Filed: May 25, 2012
Latest Update: Mar. 26, 2017
Summary: FILED United States Court of Appeals UNITED STATES COURT OF APPEALS Tenth Circuit TENTH CIRCUIT May 25, 2012 Elisabeth A. Shumaker Clerk of Court NANCY JONES, Executrix of the Estate of Gomer Jones, deceased, Plaintiff - Appellant, v. No. 11-3137 (D.C. No. 6:08-CV-01011-JTM) THE ESTATE OF LYNN COLE, (D. Kan.) Defendant - Appellee. ORDER AND JUDGMENT* Before MURPHY, GORSUCH, and MATHESON, Circuit Judges. This appeal arises from a dispute over majority ownership of a Kansas corporation, Product De
Summary: FILED United States Court of Appeals UNITED STATES COURT OF APPEALS Tenth Circuit TENTH CIRCUIT May 25, 2012 Elisabeth A. Shumaker Clerk of Court NANCY JONES, Executrix of the Estate of Gomer Jones, deceased, Plaintiff - Appellant, v. No. 11-3137 (D.C. No. 6:08-CV-01011-JTM) THE ESTATE OF LYNN COLE, (D. Kan.) Defendant - Appellee. ORDER AND JUDGMENT* Before MURPHY, GORSUCH, and MATHESON, Circuit Judges. This appeal arises from a dispute over majority ownership of a Kansas corporation, Product Dev..
More
FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
TENTH CIRCUIT May 25, 2012
Elisabeth A. Shumaker
Clerk of Court
NANCY JONES, Executrix of the Estate of
Gomer Jones, deceased,
Plaintiff - Appellant,
v. No. 11-3137
(D.C. No. 6:08-CV-01011-JTM)
THE ESTATE OF LYNN COLE, (D. Kan.)
Defendant - Appellee.
ORDER AND JUDGMENT*
Before MURPHY, GORSUCH, and MATHESON, Circuit Judges.
This appeal arises from a dispute over majority ownership of a Kansas
corporation, Product Development Group, Inc. (“PDG”). The parties agree there was a
purchase agreement and a bill of sale for Lynn Cole to buy 52% of PDG stock from
Gomer Jones, but they dispute whether the stock was transferred to Mr. Cole. We agree
*After examining the briefs and the appellate record, this three-judge panel has
determined unanimously to honor the parties’ request for a decision on the briefs without
oral argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App.
P. 32.1 and 10th Cir. R. 32.1.
with the district court that equitable estoppel prevents Mr. Jones’s estate from contesting
Mr. Cole’s ownership. We also affirm the district court’s denial of a new trial motion.
The district court exercised diversity jurisdiction under 28 U.S.C. § 1332(a). We exercise
jurisdiction under 28 U.S.C. § 1291 and affirm.
I. BACKGROUND
A. Factual Background1
Mr. Jones died in 1993. Nancy Jones—Mr. Jones’s daughter, the executrix of his
estate, and a former PDG employee—brought this suit in 2008 against Mr. Cole. Mr.
Cole died in 2009. His estate was substituted as a party.
On June 25, 1984, Mr. Jones, then the president and owner of PDG, signed an
agreement to sell 52% of the stock in PDG to Mr. Cole. The agreement provided in part:
That the parties hereto have agreed on a sale of [f]ifty-
two percent (52%) of the stock in [PDG], dated even date
with this agreement wherein [Mr. Jones] has sold to [Mr.
Cole] 52% of the stock in [PDG], said stock being involved
in litigation with the Rose Hill State Bank and is pledged as
security for the loan and mortgage of the corporation with the
bank by [Mr. Jones]. [Mr. Cole] hereby agrees that as
consideration for the sale of said stock he will take full
control and dedicate his full best efforts to the presentation of
a plan in the Chapter 11 proceedings in the Bankruptcy Court
and will protect [Mr. Jones] from any personal claims by the
Internal Revenue Service as filed in the Chapter 11
proceedings.
1
We include information in this background section from the bench trial and other
parts of the record and pleadings before us, as well as contentions from the briefs. Our
determinations on the issues rely only on evidence that Ms. Jones presented at the bench
trial or has not disputed.
-2-
[Mr. Cole] further agrees with [Mr. Jones] that he will
use his best efforts to remove the indebtedness owed by [Mr.
Jones] personally to the Rose Hill State Bank to relieve [Mr.
Jones] of any further liability if possible.
Aplt. Add. at 1 (emphases added).
Mr. Jones also signed a bill of sale and a waiver that same day. The bill of sale
provided in part that “in consideration of TEN DOLLARS ($10.00) and other good and
valuable consideration, the receipt of which is hereby acknowledged, [Mr.] Jones does
bargain, sell, transfer, and set over unto [Mr.] Cole . . . FIFTY-TWO PERCENT (52%)
of the stock in [PDG] to have and to hold, all and singular, the said title to stock, forever
. . . .” Id. at 2 (emphases added). The bill of sale noted the stock was subject to claims in
litigation with Rose Hill State Bank. The waiver provided that Mr. Jones waived “all
rights under the by-laws of [PDG] to the purchase of 272,340 shares of stock by Lynn
Cole from Gomer W. Jones.” Id. at 96.
The parties do not dispute (1) the existence of the agreement, bill of sale, and
waiver; (2) that Mr. Cole took control of PDG; (3) that Mr. Cole voted 272,340 (52% of
the total) shares at a November 1984 stockholders’ meeting; and (4) that Ms. Jones
signed an annual report to the Kansas Secretary of State indicating that Mr. Cole owned
52% of PDG.2
2
At trial, Ms. Jones claimed she only signed the report because Mr. Cole, her boss
at the time, directed her to do so. Ms. Jones admitted at trial that she had seen the stock
purchase agreement when she was working for PDG.
-3-
In 1986, Mr. Cole started another company, Aero Standard Tooling (“AST”).
Although the parties dispute his motives for forming AST, they agree that AST used
PDG’s equipment, facilities, and employees. According to Ms. Jones, Mr. Cole took
large loans from AST, which he never repaid. According to Mr. Cole, he transferred
PDG’s assets to AST
to allow the proprietary rights of PDG to be used to continue
to earn income to satisfy the financial obligations of PDG
. . . . As a result of such transfer, [Mr. Cole] was able to
generate sufficient cash flow to pay all of PDG’s debts,
including the loan with the Rose Hill State Bank, get PDG out
of bankruptcy, and fully satisfy the personal obligations of
Gomer Jones to the IRS.
Aple. Br. at 33. Mr. Cole further observes in his brief: “It is interesting to note that
during the ten years PDG’s operations were being conducted under the umbrella of AST,
there is no record of [Mr.] Jones or [Ms.] Jones making any complaint or causing any
litigation against [Mr.] Cole based on his alleged usurpation of PDG’s assets.” Id. The
IRS shut down AST in 1994 for failure to pay withholding taxes. At that time, Mr. Cole
moved all employees back to PDG.
On April 20, 1993, a bankruptcy judge signed an Order for Final Decree in the
PDG bankruptcy reorganization case after the bankrupt estate had been fully
administered. By certified letter dated June 25, 1993, the Rose Hill State Bank sent Mr.
Jones the PDG stock certificates it had held as security and a “paid in full note” for PDG.
Aplt. Add. at 15. According to Mr. Cole, this letter signified the fulfillment of all
promises under the stock purchase agreement—Mr. Jones’s tax obligations were met, a
-4-
plan had been presented on behalf of PDG to the bankruptcy court, and Mr. Jones’s
personal liability on the loan to PDG from Rose Hill State Bank had been removed.
However, Ms. Jones claims there were other unwritten obligations Mr. Cole had agreed
to before he could take possession of the stock.
Following receipt of the letter and stock from Rose Hill State Bank, Mr. Jones
asked Ms. Jones to prepare two stock certificates to evidence the respective ownership of
PDG stock by both Mr. Cole and himself. Ms. Jones did so—Stock Certificate No. 9
represented 272,340 (or 52%) of the shares to Mr. Cole, dated July 27, 1993; and Stock
Certificate No. 10 represented 251,390 (or 48%) of the shares to Mr. Jones, dated July 17,
1993. The parties dispute whether Mr. Cole’s stock certificate was delivered to him. Ms.
Jones stated at trial that she was not “aware of any action taken by [Mr.] Jones to deliver
[the stock certificate] to [Mr.] Cole.” Aplt. Appx., Vol. II, at 45. Mr. Cole claims that
Mr. Jones personally handed the certificate to him at the PDG offices but that the
certificate was later taken from Mr. Cole’s desk.
Mr. Jones died in September 1993. Ms. Jones claimed she found both Stock
Certificate Nos. 9 and 10 among her father’s papers after his death.
After Mr. Jones’s death, Mr. Cole continued to operate PDG. He retained Ms.
Jones with PDG until it stopped manufacturing operations in 1997. Ms. Jones alleged
that Mr. Cole took PDG equipment to his sister in Missouri after he closed PDG
operations. Ms. Jones also alleged that Mr. Cole improperly paid PDG money to certain
individuals.
-5-
B. Procedural History
Ms. Jones, acting as executrix of her father’s estate, brought a declaratory
judgment action against Mr. Cole in 2008. She alleged that Mr. Jones’s estate was the
true owner of the stock that Mr. Cole had claimed for approximately 24 years. She
claimed that the stock had never been properly transferred to Mr. Cole and that the statute
of limitations now precluded Mr. Cole from enforcing his contract rights. Mr. Cole
answered that all elements of the stock purchase agreement had been performed, the
stock had been actually or constructively transferred, and the doctrines of equitable
estoppel and laches precluded Ms. Jones from attacking his ownership of the stock.
The district court denied both parties’ motions for summary judgment. Mr. Cole
died and his estate was substituted as the defendant.3 The district court held a bench trial.
At the conclusion of Ms. Jones’s presentation of evidence, Mr. Cole moved for judgment,
which the court granted, referring to its ruling as a judgment as a matter of law
(“JMOL”). See Jones v. Cole, No. 08-1011-JTM, 2010 WL 5015307, at *4 (D. Kan.
Dec. 3, 2010) (“Jones I”).
Ms. Jones then filed a motion for a new trial, arguing that the evidence did not
support the judgment and that there was newly discovered evidence. The district court
denied her motion. See Jones v. Cole, No. 08-1011-JTM, 2011 WL 1375685, at *4 (D.
3
To avoid confusion over this substitution of parties in the midst of the
proceedings, we follow the district court’s example in referring to both Mr. Cole and his
estate as Mr. Cole.
-6-
Kan. Apr. 12, 2011) (“Jones II”). Ms. Jones appeals, requesting that this court set aside
the judgment and grant a new trial.
II. DISCUSSION
Ms. Jones argues on appeal that the district court erred in determining that (1)
constructive transfer of the stock occurred; (2) the Jones estate is equitably estopped from
contesting Mr. Cole’s ownership of PDG; (3) laches prevents the Jones estate from
contesting ownership; and (4) a new trial was not warranted by newly discovered
evidence or lack of evidentiary support for the judgment. She also argues Mr. Cole is not
entitled to any equitable relief because he has “unclean hands.”
Because we conclude that equitable estoppel prevents the Jones estate from
contesting Mr. Cole’s ownership of 52% of PDG, we need not consider whether laches or
constructive transfer also applies. We also hold that the district court did not abuse its
discretion in refusing to grant a new trial.
A. Standard of Review for Bench Trials
As noted below, we review the district court’s equitable estoppel determination
and its denial of the motion for a new trial for abuse of discretion. In doing so, and
because this appeal comes to us from a judgment in a bench trial pursuant to Fed. R. Civ.
P. 52(c), we review findings of fact for clear error and legal conclusions de novo. See
Chavez v. City of Albuquerque, 630 F.3d 1300, 1306 (10th Cir. 2011). “If the district
court’s account of the evidence is plausible in light of the record viewed in its entirety,
the court of appeals may not reverse it even though convinced that had it been sitting as
-7-
the trier of fact, it would have weighed the evidence differently.” Anderson v. City of
Bessemer, 470 U.S. 564, 573-74 (1985). “The trial court’s findings of fact will be upheld
unless, after review, the appellate court is firmly convinced a mistake has been made.”
Litwin v. United States,
983 F.2d 997, 999 (10th Cir. 1993).4
B. Equitable Estoppel
1. Standard of Review
“We review the district court’s exercise of its equitable powers for abuse of
discretion.” Clark v. State Farm Mut. Auto Ins. Co., 433 F.3d 703, 709 (10th Cir. 2005).
“A district court abuses its discretion where it commits a legal error or relies on clearly
erroneous factual findings, or where there is no rational basis in the evidence for its
ruling.” Id. (quotations omitted).
2. Application of Equitable Estoppel
Under Kansas law, equitable estoppel is defined as
4
The district court viewed Mr. Cole’s motion for judgment as a request for
judgment as a matter of law that required considering the evidence in the light most
favorable to the Jones estate. See Jones I, 2010 LS 5015307, at *1. That deferential
standard applies to a JMOL motion in a jury trial under Fed. R. Civ. P. 50(a). But
because Mr. Cole moved for judgment at the conclusion of Ms. Jones’s presentation of
evidence in a bench trial, the district court’s review was governed by Fed. R. Civ. P.
52(c), which does not require the district court to consider the evidence in the light most
favorable to the Jones estate. See Fed. R. Civ. P. 52(c) advisory committee’s note (“The
standards that govern judgment as a matter of law in a jury case have no bearing on a
decision under rule 52(c).”); see also United States v. $242,484.00 in U.S. Currency, 389
F.3d 1149, 1172 (11th Cir. 2004) (“In addressing a Rule 52(c) motion, the court does not
view the evidence in the light most favorable to the nonmoving party, as it would in
passing on a Rule 56 motion for summary judgment or a Rule 50(a) motion for judgment
as a matter of law; instead, it exercises its role as factfinder.”).
-8-
the effect of the voluntary conduct of a party whereby it is
precluded, both at law and in equity, from asserting rights
against another person relying on such conduct. A party
seeking to invoke equitable estoppel must show that the acts,
representations, admissions, or silence of another party
(when it had a duty to speak) induced the first party to believe
certain facts existed. There must also be a showing the first
party rightfully relied and acted upon such belief and would
now be prejudiced if the other party were permitted to deny
the existence of such facts. There can be no equitable estoppel
if any essential element thereof is lacking or is not
satisfactorily proved. Estoppel will not be deemed to arise
from facts which are ambiguous and subject to more than one
construction. A party may not properly base a claim of
estoppel in its favor on its own wrongful act or dereliction of
duty, or for acts or omissions induced by its own conduct.
Gillespie v. Seymour, 823 P.2d 782, 788-89 (Kan. 1991) (emphases added) (citation
omitted).
The purchase agreement is the first affirmative representation in the record that
Mr. Jones made to Mr. Cole regarding ownership of the stock. The agreement did not
say Mr. Cole would own the stock at some future date, but that “dated even date with this
agreement wherein [Mr. Jones] has sold to [Mr. Cole] 52% of the stock in [PDG].” Aplt.
Add. at 1 (emphasis added). In other words, the agreement, signed by both parties,
indicated that the stock belonged to Mr. Cole on June 25, 1984. Likewise, the bill of sale
stated that Mr. Jones “does bargain, sell, transfer, and set over unto [Mr.] Cole [52%] of
the stock in [PDG].” Id. at 2 (emphasis added). It used present rather than future tense
regarding the transfer of stock. Consistent with the agreement and bill of sale, Mr. Jones
allowed Mr. Cole to vote the shares and to take control of the company—further
-9-
indications to Mr. Cole that he immediately owned the stock.
Mr. Cole relied on these representations regarding his stock ownership. He spent
substantial time and effort fulfilling his obligations under the purchase agreement. He
“present[ed] a plan in the Chapter 11 proceedings in the Bankruptcy Court” that
“protect[ed] [Mr. Jones] from any personal claim by the [IRS],” and he “remove[d] the
indebtedness owed by [Mr. Jones] personally to the Rose Hill State Bank.” Id. at 1.
After fulfilling those tasks, Mr. Cole continued to devote time and energy to the company
that he believed he owned due to Mr. Jones’s representations and conduct.
The foregoing establishes equitable estoppel under Kansas law. See Gillespie, 823
P.2d at 788-89. Mr. Jones’s voluntary conduct – in making representations in the
purchase agreement, bill of sale, and waiver; and in allowing Mr. Cole to vote his
majority shares and run the company – induced Mr. Cole to believe he owned 52 percent
of the shares. Further, Mr. Cole relied and acted upon that belief by expending
significant time and effort to manage PDG and to extricate PDG and Mr. Jones from their
financial difficulties. Finally, in light of Mr. Jones’s representations and Mr. Cole’s
belief and reliance, Mr. Cole would be prejudiced if the Jones estate were allowed to
deny Mr. Cole’s stock ownership.
We reject Ms. Jones’s argument that the district court should not have relied on
equitable estoppel because Mr. Cole should have exercised greater diligence in ensuring
the stock actually transferred. Given the terms of the purchase agreement, his unfettered
control of the company, and the absence of any evidence that Mr. Cole’s ownership was
-10-
challenged until this lawsuit, Mr. Cole reasonably believed that he owned the stock.
We conclude that the district court did not abuse its discretion in holding that the
Jones estate is equitably “estopped from contesting the transfer of ownership to [Mr.]
Cole.” Jones I, 2010 WL 5015307, at *3; see also Gillespie, 823 P.2d at 788-89.
3. Unclean Hands
Ms. Jones also argues that Mr. Cole is not entitled to equitable estoppel or other
equitable relief because he has “unclean hands.” Under Kansas law, the unclean hands
doctrine provides that “no person can obtain affirmative relief in equity with respect to a
transaction in which the person has been guilty of inequitable conduct.” T.S.I. Holdings,
Inc., v. Jenkins, 924 P.2d 1239, 1250 (Kan. 1996). “The clean hands maxim is not a
binding rule, but it is to be applied in the sound discretion of the court.” Id.
The doctrine of unclean hands is applied sparingly, in very
limited situations. . . . Conduct which will render a party’s
hands unclean so as to deny . . . access to a court of equity
must be willful conduct which is fraudulent, illegal or
unconscionable. Furthermore, the objectionable misconduct
must bear an immediate relation to the subject-matter of the
suit and in some measure affect the equitable relations . . .
between the parties to the litigation and arising out of the
transaction.
In re Parentage of Shade ex rel Shade, 126 P.3d 445, 453 (Kan. Ct. App. 2006)
(emphases added) (quotations omitted).
Ms. Jones argues that Mr. Cole has unclean hands because of improper dealings
involving AST that were contrary to PDG’s interests. She claims the district court
improperly failed to address this argument.
-11-
The bench trial transcript shows that the district court heard and considered
argument regarding the unclean hands doctrine at multiple points in the proceedings. The
transcript also shows that the district court rejected the unclean hands argument. For
example, the district court stated that, even “looking at the facts in the light most
favorable to [the Jones estate],” it did not find “ipso facto unclean hands.” Aplt. Appx.,
Vol. II, at 225.5 This statement can reasonably and correctly be understood as a
conclusion that Ms. Jones’s evidence did not rise to the level of creating a question of
unclean hands that would require any countervailing evidence.
Given our deferential standard of review and the evidence in the record regarding
Mr. Cole’s fulfillment of his contractual obligations with regard to PDG outlined in the
stock purchase contract, we conclude that the district court did not abuse its discretion in
deciding that equitable estoppel applied despite the unclean-hands allegations.
C. New Trial
We review the denial of a new trial motion for abuse of discretion. See Minshall
v. McGraw Hill Broad. Co., 323 F.3d 1273, 1283 (10th Cir. 2003). “This court will
reverse the denial of a motion for a new trial only if the trial court made a clear error of
judgment or exceeded the bounds of permissible choice in the circumstances.” Id.
(quotations omitted).
Ms. Jones argues that the district court erred in denying her motion for a new trial
5
As noted earlier, it was not necessary for the district court to view the evidence in
the light most favorable to the Jones estate. See supra n.4.
-12-
based on sufficiency of the evidence and newly discovered evidence. She argues that
much of the evidence on which the district court relied was never properly admitted at
trial. She contends the remaining evidence cannot support the ultimate holdings. She
further argues that Mr. Cole’s testimony in a 1990 deposition from a case not involving
PDG undermines his arguments in this case. She claims the deposition is “newly
discovered” because “it was provided to [her] counsel as one of 36 exhibits more than an
inch thick on the morning of trial,” leaving insufficient time for counsel to review all the
materials until after the trial ended that evening. Aplt. Br. at 42.
Ms. Jones’s sufficiency argument fails because, even if we were to disregard all
the evidence to which she objects, there would be sufficient evidence to uphold the
district court’s decision regarding estoppel. This remaining evidence includes (1) the
purchase agreement, the bill of sale, and the waiver; (2) Mr. Cole’s voting the shares and
taking control of PDG; (3) Mr. Cole’s fulfillment of obligations under the stock purchase
agreement in that he relieved Mr. Jones of obligations to the IRS and Rose Hill State
Bank and presented a plan in bankruptcy court; and (4) the long delay in bringing any
action to challenge Mr. Cole’s ownership of the stock. Given this evidence, we hold that
the district court did not abuse its discretion in refusing to grant a new trial on sufficiency
grounds.
Ms. Jones’s argument regarding newly discovered evidence presents a closer
question, especially if the record showed only that such evidence was provided in a large
stack of documents on the morning of trial. But Mr. Cole asserts that Ms. Jones was not
-13-
reasonably diligent in discovering the evidence at issue.
In order to obtain a new trial based on newly discovered
evidence, the moving party must show that (1) the evidence
was newly discovered since the trial; (2) he was diligent in
discovering the evidence; (3) the newly discovered evidence
is not merely cumulative or impeaching; (4) the newly
discovered evidence would have been material; and (5) a new
trial with this newly discovered evidence would probably
produce a different result.
Wolfgang v. Mid-Am. Motorsports, Inc., 111 F.3d 1515, 1529 (10th Cir. 1997) (emphasis
added); see also 11 Charles Alan Wright, et al., Federal Practice and Procedure § 2808
(2d ed. 1995) (“Wright & Miller”) (“The moving party must have been excusably
ignorant of the facts despite using due diligence to learn about them.”).6
Mr. Cole has shown that “thirty days prior to trial, Plaintiff was specifically
alerted to the existence of the deposition of [Mr.] Cole . . . by its inclusion in Defendant’s
Designation of Transcripts filed in this case.” Aple. Br. at 34. That filing included the
name of the court reporter, the case caption, case number, and court location. See Aple.
Supp. Appx. at 23.
Ms. Jones therefore could have requested the deposition from Mr. Cole or the
court reporter in advance of trial. As the district court explained, if the evidence was
previously available to a party through reasonable care and diligence, it cannot be newly
6
“However, it has been held that a new trial may be granted even though proper
diligence was not used if this is necessary to prevent a manifest miscarriage of justice.”
Wright & Miller § 2808. The record in this case does not suggest that the trial court’s
failure to grant a new trial resulted in a “manifest miscarriage of justice.”
-14-
discovered. Jones II, 2011 WL 1375685, at *3.
Thus, because with reasonable diligence Ms. Jones could have obtained the
deposition before trial, the district court did not abuse its discretion in denying the new
trial motion.
III. CONCLUSION
We affirm the district court decision regarding equitable estoppel. We therefore
need not reach the other equitable issues. We also affirm the district court’s denial of a
new trial.
ENTERED FOR THE COURT
Scott M. Matheson, Jr.
Circuit Judge
-15-
