Kipnis v. Jusbasche

• Decision Date: 02 April 2015
• Docket Number: 33,821.,No. 35,249.,35,249.
• Citation: 352 P.3d 687
• Parties: William KIPNIS and Marci Kipnis, Plaintiffs–Appellants, v. Michael JUSBASCHE and Rebecca Mark–Jusbasche, Defendants–Appellees.
• Court: Court of Appeals of New Mexico

352 P.3d 687

William KIPNIS and Marci Kipnis, Plaintiffs–Appellants

v.Michael JUSBASCHE and Rebecca Mark–Jusbasche, Defendants–Appellees.

33,821.

No. 35,249.

Court of Appeals of New Mexico.

April 2, 2015.

Certiorari Granted, June 19, 2015,

John B. Pound, LLC, John B. Pound, Santa Fe, NM, for Appellants.

The Simons Firm, L.L.P., Thomas A. Simons, IV, Daniel H. Friedman, Santa Fe, NM, for Appellees.

OPINION

BUSTAMANTE, Judge.

{1} Plaintiffs filed suit against Defendants for fraud, constructive fraud, and conversion based on Defendants' failure to tell them that Defendant Jusbasche had pled nolo contendere to a charge of theft of trade secrets nineteen years earlier. The district court dismissed the complaint on the ground that Rule 11–410(A)(2) NMRA prohibited admission of evidence of the plea and related judgment. We hold that the rule does not prohibit admission of the plea of nolo contendere and related judgment when they are not offered as proof of guilt. Consequently, we reverse that portion of the district court's order. We affirm the district court's ruling that there are questions of fact pertaining to whether Defendants had a duty to disclose information about the plea that preclude summary judgment on that issue.

BACKGROUND

{2} William and Marci Kipnis (Plaintiffs) owned a hotel in Taos Ski Valley. Together with Michael Jusbasche and Rebecca Mark–Jusbasche (Defendants) they formed a limited liability corporation with the goal of replacing the hotel with condominiums. Plaintiffs contributed the hotel's real estate and a liquor license to the corporation and Defendants contributed cash in excess of $4 million over several years, the bulk of which was considered a loan to the corporation. Defendants held a 51% interest in the corporation.

In 2003 work began on a condominium complex to include thirty residential units and two commercial units. Twenty-four of the thirty residential units were sold during construction. However, the project was plagued by litigation and regulatory issues and ultimately the costs exceeded the parties' estimates. By 2005 it became apparent that the project was not going to turn a profit. Ultimately, Defendants took title to five unsold residential units and the two commercial units and the corporation was dissolved.

{3} Plaintiffs filed suit alleging fraud, constructive fraud, intentional misrepresentation, and conversion.¹ The root of Plaintiffs' suit is an alleged conversation that occurred early in the negotiations about the project. Plaintiffs alleged that in 2003 the parties had a “dinner meeting ... to move business discussions from the abstract to the concrete.” As stated in the complaint, during that conversation, William Kipnis asked Defendants “if there was anything in their personal histories he should know about before going into a business relationship with them.” Defendants answered in the negative. Plaintiffs maintained that Defendants' failure to tell them in that conversation that Jusbasche had pled nolo contendere to a charge of theft of trade secrets in 1984 constituted fraud. They “contend[ed] that if [Defendants] had honestly answered the question ... by telling them that ... Jusbasche had pled no contest to a criminal charge of dishonesty with his business associates, they would not have gone into business with [him] ... and would be the owners of the hotel and liquor license today.”

{4} Defendants filed a motion for summary judgment, arguing in relevant part that they had no duty to disclose the plea and judgment and that Rule 11–410(A)(2) barred the admission of evidence of the plea and “the surrounding circumstances of the case.” Rule 11–410(A)(2) provides that “[i]n a civil, criminal, or children's court case, evidence of [a nolo contendere plea] is not admissible against the defendant who made the plea or participated in the plea discussions[.]” Plaintiffs argued in response that the question of whether Defendants had a duty to disclose the plea should be submitted to a jury and that Rule 11–410(A)(2) applies to prevent admission of evidence of a nolo contendere plea when it is offered as proof of guilt, but does not prohibit admission of such evidence for other reasons unrelated to the pleader's guilt. Here, Plaintiffs argued they were not trying to prove that Jusbasche was guilty of the charge. Rather, “[t]he fact of the plea, in and of itself, is directly relevant in the instant lawsuit. Accordingly, evidence pertaining to the plea is admissible.”

{5} The district court agreed with Plaintiffs on both arguments and denied Defendants' motion (Order 1). A trial date was set. However, at a pre-trial conference the district court reconsidered its ruling sua sponte and reversed the portion related to Rule 11–410(A)(2), stating that “[o]n reconsideration, the court determines that Rule 11–410... precludes introduction of evidence concerning ... Jusbasche's plea of nolo contendere ... as a matter of law. The court's ruling leaves Plaintiffs unable to prove a necessary element of their case.” The district court granted summary judgment to Defendants, and the complaint was dismissed (Order 2).

DISCUSSION

A. Rule 11–410

{6} “The standard of review on appeal from summary judgment is de novo.” Farmers Ins. Co. of Ariz. v. Sedillo, 2000–NMCA–094, ¶ 5, 129 N.M. 674, 11 P.3d 1236. Plaintiffs argue that the district court erred in concluding that Rule 11–410(A)(2) prohibited admission of evidence of Jusbasche's nolo contendere plea and its consequences. They reiterate the arguments made below. For support, they cite to Olsen v. Correiro, 189 F.3d 52 (1st Cir.1999), and United States v. Adedoyin, 369 F.3d 337 (3d Cir.2004). We therefore begin by examining those cases.

{7} As a preliminary matter, we note that, as it pertains to the exclusion of nolo contendere pleas, Rule 11–410(A)(2) is identical to Rule 410(a)(2) of the Federal Rules of Evidence, with the exception that Rule 11–410 applies in children's court cases as well as civil and criminal cases. See Fed.R.Evid. 410. When the state and federal evidence rules are identical, we may rely on interpretations of the federal rule as persuasive authority.See State v. Gomez, 2001–NMCA–080, ¶ 14, 131 N.M. 118, 33 P.3d 669 (relying on federal case law and treatises on the federal rules to construe Rule 11–613(B) NMRA ); see also State v. Torres, 1998–NMSC–052, ¶ 13, 126 N.M. 477, 971 P.2d 1267 (“New Mexico courts have found the United States Supreme Court's interpretation of the Federal Rules of Evidence to be instructive in the interpretation of identical provisions in our Rules of Evidence.”), overruled on other grounds by State v. Alvarez–Lopez, 2004–NMSC–030, 136 N.M. 309, 98 P.3d 699.

{8} In Olsen, Olsen was convicted of murder and served five years in prison. 189 F.3d at 55. After five years, his conviction was overturned based on the prosecution's failure to disclose evidence, and a new trial was ordered. Id. Rather than go through a new murder trial, Olsen pled nolo contendere to a charge of manslaughter and was sentenced to time served. Id. Olsen then sued the city and two police officers for damages related to his incarceration for the murder charge. Id. The defendants “raised Olsen's manslaughter conviction resulting from the nolo plea as an affirmative defense [,]” arguing that “[Olsen was] not entitled to damages based upon the period of incarceration identified with the conviction for manslaughter.” Id. at 55–56 (internal quotation marks omitted). Although he ultimately prevailed on the merits, Olsen appealed the amount of the damage award. Id.

{9} On appeal, the Court of Appeals for the First Circuit examined whether “any evidence of [Olsen's] nolo plea, conviction, or sentence” could be admitted or considered by the district court. Id. at 58. It first held that under Rule 410(a)(2) of the Federal Rules of Evidence, “[o]nly the nolo plea itself is barred by the relevant language of the rule.” Olsen, 189 F.3d at 59. It then examined the reasons for the rule, which are (1) “a nolo plea is not a factual admission that the pleader committed a crime[,]” id. , and (2) “a desire to encourage compromise resolution of criminal cases.” Id. at 60. The appellate court determined that “[t]hese reasons for excluding the nolo plea itself could well, on other facts, be applicable to the conviction and sentence that result from the nolo plea.” Id. For example, “[i]f such convictions and sentences were offered for the purpose of demonstrating that the pleader is guilty of the crime pled to, then the nolo plea would in effect be used as an admission and the purposes of Rule 410 would be undermined.” Olsen, 189 F.3d at 60. But where the conviction and sentence were not offered to show guilt, these purposes of the rule are not thwarted. Id. at 61–62. The court concluded that, in that case, “the reason for the punishment, the existence of underlying culpability, is irrelevant. It is the existence of the punishment (which, given the ‘time served’ sentence, cannot be proved through prison records or by any other means) that matters.” Id. “Accordingly, there [was] no reason ... to expand Rule 410 beyond the scope of its plain language, which in relevant part encompasses only nolo pleas” to preclude admission of evidence of Olsen's conviction. Olsen, 189 F.3d at 62.

{10} In Adedoyin, the defendant was tried for “improper entry into the United States by an alien, ... [and] two counts of fraud and misuse of visas, permits[,] and other documents[.]” 369 F.3d at 339. Approximately twenty years earlier, the defendant had pled nolo contendere to a felony criminal charge and was convicted. Id. at 340. The prosecution argued that the defendant had willfully misrepresented his status by indicating on a visa application that he had no criminal convictions. Id. at 343. At trial, the district court admitted evidence of the conviction over the defendant's objection based on Rule 410(a)(2). Adedoyin, 369 F.3d at 340, 343.

{11} On appeal, the Court of Appeals...