Filed: Feb. 12, 1999
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Summary: [PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ FILED No. 96-4570 U.S. COURT OF APPEALS _ ELEVENTH CIRCUIT 02/12/99 D.C. Docket No. 90-1606-CIV-WMH THOMAS K. KAHN CLERK WESTERN GROUP NURSERIES, INC., an Arizona corporation; WESTERN UNITED NURSERIES, INC., an Arizona corporation, Plaintiffs-Appellants, versus MARTIN ERGAS, WORLD NURSERIES, INC., a Delaware corporation Defendants-Appellees. _ Appeal from the United States District Court for the Southern District of Flori
Summary: [PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ FILED No. 96-4570 U.S. COURT OF APPEALS _ ELEVENTH CIRCUIT 02/12/99 D.C. Docket No. 90-1606-CIV-WMH THOMAS K. KAHN CLERK WESTERN GROUP NURSERIES, INC., an Arizona corporation; WESTERN UNITED NURSERIES, INC., an Arizona corporation, Plaintiffs-Appellants, versus MARTIN ERGAS, WORLD NURSERIES, INC., a Delaware corporation Defendants-Appellees. _ Appeal from the United States District Court for the Southern District of Florid..
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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
_______________________
FILED
No. 96-4570 U.S. COURT OF APPEALS
_______________________ ELEVENTH CIRCUIT
02/12/99
D.C. Docket No. 90-1606-CIV-WMH THOMAS K. KAHN
CLERK
WESTERN GROUP NURSERIES, INC.,
an Arizona corporation; WESTERN UNITED
NURSERIES, INC., an Arizona corporation, Plaintiffs-Appellants,
versus
MARTIN ERGAS, WORLD NURSERIES,
INC., a Delaware corporation Defendants-Appellees.
__________________________________
Appeal from the United States District Court
for the Southern District of Florida
___________________________________
(February 12, 1999)
Before COX and BARKETT, Circuit Judges, and SMITH*, Senior Circuit Judge.
SMITH, Senior Circuit Judge:
Western Group Nurseries, Inc. ("Western Group") appeals the May 18, 1995 order of the
District Court for the Southern District of Florida, entering summary judgment for defendant Martin
Ergas ("Ergas"). Western Group sued Ergas, a limited partner of a tax shelter partnership, to force
him to pay his pro rata share of a promissory note entered into by the partnership. Ergas defended
____________________
*Honorable Edward S. Smith, Senior Circuit Judge for the Federal Circuit, sitting by designation.
on the ground that, as part of a related transaction, Western Group had agreed not to sue the limited
partners. The District Court held the disputed contract language to be an unambiguous covenant not
to sue and granted summary judgment to Ergas. We hold that the contract language at issue is
ambiguous when viewed in the proper context and therefore reverse and remand for its interpretation
in light of extrinsic evidence.
Facts
This case arises out of a complex series of transactions in which nursery owners sold their
properties to a tax shelter syndicator, who in turn sold the properties to a limited partnership as a tax
shelter.
At the end of 1984, thirteen Arizona nursery owners ("Sellers") contracted to sell their
nursery businesses and properties to World Nurseries, Inc. ("Syndicator"), a tax shelter promoter.
Of the $22.1 million purchase price, $3 million dollars was to be paid in cash at closing, $17 million
was to be paid pursuant to a promissory note from Syndicator, and $2.1 million was contingent on
the sale of certain nursery stock.
In a separate transaction contemplated by the Sellers/Syndicator agreement, Syndicator
immediately sold the nursery assets to Arizona World Nurseries Limited Partnership ("Partnership")
for $33 million. The increased purchase price reflected the additional value of the tax benefits to
the limited partners.1 Partnership paid $6.57 million of the purchase price in cash and promised to
1
Partnership was formed in an effort to create a tax shelter for the partners. In light of an opinion letter
from Arthur Andersen & Co., the partners expected to be able to deduct up to $355,000 in losses for every
$100,000 invested. Ergas purchased two limited partnership units for $200,000.
2
pay the remaining $26.43 million pursuant to a promissory note. Partnership's note (referred to as
the "Wraparound Note") was nonrecourse as to the partnership itself,2 but the limited partners were
liable for $260,000 per unit purchased. Partnership conveyed a purchase money security interest
(PMSI) in the nursery assets to Syndicator to secure the Wraparound Note.
To secure payment of its note to Sellers, Syndicator conveyed a PMSI in the nursery assets
to Sellers. As additional collateral for its debt to Sellers, Syndicator conveyed the Wraparound Note
to Sellers. The note was nonrecourse as to Syndicator.
Paragraph 1 of the Sellers/Syndicator security agreement established the Sellers' security
interest in the Wraparound Note and reads, in pertinent part:
Security Interest. To secure the timely payment of the Purchase Price, including but
not limited to the timely payments of principal and interest under the [Syndicator's]
Note, the payment of the Additional Purchase Price and the payment and
performance of all obligations and liabilities of Debtor [Syndicator] to Secured Party
[Sellers] under the Maintenance Contracts, the Note, the Purchase Agreement … and
this Security Agreement (such payments under the Note and the payment and
performance of such obligations and liabilities are hereinafter referred to,
collectively, as the "Obligations"), Debtor shall, and hereby does, grant, convey,
assign, pledge and transfer to Secured Party, a purchase money security interest in
and to the Properties and the [Wraparound] Note (except that Secured Party shall not
have the right to sue the Limited Partners or General Partners of the Partnership
personally thereon other than to the extent of payments made to them by the
Partnership)
(emphasis added). The intended effect of the emphasized parenthetical phrase is disputed by the
parties and is the critical issue in this case.
After barely a year, Partnership found itself unable to make payments on its promissory note
to Syndicator. Consequently, Syndicator could not make its payments to Sellers. Sellers declared
2
Nonrecourse debt is "[d]ebt secured by the property that it is used to purchase. The purchaser of the
property is not personally liable for the debt on default. Rather, the creditor's recourse is to repossess the
related property." BLACK'S LAW DICTIONARY 1057 (6th ed. 1990).
3
Syndicator in default and filed suit in Arizona for foreclosure. In October 1986, the trial court
ordered foreclosure. The Arizona Court of Appeals affirmed.
On December 1, 1986, Western United Nurseries, Inc. ("Western United"), which obtained
judgment in its name as representative of Sellers, assigned part of its judgment against Syndicator
to Sellers' newly formed entity, Western Group Nurseries, Inc. ("Western Group"), to bid at the
Arizona sheriff's sale of Syndicator's collateral securing its debt on December 2, 1986. Western
Group purchased the Wraparound Note at the sale. Western Group's efforts to collect on this note
have led to a string of lawsuits including the instant case.
Procedure
After Western Group purchased the Wraparound Note, it sued Partnership and its limited
partners (including Ergas) in Arizona state court. The limited partners were dismissed for lack of
personal jurisdiction. The court entered judgment against Partnership accelerating the entire
principal balance and interest accrued on the Wraparound Note. Western Group then sued the
limited partners individually to collect the partners' pro rata shares of the amount due under the
note.3
Western Group filed suit against Ergas in 1989 in a Florida circuit court. After Ergas filed
a motion to dismiss, Western Group filed a notice of voluntary dismissal. Ergas moved for attorney's
fees under a Florida statute which allows sanctions for filing suits in which "the court finds that there
was a complete absence of a justiciable issue of either law or fact raised by the complaint or defense
3
Western Group tries to introduce as evidence that more than seventy of the limited partners have already
settled and that at least four cases have been resolved in Western Group's favor. The disposition of these
other cases has no effect on the legal issue here: whether the contract term is ambiguous or not.
4
of the losing party." FLA. STAT. ANN. § 57.105(1) (West 1993). The state circuit court granted
Ergas the relief sought. Western Group appealed to the Third District Court of Appeal of Florida.
The appellate court affirmed Ergas's final judgment against Western Group on November 2, 1994,
and subsequently denied motions for rehearing.
After Western Group took a voluntary dismissal of the state court case, they filed the same
complaint, adding federal jurisdictional allegations, in the United States District Court for the
Southern District of Florida. Ergas moved to dismiss the case for failure to state a claim and in July
1991, the district court dismissed the complaint, finding that the covenant not to sue was clear and
unambiguous on its face, and that Western Group's predecessor had unequivocally contracted not
to sue the limited partners. Western Group filed an amended complaint, adding allegations about
the parties' intentions in making the contract. Ergas again moved to dismiss, contending that
intentions are irrelevant when an agreement is clear and unambiguous on its face.
In October 1993, the district court dismissed the amended complaint and Western Group
filed a second amended complaint in November 1993. This complaint added Western United as
plaintiff and Syndicator as defendant and added a claim for reformation of the contract between
these added parties. On Ergas's motion to dismiss, the district court found the reformation claim to
be barred by the applicable statute of limitations, dismissed the allegations against Syndicator and
entered final judgment in Ergas's favor. Western Group appeals the decision of the district court
dismissing its claims against Ergas. Western Group has not appealed its reformation claim.
Both parties have filed motions for attorney's fees, which were carried with the case. Ergas
also filed a motion to have the case mooted under the doctrine of res judicata, claiming that the
decision by the Florida appellate court precludes this litigation. That motion was also carried with
5
the case.
Ergas's Motion to Dismiss the Appeal as Moot under the Doctrine of Res Judicata
Before we consider the merits of the case, we must first decide whether this appeal is
rendered moot by the doctrine of res judicata. "Under Florida law, res judicata bars parties from
bringing actions which raise issues that have already been adjudicated in a previous action between
the same parties or their privies. To successfully invoke res judicata as a defense to an action, a
defendant must establish (1) identity in the thing sued for, (2) identity of the cause of action, (3)
identity of parties, and (4) identity of the quality or capacity of the person for or against whom the
claim is made." Meshulam v. General Motors Corp., 995 F.2d 192, 194 (11th Cir. 1993) (footnote
and citations omitted). "To support a defense of res judicata, it must be clear that the court in the
previous action intended that the disposition there was to be without right to further proceedings by
the plaintiff." Equitable Fire & Marine Ins. Co. v. Bradford Builders, Inc.,
174 So. 2d 44, 45 (Fla.
Dist. Ct. App. 1965).
The Florida statute governing the award of attorney fees for filing frivolous lawsuits reads,
in pertinent part:
The court shall award a reasonable attorney's fee to be paid to the prevailing party
in equal amounts by the losing party and the losing party's attorney in any civil
action in which the court finds that there was a complete absence of a justiciable
issue of either law or fact raised by the complaint or defense of the losing party.
FLA. STAT. ANN. § 57.105(1) (West 1993) (emphasis added). Ergas contends that because the state
trial court found "a complete absence of a justiciable issue of either law or fact" raised by Western
Group, the attorney's fee award amounted to a final determination on the merits of the case and is
res judicata to the instant case. We disagree.
6
A plaintiff has an absolute right to voluntarily dismiss his action at any time prior to a
summary judgment hearing, or before the case is sent to the jury. See Fla. R. Civ. P. 1.420(a)(1);
Meshulam, 995 F.2d at 194; Bevan v. D'Allessandro,
395 So. 2d 1285, 1286 (Fla. Dist. Ct. App.
1981). "A voluntary dismissal is 'without prejudice' in the sense that the defendant may not rely on
the previous dismissal as a defense to any subsequent lawsuit."
Meshulam, 995 F.2d at 194 (citing
Randle-Eastern Ambulance Serv. Inc. v. Vasta,
360 So. 2d 68 (Fla. 1978)).
When a plaintiff takes a voluntary dismissal, "[t]he effect is to remove completely from the
court's consideration the power to enter an order, equivalent in all respects to a deprivation of
'jurisdiction.'" Randle, 360 So. 2d at 69. See also Miller v. Fortune Ins. Co.,
484 So. 2d 1221, 1223
(Fla. 1986). However, a court may retain jurisdiction to decide matters collateral to a case, such as
attorney's fees. See MacBain v. Bowling,
374 So. 2d 75, 76 (Fla. Dist. Ct. App. 1979); Tampa
Letter Carriers, Inc. v. Mack,
649 So. 2d 890, 891 (Fla. Dist. Ct. App. 1995). A voluntary dismissal,
therefore, immediately divests the trial court of jurisdiction to decide the case at hand, even though
the court's determination of a collateral matter may turn on an examination of the merits of the case.
The award of attorney's fees is a collateral order of the circuit court. It does not have the effect of
placing restrictions on the voluntary dismissal, an action for which the circuit court would have no
jurisdiction.
Florida courts have long recognized a plaintiff's absolute right to a voluntary dismissal
without prejudice, even when the trial judge has examined the merits of the case and announced an
intention to direct a verdict for the defendant. See Fears v. Lunsford, 314 So. 2d 578 (Fla. 1975).
See also Freeman v. Mintz,
523 So. 2d 606, 609 (Fla. Dist. Ct. App. 1988); Jeffrey C. Regan, Note,
Plaintiffs' Absolute Right to Voluntary Dismissal: Legitimate Right or Abuse of Judicial Process?
7
36 U. Fla. L. Rev. 118 (1984). To treat the state court's award of attorney's fees in this case as a final
adjudication on the merits, and therefore res judicata to this federal proceeding, would undermine
the purposes of the voluntary dismissal rule.4 Ergas' motion to dismiss the appeal is therefore
denied. Ergas' motion for attorney's fees is denied for the same reason. Each party will bear its own
costs. We proceed to the merits of the case.
Western Group's Right to Sue Ergas on the Wraparound Note
1. Standard of Review
Our review of a trial court's grant of summary judgment is plenary.5 Elan Pharmaceutical
Research Corp. v. Employers Ins. of Wausau, 144 F.3d 1372 (11th Cir. 1998); Hale v. Tallapoosa
County,
50 F.3d 1579, 1581 (11th Cir. 1995). We apply the same standard applied by the district
court. Rodgers v. Singletary,
142 F.3d 1252 (11th Cir. 1998).
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R.
CIV. P. 56(c). "In reviewing a motion for summary judgment, the court must consider all the
evidence in the light most favorable to the non-movant. Earley v. Champion Int'l. Corp., 907 F.2d
4
We find the United States Supreme Court case of Cooter & Gell v. Hartmarx,
110 S. Ct. 2447 (1990), to
be instructive. In Cooter & Gell, the Supreme Court found that, although the federal courts have
jurisdiction to decide a Rule 11 motion after a voluntary dismissal, that determination does not have
preclusive effects against a later suit. Id. at 2456 ("Even if a district court indicated that a complaint was
not legally tenable or factually well founded for Rule 11 purposes, the resulting Rule 11 sanction would
nevertheless not preclude the refiling of a complaint.").
5
Ergas characterizes the district court's order as dismissal for failure to state a claim, but the district court's
order was clearly a grant of summary judgment. In its order, the district court states: "I have determined to
conclude the case pursuant to Rule 56. … There are no genuine issues of material fact presented by the
record. Judgment for Defendant will be entered by separate order."
8
1077, 1080 (11th Cir. 1990). If the record presents factual issues, the court must not decide them;
it must deny the motion and proceed to trial. Clemons v. Dougherty County, Ga., 684 F.2d 1365,
1368-69 (11th Cir. 1982)." Kopleowitz v. Home Ins. Co.,
977 F. Supp. 1179, 1184-1185 (S.D. Fla.
1997).
2. Contract Interpretation
The Sellers/Syndicator security agreement provides that any disputes will be resolved under
the law of the state of New York. Thus, our analysis will be guided by New York law.
Under New York law, "[w]hether an agreement is ambiguous is a question of law for the
courts (see, Van Wagner Adv. Corp. v. S & M Enters., 67 N.Y.2d 186, 191,
501 N.Y.S.2d 628,
492
N.E.2d 756). Ambiguity is determined by looking within the four corners of the document, not to
outside sources (see, W.W.W. Assocs. v. Giancontieri,
77 N.Y.2d 157, 162-163,
565 N.Y.S.2d 440,
566 N.E.2d 639). And in deciding whether an agreement is ambiguous courts
'should examine the entire contract and consider the relation of the parties and the
circumstances under which it was executed. Particular words should be considered,
not as if isolated from the context, but in light of the obligation as a whole and the
intention of the parties as manifested thereby. Form should not prevail over
substance and a sensible meaning of words should be sought'
(William C. Atwater & Co., Inc. v. Panama R.R. Co., 246 N.Y. 519, 524,
159 N.E. 418)." Kass v.
Kass,
696 N.E.2d 174, 180-181 (N.Y. 1998).
The parties disagree about the meaning of the parenthetical provision in paragraph 1 of the
Sellers/Syndicator security agreement:
Debtor shall, and hereby does, grant, convey, assign, pledge and transfer to Secured
Party, a purchase money security interest in and to the Properties and the
[Wraparound] Note (except that Secured Party shall not have the right to sue the
Limited Partners or General Partners of the Partnership personally thereon other than
to the extent of payments made to them by the Partnership)
9
(emphasis added). Read in isolation, this parenthetical provision appears to be a simple covenant
by Western Group not to sue the partners of Partnership on the Wraparound Note. This is the
reading of the phrase that the district court adopted and that Appellee Ergas urges on appeal.
Appellant Western Group, however, argues that the intended meaning of the phrase can only
be derived by viewing the parenthetical language in the context of the Security Agreement as a
whole and the intended effect of the transactions underlying the Agreement. Western Group argues
that, viewed in context, the parenthetical language applied only while the Wraparound Note was
held by the Syndicator and pledged to the Sellers; once Western Group purchased the Syndicator's
note at the foreclosure sale, the restriction on suing the partners no longer applied. Western Group
argues that the meaning given the parenthetical phrase by the district court would have been contrary
to the interests of both the Sellers and the limited partners, since the Sellers would have lost effective
security for payment for the nursery properties, and the partners would have lost the tax benefits that
came from their investment's at-risk status.
As the New York Court of Appeals recently stated, "in deciding whether an agreement is
ambiguous courts 'should examine the entire contract and consider the relation of the parties and the
circumstances under which it was executed.'" Kass v. Kass, 696 N.E.2d at 180 (quoting William
C. Atwater & Co., Inc. v. Panama R.R. Co.,
159 N.E. 418, 419 (N.Y. 1927)). See also
RESTATEMENT (SECOND) OF CONTRACTS § 202(2) (1981) ("A writing is interpreted as a whole, and
all writings that are part of the same transaction are interpreted together."). We conclude that the
parenthetical phrase at issue is ambiguous when viewed in the context of the security agreement as
a whole and in the context of the transaction of which it is a part.
It is true, as Ergas argues, that the language of the parenthetical is unqualified; paragraph 1
10
of the security agreement nowhere states that the limitation applies only for a limited time or under
limited circumstances. However, it is also true, as Western Group argues, that construing the
parenthetical as an absolute bar to suit against the limited partners under the Wraparound Note
conflicts with paragraph 5 of the security agreement (reserving to Sellers all of the remedies
available to a secured party), with the penultimate paragraph of the Wraparound Note (stating that
"each limited partner of the [Partnership] shall be personally liable to the extent of $260,000 per unit
of Limited Partnership interest"), and apparently with the purposes of both the Sellers and the
limited partners in entering into the transaction (since it would limit the Sellers' ability to enforce
payment of their promissory note and would limit the partners' tax benefits flowing from their
investment). The language at issue is "capable of more than one meaning when viewed objectively
by a reasonably intelligent person who has examined the context of the entire integrated agreement
and who is cognizant of the customs, practices, usages and terminology as generally understood in
the particular trade or business." Sayers v. Rochester Telephone Corp., 7 F.3d 1091, 1095 (2nd Cir.
1993). It is therefore ambiguous as a matter of law.
"[W]hen the meaning of the contract is ambiguous and the intent of the parties becomes a
matter of inquiry, a question of fact is presented which cannot be resolved on a motion for summary
judgment." Eden Music Corp. v. Times Square Music Publications Co., 514 N.Y.S.2d 3, 5 (N.Y.
App. Div. 1987). The district court erred when it held that this case presents no genuine issue of
material fact.
The meaning of an ambiguous contract term is an issue of fact. Eden Music Corp., 514
N.Y.S.2d at 5. An issue of fact is material if it "might affect the outcome of the suit under the
governing law." Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1985). Here, the meaning of
11
the parenthetical phrase at issue is "material," since Western Group's very right to bring suit against
Ergas hinges on the meaning given to the phrase.
An issue of fact is genuine "if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party." Anderson, 477 U.S. at 248. The meaning of the phrase at issue
here is a "genuine" issue, since the nonmoving party presented substantial evidence to support its
construction of the phrase.6
Western Group points to affidavits that it filed during litigation of the second amended
complaint. These affidavits provide evidence that support Western Group's interpretation of the
disputed phrase. In these affidavits, Tyrone Kindor and Joseph Tyler, two of the Sellers, attest that
they intended and understood the disputed language only to apply while the Wraparound Note was
pledged to the Sellers, and not after foreclosure. In addition, Western Group points to the affidavit
of Henry Singer, attorney for the Sellers, who participated in drafting the parenthetical language,
stating that both parties to the Sellers/Syndicator security agreement understood the limitation only
to apply when the Wraparound Note was pledged to the Sellers, not after foreclosure.
"New York follows the common law rule that, '[i]n interpreting a contract, the intent of the
parties governs,' and therefore '[a] contract should be construed so as to give full meaning and effect
to all of its provisions.'" PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1199 (2nd Cir. 1996) (quoting
American Express Bank Ltd. v. Uniroyal, Inc.,
562 N.Y.S.2d 613, 614 (N.Y. App. Div. 1990)).
Thus, the affidavits presented by the Sellers are substantial evidence to support their construction
6
Of course, "[t]he moving party bears the initial burden to show the district court, by reference to
materials on file, that there are no genuine issues of material fact that should be decided at trial. Only when
that burden has been met does the burden shift to the non-moving party to demonstrate that there is indeed a
material issue of fact that precludes summary judgment." Clark v. Coats & Clark, Inc., 929 F.2d 604, 608
(11th Cir. 1991). We assume without deciding that Ergas met his initial burden of production.
12
of the disputed phrase.
Under New York law, a contract should be interpreted to effect the intentions of the parties.
PaineWebber, 81 F.3d at 1199. The evidence presented by Western Group is sufficient that a
reasonable jury could have found that the parties intended the parenthetical language to mean what
Western Group has asserted. The district court therefore erred in granting summary judgment to
Ergas.
The district court, in granting summary judgment, improperly weighed the evidence and
chose between competing interpretations of the disputed contract term. The proper interpretation
of the parenthetical phrase presents an issue of fact to be decided at trial. We therefore reverse the
district court's grant of summary judgment to Ergas and remand for appropriate action consistent
with this opinion.
REVERSED AND REMANDED.
13
