Unpublished Disposition, 936 F.2d 577 (9th Cir. 1989)

MEMORANDUM^* 

Palmer E. Ganske, an Arizona resident, sued Traders Insurance Company, a Missouri corporation, to recover $160,000 in insurance proceeds for the theft of four miniature Arabian horses. Ganske appeals from a summary judgment entered against him on November 2, 1989. Ganske argues (1) that, as the assignee of a security interest in the horses, he has an "insurable interest" in them, under Arizona law, and may enforce the theft policy issued by Traders, and (2) that the district court erred by denying his Rule 59(a) motion for a new trial.

In his post-judgment motion, Ganske argued that, as a third-party beneficiary of the insurance contract, he had a right to enforce it whether or not he held an "insurable interest" in the horses. The district court ruled that it was too late for Ganske to propose a new legal theory of recovery which he could have raised earlier. The district court also denied, as irrelevant, Ganske's post-judgment request to retract certain pretrial stipulations.

We AFFIRM on the ground that Ganske never acquired a valid security interest in the horses, or in the alternative, that Ganske elected his remedy when he rescinded the assignment.

Induced by Loretta Keller's fraud, Ganske entered into an assignment contract with her. On the basis of the record and of Ganske's state court judgment against Loretta Keller, we find that the assignment contract was void because the underlying sales transaction giving rise to the purported security interest was a wholly fraudulent transaction concocted by Loretta Keller.

Ganske sued Loretta Keller, Mr. and Mrs. Clinton Keller, and Cheeley in state court over the fraudulent assignment contract. Ganske prevailed, but only against Loretta Keller, on fraud and forgery claims. The state court dismissed Ganske's claim against Clinton Keller with prejudice. The record indicates that the trustee for Loretta Keller's bankruptcy estate relinquished his claim to the horses and that Clinton Keller emerged as their undisputed owner. There is no evidence that the horses' true owner ever intended to transfer any interest in them to Ganske.

In the alternative, if the fraudulent assignment contract was voidable at Ganske's election, then Ganske had to choose between two options. First, he could affirm the assignment contract and sue for specific performance or damages. Second, he could rescind and seek restitution. Phillips v. Adler, 134 Ariz. 480, 657 P.2d 893, 895 (Ariz.Ct.App.1982). Ganske rescinded the contract and elected his remedy, restitution from Loretta Keller for $150,000, including out-of-pocket losses, pre-judgment interest, and attorney's fees.¹  It would be unjust now to permit Ganske a double recovery comprising $150,000 in restitution from Keller and $160,000 in theft insurance from Traders. Fousel v. Ted Walker Mobile Homes, Inc., 124 Ariz. 126, 602 P.2d 507, 509-10 (Ariz.Ct.App.1979). The remedies were inconsistent and Ganske elected between them. The doctrine of collateral estoppel or issue preclusion would bar Ganske from asserting that he retained a valid security interest in the horses. Although Traders was not a party to the original state court action, it may use collateral estoppel defensively as Ganske had a full and fair opportunity to litigate the issue in the original action. Gilbert v. Board of Medical Examiners of State of Ariz., 155 Ariz. 169, 745 P.2d 617, 622-23 (Ariz.Ct.App.1987).

Under A.R.S. Sec. 20-1105, Ganske cannot enforce the contract for his own benefit because he has retained no insurable interest in the horses. Under A.R.S. Sec. 47-2501(E), a seller's security interest is insurable, but Ganske never was or is no longer the assignee of a security interest. This is because he disavowed Clinton Keller's fraudulent assignment and retained no valid ownership or security interest in the horses. Nor can Ganske collect any proceeds as a third-party beneficiary of the insurance contract. Ganske's right to the insurance proceeds was based upon and limited to the extent of his security interest in the horses. Ganske's status as a third-party beneficiary of the insurance policy was contingent upon his status as a secured creditor. His conditional right to recover insurance proceeds for his own benefit was limited to the extent of his secured debt. 5A Appleman Sec. 3335 & nn. 87, 88 & 91. Never having received a valid security interest, or in the alternative, having abandoned his security interest, Ganske extinguished his insurable interest and his conditional right to any insurance proceeds.

In support of his Rule 59(a) motion for a new trial, Ganske advanced a new theory of recovery. Ganske argued that, as a third-party beneficiary of the insurance contract, he could enforce it under Arizona law whether or not he had an insurable interest in the horses. The district court refused to consider this new legal theory because Ganske had raised it after entry of summary judgment. Even if it was procedural error to deny Ganske's Rule 59(a) motion, this error was harmless because Ganske's argument was without merit.

The district court denied Ganske's request to withdraw from an allegedly inadvertent stipulation. It was irrelevant, the court ruled, whether Loretta Keller had forged or had been authorized to sign her father's name to the documents in question. We follow the Fifth Circuit in holding that parties are bound by their pre-trial stipulations, and we shall not reverse except in the face of manifest injustice or substantial evidence to the contrary. Donovan v. Hamm's Drive Inn, 661 F.2d 316 (5th Cir. 1981); see, e.g., Interfirst Bank Abilene, N.A. v. FDIC, 777 F.2d 1092, 1096 (5th Cir. 1985); Coastal States Mktg., Inc. v. Hunt, 694 F.2d 1358 (5th Cir. 1983).

In support of his argument, Ganske presents documents in which Clinton Keller purports to confer powers of agency and attorney upon his daughter. Evidence of such dubious reliability will not support reversal. Moreover, Clinton Keller, whom Ganske maintains is the true owner of the horses, was dismissed with prejudice from Ganske's state court fraud suit. This indicates that Ganske waived or failed to establish any claim to a security interest in the horses, which interest could only have been conferred by the owner or his authorized agent.

AFFIRMED.