Court Opinion

ID: 169287
Source: CourtListenerOpinion
Date Created: 2010-08-14 17:18:01+00
Date Added: 2024-06-11T12:49:28.518765
License: Public Domain

F I L E D
                                                                United States Court of Appeals
                                                                        Tenth Circuit
                      UNITED STATES CO URT O F APPEALS
                                                                         May 30, 2007
                                       TENTH CIRCUIT                Elisabeth A. Shumaker
                                                                        Clerk of Court

 LIBERTY SAVINGS BANK, FSB,

                Plaintiff - Appellant,                   No. 06-1091
           v.                                            (D. Colorado)
 G EN ER AL ELEC TR IC CA PITAL                    (03-cv-02218-REB-CB S)
 C ORPO RA TIO N ,

                Defendant - Appellee.
 -----------------------------------
 LIBERTY SAVINGS BANK, FSB,

                Plaintiff - Appellee,                    No. 06-1428
           v.                                            (D. Colorado)
 G EN ER AL ELEC TR IC CA PITAL                    (03-cv-02218-REB-CB S)
 C ORPO RA TIO N ,

                Defendant - Appellant.

                               OR D ER AND JUDGM ENT *

Before L UC ER O, A ND ER SO N, and M cCO NNELL, Circuit Judges.

       *
        This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
      In these two cases which have been consolidated on appeal, plaintiff

Liberty Savings Bank (“Liberty”) appeals the award of summary judgment in

favor of defendant GE Capital Corporation (“GE”) (Appeal No. 06-1091), and

defendant GE appeals the denial of its motion for sanctions under Fed. R. Civ. P.

11 (Appeal No. 06-1428). W e affirm both appeals.

                                 BACKGROUND

      W ebb Crane Service, Inc. (“W ebb”) was a closely held corporation engaged

in the business of renting and selling cranes, trucks and heavy equipment in

Denver and the intermountain west. W illiam W ebb, Kelly W ebb and Leslie W ebb

(collectively “the W ebbs”) were its shareholders, directors and officers.

      Liberty is a federally chartered savings and loan which, from M arch 1997

through the spring of 2003, supplied W ebb with a revolving and renewable line of

credit secured by real estate liens, personal guarantees of the W ebbs, accounts

receivable and inventory. W ebb promised that the proceeds from the line of

credit would only be used for the operations of W ebb’s crane business. W ebb

maintained a general operating account at the Bank of Colorado, into which it

deposited money provided to it by Liberty pursuant to the line of credit, as well as

money from various other sources, including from its rentals and sales of cranes

and from other creditors.

                                         -2-
      Beginning in 1998, GE supplied W ebb with equipment financing for the

purchase of cranes which W ebb rented and sold to customers. As security for the

financing GE provided, GE and W ebb entered into a Dealer Floor Financing and

Security Agreement (“Security Agreement”). The Security Agreement provided

that GE had a security interest in the “Collateral,” which was, in turn, defined as

“[a]ll inventory which is financed by Lender [GE].” Security Agreement at

¶ 2(a), App. at 381, Vol. 2 tab 14.

      In 1996, the W ebbs, along with Dennis W illiams, formed an entity called

KLW W . 1 KLW W was created for the purpose of purchasing a forty-acre piece of

property know n as the G ypsum Property, a portion of w hich was to be used as a

new facility for W ebb’s planned expansion into western Colorado, with the rest to

be developed and sold in parcels. The development was called the Spring Creek

Industrial Park (“SCIP”). KLW W purchased the Gypsum Property in 1996 from

John Forier for $1,000,000. 2 Forier provided purchase money financing for

$800,000 of the purchase price.

      Beginning in 1997, W ebb began making transfers of funds to KLW W for

the purpose of funding and developing the G ypsum Property. These transfers are

at the heart of this case, as Liberty claims they were fraudulent and in violation of

      1
       The W ebbs and D ennis W illiams were originally named as defendants,
along with W ebb, in this action. They were dismissed from this action, and are
not involved in this appeal.
      2
          Forier was also originally a defendant in this case.

                                            -3-
the terms under which Liberty loaned money to W ebb. The parties dispute when

Liberty became aware of these transfers. Liberty argues it was unaware of them

until spring of 2003, at w hich time it determined to commence this lawsuit. GE

avers that Liberty became aware of them no later than M ay 2001.

       W ebb provided financial statements for the calendar years 2000 and 2001

to both Liberty and GE. GE alleges that in W ebb’s 2000 financial statement,

W ebb revealed for the first time that it held “long-term notes receivable” from

“related parties” for over 1.1 million dollars and “accounts receivable” from

“related parties” for over 1.8 million dollars. Appellant’s App. Vol. 2 at 506,

516.

       After it review ed these financial statements, GE asked W ebb to fully

disclose all transactions between Webb and KLW W . GE further avers that, after

it received the requested information, it realized that part of the moneys W ebb

received from its crane rental business was being used to fund the purchase and

development of property owned by KLW W , rather than being used by W ebb

directly. GE then asked for and received a corporate guarantee from KLW W to

secure the debt owed by W ebb to GE.

       In M ay 2001, Charles David Turpie, Liberty’s senior loan officer for the

W ebb account, met with representatives of W ebb to discuss W ebb’s financial

condition. Following that meeting, Turpie prepared a memorandum (“Turpie

                                         -4-
M emorandum”) describing what he learned from the W ebb representatives. The

Turpie M emorandum contained the follow ing statements:

      W ebb has been struggling with cash flow due primarily to two
      reasons. First, the company has grown revenue significantly over the
      past five years [but] [p]rofitability has not kept pace. Secondly,
      costs associated with the purchase and development of a commercial
      site in Gypsum, Colorado have depleted cash reserves.
                                          ...
      Additional concerns centered on our requirement to place deeds of
      trust on the company’s properties in Denver, Grand Junction and
      Gypsum. The cost of appraisals and environmental assessments was
      a minor concern. This triggered more conversation about the
      Gypsum property.

      Forty acres, adjacent to the airport in Gypsum, were purchased in
      1996 for $1,000,000. $800,000 of this amount was provide[d]
      through seller financing, while the balance came from W ebb. W ill
      [W ebb] wanted to move a crane staging area from Edwards, Colorado
      to nearby Gypsum. Only five acres were needed for this purpose. In
      my opinion, it seems that there was no clear direction, until recently,
      on the disposition of the remaining 35 acres. . . . I am unclear on the
      exact details of the acquisition, but it was made through a LLC
      named KLW & W , LLC. . . .
                                          ...
      The point of this information is that KLW & W . . . has spent . . .
      roughly an additional $300,000 for permitting and development costs
      at Gypsum. The plan is to sell, lease or even possibly develop, in
      partnership with others, subdivided lots on the 35 acres. This plan
      would obviously be hindered by placing a second deed of trust on the
      property.

Turpie M em. at 1-2, Appellant’s A pp. Vol. 2 at 490. Turpie sent this

memorandum to Liberty’s credit department at Liberty’s headquarters in Dayton,

Ohio. Thus, as the district court noted in its first order granting summary

judgment to GE on most of Liberty’s claims, “[b]y M ay, 2001, Liberty was aware

                                         -5-
that KLW W planned to develop the SCIP, and that W ebb had invested at least 200

thousand dollars in the project.” Order at 4-5, Appellant’s App. Vol. 6 at 1267-

68. Shortly after Turpie wrote his memorandum, W ebb employee Kevin W illiams

sent a letter to Turpie, in which he further described the SCIP project and stated

that “W ebb Crane will need additional capital to continue the development of its

facility on the property.” 5/24/01 letter at 2, Appellant’s App. Vol. 2 at 478.

      In the middle of 2002, W ebb began failing to make its required monthly

payments to GE. GE sought information about W ebb’s financial situation in an

effort to resolve Webb’s apparent financial problems. By October of 2002, GE

had obtained two evaluations of W ebb’s financial condition: an appraisal of the

SCIP property by Cushman & W akefield which indicated that W ebb would need

to spend an additional $580,000 to complete the development of the SCIP before

lots could be sold; and a report by the Focus Group, which analyzed W ebb’s

financial situation and described two options for W ebb to pay its debt to GE. The

Focus Group report also indicated that an additional “cash infusion of $0.75

million” would enable W ebb to complete the development of the SCIP property.

Appellant’s App. Vol. 6 at 1219.

      On November 1, 2002, GE and W ebb entered into a restructuring agreement

(“Restructuring Agreement”). The Restructuring Agreement required W ebb to

give to GE from fifty to seventy-five percent of the net profits from sales of the

SCIP lots. The Agreement also gave GE a deed of trust on the SCIP property and

                                         -6-
the right to some of the proceeds of any third-party investment in the SCIP

property. Furthermore, the Agreement provided that GE would forgive W ebb the

payment of $200,000 in accrued default interest.

       M eanwhile, Liberty remained involved in the machinations relating to the

Gypsum/SCIP property. On September 20, 2002, Chris Christopherson, W ebb’s

Chief Financial Officer at the time, went to Liberty’s offices and requested that

Liberty wire the sum of $188,392.75 on behalf of “KLW W (W ebb Crane),

Account #1044000201” directly to the Eagle County treasurer. Liberty did so,

thereby paying the real estate taxes owing on the Gypsum property.

       On October 23, 2002, Liberty renew ed W ebb’s annual line of credit. In

early 2003, W ebb began failing to make its required payments to Liberty. In

A pril 2003, Liberty filed its first complaint in this case in state court. On

M ay 30, 2003, GE and W ebb entered into a Voluntary Surrender Agreement,

pursuant to which W ebb voluntarily surrendered to GE the equipment financed by

GE. On that same day, GE and other creditors filed involuntary bankruptcy

petitions against both W ebb and KLW W . The bankruptcy court entered an order

for relief in the W ebb bankruptcy on June 17, 2003, and an order for relief in the

KLW W bankruptcy on July 30, 2003. The matter was then transferred to federal

district court.

       Liberty’s nineteen-count complaint against W ebb, GE and others alleged a

host of claims relating to W ebb’s transfer of funds to K LW W for the SCIP

                                           -7-
project. Of the nineteen counts, ten were against GE and of those ten, eight are at

issue in this appeal. 3 No other defendants are involved in this appeal. Four of the

counts against GE alleged that GE aided and abetted W ebb in a breach of

fiduciary duty, fraudulent transfers, fraudulent misrepresentation and

concealment. One count charged GE with civil conspiracy. One count alleged

that GE interfered with the existing contractual relationship between Liberty and

W ebb. One count charged that GE’s security interest in its collateral was invalid

and another count asserted that the proceeds of that collateral realized by GE

should go to Liberty instead. The gravamen of these counts is that GE secretly

assisted and/or enabled W ebb in its diversion of funds it received from Liberty to

KLW W for the SCIP project, in violation of the terms of the loan agreement

between Liberty and W ebb, thereby insuring that GE’s loan to W ebb was

protected and repaid, at least in part, to the detriment of Liberty and its loan to

W ebb.

                                       D ISC USSIO N

         I. Appeal No. 06-1091

         W e do not belabor the procedural details, w hich are not germane to this

appeal, but merely note that the district court ultimately granted summary

judgment in favor of GE on all of Liberty’s claims. Accordingly, the usual

         3
             Liberty has not appealed the judgment in favor of G E on two of the counts.

                                             -8-
summary judgment standard of review applies, requiring us to review the district

court’s grant of summary judgment de novo, applying the same standard as did

the district court. Summum v. Duchesne City, 482 F.3d 1263, 1268 (10th Cir.

2007). “Summary judgment is proper only if the record shows ‘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 .’” Id. (quoting Fed. R. Civ. P. 56(c)).

      Liberty does not argue that there are genuine issues as to any material facts;

rather, Liberty disagrees w ith the legal conclusions drawn from the essentially

undisputed facts of this case. In any event, the district court view ed the facts in

the light most favorable to Liberty, as required by the summary judgment

standards. The district court’s order was thorough and well-reasoned. W e see no

need to elaborate upon it. Accordingly, we affirm the district court’s grant of

summary judgment in favor of GE, for substantially the reasons set forth in the

district court’s opinion.

      II. Appeal No. 06-1428

      The district court ruled in favor of GE in two orders granting summary

judgment. The first order, granting summary judgment in favor of GE on nine of

ten claims against it, was filed on July 27, 2005. The second order, granting

summary judgment in favor of GE on the one remaining claim of civil conspiracy,

                                          -9-
was filed on February 9, 2006. In between these two orders, on September 21,

2005, GE filed a motion for sanctions under Fed. R. Civ. P. 11.

      Rule 11 provides in pertinent part as follow s:

      (1) H ow Initiated.
             (A) By M otion. A motion for sanctions under this rule
             shall be made separately from other motions or requests
             and shall describe the specific conduct alleged to violate
             subdivision (b). It shall be served as provided in Rule 5,
             but shall not be filed with or presented to the court
             unless, within 21 days after service of the motion (or
             such other period as the court may prescribe), the
             challenged paper, claim, defense, contention, allegation,
             or denial is not withdraw n or appropriately corrected. If
             warranted, the court may award to the party prevailing
             on the motion the reasonable expenses and attorney’s
             fees incurred in presenting or opposing the motion.

Fed. R. Civ. P. 11(c)(1). “‘[S]ervice of a sanctions motion after the district court

has dismissed the claim or entered judgment prevents giving effect to the safe

harbor provision or the policies and procedural protections it provides, and it will

be rejected.’” Roth v. Green, 466 F.3d 1179, 1193 (10th Cir. 2006) (quoting 5A

Charles Alan W right and Arthur R. M iller, Federal Practice and Procedure

§ 1337.2, at 727 (3d ed. 2004)), petition for cert. filed, 2007 W L 1379720

(06-1490) (U.S. M ay 9, 2007). W hile GE’s motion was filed after the first grant

of sum mary judgment, because the one claim remained, it appears that GE

technically complied with this procedural rule.

      “‘[A]n appellate court should apply an abuse-of-discretion standard in

reviewing all aspects of a district court’s Rule 11 determination.’” Findlay v.

                                        -10-
Banks (In re C ascade Energy & M etals Corp.), 87 F.3d 1146, 1149 (10th Cir.

1996) (quoting Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990)). “A

court abuses its discretion when its decision is ‘arbitrary, capricious, or

whimsical, or results in a manifestly unreasonable judgment.’” United States v.

Sinks, 473 F.3d 1315, 1319 (10th Cir. 2007) (quoting United States v. W eidner,

437 F.3d 1023, 1041 (10th Cir. 2006)).

      In its motion for sanctions, GE identified the offending material as follow s:

            The falseness and frivolousness of the pleadings, motions, and
      actions of Liberty and/or its counsel is established by the record in
      this matter, the entirety of which is incorporated herein, including,
      specifically, those pleadings and motions referenced in and that
      conduct discussed in the following:

             (1) G E Capital’s Response and Sur-Reply to Liberty’s
             Crime-Fraud M otion;

             (2) G E Capital’s Original M otion for Summary
             Judgment and Reply Brief in Support thereof;

             (3) GE Capital’s Response to Liberty’s M otion for
             Summary Judgment; and

             (4) G E Capital’s Supplemental M otion for Summary
             Judgment on Liberty’s Sole R emaining Claim Against It.

M otion at 4, Appellant’s O p. Br. App., tab 1. GE made no more specific

references to particular pleadings, motions or other materials which it claimed

were filed or presented in violation of Rule 11.

      In its order denying GE’s Rule 11 motion, the district court stated:

                                         -11-
      In support of its general claims, GE incorporates nondescriptly the
      entire record by reference and six papers GE filed in the course of
      the litigation, . . . No further circumstantiation is offered. Such
      general references do not approach the quantum of proof necessary to
      sustain GE’s burden of persuasion. I have neither the time nor the
      inclination to do GE’s work by parsing punctiliously through each
      individual claim for relief and each of the papers cited generally by
      GE to determine if the exacting standards of Rule 11 have been
      satisfied in the context of GE’s conclusory assertions. As the
      Seventh Circuit noted aptly, “[j]udges are not like pigs, hunting for
      truffles buried in the briefs.” United States v. Dunkel, 927 F.2d 955,
      956 (7th Cir. 1991).

Order at 2, Appellant’s Op. Br. App., tab 4. The court further observed:

             Disturbingly, in identifying these six papers, GE does not
      provide their precise titles, their docket numbers w ithin the court’s
      CM /ECF database, or their filing dates. Equally disturbing is the fact
      that GE has ignored my practice standard requiring “specific
      references in the form of pinpoint citations.” Both procedural
      deficiencies adversely affect my ability to ascertain the validity of
      GE’s claims.

Id. at n.1 (quoting REB Civ. Practice Standard II.D.2).

      On appeal, GE argues strenuously that it did, in fact, cite specific examples

of Liberty’s misconduct:

      [A]s established by the [Liberty financial expert] Aucone testimony,
      the Turpie M emorandum, the M ay 24, 2001 Letter, and the W ire
      Transfer Form, coupled with GE’s reference to, citation to, and
      quotations of these documents in its filings w ith the District Court,
      the District Court’s complaints are not well founded.

Appellant’s Op. Br. at 20. How ever, the only specific references to these

documents occur in GE’s reply brief, responding to Liberty’s objection to the

motion for sanctions. “[G]enerally we do not consider arguments raised for the

                                        -12-
first time in reply briefs.” United States v. Gurule, 461 F.3d 1238, 1248 (10th

Cir. 2006). Similarly, the district court was entitled to judge the adequacy of

GE’s support for its sanctions motion without reference to the more specific

citations supplied belatedly in GE’s reply brief.

      In any event, even considering all of GE’s allegations, we cannot say that

the district court abused its discretion in concluding that Liberty’s conduct did not

warrant sanctions. Its decision was not arbitrary, capricious, whimsical or

manifestly unreasonable.

                                  C ON CLU SIO N

      For the foregoing reasons, we AFFIRM both of these appeals.

                                                ENTERED FOR THE COURT

                                                Stephen H. Anderson
                                                Circuit Judge

                                         -13-