7TH JUDICIAL DISTRICT COURT

SIERRA COUNTY NM
FILED IN MY OFFICE
3/13/2015 8:47:30 AM
DISTRICT COURT CLERK
Isi Lindsey Huston 3/13/2015

SEVENTH JUDICIAL DISTRICT COURT

COUNTY OF SIERRA
STATE OF NEW MEXICO
HOT SPRINGS LAND DEVELOPMENT, LLC,
A New Mexico Limited Liability Company, and
HOT SPRINGS MOTORPLEX DEVELOPMENT, LLC,
A New Mexico Limited Liability Company,
Plaintiffs,

No. D-721-CV-2014-00073

VS.

CITY OF TRUTH OR CONSEQUENCES,

A New Mexico Municipality,
Defendant.

MOTION TO DISMISS ALL CLAIMS

BASED UPON STATUTE OF LIMITATIONS
COMES NOW Defendant, the City of Truth or Consequences (the "City"), by and
through its counsel Brennan & Sullivan P.A. (James P. Sullivan appearing), and moves for
dismissal of all claims in Plaintiffs' Complaint for Damages under N.M. Rules of Civil
Procedure 1-012 (B)(6), on the grounds that the two-year statutes of limitations of N.M.S.A
1978, 37-1-23 for contract and 41-4-15 for tort bar all claims. Further, if the breach of the
implied covenant of good faith and fair dealing is construed as a tort, rather than a contract
action, it is barred by the New Mexico Tort Claims Act, N.M.S.A 1978, 41-4-17.
INTRODUCTION
Plaintiffs are two related New Mexico corporations which proposed to undertake
commercial development of land in Sierra County, New Mexico. In connection with this
activity, one or other of the two entities entered into three contracts with the City of Truth or
Consequences beginning in August of 2007. (Complaint,

TT

16, 21, 43). Plaintiffs' Complaint

alleges five Counts: Count I alleges breach of the Option Agreement and requests damages;
Count II alleges breach of the Option Agreement and requests rescission; Count III alleges
breach of the Airport Development Agreement and requests damages; Count IV alleges breach
of the Water Well Agreement and requests damages; and Count V alleges breach of the implied
Covenant of Good Faith and Fair Dealing in connection with the Airport Development
Agreement and the Option Agreement. 1
The Complaint was filed in Seventh Judicial District Court on July 16, 2014. (File Stamp
of Clerk of the Court on Complaint). Two years prior to July 16, 2014 is July 16, 2012. Any
claim for breach of contract which accrued prior to July 16, 2012 should be barred under the
two-year statute of limitation of N.M. S.A. 1978, 37-1-23 as untimely.
There is a second statute of limitation which could give rise to an argument that claims
for breach of contract against a municipality should be three years. N.M.S.A. 1978, 37-1-24.
However, as explained below, this statute is inapplicable in this case.
Defendant submits that the breach of the implied covenant of good faith and fair dealing
is not actionable against a government entity because of the public policy expressed by the New
Mexico Tort Claims Act and by the statute restricting contract claims against government entities
to written contracts, 37-1-23 reserving sovereign immunity unless waived by statute.
However, even if it were actionable, it is barred by the two-year statute of limitation in the Tort
Claims Act. N.M.S.A. 1978, 41-4-15.

There is no specific paragraph which alleges breach of the covenant of good faith and fair
dealing in connection with the Water Well Agreement in Count V. See 130 and 131 which
specifically reference the ADA and the Option Agreement. However, 132 and the claim for
relief reference the Water Well Agreement.
2 A lawsuit by these Plaintiffs against the City was previously filed in U.S. District Court
related to these contracts and other claims on or about August 8, 2013, but that case was
dismissed for lack of federal jurisdiction under Article III of the United States Constitution.
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LEGAL STANDARD FOR MOTION TO DISMISS

Under the New Mexico Rules of Civil Procedure, on a motion to dismiss for failure to
state a claim, the Court tests "the legal sufficiency of the complaint, not the factual allegations of
the pleadings which, for purposes of ruling on the motion, the court must accept as true." Herrera
v. Quality Pontiac, 2003-NMSC-018, 2, 134 N.M. 43, 73 P.3d 181 (citation omitted).
Dismissal under Rule 1-012(B)(6) is appropriate only if the non-moving party is "not entitled to
recover under any theory of the facts alleged in their cornplaint."Delfino v. Griffo, 2011-NMSC015, 12, 150 N.M. 97, 257 P.3d 917 (internal quotation marks and citation omitted). Under
such a review, the Court accepts all well-pleaded factual allegations in the complaint as true and
resolves all doubts in favor of sufficiency of the complaint. Id. 9.
Where facts are not disputed, whether the statute of limitations bars suit is a question of
law for the Court. Mantz v. Follingstad, 1972-NMCA-164, J 19, 84 N.M. 473, 478, 505 P. 2d
68, 73.
ARGUMENT
1. Claims for Breach of Contract against the City must be brou2ht within two years
from the accrual of the claim.

The statute of limitations for contract claims against a government entity is in N.M.S.A.
1978, 37-1-23:
37-1-23 Contractual liability; statute of limitations.
A. Governmental entities are granted immunity from actions based on
contract, except actions based upon a valid written contract.
B. Every claim permitted by this section shall be forever barred unless
brought within two years from the time of accrual.
The City of Truth or Consequences is a New Mexico municipality. Complaint, 3. A
municipality is a government entity. New Mexicans for Free Enterprise v. City of Santa Fe,
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2006-NMCA-7, 13, 138 NM 785, 126 P. 3d 1149, 1157. Therefore any claim against the City
based upon contract must be pursuant to a written contract and be brought within two years from
the date the action accrued.
A more expansive and general limitation of actions against municipalities is found at
N.M.S.A. 1978, 37-1-24, which states:
37-1-24. Suits against municipalities or their officers.
No suit, action or proceeding at law or equity for the recovery of judgment
upon, or the enforcement or collection of, any sum of money claimed due
from the city, town or village in this state, or from any officer of any city,
town or village in this state, arising out of or founded upon any ordinance,
trust relation or contract, or any appropriation or conversion of any real or
personal property, shall be commenced except within three years next
after the date the act of omission or commission giving rise to the cause of
action, suit or proceeding. ... All such suits, proceedings or actions not
so commenced shall be forever barred.
This statute covers suits for the recovery of "judgment upon, or the enforcement or
collection of, any sum of money claimed due from the city......The statute concerns claims
arising from ordinances, trusts, conversion of real property, conversion of personal property, as
well as those arising from contract. The operative words of this statute: "any sum of money
claimed due," indicate that it relates to claims for payment of an amount of money which has
been determined as fixed by some type of legal document or accounting. The word "sum" is
defined, in pertinent part, as "a particular amount of money" by the Oxford Dictionaries online.
Black's Law Dictionary defines the term "sum certain" as "[t]he settled or fixed amount that is
specified in or is ascertainable from negotiable instruments as a sum payable." Black's Free
Online Legal Dictionary 2nd Ed. The term "sum payable" is defined as "[t]he amount that needs

That is the first definition given. It also defines "sum" as "2. The total amount resulting from
the addition of two or more numbers, amounts or items." "2.1 The total amount of something
that exists." And, "3 An arithmetical problem, especially at an elementary level."
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Id. In other words, the claim for a "sum of

to be paid in order to satisfy the obligation."

money" under this statute is a fixed amount of money which has been established by some type
of legal instrument or adjudication by which the claimant sues for "judgment, enforcement or
collection". It is distinguished from a claim for damages.
Damages are assessed by a fact finder in a legal proceeding equaling a sum of money on
finding for the plaintiff or successful party in an action, as a compensation for the injury done
him by the opposite party. See Black's Law Dictionary Free Online Legal Dictionary 2nd Ed.,
"damages." The "sum of money claimed" as referred to in 37-1-24 cannot be referring to
"damages" for breach of contract, because in an action for damages under a breach of contract,
no amount of money has yet been adjudicated by a fact finder. A claim for damages does not
become a "sum" until it is adjudicated by a fact finder; and, therefore, does not fall under the
coverage of this three-year limitation period.
Therefore, the three-year limitations of action under N.M.S.A 1978, 37-1-24 is not the
applicable statute of limitation for the contract claims in this action.
As further support for this interpretation, a search of New Mexico statutes reveals at least
108 statutes that contain the term "damages" in the title. Therefore, it is reasonable to presume
that if the Legislature intended 37-1-24 to apply to damages actions for breach of contract, they
would have used the term "damages" rather than the terms "any sum of money claimed due."
Thus, the language of 37-1-24 indicates that it is not applicable to a claim for breach of
contract. Even if it were misconstrued to cover such claims, the direct conflict between the twoyear statute of limitation and a three-year statute of limitation would have to be resolved using
rules of statutory construction. Where two statutes conflict, the specific governs over the
' Defendant requests that the Court take judicial notice that more than 100 New Mexico statutes
contain the term "damages" in the title.
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general. Compton v. Lytle, 2003-NMSC-31, 16, 134 N.M. 586, 81 P. 3rd

44. Section 37-

1-23 relates specifically and only to contract actions against governmental entities, and under this
rule of construction, the two-year limitation is the applicable statute.
2. The time for assertin2 the claim for breach of contract of the Option A2reement
under Counts I and II expired on Au2ust 29. 2013 at the latest.
Plaintiffs allege that the Option Agreement was entered into on August 17, 2007.
Complaint, 83. Plaintiffs allege that the first breach of this contract by the City occurred when
it allegedly did not have the ability to provide water and sewer capacity under the Option
Contract. Complaint, J 84- 87, 21-25. Plaintiffs allege a second breach occurred on September
1, 2010. Complaint, 66. Plaintiffs allege that the last breach of this contract occurred on
August 29, 2011 by stating that the City refused to honor the terms of the Option Agreement on
that date. Complaint, 68. Under the two-year statute of limitation, Plaintiffs had until August
29, 2013 to bring an action for the alleged third breach.
Count I seeks money damages for breach of contract of the Option Agreement, and Count
11 seeks rescission of the Option Agreement. This action was filed herein on July 16, 2014,
about eleven months after these two claims expired. Therefore, Counts I and II must be
dismissed as time barred.
3. The time for asserting the claim for breach of contract of the Airport Development
Agreement in Count HI expired on October 1 2010 at the latest.
Count III claims damages for breach of contract of the Airport Development Agreement
(the "ADA"). Plaintiffs allege that City officials signed a Termination of Airport Development
Agreement on or about September 25, 2008. Complaint, 51. The Complaint alleges facts
which could constitute a breach of the agreement by this action on September 25, 2008.
Complaint, J 52-5 5. Plaintiff Hot Springs Motorplex Development, LLC signed a termination

of the Airport Development Agreement on or about October 1, 2008. Complaint, 57. At the
very latest, Plaintiffs cause of action for breach of the Airport Development Agreement expired
on October 1, 2010, the date that the contract was terminated by the parties. This is close to four
years prior to the initiation of this lawsuit. Therefore, the breach of contract claim in Count II is
time barred and must be dismissed.
4. The time for assertin2 the claim for breach of contract of the Water Well
Development A2reement in Count IV expired on September 28, 2010 at the latest.

Count 1V is a claim for damages for breach of contract of the Water Well Development
Agreement. Plaintiffs allege that Hot Springs Land Development and the City entered into a
water well agreement on or about September 9, 2008. Complaint, 43. Plaintiffs allege that on
or about September 28, 2008, the City refused to deliver water to Plaintiffs' development and
breached its agreement with Hot Springs Land Development. Complaint, 48. The cause of
action accrued on the date of the alleged breach, September 28, 2008. The cause of action under
Count IV expired on or about September 28, 2010, approximately four years prior to the
initiation of this lawsuit. Therefore, the breach of contract claim in Count IV is time barred and
must be dismissed.
5. The Claim for Breach of the Covenant of Good Faith and Fair Dealing asserted in
Count V is not actionable a2ainst the City because it is time barred by the Statute of
Limitation and/or barred by the New Mexico Tort Claims Act.

It does not appear that the New Mexico appellate courts have addressed the issue of
whether the implied covenant of good faith and fair dealing in the context of a commercial
contract with a government entity is actionable at all, or whether such a claim entity sounds in
contract or in tort. In dictum, the New Mexico Court of Appeals has stated that in the context of
interpreting an arbitration agreement between two private parties in a royalties dispute that "[t]he
claim of breach of good faith and fair dealing sounds in contract, at least when no "special
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relationship' such as that between an insured and insurer exists." Heimann v. Kinder-Morgan
CO2 Co., 2006-NMCA-127, 18, 140 N.M. 552, 144 P. 3d 111, citing Borgeous v. Horizon
Healthcare Corp. 1994- NMSC-038, 117 N.M. 434, 872 P. 2d 852. In Borgeous the New
Mexico Supreme Court held that tort remedies are not available for breach of an implied
covenant of good faith and fair dealing in an employment contract. In the case of Henning v.
Rounds, the New Mexico Court of Appeals held that although New Mexico does recognize a
claim for breach of an implied covenant of good faith and fair dealing in employment contract
cases, the facts of the case did not support Plaintiff's claim that she was denied the benefits of
her employment contract by her public school employer. The opinion did not clearly hold that
the breach of an implied covenant would only support contract, rather than tort damages.
However, because section A of the opinion is entitled Tort Claims, and section B is entitled
Breach of the Covenant of Good Faith and Fair Dealing, appearing after the Court decided that
the employer was immune from Plaintiffs tort claims under the New Mexico Tort Claims Act,
one could reasonably infer that the Court did not treat the claim for breach of the implied
covenant as a tort. However, the cases are not uniform in the treatment of a claim for a breach of
an implied covenant of good faith and fair dealing. See cases collected in The Best Place, Inc. v.
Penn America Insurance Co., 82 Hawai'i 120, 127- 131, 920 P. 2d 334, 341- 345 (1996).
The Colorado Supreme Court in an en banc opinion surveyed the cases in many
jurisdictions, and determined that in Colorado an implied covenant of good faith and fair dealing
can sound in either tort or contract, depending upon the facts which support the claim. Decker v.
Browning-Ferris Industries of Cob., Inc., 931 P.2d 436 (Cob. 1997). In that case, the Court
held that the tort of breach of an implied covenant of good faith and fair dealing must be based
upon an administrative or legislative declaration of public policy, and held that Colorado did not

have such basis to recognize a tort for breach of an express covenant in an employment context.
931 P. 2d 446. The Court held that in the employment case before it, the factual proof at the jury
trial supported Plaintiffs claims that the employer had made an express promise to treat its
employees fairly, and that the breach of this promise, supported an award of contract damages,
but not tort damages.
Plaintiffs herein allege the breach of the implied covenant in five respects. Complaint,
129. Plaintiffs allege that the City 1) engaged in dilatory tactics, 2) intentionally withheld
information pertinent to the contracts, 3) knowingly and intentionally made false representations
to induce them to enter into the contracts, 4) terminated contracts without just cause and 5)
unilaterally breached contractual agreements. Clearly the termination of contracts and breach of
contractual agreements are contract claims. The New Mexico Supreme Court has reasoned that
it will not apply an implied covenant of good faith and fair dealing to override express provisions
addressed by the terms of an integrated written contract. Melnick v. State Farm Mut. Auto Ins.
Co.,1988-NMSC-012,IT 17, 106N.M. 726, 731, 749P. 2d 1105, 1110,cert. den. 488 U.S. 822,
109 S.Ct. 67 (1988). Therefore, only the first three claims enumerated above could conceivably
raise a claim for breach of the implied covenant of good faith and fair dealing. They all also
raise questions of the duty of the City not to engage in behaviors which would deny Plaintiffs the
benefit of their contracts. Defendant submits that breach of a common law duty sounds in tort,
rather than contract.
In order to proceed on a tort claim against a government entity such as the City, Plaintiffs
must assert a claim under a statutory waiver of the sovereign immunity of the government.
N.M.S.A. 1978, 414-2 and 41-4-17(A). See Begay v. New Mexico, 1985-NIMCA17, 104
N.M. 483, 723 P.2d 252, 255, rev'd on other grounds by Smialek v. Begay, 1986-NMSC-049,

104 N.M. 375, 721 P.2d 1306. There is no waiver of immunity for the tort of breach of the
implied covenant of good faith and fair dealing in the New Mexico Tort Claims Act, N.M.S.A.
1978, 41-4-1 to 41-4-27, which is the exclusive remedy for tort liability of government
entities. Therefore, no claim can be stated in tort under Count V. Furthermore, the Tort Claims
Act also has a two-year statute of limitations. N.M.S.A. 1978, 414-15.
The public policy regarding government contracts is plainly stated in N.M.S.A. 37-123, that "[g]overnment entities are granted immunity from actions based upon contract, except
actions based upon a valid written contract." This statute prohibits contract claims that are not in
a written contract. Although undersigned counsel did not find any case interpreting this
immunity to prohibit a claim for breach of an implied covenant of good faith and fair dealing, it
is reasonable to interpret a grant of immunity to apply to the common law theory of liability
against a government entity with sovereign immunity. The Tort Claims Act established that the
Legislature did not waive sovereign immunity for all tortious acts by the government. The
requirement that contract claims against the government be in writing is another attempt to
preserve the governmental immunity from suit for claims based upon contract which are not in
writing.
However, this Gordian knot need not be untangled here. The claim in Count V is based
upon Plaintiffs' right to receive the benefits of the Option Agreement, the Airport Development
Agreement, and the Water Well Agreement. Complaint, 130-132, and its Wherefore clause.
As shown above, the statute of limitations has expired on any claim under all three of these
contracts. Therefore, Count V is barred by the statute of limitations of N.M.S.A. 1978, 37-123.

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CONCLUSION

All of the claims pled in this Complaint accrued before July 16, 2012. Plaintiffs filed
their Complaint in this action on July 16, 2014, more than two years after the accrual of all five
causes of action in Counts I-V. All five counts must be dismissed as time barred. Additionally,
if the claim for breach of the covenant of good faith and fair dealing is deemed to be a tort, rather
than a contract claim, it is time barred as well under N.M.S.A 1978, 41-4-15. Furthermore, the
tort of a breach of the implied covenant of the breach of good faith and fair dealing should not be
a recognized cause of action against a government entity, based upon the public policy expressed
by the Legislature to maintain the sovereign immunity of government entities except as expressly
waived by statute.
WHEREFORE, Defendant respectfully requests that all claims in Plaintiffs' Complaint

be dismissed with prejudice, that they take nothing thereby, that Defendants be awarded their
costs of suit, and for other such further relief that this Court deems just and proper.
Respectfully submitted,
BRENNAN & SULLIVAN, P.A.

By:

/s/ James P. Sullivan

James P. Sullivan
128 East DeVargas
Santa Fe, New Mexico 87501
(505) 995-8514
Atlorneys for Defendant

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CERTWICATE OF SERVICE

The undersigned hereby certifies that on this 13th day of March, 2015, the foregoing was
filed and served electronically through the Seventh Judicial District Court's electronic file and
serve system to the following:

Paul J. Kennedy, Esq.

Arne Leonard, Esq.
Justine Fox-Young, Esq.
Nanette E. Erdman, Esq.
Paul Kennedy & Associates, P.C.
201 1Street,NW
Albuquerque, NM 87102
(505) 842-8662
pkennedy(kennedyhan .c2j
aleonard@kennedyhan.com
j foxyoung(kennedyhan.com
nerdrnan(kennedyhan. corn
Attorneys for Plaintiff

By:

/s/ James P. Sullivan

James P. Sullivan

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