Western Group Nurseries, Inc. v. Ergas

• Decision Date: 04 February 2002
• Docket Number: No. 90-1606-CIV.,90-1606-CIV.
• Citation: 211 F.Supp.2d 1362
• Court: U.S. District Court — Southern District of Florida
• Parties: WESTERN GROUP NURSERIES, INC., et al., Plaintiffs, v. Martin ERGAS, et al., Defendants.

211 F.Supp.2d 1362

WESTERN GROUP NURSERIES, INC., et al., Plaintiffs, v. Martin ERGAS, et al., Defendants.

No. 90-1606-CIV.

United States District Court, S.D. Florida, Miami Division.

February 4, 2002.

COPYRIGHT MATERIAL OMITTED

Joel D. Eaton, Esq., Podhurst, Orseck, et al., Miami, FL, Donald A. Chase, Esq., Morrison, Cohen, Singer & Weinstein, New York City, Anthony R. Lucia, Esq., Pheonix, AZ, Howard Kelly Coates, Jr., Esq., Proskauer Rose, Boca Raton, FL, Samuel A. Abady, Esq., New York City, for Plaintiffs.

Neil J. Berman, Esq., Berman, Rennert, Vogel & Mandler, Miami, FL, for Defendants.

ORDER DENYING DEFENDANT'S MOTIONS FOR SUMMARY JUDGMENT

HOEVELER, District Judge.

THIS CAUSE comes before the Court upon the Defendant's Motion for Summary Judgment, filed June 6, 2000 and the Defendant's Motion for Summary Judgment Based on Fed.R.Civ.P. 41, filed July 10, 2000.

Background

In 1984, thirteen Arizona nursery owners agreed to sell their nursery businesses to World Nurseries, Inc. ("World") which apparently thought that it could use the nursery assets to create a tax shelter for other businesses. Of the $ 22.1 million purchase price, $ 3 million was to be paid in cash, $ 17 million pursuant to a promissory note from World, and the remaining $ 2.1 million was contingent on the sale of certain nursery stock.

In a separate transaction, World immediately sold the nursery assets (and accompanying tax benefits) to a limited partnership calling itself Arizona World Nurseries, ("Arizona World") for $ 33 million. Arizona World, paid $ 6.57 million in cash and issued a promissory note for the remaining $ 26.43 million the note itself was nonrecourse as to the partnership, however, the partners themselves were liable (to World) for up to $260,000 for each ($100,000) unit of the partnership purchased. To secure the promissory note, Arizona World granted World a purchase money security interest (PMSI) in the nursery assets. World, in turn, conveyed the PMSI to the thirteen nursery owners.

After barely a year, Arizona World was unable to make payments on the promissory note to World, which meant that World could not pay its own promissory note to the thirteen nursery owners. So the nursery owners, represented by agent Western United Nurseries, Inc. (hereinafter "Western United"), filed suit in Arizona state court and obtained a judgment against World in October 1986.

Two months later, in December 1986, Western United assigned part of its judgment to a newly formed entity comprised, in part, by some of the original thirteen nursery owners-this new entity called itself Western Group Nurseries (hereinafter WGN). WGN bid at the sheriff's sale of World's collateral and purchased the promissory note (between World and Arizona World). Since that time WGN has sought the assistance of this Court to collect payment for the note.

In the proceedings presently before the court, WGN sues Martin Ergas ("Ergas"), a limited partner of the tax shelter partnership Arizona World, L.P., to force him to pay his pro rata share of a promissory note entered into by the partnership.

Summary Judgment Standard

Rule 56(C) of the Federal Rules of Civil Procedure provides that summary judgment is appropriate only where the moving party is entitled to judgment as a matter of law. A court's task is not "to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The purpose of the summary judgment rule is to dispose of unsupported claims or defenses which, as a matter of law, raise no genuine issues of material fact suitable for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The party who moves for summary judgment bears the initial burden "to show the district court, by reference to materials on file, that there is no genuine issue of material fact that should be decided at trial." Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir.1991). A court must view the evidence presented in a light most favorable to the non-moving party.

However, once the moving party meets his initial burden, "the burden shift[s] to the non-moving party to demonstrate that there is indeed a material issue of fact that precludes summary judgment." Id. at 608. The non-moving party may not rest upon mere allegations or denials in his pleadings, but must set forth specific facts, through affidavits or the other forms of evidence provided for by the rules. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Essentially, "the inquiry ... is ... whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52, 106 S.Ct. 2505. With this standard in mind, we address the Defendant's Motions for Summary Judgment.

Defendant's Motions for Summary Judgment

In the first motion, Ergas argues that Arizona law determines the appropriate statute of limitations for filing claims. According to Ergas, since Western United and WGN (its predecessor in interest) could have filed suit in February 1986, this action (brought in July 1990) is time barred by Arizona's four-year statute of limitations.

WGN's response is two-fold: First WGN urges that the six-year New York statute of limitations applies; second, WGN asserts that the cause of action actually accrued in November 1986 (not February 1986), thus even under Arizona law, it would not be time barred. Ergas replies that WGN's judicial pleadings collaterally estop it from challenging either choice of law, or accrual of the action.

In the second motion, Ergas argues that the pending action is barred by Rule 41(a)(1) of the Federal Rules of Civil Procedure which states in relevant part: "a notice of dismissal operates as an adjudication upon the merits when filed by a plaintiff who has once dismissed in any court of the United States or of any state an action based on or including the same claim." Fed.R.Civ.P. 41(a)(1).

WGN acknowledges prior dismissals, but raises the following four defenses: (1) the Eleventh Circuit decided that the Florida state court proceeding was not an adjudication on the merits; (2) the 41(a)(1) defense was waived; (3) WGN is not the successor in interest to the nursery owners; and (4) the voluntary dismissal of the Arizona state court proceedings was made by the secured party to the note, whereas the voluntary dismissal of the Florida state proceedings was made by the owner of the partnership note.

Analysis

I. Statute of Limitations

The Defendant argues that the Plaintiff's claims are barred by the Arizona, four-year statute of limitations. The Plaintiff argues that New York's six-year statute of limitations applies because the agreement which is the subject of this suit includes a choice-of-law provision selecting New York law. The Court agrees with the Plaintiff.

In order to assess the validity of this claim, the Court must first decide the choice of law question. A federal court exercising diversity jurisdiction must apply the choice-of-law rules of the state in which it sits. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Under Florida rules, statutes of limitations are considered substantive in nature. See Fulton County Adm'r v. Sullivan, 753 So.2d 549, 553 (Fla. 1999); Merkle v. Robinson, 737 So.2d 540 (Fla.1999). Moreover, under Florida law, a choice of law provision "functions to supply a rule of decision for the substantive rights of the parties." Atlantic Associates Ltd. v. Birken, 610 So.2d 732 (Fla.App. 1992) (emphasis added). Therefore, under Florida choice of law rules, a choice of law clause selecting the application of New York law will generally include the application of New York's statute of limitations.

Generally, Florida enforces choice-of-law provisions as to contractual claims unless the law of the chosen forum contravenes strong public policy. See Mazzoni Farms, Inc. v. E.I. DuPont De Nemours and Co., 761 So.2d 306, 311 (Fla. 2000). Additionally, the party who seeks to prove such a provision invalid because it violates public policy bears the burden of proof. Id. Neither party has argued that the choice-of-law clause selecting New York laws is invalid as violating public policy. Therefore, the choice of law clause would be presumptively valid.

WGN argues in this case that the partnership note was subject to a choice of law provision selecting New York law, and therefore New York law should govern the statute of limitations issue.¹ (Pl's. Mem. Opp'n Summ. J. at 3-4) WGN draws the Court's attention to a recent order by the Arizona District Court based on Plaintiff's suit against a different limited partner. See In re: Western United Nurseries, Inc. v. The Estate of Richard R. Adams (the "Arizona Opinion"). The Arizona Court held that while the New York choice of law clause was not expressly contained in the partnership note, it was incorporated by reference and therefore the New York statute of limitations was applicable. Id. The Plaintiff argues that the same argument applies against this Defendant.

This Court agrees with the reasoning of the Arizona opinion: the New York Choice of law clause was incorporated by reference into the partnership note by the terms "issued pursuant to and entitled to the benefits of" the purchase agreement and the security agreement. Id. at 11; see also Western Group Nurseries, Inc. v. Ergas, 167 F.3d 1354, 1359 (11th Cir.1999) ("The Sellers/Syndicator security agreement provides that any disputes will be resolved under the law of the state of New York. Thus our analysis will be guided by New York law.")

In the Defendant's Motion for Summary Judgment, Mr. Ergas makes no mention of any choice of law provision. It is not until the...