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Lockhart v. Draper

June 26, 2009

EARL C. LOCKHART, APPELLANT/CROSS-APPELLEE,
v.
DUANE DRAPER, MICHAEL J. DRAPER, DENISE GAUTHIER, AND DIANE BAKER, APPELLEES/CROSS-APPELLANTS.



Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Gregory J. Motyka, Judge pro tem. Superior Court No. 3AN-03-13762 CI.

Per curiam.

OPINION

No. 6383

Before: Fabe, Chief Justice, Matthews, Eastaugh, Carpeneti, and Winfree, Justices.

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 tem, 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),*fn1 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.

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,*fn2 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.*fn3

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.*fn4 The record contains substantial evidence supporting the court's finding that Lockhart and Jimmie Lockhart's actions were sufficiently culpable to permit punitive damages*fn5 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.

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.*fn6

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.*fn7 Because prejudgment interest likewise may not be awarded on punitive damages, the court's award constituted plain error.*fn8 We thus vacate the award of prejudgment interest against Lockhart in the amount of $14,183.67.*fn9

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.*fn10 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.

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, ...


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