Home-Stake Oil & Gas v. Home-Stake Acq. ( 2000 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
FEB 23 2000
TENTH CIRCUIT
PATRICK FISHER
Clerk
THE HOME-STAKE OIL & GAS
COMPANY,
Plaintiff-Appellee,
and
HOME-STAKE ROYALTY,
Plaintiff,
v. No. 99-5005
(D.C. No. 93-CV-303-H)
HOME-STAKE ACQUISITION (N.D. Okla.)
CORPORATION, a Delaware
corporation; ENVIROMINT
HOLDINGS, INC., a Florida
corporation, fka Tri Texas Inc.;
INTERNATIONAL INSURANCE
INDUSTRIES, INC., a Delaware
corporation; CHARLES S.
CHRISTOPHER; MICHAEL J.
EDISON, an individual sometimes dba
International Insurance Industries,
Inc.; AGO COMPANY, a Texas
corporation; AGR CORPORATION, a
Texas corporation,
Defendants,
v.
M. TOM CHRISTOPHER,
Third-Party-Respondent-
Appellant.
ORDER AND JUDGMENT *
Before EBEL, McWILLIAMS, and BRISCOE , Circuit Judges.
Tom Christopher (Tom) 1
appeals the district court’s ruling that he had no
interest in 440 shares of Home-Stake Royalty Corporation stock and the court’s
order striking his claim for ownership of that stock. We exercise jurisdiction
pursuant to 28 U.S.C. § 1291 and reverse and remand for further proceedings.
I.
This case requires a determination of whether Tom presented evidence that
he had an enforceable interest in 440 shares of Home-Stake Royalty stock. Tri
Texas, Inc. acquired the 440 shares of stock in June 1991. In August 1991, Tom
loaned $77,500 to Larry Jasper, who was a consultant to Tri Texas. Jasper signed
the note for the $77,500 loan at the request of Charles Christopher (Charles),
who signed a personal guaranty for the note. At various times relevant to the
creation and extension of the loan, Charles was chairman of the board, chief
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The 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. 36.3.
1
We refer to the Christophers (Tom and Charles) by their first names to
avoid potential confusion to the reader.
2
executive officer, and the controlling shareholder of Tri Texas. On September 6,
1991, Jasper signed a renewal note which extended the payment due date of the
original note. On that same day, Charles sent Tom the stock certificate for Tri
Texas’ 440 shares of Home-Stake Royalty stock, along with a stock power
assignment. The stock power assignment was signed by “Charles S. Christopher,
Chairman of the Board,” and it stated that Tri Texas transferred 440 shares of
Home-Stake Royalty stock to Tom. Aplt. App. II at 188. A letter prepared on
Charles’ personal letterhead, addressed to Tom and signed by Charles
individually, accompanied the stock certificate and assignment. The letter stated
the stock was “being delivered . . . to collateralize your original loan . . . and
renewal note . . . between yourself and Larry T. Jasper.” Id. at 185. When Jasper
did not pay the loan monies owed, Tom notified Charles he was keeping the
stock.
In August 1993, Home-Stake Oil & Gas Company and Home-Stake Royalty
filed a complaint in federal court against Charles, Tri Texas, and others for
actions taken during proxy solicitations. Tom was not a party to the action.
Home-Stake contended it had a lien against the 440 shares of stock owned by Tri
Texas. In April 1996, the district court entered a default judgment against Tri
Texas for $1,555,527.34 in actual damages and $3,146,618.68 in punitive
damages, and a judgment against defendants jointly and severally for $17,782 in
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actual damages. The district court dismissed the claims against Charles.
Home-Stake Oil & Gas and Home-Stake Royalty merged on December 31,
1997, and Home-Stake Oil & Gas (hereinafter Home-Stake) is the surviving
entity. In February 1998, Home-Stake filed a motion for an order in aid of
execution of its judgment against Tri Texas. Home-Stake filed a motion
requesting turnover of the 440 shares of stock owned by Tri Texas, but now held
by Tom. After Tom asserted ownership of the stock, the district court allowed
him to become a party for purposes of the motion. In April 1998, the district
court ruled Tri Texas was the rightful owner of the stock and issued a writ of
execution to seize and sell the 440 shares of stock. Tom filed a motion for new
trial. In November 1998, the court denied the motion for new trial, found false
statements had been made in support of Tom’s claim to the Home-Stake stock,
and sanctioned Tom by striking his claim.
II.
We are reviewing the district court’s order on Home-Stake’s motion for an
order in aid of execution. The district court considered affidavits and depositions
to determine that Tom failed to show he had an enforceable interest in the Home-
Stake Royalty stock. We will not set aside findings of fact unless they are clearly
erroneous, Fed. R. Civ. P. 52(a), but we consider questions of law de novo.
Dang v. UNUM Life Ins. Co. , 175 F.3d 1186, 1189 (10th Cir. 1999). This action
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was brought in diversity and is controlled by Oklahoma law. We conclude that
the district court erroneously applied the law in finding that Tom did not present
sufficient evidence to show he had an interest in the Home-Stake stock. We
remand the case for an evidentiary hearing on the issue of which party is entitled
to the Home-Stake stock.
Tom’s interest in the 440 shares of Home-Stake Royalty stock
The parties and the district court framed the issue as whether Tom had an
enforceable security interest in the Home-Stake Royalty stock, focusing on
whether Tri Texas gave value. However, the first step in determining whether
Tom had an enforceable security interest in the stock involves an analysis of
whether Tri Texas was a guarantor. “A guaranty is a promise to answer for the
debt, default or miscarriage of another person.” Okla. Stat. Ann. tit. 15, § 321(West 1993). Initially, Charles promised to answer personally for the debt of
Jasper. Charles signed a document entitled “Guaranty” at the time Jasper
executed the original note, guaranteeing payment to Tom if Jasper failed to pay
the note. After that note became due, Tri Texas guaranteed payment of the
renewal note. In the September 6, 1991, letter, Charles stated that “[i]f the above
referenced note is in default at any time for any reason, you are hereby authorized
to liquidate the securities after giving me three (3) business days notice and
5
opportunity to purchase the securities for the balance of the note plus any interest
and penalties due.” Aplt. App. II at 185. Although this letter was signed by
Charles without mention of Tri Texas, the letter referenced the stock power
assignment, which was signed by Charles as chairman of the board of Tri Texas.
When these documents are read together, the record supports the conclusion that
Charles was acting in his official capacity with Tri Texas. Although Home-Stake
alleges Charles’ actions were fraudulent, there is no evidence in the record to
support that allegation. Further, any claim for such fraud would lie with Tri
Texas against Charles.
There was evidence of an enforceable guaranty agreement between Tom
and Tri Texas for the payment of Jasper’s debt. Generally, “a guaranty must be
in writing, and signed by the guarantor; but the writing need not express a
consideration.” Okla. Stat. Ann. tit. 15, § 324 (West 1993). The guaranty from
Tri Texas was in writing. Tom also accepted the guaranty and agreed to an
extension of the debt from Jasper, making further consideration unnecessary.
Okla. Stat. Ann. tit. 15, § 323 (West 1993). It was unnecessary for Jasper, the
debtor, to be a party to the guaranty agreement or for Tri Texas to be a party to
the principal obligation. Riverside Nat. Bank v. Manolakis , 613 P.2d 438, 441
(Okla. 1980). “The obligation of a guaranty is contractual, and the inquiry must,
in each case, focus on the precise terms of the guarantor’s undertaking the
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dimension or breadth of the promise.” Id. There was also some evidence that Tri
Texas undertook performance of Jasper’s obligation if Jasper did not pay the note
when due.
The issue then becomes whether there was evidence that Tom had an
enforceable security interest in the stock. The only formal requirements for an
enforceable security interest are: “(a) a writing; (b) the debtor’s signature; and
(c) a description of the collateral or kinds of collateral.” First Nat. Bank & Trust
Co. v. McKown , 867 P.2d 1342, 1346 (Okla. Ct. App. 1993) (citing Okla. Stat.
Ann. tit. 12A, § 9-203, cmt.1 (West 1963)).
The record contains evidence of an enforceable security agreement between
Tom and Tri Texas. First, an enforceable security interest requires a writing.
“While there are no magic words which create a security interest there must be
language in the instrument which ‘leads to the logical conclusion that it was the
intention of the parties that a security interest be created.’” Mitchell v. Shepherd
Mall State Bank , 458 F.2d 700, 703 (10th Cir. 1972) (quotation omitted). The
September 6, 1991, letter, when read with the referenced stock power assignment,
shows Tri Texas’ intent to create a security interest in the stock for Tom. The
next requirement for an enforceable security agreement is that the debtor sign the
writing. See Okla. Stat. Ann. tit. 12A, § 9-105(1)(d) (West Supp. 2000)
(defining debtor to include “the person who owes payment or other performance
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of the obligation secured”). In the context of the guaranty agreement, Tri Texas
was the debtor. Charles signed the stock power assignment in his capacity as
chairman of the board of Tri Texas. He personally signed an accompanying letter
which referenced the assignment and authorized liquidation of the stock in the
event of a default. Finally, a security agreement must contain a description of the
collateral. The letter from Charles contained a sufficient description of the 440
shares of Home-Stake Royalty stock offered as security. The record shows there
was an enforceable security agreement between Tom and Tri Texas.
A security interest must attach to the collateral before it will be
enforceable. A security interest is “an interest in personal property or fixtures
which secures payment or performance of an obligation.” Okla. Stat. Ann. tit.
12A, § 1-201(37)(a) (West Supp. 2000). There are three requirements for a
security interest to attach to collateral: (1) “the collateral is in the possession of
the secured party pursuant to agreement, the collateral is investment property and
the secured party has control pursuant to agreement, or the debtor has signed a
security agreement which contains a description of the collateral”; (2) “value has
been given”; and (3) “the debtor has rights in the collateral.” Okla. Stat. Ann., tit
12A, § 9-203 (West Supp. 2000). The collateral in this case was the 440 shares
of Home-Stake Royalty stock.
The record contains evidence that Tom had a security interest that attached
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to the stock. Tom showed the existence of the first requirement for attachment
by his physical possession of the stock certificate pursuant to the agreement with
Tri Texas. Charles also had signed a writing containing a description of the
collateral, which would likewise satisfy the first element. Next, value must have
been given. “The provision requiring as a precondition to the attachment of a
security interest the giving of value is intended to insure that the debtor who
gives the security interest has received some consideration in return for the
substantial rights transferred to the secured party.” Morton Booth Co. v. Tiara
Furniture, Inc. , 564 P.2d 210, 214 (Okla. 1977). “[A] person gives ‘value’ for
rights if he acquires them: . . . (d) generally, in return for any consideration
sufficient to support a simple contract.” Okla. Stat. Ann. tit. 12A, § 1-201(44)
(West Supp. 2000); see Okla. Stat. Ann. tit. 12A, § 9-105(4) (West Supp. 2000)
(stating that Article 1 definitions are applicable throughout Article 9). The
record indicates that Tri Texas gave Tom a security interest in the stock in return
for his extension of the due date of the note to Jasper. By extending Jasper’s
loan due date, Tom gave something of value to Tri Texas. See In re Reliable
Mfg. Corp. , 703 F.2d 996, 1000 (7th Cir. 1983) (stating that a “security interest
given in consideration for the obligation of a third party clearly effectuates the
purpose of [9-203(1)] and fulfills the requirements of the U.C.C. It is enough . .
. that there be detriment to the secured party even if there is no benefit to the
9
owner of the assets subject to the security interest.”).
Finally, the debtor must have rights in the collateral before a security
agreement will attach to that collateral. There is no dispute that Tri Texas owned
the Home-Stake Royalty stock. Because Charles acted on behalf of Tri Texas in
offering the stock to Tom as security, the debtor was Tri Texas, which had rights
in the collateral. There is evidence in the record to support a finding that the
security agreement attached to the 440 shares of Home-Stake Royalty stock.
After careful review of the record developed by the parties thus far, we conclude
that the district court erred in finding that Home-Stake was entitled to the 440
shares of Home-Stake stock.
We note that although Tom may have an interest in the Home-Stake
Royalty stock, he would only be entitled to such amount as is necessary to meet
Jasper’s obligation. “The obligation of a guarantor must be neither larger in
amount, nor in other respects more burdensome than that of the principal; and if,
in its terms, it exceeds it, it is reducible in proportion to the principal obligation.”
Okla. Stat. Ann. tit. 15, § 334 (West. Supp. 2000). To the extent the Home-Stake
Royalty stock is worth more than the obligation owed by Jasper, any excess value
would be returned to Tri Texas.
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Order striking Tom’s claim to the Home-Stake Royalty stock
The district court found that the statements Tom made in support of his
motion for new trial were “markedly different” from his previous representations
of fact and struck Tom’s claim. Aplt. App. III at 441. The district court has the
authority to strike claims under Federal Rules of Civil Procedure 11 and 12(f), as
well as a general inherent power to sanction. We review the district court’s
sanctions for abuse of discretion. Jones v. Thompson , 996 F.2d 261, 264 (10th
Cir. 1993).
It is not clear under what authority the district court acted in striking
Tom’s claim. The district court’s order stated:
Based upon a careful review of the evidence submitted by
[Tom] in this case, including but not limited to [Tom’s] papers filed
in this matter on March 4, 1998 (Docket #147) and March 27, 1998
(Docket #152), the representations of [Tom’s] counsel at the hearing
on April 22, 1998, and [Tom’s] report concerning the deposition of
Mr. Jasper (Docket #165), attached to which is a transcript of Mr.
Jasper’s deposition, the Court finds that the statements asserted in
support of [Tom’s] supplemental motion are markedly different from
previous representations of fact by [Tom] and his counsel. Clearly,
the sworn testimony of Mr. Jasper and the previous representations
of fact in this record cannot both be true. The Court is not required
to determine which statement of facts is true and which is false. It is
sufficient that the Court finds false statements have been made in
support of [Tom’s] claim in this action. Pursuant to this finding, the
Court hereby strikes [Tom’s] claim.
Aplt. App. III at 440-41.
The district court abused its discretion if it acted under Rule 11(c). That
11
provision requires notice and a reasonable opportunity to respond before the
court may impose sanctions. Fed. R. Civ. P. 11(c). There is no indication in the
record that the court provided Tom with notice and an opportunity to respond
before striking his claim. The court also abused its discretion if it acted under
Rule 12(f), which allows the court to act on its own initiative to strike any
redundant, immaterial, impertinent, or scandalous matter from a pleading. Rule
12(f) does not apply in this case.
The district court has an inherent power to “‘levy sanctions in response to
abusive litigation practices.’” Jones , 996 F.2d at 264 (quoting Roadway Express,
Inc. v. Piper , 447 U.S. 752, 765 (1980)). The district court’s order is devoid of
any explanation of the statements it found to be false. After reviewing the
documents and transcripts to which the district court referred in its order, we are
unable to find any material inconsistencies or materially false statements. The
record before us does not support the imposition of such a drastic sanction and
we find the district court abused its discretion in striking Tom’s claim.
III.
The decision of the district court awarding the 440 shares of Home-Stake
Royalty stock to Home-Stake is REVERSED. The district court’s order striking
Tom’s claim is REVERSED. This case is REMANDED for an evidentiary
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hearing to determine which party is entitled to the Home-Stake stock.
Entered for the Court
Mary Beck Briscoe
Circuit Judge
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