Fina Oil and Chemical Co. v. Hood

• Decision Date: 14 May 1993
• Citation: 621 So.2d 253
• Parties: FINA OIL AND CHEMICAL COMPANY v. Rachel HOOD, as executrix of the Estates of Doyle Chism and Norma Chism, deceased. 1910752.
• Court: Alabama Supreme Court

Page 253

621 So.2d 253

FINA OIL AND CHEMICAL COMPANY v. Rachel HOOD, as executrix of the Estates of Doyle Chism and Norma Chism, deceased.

1910752.

Supreme Court of Alabama.

May 14, 1993.

D. Coleman Yarbrough, Montgomery, for appellant.

G.A. Lindsey and Debbie L. Jared, Elba, and Paul A. Young, Jr., Enterprise, for appellee.

ALMON, Justice.

The defendant, Fina Oil and Chemical Company, appeals from a judgment entered on a jury verdict in favor of the plaintiffs, Doyle and Norma Chism (husband and wife), in their malicious prosecution action. ¹ The jury awarded damages totalling $3,500,000. Fina raises several issues on appeal. Because we reverse and render a judgment based on the primary issue raised--whether Fina had probable cause to institute and continue the actions giving rise to the malicious prosecution action--we pretermit discussion of the other issues.

The facts leading up to this dispute are as follows:

The Chism Transportation Company, Inc. ("the Corporation"), was founded by Doyle Chism. Through the Corporation Chism owned and operated the Chism Truckstop in Ozark, Alabama. ² Before 1981, Chism owned all the stock in the Corporation and controlled its activities. In 1981, Chism transferred the stock in the Corporation to four persons: Steve Czarnecki, Patty Czarnecki, Charles Mitchell, and Betty Mitchell. ³ Chism, however, retained the right to vote the stock and to repurchase the stock on demand.

In January 1982, a Fina representative, Tony Njirich, met with Charles Mitchell and Steve Czarnecki at the truckstop about the possibility of the Corporation's becoming a Fina distributor. At a later meeting, Njirich informed Czarnecki and Mitchell that Fina would need financial statements and personal guaranties from the corporate officers and anyone else who was significantly involved in the Corporation. Czarnecki and Mitchell produced their own financial statements, as well as Doyle Chism's financial statement, from the safe at the truckstop and gave them to Njirich.

On February 9, 1982, Njirich returned to the truckstop with personal guaranties to be signed by Mitchell, Czarnecki, and Doyle Chism. Mitchell and Czarnecki were present at that meeting, and they signed the guaranties, which were then notarized by Betty Mitchell. Doyle Chism was not present at that time, but Mitchell and Czarnecki offered to take the guaranty to him and obtain his signature on the document. Njirich told Mitchell and Czarnecki that this course of action might not be satisfactory, because Chism's guaranty would have to be notarized in order to be valid. Czarnecki assured Njirich that he was a notary, and that he would notarize the guaranty. It is now undisputed that Czarnecki then left the truckstop, forged Doyle Chism's name on the guaranty, notarized the guaranty, and returned it to Njirich that same day.

Fina presented evidence that, on February 26, 1982, it sent a letter confirming its receipt of Doyle Chism's personal guaranty to his post office box and included a copy of the guaranty. Chism testified at trial that he never received the letter; Fina argues that the reason Chism never received the letter was that it was intercepted by someone at the truckstop. Chism testified that he received his mail at the truckstop's post office box and that some of his mail was intercepted during this period. On August 27, 1982, Fina sent a letter to Doyle Chism notifying him that the Corporation's account was delinquent in the amount of $494,912.21 and reminding him that he was liable for that amount as the personal guarantor of the debt. The receipt for this letter, which was sent to the truckstop's post office box by certified mail, was signed by Louise Chism, Doyle's sister-in-law, who, Doyle testified, worked at the truckstop "to keep an eye out for [Doyle's] interests." Doyle Chism testified that he never received the letter.

There was evidence that, in October 1982, Doyle Chism received a telephone call at his home from a Fina representative concerning the debt and his liability therefor as personal guarantor. During this conversation, Chism said, he denied ever signing a guaranty and declared that he was not liable for any debts owed to Fina by the Corporation.

The Corporation filed a Chapter 11 bankruptcy petition on November 3, 1982. On November 12, 1982, Fina, acting on the advice of counsel, brought an action against Doyle Chism in a federal district court to collect the overdue debt. About the same time, six other oil companies brought similar actions against Chism. The oil companies conducted settlement negotiations with Chism and his wife Norma, during which, according to the testimony of a lawyer who represented one of the other oil company plaintiffs, the Chisms offered to consent to a judgment against them on condition that the plaintiffs would not collect the judgment so long as the Corporation continued to make payments under its reorganization plan. In order to obtain a judgment against Norma Chism under this anticipated settlement, the lawyer testified, Fina amended its complaint on April 22, 1983, to add Norma Chism as a party defendant. ⁴ The Chisms apparently later withdrew their offer, although the district judge's secretary entered a notation indicating that the case had been settled. ⁵

Doyle and Norma Chism filed for bankruptcy relief under Chapter 11 on August 23, 1983. In the bankruptcy petition, they disputed approximately $1,800,000 in unsecured debts to the various oil companies. The collection action in the federal district court was stayed. In the Chisms' bankruptcy proceeding, the oil companies filed proofs of claim in accordance with the Bankruptcy Code, and the Chisms objected to the claims.

At the trial to determine the validity of the claims, the oil company claimants advanced three theories of recovery: 1) that Doyle Chism was liable for the debts of the Corporation by virtue of the alleged personal guaranties; ⁶ 2) that he was liable for the Corporation's debts on an alter ego or instrumentality theory; and 3) that the settlement purportedly entered into by the oil companies and Doyle and Norma Chism was binding on the parties.

On July 19, 1985, Judge Rodney Steele of the Bankruptcy Court for the Middle District of Alabama issued an opinion denying recovery to the oil companies. Judge Steele found that the guaranties had been forged by Czarnecki and were therefore not binding on Doyle Chism. Judge Steele also found that no written settlement was introduced into evidence by the parties; he held that Alabama law precluded enforcement of any alleged settlement under these circumstances. Finally, Judge Steele found that there was no "creditable" evidence that Doyle Chism had utilized the corporate structures of the Corporation to evade his personal obligations or to perpetrate a fraud; he then held that Chism was not liable under an alter ego or instrumentality doctrine under Alabama law.

Fina filed a motion for j.n.o.v. or a new trial, again arguing that Chism should be held liable under the alter ego or instrumentality theory because of the control he continued to exercise over the Corporation after he had transferred the stock. Judge Steele denied Fina's motion, holding that although Chism did exercise considerable influence over the Corporation, he did not control the Corporation, and that in any event there was no causal connection between any control exercised by Chism and the injustice claimed by the oil companies. Fina appealed from Judge Steele's decision to the federal district court; the district court affirmed Judge Steele's decision on May 5, 1986. On June 23, 1986, Fina voluntarily dismissed the original debt collection action filed in the federal district court.

The Chisms brought the present malicious prosecution action in the Coffee County Circuit Court on May 22, 1987. Although they initially named several defendants, they dismissed all the defendants except Fina before trial. The jury returned a verdict awarding Doyle Chism $2,500,000 and a verdict awarding Norma Chism $1,000,000. The trial court entered a judgment on the verdicts.

The action of malicious prosecution is not favored in the law. In Eidson v. Olin Corp., 527 So.2d 1283 (Ala.1988), this Court stated:

"Malicious prosecution is an action disfavored in the law. Cutts v. American United Life Insurance Co., 505 So.2d 1211, 1212 (Ala.1987). The reason for such disfavor is clear: '[P]ublic policy requires that all persons shall resort freely to the courts for redress of wrongs and to enforce their rights, and that this may be done without the peril of a suit for damages in the event of an unfavorable judgment by jury or judge.' Boothby Realty Co. v. Haygood, 269 Ala. 549, 554, 114 So.2d 555, 559 (1959)."

527 So.2d at 1284. See also Lynch v. Greentree Acceptance, Inc., 575 So.2d 1068 (Ala.1991); Alabama Power Co. v. Neighbors, 402 So.2d 958 (Ala.1981).

In order to succeed in a malicious prosecution action, a plaintiff must prove that a prior judicial proceeding was instigated by the present defendant without probable cause and with malice; that the prior proceeding ended in favor of the present plaintiff; and that the present plaintiff was damaged thereby. Lumpkin v. Cofield, 536 So.2d 62 (Ala.1988).

Fina's primary argument is that the Chisms failed to prove that Fina lacked probable cause to bring the actions to collect the debt in the federal district court and the bankruptcy court. It contends that it was fully justified in attempting to collect the debt based on an apparently signed and notarized guaranty that was regular on its face and based on its other theories of recovery presented in the bankruptcy court.

This Court has defined the term "probable cause" on numerous occasions. In Eidson, supra, the Court characterized the term as follows:

"Probable cause is defined as 'a reasonable ground for suspicion, supported by circumstances sufficiently...