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Gallagher v. Holt

February 23, 2010

DENNIS GALLAGHER AND SHELLEY GALLAGHER, PLAINTIFFS,
v.
TERRY J. HOLT AND JERRI A. WELLS, DEFENDANTS.



ORDER

The parties' cross-motions for summary judgment came on regularly for hearing January 28, 2010. William Parish appeared for plaintiffs. Donald Ullrich, Jr., appeared for defendants. Upon review of the motions and the documents in support and opposition, upon hearing the arguments of counsel and good cause appearing therefor, THE COURT FINDS AS FOLLOWS:

FACTS

Plaintiff Dennis Gallagher and his family have farmed rice and walnuts for over thirty years, including the 709 acres of farmland ("709 property") at issue in this matter. (Gallagher Decl. ¶ 2.) Over the years, the Gallagher family has provided all of the custom farming services for the 709 property. (Id.) These services include, among other things, planting and growing the rice crop, drying and storing it, and managing the farm property. (Id.)

In 1980, Robert Gallagher (plaintiff Dennis Gallagher's father) purchased the 709 property from Kenneth Majors*fn1 , Allen Johnson*fn2 , and others. (Gallagher Decl. ¶ 3.) To accomplish this purchase, Robert Gallagher made a down payment and Mr. Majors, Mr. Johnson, and the others carried back a note for the balance secured by a deed of trust. (Id.)

In 1983, Robert Gallagher experienced financial difficulties that caused him to file for bankruptcy. (Gallagher Decl. ¶ 3.) In light of these difficulties, plaintiff Dennis Gallagher negotiated a plan whereby Robert Gallagher transferred the 709 property back to Mr. Majors, Mr. Johnson, and the other individuals through a deed in lieu of foreclosure. (Id.) Eventually Mr. Majors and Mr. Johnson acquired the other partners' interest and they operated the 709 property under M&J Farms. (Id.) The Gallagher family continued to provide all of the custom farming services for the 709 property. (Id.)

From the time Robert Gallagher deeded back his interest to Mr. Majors and Mr. Johnson, it was apparently agreed that Robert Gallagher and plaintiff Dennis Gallagher would ultimately reacquire a one-half ownership in the 709 property. (Gallagher Decl. ¶ 4.) To achieve this, in 1986, Robert Gallagher*fn3 , plaintiff Dennis Gallagher, Mr. Majors and Mr. Johnson made an oral agreement ("the oral agreement") that would result in the 709 property being half-owned by the Gallaghers and half-owned by Mr. Majors. (Id.)

Under the terms of this oral agreement, the shares in the 709 property were redistributed so as to maximize farm program payments. (Gallagher Dep. at 32; Gallagher Decl. ¶ 4.) Although Mr. Majors and Mr. Johnson initially had equal ownership interests in the 709 property, they restructured their ownership shares such that Mr. Majors's daughters, defendants Terry Holt and Jerri Wells, each acquired an undivided one-third interest through a series of conveyances, a portion of which was transferred from Mr. Johnson to the defendants; and Mr. Johnson retained the remaining one-third interest. (Gallagher Decl. ¶ 4; Ullrich Decl., Ex. C.) Mr. Johnson's interest in the 709 property, thus, was reduced from one-half to one-third. (Gallagher Decl. ¶ 4.)

Per the oral agreement and upon the completion of its terms, the Gallaghers were granted a written option to purchase Mr. Johnson's one-third interest for the fair market value of a one-half interest (which Mr. Johnson owned prior to the restructure), and Mr. Majors agreed that the remaining one-sixth interest in the 709 property -- for the Gallaghers to have a total one-half interest -- would come from the defendants. (Gallagher Decl. ¶ 4.)

Plaintiff Dennis Gallagher testified that there was a written option agreement prepared by Mr. Majors to be signed by the defendants concerning the eventual transfer of the 709 property. (Gallagher Dep. at 77-82; Majors Dep., Ex. B.) Over the course of the years, plaintiff Dennis Gallagher asked Mr. Majors repeatedly when the option agreement would be signed by the defendants and was continually reassured that the defendants' signatures would be obtained. (Gallagher Dep. at 78.) This option agreement was never signed by the defendants. (Id. at 77-82.) Plaintiff Dennis Gallagher testified that there was no agreement to pay the defendants any sum of money for the property. (Gallagher Dep. at 39.)

After the defendants acquired the two-thirds interest in the 709 property, JHW Farms was formed, which became the entity that operated the 709 property. (Gallagher Decl. ¶ 5.) In reliance on the oral agreement, plaintiff Dennis Gallagher provided all custom farming services for the 709 property at cost and took no management fee for over twenty years. (Id. ¶ 6.) Plaintiffs value these services at more than $300,000.00. (Id.) They claim that over the years, these farming activities also secured significant profits for JHW Farms, which they estimate at $1,000,000.00. (Id.)

During the tenure of their ownership, the defendants did not participate in the property's management or operations. (Gallagher Decl. ¶ 4.) Defendants were unaware of any work that plaintiff Dennis Gallagher performed in reliance on the oral agreement. (Carsello*fn4 Dep. at 17; Mace*fn5 Dep. at 31, 48.) Their only involvement in the 709 property was their receipt of yearly K-1 statements. (Mace Dep. at 24.) It was their understanding that the property did not profit, but instead experienced yearly losses. (Mace Dep. at 24.) They were further unaware whether their father, Mr. Majors, ever received money on the property. (Mace Dep. at 25.)

In December 2006, as plaintiffs neared the completion of the terms of the oral agreement, plaintiff Dennis Gallagher met with the defendants to discuss the oral agreement and the transfer of the one-sixth interest; this was the first time that the defendants became aware of the oral agreement. (Gallagher Decl. ¶ 7; Mace Dep. at 39.) During this meeting, plaintiff Dennis Gallagher gave the history of the 709 property and discussed the custom farming and management services he provided over the years. (Id.) Defendants were assisted by their uncle, Jack Majors, who conducted independent research regarding the oral agreement. (Carsello Dep. at 18.)

On January 5, 2007, plaintiffs signed the "Real Property Transfer Agreement with Escrow Instructions" ("the contract"). (Compl., Ex. A.) The contract provided for the transfer of an undivided one-twelfth interest of the 709 property from each defendant to the plaintiffs. (Id.) The stated purpose of the transfer was "to complete the agreement among the parties as to how title shall be held after payment of all third party debts on the Property that existing in 1980, which debts have been paid." (Id.) In consideration for the exchange, plaintiffs agreed to payment "of all closing costs, including transfer taxes, recording fees, escrow fees and related charges." (Id.)

On February 28, 2007, defendant Terry Mace signed the contract. (Compl., Ex. A.) She signed it with the understanding that it was an agreement to transfer the 709 property to the plaintiffs. (Mace Dep. at 10.) On March 3, 2007, defendant Jerri Carsello signed the contract. (Id.) She, too, signed it with the understanding that it was an agreement to transfer the 709 property. (Carsello Dep. at 11.) Defendant Terry Mace testified that she signed the contract because "it was the right thing to do" in light of the information she had received from Jack Majors and the plaintiffs regarding the oral agreement. (Mace Dep. at 20.) In anticipation of the transfer, plaintiffs opened an escrow account with Placer Title Company. (Gallagher Decl. ¶ 10.)

Following the execution of the contract, the defendants received notice of a separate agreement (the "Borel agreement") dated March 2007, which was to be signed by Mr. Johnson (represented through a power of attorney by his daughter, Sherri Johnson) and the defendants. (Carsello Dep. at 10; see Pls.' Ex. 5.) Per the Borel agreement, plaintiff Dennis Gallagher was scheduled to receive a wire transfer from the JHW Farms checking account in the amount of ...


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