Peterson v. Harville
| Decision Date | 03 November 1977 |
| Docket Number | Civ. No. 75-717. |
| Citation | 445 F. Supp. 16 |
| Parties | Helen M. PETERSON, Kaye Peterson, Alan Peterson, William Peterson, Linda Peterson, Pamela Peterson, and Julie Dupuis, Plaintiffs, v. Danny Lloyd HARVILLE, Len Gabrielson, Grant S. Kesler, an Individual, Grant S. Kesler, Stephen Morgan, Ford G. Scalley, and Larry V. Lunt, a Professional Corporation, Stephen W. Wade, Richard V. Francis, Bruce V. Broadhead, Daken R. Broadhead, and Leon Peterson, Defendants. |
| Court | U.S. District Court — District of Oregon |
COPYRIGHT MATERIAL OMITTED
Gerald R. Pullen, Portland, Or., for plaintiffs.
Robert E. Maloney, Jr., John M. Berman of Dezendorf, Spears, Lubersky & Campbell, Portland, Or., for Kesler, Wade, Francis, B. Broadhead, D. Broadhead and Peterson.
Roland F. Banks, Jr., of Souther, Spaulding, Kinsey, Williamson & Schwabe, Portland, Or., for defendant law firm.
In this diversity action plaintiffs allege fraud, misuse of corporate franchise, and vicarious liability of the law firm of which a corporate director was a member. Plaintiffs contend that certain transactions were sham and that the court should "pierce the corporate veil" in imposing personal liability on corporate insiders.1 I find that plaintiffs are entitled to judgment in their favor on certain of their claims against certain defendants.
Plaintiffs are Mrs. Helen M. Peterson and her adult children, Kaye Peterson, Alan Peterson, William Peterson, Linda Peterson Graybeal, Pamela Peterson, and Julie Peterson Dupuis. For convenience, I will sometimes refer to plaintiffs collectively as the "Petersons". All plaintiffs were citizens of either Oregon or Washington at the time they commenced this action.
All defendants were citizens of states other than Oregon and Washington at the time this action was commenced. Defendants fit into three groups convenient for purposes of discussion. The first group consists only of Danny Lloyd Harville, against whom an order of default has been filed. The second group, to whom I sometimes refer collectively as the "Salt Lake City Investors", consists of Grant S. Kesler, Stephen W. Wade, Richard V. Francis, Bruce V. Broadhead, Daken K. Broadhead (Bruce's father), and Leon Peterson (no relation to the plaintiffs). The third group consists solely of the Salt Lake City professional corporation of Kesler, Morgan, Scalley & Lunt, P.C., to which I will refer as the "Law Firm". Grant S. Kesler, who as one of the Salt Lake City Investors is an individual defendant, was also one of the shareholder/partners of the Law Firm. The other shareholder/partners of the Law Firm (Morgan, Scalley, and Lunt) are not sued in their individual capacities.
Plaintiffs named another defendant, Len Gabrielson, but have apparently settled or abandoned their claims against him.
There being complete diversity of citizenship and the amount in controversy exceeding $10,000, I find that the court has jurisdiction of the subject matter of this action. 28 U.S.C. § 1332(a)(1).
At the final pretrial conference (Fed.R. Civ.P. 16; Local Rule 20), the parties stipulated to a trial to the court. Each party prepared and submitted written witness statements for those witnesses each proposed to call. The parties agreed that I would consider the written statements in lieu of live direct examination. In other words, the parties stipulated that if called, each witness would testify in accordance with his or her written statement. The parties did not stipulate, of course, that the assertions contained in the statements were true.
At trial each party had the opportunity to conduct live cross-examination of the witnesses for whom written statements of direct testimony were submitted. I thus had the opportunity to observe demeanor and evaluate the credibility of the witnesses.
This procedure for court-tried cases has proved to be an efficient, time-saving way to receive evidence. The procedural rights of the parties (including the right to confront and cross-examine witnesses) are fully preserved, but valuable court time is not taken up with the introduction of live testimony on matters which are not in dispute. As a result of having to submit the written statements, counsel tend to be very well prepared (as they were in this case) for trial. I, too, tend to be better prepared to decide the factual issues which are contested by the parties. Finally, the parties themselves benefit by incurring the reduced attorneys' fees resulting from the substantially shortened courtroom time involved in presenting these cases.
In addition to the written and live testimony, I have also considered the extensive documentary evidence offered by the parties. At trial I received all the exhibits, subject to later ruling on the specific objections to certain exhibits made by counsel. Most of the objections were by defendant Law Firm and had to do with the relevance of almost all the exhibits as against the Law Firm. Since this is a bench trial, a liberal standard of admissibility applies. I will receive all the exhibits offered, therefore, considering each only as to those claims and parties for which it is relevant.
After the trial each party (except defaulting defendant Harville) filed a written closing argument. I have considered these arguments in conjunction with the pretrial memoranda of law which the parties also filed.
I wish to compliment each attorney (counsel for plaintiffs, counsel for the Salt Lake City Investors, and counsel for the Law Firm) for their thorough preparation and presentation of this case.
This case involves a complex series of transactions. For purposes of organization and clarity, I will discuss the facts under chronologically discrete headings rather than attempt to summarize at one time all the contentions of the parties.
As noted supra, the Petersons are a mother and her six grown children. Plaintiffs' husband/father was Professor Peterson (now deceased), formerly head of the mathematics and science department at Portland State University. Prior to the time of the transactions involved in this case Professor Peterson became disabled and incompetent, but during his active career had accumulated assets exceeding the $100,000 discussed infra. Before becoming disabled, Professor Peterson handled all the financial affairs of the family.
After Professor Peterson became disabled, plaintiff Alan Peterson assumed much of the responsibility for managing the family finances. Plaintiff Mrs. Helen Peterson also had some involvement. Plaintiff Linda Peterson Graybeal assumed some degree of leadership in financial matters only after the transaction about to be described began going sour.2
While there is indication in the record that Alan had some experience in the publicly traded stock and commodities markets, the family as a whole was uninformed — almost naive — concerning the risks of various kinds of investments. The live testimony of plaintiffs Linda, Helen, and Alan convinces me, moreover, that to this day plaintiffs do not fully understand what happened to them in connection with the investment involved in this case.
The transaction itself arose as follows. A family friend named Mike Sheldon obtained a real estate salesman's license and began an association with defendant Len Gabrielson (who is now out of this case; see supra). In spring, 1972, Gabrielson was acting as a marketing assistant for defendant Danny Harville. At that time Harville was involved in promoting the development of a condominium project on a parcel of land located in Newport, on the Oregon Coast.
In order to accomplish this development, Harville had organized an Oregon corporation called Oceanic, Inc. ("Oceanic"). Harville had a controlling or at least a substantial interest in Oceanic, but there were two other shareholders named Shell and Rannells.
The Newport land was being acquired under a land sale contract (Pl. Ex. 24) dated April 25, 1972. The land was being sold by Lincoln Development Company. Contract vendees were Oceanic, and Harville, Shell, and Rannells as individuals. Sale price was $329,500, with $25,000 paid upon execution of the contract, $25,000 due August 23, 1972, and payments of $69,875 due each April 25 from 1973 to 1976. Interest of 8% was to be added to each payment.
Harville was seeking financing for the project. He needed additional funds to make the payments on the land sale contract and to pay the substantial expense expected for the condominium project. The Petersons learned of the project through their real estate salesman friend Sheldon, who had himself learned of the project at a meeting of the Realtors Exchange Club of Portland. At the meeting Gabrielson gave a presentation on Harville's project, stating that Harville and Oceanic needed "working capital" for the development. Following the presentation, Sheldon signed a form entitled "Mini-Offer", which reads in part as follows:
At some point soon after August 2 plaintiff Helen Peterson added her signature at the bottom of the "Mini-Offer".
Following the Exchange Club meeting, Harville and Gabrielson had a series of conferences with the Petersons. At these conferences Helen was always present, and each of the children was present on one or more occasions.
Plaintiffs allege that at these meetings, which occurred both in Portland and at the Newport site, Harville led...
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