Home-Stake Oil & Gas v. Home-Stake Acq.

• Court: Court of Appeals for the Tenth Circuit
• Decided: February 23, 2000
• Docket: 99-5005
• Status: Unpublished

Opinion

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* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel.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

3 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

4 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

6 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

7 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

8 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.

10 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

12 hearing to determine which party is entitled to the Home-Stake stock.

Entered for the Court

Mary Beck Briscoe Circuit Judge