Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-89-02081/USCOURTS-ca10-89-02081-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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MEDARD 

CORP., 

v. 

HERBERT 

FILED 

Unit.eel States Court of Appeals UNITED STATES COURT OF APPEALS Tenth circuit 

FOR THE TENTH CIRCUIT AUG O 6 1990 

SCHMITZ & HENNES-WESTEX ) 

a Nevada Corporation, ) 

) 

Plaintiffs-counter- ) 

defendants-appellees, ) 

) 

) 

) 

KUGLMEIER, ) 

) 

Defendant-counter- ) 

claimant-appellant. ) 

ORDER AND JUDGMENT* 

ROBERT L. HOECKER 

Clerk 

No. 89-2081 

(D.C. No. 87-1066JB) 

(D. N.M.) 

Before ANDERSON and EBEL, Circuit Judges, and CHRISTENSEN**, 

District Judge. 

This diversity action concerns the relationship between the 

plaintiff-appellee Medard Schmitz, who had a controlling interest 

in plaintiff-appellee Hennes-Westex Corporation and related 

entities1 , and his longtime friend, business associate and 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th cir. R. 36.3. 

** Honorable A. Sherman Christensen, Senior United states 

District Judge for the District of Utah, sitting by designation. 

1 In 1976 Westex Metals, a Nevada corporation organized and 

controlled by Schmitz, entered into an agreement with Buckhorn 

Mines co. to operate the Buckhorn mine and make specified payments 

to it and royalty holders. Schmitz personally made these payments 

and financed the development of the mine; Westex Metals, through 

Schmitz, borrowed some $2,000,000 for this purpose. HennesErecting Co. , of which Schmitz was chairman of the board and 

Appellate Case: 89-2081 Document: 010110039627 Date Filed: 08/06/1990 Page: 1 
... 

beneficiary Herbert Kuglmeier, defendant-counterclaimant-appellant 

herein, culminating in a dispute over a leasehold interest in the 

Buckhorn Mine which Schmitz caused to be conveyed to Kuglmeier with 

a contemporaneous oral agreement for reconveyance to himself in two 

years, which agreement Kuglmeier declined to honor. 

Schmitz sued in the United States District Court for the 

District of New Mexico not only to enforce reconveyance of the 

Buckhorn lease, but to collect various debts incurred and unpaid by 

Kuglmeier during their intimate business associations of the past. 

Following a non-jury trial, the district court made detailed 

findings of fact and conclusions of law, deciding the issues raised 

in the pleadings against Kuglmeier. It entered judgment against 

Kuglmeier for the past indebtedness in the sum of $65,398.93, 

including the value of stock which Kuglmeier had promised Schmitz 

but failed to deliver, together with an additional $40, ooo by 

reason of Kuglmeier's unjustified failure to return an aquamarine 

gemstone Schmitz had entrusted to him. In ordering Kuglmeier to 

reconvey to Schmitz the interest in the Buckhorn mining lease 

covered by their oral agreement, the court entered judgment in 

majority stockholder, formed Hennes-Westex, a wholly-owned 

subsidiary, to which Westex Metals transferred its interest in the 

Buckhorn lease, together with its $2,000,000 liability personally 

guaranteed by Schmitz. Hennes-Westex had only one asset, the 

Buckhorn mining lease, the prime subject of this lawsuit. Prior to 

the trial, Hennes-Westex was dissolved, and the district court 

found that it lacked capacity to sue. No issue has been raised 

concerning any misjoinder or non-joinder of parties, nor is 

Schmitz' authority to enter into the agreement for conveyance and 

reconveyance of the Buckhorn lease questioned in these proceedings 

aside from Kuglmeier's present claim of its illegal purpose. To 

avoid encumbering the opinion with the repetition of needless 

details, we hereinafter treat generally the right to direct 

disposition of the Buckhorn lease to be in Schmitz, in harmony with 

the district court's conclusions. 

Appellate Case: 89-2081 Document: 010110039627 Date Filed: 08/06/1990 Page: 2 
favor of Schmitz for $835,228.00, representing royalties received 

by Kuglmeier to which Schmitz was entitled under the agreement. 

The district court dismissed Kuglmeier's counterclaim. Following 

denial of his motion for a new trial, Kuglmeier brought the case to 

this court by timely appeal. 

I. 

Cutting through unnecessary detail to quickly reach the two 

critical issues of this appeal, it can be simply said that no 

appeal was taken from the district court's ruling on Kuglmeier's 

counterclaims, and neither that ruling nor the abundantly-supported 

judgment for the non-royalty indebtedness and the return of the 

gemstone has been assigned or argued as error on this appeal. With 

respect to the district court's award for undelivered stock, 

appellant argues only that the court erred in ruling that Kuglmeier 

violated the New Mexico Securities Act. The appellant fails to 

address the additional holding that the same conduct violated 

Schmitz' contractual right to delivery of the stock and was 

fraudulent. Findings of Fact ,r,r 49-54 and Conclusions of Law ,r,r 

21, 22, 29 & 30. The record fully supports the findings, 

conclusions and judgment concerning Kuglmeier's breach of contract 

by failing to deliver the stock, rendering consideration of the 

other bases of this award unnecessary. 

We agree with the district court that the defense of the 

statute of frauds was waived by Kuglmeier. This apparently was by 

design, to avoid out of overabundance of precaution {see Fed. R. 

3 

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Civ. P. 8(e) (2)) the concession of his promises to Schmitz in the 

oral agreement. See n.2, infra. Neither that defense nor the 

parol evidence rule also relied upon by Kuglmeier precluded proof 

of the background of, and consideration for, the whole, 

unintegrated agreement giving rise to a resulting trust in favor of 

Schmitz as third-party beneficiary, as determined by the district 

court upon clear and convincing evidence. See National Old Line 

Ins. Co. v. Brown, 107 N.M. 482, 760 P.2d 775, 779-80 (1988); 

Granado v. Granado, 107 N.M. 456, 760 P.2d 148 (1988); Sanchez v. 

Sanchez, 106 N.M. 648, 748 P.2d 21, 23-24 (Ct. App. 1987); Garcia 

v. Marguez, 101 N.M. 427, 684 P.2d 513, 514-15 (1984); Candelaria 

v. Sandoval, 84 N.M. 387, 503 P.2d 1165 (1972); Iriart v. Johnson, 

75 N.M. 745, 411 P.2d 226, 229 (1965); Boardman v. Kendrick, 59 

N.M. 167, 280 P.2d 1053, 1057-58 (1955); Browne v. Sieg, 55 N.M. 

447, 234 P.2d 1045, 1051 (1951); Turner v. New Brunswick Fire Ins. 

Co., 45 N.M. 126, 112 P.2d 511, 514 (1941). See also, Evensen v. 

Pubco Petroleum Corp., 274 F.2d 866, 871 (10th Cir. 1960); Hicks v. 

Simmons, 271 F.2d 875 (10th Cir. 1959). And it is self-evident 

that by reason of Kuglmeier·• s renunciation of the oral agreement, 

under the circumstances, the trial court did not err in imposing a 

resulting trust upon Kuglmeier unless his present contention that 

this was precluded by illegality or collateral estoppel is to 

prevail here. 

Kuglmeier argues that the trial court erred in failing to 

declare the parties' oral agreement illegal and unenforceable and 

failing to find and conclude that collateral estoppal barred 

4 

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relitigation of the issue of ownership by reason of a subsequent 

judgment in a suit to quiet title in Nevada. 

II. 

We review the district court's conclusions of law de novo, but 

its findings of fact are not to be set aside on appeal unless 

clearly erroneous. Fed. R. Civ. P. 52(a). A finding of fact is 

"clearly erroneous" if it is without factual support in the record 

or if the appellate court, after reviewing all the evidence, is 

left with a definite and firm conviction that a mistake has been 

made. Raydon Exploration, Inc. v. Ladd, 902 F.2d 1496 (10th Cir. 

1990); Cowles v. Dow Keith Oil & Gas, Inc., 752 F.2d 508, 511 (10th 

Cir. 1985), cert. denied, 479 U.S. 816 (1986). Having reviewed all 

of the evidence in the record, we entertain no such conviction and 

hold that the district court's determinative findings have factual 

support in the record. 

Despite Kuglmeier's contention that the court failed to 

address his illegality and collateral estoppel defenses, its 

findings, together with certain undisputed evidence to be noticed 

hereafter, in our judgment permit resolution of the remaining 

issues here. 

The findings of the district court trace the relationship 

between Schmitz and Kuglmeier which began in 1972. It reviewed 

numerous transactions between the parties; until 1979 none of them 

was in writing. The relationships among the various corporations 

controlled by Schmitz need not be further detailed except to note 

5 

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that Schmitz personally and through his companies invested all of 

the money to develop the Buckhorn Mine, approximately 2.25 to 2.5 

million dollars. 

Until after 1979 apparently the mining ventures had not met 

with any substantial success. In their beginning Schmitz and one 

James DeLeuw were each 50% owners of Westex Metals Corporation, an 

exploration company. The corporation had invested in the Buckhorn 

Mine, which had been in operation since the early 1900s. Schmitz 

personally and through Westex Metals provided all of the money to 

develop the mine. 

Because of the lack of success in extracting and milling ore 

from the mine and the large sums which had been expended by 

Schmitz, individually and through Westex Metals, Buckhorn Mines Co. 

and Westex Metals entered into a Joint Venture Agreement, dated 

April 1, 1978, with Bar Resources, Inc. to accomplish the 

extracting of the ore from the Buckhorn Mine. Under that 

agreement, the payment of the underlying royalties and other lease 

payments remained the responsibility of Buckhorn Mines Co. and 

Westex Metals. Because of the lack of success in the joint venture 

operation and Bar Resources, Inc. 's subsequent determination that 

the operation was too expensive, the Joint Venture Agreement of 

April 1, 1978 was renegotiated and superseded by a new agreement 

entitled Mining Lease, dated January 15, 1979. In that agreement, 

Hennes-Westex replaced Westex Metals as a party. Under the Mining 

Lease, Hennes-Westex, in assuming the liabilities of Westex Metals, 

assumed an indebtedness of approximately two million dollars which 

6 

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was personally guaranteed by Schmitz. 

The 1979 u. s. corporation Income Tax Return Form 1120 for 

Hennes Erecting and its subsidiaries reflected the values placed on 

the assets acquired by Hennes-Westex as $1,970,455. In 1979, the 

sole asset of Hennes-Westex was the Buckhorn Mine Mining Lease, 

dated January 15, 1979. In 1979, the Board of Directors of Hennes 

Erecting, the sole shareholder of Hennes-Westex, voted to write-off 

all of the assets of Hennes-Westex because of the lack of success 

in the joint venture but elected to retain the lease in the event 

it proved successful in the future. The carrying of the two 

million dollar loss on its books was a detriment to Herines 

Erecting. The 1979 U.S. Corporation Income Tax Return of Hennes 

Erecting and its subsidiaries reported that Hennes-Westex had a 

loss of $2,006,564. The Proof of Worthlessness of Mining Rights 

Form 917 reflected that loss to the extent of $1,970,145. Schmitz 

had confidence in the ultimate success of the mining operation. He 

had devoted much work and expense to the operation. It was his 

hope that in the future there would be a method of recovery. The 

mine had rich ore with a high percentage of gold and silver 

estimated in the range of 600 million dollars. 

In 1981 the IRS audited the books and records of Hennes 

Erecting and questioned the manner in which the Hennes-Westex 

assets had been written off. It was recommended that Hennes 

Erecting divest itself of the asset to a disinterested party. As 

the major stockholder who made all of the major decisions, it was 

determined that Schmitz would select that party, and he selected 

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• 

Defendant Kuglmeier because of Schmitz ' long friendship with 

Kuglmeier and their past business dealing. 

Schmitz and Kuglmeier met at Kuglmeier's home in Albuquerque, 

New Mexico, on August 31, 1981. Schmitz expressed his desire to 

transfer Hennes Erecting' s interest in the mining lease to a 

disinterested third party for two years. Kuglmeier agreed to 

accept the assignment with the understanding that he would reconvey 

the lease to Schmitz, individually, at the end of the two-year 

period. 

The matter was further discussed at Schmitz' residence in New 

Mexico on December 23, 1981. Kuglmeier agreed to purchase the 

lease for one dollar with the understanding that he would reconvey 

it to Schmitz, individually, for one dollar at the end of the twoyear period. Schmitz agreed to assume any resulting liabilities 

and to let Kuglmeier have all royalty payments for two years. 

Thereafter, Schmitz would receive 80% of the royalties and 

Kuglmeier 20%. The transaction was to be accomplished on December 

29, 1981 in Albuquerque, and Schmitz asked William Bradway, 

President of Hennes Erecting, to deliver the necessary 

documentation on that date. 

A meeting was held in Albuquerque on December 29, 1981 at the 

off ices of Mr. Massey, a notary and business acquaintance of 

Schmitz. Massey, Bradway, Schmitz, Schmitz' wife, and Kuglmeier 

were in attendance. Bradway asked if the document was the one 

previously discussed whereby Kuglmeier would hold the property and 

its royalties for a two-year period and then reconvey the property 

8 

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to Schmitz. Schmitz and Kuglmeier responded affirmatively. 

Kuglmeier and Bradway signed the document, Kuglmeier gave Schmitz 

a dollar, and everyone shook hands. Kuglmeier expressed no 

reservation about his obligation to reconvey at the end of two 

years, al though he declined Schmitz' request to join him in putting 

the agreement with respect to royalty in writing. 

In 1984 John Miller, an attorney for the successor in interest 

to Bar Resources, informed Kuglmeier that royalty payments could be 

had when the agreement conveying the mining interest was recorded. 

Kuglmeier and Miller tried to record the agreement but were 

informed that it was not properly executed. At Kuglmeier' s 

request, Hennes Erecting's attorney sent Kuglmeier a copy of the 

1981 agreement with instructions for having it re-executed, 

notarized and acknowledged. Schmitz asked Massey, who had acted as 

notary for the 1981 agreement, to notarize some additional 

documents. Schmitz and Massey drove to Kuglmeier' s house on August 

8, 1984. Kuglmeier said he wanted Massey to notarize a new 

agreement which would clarify some legal problems, and this was 

done and the document presumably recorded. 

In January 1985, on the way to a meeting of the Board of 

Directors of Hennes Erecting, Schmitz stopped at Kuglmeier's home 

in Tucson, Arizona, to discuss the reconveyance of the mining 

lease. Kuglmeier said he did not feel he had to return the 

property because Schmitz had not bothered to invest in Kuglmeier's 

other mining ventures. The district court determined that 

Kuglmeier had agreed to reconvey the mining lease to Schmitz after 

9 

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the expiration of a two-year period; that Kuglmeier was to receive 

all royalties for the two-year period; that following the 

reconveyance to Schmitz, all royalties would thereafter be divided 

with 80% to Schmitz and 20% to Kuglmeier; and that Kuglmeier failed 

and refused to perform as he had agreed because of his 

dissatisfaction in 1984 with his 1979 agreement with Schmitz to 

settle unrelated past debts. The district court further found 

generally that plaintiffs had performed all duties and obligations 

on their part and that Kuglmeier had failed to perform his 

obligations under the agreement. It was also found generally that 

the plaintiffs and their witnesses were credible but that the 

defendant was not. 

The court held that the defendant had waived a statute of 

frauds defense by failing to plead it and that allowing -amendment 

would be unduly prejudicial to the plaintiff. In any event, it 

added, the parties' oral agreement to reconvey was outside the 

statute of frauds because it was partly performed and evidence of 

the oral agreement was not barred by the parol evidence rule. It 

concluded that Hennes-Westex lacked the capacity to sue but that 

Schmitz was the third-party beneficiary of its agreement and that 

Kuglmeier was the constructive and resulting trustee of the mining 

lease conveyed by Hennes-Westex for the benefit of Schmitz. It 

would be inequitable, the court determined, to permit Kuglmeier to 

have the benefit of the conveyance without complying with his 

obligation to reconvey. 

opinion that Kuglmeier's 

The district court was further of the 

assertion to Schmitz that he would 

10 

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reconvey the mining lease after a two-year period constituted 

fraud. Equity, the court held, demanded that Kuglmeier reconvey 

the mining lease to Schmitz for one dollar. 

The court further concluded that Schmitz and Hennes-Westex 

relied on Kuglmeier' s representations to their detriment, that 

Kuglmeier failed to reconvey the mining lease and wrongfully and 

fraudulently retained all of the royalty payments made under the 

lease following the two-year period, and that Kuglmeier's refusal 

to reconvey the lease and to pay Schmitz 80% of the royalty income 

after December 29, 1983, constituted a breach of contract and a 

breach of his fiduciary duty. As of April 22, 1988, Kuglmeier had 

received a total of $1,044,110 in royalty payments under the mining 

lease. It was determined by the court that Kuglmeier owed Schmitz 

$835,288 in royalties through April 22, 1988, and 80% of any and 

all royalties received subsequent to that date. 

In view of Kuglmeier' s ambivalence, even attempted obscuration 

of the facts concerning the oral contract to reconvey, and his 

failure to plead a defense of illegality, it is small wonder that 

the trial court did not expressly address that issue. Not only was 

there a failure of pleading, but Kuglmeier falsely denied 

throughout the trial that he remembered any such agreement. The 

manipulative nature of his studied position in avoiding the 

involvement of any question of illegality clearly appears from his 

motion for new trial. There for the first time Kuglmeier suggested 

the possibility of illegality--and only obliquely as indicated in 

11 

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' 

the margin. 2 Theretofore his counsel in a 75-page proposal for 

findings of fact and conclusions of law following the trial had 

refrained from requesting any findings as a basis of that defense 

beyond the facts recited in the findings of the district court, nor 

did he propose any conclusion of law in form or substance to the 

effect that the oral contract was void for illegality. 

We believe that if the defense of illegality could be waived 

in any case, it was waived by Kuglmeier. Looking beyond this for 

reassurance that the circumstances were not such as to commend 

disregard of the waiver under the rational of Oscanyan v. Arms Co. , 

103 U.S. 261, 266-67 (1880), decided prior to the adoption of Fed. 

R. Civ. P. 8(c) concerning the necessity of pleading, we find no 

good reason to do so. 

The difficulty with Kuglmeier's -position involves both 

2 In his Motion for New Trial, the district court's denial of 

which has not been assigned as error, Kuglmeier attempted to 

explain his failure to plead the statute of frauds and to cut 

himself loose from the agreement whose existence he denied: 

"Since the Defendant's position in all of the pleadings, 

including the pre-trial Order to the extent that it may have 

amended the pleadings, was that there was no oral contract between 

the Defendant and the Plaintiff relating to the reconveyance of a 

real estate interest; an affirmative defense of Statute of Frauds 

would be an inconsistent plea tacitly admitting the existence of 

the denied oral contract." R. Tab 36 at 2. 

In an affidavit attached to his Motion for New Trial, 

Kuglmeier asserted that "[i]f in fact the court believes Schmitz 

and his witnesses that Schmitz could acquire the asset two years 

subsequent, the Internal Revenue Service would look upon the sale 

as being in fact between related parties and a sham to create loss 

for tax purposes. Therefore, Schmitz has committed fraud and his 

witnesses have testified to that fraud. Your affiant responded to 

an Internal Revenue Service written inquiry of July 9, 1984, 

stating the circumstances of his acquisition as he has testified of 

no hidden interest nor buy-back agreements." 

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pleading and proof. While the undisputed evidence discloses that 

the contract between Kuglmeier and Schmitz was designed to satisfy 

a question raised by the examiner concerning the write-off of the 

mining lease, there is no proof that the write-off itself was 

improper. The property had been unproductive despite large 

commitments of funds and Schmitz' faith in ultimate success. A 

previous joint venture had been abandonned and efforts concerning 

it had failed because of clay problems and the absence of known 

means for profitably extracting ore. Neither Kuglmeier nor Schmitz 

apparently took any further interest in the property until 1984 

when the opportunity for profits unexpectedly developed. Kuglmeier 

presented no evidence of the subsequent ruling of any official of 

the IRS, or concerning the current tax situation of the 

participants. No evidence was presented that any departure from 

the examiner's suggestion prevented appropriate evaluation of the 

nature of the relationship between Schmitz and Kuglmeier or that 

the government failed to collect whatever taxes may have been 

justly due. It was only when new processes had been developed and 

it appeared that substantial royalty could be had, and after the 

title assigned to him had been clarified of record for this 

purpose, that Kuglmeier developed a remarkable loss of memory 

concerning his obligation under the collateral agreement by means 

of which he had acquired title. 

It appears that Kuglmeier's fear of having the court recognize 

such agreement led to his failure to present requisite evidence of 

the presently-claimed illegality of the transaction if it existed. 

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In this some might see a sort of poetic justice. More to the point 

here, it appears to us that Kuglmeier's proof fails to measure up 

to the burden of one claiming illegality of a contract in light of 

New Mexico law. 3 

This is not a case such as Oscanyan v. Arms Co., supra, or 

other decisions relied upon by appellant where recovery was 

unsuccessfully sought for services performed in violation of law, 

the enforcement of an illegal insurance contract refused, or the 

refund of unlawfully evaded taxes rejected, the respective courts 

declining to aid illegal or unconscionable schemes. On the 

contrary, recognition and enforcement on the record of the oral 

agreement in question here tended to encourage full tax 

3 A federal court sitting in diversity must apply the choice 

of law rules of tpe state in which it sits. See Van Dusen v. 

Barrack, 376 U.S. 612, 639 (1964); Mitchell v. State Farm Fire & 

Casualty Co., 902 F.2d 790 (10th Cir. 1990). This action was 

brought in the United States District Court for the District of New 

Mexico. 

Absent an effective choice of law by the parties to a 

contract, New Mexico courts traditionally look to the lex loci 

contractus or "law of the · place of contracting." See Nez v. 

Forney, 109 N.M. 161, 783 P.2d 471, 473 (1989); Eichel v. Goode, 

Inc., 101 N.M. 246, 680 P.2d 627, 631 - (Ct. App. 1984) and cases 

cited therein. The New Mexico Supreme Court recently declined to 

reaffirm the lex loci contractus rule "categorically" or to adopt 

or reject for all cases the more recent "significant relationship" 

tests of the Restatement (Second). State Farm Mut. Ins. Co. v. 

Conyers, 109 N.M. 243, 784 P.2d 986, 990 (1989). 

The last signature on the parties' written agreement was 

placed there by Kuglmeier at his home in Albuquerque, New Mexico. 

The parties' oral agreement allegedly was made at the same time and 

place. Although the mine was located in Nevada and the parties 

later resided in Arizona, New Mexico seems to have the most 

significant relationship to the parties' transactions regarding the 

Mining Lease. Thus, New Mexico law should govern under either 

test. 

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accountability had the write-off been improper in the first 

instance, an accountability Kuglmeier's position throughout the 

trial in the promotion of his unjust enrichment would have 

frustrated if it had been confirmed. 

"New Mexico has a strong public policy of freedom to contract 

that requires enforcement of contracts unless they clearly 

contravene some law or rule of public morals." United Wholesale 

Liquor co. v. Brown-Forman Distillers Corp., 108 N.M. 467, 775 P.2d 

233, 237 (1989). The policy is so strong as to have led to the 

rejection of an application of foreign law that otherwise would 

have been applicable, the burden being upon the defendant to prove 

the defense of illegality. Id. 

In this diversity case, our task beyond procedural issues 

would be to interpret and apply the law as we believe the state 

supreme court would do if an analogous situation were presented to 

it. High Plains Natural Gas v. Warren Petroleum Co., 875 F.2d 284, 

288 (10th Cir. 1989); Rawson v. Sears, Roebuck & Co., 822 F.2d 908, 

910 ( 10th Cir. 1987) , cert. denied, 484 u. s. 1006 ( 1988) . our 

attention has been directed to no New Mexico decision, nor can we 

find one specifically in point, but under the distinctive 

circumstances of this case we believe the New Mexico Supreme Court 

would find that one in the position of Kuglmeier had not met his 

burden of proving the oral agreement was unenforceable for 

illegality. 

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III. 

Finally, Kuglmeier contends the doctrine of collateral 

estoppel bars relitigation of the issue of ownership as between 

Schmitz and Kuglmeier by reason of a judgment of a Nevada court in 

a quiet title action. Schmitz argues that this also was an 

affirmative defense which Kuglmeier waived by failing to plead it 

and that its essential elements were not established by the 

evidence. 

"Collateral estoppel, or, in modern phraseology, issue 

preclusion, refers to the principle that 'a litigant in one lawsuit 

may not, in a later lawsuit, assert the contrary of issues actually 

decided in and necessary to the judgment of the first suit.'" 

Bulloch v. Pearson, 768 F.2d 1191, 1192 (10th Cir. 1985), cert. 

denied, 474 U.S. 1086 (1986). Collateral estoppel is an 

affirmative defense which must be raised as such on the trial level 

and cannot be raised for the first time on appeal. Schramm v. 

Oakes, 352 F.2d 143, 150 (10th Cir. 1965), quoted in Travelers 

Indem. Co. v. United States ex rel. Construction Specialties Co., 

382 F.2d 103, 106 (10th Cir. 1967). 

Kuglmeier's answer was silent concerning collateral estoppel. 

The only mention of the suit to quiet title is in section (g) of 

the pretrial order devoted to the contentions of the parties: 

"Defendant further contends that in 1984 the dissolved corporation 

[Hennes-WestexJ, immediately preceding its dissolution ... filed 

and completed a quiet title action in which Hennes-Westex as one of 

the quiet title plaintiffs, quieted the title naming this Defendant 

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as the owner of the so-called royalty." R. Vol. I, Tab 22 at 7-8 . 

In the enumeration of nine "issues of fact" in the pretrial order 

and ten "issues of law, " there is no reference whatsoever to 

collateral estoppel, issue preclusicin or similar concepts. 

Following the trial, Kuglmeier submitted to the district 

court, as before mentioned, extensive proposed findings and 

conclusions which contained no reference to the defense of 

collateral estoppel, citing the suit to quiet title only in support 

of his argument of ratification. 4 See Defendant's Exhibit H, R. 

Vol. I Tab 28 & 64; see also R. Vol. I, Tab 22 at 9 for a briefer 

mention of the suit in support of the argument that the record was 

"inconsistent" with Schmitz' claim of an oral agreement for 

reconveyance. 

Apparently the suit was brought upon the motion of a company 

acquiring an interest in the mine to clear up questions concerning 

legal title following re-execution of the assignment to Kuglmeier 

so it could be recorded. Hennes-Westex was joined as a party 

plaintiff, but neither Schmitz nor Kuglmeier was named as a party, 

although the latter's record interest was identified in the 

judgment. A copy of that judgment was received in evidence without 

objection. The record contains no explanation of the circumstances 

beyond those disclosed on the face of the document itself, which 

4 In his opening statement, Kuglmeier's counsel stated, "And 

I'd like to comment also that the evidence will show that in 1984, 

more than two years after this, this agreement [the transfer of the 

lease interest to Kuglmeier] was ratified by several acts. One of 

them, the -- the Hennes Westex was a party to a quiet title suit to 

the real property." Tr. Vol. I at 15. 

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stated: 

1. That the Plaintiffs [including Hennes-Westex Corporation] 

are the sole owners of the various parcels of the subject 

properties ... as set forth below. 

Parcel 1: BUCKHORN MINES co. and Herbert Kuglmeier, subject to 

the leasehold interests . . . of BAR RESOURCES I INC. ; EXPLORAM 

MINERALS LTD.; and COMINCO AMERICAN INCORPORATED. 

2. That the Defendants, both named and unnamed, and their 

unknown heirs and successors, or any one claiming under them, 

have no right, title or interest in and to the subject 

properties, and thus are restrained and enjoined from any 

claim thereto or enjoyment thereof. 

(Addendum to Appellees' Brief, Tab 6). 

It is argued that since the pleadings pursuant to Fed. R. Civ. 

P. 15(b) could be deemed amended to conform to the proof, citing 

American Furniture Co. v. International Accommodations Supply, 721 

F.2d 478, 482 (5th Cir. 1981), the issue of collateral estoppel was 

sufficiently raised. American Furniture is distinguishable for 

several reasons, including the insufficiency here of the evidence 

itself under Nevada law. 5 

Under Nevada law, "[t]he party invoking collateral estoppel 

must show first that the issue was actually litigated in the first 

proceeding and necessarily determined, and second, that the parties 

5 Although the problem largely can be resolved on general 

principles, we are faced technically with another choice of law. 

Because the prior judgment was entered in Nevada, the law of Nevada 

governs the issue of collateral estoppel. Amoco Prod. Co. v. 

Heimann, --F.2d--, Nos. 88-2070, 88-2072, 88-2055 & 88-2355, slip 

op. at 24 (10th Cir. May 24, 1990); Braselton v. Clearfield State 

Bank, 606 F.2d 285, 287 (10th Cir. 1979). 

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in the second proceeding are the same or in privity with those in 

the first proceeding." Marine Midland Bank v. Monroe, 756 P. 2d 

1193, 1194 (Nev. 1988). For collateral estoppel to apply, each of 

three questions must be answered affirmatively: 

Was the issue decided in the prior adjudication identical with 

the one presented in the action in . question? Was there a 

final judgment on the merits? Was the party against whom the 

plea is asserted a party or in privity with a party to the 

prior adjudication? .. City of Reno v. Nevada First Thrift, 100 Nev. 483, 686 P.2d 231, 

234 (1984), quoting Paradise Palms Community Ass'n v. Paradise 

Homes, 89 Nev. 27, 505 P.2d 596, cert. denied, 414 U.S. 865 (1973). 

To invoke collateral estoppel, the defendant must, at the least, 

show that an issue involved in the present action was finally and 

conclusively resolved in his favor. Fernhoff v. Tahoe Regional 

Planning Agency. 803 F.2d 979, 986 (9th Cir. 1986) (applying Nevada 

law). 

Once again, Kuglmeier failed to meet his burden of proving all 

the elements of this defense, granting that there was privity 

between one of the plaintiffs, Hennes-Westex, and Schmitz, a nonparty. Kuglmeier did not show by pleadings, findings, or otherwise 

that the issue of his obligation to reconvey under the oral 

agreement and the resulting trust, as distinguished from the legal 

title then upheld, was expressly or by necessary implication 

decided in his favor. Moreover, his obligation to reconvey to 

Schmitz as a third-party beneficiary continued unaltered from the 

situation existing when the agreement was first made in 1981 and 

re-executed in 1984, no laches having been claimed or recognized 

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.. 

and the district court having held in effect that the obligation to 

reconvey was a continuing one to the time of its judgment. 

CONCLUSION 

If the issues of illegality and collateral estoppal were 

sufficiently before the court to warrant any notice of them, it may 

be presumed that the district court made findings consistent with 

its other findings, conclusions and the judgment recognizing and 

enforcing the oral agreement in question and ordering its specific 

performance. See Holly sugar Corp. v. Goshen County Coop. Beet 

Growers Ass'n, 725 F.2d 564, 570 (10th Cir. 1984); Burkhard v. 

Burkhard, 175 F.2d 593, 596 (10th Cir. 1948). 

The district court did not err in failing to find that 

evidence of the parties' oral agreement was barred by the statute 

of frauds or the parol evidence rule, that the oral agreement was 

illegal, or that collateral estoppel precluded specific 

performance. In all other respects the district court's findings 

of fact, conclusions of law and judgment also are supported by the 

evidence and are not clearly erroneous. 

AFFIRMED. 

20 

Entered for the Court 

A. Sherman Christensen 

District Judge 

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