Copper v. Cooper
Annotate this Case
Cooper v. Cooper (99-421); 173 Vt. 1; 783 A.2d 430
[Filed 21-Sept-2001]
NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.
No. 1999-421
Beatrice Cooper Supreme Court
On Appeal from
v. Addison Superior Court
Karen Wenig Cooper, Brian Cooper and January Term, 2001
Herman Cooper
Dean B. Pineles, J.
James C. Foley, Jr., of Deppman & Foley, P.C., Middlebury, for
Plaintiff-Appellant.
James A. Dumont of Keiner & Dumont, P.C., Middlebury, for Defendant-Appellee.
Frank H. Langrock of Langrock Sperry & Wool, LLP, Middlebury, for D
efendant-Appellant.
PRESENT: Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.
SKOGLUND, J. This case, which began as a foreclosure action and which
culminated in a jury award to an original mortgagee for emotional
distress, lost income and punitive damages, illustrates the fundamental
concept that co-tenants to real estate bear fiduciary obligations to each
other. We affirm the trial court's decision to grant summary judgment to
Karen Wenig in the foreclosure action, and affirm its holding that Herman
Cooper committed a breach of fiduciary duty against Karen Wenig, his
co-tenant. Further, we affirm the jury award of damages for emotional
distress against both Herman Cooper and his wife, Beatrice Cooper, and the
punitive damages award
against Herman Cooper. We reverse and remand on the issue of Herman
Cooper's contribution claim.
I. Procedural History
The property involved was purchased in April of 1983 by Herman Cooper,
his son Brian Cooper and Brian's now ex-wife, Karen Wenig, as joint
tenants. In May of 1994, Beatrice Cooper, wife of Herman and mother to
Brian, purchased the mortgage on this property and, in July of 1996,
instituted foreclosure proceedings against the owners. Karen
counterclaimed against Beatrice and cross-claimed against her co-tenants.
The trial court granted Karen's motion for summary judgment in the
foreclosure action, finding that Herman and Beatrice acted together to
purchase the mortgage on behalf of the remaining co-tenants. The court
granted partial summary judgment to Karen on her violation of fiduciary
duties counterclaim and cross-claims. It found, as a matter of law, that
Herman violated his duty to his co-tenant and that, as a matter of law,
Beatrice was acting as Herman's agent when she purchased the mortgage.
The court also found that Karen and Brian owed to Beatrice and Herman a
duty of contribution with respect to the amounts paid by Beatrice and
Herman to buy the mortgage, but reserved the contribution claim until
after trial on Karen's claim for damages. The matter proceeded to trial
on Karen's claim for damages for Herman's breach of fiduciary duty as a
result of the commencement of the foreclosure action; on the claim that
Beatrice was liable for aiding Herman's breach of fiduciary duty; and on
whether Brian had breached his fiduciary duty to Karen. At trial the
court directed a verdict in favor of Brian on Karen's claims against him.
With respect to Herman, the case went to the jury on damages for emotional
distress, lost income and punitive damages. As to Beatrice, the case
went to the jury on the issue of her liability for aiding Herman's breach
of fiduciary duty and on the emotional distress and lost income damage
claim.
As against Herman, the jury awarded Karen $20,000 for emotional
distress damages and $239,000 in punitive damages. Karen was awarded
$20,000 from Beatrice for her participation in Herman's breach of
fiduciary duty and for the emotional harm suffered by Karen. This appeal
followed.
On appeal, Beatrice claims that the trial court erred in denying her
request for a directed verdict on the claim that she knowingly
participated in the breach of Herman's fiduciary duty and in denying her
claim for contribution or reimbursement. Herman claims on appeal that the
court erred in its summary judgment decision in finding that he breached
his fiduciary duty to his co-tenant, Karen, and that the co-tenant was
entitled to a trial on damages. Further, he argues that the trial court
erred in instructing the jury on the issue of emotional distress and on
punitive damages. Finally, he argues that the trial court erred in
deferring to a New York divorce court the question of his right to
contribution from his co-tenants.
II. Ownership and Relational History
A history of the litigants is required to understand the land
ownership and contribution issues presented in this case. Brian and Karen
were married in the early 1980's. In early 1983, Karen and Brian, who
lived in New York City, decided they wanted a second home and located
property in Lincoln, Vermont. Herman helped Brian and Karen purchase the
Lincoln property by providing a portion of the purchase price. Title to
the property was deeded to all three, with Herman having a 50% interest as
a joint tenant with rights of survivorship as to Brian and Karen, who held
their 50% share as tenants by the entirety.
As part of the purchase, the parties assumed a note and mortgage to
the Lomas and Nettleton Company, a mortgage company. Initially Herman
paid the monthly mortgage, taxes and expenses
associated with the property, but sometime in 1986, Brian commenced making
these payments for the three owners.
In 1992, Karen and Brian began divorce proceedings in New York City.
At approximately the same time, Brian stopped paying the mortgage on the
Lincoln property. In 1993, Cateret Savings Bank, the mortgagee of the
Lincoln property as successor in interest to Lomas and Nettleton,
commenced foreclosure proceedings on the property. Karen, through her
attorney, filed a motion to dismiss the foreclosure action, challenging
the validity of the mortgage. Co-tenant Herman consulted with his wife
and their attorney about how to respond to the foreclosure action, and it
was decided by the three that Beatrice should purchase the mortgage in her
name, which she did for $75,000 in May of 1994. The foreclosure action
initiated by Cateret terminated. At this time, Herman and their attorney
executed a straw transfer, to the effect of converting the joint tenancy to
a tenancy in common, thus destroying Karen's right of survivorship in
Herman's interest.
Upon learning that Beatrice had purchased the mortgage, Karen, through
her attorney, sent two letters to Beatrice's attorney. The first
requested information and documentation regarding Beatrice' purchase of
the mortgage, and queried as to what claims, if any, were retained by the
previous mortgagee against Karen and the extent of any claims Beatrice had
against Herman, Brian and Karen. Karen's second letter, dated three
months later, requested a meeting to discuss the property. Karen received
no response to either letter. During this period, no demand for payment on
the mortgage was made to Karen.
Then, in July 1996, Beatrice notified Herman, Brian and Karen that the
mortgage was in default and that the total due on the mortgage,
$97,177.70, was due and payable within thirty days. When payment was not
forthcoming, Beatrice filed the foreclosure action.
Other facts pertinent to the case will be provided in the decision
that follows.
III. Breach of Fiduciary Duty
We first address Herman's claim that the court erred in granting
Karen's motion for partial summary judgment against him and determining
that he was liable for damages for a breach of fiduciary duty to his
co-tenant because of his participation in the foreclosure action.
On appeal, we review a court's disposition of a summary judgment
motion by applying the same standard as the trial court. Rennie v. State,
__ Vt. __, __, 762 A.2d 1272, 1274 (2000) (mem.). A grant of summary
judgment is appropriate if "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that
any party is entitled to a judgment as a matter of law." V.R.C.P.
56(c)(3). "In determining whether material facts exist for trial, we must
resolve all reasonable doubts in favor of the party opposing summary
judgment." Rennie, __ Vt. at __, 762 A.2d at 1274.
Herman does not appeal from the court's finding that he and Beatrice
acted together in purchasing the mortgage, that he and Beatrice purchased
the mortgage on behalf of the co-tenants, and that they are entitled to
contribution from Brian and Karen. See Laura v. Christian, 537 P.2d 1389,
1391 (N.M. 1975) (where one co-tenant is found to have acted on behalf of
the remaining co-tenants, those co-tenants must contribute to the
expenses). Herman claims that the purchase of the mortgage by Beatrice
and himself was "a benefit to Karen." He argues, however, that the only
action attributed to him that the court found to be tortious was the
commencement of the foreclosure action, and that the only possible claim
available to Karen with respect to the foreclosure action was one of
malicious prosecution, which could not be sustained on the evidence.
However, Herman failed to raise this argument to the trial court in
the summary judgment action, and we will not consider it on appeal. See
Lane v. Town of Grafton, 166 Vt. 148, 153, 689 A.2d 455, 457 (1997)
(failure to raise at trial a reason why summary judgment should not be
granted precludes raising that issue on appeal). This argument also
misconstrues the court's summary judgment ruling, which we address in some
detail, as it provides the basis for the trial on damages.
IV. Fiduciary Duty of Co-Owners
The Restatement of Torts (Second) § 874, comment a (1977) states: "A
fiduciary relation exists between two persons when one of them is under a
duty to act for or to give advice for the benefit of another upon matters
within the scope of the relation." When a joint tenancy or tenancy in
common is created, the co-tenants enter into a fiduciary relationship with
each other as to the joint property. See Adams v. Adams, 512 So. 2d 1150, 1152 (Fla. Ct. App. 1987); Jolley v. Corry, 671 P.2d 139, 141 (Utah
1983) (special relationship of confidence and trust exists among
co-tenants) ; Bartz v. Heringer, 322 N.W.2d 243, 244 (N.D. 1982)
(recognizing confidential relationship between co-tenants); Brown v.
Brown, 563 S.W.2d 444, 446 (Ark. 1978) (fiduciary relationship between co-
tenants); Beers v. Pusey, 132 A.2d 346, 348 (Pa. 1957) (co-tenant stands
in confidential relationship to all co-tenants).
By reason of the common interest that arises from co-ownership, a
relationship of mutual trust with respect to the common estate is created.
From that close relationship follows a duty on each co-tenant to protect
the common title and a duty not to directly or indirectly assault the
interest of any one owner. See Preston v. United States, 696 F.2d 528,
536 (7th Cir. 1982).
The law on this issue has been clear in Vermont since at least 1866.
In that year the Court decided Administrators of Downer v. Smith, holding
that co-tenants are agents of each other, and that it would violate the
co-tenant's duties to his fellow co-tenant to allow him to buy the property
at a tax sale and exclude the fellow co-tenant. 38 Vt. 464, 468 (1866).
The Court's decision described the fiduciary relationship, stating "[t]he
unity of possession, existing in a tenancy in common, would imply that the
defendant was in possession of the land, managing and carrying it on to the
best advantage for those interested, and guarding it for himself and his
co-tenant against forfeiture." Id. at 467. The Court stated further:
[W]e think it would hardly be denied that the defendant was
required to act in good faith so far as his co-tenant was
interested. The defendant in making payment of the taxes, might
properly be treated as the agent of [his co-tenant] to the extent
of [his co-tenant's] share of them, and the law would imply such
agency so long as the relation of tenants in common should exist.
Id. at 468. The Restatement's definition of a fiduciary relation therefore
encompasses Vermont's description of the duties of a co-tenant.
As a result of this peculiar relationship, each co-tenant has a duty
to protect and secure the common interest, and neither co-tenant may
assume a hostile attitude toward his other co-tenants. "[I]t is not to
be tolerated that one shall purchase an encumbrance [sic] or an outstanding
title, and set it up against the rest, for the purpose of depriving them
of their interest . . . such a proceeding would be 'repugnant to a sense
of refined and accurate justice.'" Beers, 132 A.2d at 348. A co-tenant
cannot effectuate the same result by using an agent or other person to
obtain the interest on the co-tenant's behalf. See Adams, 512 So. 2d at
1152 (co-tenant cannot acquire interest in property
to exclusion of other co-tenant, even if tax deed was executed directly to
co-tenant or to third person whom he claims as grantee).
In Beers, a father died intestate leaving his eight children,
including William Pusey, his real property on which was owed taxes. At a
subsequent public sale, William's wife, Mary, purchased the property.
William's brothers and sisters brought an equitable action against William
and Mary to quiet title to the property. The court concluded that "law,
equity, and fair dealing all dictate that the wife of a tenant in common
may not buy property of the tenancy at a tax sale and obtain a good title
against the other tenants." Beers, 132 A.2d at 347. In so doing, the
court noted that a tenant in common would not be permitted to acquire an
interest in property which is adverse or antagonistic to the remaining
co-tenants, and thus concluded that the law should not permit the spouse of
a tenant in common to do what the tenant could not. Id. at 348. "The
basis for [this decision] is that the spouse takes title with knowledge of
the facts which makes the purchase fraudulent as against the other co-
owners. This result does not depend on the unity of estate between husband
and wife, but upon principles of sound public policy." Id. at 349.
Relying on the above principles, and noting that foreclosure actions
are equitable proceedings, see Retrovest Assoc., Inc. v. Bryant, 153 Vt.
493, 500, 573 A.2d 281, 285 (1990), the court denied Beatrice's motion for
summary judgment in the foreclosure action. The court held that the
purchase of the mortgage by Herman and Beatrice was on behalf of all the
co-owners. To do otherwise, the court reasoned, would be to allow Herman
to profit from his own default and to the detriment of his co-tenants, a
result equity would not permit.
Finally, because the mortgage was purchased on behalf of Brian and
Karen, the court concluded that Herman and Beatrice are entitled to
receive contribution from them. See Laura, 537 P.2d at 1391 (where one co-tenant is found to have acted on behalf of the
remaining co-tenants, those co-tenants must contribute to the expenses
within a reasonable time); Beers, 132 A.2d at 348-50; Hardy v. Johnson, 79 A.2d 500, 501 (N.J. 1951); Toole v. Lawrence, 14 N.W.2d 607, 611 (Neb.
1944). However, the court declined to order contribution in the summary
judgment action, deferring that determination until after Karen's
cross-claims and counterclaims had been resolved.
Having found that foreclosure was not appropriate, the court next
addressed Karen's counterclaim and cross-claim of breach of fiduciary
duty, identifying the issue as whether Herman, with the assistance of
Beatrice, violated fiduciary duties owed to Karen by directly or indirectly
attacking her interest in the jointly owned property. The court found that
Herman's admitted involvement in the purchase of the mortgage was but one
part of an effort by him to avoid the fiduciary duties he owed to the
co-owner. The court found that Herman's actions in utilizing Beatrice to
purchase the mortgage in Beatrice's name and his reasons for doing so;
Herman's and Beatrice's subsequent failure to respond to Karen's inquiries
about the amount due and owed on the mortgage and her liability therefore;
the sudden demand for $97,177.70 due and payable in thirty days; and the
eventual instigation of the foreclosure action and his stated purpose in
the foreclosure (to ensure that Karen is "not rewarded by what she has
taught my grandchildren") evidenced a violation of his fiduciary duties as
a matter of law. The court found, as a matter of law, that Herman
violated his duty to his co-tenant. As the above discussion makes clear,
this holding was correct as a matter of law.
Appellant Herman Cooper also claims that the court erred in holding
that Karen was entitled to damages as a result of the foreclosure action,
again presenting the issue through his limited view of the trial court's
decision. He argues that, had the foreclosure been allowed to go forward,
the
property would have been foreclosed, there would have been a redemption
period in which Karen or any owner could have redeemed it, or if none of
the co-tenants redeemed the property, it would have been sold at public
sale and the proceeds, net the mortgage, would have distributed to the
parties in their respective shares. He notes that he could have pursued
partition of the property with similar results. Or, he suggests that had
he and Beatrice asked for contribution in 1994, after the purchase of the
mortgage, and, assuming no contribution was forthcoming, they could then
have sought to quiet title or to foreclose on Karen and Brian's interest
without breaching any fiduciary duty. Of course, none of these scenarios
occurred.
More importantly, Herman ignores the fact that the counterclaim filed
against him by Karen was a tort action alleging breach of a fiduciary
duty. She sought damages for severe emotional distress, attorneys fees,
and financial loss arising from Herman's actions, not just an adjudication
of her rights and interests in the Lincoln property.
The court held that one co-tenant who violates his or her fiduciary
duties to another co-tenant is liable in tort. This is an accurate
statement of the law. See Restatement (Second) of Torts § 874 (1977).
One is entitled to tort damages for harm caused by the breach of the
fiduciary relation. Id. cmt. b. Finding it clear as a matter of law that
Herman violated his duty to Karen, the court granted Karen's motion for
partial summary judgment as to her cross-claim against Herman and allowed
her claim for compensatory and punitive damages to go to trial. We find
no error in the court's decision.
V. Emotional Distress and Punitive Damages Claims
Herman next argues that the court erred in submitting the claims for
emotional distress and punitive damages to the jury as there was
insufficient evidence to support either claim. Karen argues that, while
Herman made a motion for judgment pursuant to V.R.C.P. 50 at the close of
plaintiff's
case where he argued that Karen had not established (1) her claim for lost
income damages, (2) a basis for an award for emotional distress, nor (3)
proven conduct upon which an award of punitive damages could be based,
Herman failed to renew that motion at the close of all the evidence, and
therefore, has waived all objections to the sufficiency of the evidence.
The absence of a motion for judgment "made at the close of all the
evidence" forecloses appellate review of the sufficiency of the evidence.
V.R.C.P. 50(b). We have held that this rule is and must remain
inflexible-"we have construed [Rule 50] strictly," finding waiver of all
the sufficiency arguments made at the close of a plaintiff's case if not
renewed by another motion at the close of all the evidence. Ulm v. Ford
Motor Co., 170 Vt. 281, 284, 750 A.2d 981, 985 (2000); see also Maynard v.
Travelers Ins. Co., 149 Vt. 158, 160, 540 A.2d 1032, 1033 (1987). While
ascertaining whether there was compliance with formal prerequisites,
however, we should not lose sight of the purpose of a Rule 50 motion, that
is, to give the nonmoving party an opportunity to cure the defects in
proof that might otherwise preclude the case from going to the jury.
Maynard, 149 Vt. at 162, 540 A.2d at 1034; Crump v. P & C Food Mkts, Inc.,
154 Vt. 284, 290, 576 A.2d 441, 445 (1990). While this case presents a
murky view of the circumstances surrounding the Rule 50 motion, it is
clear that the trial court was afforded the opportunity to properly
determine whether sufficient evidence existed for the issues to be decided
by the jury, and the nonmoving party was given the opportunity to attempt
to rectify any deficiencies in proof.
The record shows that, following the submission of the Rule 50 Motion
at the close of Karen's case in chief, the court ruled that Karen had
presented sufficient evidence as to Herman and Brian on the issue of
punitive damages to present the matter to the jury. However, the court
ruled that there had not been sufficient evidence as to Beatrice to
present the claim of punitive damages
to the jury and granted her Rule 50 motion on that issue. (FN1) At this
time, the lawyer representing Brian asked, "And, your Honor, we will be
taking up our Rule 50 motions at the end of the case?" to which the court
replied, "Yes."
When the evidence closed, the court convened a hearing to address the
pending motions filed on behalf of each of the defendants. No written or
formal oral renewal of a Rule 50 motion was made. Following a lengthy
hearing, during which the court dismissed a claim of abuse of process
against Beatrice and dismissed Brian from the case, the court took up
Herman's challenges to the claims of economic loss and emotional distress.
The court ruled that the claim of economic loss would go to the jury.
(FN2) The record does not show a specific ruling by the court on the
challenge to the claim for damages due to emotional distress, but it is
clear the court decided against Herman and denied his motion, because it
submitted the issue to the jury.
As we noted in Maynard, federal courts, when presented with a question
of Rule 50 preservation, may evaluate the actions of the trial court to
determine whether or not the trial court had led the moving party to
believe that it had done all that was required of it in order to preserve
its motion. Maynard, 149 Vt. at 161 n.1, 540 A.2d at 1034 n.1 (citing
Bayamon Thom McAn, Inc. v. Miranda, 409 F.2d 968 (1st Cir. 1969)). It is
apparent that, at the close of evidence, the court held a hearing and
considered as before it all the Rule 50 motions for judgment submitted by
counsel for Herman, Beatrice and Brian. Notwithstanding the fact that no
defendant filed supplemental written
motions or spoke magic words of incantation, the court considered the
motions viable and acted accordingly. (FN3) Thus, the actions and
efforts of Herman were sufficient to preserve his claims of error.
On review of a motion for judgment as a matter of law, the reviewing
court must determine whether the result reached by the jury is sound in
law on the evidence produced. Haynes v. Golub Corp., 166 Vt. 228, 233,
692 A.2d 377, 380 (1997). Upon review, this Court must view the evidence
in the light most favorable to the nonmoving party. We will uphold the
trial court's denial of the motion if any evidence fairly or reasonably
supports a lawful theory of the plaintiff. Id.
Unfortunately, the motion hearing did not provide clarity for purposes
of appellate review. With regard to the claim for emotional distress, the
discussion between counsel for Herman and the court centered on what
elements were needed to prove emotional distress and what was the requisite
'intent' necessary to obtain damages. No argument was made by Herman that
the evidence was insufficient to go to a jury. However, counsel for Karen
was afforded an opportunity to review for the court the evidence he
believed supported Karen's claim for emotional distress. (FN4) As noted,
the
record reveals no direct ruling by the court. So, while the decision on
the motion is available for appellate review, the ruling is elusive.
Herman argues that Karen did not establish a basis for awarding
emotional distress damages because her claim and her evidence were too
speculative and undefined to be considered by the jury and she provided no
evidence to link the attempted foreclosure action to any claimed distress.
The evidence offered on this issue was as follows. Karen testified that
the property was purchased, in part, because of her long involvement in
the Lincoln area, for use as a summer home and a studio for her to pursue
her relatively successful painting career. She testified about how much
she and the two children enjoyed their time there and how much she loved
the studio. She testified as to her and the children's adjustment to the
pending divorce action and how important the Vermont house was to her
sense of stability. In March of 1993, she testified, she was told in a
telephone call with Brian that she should not expect to use the Vermont
house any longer as it was in foreclosure. She testified about her lack
of success in obtaining information from her co-tenants concerning the
status of the house and how it affected her ability to return to painting
due to the uncertainty regarding the studio's availability and her anxiety
surrounding it. She told the jury that she was "totally a wreck" because
of the foreclosure action against her studio, that the foreclosure action
"scared" her, and that she felt threatened. She testified that the
programs her children enjoyed in the summer in Vermont were threatened as
well. She testified that after the foreclosure action was begun, she
stopped eating for three weeks and that she has anorexic tendencies that
are aggravated when she is upset. Finally, she testified that the
foreclosure affected her abilities as a mother.
The evidence was sufficient to establish causation between Karen's
claim of emotional distress with the filing of the foreclosure action
filed by Herman and Beatrice. The court's denial of Herman's motion was
not error.
Herman next argues that Karen failed to offer any evidence to
demonstrate that his conduct was outrageous, that he acted intentionally
or with reckless disregard of the probability of causing emotional
distress. See Sheltra v. Smith, 136 Vt. 472, 476, 392 A.2d 431, 433 (1978)
(recognizing in Vermont the tort of intentional infliction of emotional
distress and the four elements necessary to establish the prima facie
case: "outrageous conduct, done intentionally or with reckless disregard of
the probability of causing emotional distress, resulting in the suffering
of extreme emotional distress, actually or proximately caused by the
outrageous conduct"). The court ruled that Karen was not required to
demonstrate outrageous conduct where the claim was for damages as a result
of an intentional act. See Trepanier v. Getting Organized, Inc., 155 Vt.
259, 270-71, 583 A.2d 583, 590 (1990) (recognizing emotional distress
damages as a remedy available in claims based on torts other than
intentional infliction of emotional distress). Karen was only claiming
damages in the form of emotional distress. She did not bring a tort claim
against anyone for intentional or negligent infliction of emotional
distress. Therefore, Herman's argument has no merit.
VI. Punitive Damages
Herman claims the court erred in allowing the jury to award punitive
damages because the acts upon which the award could be based were
undertaken by Herman and Beatrice's attorney. This assertion confuses a
claim of error for denying Herman's Rule 50 Motion challenging the
sufficiency of the evidence on the punitive damages issue, with a
challenge to the jury instruction regarding the "reliance on legal advice"
defense to punitive damages-a defense we have never recognized.
Because the evidence was sufficient to permit the claim for punitive
damages to go to the jury, we find no error on that point.
In a claim for punitive damages it is not enough to show that
defendant's acts are wrongful or unlawful-there must be proof of
defendant's "bad spirit and wrong intention." Agency of Natural Res. v.
Riendeau, 157 Vt. 615 , 624-25, 603 A.2d 360, 365 (1991) (citation
omitted). "Consistent with the view that punitive damages are to be
applied to deter and to punish truly reprehensible conduct, Vermont has
long required a plaintiff to demonstrate that a defendant acted with malice
in order to recover punitive damages." Brueckner v. Norwich Univ., 169
Vt. 118, 129, 730 A.2d 1086, 1095 (1999) (citations and internal
punctuation omitted).
The court below ruled that Karen had sufficient evidence to show the
requisite malice on the part of Herman, citing to Herman's statements,
given in deposition:
A: Karen has worked it out that the children hate us, for
what reason I do not know, and I'm not going to reward such
activity. Remember that. She has done it. The father that they
loved desperately is anathema to them now. Why?
Q: And you're pointing your finger at somebody?
A: I'm pointing my finger at Karen, and I will not tolerate
it. I'll do everything I can to make sure that she's not
rewarded by what she has taught my grandchildren.
Q: And that's the reason for the foreclosure?
A: Absolutely.
He further noted during his deposition, that he believed Karen had lied
about her background, including whether she had taught art and admitted
that he was "checking out everything that I have to satisfy myself that
I'm not hurting her unnecessarily."
The evidence showed that it was only after Karen had successfully
defeated Brian's two attempts in the divorce action to force a sale of
the Vermont property and after she had obtained custody of the two
children in the divorce that Beatrice purchased the mortgage. Herman
admitted that it was his intention to "hurt" Karen in retaliation for what
he felt was her improper treatment of his son Brian, by having his
attorney buy the Lincoln mortgage in Beatrice's name and then foreclose on
it, and not to obtain any funds due under the mortgage. The evidence
showed that Herman and Beatrice were quite wealthy and had no actual need
for the money due and owed on the property. Beatrice and Herman did not
dispute that for two years they never notified Karen of what she owed and
that Herman had actually instructed their lawyer not to answer Karen's
inquiries about the mortgage. They failed to notify Karen of taxes due
and refrained from paying same. They then demanded payment of $95,000
within 30 days to avoid foreclosure, and then they instituted foreclosure.
In light of this evidence of Herman's malice, the claim for punitive
damages was properly submitted to the jury.
VII. Jury Instructions
Herman's claim that the court erred in instructing the jury on the
defense of "advice of counsel" fails as well. While this Court has not
had occasion to recognize the "reliance on counsel" defense to punitive
damages, see Crabbe v. Veve Assocs., 150 Vt. 53, 59, 549 A.2d 1045, 1049
(1988), those jurisdictions which do recognize this defense limit it to
defendants who have proof they made full disclosure to the lawyer of their
agenda, and who act in good faith, with an honest purpose, and without
malice. See Scalise v. Nat'l Util. Serv., 120 F.2d 938, 941 (5th Cir.
1941) (advice of counsel is not a defense unless the advice was requested
in good faith and client made full disclosure); Town Ctr Mgmt. Corp. v.
Chavez, 373 A.2d 238, 245 (D.C. 1977) (prior consultation
with attorney is "no more than one factor for the trial judge to consider
in determining whether the requisite malice was present" to support award
of punitive damages); Hamilton County Bank v. Hinkle Creek Friends Church,
478 N.E.2d 689, 691 (Ind. Ct. App. 1985) (advice of counsel may be claimed
as defense against imposition of punitive damages when "the evidence shows
full disclosure of the situation and good faith reliance on the advice
procured, for an honest purpose," but the defense is not absolute). 1 L.
Schlueter & K. Redden, Punitive Damages §5.4(C) (4th ed. 2000), is in
agreement with these jurisdictions: "the defendant will be liable if
counsel had no knowledge that he intended to act in bad faith. Generally,
the defense will not be available if the defendant acted intentionally in
a malicious and oppressive manner."
The evidence showed that the attorney "had no knowledge that [Herman
and Beatrice] intended to act in bad faith." And, the evidence showed
that Herman acted in an intentional and "malicious and oppressive manner."
The court's instruction on punitive damages included an instruction on the
advice of counsel defense which mirrored the aforementioned description.
The court instructed the jury as follows:
The fact that a defendant sought the advice of counsel before
acting is relevant to defendant's intent. However, consulting an
attorney does not necessarily preclude the award of punitive
damages. It is merely one factor to consider in determining
whether malice was present and is not a complete defense. For
the defense to be available the evidence must show full
disclosure of the situation, good faith reliance on the advice,
and an honest purpose. Liability may not be avoided if counsel
had no knowledge that the defendant intended to act in bad faith.
And this defense will not be available if the defendant had ill
feelings for the plaintiff and acted intentionally in a malicious
and oppressive manner even if he or she acted on the advice of
counsel.
The court accurately instructed the jury on the advice of counsel defense,
and therefore Herman's claim of error is without merit.
VIII. Aiding in a Breach of Fiduciary Duty
At the summary judgment level in the foreclosure action, the court
denied Karen's motion for partial summary judgment against Beatrice
because it could not conclude, due to disputed material facts, that
Beatrice knowingly assisted Herman in violating his duties to his
co-tenant, Karen. This counterclaim then went to trial. Beatrice filed a
Motion for judgment as a matter of law at the close of Karen's case in
chief seeking dismissal of all claims. The court granted her motion as to
the claim for punitive damages, but deferred ruling on the issue of her
liability for aiding Herman in his breach of fiduciary duty as to Karen
and the claim for damages for emotional distress until close of trial.
Karen claims that Beatrice has waived any challenge to the sufficiency of
evidence because she failed to renew her motion at the close of evidence.
As we held for Herman, so too do we find that, given the totality of the
circumstances, Beatrice has preserved her right to appeal from the court's
denial of her Rule 50 motion.
"[A]ny one who knowingly participates with a fiduciary in a breach of
trust is liable for the full amount of the damage caused thereby." S & K
Sales Co. v. Nike, Inc. 816 F.2d 843, 847-48 (2nd Cir. 1987) (quoting
Weschler v. Bowman, 34 N.E.2d 322, 326 (1941)); see also Restatement
(Second) of Torts § 874 cmt. c (1977) ("A person who knowingly assists a
fiduciary in committing a breach of trust is himself guilty of tortious
conduct and is subject to liability for the harm thereby caused."). The
necessary elements to support a claim of assisting in the breach of a
fiduciary duty are: (1) a breach by the fiduciary of obligations to
another, (2) that the defendant knowingly induced or participated in the
breach, and (3) that the plaintiff suffered damage as a result of the
breach. S &
K Sales, 816 F.2d at 847-48. The claimant need not prove intent on the
part of the defendant to injure the party owed the duty by the fiduciary.
Id. at 848 (contrasting Restatement approach under § 874 cmt. c, attaching
liability for "knowingly assisting" breach of fiduciary duty, to approach
taken under § 876(b), which deems third party liable in tort for persons
acting in concert, when assistant "knows that the other's conduct
constitutes a breach of duty and gives substantial assistance or
encouragement to the other so to conduct himself"). "[T]he gravamen of the
claim of participation in a breach of fiduciary duty is the 'knowing
participation' of the third party in the fiduciary's breach of trust."
Id. at 848 (citations omitted).
The case against Beatrice was not that she committed an independent
tort against Karen, but that she knowingly participated in Herman's breach
of fiduciary duty. Beatrice owed no fiduciary duty to Karen-she was not a
co-tenant, unlike Herman and Brian, and the court so found. Accordingly,
liability could attach to Beatrice only if, at the time she filed the
foreclosure suit, she knew Herman's conduct constituted a breach of duty
and she gave substantial assistance or encouragement to this conduct.
The evidence offered in support of Karen's claim included Beatrice's
knowledge of her husband's status as co-tenant with Karen and Brian in the
Lincoln property; her participation in discussions with Herman and the
attorney representing their interests in the events concerning the Lincoln
property, including the decision not to have Herman purchase the mortgage
as that would have consolidated ownership solely in the co-tenants and, as
the attorney noted, "there was too much controversy regarding the
co-tenants on this property to actually take this mortgage and throw it
into the relationship." It was understood by Herman and Beatrice that
Beatrice could have simply paid off the mortgage, rather than purchasing
it. However, it was decided that she would purchase the
mortgage in her name alone. She initiated the foreclosure action against
Herman, Brian and Karen, while conceding that she had no idea what was
owed on the mortgage and that she had never requested payment from Herman
or Brian or Karen. Unless the jury believed that Beatrice was only a pawn
in Herman's game, a characterization that they apparently rejected after
observing Beatrice on the stand and hearing her testimony, the evidence
was certainly sufficient for the jury to find that Beatrice knowingly and
willingly assisted Herman in his breach of his fiduciary duty to Karen.
Accordingly, we reject Beatrice's claim on this issue.
IX. Contribution Claims
Herman claims that the court erred in ordering that his motion for
contribution from Karen for the purchase of the mortgage should be decided
by the New York Court hearing Karen and Brian's divorce action. Beatrice
claims that the court erred in denying her claim for contribution as well.
As Beatrice made no claim for contribution before the trial court, we do
not address her claim on appeal. However, because she acted in concert
with Herman in foreclosing on the mortgage, our decision as to Herman's
contribution claim is applicable to any such claim of Beatrice as well.
As noted, the court in its summary judgment decision in the mortgage
foreclosure case found that Herman and Beatrice had purchased the mortgage
on behalf of the remaining co-tenants, and were entitled to receive
contribution from Karen and Brian. It held, however, that the amount and
time for contribution should not be resolved until after Karen's
cross-claims and counterclaims had been decided. Following the jury
verdict, Herman moved the court to order Karen to pay one-half of the
costs of the mortgage, $75,000 plus interest from the date of purchase at
the rate of 12% per annum, and asked that her damage award be reduced by
the amount of contribution. The court ruled
that since the contribution claim relates to marital property owned as a
tenancy by the entirety by Brian and Karen and was a marital debt, the
issue must be decided in connection with the New York divorce case.
The court erred in concluding that simply because the claim for
contribution involved a mortgage held on property owned by a married
couple with a divorce pending, the claim for contribution should be
resolved in the context of the divorce. We agree that a court could
allocate such a debt between husband and wife during a divorce proceeding,
but hold that, notwithstanding any concurrent litigation in New York to
dissolve the marital bonds, the petition for contribution on the mortgage
should have been considered by the Vermont court.
The case began as a mortgage foreclosure, a finding was made that
contribution was owed, and the court noted it would consider a claim for
contribution following resolution of Karen's claims. To treat the claim
for contribution as somehow different from that of any other creditor
seeking to collect a debt and requiring the debtee to enter into the fray
of a divorce simply because the debt can be assigned to the marital unit
would be grossly unfair to creditors and add to the difficulties of
divorce litigation.
Karen's claim that the judgment is her sole property and cannot be
reached to satisfy a marital debt, see 15 V.S.A. §66 ("All personal
property and rights of action acquired by a woman before or during
coverture, except by gift from her husband, shall be held to her sole and
separate use."), is misplaced, as well as questionable. See generally
Med. Ctr. Hosp. of Vt v. Lorrain, 165 Vt. 12, 675 A.2d 1326 (1996). It
misinterprets the situation at hand and analyzes the contribution claim as
a set-off of her judgment award, rather than as a separate and independent
action on the debt owed to Herman for his purchase of the mortgage.
It is true that, when spouses hold property as tenants by the
entirety, neither spouse has a share that can be disposed of or encumbered
without joinder of the other spouse. In re Spencer, 152 Vt. 330, 339, 566 A.2d 959, 964 (1989); see Preston v. Chabot, 138 Vt. 170, 177, 412 A.2d 930, 934 (1980) (Billings, J., dissenting) ("[W]here both spouses do join
in an agreement respecting the property, both are bound to its
consequences and cannot for their separate benefits treat the estate as
divided.") (citing Coop. Fire Ins. Ass'n v. Domina, 137 Vt. 3, 5, 399 A.2d 502, 503 (1979)). Thus, it may be that Brian would be a necessary party
to the contribution case. However, on this record, it is unclear if
Herman's claim for contribution is properly directed at Karen and Brian, as
we cannot determine if they continue to hold the property as tenants by
the entirety. See Preston v. Chabot, 138 Vt. at 175, 412 A.2d at 932-33
(1980) (A divorce destroys the tenancy by the entirety and creates by
operation of law a tenancy in common among the parties.) On remand, the
court will have the opportunity to assess the status of the property and
the respective obligations of the parties. For these reasons, we agree
with Herman and remand the matter of contribution to the trial court for
consideration.
Affirmed in part; remanded in part.
_______________________________________
Associate Justice
------------------------------------------------------------------------------
Footnotes
FN1. Brian and Beatrice also filed Rule 50 motions at the close of Karen's
case in chief. Karen suggests that Beatrice failed to renew her motion at
the close of evidence and therefore waived any objection to the
sufficiency of the evidence. See infra, section VII. Our analysis of this
issue as to Herman also resolves this issue as to Beatrice.
FN2. The jury found no lost income. No challenge is made on this issue.
FN3. The issue is confused, unfortunately, by a comment made by the judge
when he decided the Renewal of Motion for Judgment after Trial, timely
submitted by Herman. He denied the motions, but wrote that "[f]or
purposes of the motion, the court is assuming that Mr. Cooper made a Rule
50 motion at the close of all the evidence. The court is aware that
plaintiff claims that no such motion was made. The court has not reviewed
the record to determine this issue."
FN4. This exposition was in opposition to Beatrice's Motion for judgment
as a matter of law on the claim against her for breach of duty of good
faith and fair dealing as a mortgagee. That claim was eventually
consolidated with the joint tortfeasor claim against Beatrice. While the
review by counsel was not directed at Herman's Rule 50 motion, it sufficed
to delineate for the court the evidence submitted on the issue of
emotional distress.
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