proof of claim (Claim No. 2) and the Debtor's objection to the claim.² Primarily at issue is whether a provision in a promissory note constitutes an enforceable liquidated damages provision or an unenforceable penalty. The original principal amount of the promissory note made by WM Distribution, Inc. ("WM") and Sandia Tobacco Manufacturers, Inc. ("STM") in favor of Jesmer is $1,300,000. The provision of the promissory note in question requires payment of an additional $600,000 upon the occurrence of certain events of default.

Based on the facts not in genuine dispute, the Court concludes that WM and STM are entitled to summary judgment as a matter of law with respect to the $600,000 additional amount. Summary judgment will be denied with respect to the fees and expenses components of Jesmer's claim because facts are in genuine dispute.

SUMMARY JUDGMENT STANDARDS

Summary judgment can streamline litigation and avoid the unnecessary expense of proceeding to trial. See Farnell v. Albuquerque Publ'g Co. , 589 F.2d 497, 502 (10th Cir. 1978) ("[S]ummary judgment is a useful tool which may avoid needless trials.") (citation omitted); Mitchell v. Zia Park, LLC , 842 F.Supp.2d 1316, 1321 (D.N.M. 2012) ("Principal purposes of summary judgment include streamlining litigation and saving needless time and expense by isolating and disposing of purely legal issues and factually unsupported claims and defenses.") (citing Celotex Corp. v. Catrett , 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (remaining citation omitted) ). The Court will grant summary judgment when the movant demonstrates that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a), made applicable to adversary proceedings by Fed. R. Bankr. P. 7056. "[A] party seeking summary judgment always bears the initial responsibility of informing the ... court of the basis for its motion, and ... [must] demonstrate the absence of a genuine issue of material fact." Celotex Corp. , 477 U.S. at 323, 106 S.Ct. 2548.

In considering a motion for summary judgment, the Court must " ‘examine the factual record and reasonable inferences therefrom in the light most favorable to the party opposing summary judgment.’ " Wolf v. Prudential Ins. Co. of America , 50 F.3d 793, 796 (10th Cir. 1995) (quoting Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc. , 912 F.2d 1238, 1241 (10th Cir. 1990) ). The party opposing summary judgment " ‘may not rest on its pleadings, but must bring forward specific facts showing a genuine issue for trial as to those dispositive matters for which it carries the burden of proof.’ " Kannady v. City of Kiowa , 590 F.3d 1161, 1169 (10th Cir. 2010) (quoting Jenkins v. Wood , 81 F.3d 988, 990 (10th Cir. 1996) ). To resist a properly supported motion for summary judgment, the opposing party may not rely on the allegations in the complaint or the denials contained in the answer, "but must set forth specific facts showing that there is a genuine issue for trial" through affidavits or other supporting evidence. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (citation and internal quotation marks omitted).

When there are cross-motions for summary judgment, the Court is "entitled to assume that no evidence needs to be considered other than that filed by the parties, but summary judgment nevertheless is inappropriate if disputes remain as to material facts." Atlantic Richfield Co. v. Farm Credit Bank of Wichita , 226 F.3d 1138, 1148 (10th Cir. 2000) (additional quotation marks and citation omitted). The Court must evaluate each motion for summary judgment individually. See United States v. Supreme Court of New Mexico , 839 F.3d 888, 906-07 (10th Cir. 2016) ("Where, as here, we are presented with cross-motions for summary judgment, we must view each motion separately, in the light most favorable to the non-moving party, and draw all reasonable inferences in that party's favor.") (quoting Manganella v. Evanston Ins. Co. , 702 F.3d 68, 72 (1st Cir. 2012) (additional internal quotation marks and citation omitted) ); see also, Buell Cabinet Co. v. Sudduth , 608 F.2d 431, 433 (10th Cir. 1979) ("Cross-motions for summary judgment are to be treated separately; the denial of one does not require the grant of the other.") (citations omitted).

FACTS NOT SUBJECT TO MATERIAL DISPUTE

1. WM and Susan Jesmer are business competitors. See Debtor's Motion for Summary Judgment, ¶ 1; Jesmer's Response to WM (disputing, in part, WM's undisputed facts numbered 3, 4, 5, 7, 9 and 10, 11 and 12 only).

2. Jesmer filed a complaint against WM and STM in the Seventh Judicial District Court, Torrance County, New Mexico (the "State Court Action"). See Affidavit of Donna Woody ("Woody Affidavit") (Docket No. 156-1); Settlement Agreement and Mutual Release ("Settlement Agreement") referenced as an exhibit to the Woody Affidavit and filed under seal as Docket No. 169.³

3. Jesmer asserted claims against WM and STM in the State Court Action in excess of $5 million. Affidavit of Donna Woody (Docket No. 156-1).⁴

4. WM and STM asserted cross-claims against Jesmer in the State Court Action. See Settlement Agreement.

5. To settle the State Court Action, WM, STM, Jesmer and others entered into a Settlement Agreement dated April 11, 2011. See Settlement Agreement.

6. Under the Settlement Agreement, WM and STM agreed to pay Jesmer "the sum of $1,300,000," defined in the Settlement Agreement as "the Indebtedness." See Settlement Agreement, ¶ 1.

7. In a paragraph entitled "Payment Terms" the Settlement Agreement provides: "The Indebtedness, and the terms of payment shall be set forth in a Promissory Note, which is attached hereto as Exhibit A and incorporated herein by reference." Id. at ¶ 2.

8. The Settlement Agreement includes a provision entitled "Entire Agreement," which provides, in its entirety:

This Agreement, the Promissory Note and the Security Agreement attached hereto embody the entire agreement of the Parties relative to the subject matter thereof. In the event of a conflict between the terms of this Agreement and the terms of the Promissory Note and the Security Agreement, the terms of the Promissory Note and the Security Agreement shall control. There are no promises, terms, conditions or obligations other than those contained herein. This Agreement supersedes all previous communications, representations or agreements, either written or verbal, between the parties relative to the subject matter of this Agreement. This Agreement may be modified only in a writing executed by the Parties.

Settlement Agreement, ¶ 16.

9. On April 11, 2011, WM and STM executed a Promissory Note payable to Jesmer in the original principal amount of $1.3 million (the "Promissory Note" or "Note"). See Promissory Note, attached as Exhibit 1B to the Debtor's Motion for Summary Judgment; Promissory Note attached as part of Exhibit 2 to Jesmer's Motion for Summary Judgment.

10. WM and STM are the makers under the Note and Jesmer is the payee. See Promissory Note, opening unnumbered paragraph.

11. The Promissory Note defined "Indebtedness" as "the principal sum of $1.3 million plus interest," and required payments on the following schedule:

April 11, 2011 – payment of $180,000

May 2011 through January 2013 – monthly payments of $12,000

February 2013 through January 2016 – monthly payments of $18,500

February 2016 until the Indebtedness is paid in full – monthly payments of $25,000

See Promissory Note, Opening unnumbered paragraph, and ¶ 2,

12. The Promissory Note imposed a late charge of 5% of the amount due on all payments described in paragraph 9 above (paragraph 2 of the Note) not made within seven days after the due date. See Promissory Note, ¶ 3.

13. The Promissory Note granted WM and STM "the right to prepay the principal amounts owned hereunder, without penalty." See Promissory Note, ¶ 5.

14. The Promissory Note contains seven defined events of default, including the following:

(a) breach by any of the Makers of any covenant, representation, agreement, or undertaking under this Promissory Note;

(b) the Makers shall fail to make any payment when such payment is due hereunder and within the cure period therefor, whether at the stated maturity hereof, by acceleration or otherwise;

(c) the dissolution or liquidation of either of the Makers, or any action taken under any federal or state law for the adjustment or reorganization of either of the Makers' financial affairs without the consent of the Holder, or the entry of any order seeking the reorganization, liquidation, adjustment, or arrangement of either of the Makers under any state or federal law, or the appointment of a receiver for any part of either of the Makers' property;

(d) the inability of either of the Makers to pay debts as they fall due, or in the usual course of business;

Promissory Note, ¶ 9(a), (b), (c) and (d).

15. The Promissory Note provides that upon the occurrence of a default under either paragraph 9(c) or paragraph 9(d) of the Note, "the Makers shall be indebted to the Holder in the additional amount of $600,000.00, in addition to the outstanding balance of this Promissory Note." Promissory Note, ¶ 9.

16. The Promissory Note provides that its terms "may be modified only in a writing executed by the Makers and the Holder." Promissory Note, ¶ 17.

17. The obligation on the part of WM and STM to pay an additional amount of $600,000 in the event certain defaults occur, set forth in paragraph 9 of the Promissory Note, is nowhere stated in...