Winecup Gamble, Inc. v. Ranch
| Decision Date | 01 March 2023 |
| Docket Number | 3:17-cv-00163-ART-CSD |
| Parties | WINECUP GAMBLE, INC., Plaintiff, v. GORDON RANCH, LP, Defendant. |
| Court | U.S. District Court — District of Nevada |
The parties in this consolidated action both lay claim to $5 million in earnest money deposited into escrow by defendant Gordon Ranch, LP (“Gordon Ranch”) in 2016 when Gordon Ranch sought to purchase the Winecup Gamble Ranch from plaintiff Winecup Gamble, Inc. (“Winecup”). Prior to the closing date, severe flooding significantly damaged the property which Winecup elected not to restore pursuant to the risk-of-loss provisions in the purchase agreement, and Gordon Ranch in turn elected not to continue with the sale. Winecup now moves for summary judgment. (ECF No. 193.) The parties dispute whether an amendment to the purchase agreement which ostensibly made the earnest money nonrefundable under all circumstances other than a default by Winecup altered the risk-of-loss provisions in the purchase agreement; whether, if so, the receipt of the earnest money by Winecup would be an unenforceable punitive windfall; and whether Winecup defaulted by not restoring the property. Gordon Ranch also moves for judgment on the pleadings on the basis that a standalone cause of action for declaratory relief is unavailable (ECF No. 220) and for sanctions against Winecup for allegedly withholding and spoliating evidence (ECF No. 197.) For the reasons set forth in this order, the Court: (1) denies Gordon Ranch's motion for judgment on the pleadings; (2) denies Gordon Ranch's motion for sanctions; and (3) denies Winecup's motion for summary judgment.
This case has a lengthy litigation history. Gordon Ranch removed this case to this Court on March 16, 2017 (ECF No. 1), and the case was consolidated with Gordon Ranch LP v. Winecup Gamble, Inc., 3:17-cv-00157-RCJ-WGC, on May 23, 2017 (ECF No 26). The Court summarizes the basic allegations made by the parties and the procedural history of this case, including two orders by the Ninth Circuit Court of Appeals (“Ninth Circuit”), the scope of which are relevant to the instant motions.
Winecup and Gordon Ranch entered into a Purchase and Sale Agreement with an effective date of October 18, 2016 (the “Purchase Agreement”) for sale of approximately 247,500 acres, together with other real and personal property rights, interests, and cattle, in Elko County, Nevada. (ECF No. 1-1 (“Complaint”) at ¶¶ 6-7; ECF No. 194-1 (“Purchase Agreement”).) The Purchase Agreement required $1 million of earnest money to be deposited by Gordon Ranch into escrow. (Complaint at ¶ 8.) This money was refundable to Gordon Ranch if Gordon Ranch decided to terminate the Purchase Agreement prior to issuing a Notice to Proceed. (Id. at ¶ 9.) The closing was to occur between January 2 and January 12, 2017. (Id. at ¶ 11.)
Section 14 of the Purchase Agreement set forth the risk-of-loss provisions for the Purchase Agreement. (Id. at ¶ 12.) These provisions provided that The Purchase Agreement also contained a provision stating that the earnest money would be refundable “[i]n the event of a failure by Seller to meet a material obligation under this Agreement[.]” (Purchase Agreement at ¶ 8(a).)
In December of 2016, Gordon Ranch informed Winecup that it desired an extension of time for closing. (Complaint at ¶ 15.) The parties executed an Amendment to the Purchase Agreement dated December 21, 2016 (the “Amendment”) which extended the time for closing to “on or before April 15, 2017[.]” (Id. at ¶ 17; ECF No. 194-2 (“Amendment”).) The Amendment required an increase of the earnest money from $1 million to $5 million and modified certain conditions relating to the earnest money. Notably, the Amendment stated that “notwithstanding anything to the contrary in the [Purchase] Agreement, the Earnest Money, as increased by the Additional Earnest Money, shall be nonrefundable under all circumstances other than a default by Seller.” (Complaint at § 20; Amendment at ¶ 2.) The Amendment also stated that “[i]n the event of any conflict between the terms and provisions of the [Purchase] Agreement and this First Amendment, the terms and provisions of this First Amendment shall control.” (Amendment at ¶ 8.)
In February of 2017, which was after the execution of the Amendment and before the new closing date, severe flooding damaged the property. (Complaint at ¶ 23.) On March 2, 2017, counsel for Gordon Ranch sent Winecup a letter which claimed that the Purchase Agreement required Winecup to deliver the property in the condition it was in when Gordon Ranch entered the Purchase Agreement and that failure to do so would be a breach of the Purchase Agreement. (Id. at ¶ 24.) This letter stated that if Winecup did not cure its putative breach within five business days, Gordon Ranch would terminate the Purchase Agreement. (Id. at ¶ 27.) Gordon Ranch stated that they would be entitled to a refund of the earnest money under both Section 8(a) of the Purchase Agreement as well as NRS 113.040. (ECF No. 194-11 at 2.) Winecup takes the position that Winecup is not in breach for electing not to restore the property since the Purchase Agreement expressly places that decision within the sole discretion of Winecup and that Gordon Ranch, although permitted to elect not to continue with the sale, is not entitled to a refund of the earnest money pursuant to the provision of the Amendment stating that the earnest money is nonrefundable in all circumstances other than default by Winecup. (ECF No. 193 at 16-25.)
Both parties filed actions seeking a declaration that they, respectively, are entitled to the earnest money. Winecup filed its action in the Fourth Judicial District Court of the State of Nevada, which asserted a claim for declaratory judgment under Nevada's enactment of the Uniform Declaratory Judgments Act. (Complaint.) Gordon Ranch filed an action in this Court seeking declaratory judgment.[1] (ECF No. 1 in 3:17-cv-00157-RCJ-WGC.) After Gordon Ranch removed Winecup's action to this Court, the Court consolidated the two actions (ECF No. 26) and the parties agreed to a streamlined briefing schedule without engaging in discovery (ECF No. 24). Winecup then brought a motion for summary judgment which argued that the Purchase Agreement as modified by the Amendment establishes as a matter of law that Winecup is entitled to the earnest money since the Amendment provides that the earnest money is nonrefundable under all circumstances, including flooding, other than default by Winecup, and Winecup did not default. (ECF No. 34.) Gordon Ranch brought a cross-motion for judgment on the pleadings which argued that: (1) the Amendment did not alter the risk-of-loss provision in the original Purchase Agreement; (2) Winecup breached the Purchase Agreement as modified by the Amendment and so lost its entitlement to the earnest money even if the Amendment did alter the risk-of-loss provision; and (3) a reading of the Amendment as altering the risk-of-loss provision would be invalid as a matter of law since the earnest money would operate as a punitive liquidated damages clause. (ECF No. 36.)
On August 30, 2017, the Court issued an order granting Gordon Ranch's motion for judgment on the pleadings. (ECF No. 55.) This order first found that there had been no breach of the Purchase Agreement by Winecup under any of the three theories advanced by Gordon Ranch and that Gordon Ranch did not breach the Purchase Agreement either. (Id. at 8-12.) The order then held that it was clear and unambiguous as a matter of law that the Amendment did not alter the risk-of-loss provision in the Purchase Agreement, therefore awarding judgment on the pleadings and the earnest money to Gordon Ranch. (Id. at 1316.) The order reasoned that “the specific risk-of-loss provisions of Section 14 must be given precedence over the broad, general terms of the Amendment” and that accordingly, “in executing the amendment, it was not the parties' intent to modify the risk-of-loss provisions[.]” (Id. at 14, 15.) Under the unmodified risk-of-loss provisions, the order held, Gordon Ranch is entitled to the earnest money since it had elected not to proceed with the sale following Winecup's election not to restore the property, and this election by Gordon Ranch entitles it to a refund of the earnest money. (Id. at 15.)
Winecup appealed this ruling to the Ninth Circuit, which reversed the decision. (ECF No. 80.) Noting in its 5-page memorandum that “[t]he district court based its decision on the fact that the terms of the parties' agreement, as amended were clear and unambiguous on the critical question of whether the amendment was intended to shift or modify the risk-of-loss scheme[,]” the Ninth Circuit stated that “[a]fter reviewing this agreement and amendment, we disagree with the district court.” (Id. at 2, 3.) ...
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