Manheim Automotive Financial Services, Inc. v. Forshee Auto Sales, Inc. ( 2004 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
DEC 8 2004
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
MANHEIM AUTOMOTIVE
FINANCIAL SERVICES, INC.,
Plaintiff-Counter-Claim
Defendant-Appellee, No. 03-4285
(D.C. No. 2:02-CV-60-TC)
v. (D. Utah)
FORSHEE AUTO SALES, INC.
Defendant-Counter-
Claimant,
and
KENNETH M. FORSHEE; RENEE
FORSHEE,
Defendants-Counter-
Claimants-Appellants.
ORDER AND JUDGMENT *
Before SEYMOUR , KELLY , and McCONNELL , Circuit Judges.
*
This order and judgment is not binding precedent, except under the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.
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination
of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument.
Defendants-appellants Kenneth and Renee Forshee (the Forshees) appeal
the order entered by the district court on October 20, 2003 granting summary
judgment in favor of plaintiff-appellee Manheim Automotive Financial Services,
Inc. (Manheim) on the Forshees’ counterclaims for breach of contract and tortious
interference with business relations. Our jurisdiction arises under 28 U.S.C.
§ 1291, and we affirm. To the extent the Forshees are seeking to appeal orders
that were entered in the separate bankruptcy case that was filed by defendant
Forshee Auto Sales, Inc. (Forshee Auto), we dismiss that portion of this appeal
for lack of jurisdiction.
I.
Forshee Auto was a Utah corporation that formerly operated a used car
dealership in Utah. The Forshees were the sole shareholders of Forshee Auto.
Kenneth Forshee was also an officer and director of the company, while Renee
Forshee was also an officer.
In January 2001, Forshee Auto entered into a floor-plan financing
arrangement with Manheim to finance the purchase of automobile inventory. As
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part of the arrangement, Forshee Auto executed a $750,000 promissory note in
favor of Manheim. Pursuant to the terms of a separate security agreement,
Forshee Auto also granted Manheim a security interest in its automobile
inventory. In addition, the Forshees executed individual guaranties in favor of
Manheim.
On December 10, 2001, Manheim filed an action against Forshee Auto and
the Forshees in a Utah state court, alleging that Forshee Auto had defaulted on its
obligations under the note and security agreement. In response to Manheim’s
claims, Forshee Auto and the Forshees filed counterclaims against Manheim for
breach of contract and tortious interference with business relations, claiming,
among other things, that Manheim had “acted in bad faith to create a spurious
default as an excuse to put Defendants out of business.” Aplt. App. at 169.
On December 21, 2001, Forshee Auto filed a petition for bankruptcy in the
United States Bankruptcy Court for the District of Utah. See In re Forshee Auto
Sales, Inc. , No. 01-39047 (Bankr. D. Utah). Because the state-court case was
related to the bankruptcy proceeding, Manheim then removed the case to the
United States District Court for the District of Utah pursuant to 28 U.S.C.
§§ 1334 and 1452. After the state-court case was removed to the District of Utah,
it was not consolidated with Forshee Auto’s bankruptcy case or otherwise referred
to the bankruptcy court. Instead, as explained by Manheim in its response brief,
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“there continued, concurrently, two separate legal proceedings involving the
parties to this appeal. One was the District Court Action before [United States
District Judge Tena Campbell]. The other was [Forshee Auto’s] bankruptcy
proceeding before [United States Bankruptcy Judge William Thurman].” Aplee.
Br. at 5. This appeal involves a summary judgment order that was entered by
Judge Campbell in the district court case, and, to avoid confusion, we will refer
herein to the district court case as “this case.” Before addressing Judge
Campbell’s order, however, it is necessary to briefly discuss the proceedings in
Forshee Auto’s bankruptcy case.
During the course of the bankruptcy case, Manheim “obtained an order
from the Bankruptcy Court granting it relief from the automatic stay, which
allowed [Manheim] to sell its collateral under the Security Agreement to satisfy
[Forshee Auto’s] debt to [Manheim]. The proceeds from the sale of the collateral
paid [Forshee Auto’s] indebtedness to [Manheim] in full.” Id. at 6. As a result,
Manheim and the bankruptcy trustee entered into a settlement agreement and
mutual release, and, in May 2003, Judge Thurman entered an order in the
bankruptcy case approving the settlement agreement and mutual release. In light
of the settlement in the bankruptcy case, Manheim and the bankruptcy trustee then
filed a stipulated motion in this case to dismiss Manheim’s claims against Forshee
Auto and Forshee Auto’s claims against Manheim with prejudice. In June 2003,
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in response to the stipulated motion, Judge Campbell entered an order in this case
dismissing all of the claims between Manheim and Forshee Auto with prejudice.
Subsequently, in July 2003, Manheim moved for summary judgment in this
case on the counterclaims asserted by the Forshees in their individual capacities,
arguing that the Forshees did not have standing to assert the counterclaims based
on their status as shareholders of Forshee Auto because the claims belonged
exclusively to Forshee Auto. In October 2003, Judge Campbell entered an order
granting Manheim’s motion for summary judgment. In her order, Judge Campbell
acknowledged that, under Utah law, “a shareholder may ‘bring an individual
cause of action if the harm to the corporation also damaged the shareholder as an
individual rather than [as] a shareholder.’” Aplt. App. at 16 (quoting Stocks v.
United States Fid. & Guar. Co. , 3 P.3d 722, 724 (Utah Ct. App. 2000)). Judge
Campbell found, however, that “[t]he Forshees fail[ed] to explain how they
supposedly were damaged other than as shareholders, and they . . . presented no
evidence in support of such a claim.” Id. at 17. As a result, the Forshees “never
[got] beyond conclusory allegations or references to their pleadings,” and their
“unsupported argument that they were damaged as individuals . . . [was]
insufficient to create a genuine issue of material fact.” Id.
In her order, Judge Campbell also addressed the issue of whether the
Forshees have standing to pursue their individual claims against Manheim based
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on their status as personal guarantors of Forshee Auto’s obligations to Manheim.
Judge Campbell concluded that “[t]he Forshees do not have standing to bring an
action against Manheim simply because they guaranteed [Forshee Auto’s]
obligations under the Note and Security Agreement.” Id. (citing DLB Collection
Trust ex rel. Helgesen & Waterfall v. Harris , 893 P.2d 593, 597-98 (Utah Ct.
App. 1995) and Nicholson v. Ash , 800 P.2d 1352, 1356 (Colo. Ct. App. 1990)).
In this appeal, the Forshees are challenging Judge Campbell’s
determination that they do not have standing to pursue their individual claims
against Manheim for breach of contract and tortious interference. The Forshees
are also attempting to appeal several orders that were entered by Judge Thurman
in Forshee Auto’s bankruptcy case. Specifically, the Forshees claim that Judge
Thurman erred by: (1) denying a motion to dismiss that the Forshees filed in the
bankruptcy case; (2) denying a motion to withdraw documents that the Forshees
filed in the bankruptcy case; (3) denying a motion to amend that the Forshees
filed in the bankruptcy case; and (4) approving the settlement in the bankruptcy
case between Forshee Auto and Manheim.
II.
A. Rule 56 Standards.
“We review the grant of summary judgment de novo applying the same
standard as the district court embodied in Rule 56(c).” Adler v. Wal-Mart Stores,
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Inc. , 144 F.3d 664, 670 (10th Cir. 1998). Under Rule 56(c), summary judgment is
proper if “there is no genuine issue as to any material fact and . . . the moving
party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). “In
applying this standard, we view the factual record and draw all reasonable
inferences therefrom most favorably to the nonmovant.” Adler , 144 F.3d at 670.
However, “[c]onclusory allegations that are unsubstantiated do not create an issue
of fact and are insufficient to oppose summary judgment.” Harvey Barnett, Inc.
v. Shidler , 338 F.3d 1125, 1136 (10th Cir. 2003).
The parties must also make specific showings to satisfy their respective
burdens under Rule 56. We have explained the burden-shifting process under
Rule 56 as follows:
The movant bears the initial burden of making a prima facie
demonstration of the absence of a genuine issue of material fact and
entitlement to judgment as a matter of law. In so doing, a movant
that will not bear the burden of persuasion at trial need not negate the
nonmovant’s claim. Such a movant may make its prima facie
demonstration simply by pointing out to the court a lack of evidence
for the nonmovant on an essential element of the nonmovant’s claim.
If the movant carries this initial burden, the nonmovant that
would bear the burden of persuasion at trial may not simply rest upon
its pleadings; the burden shifts to the nonmovant to go beyond the
pleadings and set forth specific facts that would be admissible in
evidence in the event of trial from which a rational trier of fact could
find for the nonmovant. To accomplish this, the facts must be
identified by reference to affidavits, deposition transcripts, or
specific exhibits incorporated therein. Thus, although our review is
de novo, we conduct that review from the perspective of the district
court at the time it made its ruling, ordinarily limiting our review to
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the materials adequately brought to the attention of the district court
by the parties.
Adler , 144 F.3d at 670-71 (quotations and citations omitted).
B. Judge Campbell’s Summary Judgment Order.
Under Utah law, “[i]t is well-settled that even though a shareholder owns
all, or practically all, of the stock in a corporation, such a fact does not authorize
him to sue as an individual for a wrong done by a third party to the corporation.”
Stocks , 3 P.3d at 724 (quotation omitted). But Utah courts have also “recognized
a narrow exception to the general rule regarding a shareholder’s capacity to bring
an individual suit.” Id. Under the exception, a shareholder may “bring an
individual cause of action if the harm to the corporation also damaged the
shareholder as an individual rather than as a shareholder .” Harris , 893 P.2d at
596. Consequently, the exception applies to cases where there is a “violation[] of
a duty arising from a contract or otherwise, and owed directly to the shareholder.”
Id. “Thus, in this case the exception would apply if the alleged wrongful conduct
of [Manheim] is a violation of a duty arising from a contract or otherwise with
[the Forshees], and owed directly to [the Forshees].” Stocks , 3 P.3d at 724(quotations omitted).
As noted by Judge Campbell in her summary judgment order, in Harris , the
Utah Court of Appeals rejected the assertion of standing by a stockholder who
was also a joint-guarantor of a corporation’s debts. Although the court noted that
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the shareholder had “suffered . . . losses as a result of his status as a shareholder
and joint-guarantor,” it nonetheless concluded that “it is the corporation that has
suffered direct injury, and any damage resulting to the stockholder is merely
indirect[.]” Harris , 893 P.2d at 597 (citing Nicholson , 800 P.2d at 1356). In
addition, the court noted that “all of the shareholders in this closely-held
corporation suffered in the same manner when they were forced to make good on
personal guarantees.” Id. As a result, the shareholder could not show that he
“suffered a loss that was unique to him alone,” id. , and the court therefore
affirmed the trial court’s entry of summary judgment against the shareholder, id.Harris appears to be consistent with the decisions of other courts that have
addressed similar shareholder standing issues in cases involving personal
guarantees. See, e.g., Nicholson , 800 P.2d at 1356-57 (holding that a
shareholder’s status as a guarantor of a corporation’s debts did not give him
standing to assert individual claims against the directors of the corporation where
the shareholder was not seeking to enforce any specific obligations owed to him
under the terms of the guarantee); Marchman v. NCNB Tex. Nat’l Bank , 898 P.2d
709, 717-18 (N.M. 1995) (holding that a shareholder’s status as a guarantor of a
corporation’s debts did not give him standing to assert individual claims against a
creditor of the corporation where the guarantees were never enforced and all of
the “injuries alleged [were] indirect damages suffered by the parties in their
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capacities as shareholders or employees”); Wells Fargo AG Credit Corp. v.
Batterman , 424 N.W.2d 870, 874 (Neb. 1988) (“By itself, a shareholder’s status
as a guarantor for the debt of the corporation . . . does not entitle the shareholder
to maintain an action against a third party for injury to the corporation.”); Pepe v.
Gen. Motors Acceptance Corp. , 604 A.2d 194, 196 (N.J. Super. Ct. App. Div.
1992) (holding that shareholders’ status as personal guarantors of the debts of
several automobile dealerships did not give them standing to assert claims against
a creditor that provided the dealerships with floor plan financing where “[t]he
causes of action pleaded by the [shareholders] all assert[ed] losses sustained by
them as a result of the destruction of their corporations[,] . . . [and] the claims
[were] entirely derivative of causes of action which . . . [belonged] to the
corporations”).
Nonetheless, this is a difficult area of corporate law, and, as noted by the
Colorado Court of Appeals in Nicholson , the case law is not entirely uniform.
See Nicholson , 800 P.2d at 1357 (citations omitted). Further, because there are
important factual difference in the various cases involving shareholders who have
executed personal guarantees, it is difficult to articulate a hard and fast standing
rule. Fortunately, however, this is not a task that we need to undertake in this
case, because we conclude that the Forshees failed to properly oppose Manheim’s
motion for summary judgment.
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As set forth above, under Rule 56, a party moving for summary judgment
“may make its prima facie demonstration simply by pointing out to the [district]
court a lack of evidence for the nonmovant on an essential element of the
nonmovant’s claim.” Adler , 144 F.3d at 671. In the memorandum that Manheim
submitted in support of its motion for summary judgment, Manheim made such a
prima facie demonstration by pointing out to the district court that the Forshees
had insufficient evidence to support their allegations that they suffered actionable
individual injuries as a result of the alleged misconduct of Manheim. See Aplt.
App. at 342, 345-50. Consequently, because the Forshees would have had the
burden of persuasion at trial with respect to their counterclaims, the burden then
shifted to the Forshees “to go beyond [their] pleadings and set forth specific facts
[by reference to affidavits, deposition transcripts, or specific exhibits] that would
be admissible in evidence in the event of trial from which a rational trier of fact
could find for [them].” Adler , 144 F.3d at 671 (quotation omitted).
In the brief the Forshees filed in opposition to Manheim’s motion for
summary judgment, the Forshees failed to refer to any affidavits, deposition
transcripts, or exhibits to support their claim that they suffered actionable
individual injuries as a result of Manheim’s alleged misconduct. See Aplt. App.
at 377-80. Indeed, the Forshees did not even bother to mention the fact that they
had personally guaranteed Forshee Auto’s obligations to Manheim. Id. Further,
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the Forshees made no attempt to specifically describe or delineate the individual
injuries that they allegedly sustained as a result of Manheim’s alleged misconduct.
Id. Instead, the Forshees’ opposition to Manheim’s motion for summary judgment
was based solely on the following conclusory allegations:
[Manheim] . . . undertook a course of deceit, and abuse, which did
damage to [Forshee Auto]. However, that reprehensible conduct was
not narrowly targeted at the corporation only, but was target[ed] at
[the Forshees] as individuals as well. The malfeasance of [Manheim]
. . . damaged [the Forshees] . . . as individuals, not merely because
they were shareholders. The damage complained of by [the
Forshees] would have occurred to them even if they had not owned
any stock in the corporation.
....
The counterclaim pleads that [the Forshees] have suffered
damages as a result of breach of contract by [Manheim], by tortious
interference with business by [Manheim], and by the bad faith and
unethical conduct of [Manheim]. (See paragraphs “4” through “8” of
[the Forshees’] counterclaim.) Those are causes of action which are
maintainable without reference to [the Forshees’] status as
stockholders.
Id. at 379.
The Forshees’ conclusory allegations were woefully insufficient for
purposes of defeating Manheim’s motion for summary judgment. At best, the
Forshees simply regurgitated the conclusory allegations in their counterclaims.
Moreover, even if it were permissible for the Forshees to rely on the unsupported
allegations in their pleadings, we note that the Forshees’ “Answer and
Counterclaim,” id. at 166-72, does not set forth any specific facts showing that
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Manheim’s alleged misconduct “amount[ed] to a breach of duty owed to [the
Forshees] personally.” Harris , 893 P.2d at 596. Thus, we agree with Judge
Campbell that “[t]he Forshees’ fail[ed] to explain how they supposedly were
damaged other than as shareholders, and they . . . presented no evidence in
support of such a claim.” Aplt. App. at 17.
Finally, even if we were to overlook the deficiencies in the Forshees’
summary judgment opposition and assume that Manheim owed certain duties
directly to the Forshees based on their guarantees, it is undisputed that the
Forshees’ guarantees were never enforced. Instead, as noted above, Manheim
used the proceeds it obtained from the sale of Forshee Auto’s vehicle inventory to
satisfy Forshee Auto’s obligations under the promissory note and security
agreement. Consequently, the Forshees did not suffer any sort of direct injury
based on their guarantees. See Marchman , 898 P.2d at 717 (holding that a
shareholder/guarantor did not suffer direct injury for standing purposes where the
guarantees entered into by the shareholder were never enforced).
C. Bankruptcy Court Orders.
This court does not have jurisdiction to review any of the bankruptcy court
orders that were entered by Judge Thurman in Forshee Auto’s bankruptcy case.
As set forth above, while this case was removed to federal court, it was never
consolidated with Forshee Auto’s bankruptcy case or otherwise referred to the
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bankruptcy court, and it remained as a separate and distinct proceeding before the
district court. 1
28 U.S.C. § 158 sets forth the avenues of appeal that are available under
federal law for obtaining review of bankruptcy court orders. Because the Tenth
Circuit has established a Bankruptcy Appellate Panel (BAP), a bankruptcy litigant
may first appeal to either the BAP or the district court in which the bankruptcy
court is located. Id. at § 158(c)(1). If the order of the bankruptcy court is
affirmed by either the BAP or the district court, the litigant may then appeal the
order to this court. Id. at § 158(d); see also Fed. R. App. P. 6(b)(1).
In Forshee Auto’s bankruptcy case, the Forshees filed an appeal in the
district court concerning the orders entered by Judge Thurman, and District Judge
Dale Kimball entered an order affirming Judge Thurman’s orders in May 2004.
See Aplee. Supp. App. at 290-93. Following the entry of Judge Kimball’s order,
the Forshees could have filed an appeal in this court concerning Judge Thurman’s
orders. The Forshees did not file an appeal in this court concerning Judge
Thurman’s orders, however, and the time for doing so has long since expired.
1
We also note that the Forshees’ notice of appeal does not refer to any
bankruptcy court orders. Instead, the notice of appeal indicates only that the
Forshees are appealing the summary judgment order that was entered in this case
by Judge Campbell. See Aplee. Supp. App. at 30.
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The judgment of the district court is AFFIRMED. To the extent the
Forshees are seeking to appeal orders that were entered in Forshee Auto’s
bankruptcy case, we DISMISS that portion of this appeal for lack of jurisdiction.
Entered for the Court
Michael W. McConnell
Circuit Judge
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