Berlin v. Boedecker, 93-315

• Decision Date: 18 August 1994
• Docket Number: No. 93-315,93-315
• Citation: 268 Mont. 444,887 P.2d 1180
• Parties: Martha BERLIN and Donald J. Peterson, Plaintiffs and Respondents, v. Brett A. BOEDECKER and Boedecker Resources, Inc., a Montana corporation, Defendants and Appellants.
• Court: Montana Supreme Court

Page 1180

887 P.2d 1180

268 Mont. 444

Martha BERLIN and Donald J. Peterson, Plaintiffs and Respondents, v. Brett A. BOEDECKER and Boedecker Resources, Inc., a Montana corporation, Defendants and Appellants.

No. 93-315.

Supreme Court of Montana.

Submitted on Briefs March 10, 1994.

Decided June 30, 1994.

Rehearing Denied Aug. 18, 1994.

Loren J. O'Toole II, O'Toole & O'Toole, Plentywood, MT, for appellants.

James A. Manley, Manley Law Office, Polson, MT, for Martha Berlin.

Douglas J. Wold, Wold Law Firm, Polson, MT, for Donald J. Peterson.

HUNT, Justice, delivered the opinion of the Court.

Defendants Brett A. Boedecker and Boedecker Resources, Inc., appeal from a judgment of the Eleventh Judicial District Court, Flathead County, granting respondents Martha Berlin and Donald Peterson damages for their losses in two overriding royalty purchases, and finding that Brett Boedecker breached the parties' oral contract and his fiduciary duty to respondents, and piercing the corporate veil.

We affirm.

The parties raise the following issues:

1. Was respondents' action barred by the doctrine of res judicata?

2. Was respondents' action barred by the doctrine of collateral estoppel?

3. Was respondents' action barred by the statute of limitations?

4. Were the District Court's findings of fact supported by substantial credible evidence?

5. Was respondents' action barred by accord and satisfaction?

6. Did the District Court err when it pierced the corporate veil?

In May 1984, respondent Martha Berlin and her husband, Joe Berlin, lived in Lake County. Martha had investment assets for which Joe acted as her agent. Joe had significant investment experience, but he and Martha had limited experience with investments in oil and gas interests. Previously, the couple had invested in oil wells in Texas. Also at this time, respondent Donald Peterson lived in Flathead County and worked mostly as a fireman. He had substantial experience as a part-time realtor. Previously, Peterson invested in real estate and western art, but had not invested in oil and gas interests.

Appellant Brett Boedecker lived in Glendive and operated through a corporate entity known as Boedecker Resources, Inc. (corporation), a Montana corporation with its principle place of business in Glendive. Brett was an experienced and active investment counselor, landsman, and broker in the field of oil and gas investment interests. He owned approximately 97 percent of the corporation and completely controlled it.

On December 13, 1983, Brett met and entertained the Berlins in Glendive with dinner at his home. Brett's home contained fine art and projected the appearance of wealth and success. There Brett told the Berlins of his vast experience in the oil and gas business. Brett also stated, "I am Boedecker Resources."

The next day, Brett took the Berlins to his office and displayed maps and charts indicating his knowledge and associations in the oil and gas industry. Brett discussed with the Berlins the possibility of purchasing net overriding royalties. Respondents testified that Brett represented these investments as more valuable than producing wells or wells being drilled because the investor could avoid responsibility for development costs.

Brett disclosed his past close working relationship with Comdisco, Inc., a New York stock exchange corporation with considerable gas and oil holdings. Brett explained that Comdisco would have first option on any properties or leases available through his or the corporation's services. He also explained that if Comdisco did not exercise its complete option, he could sell or broker the opportunities to other persons or companies. Brett also represented to the Berlins that he had extensive knowledge of Williston Basin and Sceptre Field in Valley County and believed that those areas had the greatest potential for oil discovery and production. However, at the time of the parties' first meeting, the wells under production from the Sceptre Fields had been sold to Comdisco. In November 1983, Brett had negotiated and transacted a sale from Exok, Inc., to Comdisco for almost all of the producing oil and gas interests in the Exok properties located in Valley County. Brett did not disclose this fact to the Berlins. The Berlins and Peterson had expressed their interest to Brett for reasonably short-term investments and production of wells.

Respondents entered into four transactions with Brett and the corporation. However, only two formed the basis of this action. The first of the two disputed transactions was the Exok transaction which involved the purchase of certain overriding royalty interests from a Canadian oil and gas company. Brett was to act as respondents' agent to negotiate the investment. In 1983, Brett's brother, Brooks Boedecker, was one of several landsmen and employees who received part of a package (the Sceptre package) of undivided royalty interests from Sceptre Resources, Inc., the Canadian oil and gas company. In 1983, that company went out of business and gave overriding royalty interests located in several western states to its landsmen as severance payments. Certain of those employees sold their interests, comprising 70 percent of the package, to Exok for $600,000. Brett knew of this sale price, but did not tell respondents of it.

In the Exok transaction, Brett represented to respondents that he could purchase 1400 prime net royalty acres of overriding royalties out of 700,000 gross acres and 45,000 net royalty acres from the Sceptre package. Brett represented that he was informed of the most valuable 1400 royalty acres, and that if respondents purchased an interest immediately, they would have several months to choose the most valuable 1400 royalty acres out of the 45,000 net acres available. In this transaction, Brett also served as Comdisco's agent to locate and negotiate oil and gas interests, for which Comdisco paid Brett a commission.

On December 21, 1983, Brett entered the respondents into what the District Court found was a "secret agreement" with Exok for the purchase of some of the undivided interests in overriding oil and gas royalties of the Sceptre package. Under the agreement, respondents purchased a 1/6 interest in the Exok interests for $53,666, and Brett received a six percent commission. Brett had made this agreement prior to locating respondents as the buyers. The agreement provided, in part, that if Brett could sell by April 8, 1984, for $322,000, Exok would transfer to Brett 20 percent of all their royalties within the State of Michigan. Thereafter, Exok would assign to Brett another 20 percent of 1/2 of the remaining assigned royalties, giving Brett a total of 33.5 percent of all the interests. Subsequently, Brett assigned his interests in the Exok overriding royalties to his corporation, effective May 1, 1984. On June 20, 1985, the corporation performed the December 21, 1983, secret agreement when Brett, as their agent, entered respondents into the agreement with Exok. Because of the assignment by Brett to the corporation, Brett was to receive 8280 net royalty acres and some Michigan royalty acres. In total from this transaction, Brett received 5850 net royalty acres of the original Exok purchase, where respondents received only 90 royalty acres. Brett did not reveal this discrepancy to respondents.

Evidence at trial showed that respondents had relied completely upon Brett's advice, counseling, and negotiation to their prejudice. The evidence also showed that respondents did not realize the value or potential losses of the interests Brett was buying for them.

The court found that Brett received commissions from respondents, as their agent, and from Exok, the seller. In addition, the court found that Brett had a fiduciary duty as their agent to fully disclose the material facts and considerations to respondents, as purchasers of the Exok interests. The court found that Brett's transaction with Exok, on behalf of respondents, constituted a clear conflict of interest. The court also found that Brett had determined respondents' purchase price based on his own need under his agreement with Exok, not by an appraisal and investigation of its fair market value. The court reasoned that Brett failed to use reasonable care in investigating and evaluating the investment or give competent, reliable, and accurate information about the assets. Finally, the court found that Brett's breach of his fiduciary duty to respondents resulted in their loss of compensatory damages in the amount of $53,666, less $1000 they recovered in royalties.

The second transaction was the Brooks Boedecker transaction which involved respondents' purchase of certain royalty interests from Brett's brother, Brooks. At the parties' original meeting in Glendive, Brett introduced respondents to Brooks. Brooks owned a ten percent interest in the Sceptre package, which was worth $100,000 at the time of its transfer to him. After Brett purchased an interest for respondents in Exok, respondents came into contact with Brooks in Denver, Colorado. Respondents and Brooks entered into an agreement to purchase certain of Brooks' royalty interests. Testimony conflicted as to whether Brett had advised respondents to contact Brooks. Brooks offered to sell respondents his Sceptre package interest for $500,000. Unaware of the package's real value, respondents agreed to purchase only 1/2 of the interest for $250,000.

The court found that between the time of the original Exok transfer on October 8, 1983, and the time Brett purchased respondents' Exok interest, no producing wells had been drilled. Meanwhile, Brett had entered into the secret agreement with Brooks and others. The court found that the sale to respondents by Brooks aided in completing the Exok agreement managed by Brett, thereby meeting its time table. As a result of the Brooks transaction, Brooks received the Michigan overriding royalties and Brett received a...