Stine v. Sanders

987 S.W.2d 289, 66 Ark. App. 49, 1999 Ark. App. LEXIS 187

• Court: Court of Appeals of Arkansas
• Decided: March 24, 1999
• Docket: CA 98-110
• Status: Published

Opinions

John Mauzy Pittman, Judge.

The appellees brought an action against the appellants alleging that appellants committed the torts of deceit and interference with a business expectancy during the purported purchase of appellees’ business by the appellant, Don Davis. After a jury trial, a verdict was returned in favor of appellees on the issue of deceit, and a judgment was entered assessing damages in the amount of $60,000 against appellant Don Davis and in the amount of $65,000 against appellant Vera Stine. The $65,000 assessed against appellant Vera Stine included $5,000 in punitive damages. From that decision, comes this appeal.

For reversal, appellants contend that the evidence is insufficient to support the jury’s finding of deceit; that the evidence is insufficient to support the punitive damage award against appellant Vera Stine; and that the trial court erred in denying appellants’ motion for a new trial. We affirm.

We first address appellants’ contention that the evidence is insufficient to support the jury’s finding of deceit. The tort of deceit consists of five elements that must be proven by a preponderance of the evidence: (1) a false representation of material fact; (2) knowledge that the representation is false or that there is insufficient evidence upon which to make the representation; (3) intent to induce action or inaction in rebanee upon the representation; (4) justifiable rebanee on the representation; and (5) damage suffered as a result of the rebanee. Roach v. Concord Boat Corp., 317 Ark. 474, 880 S.W.2d 305 (1994). Our standard in reviewing the sufficiency of the evidence is web settled: (1) the evidence is viewed in a bght most favorable to the appehee; (2) the jury’s finding wih be upheld if there is any substantial evidence to support it; and (3) substantial evidence is that of sufficient force and character to induce the mind of the fact-finder past speculation and conjecture. Medlock v. Burden, 321 Ark. 269, 900 S.W.2d 552 (1995). In cases of deceit, the credibihty of the witnesses is vital in determining liability, and the trier of fact is the sole judge of the weight and credibihty of the evidence. Id.¹

Viewing the evidence, as we must, in the light most favorable to the appellees, the record shows that appellees are the owners of a security business, Sanders Security and Detective Corporation. They sought to sell their business in October 1994, and advertised the business for sale for an asking price of $200,000 in newspapers in Little Rock and Dallas. Appellant Don Davis saw one of the advertisements and contacted appellees regarding purchase of the business. Mr. Davis met with Mr. Sanders and discussed various aspects of the business. Appellant Vera Stine, who was employed by appellees as manager of their business, provided Mr. Davis with an informational packet listing some of the clients of the business and the income derived from those clients. She also, in furtherance of the prospective sale of the business, took Mr. Davis to several business clients of Sanders Security. Mr. Davis met with appellees’ attorney and was provided with information regarding the tax debt of the business, tax returns, and additional financial documents. Mr. Davis then met with Mr. Sanders at the offices of Sanders Security on November 4, 1994. Mr. Davis and Mr. Sanders reached an oral agreement for the sale of the business for $120,000, and Mr. Davis agreed to provide a check for the purchase price from his accountant the next week. However, although Mr. Davis never canceled the agreement, no check was ever provided. At about this same time, Ms. Stine quit her job as manager of Sanders Security following an argument with Mrs. Sanders. Her last day of work for Sanders Security was November 7, 1994. Although Ms. Stine told appellees that she was going to work for University Mall, she did not do so. Unbeknownst to appellees, she began a romantic involvement with Mr. Davis that culminated in their engagement to be married. Ms. Stine obtained her own security license on November 9, 1994, and, together with Mr. Davis, formed a rival security business, Interstate Security and Investigations.

The rival business was staffed with former employees of Sanders Security who were induced to defect by appellants. Where Sanders Security had sixty-five employees when Mr. Davis agreed to purchase the business, one month later Sanders Security had only five remaining employees, the rest having gone to work for appellants at Interstate Security. Such defections would normally have been impossible, because it was standard practice for Sanders Security to have its employees execute an agreement not to work for competing firms.² However, the records of these agreements were missing. The office secretary for Sanders Security, Cora Maglero, continued to work for Sanders until November 14, 1994. She gave appellees no notice of her intent to quit her job. On Ms. Maglero’s last day of work, a housekeeping employee saw her printing a great many documents from the office computer, although she had not been asked to print out anything. She told the housekeeping employee that she had to get the documents off the computer before she left, and was seen taking the documents out and placing them in the back seat of her red convertible. Ms. Maglero then returned to the office and continued to work on the computer. Later that day, the housekeeping employee saw Ms. Maglero’s auto parked at Ms. Stine’s house, and she continued to see Ms. Maglero’s car parked there every day, morning and night. Ms. Maglero admitted that she went to work for Ms. Stine. Following Ms. Maglero’s departure from Sanders Security, it was discovered that the business data on the company computer had been completely deleted: Diagnostic tests showed that an enormous amount of printing had been done on the days immediately preceding Ms. Maglero’s departure, and that the business information had been deleted on Ms. Maglero’s last day of work.³

Staffed with appellees’ employees, appellants’ rival company soon obtained appellees’ clients as well. Anthony Timberlands, Turf Catering, Oaklawn Jockey Club, Nickle Molding, and Lauray’s Jewelers canceled their contracts with appellees shortly after the date of the sale agreement and obtained security service from the rival company. Several of these firms had been clients of the appellees for twenty years. Several of the firms canceled their contracts with appellees upon learning that appellees’ workers’ compensation insurance coverage had lapsed. Ms. Stine was responsible for maintaining workers’ compensation insurance for appellees’ business, and had been contacted by the insurance agent regarding the problem, yet Ms. Stine neither reinstated the coverage nor informed appellees about the problem.⁴

After Ms. Stine’s departure, appellees learned about the problem from clients calling to cancel their contracts with Sanders on the grounds that Sanders was in breach for failure to maintain workers’ compensation insurance. Telephone records showed that Ms. Stine telephoned many of these clients from her home within one week of the date of the agreement.

In arguing that the evidence is insufficient to support a finding of deceit, appellants list the actions of Mr. Davis and Ms. Stine separately and urge us to reverse because the evidence does not show that either appellant committed all the acts that would satisfy all five elements of deceit. We do not agree. It is not necessary for a single person to perform all the acts constituting fraud where two persons participate in a fraudulent scheme. Each party to a fraudulent transaction is responsible for the acts of others in furtherance of the fraudulent scheme, and all who participate are hable for the fraud. 37 C.J.S. Fraud § 83 (1997); see, e.g., Medlock v. Burden, 321 Ark. 269, 900 S.W.2d 552 (1995); Malakul v. Altech Arkansas, Inc., 298 Ark. 246, 766 S.W.2d 433 (1989).

Appellants also contend that there is no substantial evidence to show that Mr. Davis agreed to purchase the business. However, Mr. Sanders clearly testified that, after investigation and negotiation, Mr. Davis agreed to purchase the business for $120,000. Mr. Sanders’s credibility was a question within the sole province of the jury, see Medlock v. Burden, supra, and, having been found to be credible, his testimony constitutes substantial evidence that an agreement was reached.

Appellants further contend that an agreement to purchase the business was not the sort of misrepresentation for which deceit will lie because it was not a misrepresentation of a present fact, but was instead merely a promise to do something in the future. Although it is true that, as a general rule, a promise of future conduct may not form the basis for a claim of fraud or deceit, Golden Tee, Inc. v. Venture Golf Schools, Inc., 333 Ark. 253, 969 S.W.2d 625 (1998), this rule will not apply if the party making the false promise knew at the time it was made that it would not be kept. Undem v. First National Bank, 46 Ark. App. 158, 879 S.W.2d 451 (1994). The intent of the promisor in this regard is a question of fact. Id. We think that the evidence in this case, including the evidence that Mr. Davis agreed to purchase the business on November 4; that, without notifying the appellees, he formed a rival business with appellees’ employees and clients on November 9; that appellees’ business records were wrongfully taken to further the formation of the rival business and wrongfully destroyed to hinder appellees from taking timely corrective measures; and that Mr. Davis subsequently denied making the agreement — a denial that the jury found to be false — was sufficient evidence to permit the jury to find that Mr. Davis did not intend to purchase the business when he promised to do so.

Appellants next contend that, in the absence of a written agreement, appellees had no right to rely on Mr. Davis’s promise to purchase the business. There are no Arkansas cases on point, and there is a division of authority on the question of whether the statute of frauds will bar an action for fraud even though the promise underlying the fraud is itself unenforceable under the statute. See generally 37 C.J.S. Statute of Frauds § 140 (1997). We think that the better rule, however, is that the statute of frauds does not abrogate the common-law remedy for fraud merely because the fraudulent misrepresentation was not in writing. See, e.g., Hanson v. American National Bank & Trust Co., 865 S.W.2d 302 (Ky. 1993). This view is the logical corollary of the rule, which has long been the law in this state, that fraud may be predicated on promises made with the intent not to perform them. In both cases, the gist of the fraud is not the breach of the agreement to perform, but is instead the fraudulent intention and representation of the promissor. See Pierce v. Sicard, 176 Ark. 511, 3 S.W.2d 337 (1928). Arkansas courts have consistently held that the statute of frauds is designed to prevent fraud, not shield or effectuate it, Betnar v. Rose, 259 Ark. 820, 536 S.W.2d 719 (1976), so that the statute will not be allowed to be an instrument of fraud either in permitting one guilty of fraud to shelter himself behind it or in allowing its use as a means of perpetrating fraud. Bolin v. Drainage District No. 17, 206 Ark. 459, 176 S.W.2d 143 (1944).⁵

The action in the present case was not one to enforce the agreement, but is instead based upon.facts that grew out of the making of the agreement, and proof of the oral agreement was offered only to show that a fraudulent representation had been made. To interpret the statute of frauds as barring an action for damages resulting from such a fraudulent representation would be to allow the statute to be used as an instrument of fraud. See Nanos v. Harrison, 97 Conn. 529, 117 A. 803 (1922).

Appellants further contend that there is no evidence that appellees actually relied upon any misrepresentation. In this context it is important to note that there was evidence of two deceptions practiced on appellees: Mr. Davis’s representation that he would buy the business, and Ms. Stine’s concealment of material facts surrounding the sale. Nondisclosure of material facts may be a basis of recovery for fraud where there is rebanee on the failure to disclose those facts. Copelin v. Corter, 291 Ark. 218, 724 S.W.2d 146 (1987). In the case at bar, Mr. Sanders testified that he believed Mr. Davis’s representation that he would buy the business, and we think that the jury could infer that Mr. Sanders bebeved that the business was in a brief transition period while he awaited the payment that Mr. Davis promised to bring. There was also evidence that Ms. Stine remained employed by appebees during this period. Ms. Stine, who as manager of Sanders Security controbed virtuahy every aspect of the business, owed appebees a fiduciary duty, Tandy Corporation v. Bone, 283 Ark. 399, 678 S.W.2d 312 (1984), and we think that, on this record, the jury could properly infer that appebees rebed on Ms. Stine to continue to act in good faith towards them and to disclose any facts within her knowledge that were detrimental to their business during the period leading up to the sale and the brief transition period thereafter. We find no error on this point.

Next, appellants contend that appellees suffered no damage as the result of their reliance on any misrepresentations. They argue that this is demonstrated by the fact that appellees were owners of Sanders Security at the time of the purported sale, and that appellees continue to be owners of Sanders Security to the present day. This argument is somewhat disingenuous, for it ignores the evidence that Mr. Davis, having agreed to purchase Sanders Security, failed to do so but nevertheless obtained the profit-making aspects of that business, i.e., its clients, business records, and employees. We think that the evidence supports a finding that this was achieved by the concerted efforts of appellants to induce Mr. Sanders to believe he had sold the business, a belief that helped distract attention from the loss of key employees and the depredations practiced by Ms. Stine in obtaining the clients, business records, and employees of the business — depredations that were largely accomplished during the brief but crucial period immediately following Mr. Davis’s representation that he would purchase the business. We think that the record also contains substantial evidence to show that Ms. Stine, while employed in a fiduciary capacity, undermined the business by failing to pay the workers’ compensation premiums or inform her employers of the problem, and that her concealment of this incident led to breaches of Sanders Security’s agreements with its clients and the resultant termination of those contracts. We also think that the evidence that Ms. Maglero went directly to Ms. Stine’s home with a large stack of documents printed on Ms. Maglero’s unannounced last day of work for Sanders Security, together with the evidence that Ms. Maglero thereafter went to work for Ms. Stine’s rival company, supports an inference that Ms. Stine and Ms. Maglero worked in concert to wrongfully remove and destroy business records belonging to their former employer. Finally, we think that there is substantial evidence to show that the removal and destruction of these business records made it impossible for appellees to prevent the defection of its employees and severely handicapped the company in competing with appellants’ rival firm thereafter. Appellants also argue that appellees were not damaged by their misrepresentations because appellees’ business was in such serious financial difficulty that it was, in any event, bound to fail. However, it is not necessary that the misrepresentation be the sole cause of the injury:

It has been held that although the fraud does not cause substantial damage apart from the happening of subsequent events which reasonably may be expected to happen, if these do happen the defendant is chargeable with the natural consequences of his act. In such case, he cannot complain that these supposed facts followed as conditions concurring with his fraud to cause the damage, if his fraud was planned in reference to the probability that these events would follow. . . . Fraudulent representations or misrepresentations need not be the sole cause of loss in order to be actionable; it is sufficient if they are a material inducement or an essential, material, or inducing cause.

37 Am. Jur. 2d Fraud and Deceit § 293 (1968). On this record, we cannot say that the jury could not have found that appellees were damaged by appellants’ misrepresentations, and we hold that there was sufficient evidence to support the jury’s finding for deceit against appellants.

Appellants next contend that the trial court erred in denying their motion for a new trial on the ground that the verdict was contrary to the preponderance of the evidence. The test on appeal from the denial of a motion for a new trial is whether the verdict is supported by substantial evidence. Gilbert v. Shine, 314 Ark. 486, 863 S.W.2d 314 (1993). In light of our holding that there was sufficient evidence to support the jury’s verdict, we find no error on this point.

Finally, appellants assert that there was insufficient evidence to support the jury’s verdict of $5,000.00 in punitive damages against Ms. Stine. We disagree. Although in ordinary cases, recovery of exemplary damages will not be allowed in an action of deceit unless the wrong involves violation of a duty springing from a relation of trust and confidence, or the fraud is gross, or there are extraordinary or exceptional circumstances clearly indicating malice and willfulness, see Dodge v. Moore, 251 Ark. 1036, 479 S.W.2d 518 (1972), there was evidence in this case that Ms. Stine stood in a relation of trust and confidence to the appellees. Furthermore, in law, malice is not necessarily personal hate, but is rather an intent and disposition to do a wrongful act greatly injurious to another, id., and we think the evidence supports a finding that Ms. Stine was motivated by such an intent in her dealings with appellees.

Affirmed.

Robbins, C.J., and Griffen, Stroud, and Meads, JJ., agree. Bird, J., dissents.

1 Mr. Davis testified that he never offered to purchase appellant’s business. Mr. Sanders testified that Davis did make such an offer. This conflict in the testimony is the crux of this case. The jury believed Mr. Sanders. The dissenting judge does not, and the dissent is founded on the premise that no offer to purchase was made. This rejection of the jury’s credibility determination concerning the central issue in this case is contrary to a long line of authorities holding that, in cases of deceit, the credibility of the witnesses is all important in determining liability, Ellis v. Liter, 311 Ark. 35, 841 S.W.2d 155 (1992), and that in such cases the jury is the sole judge of the credibility of the witnesses and the weight and value of the testimony. Id; Nicholson v. Century 21, 307 Ark. 161, 818 S.W.2d 254 (1991). In cases of deceit, the resolution of conflicts in the testimony is fundamentally a function of the jury, especially where credibihty of the witnesses is involved, and the jury’s findings are usually conclusive. Firstbank of Ark. v. Keeling, 312 Ark. 441, 850 S.W.2d 310 (1993). Although we respect the learned dissenting judge’s views regarding the credibihty of the witnesses and the weight to be given their testimony, we do not adopt them because the resolution of conflicts in the testimony is simply not within the province of the appellate court. Id.

2 The dissent is simply wrong in stating that there is no evidence that employees signed documents preventing them from going to work for competing security companies. After generally describing the nature of the documents, Mrs. Sanders testified that “[i]f we would have had the documents that had been taken from the files of the men, then they would not have been able to go to work for Interstate, but the documents were taken out of their files.” There was no objection to this testimony. Without a doubt, it would be preferable to examine the documents themselves in this instance but, in their absence, to refuse to credit Mrs. Sanders’s testimony regarding their contents would be to unjustly reward the parties who stole them.

3 Conceding that Ms. Maglero printed a large number of documents and removed them to her auto on her last day of work, the dissent nevertheless makes the somewhat puzzling assertion that there is no evidence that Ms. Maglero took any of the company’s missing employee records. Although it is true that no eyewitness could testify concerning exactly which documents were printed by Ms. Maglero and placed in her auto before she left work for the last time, it is clear that the employee records, including the vital noncompetition agreements, were missing; that Ms. Maglero had control of the computer at the time in question; that Ms. Maglero had not been asked to print anything; that an enormous amount of printing was nevertheless done; that Ms. Maglero was in a hurry to accomplish this printing before she left the office for the last time; that the printed documents were deposited in Ms. Maglero’s automobile; that this automobile was immediately thereafter seen parked at Ms. Stine’s house; and that Ms. Stine contemporaneously founded a rival business by which Ms. Maglero was employed. When considered in light of Ms. Maglero’s somewhat dubious explanation of her reason for her hasty departure from appellants’ employ, and of the evidence that the business records on the computer were subsequently found to have been completely deleted on Ms. Maglero’s final day of work, the evidence that Ms. Maglero took the missing employee records is compelling. Fraud and deceit are, by their nature, frequently accomplished in secret and, despite the dissent’s implication to the contrary, it is not necessary that fraud be shown by direct evidence or positive testimony. Pacini v. Haven, 194 Ark. 31, 105 S.W.2d 85 (1937). Circumstantial evidence can provide a basis for the jury to infer fraud where, as is manifestly the case here, the circumstances are inconsistent with honest intent. Id; Interstate Freeway Services, Inc. v. Houser, 310 Ark. 302, 835 S.W.2d 872 (1992).

4 It would, as the dissent observes, be speculative at best to suggest that Ms. Stine foresaw when she failed to inform appellants of the lapse of insurance coverage in August 1994 that Mr. Davis would arrive from Dallas two months later and offer to buy the business. We made no such suggestion. The fact remains, however, that Ms. Stine was employed as manager of appellants’ business, that as their agent she owed them the utmost good faith and loyalty, and that she was required at all times to make full disclosure of any facts damaging to her principals. Toney v. Haskins, 7 Ark. App. 98, 644 S.W.2d 622 (1983). We think this duty was a continuing one, and that Ms. Stine was as much obliged to report the ultimately disastrous lapse in coverage to her employers in October as she was in August. Furthermore, as manager in total control of appellants’ business, Ms. Stine owed appellants a fiduciary duty. See Tandy Corporation v. Bone, 283 Ark. 399, 678 S.W.2d 312 (1984). The dissent would, in effect, set the concept of fiduciary duty on its head by holding that the great trust and confidence bestowed upon Ms. Stine by the appellants barred them from complaining of any subsequent breach of that trust.

5 Both Betnar and Bolin are, as the dissent notes at some length, distinguishable because the agreements in those cases were partially performed. This distinction is irrelevant in the present case because both Betnar and Bolin involved actions to enforce the agreement, whereas the action in the present case was not to enforce the agreement, but to recover damages resulting from the fraudulent misrepresentation itself. In the context of this case, Betnar and Bolin are significant only as statements of the general proposition that the statute of frauds will not be allowed to be used as an instrument of fraud.