Jerald W. Freeman, the Tea Leaf, Inc. v. Fairchild

FRY

Affirmed in part and reversed in part; rehearing denied.

Keleher & McLeod, P.A., Thomas C. Bird, Kurt Wihl, Christina Muscarella Gooch, Albuquerque, NM, for Plaintiffs–Appellees Jerald W. Freeman, The Tea Leaf, Inc., and Thomas Nygard, Inc. Thompson, Hickey, Cunningham, Clow, April & Dolan, P.A., David F. Cunningham, Brenden J. Murphy, Santa Fe, NM, for Defendant/Cross–Claimant–Appellee Paul W. Fairchild, Jr.
Coberly & Attrep, LLLP, Todd A. Coberly, Santa Fe, NM, for Appellants.

FRY, Judge.

{1} The Opinion filed on July 30, 2014 is withdrawn, and the following is substituted for it. Defendants' motion for rehearing is denied.

{2} Plaintiffs Jerald W. Freeman, The Tea Leaf, Inc., and Thomas Nygard, Inc., owned a painting that they agreed to sell to Paul Benisek. Benisek, in turn, agreed to sell the painting to Defendants R.H. Love Galleries, Inc., and Richard H. Love (collectively referred to as Love). Love then sold the painting to Defendant Paul W. Fairchild, Jr. Fairchild paid Love in full for the painting, but Love never completely paid Benisek, and Benisek never completely paid Plaintiffs. In this controversy over possession of the painting and amid the claims, cross-claims, and counterclaims asserted, we reverse summary judgment entered in favor of Plaintiffs against Love because they failed to make a prima facie showing of the elements necessary to support their claims. Accordingly, we also reverse the district court's award of damages on Plaintiffs' claims against Love. We affirm summary judgment in favor of Fairchild against Love and the district court's later award of damages on Fairchild's claims against Love.

{22} “An agent is a person who, by agreement with another called the principal, represents the principal in dealings with third persons or transacts some other business, manages some affair, or does some service for the principal, with or without compensation.” Barron v. Evangelical Lutheran Good Samaritan Soc'y, 2011–NMCA–094, ¶ 16, 150 N.M. 669, 265 P.3d 720 (alteration, internal quotation marks, and citation omitted). While the authority of an agent may be actual or apparent, Plaintiffs do not argue that Benisek's authority was anything other than actual. “Actual authority is given to the agent by the principal in terms that are express, or in terms that are implied from words or conduct of the principal to the agent or from the circumstances of the relationship.” Id. (internal quotation marks and citation omitted). An agency relationship does not arise until the principal “manifests assent to [the agent] that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act.” Maes v. Audubon Indem. Ins. Group, 2007–NMSC–046, ¶ 17, 142 N.M. 235, 164 P.3d 934 (internal quotation marks and citation omitted). Significantly, “[t]he existence of agency is a question of fact.” Santa Fe Techs., Inc. v. Argus Networks, Inc., 2002–NMCA–030, ¶ 26, 131 N.M. 772, 42 P.3d 1221. Therefore, in order to establish entitlement to summary judgment, it was Plaintiffs' burden to make a prima facie showing of an agency relationship between themselves and Benisek. See id.

{23} We pause to address Plaintiffs' contention that Love never argued in response to the motion for summary judgment that Plaintiffs failed to establish the existence of an agency relationship with Benisek. This contention is unavailing because, even if Love had not responded at all to Plaintiffs' motion, we would still have to consider whether Plaintiffs made a prima facie showing of entitlement to summary judgment. See Brown v. Taylor, 1995–NMSC–050, ¶ 8, 120 N.M. 302, 901 P.2d 720 (explaining that “[t]he moving party may not be entitled to judgment even if the non-moving party totally fails to respond to the motion” because “until the moving party has made a prima facie case that it is entitled to summary judgment, the non-moving party is not required to make any showing with regard to factual issues” (internal quotation marks and citation omitted)). Moreover, Love clearly argued at the summary judgment hearing that Plaintiffs' claim of agency was questionable.

{24} Plaintiffs asserted numerous allegedly undisputed material facts to support their motion for summary judgment against Love, including the following:

• Plaintiffs owned the painting and, through Freeman, they began negotiating with Benisek about selling the painting in October 2002.

• Freeman entered into the Freeman/Benisek agreement by which Benisek purchased the painting and, on the same day, Love agreed to purchase the painting from Benisek.

• Love agreed to keep possession of the painting until Benisek was paid in full, but Love did not do this because he sold it to Fairchild. In the Benisek/Love agreement, Love agreed to execute UCC or similar documents, and the filing of a “UCC Form 1” was “[a]n important part of the [Freeman/]Benisek [a]greement.”

• “Freeman relied on the provision in the [Freeman/]Benisek [a]greement that prohibited Benisek from alienating the [p]ainting before he had paid for it in full.”

• Love did not pay Benisek as required by the Benisek/Love agreement and, as a result, Benisek did not fully pay Plaintiffs.

• Love issued a moratorium by which he stopped paying his financial obligations.

{25} The above alleged material facts do not shed any light on whether there was an agency relationship between Plaintiffs and Benisek. At most, they suggest that Love's only contractual relationship was with Benisek, and there is no material fact suggesting that Plaintiffs and Benisek had any relationship other than as sellers and buyer. No fact gives rise to any inference that Plaintiffs and Benisek explicitly or implicitly manifested to each other the assent necessary to establish the relationship of principal and agent.

{26} The only alleged material facts that appear to even remotely address the question of agency were as follows:

• Following Love's issuance of his moratorium, “Love's representative negotiated directly with Freeman's lawyer regarding Love's indebtedness to ... Plaintiffs.”

• Freeman signed a non-disclosure agreement stating that “the individuals who have signed as individual creditors ... have agreed to enter discussions concerning past ... business transactions with Love.” (Alterations omitted and omissions in original).

• “The [Benisek/]Love agreement provide[d] that Benisek was Plaintiffs' agent for selling the [p]ainting to Love.”

{27} These alleged material facts also fail to establish the existence of an agency relationship between Plaintiffs and Benisek. The evidence that Love negotiated directly with Freeman and that Freeman viewed himself to be Love's creditor may be indicative of a relationship Freeman and Love may have established after the various sales of the painting. This evidence says nothing about whether Plaintiffs and Benisek had an agency relationship at the time of the sales. As for the Benisek/Love agreement's alleged provision that Benisek was acting as Plaintiffs' agent in the sale to Love, the evidence offered in support of this allegation does not support the proposition. The Benisek/Love agreement did nothing more than identify “Paul D. Benisek (Seller's Agent)” as a party to the agreement, and the body of the agreement referred to Love as “Purchaser” and Benisek as “Seller's Agent.” Again, this nomenclature reveals nothing about whether Plaintiffs and Benisek manifested assent to each other to enter into an agency relationship of any kind, and such assent is essential to establishing the existence of agency. “[A]n agency relationship arises only when the elements [of mutual assent, among other things,] are present. Whether a relationship is characterized as agency in an agreement between parties or in the context of industry or popular usage is not controlling.” Restatement (Third) of Agency § 1.02 (2006) (emphasis added).

{28} Plaintiffs maintain that Love conceded the existence of an agency relationship between Plaintiffs and Benisek because Love signed the agreement referring to Benisek as “Seller's Agent” and because he entered into negotiations with Freeman directly after he stopped paying Benisek. We are not persuaded by either argument. First, as we have already noted, Benisek's label as “Seller's Agent” is meaningless without evidence that Plaintiffs and Benisek manifested assent to one another that an agency existed. See Restatement (Third) of Agency § 1.02 cmt. c (“How the parties characterized the relationship is not dispositive, nor is popular usage.”). Second, whatever negotiations Love entered into with Plaintiffs after the sale from Benisek to Love are irrelevant to the existence of a Plaintiffs/Benisek agency relationship. Perhaps Love and Plaintiffs entered into their own direct agreement about payment for the painting, but Plaintiffs did not present any evidence about the details of any such purported agreement. To the extent Plaintiffs argue that Love “ratifi[ed] Benisek's agency for ... Freeman,” an agent's conduct can only be “ratified” by the putative principal, which in this case would be Plaintiffs. See Restatement (Third) of Agency § 4.03 (2006) (stating that “[a] person may ratify an act if the actor acted or purported to act as an agent on the person's behalf ” (emphasis added)).

{29} We also decline Plaintiffs' invitation to conclude that Plaintiffs ratified Benisek's sale agreement with Love. Apparently conceding that they did not make this argument in the district court, Plaintiffs argue that we can affirm on this “right for any reason” basis. An appellate court may “affirm the district court if it is right for any reason and if affirmance is not unfair to the appellant.” Bd. of Cnty. Comm'rs v. Chavez, 2008–NMCA–028, ¶ 12, 143 N.M. 543, 178 P.3d 828 (internal quotation marks and citation omitted). We conclude that affirming on this basis would be unfair to Love for two reasons. First, Love had no opportunity in the district court to respond to the unasserted argument about ratification. Second, the question of ratification is highly fact-dependent, and Plaintiffs did not present evidence sufficient for the district court to determine whether Plaintiffs had made a prima facie showing of ratification. See State v. Vargas, 2008–NMSC–019, ¶ 8, 143 N.M. 692, 181 P.3d 684 (“Under the ‘right for any reason’ doctrine, we may affirm the district court's order on grounds not relied upon by the district court if those grounds do not require us to look beyond the factual allegations that were raised and considered below.” (internal quotation marks and citation omitted)).

{30} In summary, we hold that Plaintiffs failed to make a prima facie showing of an agency relationship between themselves and Benisek. Without the existence of such a relationship, Plaintiffs could not establish that Love breached any contract with them because Plaintiffs have not shown the existence of a contract between themselves and Love. Plaintiffs further could not show that Love made any negligent or fraudulent misrepresentations to them because all of Love's relevant representations were made only to Benisek. Therefore, summary judgment in favor of Plaintiffs against Love was improper. Because summary judgment was improper, the award of damages to Plaintiffs was also in error.

{31} Fairchild sought partial summary judgment against Love on the issues of liability for fraud, negligent misrepresentation, and violation of the Illinois Act. Love, whose counsel had withdrawn, filed no response to the motion. At the hearing on the motion, which Love attended by phone, Fairchild's counsel did not argue the merits of the motion but instead argued only that Love was “in default” and that Fairchild was entitled to summary judgment. Love responded that he filed no response because he had no counsel. He also contended that he was not at his office due to ill health and did not often get his mail. He stated, “If there is some way to reconsider this, I would like to.” The district court responded, “I find that there is not a sufficient basis upon which to allow ... Love additional time in which to respond. Because there has not been a substantive response to the motion, under the Rules ... I find that the motion shall be granted.” And, as it did in connection with Plaintiffs' summary judgment, the district court reserved the issue of damages to be determined at a later proceeding.

{32} We agree with Love that it was error for the district court to grant Fairchild's motion for summary judgment solely on the basis of Love's failure to respond to the motion. See Brown, 1995–NMSC–050, ¶ 8, 120 N.M. 302, 901 P.2d 720 (“The moving party may not be entitled to judgment even if the non-moving party totally fails to respond to the motion.”). The district court should have deemed admitted the facts alleged in Fairchild's motion and then determined whether those facts made a prima facie showing of entitlement to summary judgment. See id. (explaining that “until the moving party has made a prima facie case that it is entitled to summary judgment, the non-moving party is not required to make any showing with regard to factual issues” (internal quotation marks and citation omitted)). Because our review is de novo, we undertake this task and conclude that Fairchild did establish a prima facie case of entitlement to summary judgment, and we affirm on the ground that the district court was right for another reason. See Vargas, 2008–NMSC–019, ¶ 8, 143 N.M. 692, 181 P.3d 684.

{33} In order to prevail on his claim of negligent misrepresentation, Fairchild had to make a prima facie showing that (1) Love made a material misrepresentation of fact to Fairchild, (2) Fairchild relied upon the representation, (3) Love knew the representation was false at the time it was made or he made it recklessly, and (4) Love intended to induce Fairchild to rely on the representation. See Saylor v. Valles, 2003–NMCA–037, ¶ 17, 133 N.M. 432, 63 P.3d 1152. A misrepresentation can be made by either commission or omission. In re Stein, 2008–NMSC–013, ¶ 35, 143 N.M. 462, 177 P.3d 513.

{34} Fairchild alleged in his motion for summary judgment that Love did not own the painting, had not paid for it, had no bill of sale showing ownership when he sold the painting to Fairchild, and that Love knew these facts and did not disclose them to Fairchild when he sold the painting. Fairchild further alleged that he would not have bought the painting or paid the purchase price had he known that Love did not own the painting and had not paid for it and that he relied on Love's misrepresentations by omission. In addition, Fairchild alleged that Love knew Fairchild was relying on him to be honest. Fairchild presented evidence supporting these allegations. Thus, Fairchild established a prima facie case of Love's liability for negligent misrepresentation.

{35} The elements of fraudulent representation are virtually the same as the elements of negligent misrepresentation except that the elements must be proved with clear and convincing evidence. See Encinias v. Whitener Law Firm, P.A., 2013–NMSC–045, ¶ 22, 310 P.3d 611. Under the procedural posture of this case, the heightened burden of proof should have no impact. Fairchild supported his allegations of fact with evidence establishing each element. Therefore, we conclude that Fairchild established the prima facie liability of Love on the claim of fraudulent misrepresentation.

{36} In order to prove a private claim under the Illinois Act, a claimant must establish “(1) a deceptive act or practice by the defendant, (2) the defendant's intent that the plaintiff rely on the deception, (3) the occurrence of the deception in the course of conduct involving trade or commerce, and (4) actual damage to the plaintiff (5) proximately caused by the deception.” Avery v. State Farm Mut. Auto. Ins. Co., 216 Ill.2d 100, 296 Ill.Dec. 448, 835 N.E.2d 801, 850 (2005). These elements are similar to the elements of negligent and fraudulent misrepresentation discussed above. The only additional element is that the deception must occur “in the course of conduct involving trade or commerce.” Id. The Illinois Act defines the terms “trade” and “commerce” as “the advertising, offering for sale, sale, or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value ... and shall include any trade or commerce directly or indirectly affecting the people of this [s]tate.” 815 Ill. Comp. Stat. 505/1(f) (2007). Given the evidence Fairchild submitted in support of his claims for negligent and fraudulent misrepresentation, plus evidence that Love's alleged deception occurred in the course of his sale of the painting to Fairchild, it is clear that Fairchild also made a prima facie showing of entitlement to judgment on the claim under the Illinois Act.

{37} Because Fairchild established prima facie entitlement to judgment under all of his claims against Love, we conclude that the district court's entry of summary judgment in favor of Fairchild was proper for a reason other than Love's failure to file a response to Fairchild's motion. It is not unfair to Love to employ this “right for any reason” analysis because Love had the opportunity to respond to Fairchild's prima facie showing and failed to do so. We therefore turn to the question of whether the district court's award of damages to Fairchild was proper.

{38} As previously mentioned, the district court conducted a hearing on damages and awarded Fairchild $1,942,446 in compensatory damages and $9,712,232 in punitive damages. Love argues that the damages awards were erroneous because (1) part of the compensatory damages were awarded for Fairchild's loss of the “use of the money” he had spent to purchase the painting, which is simply prejudgment interest in disguise, and Illinois law does not permit the recovery of prejudgment interest; (2) the award of attorney fees, costs, and interest was contrary to Illinois law and, even if such damages were compensable, the district court failed to exclude fees and costs attributable to work unrelated to this case; (3) nothing in the Illinois Act permitted the district court to award Fairchild compensation for his own time expended in the course of the litigation; and (4) the punitive damages award was insupportable because it was based on the grossly erroneous award of compensatory damages and because it was based in part on evidence of Love's “bad acts” that were unrelated to his conduct in connection with the sale of the painting.

{39} At first blush, it does seem extraordinary that Fairchild should be awarded in excess of $11 million for the fraudulent sale of a painting worth in the neighborhood of $400,000. But we need not analyze Love's arguments attacking the damages awards because, as Fairchild contends, Love failed to preserve his arguments in the district court.

{40} Fairchild presented the testimony of several witnesses, both live and by deposition, as well as documentary evidence on the question of damages. Love cross-examined some of the witnesses. Love introduced no evidence of his own apart from a very short direct examination of Fairchild. At no point did Love make any of the arguments challenging the damages award that he now makes on appeal.

{41} Love maintains that he preserved his arguments in his motion for a new trial, which he filed after the district court entered judgment in favor of Fairchild. We are not persuaded. The motion for a new trial argued that “the [j]udgment is excessive, that [it] violated [Love's] rights to due process of law, and for error in evidentiary rulings.” The motion provided no elaboration on these points. More importantly, a motion for new trial cannot make up for the failure to preserve issues at trial. See Goodloe v. Bookout, 1999–NMCA–061, ¶ 13, 127 N.M. 327, 980 P.2d 652 (“Raising the matter in [the] motion for a new trial came too late; objections must be raised in time for the [district] judge to correct the error to prevent prejudice.”), superseded by rule on other grounds as stated in Acosta v. Shell W. Exploration & Prod., Inc., 2013–NMCA–009, 293 P.3d 917.

{42} Love next argues that we should exercise our discretion to review the unpreserved arguments for fundamental error. See Rule 12–216(B) NMRA (stating that the appellate court may, in its discretion, review questions that were not preserved in the district court if they involve jurisdiction, general public interest, or fundamental error or fundamental rights of a party). Our Supreme Court has observed that it “has applied the doctrine [of fundamental error] in civil cases under the most extraordinary and limited circumstances.” Estate of Gutierrez ex rel. Jaramillo v. Meteor Monument, L.L.C., 2012–NMSC–004, ¶ 33, 274 P.3d 97. The Court pointed to two cases that applied the doctrine. In one case, the Court in its discretion considered unpreserved arguments related to jury instructions on the theory of successive tortfeasors because, at the time, there was very little case law on the theory, and there were no applicable uniform jury instructions. Payne v. Hall, 2006–NMSC–029, ¶ 37, 139 N.M. 659, 137 P.3d 599. In the other case, the Court considered an argument made for the first time on appeal because the factual basis for the argument did not even occur until after the initial appeal was filed. Rivera v. Am. Gen. Fin. Servs., Inc., 2011–NMSC–033, ¶¶ 9, 19–20, 150 N.M. 398, 259 P.3d 803. However, in Estate of Gutierrez, the Court declined to consider an unpreserved argument regarding jury instructions even though there were no uniform jury instructions because established case law provided the necessary guidance. 2012–NMSC–004, ¶ 34, 274 P.3d 97. The circumstances in the present case bear no resemblance to those in Payne and Rivera.

{43} Along similar lines, this Court has noted that “the common element in civil cases that have been reversed for unpreserved error has been the total absence of anything in the record of the case showing a right to relief in the person granted relief.” Gracia v. Bittner, 1995–NMCA–064, ¶ 25, 120 N.M. 191, 900 P.2d 351. In the present case, we cannot say that the record is devoid of evidence supplying a basis for the damages awarded to Fairchild; indeed, Love does not argue that the evidence was insufficient to support the award.

{44} In response to Fairchild's argument that Love failed to preserve the damages issues raised on appeal, Love relies on a statement in Gracia in urging us to consider the arguments made for the first time on appeal. We stated in Gracia that “[w]hen a statute does not grant a right to relief in a particular situation, it is fundamental error to grant relief based on the statute.” Id. ¶ 26. Thus, Love contends, it was fundamental error for the district court to award damages not allowed under the Illinois Act.

{45} We have difficulty with Love's contention. The portions of the transcript Love relies on to demonstrate the district court's alleged error comprise arguments of Fairchild's counsel or the testimony of Fairchild's original attorney. These portions of the transcript are meaningless in the absence of legal argument by Love to the district court to provide context. Love made no attempt below to relate the testimony to the legal argument he makes for the first time on appeal. In addition, the exhibits Love points to in support of his argument show total attorney fees charged and itemized attorney fee statements, but these documents shed no light on which charges may or may not be permitted by the Illinois Act.

{46} As a result, we fail to see a valid basis for exercising our discretion to consider Love's arguments that were not brought to the district court's attention in the first place. As we noted in Gracia, “[w]here there exist theories of recovery that are both within the pleadings and within the evidence, we should not reverse on an issue raised for the first time on appeal after the opportunity has passed to timely correct any error presented by the issue.” 1995–NMCA–064, ¶ 28, 120 N.M. 191, 900 P.2d 351. To reverse in these circumstances “would countenance sandbagging by trial attorneys” and a “waste of resources by both our trial and appellate courts.” Id.

{47} We recognize that Love may have been at a disadvantage during the damages trial because he was not represented by counsel. However, “a pro se litigant, having chosen to represent himself, is held to the same standard of conduct and compliance with court rules, procedures, and orders as are members of the bar.” Woodhull v. Meinel, 2009–NMCA–015, ¶ 30, 145 N.M. 533, 202 P.3d 126. It was incumbent upon Love, as it is upon any attorney, to raise his arguments challenging the claimed damages at a time when the district court had the opportunity to consider them and correct any error. Kilgore v. Fuji Heavy Indus. Ltd., 2009–NMCA–078, ¶ 50, 146 N.M. 698, 213 P.3d 1127 (“The primary purposes for the preservation rule are: (1) to specifically alert the district court to a claim of error so that any mistake can be corrected at that time, (2) to allow the opposing party a fair opportunity to respond to the claim of error and to show why the district court should rule against that claim, and (3) to create a record sufficient to allow this Court to make an informed decision regarding the contested issue.”). Love did not do this, and we do not consider his arguments to rise to the level of extraordinary circumstances triggering our discretion to address them under the doctrine of fundamental error. See Estate of Gutierrez, 2012–NMSC–004, ¶ 33, 274 P.3d 97 (explaining that the doctrine should be applied in civil cases only “under the most extraordinary and limited circumstances”). We therefore affirm the district court's award of damages to Fairchild.

{48} For the foregoing reasons, we reverse summary judgment and the resulting damages award entered in favor of Plaintiffs against Love. We affirm the judgment in favor of Fairchild.

{49} IT IS SO ORDERED.