James E. Brady & Co., Inc. v. Eno

• Decision Date: 12 May 1993
• Docket Number: Nos. 92-2198,92-2354,s. 92-2198
• Citation: 992 F.2d 864
• Parties: JAMES E. BRADY & COMPANY, INCORPORATED, a Missouri corporation, Appellant, v. Rex ENO, an individual and resident of Iowa; Aegon U.S.A. (Life Investors, Inc.), an Iowa corporation, Defendants, Pacific Fidelity Life Insurance Company, a California corporation, Appellee, Donald J. Shepard, an individual and a resident of Iowa; David Soelter, an individual and a resident of Texas, Defendants, James E. Brady, Jr., Appellant. JAMES E. BRADY & COMPANY, INCORPORATED, a Missouri corporation, Appellee, v. Rex ENO, an individual and resident of Iowa; Aegon U.S.A. (Life Investors, Inc.), an Iowa corporation, Defendants, Pacific Fidelity Life Insurance Company, a California corporation, Appellant, Donald J. Shepard, an individual and a resident of Iowa; David Soelter, an individual and a resident of Texas, Defendants, James E. Brady, Jr., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 864

992 F.2d 864

JAMES E. BRADY & COMPANY, INCORPORATED, a Missouri

corporation, Appellant, v. Rex ENO, an individual and resident of Iowa; Aegon U.S.A.

(Life Investors, Inc.), an Iowa corporation, Defendants,

Pacific Fidelity Life Insurance Company, a California

corporation, Appellee,

Donald J. Shepard, an individual and a resident of Iowa;

David Soelter, an individual and a resident of

Texas, Defendants,

James E. Brady, Jr., Appellant.

JAMES E. BRADY & COMPANY, INCORPORATED, a Missouri

corporation, Appellee, v. Rex ENO, an individual and resident of Iowa; Aegon U.S.A.

(Life Investors, Inc.), an Iowa corporation, Defendants,

Pacific Fidelity Life Insurance Company, a California

corporation, Appellant,

Donald J. Shepard, an individual and a resident of Iowa;

David Soelter, an individual and a resident of

Texas, Defendants,

James E. Brady, Jr., Appellee.

Nos. 92-2198, 92-2354.

United States Court of Appeals Eighth Circuit.

Submitted Feb. 15, 1993.

Decided May 12, 1993.

Dennis J.C. Owens, Kansas City, MO, for appellant.

James Borthwick, Kansas City, MO, argued (Toni H. Blackwood, on the brief), for appellee.

Before McMILLIAN, MAGILL and LOKEN, Circuit Judges.

MAGILL, Circuit Judge.

This diversity case involves an unsuccessful business relationship which has resulted in claims and counterclaims, appeals and cross-appeals. James E. Brady & Company, Inc., (JEBCO) and Pacific Fidelity Life Insurance Company (PFL) entered into a cooperative business arrangement to market life insurance products. Both contend that the other violated the agreement. A jury found that JEBCO had breached the contract and awarded PFL $1.9 million. ¹ The jury also found that a PFL employee had breached his fiduciary duty to JEBCO while he was temporarily serving as JEBCO's chief executive officer. We affirm on all issues. ²

I.

JEBCO, led by its founder James E. Brady, Jr. (Brady), was in the business of developing innovative new insurance products. JEBCO's principle product combined universal life policies with group insurance and came to be known as "GULP," an acronym for group universal life plan. By 1987, JEBCO had developed computer software, in cooperation with an actuary firm called Tillinghast, Nelson (Tillinghast), to be used in connection with marketing GULP. JEBCO held the rights to use the software in connection with its marketing efforts. JEBCO was not an insurance carrier, however, and could not issue policies. Therefore, in 1988, JEBCO entered into an agreement with PFL whereby PFL agreed to underwrite the GULP products for JEBCO.

Brady, on behalf of JEBCO, and PFL vice president David Soelter signed a letter of understanding on March 17, 1988, memorializing the deal. The agreement stated that PFL and JEBCO would act together as the carrier and exclusive agent for the purpose of underwriting, marketing, and administering the GULP products. JEBCO's principal duty was to sell GULP products through a variety of different marketing approaches. The agreement stated that the primary sales effort, direct sales, "should result in 500 applications per month by the end of the first twelve months of operation." JEBCO also agreed to utilize its computer programs in its marketing efforts and to "devote its best efforts in good faith" to marketing the GULP products as its primary initial business. JEBCO further promised to devote all its sales efforts and related marketing expenses solely to PFL once the agreement became effective. PFL agreed to provide JEBCO with a "line of credit" of up to $350,000 to be drawn monthly over a six-month period, or "if earlier, until JEBCO's financing need ceases." The agreement states: "JEBCO's debt to PFL shall be repaid by the amount by which gross income from whatever source exceeds all of JEBCO's expenses in any month." PFL agreed to draft a contract outlining the terms of the letter of understanding, but the letter stated that acceptance of the letter by both parties meant that JEBCO could proceed with the arrangement. ³

By the summer of 1988, JEBCO had been unable to sell any GULP policies and nearly all of the initial $350,000 was exhausted. In July 1988, PFL agreed to advance JEBCO an additional $100,000. In August of that year, PFL agreed to continue advancing JEBCO further funds. Moreover, in September of 1988, PFL agreed to pay JEBCO's preexisting debt to Tillinghast at the rate of $10,000 per month. There was no agreement as to how long PFL would continue servicing JEBCO's debt to Tillinghast. During late 1988 and early 1989, JEBCO's sales efforts continued to produce disappointing results, and the company was losing money at the rate of approximately $60,000 to $80,000 per month.

By March 1989, PFL had advanced over $1.2 million to JEBCO and had incurred over $200,000 in additional direct expenses by virtue of the relationship. In its first year, JEBCO had sold fewer than 100 individual certificates, generating only $40,000 in annualized premiums. In light of this situation, PFL proposed a change in its arrangement with JEBCO. Brady and Soelter met and executed an addition to their original letter of understanding. Pursuant to this supplemental agreement, Soelter was appointed executive vice president and chief executive officer of JEBCO for a period of ninety days. PFL agreed to advance JEBCO funds to meet its April 1989 payroll and the agreement set monthly revenue production goals and contemplated monthly review of the arrangement. The agreement stated that if the production goals were not achieved by the end of June 1989, "all financing by PFL will terminate," and "[f]uture relationships between JEBCO and PFL will be determined at that time...."

During the month of June 1989, Soelter and Brady individually attempted to work out an arrangement for PFL and JEBCO's continued association. They were unsuccessful. On June 30, 1989, Brady met with Soelter and other members of PFL's management in a final effort to reach a new agreement. According to Brady, the June 30 meeting ended without a resolution. According to PFL, Brady had agreed in principle to the terms of a future PFL-JEBCO relationship which was to be outlined in a formal agreement by August 7, 1989. Based on its interpretation of the meeting, PFL agreed to continue funding JEBCO through July. According to PFL, in the middle of July, after receiving the latest PFL advances, Brady rejected the terms of the June 30 accord and proposed new, unacceptable terms to PFL. The relationship terminated on August 7, 1989. It is undisputed that neither JEBCO nor PFL earned any profits from their arrangement.

JEBCO sued PFL. In its complaint, JEBCO alleged that PFL was liable for breach of contract and for David Soelter's breach of fiduciary duties to JEBCO. JEBCO additionally sought punitive damages against PFL because of Soelter's breach of fiduciary duty. PFL counterclaimed against JEBCO for breach of contract. After a ten-day jury trial, the magistrate judge granted a motion for judgment as a matter of law in favor of PFL on JEBCO's claim for punitive damages. The jury returned the following verdicts: (1) judgment in favor of PFL for $1,962,760 on the breach of contract issue; and (2) an award of $450,000 in favor of JEBCO on JEBCO's claim of Soelter's breach of fiduciary duty.

Although JEBCO disputes this, PFL maintains that it proposed to the trial court an instruction explaining to the jury that it could set off the awards if it found for PFL on the counterclaim but for JEBCO on its primary claims. The court decided not to issue such an instruction. After trial, JEBCO made a motion for a new trial and renewed a motion for judgment as a matter of law. The district court denied both motions.

Apparently through inadvertence, the district court clerk did not timely enter final judgment upon the jury verdicts. Some nine months after the trial, on March 16, 1992, PFL moved pursuant to Fed.R.Civ.P. 60(a) for entry of judgment on the jury's verdicts. By this time, JEBCO's counsel had sought an attorney's lien under Missouri state law on JEBCO's $450,000 breach of fiduciary duty award. In its motion for entry of judgment, PFL requested the court to enter a net award in its favor for the amount of $1,512,760 in order to avoid the attorney's lien. On the same day PFL made its motion, the clerk of court issued a judgment reflecting the jury awards exactly as returned, i.e., without calculating the setoff. Shortly thereafter, PFL sought a modification of the March 16 order, and renewed its request for a net judgment. On April 24, 1992, the magistrate judge granted PFL's motion to modify the judgment and ordered that the clerk of court's office vacate its March 16 order and enter a judgment in favor of PFL for the net amount.

Both JEBCO and PFL appeal. PFL argues that the trial court erred in submitting the breach of fiduciary duty claim to the jury and improperly instructed the jury regarding it. JEBCO advances three arguments: (1) the issue of punitive damages for Soelter's breach of fiduciary duty should have been submitted to the jury; (2) there was insufficient evidence to support the breach of contract verdict in favor of PFL on its counterclaim; and (3) the trial court's entry of judgment reflecting a setoff was inappropriate because the jury did not enter the verdicts in such a manner and because setoff between a contract claim and a tort claim is barred by Missouri law.

II.

A. Breach of Fiduciary Duty

PFL first argues in its cross-appeal that the issue of breach of fiduciary duty should never have been submitted to the jury. Although PFL made a motion for judgment as a matter of law at trial, it did not make a renewed motion for judgment as a matter of law after the verdict. In this situation, our review is strictly limited. Shell v. Missouri Pac. R.R., 684 F.2d 537, 540 (8th Cir.1982). "We cannot test the sufficiency of the evidence to support the jury's verdict beyond application of the 'plain error' doctrine in...