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noting that "actual damages are not an essential element of a fraudulent conveyance action"
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Nos. S-12868, S-12838.
June 26, 2009.
Appeal from the Superior Court, Third Judicial District, Anchorage, Gregory J. Motyka, J.
Andrew J. Fierro, Law Office of Andrew J. Fierro, Inc., Anchorage, for Appellant/Cross-Appellee.
Wayne G. Dawson, Coryell Dawson, LLC, Anchorage, Brad DeNoble, Law Office of Brad DeNoble, LLC, Eagle River, for Appellees/Cross-Appellants.
Before: Fabe, Chief Justice, MATTHEWS, EASTAUGH, CARPENETI, and WINFREE, Justices.
OPINION
Earl Lockhart ("Lockhart") appeals from a judgment of the superior court awarding punitive damages against him for his role as the recipient of a fraudulent conveyance. The judgment awarded Duane Draper, Michael Draper, Denise Gauthier, and Diane Baker (collectively "Draper") punitive damages of $24,000, prejudgment interest of $14,183.67, and attorney's fees of $4,320. Draper cross-appeals.
On May 15, 2007, the Honorable Gregory J. Motyka, superior court judge pro tern, entered a written order explaining the facts and procedural setting of the case and making findings of fact and conclusions of law. The order is appended. Except as noted, we affirm the judgment.
APPEAL ISSUES
Lockhart presents four arguments on appeal. We set them out below and briefly respond to each.
Argument A: "The Trial Court Erred in Finding Earl Lockhart Liable for Punitive Damages by Relying Solely on Unanswered Requests for Admissions Which the Court Deemed Admitted."
Response:
Without passing on the question of whether a punitive damages award cannot ever be exclusively based on unanswered requests for admission, we observe that the award here does not fit this description. Here, though the court relied on the admissions to determine if punitive damages would be appropriate under AS 09.17.020(b), the court also held a two-day hearing on punitive damages before awarding them. At the hearing, the court heard a significant amount of evidence, including Lockhart's own testimony, about the contents of the admissions, such as the inadequacy of the consideration for the fraudulent deed of trust and Lockhart and his brother Jimmie Lockhart's intent in executing it. The court also heard evidence on the issue of how reprehensible Lockhart's conduct was. Although the court's interlocutory ruling on liability for punitive damages was largely based on the unanswered requests, the court could have reversed itself upon hearing Lockhart's testimony at the trial if it had found his explanation credible. But, to the contrary, the court observed that Lockhart's explanation for his conduct "doesn't make sense" and in its formal conclusions of law noted that even without relying on the requests the conclusion was "inescapable" that Lockhart knew his brother "did not owe him the $150,000 . . . yet went along with the deception." We therefore reject this argument.
AS 09.17.020(b) provides: "The fact finder may make an award of punitive damages only if the plaintiff proves by clear and convincing evidence that the defendant's conduct (1) was outrageous, including acts done with malice or bad motives; or (2) evidenced reckless indifference to the interest of another person."
Argument B: "The Trial Court Erred in Finding That Draper Met His Burden of Proof to Warrant an Award of Punitive Damages."
Response:
The court could reasonably conclude from Lockhart's testimony, as it did, that Lockhart acted in "total disregard" for Draper's rights by going "along with the deception" in accepting the deed of trust, and by maintaining title in Lockhart's name despite learning of Draper's award to "delay and frustrate" Draper's attempts to enforce that judgment and to protect Lockhart's financial interest in the duplex. The court's findings were thus not clearly erroneous, and the court did not err in concluding there was clear and convincing evidence to support awarding punitive damages.
Argument C: "The Trial Court Erred in Awarding Punitive Damages in a Fraudulent Conveyance Action in the Absence of Proof of Actual Harm or Loss or That Voiding the Conveyance Was an Inadequate Remedy."
Response:
In Haskins v. Shelden, we held that punitive damages may be available though actual damages are not an "essential element" of the cause of action if (1) the underlying cause of action states a claim for relief independent of the request for punitive damages, and (2) the plaintiff establishes that defendant's conduct rose to the requisite level of culpability and that plaintiff suffered "substantial damage," even if the amount of actual damages may be uncertain.
558 P.2d 487 (Alaska 1976).
Id. at 492-93 (quoting McCORMICK, DAMAGES § 83 (West 1953)) (explaining that plaintiff must show "the existence of malice in the wrongdoer's actions"); cf. Barber v. Nat'l Bank of Alaska, 815 P.2d 857, 864 n. 16 (Alaska 1991) (holding punitive damages may be awarded in nominal damages cases and citing Haskins).
The superior court concluded in its oral findings at the October 5, 2005 hearing that it could award punitive damages "in a case where something substitutes for the compensatory damages, i.e., the wrongful conveyance which is righted." Given the principles announced in Haskins, the court did not err in finding that punitive damages could be awarded if an equitable remedy intended to make the plaintiff whole had been awarded and if the requirements of AS 09.17.020(b) are met. Here, Draper's original complaint sought specific relief independent of his punitive damages claim: voiding the conveyance. As with the replevin claim in Haskins, actual damages are not an essential element of a fraudulent conveyance action. The record contains substantial evidence supporting the court's finding that Lockhart and Jimmie Lockhart's actions were sufficiently culpable to permit punitive damages and caused Draper substantial damage he could not collect his judgment against Jimmie Lockhart for several years and has incurred significant legal fees. Thus, we conclude the superior court did not err in awarding punitive damages absent a compensatory damages award.
See Gabaig v. Gabaig, 717 P.2d 835, 839 n. 6 (Alaska 1986) (listing typical badges of fraud); Haskins, 558 P.2d at 492-93.
The conduct for which punitive damages were awarded in this action relates to Lockhart's acceptance of the conveyance knowing that he was participating in a scheme to deprive Draper of his rights and to Lockhart's subsequent machinations in furtherance of that purpose. This conduct was tortious regardless of the nature of Draper's underlying claim against Jimmie Lockhart. Nonetheless, the underlying action was a tort claim for fraudulent misrepresentation and fraud. Thus, this case does not fall within the dictum in Summers v. Hagen, 852 P.2d 1165 (Alaska 1993), that "[b]ecause the underlying debt sounds in contract, not tort, exemplary damages [in a fraudulent conveyance action] . . . are not authorized." Id. at 1170. Our conclusion concerning the tortious nature of Lockhart's conduct and its independence from the underlying claim nonetheless calls into question the continuing validity of the Summers dictum.
Argument D: "The Trial Court Abused Its Discretion in Failing To Permit Earl Lockhart To Withdraw the Unanswered Requests for Admission."
Response:
Because Lockhart never filed a motion to withdraw the admissions, this contention has no merit.
PREJUDGMENT INTEREST
Although none of Lockhart's points on appeal has merit, we note one point of plain error prejudicial to Lockhart. The court awarded prejudgment interest on the punitive damages award. Our case law is clear that this is impermissible.
Bobich v. Stewart, 843 P.2d 1232, 1236 (Alaska 1992) (citing Andersen v. Edwards, 625 P.2d 282, 289 (Alaska 1981); Andersen, 625 P.2d at 289 ("Punitive damages are not compensation for actual physical harm, and prejudgment interest is generally not awarded on punitive damages.").
In Hutka v. Sisters of Providence in Washington we vacated an award of prejudgment interest on a liquidated damages award though the party had waived the argument by failing to properly raise it below because the award constituted an impermissible dual recovery and thus, plain error. Because prejudgment interest likewise may not be awarded on punitive damages, the court's award constituted plain error. We thus vacate the award of prejudgment interest against Lockhart in the amount of $14,183.67.
102 P.3d 947, 960 (Alaska 2004).
Cf. Hutka, 102 P.3d at 960; Bobich, 843 P.2d at 1236.
In Great Western Savings Bank v. George W. Easley Co., 778 P.2d 569 (Alaska 1989), we concluded an error "not raised in the trial court and . . . not raised on appeal" was "thus not grounds for reversing the judgment." Id. at 579. But that statement does not apply to cases of plain error. See Cragle v. Gray, 206 P.3d 446, 450 (Alaska 2009) ("We generally decline to review issues not raised in the superior court except to the extent there may be plain error." (citing Miller v. Sears, 636 P.2d 1183, 1189 (Alaska 1981))).
CROSS-APPEAL ISSUES
Draper presents six arguments on cross-appeal. We set them out below and briefly respond to each.
Argument 1: "The Superior Court Erred By Precluding Evidence Concerning Lockhart's Property Acquisitions."
Response:
The court did not abuse its discretion in refusing to admit the evidence in question. The events occurred four years after the fraudulent conveyance and thus would have had little, if any, probative value as to Lockhart's earlier fraudulent conduct and intent.
Argument 2: "The Superior Court Erred By Not Requiring Lockhart To Produce The Requested Financial Records."
Response:
Contrary to Draper's assertions, the court, acting as fact finder, may but is not required to consider the defendant's wealth in determining the amount of punitive damages to award. And the record shows that Lockhart produced over one thousand pages of documents relating to the duplex, his real estate trust, his refinance documents, his indemnity agreement with his title company, and his tax returns from 2001 to 2004. The record also contains listings and value assessments of Lockhart's California properties, as well as of the duplex. To the extent the court found that Lockhart had complied with the production order, the court's finding was not clearly erroneous and the court did not abuse its discretion in declining to order additional production.
See AS 09.17.020(c) (permitting but not requiring the fact finder to consider factors relevant to the defendant's financial condition and motives); AS 09.17.020(e) (permitting but not requiring courts to order financial documents be produced); Pluid v. B.K., 948 P.2d 981, 986 (Alaska 1997) ("While the wealth of the defendant is a relevant inquiry on the issue of punitive damages, it is not a necessary element."); Clary Ins. Agency v. Doyle, 620 P.2d 194, 205 (Alaska 1980) (affirming a punitive damages award though "there [was] an absence of evidence relating to the wealth of the defendants" because "the conduct was outrageous").
Argument 3: "The Superior Court Erred By Failing To Consider The Economic Benefit Lockhart Received From Equity In The Duplex."
Response:
Contrary to Draper's assertion, the court made findings on this issue, though it ultimately concluded that (1) it was "not convinced by [Draper's] argument that [Lockhart] benefited in some way from the inclusion of Jimmie Lockhart's equity in the duplex in his California real estate portfolio," and (2) the value of the duplex was "largely irrelevant" to the punitive damages calculation because even if no fraudulent conveyance had occurred, Draper could not have recovered more than $12,000 from Jimmie Lockhart, the amount of his compensatory damages award.
Argument 4: "The Superior Court Erred In The Amount Of Its Award Of Punitive Damages."
Response:
Here, the court applied each of the AS 09.17.020(c) factors to its findings of fact and considered Lockhart's net worth. It found that at the time Lockhart and his brother Jimmie Lockhart executed the 2001 deed of trust for inadequate consideration, it was likely that serious harm to Draper would arise and that Lockhart and his brother were aware of this likelihood. The court also found that Lockhart's net worth of around $20 million supported a higher amount of punitive damages. But the court also properly considered factors supporting a lower amount, including the amount of compensatory damages Draper was awarded against Jimmie Lockhart in the lawsuit precipitating the fraudulent conveyance action ($12,000) and the fact this case did not involve physical or widespread environmental harm.
See AS 09.17.020(c)(1) (2).
See AS 09.17.020(c)(7) (f).
See Casciola v. F.S. Air Serv., Inc., 120 P.3d 1059, 1069 n. 40 (Alaska 2005) (discussing cases in which double-digit ratio awards were justified because of highly reprehensible conduct, including Leatherman Tool Group, Inc. v. Cooper Industries, Inc., 285 F.3d 1146, 1151-52 (9th Cir. 2002) (ten-to-one ratio in stolen trade secrets case); Johansen v. Combustion Engineering, Inc., 170 F.3d 1320, 1336-39 (11th Cir. 1999) (ninety-three-to-one ratio in water pollution case); Kimzey v. Wat-Mart Stores, Inc., 107 F.3d 568, 577-78 (8th Cir. 1997) (ten-to-one ratio in egregious sexual harassment case)).
The record supports the court's conclusion based on these findings. Its award of twice the amount of compensatory damages, or $24,000, was not "manifestly unreasonable," A two-to-one ratio is well within the ratios considered permissible under Alaska law. Though the record supports the court's finding that Lockhart participated in the fraudulent conveyance and deliberately failed to correct it for several years to protect Jimmie Lockhart and his own financial interest in the duplex, that conduct does not rise to the level of reprehensibility required to support a significantly higher ratio. The court's considered approach demonstrates it did not reach this amount out of "passion" or "prejudice." Its deliberate application of the AS 09.17.020(c) factors and its decision to award an amount well within AS 09.17.020(f)'s boundaries and within our permitted range of ratios show the court did not act "in disregard of rules of law" in awarding $24,000 in punitive damages against Lockhart.
See Pluid, 948 P.2d at 983 ("We will overturn an award of punitive damages entered by a court sitting as the trier of fact only if it is manifestly unreasonable." (citing Alaska Statebank v. Fairco, 674 P.2d 288, 296 (Alaska 1983))).
AS 09.17.020(f) (capping punitive damages at three times compensatory damages or $500,000, whichever is greater); see Ace v. Aetna Life Ins. Co., 40 F.Supp.2d 1125, 1128 (D.Alaska 1999) (stating "damage ratios in reported Alaska decisions have been in the range of 5:1 or less, with higher ratios in rare cases," and citing Pluid, 948 P.2d at 983 (five-to-one in child sexual assault case); Cummings v. Sea Lion Corp., 924 P.2d 1011, 1016 (Alaska 1996) (significantly less than one-to-one in fiduciary fraud case); Great W. Sav. Bank v. George W. Easley, Co., 778 P.2d 569, 574-75 (Alaska 1989) (significantly less than one-to-one ratio in negligence and breach of contract case); Teamsters Local 959 v. Wells, 749 P.2d 349, 361 n. 26 (Alaska 1988) (ratio of less than three-to-one in case dealing with death threats and violence against union member by union); Alaskan Village v. Smalley, 720 P.2d 945, 949 (Alaska 1986) (two-to-one in dog mauling child case)); see also State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 425, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003) (stating "in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process").
Cf. Casciola, 120 P.3d at 1061, 1067-68 (upholding a ten-to-one ratio award because undisputed evidence showed the defendant had intentionally deceived the plaintiff into believing it had the authority to sell jet engines for financial profit, deceiving the plaintiff out of $25,000, had engaged in an ongoing pattern of fraud, deceit, and misrepresentation, and had committed near-criminal acts).
See Pluid, 948 P.2d at 983.
See id.
Argument 5: "The Superior Court Erred By Failing To Award Draper Enhanced Attorney Fees."
Response:
Some of the court's conclusions under AS 09.17.020(c) could support enhanced fees under Alaska Civil Rule 82(b)(3). For instance, the court's findings that Lockhart and his brother "engaged in a several year long shell game designed to thwart the lawful judgment [Draper] obtained against [Jimmie Lockhart]," "engaged in a continuous game of disinformation and concealment," and acted in "deliberate, wanton and flagrant . . . violation of [Draper's] rights" could support enhancing fees to the extent the findings show "vexatious or bad faith conduct" or conduct affecting the "length of trial." But the fact that these findings could support a variation does not mean the court abused its discretion in denying enhanced fees.
Alaska R. Civ. P. 82(b)(3)(B) (G); see also Crittell v. Bingo, 83 P.3d 532, 537 (Alaska 2004) (upholding enhanced fees that the superior court had awarded for vexatious and bad faith conduct based on the fraudulent nature of the underlying claims and the "fraudulent manner" in which they were prosecuted, and explaining "our case law establishes that an award of enhanced fees under Rule 82 may be based on vexatious and bad faith litigation `both as to the filing of the case and the prosecution of it'" (quoting Garrison v. Dixon, 19 P.3d 1229, 1234 (Alaska 2001))).
See Rhodes v. Erion, 189 P.3d 1051, 1055 (Alaska 2008) ("Application of Rule 82(b)(3) factors is discretionary, not mandatory."). Draper also argues Lockhart's net worth of around $20 million means an enhanced award would not be "so onerous to the non-prevailing party that it would deter similarly situated litigants from the voluntary use of the courts." See Alaska R. Civ. P. 82(b)(3)(I) (including that factor as a consideration in awarding fees). He argues that in fact, the fee award is "so small in comparison to Lockhart's net worth that it will not deter Lockhart or other judgment debtors." But the purpose of attorney's fee awards is not punishment or' deterrence; those are the goals of punitive damages, and Draper was already awarded punitive damages. See Cooper v. Carlson, 511 P.2d 1305, 1310-11 (Alaska 1973) (explaining courts may not use fee requests "as a vehicle for accomplishing any purpose other than providing compensation where it is justified" (citing and quoting Preferred Gen. Agency of Alaska, Inc. v. Raffetto, 391 P.2d 951, 954 (Alaska 1964))).
Furthermore, the record contains facts supporting the court's denial of enhanced fees. With regard to length of trial, Draper also caused delays, waiting two years to serve Lockhart with discovery requests and four months from the date of the discovery requests to move for summary judgment on liability. Further, the fact that Draper established liability for fraudulent conveyance on summary judgment and based on requests deemed admitted suggests the litigation was not so complex as to warrant enhanced fees. Additionally, the court's finding that Jimmie Lockhart "peppered the court and opposing counsel with numerous unintelligible pleadings apparently aimed at further obstructing the truth and the final determination of the issue raised" would not support an enhanced fee award against Lockhart because the court did not make a similar finding regarding him.
See cf. Reid v. Williams, 964 P.2d 453, 461-62 (Alaska 1998) (concluding superior court did not abuse indiscretion in denying enhanced fees on the basis of alleged "vexatious or bad faith conduct" and reasoning the "superior court was in the best position to determine whether a party's behavior was excessively litigious or in bad faith").
Given all of these factors, we conclude the superior court did not clearly abuse its discretion in refusing to apply the Rule 82(b)(3) factors to vary the fee award.
Argument 6: "The Superior Court Erred By Failing To Award Costs To Draper."
Response:
Draper timely moved for claimed costs of $944.72 on May 29, 2007, the last day permissible under Civil Rule 79(b). But he failed to include an itemized and verified cost bill showing the dates costs were incurred by May 29, providing only a list of "[a]llowable [c]osts." He submitted an itemized list of charges for attorney's fees on June 19, 2007, but again that list failed to include an itemized and verified cost bill showing dates for when costs were incurred. Because Draper neither filed an itemized and verified cost bill showing dates for when costs were incurred within the ten days required by Rule 79(b) nor moved for leave to file the itemized and verified cost bill late, he waived his right to recover costs and the court did not err by not awarding him costs.
The date of distribution of the court's final judgment was May 16, 2007. Accounting for weekends and holidays, the ten-day deadline imposed by Rule 79(b) fell on May 29.
See Alaska R. Civ. P. 79(b) ("To recover costs, the prevailing party must file and serve an itemized and verified cost bill, showing the date costs were incurred, within 10 days after the date shown in the clerk's certificate of distribution on the judgment.").
See Worland v. Worland, 193 P.3d 735, 742 (Alaska 2008) (explaining in the context of a Rule 82 motion that when a party fails to file a motion within the time period proscribed by a rule, the party should be required to file a motion for extension demonstrating "excusable neglect or other good cause for failing to act in a timely manner" in filing the motion).
Rule 79(b) permits courts to allow additional time, but Draper failed to file a motion requesting such additional time.
For the above reasons, we AFFIRM the judgment of the superior court except with respect to prejudgment interest. The award of prejudgment interest against Lockhart is VACATED. Since the award of attorney's fees granted Draper was based in part on the prejudgment interest award, the court is authorized to adjust the fee award.