Gruender v. Rosell et al, No. 2:2009cv01347 - Document 56 (D. Ariz. 2010)

Court Description: ORDER granting 42 Defendants The Gardiner Law Firm and D. Bruce Gardiner's Motion for Summary Judgment; denying 46 Plaintiff Daniel Gruender's Cross- Motion for Summary Judgment. The Clerk is directed to enter judgment accordingly. Signed by Judge David G Campbell on 5/21/10.(TLJ)
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Gruender v. Rosell et al 1 Doc. 56 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 10 11 12 13 14 15 ) ) ) Plaintiff, ) ) vs. ) Harald Rosell; The Gardiner Law Firm, ) ) P.S., a Washington corporation; and ) D. Bruce Gardiner, ) ) Defendants. ) ) Daniel F. Gruender, No. CV-09-1347-PHX-DGC ORDER 16 Daniel Gruender and Harald Rosell entered into an unsecured promissory note on 17 April 7, 2009. Dkt. #1-1. Gruender agreed to loan Rosell $1.35 million, and Rosell agreed 18 to pay Gruender a total of $2 million by May 1, 2009. Id. at 2, §§ 1-3. The note provides 19 that the $1.35 million loan was to be disbursed to Rosell’s trustee, attorney Bruce Gardiner, 20 and placed in his client trust account. Id. § 1. Gruender funded the loan, but Rosell failed 21 to meet the repayment deadline. On May 18, 2009, the promissory note was amended to 22 provide that Rosell would pay Gruender a total of $2.5 million by June 8, 2009. Dkt. #39-1 23 at 2, §§ 2-3. Rosell has defaulted on the note and has refused Gruender’s demand for 24 payment. 25 Gruender filed suit against Rosell, Bruce Gardiner, and The Gardiner Law Firm 26 on June 23, 2009. Dkt. #1. The complaint asserts three claims: breach of contract, breach 27 of the covenant of good faith and fair dealing, and specific performance. Id. ¶¶ 27-48. 28 Gruender seeks damages in the amount of $2.5 million, plus interest and fees. Id. at 8-9. 1 Bruce Gardiner and The Gardiner Law Firm (collectively, “Gardiner”) have filed a 2 motion for summary judgment. Dkt. #42. Gruender has filed a cross-motion for summary 3 judgment. Dkt. #46. The motions are fully briefed. Dkt. ##52, 54. No party has requested 4 oral argument. For reasons stated below, the Court will grant summary judgment in favor 5 of Gardiner. 6 I. Summary Judgment Standard. 7 A party seeking summary judgment “bears the initial responsibility of informing the 8 district court of the basis for its motion, and identifying those portions of [the record] which 9 it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. 10 Catrett, 477 U.S. 317, 323 (1986). Summary judgment is appropriate if the evidence, viewed 11 in the light most favorable to the nonmoving party, shows “that there is no genuine issue as 12 to any material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. 13 Civ. P. 56(c)(2). Only disputes over facts that might affect the outcome of the suit will 14 preclude the entry of summary judgment, and the disputed evidence must be “such that a 15 reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, 16 Inc., 477 U.S. 242, 248 (1986). 17 II. Breach of Contract. 18 Gruender asserts a breach of contract claim in count one of the complaint. Dkt. #1 ¶¶ 19 27-33. Gardiner is liable, Gruender alleges, because he has defaulted on his obligations due 20 under the promissory note. Dkt. #1 ¶¶ 31-32. Gardiner argues that he is entitled to summary 21 judgment on count one because he is not a party to the promissory note. The Court agrees. 22 “For a plaintiff to bring a breach of contract action against a defendant, the plaintiff 23 and defendant must have a contractual relationship.” Brown v. Kinross Gold U.S.A., Inc., 24 531 F. Supp. 2d 1234, 1240 (D. Nev. 2008). It therefore “is axiomatic that non-parties 25 cannot be held liable for breach of contract[.]” Herbal Care Sys., Inc. v. Plaza, No. CV-06- 26 2698-PHX-ROS, 2009 WL 692338, at *2 (D. Ariz. Mar. 17, 2009); see Kelly v. Tillotson- 27 Pearson, Inc., 840 F. Supp. 935, 944 (D.R.I. 1994) (“an action for breach of contract will not 28 lie against non-parties to the contract”); Traffas v. Bridge Capital Investors II, No. 90-1304 -2- 1 MLB, 1993 WL 339293, at *3 (D. Kan. Aug. 23, 1993) (“a party to a contract cannot sue a 2 person who is not a party to that contract for breach of contract.”); Hotel Aquarius, B.V. v. 3 PRT Corp., No. 92 Civ. 4498 (MBM), 1992 WL 391264, at *6 (S.D.N.Y. Dec. 22, 1992) 4 (“if an entity is not a party to a contract, no valid breach of contract claim exists against that 5 entity”); Santella v. Grishaber, 672 F. Supp. 321, 328 (N.D. Ill. 1987) (“non-parties are not 6 liable for breach of contract”); Stratton v. Inspiration Consolidated Copper Co., 683 P.2d 7 327, 330 (Ariz. Ct. App. 1984) (a plaintiff has “no claim for a personal judgment sounding 8 in breach of contract” absent privity of contract between the parties). 9 The contract being sued upon in this case is a promissory note. Dkt. #1-1. Rosell 10 promised to repay Gruender the principal amount of $1.35 million, plus interest, by a 11 specified “Maturity Date”: 12 13 14 15 16 Harald Rosell, an individual, . . . (herein “Borrower”), hereby promises to pay to the order of Daniel F. Gruender, an Arizona individual, . . . or his assigns (herein “Lender”), at such other place as Lender may designate in writing, the principal amount of [$1,350,000.00] in lawful money of the United States together with interest thereon from [April 7, 2009] as hereafter further provided. Principal, interest and other charges owing hereunder shall be payable in one sum at the time hereinafter set forth (“Maturity Date”) unless extended in accordance with Section 7 of this Promissory Note, at which time the entire outstanding balance shall be due and payable in full, without further notice or demand. 17 18 Id. at 2. The promissory note provided for a May 1, 2009 maturity date (id. § 2), and set 19 interest at the fixed-amount of $650,000 (id. § 3). The amendment to the note (Dkt. #39-1) 20 increased the interest to $1,150,000 and extended the maturity date to June 8, 2009 (id. at 2, 21 ¶¶ A-C). Both the original promissory note and the amendment were executed by Rosell, as 22 “Borrower.” Dkt. ##1-1 at 3, 39-1 at 3. 23 Gardiner is not a party to the note between Gruender and Rosell. He did not sign the 24 promissory note or its amendment. Nor did he make any promise to pay Gruender the 25 principal loan amount or interest. Gardiner is identified in the promissory note as “Trustee 26 for Borrower” (id. at 2, § 1), but this does not make him a party to the note. 27 “It would be a novel holding for the [C]ourt to rule that a breach of contract action can 28 be maintained against a person who is not a party to the contract being sued upon.” Traffas, -3- 1 1993 WL 339293, at *3; see Credit Gen. Ins. Co. v. Midwest Indemnity Corp., 916 F. Supp. 2 766, 772 (N.D. Ill. 1996) (finding such a claim to be “ludicrous”). The undisputed fact that 3 Gardiner is not a party to the promissory note between Gruender and Rosell (Dkt. #47 ¶ 1) 4 requires summary judgment in favor of Gardiner on the breach of contract claim. See Herbal 5 Care, 2009 WL 692338, at *2-3; Traffas, 1993 WL 339293, at *3; Kelly, 840 F. Supp. at 6 944; Stratton, 683 P.2d at 329-30. 7 8 Gruender makes several arguments in support of his breach of contract claim against Gardiner. None has merit. 9 Gruender states that “it was agreed that [his] $1.35 million would be transferred to the 10 Gardiner Defendants, who would hold the money in escrow, as trustee[.]” Dkt. #46 at 4. 11 He further states that to ensure timely repayment, he had the following language included in 12 the promissory note: “Borrower hereby instructs Trustee, D. Bruce Gardiner, to make 13 Payment according to terms under this Note[.]” Id. at 5; see Dkt. #1-1 at 2, § 3. Gruender 14 argues that Gardiner “assumed the escrow agent role for the transaction,” and his “fail[ure] 15 to follow the escrow instructions breaches his contract[.]” Dkt. #46 at 11. But the 16 promissory note unambiguously provides that Gardiner served as trustee for Rosell, not 17 Gruender: “This [$1.35 million] principal is to be disbursed by Federal overnight wire 18 transfer to Trustee for Borrower, The Gardiner Law Firm, D. Bruce Gardiner[.]” Dkt. #1-1 19 at 2, § 1 (emphasis added). The fact that Rosell instructed Gardiner – his trustee – to make 20 payment according to the terms of the note (id. § 3) does not show that Gardiner contracted 21 with Gruender to serve as escrow agent. 22 Gruender claims that an escrow agreement can exist in the absence of an express 23 written contract. Dkt. #54 at 3. But the breach of contract claim asserted in the complaint 24 alleges a failure to perform obligations under the promissory note. Dkt. #1 ¶¶ 15, 23, 25, 30. 25 Nowhere in the complaint does Gruender allege the existence of an unwritten escrow 26 agreement. 27 Moreover, Gruender has failed to present evidence sufficient to establish the existence 28 of an escrow agreement between the parties. Gruender states that prior to transferring the -4- 1 $1.35 million to Gardiner, he had a conversation with Gardiner and Rosell and received an 2 e-mail from Gardiner. Dkt. #47-1 at 5, ¶ 11. Gruender does explain, and it is not otherwise 3 clear to the Court, how this conversation and e-mail are sufficient to create an escrow 4 contract. Gruender himself testified that his entire conversation with Gardiner consisted of 5 Gardiner verifying his contact information and the instructions for funding the loan. 6 Dkt. #43 at 13. They did not discuss terms of the promissory note or what would happen to 7 the money once it was transferred. Id. The e-mail, dated April 7, 2009, merely provides 8 Gruender with Gardiner’s client trust account information. Dkt. #47-1 at 38. 9 Gruender further states that “[he] understood the money would only be used for a 10 Trading Platform and would be repaid on or before May 1, 2009” (id. at 4, ¶ 13), but presents 11 no evidence that this subjective belief was communicated to Gardiner. Before a binding 12 contract is formed, “the parties must mutually consent to all material terms.” Hill-Shafer 13 P’ship v. Chilson Family Trust, 799 P.2d 810, 814 (Ariz. 1990). 14 “ascertained from ‘objective evidence, not from hidden intent of the parties.’” Johnson v. 15 Earnhardt’s Gilbert Dodge, Inc., 132 P.3d 825, 828 (Ariz. 2006) (quoting Hill-Shafer, 799 16 P.2d at 815). 17 18 19 20 Mutual assent is Gruender notes that in an e-mail dated April 4, 2009, Rosell explained Rosell’s intention to Gardiner as follows: Mr. Gruender [to] transfer the sum of US 1,350,000, into your Clients trust account for the benefit of myself subject to, that I can evidence an undertaking from Citibank UK in the amount of US 2,000,000, which [will] have to be returned to Mr. Gruender[’s] nominated account on or before May 01, 2009. 21 22 Dkt. #47-1 at 27. Gruender states that this is consistent with Gruender’s understanding that 23 the $1.35 million loan amount “was not at risk and was secure.” Id. at 7, ¶ 21. While the 24 April 4 e-mail may describe the transaction as intended by Gruender and Rosell, Gruender 25 has presented no evidence that Gardiner consented to an obligation to independently verify 26 that Rosell had received a $2 million undertaking from Citibank. Gardiner never discussed 27 the e-mail with Rosell (Dkt. #53 at 6, ¶ 4), and his understanding was that the Citibank 28 undertaking was a condition to Gruender funding the loan and receipt of the money would -5- 1 be evidence that the condition had been met (id. ¶ 4). Gruender has presented no 2 controverting evidence. See Dkt. #55 ¶ 4. 3 Gruender’s own deposition testimony shows a lack of mutual assent to Gardiner 4 serving as escrow agent. Knowing that Gardiner was a lawyer for Rosell, Gruender “felt that 5 gave [Gruender] additional security, because [Gardiner was] not going to let his client just 6 do illegal things or ignore deadlines without . . . trying to ward off the consequences.” 7 Dkt. #47-2 at 8. Gruender merely “assumed . . . the funds were going to be escrowed at 8 Gardiner’s office” (id. at 7) and considered Gardiner to be “sort of like an escrow agent” 9 (id. at 4). 10 Gruender contends that Gardiner ratified the promissory note and thereby became 11 bound by its terms. Dkt. #46 at 13-14. Courts will “infer an intent to ratify if a non-party 12 to the contract voluntarily accepts benefits conferred by the contract.” All-Way Leasing, Inc. 13 v. Kelly, 895 P.2d 125, 128 (Ariz. Ct. App. 1994). Gruender notes that Gardiner received a 14 $50,000 fee for receiving and distributing the loan proceeds (Dkt. #46 at 14), but that fee is 15 not a benefit conferred by the promissory note. Because Gardiner’s acceptance of the fee 16 does not constitute a “manifestation of an intent to be bound” to Gruender under the terms 17 of the promissory note, Gruender’s claim of joinder by ratification fails. All-Way Leasing, 18 895 P.2d at 129. The same reasoning applies to Gruender’s alternative theory that Gardiner 19 “assumed” liability to repay the amount due under the promissory note. Dkt. #46 at 15 n.5. 20 Finally, Gruender argues that he is a third-party beneficiary of an agreement between 21 Gardiner and Rosell under which Gardiner was paid a fee for receiving and distributing the 22 loan proceeds. Dkt. #46 at 14-15. But that agreement is not the one allegedly breached by 23 Gardiner in this case. The breach of contract claim asserted in the complaint alleges a failure 24 to perform obligations under the promissory note. Dkt. #1 ¶¶ 15, 23, 25, 30. 25 Moreover, in order to “recover under the third party beneficiary doctrine, the contract 26 relied upon by the third party must reflect that the parties thereto intended to recognize him 27 as a primary party in interest.” Stratton, 683 P.2d at 329. “Not only must the benefit be 28 intentional and direct, but the third person must be a real promissee.” Id. In this case, the -6- 1 agreement between Gardiner and Rosell consists of an invoice and a directive from Rosell 2 that Gruender pay himself out of funds held in his client trust account. Dkt. #47-1 at 31-32. 3 Gardiner is not the “real promissee” to that agreement. Gruender references terms of the 4 promissory note (Dkt. #46 at 15), but does not explain how he can be a third party 5 beneficiary of his own contract. 6 III. Breach of the Implied Covenant and Specific Performance. 7 “While every contract contains implied covenants of good faith and fair dealing, such 8 covenants presume the existence of a valid contract.” Norman v. State Farm Mut. Auto. Ins. 9 Co., 33 P.3d 530, 537 (Ariz. Ct. App. 2001). Similarly, “there must be a contract” before 10 specific performance will be ordered. The Power P.E.O., Inc. v. Employees Ins. of Wausau, 11 38 P.3d 1224, 1228 (Ariz. Ct. App. 2002). Because Gardiner is not a party to the promissory 12 note – the only contract sued upon in this case – summary judgment will be granted in his 13 favor on the claims for breach of the covenant of good faith and fair dealing (count two) and 14 specific performance (count three). See Dkt. #1 ¶¶ 34-48. 15 IT IS ORDERED: 16 1. 17 18 Defendants The Gardiner Law Firm and D. Bruce Gardiner’s motion for summary judgment (Dkt. #42) is granted. 2. 19 Plaintiff Daniel Gruender’s cross-motion for summary judgment (Dkt. #46) is denied. 20 3. The Clerk is directed to enter judgment accordingly. 21 DATED this 21st day of May, 2010. 22 23 24 25 26 27 28 -7-