Jerald W. Freeman, the Tea Leaf, Inc. v. Fairchild, Docket No. 32,542

• Decision Date: 30 July 2014
• Docket Number: Docket No. 32,542
• Parties: JERALD W. FREEMAN, THE TEA LEAF, INC., and THOMAS NYGARD, INC., Plaintiffs-Appellees, v. PAUL W. FAIRCHILD, JR., Defendant/Cross-Claimant-Appellee, v. RICHARD H. LOVE and R.H. LOVE GALLERIES, INC., Defendants-Appellants.
• Court: Court of Appeals of New Mexico

JERALD W. FREEMAN, THE TEA LEAF, INC., andTHOMAS NYGARD, INC., Plaintiffs-Appellees, v. PAUL W. FAIRCHILD, JR., Defendant/Cross-Claimant-Appellee, v. RICHARD H. LOVE and R.H. LOVE GALLERIES, INC., Defendants-Appellants.

Docket No. 32,542

COURT OF APPEALS OF THE STATE OF NEW MEXICO

July 30, 2014

APPEAL FROM THE DISTRICT COURT OF SANTA FE COUNTY

Barbara J. Vigil, District Judge

Keleher & McLeod, P.A.

Thomas C. Bird

Kurt Wihl

Christina Muscarella Gooch

Albuquerque, NM

for Plaintiffs-Appellees Jerald W. Freeman, The Tea Leaf, Inc., and Thomas Nygard, Inc.

Thompson, Hickey, Cunningham, Clow, April & Dolan, P.A.

David F. Cunningham

Brenden J. Murphy

Santa Fe, NM

for Defendant/Cross-Claimant-Appellee Paul W. Fairchild, Jr.Coberly & Attrep, LLLP

Jennifer L. Attrep

Todd A. Coberly

Santa Fe, NM

for Appellants

OPINION

FRY, Judge.

{1} Plaintiffs Jerald W. Freeman, The Tea Leaf, Inc., and Thomas Nygard, Inc., owned a painting that they agreed to sell to Paul Benisek. Benisek, in turn, agreed to sell the painting to Defendants R.H. Love Galleries, Inc., and Richard H. Love (collectively referred to as Love). Love then sold the painting to Defendant Paul W. Fairchild, Jr. Fairchild paid Love in full for the painting, but Love never completely paid Benisek, and Benisek never completely paid Plaintiffs. In this controversy over possession of the painting and amid the claims, cross-claims, and counterclaims asserted, we reverse summary judgment entered in favor of Plaintiffs against Love because they failed to make a prima facie showing of the elements necessary to support their claims. Accordingly, we also reverse the district court's award of damages on Plaintiffs' claims against Love. We affirm summary judgment in favor of Fairchild against Love and the district court's later award of damages on Fairchild's claims against Love.

BACKGROUND

{2} Plaintiffs jointly owned a painting by Albert Bierstadt titled "Sunset Over the Plains" (the painting). Freeman, on behalf of himself and the other Plaintiffs, negotiated with Benisek and agreed to sell the painting to Benisek for $240,000. In the written purchase agreement dated October 28, 2002, Benisek agreed to pay Freeman for the painting in twelve monthly installments. He further agreed that "[t]itle in the [painting] shall remain with [Freeman] until the [p]urchase [p]rice is paid in full" and that he would execute "UCC or similar documents as [Freeman] may reasonably require." The agreement also provided that "[Benisek] shall be in possession" of the painting.

{3} On the same day that Freeman and Benisek entered into their written agreement (the Freeman/Benisek agreement), Benisek entered into a written agreement to sell the painting to Love for $300,000 (the Benisek/Love agreement). As in the Freeman/Benisek agreement, the Benisek/Love agreement provided that Love would pay for the painting in twelve monthly installments, but the due date for each payment was scheduled to occur several days before each of Benisek's corresponding payments to Freeman. The remaining terms of the Benisek/Love agreement were similar to the terms of the Freeman/Benisek agreement, including the provision that title to the painting would remain with the seller (Benisek) until the purchase price had been paid in full and the provision that the buyer (Love) would be inpossession of the painting. Thus, the two agreements were in conflict as to who had title to and who would retain possession of the painting. The other material difference between the two agreements—apart from the names of the parties, the amounts of the purchase price and the installment payments, and the due dates of payments—was the provision in the Benisek/Love agreement that "[t]he [painting] constitutes security for payment of the [p]urchase [p]rice." In addition, the Benisek/Love agreement referred to Benisek as "[s]eller's [a]gent" rather than as "[s]eller," which was the designation applied to Freeman in the Freeman/Benisek agreement.

{4} Despite the express terms of the Freeman/Benisek agreement, Benisek had orally agreed—prior to the execution of either agreement—to sell the painting to Love, and he had also given possession of the painting to Love. Also prior to the execution of the two agreements and contrary to the express terms of the Benisek/Love agreement, Love had orally agreed to sell the painting to Fairchild for $375,000 and had given Fairchild possession of the painting in exchange for cash and three other paintings. The cash and three paintings constituted payment in full from Fairchild to Love for the painting.

{5} In summary, Benisek agreed to purchase the painting from Freeman and sold and delivered the painting to Love, who in turn sold and delivered the painting to Fairchild, all before Benisek signed the written agreement with Freeman promising to retain possession of the painting and before Love signed a similar agreement with Benisek also promising to retain possession of the painting. The only person who paid for the painting in full was Fairchild.

{6} Love made the first four installment payments owed to Benisek, and Benisek in turn made the first four installment payments to Freeman. Then, in April 2003, Love told Benisek that he was declaring a moratorium on any further payments due to financial troubles, and Love's check for the fifth installment payment bounced. Benisek had already made his fifth installment payment to Freeman, so he informed Freeman about Love's moratorium and asked Freeman to return the fifth payment to him.

{7} Although the details are far from clear, Love and Freeman apparently made contact at some point after this because Love sent a letter to Freeman's attorney explaining that he was experiencing financial difficulties. In the letter, Love proposed to liquidate various assets and to allow creditors to assert liens on certain assets "in amounts and on terms to be negotiated." The letter further provided that creditors would forebear enforcing their liens or claims for a period of time until Love could reestablish his gallery. Finally, the letter stated that Love would make his financial information available to Freeman if Freeman signed and returned a non-disclosure agreement. Freeman did sign the non-disclosure agreement, which essentially provided that Freeman would "enter discussions concerning past and potential business transactions with [Love]" and that Freeman would "use best efforts to assure that any confidential and/or proprietary information disclosed in connection with such discussions will be kept confidential." The record does not disclose any further details about other discussions, if any, between Love and Freeman.

{8} In February 2004, Fairchild apparently placed the painting on consignment with Owen Gallery, and Freeman saw an Owen Gallery catalog offering the painting for sale. Freeman asked Owen Gallery if he could view the painting, and Owen Gallery shipped the painting from New York to a gallery in Santa Fe, New Mexico, where Freeman was located. Freeman then took possession of the painting and refused to return it to Owen Gallery.

{9} Shortly after Freeman regained possession of the painting, he filed suit against Benisek, Love, and Fairchild. Freeman sought (1) a declaratory judgment establishing that his rights to possession of the painting were superior to the rights of Defendants, and (2) damages for breach of contract, conversion, negligent misrepresentation, fraud, prima facie tort, and breach of the implied covenant of good faith and fair dealing. Freeman later amended his complaint to add the other Plaintiffs. Fairchild then filed counterclaims against Plaintiffs for declaratory judgment, conversion, and fraud, and cross-claims against Love for fraud, negligent misrepresentation, and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Illinois Act).

{10} After nearly six years of litigation, Plaintiffs filed a motion seeking partial summary judgment against Love on their claims for breach of contract, negligent misrepresentation, and fraud. Following a hearing, the district court granted the motion, holding that there were no material issues of fact that (1) Love had breached the contract with Benisek "as agent for Plaintiffs" by failing to maintain possession of the painting, by failing to pay Benisek, and by failing to perfect a security interest in the painting; (2) Love negligently represented that he would keep possession of the painting and perfect a security interest in it; and (3) Love was guilty of fraud because he intended that "Plaintiffs, through their agent Benisek," rely on Love's misrepresentations and because he misrepresented to Plaintiffs, "through their agent Benisek" that he would keep possession of the painting and perfect a security interest in it while being aware that he had already sold and delivered the painting to Fairchild. Thus, the district court's summary judgment in favor of Plaintiffs depended on the notion that Benisek was acting as Plaintiffs' agent in his dealings with Love. The district court ordered that damages would be determined at a subsequent trial.

{11} Meanwhile, Fairchild had filed his own motion seeking partial summary judgment against Love. Instead of responding to the motion, Love's counsel moved to withdraw, and the district court granted the motion and advised Love in its order that Love would have twenty days in which to retain substitute counsel. Love did not retain substitute counsel and appeared pro se by telephone at the hearing on Fairchild's motion a month and a half later. At the hearing, Fairchild's counsel argued only that Love had not responded to Fairchild's motion for summary judgment, and the district court announced that "[b]ecause there ha[d] not been a substantive response to the motion, . . . the motion shall be granted." The court concluded that it would determine damages "at a later proceeding."

{12} Plaintiffs and Fairchild settled their respective claims against one another. Plaint...