Jerald W. Freeman, the Tea Leaf Inc. v. Fairchild

• Decision Date: 05 March 2018
• Docket Number: NO. S-1-SC-34929,S-1-SC-34929
• Citation: 416 P.3d 264
• Parties: Jerald W. FREEMAN, The Tea Leaf Inc., Thomas Nygard, Inc., Plaintiffs-Appellees, v. Paul W. FAIRCHILD, Jr., Defendant/Cross-Claimant-Respondent, v. Richard H. Love, R.H. Love Galleries, Inc., Defendants-Petitioners.
• Court: New Mexico Supreme Court

416 P.3d 264

Jerald W. FREEMAN, The Tea Leaf Inc., Thomas Nygard, Inc., Plaintiffs-Appellees,

v.Paul W. FAIRCHILD, Jr., Defendant/Cross-Claimant-Respondent,

v.Richard H. Love, R.H. Love Galleries, Inc., Defendants-Petitioners.

NO. S-1-SC-34929

Supreme Court of New Mexico.

Filing Date: March 5, 2018

Coberly & Martinez, LLP, Todd A. Coberly, Santa Fe, NM, For Petitioners

Thompson, Hickey, Cunningham, Clow, April & Dolan, P.A., David F. Cunningham, Brenden J. Murphy, Santa Fe, NM, For Respondent

OPINION

MAES, Justice.

{1} Paul W. Fairchild Jr. asked the district court to grant summary judgment on his cross-claims against Defendants Richard H. Love and R.H. Love Galleries, Inc. (collectively Love) on the ground that Love failed to timely file a response to Fairchild’s motion for summary judgment and was therefore "in default." Love, whose counsel had withdrawn while the motion was pending, explained that he lacked legal representation and had been experiencing health problems, and he requested an opportunity to submit a late response. The district court did not allow Love additional time to respond and granted Fairchild’s motion for summary judgment without considering whether Fairchild had established a prima facie case for summary judgment under Rule 1-056 NMRA.

{2} We hold that the district court erred by granting summary judgment. A district court may not grant summary judgment solely because the non-moving party has failed to file a response. Prior to granting an uncontested motion for summary judgment, the district court must assess whether the moving party has demonstrated that no genuine issue of material fact exists "and that the moving party is entitled to a judgment as a matter of law." Rule 1-056(C). We also hold that the Court of Appeals erred in its application of the right for any reason doctrine to affirm the district court. See Freeman v. Fairchild , 2015-NMCA-001, ¶ 32, 340 P.3d 610. We reverse the summary judgment order and vacate the resulting award of damages, and we remand to the district court with instructions to permit Love to file a response to Fairchild’s motion for summary judgment and for further proceedings.

I. BACKGROUND

A. Factual Background

{3} Jerald W. Freeman, The Tea Leaf, Inc., and Thomas Nygard, Inc. (collectively Plaintiffs) jointly owned a painting by Albert Bierstadt that they had purchased for $180,000. In October 2002, three transactions involving the Bierstadt painting occurred in quick succession. First, Freeman agreed on behalf of Plaintiffs to sell the painting to Paul Benisek for $240,000, to be paid in twelve monthly installments. Second, Benisek agreed to sell the painting to Love for $300,000, also to be paid in twelve monthly installments. Finally, Love sold the painting to Fairchild for $375,000, which Fairchild paid in full with a combination of cash and the trade-in of three other pieces of artwork.

{4} In accordance with their respective agreements, Love made several payments to Benisek, and Benisek made several payments to Freeman. But in spring 2003, Love experienced financial trouble and stopped making payments to Benisek, who in turn stopped making payments to Freeman. Meanwhile, Fairchild consigned the Bierstadt painting for sale at a gallery in New York City. Freeman, who had not received full payment from Benisek, became aware that the New York gallery was attempting to sell the Bierstadt painting and asked the gallery to ship the painting to Santa Fe for inspection. Freeman obtained possession of the Bierstadt painting and refused to return it to the gallery.

B. Procedural Background

{5} Freeman initiated this lawsuit in June 2005, seeking a declaratory judgment to determine ownership of the Bierstadt painting and asserting other claims against Benisek, Love, and Fairchild. Freeman later amended his complaint to add the other plaintiffs. In May 2006, Fairchild filed counterclaims against Plaintiffs and cross-claims against Love for fraud, negligent misrepresentation, and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 Ill. Comp. Stat. Ann. 505/2 (1973) (Illinois Consumer Fraud Act).

{6} Fairchild’s cross-claims against Love are the only claims at issue in the appeal before this Court. For over five years, the only litigation that occurred between Fairchild and Love beyond the pleadings consisted of Fairchild’s initial set of discovery requests, to which Love responded. During this time, however, extensive litigation and discovery occurred between Plaintiffs and Love and between Plaintiffs and Fairchild, including numerous pretrial motions and depositions in several states. Six different district court judges presided over this case between 2005 and 2010.

{7} On January 28, 2011, Love’s New Mexico counsel, who had represented Love in this case for over five years, filed a motion to withdraw, stating that it would be "impossible" to continue representing Love. The district court granted the motion on February 24, 2011. On April 19, 2011, a new attorney entered an appearance to represent Love.

{8} Several weeks later, on May 16, 2011, Fairchild filed a motion for partial summary judgment on his cross-claims against Love for fraud, negligent misrepresentation, and violation of the Illinois Consumer Fraud Act. According to the parties, Fairchild’s counsel agreed to give Love’s new counsel a two-week extension of time to file a response to Fairchild’s motion for summary judgment, but we find no indication in the record that Love’s new counsel requested an extension from the district court. In any event, Love’s new counsel did not file a response, and on June 9, 2011, less than two months into the representation, Love’s new counsel moved to withdraw. The motion to withdraw stated that continuing the representation would risk a conflict of interest, that Love had violated agreements with the attorney’s law firm, and that Love had "repeatedly failed to respond to emails, correspondence, and telephone calls." The motion to withdraw listed several upcoming court dates and stated that Love had been informed "of the procedural status of" the case, but the motion did not specifically refer to Fairchild’s pending motion for summary judgment. On June 13, 2011, the district court issued an order that granted the motion to withdraw. The order did not identify the pending motion for summary judgment.

{9} On July 12, 2011, Fairchild filed a request for an expedited hearing on his motion for summary judgment against Love. The district court held a hearing on August 2, 2011. At the hearing, Fairchild’s counsel asserted that Love had failed to file a response and that the response deadline had "passed by many weeks." Fairchild’s counsel offered to address the substance of the motion but argued that Fairchild was entitled to summary judgment as a procedural matter because Love was "in default." Love did not retain counsel prior to the hearing and appeared pro se by telephone from Illinois. Love informed the court that he had not been fully aware of the proceedings because he did not have legal representation and had been experiencing health problems, including hospitalization. Love asserted that his failure to respond had not been intentional, apologized for his lack of awareness, and asked the district court to consider giving him an opportunity to respond. The district court denied Love’s request for more time to respond and granted Fairchild’s motion for summary judgment on procedural grounds without addressing the substance of the motion, concluding that Fairchild’s motion should be granted because Love had failed to file a response.

{10} In early October 2011, the district court held a two-day bench trial to determine the amount of damages Love owed Fairchild. Love had not yet retained counsel and participated pro se by telephone from Illinois. The district court awarded Fairchild $1,942,446 in compensatory damages, which included Fairchild’s attorney fees, costs, and prejudgment interest. The district court also awarded Fairchild $9,712,232 in punitive damages, an amount equal to five times the compensatory damages.

{11} Love retained appellate counsel and filed an appeal. The Court of Appeals held "that it was error for the district court to grant Fairchild’s motion for summary judgment solely on the basis of Love’s failure to respond to the motion." Freeman , 2015-NMCA-001, ¶ 32, 340 P.3d 610. The Court of Appeals explained that "[t]he district court should have deemed admitted the facts alleged in Fairchild’s motion and then determined whether those facts made a prima facie showing of entitlement to summary judgment." Id. Despite this error, the Court of Appeals affirmed the district court by determining—in the first instance on appeal—that Fairchild had established "a prima facie case of entitlement to summary judgment." Id. In doing so, the Court of Appeals relied on the right for any reason doctrine. Id. The Court of Appeals also affirmed the district court’s award of damages to Fairchild. Id. ¶ 47. The Court of Appeals observed that "it does seem extraordinary that Fairchild should be awarded in excess of $11 million for the fraudulent sale of a painting worth in the neighborhood of $400,000," but the Court declined to "analyze Love’s arguments" because "Love failed to preserve his arguments in the district court." Id. ¶ 39.

{12} Love filed a petition for writ of certiorari, asking this Court to review two issues: (1) whether the Court of Appeals erred by affirming summary judgment under the right for any reason doctrine without addressing all of the elements of Fairchild’s cross-claims, which are grounded in Illinois law; and (2) whether the district court committed fundamental error by awarding Fairchild $11.6 million in a dispute over a painting worth $375,000 where the Illinois statute on which the award was predicated did not allow the requested relief. We granted certiorari under Article VI, Section 3 of the New Mexico Constitution and...