Sleater (08-02077) 20090213 (40) - Memorandum In Support

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Gary E. Jubber A1758 Douglas J. Payne A4113 Clint R. Hansen A12108 FABIAN & CLENDENIN, a Professional Corporation 215 South State Street, Suite 1200 Salt Lake City, Utah 84111-2323 Telephone: (801) 531-8900 Fax: (801) 596-2814 [email protected] [email protected] [email protected] Attorneys for Gary E. Jubber, Chapter 7 Trustee IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF UTAH, CENTRAL DIVISION In re: BEDROCK MARKETING, LLC GARY E. JUBBER, Chapter 7 Bankruptcy Trustee of Bedrock Marketing, LLC, and Chapter 7 Bankruptcy Trustee of Enlightened Management, LLC, Plaintiff, v. WESTON WADE SLEATER, an individual, Defendant.

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Bankruptcy No. 08-20308 (Chapter 7)

Honorable William T. Thurman

REPLY MEMORANDUM IN SUPPORT OF MOTION TO STRIKE

Adversary No. 08-02077

Gary E. Jubber (“Trustee” or “Plaintiff”), Chapter 7 trustee of the bankruptcy estate of Bedrock Marketing, LLC (“Bedrock”), and Chapter 7 trustee of the bankruptcy estate of Enlightened Management, LLC (“Enlightened”), hereby submits this Reply Memorandum in Support of his Motion to Strike:

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ARGUMENT I. Statements Made by Rex Wheeler Are Not Admissible Against the Trustee Under Fed. R. Evid. 801(d)(2). Paragraphs 3, 7, 8, 9, and 16 of the Sleater Declarations refer to statements allegedly made by Rex Wheeler (“Wheeler”), who was formerly the owner and manager of Bedrock and Enlightened. Prepetition statements made by an officer or agent of a debtor are not admissible against the debtor’s bankruptcy trustee under Rule 801(d)(2 of the Federal Rules of Evidence. See, Hon. B. Russell, BANKRUPTCY EVIDENCE MANUAL §801:16 (2008-2009 Ed.). In Calhoun v. Baylor, 646 F.2d 1158, 1162-63 (6th Cir. 1981), the Sixth Circuit held that Rule 802(d)(2) did not allow a defendant in an adversary proceeding brought by a bankruptcy trustee as a successor in interest to the debtor to introduce prepetition statements by the debtor’s officers or agents. Id. at 1162. “Rule 801(d)(2) does not include statements by predecessors in interest among the types of statements the rule makes admissible. As one commentator has pointed out, the rule ‘rejects privity as a ground of admissibility by making no provision for it.’” Id. at 1162-1163, quoting 4 WEINSTEIN’S EVIDENCE 801-165 (1979). Thus, regardless of Wheeler’s status as an agent of Bedrock or Enlightened, his out-of-court statements are not admissible against the Trustee. II. Parol Evidence Is Not Admissible Because the Notes Are Not Facially Ambiguous. Sleater argues that the Notes are facially ambiguous because Sleater is named as both the maker and guarantor and those terms are mutually exclusive. Sleater cites Bohart v. Universal Metals & Machinery, 523 S.W.2d 279 (Tex.Civ.App. 1975). However, that decision was expressly overruled by the Texas Supreme Court on the very point for which Sleater advances it as authority. Universal Metals & Machinery v. Bohart, 539 S.W.2d 874, 876-877 (Tex. 1976). The Texas Supreme Court reversed the lower court’s finding that the terms are mutually 2

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exclusive, implicitly found the instrument to be unambiguous, and held the individual signers to be personally liable. Id. at 876-877 & 879. None of the other cases cited by Sleater support his argument that a facial ambiguity is created or that parol evidence may be considered whenever an individual is both a maker and guarantor. For example, the language Sleater quotes from Material Partnerships, Inc., v. Ventura, 1021 S.W.3d 252 (Tex. App. 2003) is dictum from a concurring opinion and is not the holding of the court. See, id. at 263. In fact, the majority opinion in Material Partnerships held that the guaranty agreement in question was “not ambiguous.” Id. at 261. In the present case, Sleater is attempting to use extrinsic evidence to vary the terms of the Notes, which are valid, integrated, and unambiguous instruments. “The parol evidence rule . . . bars the use of extrinsic evidence to vary or add to the terms of [an instrument that is] valid, integrated and unambiguous.” See, Tangren Family Trust v. Tangren, 182 P.3d 326, 332 (Utah 2008). III. Parol Evidence Concerning Consideration Is Not Admissible. Where consideration is apparent from the face of the contract or from admissions in the pleadings, as is the case here, parol evidence is inadmissible as to the existence of consideration. Under the Uniform Commercial Code (“UCC”), a promissory note given to memorialize a preexisting obligation is supported by sufficient consideration as a matter of law. See, Utah Code Ann. §§70A-3-303(1)(c) & 70A-3-303(2); UCC §3- 303 official cmt. 1, case #1 & official cmt. 4. See also, Bradley v. Romeo, 716 P.2d 227, 228 (Nev. 1986) (holding that under former UCC §3-408, (current version at §3-303(b)), a prior loan to a company was sufficient consideration to hold company shareholder personally liable on a promissory note); 11 Am. Jur. 2d § 148. It is also not necessary that consideration flow directly to the individual who signs a promissory note;

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it may flow to a third party. Continental Ill. Nat. Bank v. Allen, 811 P.2d 168, 173 (Utah 1991) (citing Restatement (Second) of Contracts §71(4)).1 Sleater admits that Atlas Capital, LLC did in fact receive from Bedrock and Enlightened the full amount of money alleged in Plaintiff’s Complaint, and that the full amount of this indebtedness is correctly memorialized in the Notes. Mem. in Opp. to Summary Judg. at 2, 3. Sleater further admits that he was the sole member of Atlas Capital, LLC. See, Mem. in Opp. to Motion to Strike, at pg. 6; Statement of Financial Affairs of Atlas Capital, LLC in Bkr. No. 0821725, at ¶ 21 (relevant pages attached as Exh. A to Trustee’s Reply Mem. in Supp. of Motion Summary Judg.); and Sleater Declarations at ¶ 2. Sleater also admits that he signed the promissory notes and the guaranties. Id.; Answer at ¶¶ 4,10. Thus, this Court can rule on the consideration issue from the face of the pleadings alone pursuant to §§70A-3-303(1)(c) & 70A3-303(2). The Notes are valid as a matter of law and supported by consideration. Parol evidence is inadmissible to vary the terms of the instruments. Furthermore, the statements regarding consideration in the Sleater Declaration are irrelevant because Sleater is liable regardless of whether he personally received consideration. He clearly signed the guaranties as an accommodation maker. Pursuant to Utah Code §70A-3419(2), the obligation of an accommodation maker may be enforced “whether or not the accommodation party receives consideration for the accommodation.” Id.

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The Texas Supreme Court’s decision in Bohart also undermines Sleater’s argument regarding lack of consideration. The court found that a guaranty was supported by sufficient consideration even though the guaranty was executed three months after the machinery had been delivered to the company. 539 S.W.2d at 878. The agreement recited “for value received” and the individuals “had a real interest in the acquisition of the machinery” which was necessary to the company. “Under these facts there was consideration which supports the guaranty agreement.” Id. 4

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Based upon the foregoing, paragraphs 3, 7, 21, 22, 23, and 24 of the Sleater Declarations are not admissible to show lack of consideration and should be stricken. IV. Sleater Cannot Have Personal Knowledge of Another’s Thoughts or Intentions. Sleater argues that he has personal knowledge of the thoughts and intentions of Bedrock and Enlightened. See, Mem. in Opp. to Motion to Strike, at pg. 8, ¶ 5. Sleater could not have personal knowledge that Bedrock and Enlightened intended liability to be different from what was written in the Notes. Similarly, there is no basis for Sleater’s alleged knowledge of the existence or extent of any detriment which Bedrock and Enlightened suffered in return for Sleater’s guaranty, or whether the preparer of the Notes “mistakenly” stated the name of the maker of the Notes. Paragraphs 10, 11, 16, 23 and 24 of the Sleater Declarations lack the necessary foundation to support a finding of personal knowledge, as required by Rule 602 of the Federal Rules of Evidence. CONCLUSION Based on the foregoing, the Trustee asks this Court to grant the relief requested in Trustee’s Motion to Strike and the Memorandum filed in support thereof. DATED this 13th day of February, 2009.

/s/ Gary E. Jubber Gary E. Jubber Douglas J. Payne Clint R. Hansen FABIAN & CLENDENIN, a Professional Corporation Attorneys for Plaintiff Gary E. Jubber, Ch. 7 Trustee

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CERTIFICATE OF SERVICE I hereby certify that on the 13th day of February, 2009, I caused a true and correct copy of the foregoing REPLY MEMORANDUM IN SUPPORT OF MOTION TO STRIKE to be served via first class mail and by e-mail to the following: Ronald S. George, P.A. 389 N. Mink Creek Road Pocatello, ID 83204 Email: [email protected]

/s/ Gary E. Jubber

ND: 4825-7541-1715, v. 3

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