Bruce R. Elworthy and Anne B. Marshall v. First Tennessee Bank, First Horizon Loan Corporation, and Rbs Citizens Bank , 2017 Wyo. LEXIS 33 ( 2017 )

IN THE SUPREME COURT, STATE OF WYOMING
2017 WY 33OCTOBER TERM, A.D. 2016
March 17, 2017
BRUCE R. ELWORTHY and ANNE B.
MARSHALL,
Appellants
(Plaintiffs),
v.
S-16-0165
FIRST TENNESSEE BANK, FIRST
HORIZON LOAN CORPORATION, and
RBS CITIZENS BANK,
Appellees
(Defendants).
Appeal from the District Court of Sheridan County
The Honorable John G. Fenn, Judge
Representing Appellants:
Bruce R. Elworthy and Anne B. Marshall of Elworthy & Marshall, P.C., Sheridan,
WY. Argument presented by Mr. Elworthy and Ms. Marshall.
Representing Appellees:
Stephenson D. Emery of Williams, Porter, Day & Neville, P.C., Casper, WY; and
Steven A. Ellis of Goodwin Proctor, LLP, Los Angeles, CA for Appellees First
Tennessee Bank National Association and First Horizon Loan Corporation; and
Rick A. Thompson and Lucas Buckley of Hathaway & Kunz, P.C., Cheyenne,
WY for Appellee RBS Citizens Bank. Argument presented by Messer’s Emery,
Ellis, and Thompson.
Before BURKE, C.J., and HILL, DAVIS, FOX, and KAUTZ, JJ.
NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third.
Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building,
Cheyenne, Wyoming 82002, of any typographical or other formal errors so that correction may be
made before final publication in the permanent volume.
HILL, Justice.
[¶1] Bruce Elworthy and Anne Marshall (collectively “Plaintiffs”) filed an action
against Defendants alleging claims for breach of contract, fraud in the inducement, and
violation of a California law governing fraudulent business practices, all claims in
relation to Defendants’ financing of Plaintiffs’ real property located in Wyoming and
California. Plaintiffs filed their action in Wyoming and sought monetary and punitive
damages, rescission and restitution, and an order declaring all encumbrances recorded
against their Sheridan, Wyoming property void and expunged.
[¶2] The district court granted Defendants’ Rule 12 motions to dismiss and for
judgment on the pleadings. In so ruling, the court applied Wyoming law and found that
Plaintiffs’ breach of contract claims were barred by the statute of frauds and that
Plaintiffs had failed to plead their fraud and fraud-based claims with the required
particularity. We affirm.
ISSUES
[¶3] Plaintiffs failed to include in their brief a separate statement of issues presented for
review, as required by W.R.A.P. 7.01(d).1 Within their statement of the case, Plaintiffs
do, however, state as follows:
Appellants respectfully submit that the findings by the
District Court that: (1) the Procedural and Substantive Laws
of the State of Wyoming controlled the litigation and (2) that
the fraud counts were defective was reversible error and that
the subsequent [dismissal] pursuant to Rule 12 of the
1
This Court may refuse to consider an appellant’s contentions for failing to provide a statement of the
issues presented for review.
We have previously refused to consider the contentions of a party who has failed to provide a
statement of the issues. See, e.g., Cline v. Safeco Ins. Companies, 614 P.2d 1335, 1337
(Wyo.1980). In Cline, we explained:
It is not our job to draw up a list of issues to frame appellant’s argument. For this
court to undertake this task would mean that we would run the risk of deciding the
appeal on an issue with respect to which the appellee had not been notified and thus
had inadequate defense opportunities.
Montoya v. Navarette-Montoya, 2005 WY 161, ¶ 4, 125 P.3d 265, 268 (Wyo. 2005) (quoting Cline, 614
P.2d at 1337).
Defendants do not appear to have been hampered in their ability to identify and argue the issues on
appeal, and we will therefore proceed with our review despite Plaintiffs’ failure to separately set forth a
statement of issues presented for review.
1
Wyoming Rules of Civil Procedure that the District Court
ordered was based upon an improper analysis of the
applicable law[.]
[¶4] Plaintiffs do not reference the district court’s ruling on their breach of contract
claim, but in the argument portion of their brief, they contend the court erred in that
ruling. Given Plaintiffs’ statement above and the arguments they make in their briefing,
we summarize the issues on appeal as follows:
A. Did the district court err in ruling that Wyoming law
should govern the parties’ dispute?
B. Did the district court err in ruling that Plaintiffs’
breach of contract claims were barred by the statute of
frauds?
C. Did the district court err in ruling that Plaintiffs failed
to plead their fraud-based claims with the particularity
required by W.R.C.P. 9(b)?
D. Did the district court abuse its discretion in ruling that
it would not permit any further amendments to Plaintiffs’
complaint?
FACTS
A. Events Leading to Wyoming Litigation
[¶5] Bruce Elworthy and Anne Marshall (collectively “Plaintiffs”) are married and are
both attorneys. In 1997, Plaintiffs bought a home in Sheridan, Wyoming, and in 2002,
they began looking for a home in California, where they hoped to spend winters. In
2005, they found a home they wished to purchase in Monterey, California, priced at
around $3,000,000.2 Along with the home purchase, Plaintiffs were also required to
purchase the sellers’ country club membership for $118,000.
[¶6] To purchase the California property, Plaintiffs worked with a mortgage broker by
the name of Sherri Wall. Ms. Wall originally recommended a mortgage that required
only the California property as collateral, but before Plaintiffs closed on the property, Ms.
Wall informed Plaintiffs that she had found a better mortgage deal. This deal, which Ms.
Wall referred to as the "best financing deal by far," required that Plaintiffs take out four
mortgages to secure financing on the California property. The mortgages were to be
2
The California property is at times referred to as “Belavida.”
2
issued by First Horizon Home Loan Corporation, which subsequently merged into First
Tennessee Bank National Association (“First Tennessee”), and consisted of: a $1,000,000
first mortgage on the Sheridan property; a $150,000 home equity line of credit (HELOC)
on the Sheridan property; a $1,500,000 first mortgage on the California property; and a
$282,000 HELOC on the California property. Plaintiffs agreed to this financing
arrangement and closed on the California property.
[¶7] After Plaintiffs moved into the California property, they discovered numerous
defects that had not been disclosed by the sellers, including flooding and failing windows
and an insect and rodent infestation. Plaintiffs contacted the sellers, their real estate
broker, and the contractor that built the home to have the undisclosed defects addressed.
When no resolution had been reached by the spring of 2007, Plaintiffs demanded
rescission of the sales agreement. After that demand was rejected, Plaintiffs, in
November 2007, filed litigation in California against the sellers, the contractor, and the
real estate brokers, seeking damages and rescission of the sales agreement on the
California property.
[¶8] In December 2007, shortly after filing the California litigation, Mr. Elworthy was
diagnosed with a brain tumor that required surgery. After Plaintiffs were advised this
would affect Mr. Elworthy’s ability to work for some time, they asked Ms. Wall for the
name of someone with the lender who could discuss their situation. Ms. Wall referred
Plaintiffs to John Harris, an attorney with First Tennessee in its Irving, Texas office.
[¶9] Plaintiffs thereafter contacted Mr. Harris and informed him of their situation. Mr.
Harris offered a forbearance agreement on the California portion of the loans, by which
payments would be deferred on those loans until the conclusion of the California
litigation and then rolled into the principal balance. Plaintiffs agreed they would continue
to prosecute the law suit and would pay the property taxes, homeowner assessments,
insurance, maintenance, utilities and other such expenses on the property. Plaintiffs also
agreed they would do as much “fix up” as was required to market the property and would
move out over the coming months to enable the property to be marketed. In discussing
the matter, Plaintiffs asked Mr. Harris if he wanted some form of written documentation
of the forbearance and he stated that no writing was required for the action he was taking.
Plaintiffs thereafter stopped making payments on the California property.
[¶10] Mr. Harris contacted Plaintiffs in the spring of 2008 and informed them that he
was leaving First Tennessee but that the oral forbearance agreement would remain in
place. Shortly thereafter, however, Plaintiffs learned that a MetLife entity was servicing
the loans, and they began receiving late notices from MetLife. Plaintiffs then contacted
an attorney with MetLife, who denied the existence of a forbearance agreement and
informed Plaintiffs that if they did not bring the mortgages on the California property
current, MetLife would issue a notice of default. Plaintiffs were unable to bring the
3
mortgages current, and in June 2008, MetLife issued a notice of default. Foreclosure
proceedings on the California property began in 2009.
[¶11] While the foreclosure was pending, Plaintiffs settled with some of the defendants
in the California litigation. In April 2010, Plaintiffs contacted First Tennessee in an
effort to delay foreclosure proceedings on the California property and find out what type
of payment would be required to stop the foreclosure proceedings. First Tennessee
would not consent to a delay and would not allow Plaintiffs to cure the default by making
a payment on the mortgage. First Tennessee informed Plaintiffs that the only way they
could avoid foreclosure was to immediately pay the primary mortgage and HELOC on
the California property. Plaintiffs could not do that, and on April 23, 2010, First
Tennessee foreclosed on the property.
[¶12] The suit against the sellers of the California property went to trial in March 2011.
The California court found negligent misrepresentations by the sellers but denied the
rescission remedy that Plaintiffs sought on two grounds: 1) the property had already been
foreclosed on so it could not be returned to the sellers; and 2) Plaintiffs delayed bringing
the litigation for two years and the doctrine of laches therefore barred the remedy of
rescission. By a decision issued in November 2013, a California appellate court affirmed,
agreeing with the trial court that the remedy of rescission was no longer available because
of the foreclosure.
B. Proceedings in Wyoming District Court
[¶13] On April 16, 2012, while Plaintiffs’ California appeal was still pending, Plaintiffs
filed a complaint in district court in Sheridan County. The complaint named First
Tennessee and First Horizon Loan Corporation (collectively “First Tennessee”) as well as
other financial institutions as defendants and asserted three counts: 1) breach of contract
relating to the oral forbearance agreement; 2) interference with prospective economic
advantage, relating to Plaintiffs’ loss of the rescission remedy following the foreclosure
on the California property; and 3) declaratory relief, seeking a declaration cancelling all
encumbrances on Plaintiffs’ Sheridan, Wyoming property.
[¶14] On September 6, 2012, Plaintiffs filed their first amended complaint, which added
two new defendants and two new claims. The new claims were for: 1) misrepresentation
related to foreign bank manipulation of the London Interbank Offered Rate (“LIBOR”)
and First Tennessee’s issuance of mortgages, including those on Plaintiffs’ California
property, pegged to the LIBOR rate; and 2) reformation and restitution related to First
Tennessee's use of mortgages tied to the LIBOR rate.
[¶15] All defendants named in the first amended complaint filed motions to dismiss or
for judgment on the pleadings. The district court dismissed all claims against some of the
named defendants. The court denied First Tennessee’s motion to dismiss except for the
4
claim against it for interference with a prospective economic advantage. The court
denied in its entirety the motion for judgment on the pleadings filed by RBS Citizens
Bank (“RBS”), the entity that now owns the HELOC on the Sheridan, Wyoming
property. With respect to Plaintiffs’ misrepresentation claim against First Tennessee, the
court ruled:
At the hearing, Plaintiffs admitted that this count does
not meet the pleading requirements of W.R.C.P. 9. However,
they made an oral motion to amend this count to allege fraud
in the inducement by Ms. Wall. Plaintiffs contend that Ms.
Wall was acting as the agent for First Tennessee, and that
they never would have entered into these mortgages if she
had not misrepresented her status as an independent broker.
Plaintiffs also alleged that they would not have put the
Pioneer Property up as collateral if Ms. Wall had not induced
them to do so, and they are seeking to invalidate those
mortgages due to Ms. Wall’s fraud. Under these facts,
Plaintiffs could potentially be entitled to relief. The Court
recognizes that Plaintiffs’ misrepresentation claim has
become a “moving target.” W.R.C.P. Rule 15 provides that
leave to amend “shall be freely given when justice so
requires.” Therefore, the Court finds that Plaintiffs shall be
granted leave to amend their complaint to correct the
deficiencies of their misrepresentation claim. Accordingly,
the motion to dismiss this claim should be denied at this time.
[¶16] On February 27, 2015, Plaintiffs filed their second amended complaint against
First Tennessee and RBS. The second amended complaint asserted claims for breach of
contract, fraud in the inducement, violation of the California Business and Professions
Code, and violation of the Truth in Lending Act (“TILA”), and sought monetary and
punitive damages, rescission and restitution in relation to the TILA and fraud claims, and
a declaration that all encumbrances on Plaintiffs’ Wyoming property are void.3
[¶17] RBS answered the second amended complaint and filed a Rule 12(c) motion for
judgment on the pleadings. First Tennessee also filed an answer, which it followed with
a combined Rule 12(b)(6) motion to dismiss and 12(c) motion for judgment on the
pleadings. On May 20, 2016, the district court issued its Second Order on Motions to
Dismiss and for Judgment on the Pleadings. In ruling on the dispositive motions, the
court judged the sufficiency of the second amended complaint based solely on facts and
allegations contained therein, and it ruled that Wyoming law governed the parties’
dispute.
3
Plaintiffs eventually voluntarily dismissed their TILA claims with prejudice.
5
[¶18] Applying Wyoming law, the district court ruled that Plaintiffs’ breach of contract
claim was barred by the statute of frauds and that no exception to the statute applied.
Turning to Plaintiffs’ fraud claims, the court found that Plaintiffs failed to plead the
claims with the particularity required by W.R.C.P. 9(b) and thus dismissed those claims.
The court likewise dismissed Plaintiffs’ fraudulent business practices claim under the
California Business and Professions Code for failing to plead that claim with the
specificity required for a fraud claim. In ruling on Plaintiffs' claims for restitution and
rescission and declaratory relief, the court found the claims derivative of the other
defective claims and ruled that those must likewise be dismissed. Finally, the court noted
that Plaintiffs had not formally made a motion to amend during the motions hearing but
had suggested they might seek to amend the complaint to add new allegations of fraud
based on the disavowal of the forbearance agreement. The court then ruled:
In this case, the Plaintiffs have previously been given two
opportunities to amend their complaint to cure the
deficiencies. They were put on notice of the defects in their
First Amended Complaint during the first round of motions,
but they did not cure these defects through amendment.
Therefore, the Court finds in its discretion that a third
amendment should not be allowed.
[¶19] Plaintiffs filed a timely notice of appeal to this Court.
STANDARD OF REVIEW
[¶20] In dismissing Plaintiffs’ complaint, the district court ruled pursuant to W.R.C.P.
12(b)(6), which governs motions to dismiss for failure to state a claim, and W.R.C.P.
12(c), which governs motions for judgment on the pleadings. Our review of a dismissal
under either rule is de novo. Swinney v. Jones, 2008 WY 150, ¶ 6, 199 P.3d 512, 515
(Wyo. 2008). Concerning our review of a Rule 12(b)(6) dismissal, we have said:
When reviewing W.R.C.P. 12(b)(6) motions to dismiss, we
accept the facts stated in the complaint as true and view them
in the light most favorable to the plaintiff. We will sustain
such a dismissal when it is certain from the face of the
complaint that the plaintiff cannot assert any fact which
would entitle him to relief. Sinclair v. City of Gillette, 2012
WY 19, ¶ 8, 270 P.3d 644, 646 (Wyo.2012). Although we
view the facts in the light most favorable to the plaintiff, we
have also stated that “Liberal construction of pleadings does
not excuse omission of that which is material and necessary
in order to entitle one to relief.” Excel Constr., Inc. v. HKM
6
Eng’g, Inc., 2010 WY 34, ¶ 35, 228 P.3d 40, 49 (Wyo.2010)
(citing William F. West Ranch, LLC v. Tyrrell, 2009 WY 62,
¶ 9, 206 P.3d 722, 726 (Wyo.2009)).
Stroth v. North Lincoln County Hosp. Dist., 2014 WY 81, ¶ 6, 327 P.3d 121, 125 (Wyo.
2014).
[¶21] Concerning Rule 12(c) motions for judgment on the pleadings, we have said:
A defendant is entitled to judgment on the pleadings if the
undisputed facts appearing in the pleadings, supplemented by
any facts of which the district court may take judicial notice,
establish that no relief can be granted.... A judgment on the
pleadings is appropriate if all material allegations of fact are
admitted in the pleadings and only questions of law remain.
Inman v. Boykin, 2014 WY 94, ¶ 13, 330 P.3d 275, 279 (Wyo. 2014) (quoting Newport
Int’l Univ. v. Wyo. Dep’t of Educ., 2008 WY 72, ¶ 12, 186 P.3d 382, 386 (Wyo. 2008)).
DISCUSSION
A. Choice of Law
[¶22] The district court reviewed the allegations in Plaintiffs’ second amended
complaint and concluded that based on those allegations, the relevant transactions
occurred in Wyoming and Wyoming law therefore governed the dispute. Plaintiffs
contend that the court’s analysis was flawed and that California law should govern. We
find no error in the district court’s conclusion.4
[¶23] In analyzing choice of law questions, this Court uses the approach defined by the
Restatement (Second) of Conflict of Laws:
4
First Tennessee contends that there is no need to engage in a choice of law analysis because there is no
material difference between Wyoming and California law. Boutelle v. Boutelle, 2014 WY 147, ¶ 21, 337
P.3d 1148, 1155 (Wyo. 2014) (“In the absence of a conflict, there is no need for the court to engage in a
conflict of laws analysis.”); Act I, LLC v. Davis, 2002 WY 183, ¶ 11, 60 P.3d 145, 149 (Wyo. 2002)
(“When there is no conflict, the Court applies the law of the forum.”). The district court, however, noted
some differences between Wyoming and California law governing exceptions to the statute of frauds, and
First Tennessee’s brief on appeal sets forth the elements of fraud under California law and those elements
differ somewhat from Wyoming’s elements. While we are not persuaded that the differences in
Wyoming and California law would necessarily change the outcome of the parties’ dispute, rather than
engage in an extended analysis of those differences, we find it more expedient to simply determine which
state has the more significant contacts to the issues before us.
7
The Second Restatement method is constructed around
the principle that the state with the most significant contacts
to an issue provides the law governing that issue. See
[Ingersoll v. Klein,] 46 Ill.2d 42, 262 N.E.2d [593] at 594–95
[Ill.1970]. A court therefore conducts a separate choice-of-
law analysis for each issue in a case, attempting to determine
which state has the most significant contacts with that issue.
International Adm’rs, Inc. v. Life Ins. Co. of North America,
753 F.2d 1373, 1376 n. 4 (7th Cir.1985). The Second
Restatement enumerates specific factors that identify the state
with the most significant contacts to an issue, and the relevant
factors differ according to the area of substantive law
governing the issue and according to the nature of the issue
itself. See, e.g., Restatement (Second) at §§ 6, 145, 188. To
properly apply the Second Restatement method, a court must
begin its choice-of-law analysis with a characterization of the
issue at hand in terms of substantive law. Id. at § 7. By
prescribing this analytical approach, the Second Restatement
follows the principle of depecage, which has been long
applied in connection with various methods for choice of law.
See Willis L.M. Reese, Depecage: A Common Phenomenon
in Choice of Law, 73 Colum. L.Rev. 58 (1973).
Boutelle, ¶ 20, 337 P.3d at 1155 (quoting Act I, LLC v. Davis, 2002 WY 183, ¶ 10, 60
P.3d 145 at 149 (Wyo. 2002)).
[¶24] The district court based its choice of law determination solely on the allegations in
Plaintiffs’ second amended complaint, and we do likewise. In doing so, we will first set
forth the relevant allegations from the second amended complaint, and we will then
consider each claim individually in relation to the state contacts alleged.
[¶25] The second amended complaint alleged:
¶ 2: “[A]ll agreements entered into that are the subject of
this litigation were made or to be performed, in part or in
whole, in the County of Sheridan and the State of Wyoming. .
. . Plaintiffs seek to reform the title to certain real property
located in this Judicial District and these claims otherwise
affect real property located in this Judicial District.”
¶ 3: “Plaintiffs BRUCE R. ELWORTHY and ANNE B.
MARSHALL are husband and wife and residents of
Wyoming located at [street address omitted], City of
Sheridan, County of Sheridan, State of Wyoming.”
8
¶ 26: “All of these loans were arranged in the State of
Wyoming, the papers were signed and notarized in Wyoming
and the forbearance agreement referred to below were (sic),
in part negotiated in Wyoming and performed in Wyoming
and California.”
¶ 41: “Plaintiffs then contacted John Harris who identified
himself as an attorney admitted in the State of Texas and a
representative of the LENDER in LENDER’S Irving, Texas
office. After informing Harris of the facts, Plaintiffs were
offered a forbearance agreement on the Belavida portion of
the Loans[.]”
¶ 54: “Plaintiffs were referred to Larry Cole who identified
himself as MetLife's Texas counsel.”
¶ 55: “In the course of discussions with Cole, Cole denied
the existence of any forbearance agreement[.]”
¶ 56: “Cole threatened Plaintiffs that he would issue a
Notice of Default if Plaintiffs did not, then and there, bring
the primary Belavida mortgage current.”
¶ 57: “Cole and MetLife then issued a Notice of Default on
or around June 23, 2008.”
¶ 105: “Under the facts of this case and due to the
Defendants’ actions as enumerated herein, there is a dispute
between Plaintiffs and Defendants as to the propriety and
validity of the encumbrances placed on Plaintiffs’ real
property located at [street address omitted], City of Sheridan,
County of Sheridan, State of Wyoming.”
1. Contacts Related to Breach of Contract Claim
[¶26] The Second Restatement identifies several factors to be considered in determining
which state has the most significant relationship to the contracting transaction and the
parties to the contract. They include: a) the place of contracting; b) the place of the
contract’s negotiation; c) the place of performance; d) the location of the contract’s
subject matter; and e) the residence or place of business of the parties. Restatement
(Second) of Conflict of Laws § 188 (1971) (October 2016 update).
[¶27] Plaintiffs’ breach of contract claim relates to the forbearance agreement.
According to the allegations in the second amended complaint, the forbearance
agreement was negotiated in Wyoming and Texas. This presumably means Wyoming
and Texas were also the places of contracting, a fact reinforced by ¶ 2 of the second
amended complaint (“[A]ll agreements entered into that are the subject of this litigation
were made or to be performed, in part or in whole, in the County of Sheridan and the
State of Wyoming.”). The second amended complaint further alleges that the contract
9
was performed in part in Wyoming and California, and related to property in California.
Finally, the second amended complaint alleges that First Tennessee was operating out of
its Irving, Texas office when it entered into the forbearance agreement, and, given that
they negotiated from Wyoming, Plaintiffs presumably were residing in their Wyoming
property.
[¶28] Plaintiffs contend that because the forbearance agreement concerns the California
property and the loan on that property, California is the state with the most significant
contacts to the parties and the transaction. We disagree. While the location of the
contract’s subject matter is one factor to consider, we have rejected it as the controlling
factor. BHP Petroleum (Americas), Inc. v. Texaco Expl. and Prod., Inc., 1 P.3d 1253,
1258 (Wyo. 2000) (“The location of the mineral production in Wyoming, the subject
matter of the contract, is only one factor not the paramount factor that demonstrates the
most significant relationship of the parties.”). The forbearance agreement was
negotiated, in part, in Wyoming, was entered into with Wyoming residents, and was
performed, in part, in Wyoming. Wyoming’s contact with the transaction and the parties
to the contract is more significant than California's contact, and we thus agree with the
district court’s conclusion that Wyoming law should govern the breach of contract
claim.5
2. Contacts Related to Fraud-Based Claims
[¶29] Plaintiffs allege that Sherri Wall misrepresented to Plaintiffs that she was an
independent mortgage broker and this misrepresentation induced them to accept her
recommendations on which loan package to accept in purchasing their California
property. Both of Plaintiffs’ fraud-based claims stem from this alleged
misrepresentation.
[¶30] The choice of law approach prescribed by the Second Restatement depends on
whether the representation and the reliance on that representation were made in the same
state or different states. Here, Plaintiffs received and acted in reliance on the
representations in Wyoming, as noted by paragraph 26 of the second amended complaint
(“All of these loans were arranged in the State of Wyoming, [and] the papers were signed
and notarized in Wyoming[.]”). Ms. Wall’s location when she made the representation is
not as clear. The second amended complaint does not allege Ms. Wall’s place of
business or residence, and the only indication of her location is a reference in ¶ 13 to
advice Plaintiffs provided her in forming an independent brokerage when GMAC closed
its Spokane office. Plaintiffs do allege Ms. Wall was an employee of First Tennessee,
and the second amended complaint’s only allegation concerning First Tennessee’s place
of business is a reference to its Irving, Texas office. We presume then that Ms. Wall’s
5
Neither party has alleged that Texas law should govern the breach of contract claim.
10
representation was made in either Washington or Texas while Plaintiffs’ reliance took
place in Wyoming.
[¶31] When a defendant’s representations and a plaintiff’s reliance take place in
different states, the Second Restatement prescribes the following factors to consider in
making a choice of law determination on a fraud or misrepresentation claim:
(a) the place, or places, where the plaintiff acted in reliance
upon the defendant’s representations,
(b) the place where the plaintiff received the representations,
(c) the place where the defendant made the representations,
(d) the domicile, residence, nationality, place of incorporation
and place of business of the parties,
(e) the place where a tangible thing which is the subject of the
transaction between the parties was situated at the time, and
(f) the place where the plaintiff is to render performance
under a contract which he has been induced to enter by the
false representations of the defendant.
Restatement (Second) of Conflict of Laws § 148 (1971) (October 2016 Update).
[¶32] Ms. Wall’s representations were made to Plaintiffs who are, and were at the time
of the representations, residents of Wyoming. Plaintiffs acted in reliance on the
representations in Wyoming by accepting the terms of the mortgages and executing the
loan documents in Wyoming. The loans encumbered property in both Wyoming and
California, and the continuing performance required by Plaintiffs is to make payments in
Wyoming on the Wyoming mortgage and HELOC. Applying the Second Restatement
choice of law factors, we again affirm the district court’s conclusion that Wyoming law
should govern the fraud-based claims.
[¶33] Plaintiffs’ remaining claims for rescission and restitution, and for declaratory
relief, are derivative of their fraud claims and are thus likewise governed by Wyoming
law.
B. Dismissal of Plaintiffs’ Breach of Contract Claim
[¶34] The district court found that the oral forbearance agreement was an amendment to
the mortgage loans on the California property and was thus barred by the statute of
frauds. Plaintiffs do not take issue with the district court’s ruling that the forbearance
agreement was subject to the statute of frauds. They instead contend that their second
amended complaint adequately pled an equitable exception to the statute of frauds and
the court therefore erred in dismissing the breach of contract claim. We again find no
error in the district court’s ruling.
11
[¶35] Plaintiffs argued to the district court that under California law, the statute of frauds
would not bar their contract claim because they had relied to their detriment on the
forbearance agreement. The district court, having found that Wyoming law should
govern, did not consider the California detrimental reliance doctrine and instead looked
to Wyoming’s equitable estoppel exception to the statute of frauds. The Wyoming
doctrine operates as follows:
“‘Equitable estoppel is the effect of the voluntary conduct of
a party whereby he is absolutely precluded from asserting
rights which might otherwise have existed as against another
person who has in good faith relied upon such conduct and
has been led thereby to change his position for the worse.’”
Snake River Brewing Co., Inc. v. Town of Jackson, 2002 WY
11, ¶ 28, 39 P.3d 397, 407–08 (Wyo.2002) (quoting State
Farm Mut. Auto. Ins. Co. v. Petsch, 261 F.2d 331, 335 (10th
Cir.1958)). “Equitable estoppel arises only when a party, by
acts, conduct, or acquiescence causes another to change his
position.” Roth v. First Sec. Bank of Rock Springs, Wyo., 684
P.2d 93, 96 (Wyo.1984). The elements of equitable estoppel
are a lack of knowledge, reliance in good faith, and action or
inaction that results in an injury. Id.Parkhurst v. Boykin, 2004 WY 90, ¶ 21, 94 P.3d 450, 460 (Wyo. 2004). For equitable
estoppel to operate as an exception to the statute of frauds, the change in position in
reliance on the oral agreement must be “of such character and to such an extent that the
interposing of the defense of the statute would be a fraud.” Redland v. Redland, 2012
WY 148, ¶ 92, 288 P.3d 1173, 1194 (Wyo. 2012) (quoting Davis v. Davis, 855 P.2d 342,
349 (Wyo. 1993)).
[¶36] The court rejected equitable estoppel as a defense to the statute of frauds bar upon
finding that Plaintiffs failed to allege reliance that was: a) a change in position; b) for the
worse; or c) of such character as to rise to the level of a fraud. Essentially, the court
concluded that every action Plaintiffs took in alleged reliance on the forbearance
agreement was an action that Plaintiffs were otherwise obligated to take or had made a
decision to take independently of the forbearance agreement. On appeal, Plaintiffs do not
discuss those findings or identify any error in the findings. They instead argue that
promissory estoppel is also an exception to the statute of frauds and that the district court
erred in rejecting their promissory estoppel argument.
[¶37] Plaintiffs are correct that promissory estoppel operates as an exception to the
statute of frauds. Redland, ¶ 91, 288 P.3d at 1193-94 (citing Davis, 855 P.2d at 349)).
The district court recognized this exception, just as it did the equitable estoppel
12
exception, but it rejected Plaintiffs’ promissory estoppel argument because Plaintiffs did
not assert a claim for promissory estoppel in their second amended complaint. The court
explained:
[I]t is clear that the Second Amended Complaint does not
currently state a cause of action for promissory estoppel.
Further, despite Plaintiffs’ request, this Court cannot re-write
their complaint to state such a cause of action. Although
Wyoming is a notice pleading jurisdiction, “the simplification
of pleadings under our rules, specifically Rule 8(a), W.R.C.P.,
in this instance, cannot be taken to eliminate the necessity of
stating in clear terms the nature and basis of the relief
sought.” Kearney Lake, Land & Reservoir Co. v. Lake
DeSmet Reservoir Co., 475 P.2d 548, 552 (Wyo. 1970).
Plaintiffs had the obligation of drafting their pleadings in such
a way as to state the nature their causes of action and the basis
upon which relief can be granted. The Court cannot read into
the complaint a cause of action which has not been pled,
especially a cause of action which is inconsistent with the
facts that have been pled. [Footnote 14]
[Footnote 14]: Plaintiffs have pled that a valid contract
exists. Promissory estoppel applies only in the absence of a
valid contract. Although W.R.C.P. 8(e) allows a plaintiff to
plead alternative causes of action, Plaintiffs in this case have
not done so, and although the Court must construe the
pleadings to do “substantial justice” it cannot read facts and
allegations into the complaint that are not contained therein.
“Liberality does not go so far as to excuse omission of that
which is material and necessary in order to entitle relief.”
Sump v. City of Sheridan, 358 P.2d 637, 642 (Wyo. 1961).
[¶38] We agree with the district court's reasoning. We have held that “[w]hen the
complaint shows the existence of a built-in defense, a notice to dismiss lies.” Weber v.
Johnston Fuel Liners, Inc., 540 P.2d 535, 540 (Wyo. 1975) (citing Vossler v. Peterson,
480 P.2d 393, 394 (Wyo. 1971)). In such circumstances, a plaintiff is required to plead
the factual allegations that would prevent operation of the built-in defense.
The pleader must be careful not to allege facts that constitute
a defense to his claim for relief, or, for that matter, a defense
to his defense. For example, a complaint in an action seeking
specific performance for the sale of land that alleges an oral
agreement defeats itself by showing a prima facie defense of
the statute of frauds. This so-called “built-in defense” may be
13
either partial or absolute. If partial, it can be avoided by a
showing that certain facts or circumstances vitiating the
defense exist. Thus, a statute of frauds defense to the action
hypothesized above can be avoided if the complaint indicates
that there has been part performance of the oral contract,
perhaps in the form of improvements on the land.
5 Charles Alan Wright, Arthur R. Miller, et al., Federal Practice and Procedure § 1226
(3d ed. Jan. 2017 Update) (footnotes omitted).
[¶39] In their second amended complaint, Plaintiffs alleged the breach of an oral
agreement to amend the mortgage loans on their California property. In so pleading,
Plaintiffs alleged facts that created a prima facie statute of frauds defense. Because they
then failed to allege facts sufficient to rebut the statute of frauds defense, the district court
properly dismissed the breach of contract claim.
C. Dismissal of Fraud-Based Claims
[¶40] The district court dismissed Plaintiffs’ fraud-based claims because they were not
pled with the particularity required by Rule 9(b) of the Wyoming Rules of Civil
Procedure. There is no question that the Rule 9(b) pleading requirements had to be met,
and we find no error in the district court’s conclusion that the second amended complaint
failed in that regard. Smithco Eng’g, Inc. v. Internat'l Fabricators, Inc., 775 P.2d 1011,
1018 (Wyo. 1989) (“Clearly, the law of the forum controls procedural matters.”).
[¶41] Plaintiffs’ fraud-based claims include a claim for fraud in the inducement and a
claim for violation of the California Business and Professions Code. Both claims,
however, rely on the alleged misrepresentations by Sherri Wall that she was an
independent mortgage broker, which Plaintiffs claim induced them to enter into
mortgages to their detriment. Because the claims are for fraud in the inducement, the
elements that must be alleged to support the claims are: “1) the defendant made a false
representation intending to induce action by the plaintiff; 2) the plaintiff reasonably
believed the representation to be true; and 3) the plaintiff suffered damages in relying on
the false representation.” Claman v. Popp, 2012 WY 92, ¶ 43, 279 P.3d 1003, 1016
(Wyo. 2012).6 Against these elements, we consider the district court’s ruling that
Plaintiffs failed to plead their fraud claims with the particularity required by Rule 9(b) of
the Wyoming Rules of Civil Procedure.
6
Plaintiffs allege that First Tennessee knew or should have known that foreign banks were manipulating
the London Interbank Offered Rate (LIBOR) to which the Belavida mortgage was tied and should have
disclosed the LIBOR manipulation to Plaintiffs. These allegations seem to suggest a negligent
misrepresentation claim rather than a fraud claim, but no such claim was asserted in the second amended
complaint. We therefore have no need to further consider these allegations.
14
[¶42] Rule 9(b) provides that “[i]n all averments of fraud or mistake, the circumstances
constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge,
and other condition of mind of a person may be averred generally.” W.R.C.P. 9(b)
(LexisNexis 2015). We have said:
Rule 9(b) of the Wyoming Rules of Civil Procedure requires
that “[i]n all averments of fraud ... the circumstances
constituting fraud ... shall be stated with particularity.”
W.R.C.P. 9(b); Richey, 904 P.2d at 801 n. 2. To comply with
the rule:
... the references to ‘circumstances’ is to matters such as
the time, place, and contents of the false representations,
as well as the identity of the person making the
representation and what he obtained thereby. It is the
pleading of these matters with precision that serves the
rule’s purpose by apprising defendant of the claim against
him and of the acts relied upon as constituting the fraud
charged. A pleading that simply avers the technical
elements of fraud does not have sufficient informational
content to satisfy the rule’s requirement.
Johnson v. Aetna Cas. & Sur. Co. of Hartford, Conn., 608
P.2d 1299, 1302–03 (Wyo.1980) (quoting Wright & Miller,
Federal Practice and Procedure: § 1297). See also United
States ex rel. Lacy v. New Horizons, Inc., 348 Fed.Appx. 421,
424 (10th Cir.2009) (“At a minimum, Rule 9(b) requires that
a plaintiff set forth the ‘who, what, when, where and how’ of
the alleged fraud, and [she] must set forth the time, place, and
contents of the false representation, the identity of the party
making the false statements and the consequences thereof.”)
(alteration in original).
Rogers v. Wright, 2016 WY 10, ¶ 21, 366 P.3d 1264, 1273 (Wyo. 2016); see also White
v. Shane Edeburn Constr., LLC, 2012 WY 118, ¶ 26, 285 P.3d 949, 957 (Wyo. 2012)
(facts supporting elements of fraud must be alleged clearly and distinctly); Lee v. LPP
Mortg. Ltd., 2003 WY 92, ¶ 11, 74 P.3d 152, 158 (Wyo. 2003) (Rule 9(b) “requires
reference to matters such as the time, place, and contents of false representations, the
identity of the person making the representation, and what he obtained thereby.”); In re
Adoption of Hiatt, 242 P.2d 214, 216 (Wyo. 1952) (fraud complaint must allege tangible
facts with certainty and definiteness).
15
[¶43] In support of their fraud claims, Plaintiffs alleged as follows in their second
amended complaint:
11. Plaintiffs’ credit scores (FICA in excess of 800)
permitted them to buy anywhere without encumbering the
Wyoming Property. Agent Sherri Wall (“Wall”) obtained
loan commitments for several properties with an acquisition
cost equal to or greater than the Monterey Property without
any Wyoming encumbrance.
12. Wall was well known to Plaintiffs and did business
with Plaintiffs while Wall was employed by GMAC Home
Loans. When the Loans were arranged by Wall, Plaintiffs
understood based on affirmative representations made on
several occasions to Plaintiffs by Wall that Wall was an
independent loan broker. Plaintiffs, given their past business
relationship over many years, had reason to trust Wall's
judgment and her representations. Had Plaintiffs known the
true situation, Plaintiffs would not have accepted Wall’s
advice and proposal without further examination.
13. Wall continually assured Plaintiffs that she was an
independent loan broker and went so far as to ask Plaintiffs
for advice on the formation of her new business, an
independent mortgage brokerage, when GMAC closed its
Spokane office in 2005. Plaintiffs had enjoyed a relationship
with Wall since the 1990’s and had referred friends and
clients to her over many years.
14. Plaintiffs located Belavida in the Fall of 2005 and
contacted Wall to secure financing for the proposed purchase
of Belavida. Wall assured Plaintiffs that Belavida, standing
alone, would be the only property encumbered by any
mortgage.
15. After further consultations with Wall, Plaintiffs made
an offer on Belavida with a financing contingency and a 30
day close * * *. * * * Wall counseled Plaintiffs to submit an
offer, the terms of which were that a first position mortgage
was to be placed on Belavida only with the mortgage in the
amount of $2,256,000 with the balance due coming from
Plaintiffs' personal assets and a HELOC that Wall would
arrange on Belavida. No discussion was had with regard to
any obligation being placed on the [street address omitted]
Property in Sheridan, Wyoming * * *.
****
16
18. * * * Wall then contacted the Plaintiffs and advised
them that she had found what the best financing deal was “by
far.” The “deal” consisted of the following: The Loans
consisted of a new money mortgage in the amount of
$1,500,000 on Belavida, a $282,000 HELOC on Belavida, a
$1,000,000 refinance on [Plaintiffs’ Wyoming property] and a
$150,000 HELOC on [Plaintiffs' Wyoming property]. There
was a small existing mortgage on [Plaintiffs’ Wyoming
property] which as paid in escrow from the proceeds of the
new mortgage leaving a balance paid into the Belavida
Escrow of $1,059,756.73 which was a combination of
Plaintiffs’ funds and the [Wyoming] mortgages. All of the
“new money” from these Loans went into Belavida. In
addition, Plaintiffs paid in the sums of $180,000 in out-of-
escrow real estate commissions and $118,000 to the Pasadera
Country Club in order to purchase the Sellers’ club
membership.
****
25. In reliance on their relationship with Wall * * *,
Plaintiffs accepted Wall's advice and proceeded to close the
transaction of the terms set forth in Paragraph 18, above.
****
27. Plaintiffs are informed and believe and thereon allege
that during the escrow on the Monterey property, Wall
became an employee of [First Tennessee] and that this was
the sole reason for her recommendation of the “deal.”
****
82. Within three (3) years from the date of filing the
within action, Plaintiffs learned that Wall was, in fact, an
employee of [First Tennessee] and not [an] independent loan
broker as she had claimed.
83. Had Plaintiffs known the true facts they would not
have entered into the mortgage obligations as described in
Paragraph 18, above.
84. [First Tennessee] acted in conscious disregard of the
truth and in furtherance of a scheme or plan to cause Plaintiffs
to accept these mortgages based on their long standing
relationship with and reasonable reliance on the claim by
Wall that she was an “independent” and “working for
Plaintiffs.”
****
99. By representing herself as an independent loan broker
while, in fact, an employee of [First Tennessee], Wall
17
induced Plaintiffs to enter into the mortgages described in
Paragraph 18, above, by means of fraud.
[¶44] We agree with the district court that these allegations lack the particularity
required by Rule 9(b). First, as the district court observed, the second amended
complaint alleged only in general terms that Ms. Wall represented that she was an
independent broker. The second amended complaint alleged that Plaintiffs “understood
based on affirmative representations made on several occasions” that Ms. Wall “was an
independent broker,” and it alleged that “Wall continually assured Plaintiffs that she was
an independent broker.” The second amended complaint failed, however, to allege with
any type of clarity and specificity the contents of Ms. Wall’s alleged representations. See
Lee, ¶ 11, 74 P.3d at 158 (Rule 9(b) “requires reference to matters such as the * * *
contents of false representations.”); see also Phillips v. Toner, 2006 WY 59, ¶¶ 8, 24, 133
P.3d 987, 990, 996 (allegation that defendant met with plaintiff “to induce him to perform
the work and gave repeated assurances that he would be paid for his services” failed to
allege fraud with required particularity); Mueller v. Zimmer, 2005 WY 156, ¶¶ 14, 17,
124 P.3d 340, 349, 350 (Wyo. 2005) (allegation that defendant made “unjustified and
false” claim for unpaid overtime failed to allege fraud with required particularity).
[¶45] Additionally, Plaintiffs’ second amended complaint failed to allege when Ms.
Wall made the representations that she was an independent broker. The second amended
complaint alleged that Ms. Wall became an employee of First Tennessee after Plaintiffs
made their initial offer on the California property and it alleged that “Plaintiffs
understood based on affirmative representations made on several occasions” that Ms.
Wall was an independent broker when they accepted her recommendation on the revised
loan deal. The second amended complaint did not, however, allege that Ms. Wall
repeated her representation that she was an independent broker between her
recommendation on the original mortgage proposal and her recommendation on the new
loan recommendation. Accepting the allegations as true, Ms. Wall represented that she
was an independent broker at a time when she was an independent broker. The
allegations are silent as to whether Ms. Wall repeated the representation after she became
a First Tennessee employee, and there is therefore no allegation to support a claim that a
misrepresentation by Ms. Wall induced Plaintiffs to accept the second recommended loan
package.
[¶46] Finally, we also agree with the district court that the second amended complaint
failed to allege how Plaintiffs were harmed by the alleged misrepresentation concerning
Ms. Wall’s employment. The second amended complaint alleged that had Plaintiffs
known Ms. Wall was employed by First Tennessee, they “would not have accepted
Wall's advice and proposal without further examination.” It further alleged that “[h]ad
Plaintiffs known the true facts they would not have entered into the mortgage
obligations[.]” The second amended complaint did not, however, allege what additional
information would have been important to Plaintiffs or that Plaintiffs would not have
18
gone through with the purchase of the California property had they known that Ms. Wall
was a First Tennessee employee. Additionally, the second amended complaint did not
allege: that Ms. Wall misrepresented the terms of the loan package or failed to disclose
that the loan deal would encumber both the Wyoming and California properties; that
Plaintiffs were willing to accept only a loan package that encumbered the California
property and left the Wyoming property unencumbered; or that there were better loan
packages available to them that would not have encumbered both the California and
Wyoming properties.
[¶47] In short, the second amended complaint failed to allege with any specificity that
there were better loan options available to Plaintiffs, that Plaintiffs would have accepted
those loan options, and that those loan options would have left Plaintiffs in a better
position. Based on this failure and the failure of the second amended complaint to plead
with particularity the content of the representations by Ms. Wall and when those
misrepresentations were made, we conclude that the district court properly dismissed
Plaintiffs’ fraud-based claims for failure to plead the claims with the particularity
required by Rule 9(b) of the Wyoming Rules of Civil Procedure.7
D. District Court’s Denial of Further Complaint Amendments
[¶48] We generally review a district court’s ruling on a motion to amend for an abuse of
discretion. Dane v. Dane, 2016 WY 38, ¶ 17, 368 P.3d 914, 918 (Wyo. 2016). Plaintiffs
did not, however, state an issue for our review with respect to the district court’s ruling
that no further amendments of Plaintiffs’ complaint would be permitted, and Plaintiffs'
first argument concerning the ruling appears in their reply brief. There, Plaintiffs simply
point out that they amended their complaint only one time after responsive pleadings
were filed and they request that this Court afford them an opportunity to again amend
their complaint. Under these circumstances, we decline any further review of the district
court’s ruling on further amendments. See Golden v. Guion, 2016 WY 54, ¶ 31, 375 P.3d
719, 727 n.5 (Wyo. 2016) (Court does not consider issues not supported by cogent
argument).
CONCLUSION
[¶49] Based on the allegations in Plaintiffs’ second amended complaint, Plaintiffs’
breach of contract claim was barred by the statute of frauds, and Plaintiffs failed to plead
their fraud claims with the particularity required by Rule 9(b) of the Wyoming Rules of
Civil Procedure. Affirmed.
7
Plaintiffs’ claims for rescission and restitution and for declaratory relief are derivative of their defective
fraud claims and were thus likewise properly dismissed.
19