Title: FLEMMER v MING

State: montana

Issuer: Montana Supreme Court

Document:

No. 80-73 I N THE St1PRE:ME C O U R T O F THE STATE G F MONTANA 198C: E V E L Y N M. F 1 , E M M E R , Persorral Representative of t h e E s t a t e o f Jack Flemrner, Deceased, P l a i n t i f f and Resportdent, -VS- JOHN J. MING, Individual l y , JOUN J , MING, I N C . , and I N C O M E PROPERTIES,INC., Defendant and Appellant. Appeal from: C i s t r i c t Court of t h e Mineteenth J u d i c i a l District, I n and f o r t h e County of Lincoln, The Honorable Rclbert M. Holter, Judge p r e s i d i n g . Counsel o f Record: For Appellant:: Murray, Kaufman, Vidal & Gardon, K a l i s p e l l , Montana For Respondent : Fennecsy, Crocker, Harnan 6 Bostock, Libby, Montana Submitted a n B r i e f s : August 13, 198Cc ~ e c i d e d : D E C 1 1 19&) - P * Clerk Mr. J u s t i c e Daniel J. Shea d e l i v e r e d t h e Opinion of t h e Court. Defendants appeal t h e judgment of t h e Lincoln County D i s t r i c t Court, e n t e r e d a f t e r a j u r y v e r d i c t f o r p l a i n t i f f s , i n t h e amount of $34,806 i n a c t u a l and p u n i t i v e damages and $7,727 i n c o s t s and a t t o r n e y f e e s w i t h i n t e r e s t t o a c c r u e a t 10 p e r c e n t per year u n t i l p a i d . P l a i n t i f f s Evelyn M. Flemmer , i n d i v i d u a l l y , and a s t h e p e r s o n a l r e p r e s e n t a t i v e of her l a t e husband, Jack Flemmer, sued t h e d e f e n d a n t s f o r breach of c o n t r a c t and f r a u d f o r t h e nonpayment of a promissory n o t e . On a p p e a l , d e f e n d a n t s a l l e g e t h a t t h e t r i a l c o u r t e r r e d i n denying t h e i r motions t o d i s m i s s and f o r summary judgment and i n a d m i t t i n g evidence t o v a r y t h e terms of t h e promissory n o t e . Defendants a l s o urge t h a t t h e r e is i n s u f f i c i e n t e v i d e n c e t o s u p p o r t t h e j u r y ' s v e r d i c t . W e f i n d no e r r o r and a f f i r m . I n 1968, t h e Flemmers l i s t e d t h e Evergreen Motel, which t h e y had owned and o p e r a t e d s i n c e 1948, w i t h d e f e n d a n t John J. Ming, a r e a l e s t a t e a g e n t i n Libby. A f t e r a t t e m p t i n g f o r s e v e r a l months t o s e l l t h e m o t e l , Ming approached t h e Flemmers about buying it h i m s e l f . The p a r t i e s agreed on a purchase p r i c e of $110,000. Ming had h i s a t t o r n e y draw up a c o n t r a c t f o r deed and a promissory n o t e f o r $10,000 which r e p r e s e n t e d t h e downpayment. The c o n t r a c t l i s t e d John J. Ming, I n c . , a s buyer and t h e promissory n o t e was s i g n e d by John J. Ming a s p r e s i d e n t of John J. Ming, I n c . Before t h e c o n t r a c t was p r e p a r e d , Ming had n o t informed t h e s e l l e r s t h a t he was n o t buying t h e p r o p e r t y i n h i s i n d i v i d u a l c a p a c i t y , b u t r a t h e r t h a t t h e buyer would be a c l o s e l y - h e l d , f a m i l y c o r p o r a t i o n of which he was t h e p r e s i d e n t . Mrs. Flemmer t e s t i f i e d a t t r i a l t h e d e s i g n a t i o n " I n c . " a f t e r Ming's name on t h e c o n t r a c t had h e l d no s p e c i a l s i g n i f i c a n c e t o e i t h e r her or her husband and t h a t t h e y were l e a d t o b e l i e v e t h a t Ming would make payments under t h e c o n t r a c t . A f t e r c l o s i n g t h e s a l e , t h e Flemmers moved from Montana t o Lodi, C a l i f o r n i a , where t h e y intended t o r e t i r e . I n March 1970, Ming wrote t o t h e Flemmers and informed them t h a t t h e motel was n o t a s p r o f i t a b l e a s had been a n t i c i p a t e d and t h a t he would have t o d e f a u l t u n l e s s t h e Flemmers were w i l l i n g t o r e n e g o t i a t e t h e purchase p r i c e and lower t h e monthly payments. Jack Flemmer was i n poor h e a l t h and d i d n o t want t o t a k e t h e motel back. Consequently, t h e Flemmers agreed t o reduce t h e s e l l i n g p r i c e from $110,000 t o $85,000. Ming's a t t o r n e y drew up t h e renewal c o n t r a c t and t h e new agreement was executed on A p r i l 1, 1970. When t h e Flemmers r e c e i v e d t h e new c o n t r a c t i n t h e m a i l , it showed t h e buyer t o be Income P r o p e r t i e s , I n c . , and was s i g n e d by John J. Ming, a s p r e s i d e n t of t h a t c o r p o r a t i o n . Ming had a t no t i m e d i s c l o s e d t h a t a d i f f e r e n t buyer would be named i n t h e c o n t r a c t . Moreover, t h e 1970 C o r p o r a t i o n Annual Report f i l e d by t h e c o r p o r a t i o n w i t h t h e S e c r e t a r y of S t a t e and i n t r o d u c e d i n t o evidence a t t r i a l by p l a i n t i f f s does n o t show t h a t Ming was a c o r p o r a t e o f f i c e r a t a l l . The o r i g i n a l p r o m i s s o r y n o t e w i t h J o h n J. Ming, I n c . , became t h e downpayment f o r t h e new c o n t r a c t w i t h Income P r o p e r t i e s . Ming could n o t pay t h e promissory n o t e when it became due on November 9, 1973, and t h e r e f o r e asked t h e Flemmers t o a c c e p t a new n o t e f o r $13,127.05, being t h e o r i g i n a l $10,000 downpayment p l u s accrued i n t e r e s t . The Flemmers a s s e n t e d . The maker was a g a i n John J. Ming, I n c . The terms of t h e renewal n o t e c a l l e d f o r monthly i n t e r e s t payments of $87.51 t o be made t o t h e Flemmers, w i t h t h e e n t i r e p r i n c i p a l b a l a n c e f a l l i n g due on February 1, 1975. Ming s e n t t h e n o t e t o t h e Flemmers by m a i l on s t a t i o n a r y of T r e a s u r e S t a t e R e a l t o r s , I n c . The l e t t e r was s i g n e d by Ming, o s t e n s i b l y a s an a g e n t f o r T r e a s u r e S t a t e R e a l t o r s , I n c . T h i s l e t t e r used--as d i d a l l correspondence from Ming t o t h e Flemmers- - t h e p l u r a l pronoun "we" when r e f e r r i n g t o who was l i a b l e t o make payments under t h e n o t e . Only s i x i n t e r e s t payments were made on t h e new n o t e , a t l e a s t two of which were drawn on t h e checking account of T r e a s u r e S t a t e R e a l t o r s , I n c . J a c k Flemmer d i e d on J u l y 31, 1975. On February 2, 1 9 7 8 , Mrs. Flemmer i n s t i t u t e d t h i s a c t i o n f o r c o l l e c t i o n of t h e balance due on t h e n o t e . She a l l e g e d t h a t Ming had devised a f r a u d u l e n t scheme t o d e f r a u d t h e p l a i n t i f f s of t h e money owed them under t h e 1973 promissory n o t e . P l a i n t i f f s a l s o contended t h a t t h e c o r p o r a t e d e f e n d a n t s d i d n o t have any genuine or s e p a r a t e c o r p o r a t e e x i s t e n c e and t h a t t h e y e x i s t e d f o r t h e s o l e purpose of e n a b l i n g Ming t o t r a n s a c t h i s p e r s o n a l b u s i n e s s i n a c o r p o r a t e g u i s e . W e f i n d no m e r i t i n t h e d e f e n d a n t s ' charge t h a t t h e t r i a l c o u r t e r r e d i n r u l i n g on c e r t a i n p r o c e d u r a l and e v i d e n t i a r y q u e s t i o n s . The lower c o u r t ' s d e n i a l of d e f e n d a n t s ' motion f o r summary judgment was e n t i r e l y proper. An examination of t h e p r e t r i a l record c l e a r l y i n d i c a t e s t h a t t h e f o l l o w i n g f a c t u a l i s s u e s were i n d i s p u t e and could o n l y be r e s o l v e d by a t r i a l on t h e m e r i t s : (1) whether John J. Ming o p e r a t e d John J. Ming, I n c . , Income P r o p e r t i e s , I n c . , and T r e a s u r e S t a t e R e a l t o r s , I n c . , as h i s p e r s o n a l b u s i n e s s e s ; ( 2 ) whether Ming f r a u d u l e n t l y r e p r e s e n t e d t o t h e p l a i n t i f f s t h a t he would be l i a b l e on t h e c o n t r a c t and n o t e s ; ( 3 ) whether Ming a c t e d a s an agent f o r t h e d e f e n d a n t c o r p o r a t i o n s ; and ( 4 ) whether t h e c o r p o r a t e v e i l s should be p i e r c e d s o a s t o hold Ming, T r e a s u r e S t a t e R e a l t o r s , and Income P r o p e r t i e s l i a b l e on t h e 1973 renewal n o t e . Summary judgment i s proper o n l y where t h e p r e t r i a l r e c o r d d i s c l o s e s t h a t t h e r e a r e no genuine i s s u e s of m a t e r i a l f a c t and t h a t t h e moving p a r t y is e n t i t l e d t o judgment a s a m a t t e r of law. S c o t t v. Robson (1979) I Mont . , 597 P.2d 1150, 1154; Rule 5 6 ( c ) , M.R.Civ.P. N e i t h e r d i d t h e t r i a l c o u r t e r r i n denying Income P r o p e r t i e s , I n c . , T r e a s u r e S t a t e R e a l t o r s , I n c . , and John J. Ming's motion t o d i s m i s s on grounds t h a t t h e y were n o t " c o n t r a c t u a l " p a r t i e s t o t h e n o t e . These d e f e n d a n t s m i s - c o n s t r u e t h e e s s e n c e o f t h e p l a i n t i f f s ' a c t i o n . The Flemmers' l a w s u i t is based n o t o n l y on an a c t i o n a t law f o r breach of c o n t r a c t , b u t a l s o on a c l a i m i n e q u i t y f o r f r a u d . P l a i n t i f f a l l e g e d , i n s u b s t a n c e , t h a t t h e d e f e n d a n t s a c t e d i n c o n c e r t t o p e r p e t r a t e a f r a u d . The lower c o u r t , r u l i n g on a motion t o d i s m i s s , must t a k e t h e a l l e g a t i o n s of t h e complaint a s t r u e , Gunderson v. Bd. of Commissioners of Cascade County ( 1 9 7 9 ) , Mont . and must c o n s t r u e them i n a l i g h t most f a v o r a b l e t o t h e p l a i n t i f f . Fraunhofer v. P r i c e ( 1 9 7 9 ) , Mont . I 594 P.2d 324, 327, 36 St.Rep. 883. A complaint w i l l n o t be dismissed f o r f a i l u r e t o s t a t e a c l a i m u n l e s s it a p p e a r s beyond any doubt t h a t t h e p l a i n t i f f can prove no set of f a c t s i n s u p p o r t of h i s c l a i m which would e n t i t l e him t o r e l i e f . Fraunhofer, s u p r a , 594 P.2d a t 327. Hence, t h e D i s t r i c t Court is n o t t o engage i n f a c t - f i n d i n g when r u l i n g on a motion t o d i s m i s s . See F r a u n h o f e r , s u p r a , 594 P.2d a t 327. What evidence was l a t e r a c t u a l l y adduced i n s u p p o r t of p l a i n t i f f s ' p o s i t i o n is of no consequence when reviewing t h e a p p r o p r i a t e n e s s of t h e lower c o u r t ' s d e n i a l of a motion t o d i s m i s s made p r i o r t o t r i a l . Defendants urge t h a t t h e t r i a l c o u r t e r r e d i n a d m i t t i n g e x t r i n s i c e v i d e n c e , c h i e f l y l e t t e r s from Ming t o t h e Flemmers, r e l a t i n g t o t h e c i r c u m s t a n c e s l e a d i n g up t o t h e e x e c u t i o n of t h e 1973 n o t e . They contend t h a t t h e p a r o l e v i d e n c e r u l e p r o h i b i t s t h e a d m i s s i o n o f any and a l l e x t r i n s i c evidence c o n t r a d i c t i n g o r v a r y i n g t h e terms of t h e n o t e . There a r e numerous e x c e p t i o n s t o t h e p a r o l evidence r u l e . Evidence of t h e c i r c u m s t a n c e s under which a w r i t t e n i n s t r u m e n t was made or t o which it r e l a t e s is a d m i s s i b l e t o e s t a b l i s h f r a u d . S e c t i o n 28-2-905(2), MCA. There was t h e r e f o r e no e r r o r . Defendants a l s o f a u l t t h e t r i a l c o u r t f o r n o t g r a n t i n g t h e i r motion t o d i s m i s s p l a i n t i f f s ' c l a i m of f r a u d a t t h e c l o s e of t h e p l a i n t i f f s ' c a s e i n c h i e f . W e w i l l c o n s i d e r t h a t assignment of e r r o r t o g e t h e r w i t h t h e d e f e n d a n t s ' charge t h a t t h e r e was i n s u f f i c i e n t evidence t o s u p p o r t t h e j u r y ' s c o n c l u s i o n t h a t Income P r o p e r t i e s , I n c . , T r e a s u r e S t a t e R e a l t o r s , I n c . , and John J. Ming, I n c . , were t h e a l t e r ego of John J. Ming and had no s e p a r a t e i d e n t i t i e s of t h e i r own. T h i s Court h a s recognized two g e n e r a l t h e o r i e s under which t h e c o r p o r a t e i d e n t i t y may be d i s r e g a r d e d : t h e so- c a l l e d "agency" t h e o r y and t h e " i d e n t i t y " o r " a l t e r ego" t h e o r y . S t a t e ex r e l . Monarch F i r e I n s . Co. v. Holmes ( 1 9 4 2 ) , 113 Mont. 303, 307-08, 124 P.2d 994, 996. The c o u r t ' s i n s t r u c t i o n t o t h e j u r y a c c o r d e d w i t h t h e s e recognized t h e o r i e s : ". . . a c o r p o r a t i o n ' s s e p a r a t e i d e n t i t y may be d i s r e g a r d e d when such c o r p o r a t i o n is under t h e c o n t r o l o f a n o t h e r c o r p o r a t i o n o r i n d i v i d u a l , and a c t e d a s t h a t c o r p o r a t i o n ' s a g e n t a s t o t h e p a r t i c u l a r t r a n s a c t i o n , o r , when t h e c o r p o r a t i o n ' s i d e n t i t y i s s o i d e n t i f i e d w i t h t h e o t h e r c o r p o r a t i o n o r i n d i v i d u a l sought t o be h e l d l i a b l e a s t o make t h e two c o r p o r a t i o n s one. Before you can d i s r e g a r d t h e s e p a r a t e i d e n t i t y of t h e c o r p o r a t i o n , however, you must a l s o f i n d . . . t h a t t h e c o r p o r a t i o n is u t i l i z e d a s a s u b t e r - fuge t o d e f e a t p u b l i c convenience, t o j u s t i f y wrong, or t o p e r p e t r a t e f r a u d . " Where t h e c o r p o r a t e form is abused by an i n d i v i d u a l c o n t r o l l i n g s h a r e h o l d e r i n o r d e r t o d e f r a u d c r e d i t o r s , e q u i t y may p i e r c e t h e c o r p o r a t e v e i l . S e e , Stromberg v. Seaton Ranch Co. ( 1 9 7 2 ) , 160 Mont. 293, 502 P.2d 41; S h a f f e r v. Buxbaum ( 1 9 6 0 ) , 137 Mont. 397, 352 P.2d 83. The evidence s u p p o r t s a f i n d i n g of f r a u d and j u s t i f i e s p i e r c i n g t h e c o r p o r a t e v e i l . The r e c o r d shows t h a t a l l t h r e e of t h e c o r p o r a t e d e f e n d a n t s were c l o s e l y - h e l d , f a m i l y c o r p o r a t i o n s . The o f f i c e r s , s t o c k h o l d e r s and members of t h e boards of d i r e c t o r s c o n s i s t e d i n each c a s e of t h e same people: Ming, h i s w i f e , h i s son, and h i s d a u g h t e r . The r e g i s t e r e d o f f i c e s of a l l t h r e e c o r p o r a t i o n s were l o c a t e d i n Ming's p e r s o n a l r e s i d e n c e . A l l t h r e e c o r p o r a t i o n s were engaged i n t h e same e n t e r p r i s e -- t h e purchase, s a l e and development of r e a l e s t a t e . These f a c t s , i f t h e y s t o o d a l o n e would n o t , o f c o u r s e , w a r r a n t a b r o g a t i n g a c o r p o r a t i o n ' s l i m i t e d l i a b i l i t y . However, t h e use t o which t h e c o r p o r a t i o n s were p u t does. I n p a r t i c u l a r , when Ming a s k e d t o r e n e g o t i a t e t h e o r i g i n a l c o n t r a c t , h e n e v e r mentioned t o t h e Flemmers t h a t t h e renewal c o n t r a c t would be w i t h Income P r o p e r t i e s , I n c . , o r t h a t t h e Flemmmers would be r e q u i r e d t o r e t a i n t h e o r i g i n a l promissory n o t e w i t h John J. Ming, I n c . , a s t h e downpayment f o r t h e new c o n t r a c t . Ming r e g u l a r l y corresponded w i t h t h e Flemmers under d i f f e r e n t b u s i n e s s names. I n t h o s e l e t t e r s , he h a b i t u a l l y used t h e word "we" when r e f e r r i n g t o t h e p a r t i e s who were t o make payment under t h e n o t e . He made i n t e r e s t payments on t h e r e n e w a l n o t e w i t h c h e c k s drawn on d i f f e r e n t c o r p o r a t e a c c o u n t s ( T r e a s u r e S t a t e R e a l t o r s , I n c . , and John J. Ming, I n c . ) . Under t h e c i r c u m s t a n c e s , it was e n t i r e l y r e a s o n a b l e f o r t h e Flemmers t o conclude t h a t t h e v a r i o u s c o r p o r a t i o n s were a l l a p a r t of Ming's p e r s o n a l b u s i n e s s empire. I n 1 9 7 0 , when t h e s e c o n d c o n t r a c t f o r d e e d was e x e c u t e d , Income P r o p e r t i e s , I n c . , r e p l a c e d John J. Ming, I n c . , a s t h e p u r c h a s e r , Ming t e s t i f i e d t h a t no c o n s i d e r a - t i o n was p a i d f o r t h a t t r a n s f e r . I t is h i g h l y u n l i k e l y t h a t one c o r p o r a t i o n would t r a n s £ e r income-producing p r o p e r t y t o a n o t h e r c o r p o r a t i o n g r a t i s u n l e s s t h e i r i n t e r e s t s w e r e r e a l l y t h e same. Ming, admitted on t h e s t a n d , t h e u n i t y of i n t e r e s t which he had w i t h Income P r o p e r t y , Inc.: . I t is n o t r e a l l y good b u s i n e s s s e n s e , is , t o s e l l p r o p e r t y and s t i l l s t a y l i a b l e r t e n o r twelve thousand ($10,000.00 o r $12,000.00) of t h e o b l i g a t i o n ? A. I was l i a b l e on t h e n o t e whether I gave t h e motel back t o t h e Flemmers o r n o t ; whether John J. Ming, I n c o r p o r a t e d was. " Ming a l s o admitted on t h e s t a n d t h a t a t t h e time t h e renewal n o t e was mailed t o t h e Flemmers, John J. Ming, I n c . was f i n a n c i a l l y i n c a p a b l e of paying o f f t h e n o t e . The e v i d e n c e showed t h a t when Ming o r i g i n a l l y n e g o t i a t e d with t h e Flemmers t o purchase t h e i r motel i n 1968, he had been engaged a s t h e i r r e a l e s t a t e a g e n t . The law imposes an a f f i r m a t i v e d u t y upon a r e a l e s t a t e a g e n t n o t only t o r e f r a i n from t a k i n g advantage of h i s c l i e n t , b u t a l s o t o a c t w i t h t h e utmost good f a i t h , and t o f u l l y d i s c l o s e a l l m a t e r i a l f a c t s concerning a t r a n s a c t i o n t h a t might a f f e c t t h e c l i e n t ' s d e c i s i o n . Lyle v. Moore ( 1 9 7 9 ) , Mont. , 599 P.2d 336. Ming d i d n o t a d v i s e t h e Flemmers t h a t T r e a s u r e S t a t e R e a l t o r s , I n c . was s e p a r a t e from John J. Ming, I n c . , o r t h a t any of t h e s e were s e p a r a t e from John J. Ming, h i m s e l f . Nor d i d he r e v e a l , a t t h e time of e x e c u t i n g t h e second n o t e , t h a t t h e c o r p o r a t e maker, John J. Ming, I n c . , could n o t pay it o f f . Under t h e c i r c u m s t a n c e s , we cannot s a y t h a t t h e t r i a l c o u r t abused its d i s c r e t i o n by denying t h e d e f e n d a n t s ' motion t o d i s m i s s p l a i n t i f f s ' c l a i m of f r a u d a t t h e c l o s e of t h e p l a i n t i f f s ' c a s e i n c h i e f . C l e a r l y , s u b s t a n t i a l evidence was introduced a t t r i a l t o j u s t i f y t h e j u r y ' s d e c i s i o n t o p i e r c e t h e c o r p o r a t e v e i l . Defendants n e x t contend t h a t t h e evidence f a i l s t o s u p p o r t an award of exemplary damages. There is no m e r i t t o t h i s claim. S i n c e t h e r e is s u b s t a n t i a l evidence of f r a u d , t h e j u r y was c l e a r l y w i t h i n i t s p r o v i n c e i n a w a r d i n g p u n i t i v e damages. S e c t i o n 27-1-221, MCA. P l a i n t i f f r e q u e s t s t h i s Court t o a l l o w her a t t o r n e y f e e s f o r c o s t s i n c u r r e d r e s u l t i n g from t h e d e f e n d a n t s ' p o s t - t r i a l motions and appeal under our holding i n Erdman v. C & C S a l e s , I n c . (1978 ) , Mont. , 577 P.2d 55, 59. W e d e c l i n e t o do so. The award o f r e a s o n a b l e p o s t - t r i a l a t t o r n e y f e e s i n Erdman was grounded upon s e c t i o n 39-3-214, MCA ( f o r m e r l y s e c t i o n 41-1306, R.C.M. 1 9 4 7 ) , a s t a t u t e t h a t is i n a p p l i c a b l e t o t h e p r e s e n t c a s e . The judgment of t h e D i s t r i c t Court is a f f i r m e d . W e Concur: Chief J u s t i c e U3-k-L Justices - -2-+---