Case v. Murdock

• Decision Date: 17 March 1992
• Docket Number: 17581,Nos. 17558,s. 17558
• Citation: 488 N.W.2d 885
• Parties: Maxine B. CASE and Judith R. Sides, Plaintiffs and Appellants, v. Craig MURDOCK, Nancy Murdock, Bret Hamm, Angel Hamm, Sandra McCroden, and Hickok's, Inc., a South Dakota corporation, Defendants and Appellees. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 885

488 N.W.2d 885

Maxine B. CASE and Judith R. Sides, Plaintiffs and Appellants, v. Craig MURDOCK, Nancy Murdock, Bret Hamm, Angel Hamm, Sandra McCroden, and Hickok's, Inc., a South Dakota corporation, Defendants and Appellees.

Nos. 17558, 17581.

Supreme Court of South Dakota.

Considered on Briefs March 17, 1992.

Decided July 1, 1992.

Gregory A. Eiesland of Quinn, Eiesland, Day & Barker, Michael J. Larson of Lynn, Jackson, Shultz & Lebrun, P.C., Rapid City, for plaintiffs and appellants.

Thomas W. Stanton, William A. May, Costello, Porter, Hill, Heisterkamp & Bushnell, Rapid City, for defendants and appellees.

HENDERSON, Justice.

PARTIES/PROCEDURAL HISTORY

For purposes of clarity and convenience, we shall refer to Maxine B. Case and Judith R. Sides, appellants, as Case and Sides; appellees' advocacy shall hereinafter be referred to as the contentions of Hickok's, Inc., and/or Hickok. Case and Sides brought suit claiming entitlement to stock shares in Hickok's, Inc., also urging that various appellees were not entitled to stock shares. Hickok's counterclaimed alleging breach of duty by Case and Sides.

A jury, having tried the issues, awarded punitive damages unto Hickok's of $10,500 each from Case and Sides but no compensatory damages.

Case and Sides filed a motion for judgment NOV; Hickok moved for a new trial on the issue of Case's stock subscription; both motions were denied. However, trial court ordered the punitive damage award stricken subject to the right of Hickok's to have a new trial on the damages claim. An Amended Judgment was filed below from whence an appeal is taken. We affirm the trial court on all issues.

ISSUES PRESENTED BY CASE AND SIDES

I. Did the trial court err in ordering a new trial on Hickok's claim for compensatory and punitive damages?

II. Did the trial court err in denying plaintiffs' motion for judgment notwithstanding the verdict on the damages issue?

III. Did the trial court err in ruling as a matter of law that Case and Sides breached a fiduciary duty to Hickok?

IV. Did the trial court err in allowing Hickok to present the issue of punitive damages to the jury?

ISSUES PRESENTED BY HICKOK BY NOTICE OF REVIEW

I. Did the trial court err in not granting Hickok's motion for a new trial on Maxine Case's stock subscription?

II. Did the trial court err in failing to combine the lawsuit filed by Gary Case with the instant action?

For purposes of our decision, we combine Case and Sides' Issues I and II.

FACTS

Hickok's, Inc. is a corporation formed for the purposes of operating a gaming establishment in Deadwood, South Dakota. From the date of incorporation, the stockholders of the corporation were Case and Sides, appellees Sandra McCroden (McCroden), and Bret and Angel Hamm (Hamms). On January 12, 1990, Appellees Craig and Nancy Murdock (Murdocks) were voted in as shareholders. Case was President; Sides was Secretary of Hickok's.

In the fall of 1989, before incorporation of Hickok's, some of the parties to this suit searched and located a building to house a casino. Negotiations between Hamms, Murdocks, Sides and Gary Case with Mark Brockley (Brockley) resulted in the execution of a lease agreement on October 27, 1989, for the Brockley Building. Sides, Gary Case and Hickok's, Inc. signed this lease agreement. Initial funds required by the lease were advanced by Hamms and Sides, who were later reimbursed by Hickok's. This lease did not contain a purchase option. It did vest the lessee with a "first right of refusal" to match any offer if the building was offered for sale.

Incorporation was accomplished in mid-November, 1989. Hickok's was established with two classes of stock, A (voting) and B (non-voting). Each shareholder in Hickok's had one A stock and initially 399 shares of B stock.

After initial success in the gaming industry, the shareholders agreed that a committee be formed to approach Brockley on a proposed purchase of the Brockley Building. A committee was formed at a shareholders' meeting on March 10, 1990. The committee consisted of Case's husband--Paul Case, Side's husband--Gary Case, and Nancy Murdock. Additionally at this meeting, Gary Case and Sides asked that Hickok's release them from the lease, turning over any rights they had in the lease, in return for a hold harmless agreement.

This building committee then submitted an offer, on behalf of Hickok's, Inc., to purchase the Brockley Building for $1,350,000. Brockley counter-offered to sell the building for an amount in the $2.0-$2.2 million range. Through further negotiation, the parties stood at an offer of $1,500,000 by Hickok's and $1,750,000 by Brockley. At this point, the shareholders adopted a strategy to let Brockley "cool his heels" and think about Hickok's offer. This tactical decision was based upon apparent financial difficulties of Brockley.

Hickok's Board of Directors called a meeting for May 8, 1990. A discussion concerning further strategy, regarding the prospective purchase of the building, was scheduled. As the meeting commenced, counsel for Case and Sides advised all parties present that Case, Sides, Paul Case and Gary Case had purchased the building on their own behalf. Essentially, this conduct spawned the present lawsuit. An Offer and Agreement to Purchase for $1,650,000 was executed on May 3, 1990, between Brockley and the four. Testimony and evidence was produced at trial that counsel for Case and Sides advised the other shareholders that the "right of first refusal" in the original lease agreement was the personal property of Sides and Gary Case. Case and Sides proposed, as an act of commercial leverage, in return for a stock reorganization of Hickok's, to transfer the Offer and Agreement to Purchase to Hickok's. Additionally, both requested that 401 shares of Hickok stock be given to Gary Case in return for transfer of their rights under the lease, i.e., right of first refusal. Using this ploy, they further requested that Class A and B stock be abolished and that all stock be redesignated as voting stock. To say the least, they were very busy in implementing a scheme to further their own private interests. Case and Sides were still operating as officers and directors of Hickok's at the time of purchasing the building and at the May 8 board of directors' meeting. The other directors and shareholders of Hickok's requested to Brockley to turn over the Purchase Agreement to Hickok's based on the right of first refusal contained in the original lease. Hickok's purchased the building for $1,650,000, for the exact price Case and Sides had purchased it.

DECISION

I., II. Did the trial court err in ordering a new trial on Hickok's claim for compensatory and punitive damages? And did it err in denying motion for judgment notwithstanding the verdict on this issue?

Case and Sides assert that trial court erred by ordering a new trial on the damages issue. Further, Case and Sides argue that trial court erred in denying their motion for judgment notwithstanding the verdict in regard to this issue.

Case and Sides' motion for judgment NOV argues: Since the jury failed to find that Hickok's was entitled to compensatory damages stemming from the breach of fiduciary duty, the jury was not within their power to award punitive damages. Case and Sides based their motion for judgment NOV on SDCL 15-6-50(b) which provides, in pertinent part:

Whenever a motion for a directed verdict made at the close of all the evidence is denied or for any reason is not granted, the court is deemed to have submitted the action to the jury subject to a later determination of the legal questions raised by the motion.... If a verdict was returned the court may allow the judgment to stand or may reopen the judgment and either order a new trial or direct the entry of judgment as if the requested verdict had been directed.... (emphasis added).

Case and Sides satisfied the prerequisite for a motion for judgment notwithstanding the verdict under this statute when they made a motion to strike Hickok's claim for punitive damages at the conclusion of Hickok's evidence. Nevertheless, SDCL 15-6-50(b) provides the trial court the option to reopen the judgment and order a new trial: "If a verdict was returned the court ... may reopen the judgment and either order a new trial...." SDCL 15-6-50(b). Case and Sides opened up this option to trial court when it met its prerequisite to file a motion for judgment notwithstanding the verdict by this statute.

Moreover, under SDCL 15-6-59(d), a trial court, on its own initiative, may order a new trial for any reason for which it might have granted a new trial on motion of a party. SDCL 15-6-59(d) provides:

Not later than ten days after entry of judgment the court of its own initiative may order a new trial for any reason for which it might have granted a new trial on motion of a party.

Trial court based its order for a new trial on the damages issue on the premise that the jury's actions, in failing to award compensatory damages to Hickok's when awarding punitive damages was, "facially inconsistent." Striking the punitive damages award, it ordered a new trial on all damage claims. Additionally, we take note of SDCL 15-6-59(a)(6) which provides as grounds for a new trial:

. . . . .

(6) Insufficiency of the evidence to justify the verdict or other decision or that it is against law;

Trial court attributed this inconsistency in the jury's actions to be due to the likelihood of a misunderstanding by the jury of the court's instructions. It was also the opinion of the trial court that the evidence did factually establish a basis for both a compensatory and a punitive damage award. The instruction charging the jury on punitive damages states: "In addition to any actual damages that you may award to the Defendant, Hickok's, Inc., you may also, in your discretion, award punitive damages...." (Emphasis added). The jury failed to award compensatory damages but did award punitive...