Samuels v. Wilder, 88-1664

• Decision Date: 11 April 1989
• Docket Number: No. 88-1664,88-1664
• Parties: Howard B. SAMUELS, et al., Plaintiffs-Appellants, v. Jack WILDER, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1346

871 F.2d 1346

13 Fed.R.Serv.3d 1009

Howard B. SAMUELS, et al., Plaintiffs-Appellants, v. Jack WILDER, et al., Defendants-Appellees.

No. 88-1664.

United States Court of Appeals Seventh Circuit.

Argued Nov. 4, 1988.

Decided April 11, 1989.

Terence P. Boyle, O'Connor & Hannan, Denver, Colo., for plaintiffs-appellants.

Philip Fertik, Adams, Fox, Adelstein & Rosen, Chicago, Ill., for defendants-appellees.

Before CUMMINGS, MANION, and KANNE, Circuit Judges.

MANION, Circuit Judge.

Plaintiffs Howard B. Samuels and partnerships formed by Samuels engaged in oil and gas business ventures with defendant Ansam Associates, Inc. (Ansam). Ansam acquired working interests in and prospects for wells from defendant Jack Wilder, who obtained them from the well operator Sanguine, Ltd. Becoming displeased with the administration of the investments, plaintiffs eventually filed suit against defendants generally alleging fraud and misrepresentation. Plaintiffs asserted that defendants were out to withhold for themselves the best wells. Defendants answered and counterclaimed, alleging breach of contract. The district court granted the defendants' motion for summary judgment; it also granted judgment for defendants against plaintiffs on the counterclaim, 702 F.Supp. 1377. Plaintiffs appealed. We affirm.

I. Background

Beginning in 1981 plaintiff Howard Samuels entered into several written agreements to participate in oil and gas ventures with defendant Ansam. Samuels was the general partner for several limited partnerships which he had formed. He executed the agreements on behalf of the partnerships. Those partnerships (and the limited partners) are the plaintiffs in this case. Under these agreements the partnerships committed funds to Ansam to purchase working interests in wells and in prospects. Ansam acquired such working interests from defendant Jack Wilder, who acquired them from Sanguine, Ltd.

Once interests in wells were purchased, parties were to execute assignments of interest and prepare a Nominee Agreement to grant Ansam authority to act in all matters concerning commercial exploitation of the prospect. Three Nominee Agreements were executed making Ansam the Nominee. Each included an indemnity provision to indemnify Ansam as Nominee from losses by reason of its nomination. The indemnity clause in all three Nominee Agreements provides:

The Owner agrees to indemnify the Nominee, his successors, and assigns, and to hold Nominee harmless from all liability, loss, expenses, damages, costs and attorney's fees that Nominee may at any time incur by reason of any type of inquiry, action or suit which may be brought against him or made of him by any person, firm, corporation, or governmental agency or authority or anyone else by reason of the nomineeship.

The district court found and the parties before us agree that this provision is governed, as contractually stipulated, by the laws of New York state.

Plaintiffs grew dissatisfied with the administration of the partnership investments. On behalf of the plaintiffs, Samuels travelled to Ansam's offices in August 1984, to review documents. In October 1984 Ansam withheld $11,908 from quarterly revenue distributions to reimburse itself for the cost of this inspection. In their complaint and amended complaint of 1985 plaintiffs raised general allegations of fraud and misrepresentation, alleging that defendants intended to retain the best wells for themselves and transfer the poorer wells to plaintiffs, a discredited practice in the oil business called "cherry picking." Upon the filing of the lawsuit defendants withheld additional funds, claiming litigation expenditures were among the expenses payable under the Nominee Agreement indemnity clause. Plaintiffs consequently amended their complaints to add a conversion claim.

It is undisputed here that the parties initially agreed in writing to invest $2 million in working interest in properties, but that level of investment was never met. Defendants eventually filed a supplementary motion for summary judgment on a counterclaim seeking damages of $155,056.09, the claimed loss to Ansam and the other Wilder, Inc. shareholders for plaintiffs' failure to invest the full amount agreed.

II. District Court Proceedings

Discovery closed by September 30, 1986, and by October 30, 1986, defendants filed a motion for partial summary judgment, claiming plaintiffs had pleaded only one set of facts which failed to support plaintiffs' claims. The trial court looked to factual allegations in the complaint, disregarding proffered facts supposedly disclosed during discovery. On November 26, 1986, the extended due date for their response to the summary judgment motion, plaintiffs filed a motion for leave to file a second amended complaint. The proposed pleading allegedly recited facts newly-discovered during recent depositions.

On December 8, 1986, the district court stated that a motion to amend was an improper response to the defendants' motion for partial summary judgment. Plaintiffs withdrew the motion to amend, and on December 18, 1986, filed a statement of genuine issues which included claims of misrepresentations and omissions about fraud issues revealed in depositions taken in August and September of 1986. These "genuine issues" included many facts that had nothing to do with the cherry-picking claims contained in the first amended complaint.

On October 8, 1987, Judge Zagel, who inherited the case from Judge Marshall, granted both defendants' counterclaim and defendants' summary judgment motions without considering these newly-discovered facts. The court later denied plaintiffs' motion for reconsideration because the supposedly newly-discovered facts were not properly before the court. The district court concluded that since the defendants' motion for summary judgment was on file, any response, including a statement in opposition, could not include new issues raised in the withdrawn amended complaint. To allow such a response would effectively permit the plaintiffs to plead a different case.

Fed.R.Civ.P. 56(c) provides that a summary judgment shall be rendered if the pleadings, depositions, answers to interrogatories, and admissions on file plus any affidavits demonstrate no genuine issue of material fact, and show that the moving party is entitled to judgment as a matter of law. The motion is granted when the documents before the court fail to demonstrate any genuine material fact issue. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).

In reviewing grants of summary judgment this court applies the same standard as the district court. Cf. Richardson v. Penfold, 839 F.2d 392, 394 (7th Cir.1988). Should a non-moving party fail to offer a showing sufficiently establishing an element essential to that party's case, and on which that party must carry the burden of proof at trial, summary judgment is proper. Teamsters Local 282 Pension Trust Fund v. Angelos, 839 F.2d 366, 369 (7th Cir.1988). Merely alleging a factual dispute cannot defeat the summary judgment motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986).

III. The "Cherry Picking" Claim and Newly-Discovered Facts

We first examine whether the district court should have granted summary judgment without first considering the alleged newly-discovered facts that were not included in the plaintiffs' complaint. Fed.R.Civ.P. 8(a) provides that a pleading which sets forth a claim for relief shall contain a short and plain statement of the claim showing that the pleader is entitled to relief, and a demand for judgment for the relief the pleader seeks. Rule 8(e) provides that each averment of a pleading be simple, concise and direct. Technical forms of pleading are not required.

Fed.R.Civ.P. 9(b) provides:

In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.

In their October 1986 motion for partial summary judgment, defendants argued that plaintiffs' complaint contained only one set of facts, and that those facts failed to support plaintiffs' fraud and related common-law claims involving "cherry picking." Plaintiffs responded by presenting additional "facts" revealed during August and September 1986 discovery, which it claims supported allegations of fraud in addition to "cherry picking." The district court disregarded this supposedly new factual support and looked only to the factual allegations in the complaint which was the object of defendants' summary judgment motion. Plaintiffs contend the district court, by disregarding the existence of these additional disputed facts, erred because it treated this motion for summary judgment like a motion to dismiss.

The district court's response was correct. These additional facts, submitted in a Statement of Genuine Issues under local Rule 12(f) ¹ have little to do with the "cherry picking" complaint at issue. Instead, plaintiffs attempted to greatly expand the apparently baseless "cherry picking" claim by alleging completely new claims for fraud. All discovery and the motion for summary judgment focused on the "cherry picking" complaint. The court correctly prevented plaintiffs' attempted bypass of Rule 9(b) (pleading fraud with particularity in the complaint) and concentrated only on the averments of fraud originally pleaded. Plaintiffs should have known all the relevant facts for months before the October 1980 summary judgment motion. For some reason plaintiffs were holding back these factual allegations until a month after the summary judgment motion and two months after discovery closed.

To justify the delay, and in support of their claim that the defendants should have been on notice of the new fraud theory before it was specifically pleaded, plaintiffs rely on ...