No. 90-010
IN THE SUPREME COURT OF THE STATE OF MONTANA
1990
STEVEN G. BOYD and JERRI BOYD,
Husband and Wife, and MONTANA
MEDICAL OXYGEN & SUPPLY, INC.,
a Montana Corporation,
plaintiffs and Appellants,
STATE MEDICAL OXYGEN & SUPPLY, INC.,
a Montana corporation; LARRY R.
WILLIAMS; MARK C. HUNGERFORD; and
BRIAN R. CLOUTIER,
Defendants and Respondents.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable C. B. McNeil, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Lon J. Dale, Jon R. Binney; Milodragovich, Dale &
Dye, Missoula, Montana
For Respondent:
Dexter L. Delaney and P. Mars Scott; Mulroney,
Delaney & Scott, Missoula, Montana
Submitted on ~riefs: August 30, 1990
Decided: October 23, 1990
Filed: J
9 Clerk
Justice Fred J. Weber delivered the Opinion of the Court.
plaintiffs f Montana Medical Oxygen and Supply, Inc. and Steven
and Jerri Boyd (the Boyds), brought suit against defendants, State
Medical Oxygen and Supply, Inc., Larry ~illiams,Mark Hungerford,
and ~ r i a n~loutier (State ~edical), for damages for breach of
contract, breach of the implied covenant of good faith and fair
dealing, and conversion. State ~edical brought a cross-claim
against the Boyds for damages for breach of contract, breach of the
implied covenant of good faith and fair dealing, and actual or
constructive fraud. Following a jury trial in the ~istrictCourt
for the Eleventh Judicial District, Flathead County, the jury
returned a verdict against the Boyds on the Boydsl claims, and
against State Medical on State Medical's claims. Thus, no damages
were awarded to either side. The ~istrictCourt then denied the
Boyds' motion for a new trial. The Boyds appeal. We affirm.
The issues are:
1. Are plaintiffs entitled to a new trial because the
District Court erred in rejecting plaintiffs1 special verdict form
and replacing it with the court's own general verdict form?
2. Are plaintiffs entitled to a new trial because the
District Court improperly admitted testimony of defendants1 expert?
3. Are plaintiffs entitled to a new trial because the
District Court failed to properly instruct the jury?
Steven and Jerri Boyd, husband and wife, owned and operated
a corporation known as Montana Medical Oxygen Supply, Inc. (Montana
Medical). In 1983, the Federal Medicare ~ivision initiated
Medicare fraud charges against Montana Medical and Steven Boyd in
federal court. These criminal charges resulted in a five year
prison sentence for Steven Boyd and a $190,000 fine for Montana
Medical. The federal judge agreed to review the prison sentence
and fine under Rule 35 of the Criminal Rules of civil Procedure if
Steven Boyd would divest himself of all ownership in Montana
Medical within 120 days. In response, Boyd executed an agreement
with defendants Williams, Hungerford and Cloutier, for the sale and
purchase of the assets and the assumption of certain liabilities
of Montana Medical. At about the same time, the Boyds executed
documents granting powers of attorney to Williams, Hungerford and
Cloutier and providing them with the right to manage Montana
Medical. Upon execution of these documents, the federal judge
reduced Steven Boyd's prison term to sixty days and Montana
Medical's fine to $19.00.
At about the same time as the pleas to the federal medicare
fraud indictments were entered, Montana Medical and Steven Boyd
were suspended from receiving Medicare reimbursements. As a result
of the suspension and the criminal fines against Montana Medical,
Williams, Hungerford, and Cloutier formed a new corporation, State
Medical Oxygen and Supply, Inc. (State Medical), to purchase the
assets of Montana Medical rather than purchasing the corporation
outright. Once the federal sentences against Boyd and Montana
Medical were reduced, controversy between the parties delayed the
closing date. ultimately the Boyds terminated the defendants1
powers of attorney. The Boyds claimed that defendantst continued
management of the company beyond the termination of the powers of
attorney was conversion. The Boyds also claimed that State Medical
refused to close the deal resulting in breach of contract and
breach of the implied covenant of good faith and fair dealing.
On the other side, State Medical claimed that the Boyds had
fraudulently misrepresented the financial condition of Montana
Medical which resulted in Williams, Hungerford and Cloutier having
to infuse massive amounts of capital into the business to keep it
going. Because Steven Boyd had to divest himself of ownership of
Montana Medical within 120 days of the federal sentencing, the
agreements between the parties were executed before in depth
audits had been completed. Defendants claimed that the Boyds were
the ones who never showed any interest in closing the deal,
resulting in breach of contract and breach of the implied covenant
of good faith and fair dealing.
The deal never closed and each party sought damages against
the other, asserting that the other had caused the breach. The
jury found against both parties and neither party recovered. The
Boyds filed a motion for a new trial and the District Court denied
the motion.
The Boyds claim that they are entitled to a new trial under
the provisions of Rule 59 (a), M.R. Civ.P., and under the provisions
of 25-11-102, MCA, subsections (I), (3) an (7). Rule 59(a)
states:
Rule 5 9 (a). Grounds. A new trial may be granted to
all or any of the parties and on all or part of the
issues for any of the reasons provided by the statutes
of the state of Montana.
A motion for new trial shall state with
particularity the grounds therefor, it not being
sufficient merely to set forth the statutory grounds, but
the motion may be amended, upon reasonable notice, up to
and including the time of hearing the motion.
On motion for a new trial in an action tried without
a jury, the court may take additional testimony, amend
the findings of fact and conclusions of law or make new
findings and conclusions, set aside, vacate, modify or
confirm any judgment that may have been entered or direct
the entry of a new judgment.
Section 25-11-102, states in pertinent part:
25-11-102. Grounds f o r new t r i a l . The former
verdict or other decision may be vacated and a new trial
granted on the application of the party aggrieved for any
of the following causes materially affecting the
substantial rights of such party:
(1) irregularity in the proceedings of the court,
jury, or adverse party or any order of the court or abuse
of discretion by which either party was prevented from
having a fair trial;
...
(3) accident o r surprise which ordinary prudence
could not have guarded against;
. . .
(7) error in law occurring at the trial and excepted
to by the party making the application.
Are the plaintiffs entitled to a new trial because the
District Court erred in rejecting plaintiffs1 special verdict form
and replacing it with the courtls own general verdict form?
The District Court rejected the Boyds' special verdict form,
concluding that it was virtually impossible to follow and was an
invitation for error. The Boyds' special verdict form had
specifically delineated each of their three causes of action
requiring the jury to vote separately on each claim. The court's
general verdict form submitted to the jury stated in pertinent
part :
Plaintiffs' claims:
1. Upon Plaintiffs' claims we find in favor of the
Plaintiffs and award damages against the Defendant in the
amount of $
2. If your verdict is in favor of the Plaintiffs
and includes damages for wrongful conversion of personal
property, the date of conversion is found to be
and the value of the property converted on the
date is $ and which value is to be
included in the total amount due.
The Boyds submit affidavits from eight of the twelve jurors,
claiming that these affidavits prove that the majority of the
jurors thought that they must find all three of the Boyds' causes
of action were present before they could award damages to the
Boyds, and that the problem arose in establishing a date of
conversion. The Boyds contend that such an interpretation by the
jury was not contemplated by any of the parties or by the court at
the time the court's general verdict form was presented to the
jury. The Boyds assert the juror affidavits prove the jury was
misled in its duties and is an irregularity in the proceedings that
prevented the Boyds from having a fair trial under 5 25-11-102(1),
MCA, and/or was an accident under § 25-11-102(3), MCA.
The Boyds are attempting to use juror affidavits to impeach
the juror's own verdict. Montana law on the use of juror
testimony and affidavits upon an inquiry into the verdict is
summarized in Rule 606(b), M.R.Evid., as follows:
(b) Inquiry into validity of verdict or indictment.
Upon an inquiry into the validity of a verdict or
indictment, a juror may not testify as to any matter or
statement occurring during the course of the jury's
deliberations or to the effect of anything upon his or
any other juror's mind or emotions as influencing him to
assent or dissent from the verdict or indictment or
concerning his mental processes in connection therewith.
Nor may his affidavit or evidence of any statement by him
concerning a matter about which he would be precluded
from testifying be received for these purposes.
However, as an exception to this subdivision, a
juror may testify and an affidavit or evidence of any
kind be received as to any matter or statement
concerning only the following questions, whether
occurring during the course of the jury's deliberations
or not: (1) whether extraneous prejudicial information
was improperly brought to the jury's attention; or (2)
whether any outside influence was brought to bear upon
any juror; or (3) whether any juror has been induced to
assent to any general.or special verdict, or finding on
any question submitted to them by the court, by a resort
to the determination of chance.
The policy reasons behind this rule are well stated at 76
Am.Jur.2d1 Trial, 5 1219, which states in part:
The rule is founded on public policy, and is for the
purpose of preventing litigants or the public from
invadins the privacy of the jury room, either durins the
deliberations of the jury or afterward. It is to prevent
overzealous litisants and a curious public from pryinq
into deliberations which are intended to be, and should
be, private, frank, and free discussions of the
questions under consideration. Further, if after being
discharsed and minslins with the public, jurors are
permitted to impeach verdicts which they have rendered,
it would open the door for tamperins with jurors and
would place it in the power of a dissatisfied or corrupt
juror to destroy a verdict to which he had deliberately
siven his assent under sanction of an oath. .. .
Testimony of the jurors to impeach their own verdict is
excluded not because it is irrelevant to the matter in
issue, but because experience has shown that it is more
likely to prevent than to ~romotethe discovery of the
truth. Hence, the affidavit of a iuror cannot be
admitted to show anythins relatins to what passed in the
iurv room during the investigation of the cause, or the
effect of a colloquy between the court and a juror, or
the arguments made to a juror by a fellow juryman.
(Emphasis added.)
The alleged misunderstanding of the jurors in this case does
not fit into any of the three exceptions enumerated in Rule 606 (b).
Use of juror affidavits to prove irregularity or accident under
§ 25-11-1021) , (3), MCA, as attempted by the Boyds, is clearly
improper. If a motion for a new trial is to be granted, an
irregularity or accident in the jury proceedings must exist
independent of juror affidavits. Harry v. Elderkin (1981), 196
Mont. 1, 6, 637 P.2d 809, 812. The Boyds present no evidence,
other than the affidavits, of irregularity or accident allegedly
stemming from misunderstanding by the jurors.
The District Court properly denied the Boydsl motion for a new
trial based on claims of irregularity or accident supported only
by juror affidavits. We hold plaintiffs are not entitled to a new
trial because the District Court rejected the plaintiffs1 special
verdict form and replaced it with the courtls own general verdict
form.
Are plaintiffs entitled to a new trial because of improper
admission of testimony of defendants1 expert?
During trial testimony State Medicalls expert witness, Dr.
~ennisOIDonnell, referred to a report that was done by the Arthur
Anderson CPA firm in Seattle, Washington. The report was an
evaluation of Montana Medical's assets that had been done by the
Arthur Anderson firm for Kalispell General Hospital when the
hospital had considered purchasing Montana Medical.
State Medical had deposed Dr. OIDonnellapproximately eighteen
months prior to trial and at that time Dr. O'Donnell did not have
access to the Arthur Anderson report. Thus, the Arthur Anderson
report was not listed during discovery as one of the documents on
which Dr. OIDonnell based his opinion as to the value of Montana
Medical. During trial Dr. OIDonnell referred to the value that
Arthur Anderson had placed on Montana Medical to illustrate that
his value was comparable to the value arrived at by the Arthur
Anderson firm. The Arthur Anderson report was not introduced as
an exhibit.
The Boyds allege surprise as grounds for new trial pursuant
to $j 25-11-102(3), MCA. The Boyds claim that the report was not
made available to them through the discovery process, and that
they did not have knowledge that Dr. OIDonnell would be using the
report in any way during his testimony.
The Boyds argue that under Rule 26 (e)(1) and (2), M.R. Civ. P.,
State Medical had a duty to supplement Dr. O'Donnellls responses
to his deposition and reveal that Dr. OIDonnell had obtained
access to the Arthur Anderson report subsequent to Dr. OIDonnellls
deposition.
Rule 26 (e)(1) and (2) provide:
.
Rule 26 (e) Supplementation of responses. A party
who has responded to a request for discovery with a
response that was complete when made is under no duty to
supplement his response to include information thereafter
acquired, except as follows:
(1) A party is under a duty seasonably to supplement
his response with respect to any question directly
addressed to (A) the identity and location of persons
having knowledge of discoverable matters, and (B) the
identity of each person expected to be called as an
expert witness at trial, the subject matter on which he
is expected to testify, and the substance of his
testimony.
(2) A party is under a duty seasonably to amend a
prior response if he obtains information upon the basis
of which (A) he knows that the response was incorrect
when made, or (B) he knows that the response though
correct when made is no lonser true and the circumstances
are such that a failure to amend the response is in
substance a knowing concealment. (Emphasis added.)
Each of seven criteria enumerated in Ewing v. Esterholt
(1984), 210 Mont. 367, 373, 684 P.2d 1053, 1057, must be met before
surprise can be the basis of a new trial. The Boyds are unable to
establish two of the Ewinq criteria which state in pertinent part:
the facts from which the surprise resulted had a material bearinq
on the case, and the result of a new trial will probably be
different. (Emphasis added.)
Dr. O1Donnell testified at trial that he had formulated his
opinion prior to the time that he received the Arthur Anderson
report and that the report did not in any way affect his analysis
or conclusion.
Since the Boyds are unable to show that the surprise had a
material bearing on the case and that the result of a new trial
will probably be different, we hold that the Boyds are not entitled
to a new trial because of improper admission of testimony of State
Medical's expert.
Are plaintiffs entitled to a new trial because the District
Court failed to properly instruct the jury?
The Boyds claim the District Court failed to properly instruct
the jury on three different issues of law, namely:
(A) the District Court failed to instruct the jury on
termination of power of attorney,
(B) the District Court gave improper warranty instructions
to the jury,
(C) the District Court improperly refused plaintiffs'
proffered instruction on fraudulent conveyances.
Are plaintiffs entitled to a new trial because the District
Court failed to instruct the jury on termination of power of
attorney?
The District Court gave plaintiffs' proposed instructions 1
and 2 on power of attorney.
Proposed Instruction No. 1 stated:
A power of attorney is an instrument in writing by
which one person, as principal, appoints another as his
agent and confers upon him the authority to perform
certain specified acts or kinds of acts on behalf of the
principal.
Proposed Instruction No. 2 stated:
An agent can never have authority, either actual or
ostensible, to do an act which is and is known or
suspected by the person with whom he deals to be a fraud
upon the principal.
Section 28-10-409, MCA.
The court refused to give plaintiffs1 proposed instruction No.
5 which stated:
Unless the power of the agent is coupled with an interest
in the subject of the agency, it is terminated as to
every person having notice thereof by its revocation by
the principal.
Section 28-10-802, MCA.
The court agreed with State Medical that the jury would have
no independent understanding of what an "agent coupled with an
interest is.I1 For that reason, there was undefined legal terms
which rendered the instruction ambiguous or perhaps unintelligible.
We agree.
The Boyds argue that the termination of the power of attorney
was central to their claim of conversion and that a failure of the
court to give an instruction on the termination of power of
attorney resulted in the inability of the jury to establish a date
of conversion. The Boyds offer the juror affidavits as evidence
of their contention. As already discussed under the first issue,
juror affidavits may not be used to impeach a jury verdict. No
other evidence was presented to indicate that the failure to give
the proffered instruction substantially prejudiced the Boyds. In
fact the Boyds specifically offered into evidence a document
entitled "Termination of Power of AttorneyI1 dated March 2, 1984.
The jury did not need to be instructed regarding the power of
attorney when they had the actual document in evidence to review.
We hold the District Court did not err in refusing to give
plaintiffs1 proffered instruction on termination of power of
attorney.
Are the plaintiffs entitled to a new trial because the
District Court gave improper warranty instructions to the jury?
The District Court gave the three following instructions,
offered by State Medical, on warranties:
No. 25: One who sells or agrees to sell personal
property knowing that the buyer relies upon his advice
or judgment thereby warrants to the buyer that neither
the seller nor any agent employed by him in the
transaction knows the existence of any fact concerning
the thing sold which would, to his knowledge, destroy
the buyer's inducement to buy.
Section 30-11-213, MCA.
No. 26: A warranty is an engagement by which a seller
assures to a buyer the existence of some fact affecting
the transaction, whether past, present, or future.
Section 30-11-209, MCA.
No. 27: One who sells or agrees to sell personal
property as his own thereby warrants that he has a good
and unencumbered title thereto.
Section 30-11-211, MCA.
The instructions were taken from Chapter 11 of Title 30 which
applies to Sales. Section 30-11-224, MCA, states: "This part
shall not apply to sales subject to the Uniform Commercial Code."
The parties agreed in the Agreement to Purchase that the Uniform
Commercial Code - Bulk Transfers, 5 30-6-101 et seq., MCA, would
The Uniform Commercial Code deals extensively with warranties
in 5 5 30-2-312 through -318, MCA. The giving of Non-Uniform
Commercial Code warranty instructions in a Uniform Commercial Code
case may be a technical defect, but mere technical defects in the
instructions, if considered as a whole, are not grounds for a new
trial unless affecting the substantial rights of the party alleging
the defect. State v. DeTienne (1985), 218 Mont. 249, 256, 707 P.2d
534, 538. The party alleging the defect must show that the
instructions were prejudiced before a new trial may be granted.
Flynn v. Siren (1986), 219 Mont. 359, 363, 711 P.2d 1371, 1373.
Where the jury instructions, taken as a whole, state the law
applicable to the case, the giving of the instruction is not
grounds for a new trial. Id.
We have compared the challenged instructions with the Uniform
Commercial Code warranty statutes and conclude the instructions do
not misstate the law. Absent a misstatement of the law, the Boyds
are unable to establish prejudice or interference with their
substantial rights. We hold that the giving of the warranty
instructions is not grounds for a new trial.
C
Are the plaintiffs entitled to a new trial because the
District Court improperly refused plaintiffs1 proffered instruction
on fraudulent conveyances?
Plaintiffs1 proffered instruction No. 23 stated:
Every conveyance made and every obligation incurred with
actual intent, as distinguished from intent presumed in
law, to hinder, delay, or defraud either present or
future creditors is fraudulent as to both present and
future creditors.
Before an instruction can be given on fraudulent conveyances, there
must be a showing that a conveyance occurred and a showing that the
conveyance was intended to defraud the creditors. No such showing
was made in this case. A conveyance for the purpose of fraudulent
conveyances includes Iteverypayment of money, assignment, release,
transfer, lease, mortgage, or pledge of tangible or intangible
property and the creation of any lien or encumbrance. Section 3 1-
2-301(2), MCA. The District Court determined that no evidence of
a conveyance had been presented and so the instruction was
improper. The Boyds argue that the security interest that the
Boyds gave to the Small Business Administration (SBA) was a
conveyance under the statute and the court had erroneously applied
its own definition of conveyance when it stated that a security
interest is not a conveyance. It is true that under § 31-2-
301(2), MCA, the SBA1s security interest is a conveyance. However
there was no evidence presented that the giving of the security
interest was fraudulent. The Boyds themselves are the ones who
gave the security interest to the SBA prior to any involvement
with State Medical. The Boyds then gave a security interest to
State Medical. This security interest does not in any way affect
the SBA1sperfected security interest and no evidence was presented
to indicate that the giving of a security interest to State Medical
was intended to defraud the SBA. The Boyds argue that State
Medical took possession of assets owned by Montana Medical with the
intent to defraud the SBA of its security interest. The transfer
of possession of assets to third parties does not affect the SBA1s
perfected security interest and there is no evidence that there was
any intent to deprive the SBA of its superior position as creditor.
We conclude that the plaintiffs have failed to prove a fraudulent
conveyance. We hold the court correctly refused to give an
instruction on fraudulent conveyances.
Affirmed.
We concur: A
'