Los Alamos National Bank v. Martinez Surveying Services, LLC
Docket: No. 25,425
Court: New Mexico Court of Appeals; June 5, 2006; New Mexico; State Appellate Court
Los Alamos National Bank (LANB) initiated a lawsuit against Danny Martinez and Martinez Surveying Services, LLC (MSS) for unpaid debts related to an ABC Loan and a promissory note, seeking to foreclose on a security interest in personal property. The defendants denied the debt and counterclaimed, alleging that LANB and Title Guaranty conspired to disrupt their business relationships. After a bench trial, the district court ruled in favor of LANB for the debt claim but also sided with the defendants on their counterclaim, ordering both parties to bear their own costs and attorney’s fees. LANB appealed, contending that the evidence did not substantiate the conspiracy claim against them and that they should be awarded costs and fees. The appellate court agreed with LANB, reversing the judgment on the counterclaim and directing the lower court to grant LANB an award for interest, attorney’s fees, and costs, while affirming the judgment in other respects.
In 1997, LANB financed Martinez's purchase of a surveying business, leading to a $50,000 ABC Loan and an additional $86,741.56 loan secured by a Security Agreement granting LANB a security interest in MSS's assets. Title Guaranty had a continuous business relationship with MSS from 1997 to September 2001, despite not having a formal contract. During this period, billing and payment discrepancies arose, attributed to both MSS's and Title Guaranty’s practices. These issues were acknowledged by both parties, with Title Guaranty’s vice president describing MSS's accounting as problematic. Although the billing errors were eventually rectified, the process was lengthy and costly for Title Guaranty.
Martinez's wife was employed as a vice president at LANB for over twelve years, during which they obtained loans for various business ventures, including a $274,367 development loan on October 17, 1997, and a $300,000 construction loan for DKDJ Holdings, LLC, guaranteed by both spouses. DKDJ defaulted on the construction loan in March 2000, leaving an outstanding balance of approximately $86,000, while the development loan fell into default in November 2000, with about $81,000 owed. LANB initiated legal action against them in 2000 to recover these debts.
In anticipation of filing for bankruptcy on May 23, 2001, Martinez and his wife formed MSS, a limited liability company, on May 21, 2001, to which they assigned the liabilities and assets of Martinez Surveying Services without LANB's consent, despite being aware of LANB's lien and the requirement to notify them. LANB later notified MSS in March 2002 of its refusal to consent to the use of the collateral.
During her tenure at LANB, Mrs. Martinez engaged in a scheme of embezzlement involving fraudulent loans, including one to her brother and others to fictitious individuals, resulting in the misappropriation of approximately $349,868. Some of these embezzled funds were used to pay off debts owed to LANB by the couple and MSS.
In August 2001, Title Guaranty’s Board decided to stop initiating new survey orders with MSS but would complete existing contracts and honor requests from others. This decision led to claims of conspiracy between LANB and Title Guaranty to interfere with the Martinezes' prospective contractual relations with MSS.
Trinity Capital Corporation, based in Los Alamos, New Mexico, wholly owns LANB, a national bank, and Title Guaranty, both of which have overlapping board memberships. In 2001, Mr. Enloe held multiple leadership roles across these entities. The district court found that decisions affecting Title Guaranty, including the cessation of survey orders from MSS, were influenced by the interconnected leadership of LANB and Title Guaranty, specifically by Enloe, Wells, and Kinsfather. Ms. Terrazas, Title Guaranty’s vice president, confirmed she was instructed by Enloe to stop initiating survey orders but noted that contracts could still be made with MSS if requested by clients. Despite her personal connections with the Martinezes, she denied feeling threatened or coerced into implementing the decision.
Enloe explained that the decision to halt business with MSS stemmed from concerns over the owners' dishonesty, particularly due to embezzlement linked to Mrs. Martinez, a part-owner of MSS. He emphasized the necessity for trust in business relationships and articulated his fiduciary duty to safeguard Title Guaranty’s financial interests and legal compliance. Enloe and the Board viewed continuing to recommend MSS as financially risky due to prior accounting issues and double billing problems associated with the firm.
Ms. Terrazas confirmed concerns regarding the integrity and dishonesty of the Board, particularly in light of emerging embezzlement issues. She testified about the accounting problems with MSS, including double billing, and described spending significant time verifying MSS invoices out of friendship with the Martinezes, despite this not being profitable for Title Guaranty. She noted that all other surveying firms on Title Guaranty’s approved list were required to have Errors and Omissions insurance, which MSS lacked. This absence of coverage contributed to Title Guaranty’s decision to cease initiating new contracts with MSS due to potential liability concerns.
In the legal discussion, LANB contested the district court's conclusion that it interfered with the Defendants’ prospective contractual relations. The court's review standard requires viewing facts favorably towards the prevailing party and disregarding contrary evidence. To claim interference with prospective contracts, the plaintiff must show that an improper motive was the sole reason for the interference, a distinction from existing contract interference which does not require this. Alternatively, improper means can be demonstrated if the intent was solely to harm the plaintiff. LANB argued that the evidence did not support the district court's conclusion, asserting that neither improper motive nor means was present. The district court's only finding regarding LANB's motive indicated that the Title Guaranty directors, also LANB directors, decided to stop orders from MSS partly because the Martinezes were in default on loans to LANB. This finding did not support a conclusion of sole intent to harm, as established in relevant case law, indicating LANB could not be liable for interference with prospective contractual relations.
The district court's rejection of all proposed findings by Defendants aimed at proving LANB's sole motive to harm them is viewed as a finding against Defendants. The court implicitly determined that a sole motive did not exist since it did not adopt any of the Defendants' findings supporting that claim. Consequently, this lack of evidence prevents the conclusion that LANB conspired to interfere with Defendants’ prospective contractual relations. Defendants argue that LANB's reference to "one of the reasons" indicates an improper motive, but the findings they cite only establish that certain events occurred without addressing LANB's motivation. Additionally, Defendants suggest that the dual roles of Title Guaranty Directors as LANB directors indicate that decisions made were influenced by LANB's other business relations rather than by MSS's business. However, this argument does not compel a different interpretation of the district court's findings.
The analysis then shifts to whether LANB employed improper means in interfering with Defendants’ contractual relations. Improper means encompass tortious and predatory behaviors as defined by law, including violence, intimidation, deceit, bribery, and defamation. The evidence presented fails to demonstrate that LANB engaged in such improper means. LANB's examination of the findings of fact and conclusions of law further supports its argument that no improper means were utilized in this case.
The district court determined that LANB coerced Title Guaranty to cease ordering surveys from MSS by leveraging the positions of its officers, including Enloe and Terrazas. LANB contended that this conduct was not coercive as it merely presented a conflict for Terrazas between her professional responsibilities and personal loyalties, without any threats or intimidation. LANB argued that the expectation for an employee to follow lawful directives is a standard workplace practice and not inherently illegal. Consequently, the court concluded that LANB's actions did not constitute improper interference with prospective contractual relations.
Defendants countered that LANB's failure to dispute conspiracy findings implies acknowledgment of improper means used to interfere with MSS’s contractual relations, arguing that conspiracy inherently involves improper means. However, the court clarified that a civil conspiracy requires both an unlawful purpose and unlawful means, and since Title Guaranty's directive to Terrazas was lawful, no conspiracy existed.
Additionally, LANB asserted that the court's conclusion about the authority to stop ordering surveys contradicted established corporate governance principles, which assign management responsibilities to the board of directors. LANB maintained that no wrongful action occurred when corporate officers directed decisions made by the board. Defendants countered that this principle does not apply to LANB as a national bank, citing regulatory restrictions against the commingling of business between LANB and Title Guaranty.
Defendants' argument that LANB's status as a national bank necessitates different corporate governance under New Mexico law is rejected. The court finds that the decision by Title Guaranty’s board, which included LANB board members, to stop ordering surveys from MSS does not constitute improper commingling of business. The existence of shared board members does not imply that Title Guaranty should have ignored concerns regarding MSS, particularly in light of undisputed embezzlement by an MSS owner and questionable billing practices. The court notes that failing to act in response to these issues could breach fiduciary duties to Title Guaranty. Defendants did not demonstrate that the board’s decision was not made in good faith, undermining their argument against the action's privilege.
LANB's participation in Title Guaranty’s decision to stop ordering surveys from MSS did not constitute improper interference with prospective contractual relations, nor did it impair MSS’s collateral in violation of the Uniform Commercial Code, as there was no obligation for LANB to continue business with MSS. Defendants' claim that LANB accepted and ratified the district court's judgment, waiving its right to appeal, lacks supporting authority and is not addressed by the court. LANB is found to have preserved its arguments regarding interference and the lack of improper means.
The court concludes that the evidence does not support the district court's finding of interference by LANB with Defendants’ contractual relations, leading to a reversal of that judgment. Consequently, the denial of LANB's request for attorney's fees is also reversed, as it was based on the now-invalidated interference claim. LANB is entitled to its costs on remand. The judgment in favor of Martinez and MSS is reversed, and the case is remanded for further proceedings, while the district court's other judgments are affirmed.
