Security Ticketing Corporation v. Hammerdog, Inc., d/b/a Western Tag & Printing Co. et al

Filing 39

MEMORANDUM DECISON AND ORDER. IT IS ORDERED: Plaintiff STC's Motion for Summary Judgment 18 is GRANTED IN PART AND DENIED IN PART. The Counterclaim Plaintiffs Hammerdog and Resler shall file a brief on or before 8/15/2014. Counterclaim Defe ndant STC shall file a response brief within 21 days of the filing of the Counterclaim Plaintiff's brief. The Counterclaim Plaintiffs shall have 14 days from the filing of STC's response brief to file a reply brief. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (st)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

SECURITY TICKETING
CORPORATION, a California
corporation,
Plaintiff,

Case No. 1:13-CV-00166-EJL
MEMORANDUM DECISION AND
ORDER

v.
HAMMERDOG, INC., d/b/a WESTERN
TAG & PRINTING CO., an Idaho
corporation; TIM RESLER, an
individual,
Defendants.

Pending before the Court in the above-entitled matter is Plaintiff Security
Ticketing Corporation’s (“STC”) Motion for Summary Judgment (Dkt. 18). Having fully
reviewed the record, the Court finds that the facts and legal arguments are adequately
presented in the briefs and record. Accordingly, in the interest of avoiding further delay,
and because the Court conclusively finds that the decisional process would not be
significantly aided by oral argument, this matter shall be decided on the record before this
Court without oral argument.

MEMORANDUM DECISION AND ORDER - 1

FACTUAL BACKGROUND
STC and Defendant Hammerdog, Inc (“Hammerdog”) entered into an Asset
Purchase Agreement to sell STC business to Hammerdog or November 1, 2007.
Hammerdog agreed to purchase the STC assets for $5,250,000 plus a total of $266,931.54
as payment of Hot topic Eas Inventory. Partial funding of the purchase included
financing by STC. Hammerdog executed two promissory notes in favor of STC. The first
note was for $1,000,000 and had a maturity date with a large balloon payment of
$862,566 due on December 1, 2012. Upon agreement of the parties the maturity date was
extended to January 15, 2013. The second note was for $500,000 with a maturity date of
December 1, 2008. Upon agreement of the parties the maturity date on the second note
was extended numerous times with the final extension of the maturity date being January
15, 2012.
Hammerdog defaulted on the payments due on January 15, 2013 for the two
promissory notes. It is undisputed that Hammerdog had made the required monthly
payments for both notes prior to defaults in January of 2013. Defendant Tim Resler
(“Resler”) personally guaranteed both promissory notes.
On April 3, 2013, STC filed the Complaint alleging breach of contract by
Hammerdog due to the defaults on the promissory notes. On May 24, 2014, Hammerdog
and Resler filed an Answer and Counterclaim. The Answer included no affirmative
defenses, but did include a Counterclaim for Fraud in the Inducement based on alleged

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misrepresentations regarding the credit worthiness of various customers who were in
default and the over valuation of certain inventory.
On October 1, 2013, STC moved for summary judgment on the breach of contract
claim based on Hammerdog’s failure to pay the two promissory notes Hammerdog and
the personal guaranty claims against Resler. Hammerdog and Resler concede
Hammerdog defaulted on the payments due under the promissory notes on January 15,
2013 and that Resler signed personal guaranties for the promissory notes. However,
Defendants argue that summary judgment is not appropriate due to the disputed issues
related to the counterclaim for fraud in the inducement. STC responded that the
counterclaim is a separate cause of action and is not STC’s burden to disprove the fraud
in the inducement claim before summary judgment can be granted on the undisputed
breaches by Hammerdog and undisputed personal guaranty by Resler.

STANDARD OF REVIEW
Summary judgment is appropriate where a party can show that, as to any claim or
defense, “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). One of the principal purposes of the
summary judgment “is to isolate and dispose of factually unsupported claims . . . .”
Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). It is “not a disfavored procedural
shortcut,” but is instead the “principal tool[ ] by which factually insufficient claims or

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defenses [can] be isolated and prevented from going to trial with the attendant
unwarranted consumption of public and private resources.” Id. at 327.
“[T]he mere existence of some alleged factual dispute between the parties will not
defeat an otherwise properly supported motion for summary judgment; the requirement is
that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 247-48 (1986). Material facts are those that may affect the outcome of the case. See
id. at 248.
The moving party is entitled to summary judgment if that party shows that each
issue of material fact is not or cannot be disputed. To show the material facts are not in
dispute, a party may cite to particular parts of materials in the record, or show that the
materials cited do not establish the presence of a genuine dispute, or that the adverse party
is unable to produce admissible evidence to support the fact. Fed. R. Civ. P.
56(c)(1)(A)&(B); see T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass’n, 809 F.2d
626, 630 (9th Cir. 1987) (citing Celotex, 477 U.S. at 322). The Court must consider “the
cited materials,” but it may also consider “other materials in the record.” Fed. R. Civ. P.
56(c)(3).
Material used to support or dispute a fact must be “presented in a form that would
be admissible in evidence.” Fed. R. Civ. P. 56(c)(2). Affidavits or declarations submitted
in support of or opposition to a motion “must be made on personal knowledge, set out
facts that would be admissible in evidence, and show that the affiant or declarant is
competent to testify on the matters stated.” Fed. R. Civ. P. 56(c)(4).
MEMORANDUM DECISION AND ORDER - 4

The Court does not determine the credibility of affiants or weigh the evidence set
forth by the non-moving party. All inferences which can be drawn from the evidence
must be drawn in a light most favorable to the nonmoving party. T.W. Elec. Serv., 809
F.2d at 630-31 (internal citation omitted).
Rule 56(e)(3) authorizes the Court to grant summary judgment for the moving
party “if the motion and supporting materials–including the facts considered
undisputed–show that the movant is entitled to it.” The existence of a scintilla of evidence
in support of the non-moving party’s position is insufficient. Rather, “there must be
evidence on which the jury could reasonably find for the [non-moving party].” Anderson
v. Liberty Lobby, 477 U.S. at 252.

ANALYSIS
The facts are undisputed that Hammerdog executed two promissory notes and
defaulted on those notes in January of 2013. It is also undisputed that Resler executed a
written personal guaranty on each of the promissory notes. Therefore, the Court finds
that Plaintiff is entitled to summary judgment as to Hammerdog’s breach of contract and
Resler’s personal guaranty legal liability. The Court finds that the final amount of
damages cannot be determined with certainty until the Counterclaim is also resolved.
Defendants argue the Court cannot grant the summary judgment motion as
Plaintiff has not established the absence of a genuine issue of material fact regarding the
counterclaim. Defendants are mistaken as to Plaintiff’s burden of proof. Defendants cite
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the Court to an unreported decision by the Honorable Candy W. Dale in Golden West
Holdings, LLC v. BBT Holdings, LLC, 2010 WL 4853301 (Idaho 2010). The Court finds
this opinion is not binding on this Court and is distinguishable from the case at bar. In the
Golden West case, the Defendants had asserted fraud as an affirmative defense to the
breach of contract claim as well as an independent counterclaim. In the case at bar,
Defendants have only raised fraud in the inducement as a counterclaim. Therefore,
Plaintiff is not required to disprove any affirmative defense on their causes of action.
Also, in Golden West, the alleged fraud was related to the financials provided as part of
the due diligence conducted prior to the purchase of a business. In the present case, the
two misrepresentations alleged in the counterclaim appear to be misrepresentations that
could or should have been discovered long before the defaults on the promissory notes
occurred since they relate to inventory in existence at the time of the purchase and the
credit worthiness of STC customers who were allegedly in default on their purchases
from STC when Hammerdog purchased the assets of STC.
For these reasons and in this particular case, the Court finds the Plaintiff did not
have to disprove the elements of the fraud counterclaim in order to prevail on their claims
which are conceded in Defendants’ briefing and statement of facts. The counterclaim is
an independent cause of action and it is Defendants’ burden to prove the elements of that
claim by clear and convincing evidence. Faw v. Greenwood, 613 P.2d 1338, 1340 (Idaho
1980). This is especially true in this case where it is unclear from the counterclaim that
the alleged misrepresentations resulted in damages in excess of the defaulted promissory
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notes and the undisputed breaches by Hammerdog occurred over six years from the date
the agreement to purchase was executed by the parties. The counterclaim merely says
damages in excess of $75,000 to be proven at trial. (Dkt. 8, p. 8, ¶ 23.)
Because it appears from the briefing that material facts are disputed regarding the
fraud in the inducement counterclaim, the Court finds the prudent course would be to
grant summary judgment on the legal liability of Plaintiff’s claim but reserve the
determination of the final amount of damages associated with the claims until the
counterclaim is resolved as the counterclaim, if successful, could result in a set off against
the breach of contract damages alleged by Plaintiffs.
This matter is set for trial on January 13, 2015. In reviewing the briefing on the
summary judgment motion, the Court finds additional briefing is necessary to potentially
address the statute of limitations issue prior to the trial commencing. It is undisputed by
Defendants that STC raised as an affirmative defense to the counterclaim a statute of
limitations argument. Moreover, Defendants acknowledge that the applicable statute of
limitations is three years on a claim for fraud in the inducement. Defendants argue they
have satisfied the statute of limitations as many of the misrepresentations and the full
extent of the misrepresentations only became known within the three year statute of
limitations (which would be approximately May 2, 2010 – three years before
counterclaim was filed) or were “continuing violations.” (Defendants’ Response in
Opposition to Plaintiff’s Motion for Summary Judgment, Dkt. 21, p. 5). While statute of

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limitations issues that turn on disputed facts may have to be decided by a jury,1 it is
unclear to the Court if such disputed facts exist in this case since Hammerdog purchased
and ran the business for over six years before alleging fraud in the inducement.
Accordingly, the Court will order the parties to provide further briefing on this matter.

ORDER
IT IS ORDERED:
1. Plaintiff STC’s Motion for Summary Judgment (Dkt. 18) is GRANTED IN
PART AND DENIED IN PART. Summary judgment is granted on Defendants’ legal
liability for the breach of contract and personal guaranty claims, however the final
determination of damages will occur after the Counterclaim is resolved.
2. The Court orders briefing by the parties on the issue of the statute of limitations
on the Counterclaim. The Counterclaim Plaintiffs Hammerdog and Resler shall file a
brief not to exceed ten (10) pages regarding the date the alleged fraud in the inducement
allegations were discovered and how the claim falls within the three year statute of
limitations on or before August 15, 2014. Counterclaim Defendant STC shall file a
response brief on the statue of limitations issue not to exceed ten (10) pages within
twenty-one (21) days of the filing of the Counterclaim Plaintiff’s brief. The Counterclaim

1

Hansen-Rice, Inc. Celotex Corp., 414 F. Supp. 2d 970 (D. Idaho 2006).

MEMORANDUM DECISION AND ORDER - 8

Plaintiffs shall have fourteen (14) days from the filing of STC’s response brief to file a
reply brief which shall not exceed ten (10) pages.

DATED: July 18, 2014

Honorable Edward J. Lodge
U. S. District Judge

MEMORANDUM DECISION AND ORDER - 9