United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
For the Fifth Circuit February 28, 2005
Charles R. Fulbruge III
Clerk
No. 03-31013
STEPHEN P. MUMBLOW, Plaintiff-Appellant,
VERSUS
MONROE BROADCASTING, INC., Defendant-Appellee.
Appeal from the United States District Court
for the Western District of Louisiana
Before SMITH and GARZA, Circuit Judges, and VANCE,* District
Judge.
VANCE, District Judge:
Stephen P. Mumblow appeals the trial court’s decision to
apply Louisiana law to this case and its dismissal of his claim
as premature. Because the trial court properly chose to apply
Louisiana law to this case but made clearly erroneous findings of
fact, we AFFIRM in part, REVERSE in part, and REMAND the matter
for further proceedings consistent with this opinion.
*
District Judge of the Eastern District of Louisiana,
sitting by designation.
I. FACTS AND PROCEEDINGS BELOW
Appellant Stephen Mumblow, a New York resident, was the
president of Communications Corporation of America, a Louisiana
corporation, from September 1998 until January 2002. Thomas
Galloway is the principal shareholder and Chairman of CCA, and D.
Wayne Elmore is an officer, director and shareholder of CCA.
Gregory Todd Boulanger is the controller of CCA. Mumblow did not
own stock in CCA. He agreed with CCA that after three years with
CCA, he would be entitled to ten percent of the net proceeds upon
the sale of the company.
Monroe Broadcasting is a Louisiana corporation that operates
a television station in Monroe, Louisiana. Monroe is owned by
Charles Chatelain and Dr. Paul Azar. None of the principals of
CCA holds a position with Monroe. In late 1997, Galloway, as the
head of CCA, acquired other broadcasting properties from
Chatelain. As part of that deal, Chatelain required Galloway to
indemnify him and Azar against the financial risk of owning and
operating Monroe and to assume financial responsibility for
Monroe. That arrangement was eventually memorialized in a
“put/call” agreement that gave Galloway the right to buy, and
Monroe the right to call upon Galloway to buy, Monroe for a price
that was the sum of Monroe’s debts and liabilities. CCA also
entered a consulting arrangement with Monroe under which it
2
provided daily operational services to Monroe.1 CCA was never
paid for its services. Rather, Monroe regularly issued notes in
CCA’s favor, reflecting the amount owed for the services.
Chase Manhattan Bank loaned CCA money. In October 2000,
Chase required Galloway to stop drawing his salary from CCA
because of CCA’s weakened financial condition. At the time,
Galloway had contributed over one million dollars to Monroe for
its daily operations. Mumblow suggested to Elmore that they
advance their salaries from CCA to Monroe to ease the burden on
Galloway. On October 31, 2000, Mumblow began advancing his
salary checks, in the amount of $14,000 per month, to Monroe.2
In June 2000, the principals of Monroe, with the assistance
of Galloway, Elmore and Mumblow, arranged a working capital
infusion for Monroe by refinancing its existing indebtedness
through a loan from Whitney Bank. Whitney required an additional
two million dollars in collateral for the loan. Mumblow
originally agreed to put up $500,000, but he withdrew his offer
1
The contract is actually with Communications Corporation
of Monroe, a subsidiary or sister corporation of CCA, which CCA
created for the purpose of providing services to Monroe. For
clarity, we refer to the corporation that manages Monroe as CCA.
2
The trial court determined that the payments constituted a
loan. Although Monroe appears to maintain, as it did at trial,
that the payments were either an investment or a donation, it
concurred with Mumblow’s statement of issues, which does not
appeal the trial court’s determination that the payments
constituted a loan. For that reason, and because Monroe concedes
that it “accept[s] the result of the trial court’s judgment” on
this issue (Appellee’s Brief at 11), we do not review that
judgment.
3
shortly before the loan closed. Galloway made up the difference.
The $10,000,000 loan agreement, which included an additional
$1,000,000 line of credit, became final in December of 2000.
Mumblow continued to turn over his salary checks to Monroe until
August 15, 2001. Other than the cancelled checks, no documents
exist to memorialize Mumblow’s loan. Monroe’s financial
statements show the payments as notes payable under the category
of long-term liabilities. Mumblow stopped working for CCA in
January of 2002.
On or about December 21, 2001, Mumblow demanded repayment of
the loan. Monroe refused to repay Mumblow. On January 18, 2002,
Mumblow sued Monroe on the loan in the United States District
Court for the Western District of Louisiana. The parties
consented to a trial by Magistrate Judge C. Michael Hill. After
a bench trial, the court found that (1) Louisiana law governs the
choice of law determination; (2) Louisiana law applies to the
transactions, and the transactions constitute a loan; (3) under
applicable Louisiana law, the loan is subject to an implied
suspensive condition that suspends Mumblow’s right to demand
repayment until Monroe’s assets are either sold or merged; and
(4) Mumblow’s demand for repayment is premature because the
suspensive condition has not matured. The court entered judgment
in favor of Monroe and dismissed the action. Mumblow timely
appeals.
II. STANDARD OF REVIEW
4
We review choice of law questions de novo. Adams v. Unione
Mediterranea Di Sicurta, 220 F.3d 659, 674 (5th Cir. 2000). We
review the trial court’s findings of fact and inferences deduced
therefrom for clear error. Jarvis Christian Coll. v. Nat’l Union
Fire Ins. Co., 197 F.3d 742, 745 (5th Cir. 1999). We review the
legal conclusions the trial court reached based upon factual data
de novo. Id. at 746.
III. DISCUSSION
A. Choice of Law
In diversity cases, we apply the law of the forum state to
determine which state’s law applies. Woodfield v. Bowman, 193
F.3d 354, 359 n.7 (5th Cir. 1999). Here, the forum state is
Louisiana, and we would ordinarily apply its choice of law
provisions.
We have previously held, however, that “[i]f the laws of the
states do not conflict, then no choice-of-law analysis is
necessary,” and we simply apply the law of the forum state.
Schneider Nat’l Transp. v. Ford Motor Co., 280 F.3d 532, 536 (5th
Cir. 2002); W.R. Grace & Co. v. Cont’l Cas. Co., 896 F.2d 865,
874 (5th Cir. 1990) (when the substantive decisional law of all
relevant jurisdictions is the same, a court need not “go through
the motions” of making a choice of law); see also Travelers Ins.
Co. v. McDermott, Inc., No. CIV.A. 01-3218, 2003 WL 21999354, at
*7 (E.D. La. Aug. 22, 2003) (when the laws of Louisiana and
5
Connecticut are in harmony, no choice-of-law analysis is
necessary). Here, the parties assert that the two states with an
interest in the transaction are New York and Louisiana. Mumblow,
in challenging the trial court’s determination that the loan is
subject to a suspensive condition, argues that New York contract
law, unlike Louisiana contract law, would render the suspensive
condition found by the trial court unenforceable.
We conclude, however, that the controlling issue in this
matter is whether there is substantial evidence to support the
trial court’s determination that Monroe’s repayment obligation is
conditioned on the sale or merger of Monroe’s assets. See
discussion, infra, at Part III.B. Thus, we first consider
whether the substantive contract law of New York and Louisiana
conflicts on the issue of the interpretation of oral contracts
and the evidence used to determine their terms, including terms
that suspend the existence of a party’s obligation until the
occurrence of a condition (known as a condition precedent under
New York law and a suspensive condition under Louisiana law).
See Southern States Masonry, Inc. v. J.A. Jones Constr. Co., 507
So.2d 198, 204 n.15 (La. 1987) (citing City of New Orleans v.
Tex. and Pac. Ry. Co., 171 U.S. 312, 334 (1898)). Because we
conclude that the substantive contract law of New York and
Louisiana is in harmony on these issues, no choice of law
analysis is necessary, and we apply Louisiana law.
6
The law of New York and Louisiana is in agreement on the
following principles of contract interpretation that are relevant
to the issue under review. First, both states’ laws and
jurisprudence, in the absence of a writing, look to the parties’
intent to determine the terms of an oral agreement, including
whether a condition was part of the agreement. Compare Ferrer v.
Samuel, 746 N.Y.S.2d 242, 243 (N.Y. Dist. Ct. 2002) (noting that
courts, in interpreting an oral agreement, “typically look to the
objective intent manifested by the parties at the time they
contracted”), with LA. CIV. CODE art. 1768 (“Conditions may be
either expressed in a stipulation or implied by the law, the
nature of the contract, or the intent of the parties.”), and LA.
CIV. CODE art. 2045 (“Interpretation of a contract is the
determination of the common intent of the parties.”). Second,
both states’ laws and jurisprudence require the party who relies
on the condition to suspend his obligation to prove that the
condition was part of the agreement. Compare Abacus Real Estate
Fin. Co. v. P.A.R. Constr. and Maint. Corp., 496 N.Y.S.2d 237,
238 (N.Y. App. Div. 1985) (requiring defendants who asserted that
their obligation was subject to an oral condition precedent to
prove the condition was part of the agreement), with Sam’s Style
Shop v. Cosmos Broad. Corp., 694 F.2d 998, 1004 (5th Cir. 1982)
(finding that Louisiana law requires one who relies on a
suspensive condition to prove the existence of the condition).
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Third, under both states’ laws and jurisprudence, courts avoid
construing an agreement as subject to a condition suspending the
existence of an obligation, unless there is clear evidence of the
parties’ intent to include such a condition in the agreement.
Compare Unigard Sec. Ins. Co. v. North River Ins. Co., 79 N.Y.2d
576, 581 (1992), with Southern States Masonry, Inc., 507 So.2d at
201 (stating that Louisiana courts avoid construing contractual
provisions as suspensive conditions whenever possible), and
Hampton v. Hampton, Inc., 713 So.2d 1185, 1190 (La. Ct. App.
1998) (stating that Louisiana courts find a suspensive condition
only when the express language of the contract compels such a
construction) (emphasis added). Because there is no apparent
conflict between the law of New York and Louisiana with respect
to the determinative issue in this case, that is, whether there
is substantial evidence to support the trial court’s
determination that Monroe’s repayment obligation was subject to a
condition, we need not engage in a choice-of-law analysis.
Instead, we apply the law of the forum state, Louisiana. See
Schneider Nat'l Transp., 280 F.3d at 536.
B. The Implied Condition on Monroe’s Repayment Obligation
Mumblow argues that the trial court erred when it found that
Mumblow’s right to demand repayment was conditioned on the sale
or the merger of Monroe’s assets because there was not enough
evidence to support that determination. Under Louisiana law, “an
8
obligation is conditional if it is dependent on an uncertain
event.” Kaufman v. Corporate Realty, Inc., 759 So.2d 969, 976
(La. Ct. App. 2000). Conditions on an obligation may be implied
by the law, the nature of the contract, or the intent of the
parties. LA. CIV. CODE art. 1768. A finding that the parties
intended an obligation to be conditional is a finding of fact
that we review for clear error. Gebreyesus v. F.C. Schaffer &
Assoc., Inc., 204 F.3d 639, 642 (5th Cir. 2000); Kaufman, 759
So.2d at 976; Hampton, 713 So.2d at 1189 (“Intent is an issue of
fact which is to be inferred from all of the surrounding
circumstances.”). We conclude that clear error exists when:
(1) the findings are without substantial evidence to support
them, (2) the court misapprehended the effect of the
evidence, and (3) if, although there is evidence which if
credible would be substantial, the force and effect of the
testimony, considered as a whole, convinces the Court that
the findings are so against the great preponderance of the
credible testimony that they do not reflect or represent the
truth and right of the case.
Moorhead v. Mitsubishi Aircraft Int’l, Inc., 828 F.2d 278, 283
(5th Cir. 1987). Before we will disturb the trial court’s
factual findings, we must be “left with the definite and firm
conviction that a mistake has been made.” Otto Candies, L.L.C.
v. Nippon Kaiji Kyokai Corp., 346 F.3d 530, 533 (5th Cir. 2003).
Because we have thoroughly reviewed the record and are left with
such a conviction, we reverse.
As evidence that the parties intended Monroe’s repayment
obligation to be subject to a suspensive condition, the trial
9
court found that Mumblow knew that Monroe’s financial condition
was weak, that Mumblow testified that when he was making the
loan, he did not expect to demand repayment, and that Mumblow and
the others making the loans only hoped to be repaid. (Reasons
for J. at 7). The court inferred that, because “everyone knew
that Monroe was not in a position to immediately repay the loan
extended by Mumblow, . . . it is clear that everyone intended
that repayment would occur only when Monroe was sold at a profit
or if Monroe, or its assets, was merged into CCA.” (Id.).
Because the record does not contain substantial evidence to
support the trial court’s finding, we conclude that the court
clearly erred in inferring a suspensive condition.
None of the evidence the trial court cited substantially
supports its inference that the parties intended Monroe’s
repayment obligation to be conditioned on the sale or merger of
its assets. The effect of a suspensive condition is that no
obligation to perform arises on the part of Monroe, unless and
until the condition is fulfilled. In other words, if Monroe is
never sold or merged, Mumblow will never have the right to be
repaid his $140,000. Perhaps in recognition of the fact that
suspensive conditions mean that one party intends to assume an
added contractual risk before that party can demand reciprocal
performance, i.e., that the condition be fulfilled, Louisiana
courts do not infer such conditions without very strong proof.
10
See Southern States Masonry, Inc., 507 So.2d at 205 (finding that
to construe an agreement as requiring one party to wait for
payment until a condition is fulfilled, which might never occur,
would give the agreement “an unreasonable construction which the
parties did not intend”). Indeed, they do so only when the
express language of the contract “compels” such a construction.
See Hampton, 713 So.2d at 1190. In the context of an oral
agreement such as this one, such a condition should not be
inferred unless there is clear evidence that the parties agreed
on such a condition. Further, the party who relies on a
suspensive condition, in this case Monroe, has the burden of
proving its existence. Sam’s Style Shop, 694 F.2d at 1004. The
trial court neither discussed nor assigned the burden of proof
when it found the suspensive condition. Because suspensive
conditions are disfavored and the burden of proof is on the party
relying on the condition, the trial court should not have
inferred a suspensive condition in the absence of evidence that
would at least substantially support that inference. In this
case, no such evidence exists, and the trial court’s inference is
therefore clearly erroneous.
The trial court first relied on Monroe’s weak financial
condition and Mumblow’s knowledge of that condition to infer that
the parties intended Monroe’s repayment obligation be suspended
until after a sale or merger of its assets. Significantly, no
11
witness actually testified that the parties intended to condition
Monroe’s repayment obligation to Mumblow on a sale or merger of
Monroe’s assets. Mere evidence of Monroe’s weak financial
condition neither requires nor substantially supports the trial
court’s inference that the parties intended Monroe’s repayment
obligation to arise only if Monroe’s assets were sold or merged.
That Mumblow knew that Monroe was financially weak simply does
not overcome the common sense understanding, mandated by
Louisiana precedent, that the parties to a contract do not intend
a suspensive condition in the absence of strong evidence of such
intent.
Further, there was evidence that Monroe could in fact repay
the loan. Monroe had an unused one million dollar line of credit
at Whitney National Bank until the end of 2002, against which it
was free to borrow to pay off debts or otherwise use as it saw
fit. (Tr. Transcript at 61). Although there was testimony that
the owners of Monroe were opposed to drawing on this line of
credit (see id. at 80), Galloway was obligated to indemnify the
owners of Monroe as to any amount they might owe on that debt.
(Id. at 46). But even if the trial court were correct that
Mumblow knew that he realistically would not obtain repayment
until the company’s financial condition improved, it simply does
not follow that the parties intended that Monroe’s repayment
obligation would never arise unless there was a sale or merger of
its assets. The condition the court inferred would mean that
12
Mumblow had no right to demand repayment without a sale or
merger, even if Monroe generated a positive cash flow and could
service its other debts. Not only does evidence of Monroe’s weak
financial condition, without more, not suggest such a restrictive
condition, but the sale or merger condition is also contradicted
by Boulanger’s testimony that if Monroe generated a positive cash
flow, Mumblow would be able to get his money back, even without a
disposition of Monroe’s assets. (Id. at 43).
The other evidence in the record also does not substantially
support the trial court’s conclusion that the parties intended
Monroe’s repayment obligation to be conditional. The trial court
characterized Mumblow’s testimony as an acknowledgment that when
he was making the loan, he did not expect to demand repayment.
(Reasons for J. at 8). Mumblow explained that he told Elmore on
several occasions that, “we could ask for our money any time you
wanted to, but I knew that if I asked for payment, I couldn’t get
payment at that time.” (Id. at 126). This acknowledgment of an
economic reality does not substantially support an inference that
Mumblow also intended Monroe’s repayment obligation to be
conditional, a provision that would only further frustrate his
ability to collect on Monroe’s obligation. This is particularly
true since Mumblow denied that there was any such condition.
There is not much evidence in the record from which to
discern Monroe’s intentions as to its repayment obligation. One
thing is clear, there is no direct evidence that Monroe intended
13
the obligation to be conditional. The owner of Monroe,
Chatelain, testified that he did not know about the loan until
Mumblow instituted the current proceedings by demanding
repayment. (Tr. Transcript at 51). On Elmore’s instructions,
the notes were classified by Boulanger, the CCA controller who
kept Monroe’s books, as notes payable under the category of long-
term liabilities. But Boulanger testified that the notes
reflecting Monroe’s obligation to CCA for services under the
consulting agreement were likewise classified as notes payable
under the category of long-term liabilities, when they in fact
were demand notes. (Id. at 37). Boulanger did not testify as to
the proper way to account for a loan subject to a suspensive
condition, or state that Mumblow’s loan was accounted for as a
long-term liability because it was conditional. Indeed,
Boulanger admitted that Mumblow said nothing to him about a
condition on his right to demand repayment, although Mumblow
joked that Monroe would have difficulty repaying the loan. (Id.
at 30). This scanty evidence plainly does not provide
substantial support for the trial court’s finding that Monroe’s
obligation was conditioned on the sale or merger of Monroe’s
assets.
In contrast, the inference that the parties did not intend
to impose such a condition is substantially supported by the
evidence in the record. Mumblow testified that he expected to
demand repayment eventually (Tr. Transcript at 127), that he was
14
sure it was his “right” to ask for repayment (id.), and that he
asserted to Elmore on several occasions that they could ask for
repayment any time they wanted to (id. at 126), testimony that
neither Elmore nor anyone else contradicted. Mumblow also
testified that Elmore told him that Elmore would have notes
payable drawn up on the advances, though the notes were never
produced. (Id. at 105). Mumblow wrote “payables” on the last
check he sent to Monroe, by which he meant to indicate that the
checks “were the notes payable according to the financial
statements of Monroe Broadcasting that recorded my loan to them.”
(Id. at 100-101). Elmore admitted that Mumblow never said to him
that Mumblow “was placing a restriction on his right to demand
repayment of the money.” (Id. at 60). All of this testimony
contradicts the trial court’s finding that Mumblow intended
Monroe’s repayment obligation to be subject to a suspensive
condition.
The only evidence that could potentially support an
inference that Monroe’s repayment obligation was conditional is
Elmore’s testimony that neither he nor Mumblow expected to get
his money back unless Monroe’s financial condition improved and
the company was sold. (Tr. Transcript at 78, 81, 86). Elmore
did not testify that either he or Mumblow specifically agreed to
forego any right to repayment unless the company was sold or
merged. His statement was based on his assertion that both he
and Mumblow knew that Monroe was “under water to the tune of
15
about $5 million.” (Id. at 81). In fact, Elmore admitted that
Mumblow never told him that Mumblow placed any restriction on his
right to be repaid. Elmore’s weak testimony as to his and
Mumblow’s “expectation” is not of the caliber necessary to
substantially support the finding of a suspensive condition. See
J.C. Frantz v. Vitenas, 347 So.2d 284, 285 (La. Ct. App. 1977)
(finding that defendant failed to show that his verbal payment
obligation was conditioned because the record contained no
evidence that he expressly conditioned his obligation on the
happening of an uncertain event, and the condition could not
reasonably be implied from the nature of the contract or the
presumed intent of the parties). Lacking such evidence, bearing
in mind that the burden of proof is on Monroe, and considering
Mumblow’s ample testimony that his intent was for Monroe’s
repayment obligation to be unconditional, we conclude that the
trial court’s finding that a condition existed lacks substantial
support.
Accordingly, we conclude that the trial court clearly erred
when it inferred that Monroe’s obligation is subject to a
suspensive condition, and we reverse the trial court’s judgment
in favor of Monroe and its dismissal of Mumblow’s complaint as
premature.3
3
We note that the trial court dismissed the complaint but
did not specify that the dismissal was without prejudice. Under
Federal Rule of Civil Procedure 41, a dismissal for prematurity
should have been without prejudice because it does not operate as
16
C. Mumblow’s Remaining Arguments
Because we hold that the trial court clearly erred when it
found an implied suspensive condition on Monroe’s repayment
obligation and dismissed Mumblow’s claim as premature, we need
not consider Mumblow’s remaining arguments that the trial court
erred in failing to define the terms of the condition and in
failing to grant judgment in Mumblow’s favor subject to the
satisfaction of the condition.
D. The Remand
There is no evidence in the record that would support a
determination that the parties intended to fix a term for
repayment of the loan. Louisiana law dictates that when an
agreement does not specify a term for repayment of a loan,
repayment is due in a reasonable time. See LA. CIV. CODE art.
1778; Sanders v. Russell, 864 So.2d 219, 222 (La. Ct. App. 2003)
(finding that when parties did not fix a term for repayment of a
loan, term was undeterminable and therefore repayment was due
within a reasonable time); Parquette v. Arceneaux Music Ctr.,
Inc., 425 So.2d 362, 364 (La. Ct. App. 1982) (finding that when
no time limit for repayment of loans had been discussed, parties
intended that loan would be repaid within a reasonable time and
that a reasonable time (six months) had expired by the time suit
was filed); see also LeBlanc v. City of Plaquemine, 448 So.2d
an adjudication on the merits. FED. R. CIV. P. 41(b).
17
699, 703 (La. Ct. App. 1984) (“In the absence of an express
stipulation as to the term of a contract, Louisiana courts will
infer a reasonable term from the nature of the contract and the
circumstances of the case.”); Saul Litvinoff, THE LAW OF
OBLIGATIONS: PUTTING IN DEFAULT AND DAMAGES § 1.9 (2d ed. 1999) (stating
that, although the parties to a “friendly” loan may not name a
time by or at which the money must be paid back, it is clear that
they do not intend repayment to be made immediately after the
borrower receives the money from the lender and, in such a case,
if the time for repayment is not determinable, payment is due in
a reasonable time). We remand this matter to the trial court to
determine whether a reasonable time for repayment of the loan has
expired.
IV. CONCLUSION
For the foregoing reasons, the judgment is AFFIRMED in part,
REVERSED in part, and REMANDED for further proceedings consistent
with this opinion.
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