Title: Gillespie v. Seymour

State: kansas

Issuer: Kansas Supreme Court

Document:

255 Kan. 774 (1994)
877 P.2d 409
WARREN BROWN GILLESPIE and POLLY GILLESPIE TOWNSEND, Plaintiffs/Appellees,
v.
DOROTHEA WOFFORD SEYMOUR, as Co-Trustee of the BROWN-GILLESPIE TRUST ESTATE; DOROTHEA WOFFORD SEYMOUR, individually; PAUL A. SEYMOUR, JR.[*]; PAUL SEYMOUR, III; RUTH BASSETT; ROBERT W. BURDGE; GRANT-THORNTON, an accounting partnership; ARROWHEAD PETROLEUM, INC., a Kansas corporation; and BIG SPRINGS DRILLING, INC., a Kansas Corporation, Defendants/[*]Appellant, and DOROTHEA WOFFORD SEYMOUR, a Co-Trustee of the BROWN-GILLESPIE TRUST ESTATE; and DOROTHEA WOFFORD SEYMOUR, Individually, Defendants and Third-Party Plaintiffs,
v.
JAMES PAUL GILLESPIE, Executor of the Estate of Pauline Brown Gillespie, Deceased, Third-Party Defendant.
No. 70,592

Supreme Court of Kansas.
Opinion filed July 8, 1994.
Terry L. Mann, of Martin, Pringle, Oliver, Wallace & Swartz, of Wichita, argued the cause, and Robert Martin, of the same firm, was with him on the briefs for appellant.
Glenn D. Young, Jr., of Young, Bogle, McCausland, Wells & Clark, P.A., of Wichita, argued the cause, and Jerry D. Bogle, of the same firm, was with him on the brief for appellees.
The opinion of the court was delivered by
*775 McFARLAND, J.:
This is an appeal from an award of punitive damages entered in an action by the beneficiaries of a trust for recovery of damages for oil and gas investments made by the Trust.
This is the third time the case has been before us. The factual background underlying the action is complex and is set forth in Gillespie v. Seymour, 250 Kan. 123, 823 P.2d 782 (1991), hereinafter referred to as Gillespie I. In that opinion, inter alia, we affirmed the basic compensatory damage award against Paul Seymour, Jr., (hereinafter referred to as Seymour) in the amount of $2,476,422 plus certain allowances for a total damage award of $3,320,029. Awards of punitive damages had been entered against Seymour in the amount of $2,000,000 for a period prior to July 1, 1987, and $89,250 for the period thereafter. K.S.A. 1993 Supp. 60-3701 controls the determination of punitive damage awards on actions accruing between July 1, 1987, and July 1, 1988. We stated:
On remand, the trial court's determination was as follows:
"MEMORANDUM OPINION
Seymour appealed this decision, and we again reversed the punitive damage award against Seymour (Gillespie v. Seymour, 253 Kan. 169, 853 P.2d 692 [1993], hereinafter referred to as Gillespie II).
K.S.A. 1993 Supp. 60-3701 has remained unchanged at all pertinent times herein although it was referred to as K.S.A. 1990 Supp. 60-3701 in Gillespie I and K.S.A. 1992 Supp. 60-3701 in Gillespie II, by virtue of the time each case was before us. K.S.A. 1993 Supp. 60-3701 provides:
(6) the financial condition of the defendant; and
(2) $5 million.
In Gillespie II, we held:
(2) $5 million.
On the remand of Gillespie II, Judge C. Robert Bell replaced Judge Paul Buchanan. Judge Bell awarded punitive damages against Seymour in the amount of $2,000,000 under K.S.A. 1993 Supp. 60-3701(f). In this action, Seymour appeals therefrom.
By virtue of the issues raised, it is necessary to set forth, in toto, the memorandum opinion of the trial court as follows:
"The Court makes the following findings:
The first three issues herein are interrelated and are as follows:
1. Whether the trial court erred in imposing upon Seymour the burden of proving the amount of punitive damages;
2. Whether the trial court committed error by disregarding the undisputed evidence of Seymour's "profit"; and
3. Whether the punitive damage award is supported by the evidence.
Central to all three issues is whether the trial court erred in its holding as to what constituted Seymour's profit. As will be recalled, an award for punitive damages under K.S.A. 1993 Supp. 60-3701(e) may not exceed the lesser of:
(2) $5 million."
It is undisputed that the annual gross income under subsection (e)(1) is $865,861. The punitive damage award herein may not exceed that amount unless the court finds the profitability of the defendant's misconduct exceeds or is expected to exceed $865,861 (subsection [f]). Seymour introduced expert testimony that he personally profited from the Trust's investments in Arrowhead Petroleum, Inc., the corporation in which Seymour is an officer and 51 percent owner of the stock, in the amount of $632,520. Inasmuch as this sum is less than $865,861, Seymour argues the *783 trial court erred in awarding damages under subsection (f). We do not agree.
Before proceeding further it is appropriate to clear up the confusion that appears to exist in the trial court's opinion by virtue of the inclusion of two figures as to the Trust's damages. The basic compensatory award was $2,476,422, to which were added certain allowances for a total compensatory damage award of $3,320,029. The complex means used to arrive at these figures is discussed in Gillespie I and need not be repeated herein. In Gillespie I there was a finding that the Trust's investments in Arrowhead were in the amount of $2,642,000. As we stated in Gillespie I:
Thus, the $2,642,000 figure was reduced to $2,476,422 in the basic compensatory damage award. In its finding of Seymour's profits, the trial court utilizes the total Trust investment figure of $2,642,000. No issue is raised herein as to the utilization of the gross, unadjusted figure as opposed to the basic compensatory damage figure of $2,476,422. It is clear from the trial court's rationale that the punitive damage award would have remained the same no matter which of the two figures had been utilized. For consistency and the sake of simplicity, we will use the actual basic compensatory damage figure utilized by the trial court as Seymour's profit. After this digression, we return to our discussion of the issues.
Profit is defined in Webster's New Collegiate Dictionary 919 (5th ed. 1977) as:
*784 This definition is consistent with the common understanding that profit is gain over expenditure. As used in K.S.A. 1993 Supp. 60-3701(b)(3) we believe it has a broader meaning. It must be borne in mind that K.S.A. 1993 Supp. 60-3701 applies to punitive damage awards in general. Product liability actions frequently include claims for punitive damages. In such actions there is no correlation between the compensatory damage award and the defendant's "profit" on the transaction. A product which sold for $25 may cause millions of dollars of personal injury or property damage. In such cases "profit" involves looking at the defendant's profit from the course of conduct giving rise to the plaintiff's injuries. See U.S.D. No. 490 v. Celotex Corp., 6 Kan. App.2d 346, 629 P.2d 196, rev. denied 230 Kan. 819 (1981). In the case before us, we have an affirmed award of compensatory damages in the amount of $2,476,422. Neither personal injury nor property damage is involved. This involves money only, and the compensatory damage figure represents the Trust's injury as a result of what the trial court refers to as Seymour's "finagling" of its investments. Under the circumstances herein, we find no error in the trial court's determination that the amount of compensatory damages was Seymour's profit under K.S.A. 1993 Supp. 60-3701. To hold otherwise could lead to incongruous results. As the plaintiffs point out, under Seymour's theory, had Seymour gambled away all the Trust moneys in Las Vegas, he could argue he had no profit at all  despite the Trust's huge loss of funds.
With this basic determination having been made, we turn to the particular claims made in the first three issues. Seymour first contends the trial court erred in placing the burden of proving punitive damages upon Seymour. This claim is without merit. The trial court had the affirmed award of compensatory damages before it. In the hearing it only afforded Seymour the opportunity to introduce evidence of and to argue that a lesser figure should be utilized as his "profit." This does not constitute an improper shifting of the burden of proof.
Next, Seymour argues that the trial court ignored the undisputed evidence from his expert that Seymour personally profited *785 only to the extent of $632,520. This issue is controlled by our previous determination as to what was Seymour's profit herein.
Finally, Seymour argues that the award is not supported by the evidence. Again, this issue is essentially the same question as to what is profit. Additionally, we note that the trial court considered each of seven factors set forth in K.S.A. 1993 Supp. 60-3701(b) (1)-(7) and made findings of fact relative to each. These findings are supported by the evidence, and our collective conscience is not shocked by the size of the award. We find no error or abuse of discretion in any of the first three issues.
For his next issue, Seymour contends that no punitive damage award should be entered herein. The crux of his argument is that as the punitive damage awards entered against him in Gillespie I and II were reversed and remanded, and as the punitive damage award herein is also fatally flawed, a sort of three-strikes-and-you-are-out-rule should preclude any further consideration of punitive damages herein. We are unaware of any case in which such rule has been applied. In any event, we have found no error in the entry of punitive damages herein and so this issue is moot.
For his final issue, Seymour contends the trial court erred in holding that the punitive damage award was not dischargeable in Seymour's pending bankruptcy proceedings.
In Matter of Brown, 56 Bankr. 954, 956 (Bankr. E.D. Mich. 1986), the court stated:
See In re Harris, 155 Bankr. 135, 136-37 (Bankr. E.D. Va. 1993); In re Rabeiro, 151 Bankr. 965, 967 (Bankr. M.D. Fla. 1993).
In Brown v. Felsen, 442 U.S. 127, 134-39, 60 L. Ed. 2d 767, 99 S. Ct. 2205 (1979), the United States Supreme Court held that *786 a state court decision, irrespective of its contents, could not have res judicata effect on a bankruptcy court's determination of dischargeability because dischargeability is "the type of question Congress intended that the bankruptcy court would resolve." 442 U.S.  at 138. At issue in Brown was whether the bankruptcy court could consider extrinsic evidence in determining the dischargeability of a judgment. The Brown decision held that the bankruptcy court could consider such evidence and that a contrary rule would frustrate the purpose of the Bankruptcy Act.
Whether or not the punitive damage award is dischargeable in the pending bankruptcy proceeding is for the bankruptcy court to determine. The trial court herein lacked jurisdiction to declare the award nondischargeable and, accordingly, erred in attempting to determine this issue.
The judgment is affirmed in part and reversed in part.