Kirtley v. Bankers Life & Casualty Company

• Decision Date: 30 August 1961
• Docket Number: Civ. No. 4-961.
• Citation: 198 F. Supp. 30
• Parties: C. M. KIRTLEY, Trustee in Corporate Reorganization Proceedings of Automatic Washer Company, Plaintiff, v. BANKERS LIFE & CASUALTY COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Iowa

198 F. Supp. 30

C. M. KIRTLEY, Trustee in Corporate Reorganization Proceedings of Automatic Washer Company, Plaintiff, v. BANKERS LIFE & CASUALTY COMPANY, Defendant.

Civ. No. 4-961.

United States District Court S. D. Iowa, Central Division.

August 30, 1961.

W. Z. Proctor, Howard A. Steele, James L. Rogers, and H. M. Coggeshall (of Bradshaw, Fowler, Proctor & Fairgrave), Des Moines, Iowa, for plaintiff.

S. David Peshkin (of Bridges & Peshkin), Des Moines, Iowa, for defendant.

STEPHENSON, Chief Judge.

This matter is before the Court on the defendant's motion for a judgment notwithstanding the verdict or for a new trial under Federal Rule of Civil Procedure 50, 28 U.S.C.A. Upon request of the defendant hearing on defendant's motion was postponed until after a transcript of the trial could be prepared.

The plaintiff, C. M. Kirtley, is Trustee of Automatic Washer Company in corporate reorganization proceedings under Chapter X of the National Bankruptcy Act, 11 U.S.C.A. § 501 et seq. While jurisdiction is alleged on grounds of diversity of citizenship, diversity need not exist in suits filed by a Trustee in corporate reorganization under Chapter X of the Bankruptcy Act. 11 U.S.C.A. §§ 11, sub. a, 46, 502. Williams v. Austrian, 1947, 331 U.S. 642, 67 S.Ct. 1443, 91 L.Ed. 1718.

The plaintiff (hereinafter referred to as Automatic) brought suit against the defendant (hereinafter referred to as Bankers) claiming that Bankers was attempting to work a scheme whereby Bankers, through its subsidiary, Illamex, Inc., would acquire 492,500 shares of Automatic stock, purportedly worth no less than $1,267,500, for a cost to Bankers of only $250,000; and in attempting this scheme Automatic was damaged in that Bankers caused Automatic to sell $500,000 worth of stock Automatic held, for a note and mortgage worth only $65,000.

Automatic claims Bankers' scheme would operate as follows:

1. Bankers would acquire the majority stock in Automatic and thereby become its dominant and controlling stockholder.

2. Bankers would take complete control of Automatic by obtaining offers to resign from all the officers and directors of Automatic except John W. Chamberlin, President, who would be retained as a "front" for Bankers.

3. Bankers would then cause Automatic to acquire from a company named Martin Development Corporation, a 90 day $225,000 note and mortgage on Schuster Oil and Gas Corporation properties. To pay for this note and mortgage, Bankers would have Automatic transfer to Martin Development Corporation 25,000 shares of Bellanca stock, owned by Automatic and having a value of $500,000.

4. Bankers would then have Automatic cause Schuster Oil and Gas Corporation to transfer its property covered by the mortgage to Automatic, who would then cancel the mortgage and give Schuster 492,500 shares of Automatic.

5. Finally, Bankers would have its subsidiary, Illamex, Inc., buy the Automatic shares from Schuster Oil and Gas Corporation for $250,000 cash, which was less than the fair value of that stock.

Automatic claims that Bankers in fact did consummate the first three steps in its scheme, damaging Automatic when it caused Automatic to give the Bellanca stock, allegedly worth $500,000 for the Schuster note and mortgage, allegedly worth only $65,000. As a result thereof, Automatic contends it suffered actual damages to the extent of $435,000. Automatic further sought exemplary damages in the amount of $1,000,000.

Bankers completely denies the existence of any plan or scheme on its part, or conspiracy or fraud in any of its dealings with or concerning Automatic. Bankers states that in fact Automatic had been negotiating with Martin for the acquisition of the Schuster note and mortgage in March of 1956, long before Bankers became involved in Automatic. Bankers further claims that at the time Bankers purchased the controlling interest in Automatic, they were led to believe by Automatic and Bellanca, and in fact did believe, that Automatic already owned the Schuster gas and oil properties. Bankers, therefore, asserts that under these facts it is apparent that they exerted no influence and had nothing whatsoever to do with the transaction by which Automatic acquired the Schuster note and mortgage in exchange for the Bellanca stock. Bankers further denies the allegations of Automatic that the Schuster note and mortgage were only worth $65,000, claiming that the value of the note and mortgage, under the circumstances, was equal to, if not more than the value of the 25,000 shares of Bellanca stock traded for it.

Bankers' motions for directed verdicts at the close of Automatic's evidence and at the close of all the evidence were overruled. The jury returned a verdict for Automatic for $1,056,250. Of this amount, $406,250 was for compensatory damages and $650,000 was for exemplary damages. At the request of Bankers, the following interrogatory was submitted to the jury:

"Did Bankers Life and Casualty Company, on or about May 11, 1956, cause Automatic Washer Company to acquire from Martin Development Corporation a written note and mortgage in the amount of $225,000 in exchange for 25,000 shares of Bellanca stock?"

The jury answered the interrogatory in the affirmative. The only exception taken to the Court's instructions was Bankers' exception to submitting the issue of exemplary damages to the jury.

In substance Bankers now contends the Court should have granted its motion for a directed verdict at the close of Automatic's evidence or at least at the close of all the evidence for the reason Automatic's evidence was insufficient as a matter of law to make a question of fact for the jury. Bankers further contends the verdict was against the weight of the evidence. In addition, Bankers contends that the issue of exemplary damages should not have been submitted to the jury and that in any event the exemplary damages assessed by the jury were so grossly excessive under the evidence that it indicates passion and prejudice on behalf of the jury, and in the alternative that under the evidence, the damages awarded by the jury were excessive.

It is the view of this Court that there was sufficient evidence to make a question of fact for the jury and that the verdict was not against the weight of the evidence. The Court further holds that in view of the evidence submitted the compensatory damages awarded were not excessive. The submission of the issue of exemplary damages to the jury and the amount of exemplary damages awarded require further discussion.

The Court instructed the jury that if they found Automatic was entitled to recover compensatory damages they could consider whether or not to allow Automatic exemplary damages. Instruction 10 covering the issue of exemplary damages was given as follows:

"If you have found that the plaintiff is entitled to recover compensatory damages under all the instructions heretofore given you, you may then consider whether or not you will allow the plaintiff what is known in law as punitive damages.

"You are instructed that the law permits, but does not require, a jury to allow punitive damages in certain cases if the jury finds that the act of the defendant causing damage to the plaintiff was an improper, malicious or wrongful act, committed with no justification, which act results in injury or damage to the plaintiff.

"Punitive damages are not compensatory in the ordinary sense, but are allowed by way of punishment to restrain the defendant and others from the commission of like acts in the future.

"In this case if you have found all the facts necessary to allow the plaintiff to recover compensatory damages, as you have been previously instructed, you may then also allow the plaintiff punitive damages if you find that the acts of the defendant which caused the damage to the plaintiff were done maliciously, or that those acts were wrongful acts and they were done with disregard to the rights of the plaintiff, or disregard to the duty the defendant may have had to the plaintiff.

"In determining the amount of punitive damages, if any, to be awarded the plaintiff, the Court can give you no exact rule, but you should be guided by your careful and well-considered judgment and allow, if any, such an amount and such only as you shall find the plaintiff entitled to receive in addition to his actual damages under all the facts and circumstances as shown by the evidence and under these instructions.

"In no event may you allow the plaintiff, as punitive damages, more than $1,000,000, being the amount for which the plaintiff prays, but you are not to consider the mentioning of this figure to be any intimation by the court that this amount or any other amount should be awarded as punitive damages by you."

Bankers took no exception to the wording of the instruction (or any other instruction for that matter) but did object to submitting the question of exemplary, or punitive damages to the jury.

The question presented is whether Iowa law would permit an award of exemplary damages in such a situation. Bankers contends that "* * * the jury must find that the defendant must have been activated by actual malice rather than an implied malice inferred from the circumstances in order for an award of punitive damages to be allowed." Examination of recent Iowa authority upon the question shows this contention is without merit. Not only will implied malice inferred from the circumstances suffice, but malice itself does not always have to be...