Title: NW Mut. Life Ins. v. Sheridan

State: alabama

Issuer: Alabama Supreme Court

Document:

630 So. 2d 384 (1993)
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
v.
George SHERIDAN, et al.
1911110.

Supreme Court of Alabama.
October 29, 1993.
Rehearing Denied December 10, 1993.
*385 Robert A. Huffaker of Rushton, Stakely, Johnston & Garrett, P.A., Montgomery, for appellant.
*386 Ted Taylor and Leah O. Taylor of Taylor & Roberson, Prattville, for appellees.
L. Andrew Hollis, Jr. and W. Lee Pittman of Pittman, Hooks, Marsh, Dutton & Hollis, Birmingham, and Henry Sanders of Chestnut, Sanders, Sanders & Pettway, Selma, for amicus curiae New South Coalition in support of appellees.
Michael D. Knight of Hand, Arendall, Bedsole, Greaves & Johnston, Mobile, and Andrew L. Frey, Mark I. Levy, Charles Rothfeld and Evan M. Tager of Mayer, Brown & Platt, Washington, DC, for amici curiae Chamber of Commerce of the U.S., Nat. Ass'n of Mfrs. and Product Liability Advisory Council, Inc., in support of appellant.
Clifford W. Cleveland of Cleveland & Colley, P.C., Prattville, for amicus curiae Citizen Action of Alabama, in support of appellees.
Jack Drake of Drake & Pierce, Tuscaloosa, and Bruce McKee of Hare, Wynn, Newell & Newton, Birmingham, for amicus curiae Alabama Trial Lawyers Ass'n.
Solomon S. Seay, Jr. of Solomon S. Seay, P.C., Montgomery, Lanny S. Vines of Emond & Vines, Birmingham, for amicus curiae Alabama Democratic Conference, in support of appellees.
Erwin N. Griswold, Patricia A. Dunn and Deena B. Jenab of Jones, Day, Reavis & Pogue, Washington, DC, for amici curiae American Council of Life Ins. and the Ass'n of Alabama Life Ins. Companies in support of appellant.
Richard E. Barnsback and Phillip E. Stano, Washington, DC, for amicus curiae American Council of Life Ins.
R.K. Hunter, President, Ass'n of Alabama Life Ins. Companies, and Ken Wallis, Vice-President, Montgomery, for amicus curiae Ass'n of Alabama Life Ins. Companies.
Robert D. Eckinger of Lange, Simpson, Robinson & Somerville, Birmingham, for amicus curiae Business Council of Alabama, in support of appellant.
ADAMS, Justice.
Northwestern Mutual Life Insurance Company ("Northwestern") appeals from a judgment based on a jury verdict awarding the plaintiffs, George and Judy Sheridan (husband and wife), $25,727,248.00 in an action alleging fraud, breach of contract, and wanton supervision. We affirm conditionally.
In September 1988, Jacob Behr, Northwestern's "district agent" in the area of Dothan, Alabama, sold to George and Judy Sheridan, sole shareholders of George Sheridan Automotive, Inc. (hereinafter Mr. and Mrs. Sheridan and their corporation shall be collectively referred to as "the Sheridans"), what Behr represented to be a "qualified retirement pension plan and a deferred compensation plan." Behr guaranteed a return on their investment in the amount of at least 10.25%. He stated that the plans were the only ones "on the market" and that they were available because Northwestern "was worth over $63 billion." It is undisputed that no such plan was available from Northwestern.
Second, he conditioned the establishment of the plans on (1) payment of $12,026.25, which was to be the first of annual contributions to the plan, (2) on Mr. Sheridan's purchase of a $200,000 life insurance policy from Northwestern, and (3) on the conversion to the plan of a Northwestern policy already owned by Mrs. Sheridan. Northwestern concedes that "[t]he representations made to the Plaintiffs by Behr were false," that "[t]here was no guarantee of 10.25% annual interest," that "the insurance applied for was not issued in the form requested," that "Behr remitted to Northwestern only approximately $3000 of the $12,026.25 payment of the Plaintiffs," and that Behr "apparently pocketed the balance." Brief of Appellant, at 14.
Throughout the following year, however, Behr periodically sent the Sheridans ledgers and related documents on Northwestern stationery falsely reporting the status of their investments. Moreover, on February 2, 1989, Behr, without the Sheridans' knowledge or permission, changed the address for receipt of information from Northwestern from the Sheridans' address to an address within Behr's control.
On August 2, 1989, Northwestern received an anonymous letter, stating in substantive part:
On September 29, 1989, at a regular monthly Northwestern sales meeting, Jack Wright, Behr's supervisor, discussed the letter with Behr. Behr admitted that he had commingled funds, but denied any other misconduct. Wright and Behr then agreed to meet on October 3, 1989, to discuss the matter further. The day before the meeting, Behr disappeared.
On October 4, 1989, Mrs. Sheridan, after her sister telephoned her to inform her that Behr had disappeared, visited Behr's office. Behr's secretary informed Mrs. Sheridan that no retirement plans existed and stated "that they were all crooks."
On December 4, 1989, the Sheridans sued Behr, alleging fraud, and sued Northwestern, alleging (1) breach of contract and (2) negligence or wantonness in its employment and supervision of Behr. The Sheridans sought compensation for economic and noneconomic loss and sought punitive damages. Following a nine-day trial, the jury returned the following verdict:
Based on this verdict, the trial judge entered a judgment against Northwestern in the amount of $25,727,248.00 [$24,927,248 ($12,463,624 × 2) in punitive damages + $800,000 ($400,000 × 2) in compensatory damages]. He subsequently denied Northwestern's motions for a remittitur or a new trial. Northwestern argues for reversal of the judgment on the grounds of (1) federal law preemption, (2) erroneous exclusion of evidence, (3) improper closing argument, (4) inconsistent or improper verdict, (5) insufficiency of the evidence, and (6) excessiveness of the verdict.
Northwestern contends that the Sheridans' state law claims are preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. (1984). ERISA preempts or "supersede[s] any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." Id. at § 1144(a) (emphasis added). We disagree with Northwestern's contention. "An individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse...." 29 C.F.R. § 2510.3-3(c)(1) (1992) (emphasis added). Because George and Judy Sheridan were the sole shareholders of George Sheridan Automotive, they were not "employees" within the definition of that term in ERISA.
On November 29, 1989, Bruce Schwoch, an "audit coordinator" for Northwestern, sent the Sheridans a letter, reproduced here in substantive part:
Northwestern sought to admit the letter into evidence in order to demonstrate the lack of circumstances aggravating the Sheridans' injury, and, consequently, the absence of a basis for punitive damages. See generally, Ray Hughes Chevrolet, Inc. v. Gordon, 294 Ala. 638, 641, 320 So. 2d 652, 654 (1975). The trial court admitted the letter, but only after excising the portions following the first paragraph of part three.
Northwestern contends that the result was prejudicial inasmuch as the admitted portions, it argues, tended to place it in a negative light. The Sheridans contend that the excised portions were inadmissible as representing a settlement offer. See Shoals Ford, Inc. v. McKinney, 605 So. 2d 1197 (Ala.1992); Super Valu Stores, Inc. v. Peterson, 506 So. 2d 317 (Ala.1987). Northwestern denies that the letter represented an offer of settlement, contending, instead, that it merely contained a number of unconditional promises.
We disagree with Northwestern's characterization of the letter. On its face, the letter is conditional. Paragraphs [c] and [d] *389 begin: "We agree to reimburse you...." (Emphasis added.) Even more significantly, paragraph [d] states: "If this proposal for resolving the situation meets with your approval, please inform us in writing." (Emphasis added.) These statements are incompatible with the concept of a unilateral, unconditional promise. They are consistent, however, with an offer of compromise or settlement. Thus, the trial court did not err in rejecting that portion of the letter.
Northwestern contends that the trial court erred in allowing the Sheridans' counsel to refer, improperly, it insists, to Northwestern's wealth during closing arguments. It cites a number of cases in support of the general rule against "reference in argument to an opponent's wealth." Allison v. Acton-Etheridge Coal Co., 289 Ala. 443, 447, 268 So. 2d 725, 729 (1972).
This case is unusual, however, and distinguishable from the ones cited by Northwestern. In this case, Behr's guarantee of an investment return based on Northwestern's worth, which he alleged to exceed $63 billion, formed the essence of the inducement for the transactions that ultimately produced this action. Those statements were introduced during trial without Northwestern's objection. Thus, given these peculiar facts, we cannot conclude that the remarks of Sheridan's counsel warrant a reversal of the judgment.
Northwestern objects to the verdict form submitted to the jury on a number of grounds. First, it argues that the form was inherently confusing. Specifically, it contends that the form required the jury to resolve in Part (1) the plaintiffs' claims for breach of contract, which, unlike the fraud claims that were also subsumed in Part (1), were applicable only to Northwestern and would not support an assessment of punitive damages.
However, the record reveals that Northwestern's attorneys helped prepare, and concurred in, the verdict form as finally submitted to the jury. Northwestern cannot, therefore, attack the verdict on the ground that the form confused the jury or resulted in an inconsistent or improper verdict as between the fraud and breach of contract claims. See Atkins v. Lee, 603 So. 2d 937 (Ala.1992); E & S Facilities, Inc. v. Precision Chipper Corp., 565 So. 2d 54 (Ala.1990); Rainsville Bank v. Willingham, 485 So. 2d 319 (Ala.1986).
Second, Northwestern contends that the trial court misconstrued the jury's verdict, and, consequently, doubled what the jury had intended. In other words, Northwestern contends that the form actually evidences a verdict totalling only $12,863,624 ($12,463,624 in punitive damages + $400,000 in compensatory damages) against Behr and Northwestern jointly. It insists that it is impermissible to assess damages against a defendant based on vicarious liability and then to assess, again, damages based on that defendant's own misconduct. We disagree.
"In a given case the employer may be liable both on the ground that he was personally negligent and on the ground that the conduct was within the scope of employment." Restatement (Second) of Agency, § 213, comment h (1958) (emphasis added); accord Lane v. Central Bank of Alabama, N.A., 425 So. 2d 1098 (Ala.1983). It thus remains to be determined whether the evidence will support a verdict against Northwestern for wanton supervision of its agent.
Northwestern contends that it is shielded from vicarious liability by Ala.Code 1975, § 6-11-27. That section provides:
The Sheridans contend that Northwestern, among other things, "`ratified' or `authorized' the wrongful acts of Behr," and that it "`knew or should have known of the unfitness' of Behr and `used his services without proper instruction with a disregard of the rights or safety of others.'"
L.J. Wright, Northwestern's "general agent in Alabama," testified that he interviewed Behr in 1981 for a position with Northwestern as a "special or soliciting agent" and at that time presented Behr with an application. On the application, Behr stated that he had not had a "business failure." Wright testified that while processing Behr's application, Northwestern learned that a company owned by Behr had, indeed, suffered insolvency and failure. Subsequently, on an insurance license application, Behr stated that he had no outstanding judgments against him. Wright testified that Northwestern did not investigate the accuracy of that statement, and, moreover, that he was unaware of any "personal" financial difficulties. Northwestern subsequently approved Behr's applications, and he began employment under Wright's supervision as a special agent.
Lawanda Lawler, a Houston County circuit court clerk, presented documents in response to a subpoena requesting "case action summaries and copies of complaints on all lawsuits filed by, or against, Jacob S. Behr since January 1, 1979." She testified that, notwithstanding Behr's denials of legal or financial difficulties, he or his corporation had been sued 16 times between January 1, 1979, and June 15, 1981. At least seven of the lawsuits contained claims alleging fraud. Moreover, Houston County records contained evidence of 13 judgments and 6 tax liens against Behr individually and 171 judgments against Behr or his corporation.
Evidence at trial also revealed that several actions were filed against Behr after Northwestern employed him. In 1983, for example, Behr was sued by two Dothan businesses to collect delinquent accounts. At least one action, notice of which Northwestern admitted, resulted in the garnishment of Behr's bank account.
Of particular significance was an action filed in a United States district court against Behr in 1984 by Auto Brokers of Alabama in connection with a used automobile that Behr had traded to Auto Brokers. The action alleged fraud and violations of the Motor Vehicle Information and Cost Savings Act, 15 U.S.C. § 1981 (1982). In holding against Behr for $13,439.57, the trial judge stated:
Auto Brokers of Alabama v. Williams Lincoln-Mercury, Inc., and Jacob S. Behr, No. 84-T-1325-S, March 7, 1985 (M.D.Ala.). Also, in 1985, three actions were filed against Behr in the Houston County Circuit Court, *391 alleging insurance fraud. Northwestern conceded notice of the federal court judgment and of the actions arising out of Behr's insurance transactions.
In addition to lawsuits and other complaints filed against Behr, other agents of Northwestern testified of misconduct they had personally observed. For example, Greg Hendrix, who currently serves the Dothan area as Northwestern's district agent, testified that on a number of occasions he had seen Behr forge signatures on applications "with the use of a fluorescent light." This evidence was corroborated by Donald Parker and Greg Herman, who also testified that they had seen Behr forge customers' signatures. Parker testified, moreover, that Behr occasionally cashed commission checks written to other Northwestern agents by forging their indorsements.
Significant in this connection was evidence, such as the following testimony of Greg Herman, regarding Behr's reputation in the community, and, more pertinently, among his fellow Northwestern agents:
(Emphasis added.)
Particularly significant was testimony, of which the following excerpts are but examples, regarding the results of complaints to Behr's supervisors by fellow agents:
Moreover, Bruce Schwoch, an "audit coordinator" for Northwestern, testified that, as early as 1987, Northwestern had documentary evidence of instances in which Behr had, as in this case, changed the addresses of policy owners to an address controlled by Behr, thus isolating the owners from direct contact with Northwestern. Schwoch testified that such a practice allowed Behr to withdraw funds from a policyholder's account without the owner's authorization, and to prevent the owner from discovering the true status of his policy. Behr's "maildrop" practice had also been discovered by agent Greg Hendrix at least a year before the commencement of this action.
The Sheridans also produced evidence that, concurrently with these and other complaints, Behr's career with Northwestern advanced steadily. For example, Northwestern honored Behr in 1982 with a "New Agent Bronze Award" and a "Ruby Award," and in 1984 with a "Golden Award." Also, Behr enjoyed membership from 1982 to 1986 in Northwestern's "Seventy-five Lives Club," and from 1983 to 1986 in the "Hundred Lives Club." Behr's sales volume, which provided the basis for these awards, reached a career total of $67,300,000.[1] Additionally, he was promoted in 1982 from "special agent" to "field director" for Houston and Dale Counties. In 1986, his territory was further expanded to include Coffee, Geneva, and Henry Counties.
On the basis of this and similar evidence, the jury could also have concluded that Northwestern knew of Behr's unethical conduct and not only tolerated, but actually exploited, that behavior. It could have concluded that Northwestern only reluctantly broached the subject with Behr when inescapably confronted with the growing evidence of Behr's misconduct. The jury could, moreover, have concluded that Northwestern rebuffed the efforts of its agents timely to rectify the problem by notifying Behr's superiors, because of Behr's large sales volume. Consequently, it could have concluded that Northwestern consciously factored in the possibility of adverse judgments against it and Behr as an acceptable business expense. That another jury might have reached different conclusions "is of no consequence to the issue before us, so long as the jury's verdict is in fact supported by the evidence," Intercontinental Life Insurance Co. v. Lindblom, 598 So. 2d 886, 889 (Ala.), cert. denied, ___ U.S. ___, 113 S. Ct. 200, 121 L. Ed. 2d 142 *393 (1992), as it clearly and convincingly is in this case.
We are thus compelled to conclude that the verdict does not represent a double recovery, as Northwestern contends. Instead, the jury found Northwestern liable under a theory of vicarious liability for the $12,863,624.00 in Part (1)(a) and (b) of the verdict form, and also liable under a theory of wanton supervision for the $12,863,624.00 in Part (2) of the verdict form.
Jury "verdicts are presumed correct and the presumption in favor of the correctness of the verdict is strengthened when a new trial is denied by the court." Grandquest v. Williams, 273 Ala. 140, 145, 135 So. 2d 391, 394 (1961). Moreover, "in cases involving damages that are incapable of precise calculation, a jury's damages assessment may be disturbed only when it is so flawed by bias, passion, prejudice, corruption, or improper motive as to lose its constitutional protection." Moore v. Mobile Infirmary Ass'n, 592 So. 2d 156, 161 (Ala.1991). This latter rule is, of course, particularly applicable to the noneconomic and punitive damages claimed in this case, and it was the subject of a two-day hearing following the trial of this case.
On March 27-28, 1992, the trial court conducted hearings pursuant to Green Oil Co. v. Hornsby, 539 So. 2d 218 (Ala.1989), and Hammond v. City of Gadsden, 493 So. 2d 1374 (Ala.1986), to review the amount of the verdict. On April 13, 1992, the trial court denied Northwestern's motions for a JNOV, a new trial, or a remittitur of the damages award. The trial court's order states in part:
This Court has independently reviewed the evidence presented in this case, applying the factors set forth by the United States Supreme Court in Pacific Mutual Life Insurance Co. v. Haslip, 499 U.S. 1, 111 S. Ct. 1032, 113 L. Ed. 2d 1 (1991), including:
Haslip, 499 U.S.  at 21-22, 111 S. Ct.  at 1045. After applying these factors, we conclude that the verdict is excessive and must be reduced by $12,863,624.00. Consequently, the judgment of the trial court is affirmed, conditioned upon the Sheridans' acceptance within 28 days of a remittitur of $12,863,624.00, resulting in a judgment for the Sheridans in the amount of $12,863,624.00.
AFFIRMED CONDITIONALLY.
HORNSBY, C.J., and MADDOX, ALMON, SHORES, HOUSTON, STEAGALL, KENNEDY and INGRAM, JJ., concur.
[1]  This figure represented the total face amounts of policies sold by Behr.
[2]  This figure represented the total face amounts of policies sold by Behr.