Petition — Gulf Oil Co. v. Palmer Coal & Rock Co.

In the Supreme Court of the:

OCTOBER TERM, 1975

“ %5-1112

GULF OIL COMPANY - USS., a corporation, a/k/a

GULF OIL CORPORATION, a corporation, and THE

PITTSBURG & MIDWAY COAL MINING CoO.,

a corporation,

Petitioners,

vs.

PALMER COAL & ROCK COMPANY, a corporation,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

LEONARD O. THOMAS

J.D. LYSAUGHT

Davin K. FROMME

Of the Firm of

Weeks, THOMAS, LYSAUGHT, BINGHAM

& MustTAIn, CHARTERED

Home State Bank Building

Minnesota Avenue at Fifth

Kansas City, Kansas 66101

and

DONALD E. WILLSON

1720 South Bellaire Street

Denver, Colorado 80222

Attorneys for Petitioners

E. L. Muwpewnat, Inc., 926 Cherry Street, Kansas City, Mo. 64106, 421-3080

TABLE OF CONTENTS

SID cncvcssscrmnslieessccbeiheindicieninitintiniieantndtenmaiionata

Statement of Grounds on Which Jurisdiction Is In-

ROTA Aa Tao IRIE Mir Oat Wee ee, OS OO

BEETS SE TONE TH CML ae ITS re ee

Constitutional Provisions, Statutes and Rules Involved

SR A II a Na PERE TD CN

Reasons for Granting the Writ—

The Court Below Is Testing The Legal Sufficiency

Of Evidence In Common Law Actions Where Ju-

risdiction Is Based Upon Diversity, By A Standard

Which Would Not Have Been Applied Had The

Action Been Filed In State Court, And Is Refusing

To Apply State Rules Defining The Sufficiency Of

The Evidence To Support Such Cause Of Action ..

Rta Se EROS PRS, LEI RCR. AL Soe Se

EES ENE STN SRR Oa ee CA Oe

Appendix—

Orders of the United States Court of Appeals, Tenth

IIIS. scessiihinicsiesincintianiicnipSibdia biecesandcctdebiunditandincieteilnstsbdidiblbs

Opinion of the United States Court of Appeals, Tenth

IIIT scicseshssencdhliesbiatiabbishishdbsbesiesihheceshinnbencliannsiictedsilelidiclmeceitti

Memorandum Opinion of the United States District

Court for the District of Kansas ........................:06

Table of Authorities

CASES

Alman Bros. Farms & Feed Mill, Inc. v. Diamond Lab.,

Ee 8 - B Fy & . | eee

Asheim v. Pigeon Hole Parking, Inc., 283 F.2d 288

RTI Se EPO SO eae nema as

A4

Il

Byrd v. Blue Ridge Rural Elect. Coop., 356 U.S. 525,

78 S.Ct. 893, 2 L.Ed.2d 958 (1958) ............0....000..0000000... 9

Calloway v. Central Charge Serv., 440 F.2d 287 (D.C.

CU ice ee re ee tae 9-10

Calvert v. Katy Taxi, Inc., 413 F.2d 841 (2 Cir. 1969) 10

Chicago, R. I. & Pac. Railway Co. v. Howell, 401 F.2d

SE GE I, TRIED sisi sccitesnteiidencacniaeltieateteian ted lest 10-11

Cities Service Oil Co. v. Dunlap, 308 U.S. 208, 60 S.Ct.

se FS & Fs INGER aS es arcane 12

Clay County Cotton Co. v. Home Life Insurance Co.,

igs ¢ 2. Rb — SRCRNISORE cen en secon 10

Dick vy. New York Life Ins. Co., 359 U.S. 437, 79 S.Ct.

ee GG mene 9,11, 12

Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82

PE ES Ne ak 8,9, 15, 16

Fox v. Wilson, 211 Kan. 563, 507 P.2d 252 (1973) ........ 11, 12

Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464,

SG a a enaiione 8-9

Hanna v. Plummer, 380 U.S. 460, 85 S.Ct. 1136, 14

RID I ehiicetltn nce eas Sak oe ie bale 9,17

Hardware Mutual Ins. Co. of Minnesota v. Jacob Hieb,

Se Fe Ff Bi as 3 | ee eeeeceeene 10

Illinois State Trust Co. v. Terminal R. Assn. of St.

Louis, 440 F.2d 497 (7 Cir. 1971), cert. denied 404

U.S. 855, 92 S.Ct. 100, 30 L.Ed.2d 96 oo. 10

In re Estate of Shirk, 194 Kan. 424, 399 P.2d 850 (1965)

siieipeiesiamensteieneacalieacdilibadaba dai MARI 11,12

fea v. Development Co., 106 Kan. 59, 187 Pac.

RE AES HO ae seen ee eS OD 12

Long Bros. v. West & Co., 31 Kan. 298, 1 Pac. 545

IN APRA ES cee Renan MOEA 11

Ilr

Minnesota Avenue, Inc. v. Automatic Packagers, Inc.,

211 Kan. 461, 507 P.2d 268 (1973) «...................ccccsseees 12

Moskowitz v. Peariso, 458 F.2d 240 (6 Cir. 1972) ........ 10

Mr. Steak, Inc. v. River City Steak, Inc., 460 F.2d 666

Cy I essa sit bth csnitecstaalienttnsiditieinphdikenibitareddewtiiniies 10

O’Connor vy. Pennsylvania R. Co., 308 F.2d 911 (2 Cir.

ahaa i laced narrate daidineniiiineseains eoecaneencee 10

O’Day v. Chicago River & I. R. Co., 216 F.2d 79 (7 Cir.

TUTE ~~ chatiosbessiatencadicnsdbinideincustanessnssionetnensniitentinietititimeetinineumpeseuseese 9

Oldenburg v. Clark, 489 F.2d 839 (10 Cir. 1974) ............ 10

Palmer Coal & Rock Co. v. Gulf Oil Company - U.S.,

OS EF RN ee ee ee 8, 13, 14

Palmer v. Ford Motor Co., 498 F.2d 952 (10 Cir. 1974) 10

Palmer v. Hoffman, 318 U.S. 109, 63 S.Ct. 477, 87 L.Ed.

SC i sdinndtccmpnciale 11-12

Ragan v. Merchants Transfer & Warehouse Co., 337

GS aa 15

Reeder v. Guaranteed Foods, Inc., 194 Kan. 386, 399

RR I RE CS Oe A ceca 13

Roche v. New Hampshire Nat. Bank, 192 F.2d 203 (1

I TO oc oeleticieninipeengpentanensenapsanmnitinneees i]

Schneider v. Chrysler Motors Corp., 401 F.2d 549 (8

Ok sasanbncnhaedebameeiiedetptalanstidiesetitiiie 10

Sipes v. Crum, 204 Kan. 591, 464 P.2d 1 (1970) ............ 12

Smith v. Mill Creek Court, Inc., 457 F.2d 589 (10 Cir.

III” Sihindiccidianarsstidilasbbdamnaigediahseniadenttininieiinnsienihiaptamnssnntinionninn 10

Stoner v. New York Life Ins. Co., 311 U.S. 464, 61

Le 9

Stopper v. Manhattan Life Ins. Co., 241 F.2d 465 (7

Cir. 1957), cert. den. 355 U.S. 815, 78 S.Ct. 17, 2

eel PRET ed ARS = Ae eC TN 10

IV

Swearngin v. Sears Roebuck & Co., 376 F.2d 637 (10

Ne LS Na Be NT 10

U.S. for Use and Benefit of Weyerhaeuser Co. v. Bucon

Constr. Co., 430 F.2d 420 (5 Cir. 1970) 0000. )

Waldron v. Aetna Casualty & Surety Co., Inc., 141

fe © Beh | erry Nera me 10

CONSTITUTIONAL PROVISIONS

AND STATUTES

Constitution of the United States, Amendment 7 ........ 2,9

SF Um RMN It Ne ll

Bt 5 || | ee 2

a | ee Se 3,8

In the Supreme Court of the United States

OCTOBER TERM, 1975

GULF OIL COMPANY - US., a corporation, a/k/a

GULF OIL CORPORATION, a corporation, and THE

PITTSBURG & MIDWAY COAL MINING CO.,

a corporation,

Petitioners,

vs.

PALMER COAL & ROCK COMPANY, a corporation,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Petitioners pray that a writ of certiorari issue to

review the judgment of the United States Court of Appeals

for the Tenth Circuit, entered in the above case on No-

vember 3, 1975, with petition for rehearing denied De-

cember 19, 1975.

OPINIONS BELOW

The memorandum opinion of the District Court for

the District of Kansas, ruling upon posttrial motions, was

unpublished and appears in the Appendix at pp. Al2-A15.

The opinion of the Court of Appeals for the Tenth Circuit

is reported at 524 F.2d 884 (1975), and appears in the

Appendix at pp. A4-A12.

STATEMENT OF GROUNDS ON WHICH

JURISDICTION IS INVOKED

(i) Review is sought of the judgment of the Court of

Appeals for the Tenth Circuit entered upon November 3,

1975.

(ii) The order of the Court of Appea's denying the

petition for rehearing was dated and entered December 19,

1975. The Court’s mandate has been recalled and stayed

by the Court’s order dated and entered January 8, 1976.

These orders are appended to this petition at pp. Al-A3.

(ili) 28 U.S.C.A. 1254(1) confers on this Court juris-

diction to review the judgment in question by writ of

certiorari.

QUESTION PRESENTED

Can a Federal Court in a diversity case for common

law fraud disregard the applicable state rule of law requir-

ing a clear and convincing degree of proof and apply a pre-

ponderance of the credible evidence rule of degree of proof?

CONSTITUTIONAL PROVISIONS, STATUTES

AND RULES INVOLVED

U.S. Constitution, Amendment 7:

“In suits at common law, where the value in con-

troversy shall exceed $20.00, the right of trial by jury

shall be preserved, and no fact tried by a jury, shall

be otherwise re-examined in any court of the United

States, than according to the rules of common law.”

28 U.S.C. 1652:

“The laws of the several states, except where the

Constitution or treaties of the United States or Acts of

Congress otherwise require or provide, shall be re-

garded as rules of decision in civil actions in the courts

of the United States, in cases where they apply. June

25, 1948, c. 646, 62 Stat. 944.”

STATEMENT OF THE CASE

Respondent (plaintiff below) was a Kansas corporation

which operated a coal mine upon a leased tract of land in

Missouri. In 1966, 1967 and 1968, it obtained substantial

loans from the Small Business Administration. In July,

1968, after-making two payments on the consolidated loan,

plaintiff defaulted, and thereafter the SBA foreclosed.

Plaintiff then brought this action against petitioners (de-

fendants below) for damages upon the theory of common

law fraud or deceit. The only basis of federal jurisdic-

tion was diversity of citizenship. The case was tried in the

United States District Court for the District of Kansas.

After a trial of six days, the jury returned a verdict for

the plaintiff in the amount of $500,000.00 actual, and $1,-

500,000.00 punitive damages. After hearing posttrial mo-

tions, the Court found the jury’s verdict supported by evi-

dence only to the extent of $466,831.50, representing the

amount of outstanding debts and the investments of the

shareholders of plaintiff. The Court modified the judg-

ment to that extent and otherwise approving the verdict

and judgment of punitive damages. Petitioner appealed,

and the Tenth Circuit affirmed.

Defendant, The Pittsburg & Midway Coal Mining Com-

pany (P & M), was a subsidiary of defendant, Gulf Oil

4

Company. P & M was exploring coal-bearing lands in

Kansas and Missouri for the purpose of assembling a

minable coal field of thirty to forty million tons of market-

able coal. Land agents were seeking options on coal-bear-

ing lands with permission to test drill. In early 1968, about

the time when plaintiff had consolidated its loans, P & M

began taking options on land in a four-county area of

Kansas and Missouri, including land near plaintiff’s lease-

hold. When Mr. Card, a Vice President of plaintiff, learned

of defendant’s activities, he arranged a meeting with Mr.

James Miner, Vice President of P & M in charge of land

acquisition.

Card’s version of Miner’s statements at this meeting

formed the basis for plaintiff's claim of fraudulent misrep-

resentation.

No issue was taken with regard to Mr. Card’s testi-

mony as to the initial portion of the conversation. There

was no significant dispute or conflict in the evidence re-

garding it:

ae

Q. And after introducing yourselves to one

another, what did you do? A. Sit down and had

coffee.

“se

Q. Now, I would like to have you in your own

words but as accurately as you can, tell the jury what

you said to him and later what he said to you and we

will see where we are. A. Well, I shook hands and

we set (sic) down to have coffee. I told him about

our mine. As I remember, he didn’t know there was

a mine there and I explained to him approximately

where we were, what we were doing and how long

we had been in the business. It was a congenial con-

versation on the mine. I told him we were very small,

that we had borrowed money from the government to

5

get started, we were trying to create some employment

in the area because it lacked any industry at all. Nat-

urally, we wanted to make a profit out of it and would

like to get larger as we went along. By Gulf becoming

interested in the area, I couldn’t see how in the world

we could compete with them and I asked him if this is

what we had to do. He said, “We have no intention

whatsoever” —

“*A He said, “I have no intentions of harming

you in any way, shape or form. We don't believe in

that. There is plenty of coal land, I believe, in this

area. We are in dire need of additional coal reserves

for our future operations and we had been in this area

maybe twenty years ago but mining techniques have

changed and I believe this coal here can be profitable

so we would like to acquire all the reserves we can in

this area.” —

“‘T asked him what restrictions in areas he meant

and he had no boundaries on it at all at that time.

Any coal bearing lands in the area. He said, “As I say,

we have no desire to hurt you in any way. You are

familiar with the area,” * * *

“‘He told me that we could be of great help to

them in the area by being familiar with it, No. 1,

knowing the people that were involved around the

area, we were acquainted with them, most of the people

in this small area, that we could be an asset to Gulf in

acquiring these reserves and if we could cooperate, he

would set aside or carve out whatever coal was needed

by us if we wanted to continue and stay in the coal

business.

““At that time I told him I thought we would like

to stay in the coal business and by him protecting us

on future reserves, I thought it would be a great deal.’ ”

(Apx. 26-30).

Mr. Miner also testified that he had assured Mr. Card

that P & M would protect plaintiff's future reserves by

setting aside or carving out needed coal reserves. At no

time thereafter, however, did plaintiff ever lack coal re-

serves or request that defendant assist plaintiff in this

regard.

It therefore was Mr. Card's version of the final portion

of the conversation which was crucial to plaintiff’s case:

““He said if we weren’t quite satisfied with the

situation, could even be that they would just take us

out of business or buy us out of business, if this was

our desire, provided that they took the field, if they

bought the field. So I told him it sounded like a good

agreement but I would appreciate it if he would go over

to my banker with me. I said, “This being a small

area, the rumor gets out about Gulf, it will scare the

banker and we owe him the money. Would you go

over and tell him what you just told me?” He said,

“Harold, I would even put it in writing but I would

rather not. It would constitute more problems and I

just would not rather.” I said, “I have no reason not

to trust you, sir, but if you will go to the bank with

me so my banker won’t become upset, that’s fine.” So

we finished our coffee, went directly to the bank from

there.

“*He repeated almost verbatim what he told me.

The banker and I listened to him, we spent about forty

or forty-five minutes in the banker’s office.’” (Apx.

29-30; emphasis added).

7

Also, during cross-examination, Mr. Card testified:

“*Q. Just to make sure I understand this arrange- _

ment that you have testified to and the fact that this

was conditioned upon Gulf putting a field together, this

was a condition precedent to any agreement that you

claim te have made was the putting together of a coal

field by Gulf Oil Corporation in the Fort Scott-Gar-

land area? A. Yes, if they purchased the field.’”

( Apx. 53; emphasis added).

Miner denied any discussion of buying plaintiff out. There

was little dispute that after this meeting plaintiff cooper-

ated and aided P & M in scouting coal lands.

After plaintiff's default on the SBA loan, and the

threatened foreclosure, Card demanded that defendant

“live up fo” its agreement and “buy out” or “bail out”

plaintiff. At no time prior thereto had any specific price

been discussed.

The evidence of both parties further disclosed that in

1968 and 1969, defendant acquired a large number of

option agreements, and in fact exercised certain of the

options, but that others were dropped. The evidence was

clear that defendant in fact was never able to acquire suf-

ficient coal lands to constitute the contemplated field.

At the trial of this case, by way of motions for a di-

rected verdict and for judgment notwithstanding the ver-

dict, defendant raised, inter alia, the issue whether plain-

tiff’s evidence met the standard or requirement under Kan-

sas law that it be clear and convincing. When the issue

was presented to the Court of Appeals, however, the Court

disregarded the Kansas rule and applied a different stan-

dard. The Court of Appeals merely “view[ed] the evi-

dence from a credibility standpoint favorable to the verdict

* * *” to determine whether it was “adequate to support

8

recovery” (Palmer Coal & Rock Co. v. Gulf Oil Company

- US., 524 F.2d 884, at 885). The Court considered certain

chosen portions of the evidence to determine whether the

jury “could infer” fraudulent misrepresentation, or ‘could

premise such an inference” (Id. at 887).

REASONS FOR GRANTING THE WRIT

The Court Below Is Testing The Legal Sufficiency Of

Evidence In Common Law Actions Where Jurisdiction

Is Based Upon Diversity, By A Standard Which Would

Not Have Been Applied Had The Action Been Filed In

State Court, And Is Refusing To Apply State Rules

Defining The Sufficiency Of The Evidence To Support

Such Cause Of Action.

A decisive determination should be made by this

Court as to whether a Federal Court in a diversity case

may determine the legal sufficiency of the evidence to

support a claim resting upon the common law of a state,

solely by reference to its own rules or standards, and with-

out regard to the legal standard which would have been

applied to the evidence in an action in a state court. This

Cort, interpreting the “Rules of Decision Act” (28 U.S.C.

§ 1652), has held that a Federal Court, in a diversity case,

may not, as to non-federal matters, disregard state law

which affects the substantive rights of the parties (Erie

R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1189

(1938) ). The initial test formulated by this Court for de-

termining whether federal or state law controls a ques-

tion before the Court, was whether it would significantly

affect the result of the litigation for a federal court to

disregard a law of a state that would be controlling in an

action upon the same claim by the same parties in a state

court (Guaranty Trust Co. v. York, 326 U.S. 99, 109, 65

S.Ct. 1464, 89 L.Ed, 2079, 2C86 (1945)). Later, in Hanna

v. Plummer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965),

this Court added the further requirement that the choice

between state and federal law also be made with refer-

ence to the essential policies underlying Erie.

Within this framework, this Court has had occasion

to consider and resolve many controversies as to whether

federal or state law controlled a particular matter in is-

sue before a federal court, and has ruled that a prior state

decision as to the sufficiency of the evidence on the same

facts between the same parties is binding in federal court

(Stoner v. New York Life Ins. Co., 311 U.S. 464, 468, 61

S.Ct. 336, 85 L.Ed. 284, 287 (1940)). However, the ques-

tion whether a state “standard” of legal sufficiency of the

evidence is binding in federal court is unresolved (Dick

v. New York Life Ins. Co., 359 U.S. 437, 445, 79 S.Ct. 921,

3 L.Ed.2d 935, 941 (1959); Byrd v. Blue Ridge Rural Elect.

Coop., 356 U.S. 525, 536-537, 78 S.Ct. 893, 2 L.Ed.2d 953,

962 (1958) ).

In Byrd, the Court determined that the matter of al-

locating functions between judge and jury in a federal

court was a matter controlled by federal law, observing

that the 7th Amendment assigns “the decisions of disputed

questions of fact to the jury” (356 U.S. at 537, 78 S.Ct. at

901, 2 LEd.2d at 962). The preliminary question, how-

ever, whether the evidence in a particular case is suffi-

cient to support a cause of action and present a jury ques-

tion is entirely one of law for the Court. The rules and

standard to be applied in making the determination are

the same in the trial court and on appeal (U.S. for Use

and Benefit of Weyerhaeuser Co. v. Bucon Constr. Co., 430

F.2d 420, 423 (5 Cir. 1970); O’Day v. Chicago River & I.

R. Co., 216 F.2d 79, 82 (7 Cir. 1954); Roche v. New Hamp-

shire Nat. Bank, 192 F.2d 203, 205 (1 Cir. 1951); Calloway

10

v. Central Charge Serv., 440 F.2d 287, 289 fn. 2 (D.C. Cir.

1971); Alman Bros. Farms & Feed Mill, Inc. v. Diamond

Lab., Inc., 437 F.2d 1295, 1298 (5 Cir. 1971); Schneider

v. Chrysler Motors Corp., 401 F.2d 549, 555 (8 Cir. 1968);

Swearngin v. Sears Roebuck & Co., 376 F.2d 637, 639 (10

Cir. 1967); O'Connor y. Pennsylvania R. Co., 308 F.2d 911,

914 (2 Cir. 1962)). The Court’s decision on the question,

of course, also determines whether a jury trial will pro-

ceed in the particular case.

As to this preliminary question of law, the lower

courts continue in wide disagreement as to whether state

or federal rules regarding sufficiency of the evidence are

to be applied. Courts of the Second, Third, Sixth, Sev-

enth, Eighth and Ninth Circuits look to the state stan-

dard of proof (E.g., Calvert v. Katy Tazi, Inc., 413 F.2d

841, 846 (2 Cir. 1969); Waldron v. Aetna Casualty &

Surety Co., Inc., 141 F.2d 230, 234 (3 Cir. 1944); Stopper

v. Manhattan Life Ins. Co., 241 F.2d 465 (7 Cir. 1957),

cert. den. 355 U.S. 815, 78 S.Ct. 17, 2 L.Ed.2d 32; McCabe

v. Bagby, 186 F.2d 546, 549-550 (6 Cir. 1951); Moskowitz

v. Peariso, 458 F.2d 240, 244 (6 Cir. 1972); Clay County

Cotton Co. v. Home Life Insurance Co., 113 F.2d 856, 861

(8 Cir. 1940); Hardware Mutual Ins. Co. of Minnesota v.

Jacob Hieb, Inc., 146 F.2d 447, 452 (8 Cir. 1945); Illinois

State Trust Co. v. Terminal R. Assn. of St. Louis, 440 F.2d

497, 500 (7 Cir. 1971), cert. denied 404 U.S, 855, 92 S.Ct.

100, 30 L.Ed.2d 96; Asheim v. Pigeon Hole Parking, Inc.,

283 F.2d 288, 290, 292 (9 Cir. 1960)). Others, including

the Tenth Circuit, consistently disregard state rules re-

lating to the sufficiency of the evidence (Smith v. Mill

Creek Court, Inc., 457 F.2d 589, 590 (10 Cir. 1972); Mr.

Steak, Inc. v. River City Steak, Inc., 460 F.2d 666, 668 (10

Cir. 1972); Oldenburg v. Clark, 489 F.2d 839, 841 (10 Cir.

1974); Palmer yv. Ford Motor Co., 498 F.2d 952, 953 (10

Cir. 1974); Chicago, R. I. & Pac. Railway Co. v. How-

11

ell, 401 F.2d 752, 754 (10 Cir. 1968); (and cases cited

therein) ). The Court of Appeals, furthermore, will not

reverse the trial court’s determination of the sufficiency

of the evidence unless it is “clearly wrong” (Ibid.).

Under the long-standing law of Kansas, a presump-

tion of good faith and fair dealing in all transactions is

observed (Long Bros. v. West & Co., 31 Kan. 298, 301, 1

Pac. 545, 547 (1884); In re Estate of Shirk, 194 Kan. 424,

429, 399 P.2d 850, 855 (1965)). An effect of the presump-

tion is to impose upon one claiming fraud, a higher, more

stringent burden of proof.

Kansas courts thus require evidence of a “clear and

convincing” degree in order to overcome the presumption.

The phrase “clear and convincing proof” is used “where

for one reason or another it is felt that a ‘mere prepon-

derance’ of the evidence is insufficient” (Fox v. Wilson,

211 Kan. 563, 578, 507 P.2d 252, 264 (1973); and see In

re Estate of Shirk, 194 Kan. 424, 428, 399 P.2d 850, 854

(1965) ). Under Kansas law, the presumption never dis-

appears:

“(K.S.A.] 60-416. Burden of proof not relaxed as

to some presumptions. A presumption, which by a

rule of law may be overcome only by proof beyond

a reasonable doubt, or by clear and convincing evi-

dence, shall not be affected by sections 60-414 or 60-

415 and the burden of proof to overcome it continues

on the party against whom the presumption o,erates.

|L. 1963, ch. 303, 60-416; Jan. 1, 1964.]” (Emphasis

added).

As to the effect of this presumption upon the burden

of proof, a federal court is required to give full effect to

the state rule (Dick v. New York Life Ins. Co., 359 US.

437, 446, 79 S.Ct. 921, 3 L.Ed.2d 935, 942 (1959); Palmer

12

v. Hoffman, 318 U.S. 109, 117, 63 S.Ct. 477, 87 L.Ed. 645,

651 (1942); Cities Service Oil Co. v. Dunlap, 308 U.S. 208,

60 S.Ct. 201, 212, 84 L.Ed. 196, 198 (1939)). This Court

has ruled:

“Under the Erie rule, presumptions (and their ef-

fects) and the burden of proof are ‘substantive’ * * *.”

(Dick v. New York Life Ins. Co., supra, at 446, 79

S.Ct. at 927, 3 L.Ed.2d at 942).

Where the presumption obtains, it also has the effect

of fixing a rule of law as to the sufficiency of the evidence

to support a claim of fraud, to be applied by the Court.

The presumption derives from a policy of Kansas courts

of protecting persons from unfounded claims of fraud and

of carefully scrutinizing the evidence offered to support

claims of such nature. The rule will be applied by the

Court both at trial and on appeal (In re Estate of Shirk,

194 Kan. 671, 672, 401 P.2d 279, 280-289 (1965); Fox v.

Wilson, supra, at 579-580, 507 P.2d at 265 (1973)). The

meaning of the rule as defined by the Kansas Supreme

Court is that the claimant must only have “substantial”

persuasive evidence, or evidence of sufficient “quantity”,

he must also have evidence of the requisite “quality” (Fox

v. Wilson, supra, at 579, 507 P.2d at 265). His evidence

must be “clear”. Under the test, evidence is “clear” only

if it is “not ambiguous, equivocal, or contradictory” (Jack-

man v. Development Co., 106 Kan. 59, 65, 187 Pac. 258,

261 (1920); In re Estate of Shirk, supra; Fox v. Wilson,

supra). Evidence which is unclear, equivocal or ambigu-

ous as to meaning does not meet the test. Evidence of-

fered which raises conflicting inferences, one of which is

consistent with honesty and good faith is insufficient as

a matter of law (Id.; Sipes v. Crum, 204 Kan. 591, 598, 464

P.2d 1, 6-7 (1970); Minnesota Avenue, Inc. v. Automatic

Packagers, Inc., 211 Kan, 461, 466, 507 P.2d 268, 272 (1973);

13

Reeder v. Guaranteed Foods, Inc., 194 Kan. 386, 393-396,

399 P.2d 822, 829-830 (1965) ).

The Court below disregarded this rule that plaintiff's

evidence must be of the requisite quality and did not con-

sider the question whether plaintiff’s evidence was unclear,

equivocal or ambiguous. It determined only that plaintiff's

evidence might support inferences favorable to plaintiff.

Under the stated Kansas Rule, though evidence may sup-

port inferences favorable to plaintiff, if it is also consistent

with the presumption of honesty and fair dealing, it is

legally insufficient to go to the jury.

The testimony of Mr. Card regarding Mr. Miner’s

statements, quoted by the lower court in its opinion was

offered by plaintiff as its proof of a misrepresentation.

The disputed portion of his testimony was that Miner told

him “could even be that they would just take us out of

business or buy us out of business, if this was our desire,

provided that they took the field, if they took the field.”

(Palmer Coal & Rock v. Gulf Oil Company - U.S., supra, at

886). Plaintiff's case rested upon a claim of “promissory

misrepresentation” or of falsely stating an intention to

purchase plaintiffs mine. This testimony of plaintiff's

principal witness indicates a representation of the pos-

sibility of a future purchase, not a promise or definite

undertaking to purchase. It implies possible future ne-

gotiations for the purchase, not a commitment to purchase

upon unknown or uncertain terms. It is by no means

clear and unequivocal evidence of a promise or a definite

intent to purchase. Nowhere in the testimony quoted

by the lower court, or elsewhere in the record is there

any clear, unequivocal, or unambiguous evidence of a

misrepresentation of a material fact. Nowhere in the

record is there evidence inconsistent either with the pre-

sumption of good faith, or with the equal tendency of

14

plaintiff's evidence to prove that defendant in fact did

keep the promises of Mr. Miner to protect plaintiff's coal

reserves and to enter into future negotiations regarding

a possible purchase.

Furthermore, according to plaintiff's witness, Mr.

Card, the possibi'ity of a purchase depended upon whether

plaintiff “took the field”. In order to show a misrepresen-

tation thus, plaintiff had to bring forth evidence tending to

show that the condition precedent had clearly occurred,

and that defendant “took the field”. Without such evi-

dence, plaintiff could neither prove a false promise or

promissory misrepresentation. Again, nowhere in the rec-

ord is there clear or unambiguous evidence that defendant

“took the field”. The testimony of plaintiff's own witness,

Card, established that the optioning of land did not amount

to “taking the field”.

The lower court itself observed that “the testimony is,

of course, extensive, conflicting in part, and, in some in-

stances, somewhat contradictory” (Palmer Coal & Rock

Co. v. Gulf Oil Company» U.S., supra, at 885). Had the

state standard as to the sufficiency of plaintiff's evidence

in a fraud case been applied, and had the Court considered

whether the evidence was clear, unambiguous and unequiv-

ocal, so as to negative the presumption of honesty and fair

dealing, the Court’s analysis and conclusion would have

been otherwise. Plaintiff's evidence, being ambiguous and

wholly consistent with the defendant’s presumed good

faith and fair dealing, would have been insufficient as a

matter of law, had the case been brought to a Kansas court.

The standard for determining whether evidence is suf-

ficient to show the elements or facts constituting common

law fraud, is a rule by which the primary rights and liabil-

ities of the parties in a particular case are determined.

15

Facts exist in law in a particular case only by the evidence

which supports them. Where state law not only defines

the elements constituting common law fraud, but also fixes

the standard by which a court is to determine whether the

necessary facts have been sufficiently evidenced, Erie dic-

tates that a federal court should look to state law control-

ling such determination. As this Court stated in Ragan v.

Merchants Transfer & Warehouse Co., 337 U.S. 530, at 533,

93 L.Ed. 1520 at 1523 (1946):

“Since that cause of action is created by local law,

the measure of it is to be found only in local law. It

carries the same burden and is subject to the same

defenses in the federal court as in the state court

In this case, the lower court has applied its own stan-

dards in testing the sufficiency of plaintiff's evidence to

establish common law fraud, a cause of action derived

solely from state law, and has disregarded and ignored the

standard which would have been applied in a state court.

The result is the creation of intrastate disuniformity and

the encouragement of forum shopping, which Erie was in-

tended to preclude.

This Court, in Erie, said:

“Swift v. Tyson introduced grave discrimination

by non-citizens against citizens. It made rights en-

joyed under the unwritten ‘general rule’ vary accord-

ing to whether enforcement was sough* in the state or

in the federal court; and the privilege of selecting the

court in which the right should be determined was

conferred upon the non-citizen. Thus the doctrine

rendered impossible equal protection of the law. In

attempting to promote uniformity of law throughout

the United States, the doctrine had prevented uni-

16

formity in the administration of the law of the state.”

(Erie R. Co. v. Tompkins, supra, at 74-75, 82 L.Ed. at

1192).

Disregard of applicable state requirements as to suf-

ficiency of the evidence will make the rights of parties vary

according to whether suit is brought in state or federal

court and brings into being an unequal administration of

justice. If a suit is brought in a Kansas state court, clear

and unambiguous evidence is necessary to overcome the

presumption of good faith and fair dealing. If brought in

a federal court, the court will only search plaintiff's evi-

dence for an inference of fraud. As in the case at bar, in

Federal Court, the degree of proof necessary to make out a

cause of action is redefined and plaintiff’s burden substan-

tially lightened. The outcome of a lawsuit within a state,

if conditions of diversity jurisdiction are present, will de-

pend upon the choice of a federal or state forum.

Intrastate forum shopping, with a preference for the

liberal standards of federal court, is a certain result. This

result is particularly obvious with reference to claims of

fraud. There is a growing tendency of lawyers nowadays

to insert allegations of fraud in every lawsuit filed, no

matter how slight the justification therefor. In Kansas,

allegations of fraud carry serious implications and entitle

a successful claimant to punitive damages. The presump-

tion of honesty and fair play and the requirement of a

higher degree of proof are the consequences of a basic,

long-standing, policy of Kansas courts. To disregard such

state policy and requirement as to the claimant’s evi-

dence, in favor of a liberal federal standard, is not only

to invite doubtful claims of fraud, but also to invite litiga-

tion thereof in federal court in every case where diversity

jurisdiction lies. Such result is a direct and fundamental

‘— .. *

i —_—*

17

retreat from the teaching of Erie that “it would be unfair

for the character or result of a litigation materially to

differ because the suit had been brought in the federal

court” (Hanna v. Plummer, supra, at 467, 85 S.Ct. at 1141,

14 L.Ed.2d at 14).

CONCLUSION

Accordingly, a writ of certiorari should issue to re-

view the judgment of the Court of Appeals for the Tenth

Circuit, and, after briefing and argument, the judgment

should be reversed.

Respectfully submitted,

- LEONARD O. THOMAS

J.D. LYSAUGHT

Davin K. FROMME

Of the Firm of

WEEKs, THOMAS, LYSAUGHT, BINGHAM

& MusTAIN, CHARTERED

Home State Bank Building

Minnesota Avenue at Fifth

Kansas City, Kansas 66101

and

DoNnaLp E. WiLLSON

1720 South Bellaire Street

Denver, Colorado 80222

Attorneys for Petitioners

18

I certify that on this 4th day of February, 1976, a

true and correct copy of the above and foregoing Petition

for a Writ of Certiorari was placed in the United States

mail, postage prepaid, to Short & Short, 4 Louderback

Building, Fort Scott, Kansas 66701, and to Schnider, Sham-

berg & May, Chartered, 7th Floor, Huron Building, Kansas

City, Kansas 66101, attorneys for respondent. All parties

required to be served have been served.

Davin K. FROMME

Attorney for Petitioners

Al

APPENDIX

NOVEMBER TERM—JANUARY 8, 1976

Before The Honorable David T. Lewis, Chief Judge, The

Honorable Robert H. McWilliams and The Honorable Wil-

liam E. Doyle, Circuit Judges

No. 74-1599

(D.C. No. KC-3263)

PALMER COAL & ROCK COMPANY, INC.,

a corporation,

Plaintiff-Appellee,

Vs.

GULF OIL COMPANY - US., a corporation, a/k/a

GULF OIL CORPORATION, a corporation, and PITTS-

BURG & MIDWAY COAL AND MINING COMPANY,

a corporation,

Defendants-Appellants.

This matter comes on for consideration of appellant’s

motion to recall the mandate in the captioned cause and

stay the reissuance of it pending petition for writ of cer-

tiorari. The Court has also considered the response of

the appellee.

Upon consideration whereof, it is ORDERED that the

mandate of this Court issued December 29, 1975, is hereby

recalled.

It is further ORDERED that the mandate shall be

stayed until February 7, 1976, pending certiorari and that

if on or before that date there is filed with the Clerk

of the Court of Appeals a notice from the Clerk of the

Supreme Court of the United States that appellant has

A2

timely filed a petition for writ of certiorari in the Supreme

Court, the stay shall continue until final disposition by

the Supreme Court.

The Clerk shall forward a certified copy of this Order

to the United States District Court for the District of

Kansas, and to the parties of record.

/s/ Howard K. Phillips

Howard K. Phillips, Clerk

NOVEMBER TERM—DECEMBER 19, 1975

Before The Honorable David T. Lewis, Chief Judge, The

Honorable Delmas C. Hill, The Honorable Oliver Seth,

The Honorable William J. Holloway, Jr., The Honorable

Robert H. McWilliams, The Honorable James E. Barrett,

and The Honorable William E. Doyle, Circuit Judges

No. 74-1599

PALMER COAL & ROCK COMPANY, INC.,

a corporation,

Plaintiff-Appellee,

vs.

GULF OIL COMPANY - US., a corporation, a/k/a

GULF OIL CORPORATION, a corporation, and PITTS-

BURG & MIDWAY COAL AND MINING COMPANY,

a corporation,

Defendants-Appellants.

This matter comes on for consideration of the motion

by appellants for an extension of time to file a petition

for rehearing, and the petition for rehearing with sugges-

tion for rehearing en banc which was submitted by the

appellants in the captioned cause.

A3

Upon consideration whereof, it is the order of the

Court as follows:

1. The appellant’s motion for an extension of time

to file a petition for rehearing is granted. The pe-

tition is ordered filed as of December 1, 1975, the

date of its receipt.

2. The Petition for rehearing is denied by Circuit

Judges Lewis, McWilliams, and Doyle to whom

the case was submitted.

3. The Petition for Rehearing having been denied by

the original panel to whom the case was submitted

and no member of the panel nor judge in regular

active service on the Court having requested that

the Court be polled on Rehearing En Banc, Rule

35, Federal Rules of Appellate Procedure, the Sug-

gestion for Rehearing En Banc is denied.

/s/ Howard K. Phillips

Howard K. Phillips, Clerk

A4

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

No. 74-1599

(KC-3263)

PALMER COAL & ROCK COMPANY, a Corporation,

Plaintiff-Appellee,

V.

GULF OIL COMPANY - USS., a Corporation aka GULF

OIL CORPORATION, a Corporation, and THE PITTS-

BURG & MIDWAY COAL MINING CO., a Corporation,

Defendants-Appellants.

Appeal From the United States District Court

for the District of Kansas

(Filed November 3, 1975)

Leonard O. Thomas of Weeks, Thomas, Lysaught, Bingham

& Mustain, Kansas City, Kansas (David K. Fromme,

of the same firm, on the brief) for Appellants.

John E. Shamberg of Schnider, Shamberg & May, Shaw-

nee Mission, Kansas (Charles F. Schnider, of the same

firm, on the brief); Forrest E. Short of Short & Short,

Fort Scott, Kansas (Joel B. Short, of the same firm,

on the brief) for Appellee.

Before LEWIS, Chief Judge; McWILLIAMS and DOYLE,

Circuit Judges.

A5

LEWIS, Chief Judge.

Defendant Gulf Oil Company (Gulf) and its subsidi-

ary, Pittsburg & Midway Coal Mining Company (P &

M), appeal from judgments entered in the district court

for the District of Kansas following jury verdicts amount-

ing to $500,000 compensatory and $1,500,000 punitive dam-

ages awarded to plaintiff Palmer Coal & Rock Company

(Palmer Coal). The trial court reduced the actual damages

to $466,830.50 after determining that the jury verdict was

supported by the evidence only to that extent. The ver-

dicts resulted from the jury’s favorable consideration of

plaintiff’s claims of damage resulting from flagrant and

fraudulent misrepresentations made by defendants during

the course of acquisition of coal properties in Kansas and

The trial court submitted the issues to the jury under

instructions specifically setting out the elements allowing

recovery for actionable fraud under Kansas law and to

which no objections were taken. Although defendants’

claims of trial error are separately stated and argued they

are largely directed at the sufficiency of the evidence

to support any recovery under the court’s instructions.’

1 1. That false or untrue representations were made as a

statement of existing and material fact;

2. That the representations were known to be false or untrue

by the party making them, or were recklessly made without

knowledge of their truth or falsity;

3. That the representations were made with the intent to

deceive and for the purpose of inducing the plaintiff to act upon

them;

4. That plaintiff relied and acted upon the representations

made; and

5. That plaintiff sustained damage as a result of relying

upon the representations.

You are instructed that a representation is material when

it relates to some matter that is so substantial and important as

to influence the party to whom it is made.

A6

Since our review of the record we are fully satisfied,

as was the trial court, that the evidence is completely

adequate to support recovery. The testimony is, of course,

extensive, conflicting in part, and, in some instances, some-

what contradictory. However, viewing the evidence from

a cfedibility standpoint favorable to the verdict, the agree-

ments, actions, and motives of the parties can be summar-

ized and narrated.

During the mid-1960’s Palmer Coal was organized and

began operating a relatively small leasehold custom coal

mining operation in Kansas. The operation proved moder-

ately sucessful and sufficiently so to allow Palmer Coal

to borrow a total of $225,000 from the Small Business

Administration for expansion purposes, the loan being ar-

ranged through a Kansas bank.

The expanded Palmer mine was still prospering in

1968 when its owners became alarmed by information that

Gulf interests were doing extensive drilling in large areas

of Kansas and Missouri and upon land near and even

adjacent to the Palmer leasehold. Recognizing that Gulf’s

activities and intentions were critical to the long term

Palmer interests, particularly because long term operations

required the acquisition of additional coal resources for

Palmer, Mr. Harold Card, a vice president of Palmer, called

Mr. James Miner, vice president of P & M in charge

of land acquisition, and arranged a meeting.

At this meeting Miner assured Card that the Gulf in-

terests had no plans or intentions of harming the Palmer

Misrepresentations in order to constiiute actionable fraud,

must relate to a material present or pre-existing fact. Ordinarily,

fraud cannot be predicated on unfulfilled promises or statements

concerning future events. However, a promise to do something

in the future, when the other elements of fraud are present, con-

stitutes actionable fraud if at the time of making the statement

the promissor has no intention of performing the promise made.

A7

operations and to the contrary that the two companies

could and should cooperate to their mutual benefit. Card

testified as to Miner’s representations in detail:

He |Miner] told me that we could be of great

help to them in the area by being familiar with it,

No. 1, knowing the people that were involved around

the area, we were acquainted with them, most of

the people in this small area, that we could be an

asset to Gulf in acquiring these reserves and if we

would cooperate, he would set aside or carve out what-

ever coal was needed by us if we wanted to continue

and stay in the coal business.

At that time I told him I thought we would like

to stay in the coal business and by him protecting

us on-future reserves, I thought it would be a great

deal.

He said if we weren’t quite satisfied with the

situation, could even be that they would just take

us out of business or buy us out of business, if this

was our desire, provided that they took the field,

if they bought the field. So I told him it sounded

like a good agreement but I would appreciate it if

he would go over to my banker with me. I said,

“This being a small area, the rumor gets out about

Gulf, it will scare the banker and we owe him the

money. Would you go over and tell him what you

just told me?” He said, “Harold, I would even put

it in writing but I would rather not. It would con-

stitute more problems and I just would not rather.”

I said, “I have no reason not to trust you, sir, but

if you will go to the bank with me so my banker

won’t become upset, that’s fine.” So we finished our

coffee, went directly to the bank from there. (Empha-

sis added).

A8

The testimony of the banker, Mr. Floyd Dotson, com-

pletely corroborated Card’s version of Miner’s representa-

tions. Dotson testified that Miner represented

his company would be willing to bail them | Palmer]

out by purchasing their property or carve them out

this land that would give them 8 to 10 years of oper-

ation in that area.

Subsequently, the owners of Palmer Coal made sub-

stantial efforts to help P & M obtain acreage. Card toured

and discussed the area with Miner and other officers of

defendants. Local landowners were encouraged to talk

to defendants representatives and were visited by Card

with defendants’ land agents. Lists of landowners were

also furnished. Card talked to local banks, the radio sta-

tion manager, merchants, and others. Equipment was

stored at the Palmer mine and P & M’s employees made

use of those facilities. Card also accompanied and assisted

in P & M’s drillings. Defendants were allowed to study

plaintiff's mine and its coal vein was measured and corre-

lated with the lay of the land. Knowledge and information

concerning coal-bearing lands, developed in part from some

300 core-drilling tests, was also conveyed. Prior to enlist-

ing the help of the Palmer mine owners defendants had

obtained but four options to purchase land; in the subse-

quent four months 60 option agreements with property

owners were reached covering 13,650 acres of coal-bearing

land in the vicinity of the Palmer mine.

During this period output at the Palmer mine slowed

because of Card’s frequent absence on behalf of defendants

and as a result of employees obtaining other employment

because of a fear that P & M would shut down the Palmer

mine. Palmer Coal failed to make a July payment and

following payments on its S.B.A. insured loan from Dot-

son’s bank. In December as the S.B.A. began pressing

eS - —

Ag

plaintiff to pay the loan it was told of the alleged agree-

ment between plaintiff and defendants and a meeting was

arranged. In attendance were Palmer, Card, Dotson, Miner

and P & M’s attorney, Borders, together with officers

of the S.B.A. Card testified that he asked Jim Miner to

“live up to your part of the agreement.” Miner responded,

“Well, gosh, we couldn’t buy you out anyway, we would

be violating the antitrust or the antitrust regulation.” Bor-

ders silenced Miner but at some later point Miner stated

that P & M had a “moral obligation” to which Card

replied:

This is not what you told me at the bank, this

is not what you have been telling me for the past

five months. What in the hell do you consider a

moral obligation ....

Miner responded saying he wasn’t aware that they wanted

to sell out. Card then said, “Well, I am telling you now,

I do.” Miner then asked the price to which Card replied:

Jim, I will take a two years possibly three years

of hard work, throw it down the drain, you just give

us a checl here for three hundred and seventy-five

thousand dollars. I can pay S.B.A. off, I will take

my bath and get the hell out of here.

Borders then terminated that dialogue and an agreement

was reached to submit the financial reports of Palmer

Coal to P & M to enable them to consider the purchase.

After the reports were submitted P & M refused any

purchase.

The lessors of the land on which the Palmer mine

operated testified that during the same months that Palmer

Coal was actively assisting defendants, those same defen-

dants attempted to purchase the leasehold right out from

under the Palmer mine.

Al0

After P & M’s refusal to recognize any obligation

to Palmer Coal this company’s mortgage was foreclosed

and its entire investment was lost.

As we have earlier indicated, we conclude that plaintiff

made a case and, indeed, a strong case. Falsity, induce-

ment, reliance and damage are manifest and the jury

could well infer that P & M at no time intended to

keep its promises. Miner's avoidance of any writing and

the somewhat suppressed concern of P & M relating to

possible antitrust difficulties of a buy-out were present

at all times during the critical period and could premise

such an inference.

Defendants further seek reversal of the case on two

issues pertaining to damages. First, the contention is made

that the trial court, having determined that the jury award

of $500,000 was not supported by the evidence, was power-

less to do anything but grant a new trial. We find no

support for this argument when the reduction, as here,

was made with the consent of the plaintiff, without objec-

tion by the defendants, and was made by computations

supported by the evidence. Second, defendants assert that

the punitive damage award, through amount alone, shows

a premise of bias and prejudice. The trial court indicated

it was not shocked by the amount nor is this court. Palmer

Coal was treated very shabbily by the Gulf interests (as-

sets well over nine billion dollars) and the purpose of

punitive damages is to make such conduct unprofitable at

least.

Finally, we hold that the trial court made no preju-

dicial error in the admission of evidence. Defendants ob-

jected to the admission of three questions contained in

a deposition of Mr. Miner claiming that the questions cor-

rupted the context of Miner’s deposition testimony and

also that plaintiff had not shown the unavailability of

All

the witness. In regard to the latter objection the court

inquired:

Mr. Willson: For the record, Your Honor, I object

to the admission of only three questions out of a depo-

sition that contained—appears here over six or seven

hundred—at least six hundred fifty-four questions, as

being taken out of context. There has been no show-

ing that Mr. Miner was not available to them to come

into court and testify, no effort has been made to

have him come in and testify to this. There is no

proper foundation.

The Court: You don’t have to show unavailabil-

ity on an official of a corporation.

Mr. Willson: He is not an official of a corpora-

tion, Your Honor, he is retired.

The Court: Are you disputing he is a vice-

president or was at the time?

Mr. Willson: He was at the time. He is no

longer with the company.

The Court: Your objection is overruled and you

may read them.

Apparently Miner was not, in fact, a corporate officer at

the time the deposition was taken but the trial court had

a right to assume that counsel’s answer was given in re-

sponse to the requirements of Fed. R. Civ. P. 32(a) (2) and

that the answer referred io that time. The error, in any

event, was cause” by counsel’s lack of specificity. Nor

can note be taken at this time of a claim that the deposition

was used out of context when, as here, no offer of other

portions of the deposition was made by defendants and it

is inherently doubtful that any such matter could be con-

sidered as prejudicial when, as here, the witness testified,

personally, at length later in the trial.

Al2

Defendants also assert that the court erred in allowing

evidence to be received as. to a subsequent sale of property

which included some assets of Palmer Coal. Although the

relevancy of this evidence is perhaps questionable its im-

pact could not be prejudicial as against the record as a

whole.

The judgment is affirmed.

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF KANSAS

CIVIL ACTION

No. KC-3263

PALMER COAL & ROCK COMPANY,

Plaintiff,

v.

GULF OIL COMPANY-USS., a corporation, a/k/a GULF

OIL CORPORATION, a corporation and THE PITTSBURG

& MIDWAY COAL MINING CO., a carporation,

Defendants.

MEMORANDUM AND ORDER

(Filed June 11, 1974)

This is an action based on fraud which resulted in a

jury verdict for plaintiff in the amount of $500,000 com-

pensatory damages, and $1,500,000 punitive damages. The

defendants have filed a motion for judgment notwithstand-

ing the verdict or in the alternative for a new trial. Com-

prehensive briefs have been filed by the respective parties.

Oral argument was heard by the court on May 30, 1974,

after which the matter was taken under advisement.

Al3

After carefully reviewing the briefs of the parties and

being fully advised in the premises, the court finds that

the motion (except as to the amount of the judgment for

compensatory damages) should be overruled.

Several of the major points urged by defendants in

support of their alternative motion will be mentioned

briefly. .

In determining the legal sufficiency of the evidence,

the court has applied the tests set forth in Fox v. Wilson,

211 Kan. 563, 507 P.2d 252, and finds that defendants’ mo-

tions for directed verdict were properly denied at trial,

and that the verdict rendered is supported by clear and

convincing evidence.

Defendants’ argument that there was in fact no repre-

sentation made must be rejected. The case was presented

by plaintiff on the theory that defendants’ agent (Minor)

made the representation that, “if the plaintiff would co-

operate and assist the defendants in acquiring coal bearing

lands in the vicinity of the plaintiff's mine, by acquainting

the defendants and their agents with the farmer-owners

of the lands, assisting them to secure options to purchase

said lands, etc., then in return, the defendants would either

carve out reserve acreage for the plaintiff or would assure

that the plaintiff suffered no monetary losses by buying

out the plaintiff for a sum equal to plaintiff's liabilities

and investments, at plaintiff's option.” (Plaintiff’s Brief,

p. 19) Further, there was no “condition” attached to the

representation, as urged by defendants. There was also

ample evidence from which the jury could find there was

an intent to deceive on the part of defendants’ agent at the

time the representation was made. The jury was fully in-

structed, without objection, on the elements of fraud un-

der Kansas law in accordance with PIK 14.40 and 14.41.

Al4

With respect to damages, the jury obviously found that

the defendants had agreed at the plaintiff's option to pur-

chase the plaintiff's mining operation for a sum sufficient

to reimburse the stockholders for their investments in said

mining operation, and to pay all of plaintiff's outstanding

liabilities and obligations. If it has not already done so,

Kansas would recognize the majority view that permits

plaintiffs in fraud cases to recover not only their direct

“out-of-pocket” expenses, but their “benefit of bargain,”

all as reflected by the court’s instruction No. 9, which was

not objected to by the defendants. The damages sustained

by plaintiff are those flowing from the false representa-

tions made by defendants’ agent as above set forth, and

upon which the plaintiff relied. The jury’s verdict of

$500,000 actual damages is supported by evidence only to

the extent of $466,831.50, and accordingly, must be and

is modified to that extent.

The other grounds urged by defendants in support of

their motion for judgment notwithstanding the verdict, are

found to be without merit for the reasons stated at the

hearing on the motion.

The arguments advanced by defendants in their alter-

native motion for a new trial, are not persuasive for the

reasons well stated in plaintiff's brief.

The fact that the verdict of actual damages must be

reduced to $466,831.50, does not in any way require that

the verdict for punitive damages be disturbed. In view of

the evidence, the punitive damage award, while large, does

not reflect that the jury acted out of sympathy, bias or

prejudice, nor does it in any way shock the conscience of

this court.

The jury’s verdict to the extent of $466,831.50, for

actual or compensatory damages, and $1,500,000 punitive

re EN Oe,

et ml an

Al5

damages, is approved. Defendants’ motion for judgment

notwithstanding the verdict, or in the alternative for a

new trial, is overruled. Plaintiff’s counsel will prepare

and submit a journal entry reflecting the court’s ruling in

this memorandum.

IT IS SO ORDERED.

Dated this 11th day of June, 1974, at Kansas City,

Kansas.

/s/ Earl E. O’Connor

United States District Judge