Medesco, Inc. v. LNS INTERN., INC., Civ. No. 90-C-527W.
| Decision Date | 22 April 1991 |
| Docket Number | Civ. No. 90-C-527W. |
| Parties | MEDESCO, INC., and Carl R. Faulkner, Plaintiffs, v. LNS INTERNATIONAL, INC., a California corporation, Soeng Ting, Isei Nagakawa and Liu Kuo-Song, individuals, dba The Soeng Ting Group, Defendants. |
| Court | U.S. District Court — District of Utah |
D. David Lambert, Linda Barkley, Provo, Utah, for plaintiffs.
James S. Jardine, Anthony B. Quinn, Salt Lake City, Utah, for defendants.
This matter is before the court on the motion of defendants Soeng Ting, Isei Nagakawa, Liu Kuo-Song and the Soeng Ting Group (collectively the "individual defendants") for summary judgment on the second claim alleged in the Complaint. A hearing on the motion was held April 19, 1991. Plaintiffs were represented by D. David Lambert and Linda Barkley. Defendants were represented by Anthony B. Quinn. Before the hearing, the court considered carefully the memoranda and other materials submitted by the parties. Since taking the matter under advisement, the court has further considered the law and facts relating to this motion. Now being fully advised, the court renders the following memorandum decision and order.
In July 1989, Medesco, Inc., through its president and chief executive officer, Carl R. Faulkner, entered into a written agreement ("Agreement") with defendant LNS International, Inc. ("LNS"). In essence, the Agreement provided that LNS would purchase 30,000 shares of Medesco's common stock for $150,000 and Medesco would authorize LNS to represent it in the sale of certain latex products in northern California.
Shortly thereafter, the individual defendants, two of whom executed the Agreement on behalf of LNS, approached Faulkner about renegotiating the Agreement and entering into a similar agreement with them individually and acting together as the Soeng Ting Group. Faulkner agreed, and negotiated the terms of a second agreement ("Second Agreement") with defendant Soeng Ting, who was present in Utah at the time. Among the provisions in the Second Agreement (which plaintiffs contend embodies the terms of the oral contract alleged in the second claim of the Complaint) was a promise that Medesco would sell 39,000 shares of its common stock to the Soeng Ting Group in exchange for $39,000 and a $110,000 working capital loan.
Before leaving Utah, Soeng Ting approved the form of the Second Agreement and represented to Faulkner that he would obtain the signatures of defendants Isei Nagakawa and Liu Kuo-Song on the agreement. As contemplated in both agreements, Faulkner prepared certificates of stock issued in the name of the individual defendants. Faulkner alleges the certificates never were delivered to the defendants because the defendants failed to perform under either agreement.
Shortly after Soeng Ting took the Second Agreement for execution, the Soeng Ting Group, pursuant to the terms of the Second Agreement, sent $7,500 for Medesco's participation in a trade fair in Chicago, Illinois. In reliance on the Second Agreement, Faulkner prepared a display and made other necessary preparations for Medesco's participation in the trade fair. Representatives of both Medesco and the Soeng Ting Group attended the trade fair.
Medesco alleges that its expenses in preparing for and attending the trade fair exceeded the $7,500 that the Soeng Ting Group advanced. In further reliance on the Second Agreement, Medesco alleges it expended substantial time and effort following up on customer contacts made at the trade fair and made promises to prospective customers that it would ship products to them.
The individual defendants subsequently failed to perform further under the terms of the Second Agreement, and refused to execute said agreement. As a result, Medesco alleges it was forced to breach its promises to the prospective customers, and consequently lost customers and sales.
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law." Fed.R. Civ.P. 56(c). In applying this standard, the court must construe all facts and reasonable inferences therefrom in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Wright v. Southwestern Bell Tel. Co., 925 F.2d 1288, 1292 (10th Cir.1991).
Once the moving party has carried its burden, Rule 56(e) "requires the nonmoving party to go beyond the pleadings and by ... affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); Gonzales v. Millers Casualty Ins. Co., 923 F.2d 1417, 1419 (10th Cir.1991).1 The nonmoving party must "make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Lujan v. National Wildlife Fed'n, ___ U.S. ___, 110 S.Ct. 3177, 3186, 111 L.Ed.2d 695 (1990) (quoting Celotex, 477 U.S. at 322, 106 S.Ct. at 2552).
In considering whether there exists a genuine issue of material fact, the court does not weigh the evidence but instead inquires whether a reasonable jury, faced with the evidence presented, could return a verdict for the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202 (1986); Clifton v. Craig, 924 F.2d 182, 183 (10th Cir.1991).2 Finally, all material facts asserted by the moving party shall be deemed admitted unless specifically controverted by the opposing party. U.S.Ct.D.Utah, Rule 5(e).
The individual defendants contend they are entitled to summary judgment on the second claim of the Complaint, which alleges breach of an oral contract. Because the alleged oral contract involves the sale of securities, defendants contend it is barred by the statute of frauds found at § 70A-8-319 of the Utah Code.3
Utah Code Ann. § 70A-8-102(1)(a) (1990). The Utah Supreme Court apparently has not considered the question whether the stock of closely held corporations, such as Medesco, are securities within the meaning of the Utah Uniform Commercial Code — Investment Securities, 70A-8-101, et seq. Although plaintiffs question whether the stock of such corporations satisfies the requirement of subsection (ii) of the 70A-8-102(1)(a), the court reaffirms its oral opinion that such securities clearly are of a type commonly traded in the securities markets.
This conclusion is supported not only by the plain language of the statute, but by the official comment to that section of the code and ample case law.4 See, e.g., Mildfelt v. Lair, 221 Kan. 557, 561 P.2d 805, 812 (1977); E.H. Hinds, Inc. v. Coolidge Bank & Trust Co., 6 Mass.App. 5, 372 N.E.2d 259, 262 (1978); Kenney v. Porter, 604 S.W.2d 297, 302 (Tex.Civ.App.1980); Wamser v. Bamberger, 101 Wis.2d 637, 305 N.W.2d 158, 162 (1981). Thus, the oral contract alleged by plaintiffs is barred by the statute of frauds, Utah Code § 70A-8-319, unless some exception to the statute applies.
Because subsections (b)-(d) of § 70A-8-319 are not applicable, plaintiffs rely on the doctrine of promissory estoppel to make the oral contract enforceable against the individual defendants.
The doctrine of promissory estoppel, as set forth in § 90 of the Restatement (Second) of Contracts, is part of the common law of Utah. See Southeastern Equipment Co. v. Mauss, 696 P.2d 1187, 1188 & n. 1 (Utah 1985) ().5 The doctrine is stated as follows:
A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the promise. The remedy granted for breach may be limited as justice requires.
Restatement (Second) of Contracts § 90(1) (1981).6
The individual defendants argue, however, that promissory estoppel is not available to plaintiffs in this case. The defendants contend that the list of exceptions set forth at § 70A-8-319(b)-(d) is inclusive and, therefore, no judicially created exceptions may be applied to this statute of frauds. This contention runs counter, however, to the express command of another provision of the Utah Uniform Commercial Code, § 70A-1-103, which provides that "unless displaced by the particular provisions of this act, the principles of law and equity, including ... estoppel ... shall supplement its provisions." Utah Code Ann. § 70A-1-103 (1990) (emphasis added).
Although the ...
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