Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-04212/USCOURTS-ca10-90-04212-0/pdf.json

Parties Involved:
John Does 1-10
Appellant
Sharon Owen
Appellee
Seed Products International, Inc.,
Appellant

Document Text:

FIL E D 

UNITED STATES COURT OF APPEALS United St~li~~~~i Appeam 

FOR THE TENTH CIRCUIT 

SHARON OWEN, 

Plaintiff-Appellee, 

v. 

SEED PRODUCTS INTERNATIONAL, INC., 

a Delaware corporation, successor in 

interest to and formerly known as 

IN-TEC INTERNATIONAL (USA), INC., 

Defendant-Appellant, 

and 

JOHN DOES 1-10, 

Defendants. 

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ORDER AND JUDGMENT* 

OCT 2 J 1991 

ROBERT L. HOECKER 

Clerk . 

No. 90-4212 

(D.C. No. 88-C-696-W) 

(D. Utah) 

Before McKAY, Chief Judge, EBEL, Circuit Judges, and SAFFELS,** 

District Judge. 

**Honorable Dale E. Saffels, Senior District Judge, United States 

District Court for the District of Kansas, sitting by designation. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 90-4212 Document: 010110091406 Date Filed: 10/21/1991 Page: 1 
assist the determination of this appeal. 

34(a); 10th Cir. R. 34.1.9. The case 

submitted without oral argument. 

See Fed. R. App. P. 

is therefore ordered 

In this diversity action, defendant Seed Products 

International, Inc. appeals from the district court's judgment for 

plaintiff Sharon Owen on her claims for wrongful refusal to 

transfer shares of stock, brought pursuant to Utah Code Ann. 

§ 70A-8-401. On August 9, 1984, In-Tee International (USA), Inc., 

a Utah corporation, issued 20,000 shares of its stock to 

plaintiff. When In-Tee prevented plaintiff from selling the 

shares through a transfer corporation by challenging plaintiff's 

ownership of the shares, the transfer corporation brought an 

action in state district court in Utah to determine ownership of 

the In-Tee shares. On June 8, 1987, the Utah court determined 

that plaintiff owned the shares. Nonetheless, beginning on or 

before June 17, 1987, and continuing through at least 

September 10, 1987, Seed Products acted to prevent plaintiff's 

attempts to transfer the shares. Seed Products, a Delaware 

corporation, was formed for the purpose of merging with In-Tee. 

On or about June 25, 1987, Seed Products and In-Tee merged; Seed 

Products is the successor corporation. 

Plaintiff brought this action against Seed Products, as 

successor in interest to In-Tee, alleging willful refusal to 

transfer her shares in violation of Utah Code Ann.§ 70A-8-401. 

After a bench trial, the district court entered its findings of 

fact and conclusions of law, and rendered judgment in favor of 

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plaintiff, awarding compensatory damages of $37,500, punitive 

damages of $15,000, interest, and costs. 

Our jurisdiction over this appeal arises from 28 U.S.C. 

§ 1291. The facts, as related above, and as determined by the 

district court, are essentially undisputed . . We review the 

district court's conclusions of law de nova. Northern Natural Gas 

Co. v. Grounds, 931 F.2d 678, 681 (10th Cir. 1991). On appeal, 

Seed Products raises two issues: 

1) whether the trial court erred in applying Utah law to Seed 

Products, a Delaware corporation, and 

2) whether punitive damages are assessable against Seed 

Products in this case. 

Utah Code Ann.§ 70A-8-106 says, in part: 

The law, including the conflict of laws rules, of 

the jurisdiction of organization of the issuer governs 

the validity of a security, the effectiveness of 

registration by the issuer, and the rights and duties of 

the issuer with respect to: 

(1) registration of transfer of a certificated 

security. 

Section 70-A-8-201(1) defines an issuer: 

With respect to obligations on or defenses to a 

security, "issuer" includes a person who: 

(a) places or authorizes the placing 

name on a certificated security, otherwise 

authenticating trustee, registrar, transfer 

or the like ... 

of his 

than as 

agent, 

(b) creates shares, participations, or other 

interests in his property or in an enterprise ... 

(c) directly or indirectly creates fractional 

interests in his rights or property, which 

fractional interests are represented by 

certificated securities; or 

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(d) becomes responsible for or in place of any 

other person described an as issuer in this 

section. 

Seed Products argues that, as the successor of In-Tee, it is 

the issuer of plaintiff's shares under section 70A-8-201(1)(d) 

and, because . it is a Delaware corporation, Article 8 of Utah's 

Uniform Commercial Code provisions do not apply to it, pursuant to 

section 70A-8-106. This argument, while having facial appeal, 

must fail. Essentially, Seed Products contends that its merger 

with In-Tee operates to cut off In-Tee's liability to plaintiff as 

an issuer and precludes liability by Seed Products under Utah law. 

Seed Products cites no authority in support of this proposition, 

and we have found none. We agree with plaintiff that section 

70A-8-201(1) is an inclusive definition of "issuer," and that 

subsection (l)(d) was not meant to sever an existing liability or 

preclude future liability in the event of a merger or other 

arrangement by which one corporation succeeds to another. 

Although Seed Products qualifies as an issuer under section 201, 

In-Tee did also. In-Tee, a Utah corporation, as the original 

issuer of the stock, created an obligation to plaintiff under Utah 

law. The purpose of Seed Products' formation, its merger with 

In-Tee, and its affirmative acts in connection with In-Tee's 

stock, both pre- and post-merger, compel the conclusion that Seed 

Products succeeded to that obligation. See generally Evered v. 

St. Croix Mines Corp., 285 P. 1008, 1010 (Utah 1930). We affirm 

the district court's conclusion that Utah law governs the rights 

and duties of Seed Products in this case. 

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\ 

Seed Products also contends that the district court's award 

of punitive damages was error, arguing: 1) such damages are not 

available in breach of contract claims, including claims under the 

Uniform Commercial Code, 2) Article 8 excludes punitive damages by 

enumerating a remedy for actual loss, 3) punitive damages cannot 

be awarded absent a finding of malice, and 4) punitive damages 

cannot be quantified because no evidence of Seed Products' 

relative wealth appears in the record. 

We review the district court's award of punitive damages for 

an abuse of discretion. See Synergetics ex rel. Lancer Indus., 

Inc. v. Marathon Ranching Co., 701 P.2d 1106, 1113 (Utah 1985). 

Initially, we note that, regardless of its basis in Utah's Uniform 

Commercial Code, this case is not an action for breach of 

contract, but one for willful violation of a statutorily imposed 

duty. Second, Seed Products asserts that section 401 enumerates a 

remedy for actual damages, thereby implicitly precluding punitive 

damages. The statute creates liability on the part of the issuer 

for "loss resulting from any unreasonable delay in registration or 

from failure or refusal to register the transfer, pledge or 

release." We agree with the district court that this language 

does not preclude punitive damages under this Uniform Commercial 

Code article. See Clayton v. Crossroads Equip. Co., 655 P.2d 

1125, 1131 (Utah 1982)(punitive damages awarded for claim under 

Article 1). 

for an 

appropriate 

Additionally, a finding of malice is 

award of punitive damages. Punitive 

when a defendant's acts indicate 

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not necessary 

damages are 

a reckless 

Appellate Case: 90-4212 Document: 010110091406 Date Filed: 10/21/1991 Page: 5 
indifference and disregard for a plaintiff's rights. See Branch 

v. Western Petroleum, Inc., 657 P.2d 267, 277 (Utah 1982). 

Seed Products contends that the amount of a punitive damages 

award cannot be determined absent evidence in the record of the 

relative wealth of the defendant. Although language in certain 

decisions appear to support that argument, see Bundy v. Century 

Equip. Co., 692 P.2d 754, 759 (Utah 1984)("This Court has held 

that in the absence of such evidence, the award [of punitive 

damages] cannot be sustained."), closer reading of those cases 

reveals that evidence of a defendant's wealth, while a recognized 

factor in the determination of a punitive damages award, is not a 

necessary prerequisite for such award. 

In Bundy, the Utah Supreme Court found a punitive damages 

award excessive, and particularly noted the lack of evidence of 

the defendant's relative wealth. Id. at 759. However, the 

court's conclusion that the punitive damages award was excessive 

was initially compelled by its size in relation to the actual 

damages award (a ratio of greater than eleven-to-one), and was 

bolstered by evidence in the record which did not "reflect a high 

degree of malice." Id. Additionally, the court noted that where 

a punitive damages award is determined to be excessive, the court 

could order remission of part of the award, without additional 

evidence as to defendant's wealth. Id. at 760; see also Cruz v. 

Montoya, 660 P.2d 723, 727 (Utah 1983)(appellate court reduced 

punitive damages award without evidence of defendant's wealth). 

Under the circumstances of this case, given that the punitive 

damages award is less than one-half of the actual damage award, 

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and in light of the district court's finding that Seed Products' 

conduct was in reckless disregard of plaintiff's rights, we do not 

believe the award is excessive or disproportionate. Therefore, 

finding no abuse of discretion, we defer to the district court in 

its punitive damages award for plaintiff. See VanDyke v. Mountain 

Coin Mach. Distribs., Inc., 758 P.2d 962, 965 (Utah App. 1988). 

The judgment of the United States District Court for the 

District of Utah is AFFIRMED. 

Entered for the Court 

Dale E. Saffels 

District Judge 

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