NO. 82-54
IN THE SUPREME COURT OF THE STATE OF MONTANA
1983
DONALD PURCELL and JOSEPH B. GARY,
Plaintiffs and Respondents,
AUTOlvlATIC GAS DISTRIBUTORS, INC . ,
a Colorado Corp., E.D. ORSER, et al.,
Defendants and Appellants.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Gordon Bennett, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Crowley, Haughey, Hanson, Toole & Dietrich; Robert Edd
Lee argued, Billings, Montana
Berg, Coil, Stokes & Tollefsen; Ben Berg, Jr., Bozeman,
Montana
John F. Blackwood, Livingston, Montana
For Respondents:
Landoe, Brown, Planalp, Kommers & Lineberger; James M.
Kommers argued, Bozeman, Montana
Submitted: October 31, 1983
Decided : December 19, 1983
Filed:
1* d
g&
y 2?& c
:
,
;"
5.-%4,-k.*&
Clerk
Mr. Justice Frank B. Morrison, Jr. delivered the Opinion of
the Court.
The plaintiffs (Respondents) in a hench trial, recovered
judgment against defendants (Appel-lants) for compensatory
damages arising out of breach of contract as well as $50,000
in favor of each plaintiff for exemplary damages. Defendants
Automatic Gas Distributors, Inc., (Automatic Gas) and E. D.
Orser (Orsex), do not appeal the award of compensatorv
damages for breach of contract but do appeal the award of
punitive damages in the amount of $50,000 for each plaintiff.
The defendants Western Crude Oil, Inc., (Western Crude) and
Spruce Oil Corporation (Spruce Oil) appeal the entire
judgment entered against them.
Western Crude owns Spruce Oil (a wholesaler and
unbranded jobber) and also owns Automatic Gas (an unbranded
retailer) . Automatic Gas provided gasoline and pumps,
meters, and other facilities, to retail operators, who were
in the busi-ness of "serve yourself" gasoline sales. The
retailers split profits with Automatic Gas. The two
respondents were retail operators. Spruce Oil provided
Automatic Gas a security of supply, having superior access to
refineries, but gave Automatic Gas no special prices.
P,utomatic Gas was not bound to supply its local operators
with gasoline from Spruce Oil, but the local operators were
required through a marketing aqreement to obtain their
gasoline from Automatic Gas in return for Automatic's
installation of pumps, meters and tanks.
Automatic Gas had an agreement with appellant Orser to
pay him $ cent per gallon of gasoline sold by the operators
Orser found for Automatic Gas. Although Automatic's
marketing agreement with the local operators did not reflect
any obligation on the part of the local operators to pay any
part of Orser's commission, nevertheless Automatic Gas
withheld the Orser commission as part of the "cost of gas".
Five local operators sued for damages arising from
Automatic's withholding Orser's commission before splitting
the net proceeds with them. The facts relating to each of
the five original plaintiffs were different. Three of the
operators obtained judgments for both punitive and.
compensatory damages and no appeal was taken in those cases.
In the cases where judgment was entered but not appealed
from, there was testimony that each of the operators was
falsely assured by Orser that Automatic Gas had access to
lower gasoline prices and that the savings would he passed
onto them. This evidence is not present in the record
supporting a judgment in favor of the respondents here.
The trial court assessed punitive damages on the basis
of fraud and termed the Orser payment a "commission rip-off."
If there is substantial credible evidence in the record to
support the trial court's findings, the trial court must be
affirmed. This is true though the evidence in support is
inherently weak. Lacey v. Herndon (Mont. 1983), 668 P.2d
251, 40 St.Rep. 1375. Additionally, the evid.ence must be
viewed in a light most favorable to the respondents.
Grimsley vs. Estate of Spencer (Mont. 1983), 670 P.2d 85, 40
St.Rep. 1585.
The respondents, as retailers, were solely responsible
for collecting qasoline proceeds and depositing these
proceeds in bank accounts set up by Automatic: Gas. All
petroleum products were purchased and paid for by Automatic
Gas. Respondents relied upon Automatic Gas for an accounting
of all monies. The net receipts to be split were calculated
by subtracting the "total cost of gasoline delivered" from
the gross retail sales receipts. Such cost of gasoline was
defined by the marketing agreement as follows:
"b.) Total Cost of Gasoline Delivered is defined
as the total delivered cost, which shall include
the Distributor's cost of purchasing the gasoline,
all freight costs and all applicable local, state
and federal gasoline taxes and charges at and into
the Distributor's dispensing equipment located as
specified herein."
The trial court in its Findings of Fact and Conclusions
of Law, para.graph 4 of the findings of fact, found as
follows:
"4. In addition to the items authorized by
paragraph 8 of the agreement to be utilized in
arriving at net receipts, Automatic Gas included an
amount representing a commission of one-half cent
per gallon on all gasoline sales to be paid to E.
D. Orser, one-fourth cent to be paid by Automatic
Gas and one-fourth cent to be paid out of the
marketer's share of gross receipts. With respect
to sales of diesel fuel by Plaintiff Purcell, a
commission of one-fourth cent per gallon was paid
to Orser, with one-eighth cent per gallon being
charged to Automatic Gas and one-eighth cent per
gallon charged to the marketer. The commissions
paid to E. D. Orser were not an item of cost of
gasoline or diesel fuel as specified in paragraph 8
of the agreement."
Regular monthly statements were supplied by Automatic
Gas to the retailers. A sample commission statement was as
follows:
GAS COMJYIISSION, MONTH OF JANUARY, 1977
SALES (IIETERED DOLLARS) :
Regular $ 14,974,.78
Premium 2,897.69
No Lead
TOTAL
SALES OR NET RECEIPTS
COST OF SALES:
GALLONS PRODUCT COST DOLLAR AMOUNT
25,864 Regular .51774 13,390.83
4,838 Premium .54516 2,637.48
3,234 No Lead .52862
33,936
NET PROFIT
Equipment Amortization
Adjusted Net Profit
Operating Expense
1 / 2 Due Bozeman
Robbery payment
Apply on Note Payment
Interest
NSF
Short Payment
Deposit Correction
GALLONS SOLD THIS MONTH LAST YEAR 43,676
GALLONS SOLD YEAR TO DATE 33,936
INVENTORY OVER/SHORT
The Orser commission is not identified but was included
in the amount shown as product cost. The record is in
conflict about the knowledge of respondents respecting the
Orser commission. However, the clear preponderance of the
evidence is that, at the time each of the respondents
contracted with Automatic Gas, they did not know the Orser
commission was going to be charged to them. The following
testimony was elicited from respondent Gary on direct
examination:
"(2. Do you know whether or not b r Ed Orser's
l.
commission was included in the cost of gasoline?
"A. My understanding, I didn't know how Ed Orser
got paid. I never knew until you advised me that
we were paying Ed Orser a commission. I never knew
that until you told me."
On cross-examination respondent Gary testified as
follows:,
"Q. When you had some questions as to the
acquisition cost of the gasoline by Automatic Gas,
did you ever ask Mr. Ensor ow Mr. Bruskotter to
provide you with copies of delivery slips to show
you evidence of the acquisition cost?
"A. All I, as I told you, I would receive those
monthly reports and they would say that the cost of
sales, this was told to me as to what that cost
Automatic Gas; and let's take December, 1976. They
said it cost Automatic Gas $51,000 -- .51497 cents,
and. no lead .52123 and then we would have to
account for the dollars amount that we sold it for.
"Q. I und.erstand that, and I understand the
contents of the gasoline commission statements.
What puzzles me is the fact that if that question
existed, there was rather a simple way to resolve
it, was there not? It was not a hidden fact by
Automatic Gas.
"A. Certainly. Ed Orser was certainly a hidden
fact.
"Q. I didn't ask about Mr. Orser but about the
acquisition cost of the gasoline.
"A. This is what I was told. I assumed what they
were telling me was correct. I assumed they were
an honest company and that that was what it was
costing them.
"Q. Did you ever ask Mr. Orser or Mr. Bruskutter
to provide you with documentation evidencing the
acquisition cost of gasoline?
"A. According to what Mr. Berq introduced in
evidence, apparently I did at one time; and they
apparently supplied it to me. I don't remember it,
though, to be very honest, and certainly since
during this recess I have checked all those
statements, and there is not one statement on there
of any charge to Ed Orser."
Respondent Gary conceded on cross-examination that,
pursuant to his request, at a time subsequent to his
contracting, information about the Orser commission was
supplied to him. Notwithstanding this concession, it is
clear from the record that there m7as a period of time when
the Orser commission was withheld from respondent Gary
without his knowledge and in contravention of the agreement
herein set forth.
Respondent Purcell succeeded to the interest of Franks.
There is evidence that Franks knew of the Orser commission
but there is substantial credible evidence in the record to
support a finding that the Orser commission was withheld from
Purcel-1, in contra.vention of the agreement, without Purcellls
knowledge.
The trial court found compensatory damages accruing to
respondent Gary in the sum of $7,091.50 representing the
amount of the Orser commission improperly withheld.
Likewise, the trial court found the sum of $6,107.50 was
wrongfully withheld from respondent Donald Purcell. With
respect to Purcell there was an offset. The compensatory
awards for wrongfully withholding the Orser commission in
contravention of the marketing agreement, were not appealed.
These awards are grounded in breach of contract. The award
of punitive damages, based upon fraud, forms the basis for
this appeal. The court did not make a compensatory award for
fraud but found there were actual damages.
The trial court entered the judgment against all
defendants including Spruce Oil and. Western Crude. The basis
for the award against Western Crude and Spruce Oil was that
they were part of a scheme to defraud the respondents. The
following finding shows the trial court's reasoning:
"The bad faith dealing implicit in their pricing
scam is made explicit in their commission rip-off.
There ma.y be reason to believe they did not act
together and in concert, as suggested by
defendants, but none appears in the record, which
militates ineluctably to the conclusion that there
was a high degree of cooperation between the three
segments of this corporate conglomerate operating
out of the same building. The credulity of the
most naive observer would be reached in attempting
to believe that Western Crude was uninvolved in or
unaware of the operations of its two wholly-owned
subsidiaries."
The following two issues are presented in this appeal:
1. Is there a sufficent factual basis in the record to
the support an award of punitive damages asainst all the
defendants or any of them?
2. Is there evidence in the record to support any
judgment against Western Crude and Spruce Oil?
Punitive damages are governed by section 27-1-221, MCA,
which provides as follows:
"When exemplary damages allowed. In any action
for a breach of an obligation not arising from
contract where the defendant has been guilty of
oppression, fraud, or malice, actual or presumed,
the jury, in a.ddition to the actual damages, may
give damages for the sake of example and by way of
punishing the defendant."
If the conduct of a particular defenda.nt is tortious,
the fact that there was an underlying contract, does not
defeat an award of punitive damages. Gates vs. T,ife of
Montana Ins. Co. (Mont. 1983), 668 P.2d 213, 40 St.Rep.
1287. In this case the trial court found. fraud which, if
present in the record, would constitute a tort and provid-e a
basis for an award. of exemplary damages.
Section 28-2-404, MCA, states:
"Fraud is either actual or constructive. Actual
fraud is always a question of fact."
Section 28-2-405, MCA, defines actual fraud, in relevant
part, as follows:
"Actual fraud, within the meaning of this part,
consists in any of the following acts committed by
a party to the contract or with his connivance with
intent to deceive another pa.rty thereto or to
induce him to enter into the contract:" (emphasis
added)
For respondents to succeed in establishing a claim
premised upon actual fraud they would have to show that
defendants had an "intent to deceive" and in furtherance
thereof suppressed that which they knew to be true.
Certainly the fact that the Orser commission was being partlv
charged to respondents was, at first, a fact concealed. The
record is very weak in support of a claim that there was an
"intent to deceive".
Fraud may, pursuant to the provisions of 28-2-404,
consist of constructive fraud. Constructive fraud is defined
in 28-2-406, MCA, as:
"(1) Any breach of duty which, without an acutally
fraudulent intent, gains an advantage to the person
in fault or anyone claiming under him by misleading
another to his prejudice or to the prejudice of
anyone claiming under him; or
(2) Any such act or omission as the law especially
declares to be fraudulent, without respect to
actual fraud."
In this case there was a fiduciary duty with respect to
accounting. The respondents reposed their confidence in the
accounting procedures of Automatic Gas and relied upon
Automatic Gas to accurately calculate the cost of the product
sold. The record shows tha.t this trust was violated and that
Automatic Gas withheld the Orser comrnj.ssion as a cost of
product. At the very least this constitutes a constructive
fraud.
Section 27-1-221, MCA, allows punitive damages for
fraud. Section 28-2-404, MCA, specifically defines fraud as
including constructive fraud. We therefore hold that the
breach of a fiduciary relationship constituting a
constructive fraud forms the basis for an award of punitive
damages.
Such holding accords with the "oppression" provisions of
27-1-221. This Court has defined oppression as "an act of
cruelty, severity, unlawful exaction, domination - excessive
or
- - authority. l1
use of Ramsbacher vs. Hohman (1927), 80 Mont.
480, 488, 261 P. 273,276 (emphasis supplied). Oppression was
defined in Simpson vs. Weeks (D.C.Ark., 1977), 530 F.Supp
196, 207, aff'd in part 570 F.2d 240, 1978, as:
"An act is oppressively done if done in a way or
manner which violates the right of another person
with unnecessary harshness or severity as by misuse
or abuse of authority or power." (emphasis added)
Abuse of authority or power is also the essence of
constructive fraud. Our inclusion of constructive fraud
within the ambit of the fraud upon which punitive damages can
be premised, finds additional support by the legislative
inclusion of oppression as a proper basis for punishment.
The failure of Automatic Gas to identify the Orser
commission in accounting to respondents is sufficient factual
basis for a finding of oppressioil and fraud. We therefore
affirm the trial court's award of punitive damages as to
Automatic Gas.
We can find no basis in the record, beyond mere
speculation, supporting the complicity of Western Crude or
Spruce Oil. The trial court's finding is based upon a mere
suspicion. The ownership of stock is i.r,sufficient. There is
not a factual basis for finding that Automatic Gas, Spruce
Oil, and Western Crude were a single corporation. In fact
they were separate corporations with different functions.
Since the record is bare of any evidence to support a finding
of oppressj-on or fraud as to Western Crude or Spruce Oil we
must vacate the judgment as to these two defendants.
Similarly, we find no basis in the record supporting a
finding of oppression or constructive fraud on the part of
E.D. Orser with respect to Gary and Purcell. The essence of
the wrong to these plaintiffs was the violation of the trust
placed in Automatic Gas to fairly calculate and disclose the
"cost" of gasoline. There is no evidence that Orser had any
duty to disclose Automatic Gas' accounting methods, nor that
he misrepresented or hid the fact of who was paying his
commission, nor that he gained any advantage by the hidden
commission.
The punitive damage award, and judgment entered thereon,
against Automatic Gas Distributors, Inc. is affirmed. The
judgment against Western Crude Oil, Inc., Spruce Oil
Corporation and E.D. Orser is vacated. The matter is
remanded to the District Court with directions to enter
judgment in favor of Spruce Oil Corporation, Western Crude
Oil, Inc., and E.D. Orser.
We concur:
-
Chief Justice
Justices
Mr. Justice John C. Sheehy, concurring in part and.
dissenting:
I concur with the majority opinion insofar as it
sustains the punitive damage award in judgment against
Automatic Gas Distributors, Inc., in favor of the plaintiffs
Purcell and Gary. I dissent from the majority position that
the judgments against Western Crude Oil, Inc., Spruce Oil
Corporation, and E. D. Orser, must be vacated.
To begin with, I am at a loss to understand how the
majority can set aside the judgment aga.inst Orser. He was
the agent of Automatic Gas Distributors, Inc., who came to
the plaintiffs, and represented to them that if they would do
business with Automatic Gas Distributors, Inc., that company
could obtain for them fuel supplies at a price below what the
plaintiffs would otherwise have to pay, that this would lead
to a lower pump price, and thus larger volume sales and
larger margin of profit per ga.llon to be split with Automatic
Gas Distributors, Inc., as "net receipts" under the
agreement. None of these representations were true. When
the plaintiffs purchased gas from Automatic Gas Distributors,
Inc., they were charged the "rack price" that any other
dealer would have to pay at any other rack in the vicinity
and that any other dealer would also pay Automatic Gas
without such a marketing agreement. Automatic Gas did not
and could not obtain fuel supplies at a price less than that
otherwise obtainable. There was no margin th.at would lead to
a lower pump price or to a larger volume of sales. What
really occurred was that Automatic Gas became half of the
dealership operated by the plaintiff and by taking half of
the profit, reduced by that extent the amount that the
plaintiffs might reasonably have expected to obtain as a per
gallon profit if they had not dealt with Automatic Gas.
Since Orser made the representations upon which the
plaintiffs relied, though he was acting on behalf of
Automatic Gas, it should be clear that he is equally liable
with Automatic Gas for the actual loss in profits sustained
by the plaintiffs, and for the punitive damages which result
from his fraudulent representations. Strangely, the majority
here is holding the principal and not the agent.
The majority here also does not explain adequately the
intercorporate relationship between the three corporations
here involved. Western Crude Oil, Inc., during the times
here pertinent, owned all of the stock of Spruce Oil
Corporation. Western Crude Oil, Inc. also owned all of the
stock of Automatic Gas Distributors, Inc. Western Crude paid
all of the salaries of the employees of its two subsidiary
corporations, for which it was compensated by a later
bookkeeping charge-back against the subsidiaries. The
corporation's headquarters are in the same office building.
It appears they used the same receptionist. They may have
used the same telephone number.
But more important in the relationship between the
parties, and particularly with respect to the representations
that Orser made to the plaintiffs, is the "scam" which
shocked the District Court, the method that Western Crude
used, through its subsidiaries, to exact two profits from the
plaintiffs. Thus, Spruce Oil Corporation purchased the
gasoline products from refiners. It sold the products to
Automatic Gas and others, at a price upon which Spruce Oil
Corporation made a profit. Automatic Gas, taking the same
product, then sold the same to the plaintiffs, again exacting
one-half of the profits gained by the plaintiffs. The result
was that Western Crude Oil, Inc., acting through its
subsidiaries, and in contravention of Orser's
representations, made large volume purchases from refiners
through Spruce Oil Corporation, but did not pass on the
advantage of those large volume purchases to the plaintiffs,
as Orser had indicated would occur. Instead, it made a
profit in the transaction from Spruce to Automatic Gas, and
then Automatic Gas made a profit on the efforts of the
plaintiffs in selling the gasoline product. The result, as
the District Court found and concluded, was predictable: the
plaintiffs and the other dealers involved with Automatic Gas
all lost money, three of them went broke, one bought out at a
loss of $20,000, and the only survivor (Purcell) abandoned
the agreement. The District Court found that ''in the course
of it all they had been systematically robbed of a part of
their agreed-upon profit, which they were forced to recover
by this action, harrassed by the accounting practices of the
defendants, and forced to exhaust their resources, other
businesses, and credit to continue serving the defendants at
what amounted to slave wages .. ."
Western Crude's wholly owned subsidiary, Automatic Gas
Distributors, Inc., employed an agent, Orser, who
fraudulently induced the plaintiffs and others to enter into
marketing agreements and lease agreements, and hid from them
the fact that another of Western Crude's wholly owned
corporations, Spruce Oil Corporation, stood behind Automatic
Gas and the refiners and exacted a profit that in reality had
been promised by Orser to the plaintiffs. The District Court
was completely correct in assessing punitive damages against
all of the defendants because all are equally responsible.
The majority opinion does not answer the cross-appeal of
Purcell, who is still open to further hearings on the
counterclaim on which judgment against him has been entered.
So that the record may be clear for him, I would hold that
the judgment on the counterclaim against him in favor of
Automatic Gas is not yet final, and its merits should be
determined, if necessary, in a future appeal.
Mr. Chief Justice Frank I. Haswell concurs with Mr. Justice
John C. Sheehy's concurrence and dissent.
%&A, 4.
Chief '~ustice
Mr. Justice Daniel J. Shea will file a written opinion later.