Schwartz v. iFreedom Direct Corporation

FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
October 29, 2010
TENTH CIRCUIT
Elisabeth A. Shumaker
Clerk of Court

JEAN-GEORGES SCHWARTZ,

Plaintiff–Appellant,

v.
No. 10-2017
iFREEDOM DIRECT CORPORATION, (D.C. No. 1:09-CV-00265-WDS-RLP)
f/k/a New Freedom Mortgage (D.N.M.)
Corporation; BRENT HANSEN; and
KEVIN GATES,

Defendants–Appellees.

ORDER AND JUDGMENT*

Before LUCERO, GORSUCH, Circuit Judges and ARGUELLO**, District Judge.

Jean-Georges Schwartz appeals the district court’s grant of summary judgment for

the Appellees on his claims of fraud in the inducement, negligent misrepresentation,

* This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. This court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 32.1.

** The Honorable Christine M. Arguello, United States District Judge for the
District of Colorado, sitting by designation.
unjust enrichment and rescission. Exercising jurisdiction under 28 U.S.C. § 1291, we

affirm.

Schwartz, a resident of France, is a businessman who owns 90% of the company

Four Js Development. Brent Hansen and Kevin Gates are managers in a mortgage

company called iFreedom Direct Corporation (“iFreedom”), which was formerly known

as New Freedom Mortgage Corporation (“New Freedom”).

On September 24, 2002, New Freedom entered into a deposit agreement

(“Deposit Agreement”) with Eclipse Aviation. New Freedom deposited $97,500 with

Eclipse to “secure[ ] a delivery position for one Eclipse 500 jet,” which was to be

manufactured. The $97,500 was to be applied to the purchase of the jet pursuant to an

Eclipse 500 Purchase Agreement.

In January 2007, Schwartz sent an email inquiry to Greg Oswald, a sales

representative for Eclipse, inquiring about ordering an Eclipse 500. Oswald informed

Schwartz that if he placed a deposit on January 18, 2007, he could expect delivery of an

aircraft in the fourth quarter of 2008. At the time, the price of the aircraft was

$1,520,000, plus an inflation adjustment, which was tied into the U.S. Consumer Price

Index (“CPI”), and the cost of options.

At around this time, Defendants decided to sell New Freedom’s rights under the

Deposit Agreement and advertised their intent. On January 23, 2007, Schwartz contacted

Hansen to inquire about the terms of purchasing the Deposit Agreement with Eclipse, in
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order to assume New Freedom’s position in the manufacturing line.

On January 24, 2007, Hansen emailed Schwartz and informed him that New

Freedom would sell its position for $300,000—a $202,500 premium over the amount

New Freedom had paid. Hansen also informed Schwartz that the price of the aircraft to

be delivered by Eclipse was projected to be $1,271,000 (before options), plus an inflation

adjustment per the Deposit Agreement, which was tied to the CPI. Hansen further

informed Schwartz that Eclipse had advised him that the approximate delivery date of the

aircraft would be in March 2008.

The same day, Hansen sent an email message to Schwartz and attached a draft of

an “Assignment, Consent and Acknowledgement - Deposit Agreement” (“Assignment”)

from Eclipse as well as an email message showing the cost calculation. On January 25,

Hansen sent an email message to Schwartz and attached copies of the Assignment, the

Deposit Agreement, an operating cost comparison sheet, and two certificates that New

Freedom had received from Eclipse for Schwartz’s review and comment. On January 26,

Schwartz responded to Defendant Hansen’s email message and stated: “After having

quickly reviewed your document I saw Chapter 4 section 16 that you can’t assign or

transfer your Agreement. Could you clarify? Thanks.”

The same day, Lori Medrano, an attorney with Eclipse, sent an email message to

Schwartz and consented to New Freedom’s assignment to Schwartz. Medrano also

attached a copy of the Assignment to her email message for Schwartz’s review, and she

explained the process for executing and processing the Assignment. Medrano informed
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Schwartz that, “you will become the owner of record and Gates and Hansen will have no

further rights or obligations under the Deposit Agreement to that aircraft.”

On January 30, Hansen emailed Schwartz the escrow instructions and a signed and

notarized copy of the Assignment for Schwartz’s signature. In his email, Hansen stated:

“If you are in agreement, please sign and return both to me.” Later the same day,

Schwartz responded: “Everything looks fine for me and find attached the signed

paperwork back.”

Pursuant to the Assignment, Schwartz accepted New Freedom’s “assignment

of the Deposit and of the Deposit Agreement.” Schwartz agreed to assume and become

solely responsible for all of New Freedom’s duties and liabilities under the Deposit

Agreement. Schwartz also agreed that he would have all of New Freedom’s rights and

interests under the Deposit and the Deposit Agreement, and that he would be deemed a

party thereto as though Schwartz had originally effected the Deposit and executed the

Deposit Agreement.

The Deposit Agreement defined “Final Delivery Price” as “the price to be

established six months prior to aircraft delivery that will reflect List Price plus

Economic Price Adjustment [EPA] for inflation to the date of delivery and other price

adjustments at the discretion of Eclipse.” It provided that a buyer could cancel the

Deposit Agreement and obtain a refund of the deposit if the Final Delivery Price

“exceeds the List Price published in the Eclipse 500 Deposit Program brochure, as

adjusted for EPA, by more than 5%.”
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After execution of the Assignment, Eclipse exercised its discretionary right

under the Deposit Agreement to increase the price of the Eclipse 500 jet by $450,000.

Eclipse gave Schwartz the opportunity to cancel the Deposit Agreement and obtain a

refund of the $97,500 deposit. Schwartz elected not to rescind the Deposit Agreement

with Eclipse. Eclipse later filed for bankruptcy and the jet was never delivered.

Schwartz sued iFreedom as well as Hansen and Gates in their individual

capacities, asserting claims under New Mexico law for fraud in the inducement, negligent

misrepresentation, unjust enrichment and rescission. The district court granted

iFreedom’s motion for summary judgment on all Schwartz’s claims.

We review the district court’s grant of summary judgment de novo. Shero v. City

of Grove, 510 F.3d 1196, 1200 (10th Cir. 2007). Summary judgment is appropriate if

“there is no genuine issue as to any material fact and the movant is entitled to a judgment

as a matter of law.” Fed. R. Civ. P. 56(a); see also Beaird v. Seagate Tech., Inc., 145

F.3d 1159, 1165 (10th Cir. 1998).

For substantially the same reasons set forth by the district court, we conclude that

Schwartz has failed to present a genuine issue as to any material fact. The only point on

which we differ from the district court’s analysis relates to the duty of a party to read a

contract.

Schwartz contends that the misrepresentation or omission which resulted in

fraudulent inducement was Hansen’s failure to specifically inform Schwartz in Hansen’s
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own words that the Deposit Agreement contained the unilateral price adjustment

provision. In support of this argument Schwartz cites a number of New Mexico cases

which stand for the proposition that, although a plaintiff may have a duty to read a

contract, that duty is not absolute. E.g., Pattison v. Ford, 485 P.2d 361, 362 (N.M. Ct.

App. 1971). The district court correctly found that there was no misrepresentation, so

exceptions to the general duty do not apply in this case.

However, the parties’ and the court’s framing of this case as one regarding the

duty to read the contract is flawed. Though not argued in these terms, the issue here is

actually one of unilateral mistake. Schwartz’s duty under New Mexico law to read the

contract pertains to the contract between himself and Gates and Hansen (the Assignment)

not the contract which he purchased from them (the Deposit Agreement). Yet Schwartz’s

ignorance in this case relates to the terms of the contract with Eclipse, the Deposit

Agreement, not his contract with the Appellees. Put differently, Schwartz was ignorant

as to certain characteristics of the object of his contract with the Appellees, but not as to

the contract itself. His ignorance is analogous to that of a purchaser in a sales contract

who fails to inspect the goods he purchased. Therefore, the issue is more accurately

described as unilateral mistake.

Under New Mexico law and contract principles, a “[c]ourt will not void a contract

for a unilateral mistake except where the mistake is basic and material to the agreement,

and the other party knew or reasonably should have known of the mistake.” Jacobs v.

Phillippi, 697 P.2d 132, 134-35 (N.M. 1985); see Restatement (Second) of Contracts
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§ 153 (1981). Unilateral mistake may also be excused if the mistake resulted from

fraudulent misrepresentation. Cf. Filchum Constr. Co. v. Cent. Glass & Mirror, Co., 611

P.2d 221, 222 (N.M. 1980). Schwartz has not argued, nor has he presented any facts

suggesting that Hansen and Gates knew of or should have known of his ignorance as to

the price adjustment term in the Deposit Agreement. To the contrary, the undisputed

facts in the record indicate that Hansen sent Schwartz the Deposit Agreement via email

and Schwartz asked questions about the Deposit Agreement, indicating that he had read

it. Therefore, Appellees could have reasonably expected Schwartz to be aware of the

Deposit Agreement’s terms, including the unilateral price adjustment provision.

Additionally, as we indicated above, the district court rightly found that there was no

misrepresentation, so the second exception does not apply. Thus, there are no grounds to

void the contract on the basis of Schwartz’s unilateral mistake.

III

For the foregoing reasons, we AFFIRM the grant of summary judgment.

Entered for the Court,

Carlos F. Lucero
Circuit Judge

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