TARRANT v. GUTHRIE FIRST CAPITAL BANK

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TARRANT v. GUTHRIE FIRST CAPITAL BANK
2010 OK CIV APP 82
Case Number: 106361; Consol. w/106630
Decided: 07/27/2010
Mandate Issued: 09/02/2010
DIVISION II
THE COURT OF CIVIL APPEALS OF THE STATE OF OKLAHOMA, DIVISION II

TRACY TARRANT, Plaintiff/Appellee,
v.
GUTHRIE FIRST CAPITAL BANK, an Oklahoma corporation, Defendant/Appellant,
and
TOM HOLDER and RANDY HOLDER, Defendants.

APPEAL FROM THE DISTRICT COURT OF LOGAN COUNTY, OKLAHOMA

HONORABLE DONALD L. WORTHINGTON, TRIAL JUDGE

REVERSED AND REMANDED FOR FURTHER PROCEEDINGS

Robert S. Glass, R. Charles Wilkin III, Amy E. Hampton, Chad M. Neuens, GLASS WILKIN, PC, Tulsa, Oklahoma, for Appellee Tracy Tarrant
John N. Hermes, Rodney K. Hunsinger, MCAFEE & TAFT, A PROFESSIONAL CORPORATION, Oklahoma City, Oklahoma, for Appellant First Capital Bank

JOHN F. FISCHER, PRESIDING JUDGE:

¶1 Appellant First Capital Bank appeals from a judgment entered by the district court in favor of Appellee Tracy Tarrant. Based on our review of the applicable law, we reverse and remand for further proceedings.

BACKGROUND

¶2 The facts relevant to this dispute concern Tarrant's forty-five percent ownership in the "Alice Fisher" oil well, and transactions concerning that interest between Tarrant and the Bank. The Bank owned several loans made to Tarrant and his family, including a loan secured by a mortgage on the well. In 1998, production at the well was temporarily halted due to a pipe failure in the well bore. After Capstone Oil and Gas became operator of the well, it sought to rework the well and reestablish production. Capstone, also a Bank customer, estimated that the cost of this project would be approximately $110,000, and proposed an "Authority for Expenditure" (AFE) for this amount to the other well owners. Owners who agreed to Capstone's proposal were required to pay their pro-rata share of the cost of the project. Capstone paid the cost for owners who did not agree. However, it would deduct 300 percent of all costs advanced on behalf of any non-consenting owner from the owner's future share of production if the project was successful. Although Tarrant consented to the project and agreed to pay his $49,800 share of the project, his initial payment was only $35,800. The record indicates that Tarrant had no cash or credit available to pay any additional costs.

¶3 Capstone then submitted a supplemental AFE, estimating that the cost of the project would be $260,000. Tarrant objected. At a meeting called by the Bank, Tarrant agreed to proceed. The Bank then presented Tarrant with a supplemental operating agreement it had prepared and which Capstone had previously signed. Pursuant to this agreement, Tarrant would pay the remaining $14,000 due on the first AFE but he would not participate in any additional workover costs. Capstone would retain a percentage of Tarrant's future income from the well, based on his non-consent to the additional expenses and the penalties applicable to those costs, until this obligation was satisfied. Tarrant contends that he signed this supplemental agreement on the advice of the Bank, or because of pressure or threats from Bank, including the claim that Capstone would otherwise stop work on the well.

¶4 Capstone's rework of the well was successful, but its costs substantially exceeded the supplemental AFE. One Bank document estimates the final cost at $744,000, over six times the original estimate. As a result, Tarrant ultimately owed Capstone approximately $840,000 in costs and non-consent penalties. Although Tarrant's interest in the well was worth between $900,000 and $1,000,000, the amended operating agreement allowed Capstone to retain $12,000 of Tarrant's share of monthly production to pay the costs and non-consent penalties. Capstone paid the remaining $2,000 directly to the Bank to repay Tarrant's debt to the Bank. Consequently, Tarrant was unlikely to receive any income from the well for approximately eight years.

¶5 Tarrant questioned the legitimacy of Capstone's workover charges and its payment to the Bank of amounts not retained by Capstone. According to Tarrant, Bank proposed to Capstone that it buy Tarrant's interest in the well, suggested a price of $150,000, and represented to Tarrant that Longhorn Services had made an offer to buy his interest in the well without disclosing that Longhorn was a division of Capstone. Tarrant refused to sell.

¶6 In May 2004, Tarrant sued Capstone for fraud. In February 2005, the Bank wrote to Tarrant informing him that Capstone had offered to purchase the loans secured by the Tarrant family homes, vehicles and property, implying that Capstone intended to foreclose the loans during the litigation. Tarrant contends that Capstone made no such offer, and that Bank fabricated this offer to discourage him from continuing the litigation. In June 2005, the district court granted Tarrant's motion for summary judgment against Capstone. A jury later determined his actual and punitive damages to be approximately $7,200,000.1

¶7 Tarrant alleges that, in retaliation for "exposing Capstone's fraud," Bank foreclosed on all the Tarrant family loans. Tarrant filed suit against Bank in June 2005, asserting several theories of recovery. The pre-trial conference order recites that Tarrant sought recovery for conspiracy to commit unlawful acts; breach of fiduciary duty; negligence; bad faith and prima facie tort. At trial, the district court's instructions to the jury on these theories included prima facie tort.2 The district court gave the prima facie tort instruction over Bank's objection. The Bank also moved for a directed verdict at the close of evidence, which the court denied. The jury returned a general verdict of $1,350,000 in favor of Tarrant for actual and punitive damages. Bank filed motions for judgment notwithstanding the verdict, and for a new trial. In its motion for new trial, Bank argued, among other issues, that the district court erred in giving the prima facie tort instruction. The district court denied these motions and entered judgment for Tarrant. Bank appeals.

STANDARD OF REVIEW

¶8 "Fundamental error occurs when the trial court does not accurately instruct the jury on the law." Taliaferro v. Shahsavari, 2006 OK 96, ¶ 25, 154 P.3d 1240, 1248. "Where a jury is instructed on more than one issue and error affects one of the issues, 'the error affecting one issue or theory in a case will be regarded as prejudicial where it is impossible to determine upon which of the two issues or theories the jury based its decision.'" Hightower v. Kansas City S. Ry. Co., 2003 OK 45, ¶ 8, 70 P.3d 835, 840 (citing Bredouw v. Jones, 1966 OK 93, ¶ 32, 431 P.2d 413, 420).

ANALYSIS

¶9 Bank argues that Oklahoma does not recognize the prima facie tort theory of recovery. Because we find the prima facie tort instruction constitutes fundamental error requiring remand, we do not address the other issues raised by Bank in this appeal.

I. Prima Facie Tort

¶10 Prima facie tort is defined by the Restatement (Second) of Torts §§ 870-874 (1979), as follows:

One who intentionally causes injury to another is subject to liability to the other for that injury, if his conduct is generally culpable and not justifiable under the circumstances. This liability may be imposed although the actor's conduct does not come within a traditional category of tort liability.

The Restatement's definition is "intended to serve as a guide for determining when liability should be imposed for harm that was intentionally inflicted, even though the conduct does not come within the requirements of one of the well established and named intentional torts." Restatement § 870 cmt. a. The Restatement requires a court to first apply a balancing test to decide if an intentional but not unlawful act should be considered a basis for tort liability.3

¶11 Although between eight and twelve states appear to have recognized this theory, litigation pursuant to the prima facie tort theory is concentrated in three states: New York, New Mexico and Missouri. New Mexico and Missouri apply essentially the same definition of prima facie tort:

1) an intentional, lawful act; (2) committed with the intent to injure the plaintiff; (3) causing injury to the plaintiff; and (4) the absence of justification for the injurious act.

Schmitz v. Smentowski,

1) the intentional infliction of harm, (2) which results in special damages, (3) without any excuse or justification, (4) by an act or series of acts which would otherwise be lawful.

Curiano v. Suozzi

¶12 Tarrant cites no Oklahoma case adopting the prima facie tort theory of recovery, and we find none. The term "prima facie tort" appears in no reported Oklahoma case before 1990. In 1985, the Oklahoma Bar Journal published a student article titled The Prima Facie Tort Doctrine in Oklahoma, 56 Okla. B. J. 1759. This article centers on four pre-1925 tort cases.

¶13 This student article was first cited in 1990 by the Tenth Circuit in Merrick v. Northern Natural Gas Co., Div. of Enron Corp., 911 F.2d 426, 433 (10th Cir. 1990):

This broad theory of [prima facie] tort liability has been adopted in only a handful of states, including Oklahoma. See Cressman, The Prima Facie Tort Doctrine in Oklahoma: Common Law Protection of Business From Unjustified Interference, 56 Okla. B.J. 1759, 1759 (1985).

Nonetheless, the Merrick court refused to apply the prima facie tort theory to the facts in that case, and the Tenth Circuit later commented on Merrick's observation that Oklahoma has adopted the theory.

¶14 Nonetheless, after 1990, cases in which plaintiffs pled a prima facie tort theory of recovery began to appear in Oklahoma. Between 1990 and 1999, several unpublished decisions of this Court rejected the availability of the prima facie tort theory based on the specific facts of the case, but did not comment on whether Oklahoma recognized the theory. In 1999, the Oklahoma Supreme Court, in Patel v. OMH Medical Center, Inc.,

The expression "prima facie tort" does not appear ever to have been recognized in Oklahoma. For the view that the concept of prima facie tort has been applied in Oklahoma jurisprudence under limited circumstances, see Merrick v. Northern Natural Gas Co., 911 F.2d 426 (10th Cir. 1990).

Id.

¶15 It is clear from Patel that the term "prima facie tort" had not been previously recognized in Oklahoma, and that the theory had not been adopted with respect to acts constituting spoliation of evidence, or as a vehicle to provide tort damages for perjury or other litigation-related misconduct. Id. at ¶¶ 44-45, 987 P.2d at 1202. Although Patel does not specifically hold that the prima facie tort theory of recovery is unavailable in any other circumstances, it certainly did so with respect to the facts before the Court in that case. Nonetheless, until the Supreme Court expressly adopts the prima facie tort theory of recovery, we are unwilling to do so. Therefore, we find it was error to instruct the jury with respect to that theory.

II. The Prima Facie Tort Instruction Requires Reversal

¶16 Tarrant argues that, irrespective of any error in the prima facie tort instruction, the verdict and judgment should be upheld, pursuant to Mazzio's Corp. v. Bright,

¶17 Although we review jury instructions in their entirety, the applicable standard of review requires not only analysis of the accuracy of the statement of law, but also the applicability of the instructions to the issues in the case. Johnson v. Ford Motor Co.,

CONCLUSION

¶18 The Oklahoma Supreme Court has not previously recognized a theory of recovery based on prima facie tort, and we decline to do so in this case. Consequently, it was error to instruct the jury with respect to that theory. Because a general verdict was entered in this case, it cannot be determined whether the jury relied on the prima facie tort theory in rendering its verdict for Tarrant. Therefore, we find that Bank has demonstrated prejudicial error. The judgment of the district court in favor of Tarrant is reversed, and this case is remanded for further proceedings consistent with this Opinion.

¶19 REVERSED AND REMANDED FOR FURTHER PROCEEDINGS.

WISEMAN, C.J., and BARNES, J., concur.

FOOTNOTES

1 This Court subsequently overturned the verdict against Capstone, finding that the district court had improperly applied the summary judgment standard. Before the case went to trial a second time, Tarrant and Capstone settled. Tarrant also settled a discovery sanction awarded against Randy and Tom Holder, two individuals associated with Capstone. Prior to that settlement, this appeal (Case No. 106,630) had been consolidated with the Holders' appeal of the sanctions issue in Case No. 106,361. The Holders' dismissal of their appeal after settlement leaves for this appeal only issues regarding Tarrant's judgment against the Bank.

2 The prima facie tort instruction requested by Tarrant and given by the district court provides:

Plaintiff alleges that Defendant conspired with Capstone to cause Plaintiff to enter into the second AFE and the Supplemental Agreement. A prima facie tort exists if Defendant acted in any of the following ways that caused damage to Plaintiff:
1. Defendant acted with the intent to injure Plaintiff, or
2. Defendant knew that plaintiff was in such a condition that Defendant's conduct would result in injury, and defendant wilfully disregarded the consequences of its actions, or
3. Defendant acted with malice towards plaintiff as would indicate a conclusion that its actions were in disregard of whatever harm might follow from its actions.