F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH MAR 9 2000
UNITED STATES COURT OF APPEALS PATRICK FISHER
FOR THE TENTH CIRCUIT Clerk
In re:
LAURA L. CARPENTER and
LAURA CARPENTER FINE ART, INC.,
Debtors.
LAURA L. CARPENTER and Nos. 98-2288
LAURA CARPENTER FINE ART, INC., 98-2296
98-2300
Plaintiffs-Appellants
and Cross-Appellees,
v.
GINNY L. WILLIAMS,
Defendant-Appellee
and Cross-Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
Consolidated into D.C. No. CIV-97-1197-BB/LCS
Spencer Reid, Keleher & McLeod, Albuquerque, New Mexico (Thomas C.
Bird and James C. Jacobsen of the same firm with him on the
briefs), for Trustee of the Estate of Laura L. Carpenter.
Robert A. Johnson, Eastham, Johnson, Monnheimer & Jontz, P.C.,
Albuquerque, New Mexico (Karla K. Poe of the same firm with him on
the briefs) for Laura Carpenter Fine Art, Inc.
J. Lawrence Hamil, Hamil Professional Corporation, Denver, Colorado
(Gail Gottlieb of Sutin, Thayer & Browne, P.C., Albuquerque, New
Mexico, with him on the briefs) for Ginny L. Williams.
Before BRISCOE and McKAY, Circuit Judges, and BROWN, Senior
District Judge.*
BROWN, District Judge.
*
The Honorable Wesley E. Brown, Senior United States District
Judge for the District of Kansas, sitting by designation.
These appeals arise out of a bankruptcy proceeding involving
two debtors, Laura L. Carpenter and Laura Carpenter Fine Art, Inc.
(“LCFA”). Carpenter, through LCFA, owned and operated an art
gallery in Sante Fe, New Mexico. In 1991, she met Ginny Williams,
a wealthy Denver art dealer and collector. In 1992, Carpenter
approached Williams about obtaining financing for the LCFA gallery.
Over the next two-and-a-half years, Williams and Carpenter became
close friends, and Williams advanced large sums of money to
Carpenter and LCFA. In 1994, the friendship deteriorated, and the
parties became involved in litigation. Carpenter and LCFA filed
for Chapter 11 relief in November of 1995.1 In an adversary
proceeding in bankruptcy, Williams filed various claims against the
debtors, and the debtors asserted various counterclaims. After a
ten-day trial, the bankruptcy court filed extensive findings of
fact and conclusions of law and entered judgment accordingly.
There followed an appeal to the district court, which ruled on the
parties’ objections after referral of the case to a magistrate
judge for a report and recommendation. Each of the parties now
appeals several aspects of the district court’s judgment.
We see no need to restate the extensive findings of the
bankruptcy court or to detail the alterations in the bankruptcy
court’s ruling embodied in the district court judgment. Nor do we
Williams’ Motion for Judicial Notice of Chapter 7
1
Conversions and to Supplement the Record is hereby GRANTED.
Williams’ supplemental filing indicates that both bankruptcy cases
have now been converted to Chapter 7 actions.
2
think it necessary to reiterate in full the arguments raised by the
parties in their briefs. The lower courts have discussed the
issues extensively, and, having examined the record in light of the
parties’ arguments, we now conclude that the judgment of the
district court should be affirmed, largely for the reasons stated
in the extensive opinions of the lower courts. We find it
necessary to address specifically only a few of the more
significant issues on appeal.
I. Discussion.
A. Art Investment Agreement. Among other issues, Williams
objects to the bankruptcy court’s finding that she and Carpenter
had an enforceable agreement to purchase works of art and to resell
them at a mutually agreeable time, with the profits to be split
evenly after reimbursement to Williams for expenses. Williams
contends that this alleged agreement, which was the subject of a
written document executed by the parties on April 7, 1994, was
unenforceable because there was no “meeting of the minds” as to the
essential terms of the contract. We agree with the bankruptcy
court that “[a]bundant evidence supports the existence of this
agreement, including the performance of its fundamental terms by
both parties.” Aple. App. at 213. In addition to the written
document itself, the parties’ actions both before and after
execution of the document indicated that they had in fact reached
a mutual understanding sufficient to constitute a binding
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agreement. The courts below explained in detail the facts and law
supporting this conclusion and also set forth the essential terms
of the agreement as shown by the evidence, including the works of
art subject to the agreement, the manner of determining the profits
to be shared, and the implied obligation to act in good faith in
performing the contract. See Aple. App. at 213-22; 380-85. We see
no error in these rulings and affirm for the reasons stated by the
lower courts.
In connection with her argument that the art investment
agreement failed to set forth essential terms, Williams points out
that an agreement to share losses, as well as profits, is an
essential element of a joint venture. See Fullerton v. Kaune, 72
N.M. 201, 204, 382 P.2d 529, 532 (1963). Because the parties here
only agreed to split profits and said nothing about dividing
losses, Williams contends the bankruptcy court erred in finding the
existence of a joint venture. Sharing “loss” in a joint venture,
however, does not necessarily mean only monetary loss. Numerous
courts have held that the “loss” requirement is satisfied where an
agreement calls for one party to expend time and out-of-pocket
expense on the venture such that a failure to obtain a profit would
render that party’s efforts for naught. See e.g. Summers v.
Hoffman, 341 Mich. 686, 69 N.W.2d 198 (1955). As LCFA points out,
the New Mexico Court of Appeals recently took a similar view in
Lightsey v. Marshall, P.2d, , 1999-NMCA-147, 1999 WL 1103254
4
(N.M. App., Oct. 5, 1999), where it found that a party to a joint
venture to sell property would have shared in losses if the
property were not sold at a profit because he had “contributed
significant time, effort, and materials” toward the property. 1999
WL 1103254, *3. As shown by the findings of the bankruptcy court
in this case, the art investment agreement required an expenditure
of time, effort and expense on the part of LCFA. Under these
circumstances, a finding that the parties agreed to engage in a
joint venture is supported by the evidence.
We likewise find no error in the bankruptcy court’s
determination that Williams breached the art investment agreement
by repudiating it. Repudiation is established where one party,
through words or acts, evinces a “distinct, unequivocal, and
absolute refusal to perform according to the terms of the
agreement.” Gilmore v. Duderstadt, 125 N.M. 330, 334, 961 P.2d
175, 179 (Ct. App. 1998). There is evidence in the record to
support a finding of repudiation, including Williams’ letter of
December 10, 1994, stating (contrary to the agreement) that “I
intend to recall whatever art I want to Denver, when I want to do
so ..... and to sell it as I see fit” and that “‘[b]argaining’ is
not a consideration.” Aplt. Supp. App. at 607. Nor do we find any
clear error in the determination that Carpenter’s actions did not
provide a legal excuse for Williams’ failure to perform the
agreement. See Id. at 387-89. The magistrate judge explained why
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Carpenter’s breaches of the agreement, when considered in light of
the agreement as a whole, were not material, and we see nothing to
suggest that the court’s determination is inconsistent with the
standards for determining when a breach is material. See
Famiglietta v. Ivie-Miller Enterprises, Inc., 126 N.M. 69, 74, 966
P.2d 777, 782 (Ct. App. 1998). Finally, the bankruptcy court’s
determination that the art investment agreement should be
specifically performed was not an abuse of discretion under the
circumstances of this case. Cf. Navajo Academy, Inc. v. Navajo
United Methodist Mission School, Inc., 109 N.M. 324, 330, 785 P.2d
235, 241 (1990) (grant of equitable relief reviewed for abuse of
discretion). The bankruptcy court’s conclusion that there was no
adequate remedy at law for Williams’ breach was implicit in its
findings, and we therefore affirm the decree for the reasons stated
by the district court in its opinion.2
B. The Gallery Document (or “Working Capital Agreement”). A
second area of dispute concerns whether Williams breached an
2
Williams’ response brief argues the bankruptcy court’s
decree of specific performance should be vacated due to the
subsequent conversion of the LCFA bankruptcy to Chapter 7.
Williams’ Resp. Br. at 58-61. We see no reason why the mere fact
of conversion would require reversal of the bankruptcy court’s
determination. Any argument that the conversion frustrates the
purpose of the decree or makes it inequitable is entirely
speculative at this point. If some inequity arises in the future,
we note that the rules permit parties to seek relief in the
district court. See Fed.R.Civ.P. 60(b)(5) (upon motion, the court
may relieve a party from a final judgment if it is no longer
equitable that the judgment should have prospective application).
In view of our ruling on this point, Carpenter’s Motion to Strike
pages 58-61 of Williams’ response brief is DENIED as moot.
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alleged contractual obligation to provide “ongoing financial
support for LCFA as necessary” pursuant to another document signed
by the parties on April 7, 1994. The bankruptcy court rejected
LCFA’s argument that this document represented a binding contract,
finding that “[t]he gallery document fails to set forth essential
terms, contains terms too indefinite to enforce, and provides
inadequate consideration to Williams.” Aple. App. at 209. LCFA
now contends that these findings were erroneous. After reviewing
the record, we agree with Williams that LCFA has waived its right
to challenge the judgment of the district court on this issue.
When the bankruptcy appeal was referred to the magistrate judge, he
recommended that the bankruptcy court be affirmed as to its finding
that the “working capital agreement” was unenforceable. Id. at
390-94. Although the magistrate indicated that he thought the
terms of the purported contract were definite enough to enforce, he
stated that the bankruptcy court’s finding that the agreement was
unenforceable for lack of consideration was correct and should be
affirmed. Id. at 393. LCFA filed no objections to the magistrate
judge’s report and recommendation. The report specifically
informed the parties that they had ten days to file objections to
the recommendations if they wanted to have appellate review and
that “[i]f no objections are filed, no appellate review will be
allowed.” Id. at 368.
“This court has adopted a ‘firm waiver rule’ which provides
7
that a litigant’s failure to file timely objections to a
magistrate’s [report and recommendation] waives appellate review of
both factual and legal determinations.” Vega v. Suthers, 195 F.3d
573, 579 (10th Cir. 1999). LCFA argues that we should forego
application of this rule in cases involving bankruptcy appeals, but
its arguments for doing so are wholly unpersuasive. This court has
held that referral of a bankruptcy appeal to a magistrate for an
advisory opinion is permissible. See Hall v. Vance, 887 F.2d 1041,
1046 (10th Cir. 1989). The purpose of making such a referral is
to “define and focus the issues on appeal.” See Griego v. Padilla
(In re Griego), 64 F.3d 580, 583, n.4 (10th Cir. 1995). In the
instant case, failure to apply the waiver rule would utterly defeat
that purpose and would permit LCFA to circumvent review by the
district court, inasmuch as the absence of any objection by LCFA
undoubtedly led the district court to conclude that inadequacy of
consideration was no longer an issue on appeal and that there was
no need for review of that issue in its opinion. See Thomas v.
Arn, 474 U.S. 140, 147-48 (1985) (the waiver rule “prevents a
litigant from ‘sand-bagging’ the district judge by failing to
object and then appealing.”). We fail to see how applying the
waiver rule in this case would, as LCFA contends, “trivialize the
Bankruptcy Court’s work.” Cf. LCFA Br. at 4. Under LCFA’s view,
a party could simply ignore a magistrate’s report and
recommendation and then, on appeal, contest matters that the
8
district court regarded as unchallenged. We reject that view. The
language in the report and recommendation informing counsel and the
parties in this case of the consequences of not filing objections
was clear enough. In sum, the interests of justice do not require
that we forego the waiver rule, and we conclude that it bars LCFA’s
attempt to resurrect an issue on appeal that it did not properly
raise before the district court. For that reason, we affirm the
lower courts’ conclusion that the working capital agreement was not
an enforceable contract.
C. Williams’ Claim for Funds Loaned to LCFA. The bankruptcy
court determined that approximately $1.5 million advanced by
Williams to LCFA after November 4, 1993, constituted loans to the
corporation rather than capital contributions. The district court
subsequently found that Williams was also entitled to interest on
these loans. LCFA now argues that these findings must be reversed
because there is an internal inconsistency in the bankruptcy
court’s findings. Specifically, LCFA points to a statement by the
court that these advances “were clearly being made in anticipation
of [Williams’] expected participation in the business and not as
interest earning investments.” Aple. App. at 212. LCFA relies on
this statement to suggest that the bankruptcy court actually found
that the funds were paid-in equity. It further contends the court
erroneously “transmuted” the equity into loans when it declared
that the funds “should be treated as loans....” LCFA Br. at 14.
9
It is only by ignoring the context of these findings that LCFA
can advance such an argument. The bankruptcy court recounted the
abundant evidence before it showing that the parties had regarded
these advances as loans -- including evidence that the advances
were initially entered as “notes payable” on LCFA’s books, that
Williams treated the advances as loans for tax purposes, that no
commensurate shares of stock were issued, that two of the checks
advancing some $650,000 stated on their face they were loans, and
that after the demise of the parties’ relationship Carpenter
directed her bookkeeper to reclassify the entries from “notes
payable” to “paid-in equity” -- and the court concluded that the
advances “should be treated as loans and constitute a valid claim
against the estate of LCFA.” Aple. App. at 211. In an attempt to
turn the plain meaning of this conclusion upside-down, LCFA
suggests that saying the advances “should be treated as loans”
implicitly means the court found they were not loans. We reject
this attempt to inject an ambiguity where none exists. The
bankruptcy court’s obvious meaning was that, as between loans or
equity, the advances were properly characterized as loans. The
court most certainly did not find, as LCFA suggests it did, that
“the advances were made not as loans, but as equity.” Cf. LCFA Br.
at 14. As for the court’s finding that the advances were “made in
anticipation of [Williams’] participation in the business and not
as interest-earning investments,” that fact was cited by the
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bankruptcy court in a separate paragraph in support of its finding
that Williams was “entitled to no interest on the money loaned to
LCFA” because “[n]o evidence supports the proposition that the
parties had an agreement with respect to interest.” Aple App. at
212. This is in no way inconsistent with the court’s conclusion
that the funds advanced by Williams constituted loans. The
magistrate judge and district judge subsequently explained why New
Mexico law permitted Williams to recover interest on these loans
notwithstanding the lack of a specific agreement about interest,
and LCFA has not challenged those rulings. In sum, we affirm the
district court judgment in favor of Williams with respect to the
funds advanced after November 4, 1993.
D. Other Issues. We have examined the other arguments raised
in the briefs and conclude they are without merit.
II. Conclusion.
The judgment of the district court is AFFIRMED.
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