Froemming v. Gate City Federal Sav. and Loan Ass'n

Decision Date09 June 1987
Docket NumberNos. 85-5419,s. 85-5419
Parties23 Fed. R. Evid. Serv. 342 Robert W. FROEMMING, David D. Owen, Paul J. Sentman and Bruce F. Thompson, Appellees, v. GATE CITY FEDERAL SAVINGS AND LOAN ASSOCIATION, Appellant. Robert W. FROEMMING, David D. Owen, Paul J. Sentman and Bruce F. Thompson, Appellees, v. Arvid P. BENSON, Appellant. Robert W. FROEMMING, David D. Owen, Paul J. Sentman and Bruce F. Thompson, Appellees, v. SUN SERVICE COMPANY, a North Dakota corporation, Appellant. Robert W. FROEMMING, David D. Owen, Paul J. Sentman and Bruce F. Thompson, Appellees, v. Warren T. COWGILL, Appellant. to 85-5422.
CourtU.S. Court of Appeals — Eighth Circuit

J. Philip Johnson, Fargo, N.D., for appellant.

John D. Levine, Minneapolis, Minn., for appellees.

Before ROSS, JOHN R. GIBSON, and FAGG, Circuit Judges.

PER CURIAM.

We reverse the judgment of the district court entered on the jury's verdict and reverse the district court's direction of a verdict on the issues of breach of the partnership agreement and of breach of fiduciary duty for the reasons stated in Judge John R. Gibson's opinion, Parts IB, IC, II, and III, in which Judge Ross and Judge Fagg join. We affirm the district court's direction of a verdict on the issue of Sun Service being the alter ego of Gate City for the reasons stated in Judge Ross' concurring opinion, in which Judge Fagg joins. Judge John R. Gibson dissents from the decision of the court on this issue for the reasons stated in Part IA of his opinion.

JOHN R. GIBSON, Circuit Judge, stating the decision of the court in Parts IB, IC, II, and III, in which Judge Ross and Judge Fagg join.

These appeals arise from the dissolution of North Bismarck Associates, a partnership which owned and operated a shopping mall in Bismarck, North Dakota. Sun Service Company, Arvid P. Benson, Warren T. Cowgill, and Gate City Federal Savings and Loan Association (the "North Dakota partners" 1) appeal from the district court's directed verdict against them on the claims of Robert W. Froemming, David D. Owen, Paul J. Sentman, and Bruce F. Thompson (the "Minnesota partners") that the North Dakota partners breached the North Bismarck Associates partnership agreement and breached various fiduciary duties owed to the Minnesota partners. The North Dakota partners also appeal from the judgment entered against them on the jury's special verdict awarding the Minnesota partners $1,051,561.41 in actual damages and $1,500,000 in punitive damages. The North Dakota partners argue that the district court erred in directing a verdict for the Minnesota partners, the parties carrying the burden of proof; in excluding expert testimony on the value of the shopping mall; and in submitting a punitive damage instruction on the breach of fiduciary duties as those duties arose from the partnership agreement, a contract. We reverse and remand for a new trial.

Briefly, the parties formed the North Bismarck Associates partnership on March 1, 1978. The partnership's only business was the ownership and operation of the Gateway Mall, a shopping center in Bismarck. Froemming, Owen, Sentman, and Thompson owned approximately 39% of the partnership; Sun Service, Benson, and Cowgill owned approximately 61%. Sun Service was wholly-owned by Gate City, a federally chartered mutual savings and loan association. Sun Service and Cowgill were the managing partners of North Bismarck Associates.

The mall was constructed and went into operation in the fall of 1979. A fundamental difference of opinion quickly developed among the partners over the advisability of long-term ownership and operation of the mall. In November of 1980, Cowgill, Benson, and Sun Service voted to sell the mall to a real estate syndicator for approximately $15,000,000. Under the terms of the partnership, approval of two-thirds of the partnership interests is necessary to sell a partnership asset. The North Dakota partners alone, owners of 61% of the partnership interests, could not effect a sale. There is evidence that the North Dakota partners, while continuing to seek offers to purchase the center, attempted to pressure the Minnesota partners into voting to sell through a variety of tactics 2 over the next three years.

After soliciting advice of independent counsel, the North Dakota partners concluded that they could effect a sale without the approval of the Minnesota partners by retiring a partner and subsequently liquidating the partnership assets. The partnership agreement provided that a partner could retire at any time upon giving notice to the partnership. The partnership then had the option of valuing and purchasing the interest of the retiring partner. If the partnership did not exercise this option, the partnership would be liquidated. Acting on this understanding of the agreement, Cowgill sent a notice of retirement to the partnership in April 1983. Sun Service and Benson evidently agreed to indemnify Cowgill for any loss he incurred by reason of his retirement, and to pay him a commission for the sale of the mall. The partnership voted not to pay for Cowgill's interest 3 and began the process of dissolution and liquidation.

Sun Service, as the remaining managing partner, commenced efforts to sell the mall. In April 1983, Sun Service filed a petition in state court to dissolve North Bismarck Associates and dispose of its assets. On December 13, 1983, Sun Service and Benson caused the partnership to enter into an agreement to sell Gateway Mall to an unrelated third party for approximately $13,400,000. The Minnesota partners continued to object to sale of the mall, and Sun Service did not obtain court approval. After some delay, the sale was completed on May 25, 1984. The partnership received a cash down-payment of $2,231,412.11; Cowgill was paid a $388,500 commission out of the down-payment. The balance was distributed to the partners.

Sun Service voluntarily dismissed the petition for dissolution after the sale of the mall. The Minnesota partners then filed suit alleging that the sale of the mall breached the partnership agreement and violated the fiduciary duties owed the Minnesota partners by the North Dakota partners. Gate City was also named as a defendant on the theory that it was the alter ego of Sun Service. At the close of the three-week trial, the district judge directed a verdict in favor of the Minnesota partners on a number of issues. The judge first directed that the jury find that Gate City was the alter ego of Sun Service in connection with the management of North Bismarck Associates. Des.Rec. at 509. He also directed the jury to find that the sale of the mall was a breach of the partnership agreement by Sun Service, Cowgill, and Benson. Id. The court further directed the jury to find that the sale of the mall involved breaches of fiduciary duties by Cowgill and Sun both as partners and as managing partners. Id. at 510. The court directed the jury to find that the payment of a commission on the sale of the mall out of partnership funds was a breach of fiduciary duties by Sun Service and Cowgill and that they and Gate City were jointly and severally liable for $150,553.46. Id. Also, the court ruled that the payment of certain attorney fees out of partnership funds was a breach of fiduciary duties for which Sun, Cowgill, and Gate City were liable in the amount of $7,197.45. Id. And, finally, the judge directed the jury to find that Sun Service's receipt of a portion of the management fee paid the mall's off-site managers was a breach of fiduciary duty for which Sun Service and Gate City were jointly liable in the amount of $32,073.50. Id.

The court submitted the remaining issues to the jury on a special verdict form. The jury awarded the Minnesota partners $634,000 as compensatory damages on the breach of the partnership agreement and $111,500 for wrongful dissolution. Id. at 511. The jury found that Benson was jointly liable with Sun Service and Cowgill for the payment of the sale commission. Id. Also, Cowgill and Benson were held jointly liable with Sun Service for the receipt of management fees. Id. Sun Service was found liable for breach of fiduciary duty in connection with the delay of the sale and was assessed $116,257 in compensatory damages. Id. The jury also found that Sun Service, Cowgill, and Benson acted with fraud, oppression, or malice in connection with their breaches of fiduciary duties, and assessed $1,000,000 in punitive damages against Sun Service, $400,000 against Cowgill, and $100,000 against Benson.

These appeals followed. The North Dakota partners challenge the entry of the directed verdicts, the exclusion of expert testimony on the value of the mall, and the award of punitive damages.

I.

The district court directed a verdict, as we have already observed, on six issues. The North Dakota partners argue that the evidence on each issue was not sufficient to justify directing a verdict in favor of the parties bearing the burden of proof. After a careful review of the record, we conclude that, although the evidence as to each issue preponderates to a greater or lesser degree in favor of the Minnesota partners, we cannot say that all of these issues should have been taken from the jury.

The standards we apply in reviewing the entry of a directed verdict are familiar. "[T]he evidence, together with all of the reasonable inferences to be drawn therefrom, is to be viewed in the light most favorable to the nonmoving party." Cason v. Cook, 810 F.2d 188, 189 (8th Cir.1987); accord Schlothauer v. Robinson, 757 F.2d 196 (8th Cir.1985). We "may not consider the credibility of the witnesses or the weight of the evidence." McKnelly v. Sperry Corp., 642 F.2d 1101, 1105 (8th Cir.1981) (footnote omitted). Furthermore, we must "resolve direct factual conflicts in favor of the nonmovant, * * * [and] assume as true all facts supporting the...

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