AG Serv. Of Amer. v. Nielsen & Diamond Hill Farms v. Lundell

• Decision Date: 06 November 2000
• Docket Number: No. 99-2081,99-2081
• Parties: (10th Cir. 2000) AG SERVICES OF AMERICA, INC., an Iowa corporation, Plaintiff-Appellee, v. JOHN D. NIELSEN, also known as JACK NIELSEN and DIAMOND HILL FARMS, CLOVIS, INC., a New Mexico corporation, Defendants-Third-Party Plaintiffs-Third-Party Counter- Defendants-Appellants, v. TERRY LUNDELL, Third-Party Defendant- Third-Party Counter-Claimaint
• Court: U.S. Court of Appeals — Tenth Circuit

Page 726

231 F.3d 726 (10th Cir. 2000)

AG SERVICES OF AMERICA, INC., an Iowa corporation, Plaintiff-Appellee, v. JOHN D. NIELSEN, also known as JACK NIELSEN and DIAMOND HILL FARMS, CLOVIS, INC., a New Mexico corporation, Defendants-Third-Party Plaintiffs-Third-Party Counter- Defendants-Appellants, v. TERRY LUNDELL, Third-Party Defendant- Third-Party Counter-Claimaint.

No. 99-2081

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

November 6, 2000

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO. (D.C. No. CIV-96-1637-JC/WWD)

Joseph E. Manges (Paula A. Cook, with him on the brief), of Comeau, Maldegen, Templeman & Indall, LLP, Santa Fe, New Mexico, for Plaintiff-Appellee.

Stephen S. Hamilton, Montgomery & Andrews, P.A., Santa Fe, New Mexico, (Laurice Margheim, Curtiss, Moravek, Curtiss & Magheim, Alliance, Nebraska, with him on the briefs) for Defendants-Appellants.

Before MURPHY and HOLLOWAY, Circuit Judges, and COOK, District Judge.^*

HOLLOWAY, Circuit Judge.

This is a diversity case arising from an agricultural loan. Plaintiff/appellee Ag Services of America, Inc. (Ag Services), the lender, commenced the action in the district court against Defendant/appellant John Nielsen and Diamond Hill Farms, Clovis, Inc. (DHFC). Ag Services asserted under a number of different theories including conversion, fraud, negligent misrepresentation, unjust enrichment, piercing the corporate veil, and partnership by estoppel that Nielsen should be held liable for an unpaid agricultural loan it had extended to Terry Lundell. Ag Services sought recovery of some $691,000 in monetary damages, interest, costs, attorney's fees, and punitive damages in its complaint. I App. 38. As for DHFC, Ag Services alleged that it had converted crop proceeds in which Ag Services held a security interest, an interest which had been granted by Lundell as part of the loan agreement.

I

A

At the bottom of this controversy is the fact that Ag Services made a loan to Lundell of almost $800,000 which he failed to repay. Lundell had leased a large farm near Clovis, New Mexico, on which he planned to grow potatoes (on about one-quarter of the farm) and other crops. The terms of the loan agreement contemplated that the crops (for our purposes, especially the potatoes) and the proceeds from those crops would be the primary collateral for the loan. The evidence was that the income from the potatoes was slightly greater than the production costs. Ag Services, however, received only $50,000 of the approximately $2 million of crop proceeds.

Nielsen was associated with Lundell in the potato operation with Ag Services' approval, but he had nothing to do with other crops Lundell was growing on the Clovis farm. Shortly after the bulk of the advances had been made on the loan agreement, Nielsen and Lundell formed DHFC. With few exceptions the eventual potato proceeds went to DHFC and from its account into an account in the name of Lundell Farms, the name under which Lundell was conducting the farming of other crops on the Clovis farm.

Having received only fifty thousand dollars from potato proceeds, Ag Services eventually sued Lundell in state court in Iowa. That suit was settled with no cash payment from Lundell. Ag Services then brought the instant suit against Nielsen. One of Ag Services' primary contentions was that Nielsen knowingly used DHFC to avoid Ag Services' security interest in the potatoes and potato proceeds.

Nielsen's defense was based largely on the contention that the potato proceeds in the Lundell Farms account were more than sufficient to repay the loan, but Lundell took almost half the proceeds and used them to repay himself for his contributions to the endeavor and for other personal uses. Nielsen received a much smaller portion of the proceeds, approximately fifteen per cent, which reimbursed only about half of his contributions to the enterprise, leaving him with a net loss which he calculated to be $389,075.00.¹ The rest of the proceeds had been paid to other creditors.

At the end of the 1992 season, Lundell acknowledged his receipt of funds in excess of his contributions and gave Nielsen a promissory note in the amount of $355,000.00. Nielsen later brought suit on this note in state court in Arizona and was granted judgment by default, but Nielsen received no payments on this judgment.²

B

Below, the instant case proceeded to trial in which Ag Services' legal claims (conversion, fraud and negligent misrepresentation) were tried to a jury, with other, equitable claims (piercing the corporate veil, partnership by estoppel and quantum meruit) being tried simultaneously to the judge by consent of the parties.³ The jury was thus instructed to decide whether Nielsen was liable to Ag Services under the three legal theories first mentioned conversion, fraud, and negligent misrepresentation. The jury was instructed that as to conversion, it should determine whether Nielsen and DHFC were liable. The jury found in favor of defendant Nielsen on all three legal theories advanced against him conversion, fraud and negligent misrepresentation. The jury found DHFC liable to Ag Services for conversion and assessed $162,000 in damages against DHFC. DHFC has not appealed that judgment against it.⁴ Nor has Ag Services appealed that award, although it is for less than it sought.

After the lengthy jury trial, the court heard additional argument on the equitable claims against Nielsen and took the matter under advisement. The district judge, during argument to him about the equitable claims, said the jury's findings in favor of Nielsen on the legal claims of conversion, fraud and negligent misrepresentation "were erroneous."⁵ The judge later issued his own findings of fact and conclusions of law, holding that Nielsen was liable to Ag Services for damages of $412,352, plus prejudgment interest at the rate of ten per cent per annum. As we read the court's findings and conclusions, the judge held that Nielsen was liable for this sum under the equitable theories of partnership by estoppel, piercing the corporate veil, and quantum meruit or unjust enrichment.⁶

II

A

Nielsen's appeal challenges the court's judgment entered against him which the judge's findings and conclusions said was for $412,352 and prejudgment interest, as noted above. Nielsen says that the judgment against him in effect is for approximately $750,000 when interest is computed, and that the judgment is in error.

First, Nielsen's central argument is that his rights under the Seventh Amendment to the United States Constitution were violated by the judge's findings and conclusions on the equitable claims. He argues that the judge was bound by all jury findings expressly made and those implicit in the jury's verdict on the legal claims. Nielsen says that the jury had earlier completely exonerated him on the legal claims of fraud, negligent misrepresentation and conversion, and that the jury had found that Ag Services' total damages were only $162,000 with interest included. In addition, Nielsen argues there were other errors in the judge's findings that he was liable on the equitable claims presented.

B

We first turn to Nielsen's Seventh Amendment argument which we find dispositive. Nielsen argues that in deciding the equitable claims, the district judge erred by rejecting the jury's verdict and making findings of fact which conflict with that verdict.

Nielsen's argument focuses on controlling principles that support his Seventh Amendment argument. Those principles flow logically from the seminal decisions of the Supreme Court protecting Seventh Amendment rights to trial by jury Dairy Queen, Inc. v. Wood, 369 U. S. 469 (1962), and Beacon Theatres, Inc. v. Westover, 359 U.S. 500 (1959). In applying those teachings we have held:

The Seventh Amendment protects a party's right to a jury trial by ensuring that factual determinations made by a jury are not thereafter set aside by the court, except as permitted under common law. Thus, under the Seventh Amendment, the court may not substitute its judgment of the facts for that of the jury; it may only grant a new trial if it concludes that the jury's verdict was so against the weight of the evidence as to be unsupportable.

The strictures of the Seventh Amendment are particularly applicable in a case where, due to the presence of both equitable and legal issues, trial is both to the jury and to the court. In such a situation, when a case involves both a jury trial and a bench trial, any essential factual issues which are central to both must be first tried to the jury, so that the litigants' Seventh Amendment jury trial rights are not foreclosed on common factual issues. Moreover, the court is bound by the jury's determination of factual issues common to both the legal and equitable claims.

Skinner v. Total Petroleum, Inc., 859 F.2d 1439, 1442-43 (10th Cir. 1988) (emphasis added; internal citations omitted). See also Butler v. Pollard, 800 F.2d 223, 224-26 (10th Cir. 1986).

In Butler v. Pollard, the plaintiffs' legal claim had been tried to a jury, which had rendered a verdict in favor of some of the defendants. The trial judge then decided that he was not bound by the jury verdict and issued an injunction against all of the defendants. This court reversed, holding that the general verdict in favor of the individual defendants undercut any basis for the injunction. The legal claim was one of trespass. By deciding that claim in favor of the individual defendants, our court held, the jury "of necessity" must have determined either that there had been no entry upon the plaintiffs' property or that any entry had been with permission. Id. at 225. Significantly for our purposes, the general verdict in that case did not demonstrate which of these factual issues were decided in favor of the individual defendants. This court examined the possible bases for the verdict, however, and determined that either alternative would...