Estate of Jones by Blume v. Kvamme, C9-87-2367
| Decision Date | 04 October 1988 |
| Docket Number | No. C9-87-2367,C9-87-2367 |
| Citation | 430 N.W.2d 188 |
| Parties | ESTATE OF Emlyn JONES, Deceased, by Lorraine J. BLUME, its personal representative, Respondent, v. J. Peder KVAMME, et al., Appellants. |
| Court | Minnesota Court of Appeals |
Syllabus by the Court
1. The evidence supports the jury's finding of misrepresentation.
2. The statute of limitations had not expired when respondent discovered the fraud.
3. The trial court's rulings were not prejudicial.
4. Rescissionary damages were properly awarded.
5. Appellant's motion for a new trial based on newly discovered evidence was properly denied.
Daniel P. Taber, Minneapolis, Kevin O'Connor Green, Mankato, for respondent.
Jeffrey F. Shaw, Briggs and Morgan, St. Paul, for J. Peder Kvamme.
C. Allen Dosland, New Ulm, for John Kvamme.
Heard, considered and decided by FOLEY, P.J., and HUSPENI and RANDALL, JJ.
Lorraine Blume brought this rescission action in February 1982 alleging that Peder Kvamme defrauded her late husband, Emlyn Jones, by personally purchasing his 11 shares of Kato Engineering stock for $5,500 while representing that the stock could only be sold back to the corporation as treasury stock. Blume also sought a constructive trust on the proceeds of the stock, which Kvamme had transferred to his children.
The trial court bifurcated the two actions, leaving the constructive trust issue for a subsequent trial. A jury trial was held on the fraud claim, and by special verdict the jury found Kvamme guilty of fraud, valued the stock at $125,000 in 1967 and awarded punitive damages of $46,000. In post-trial proceedings, the trial court found that Kvamme had transferred his stock to his children in 1978 after the company's sale. The trial court held that Blume was entitled to $678,367.68 in rescissionary damages, offset by $5,500, along with $46,000 in punitive damages. Kvamme appeals. We affirm.
Kato Engineering Company (Kato) was a small closely held corporation located in Mankato and established by Cecil Jones in 1928 for manufacturing generators. The company grew in size during the war years; Kato had 180 shares of common stock. In the mid-1960's Kato's board of directors consisted of Cecil Jones (157 shares), William Cliff (11 shares), Emlyn Jones (10 shares) and Peder Kvamme (no shares). Two shares were treasury stock.
Emlyn Jones was Cecil's brother. Emlyn worked on the generators as a troubleshooter; he was not active in the business affairs of Kato. Peder Kvamme was Kato's chief financial officer or comptroller.
Cecil Jones controlled the ownership and transfer of Kato stock. Ernest Mueller, an employee of Kato since 1935, testified that it was common knowledge that upon retirement an employee had to sell his stock, common or preferred, back to the company. Fae Bateman, a 40 year employee, testified to the same belief.
Kato's articles of incorporation required board action for the transfer of common stock. Each stock certificate was inscribed "Transferable only on the books of the corporation." Kvamme admitted that Cecil, as Kato's dominant shareholder, controlled the board. He was the board of directors and determined who was going to own the stock.
From 1964 to 1970 Emlyn Jones suffered from declining physical and mental health. His personal physician, Dr. Dobson, testified that in 1965 he admitted Jones to the hospital due to general arteriosclerosis and diabetes mellitus, complicated by mild dementia.
The testimony of Emlyn Jones' family, friends, and co-workers described numerous incidents showing the deterioration of his faculties. A dramatic personality change rendered a mild, good-humored man into a mean and irritable one who could no longer perform simple mechanical tasks. His memory slipped, he repeatedly lost his spending money, and could no longer drive after repeatedly damaging the family car.
In 1966 Emlyn Jones' retirement was imminent, due to his age (66) and failing health. Kvamme testified that Cecil Jones was anxious to get Emlyn's Kato stock back in order to keep it in the company. Emlyn's widow, Lorraine Blume, testified that she did not want to sell the stock, for Emlyn had told her many times never to sell it because it would be valuable if the company ever sold.
Believing her husband to be incompetent in financial matters, Lorraine put the stock in her safe deposit box. Cecil Jones' wife, Mildred Jones, testified that Kvamme asked Cecil if he could approach Emlyn and Lorraine to try to persuade them to sell the stock. Mildred testified that Cecil thought Kvamme was acting on behalf of the company.
Lorraine Blume testified that in 1966 Kvamme, claiming to be representing Kato, came to the Emlyn Jones' home and tried to convince them to sell the stock back to Kato. He presented a Kato Engineering written statement offering $5,500 for Emlyn's stock. Believing that the company set the price and that the stock was not transferable, they agreed to consider it.
Charlotte Mueller, Emlyn's first wife's niece, remembered that Emlyn told her of Kvamme's meeting at their house and his stock offer. Charlotte's husband Ernest testified that Emlyn wanted the stock to go back to the company.
As comptroller, Kvamme knew the value of the company and that Cecil met with interested buyers in the mid-1960's, including the eventual purchaser, Reliance Electric.
Kvamme claimed Emlyn and Lorraine knew that the stock purchase offer came from him, personally. He claimed that most of the time in that meeting was spent discussing Emlyn's continued wage and Kato's profit-sharing plan. Kvamme claims that he reported back to Cecil, who decided Kato would pay Emlyn a wage for a period of time. He claimed Cecil told him he could buy the stock for himself.
Kvamme called Lorraine again and they met in her home. He told her about the profit-sharing program and Cecil's offer of continued wages. Lorraine testified that Emlyn put increasing pressure on her to return the stock to the company. He even woke her in the middle of the night and threatened suicide if she did not return the stock. Tom Sullivan, attorney for Kato, also called her with requests to sell the stock back to Kato. She finally acquiesced and gave the key to her safe deposit box to Emlyn. Emlyn sold the stock immediately and received a "counter check" drawn on Kvamme's personal account for $5,500 and signed by Kato's comptroller, Kvamme. A counter check has no drawer's name on it and was commonly used in southern Minnesota at that time. Lorraine knew this was not a corporate check, but a personal one. Kato corporate checks normally required two signatures; however, Cecil Jones was out of town when the stock was sold.
Emlyn endorsed the certificate on the back with no transferee named, as was the custom with treasury stock. Kvamme claims he endorsed the certificate to each of his four children, but maintained possession of it in his safe deposit box.
Testimony of Cecil's attorney, E.D. McLean, showed that Cecil was upset about the transfer and wanted to know if he could get the shares back from Kvamme. McLean's advice was that he did not know how to change the stock ownership. Cecil's wife testified that Cecil believed Kvamme was acting for the company.
Two years after Emlyn sold the stock, he was confined to a nursing home and one year later he died. According to his widow and relatives, Emlyn always believed he had sold the stock to Kato.
The private annual reports to Kato's board of directors continued to show Emlyn as owner of the stock in 1968 and 1969, as was the custom with treasury stock. Kvamme prepared these reports, which were distributed only to Cecil Jones, Emlyn Jones, William Cliff and himself. Only after Emlyn died was Kvamme listed as owner of the stock.
After Cecil had a stroke in 1974, Kvamme became Kato's chief executive officer, then later its president after Cecil died in 1976. One year later, the company was sold to Reliance Electric for about $12 million. Each share of Kato common stock was worth $65,000. Upon distribution, the total amount paid for the 10 shares formerly held by Emlyn was $678,367.68 plus interest.
In June 1980 Lorraine was approached by an attorney who was doing discovery for litigation of the Cecil Jones estate. That was the first time she learned that Kvamme, not Kato, had bought Emlyn's stock. Lorraine commenced this action. At trial, each side presented an expert who offered testimony on the value of the stock in 1967. A jury found Kvamme guilty of fraud and, by special verdict, valued the stock at $125,000 in 1967. In post-trial proceedings the trial court found that Kvamme had transferred the stock to his children in 1978 after the company's sale. The trial court held that Blume was entitled to $678,367.68 in rescissionary damages, offset by $5,500, along with $46,000 in punitive damages.
1. Does the evidence support the jury's finding of misrepresentation?
2. Had the statute of limitations expired when respondent discovered the fraud?
3. Were the trial court's rulings prejudicial?
4. Did the trial court err in adopting a rescissionary measure of damages?
5. Did the trial court err in refusing to grant a new trial based on newly discovered evidence?
Kvamme argues that the trial court erred in denying his motions for a directed verdict or judgment notwithstanding the verdict (JNOV), claiming there was no evidence of misrepresentation or non-disclosure of facts to Emlyn Jones.
Review of a jury's special verdict findings is very limited.
It is well settled that we will set aside an answer to a special verdict question only when it is perverse and palpably contrary to the evidence. * * * If the answers to special verdict questions can be reconciled on any theory, the verdict will not be disturbed.
Hauenstein v. Loctite Corp., 347 N.W.2d 272, 275 (Minn.1984).
In reviewing a motion for a judgment notwithstanding the verdict, the applicable standard...
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