Court Opinion

ID: 165074
Source: CourtListenerOpinion
Date Created: 2010-08-14 08:43:53+00
Date Added: 2024-06-11T17:24:46.614858
License: Public Domain

F I L E D
                                                                       United States Court of Appeals
                                                                               Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                               OCT 5 2004
                                  TENTH CIRCUIT
                                                                         PATRICK FISHER
                                                                                   Clerk

 SCHWARTZ AND HAYS, a New
 Mexico General Partnership,

          Plaintiff - Counter-Defendant -
          Appellant,                                       No. 03-2068
                                                        (D. New Mexico)
 v.                                             (D.Ct. No. CIV-01-420-LH/KBM)

 KAY HAFEN; IRENE HAFEN;
 NORTHRISE ASSOCIATES, a New
 Mexico General Partnership,

          Defendants - Counter-Claimants
          - Appellees.

                             ORDER AND JUDGMENT *

Before HENRY, Circuit Judge, HOLLOWAY, Senior Circuit Judge, and
O’BRIEN, Circuit Judge.

      Schwartz & Hays (S&H), a New Mexico general partnership, 1 sued Kay and

Irene Hafen and Northrise Associates, a New Mexico general partnership, (the

Hafens) for breach of contract and interference of contract. The district court

      *
          This order and judgment is not binding precedent except under the doctrines of
law of the case, res judicata and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
      1
          Troy Hays and Charles Schwartz are S&H’s general partners.
entered judgment in favor of the Hafens on both claims. S&H appeals,

challenging only the court’s judgment on its interference of contract claim. 2

Exercising jurisdiction under 28 U.S.C. § 1291, we affirm. 3

                                     BACKGROUND

       A.     Development of the Park

       In 1985, the Hafens began developing the Northrise Business Park (the

Park) in Las Cruces, New Mexico. The Park consists of 205 acres of land and is

located on the northside of Las Cruces at the southeast corner of I-25 and U.S. 70.

Shaped like a horseshoe, the park borders the east side of I-25, wraps around the

south side of U.S. 70, and turns south along Roadrunner Parkway which runs

parallel to I-25. The Hafens decided that the basic land use plan and design for

the Park should be light industrial along I-25, commercial along I-70 and high-

density residential and limited office along Roadrunner Parkway. Consequently,

the Hafens obtained the appropriate zoning restrictions, which were approved by

the Las Cruces City Council.

       2
        We admonish S&H for failing to provide a statement of the relevant facts
(separate from a statement of the case) in its opening brief as required by FED. R. APP. P.
28(a)(7).
       3
         The district court had diversity jurisdiction over this case based on the following:
(1) S&H’s general partners are citizens of New Mexico and/or Texas, (2) the Hafens are
citizens of Arizona and (3) the partners of Northrise Associates are all citizens of
Arizona. See Depex Reina 9 P’ship v. Texas Int’l Petroleum Corp., 897 F.2d 461, 463
(10th Cir. 1990) (“In the case of a partnership, the partnership is a citizen of each state in
which a partner is a citizen.”).

                                             -2-
       At issue in this case are Parcels 11 through 14 of the Park, which lie on

either side of Roadrunner Parkway. In 1985, an ordinance was passed by the City

changing the zoning of these parcels from R-3 to “Conditional R-4." In the Las

Cruces Zoning Code, R-4 zoning is defined as “High-Density Residential and

Limited Office District.” (Appellees’ Supp. App. at 47.) The Code also provides

for conditional zoning, which allows the City Council to approve a zoning change

“subject to one or more conditions which restrict the use of land beyond that

otherwise provided by the district.” (Id. at 45.) In this case, the zoning

conditions placed on Parcels 11 through 14 included: (1) “Adherence to private

covenants, design guidelines and architectural control specified by Development

Plan including any subsequent amendments” and (2) “Permitted uses: All uses

permitted in the R-4 zone.” 4 (Id. at 44.)

       Subsequently, the Hafens established the Northrise Business Park Master

Plan (Development Plan) and restrictive covenants for the Park. Consistent with

the ordinance, the Development Plan provided, inter alia, that development of

Parcels 11-14 would be limited to “uses permitted in the R-4 zone.” (Id. at 51.)

       B.     Agreement with S&H

       On January 3, 1994, the Hafens and S&H entered into an Agreement for the

       4
         Pursuant to the Las Cruces Zoning Code, a “permitted use” is a use “permitted by
right” and a “special use” is “a use . . . not permitted by right” and which is allowed only
if the City grants a permit after a public hearing. (Appellees’ Supp. App. at 48, 50.)

                                            -3-
Preferential Purchase of Real Estate (1994 Agreement) under which S&H

acquired a ten-year exclusive option to buy some or all of Parcels 11-14.

Pursuant to the 1994 Agreement, S&H agreed to (1) accept and comply with the

Development Plan and covenants in developing the parcels, (2) not seek to rezone

any of the parcels, and (3) refer to the Hafens any prospective purchasers

interested in acquiring the parcels for uses for which they were not zoned.

      Between 1994 and 1997, S&H exercised its rights under the 1994

Agreement and purchased all but six acres of Parcels 12 and 13. In 1997, the

Hafens discovered S&H was marketing Parcels 11 and 14 for development as a

hospital, which the Hafens believed was a “special use” not a “permitted use”

under the Las Cruces Zoning Code. They advised S&H that such development

was contrary to the zoning limitations and Development Plan and demanded S&H

to cease such marketing. They also amended the Park’s covenants to provide that

absent written approval by the Hafens or owners of 75% of the land in the Park,

development was limited to those uses permitted by right in the applicable zoning

district and those permitted by the Development Plan.

      C.     S&H’s state court lawsuit against Hafens

      In February 1998, S&H filed suit in state court against the Hafens, alleging

it had a right under the 1994 Agreement to develop Parcels 11 and 14 as a

                                        -4-
hospital and the amended covenants were illegal and invalid. 5 In October 1998,

the court granted summary judgment in favor of the Hafens, finding that a

permitted use of the land did not include the development of a hospital and the

amended covenants were appropriately adopted. 6

       On October 26, 1999, the Hafens and S&H reached a settlement concerning

the litigation and signed a memorandum setting forth the relevant terms of the

settlement; a more detailed agreement was finalized on December 23, 1999

(Settlement Agreement.) 7 Pursuant to the Settlement Agreement, S&H was

permitted to buy all of Parcels 11 and 14, and 6 acres in Parcel 13 at a certain

price if the closing occurred on or before January 1, 2000, such price subject to

esclators if the closing took place after such date. The parties also agreed that the

       5
         The Hafens filed a counterclaim against S&H seeking to terminate the 1994
Agreement. Although the Hafens moved for summary judgment on this claim, the state
court found that a genuine issue of material fact existed precluding summary judgment.
This claim was eventually dismissed pursuant to the parties’ settlement.
       6
         While the litigation was pending, S&H filed an application with the City of Las
Cruces for a special use permit, authorizing the development of Parcels 11 and 14 as a
hospital. The application was initially approved by the Planning and Zoning
Commission. Following appeal by the Hafens, however, the City Council denied such
permit, finding (1) S&H did not have the right as a property owner to sign the special use
permit application and Kay Hafen should sign such application, (2) a hospital is not a
permitted use in the R-4 zone and would be a violation of the conditions on the zoning
designation for the property, and (3) a hospital is not permitted by the Development Plan
and private covenants governing the property.
       7
        Troy Hays signed the Settlement Agreement on behalf of himself and S&H on
December 23, 1999. Although Charles Schwartz was to sign the agreement on December
29, 1999, he did not actually sign it until January 24, 2000.

                                            -5-
1997 amended covenants were valid. Paragraph 5 of the Settlement Agreement

provided in relevant part:

      Any and all marketing and/or utilization of said parcels by S&H,
      shall identify the parcels as being subject to the amended covenants
      and restrictions . . . and shall indicate the parcels may be used or
      developed only for R-4 permitted uses, (that is, used permitted by
      right) as defined by the City of Las Cruces Zoning Code . . . . S&H
      and its successors in interest to these parcels will never seek to
      change the uses or zoning of the subject parcels. S&H shall not,
      directly or indirectly, initiate, urge, encourage, participate in or
      support any effort to change the uses or zoning of the parcels subject
      to the agreements of these parties or to change or expand the R-4
      permitted uses, (that is, used permitted by right). S&H shall not be
      subject to any liability should an unrelated successor in interest
      violate this provision without S&H’s involvement. S&H shall
      provide any subsequent purchaser of land from S&H with written
      notice of this provision as a part of the negotiations of S&H for its
      sale of said land.

(Appellant’s App. at 37.) On January 4, 2000, pursuant to the parties’ settlement,

the state court dismissed the lawsuit.

      D.     1999 Closing

      In early December 1999, S&H informed the Hafens that it wished to

purchase Parcels 11 and 14, and the remainder of Parcel 13 before the end of the

year. The closing was scheduled for December 29, 1999. On that same date,

S&H planned to immediately re-convey these parcels to a partnership created by

George Rawson and his family (the Rawsons.)

      On or about December 27, 1999, the Hafens sent supplemental escrow

instructions to the title company. One of the instructions was for the title

                                         -6-
company to obtain the signatures of the buyer on a “Re-Zoning Prohibition,” a

document essentially tracking the language of paragraph 5 of the 1999 Settlement

Agreement. The instructions also noted that Ernie Williams, the Hafens’ attorney,

would act as the Hafens’ agent at closing. 8

       On the morning of closing, S&H, the Rawsons and Williams met at the title

company. Williams discussed the conditional zoning and covenant restrictions on

the parcels with the Rawsons, informing them the Hafens were not willing to

amend or modify them. 9 Believing development of the parcels was not financially

feasible without such re-zoning, the Rawsons refused to close the transaction. 10

S&H purchased the parcels at a later date, but at the increased price, and sold

them to another buyer. 11

       8
           Williams died in a traffic accident in May 2000.
       9
         Although the Hafens initially required S&H and the Rawsons to sign the “Re-
Zoning Prohibition,” the Hafens ultimately withdrew such requirement. The deposition
testimony of the parties, as well as that of the various witnesses to the transaction, is
inconsistent as to when the withdrawal occurred. The district court did not make a factual
finding on this issue and we decline to do so as it is unnecessary for our resolution of this
case. In addition, factual disputes exist as to whether, prior to the day of closing, S&H
provided the Rawsons with full disclosure concerning the amended covenants and
paragraph 5 of the Settlement Agreement. Again, the district court did not resolve the
conflict and we decline to do so as it has no bearing on our determination of this case.

       The Rawsons had planned to develop the parcels as retail and office spaces,
       10

which would have required re-zoning of at least part of the land.
       11
         S&H paid an additional $4000 per acre (a total of $136,000) to the Hafens than
it would have paid if they had purchased the property on December 29, 1999.

                                              -7-
      S&H filed suit in the United States District Court for the District of New

Mexico, alleging interference with contractual relations and breach of contract.

The Hafens moved for summary judgment which the district court granted. 12

Pursuant to F ED . R. C IV . P. 54(b), final judgment against S&H was entered on

February 10, 2003. This appeal followed.

                             STANDARD OF REVIEW

      We review de novo a district court’s grant of summary judgment, applying

the same legal standard used by the district court under F ED . R. C IV . P. 56(c).

Rohrbaugh v. Celotex Corp., 53 F.3d 1181, 1182 (10th Cir. 1995). Summary

judgment is appropriate if “the pleadings, depositions, answers to interrogatories,

and admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to a

judgment as a matter of law.” F ED . R. C IV . P. 56(c). “We consider the ‘factual

record and reasonable inferences therefrom in the light most favorable to the party

opposing summary judgment.’” Rohrbaugh, 53 F.3d at 1182-83 (quoting Blue

Circle Cement, Inc. v. Bd. of County Comm'rs., 27 F.3d 1499, 1503 (10th Cir.

      12
          The Hafens countersued for breach of the Settlement Agreement. They filed a
motion for summary judgment on their counterclaim which the district court granted in
part and denied in part. After the district court granted the Hafens’ motion for summary
judgment as to S&H’s complaint, the parties agreed the Hafens would dismiss their
counterclaim if S&H either did not pursue an appeal of the summary judgment ruling
against them or if such appeal was pursued, that ruling is affirmed. The court adopted
this agreement as part of the final judgment.

                                           -8-
1994)).

       “A federal court sitting in diversity . . . must apply the substantive law of

the forum state, including its choice of law rules.” Vitkus v. Beatrice Co., 127
F.3d 936, 941 (10th Cir. 1997). This case was tried in the United States District

Court for the District of New Mexico. Interference with contract is a tort cause

of action. “In determining which state's law to apply in a tort action, New Mexico

generally follows the doctrine of lex loci delicti, meaning [t]he law of the place

where the crime or wrong took place.” Estate of Gilmore, 124 N.M. 119, 122,

946 P.2d 1130, 1133 (N.M. Ct. App. 1997) (citation and quotations omitted).

Because the alleged interference occurred at the closing in New Mexico, the law

of New Mexico controls and the parties do not contend otherwise. 13

                                     DISCUSSION

       New Mexico recognizes the torts of interference of an existing contract and

interference with a prospective contract. Fikes v. Furst, 134 N.M. 602, 609, 81
P.3d 545, 552 (N.M. 2003). Because S&H claims the Hafens interfered with the

closing, this case involves the latter tort. 14

       13
          Additionally, the Settlement Agreement between the parties, which we are called
to interpret, contains a New Mexico choice-of-law provision. Burge v. Mid-Continent
Cas. Co., 123 N.M. 1, 5, 933 P.2d 210, 214 (N.M. 1996) (“New Mexico law recognizes
the validity of choice of law provisions contained in contracts.”).
       14
         In Fikes, the New Mexico Supreme Court clarified the differences between the
two torts, stating:
       [G]reater protection is given to the interest in an existing contract than to the

                                            -9-
       New Mexico first recognized the tort of interference with prospective

contracts in M&M Rental Tools, Inc. v. Milchem, Inc., 94 N.M. 449, 612 P.2d 241

(N.M. Ct. App. 1980). It adopted the Restatement of Torts 2d, § 766B, which

describes the tort as:

       One who intentionally and improperly interferes with another’s
       prospective contractual relation (except a contract to marry) is
       subject to liability to the other for the pecuniary harm resulting from
       loss of the benefits of the relation, whether the interference consists
       of (a) inducing or otherwise causing a third person not to enter into
       or continue the prospective relation or (b) preventing the other from
       acquiring or continuing the prospective relation.
94 N.M. at 453, 612 P.2d at 245. To demonstrate improper interference, “[e]ither

an improper motive (solely to harm plaintiff)[] or an improper means is required

. . . .” Id. at 454, 612 P.2d at 246. The plaintiff has the burden of proving the

interference was improper. Id. at 455, 612 P.2d at 247. Even if such burden is

met, the defendant may escape liability if he is able to demonstrate that his

conduct was privileged or justified. Id.

      interest in acquiring prospective contractual relations. Thus, for a claim based on
      . . . an existing contract, the plaintiff must still prove that the defendant acted with
      an improper motive or improper means, but the improper motive need not be the
      sole motive . . . . [Additionally,] more conduct will be privileged for interference
      with prospective contracts than will be privileged for interference with existing
      contracts. A person may be privileged to interfere with a prospective contract
      unless the sole motive is to harm a third party; in contrast, a person may not be
      privileged to interfere with an existing contract, even if the person has mixed
      motives.
134 N.M. at 609, 81 P.3d at 552 (citations and quotations omitted).

                                             -10-
               The district court determined the Hafens intentionally interfered with the

  closing but that the Hafens did not act with an improper motive. Specifically, it

  determined there was no evidence showing that “the actions by the Hafens [were]

  solely to harm S&H” and concluded “[t]he motive was clear; they wanted to

  protect their zoning, the zoning that they had acquired after a great deal of

  litigation and negotiation.” (Appellant’s App. at 88.) Neither party contests this

  ruling. S&H, however, challenges the district court’s conclusions that the Hafens

  did not act with improper means and their actions were privileged. Because we

  conclude the Hafens’ actions were privileged, we need not address whether they

  acted with improper means.

          A.       Privilege

          “Liability may not be imposed for every interference with the business

relations of another. It is only where the interference is without justification or

privilege.” Williams v. Ashcraft, 72 N.M. 120, 121, 381 P.2d 55, 56 (N.M. 1963).

A privilege is “a good faith assertion or threat by the one interfering to protect a

legally-protected interest of his own which he believes might otherwise be impaired

or destroyed by performance of the contract.” Speer v. Cimosz, 97 N.M. 602, 606,

642 P.2d 205, 209 (N.M. Ct. App. 1982). As the Second Restatement of Torts

states:

          One who, by asserting in good faith a legally protected interest of his
          own or threatening in good faith to protect the interest by appropriate

                                               -11-
      means, intentionally causes a third person not to perform an existing
      contract or enter into a prospective contractual relation with another
      does not interfere improperly with the other's relation if the actor
      believes that his interest may otherwise be impaired or destroyed by the
      performance of the contract or transaction.

Restatement (Second) of Torts § 773 (1979). New Mexico has recognized that a

defendant’s interference is justified or privileged if (1) the defendant has a

contractual right to engage in such conduct, (2) the defendant had legitimate

business purposes for acting the way it did, and (3) the defendant was protecting his

own economic interests. See Clough v. Adventist Health Sys., Inc., 108 N.M. 801,

806, 780 P.2d 627, 632 (N.M. 1989) (business purposes); Williams, 72 N.M. at 121,

381 P.2d at 56 (economic interests); Bank of New Mexico v. Sholer, 102 N.M. 348,

350, 695 P.2d 832, 834 (N.M. Ct. App. 1985) (contractual right).

      Below, the Hafens argued they were privileged to act as they did at the

closing. Specifically, they alleged they had a good faith belief they were (1)

protecting their legitimate interests in enforcing the land use restrictions governing

Parcels 11 and 14, (2) protecting their rights under paragraph 5 of the Settlement

Agreement, and (3) maintaining the integrity of the Development Plan. The district

court agreed, stating:

      [T]he Hafens were privileged in their actions as set forth in illustration
      number one to section 773 of the Restatement of Torts, which is quite close to
      the situation: A entered into a contract to buy Blackacre from B. C honestly
      believes that he has a right of way over Blackacre. With knowledge of the
      contract, C in good faith informs A of his interest and threatens to enforce it
      by legal proceedings if and . . . when the owner of Blackacre[] should deny

                                          -12-
      his claim. A thereupon refuses to perform his contract with B. It says that
      C’s interference is not improper under the rules stated in this section. And I
      believe that is the law of New Mexico. So the Hafens’ motion for summary
      judgment is granted.

(Appellant’s App. at 89.)

      On appeal, S&H contends the Hafens were not privileged or justified in

interfering with the closing. In support of this argument, S&H asserts: (1) the

covenants and zoning were a matter of public record and therefore, there was no

need for the Hafens to inform the Rawsons of them, (2) the City of Las Cruces, not

the Hafens, is the zoning authority and as such, the Hafens had no right to require

the Rawsons to agree in advance not to change the zoning, (3) no evidence existed

showing that the Rawsons were going to change the zoning, (4) the Rawsons were

purchasing the property from S&H, not the Hafens, and (5) the Hafens had no rights

under the Settlement Agreement to enforce against the Rawsons.

      Contrary to S&H’s contention, the Hafens were privileged in acting as they

did at closing based on the Settlement Agreement between S&H and the Hafens.

The Settlement Agreement between S&H and the Hafens states that “S&H and its

successors in interest to these parcels will never seek to change the uses or zoning

of the subject parcels.” (Appellant’s App. at 37.) Although S&H claims the

Settlement Agreement does not bind third-party purchasers and that the term

“successors in interest” only refers to S&H and any form S&H may take in the

future, this argument is in direct conflict with the plain language of the agreement. 15

          S&H maintains the term “successors in interest” in the sentence “S&H and its
         15

  successors in interest to these parcels will never seek to change the uses or zoning of the

                                             -13-
      Under New Mexico law, “[a]ll settlement agreements are contracts and

therefore are subject to contract law . . . .” Herrera v. Herrera, 126 N.M. 705, 708,

974 P.2d 675, 678 (N.M. Ct. App. 1999). “Generally, the goal of contract

interpretation is to ascertain the intentions of the contracting parties.” Gallegos v.

Pueblo of Tesuque, 132 N.M. 207, 218, 46 P.3d 668, 679 (N.M.) (quotations

omitted), cert. denied, 536 U.S. 990 (2002). “[W]here the terms of an agreement

are plainly stated, the intention of the parties must be ascertained from the language

used.” Levenson v. Mobley, 106 N.M. 399, 401-02, 744 P.2d 174, 176-77 (N.M.

1987). “As a general rule, the words employed will be assigned their ordinary

meaning unless it is shown that the parties used them in a different sense.” Id. at

402, 744 P.2d at 177. An exception to the plain meaning rule applies to technical

words, which will ordinarily “be taken in a technical sense unless context or local

usage shows intention to the contrary.” Id. (defining “tax liability” according to the

technical meaning as defined in the Internal Revenue Code).

      Here, the technical term “successor in interest” is “[o]ne who follows another

in ownership or control of the property.” B LACK ’ S L AW D ICTIONARY 1446 (7th Ed.

  subject parcels” clearly only applies to those successors in interest related to S&H. In
  support of this argument, S&H points to a later sentence in Paragraph 5, which refers to
  “unrelated successors in interest.” It contends that by referring to “unrelated successors
  in interest” later in the paragraph, the initial reference to “successors in interest” must
  mean only those related to S&H. S&H’s argument is flawed. If the parties had intended
  only to prevent S&H and those successors in interest related to it from seeking zoning
  changes, the parties would have said so. In fact, the clarification of “successors in
  interest” later in the paragraph to those unrelated to S&H evidences the parties’ intent that
  the initial reference to “successors in interest” must include both related and unrelated
  successors in interest.

                                             -14-
1999). See also Romero v. New Mexico, 97 N.M. 569, 572, 642 P.2d 172, 175

(N.M. 1982). Under this definition, the Rawsons clearly were potential successors

in interest of Parcels 12 and 14. Therefore, the Settlement Agreement not only

bound S&H but the Rawsons as well. Consequently, the Hafens were privileged in

informing the Rawsons of their obligations under the Settlement Agreement, which

included the prohibition on attempts to change the zoning of the subject parcels.

      Based on the above, the district court’s judgment in favor of the Hafens is

AFFIRMED.

                                      Entered by the Court:

                                      Terrence L. O’Brien
                                      United States Circuit Judge

                                         -15-