Colman v. Colman

• Decision Date: 02 October 1987
• Docket Number: No. 860325-CA,860325-CA
• Parties: Phyllis E. COLMAN, Plaintiff and Respondent, v. William J. COLMAN, Defendant and Appellant.
• Court: Utah Court of Appeals

Page 782

743 P.2d 782

Phyllis E. COLMAN, Plaintiff and Respondent, v. William J. COLMAN, Defendant and Appellant.

No. 860325-CA.

Court of Appeals of Utah.

Oct. 2, 1987.

Frank J. Allen, Salt Lake City, for defendant and appellant.

Bryce Roe, Albert Colton, Salt Lake City, for plaintiff and respondent.

Before BILLINGS, GARFF and JACKSON.

OPINION

GARFF, Judge:

Defendant/appellant William J. Colman appeals from a property settlement judgment in favor of plaintiff/respondent Phyllis E. Colman stemming from their 1977 divorce. He seeks reversal of the judgment.

The parties were divorced after a twenty-four year childless marriage during which they acquired substantial property. On August 2, 1977, in anticipation of divorce, they executed a written property settlement agreement. Because questions had not been resolved as to which assets controlled by defendant were part of the marital estate, this agreement required him to provide plaintiff with a "complete accounting of all stocks currently owned by him or in which he [had] any interest," and a "complete accounting of all royalty interests currently owned by him or in which he [had] any interest" within one year of the agreement. Once the extent of defendant's holdings was determined, plaintiff was to receive one-half of defendant's interest in any stocks "held in ... [his] name or in which he [had] any interest," and one-half of the sales proceeds of the Anderson Ranch, jointly owned property located in Cache County, Utah.

Much of the dispute between the parties centered around defendant's relationship to Owanah Oil Corporation [Owanah], a closely held corporation which defendant and Francois de Gunsberg had founded in 1952 to engage in oil and gas exploration. Defendant had served as Owanah's president during much of the parties' marriage. In 1959, Owanah was restructured to generate outside capital. As a consequence, defendant and plaintiff held approximately twenty percent of Owanah's outstanding shares.

At the time of the divorce, defendant also controlled stock, originally issued in various names, in other closely held corporations: Western Oil Shale Corporation, Cayman Corporation, and Royalty Investment Company. Defendant claimed that most of this stock belonged to Owanah, was not part of the marital estate, and, therefore, was not subject to the property division agreement.

The Western Oil Shale Company stock was issued in 1964 in consideration for Owanah's interest in several oil shale leases. Although defendant alleged that none of the parties' personal funds were expended to acquire these leases, he introduced no evidence beyond his testimony to that effect. He also explained that the stock was issued in names other than Owanah's so that Owanah could sell it more easily by avoiding normal corporate formalities. At the time of trial, he held at least 28,200 Western Oil Shale shares under his personal control, but admitted ownership of only 2,256 of them.

Cayman stock had been issued by Cayman Corporation as consideration for stock in another closely held corporation, National Oil Shale Corporation, and for an oil and gas lease with a producing oil well. Defendant testified that both the National Oil Shale and Cayman shares were issued in his name for ease in sale and handling, but that he held them in trust for third parties. However, he introduced no evidence other than his testimony that there was an actual trust relationship between himself and others. Part of the reason for his failure to introduce evidence was the lack of Cayman and National Oil Shale corporate records. At the time of trial, defendant held at least 48,000 shares of Cayman stock in his name.

At the time of the property settlement agreement, Royalty Investment Company owned, as its only major asset, the Anderson Ranch. At trial, defendant testified that Owanah and two other parties had made installment payments on the ranch and, thus, were entitled to 62 1/2% of Royalty's outstanding stock. However, defendant's earlier deposition contradicted this testimony, stating that he and plaintiff owned 62 1/2% of the Royalty stock. Defendant, in his personal financial statements, valued the ranch at between $250,000 and $1,000,000.

In January 1982, Royalty sold the Anderson ranch for $250,000 and authorized Owanah to use the proceeds. The only consideration which Royalty received for the proceeds was its choice between an interest-bearing loan and a 4% overriding royalty interest in Owanah.

Defendant also claims that he made an oral accounting pursuant to the property settlement agreement with the law firm Roe and Fowler, and turned over to Roe and Fowler all stock certificates in the parties' safe deposit box. Because plaintiff was not satisfied that there had been an adequate accounting under the terms of the property settlement agreement, she finally brought this action on May 29, 1980, to compel the accounting and judgment for any damages caused by defendant's delay in submitting the accounting. The purpose of the accounting was to identify the amount to which plaintiff was entitled as her share of the marital estate.

The trial court agreed that defendant had not made an adequate accounting, finding that Owanah was defendant's alter ego even though this issue was not explicitly raised in the pleadings. The court also found that the assets subject to the accounting were, in fact, owned by defendant, and, pursuant to the terms of the settlement agreement, that plaintiff was entitled to one-half of those assets. However, because most of the assets had been sold by defendant, the court established a monetary value for the liquidated assets and included that amount as part of the marital estate to be distributed between the parties. Although this was an accounting action, the court appropriately disposed of the assets according to the terms of the stipulated property settlement agreement without objection by either party.

Defendant raises the following issues on appeal: (1) Was the alter ego issue properly before the trial court? (2) If the alter ego issue was properly before the court, was there sufficient evidence to sustain the court's finding that Owanah was defendant's alter ego? (3) Does applying the alter ego doctrine effect a property distribution contrary to the parties' property distribution agreement? (4) Did the evidence, findings, and conclusions support the order requiring defendant to pay plaintiff an amount representing a percentage of the Anderson Ranch sale proceeds? (5) Is plaintiff estopped from denying that defendant furnished a satisfactory accounting?

I

Under Rule 15(b) of the Utah Rules of Civil Procedure, issues not raised by the pleadings may be tried by the express or implied consent of the parties. ¹ The Utah Supreme Court has observed that issues tried by express or implied consent shall be treated as if raised in the pleadings. Therefore, "even failure to amend the pleadings does not affect the result of the trial of these issues." General Ins. Co. of Am. v. Carnicero Dynasty Corp., 545 P.2d 502, 506 (Utah 1976).

If a theory of recovery is fully tried by the parties, the court may base its decision on that theory and deem the pleadings amended, even if the theory was not originally pleaded or set forth in the pleadings or the pretrial order. MBI Motor Co. v. Lotus/East, Inc., 506 F.2d 709, 711 (6th Cir.1974). However, that the issue has, in fact, been tried, and that this procedure has been authorized by express or implied consent of the parties must be evident from the record. Wirtz v. F.M. Sloan, Inc., 285 F.Supp. 669, 675 (W.D.Pa.1968). "A trial court may not base its decision on an issue that was tried inadvertently." MBI Motor Co., 506 F.2d at 711.

Implied consent to try an issue may be found "where one party raises an issue material to the other party's case or where evidence is introduced without objection," General Ins. Co. of Am., 545 P.2d at 505-06, where it "appear[s] that the parties understood the evidence [was] to be aimed at the unpleaded issue." MBI Motor Co., 506 F.2d at 711. See First Security Bank of Utah v. Colonial Ford, Inc., 597 P.2d 859, 861 (Utah 1979).

Thus, the test for determining whether pleadings should be deemed amended under Utah R.Civ.P. 15(b) is "whether the opposing party had a fair opportunity to defend and whether it could offer additional evidence if the case were retried on a different theory." R.A. Pohl Const. Co. v. Marshall, 640 F.2d 266, 267 (10th Cir.1981). See also Cheney v. Rucker, 14 Utah 2d 205, 381 P.2d 86, 91 (1963); Buehner Block Co. v. Glezos, 6 Utah 2d 226, 310 P.2d 517, 519-20 (1957).

In the present case, even though the alter ego issue was not specifically raised in the pleadings, either initially or by amendment, the entire trial testimony concerned defendant's control over the assets in question. During trial, evidence concerning every element of the alter ego issue was introduced without objection. Further, the basic question raised in an alter ego case is whether the principal had personal control over assets which he claimed to belong to the corporation. Since this question is the essential issue presented by this accounting action, we find that the parties received adequate notice of the alter ego issue and an opportunity to meet it. There was no indication in the record that defendant ever represented to the court that he was taken by surprise or was otherwise disadvantaged in meeting the alter ego issue. See Cheney v. Rucker, 381 P.2d at 91. We find, therefore, that the alter ego issue was properly before the court.

II

There is sufficient evidence to sustain the trial court's finding that Owanah was defendant's alter ego. "Ordinarily, a corporation is regarded as a separate and distinct legal entity from its stockholders." Dockstader v. Walker, 29 Utah 2d 370, 510 P.2d 526, 528 (1973). This is true whether the corporation has many stockholders or only one. Ramsey v. Adams,...