WILLIAM KIPNIS and MARCI KIPNIS v. MICHAEL JUSBASCHE and REBECCA MARK-JUSBASCHE
NO. 33,821
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
April 2, 2015
Sarah C. Backus, District Judge
APPEAL FROM THE DISTRICT COURT OF TAOS COUNTY
John B. Pound,
John B. Pound
Santa Fe, NM
for Appellants
The Simons Firm, L.L.P.
Thomas A. Simons, IV
Daniel H. Friedman
Santa Fe, NM
for Appellees
OPINION
BUSTAMANTE, Judge.
{1} Plaintiffs filed suit against Defendants for fraud, constructive fraud, and conversion based on Defendants’ failure to tell them that Defendant Jusbasche had pled nolo contendere to a charge of theft of trade secrets nineteen years earlier. The district court dismissed the complaint on the ground that
BACKGROUND
{2} William and Marci Kipnis (Plaintiffs) owned a hotel in Taos Ski Valley. Together with Michael Jusbasche and Rebecca Mark-Jusbasche (Defendants) they formed a limited liability corporation with the goal of replacing the hotel with condominiums. Plaintiffs contributed the hotel‘s real estate and a liquor license to the corporation and Defendants contributed cash in excess of $4 million over several years, the bulk of which was considered a loan to the corporation. Defendants held a 51% interest in the corporation.
{3} Plaintiffs filed suit alleging fraud, constructive fraud, intentional misrepresentation, and conversion1. The root of Plaintiffs’ suit is an alleged conversation that occurred early in the negotiations about the project. Plaintiffs alleged that in 2003 the parties had a “dinner meeting . . . to move business discussions from the abstract to the concrete.” As stated in the complaint, during that conversation, William Kipnis asked Defendants “if there was anything in their personal histories he should know about before going into a business relationship with them.” Defendants answered in the negative. Plaintiffs maintained that Defendants’ failure to tell them in that conversation that Jusbasche had pled nolo contendere to a charge of theft of trade secrets in 1984 constituted fraud. They “contend[ed] that if [Defendants] had honestly answered the question . . . by telling them that . . . Jusbasche had pled no contest to a criminal charge of dishonesty with his business associates, they would not have gone into business with [him] . . . and would be the owners of the hotel and liquor license today.”
{4} Defendants filed a motion for summary judgment, arguing in relevant part that they had no duty to disclose the plea and judgment and that
{5} The district court agreed with Plaintiffs on both arguments and denied Defendants’ motion (Order 1). A trial date was set. However, at a pre-trial conference the district court reconsidered its ruling sua sponte and reversed the portion related to
DISCUSSION
A. Rule 11-410
{6} “The standard of review on appeal from summary judgment is de novo.” Farmers Ins. Co. of Ariz. v. Sedillo, 2000-NMCA-094, ¶ 5, 129 N.M. 674, 11 P.3d 1236. Plaintiffs argue that the district court erred in concluding that
{7} As a preliminary matter, we note that, as it pertains to the exclusion of nolo contendere pleas,
{8} In Olsen, Olsen was convicted of murder and served five years in prison. 189 F.3d at 55. After five years, his conviction was overturned based on the prosecution‘s failure to disclose evidence, and a new trial was ordered. Id. Rather than go through a new murder trial, Olsen pled nolo contendere to a charge of manslaughter and was sentenced to time served. Id. Olsen then sued the city and two police officers for damages related to his incarceration for the murder charge. Id. The defendants “raised Olsen‘s manslaughter conviction resulting from the nolo plea as an affirmative defense[,]” arguing that “[Olsen was] not entitled to damages based upon the period of incarceration identified with the conviction for manslaughter.” Id. at 55-56 (internal quotation marks omitted). Although he ultimately prevailed on the merits, Olsen appealed the amount of the damage award. Id.
{9} On appeal, the Court of Appeals for the First Circuit examined whether “any evidence of [Olsen‘s] nolo plea, conviction, or sentence” could be admitted or considered by the district court. Id. at 58. It first held that under
{10} In Adedoyin, the defendant was tried for “improper entry into the United States by an alien, . . . [and] two counts of fraud and misuse of visas, permits[,] and other documents[.]” 369 F.3d at 339. Approximately twenty years earlier, the defendant had pled nolo contendere to a felony criminal charge and was convicted. Id. at 340. The prosecution argued that the defendant had willfully misrepresented his status by indicating on a visa application that he had no criminal convictions. Id. at 343. At trial, the district court admitted evidence of the conviction over the defendant‘s objection based on
{11} On appeal, the Court of Appeals for the Third Circuit relied on Olsen to affirm on two bases. First, it noted that there was in
{12} We derive two propositions from these cases. One is that the reach of
{13} Other courts reject the dichotomy between pleas and convictions and instead treat nolo pleas and resultant judgments the same under the rule. Nevertheless, they endorse the second proposition from those cases: when the purpose is other than to prove guilt, evidence related to a nolo plea may be admitted. For example, the Court of Appeals for the Ninth Circuit held that
[r]eading [Rule 410] to preclude admission of a nolo contendere plea but to permit admission of conviction based on that plea produces an illogical result. Rule 410‘s exclusion of a nolo contendere plea would be meaningless if all it took to prove that the defendant committed the crime charged was a certified copy of the inevitable judgment of conviction resulting from the plea. We hold that Rule 410 prohibits the admission of nolo contendere pleas and the convictions resulting from them as proof that the pleader actually committed the underlying crimes charged.
United States v. Nguyen, 465 F.3d 1128, 1131 (9th Cir. 2006) (fourth emphasis added). Interestingly, Nguyen relied on Olsen to reach this conclusion. Nguyen, 465 F.3d at 1131. Similarly, in Town of Groton v. United Steelworkers of America, the Connecticut Supreme Court held that “under our law a prior plea of nolo contendere and a conviction based thereon may not be admitted into evidence in a subsequent civil action or administrative proceeding to establish either an admission of guilt or the fact of criminal conduct.” 757 A.2d 501, 511 (Conn. 2000) (emphasis added)2. Without making a
{14} The better reasoned approach is that it is not necessary to interpret
by that reasoning Rule 410(a)(2) could be easily and thoroughly circumvented in every case . . . by simply telling the jury about the criminal conviction that was entered against the defendant, without disclosing how the conviction was reached or that it was based on the plea. That arrangement would do nothing to fulfill the purposes underlying Rule 410.
Id. Finally, “this . . . argument overlooks the fact that Rule 410(a)(2) does not merely exclude the nolo plea itself, but in fact excludes ‘evidence of . . . a nolo contendere plea.’ ” Id. (emphasis omitted) (omissions in original).
{15} Although we reject the idea that the rule only prohibits admission of the plea itself, we agree with the cases and the authorities holding that “Rule 410 was obviously intended to provide that pleas of nolo contendere—and convictions on the basis of such pleas—are excluded by that rule only if they are offered to prove that the defendant is guilty of the crime in question.” Weissenberger, supra (emphasis and internal quotation marks omitted); see also David P. Leonard, The New Wigmore: A Treatise on Evidence: Selected Rules of Limited Admissibility, § 5.8.3; Barbara E. Bergman, Nancy Hollander & Theresa M. Duncan, 1 Wharton‘s Criminal Evidence § 4:44 (15th ed.) (“If a defendant pleads nolo contendere,
{16} Given that this holding permits use of both nolo pleas and resultant judgments, we need not address Defendants’ argument that, even if use of convictions is permissible, here, evidence of the Texas proceedings is inadmissible because there was no adjudication of guilt and no conviction per se.
{17} New Mexico case law does not require a different result. Defendants argue that in State v. Trujillo, the New Mexico Supreme Court held that
the plain import of the language of Rule 410 is to prohibit the admissibility of statements made during plea negotiations in any proceeding. The other exclusionary rules which surround Rule 410 in the Rules of Evidence contain express exceptions to the general rule of inadmissibility. See [Rules 11-]407, 408, 409, 411 [NMRA]. Rule 410 stands out among these rules because it contains no language which limits its exclusionary effect.
Trujillo, 1980-NMSC-004, ¶ 17. It concluded that “we interpret
{18} Despite its broad language, Trujillo does not address the situation presented here, and we decline to read into it a blanket prohibition encompassing the present facts. Cf. Weissenberger, supra (stating that “it is universally agreed that this is one of those rare rules that ‘can‘t mean what it says,’ for it would lead to absurd results if read too literally, and every court and commentator agrees that there are at least some purposes for which a plea of nolo contendere should be admissible against the one who entered the plea[.]” (footnote omitted)). In addition, the Trujillo Court‘s reasoning was based in large part on policies behind nolo pleas. 1980-NMSC-004, ¶¶ 18-21. As we discuss further below, these policies are not unduly hindered by permitting admission of the pleas and related judgments for a purpose like that here.
{19} Finally, our holding is consistent with the rationales behind excluding nolo contendere pleas from evidence. The primary reason for the exclusion is the promotion of plea bargaining. The Advisory Committee Notes to
{20} As observed by the Olsen court, however, this purpose may give way to other important interests: “The reach of this policy rationale has limits, of course; the plain language of the rule reflects Congress‘s balancing of the promotion of compromise against the admission of relevant evidence.” 189 F.3d at 60. “In particular, if the conviction is being offered not to prove the truth of the facts on which it was based, but for some other purpose, the value of the evidence might outweigh the danger that admission would discourage nolo pleas.” Leonard, supra, § 5.8.3. The Olsen court applied this reasoning to hold that where the fact of the defendant‘s punishment could not be proved another way, the necessity of admitting his conviction outweighed the need to encourage plea bargaining. 189 F.3d at 61-62. A similar analysis applies here: other than through evidence related to Jusbasche‘s plea, there is no way for Plaintiffs to prove that he failed to inform them of its existence.
{21} The second reason nolo contendere pleas are excluded arises from the fact that a nolo contendere plea is not an admission of guilt. “Rather, it is a statement of unwillingness to contest the government‘s charges and an acceptance of the punishment that would be meted out to a guilty person.” Id. at 59. “A plea of nolo contendere is used by the accused in criminal cases to save face and avoid exacting an admission that could be used as an admission in other potential litigation, to avoid trial with its attendant expense and adverse publicity in the event of a conviction.” 21 Am. Jur. 2d Criminal Law § 675 (footnote omitted). Thus, a nolo plea is less probative of guilt than a guilty plea. See Sharif, 740 F.3d at 268 (“[T]he use of a nolo plea as tantamount to an admission of guilt would defeat one of its primary purposes.“). But see Leonard, supra § 5.4.1
B. Duty to Disclose
{22} Defendants argue that, even if we determine that the district court erred in its construction of
{23} “New Mexico case law clearly recognizes that a claim for fraud ‘may be predicated on concealment where there is a duty to disclose.’ ” Azar v. Prudential Ins. Co. of Am., 2003-NMCA-062, ¶ 60, 133 N.M. 669, 68 P.3d 909 (citation omitted). Such a duty exists here if Defendants (1) “ha[d] actual knowledge of . . . the undisclosed information” and (2) had actual knowledge of “the fact that [Plaintiffs were] proceeding in ignorance of facts basic to the transaction[.]” McElhannon v. Ford, 2003-NMCA-091, ¶ 13, 134 N.M. 124, 73 P.3d 827. “[I]t is not enough to show that the defendant should have known the information or its importance to the plaintiff.” Id. Generally, the question of whether there was a duty to disclose is a matter of law for the district court to decide. R.A. Peck, Inc. v. Liberty Fed. Sav. Bank, 1988-NMCA-111, ¶ 12, 108 N.M. 84, 766 P.2d 928. “However, when the facts on which the alleged duty rests are in dispute, the existence of a duty becomes a mixed question of law and fact.” Azar, 2003-NMCA-062, ¶ 43. In that case, “disputed issues of fact underlying the duty question must be submitted to the fact-finder for resolution.” Id.
{24} Here, Defendants do not dispute that they had actual knowledge of the plea and that Plaintiffs were ignorant of the facts surrounding it. Instead, they frame the issue as whether they had actual knowledge that such information was important to Plaintiffs. They maintain that they could not have known that Plaintiffs wanted to know about the plea because William Kipnis‘s question was too vague. [Id.] In the context of the two-pronged formulation of the test in McElhannon, we understand Defendants’ argument to be that the information was not “basic to the transaction” and that they could not have known that Plaintiffs would have terminated the partnership if they knew of the plea, i.e., “proceed[ed] in ignorance” of that information. 2003-NMCA-091, ¶ 13. These are classic fact questions. See Azar, 2003-NMCA-062, ¶ 62 (stating that where “reasonable minds could differ as to the materiality of the alleged undisclosed facts” remand for development of additional facts was appropriate “in order for the trial court to properly determine whether a duty to disclose arose“). Thus, only if the relevant facts are undisputed is
{25} Here, Defendants agreed for the purposes of the motion to dismiss that Plaintiffs asked Defendants if “there was anything in their personal histories [they] should know about before going into a business relationship with them” and that Defendants answered negatively. Thus, these basic facts are undisputed. Where the parties differ is on the effect of the question. Did Defendants understand the question to encompass a nineteen-year-old plea, as Plaintiffs argue, or, was it too vague to require a response that specific? Similarly, the parties differ on whether Defendants knew that, “because of the relationship [with Plaintiffs], the customs of the trade or other objective circumstances, [Plaintiffs] would reasonably expect a disclosure of those facts.” McElhannon, 2003-NMCA-091, ¶ 12 (internal quotation marks and citation omitted). Because the answers to these questions depend on what inferences one draws from the basic facts and the credibility of witnesses, summary judgment on this issue would be improper. See Fischer v. Mascarenas, 1979-NMSC-063, ¶ 10, 93 N.M. 199, 598 P.2d 1159 (“Even where the basic facts are undisputed, if equally logical but conflicting inferences can be drawn from the facts, summary judgment should be denied.“).
{26} Defendants spend a substantial portion of their briefing arguing that Plaintiffs effectively “nullified their fraud claims” and negated any duty to disclose by stating that they were not “contending . . . that . . . Jusbasche was guilty of the crime to which he pled nolo contendere.” Defendants interpret Plaintiffs’ statement to mean that they stipulate that Jusbasche in fact was not guilty. Defendants overstate Plaintiffs’ position. Just as a defendant entering a nolo plea does not accept guilt, Plaintiffs’ statement that they are not seeking to prove Jusbasche‘s guilt in their fraud action does not equate to an acceptance of his innocence. Furthermore, Plaintiffs are not required to prove, in a fraud action, whether Jusbasche was guilty. The facts are that Jusbasche pled nolo contendere to theft of trade secrets and did not disclose the plea to Plaintiffs. That Jusbasche was not adjudicated guilty simply goes to the materiality and weight of those facts.
CONCLUSION
{27} Here, like in Olsen and Adedoyin, whether Jusbasche was actually guilty of a theft of trade secrets is immaterial to Plaintiffs’ claim that he breached a duty to disclose the fact that he was accused of and sentenced for that charge. Accordingly, Plaintiffs seek to admit evidence of the plea and sentence not as evidence of guilt but as evidence of what Defendants failed to tell them. This is a permissible use under
{28} IT IS SO ORDERED.
MICHAEL D. BUSTAMANTE, Judge
WE CONCUR:
JONATHAN B. SUTIN, Judge
RODERICK T. KENNEDY, Judge