Riscorp, Inc. v. Norman

• Decision Date: 17 June 2005
• Docket Number: 1031946.,1031514.
• Citation: 915 So.2d 1142
• Parties: RISCORP, INC. v. Peter D. NORMAN, as trustee of the Norman Family Charitable Remainder Unitrust, and Thomas K. Albrecht. Peter D. Norman, as trustee of the Norman Family Charitable Remainder Unitrust, and Thomas K. Albrecht v. Riscorp, Inc.
• Court: Alabama Supreme Court

Page 1142

915 So.2d 1142

RISCORP, INC. v. Peter D. NORMAN, as trustee of the Norman Family Charitable Remainder Unitrust, and Thomas K. Albrecht.

Peter D. Norman, as trustee of the Norman Family Charitable Remainder Unitrust, and Thomas K. Albrecht v. Riscorp, Inc.

1031514.

1031946.

Supreme Court of Alabama.

March 18, 2005.

Opinion Overruling Rehearing June 17, 2005.

COPYRIGHT MATERIAL OMITTED

W. Stancil Starnes and Bryan O. Balogh of Starnes & Atchison, LLP, Birmingham; and James N. Walter, Jr., and Wyndall A. Ivey of Capell & Howard, P.C., Montgomery, for appellant/cross-appellee Riscorp, Inc.

J. Michael Rediker, Bert S. Nettles, Peter J. Tepley, Michael C. Skotnicki, and Latanishia D. Watters of Haskell Slaughter Young & Rediker, LLC, Birmingham; and Jerry L. Thornton, Hayneville, for appellees/cross-appellants Peter D. Norman, as trustee of the Norman Family Charitable Remainder Unitrust, and Thomas K. Albrecht.

Doy Leale McCall III of Hill, Hill, Carter, Franco, Cole & Black, P.C., Montgomery, for amicus curiae Alabama Defense Lawyers Association, in support of the appellant/cross-appellee Riscorp, Inc.

H. Hampton Boles, Ed R. Haden, and David Burkholder of Balch & Bingham, LLP, Birmingham, for amicus curiae Alabama Bankers Association, in support of the appellant/cross-appellee Riscorp, Inc., on rehearing.

E.J. McArthur, Jr., and Norbert H. Williams, Alabama State Employees Association, Montgomery, for amicus curiae Alabama State Employees Association, in support of the appellees/cross-appellants Peter D. Norman et al., on rehearing.

WOODALL, Justice.

Riscorp, Inc., appeals, and Peter D. Norman, as trustee of the Norman Family Charitable Remainder Unitrust ("the Trust"), and Thomas K. Albrecht cross-appeal, from a judgment awarding the Trust $1,150,000 compensatory damages and $2,450,000 punitive damages, and awarding Albrecht $62,000 compensatory damages and $540,000 punitive damages, in their action against Riscorp alleging breach of contract and conversion. We reverse and remand in case no. 1031514 and we dismiss the cross-appeal (case no. 1031946).

This is the fourth time this Court has reviewed issues engendered by the interrelated transactions and relationships involved in this case. See Norman v. Occupational Safety Ass'n of Alabama Workmen's Compensation Fund, 811 So.2d 492 (Ala.2001) ("Norman II"); Riscorp v. Occupational Safety Ass'n of Alabama Workmen's Compensation Fund, 796 So.2d 1062 (Ala.2000); and Norman v. Occupational Safety Ass'n of Alabama Workmen's Compensation Fund, 776 So.2d 788 (Ala.2000) ("Norman I"). Much of the background of these transactions and relationships was set forth in Norman II, and we quote from it below, filling in with additional facts when necessary:

"The ... Occupational Safety Association of Alabama Workmen's Compensation Fund (`the Fund')[] is a self-insurance workers' compensation fund, established in February 1992, under § 25-5-9, Ala.Code 1975. The Fund was established to allow certain businesses to join together for the purposes of providing and receiving workers' compensation coverage.... By 1996,.... the Fund was one of the two largest self-insured funds in Alabama.

"The Fund entered into an `Administrative Services Agreement' with Independent Association Administrators, Inc. (`IAA'). [Peter D.] Norman had founded IAA in 1992, and was its president and a 50% stockholder. His partner, [Thomas] Albrecht, was also a 50% stockholder. The agreement between the [F]und and IAA provided that IAA shall `establish and coordinate necessary procedures and practices to be duties of the administrator required by the Bylaws, this Agreement and applicable state regulations.' In addition, IAA appointed Norman the administrator for the Fund.

"In the summer of 1996, Norman advised the Fund that it would be in the Fund's best interest to transfer its workers' compensation insurance contracts to Riscorp. The Fund alleges that, based upon the representations made by Norman, the Fund's board of trustees voted to transfer all of the Fund's contracts for workers' compensation coverage to Riscorp....

"On September 17, 1996, IAA merged with Riscorp [`the IAA merger']. Norman and Albrecht received Riscorp stock in return for all of their shares of IAA stock. Subsequently, there was a dispute as to payments the Fund alleged Riscorp was required to make. [In fact, two actions were filed in the Montgomery Circuit Court in 1997 arising out of the IAA merger.] On August 20, 1997, the Fund sued Riscorp and Norman. The Fund alleged that when Norman told the Fund that it should transfer all of its contracts to Riscorp, Norman and Albrecht were already negotiating the deal for the merger of IAA and Riscorp. According to the Fund, Norman and Albrecht received approximately $10.9 million in cash and stock from this deal. The Fund further contended that Norman and IAA had a conflict of interest and that they breached their fiduciary duties under the Administrative Services Agreement by recommending that the Fund transfer its contracts to Riscorp. [Another action was also filed in the Montgomery Circuit Court in 1997. In the second Montgomery County action, Norman and Albrecht sued Riscorp, alleging fraud in connection with a decline in the value of Riscorp stock. That suit was settled in early 1998. Under the settlement agreement, Norman and Albrecht each received from Riscorp (1) a cash payment, (2) a $1,150,000 loan, and (3) Riscorp stock, bringing their total stock ownership to 790,336 shares each. Norman and Albrecht each gave Riscorp a promissory note pledging their shares of stock as collateral for the loan. The notes were due to mature on the earlier of (1) January 9, 2002, or (2) `ten (10) days prior to the date of the "Ultimate Distribution,"' defined as `the date on which [Riscorp's board of directors] has authorized a complete distribution of assets in full satisfaction of all Riscorp Class A Common Stock.']

"....

"... [O]n July 13, 1998, the Fund amended its complaint to include Albrecht ... as [a] defendant[]; Riscorp and Norman were still named as defendants. The amended complaint sought damages for (1) breach of contract, (2) fraud, (3) breach of fiduciary duty, (4) negligence or wantonness, and (5) suppression; it also sought an accounting.

"[Negotiations began for a second merger in late 1999, by which Griffin Acquisition Corp. (`Griffin Acquisition'), a corporation formed and wholly owned by William Griffin, the founder of Riscorp, proposed to merge with Riscorp, pursuant to a `Plan and Agreement of Merger Among Griffin Acquisition Corp., William Griffin and Riscorp, Inc.' (`the Merger Agreement'). Under the Merger Agreement, each share of outstanding Riscorp Class A Common Stock was to be `cancelled and extinguished and ... converted automatically into a right to receive ... cash ... upon surrender of the certificate formerly representing the Class A Common Stock' (`the merger consideration'). The merger consideration, as ultimately approved by the Riscorp shareholders, was $3.075 per share.]

"....

"As previously noted, when IAA merged with Riscorp, Norman and Albrecht received shares of Riscorp stock. On June 20, 2000, ... Norman created, and transferred his Riscorp shares into, the `Norman Family Charitable Remainder Unitrust' (the `Trust'). Sometime shortly thereafter, the Trust and Albrecht transferred the shares of Riscorp stock back to Riscorp[, and the Trust executed a `pledge agreement' granting Riscorp a security interest in the 790,336 shares of stock it had acquired from Norman.]

"....

"[On July 20, 2000, the Merger Agreement became effective. Consequently, Riscorp deposited $43.8 million in an account at First Union National Bank (`First Union'), which served as `the depository and exchange agent, for shareholder payments.' Riscorp's brief, at 13. The exchange value of the shares owned by the Trust and Albrecht was $2,430,283.20 each, that is, 790,336 shares at $3.075 per share.]

"... Then, on July 28, 2000, the Fund filed a document entitled `Rule 64[, Ala. R. Civ. P.,] Application for Seizure of Stock Certificates and Garnishment of Stock Certificates and Garnishment of Money and Motion for a Preliminary Injunction' [`the Rule 64 application']. The Fund sought to have the trial court either seize the moneys held by Riscorp and due the Trust and Albrecht for the transfer of the Riscorp stock or to have the trial court enter a preliminary injunction against Norman and Albrecht, ordering them to pay such moneys into an interest-bearing account pending the resolution of this lawsuit.

"[Riscorp learned of the Rule 64 application on July 31, 2000, and, four days later — ostensibly on the advice of legal counsel — instructed First Union to transfer $2,300,000 to Riscorp's account, on the theory that Riscorp was entitled to `set-off' the amounts of the two $1,150,000 loans it had made to Norman and Albrecht against the amount of the merger consideration sought by the Fund. On August 7, 2000, First Union complied with Riscorp's instructions.]

"....

"... On August 15, 2000, the trial court granted the Fund's motion, enjoining Riscorp from disbursing any funds to Norman or Albrecht in payment of their transfer of Riscorp stock certificates back to Riscorp. The trial court further enjoined Norman and Albrecht `from any efforts to obtain the funds from Riscorp' and ordered Riscorp to pay to the court clerk `all proceeds which are due as a result of the transfer of the Stock Certificates.' [On August 23, 2000, Riscorp paid into the circuit court $2,560,566.40, which represented $1,280,283.20 for the Trust and $1,280,283.20 for Albrecht. These amounts represented the remainders of $2,430,283.20, the total of the merger consideration for the Trust and for Albrecht, less the $1,150,000 set-offs. Norman and Albrecht appealed.]"

811 So.2d at 493-96 (footnotes omitted).

On June 29, 2001, in Norman II, this Court reversed the trial court's...