Broadwater v. Old Republic Sur.

Decision Date04 June 1993
Docket NumberNo. 920300,920300
Citation854 P.2d 527
PartiesLeAnna BROADWATER, Plaintiff, Appellee and Cross-Appellant, v. OLD REPUBLIC SURETY, a Wisconsin corporation doing business in Utah, Northwestern National Insurance Company of Milwaukee, Wisconsin, a Wisconsin corporation doing business in Utah, Atlas Stock Transfer, a Utah corporation, Check Rite International, Inc. f/k/a Cardinal Energy Corporation, a Utah corporation, and Scott J. Fletcher, a Utah resident, Defendants, Appellants and Cross-Appellees.
CourtUtah Supreme Court

John Michael Coombs, Salt Lake City, for LeAnna Broadwater.

Robert A. Burton, Stephen J. Trayner, H. Burt Ringwood, Salt Lake City, for Old Republic Sur., Northwestern Nat. Ins.

Larry G. Reed, Salt Lake City, for Atlas Stock.

Philip R. Hughes, Salt Lake City, for Check Rite.

STEWART, Justice:

Plaintiff LeAnna Broadwater filed this action against Atlas Stock Transfer (Atlas) and Check Rite International (Check Rite) for wrongful refusal to transfer stock, conversion, and breach of an implied covenant of good faith and fair dealing. For the purpose of summary judgment, defendants conceded liability on the wrongful refusal to transfer stock and conversion claims, and the parties submitted the issue of damages to the district court. On that basis, the district court granted summary judgment in favor of plaintiff on the merits of these claims. The court then ruled that plaintiff's damages for the conversion of her stock should be measured at the time when Check Rite stock peaked in price, approximately ninety days after plaintiff received notice of the conversion. The court also denied a motion by defendants to strike affidavits submitted in support of plaintiff's motion and granted plaintiff's request for attorney fees. Check Rite and Atlas appeal from these rulings.

Plaintiff also filed suit against Northwestern National Insurance Company (Northwestern) and Old Republic Surety (Old Republic) for breach of an implied covenant of good faith and fair dealing, breach of an implied third-party beneficiary contract, and bad faith refusal to settle a claim. She cross-appeals from the district court's dismissal of these claims.

We view the facts and inferences to be drawn therefrom in a light most favorable to the party opposing a motion for summary judgment. Ron Case Roofing & Asphalt Paving, Inc. v. Blomquist, 773 P.2d 1382, 1385 (Utah 1989); Arrow Indus. v. Zions First Nat'l Bank, 767 P.2d 935, 937 (Utah 1988). The record contains the following undisputed facts.

In 1981, plaintiff purchased 8,000 shares of stock in Cardinal Energy Corporation, now known as Check Rite, from Potter Investment Company. Potter Investment, which had purchased the stock from Scott Fletcher, delivered to plaintiff certificate 258, still registered to Fletcher. Approximately one year after selling the stock, Fletcher reported to Atlas, Check Rite's transfer agent, that certificate 258 was lost or stolen. Atlas informed Fletcher that he must obtain a lost instruments bond before Atlas would place a stop transfer on the certificate and issue a new one. Fletcher purchased a bond from Northwestern, which designated Northwestern as obligor and Atlas and Check Rite as obligees. Atlas subsequently placed a stop transfer on certificate 258 and issued a replacement certificate to Fletcher.

In 1988, plaintiff presented certificate 258 to Atlas and requested that the stock be transferred to her name. In a letter dated May 4, 1988, Atlas informed plaintiff that it would not transfer the stock because of the stop transfer. Atlas further advised plaintiff that it was retaining and canceling the certificate.

When plaintiff called Atlas for an explanation, she was told that the previous owner had reported the certificate lost and had posted a lost instruments bond with Northwestern. Atlas then told plaintiff that "for purposes of convenience and efficiency, she should communicate directly with Northwestern" to resolve the problem.

Plaintiff contacted Northwestern's Salt Lake branch and explained the problem to an employee, who promised to investigate the matter and report back to her. After hearing nothing for two weeks, plaintiff again called Northwestern. She repeated her story and stated that Atlas told her that Northwestern would take care of the problem. Plaintiff was again assured that the matter would be looked into and that she would be contacted. When another week passed with no word from Northwestern, plaintiff called and demanded to know with whom she had to speak to resolve the problem. Plaintiff was referred to Northwestern's home office in Wisconsin, but was not given the name of a specific person with whom she should speak.

In late June 1988, plaintiff contacted Paul Guardalabene, assistant claims attorney for Old Republic Surety. Old Republic was Northwestern's successor in interest and, therefore, the new obligor on the lost instruments bond. 1 Guardalabene asked plaintiff to send documentation confirming her ownership of the stock and told her that he would be investigating the matter and would appreciate any assistance she could provide. He also offered to settle the matter for the original purchase price of the stock.

Plaintiff followed up this telephone conversation with a letter dated July 11, 1988, which stated that she had purchased the stock from Potter Investment on September 1, 1981, for $.31 per share. The letter also stated that plaintiff would not accept Guardalabene's proposed settlement and requested that Old Republic purchase replacement stock so that plaintiff could sell her shares at a time of her choosing. The letter remarked that the market appeared to be firming up and that plaintiff would like the matter resolved as quickly as possible.

On July 20, 1988, Guardalabene wrote to Mr. Fletcher's counsel requesting that Fletcher respond to plaintiff's July 11, 1988 letter. On July 27, 1988, plaintiff called Guardalabene to confirm that her documentation of ownership was all that he needed. With her documentation of ownership, she sent a letter stating that Check Rite stock was then trading at $1.00 per share and could continue to go higher.

Guardalabene received plaintiff's letter and documentation of ownership on August 1, 1988. In a letter dated August 10, 1988, Guardalabene, for the first time, informed plaintiff that Old Republic could not settle directly with her because she was not an obligee on the bond. The letter explained that although Old Republic wished to mitigate losses, it had not been presented with proper documentation from the obligee.

Guardalabene then wrote Atlas, stating that in 1985, Northwestern had paid on a bond for another certificate issued to Fletcher. Guardalabene questioned whether Cardinal Energy had erred in issuing one certificate too many to Fletcher. The letter also suggested that Atlas take the necessary steps to mitigate any potential loss that Atlas or Check Rite might sustain due to fluctuations in the price of the stock. Plaintiff's documentation of ownership was enclosed for comment. 2

Check Rite stock fluctuated widely between May and August 10, 1988. Plaintiff submitted affidavits that Check Rite stock sold for as much as $1 5/16 per share on July 28, 1988, and for $1 3/8 and $1.25 during the last week in July. Soon after, the price of the stock dropped below $1.00.

Plaintiff filed suit against Atlas and Check Rite for wrongful refusal to transfer her stock, conversion, and breach of an implied covenant of good faith and fair dealing. Plaintiff also filed suit against Old Republic and Northwestern for breach of an implied covenant of good faith and fair dealing, breach of an implied third-party beneficiary contract, and bad faith refusal to settle a claim.

Following brief discovery, the parties filed cross-motions for summary judgment on the claims of wrongful refusal to transfer the stock and conversion. Because Atlas and Check Rite conceded liability, the issue on summary judgment was the amount of damages to be awarded. The district court applied the New York rule, which sets the measure of damages as the highest market price of the stock between the date of the conversion and a reasonable time following notice of the conversion. The court held that under the particular circumstances of the case and in view of "the chronology of the efforts plaintiff pursued to seek satisfaction without resort[ing] to legal action," ninety days was a reasonable period of time. The court then ruled that the measure of damages should be computed at $1 5/16 per share, the highest price reached during the ninety-day period. The trial court denied a motion by defendants to strike various affidavits submitted by plaintiff in support of her motion for summary judgment and granted plaintiff's prayer for attorney fees. Atlas and Check Rite appeal from these rulings.

Plaintiff cross-appeals from the district court's order dismissing her claims against Old Republic and Northwestern for breach of an implied covenant of good faith and fair dealing, breach of an implied third-party beneficiary contract, and bad faith refusal to settle a claim.

I. MEASURE OF DAMAGES

As a general rule, the measure of damages for the conversion of property is the value of the property at the time of the conversion, plus interest. Murdock v. Blake, 26 Utah 2d 22, 30, 484 P.2d 164, 169 (1971); Lowe v. Rosenlof, 12 Utah 2d 190, 195, 364 P.2d 418, 421 (1961); Western Sec. Co. v. Silver King Consolidated Mining Co., 57 Utah 88, 109, 192 P. 664, 672 (1920); Nephi Processing Plant v. Talbott, 247 F.2d 771, 774 (10th Cir.1957). That remedy is inadequate, however, when the property converted, such as stock, fluctuates in value. Galigher v. Jones, 129 U.S. 193, 200, 9 S.Ct. 335, 337, 32 L.Ed. 658 (1889); Schultz v. Commodity Futures Trading Comm'n, 716 F.2d 136, 140 (2d Cir.1983); In re Salmon Weed & Co., 53 F.2d 335, 341 (2d Cir.1931). The injury to the owner of converted stocks is not...

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