Evergreen W. Bus. Ctr., LLC v. Emmert

• Decision Date: 27 December 2012
• Docket Number: CV07020348,A146301.
• Citation: 296 P.3d 545,254 Or.App. 361
• Parties: EVERGREEN WEST BUSINESS CENTER, LLC, an Oregon limited liability company, Plaintiff–Respondent Cross–Appellant, v. Terry W. EMMERT, Defendant–Appellant Cross–Respondent, and Premier West Bank, Impartial.
• Court: Oregon Court of Appeals

254 Or.App. 361

296 P.3d 545

EVERGREEN WEST BUSINESS CENTER, LLC, an Oregon limited liability company, Plaintiff–Respondent Cross–Appellant,

v. Terry W. EMMERT, Defendant–Appellant Cross–Respondent,andPremier West Bank, Impartial.

CV07020348; A146301.

Court of Appeals of Oregon.

Argued and Submitted March 1, 2012.

Decided Dec. 27, 2012.

Stuart M. Brown argued the cause for appellant—cross-respondent. With him on the briefs was Wiles Law Group.

John M. Berman argued the cause for respondent—cross-appellant. With him on the briefs was J. Rion Bourgeois.

Before SCHUMAN, Presiding Judge, and ARMSTRONG, Judge, and WOLLHEIM, Judge.

SCHUMAN, P.J.

Defendant Terry Emmert was a member of plaintiff Evergreen West Business Center, LLC (Evergreen), a limited liability company formed to purchase and develop property located in Washington County. Evergreen purchased the property with a loan from West Coast Bank, but eventually fell behind on payments and was at risk of losing the property to foreclosure. According to Evergreen, Emmert agreed to work with West Coast Bank to postpone the foreclosure, but, rather than do as promised, Emmert instead purchased the note and trust deed to the property from West Coast Bank, allowed the foreclosure sale to proceed, and then purchased the property for himself at the trustee's sale—all without notifying any of Evergreen's other members.

Evergreen then brought this action alleging that Emmert had breached a fiduciary duty to Evergreen by secretly acquiring the property. The complaint sought damages or, alternatively, imposition of a constructive trust whereby the property would be sold and the proceeds distributed to Evergreen's creditors and its members; Evergreen later amended the complaint to request punitive damages.

A jury returned a verdict in Evergreen's favor, awarding nominal damages of $1 but punitive damages in the amount of $600,000. Neither side was satisfied with that verdict. Emmert asked the trial court to reduce the punitive damages award, arguing that the 600,000–to–1 ratio of punitive to compensatory damages violated his right to due process. Evergreen, for its part, asked the court to rule on the remedy of a constructive trust as an alternative to the jury's nominal damages award, but wanted to keep the punitive damages component.

The trial court ruled that, given the $1 economic damages award, a punitive damages award of $600,000 was grossly excessive, and, adhering to case law that suggested a 4–to–1 ratio as the outer limit permitted under the Due Process Clause, the court reduced the punitive damages award to $4. The court also ruled that Evergreen was entitled to the imposition of a constructive trust and allowed Evergreen to elect between the two remedies—a $5 verdict (the nominal award plus punitive damages) or imposition of a constructive trust without any punitive damages. Evergreen chose the latter.

Emmert now appeals the ensuing judgment against him, arguing that he did not owe any fiduciary duty to Evergreen, did not breach any such duty, and was not unjustly enriched at Evergreen's expense. He also argues that the court erred in imposing a constructive trust remedy that would exceed the $1 jury award of economic damages, and in failing to credit him for his expenditures on the property after he acquired it. Evergreen cross-appeals, arguing that the court erred in reducing the punitive damages award and in concluding that punitive damages are not available in conjunction with an equitable remedy. For the reasons that follow, we reverse on appeal and on cross-appeal, and we remand for further proceedings.

I. BACKGROUND

Unless otherwise noted, we state the facts in the light most favorable to Evergreen, the prevailing party at trial. Liles v. Damon Corp., 345 Or. 420, 423, 198 P.3d 926 (2008). In 2001, Brad Taggart, John Hoffard, Carl Senour, and Emmert formed Evergreen, a manager-managed limited liability company. The company was formed to purchase a 4.57–acre parcel and develop that property as a small business park that would have Senour, a cabinet maker, as the anchor tenant. Evergreen purchased the property for $846,044, most of which ($552,500) was borrowed from West Coast Bank and secured by a trust deed.

While the property was being developed, the acquisition loan matured, and, in March 2004, West Coast Bank notified Evergreen that the bank intended to foreclose the trust deed on the property. Taggart, who was Evergreen's manager, sought a new loan in the amount of $3.4 million to pay off the acquisition loan and to fund construction on the property. That loan application was denied.

Taggart then approached Emmert about Evergreen's financial situation, and the two agreed to work on a two-step process to obtain financing. First, Evergreen would obtain a “bridge loan” of $900,000 to pay off West Coast Bank and a few other parties. Second, Evergreen would obtain separate construction financing. Emmert suggested that Taggart contact Bob Dyer, a banker at Oregon Pacific Banking Company, with whom Emmert had done other business. Taggart did so, and Dyer told him that “a small loan” of $900,000 “wouldn't be a problem.”

Dyer, though, was in the process of leaving Oregon Pacific Banking Company and preferred to take the loan application with him to his future employer, Premier West Bank. After Dyer joined Premier West Bank, he asked Taggart for a new appraisal of the property and an explanation of how the $900,000 in loan proceeds would be used.

In the meantime, West Coast Bank advised Taggart that the scheduled foreclosure sale was being postponed to September 15, 2004. Taggart assured a loan officer for West Coast Bank that the bridge loan from Premier would be approved and would allow Evergreen to pay off the promissory note, but West Coast Bank required “something in good faith”—namely, a $50,000 payment toward the loan—to further delay the foreclosure proceedings while the bridge financing was finalized.

Taggart then met with Emmert and explained West Coast Bank's demand for a $50,000 payment to postpone the foreclosure sale beyond September 15. At that point, Emmert told Taggart to “do nothing but focus on this [bridge] loan with Bob Dyer” at Premier West Bank and that Emmert himself “will take care of the West Coast Bank loan.” From time to time after that discussion, Taggart asked Emmert about the West Coast Bank situation, and Emmert told Taggart “not to worry about it; that he [Emmert] was taking care of it and he had everything under control[.]”

Emmert, it turned out, was negotiating with West Coast Bank—but not for the benefit of Taggart or Evergreen. Rather, beginning in early September 2004, Emmert began negotiating to purchase the promissory note and related trust deed from West Coast Bank. On September 15, Emmert paid $50,000 to West Coast Bank to postpone the foreclosure sale. From that point, West Coast Bank sent letters only to Emmert; it did not copy Taggart on a letter stating that the foreclosure was rescheduled to October 15, 2004.

Despite status inquiries from Taggart, Emmert never disclosed that he was in the process of purchasing the underlying promissory note and trust deed to Evergreen's property. Rather, Emmert allowed Taggart to continue working with Dyer to obtain a $900,000 loan for Evergreen. On September 22, 2004, in response to Dyer's earlier request for an explanation of how those loan proceeds would be used, Taggart drafted an explanation and sent it to Emmert for his approval. Emmert approved the draft, and Taggart sent the explanation to Dyer on September 27, 2004. Dyer then told Taggart that he was leaving on a hunting trip and would process the loan application when he returned.

Emmert, though, told Dyer not to proceed with that bridge loan to Evergreen because Emmert had “worked something out” with the noteholder, West Coast Bank. And Emmert had worked something out: the purchase of the note. On October 14, 2004, the day before the scheduled foreclosure sale, Emmert purchased the note and trust deed from West Coast Bank for $563,979.49. Emmert signed the assignment of the note and trust deed on October 21, 2004. The following day, Emmert's attorney, as trustee, held a foreclosure sale. Emmert bid on and obtained the property himself, at a total investment of $613,979.49. An appraisal obtained for the Premier West Bank loan, and dated one month earlier, had valued the property at $1,390,000. After purchasing the property for himself, Emmert then used the property as security to obtain, in his own name, the $900,000 loan from Premier West Bank to develop the property.

Evergreen subsequently filed this action for breach of fiduciary duty. Evergreen alleged, among other contentions, that Emmert “agreed to provide financial assistance to [Evergreen] in order to avoid the pending foreclosure and to obtain said development loan * * *[,]” and that, instead of doing so, Emmert “purchased the lender's note and trust deed from the lender and then foreclosed on said real property and took ownership of it for his own account, all without notifying [Evergreen] or the other members that he was doing or had done so.” Evergreen sought alternative remedies: On the one hand, Evergreen alleged that Emmert “obtained title to said real property by fraud and breach of his fiduciary duty” and asked the court to “declare that Defendant Emmert holds title to said real property in trust for Plaintiff and said members” and “said real property [be] sold for the benefit of [Evergreen], and the proceeds distributed first to creditors and then to members as their interests may appear.” Alternatively, Evergreen alleged that it was “damaged in a sum to be determined at trial, but not less than $800,000.” Later, Evergreen was allowed to amend the complaint to add a claim for punitive damages.

The breach of fiduciary duty claim was tried to a jury. As to the elements of the claim, the jury was instructed as follows:

“To recover for...