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Evergreen West Business Center, LLC v. Emmert

Supreme Court of Oregon, En Banc

February 13, 2014

EVERGREEN WEST BUSINESS CENTER, LLC, an Oregon limited liability company, Petitioner on Review,
v.
TERRY W. EMMERT, Respondent on Review, and PREMIER WEST BANK, Impartial. EVERGREEN WEST BUSINESS CENTER, LLC, an Oregon limited liability company, Respondent on Review,
v.
TERRY W. EMMERT, Petitioner on Review, and PREMIER WEST BANK, Impartial

Argued and Submitted November 4, 2013

Page 251

On review from the Court of Appeals, CC CV07020348; CA A146301.[*]

Evergreen West Bus. Ctr., LLC v. Emmert, 254 Or.App. 361, 296 P.3d 545, (2012)

John M. Berman, Tigard, argued the cause for petitioner on review/respondent on review Evergreen West Business Center, LLC. With him on the briefs was J. Rion Bourgeois.

Hollis K. McMilan, Portland, argued the cause and filed the briefs for petitioner on review/respondent on review Terry W. Emmert.

Cody Hoesly, Larkins Vacura LLP, Portland, and Phil Goldsmith, Law Office of Phil Goldsmith, Portland, filed a brief on behalf of amicus curiae Oregon Trial Lawyers Association.

OPINION

Page 252

[354 Or. 792] BREWER, J.

For centuries, the choice between legal and equitable remedies in civil actions has been informed by the shibboleth that equitable relief ordinarily is not available when the claimant has an adequate legal remedy. See, e.g., Norton v. Elwert, 29 Ore. 583, 587, 41 P. 926 (1895) (stating principle). This case, which involves alternative legal and equitable claims for damages and a constructive trust on real property that arose from the same breach of fiduciary duty, provides an opportunity to reexamine the foundations of that principle. The primary issue on review is whether plaintiff's election of the equitable constructive trust remedy was foreclosed by a jury determination that plaintiff's damages for the breach of fiduciary duty were $1. For the reasons set out below, we conclude that the trial court properly permitted plaintiff to elect its equitable remedy.

We state the facts in the light most favorable to plaintiff, the prevailing party at trial. Liles v. Damon Corp., 345 Ore. 420, 423, 198 P.3d 926 (2008). Plaintiff is a limited liability company that looked to defendant, who was one of its members, to save its property from foreclosure by a lender. Defendant did save the property from foreclosure by purchasing the loan and associated encumbrance for his own benefit for $613,979.49. Defendant then foreclosed on the property himself, bought it at a foreclosure sale with a maximum credit bid, and then encumbered the property with a $900,000 loan from a different lender.

Plaintiff brought this action for breach of fiduciary duty, seeking in separate claims alternative forms of relief: either damages or a constructive trust on the property that

Page 253

defendant acquired. Plaintiff alleged in both claims that the property was worth $1,390,000 when defendant acquired it for himself. In its claim for a constructive trust, plaintiff alleged:

" [Defendant] obtained title to [the disputed] real property by fraud and breach of his fiduciary duty to plaintiff and the other members of plaintiff and by taking an opportunity that belonged to plaintiff.
" The court should declare that defendant holds title to said real property in trust for plaintiff and said members.
[354 Or. 793] " The affairs of plaintiff should be wound up, said real property sold for the benefit of plaintiff and the proceeds distributed first to creditors and then to members as their interests may appear."

Plaintiff's claim for damages was identical in substance to the constructive trust claim except that, instead of equitable relief, plaintiff sought actual damages in the sum of $800,000, and, in addition, punitive damages. In the prayer of its complaint, plaintiff requested the following relief:

" Pursuant to its [constructive trust claim,] that the court declare that defendant holds said real property in a constructive trust for plaintiff, that the affairs of plaintiff be wound up and said property sold and that the proceeds by disbursed to pay plaintiff's creditors, and any remaining sum to be distributed to plaintiff's members or
" In the alternative and in the event no constructive trust is ordered, then for damages equal to the difference between the fair market value of said real property and the price paid for it by [defendant] together with any punitive damages that maybe awarded against him[.]"

At plaintiff's request, the trial court instructed the jury on the damage claim that, if defendant " breached a fiduciary duty owed to plaintiff," plaintiff " is entitled to any profits made by [defendant] as a result of the breach." The jury found in plaintiff's favor and awarded plaintiff actual damages of $1 and punitive damages of $600,000.

After the jury returned its verdict, defendant filed a motion to reduce the punitive damages award. The trial court granted that motion, reduced the punitive damages award to $4, and offered plaintiff the choice between a money judgment for $5 or a constructive trust. The court reasoned that a constructive trust was available to plaintiff, but that an award of equitable relief could not support a punitive damages award. Faced with the choice between a $5 award and the imposition of a constructive trust, plaintiff elected the latter remedy. The court then entered a judgment " that [plaintiff] is granted a constructive trust of the [p]roperty" and that the

[354 Or. 794] " [p]roperty shall be sold by [plaintiff]. From the proceeds [plaintiff] shall repay to [defendant] the first $613,979.49. [Defendant] shall be responsible for paying any obligations for which [defendant] has pledged the [p]roperty. To the extent [defendant] does not do so, and proceeds from the sale of the [p]roperty are used to pay [defendant's] debt in excess of $613,979.49, [plaintiff] shall be entitled to a supplemental judgment for any such sums."

Defendant appealed, arguing that plaintiff was not entitled to a constructive trust, or, in the alternative, that the value of that trust should not exceed $1. Plaintiff also appealed, challenging the trial court's reduction of the punitive damages award. The Court of Appeals agreed with defendant on the constructive trust issue and agreed with plaintiff on the punitive damages issue. Evergreen West Business Center, LLC v. Emmert, 254 Or.App. 361, 296 P.3d 545 (2012). This court allowed review of both parties' petitions for review. For the reasons set out below, we conclude that plaintiff was entitled to elect the constructive trust remedy. Moreover, because we uphold plaintiff's election of its equitable remedy, the jury verdict, including the punitive damages award, must be vacated; it follows that defendant's cross-appeal is moot. Accordingly, we reverse the decision of the Court of Appeals and remand to that court for consideration, in light of this decision, of the parties' remaining assignments of error.

Because it drives our overall analysis, we begin with plaintiff's challenge to the Court of Appeals' ...


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