Johnny Ray Sports, Inc. v. Wachovia Bank

• Decision Date: 17 August 2007
• Docket Number: 1060306.
• Citation: 982 So.2d 1067
• Parties: JOHNNY RAY SPORTS, INC., and Johnny Ray, L.L.C. v. WACHOVIA BANK, successor to SouthTrust Bank.
• Court: Alabama Supreme Court

982 So.2d 1067

JOHNNY RAY SPORTS, INC., and Johnny Ray, L.L.C. v. WACHOVIA BANK, successor to SouthTrust Bank.

1060306.

Supreme Court of Alabama.

August 17, 2007.

Rehearing Denied October 26, 2007.

Philip E. Miles, Gadsden, for appellants.

Glenn E. Glover of Burr & Forman, LLP, Birmingham, for appellee.

STUART, Justice.

Johnny Ray Sports, Inc., and Johnny Ray, L.L.C. ("the Johnny Ray companies"), appeal the summary judgment in favor of Wachovia Bank, the successor by merger to SouthTrust Bank, on their breach-of-contract, fraud, and negligence and/or wantonness counterclaims. We affirm.

I.

On July 30, 1997, Johnny Ray Sports, a Gadsden-based manufacturer of electronics mounts and brackets, executed two promissory notes with a combined principal of $1,232,110 in favor of SouthTrust Bank, the predecessor to Wachovia Bank. (For convenience, all future references to SouthTrust Bank will be to "Wachovia.") The promissory notes were secured by a mortgage on real property in Etowah County ("the Gadsden property") and by a security agreement granting Wachovia an interest in the inventory and equipment of Johnny Ray Sports.

On September 3, 2003, Johnny Ray Sports filed a bankruptcy petition in the United States Bankruptcy Court for the Northern District of Alabama. Upon the filing of the petition, an automatic stay immediately went into effect halting all efforts by creditors of Johnny Ray Sports to collect on the unpaid debts of Johnny Ray Sports. 11 U.S.C. § 362.

On September 24, 2003, Wachovia moved the bankruptcy court to lift the automatic stay so that it could foreclose on the Gadsden property and certain equipment located there. Wachovia and Johnny Ray Sports thereafter reached an agreement under which Johnny Ray Sports would not oppose the lifting of the automatic stay and, once the stay was lifted, Wachovia would be allowed to take possession of and to foreclose on the Gadsden property and the equipment located there. Johnny Ray Sports alleges that, as consideration for not opposing the lifting of the automatic stay, Wachovia agreed: 1) to allow certain pieces of equipment to be moved from the Gadsden property to another facility in Rainbow City ("the Rainbow City facility"); and 2) to have the equipment being moved to the Rainbow City facility appraised and to give Johnny Ray Sports the opportunity to purchase the equipment at fair market value. Wachovia acknowledges that it and Johnny Ray Sports reached an agreement to lift the automatic stay, but it disputes that it ever agreed to the terms Johnny Ray Sports now claims the parties agreed to.

On December 8, 2003, the bankruptcy court dismissed Johnny Ray Sports' bankruptcy case. On December 29, 2003, Wachovia foreclosed on the Gadsden property. At the auction for the sale of the property, Wachovia purchased the property with a successful bid of $450,000 in the form of a credit on the indebtedness owed to it by Johnny Ray Sports. By agreement, Johnny Ray Sports continued to operate out of the Gadsden property for several months; however, at some date in March or April 2004, Johnny Ray Sports moved some equipment — which Johnny Ray Sports claimed Wachovia had earlier agreed to allow it to remove — from the Gadsden property to the Rainbow City facility (hereinafter referred to as "the removed equipment"). Although it was not officially incorporated until March 2005, the entity that would become Johnny Ray, L.L.C., operated out of the Rainbow City facility after the removed equipment was moved there, producing the same types of products previously produced by Johnny Ray Sports.

On August 18, 2005, Wachovia sued the Johnny Ray companies in the Etowah Circuit Court, seeking to recover the balance owed on the promissory notes and stating a detinue claim seeking recovery of the removed equipment, which was in the possession of Johnny Ray, L.L.C., at the Rainbow City facility. Wachovia simultaneously moved the trial court to issue a writ of seizure allowing it to take possession of the removed equipment immediately.

On September 21, 2005, the Johnny Ray companies answered the complaint and asserted their own counterclaims against Wachovia. Specifically, the Johnny Ray companies asserted: 1) a breach-of-contract claim alleging that Wachovia had failed to abide by its agreement to have the removed equipment appraised and to give Johnny Ray Sports the opportunity to purchase it at its fair market value; 2) a fraud claim alleging that Wachovia had fraudulently induced Johnny Ray Sports to agree not to oppose the lifting of the automatic stay in the bankruptcy proceeding by promising it the opportunity to purchase the removed equipment at its fair market value; and 3) a negligence and/or wantonness claim alleging that Wachovia had negligently or wantonly refused a third party's $1 million offer to buy the Gadsden property even though that offer, if accepted, would have satisfied Johnny Ray Sports' indebtedness to Wachovia.

Concurrent with the filing of their answer and counterclaims, the Johnny Ray companies also filed their response opposing Wachovia's motion for the writ of seizure. On November 17, 2005, following multiple hearings on the issue, the trial court issued the writ of seizure Wachovia had requested. Wachovia subsequently requested that its detinue claim be dismissed and, on September 30, 2006, the trial court granted that request.

On March 10, 2006, Wachovia moved for a summary judgment on all the counterclaims asserted by the Johnny Ray companies. On August 16, 2006, after the Johnny Ray companies filed their response and after oral argument, the trial court granted Wachovia's motion and entered a summary judgment against the Johnny Ray companies and in favor of Wachovia. The Johnny Ray companies' subsequent motion to alter, amend, or vacate the judgment was denied, and, on November 13, 2006, the Johnny Ray companies filed their notice of appeal to this Court.¹

II.

"This Court's review of a summary judgment is de novo. Williams v. State Farm Mut. Auto. Ins. Co., 886 So.2d 72, 74 (Ala.2003). We apply the same standard of review as the trial court applied. Specifically, we must determine whether the movant has made a prima facie showing that no genuine issue of material fact exists and that the movant is entitled to a judgment as a matter of law. Rule 56(c), Ala. R. Civ. P.; Blue Cross & Blue Shield of Alabama v. Hodurski, 899 So.2d 949, 952-53 (Ala.2004). In making such a determination, we must review the evidence in the light most favorable to the nonmovant. Wilson v. Brown, 496 So.2d 756, 758 (Ala.1986). Once the movant makes a prima facie showing that there is no genuine issue of material fact, the burden then shifts to the nonmovant to produce `substantial evidence' as to the existence of a genuine issue of material fact. Bass v. SouthTrust Bank of Baldwin County, 538 So.2d 794, 797-98 (Ala. 1989); Ala.Code 1975, § 12-21-12."

Dow v. Alabama Democratic Party, 897 So.2d 1035, 1038-39 (Ala.2004). Thus, we review each of the Johnny Ray companies' three counterclaims to determine if, when the evidence is viewed in the light most favorable to them, a genuine issue of material fact exists so as to make a judgment as a matter of law for Wachovia on those counterclaims inappropriate.

III.

We first consider the Johnny Ray companies' breach-of-contract counterclaim. The trial court's order did not state its basis for entering the summary judgment in favor of Wachovia on the breach-of-contract counterclaim; however, Wachovia had argued that it was entitled to summary judgment on that counterclaim for three reasons: (1) there is, it argued, overwhelming evidence that the alleged oral contract the Johnny Ray companies' breach-of-contract counterclaim is based on does not exist; (2) the breach-of-contract counterclaim, it argued, is barred by Alabama's Statute of Frauds relating to the sale of goods, § 7-2-201(1), Ala.Code 1975; and (3) the breach-of-contract counterclaim, it argued, is barred by the doctrine of judicial estoppel. Because we agree that the breach-of-contract counterclaim is barred by the Statute of Frauds, we need not consider the other arguments.

Alabama's Statute of Frauds as it relates to the sale of goods, § 7-2-201(1), states, in relevant part:

"Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker."

Wachovia notes that the president of Johnny Ray Sports, John Nunnelee, has conceded under oath that the removed equipment is worth more than $500, and Wachovia argues that Johnny Ray Sports' failure to memorialize the alleged agreement in writing is accordingly fatal to its claim. The Johnny Ray companies, however, argue that the Statute of Frauds does not apply in this case because, they say, the alleged agreement was not, in fact, a contract for the sale of goods; rather they argue, it was a right of first refusal.

Although this Court has not had opportunity to consider whether rights of first refusal are covered by the Statute of Frauds, some courts in other jurisdictions have considered the issue and held that such contracts are outside the operation of the statute. See, e.g., Madison Indus., Inc. v. Eastman Kodak Co., 243 N.J.Super. 578, 587, 581 A.2d 85, 90 (App.Div. 1990) (holding that a right of first refusal was not a contract for sale subject to the Statute of Frauds because "the requisite elements of a `sale' are absent"), and Unlimited Equip. Lines, Inc. v. Graphic Arts Ctr., Inc., 889 S.W.2d 926, 934 (Mo.Ct.App. 1994) (holding that "[a] first right of refusal is not a contract of purchase and sale" and that the Statute of Frauds accordingly "does not apply to the first right of refusal provision standing...