Court Opinion

ID: 4195796
Source: CourtListenerOpinion
Date Created: 2017-08-15 13:08:35.176919+00
Date Added: 2024-06-11T13:25:16.160015
License: Public Domain

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 1        IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

 2 JEFFERSON-PILOT INVESTMENTS, INC.,

 3          Plaintiff-Appellee,

 4 v.                                                                            No. 34,933

 5 COTTONWOOD PHASE V, LLC,

 6          Defendant-Appellant,

 7 and

 8 COTTONWOOD PHASE V, LLC,

 9          Third-Party Plaintiff,

10 v.

11 THE LINCOLN NATIONAL LIFE
12 INSURANCE COMPANY,

13          Third-Party Defendant.

14 APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
15 Clay Campbell, District Judge

16 Modrall, Sperling, Roehl, Harris & Sisk, P.A.
17 Emil J. Kiehne
18 Albuquerque, NM

19 Quarles & Brady, LLP
20 Faye B. Feinstein
 1 Chicago, IL

 2 for Appellee

 3   Hatch Law Firm, LLC
 4   Stanley N. Hatch
 5   Jesse C. Hatch
 6   Brook Gotberg
 7   Albuquerque, NM

 8 for Appellant

 9                             MEMORANDUM OPINION

10 ZAMORA, Judge.

11   {1}   Cottonwood Phase V, LLC (CPV) appeals from the district court’s decision to

12 distribute certain funds to Jefferson-Pilot Investments, Inc. (JPI), and from the denial

13 of CPV’s motion for reconsideration of the decision. The funds distributed to JPI were

14 generated in a bankruptcy proceeding involving Circuit City. We affirm the decision

15 of the district court.

16 I.      BACKGROUND

17   {2}   In 2004 CPV leased land (the Property) to Circuit City. Circuit City built a

18 34,000-square-foot store on the Property. Pursuant to the lease, CPV had a two-year

19 option to purchase building improvements made by Circuit City and to re-lease the

20 building to Circuit City. If CPV did not exercise the option, Circuit City had the right

21 to purchase the Property as well as the infrastructure, building, and improvements on

                                              2
 1 the Property. In 2006 CPV exercised its option under the lease to purchase the

 2 building improvements constructed by Circuit City on the Property and to re-lease the

 3 Property and building to Circuit City.

 4   {3}   In order to purchase the building and improvements made by Circuit City, CPV

 5 obtained a $3,500,000 loan from Lincoln Jefferson-Pilot Life Insurance Company,

 6 predecessor-in-interest to JPI.1 CPV executed a Promissory Note (Note) and a

 7 Mortgage, Security Agreement and Fixture Filing (Mortgage). CPV also executed an

 8 Absolute Assignment of Rents and Profits and Collateral Assignment of Leases

 9 (Assignment). The Note, Mortgage, and Assignment together are referred to by the

10 parties as the Loan Documents.

11   {4}   CPV used the loan from JPI to pay close to $2,600,000 for the building

12 improvements plus commissions and costs for the transaction, leaving a balance of

13 approximately $600,000 in reserve to make monthly payments on the loan in the event

14 that Circuit City stopped paying rent. CPV knew, at the time the loan was negotiated,

15 that a reserve might be needed to make payments on the loan based on Circuit City’s

16 credit, references, and financial situation. Circuit City filed for bankruptcy in

17 November 2008, vacated the Property and building in March 2009, and rejected the

          1
18          Jefferson-Pilot Life Insurance Company merged with The Lincoln National
19 Life Insurance Company (Lincoln) after the loan was closed, and Lincoln assigned the
20 loan to JPI on May 25, 2010.

                                             3
 1 lease. CPV continued to make monthly payments on the loan, using monies from its

 2 reserve fund until April 2010 when CPV defaulted on the loan. At the time of default,

 3 CPV had close to $400,000 in its reserve fund, which could have been used to pay

 4 monthly payments on the loan, but was instead distributed to it members.

 5   {5}   CPV filed a proof of claim in Circuit City’s bankruptcy case, claiming lease-

 6 rejection damages described as unpaid pre-petition rents, rents owed for the remainder

 7 of the lease, and taxes. In the bankruptcy case involving Circuit City, a settlement was

 8 reached that resulted in an award to CPV of approximately $1,350,000, for breach of

 9 the lease. JPI sent a written demand to the Liquidating Trustee appointed in the

10 bankruptcy case claiming that it should be substituted as the claim holder for the

11 Circuit City funds. A receiver appointed by the district court took custody of the

12 Circuit City funds, and the funds were eventually placed into the court registry. CPV

13 and JPI filed motions with the district court asking that the funds be distributed to

14 them.

15   {6}   On June 3, 2010, after CPV’s default on the loan, JPI notified CPV that it was

16 accelerating the loan. On July 16, 2010, JPI filed a complaint for debt and foreclosure

17 in the district court. CPV filed its own bankruptcy petition, but the case was dismissed

18 in May 2012 after the bankruptcy court’s consideration of CPV’s motion to dismiss

19 and JPI’s motion to convert.

                                              4
 1   {7}   Once back in district court, the parties entered into a settlement agreement. A

 2 stipulated judgment, order of sale, appointment of a special master, and decree of

 3 foreclosure (Stipulated Judgment) was entered against CPV and in favor of JPI for

 4 $6,037,000.24, with interest to continue until satisfaction of the judgment. The lien

 5 created by the Mortgage was foreclosed, the Property that secured the Mortgage was

 6 to be sold, and the proceeds applied to the amount of the stipulated judgment. The

 7 Property included the real property, improvements, personal property, and collateral.

 8 “Collateral” is described as including, “without limitation (a) all revenues, income,

 9 rents, cash or security deposits, advance rental deposits, and other benefits thereof or

10 arising from the use or enjoyment of all or any portion of the real property subject to

11 the Mortgage.” The district court found, “[e]ach of the Mortgage and the Assignment

12 secures all obligations owed by CPV under the Note.”

13   {8}   The Stipulated Judgment provided that, in the event that CPV failed to timely

14 pay $4,500,000 to JPI on or before April 30, 2014, JPI would be authorized to proceed

15 with the foreclosure sale. If, however, CPV timely paid the amount owed, the

16 foreclosure would not occur, and JPI would release the Circuit City funds. The

17 Stipulated Judgment also contained an agreement that if CPV did not pay the

18 settlement amount, the court would schedule a hearing on the parties’ respective

19 claims to the Circuit City funds. CPV did not timely pay the amount owed under the

                                              5
 1 settlement agreement and Stipulated Judgment, and the Property was sold. JPI bid

 2 $4,500,000 for the Property, leaving a balance on the Judgment of $1,881,659.95.

 3 Subsequently the parties filed competing motions claiming entitlement to the Circuit

 4 City funds. CPV filed a request for evidentiary hearing on the issue of how the Circuit

 5 City funds should be distributed. The district court did not hold an evidentiary hearing

 6 on that issue. Instead, the district court issued a memorandum opinion based on “the

 7 plain language of the Loan Documents,” granting the Circuit City funds to JPI. CPV

 8 filed a motion for reconsideration, which was denied.

 9 II.      DISCUSSION

10 Assignment—Distribution of Circuit City Funds

11   {9}    CPV claims that it was error for the district court: (1) to award the Circuit City

12 funds to JPI, and (2) to make a decision in this case without holding an evidentiary

13 hearing. JPI disputes those claims and counters that it is entitled to the Circuit City

14 funds.

15   {10}   According to CPV, the district court’s memorandum opinion explicitly limited

16 its ruling to its analysis of the Assignment. CPV claims that JPI’s reference to the

17 Mortgage and Note falls outside the scope of this appeal because the Loan Documents

18 were collapsed into the Stipulated Judgment. The district court cites and refers to all

19 three documents in its memorandum opinion, although it relies mainly on the

                                                6
 1 Assignment. The district court explained that the entire lawsuit concerned CPV’s

 2 default under the Note and Mortgage, the Note and Mortgage were collapsed into the

 3 Stipulated Judgment and resulted in a dollar figure representing every obligation

 4 under the Note and Mortgage, and the Stipulated Judgment extinguished all of CPV’s

 5 liabilities, with the exception of the disputed Circuit City funds. As a result, the

 6 distribution of the Circuit City funds remained a viable issue.

 7   {11}   The district court found the Assignment to be unambiguous. In making a

 8 preliminary determination on the question of ambiguity, a court may consider

 9 extrinsic evidence. See Mark V, Inc. v. Mellekas, 1993-NMSC-001, ¶ 12, 114 N.M.
10 778, 845 P.2d 1232. The court may consider collateral evidence of the circumstances

11 surrounding the making of the agreement “and of any relevant usage of trade, course

12 of dealing, and course of performance” in order to determine whether the agreement

13 language is clear. C.R. Anthony Co. v. Loretto Mall Partners, 1991-NMSC-070, ¶ 15,

14 112 N.M. 504, 817 P.2d 238. There is ambiguity in an agreement when “the parties’

15 expressions of mutual assent” lack clarity. Id. ¶ 15 n.2. On the other hand, if the court

16 determines that the evidence is “so clear that no reasonable person [would hold] in any

17 way but one[,]” the court may decide that the agreement is unambiguous as a matter

18 of law. Id. ¶ 17.

                                               7
 1   {12}   The Assignment, under the heading “Absolute Assignment of Rents and

 2 Profits,” provides that JPI was entitled to:

 3          [a]ll of the rents, income, profits, revenue, sums payable by lease
 4          guarantors, judgments . . . and any other fees or sums payable to
 5          Assignor or any other person as landlord and other benefits and rights of
 6          the Property arising from the use, occupancy, operation or management
 7          of all or any portion thereof or from all the Leases and any proceeds,
 8          deposits or security deposits . . . relating thereto, including, without
 9          limitation, any award to Assignor made hereafter in any court involving
10          any of the tenants under the Leases in any bankruptcy, insolvency, or
11          reorganization proceeding in any state or federal court, and Assignor’s
12          right to appear in any action [and] to collect any such award or payment,
13          and all payments by any tenant in lieu of rent (collectively, “Rents and
14          Profits”).

15 (Emphases added.) The district court concluded that the Circuit City funds were

16 included in “any benefit, proceeds, award, [and] judgment involving a tenant in a

17 bankruptcy proceeding.” The district court determined that the funds were awarded

18 in the bankruptcy court case that involved Circuit City as the tenant under the lease

19 with CPV, and the funds “fit within the definition of ‘Rents or Profits.’ ” The district

20 court also concluded that there was no support for the idea that Circuit City’s lease

21 rejection “transmuted” CPV’s proceeds from the lease-rejection claim to such an

22 extent that CPV’s obligations under the Loan Documents were voided. We agree.

23   {13}   CPV argues that the Circuit City funds are lease-rejection damages and cannot

24 be considered rents and profits, as argued by JPI, because they did not arise from “the

25 use, occupancy, operation or management of” all or any portion of the lease. However,

                                               8
 1 the “lease-rejection damages” were described in CPV’s proof of claim as past rent and

 2 future rent owed under the lease with Circuit City. Furthermore, in addition to all

 3 rents, income, profits, revenue, and sums payable by lease guarantors, the Assignment

 4 specifically includes “any other fees or sums payable to Assignor” and “other benefits

 5 and rights” arising from “the use, occupancy, operation or management of” the

 6 Property “or from all the Leases” as well as any proceeds “relating thereto [to the

 7 Leases], including, without limitation, any award to Assignor made hereafter in any

 8 court involving any of the tenants under the Leases in any bankruptcy.”

 9   {14}   Even if we agree that the Circuit City funds would not fall within a commonly

10 accepted definition for rent or profit, the funds qualify as monies that CPV assigned

11 rights to because they fit within the language of the paragraph labeled “Absolute

12 Assignment of Rents and Profits.” The Assignment specifically covers rents and

13 profits, but also covers other fees and sums payable to CPV and any proceeds and

14 bankruptcy awards related to the leases. Thus, the clear language of the Assignment

15 covers the Circuit City funds, regardless of how they are categorized.

16   {15}   CPV makes a number of other arguments. CPV claims that the Circuit City

17 funds do not qualify as arising from “the use, occupancy, operation or management

18 of” all or any portion of the Property. At the time the funds were awarded by the

19 bankruptcy court, CPV was the sole entity operating or managing the Property. The

                                              9
 1 funds were derived from CPV’s operation or management of the Property and no other

 2 source. The Circuit City funds were awarded in its bankruptcy proceeding as a result

 3 of Circuit City’s actions with respect to the lease agreement between Circuit City and

 4 CPV. We conclude that the only reasonable interpretation of the language is that fees

 5 or sums that were awarded to CPV in the bankruptcy proceeding fit within the terms

 6 of the Assignment, and were properly awarded to JPI.

 7   {16}   CPV also argues that JPI was required to file a proof of claim in the Circuit City

 8 bankruptcy case in order to recover from the Circuit City estate. CPV states that

 9 recovery by JPI is barred because of the failure to file such a proof of claim. Circuit

10 City was not a party to the Assignment and there was no privity between Circuit City

11 and JPI. JPI’s claim was against CPV, not Circuit City, and JPI had no claim to assert

12 against Circuit City, the bankruptcy debtor. CPV cites no authority in support of its

13 argument that a non-party to a bankruptcy must file a proof of claim in order to assert

14 its rights to certain funds, simply because those funds were generated by the

15 bankruptcy. We therefore do not consider this argument any further. See ITT Educ.

16 Servs., Inc. v. N.M. Taxation & Revenue Dep’t, 1998-NMCA-078, ¶ 10, 125 N.M.
17 244, 959 P.2d 969 (stating that this Court will not consider propositions that are

18 unsupported by citation to authority).

                                                10
 1   {17}   CPV further argues, in very general terms, that if an evidentiary hearing had

 2 been held, it would have presented evidence to show the parties’ intentions,

 3 understandings, and interpretations of the Assignment language.

 4   {18}   In its reply brief, CPV states that it would have presented testimony and

 5 evidence that the Circuit City funds were not rents or profits, but were lease-rejection

 6 damages. As we have explained, whether the funds are considered rents and profits

 7 or lease-rejection damages, they fall within the Assignment language. CPV claims that

 8 it would have presented evidence that the parties understood that the Property would

 9 be “the only source of recourse for the loan.” CPV does not provide a citation to the

10 record, but it appears that CPV, in making this argument, is referring to the portion of

11 the Note titled, “Limitation on Recourse.” As argued by CPV, the Note and Mortgage

12 were collapsed into the Stipulated Judgment, and it is the Assignment that governs the

13 issues in this case.

14   {19}   The pertinent issue before us is whether the district court erred in finding the

15 Assignment to be unambiguous. CPV makes very general arguments that it was

16 prepared to present evidence that the lease with Circuit City had ended when the

17 bankruptcy court awarded lease-rejection damages, the contract language could only

18 have applied to a then-existing lease, and that the parties had agreed that any recourse

19 for payment of the Note was limited to property rights. However, CPV does not

                                               11
 1 provide this Court with specifics about evidence that it might have presented to show

 2 that an ambiguity existed in the Assignment. CPV does not explain how any evidence

 3 it wished to present would alter the plain meaning of the Assignment language.

 4 Consequently, CPV provided insufficient justification to the district court for holding

 5 an evidentiary hearing in this case.

 6 Request for Attorney Fees, Costs, and Damages

 7   {20}   JPI requests attorney fees, pursuant to Rule 12-403(B)(3) NMRA (1993,

 8 amended 2016). Rule 12-403(B)(3) allows for “reasonable attorney fees for services

 9 rendered on appeal in causes where the award of attorney fees is permitted by law.”

10 Generally, each party to a lawsuit pays its own attorney fees unless fees are authorized

11 by statute or agreement. See, e.g., Golden Cone Concepts, Inc. v. Villa Linda Mall,

12 Ltd., 1991-NMSC-097, ¶ 21, 113 N.M. 9, 820 P.2d 1323. JPI argues that the

13 Assignment provides that Assignee will be indemnified for and held harmless from

14 any and all costs and expenses, including reasonable attorney fees.

15          Assignor shall and does hereby agree to indemnify Assignee for and to
16          defend and hold Assignee harmless from any and all obligations,
17          liabilities, losses, costs, expenses, . . . or damages (including reasonable
18          attorneys[ ] fees) which Assignee may incur under the Leases, . . . or
19          under or by reason of this Assignment[.]

20   {21}   CPV claims that the provision in the Assignment is designed to indemnify JPI

21 for claims brought by or against third parties, such as lessees. However, Black’s Law

                                                12
 1 Dictionary defines “indemnify” as, “[t]o reimburse . . . for a loss suffered because of

 2 a third party’s or one’s own act or default; hold harmless.” Black’s Law Dictionary

 3 886 (10th ed. 2014) (emphasis added). The language of the Assignment “under or by

 4 reason of this Assignment” indicates that JPI is to be reimbursed for attorney fees

 5 expended in enforcing the Assignment against CPV. As a result, JPI’s request for

 6 attorney fees is granted. On remand, the district court shall determine the attorney fees

 7 amount to be awarded to JPI for this appeal.

 8   {22}   JPI requests costs, pursuant to Rule 12-403(A). Rule 12-403(A) provides that

 9 “[i]n all proceedings in the appellate court the party prevailing shall recover the

10 party’s costs unless otherwise provided by law, by these rules, or unless the court shall

11 otherwise determine.” As the prevailing party, JPI is entitled to costs incurred in

12 responding to CPV’s appeal. On remand, the district court shall determine the costs

13 to be awarded to JPI for this appeal.

14   {23}   JPI also requests that this Court award damages under Rule 12-403(B)(4). JPI

15 argues that, by filing this appeal, CPV wants to “correct a strategic decision that it

16 now regrets.” In particular, JPI claims that CPV could have offered evidence to the

17 district court both before and after the hearing in which the court stated that it may

18 decide the case as a matter of law. JPI also argues that, given the clear and

19 unambiguous language of the Assignment, CPV’s arguments with respect to

                                              13
 1 interpretation of the language are frivolous. Rule 12-403(B)(4) allows for the award

 2 of damages under NMSA 1978, Section 39-3-27 (1966), if this Court determines that

 3 CPV’s appeal is “frivolous, not in good faith, or merely for purposes of delay.” JPI

 4 has not shown CPV’s appeal was frivolous, not in good faith, or merely for purposes

 5 of delay; therefore its request for damages is denied. CPV’s appellate arguments

 6 required our consideration, but even though we were not persuaded, it does not reduce

 7 its appeal to frivolous, not in good faith, or merely for purposes of delay. See Genuine

 8 Parts Co. v. Garcia, 1978-NMSC-059, ¶ 30, 92 N.M. 57, 582 P.2d 1270 (“[A] court

 9 should be reluctant to penalize litigants who take advantage of their right to appeal.”);

10 Durrett v. Petritsis, 1970-NMSC-119, ¶ 15, 82 N.M. 1, 474 P.2d 487 (holding that

11 “[a]lthough we have found the appeal to lack merit, it does not follow that it was not

12 in good faith” (internal quotation marks and citation omitted)); Clark v. Sims, 2009-

13 NMCA-118, ¶ 28, 147 N.M. 252, 219 P.3d 20 (holding that without evidence before

14 the appeals court to support a claim that the appeal was pursued for purposes of delay,

15 damages will not be awarded).

16 III.     CONCLUSION

17   {24}   For the foregoing reasons, we affirm the district court’s decision and remand

18 for determination of appellate attorney fees and costs.

                                              14
1   {25}   IT IS SO ORDERED.

2
3                              M. MONICA ZAMORA, Judge

4 WE CONCUR:

5
6 JAMES J. WECHSLER, Judge

7
8 JONATHAN B. SUTIN, Judge

                                15