Midway Leasing, Inc. v. Wagner Equipment Co.

Filing 52

MEMORANDUM OPINION AND ORDER by Magistrate Judge Karen B. Molzen granting 34 Defendant's Motion for Partial Summary Judgment on its affirmative defense to the breach of contract claim. (KBM)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO

MIDWAY LEASING, INC.,
a New Mexico corporation,
Plaintiff,
v.
CIV 18-0132 KBM/KK
WAGNER EQUIPMENT CO.,
a Colorado corporation,
Defendant.

MEMORANDUM OPINION AND ORDER
GRANTING PARTIAL SUMMARY JUDGMENT
THIS MATTER comes before the Court on Defendant’s Motion for Partial
Summary Judgment on Affirmative Defense Based on Public Policy (Doc. 33), filed
September 6, 2018. Pursuant to 28 U.S.C. § 636(c) and Fed. R. Civ. P. 73(b), the
parties have consented to me serving as the presiding judge and entering final
judgment. Docs. 8, 9, 10. Having reviewed the submissions of the parties and the
relevant law, and having conducted oral arguments, the Court will grant Defendant’s
Motion for Partial Summary Judgment. Specifically, the Court finds that a contingency
fee agreement for lobbying before the County Commission would be unenforceable as
in contravention of New Mexico’s public policy.
I.

BACKGROUND
Plaintiff Midway is a real estate agency and developer, while Defendant Wagner

is a business that assembles, sells, and leases construction equipment. According to
Midway, the parties entered into an agreement in 2015 in which Midway would assist

Wagner in securing the approval of Industrial Revenue Bonds (“IRBs”) to be issued by
Bernalillo County. Plaintiff maintains that an unwritten IRB agreement reached in
October 2015 requires that each year Wagner incurs property tax savings from the IRB
awards, Wagner must pay Midway 18% of such savings. Wagner denies that the parties
entered into the IRB agreement as described by Midway. Nevertheless, for purposes of
this partial summary judgment motion only, Wagner “will accept as true Midway’s
allegation that the parties agreed to a fee based on a percentage of the tax savings
Wagner will enjoy as a result of the IRBs.” Doc. 34 at 2.
Midway’s suit against Wagner sets forth the following theories for recovery of
damages: (1) breach of contract, (2) unjust enrichment, and (3) quantum meruit.
Wagner now moves for summary judgment on the breach of contract claim based on its
affirmative defense that the contingency payment term of the parties’ contract, as
alleged by Midway, is unenforceable on public policy grounds.
II.

SUMMARY JUDGMENT STANDARD
Pursuant to Federal Rule of Civil Procedure 56, “[t]he court shall grant summary

judgment if 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). “The
movant bears the initial burden of making a prima facie demonstration of the absence of
a genuine issue of material fact and entitlement to judgment as a matter of law.” Adler v.
Wal-Mart Stores, Inc., 144 F.3d 664, 670-71 (10th Cir. 1998). The burden then shifts “to
the nonmoving party to show that there is a genuine issue of material fact.” Bacchus
Indus., Inc., v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir. 1991).

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A “genuine” dispute exists where the evidence is such that a reasonable jury
could resolve the issue either way. See Adler, 144 F.3d at 670 (citing Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A mere scintilla of evidence in the nonmovant’s favor is not sufficient. Anderson, 477 U.S. at 252. “When applying this
standard, the Court examines the factual record and reasonable inferences therefrom in
the light most favorable to the party opposing summary judgment.” Hartwell v. Sw.
Cheese Co., No. CV 15-1103 JAP/GJF, 2017 WL 944125, at *2 (D.N.M. Jan. 23, 2017).
“Summary judgment is not ‘a disfavored procedural shortcut but rather [it is] an integral
part of the Federal Rules as a whole, which are designed to secure the just, speedy,
and inexpensive determination of every action.’” Garcia v. Vilsack, 628 F. Supp. 2d
1306, 1308-09 (D.N.M. 2009) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 327
(1986)).
Both the movant and the party opposing summary judgment are obligated to
“cit[e] to particular parts of materials in the record” to support their factual positions.
Fed. R. Civ. P. 56(c)(1)(A). In this district, “[a]ll material facts set forth in the
Memorandum will be deemed undisputed unless specifically controverted.” D.N.M.LRCiv. 56.1(b). Here, Plaintiff Midway does not specifically controvert the material facts set
forth by Defendant Wagner, but rather argues that some of Wagner’s facts are not
material and should be disregarded. Doc. 37 at 5-6. However, “the substantive law will
identity which facts are material.” Amparan v. Lake Powell Car Rental Cos., 882 F.3d
943, 947 (10th Cir. 2018). Moreover, Plaintiff also does not set forth any of its own
undisputed material facts. Instead, it provides a factual background that includes
information about Wagner’s prior business dealings, which are irrelevant to this motion.

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See Doc. 37 at 2-5. Defendant’s material facts are thus deemed undisputed, and there
are no genuine disputes as to any fact material to the resolution of Defendant’s Motion.
III.

UNDISPUTED MATERIAL FACTS
Between 2012 and 2015 Wagner acquired land in Albuquerque to build a new

facility. Doc. 34, Undisputed Material Fact (“UMF”) D. In June 2015, Midway and
Wagner entered into a consulting agreement whereby Midway would perform advisory
services in connection with Wagner’s development of its new property in Bernalillo
County. UMF E. On July 29, 2015, Midway and Wagner reached an additional
agreement, beyond the initial consulting agreement, for Midway to assist Wagner in
obtaining IRBs from the County for Wagner’s new property. UMFs J, K. As
compensation, Midway asserts that Wagner agreed to pay it 18% of the property tax
savings from the IRB awards each year for the succeeding 30 years. UMFs W, X.
Midway’s calculation for the value of its services on the IRB project is ‘the present value
of the agreed percentage of actual tax savings realized by Wagner over the life of the
IRBs.” UMF CC.
Midway described its duties on the IRB project as both administrative and
political. UMF O. Midway’s administrative duties included coordinating Wagner’s
provision of information to the County to facilitate the County’s evaluation of Wagner’s
IRB application. UMF P. Midway’s political duties included working to obtain three votes
of the Bernalillo County Commission in order to ultimately obtain IRBs from the County
of Bernalillo. UMFs Q, S. Midway did this by communicating with Commissioners,
providing them information, answering their questions, and persuading them that
Wagner’s project was a good use of the County’s IRB incentives. UMF Q. These

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political activities clearly fall within the definition of lobbying. See, e.g., Black’s Law
Dictionary (6th ed. 1990) (stating that “lobbying” means “[a]ll attempts including
personal solicitation to induce legislators to vote in a certain way or to introduce
legislation”); see also NMSA § 2-11-2(D) (stating that the definition of “lobbying”
includes “attempting to influence . . . an official action”).
Midway’s principal, D. McCall, “believed he could lay the groundwork to make
sure that [Wagner] obtained a majority vote on the county commission.” UMF Q. Indeed,
the Bernalillo County Commission unanimously approved Wagner’s IRB application on
October 27, 2015, and the County enacted an ordinance authorizing issuance of the
IRBs. UMF Z.
IV.

ANALYSIS
New Mexico has a strong public policy in favor of freedom of contract. 1

Berlangieri v. Running Elk Corp., 2003-NMSC-024, ¶ 20, 76 P.3d 1098. However,
“[c]ontracts in violation of the public policy of the state cannot be enforced.” City of
Artesia v. Carter, 1980-NMCA-006, ¶ 12, 610 P.2d 198. Contracts “are not to be held as
void being contrary to public policy, unless they are clearly contrary to what the
legislature or judicial decision has declared to be the public policy, or they manifestly
tend to injure the public in some way.” K.R. Swerdfeger Constr. v. UNM Bd. of Regents,
2006-NMCA-117, ¶ 23, 142 P.3d 962 (citing Berlangieri v. Running Elk Corp., 2002NMCA-060, ¶ 11, 48 P.3d 70, aff’d, 2003-NMSC-024). To ascertain public policy, the

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Defendant removed this case to federal court under diversity jurisdiction. Doc. 1 at 2-3. This
Court, therefore, must apply New Mexico law on substantive matters. See Wade v. EMCASCO
Ins. Co., 483 F.3d 657, 665 (10th Cir. 2007) (citations omitted).

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court can “look to the language of [a] statute, its subject matter and the purpose to be
accomplished.” Artesia, 1980-NMCA-006, ¶ 12.
New Mexico’s Lobbyist Regulation Act includes a provision that “[n]o person shall
accept employment as a lobbyist and no lobbyist’s employer shall employ a lobbyist for
compensation contingent in whole or in part upon the outcome of the lobbying activities
before the legislative branch of state government or the approval or veto of any
legislation by the governor.” N.M. Stat. Ann. § 2-11-8. The plain language of this statute
only prohibits contingent fee agreements for lobbying before the state legislature or
governor. But, at issue in this case is Midway’s alleged lobbying before the Bernalillo
County Commission. Defendant Wagner suggests that Section 2-11-8 reflects a broader
common law public policy against contingency fee agreements that should extend to
legislative lobbying efforts before any of the State’s political subdivisions.
Accordingly, Wagner asserts that even if it had agreed to pay Midway 18% of its
property tax savings from the IRBs awarded by the Bernalillo County Commission, such
an agreement should be void as contrary to public policy. Midway, on the other hand,
asserts that Defendant Wagner is asking the Court to improperly expand the scope and
import of Section 2-11-8.
The United States Supreme Court has expressed a public policy disfavoring
lobbying contingency fee agreements because such agreements increase the likelihood
of corruption. In Providence Tool Co. v. Norris, 69 U.S. 45, 55 (1864) the Court
explained that
[l]egislation should be prompted solely from considerations of the public
good, and the best means of advancing it. Whatever tends to divert the
attention of legislators from their high duties, to mislead their judgments, or
to substitute other motives for their conduct than the advancement of the
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public interests, must necessarily and directly tend to impair the integrity of
our political institutions. Agreements for compensation contingent upon
success, suggest the use of sinister and corrupt means for the
accomplishment of the end desired. The law meets the suggestion of evil,
and strikes down the contract from its inception.
While the Court in Providence Tool expressed general disfavor towards all lobbying, it
“specifically held that contracts to lobby for a legislative result, with the fee contingent
on a favorable legislative outcome, were void ab initio as against public policy.” Fla.
League of Prof’l Lobbyists, Inc. v. Meggs, 87 F.3d 457, 462 (11th Cir. 1996) (holding
that Providence Tool is still binding precedent). In McCurdy Group, LLC v. American
Biomedical Group, Inc., Judge Lucero in his dissent noted that Providence Tool
articulates “[t]he broad and long-standing policy against contingent fees . . .” in order to
“prevent[] the use of personal influence in obtaining public contracts.” 9 Fed. App’x 822,
834 (10th Cir. 2001) (Lucero, J., dissenting). 2
The public policy expressed in Providence Tool applies in New Mexico. “In 1876
. . . the New Mexico Territorial Legislature adopted ‘the common law as recognized in
the United States as the law of New Mexico.’” Estate of Brice v. Toyota Motor Corp.,
2016-NMSC-018, ¶ 9, 373 P.3d 977 (quoting N.M. Stat. Ann. § 38-1-3 (1876)). The
common law public policy in Providence Tool, as expressed by the United States
Supreme Court in 1864, was therefore adopted as the public policy in New Mexico. 3

2

The defendant in McCurdy argued that an agreement between the parties was unenforceable
under a federal law which prohibits contingency fee agreements for the procurement of
government contracts. McCurdy, 9 Fed. App’x at 829. The majority held that because it did not
have a complete trial transcript, it could not review the lower court’s decision on this issue. Id.
Judge Lucero dissented, finding that “the record before us adequately demonstrates the
illegality of the parties’ agreement and thus [he] would reach and consider the question of the
legality of contingent fee agreements with selling agents to obtain government contracts.” Id. at
833-34.
3

As Defendant concedes, “the New Mexico courts and legislature were free to discard the Providence
Tool rule, if they determined that the needs of the state called for a different rule.” Doc. 39 at 8; see eg.
Lopez v. Maez, 1982-NMSC-103, ¶ 6 (“the common law as recognized by the United States is the rule of

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Additionally, by prohibiting contingency fee agreements for lobbying before the
state legislature in Section 2-11-8, the New Mexico legislature expressed the same
public policy purpose as addressed by the Supreme Court in Providence Tool. Indeed,
“[e]very statute is a manifestation of some public policy. Just because the Legislature
did not expressly include a statement of what the public policy is in the text of the
statute does not mean that it does not intend to further a strong public policy.” First
Baptist Church of Roswell v. Yates Petroleum Corp., 2015-NMSC-004, ¶ 12, 345 P.3d
310. That purpose, to prevent corruption in lobbying, applies the same whether lobbying
is before the state legislature or the county commission. Similarly, the Court in Hazelton
v. Sheckles, addressing contingency fee agreements for procuring government
contracts, explained that “there is no real difference in principle between agreements to
procure favors from legislative bodies, and agreements to procure favors in the shape of
contracts from the heads of department,” because “all contracts for a contingent
compensation for obtaining legislation [are] void . . . .” 202 U.S. 71, 79 (1906)
(discussing Providence Tool). Accordingly, the public policy expressed in Section 2-11-8
by the New Mexico legislature voids the contingency fee agreement for lobbying before
the County Commission at issue here, even though the plain language of the statute
only applies to lobbying before the state legislature.

practice and decision in New Mexico, except if it has been superseded or abrogated by statute or
constitution or held to be inapplicable to conditions in New Mexico”). The Lopez case provides one such
example – New Mexico courts rejected the common law and imposed dram shop liability on a tavern
owner negligently overserving alcohol to a patron who then injures a third-party. The Court is unaware of
any New Mexico court decision discarding the common law prohibition against contingency fees for
legislative lobbying activities.

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The scope of the public policy expressed in Section 2-11-8 has not been
addressed by New Mexico Courts. 4 However, other state courts have addressed similar
issues and have come to the same public policy conclusion as this Court. In Rome v.
Upton, the Appellate Court of Illinois invalidated a contingency fee contract for lobbying
for tax revenue bonds with the city council. 271 Ill. App. 3d 517, 520 (1995). While the
Illinois statute only prohibited contingency fee agreements for lobbying before the state
legislature, the court found that the legislature intended to cover contingency fee
agreements for lobbying at any level, including city council. Id. In doing so, the court
held that “[a]ll agreements whose object or tendency is improperly to interfere with or
influence legislative action, either by congress, the General Assembly, or by a city
council or other body, are contrary to public policy and void.” Id. (citing In re Browning,
23 Ill.2d 483, 494 (1961)).
Similarly, the Oklahoma Court of Civil Appeals found a lobbying contingency fee
contract void as contrary to public policy because public policy held that such
agreements “increase[] the potential for abuse in public decision-making.” Sholer v.
Oklahoma ex. rel. Dep’t. of Pub. Safety, 2006 OK Civ. App. 145, ¶ 22, 149 P.3d 1040.
The state statute did not expressly apply, but the court noted that it “only cited the
statute to demonstrate the State’s general public policy against contingent fee lobbying
contracts.” Id. ¶ 22 n.6.

4

When no controlling state decision exists, “the federal court must attempt to predict what the
state’s highest court would do.” Wade, 483 F.3d at 666 (citation omitted). In doing so, the
federal court can seek guidance from “decisions rendered by lower courts in the relevant state,
appellate decisions in other states with similar legal principles, district court decisions
interpreting the law of the state in question, and the general weight and trend of authority in the
relevant area of law.” Id. (citations omitted).

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In contrast, the Northern District of Ohio held, in part, that a contract that fell
outside the plain language of the state’s contingency fee prohibition statute would not
be considered contrary to public policy. Nat’l Strategies, LLC v. Naphcare, Inc., No. 10cv-0974, 2011 WL 3419635, * 7 (N.D. Ohio Aug. 4, 2011). However, under New Mexico
law, public policy looks not only at the four corners of the statute, but at the purpose
behind the statute. See Armijo v. Cebolleta Land Grant, 1987-NMSC-006, ¶¶ 8-9, 732
P.2d 426 (a statute not strictly applied can still “represent a codification of the common
law principle which voided certain contracts as violative of public policy.”).
Midway cites K.R. Swerdfeger Construction to argue that that “only where a
contract expressly violates a statute or legal precedent will it be held to violate public
policy.” Doc. 37 at 7 (emphasis added). Indeed, in K.R. Swerdfeger Construction, the
New Mexico Court of Appeals noted that the court has “recognized public policy
violations where a contract expressly violates a statute.” 2006-NMCA-117, ¶ 23
(citations omitted). In K.R. Swerdfeger, the relevant statute dealt with an owner’s
responsibility to mark underground facilities before another party began excavation. Id.
¶ 3. When an arbiter found that an owner could delegate that duty, the plaintiff argued
that such a finding violated New Mexico public policy because the statute at issue did
not expressly or impliedly permit delegation. Id. ¶¶ 6, 10. The court declined to find a
violation of public policy “based simply on the absence of language [in the statute]
expressly allowing delegation.” Id. ¶ 24. In contrast here, Wagner is not requesting the
Court find a public policy violation based on the absence of language, but rather on the
clear language of Section 2-11-8.

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At oral arguments, Midway posited that the New Mexico legislature could have
made Section 2-11-8 apply to local governments, if that had been its intention. But since
it did not, Midway maintains that this Court should not expand the scope of the public
policy expressed in Section 2-11-8. To illuminate this argument, Midway pointed to
Section 10-16-13 on the New Mexico statutes, which prohibits state agencies and local
government agencies from accepting certain kinds of bids. In contrast, the legislature
wrote Section 2-11-8 to apply to lobbying before the state government without any
reference to local governments. However, Section 10-16-13 falls under general rules of
conduct for all public officers and employees. See N.M. Stat. Ann. §§ 10-16-1 to -18. In
comparison, Section 2-11-8 is part of a set of rules governing conduct in the state
legislature. See N.M. Stat. Ann. §§ 2-1-1 to 2-20-2. It therefore follows that Section 211-8 would not address local governments when the chapter is specific to the state
legislature. Thus, the Court is persuaded that the public policy expressed in Section 211-8 can apply beyond the four corners of the statute, to local governments. See Armijo,
1987-NMSC-006, ¶¶ 8-9.
While this Court has previously declined to expand public policy beyond the plain
language of a statute (see Herndon v. Best Buy Co., Inc., No CIV 14-0162 KBM/RHS,
2014 WL 4813610, *5 (D.N.M. Aug. 12, 2014)), the public policy before the Court now
presents a quite different circumstance. At issue in Herndon was a statute concerning
the retaliatory discharge exception to at-will employment. Id. at *1. The Court found that
expanding public policy beyond the plain language of the statute at issue – New
Mexico’s Criminal Offender Employment Act – would “in effect, severely limit at-will

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employment in New Mexico, an at-will employment state.” Id. at *5 (citation omitted). 5 In
contrast here, applying the public policy behind Section 2-11-8 beyond the statute’s
plain language does not severely limit the freedom to contract. Rather, it creates a
narrow exception to that freedom in a very specific circumstance – when a contingency
fee agreement for lobbying is at issue.
Although New Mexico favors the freedom to contract, lobbying contingency fee
agreements are clearly contrary to New Mexico’s public policy. That Bernalillo County
has not addressed contingency fee agreements in an ordinance, or that the penalty for
violating Section 2-11-8 is relatively minor, does not undermine New Mexico’s public
policy against such agreements.
Midway does not dispute that under the alleged IRB agreement providing for a
contingency fee, it engaged in lobbying the Bernalillo County Commission to issue the
IRBs. Because the Court finds such lobbying pursuant to a contingency fee agreement
to contravene New Mexico’s public policy, Wagner has shown that it is entitled to
summary judgment as a matter of law on its affirmative defense to Midway’s breach of
contract claim.
Wherefore,

5

The Tenth Circuit affirmed on appeal indicating,
we are mindful that as a federal court, we shouldn't “expand New Mexico law in a manner
that the state courts have not, especially when such an expansion would, in effect,
severely limit at-will employment in New Mexico, an at-will employment state.” Gonzales v.
City of Albuquerque, 849 F.Supp.2d 1123, 1171 (D.N.M.2011), aff'd, 701 F.3d 1267 (10th
Cir.2012). We agree with the district court that New Mexico has not recognized a clear
public policy mandate restricting private employers from deciding not to hire convicted
felons or for terminating an employee for making such a hire.

Herndon v. Best Buy Co., Inc, 634 F. App’x 645, 648 (10th Cir. 2015) (emphasis added).

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IT IS HEREBY ORDERED that the Defendant’s Motion for Partial Summary
Judgment on Affirmative Defense Based on Public Policy (Doc. 33) is granted.
Summary Judgment is hereby entered for Defendant as to Count I (breach of contract)
of Plaintiff’s Complaint.

_______________________________________
UNITED STATES MAGISTRATE JUDGE
Presiding by Consent

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