Lyon Development Co. v. Business Men's Assur. Co. of America, s. 94-2202

Decision Date14 February 1996
Docket Number95-2000 and 95-2096,Nos. 94-2202,s. 94-2202
Citation76 F.3d 1118
PartiesLYON DEVELOPMENT COMPANY, a New Mexico corporation; Jeanne Lyon, doing business as Lyon and Associates Realty, Plaintiffs-Counter-Defendants-Appellants, v. BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA, a Missouri corporation, Defendant-Counter-Claimant-Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

Joseph W. Halpern and Heather R. Hanneman of Holland & Hart, Denver, Colorado, and Randolph B. Felker and Mariana G. Geer of Felker, Ish, Hatcher, Ritchie, Sullivan & Geer, Santa Fe, New Mexico, for Lyon Development Co. and Jeanne Lyon d/b/a Lyon and Associates Realty.

Bruce Hall, Edward R. Ricco and David C. Davenport, Jr., of Rodey, Dickason, Sloan, Akin & Robb, Albuquerque, New Mexico, and James O. Browning of Browning & Peifer, Albuquerque, New Mexico, for Business Men's Assur. Co. of America.

Before BRISCOE and LOGAN, Circuit Judges, and THOMPSON, * District Judge.

LOGAN, Circuit Judge.

Plaintiff Lyon Development Company (LDC) appeals from the district court's entry of a judgment in favor of Business Men's Assurance Company of America (BMA) on LDC's claims of breach of contract, breach of fiduciary duty, and economic compulsion, and on BMA's counterclaims against LDC. LDC also appeals the court's trial rulings regarding ambiguity in the guaranty agreement, parol evidence, and jury instructions, arguing that the jury's verdicts cannot be reinstated because of trial errors. Plaintiff Lyon & Associates Realty (LAR) appeals the court's refusal to instruct the jury on some of its claims. 1

I

LDC is a corporation owned and operated by Gary and Jeanne Lyon. The Lyons also operate LAR as a proprietorship. In 1985, Jeanne Lyon obtained an option to purchase a large undeveloped tract of land in Santa Fe, New Mexico. Although she and her husband envisioned developing a retirement resort community on the land, they did not have the resources to exercise the option or finance the development. The Lyons approached BMA, a large insurance company, to seek its participation in the project.

BMA and LDC formed a Missouri partnership, Quail Run Partners, to purchase, develop, and sell the property. Their partnership agreement included a mandatory buy-sell provision, under which one partner could make an offer to buy the second partner's interest and the second partner had the choice whether to sell its interest or purchase the offeror's interest at the same price. The buy-sell provision required the purchasing partner to reimburse certain capital contributions, and to indemnify the selling partner for any obligations arising out of participation in the partnership.

The partnership agreement also designated LAR as the exclusive real estate broker authorized to sell the Quail Run units. LDC agreed to be solely responsible for marketing costs, and agreed to reimburse the partnership for any amounts advanced for this purpose by December 31, 1987. In addition, BMA and LDC entered into a separate development agreement, whereby the Lyons agreed to supervise the project development and to maintain financial records for a fee of $12,000 per month.

The partnership obtained financing from the Toronto-Dominion Bank (Lender). To protect the Lender's investment, the partners each guaranteed the partnership loan. The guaranty agreement contained a number of covenants and restrictions, including the following:

So long as any of the Guaranteed Obligations is outstanding ... and unless the Lender shall otherwise consent in writing:

...

* * *

BMA and LDC hereby agree with each other and with the Lender that, anything in the Partnership Agreement to the contrary notwithstanding (i) so long as any Guaranteed Obligations remain outstanding, neither Guarantor will take any action that may result in dissolution of the Borrower.

I App. tab 2 at 98-99. The initial loan to the partnership was fifteen million dollars, with the option to borrow an additional ten million in the future.

From the beginning, construction on the Quail Run project was plagued with delays, cost overruns, changes in plans, liens, and controversy. Friction soon developed between BMA and the Lyons, and their relationship deteriorated throughout 1987. On October 27, 1987, as the initial $15,000,000 loan was nearing exhaustion, BMA tendered an offer to buy LDC's partnership interest for $100,000. Although the Lender initially viewed BMA's exercise of the buy-sell provision as contrary to the guaranty, it later fully consented to the transaction.

The partnership agreement provided that LDC had thirty days from the date of BMA's offer to decide whether to sell its partnership interest or to buy BMA's interest. To give LDC more time to find another partner, and to provide for interim financing of the project, LDC and BMA entered into a modification agreement. Under this agreement, LDC had until March 1, 1988, to respond to BMA's offer, and BMA agreed to recontribute its $3,150,000 preferred capital contribution into the project.

Shortly before its response time was to expire, LDC brought this action against BMA, alleging that BMA's exercise of the buy-sell provision, its course of dealing, and its refusal to seek additional financing from the Lender, constituted breach of contract, breach of fiduciary duty, and economic compulsion. LAR also claimed that BMA's actions made it impossible for LAR to carry out its duties under the exclusive listing agreement and thus breached the contract. BMA counterclaimed against LDC for breach of contract and breach of fiduciary duty.

In 1992, the district court granted partial summary judgment in favor of BMA, finding that BMA's exercise of the buy-sell provision was valid in all respects. On appeal, we reversed, holding that the validity of BMA's conduct could not be determined without first developing the facts surrounding LDC's claims for breach of contract, breach of fiduciary duty, and economic compulsion. See Lyon Dev. Co. v. Business Men's Assurance Co., No. 92-2264, 1993 WL 483049 (10th Cir. Nov. 24, 1993).

On remand, the case was tried before a jury. At trial, the district court determined, as a matter of law, that the partnership, guaranty, and modification agreements were not ambiguous. Because the guaranty agreement, by its terms, did not require the individual partners' consent before the buy-sell provision could be exercised, the court limited LDC's theories of the case and prohibited the admission of certain evidence.

The jury returned a verdict in favor of BMA on all of LDC's and LAR's claims. The jury also found that LDC had breached its contract with BMA, but awarded BMA only a dollar on its counterclaims. This is in accord with BMA's request, except for one claim for compensatory damages of $176,094 for marketing expenses loaned to LDC. The district court then granted BMA's motion for a judgment as a matter of law on all of the parties' claims and counterclaims, issuing an extensive Rule 50(b) judgment. Finding that no reasonable jury could have returned a verdict against BMA on its claim of breach of contract for marketing advances, the court awarded BMA $176,094 in damages as a matter of law and later awarded interest on that amount.

This case was premised on diversity jurisdiction, therefore we apply the substantive law of the forum state. See Perlmutter v. United States Gypsum Co., 54 F.3d 659 662 (10th Cir.1995). Procedural issues, however, are governed by federal law. Id. The appropriateness of a Rule 50 judgment as a matter of law is a federal procedural issue which we review de novo, applying the same standard as the district court. Magnum Foods, Inc. v. Continental Casualty Co., 36 F.3d 1491, 1503 (10th Cir.1994); Bankers Trust Co. v. Lee Keeling & Assocs., 20 F.3d 1092, 1099 (10th Cir.1994).

Federal Rule of Civil Procedure 50(b) sets forth the "procedures to be followed ... as a prerequisite to entry of judgments notwithstanding an adverse jury verdict." Johnson v. New York, N.H. & H.R. Co., 344 U.S. 48, 51, 73 S.Ct. 125, 127, 97 L.Ed. 77 (1952). The rule, which permits a party to resurrect its earlier motion for judgment as a matter of law after an adverse verdict, was drafted to accommodate Seventh Amendment concerns. See id. at 51-53, 73 S.Ct. at 127-128 and cases cited therein. The rule does not permit a party in whose favor the verdict was rendered to renew its motion because "a jury verdict for the moving party moots the issue." See Notes of Advisory Committee on Rules, 1991 Amendment to Subdivision (b). If the court's Rule 50(b) judgment analysis was correct the issues should not have gone to the jury. But we need not analyze the district court's post-trial order insofar as it supports the jury's verdict unless we find error in the jury instructions and trial rulings of which LDC and LAR complain. Because we perceive no such error we only discuss the district court's post-trial ruling insofar as it overturns the jury's verdict on BMA's counterclaim to recover the $176,094 it loaned to LDC for marketing expenses. We note that there is considerable overlap between LDC's and LAR's complaints against the district court's Rule 50(b) analysis and their complaints against its rulings and instructions to the jury.

II

We first consider plaintiffs' contract claims against BMA. Both the partnership and guaranty agreements purport to designate a particular state's substantive law for use in construing and enforcing the contracts. As a federal court sitting in diversity, the district court correctly looked to the forum state's choice of law provisions to determine the effect of such contractual designations. Rocky Mountain Helicopters, Inc. v. Bell Helicopter Textron, Inc., 24 F.3d 125, 128 (10th Cir.1994). Because New Mexico recognizes the validity of contractual choice of law provisions, see Stevenson v. Louis Dreyfus Corp., 112 N.M. 97, 811 P.2d 1308, 1309 (1991); Jim v. CIT Fin. Servs. Corp., 87 N.M. 362, 533 P.2d...

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