Deceased v. Smith-Cote (In re Cote)
| Decision Date | 15 January 2019 |
| Docket Number | DA 17-0537 |
| Citation | 2019 MT 10,394 Mont. 68,433 P.3d 221 |
| Parties | In the MATTER OF the ESTATE OF: John P. COTE, Sr., Deceased, John P. Cote, Jr., Individually, Katherin Clemmence, Individually, and Katherin Clemmence and Barbara C. McEwen, as Trustees of the Ruth Cote Trust, Plaintiffs and Appellees, v. Janice Smith-Cote, Individually and as Personal Representative of the Estate of John P. Cote, Sr., and John Does 1-10, Defendants, and Farmers State Financial Corp., Defendant and Appellant. |
| Court | Montana Supreme Court |
For Appellant: David L. Jackson, John H. Grant, Murry Warhank, Jackson, Murdo & Grant, P.C., Helena, Montana, Shannon Wells Stevenson, James R. Henderson, Davis Graham & Stubbs LLP, Denver, Colorado
For Appellees: Robert Terrazas, Dana A. Henkel, Jesse Froehling, Terrazas Clark Henkel, P.C., Missoula, Montana
¶1 Farmers State Financial Corporation (Farmers) appeals the Order of the Twenty-First Judicial District Court, Ravalli County, awarding punitive damages against Farmers for fraudulent stock conversion.
¶2 We restate the issues as follows:
¶3 We affirm.
¶4 This appeal arises from an estate contest between Janice Smith-Cote, wife of John P. Cote, Sr. (John Sr.), John P. Cote, Jr. (John Jr.), and other members of the Cote family. This Court affirmed an earlier appeal in which the District Court replaced Smith-Cote as personal representative of John Sr.'s estate. See In re Estate of Cote , No. DA 16-0295, 387 Mont. 535, 2017 WL 203681, 2017 MT 11N, ¶¶ 2, 16, 2017 Mont. LEXIS 13.1 The current appeal involves shares of Farmers' Stock that John Jr. owned with his father, John Sr., and Farmers' disposition of shares of that stock relative to John Jr.
¶5 On November 27, 1995, Farmers (then called Alpha-Omega Holding Company) issued stock to John Sr. and John Jr. as joint tenants with right of survivorship (JTWROS). On March 26, 1997, John Sr. and John Jr. jointly owned 181.619 shares pursuant to Farmers' Stock Certificate No. 20, which identified the owners as "John P. Cote, Sr., or John P. Cote, Jr., JTWROS."2
¶6 In January 2011, John Sr. and Smith-Cote were living in Renton, Washington. Farmers communicated with Smith-Cote about transferring Stock ownership from John Sr. and John Jr. to John Sr. only. On January 19, 2011, Farmers' Executive Secretary sent Smith-Cote an e-mail with an attached "Stock Power Form" recognizing John Sr. and John Jr. as owning the Stock as JTWROS. The same day, Farmers' President sent an e-mail to the Executive Secretary regarding the proposed transfer of Stock ownership:
[W]ill you find out ihow [sic] [Smith-Cote] wants the [S]tock titled? Will it be just in her name or if John Jr. will be on it also as he is now?? He doesn't need to be, I just want to make sure it is how [John Sr.] wants it. [I]f so whether it is joint with survivorshilp [sic] or as tennats [sic] in common....
¶7 John Sr. purportedly signed two stock power forms, one dated January 21, 2011, and the other dated February 3, 2011. Farmers' policies and procedures require each stock owner's signature on a stock power form to be accompanied by a medallion signature guarantee to effectuate transfer of Farmers' stock. A medallion signature guarantee is an endorsement affixed to a request to transfer a security by the transferring financial institution that guarantees the genuineness of the signature and the legal capacity of the signatory. John Jr. and John. Sr.'s Stock required an Edward Jones' medallion signature guarantee.3 The January 21, 2011 Stock Power Form (January Form) was sent to Edward Jones' offices in St. Louis, Missouri. No Edward Jones' employee authorized to affix the medallion signature guarantee witnessed the execution of the January Form. However, several days after John Sr. allegedly signed the January Form, an Edward Jones employee affixed a medallion signature guarantee to the Form. Farmers claimed it never received the January Form, and the January Form was not found in Farmers' records. On February 2, 2011, Farmers contacted Smith-Cote to notify her no signed form had been received.
¶8 On February 3, 2011, John Sr. purportedly received and signed a second Stock Power Form (February Form) in an attempt to transfer all 181.619 shares of the Stock to Smith-Cote. Edward Jones has no records of any employee being present to witness the execution of the February Form. On February 5, 2011, John Sr. passed away. On February 7, 2011, the local branch of Edward Jones transmitted the February Form to the Edward Jones' St. Louis office. At an uncertain point in time, the February Form was also stamped with a medallion signature guarantee issued by Norman Eaker, CEO of Edwards Jones, although Eaker was not present to witness John Sr. sign the Form. Edward Jones transmitted the February Form to Farmers. Farmers then canceled the Stock held by John Sr. and John Jr. and transferred all 181.619 shares to Smith-Cote. The Stock Certificate cancellation and reissue date was February 3, 2011. The February Form Farmers accepted had been altered from the form Farmers originally provided to Smith-Cote.
¶9 In November 2012, John Jr. requested records from Farmers related to the Stock. John Jr. learned of the Stock transfer to Smith-Cote when Farmers responded in December 2012. Farmers determined that it had erred in transferring all 181.619 shares to Smith-Cote, declaring that it should have only transferred half the Stock. On December 21, 2012, Farmers requested that Smith-Cote return the Stock Certificate, which she did on June 24, 2014.
¶10 On February 28, 2013, John Jr. and the Cote family initiated litigation against Smith-Cote. See In re Estate of Cote , ¶ 4. On June 30, 2014, John Jr. and the Cotes filed an Amended Petition, alleging claims of undue influence and lack of capacity, conversion, fraud, and unjust enrichment against Smith-Cote regarding the Stock transfer. In re Estate of Cote , ¶ 4. The Amended Petition also stated claims against Farmers for negligent violation of fiduciary duties and conversion. On March 28, 2014, Farmers wrote to John Jr. and advised him that in exchange for a release of liability, Farmers would issue John Jr. a certificate for half of the Stock, or 90.8095 shares. John Jr. declined to sign a release, and Farmers did not issue a stock certificate. Farmers answered with a counterclaim and cross-claim for interpleader against John Jr. John Jr. responded and reiterated his claims against Farmers, alleging breach of the duty of care owed to a stockholder, breach of the fiduciary duty owed to a stockholder, breach of the duty of good faith and fair dealing, and requesting punitive damages. Around August 14, 2015, Farmers filed a motion for summary judgment, arguing that Smith-Cote and John Jr. each owned equal shares of the 181.619 shares of Farmers' Stock as tenants in common.
¶11 The District Court conducted two bench trials: on August 31-September 1, 2015, and on April 19-20, 2016. On April 11, 2016, the District Court granted John Jr.'s motion for partial summary judgment against Smith-Cote and Farmers. The District Court held that John Jr. is the sole owner of all 181.619 shares of Stock because Farmers did not transfer the Stock to Smith-Cote until after John, Sr.'s death. The District Court found there was no genuine dispute as to the following material facts: (1) John Jr. did not provide his consent to transfer all shares of the jointly held Farmers' Stock at issue to Smith-Cote; (2) the medallion signature guarantee, which was a requirement on Farmers' own form, was not provided until sometime after February 7, 2011, regardless of when the stamp was affixed; (3) the February Form was not transmitted to Farmers in order to effectuate the transfer until sometime after John Sr.'s death; and (4) Farmers' admission that it erred is an additional ground showing that the attempted transfer is invalid in its entirety. On March 2, 2017, Farmers represented to the District Court that it paid the remaining 2012-2016 dividends on the Stock and has now paid all the dividends on the 181.619 shares of Stock to John Jr., together with interest.
¶12 On March 16, 2017, the District Court issued an order requiring Farmers to pay John Jr. (1) any and all outstanding dividends with ten percent interest that has not already been paid on the 181.619 shares of Stock, including any dividends distributed to stockholders between February 3, 2011 and the order date; (2) $1.1 million in punitive damages to John Jr.; and (3) John Jr.'s costs in pursuing recovery of the Stock. Farmers filed a motion to vacate or reduce the award of punitive damages. The District Court denied Farmers' motion. Farmers appeals.
¶13 This Court reviews a district court's conclusions of law de novo for correctness.
Folsom v. Mont. Pub. Emps. Ass'n , 2017 MT 204, ¶ 18, 388 Mont. 307, 400 P.3d 706 ; Giambra v. Kelsey , 2007 MT 158, ¶ 28, 338 Mont. 19, 162 P.3d 134. A district court's interpretation and application of statutes presents a question of law. See Kulstad v. Maniaci , 2009 MT 326, ¶ 50, 352 Mont. 513, 220 P.3d 595. We review a district court's decision to award punitive damages for an abuse of discretion. Osman v. Cavalier , 2011 MT 60, ¶ 7, 360 Mont. 17, 251 P.3d 686. We review a district court's findings under the statute setting out requirements for awards of punitive damages, § 27-1-221, MCA, to determine whether the findings are clearly erroneous. Marie Deonier & Assocs. v. Paul...
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