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Moses v. Hovis

United States District Court, D. Colorado

September 12, 2017

ROBERT E. MOSES, Plaintiff,



         This matter is before the Court on Plaintiff's Motion for Partial Summary Judgment Pursuant to Fed.R.Civ.P. 56 [Docket No. 30]. This Court has jurisdiction pursuant to 28 U.S.C. § 1332.

         I. BACKGROUND[1]

         This action arises out of a April 11, 2010 investment agreement between plaintiff Robert E. Moses, Hearing Help Express, Inc. (“Hearing Help”), defendant James E. Hovis, and defendant Catherine Hovis. Docket No. 47-1.[2] At the time of the Agreement, Mr. Hovis was the chairman of Hearing Help's board. Id. at 2. The investment agreement is titled “Robert E. Moses Fixed-Interest Investment in Hearing Help Express with 48-Month Stock Purchase Option, ” id., but is referred to herein simply as “the Agreement.” Pursuant to the Agreement, plaintiff invested $120, 000.00 in Hearing Help on February 12, 2010, which accrued interest beginning on the date of investment at 12.00% APR, compounded annually, with the balance of principal and interest to be paid to plaintiff “no later than forty-eight months after Date of Investment.” Id. at 2, ¶ 1. For forty-eight months after investment, plaintiff had the option of converting his investment into stock in Hearing Help at a price of $40.00 per share. Id., ¶ 2. Additionally, the Agreement provided that, if Hearing Help was “not sold within forty-eight months, then the company shall repay the balance of Invested Funds and accrued interest at 12.0% APR and [James] Hovis shall make up the difference so that Investor has received 15.0% interest compounded annually.” Id. at 3, ¶ 2; see also Docket No. 47-1 at 2 (“James E. Hovis . . . is confident that Investor named below will earn at least 15.0% compounded including the future value of Investor's stock option, and Jim Hovis and his wife Catherine Hovis therefore personally guarantee (1) the safety of this investment, (2) all payments to Investor, (3) Investor's achieving 15.0% APR compound interest (personally paying the difference between 12.0% and 15.0% appreciation if necessary), and (4) the fulfillment of Investor's stock purchase option.”). If Hearing Help failed to make any required payments, plaintiff had the option to accelerate repayment, making the principal and accrued interest payable immediately after a five-day cure period. Docket No. 47-1 at 3, ¶ 6.

         The Agreement includes guaranties of plaintiff's investment from both Mr. Hovis and Ms. Hovis. Mr. Hovis' guaranty states in relevant part that, “[a]s additional security to Investor, (i) Jim Hovis personally and absolutely guarantees all payments and repayment of the Invested Funds.” Docket No. 47-1 at 3, ¶ 7. Hearing Help and Mr. Hovis also agreed to pay plaintiff's “necessary and reasonable legal fees as due to enforce any provision” of the Agreement. Id. Mr. Hovis signed the agreement both as a “1st personal guarantor” and on behalf of Hearing Help as its chairman. Id. at 4. Ms. Hovis agreed that, six months after any default by her husband and/or Hearing Help, she would guarantee plaintiff's investment. Id., ¶ 8. Ms. Hovis signed the Agreement as “2nd personal guarantor.” Id. at 4. The Agreement is governed by Illinois law. Id., ¶ 9.

         Before the Agreement was executed, Mr. Hovis supplied plaintiff with a one-page financial summary dated March 27, 2009. Docket No. 30-4 at 33. The summary lists his and his wife's combined net worth as $11, 770, 200. Id. Plaintiff claims the 2009 financial summary is misleading in various ways. Docket No. 30 at 9-10, ¶¶ 48-49. The main dispute focuses on two items. First, Mr. Hovis listed the River Road property he owned with a value of $2, 000, 000. Id. Plaintiff claims the summary overstates the value of the property by approximately $1 million. Docket No. 30 at 12.[3] Second, the 2009 financial summary lists a liability of $602, 300.00 for “Net balance of loans to/from family-controlled corporations at 9% int.” Docket No. 30-4 at 33. Defendants claim that this entry accurately summarizes the net liability from Mr. Hovis borrowing $3, 823, 845 from Hearing Help and another company he controlled and lending $3, 221, 572 to other companies. See Docket No. 30-4 at 37. Plaintiff claims that this vague description makes no mention of Mr. Hovis' obligation to repay Hearing Help more than $3 million and therefore is materially misleading. Docket No. 39 at 5; Docket No. 36-5.

         Hearing Help made mortgage payments on plaintiff's home from March 2010 through July 2014. Plaintiff's Statement of Undisputed Material Facts (“PSUMF”) 21, 23. Hearing Help's last mortgage payment occurred in July 2014. PSUMF 27.

         On July 14, 2014, Hearing Help filed a voluntary petition for Chapter 11 bankruptcy. PSUMF 26; Docket No. 30-8 at 1; In re: Hearing Help Express, Inc., No. 14-82161 (N.D. Ill. filed July 14, 2014).

         In November 2015, plaintiff sent defendants a written demand for repayment under their guaranties. PSUMF 40. On January 19, 2016, plaintiff followed up by email with Mr. Hovis and asked Mr. Hovis and his wife to honor their personal guaranties; he also offered them a payment alternative. PSUMF 31; Docket No. 30-9. On January 27, 2016, Mr. Hovis responded and declined the payment alternative. PSUMF 32; see also Docket No. 30-10. Defendants have yet to pay any monies to plaintiff under their guaranties. PSUMF 40-41. However, plaintiff has received a payment of $7, 471.52 from Hearing Help pursuant to its confirmed bankruptcy plan. Docket No. 39 at 4.

         Plaintiff filed his complaint on May 18, 2016. Docket No. 1. Plaintiff brings claims of breach of the guaranties, fraud, and unjust enrichment against both defendants. Id. at 6-10. On February 7, 2017, plaintiff filed his motion for partial summary judgment as to two claims - breach of the guaranties and fraud. Docket No. 30.


         Summary judgment is warranted under Federal Rule of Civil Procedure 56 when the “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A disputed fact is “material” if under the relevant substantive law it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). Only disputes over material facts can create a genuine issue for trial and preclude summary judgment. Faustin v. City & Cty. of Denver, 423 F.3d 1192, 1198 (10th Cir. 2005). An issue is “genuine” if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).

         Where “the moving party does not bear the ultimate burden of persuasion at trial, it may satisfy its burden at the summary judgment stage by identifying a lack of evidence for the nonmovant on an essential element of the nonmovant's claim.” Bausman v. Interstate Brands Corp., 252 F.3d 1111, 1115 (10th Cir. 2001) (quoting Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998) (internal quotation marks omitted)). “Once the moving party meets this burden, the burden shifts to the nonmoving party to demonstrate a genuine issue for trial on a material matter.” Concrete Works of Colo., Inc. v. City & Cty. of Denver, 36 F.3d 1513, 1518 (10th Cir. 1994) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). The nonmoving party may not rest solely on the allegations in the pleadings, but instead must designate “specific facts showing that there is a genuine issue for trial.” Celotex, 477 U.S. at 324; see Fed. R. Civ. P. 56(e). “To avoid summary judgment, the nonmovant must establish, at a minimum, an inference of the presence of each element essential to the case.” Bausman, 252 F.3d at 1115 (citation omitted). When reviewing a motion for summary judgment, a court must view the evidence in the light most favorable to the non-moving party. Id.; see McBeth v. Himes, 598 F.3d 708, 715 (10th Cir. 2010).


         A. Breach of ...

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