Gilbert v. Security Finance Corp.

• Decision Date: 05 July 2006
• Docket Number: No. 101,665.,No. 101,664.,101,664.,101,665.
• Citation: 152 P.3d 165,2006 OK 58
• Parties: Gary GILBERT, as Guardian for John E. Gilbert, an incapacitated person, Appellee, v. SECURITY FINANCE CORPORATION OF OKLAHOMA, INC.; Maverick Acquisition Corporation; Maci Holdings, Inc.; Security Finance Corporation of Spartanburg; Security Group, Inc.; and Continental Holding Company, Appellants.
• Court: Oklahoma Supreme Court

152 P.3d 165

2006 OK 58

Gary GILBERT, as Guardian for John E. Gilbert, an incapacitated person, Appellee, v. SECURITY FINANCE CORPORATION OF OKLAHOMA, INC.; Maverick Acquisition Corporation; Maci Holdings, Inc.; Security Finance Corporation of Spartanburg; Security Group, Inc.; and Continental Holding Company, Appellants.

No. 101,664.

No. 101,665.

Supreme Court of Oklahoma.

July 5, 2006.

Rehearing Denied February 12, 2007.

On Appeal from the District Court of Tulsa County; The Honorable P. Thomas Thornbrugh, Presiding.

¶ 0 The plaintiff filed suit in the district court against the defendants alleging fraud, breach of fiduciary duty, and breach of the duty of good faith and fair dealing, among other claims. The jury returned a $15,000.00 plaintiff's verdict for actual damages, and a $1,750,000.00 verdict for punitive damages. The district court granted the plaintiff's applications for sanctions and for costs. The non-resident defendants contest the district court's exercise of jurisdiction over them and the district court's submission of the alter-ego issue to the jury. The resident defendants claim that 23 O.S.Supp.2002, § 9.1 is unconstitutional and that the punitive damages award violated their due process rights. Both sets of defendants contest the sanctions and the amount of costs awarded by the trial court. The appeals in this case were retained and consolidated for review by this Court. The plaintiff filed a motion for appeal-related sanctions.

JUDGMENT AFFIRMED IN PART, REVERSED IN PART; ORDER AWARDING COSTS REVERSED; ORDER AWARDING SANCTIONS AGAINST NON-RESIDENT DEFENDANTS REVERSED; RESIDENT DEFENDANTS' AMENDED PETITION IN ERROR REGARDING SANCTIONS DISMISSED; APPEAL-RELATED MOTIONS FOR SANCTIONS AND TO STRIKE DENIED; CAUSE REMANDED WITH INSTRUCTIONS.

Fred A. Leibrock, Byrona J. Maule, Catherine L. Campbell, Phillips McFall McCaffrey McVay & Murrah, P.C., Oklahoma City OK, for Appellants Security Finance Corporation of Oklahoma, Inc. and Maverick Acquisition Corporation.

John R. Woodard, III, Curtis J. Roberts, Belinda E. Aguilar, Feldman, Franden, Woodard, Farris & Boudreaux, Tulsa, OK, for Appellants MACI Holdings, Inc., Security Finance Corporation of Spartanburg, Security Group, Inc., and Continental Holding Company.

David Humphreys, Luke J. Wallace, Adrienne N. Cash, Humphreys Wallace Humphreys, P.C., Tulsa, OK, for Appellee.

TAYLOR, J.

I. ISSUES

¶ 1 The principal issues before this Court are: (1) whether the exercise of in personam jurisdiction over the non-resident defendants violates due process, (2) whether the trial court erred in submitting to the jury and instructing the jury on the issue of alter-ego liability, (3) whether title 23, section 9.1 of the Oklahoma Statutes is unconstitutional, and (4) if not, whether the punitive damages award complies with title 23, section 9.1 under the evidence in this case.¹ We find that in personam jurisdiction over three of the four non-resident defendants violates due process. We also find that the trial court did not err in submitting to the jury and instructing it on the issue of alter-ego liability as to the other non-resident defendant. We hold that the provisions of title 23, section 9.1(A), (C), and (E) are facially constitutional. We find that the punitive damages award was excessive under title 23, section 9.1 based on the evidence presented in this case.

II. STANDARD OF REVIEW

¶ 2 In personam jurisdiction is a question of law subject to de novo review.² The court's jurisdiction must affirmatively appear on the record.³ The issues of a statute's constitutional validity and of its construction and application are questions of law reviewed de novo.⁴ We review assigned errors in jury instructions to consider whether the instructions in their entirety accurately reflect the law and whether it is reasonably evident that the jury was mislead by an erroneous instruction.⁵

III. THE DEFENDANTS

¶ 3 Security Finance Corporation of Oklahoma, Inc. (SFC-OK) and Maverick Acquisition Corporation (Maverick) (together Oklahoma defendants) are supervised installment loan companies who make consumer loans of up to $1,000.00 in Oklahoma. The Oklahoma defendants agreed to be held liable for each other's acts. SFC-OK is a wholly-owned subsidiary of Finance Corporation of Spartanburg (SFC-S), a South Carolina company. Security Group, Inc. (SGI), is a stock holding company⁶ incorporated under the laws of South Carolina and holds all of SFC-S' stock.

¶ 4 Maverick is a wholly-owned subsidiary of MACI Holdings, Inc. (MACI) which is a wholly-owned subsidiary of Continental Holding Company (CHC). Susan Bridges owns all of CHC's stock. MACI, CHC, and SGI (holding companies), together with SFC-S, are known as the Spartanburg defendants.⁷ None of the Spartanburg defendants are licensed to do business in Oklahoma.

¶ 5 SFC-S had a written "Management Agreement" with CHC for SFC-S to supervise Maverick's offices. The agreement was effective during the time period relevant to this case. The agreement gave SFC-S control of Maverick employees including the rights to hire, to discharge, to train, and to completely control and direct their activities. SFC-S and SFC-OK had a similar unwritten agreement.

IV. FACTS

¶ 6 Gary Gilbert (plaintiff) is the guardian and brother of John E. Gilbert. Between 1997 and 2001, John Gilbert regularly borrowed money from the Oklahoma defendants. During this time, John was not under a guardianship, most of this time he lived independently in an apartment, and his only income was a monthly social security disability check of $500.00 to $600.00. John cannot read, acts as though he can, and is noticeably mildly mentally retarded.

¶ 7 The Oklahoma defendants make new installment loans, renewal loans, and former borrower loans. To increase their profits, the Oklahoma defendants encouraged their customers to renew their loans every two months. Renewals comprised a significant part of the defendants' income. The Oklahoma defendants' policy was for employees to tell their customers the benefits of renewing loans without telling them the costs associated with the renewal. Then before the customer signed the loan agreement, an employee reviewed the loan renewal terms, including the costs and interest. The defendants referred to this as selling the renewal. At times a customer would request a renewal without an employee's "selling it."

¶ 8 Sometimes the Oklahoma defendants encouraged John to renew a loan; at other times, John would ask to renew. The Oklahoma defendants renewed John's loans thirty-seven times. The Oklahoma defendants continued to renew John's loans after they knew that he was staying at least part of the time in a homeless shelter.

¶ 9 SFC-OK has about 70 branch offices in Oklahoma; Maverick has about 30 branch offices. Generally, the branch offices are staffed by a manager and two assistant managers. Supervisors are above the branch managers on the organizational charts. A supervisor's job duties include: (1) overseeing seven to twelve branch offices, (2) hiring, firing, and developing branch employees, (3) overseeing the branch offices' finances, assets, and overall production, (4) visiting each of their branch offices at least every forty-five days, (5) ensuring account gain and loan volume for their territory, and (6) ensuring compliance with company policies and procedures. When visiting a branch office, a supervisor generally will complete a supervision form which is used to assure that employees follow the policy manual.

¶ 10 About fifteen supervisors work in Oklahoma. At least some of the supervisors' employment contracts are with SFC-S. However, the Oklahoma defendants urge that the contracts mislabel SFC-S as the employer. Supervisors receive a percentage of the profits generated by the branches they manage.

¶ 11 SFC-S provides the costs of immediate supervision of the Oklahoma defendants by paying for the expenses of the supervisors; of Lisa Burroughs, the Vice-President of Operations for SFC-OK; and of other Oklahoma defendants' officers. Lisa Burroughs helped set the yearly objectives for the Oklahoma defendants' offices. SFC-S has a sign on the side of its home office building in Spartanburg that states "Security Finance, 500 offices to serve you." When the branch employees and documents refer to the "home office," they are referring to the office in Spartanburg. One of the supervisors admitted that SFC-OK and SFC-S are the same company.

¶ 12 SFC-S owns the policy manual used by the Oklahoma defendants and provides training for the Oklahoma defendants' branch employees. In 2001, the Oklahoma defendants paid SFC-S over three million dollars for the expenses of supervision. SFC-S regularly swept the money out of both SFC-OK's and Maverick's accounts and commingled it in SFC-S' account with funds from other states. Marshall Walsh, general counsel for the Spartanburg defendants and the Oklahoma defendants, executed an affidavit stating that several officers and employees of SFC-S work in Oklahoma.

V. PROCEDURAL HISTORY

¶ 13 On February 11, 2002, the plaintiff filed this action against the Oklahoma defendants and later added the Spartanburg defendants. The plaintiff asserted, among other things: (1) fraud, deceit, and misrepresentation, (2) breach of fiduciary duty, and (3) breach of implied covenant of good faith and fair dealing. The jury found for the plaintiff on each of these three claims. It awarded the plaintiff $15,000.00 in actual damages and found that the defendants acted intentionally and with malice. After a separate evidentiary proceeding on the amount of punitive damages issue, the jury awarded the plaintiff $1,750,000.00 in punitive damages.

¶ 14 Below and here, the Spartanburg defendants have continually asserted that they should be dismissed for lack of in personam jurisdiction. The trial court consistently denied the Spartanburg defendants' motions as to in personam jurisdiction. The jury...