Zimmerman v. First Federal Sav. and Loan Ass'n of Rapid City, S.D.

Decision Date06 June 1988
Docket NumberNos. 84-1586,84-1631,s. 84-1586
Citation848 F.2d 1047
Parties25 Fed. R. Evid. Serv. 1324 Franklin J. ZIMMERMAN and Donald F. Gratz, Plaintiffs-Appellees/Cross- Appellants, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF RAPID CITY, S.D.; First Federal Savings and Loan Association of Sioux Falls, S.D.; First Federal Savings and Loan Association of Watertown, S.D.; United Federal Savings and Loan Association of Aberdeen, S.D.; First Dakota Home Savings and Loan Association of Pierre, S.D.; Yankton Savings and Loan Association of Yankton, S.D.; Lloyd K. Pugh, an individual; Frank E. Everett, an individual; Floyd Snyder, Jr., an individual; Curtis L. Cameron, an individual; E.W. Boyles, an individual; John P. Clark, an individual; Defendants-Appellees. and, Donald R. Winship, individual Defendant Intervenor-Appellee, and Western Plains Service Corporation, a South Dakota corporation; Delbert M. Bjordahl, an individual; Ron L. Brown, an individual; and dba the Radi Group, a partnership, Defendants-Appellants/Cross-Appellees.
CourtU.S. Court of Appeals — Tenth Circuit

Paul J. Hickey, of Bagley, Hickey, Evans & Statkus, Cheyenne, Wyo., and John M. Law and Thomas McDonald, of Law and Knous, Denver, Colo., for defendants-appellees First Federal Sav. and Loan Ass'n of Rapid City, S.D., First Federal Sav. and Loan Ass'n of Sioux Falls, S.D., First Federal Sav. and Loan Ass'n of Watertown, S.D., United Federal Sav. and Loan Ass'n of Aberdeen, S.D., First Dakota Home Sav. and Loan Ass'n of Pierre, S.D., Yankton Sav. and Loan Ass'n of Yankton, S.D., Lloyd K. Pugh, Frank E. Everett, Floyd Snyder, Jr., Curtis L. Cameron, E.W. Boyles, and John P. Clark.

G. Verne Goodsell, of Wilson, Olson, Goodsell & Nash, P.C., Rapid City, S.D., and Nicholas G. Kalokathis, of Lathrop & Uchner, P.C., Cheyenne, Wyo., for defendants-appellants/cross-appellees Ron L. Brown, Delbert M. Bjordahl, and Western Plains Service Corp.

Cameron S. Walker, of Schwartz, Bon, McCrary & Walker, Casper, Wyo., for individual defendant intervenor-appellee Donald R. Winship.

Franklin J. Zimmerman and Donald F. Gratz, pro se.

Before McKAY, ANDERSON and TACHA, Circuit Judges.

TACHA, Circuit Judge.

Western Plains Service Corporation (WPSC) was a savings and loan service company that packaged, serviced, and sold loans made by other banks or associations. Its shareholders were sixteen South Dakota savings and loan associations. Plaintiffs Donald Gratz and Franklin Zimmerman brought this suit against WPSC, Delbert Bjordahl (president of WPSC), Ron Brown (an employee of WPSC), certain of the shareholder S & Ls, and certain members of WPSC's board of directors who were also officers of the S & Ls involved. Plaintiffs also sued Donald Winship, an attorney who had represented both WPSC and the plaintiffs at various times.

Plaintiffs planned to build a housing development in Gillette, Wyoming. They allege that WPSC agreed to loan them 2.2 million dollars to finance their project, and that WPSC provided only $600,000 and then wrongfully foreclosed on the project in a suit brought in 1981. Plaintiffs did not answer the complaint in the foreclosure suit, and the court entered a default judgment against them. Plaintiffs subsequently brought the separate action which underlies this appeal. At trial plaintiffs based their claims against WPSC, Bjordahl, and Brown on theories of breach of contract, promissory estoppel, and fraud. They charged the S & L officers with negligent supervision of Bjordahl and Brown. They charged Winship with breaching a fiduciary duty, deceit or collusion, and interfering with a contract. The district court granted a directed verdict motion in favor of the S & L officers on the negligent supervision claim. The jury found against plaintiffs on all remaining claims except promissory estoppel. On that claim the jury awarded plaintiffs 1.5 million dollars in damages. Plaintiffs and WPSC both appeal. 1

I. Plaintiffs' Claims on Appeal.

At trial the plaintiffs asked the district court to grant judgment notwithstanding the verdict on their claim that the corporate veil of Western Plains should be pierced and the individual S & L-shareholders held liable. The plaintiffs appeal the denial of this motion.

Although we apply the substantive law of Wyoming in this diversity case, we follow the federal standard for determining whether the court properly denied the motion for judgment n.o.v. Suggs v. State Farm Fire and Casualty Co., 833 F.2d 883, 887 n. 5 (10th Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 1732, 100 L.Ed.2d 196 (1988). Under this standard, we may find error only if the evidence points but one way and is susceptible to no reasonable inferences supporting the party for whom the jury found; we must construe the evidence and inferences most favorably to the nonmoving party. EEOC v. Prudential Fed. Sav. and Loan Ass'n, 763 F.2d 1166, 1171 (10th Cir.), cert. denied, 474 U.S. 946, 106 S.Ct. 312, 88 L.Ed.2d 289 (1985).

Wyoming law on piercing the corporate veil provides that "[f]or a corporation to be accorded treatment as a separate entity, it must exist and function as such and not be the alter ego of the person owning and controlling it and cannot be used or ignored just to fit the convenience of the individual." Amfac Mechanical Supply Co. v. Federer, 645 P.2d 73, 79 (Wyo.1982). "Before a corporation's acts will be considered to be those of a specific stockholder, it must be made to appear that the corporation is not only influenced and governed by that stockholder, but that there is such a unity of interest and ownership that the individuality or separateness of the corporation and stockholder has ceased." Kloefkorn-Ballard Constr. & Dev., Inc. v. North Big Horn Hosp. Dist., 683 P.2d 656, 661 (Wyo.1984).

In this case the jury determined that WPSC was not the alter ego of the S & Ls. There is evidence in the record to support the conclusion that WPSC and the S & Ls were operated as separate legal entities with independent decision-making processes. For example, evidence was presented indicating that WPSC was engaged in the legal and customary business of a service corporation, that WPSC and the S & Ls had separate bank accounts and accounting systems as well as separate staffs and offices, and that the directors did not manage the day-to-day operations of WPSC. There was also evidence that the S & Ls did not pay any salaries of WPSC employees nor any of its expenses. Finally, there was testimony that the capital structure of WPSC was adequate. Thus, the evidence regarding the separateness of WPSC and the S & Ls supports the jury's finding, and the verdict must stand.


The next issue is whether the trial court properly granted a directed verdict in favor of the directors of WPSC on the theory that they breached their duty to supervise corporate affairs. We apply the substantive law of Wyoming but the federal standard for determining whether the court erred in granting the directed verdict motion. See Suggs, 833 F.2d at 887 n. 5.

"Motions for a directed verdict and for judgment n.o.v. are considered under the same standard." Hurd v. American Hoist and Derrick Co., 734 F.2d 495, 498 (10th Cir.1984). Therefore, we must determine whether, under the evidence presented, the jury could properly find a verdict for the plaintiffs. Id. at 499.

Plaintiffs allege that the directors of WPSC breached their duty as directors to supervise the corporation's affairs. We note initially that the duty to supervise corporate employees is owed principally to the shareholders of the corporation. This suit is not brought on behalf of WPSC's shareholders but by a third party. Wyoming courts have not spoken on the duty of corporate directors to third parties. This court has held that an officer of a corporation is liable to a third party if he or she "directs or participates actively in the commission of a tortious act...." Lobato v. Pay Less Drug Stores, 261 F.2d 406, 408 (10th Cir.1958). However, "[s]pecific direction or sanction of, or active participation or cooperation in, a positively wrongful act of commission or omission which operates to the injury or prejudice of the complaining party is necessary to generate individual liability in damages of an officer or agent of a corporation for the tort of the corporation." Id. at 409. We hold that Wyoming courts would apply the general rule we stated in Lobato. See also Escude Cruz v. Ortho Pharmaceutical Corp., 619 F.2d 902, 907 (1st Cir.1980) (the general rule requires "some showing of direct personal involvement").

The harm plaintiffs suffered stemmed from the breach of an alleged promise to loan them 2.2 million dollars. Therefore, we must determine whether plaintiffs offered sufficient evidence showing that the directors of WPSC specifically directed or sanctioned, or actively participated in the promise to make this loan. We find nothing in the record to suggest that the directors even knew of, much less actively participated in, the promise to lend 2.2 million dollars. The jury could not have properly found for the plaintiffs on this claim. Therefore, the district court correctly granted the directors' motion for a directed verdict.


We now turn to plaintiffs' claim that the court's failure to instruct the jury on punitive damages is reversible error. Assuming there was error in this regard, we hold that it was harmless. An award of punitive damages would be justified only if defendants engaged in "wanton and willful misconduct." Danculovich v. Brown, 593 P.2d 187, 191 (Wyo.1979). In its findings on the fraud claim, the jury found that defendants did not knowingly or recklessly make a misrepresentation intended to deceive plaintiffs. This finding would preclude an award of punitive damages on the promissory estoppel claim--the only claim on which plaintiffs were successful. Therefore the error, if any, was harmless.

II. WPSC's Claims on Cross-Appeal.

The next set of issues is raised...

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