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Hutton v. Nyhart

United States District Court, D. Montana, Great Falls Division

March 19, 2019

PETER B. HUTTON, Plaintiff,
v.
JERALD L. NYHART, Defendant.

          ORDER

          BRIAN MORRIS, UNITED STATES DISTRICT COURT JUDGE.

          This dispute involves a series of motions filed by Plaintiff Peter B. Hutton (“Hutton”) and Defendant Jerald L. Nyhart (“Nyhart”) regarding the purchase and leaseback of agricultural property located in Madison County and Beaverhead County in southwestern Montana. The Court conducted a hearing at the Mansfield Courthouse in Butte, Montana on February 28, 2019. The Court will address first facts common to each motion and then address each motion in turn.

         FACTUAL BACKGROUND

         The Court hesitates to designate this section as undisputed facts as the parties agree on little about what transpired over the past fourteen years. The Court instead will characterize competing allegations by the parties where appropriate. The ubiquity of these competing allegations highlights the Court's difficulty in analyzing the claims for summary judgment.

         Nyhart formerly owned the agricultural property at issue. Nyhart listed the property with a realtor with an asking price of $1, 550, 000 in 2004. (Doc. 30 at ¶¶ 5-7). Hutton inquired about purchasing the property. Nyhart eventually sold the property to Hutton for the price of $648, 069.04. Nyhart alleges that this reduced price reflected the favorable terms that Hutton afforded to Nyhart on a lease-back of the agricultural property and the residential portion of the property. Id. at ¶ 10.

         Hutton and Nyhart entered a written Sales Agreement drafted by Hutton. Nyhart alleges that Hutton promised to upgrade the irrigation system on the property as a material term to the Sales Agreement. Hutton never replaced the irrigation system, but he did make repairs to the system in 2005. Nyhart alleges that the irrigation system ultimately failed and that its failure caused him to suffer financial loss. Id. at ¶¶ 17-19.

         Nyhart met Hutton in Kalispell, Montana on April 1, 2005, when they both executed the Farm Lease and the Residential Lease. The Farm Lease term on the agricultural portion of the property ran for a period of five years from January 6, 2005 to January 5, 2010. (Doc. 1 at ¶ 7). The Farm Lease provided for an initial term of rent at $1, 000 per year. Id. at ¶ 8. The Farm Lease provided that Nyhart would pay all property taxes on the agricultural property and would maintain insurance coverage. The Residential Lease provided that Hutton would lease the house and related outbuildings to Nyhart for a period not to exceed fifty years from the date of closing. Id. at ¶ 11.

         The Farm Lease includes a holdover clause that specifically prohibits a subsequent year-to-year lease upon completion of the leased term. Id. at ¶ 10. The clause instead provides that “a year to year lease shall not be created . . . but the same shall be a tenancy from month to month at a monthly rental calculated on the basis of one thousand times (“1000x”) the amount of money rent being paid hereunder at the date of termination.” Id.

         Shortly after the meeting in Kalispell, Nyhart borrowed $72, 606.60 from Hutton. The parties executed a Security Agreement that is also at issue. The parties dispute the terms of the Security Agreement as well as the purpose of the underlying loan. Nyhart contends that the Security Agreement served the sole purpose of securing the $72, 606.60 debt and that he repaid this debt in full on December 31, 2005. (Doc. 30 at ¶¶ 20-21). Hutton counters that the Security Agreement protected him from Nyhart's failure to perform under the terms of the Farm Lease and entitles him to possession of Nyhart's farm equipment, inventory, and related accounts that served as collateral for the loan. (Doc. 1 at ¶¶ 11-12).

         Nyhart remained on the property after the expiration of the initial five-year term of the Farm Lease in 2010. The parties never executed any written agreement regarding Nyhart's continued possession of the property. Hutton apparently made some repairs to the irrigation system over the years, but never replaced it as Nyhart claims Hutton had promised to do. Hutton eventually sent Nyhart an eviction notice on August 1, 2017. Nyhart left the property on December 31, 2017.

         Hutton filed a complaint against Nyhart on November 3, 2017. (Doc. 1). Hutton alleges that Nyhart has breached the terms of the Farm Lease and seeks to recover $771, 233.33 in past due rent. Id. at ¶ 22. In the alternative, and to the extent that the Farm Lease proves invalid and unenforceable, Hutton claims that Nyhart has been unjustly enriched by his continued occupation of the property and seeks to recover in quantum meruit. Id. at ¶¶ 25-26. Hutton finally seeks to claim the collateral that he alleges attaches to the Security Agreement. Id. at ¶¶ 30-34. Nyhart answered the complaint and filed a counterclaim on March 28, 2018. (Doc. 30). Nyhart's counterclaim alleges eight causes of action and also seeks punitive damages. Id. Nyhart demands a jury trial.

         I. Hutton's Motion for Partial Summary Judgment (Doc. 33)

         Summary Judgment is appropriate where the movant demonstrates that no genuine dispute exists “as to any material fact” and the movant is “entitled to judgment as a matter of law.” Fed.R.Civ.P. 5(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). A motion for partial summary judgment is appropriate in order to “isolate and dispose of factually unsupported claims or defenses.” E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., 590 F.Supp.2d 1244, 1250 (N.D. Cal. 2008) (quoting Celotex, 477 U.S. at 323). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex, 477 U.S. at 322-23. If the moving party satisfies that burden, summary judgment shall be granted unless the non-moving party demonstrates “specific facts showing that there is a genuine issue for trial.” Id. at 324.

         Hutton has filed a motion for summary regarding all of Nyhart's counterclaims; Nyhart's Fifth Affirmative Defense of Accord and Satisfaction; Nyhart's Seventh Affirmative Defense of Failure of Consideration/Excuse of Performance; and Nyhart's Eleventh Affirmative Defense under Montana Code Ann. § 70-27-108(2). (Doc. 33). Nyhart concedes that Hutton is entitled to summary judgment on the Fifth Affirmative Defense of Accord and Satisfaction. Id. Nyhart opposes the remainder of Hutton's motion. (Doc. 62). The Court grants the motion with respect to Nyhart's Fifth Affirmative Defense of Accord and Satisfaction.

         A. Nyhart's Counterclaims

         Nyhart claims that Hutton made numerous false representations of fact to Nyhart. Hutton allegedly represented that he would pay to install a modern pivot irrigation system. (Doc. 30 at 16-17). Nyhart claims to have understood that he would hold a lifetime lease on the residential portion of the Ranch. Id. Other representations include, among other things, Nyhart's understanding that he was not responsible to make rent payments or to obtain receipts from Hutton unless told otherwise. Nyhart claims also that Hutton led him to believe that the legal documents drafted by Hutton and his attorney considered the best interest of both parties. Nyhart further contends that Hutton did not take issue with Nyhart's continued occupation of the agricultural land after January 5, 2010. Finally, Nyhart suggests that he was not obligated to pay the 1000x monthly rent pursuant to the Holdover Provision after January 5, 2010. Id. Nyhart claims that these representations proved to be false, that Hutton knew the representations were false, and that Hutton made the representations for the purpose of inducing Nyhart to sell the property at a significantly reduced price. Id. at 17.

         Nyhart asserts that Hutton's promises with regard to the new pivot system amounts to fraud and constructive fraud. Id. 17-18. Nyhart also asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and promissory estoppel arising out of Hutton's promise. Id. at 19-22. Nyhart seeks the rescission of the parties' contract due to Hutton's alleged failure to keep his promise to provide a new pivot system. Id. at 24-25.

         Hutton argues that he properly fulfilled his promise to “fix” the pivot system, but that the counterclaims lack reviewability because each counterclaim remains time-barred by the relevant statute of limitations under Montana. (Doc. 34 17-23). Nyhart counters that Montana law provides, however, a discovery rule that tolls a relevant statute of limitations. In the context of fraud or mistake a claim is “not to be deemed to have accrued until discovery by the aggrieved party of the facts constituting the fraud or mistake.” Mont. Code Ann. § 27-2-203. This doctrine applies when the injury was inherently self-concealing or if the defending party concealed facts relating to the injury from the injured party. Wilson v. Brandt, 2017 MT 290, ¶ 17, 389 Mont. 387, 393-94, 406 P.3d 452, 456.

         Nyhart claims that Hutton took action to “prevent Nyhart from discovering the injury [and] affirmatively and fraudulently misrepresented - and continued to renew and reiterate such misrepresentation - that he would eventually replace the Existing Pivot.” (Doc. 62 at 16). Hutton claims that he sufficiently fulfilled his promise by “fixing” the pivot system. (Doc. 34 at 15). All the counterclaims brought by Nyhart arise out of this same transaction or occurrence of the alleged promises and reciprocal obligations required pursuant to the sale/lease-back agreement between the parties. The parties clearly dispute the issues regarding what each side promised and understood throughout Hutton and Nyhart's relationship. The existence of these disputed issues of material fact preclude summary judgment and these competing claims must be resolved by the jury. The Court denies Hutton's motion for summary judgement on Nyhart's counterclaims.

         B. Nyhart's Seventh Affirmative Defense of Failure of Consideration and Excuse of Performance

         Nyhart's seventh affirmative defense for failure of consideration and excuse of performance arise from the same facts and allegations regarding the pivots as noted above. Nyhart alleges that Hutton failed to perform his duties as promised under the agreements surrounding the sale/lease-back agreement. (Doc. 30 at ¶ 7). Nyhart argues that Hutton's failure to perform consequently excuses him from performing his own duties under the agreement. Id. Hutton claims that he agreed only to fix the pivot system and that he completed this task when he repaired the Existing Pivot. (Doc. 34 at 15).

         The issues regarding what each party promised and what each party understood in relation to the sale/lease-back agreement remain disputed and resolution of these genuine issues of material fact will be left to the jury. The Court denies Hutton's motion for summary judgment on Nyhart's seventh affirmative defense.

         C. Nyhart's Eleventh Affirmative Defense based on Montana Code Annotated §70-27-108(2)

         Section 70-27-108(2) of the Montana Code provides a definition of unlawful detainer and an explanation of how this principle should be applied to a holdover tenant of agricultural property. The section specifically provides that “when a tenant continues in possession . . . without permission of the landlord . . . [and] the tenant has held over and retained possession for more than 60 days after expiration of the term without any demand of possession or notice to quit by the landlord . . . the tenant is considered to be holding by permission.” Mont. Code Ann. § 70-27-108(2).

         Hutton argues that Mont. Code Ann § 70-27-108(2) has no application here as it simply defines unlawful detainer and Hutton is not seeking possession of the agricultural property. (Doc. 34 at 31). Hutton contends also that Nyhart did not maintain possession of the agricultural property after 2010 “without permission of the landlord.” Hutton suggests instead that Nyhart retained possession of the agricultural ...


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