Ortiz v. Zia Credit Union
| Decision Date | 30 August 2021 |
| Docket Number | A-1-CA-37920 |
| Parties | EDWIN ORTIZ, Plaintiff-Appellee, v. ZIA CREDIT UNION, Defendant-Appellant. |
| Court | Court of Appeals of New Mexico |
Corrections to this opinion/decision not affecting the outcome, at the Court's discretion, can occur up to the time of publication with NM Compilation Commission. The Court will ensure that the electronic version of this opinion/decision is updated accordingly in Odyssey.
APPEAL FROM THE DISTRICT COURT OF SANTA FE COUNTY Francis J. Mathew District Judge
The Law Office of Jamison Barkley, LLC Jamison Barkley Santa Fe NM for Appellee
Lorenz Law Alice T. Lorenz Albuquerque, NM for Appellant
{¶1} This appeal concerns two claims arising from a contract for the sale of property between Edwin Ortiz (Plaintiff) and Zia Credit Union (Defendant) (the Contract) entered into while Plaintiff was employed as a senior officer for Defendant. Defendant terminated the Contract by which it sought to purchase the property from Plaintiff, and Plaintiff brought an action alleging, among other things, breach of contract and breach of the implied covenant of good faith and fair dealing (the implied covenant). Defendant counterclaimed, and a jury in the First Judicial District found Defendant did not breach the Contract but breached the implied covenant awarding Plaintiff $800, 000 in compensatory and $700, 000 in punitive damages.[1] Defendant appeals. We conclude the implied covenant to be inapplicable under the facts of this case, and reverse.
{¶2} In 2007, while Plaintiff was employed by Defendant, he was approached by Del Norte Credit Union, which was interested in purchasing property owned by Plaintiff in Pojoaque, New Mexico (the property) for the purpose of building a branch location. Plaintiff told Defendant's Chief Executive Officer, Larry Mortensen, about Del Norte's interest, and Mortensen responded that Defendant was also interested in establishing a branch in Pojoaque. In October 2007, Seferino Ortiz, Defendant's Senior Vice President for Business Development, received an informal valuation of the property from John Granito, a professional real estate appraiser, who estimated the property's market value to be $750, 000. Around this time, Plaintiff learned that Del Norte was no longer interested in purchasing the property. In May 2008, at the request of the Defendant's Board of Directors (the Board), Plaintiff ordered an appraisal of the property from Hippauf & Associates (the Hippauf Appraisal), which estimated the market value of the property then to be $500 000. Plaintiff testified that Seferino Ortiz received the Hippauf Appraisal and shared it with the Board.
{¶3}On August 7, 2008, the Board met to consider whether to acquire the property. During the meeting, Seferino Ortiz proposed that Defendant acquire the property and explained to the Board that it had recently been appraised for $750, 000. Seferino Ortiz also explained that "management" recommended a seven-year lease for $6, 500 a month ($78, 000 a year), with an option to buy. The Board voted that "management" be permitted to negotiate purchase of the property. In an email including Plaintiff, Seferino Ortiz instructed Bryon Teaster, legal counsel for Defendant, to draft a purchase contract including the following terms:
{¶4}While Plaintiff was employed by Defendant as Senior Vice President of Loans and Collections, he contracted to sell Defendant the property. On January 1, 2009, Seferino Ortiz, on behalf of Defendant, signed a contract to acquire Plaintiff's property containing the terms set forth in the email to Teaster, as well as a termination provision authorizing Defendant to terminate the Contract if any portion of a required permit, which the Contract defined as "including, but not limited to, approval of the New Mexico Financial Institutions Division [(FID)] and the National Credit Union Administration," (NCUA) was denied. The total value of the Contract to Plaintiff was greater than three times the Hippauf Appraisal. In September 2011, the FID and NCUA issued a letter directing Defendant to "cease[] branch expansion" and to determine "the least costly method . . . of extracting itself from the obligations of the lease/purchase of the . . . property in Pojoaque." On April 27, 2012, Defendant notified Plaintiff that it was terminating the Contract. After termination, Plaintiff retained possession of the property, $510, 000-comprised of the initial $125, 000 deposit and annual lease payments totaling $385, 000, as well as the additional value of $180, 668.28, the amount paid for "site improvements" by Defendant.
{¶5} Plaintiff brought suit against Defendant on May 11, 2015. Following various pretrial proceedings, trial on Plaintiff's claims of breach of contract and breach of good faith and fair dealing, as well as several of Defendant's counterclaims, began on December 11, 2017. At trial, Plaintiff, other witnesses, and expert witnesses Dr. Kenneth Lehrer and Arturo Jaramillo, testified. Defendant called Jaramillo, who testified about fiduciary duties generally, but was not permitted to give an opinion as to whether there had been a breach of any such duty, which was one of Defendant's claims adversely resolved at trial. Nor was Jaramillo permitted to respond to allegations of bias raised by Plaintiff's counsel related to a report prepared by a special investigation committee, appointed by Defendant's Board of Directors to investigate the transaction to acquire the property, and of which Jaramillo was a member. Larry Knoll, another defense witness who was appointed as Defendant's interim CEO in 2012, was likewise not permitted to testify about his own investigation of the terms and formation of the Contract to purchase the property.
{¶6} After a six-day trial, the jury determined that Defendant did not breach the Contract with Plaintiff, but found that Defendant did breach the implied covenant by terminating the Contract. It further determined that Plaintiff did not breach any fiduciary duty, negligently misrepresent any material fact, or engage in constructive fraud. Defendant filed post judgment motions, including for judgment as a matter of law, for remittitur, and for a new trial, all of which the district court denied. This appeal followed.
{¶7} On appeal, Defendant requests a new trial and asserts, among other things, that Plaintiff's implied covenant claim was not a proper question for the jury.[2]
I. Because the Contract Termination Provision Authorized Defendant to Terminate the Contract and Required Defendant to Exercise Good Faith Therewith, the Jury's Determination That Defendant Did Not Breach the Contract Precluded Liability Under the Implied Covenant
{¶8} Defendant contends that "[t]he implied covenant claim never should have gone to the jury" because the termination provision of the Contract should govern that claim, as well as Plaintiff's breach of contract claim. Plaintiff answers that "[t]he contract at issue was not terminable at will but pursuant to certain conditions which required [Defendant] to use good faith[, ]" and that "[t]here is sufficient evidence that [Defendant] terminated the [C]ontract in bad faith."[3]
{¶9} Although Plaintiff does not appeal the jury's determination that Defendant did not breach the Contract, we nonetheless address the impact of that aspect of the jury's verdict in light of the Contract's termination provision, which informs our analysis of the implied covenant's applicability under the facts of this case. Here, in relevant part, the Contract states:
[If] after the exercise of reasonable good faith efforts, [Defendant]'s application for the Permits, or any required portion thereof or prerequisite therefore, is denied, [Defendant] may, in [Defendant]'s sole discretion, terminate [the Contract].
The Contract defines the term "Permits" as follows:
"Permits" means all authorizations, consents, licenses, approvals, certificates and permits . . . including, but not limited to, approval of the [FID] and the [NCUA], to construct and open a commercial banking facility[.]
{¶10} Defendant argues that the jury's finding of liability as to the implied covenant must be reversed because when the FID and NCUA withheld authorization for branch expansion and purchase of the property, Defendant was entitled "to terminate the [Contract] upon denial of a 'Permit[].'" Relying on the Contract provisions as well as express direction to extricate itself from the Contract in the "least costly method" available, Defendant terminated the Contract in April 2012. Plaintiff answers that the letter in question does not foreclose liability under the implied covenant because Defendant had already received permission from the FID to open the branch at the property when it nonetheless opted instead to terminate the Contract. Plaintiff also argues that "the evidence is undisputed that FID did not order [Defendant] to terminate the Contract, but merely to extricate itself in the least costly means possible."
{¶11} As to Plaintiff's later contention, we discern no difference between the letter's instruction to Defendant and the manner chosen by Defendant-use of the Contract's termination provision-to accomplish the FID and NCUA's directive. To embrace such a distinction on appeal would serve only to substitute our judgment for that of the jury as to whether Defendant breached the Contract. That we cannot do, even insofar as our analysis of the central issue of this...
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