Sampson v. Hunt

• Decision Date: 10 June 1983
• Docket Number: No. 54482,54482
• Citation: 233 Kan. 572,665 P.2d 743
• Court: Kansas Supreme Court
• Parties: Sherman H. SAMPSON, Appellee, v. Jack R. HUNT and Construction and Development, Inc., Appellants.

Page 743

665 P.2d 743

233 Kan. 572

Sherman H. SAMPSON, Appellee, v. Jack R. HUNT and Construction and Development, Inc., Appellants.

No. 54482.

Supreme Court of Kansas.

June 10, 1983.

Syllabus by the Court

1. In ruling on a motion for directed verdict pursuant to K.S.A. 60-250 the court is required to resolve all facts and inferences reasonably to be drawn from the evidence in favor of the party against whom the ruling is sought, and where the evidence is such that reasonable minds could reach different conclusions thereon, the motion must be denied and the matter submitted to the jury. The same basic rule governs appellate review of a motion for directed verdict.

2. When a pretrial order is entered by the trial court pursuant to K.S.A. 60-216, it has the full force and effect of other orders of the court and controls the subsequent course of trial unless modified to prevent manifest injustice.

3. The following factors are considered significant in justifying a disregard of the corporate entity: (1) undercapitalization of a one-man corporation, (2) failure to observe corporate formalities, (3) nonpayment of dividends, (4) siphoning of corporate funds by the dominant stockholder, (5) nonfunctioning of other officers or directors, (6) absence of corporate records, (7) the use of the corporation as a facade for operations of the dominant stockholder or stockholders, and (8) the use of the corporate entity in promoting injustice or fraud.

4. Mere single ownership of a corporation is not sufficient in itself to treat the corporation as an alter ego of the owner and justify a disregard of the corporate veil.

5. Power to pierce the corporate veil is to be exercised reluctantly and cautiously.

6. To maintain an action for malicious prosecution a plaintiff must prove the following elements: (a) that the defendant initiated, continued, or procured civil procedures against the plaintiff; (b) that the defendant in so doing acted without probable cause; (c) that the defendant acted with malice, that is, he acted primarily for a purpose other than that of securing the proper adjudication of the claim upon which the proceedings are based; (d) that the proceeding terminated in favor of the plaintiff; and (e) that the plaintiff sustained damages.

7. Probable cause for instituting a proceeding exists when there is a reasonable ground for suspicion, supported by circumstances sufficiently strong in themselves to warrant a cautious, or prudent, man in the belief that the party committed the act of which he is complaining. In cases for malicious prosecution, the inquiry as to want of probable cause is limited to the facts and circumstances as they appeared to the defendant at the time the prosecution was commenced.

8. A termination of civil proceedings by a competent tribunal adverse to the person initiating them is not conclusive evidence they were brought without probable cause.

9. Officers and directors of a corporation occupy a strict fiduciary relationship with respect to both the corporation and its shareholders. The same fiduciary standard applies as between directors.

10. Any unfair transaction undertaken by one in a fiduciary relationship may result in liability for unjust enrichment of the fiduciary. Where the fairness of a fiduciary transaction is challenged, the burden of proof is upon the fiduciary to prove by clear and satisfactory evidence that such transaction was fair and done in good faith.

11. A strict fiduciary duty is imposed on officers and directors of a corporation to act in the best interest of the corporation and the stockholders. The duty imposed by this position of trust requires an officer or director to work for the general interests of the corporation.

12. The law establishes no fixed ratio between actual and exemplary damages by which to determine excessiveness. In assessing punitive damages the nature, extent, and enormity of the wrong, the intent of the party committing it, and all circumstances attending the transaction involved should be considered. A jury may also consider the amount of actual damages recovered, the defendant's financial condition and the probable litigation expenses.

Terry C. Pilgreen, of Woodard, Blaylock, Hernandez, Pilgreen & Roth, Wichita, argued the cause and was on the briefs, for appellants.

John Terry Moore, of Moore, Rapp & Schodorf, Wichita, argued the cause and was on the brief, for appellee.

SCHROEDER, Chief Justice:

This is a malicious prosecution action in which Jack R. Hunt and Construction and Development, Inc. (defendants-appellants), appeal a jury award for actual and punitive damages entered against them and in favor of Sherman H. Sampson (plaintiff-appellee). The appellants contend the trial court erred in (1) directing verdicts in favor of the plaintiff on the issues of whether the appellants had probable cause to file the previous lawsuits, and whether Jack R. Hunt was the alter ego of Construction and Development, Inc.; (2) ruling there was sufficient evidence to support the award of actual damages; and (3) ruling the amount of punitive damages was not excessive.

This lawsuit is the culmination of a long history of business association and litigation between the plaintiff and defendants. In 1960 or 1961 the plaintiff and defendant Hunt became business partners and formed Construction and Development, Inc. (C & D). They were also partners in several other business projects, including Bonanza, Inc., which owned the Sweetbriar Shopping Center in Wichita. In 1970 Hunt and Sampson agreed to separate their joint business interests. Hunt became the sole owner of C & D. Hunt also purchased Sampson's interest in Bonanza, Inc., and the Sweetbriar Shopping Center.

Prior to this time C & D had entered into a contract with Seneca Square, Inc., to construct an addition to the Seneca Square Shopping Center in Wichita, which was owned by Seneca Square, Inc. Seneca Square, Inc., was wholly owned by Western Land and Development, Inc. (Western). Due to problems encountered during construction, it became necessary for Seneca Square, Inc., to arrange additional financing so the project could be completed. The Fourth National Bank and Trust Company in Wichita was unwilling to advance additional financing unless the indebtedness could be personally guaranteed by financially responsible people. Frank Malone, a stockholder in Western and Seneca Square, Inc., asked Hunt to approach Sampson about the possibility of these three individuals personally guaranteeing the note for Seneca Square, Inc. Sampson agreed, and in exchange for their participation, Hunt and Sampson each received one-third of Malone's stock in Western. In addition, Malone, Sampson and Hunt entered into an indemnity agreement wherein they each assumed equal liability (one-third) of any indebtedness owed by Seneca Square, Inc. For its work on the project C & D received a promissory note from Seneca Square, Inc., in the amount of $50,000. This note was personally guaranteed by Sampson, Malone and Hunt to enable C & D to pledge it as collateral for other loans.

In 1971, Sampson, Malone and Seneca Square, Inc., in three separate lawsuits, sued Hunt and C & D for fraud, misrepresentation and breach of fiduciary duty arising out of the financing of the Seneca Square project. C & D filed a counterclaim against the plaintiffs for collection of the $50,000 promissory note. These actions were consolidated for trial and eventually resulted in a stalemate, with judgment denied on all claims of the parties. In denying judgment to C & D on the promissory note the trial court ruled:

"The note given to Construction and Development, Inc., by Seneca Square, Inc., for $50,000 is a valid, legal obligation of the plaintiff, Seneca Square, Inc.; endorsements and guarantees of the plaintiffs, Sampson and Malone, were made with consideration; and further, the note in question is covered by the terms of the so-called 'Indemnity Agreement' of July, 1970."

In addition the trial court made the following specific finding of fact:

"The plaintiffs, Sampson and Malone, and the defendant, Hunt, jointly and severally, endorsed and guaranteed payment to the Fourth National Bank and Trust Company, Wichita, Kansas on behalf of Seneca Square, Inc. but the maximum amount that such endorsements and guarantees reached was $2,200,000.00. That at the present time there is still due and payable to the Fourth National Bank a sum of around $15,000.00. That all three of the above-named parties have paid their proportionate share of the amounts of such debts. The defendant, Hunt, is responsible for the $15,000.00." (Emphasis added.)

During the course of discovery in the Seneca Square case, Sampson learned that Hunt had withheld information and made misrepresentations concerning the financial situation of Bonanza, Inc., when Hunt purchased Sampson's interest in that enterprise. Sampson and other family members who had owned shares of Bonanza, Inc., commenced a second lawsuit against Hunt while the Seneca Square case was pending, alleging fraud and breach of fiduciary duty. Sampson and his family were awarded a judgment against Hunt in the amount of $93,000. This case was appealed by Hunt to the Supreme Court and affirmed in Sampson v. Hunt, 222 Kan. 268, 564 P.2d 489 (1977). Sampson ultimately collected approximately $120,000 from Hunt on the judgment and accumulated interest.

In November 1973, while the Bonanza, Inc., lawsuit was pending, the Fourth National Bank and Trust Company of Wichita filed a lawsuit against Malone, Sampson and Hunt to collect the balance of $15,000 due on a promissory note guaranteed by them in connection with the Seneca Square project. This was the same $15,000 found by the court in the Seneca Square case to be owed by Hunt. Hunt filed a cross-claim against Sampson and Malone, as sole owner of C & D, to collect under the indemnity agreement on the $50,000 promissory note given by Seneca Square, Inc....