United States District Court, D. Oregon
CATHERINE L. LINDERMAN, M.D. Plaintiff,
VONA HUGGINS NICHOLS, aka VONA E HUGGINS; STONEWALL FARM, LLC; STONEWALL FARM ARABIANS, LLC; and DAVID CAINS, individually and d.b.a. STONEWALL FARM ARABIANS., Defendants.
FINDINGS & RECOMMENDATION
THOMAS M. COFFIN, Magistrate Judge.
Plaintiff, Catherine Linderman, brings this action asserting claims for breach of fiduciary duty, constructive fraud, and conversion, and seeks a judicial dissolution of partnership and imposition of a constructive trust.
Plaintiff alleges that she and defendant Vona Huggins are general partners in Les Amies Arabians (LAA). LAA purchased two breedings per year to an Arabian Stallion named Eternity in the Fall of 2000. LAA acquired other Arabian horses thereafter and has continued to operate as an Arabian horse breeding business.
In June of 2005, plaintiff alleges she purchased an Arabian mare named VONA SHERRENEA and contributed her to LAA. However, plaintiff alleges that defendant Huggins changed the recorded ownership of VONA SHER-RENEA with the Arabian Horse Association (AHA) from LAA to Huggins' own name without plaintiffs consent on or about April 12, 2012. Plaintiff further alleges that Huggins then transferred the registered ownership to herself and certain Stonewall defendants on about May 1, 2012. Plaintiff also alleges that defendant Huggins similarly caused the registered ownership of, among other Arabians, ETERNALOVE and SHERVASTA to transfer to Huggins individually. Plaintiff alleges that Huggins subsequently transferred an ownership interest in these Arabians to the Stonewall defendants.
Plaintiff maintains that the Stonewall defendants entered into an "Equine Partnership Agreement" (EPA) on April 13, 2012 with defendant Huggins. The EPA grants equal rights in title to the subject Arabians and any offspring. The EPA further provides equal sharing in proceeds from harvesting of ova and sale of embryos. Moreover, decisions regarding the sale of offspring is by mutual agreement of the Stonewall defendants and defendant Huggins. Plaintiff contends that the Stonewall defendants knew of Huggins' partnership with plaintiff and that they acted in concert with Huggins to deprive plaintiff of her ownership interest in the subject Arabians and converted the mares to their own use.
Defendants Stonewall Farms, LLC, Stonewall Farm Arabians, LLC, Stonewall Farm Arabians and David Cains seek summary judgment as to the constructive fraud, conversion and constructive trust claims against them. In addition, the Stonewall defendants seek summary judgment as to plaintiffs claims for punitive damages and attorney fees. Finally, defendants Stonewall Farm Arabians LLC, Stonewall Farm Arabians, and Cains in his individual capacity seek summary judgment asserting there is no evidence to support any claim against them.
A. Constructive Fraud
Traditional fraud requires, in addition to a misrepresentation of a material fact, reliance on that fact to the recipient's detriment. See In re Brown, 326 Or. 582, 595 (1998) (proof of fraud requires misrepresentation, knowledge of falsity, intent to induce a response, justifiable reliance on the misrepresentation, and resulting damage). However, constructive fraud is a catch-all term for a variety of transactions in which fraud-type relief is appropriate and many of those transactions do not require either intent to deceive or actual dishonesty of purpose. See U.S. Nat. Bank v. Guiss et al, 214 Or. 563, 585-86 (1958). In Pollack v. D.R. Horton, Inc.-Portland, 190 Or.App. 1, 21 (2003), the Oregon Court of Appeals cited Texas case law finding a constructive fraud claim identical to a claim for breach of fiduciary duty based on a special relationship. See Welder v. Green, 985 S.W.2d 170, 175 (TexApp. 1998) (constructive fraud and breach of fiduciary duty amount to identical causes of action; both require the existence of some special relationship and a breach of the trust engendered by that relationship). Here, plaintiff asserts that the Stonewall defendants are liable for constructive fraud because they assisted defendant Huggins in breaching her fiduciary duties to plaintiff. Accordingly, plaintiff relies on an aiding and abetting argument to assert a constructive fraud claim against the Stonewall defendants:
all who aid, command, advise, or countenance the commission of a tort by another, or who approve of it after it is done, if done for their benefit, are liable in the same manner as they would be if they had done the same tort with their own hands. Perkins v. McCullough, 36 Or. 146, 149 (1899). In other words, one may be jointly liable for the torts of another if he acts tortiously in concert with another pursuant to a common design with him, knows the other's conduct constitutes a breach of duty and gives substantial assistance, or gives substantial assistance in accomplishing a tortious result with his own conduct separately constituting a breach of duty to the person harmed. Granewich v. Harding, 329 Or. 47, 53, 55 (joint liability under theories in Section 876 of the Restatement (Second) of Torts).
The Oregon Supreme Court has expressed some skepticism about the constructive fraud theory. Pollock, 190 Or.App. at 21 (citing Knight v. Woolley Logging Co., 278 Or. 691, 694-95 (1977)). While to construct a fraud based on a fiduciary relationship and then impute that fraud to another stretches the theory, there is, nonetheless, support under Oregon law for such a cause of action.
The relationship alleged to exist between defendant Huggins and plaintiff appears to be an ordinary two way street relationship in that they were both general partners in LAA. There appears to be no indication of a special fiduciary relationship wherein defendant Huggins owed a greater duty of care to plaintiff. However, under ORS § 67.155 partners owe the fiduciary duties of loyalty and care to the partnership and to the other partners. A partner must discharge these duties to the other partners consistent with the obligation of good faith and fair dealing. ORS § 67.155(4). The Welder decision, cited by the Oregon court of appeals in Pollack, found the breach of such duties could constitute constructive fraud. Welder, 985 S.W.2d at 175:
Partners are charged with a fiduciary duty. Bohatch v. Butler & Binion, 977 S.W.2d 543, 544-45, 41 Tex. Sup.Ct. J. 308 (Tex.1998); AIG Risk Mgmt., Inc. v. Motel 6 Operating L.P., 960 S.W.2d 301, 304 (Tex.App.-Corpus Christi 1997, no writ). The misappropriation by one partner for his own use the property of the partnership is constructive fraud. Veale v. Rose, 657 S.W.2d 834, 837 (Tex.App.-Corpus Christi 1983, writ ref'd n.r.e.). A fiduciary owes its principal a strict duty of good faith and candor, as well as the general duty of full disclosure respecting matters affecting the principal's interests; there is a general prohibition against the fiduciary's using the relationship to benefit his personal interest, except with the full knowledge and consent of the principal regarding all material facts.
The Oregon Supreme Court has determined that one who knowingly aids another in the breach of a fiduciary duty is liable to the one harmed by the breach even if that party does not itself owe such a duty. Granewich v. Harding., 329 Or. 47, 57-60 (1999). Thus, although there does not appear to be an Oregon case directly finding a party liable for constructive fraud based on an aiding and abetting theory, Oregon has found such liability based on a breach of fiduciary duty and, as noted above, has stated that constructive fraud could be based on breach of a fiduciary duty. Nonetheless, the Stonewall defendants assert that there is no evidence of a conspiracy in this case.
Although there is no direct evidence that the Stonewall defendants were aware of plaintiffs interest in the subject Arabians, an inference could be drawn that they should have known of LAA's interest and that, therefore, the transfer of the horses via the EPA with defendant Huggins aided in the violation of the fiduciary duties owed by Huggins to LAA and its partners.
Defendant Cains met plaintiff and Huggins in 2007 and plaintiff alleges that they told him about LAA and its ownership of Vona Sher-Renea and Eternalove. However, in 2012 defendant Huggins allegedly approached the Stonewall defendants representing herself as the sole owner of the horses. Prior to entering into the EPA in April of 2012, defendant Huggins represented that she held the original certificates of registration for each mare and that LAA was defunct. However, defendant Cains testified as follows with respect to Huggins's representations about the registration:
Q.... Did you check the registration status of the mares before entering into the agreement?
A. I spoke to Vona about the registration papers, and Vona told me she was the owner of the horses and had possession of the papers.
Q. An did she tell you whose name was on the papers as registered owner?
A. At that time she did not.
Q. When did she - did she tell you that later?
A. At one point Vona and I had a conversation about Eternalove and her registration papers. And I had asked her, where are the registration papers? She said I have them with me, but I have to send them to AHA to be changed.
And I asked, what does that mean, to be changed? I wasn't sure if she meant to herself and Stonewall. And she said that she needed to have them changed because they were in Ed Nichols's name. I said who is Ed Nichols? She said, that is my ex-husband, and I am the power of attorney. I said, okay, very good.
And she said - at that point she mentioned Les Amies. I said, what is Les Amies? She said a business that no longer exists.
Q. And when did that conversation ...