DePinto v. Landoe

• Decision Date: 09 May 1969
• Docket Number: No. 22343.,22343.
• Citation: 411 F.2d 297
• Parties: Angus J. DePINTO, Appellant, v. Hjalmar B. LANDOE, Francis I. Sabo and Edwin B. Pegram, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

411 F.2d 297 (1969)

Angus J. DePINTO, Appellant, v. Hjalmar B. LANDOE, Francis I. Sabo and Edwin B. Pegram, Appellees.

No. 22343.

United States Court of Appeals Ninth Circuit.

May 9, 1969.

Joseph S. Jenckes, (argued) of Evans, Kitchel & Jenckes, Herbert Mallamo, Phoenix, Ariz., for appellant.

Joseph B. Gary, (argued) of Landoe & Gary, Bozeman, Mont., for Landoe.

Thomas I. Sabo, Bozeman, Mont., for Sabo & Pegram.

Before BARNES and HAMLEY, Circuit Judges, and SMITH, District Judge^*.

HAMLEY, Circuit Judge:

This is a stockholder's diversity derivative action. It was originally brought on behalf of United Security Life (United), an Arizona stock insurance corporation, by John S. Gorsuch, a stockholder of that company. Gorsuch sought to recover, for United, the value of assets of United which had been transferred on October 18, 1957, to American Security Investment Company (American). The suit was brought against Angus J. DePinto, Hjalmar B. Landoe, Francis I. Sabo, Edwin B. Pegram and several other personal and corporate defendants.

Following a trial, judgment was entered in favor of United and against twelve defendants. The award against DePinto was $314,794.19. On appeal, we reversed and remanded for further proceedings. Niesz v. Gorsuch, 9 Cir., 295 F.2d 909. The suit was then reconstituted as one on behalf of Provident Security Life Insurance Company (Provident), another Arizona stock insurance corporation, brought by Albert J. Doig against the same defendants.¹

The gravamen of Doig's complaint was the same as that of the original complaint. In the remanded proceedings, however, defendant DePinto filed cross-claims against the other defendants, seeking indemnity from them for any liability DePinto might incur as a result of the derivative action.

The trial court then dismissed DePinto's indemnity cross-claims on the ground that he did not qualify as having only secondary liability, readopted its original findings of fact and reaffirmed its original decision. Defendants DePinto, Landoe, Sabo, Pegram and Elmer W. Duhame appealed. We again reversed and remanded, holding in part that defendants were entitled to a jury trial. While the correctness of the dismissal of DePinto's cross-claims was before us on that appeal, we did not pass upon that question. DePinto v. Provident Security Life Insurance Company, 9 Cir., 323 F.2d 826.²

After this second remand, the executors of the estate of defendant Duhame entered into a settlement with plaintiff and the estate was dropped as a defendant. This left DePinto, Landoe, Sabo and Pegram as the only defendants still contesting plaintiff's claims. The trial court then severed the cause as to defendants Sabo, Pegram and Landoe, and ordered the case to proceed to trial against DePinto. After trial judgment was rendered against DePinto and in favor of Provident in the amount of $314,794.19. We affirmed. DePinto v. Provident Security Life Insurance Company, 9 Cir., 374 F.2d 37.

DePinto then moved in the trial court to have his indemnity cross-claims set for trial. Landoe, Sabo and Pegram responded with motions for summary judgments dismissing the cross-claims as to them on the grounds of res judicata and failure to state a claim. These motions were granted and judgments were entered dismissing DePinto's cross-claims as to Landoe, Sabo and Pegram. DePinto then took this appeal.³

The trial court dismissed DePinto's cross-claims against appellees on two grounds. One of these was that the previous dismissal of these cross-claims, after the first remand, had been assigned as error on the second appeal and since, on the second appeal, such dismissal was not held to be erroneous, the dismissal has become the law of the case and is res judicata.

We hold, however, that since, in our decision on the second appeal, we expressly reserved the question of whether the cross-claims should have been dismissed on motion for summary judgment,⁴ that decision did not establish the original dismissal of the cross-claims as the law of the case or give it res judicata finality. Appellees concede as much in their brief on this appeal. They argue, however, that under the substantive law of Arizona, the trial court's dismissal of the cross-claims prior to the second appeal is res judicata.⁵

As noted above, the cross-claims were originally dismissed before the second appeal, reported in 323 F.2d 826. At the trial conducted after the second appeal, the jury found that DePinto's conduct constituted negligence and a breach of fiduciary duty. We upheld this jury determination on the third appeal, reported in 374 F.2d 37, 44. Appellees contend that the determination of DePinto's negligence and breach of fiduciary duty also established, under principles of res judicata, that DePinto has no valid claim for indemnity against Landoe, Sabo and Pegram.

This is true, however, only if we assume the correctness of appellees' contention that DePinto's negligence and breach of fiduciary duty precluded him from obtaining indemnity from the other defendants. The trial court so held before the second appeal. As stated above, we did not pass upon the correctness of that ruling on the second appeal, but reserved the question. Nor was the issue decided in connection with the third appeal reported in 374 F.2d 37.⁶ It follows that while the matter of DePinto's negligence and breach of fiduciary duty is now res judicata, the question of whether he is precluded from obtaining indemnity is still open in this court. It is, indeed, the principal issue on this appeal.

In its original order dismissing the indemnity cross-claims the district court held that, with regard to his liability to Provident, DePinto was a primary joint tort-feasor and that under Arizona law he is precluded from obtaining contribution from other joint tort-feasors. The district court adhered to this view as its second ground for granting the subsequent summary judgment now under review, dismissing DePinto's cross-claims for the second time.

In our opinion, however, DePinto's liability to Provident was not that of a tort-feasor, joint or otherwise. His liability to Provident arose from the fact that, as a director of Provident's predecessor, United, he negligently failed to resist a raid on United's assests by a group in control of American. Instead of so resisting, he resigned as a director of United, thereby incapacitating himself from effectively opposing that wrongful action. See DePinto v. Provident Security Life Insurance Company, 9 Cir., 374 F.2d 37, 41-44. DePinto's wrongful conduct, although occasioned by negligence ordinarily associated with tort liability, in actuality constituted a breach of his fiduciary duty to the corporation.

In Arizona, as elsewhere, a director of a corporation owes a fiduciary duty to the corporation and its stockholders. Nordin v. Kaldenbaugh, 7 Ariz. App. 9, 435 P.2d 740, 744; Hatch v. Emery, 1 Ariz.App. 142, 400 P.2d 349, 353; Steinfeld v. Nielsen, 15 Ariz. 424, 139 P. 879, 889. While some courts have analyzed the relationship of director and corporation in terms of agency,⁷ others have adopted a trust analogy.⁸ Arizona follows the latter course. Hatch v. Emery; Kenton v. Wood, 56 Ariz. 325, 107 P.2d 380, 383; Steinfeld v. Nielsen. It follows that DePinto's breach of fiduciary duty is to be treated as a violation of duties under an implied or constructive trust, instead of under the common law of torts.

DePinto's right to obtain indemnity from Landoe, Pegram and Sabo for their alleged derelictions therefore arises not from the existence of a joint tort-feasor relationship he shares with them, but by reason of the consensual relationship between DePinto and United, out of which DePinto's fiduciary duty to United arose. Upon the theory of subrogation or upon principles analogous thereto, he stands in the place of United. He is entitled to recover from Landoe, Sabo and Pegram (assuming that they participated in the raid on United) what they should have paid to United's successor and what he, in effect, has paid in their behalf.

However, if we are mistaken in this analysis, and DePinto should, under Arizona law, be regarded as a tort-feasor with respect to the breach of his fiduciary duty, we are nevertheless of the view that, under the particular circumstances of the case, his status as a tort-feasor does not bar him from obtaining indemnity.

It is true that in Arizona, in conformity with the general rule, contribution or indemnity is not permitted among joint tort-feasors. Blakely Oil, Inc. v. Crowder, 80 Ariz. 72, 292 P.2d 842, 843. Blakely provides a classic example of what is meant by a joint tort-feasor relationship. Blakely's employee was negligent in driving too fast along a highway where cattle were observed grazing. Crowder was also negligent in permitting his cattle to stray upon the highway. These two acts of negligence concurred in causing the Blakely vehicle to collide with a cow, as a result of which an automobile driven by the original plaintiff in that case was struck. Under these circumstances, the court, held, the Blakely driver and Crowder were "primary joint tort-feasors" and Blakely therefore could not obtain contribution or indemnity from Crowder.

In the case before us, however, DePinto's wrongful act was not joint and concurrent with the allegedly wrongful acts of Landoe, Sabo and Pegram. As stated above, the damage which Provident suffered was occasioned by the transfer of assets from its predecessor, United, to American. This occurred after DePinto had severed all connection with United. He neither directly participated in that wrong nor gained any advantage therefrom.

It is evident therefore that, as compared to the concurrent negligence of the employees of...