Van Cleef v. Aeroflex Corp.

• Decision Date: 01 October 1981
• Docket Number: No. 79-3320,79-3320
• Citation: 657 F.2d 1094
• Parties: Ann VAN CLEEF and William H. Brophy, Personal Representatives of the Estate of Hubert O. Merryweather, Plaintiffs-Appellants, v. The AEROFLEX CORPORATION, a New York Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1094

657 F.2d 1094

Ann VAN CLEEF and William H. Brophy, Personal Representatives of the Estate of Hubert O Merryweather, Plaintiffs-Appellants, v. The AEROFLEX CORPORATION, a New York Corporation, Defendant-Appellee.

No. 79-3320.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 16, 1981.

Decided Oct. 1, 1981.

William Lee McLane, Phoenix, Ariz., argued, for plaintiffs-appellants; Nola McLane, McLane & McLane, Phoenix, Ariz., on brief.

Terry Fenzl, Phoenix, Ariz., for defendant-appellee.

Appeal from the United States District Court for the District of Arizona.

Before TUTTLE, ^* DUNIWAY and ANDERSON, Circuit Judges.

TUTTLE, Circuit Judge:

Van Cleef and Brophy, personal representatives of the estate of Hubert Merryweather and nominal plaintiffs ¹ in the diversity action for breach of contract, appeal from a jury verdict for defendant Aeroflex.

I. FACTS

In 1962, Hubert Merryweather was the owner of 50% (5997 shares) of the outstanding shares of Baca Float Ranch, Inc., an Arizona corporation. ² On September 19, 1962, Hubert borrowed $450,000 from Arno Dalby, pledging his stock interest in Baca Float Ranch as security for the loan. ³ Hubert's siblings, George Merryweather and Laura Burgess, guaranteed Dalby's loan to Hubert. ⁴ In 1963, Hubert borrowed $175,000 from Pioneer Bank, again pledging as collateral his shares of Baca stock.

In 1964, Hubert's loan from Pioneer Bank became due. In need of funds to repay the debt, he approached the treasurer of the Aeroflex Corporation, a New York corporation, who was able to arrange for Hubert to borrow the sum of $215,000 from Franklin National Bank, by guaranteeing payment of the loan and depositing a $215,000 certificate of deposit with the bank as security for the loan. The loan was made November 11, 1964, for a period of four months with the possibility of renewal for an additional four months.

On November 13, 1964, Hubert and Aeroflex signed an agreement which set out the terms of this arrangement. The agreement provided, inter alia, that Hubert was to pay Aeroflex $24,000 and a 10% interest in his stockholdings in Baca Float Ranch, that he would use the proceeds of the loan to pay off his debt to Pioneer Bank and that he would furnish Aeroflex with a pledge of his 50% stock interest in Baca Float which would be junior to the Dalby pledge. Aeroflex's agreement to renew the loan for an additional four months was conditioned on Aeroflex's being satisfied that Hubert was exercising diligence in his efforts to pay his outstanding debts.

Aeroflex became concerned that Hubert was not making sufficient efforts to sell either his stock or the ranch so that repayment of the two loans could be made. Consequently, on March 13, 1965, a meeting was held by the parties and their attorneys. There Hubert signed and delivered the pledge he had previously promised to provide, and the parties executed the agreement which is the basis of Hubert's breach of contract action. This agreement provided that in the event Hubert did not repay the Franklin National Bank debt by June 1, 1965, Aeroflex would have the right to sell Hubert's stock interest if a buyer willing to pay the $2 million price he sought could be found. ⁵

Hubert failed to repay the loan on June 1, 1965, and on June 4, 1965, took steps to liquidate the corporation. ⁶ On July 20, 1965, Aeroflex wrote to Hubert, notifying him that they considered his attempt to liquidate the corporation without their prior knowledge and consent to be a breach of the March 13 agreement and directing him not to proceed further with such plans without their prior consent. ⁷

Hubert ultimately defaulted on his obligations. George and Laura, pursuant to their guaranty, paid Dalby and received an assignment of the Dalby pledge; Aeroflex, pursuant to its guaranty, paid the Franklin National Bank. Arizona Land, employed as collection agent, was directed to foreclose the Aeroflex pledge in accordance with the pledge and escrow instructions which had previously been signed by Hubert.

On September 22, 1965, Aeroflex notified Hubert that he was in default and that they intended to foreclose Hubert's stock interest. On October 1, Aeroflex issued a notice of sale. Appellants claim that no copy or original of the notice of sale was served personally on Hubert. ⁸

On November 9, a public sale was held and the only bid submitted, a credit bid of $785,000, submitted jointly by George, Laura and Aeroflex, was accepted. A bill of sale and Hubert's stock certificate representing his 50% stock interest in Baca Float Ranch were delivered to Aeroflex that day. Hubert contends that the stock was worth approximately $2,000,000 at that time, and that the defendants in fact realized approximately $2,000,000 when they liquidated Baca Float six months later. ⁹

On June 27, 1968, Hubert's lawyer made a demand on Aeroflex for money he claimed was due Hubert from Aeroflex under the terms of the March 13 contract. Aeroflex rejected this demand on July 23, 1968. Hubert filed his complaint July 10, 1969, three years and eight months after the foreclosure sale.

Hubert asserted several causes of action against Aeroflex. Among these were a claim for usury, and a claim that Aeroflex had liquidated the corporation pursuant to the March 13, 1965, agreement and had breached that agreement by failing to give him the money after the debts were paid. Pursuant to this allegation, he claimed damages of $448,566.03. ¹⁰

Hubert's claim based on usury was dismissed. His breach of contract claim went to the jury which found for defendant Aeroflex.

II. STATUTES OF LIMITATIONS

(a) Period applicable to usury claim

Regardless of the validity of Hubert's usury claim, he was not entitled to raise this claim after the applicable statute of limitations period had run. The district court correctly recognized this fact and looked to the law of Arizona, the place where the action was pending, for the applicable statute of limitations. See Van Dyke v. Parker, 83 F.2d 35 (9th Cir. 1936); Ross v. Ross, 96 Ariz. 249, 393 P.2d 933 (1964). See also 2 Moore's Federal Practice P 3.07(2), at 3-50.

Arizona has prescribed limitations periods of one to six years, depending upon the kind of action filed. A.R.S. §§ 12-541-550. For example, the limitation period for actions for conversion of personal property is two years, A.R.S. § 12-542(5); for actions "for debt where the indebtedness is not evidenced by a contract in writing," three years, § 12-543(1); for relief on the ground of fraud or mistake; three years, § 12-543(3); for actions "upon a contract in writing executed within the state," six years. Section 12-550 provides for the residual "general limitations":

Actions other than for recovery of real property for which no limitations is otherwise prescribed shall be brought within four years after the cause of action accrues, and not afterward.

None of the Arizona statute of limitations sections, however, specifically covers claims for recovery of usurious interest. Appellants, therefore, argue that the residual category of A.R.S. § 12-550 should apply to the claim for recovery of the allegedly usurious interest. To buttress this choice of the four-year period, they point to cases where the Arizona courts have held that whenever there is a choice between the application of two statutes of limitations with varying periods, the longer should apply. See, e. g., Southern Pacific Railroad Co. v. Gonzalez, 48 Ariz. 260, 61 P.2d 377 (1936); Anderson v. Thude, 42 Ariz. 271, 25 P.2d 272 (1933).

Appellants appear to be correct in their assertion that Arizona courts would favor the application of the longer limitations period when given a choice between two potentially applicable periods. This principle, however, has no application to the case at hand. In regard to Hubert's usury claim, the three year period prescribed in A.R.S. § 12-543(1) is the only applicable period.

In Arizona, when a statute is adopted from another state, it is presumed that the statute is taken with the construction placed upon it by the courts of that state prior to its adoption. England v. Ally Ong Hing, 105 Ariz. 65, 459 P.2d 498 (1969); State ex rel. Swift v. Tullar, 11 Ariz.App. 112, 462 P.2d 409 (1969). Arizona's statutes of limitations were adopted from Texas. Western Coal & Mining Co. v. Hilvert, 63 Ariz. 171, 160 P.2d 331 (1945). Therefore, where a particular kind of cause of action is not covered expressly by the statute and the question of what limitation period should be applied has not been settled by the Arizona Supreme Court, Arizona courts will look to Texas law for guidance before resorting to an application of the residual section, A.R.S. § 12-550. Schuldes v. National Surety Corporation, 27 Ariz.App. 611, 557 P.2d 543 (1976).

Texas courts have specifically held causes of action for recovery of usurious interest payments to be governed by the statute of limitations covering actions for money had and received. Ware v. Wright, 266 S.W.2d 188 (Tex.Civ.App.1954); Clanton v. Community Finance & Thrift Corp., 262 S.W.2d 252 (Tex.Civ.App.1954). See also Schmid v. City National Bank, 132 Tex. 115, 114 S.W.2d 854, aff'g 94 S.W.2d 554 (1938). We find this construction persuasive, particularly in light of the absence of Arizona cases on point. See, Phoenix-Sunflower Industries, Inc. v. Hughes, 105 Ariz. 334, 464 P.2d 617, 619 (1970); Schuldes v. National Surety Corp., supra. Therefore, we hold that the appropriate statutory period is contained in A.R.S. § 12-543(1) which provides that a cause of action for money had and received must be brought within three years from the time the cause of action accrued. See Young Mines Co. v. Citizens State Bank, 296 P. 247 (Ariz.1931).

(b) Time of accrual

We proceed, therefore, to the question of whether Hubert's cause of action accrued within three years of July 10, 1969, the day on which he filed suit. Appellees argue that the cause of action for...