Title: Buehner v. Hoeven
Citation: 228 N.W.2d 893
Docket Number: 9063
State: north-dakota
Issuer: north-dakota Supreme Court
Date: April 24, 1975

228 N.W.2d 893 (1975) James BUEHNER, Plaintiff-Appellant, v. John HOEVEN, Jr. and First Western State Bank of Minot, Defendants-Appellees. Civ. No. 9063. Supreme Court of North Dakota. April 24, 1975. *895 Farhart, Rasmuson, Olson &amp; Lian, Minot, for appellant, argued by Steven C. Lian, Minot. *896 McGee, Hankla, Backes &amp; Wheeler, Minot, for appellees, argued by Robert A. Wheeler, Minot. PEDERSON, Judge. This is an appeal by plaintiff Buehner from a judgment on a jury verdict in favor of defendants Hoeven and First Western, entered by the district court of Ward County, dismissing Buehner's claim for actual and punitive damages arising out of an alleged fraud, and from an order of the district court denying Buehner's motion for a new trial. Judgment and Order affirmed. Prior to August 9, 1969, Buehner was the owner of eighteen shares of common stock in First Western State Bank of Minot (hereinafter First Western). In May 1969 the North Dakota Banking Board ordered First Western to implement a recapitalization plan and, on August 7, 1969, the Federal Deposit Insurance Corporation (hereinafter FDIC) ordered First Western to (1) undertake a recapitalization program, (2) provide a new board of directors, and (3) provide new management. Accordingly, the First Western shareholders voted to reduce the existing outstanding common stock by a six-to-one stock reduction. This reduced Buehner's holding to three shares of common stock. The plan also provided for the issuance of additional common stock and convertible debentures to be sold in units of five shares of common stock, one ten-year capital debenture, and one convertible debenture maturing September 1, 1971. Buehner purchased three units and thus became the owner of eighteen shares of common stock, three ten-year capital debentures, and three convertible debentures. Prior to implementation of the recapitalization plan, Hayden Thompson had been the owner of 72% of the common stock and was chairman of the board of directors of First Western. In December 1969 Thompson sold 10,000 shares of his common stock to Hoeven, giving Hoeven an option to purchase additional shares to bring his ownership to 51% and authorizing Hoeven to select a majority of the directors for a period of ten years. Thompson retained ownership of a large block of convertible debentures. Hoeven became president of First Western and a new board of directors took over management of the bank. Evidence in the record indicates that First Western thrived under the new management. This case arises out of an allegedly fraudulent retirement of the convertible debentures. The face of the convertible debenture reads, in part, as follows: Pertinent paragraphs from the reverse side of the convertible debenture provide as follows: the Bank to the interest payment date. The offering circular prepared and distributed by First Western also indicates that the convertible debenture owner would have an overriding option to convert his debentures into capital stock upon any interest payment date or in lieu of any cash payment on the principal. On June 9, 1971, on the advice of counsel that the bank had the option of retiring the convertible debentures in cash, the First Western board of directors adopted a resolution to retire such debentures for cash prior to September 1, 1971, and directed the secretary of the bank to transmit copies of such resolution to the Commissioner of Banking and Financial Institutions of the State of North Dakota (hereinafter Commissioner) and the FDIC. Hoeven wrote a letter to FDIC on June 18, 1971, which stated, in part: In a reply dated July 9, 1971, entitled "Order," consent of FDIC was given "* * * to the retirement, by payment in cash. * * *" Also, on June 18, 1971, Hoeven wrote to the Commissioner, enclosing a copy of his letter of June 18, 1971, to FDIC. The letter included the statement, "We would appreciate a letter from you granting this permission as well." The Commissioner's reply, dated June 29, 1971, states: "Permission is granted to retire completely the $510,000.00 of convertible debentures which mature September 1, 1971." On August 16, 1971, Hoeven wrote to each of the debenture holders stating, in effect, that the board of directors had decided to retire the debentures due on September 1, 1971, by cash payment. Checks drawn on the bank for the full face amount of the debenture, plus interest to September 1, 1971, were enclosed. Copies of the communications described immediately above from FDIC and the Commissioner were also enclosed. Buehner's testimony is that within a week or so after he received the letter and check, he went to the bank and requested of Larry Feidler, a bank employee, that his convertible debentures be converted to common stock. He testified further that when Feidler told him that he must accept a cash retirement under the rules of the bank, which had been approved by FDIC and the Commissioner, he did accept the cash retirement. Feidler denied that this alleged conversation ever took place. The record indicates that Thompson, who had brought Hoeven into the First Western picture, also was Buehner's principal advisor and witness in this lawsuit. Although Thompson was not a party to the action, his transactions and relationship with Hoeven, the board of directors, and First Western became material to Buehner's efforts to prove a fraudulent motive on the part of Hoeven and First Western. Buehner's claim is that when Hoeven and First Western discovered that Thompson *899 would regain majority ownership of the bank's common stock if convertible debentures were permitted to be converted to stock, thus requiring Hoeven to purchase a large amount of Thompson's stock if Hoeven wanted to retain his status as majority stockholder, the fraudulent scheme was motivated. There was no claim that the alleged fraud was designed to prevent Buehner from gaining the few shares that he would be entitled to if conversion was permitted. On the other hand, defendants Hoeven and First Western claimed that their motive was in the interest of all stockholders to prevent the dilution of all stockholders' interests, to comply with directives of the supervisory authorities (the FDIC and the Commissioner), and to retain the confidence of the customers of the bank. It was in light of these claims that transactions involving Thompson, Buehner, the FDIC, and the Commissioner became relevant. Pursuant to a motion by defendants to require that plaintiff make an election as to recovery in tort versus contract, Buehner filed a return in which he specifically waived his right to recover on the contract. Buehner brought this action two years after he had accepted a cash retirement of his convertible debentures. The case was tried to a jury in April 1974, and a verdict was returned in favor of defendants Hoeven and First Western. The jury was directed, after reaching a verdict, to answer interrogatories designed by the court to test the accuracy of the jury's conclusions in the general verdict. Buehner moved that the court grant a new trial, which was denied. This appeal is from both the judgment of dismissal on the jury verdict and the failure to grant a new trial. Buehner presented the following issues for review: 1. That the court erred in submitting special interrogatories, along with the court's instructions and general verdict, to the jury. 2. That the court erred in allowing Robert Wheeler, counsel for the defendants, to question James Buehner and John Hoeven, Jr., in regard to a credit card transaction which occurred in the fall of 1969. 3. That the court erred in allowing oral testimony of a conversation at which James Buehner was not present. 4. That the court erred in allowing into evidence Exhibit AA, consisting of three poster boards which show a monetary loss or gain by debenture holders. 5. That the court erred in allowing into evidence Exhibit Y, entitled "Findings of Unsafe and Unsound Practices and Order of Correction." 6. That the court erred in striking portions of plaintiff's Exhibit 7 prior to admitting it into evidence. 7. That the court erred in not granting plaintiff's Requested Jury Instruction No. 19. Although we do not deem the specifications of error propounded by Buehner to be determinative in this case, we will discuss these issues. 1. The court did not err in submitting special interrogatories, along with the court's instructions and general verdict, to the jury. Over the objection of Buehner, the court required the jury to answer special interrogatories to test the accuracy of the jury's conclusions in the general verdict. The court further instructed the jury: Buehner argued that the questions were too lengthy and complicated to have been given to the jury. The interrogatories, however, were based upon the language of the statute defining actual fraud, § 9-03-08, N.D.C.C., and articulated the same questions that the jury would have to answer in order to arrive at a verdict. In Hogan v. Knoop, 191 N.W.2d 263, 274 (N.D.1971), this court said: Assuming that Buehner's position is valid and that the interrogatories were too lengthy and complex for the jury to understand their impact on the general verdict, we hold that understanding the impact is not necessary, even though the interrogatories to be answered might ultimately affect the validity of the verdict. The court did not err in submitting the special interrogatories to the jury. 2. The court did not err in allowing counsel for the defendants, Robert Wheeler, to question James Buehner and John Hoeven, Jr., in regard to a credit card transaction which occurred in the fall of 1969. When fraud is an issue in a lawsuit, the credibility of witnesses is a significant factor. The testimony of Buehner was of great significance to the plaintiff's case. Any bias on his part is relevant in assessing his credibility. In McCormick on Evidence, 2d Ed., § 40, at 78 (1972), the author discusses credibility: Cross-examination of a witness is an important tool in eliciting such feelings from a witness. Therefore, any prior dealings between Buehner and First Western are relevant considerations. Counsel must point out to the court the purposes for which the evidence is not admissible and ask for an instruction limiting the consideration of that evidence by the jury to the purpose for which it is admissible. Smith v. Knutson, 78 N.D. 43, 47 N.W.2d 537 (1951). While cross-examining, opposing counsel has considerable latitude in eliciting from an adverse witness the answers and admissions which are pertinent to the trial of a case. Linington v. McLean County, 161 N.W.2d 487 (N.D.1968). The trial court properly refused to allow questions indicating that Buehner had been guilty of, or convicted of, a crime. Discussions in chambers disclosed that Buehner had been charged with a crime in connection with a credit card transaction, but the case was disposed of under the so-called "Brooklyn Plan." Under this plan, not specifically authorized by federal statute or rule but sometimes used in the federal courts, a defendant may be allowed to agree to make restitution and be placed on probation, with the understanding that charges will be dismissed if the conditions agreed to are complied with. This system of disposing of a criminal case without prosecution is somewhat similar to the "pretrial diversion" proposed in the Uniform Rules of Criminal Procedure (1974) by the National Conference of Commissioners of Uniform State Laws, Rule 442, and by the National Advisory Commission on Criminal Standards and Goals, Standards 2.1 and 2.2, Task Force on the Courts. *901 After denying, on cross-examination, any previous dealings with Hoeven, Buehner withdrew the denial on redirect examination and thereafter other witnesses were examined about a credit card transaction. Buehner argues that the questions and answers relating to the credit card transaction were designed to lead the jury to infer criminal activity by the plaintiff and that this was highly prejudicial. There were references to a postal inspector visiting Buehner and to a "stolen credit card." Such references, some of which were not objected to, do not impute the commission of a crime by Buehner. See State v. Hilling, 219 N.W.2d 164 (N.D.1974). Further, any adverse inference was effectively negatived by Hoeven's statement that he did not imply that the card was stolen by Buehner. Buehner refers us to the general rule from 98 C.J.S. Witnesses § 484b(3), at 373, which indicates that collateral matters brought out on cross-examination may not be contradicted by other witnesses. He also cites 20 Am.Jur.2d Evidence, § 365, relating to restrictions on the use of collateral proof to show motive, intention, malice or ill will, good or bad faith, or other state of mind, when such becomes an issue in a civil action. The Minnesota Supreme Court said in Greene v. Mathiowetz, 212 Minn. 171, 3 N.W.2d 97 (1942), that a witness cannot be interrogated on collateral matters merely for the purpose of contradicting him and "the reason for this rule is plain, since, if it were not enforced, the issues in many cases might be multiplied indefinitely so that the jury would be likely to lose sight of the real controversy." In an 1897 case, the matter of contradictory answers to questions that are collateral to the issue was discussed in an opinion written by Justice Wallin. After reciting various versions of this well-established rule, the court said: See also, State v. Ave, 74 N.D. 216, 21 N.W.2d 352 (1946); Schmidt v. Stone, 50 N.D. 91, 194 N.W. 917 (1923); Schnase v. Goetz, 18 N.D. 594, 120 N.W. 553 (1909); Kaeppler v. Red River Valley Nat'l Bank, 8 N.D. 406, 79 N.W. 869 (1899); 29 Am.Jur.2d Evidence, §§ 365, 366; 3A, Wigmore, Evidence, § 1000 (Chadbourn rev. 1970). The interrogation here was not merely for the purpose of contradicting the witness or protracting the trial, but related to the witness's motive and was restricted sufficiently so as to not cause the jury to lose sight of the real issue. The trial court did not abuse its discretion in allowing the testimony and Buehner's substantial rights were not affected. There was no error. 3. The court did not err in allowing oral testimony of a conversation at which Buehner was not present. Both Hoeven and Orlin Backes, an attorney who was present, testified to a statement by Thompson to the effect that he didn't "give a God damn about the other stockholders." This statement was offered as impeachment of Thompson, who had previously testified on direct examination that he "did feel some responsibility to the old stockholders and the old convertible debenture owners." An attempt was made to lay the predicate for impeachment. [Thompson neither admitted nor denied making the statement.] But the predicate was imperfectly laid because the place, time, and persons present were not identified. Hedine v. Meyer, 57 N.D. 908, 224 N.W. 906 (1929). However, no objection was made for lack of foundation. The only objection was that *902 the testimony was hearsay. It was hearsay, but was admissible as impeachment, in the absence of any objection to foundation. 4. The court did not err in allowing into evidence Exhibit AA, consisting of three poster boards which show a monetary loss or gain by debenture holders. 5. The court did not err in allowing into evidence Exhibit Y entitled "Findings of Unsafe and Unsound Practices and Order of Correction." 6. The court did not err in striking portions of plaintiff's Exhibit 7 prior to admitting it into evidence. Exhibits AA and Y were material to the defendants' defense against the allegation of an overall scheme to defraud, and also relevant to the defendants' assertion that their actions were taken in good faith and in the best interests of all parties involved. Buehner made many objections to Exhibit AA, including an objection that it was not the best evidence. The records were not in court but were at the bank, in the same city in which the trial was held, and were available. While the records should have been offered in evidence or at least produced in court, they apparently were available to the plaintiff. At one point he asked the witness who prepared the summary to go and examine the records and report back, and this apparently was done. The rule as to admissibility of summaries of voluminous documents is stated in Linnell v. London &amp; Lancashire Indemnity Co., 74 N.D. 379, 22 N.W.2d 203, 206 (1946): In view of the ready availability of the records, we believe the absence of the records from the courtroom was, in this case, error without prejudice. No effort was made by Buehner to show the market value of the stock. The records of First Western would not show the market value of the stock but rather the actual book value based upon the condition of the bank. Exhibit Y is a copy of the FDIC order which was the basis of the entire recapitalization program that resulted in the issuance of the convertible debentures. It is the subsequent treatment of these debentures that resulted in this litigation. Buehner could not have been prejudiced by its admission. Exhibit 7 was the agreement by which Hoeven purchased a portion of Thompson's interest in First Western. Buehner objected to striking portions of the agreement that related to Hoeven's salary. This same information was subsequently introduced into evidence through the testimony of Hoeven, without objection. Therefore, the issue is moot. We find no error in the admission of the three exhibits. 7. The court did not err in not granting plaintiff's requested jury instruction No. 19. *903 The requested jury instruction read as follows: Under the evidence presented, there was a question of fact whether the supervising authorities had specifically ordered that the debenture bonds be redeemed only in cash or whether the supervising authorities had left open the option of exchange of stock for the debenture bonds. Testimony of representatives of the State Examiner and the Federal Deposit Insurance Corporation was before the jury. Since the preliminary question was one of fact, and since Buehner elected to waive his contract and sue in tort, there was no error in refusing plaintiff's requested jury instruction No. 19. In his second amended complaint Buehner alleged that Hoeven, individually and as president of the First Western Bank, made false and fraudulent representations concerning the retirement of the convertible debentures. Buehner further alleged that these representations were part of an overall scheme to defraud. The question for review before this court becomes a determination of whether or not there was substantial evidence to sustain the jury verdict. Fraud is either actual or constructive. Section 9-03-07, N.D.C.C. In the case at bar, actual fraud is alleged. Section 9-03-08, N.D.C.C., defines actual fraud: Fraud is never presumed. Pauly v. Haas, 84 N.W.2d 302 (N.D.1957); Hablas v. Armour and Company, 270 F.2d 71 (8th Cir. 1959). Fraud must be proved by evidence that is clear, satisfactory, and convincing. Verry v. Murphy, 163 N.W.2d 721 (N.D.1968). Where, as in the instant case, circumstantial evidence is relied upon to show fraud, it is not sufficient that the circumstances raise a suspicion of fraud. Engen v. Kincannon, 79 N.W.2d 160 (N.D. 1956). In Watkins Products, Inc. v. Stadel, 214 N.W.2d 368 (N.D.1973), this court held that the existence of fraud is ordinarily a question of fact to be decided by the trier of the facts. Moreover, actual fraud is always a question of fact. § 9-03-10, N.D.C.C. In Gershman v. Engelstad, 160 N.W.2d 80, 83 (N.D.1968), this court said: In determining whether the evidence is substantial we do not invade the province of the jury to weigh the evidence or determine the credibility of witnesses. Grant v. Jacobs, 76 N.D. 1, 32 N.W.2d 881, 886 (1948). We must view the evidence in the light most favorable to the verdict. Trautman v. New Rockford-Fessenden Co-op Tr. Ass'n, 181 N.W.2d 754, 763 (N.D. 1970); Gleson v. Thompson, 154 N.W.2d 780 (N.D.1967). It is only when the evidence is such that reasonable men can draw but one conclusion therefrom that it becomes a question of law for the court. In order to constitute actionable fraud, Buehner had to show that the representations were made with knowledge of their falsity and with intent to deceive, Coman v. Williams, 65 N.W.2d 377, 379 (N.D.1954), and that he relied upon the alleged false and fraudulent representations, Leach v. Kelsch, 106 N.W.2d 358 (N.D.1960). In addition, to support a legal action, Buehner had to establish that the alleged false and fraudulent representations produced an injury. Verry v. Murphy, supra. The jury could have reasonably found that Buehner failed in his burden to produce the necessary preponderance of substantial evidence that the actions of Hoeven and First Western constitute actionable fraud, or that he failed to show reliance on the alleged false and fraudulent representations, or that he suffered actual damages. The judgment and order denying a new trial are affirmed. ERICKSTAD, C. J., and PAULSON, VOGEL and SAND, JJ., concur.