Moses v. Hovis et al
ORDER granting in part and denying in part 30 Motion for Partial Summary Judgment by Judge Philip A. Brimmer on 09/12/2017. Partial Summary Judgment is entered pursuant to Fed. R. Civ. P.56(g) on plaintiff's breach of guaranty claim in favor of plaintiff Robert E. Moses and against defendants James E. Hovis and Catherine Hovis. (sphil, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 16-cv-01173-PAB-CBS
ROBERT E. MOSES,
JAMES E. HOVIS and
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.
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
The following facts are undisputed unless otherwise indicated.
The Court cites the version of the investment agreement attached to the final
pretrial order because the duplicate headers on the version attached to plaintiff’s motion
make its pagination illegible. See Docket No. 30-4 at 23-25. Ms. Hovis’ full name
appears to be Florence Catherine Hovis. Docket No. 36-6 at 2.
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.,
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. Def endants 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
Plaintiff attempts to rely on a later financial statement prepared by Mr. Hovis,
but defendants argue the statement should be excluded as a statement made during
settlement negotiations. Docket No. 36 at 7, ¶ 35; see Fed. R. Evid. 408(a)(2). Plaintiff
does not dispute that the later financial statement was sent in response to his
settlement proposal. The Court will not consider this statement.
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.
II. STANDARD OF REVIEW
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 f act 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.
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 Guaranties Claim
“To establish a prima facie case for enforcement of a guaranty under Illinois law,
plaintiff must  enter proof of the original indebtedness,  the debtor’s default, and 
the guarantee.” Gen. Elec. Bus. Fin. Servs., Inc. v. Silverman, 693 F. Supp. 2d 796,
799 (N.D. Ill. 2010) (alterations and internal quotation marks omitted).
Defendants do not raise any genuine issues of material fact as to whether they
have breached their guaranties under the Agreement. Defendants do not contest that
Hearing Help owed plaintiff money, that Hearing Help defaulted on its payment
obligations, and that defendants guaranteed those obligations. Defendants do,
however, dispute whether the guaranties are unambiguous and the amounts due under
the guaranties. Docket No. 36 at 14-15. Defendants also claim that the legal fees
claimed by plaintiff are unreasonable and that they are unable to pay. Id. The Court
addressees each of these issues in turn.
1. Ambiguity of the Guaranties
“Under Illinois law, a guaranty is regarded as a legally enforceable contract that
must be construed in accordance according to its terms, so long as they are clear and
unambiguous.” Gen. Elec. Bus. Fin. Servs., Inc., 693 F. Supp. 2d at 800 (N.D. Ill.,
2010) (internal quotation marks omitted). “[T]he guaranty’s language is ambiguous only
if it is ‘susceptible to having more than one meaning.’” Chromalloy Am. Corp. v. Fields,
1992 WL 38975, at *2 (N.D. Ill. Feb. 26, 1992) (quoting Flora Bank & Trust Co. v.
Czyzewski, 583 N.E.2d 720, 725 (Ill. App. 1991)). “W hether a guaranty is ambiguous is
a question of law.” Id. (citation omitted).
Defendants claim that the guaranties are ambiguous because they “do not define
whether the investment under-earning the 15% goal is a default, when the ‘bonus’
interest is payable,4 or when a default is resolved.” Docket No. 36 at 14, ¶ 67. The
Court finds no ambiguity. While defendants are correct that the agreement does not
explicitly define a default, it is clear that Hearing Help defaulted. The Agreement states
that Mr. Hovis guarantees all of Hearing Help’s payments to plaintiff in the event of
Hearing Help’s failure to make payments. Id., ¶ 7 (“Jim Hovis personally and absolutely
guarantees all payments and repayment of the Invested Funds.”). Likewise, it is clear
that defendants’ obligations to repay plaintiff have become due. PSUMF 27. Hearing
Help’s default on its payment obligations triggered Mr. Hovis’ guaranty. Id. In
November 2015, plaintiff notified defendants of Hearing Help’s default and requested
repayment. PSUMF 30-31, 40-41; see also Docket No. 30-9 at 2-3. With respect to
The Court interprets defendants’ reference to “bonus interest” to refer to the
extra 3% of interest that defendants, not Hearing Help, promised under the Agreement.
Ms. Hovis, more than six months have passed since Hearing Help defaulted under the
Agreement or Mr. Hovis defaulted on his guaranty. See PSUMF 32. Accordingly, Ms.
Hovis’ guaranty is also due. Id. at 4, ¶ 8. Finally, it is unambiguous that defendants
guaranteed a 15% return. The Agreement provides that Mr. Hovis will “make up the
difference so that Investor has received 15.0% interest compounded annually” if
Hearing Help was not sold within forty-eight months, which did not occur. Docket No.
47-1 at 3, ¶ 2; see also Docket No. 30-10 at 2 (January 27, 2016 email discussing hope
of selling Hearing Help). Defendants do not demonstrate that there are two reasonable
interpretations of that language. Thus, the Court finds no ambiguity. Ms. Hovis, in turn,
guaranteed her husband’s obligations. Id. at 4, ¶ 8 (“Catherine Hovis (wife of Jim
Hovis), personally guarantees all payments and actions required by Jim Hovis”). The
Court perceives no ambiguity in this language. Therefore, the Court finds that the
terms of the Agreement are clear and unambiguous and include defendants’ obligation
to guarantee a 15.0% return, compounded annually.
Moreover, even if defendants are correct that the guaranties are ambiguous,
under the circumstances here, such ambiguities would not create a genuine issue of
material fact precluding summary judgment. Interpretation of an ambiguous contract
remains an issue of law if the extrinsic evidence bearing on the ambiguity is undisputed.
Moore v. Lomas Mortg. USA, 796 F. Supp. 300, 303 (N.D. Ill. 1992) (citing City of
Clinton v. Moffit, 812 F.2d 341, 344 (7th Cir. 1987)) (applying Illinois law). Defendants
do not point to any disputed, extrinsic evidence that would bear on the interpretation of
guaranties. See Docket No. 36 at 14, ¶ 67. Defendants do, however, argue that the
Agreement’s recitals are not part of the Agreement, id. at ¶ 66, and thus would be parol
evidence of the Agreement’s meaning. See Regnery v. Meyers, 679 N.E.2d 74, 78 (Ill.
App. 1997) (“a recital is merely an explanation of the circumstances surrounding the
execution of the contract”). When considered as extrinsic evidence, the recitals reaffirm
that defendants are obligated to personally pay the difference between a 15.0% return
and the return plaintiff actually achieves. See Borg-Warner Corp. v. Anchor Coupling
Co., 156 N.E.2d 513, 516 (Ill. 1958) (“[I]f the terms and provisions of a contract are
ambiguous, or if the writings are capable of more than one construction, parol evidence
is admissible to explain and ascertain what the parties intended.”). Specifically, the
recitals state that “Jim Hovis and his wife Catherine Hovis . . . personally guarantee . . .
Investor’s achieving 15.0% APR compound interest (personally paying the difference
between 12.0% and 15.0% appreciation if necessary).” Docket No. 47-1 at 2. The
Court finds that defendants fail to raise any genuine issues of material fact with respect
to plaintiff’s claim to enforce defendants’ guaranties.
2. Amount Owed by Defendants
Mr. Hovis states that plaintiff has received two payments from Hearing Help
under Hearing Help’s confirmed bankruptcy plan - one payment of approximately
$10,000 and another of approximately $7,000. Docket No. 36-1 at 3, ¶ 8 (referencing
the bankruptcy court’s order confirming Hearing Help’s plan of reorganization). Plaintiff
acknowledges that, after filing his motion, he received a payment of $7,471.52, but he
does not acknowledge any other payments. Docket No. 39 at 4. The Court finds that
whether plaintiff has received an additional payment from Hearing Help is genuinely
Defendants also argue that plaintiff improperly calculates the amounts due under
the guaranties. Docket No. 36 at 15, ¶ 69. In particular, defendants note that the
Agreement states that interest on the investment will be “compounded annually.”
Docket No. 47-1 at 2, ¶ 1 (“12% APR interest, compounded annually”) and at 3, ¶ 2
(“15.0% interest compounded annually”).
According to plaintiff, plaintiff was owed $133,408 as of January 16, 2017. 5
Plaintiff argues that his calculations, which were performed by plaintiff’s expert Steven
J. Shuster, are correct. Docket No. 39 at 3. Although not stated explicitly in his report,
Mr. Shuster’s calculations appear to compound interest monthly during the period that
Hearing Help was making plaintiff’s mortgage payment. Docket No. 30-4 at 20-21. Id.
Thereafter, Mr. Shuster compounds interest on an annual or semiannual basis. Id. at
20-21. But these annual and semiannual periods for compounding interest do not
correspond to periods falling annually after the original investment was made. See id.
at 21. That is, the investment was made on February 12, 2010, but Mr. Shuster
compounds interest on July 12, 2015 and 2016 and on January 16, 2017 without
explanation. Docket No. 30-4 at 21. Because the Ag reement unambiguously calls for
annual compounding of interest, the calculation methods used by Mr. Shuster are
contrary to the Agreement.
Plaintiff also argues that defendants are bound by Mr. Hovis’ statement in
Hearing Help’s voluntary Chapter 11 petition about the amount owed by Hearing Help
on Mr. Moses’ investment. Docket No. 39 at 2. Because the argument was made in
the reply brief and defendants have not had an opportunity to brief the issue of whether
it constitutes a judicial admission, the Court will not consider this argument.
According to defendants, plaintiff was owed $112,451.95 as of February 2017,
less any amounts received pursuant to the Hearing Help bankruptcy. Docket No. 36 at
15, ¶ 69. Defendants’ calculations differ from those of plaintiff’s in several ways. In
defendants’ calculations, the dates that mortgage payments were made varied from
month to month, instead of all falling on the twelfth of the month. Docket No. 36-4. 6
Additionally, defendants list a payment occurring in November 2012. Compare Docket
No. 36-4 with Docket No. 30-4 at 21. Plaintiff claims no payment was due in November
2012 because of a mortgage refinance. PSUMF 22. Notwithstanding the inclusion of a
mortgage payment for November 2012 in defendants’ calculation, defendants admit
that Hearing Help did not make a mortgage payment that month. Docket No. 36 at 6,
¶ 25. Given the disputes regarding the payments made by Hearing Help and regarding
the method of calculation, the Court finds that there are genuine issues of material fact
with respect to the amount plaintiff is owed pursuant to the guaranties.
3. Attorney Fees and Costs
Plaintiff claims that he is owed attorney fees and costs. Docket No. 30 at 12.
Plaintiff does not, however, provide any evidence to substantiate his attorney fees and
costs or show that such expenses were reasonable. The Court will, therefore, deny
plaintiff’s request without prejudice for failing to comply with D.C.COLO.LCivR 54.3(b).
F.H. Prince & Co. v. Towers Fin. Corp., 656 N.E.2d 142, 153 (Ill. App. 1995) (holding
that “open-ended” damages for attorney fees pursuant to a contract could be
Defendants’ calculation method appears to compound interest into the
investment balance on the date that each mortgage payment was made, which is
similar to Mr. Shuster’s calculations, but also contrary to the Agreement. Docket No.
determined by the court without infringing defendant’s Seventh Amendment rights).
4. Defendants’ Inability to Pay
Defendants claim that they have not paid the amounts owed on the guaranties
because they lack the necessary funds. Docket No. 36 at 14-15, ¶¶ 68, 72.
Defendants do not identify any language in the Agreement or authority that indicates
their ability to pay is relevant to whether summary judgment should be entered on
plaintiff’s breach of guaranty claim.
The Court will enter partial summary judgment of liability on plaintiff’s breach of
guaranty claim pursuant to Fed. R. Civ. P. 56(g). The amount of damages, however,
depends on disputed issues of fact.
B. Fraud Claim
“A plaintiff seeking to prevail on a claim of fraud must establish: (1) that the
defendant made a false representation of material fact; (2) that the one making the
representation knew that it was false; (3) that the person to whom the representation
was made was ignorant of the falsity; (4) that the representation was made with the
intention that it be acted upon; and (5) that the reliance resulted in dam age to the
plaintiff.” Vinton v. Virzi, 269 P.3d 1242, 1247 (Colo. 2012). 7 “For ease of
understanding, Colorado’s Model Jury Instructions unpack the fifth element into its
Plaintiff argues that Colorado law applies to his fraud claim and that Illinois law
does not differ in material respects. Docket No. 30 at 2-3. Defendants also analyze the
fraud claim under Colorado law. Docket No. 36 at 16, ¶ 73. Some negotiations
between plaintiff and Mr. Hovis concerning the Agreement were conducted in Colorado.
PSUMF 3. Accordingly, the Court will apply Colorado law to plaintiff’s fraud claim.
Grynberg v. Total S.A., 538 F.3d 1336, 1346 (10th Cir. 2008).
three discrete sub-parts, requiring the plaintiff to prove separately actual reliance, the
reasonableness of that reliance, and that the plaintiff's reliance caused its damages.”
Bristol Bay Prods., LLC v. Lampack, 312 P.3d 1155, 1160 (Colo. 2013) (citing CJI–Civ.
19:1 (2013) (listing seven elements for a fraud claim)).
1. Ms. Hovis
As defendants argue, plaintiff does not present evidence that Ms. Hovis made
any misrepresentations of material fact. Docket No. 36 at 16, ¶ 74. Plaintiff does not
argue otherwise. Docket No. 39 at 10. Accordingly, the Court will deny summary
judgment on plaintiff’s fraud claim with respect to Ms. Hovis.
2. Mr. Hovis
Defendants focus on two aspects of Mr. Hovis’ alleged fraud in claiming that
genuine issues of material fact preclude summary judgment – whether Mr. Hovis knew
his 2009 financial statement was false and whether plaintiff reasonably relied on that
financial statement. Docket No. 36 at 16-18, ¶¶ 75-79. W hile it is a close question, the
Court is unable to conclude that no reasonable jury could fail to find that Mr. Hovis’
valuation and disclosure of his assets and liabilities was “made with a reckless
disregard of its truth or falsity” or concealed a “material existing fact, that in equity and
good conscience should be disclosed.” Bemel Assocs., Inc. v. Brown, 435 P.2d 407,
409 (Colo. 1967) (internal quotation marks omitted). Likewise, the Court cannot
conclude as a matter of law that plaintiff reasonably relied on Mr. Hovis’ 2009 financial
statement. Both issues turn, to some extent, on the credibility of plaintiff’s and Mr.
Hovis’ claims about their subjective mental state, which the Court cannot properly
resolve on summary judgment. Accordingly, the Court will deny summary judgment on
plaintiff’s fraud claim.
For the foregoing reasons, it is
ORDERED that Plaintiff’s Motion for Partial Summary Judgment Pursuant to
Fed. R. Civ. P. 56 [Docket No. 30] is GRANTED in part and DENIED in part as set forth
in this order. It is further
ORDERED that partial summary judgment is entered pursuant to Fed. R. Civ. P.
56(g) on plaintiff’s breach of guaranty claim in favor of plaintiff Robert E. Moses and
against defendants James E. Hovis and Catherine Hovis.
DATED September 12, 2017.
BY THE COURT:
s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge
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