*1 Norton, State appeals.” nal (Minn.1982).

142, 146 “collective, experi- collegial our

Based on in this case

ence,” the record conclude we conduct that defendant’s

fails to establish more serious than significantly aggra- in the offense of

typically involved property. Ac- damage to

vated criminal of defen-

cordingly, reduce the duration pre- from 30 months

dant’s sentence sentence, 15 months.

sumptive as modified.

Affirmed Deceased, JONES,

ESTATE OF BLUME, its Lorraine J.

representative, Respondent, KVAMME, Peder

Petitioner, Appellant, al., Kvamme, et Defendants.

John

No. C9-87-2367.

Supreme Court of Minnesota.

Dec. *2 and defendant J. Peder

separately obtained further review a appeals affirming court of decision $678,367.68 plaintiff’s award of in re- scissionary damages $5,500 pur- offset a price together $46,000 chase punitive damages, in this action for re- upon scission of a stock transfer based part fraud. 430 N.W.2d 188. We affirm in part. and reverse In Engi- Cecil Jones formed Kato neering Company, closely-held corpora- engaged in the genera- tion manufacture of tors. As and chairman of the board, Cecil controlled the outstanding held 157 shares of the shares of common stock. The remainder of the shares were held as follows: directors and officers William Cliff and Jones respectively held shares and 10 shares and, apparently, 2 shares were retained as treasury stock. The record discloses that while the defendant Kvamme became an secretary assistant director, 1961 and served as a he held no shares of common stock. upon

This action centers conversations negotiations between Jones and the defendant Kvamme which resulted the sale of 10 shares of stock to individually. Kvamme Beginning 1964, Emlyn began Jones physical decline in mental and severe health, having diagnosed suffering arteriosclerosis, diabetes and cerebral Em- senile dementia. The mild-mannered lyn and had lost mo- had become irascible mental facul- tor skills and control of his involved in ties. While he had never been Shaw, Jeffrey Briggs Morgan, F. & St. operations financial Paul, Dosland, Gislason, and C. Allen Dos- successfully as a trouble-shoot- served land, Malecki, Ulm, Hunter & New and, brother, had shop er in the as Cecil’s appellant. played prominent company. role in the Taber, Minneapolis, Daniel P. and Kevin The cumulative of number of Green, Mankato, respondent. O’C. employees current and former demonstrat- understanding ed the common retirement, required employee company sell his stock back to the in ac- COYNE, Justice. long-standing policy. cordance with Cecil’s Blume, plaintiff Lorraine J. this Illustrative of was William Cliff’s abor- resisted, representative attempt, of the estate of tive which Cecil to trans- partial judg- ages. The court entered a his sons his retire- stock to fer his $165,500 represent- in the amount of ment ment. per pur- share minus Emlyn’s retirement was when $5,500, price together chase imminent, his home visited *3 portion punitive damages. in In the second $5,500 for 10 shares. offered proceedings, the the trial court con- in the-name of allegedly made offer was plaintiff's claim of the sidered evidence when the sale was the but trust; in of a constructive establishment summated, paid for the stock Kvamme portion proceedings, of the the court that his check drawn on with a counter April that determined were endorsed account. The certificates the 10 shares of stock to had transferred was not re- the stock transfer blank and pay him to re- his children and directed corporation; the the books of corded on scissionary damages in the amount of the instead, reports annual continued the of the total obtained virtue when, the until 1970 Emlyn as owner show Engineering by Reliance purchase of Kato death, Kvamme was listed as the after $46,000 punitive together Electric later testified owner. Kvamme record damages and costs and disbursements. that, fact, purchase, at the time rejected plaintiff’s The court the claim for put of his children and filled in the names prejudgment The court of interest. deposit personal safety certificate the peals respects affirmed in all and we autho- it remained until 1978. box where rized further review. chief executive Kato’s Kvamme became are called to address a We a stroke in after Cecil suffered officer complains host of issues. Kvamme first 1974; corporate he became admitting por erred in that the trial court year in 1976. death One after Cecil’s testimony relating to out- tions of Blume’s Reliance, sold Engineering was Kato statements made to her her of-court pur- Company on installment Electric husband, then the decedent Jones. approximately agreement $12 chase testimony that Kvamme asserts that of Kato common stock million. Each share only Emlyn had stated the belief that $65,000 and, approximately at was valued repurchase the corporation could distribution, the total amount purchasing the stock on that Kvamme was formerly by Emlyn owned the 10 shares corporate entity, and that he behalf of $678,367.68including interest. was (Emlyn) intended to sell the stock during Blume discovered June inadmissible constituted counsel for the estate of conversations with hearsay, prove offered to prejudicial and actually pur- that Kvamme had Cecil Minn.R. truth of the matters asserted. individually rather chased view, 801(c). In our Evid. corporation. than on She behalf approved appeals properly the exercise February action on commenced this in admit discretion the trial court’s broad complaint alleged 1982. The amended there can no ting evidence. While damages representing sought fraud and Emlyn’s alleged if or question that beliefs Reliance of the shares sold to prove understandings offered to or, alternatively, rescission of Electric misrepresentation that a material fact costs, together with fraudulent transaction occurred, the statements would be disbursements, pre- postjudgment in- hearsay. Thompson, 11 P. categorized as damages. punitive terest and While at Minnesota Practice: Evidence § proceedings, it determination, however, trial court bifurcated This purposes to note sufficient for our an ex not resolve the issue because does ultimately against admitting found that Kvamme had ception prohibition that, fraudulently regard hearsay testimony the stock exists with obtained transaction, the stock then exist the time of the was statements “of declarant’s * * *mind, including additionally per valued at share. It state of but prove the memory or belief to dam- statement of awarded Blume suspect any misrepresentation or or Minn.R. reason to fact remembered believed.” 803(3). obtaining knowledge actual fraud before Evid. purchased that Kvamme had the stock on challenged statements are sus- While the his own behalf. argument ceptible to Kvamme’s indirect- was offered establish Kvamme continues to maintain that that he ly that formulated belief evidence, totally any the record is devoid of selling his stock to the circumstantial, any direct or actionable representations to that effect because misrepresentation any the asserted vice of such is special manifestly verdict answers were Here, however, of a hearsay. the statement contrary gathered to evidence at trial. The *4 at a particular intention or belief certain argument persuasive. is not competent of the time is evidence existence acknowledged by As the court of belief, directly rele- Emlyn’s of a matter peals, Kvamme’s recitation of the events is Mutual See vant to a claim of fraud. Life discrepancies clouded numerous in- Hillmon, 285, 295, 12 Ins. v. Co. 145 U.S. consistencies, all of which could well have 909, 912, (1892); Scott v. 706 S.Ct. 36 L.Ed. jury’s apparent rejection contributed to the Co., 547, 552, Prudential Ins. 203 Minn. credibility. scrutiny of his own Our of the 467, (1938). Accordingly, we 282 N.W. 470 record convinces us that there while is little court did not conclude that the trial abuse alleged direct of the evidence fraudulent by admitting its discretion Blume’s testimo- misrepresentation, there is more than am- ny Emlyn’s as to state of mind because the ple evidentiary cumulative circumstantial prove not admitted to statements were support for the verdict. Most notable of underlying fact believed but instead consti- that circumstantial evidence are the facts of fu- tute circumstantial evidence accepted knew of and Cecil’s ture reliance on Kvamme’s statements that general policy that stock be returned acting corporation. he was on behalf of to the stock, he sold the it could inferred when be

Similarly, agree appel with the expectation he did so that it analysis affirming court’s the trial late Moreover, so returned. be regard court’s determinations with to the ownership concealment of his Kvamme’s statute of limitations and the denial of until after death is shares post-trial judgment motion for quite telling. Accordingly, we cannot con- notwithstanding the verdict. Kvamme clude, urges, as Kvamme that the answers urges this court to conclude that Blume special palpably to the verdict operative knew or should have known all prop- trary to the evidence. The trial court facts relative to her claim of fraud before erly post-trial denied Kvamme’s motion for 1980 and that her failure to conduct judgment notwithstanding the verdict. necessary inquiry demonstrates a lack of diligence as a matter of law. Bustad v. aspect The difficult of this most Bustad, 238, 243-44, 263 Minn. 116 N.W.2d proper measure of action relates 552, (1962). Accordingly, 556 he asserts damages. argues that the trial that the action is barred the statute of “rescissionary” by applying erred limitations contained in Minn.Stat. damages provided Blume measure of 1(6) (1988). subd. § of the stock its sale

However, 1967, pointed correctly out 1978 rather than its value the time alleged party A appeals, question court of of when dis- of the fraud. defrauded “out-of-pocket” ap covery reasonably may, could or should have under the rule as Minnesota, Murphy v. plied damages entitled to been made is one of fact. Inc., Country 344, 351, House 307 Minn. in the amount less the value of v. 507, (1976). Weise Red Owl totality object 240 N.W.2d 512 Stores, Inc., 199, 204, and circumstantial ade- 286 Minn. 175 direct evidence (1970); see also Jensen supports jury’s quately conclusion that N.W.2d 187 Peterson, (Minn.1978) 142 neither the nor Blume decedent proceeds to Blume may, how- owe (dictum). party A defrauded their shares in the successor ever, of the contract. the sale of for rescission also sue Restatement, supra, 166 com- corporation. Restitution § § Restatement of eases, (1937). In the fraud- 1. such & illustration ment b comment b chattel in constructive feasor holds that the estate holds Our conclusion transferor. defrauded trust a constructive trust on 484, 485 Wright, 311 N.W.2d Wright v. stock, however, to find error in prompts us (Minn.1981); Taggart, Blumberg punitive dam the trial court’s award 39, 43, 5 N.W.2d Minn. obviously ages. There was considerable . proceeds of the chat- The trust includes the generated by the bifurcation of confusion 390; 43, 5 N.W.2d at Restate- tel. Id. at instruction to proceedings these and the ment, An innocent donee of supra, 202. § jury punitive damages before award in constructive trust owes the chattel held measure for determining appropriate the chat- party the value of the defrauded calculating damages. likely It is Restatement, supra, 204 comment b tel. § damages because & illustration out-of-pocket original dam felt its award *5 view, our the trial court In insufficiently com ages of rescissionary damages. Janigan pensate the estate for the stock while (1st Cir.), Taylor, 344 F.2d 781 cert. allowing retain the same time Kvamme to 879, 163, denied, 15 U.S. 86 S.Ct. 382 misrepresentation, namely, the fruits of his (1965) example paradigm is a L.Ed.2d 120 of appreciation dramatic considerable There, the defendant in of the doctrine. Here, the rescission of the the stock. plaintiffs to sell their stock fraud duced imposition of a con transaction and the information. ulent concealment of inside trust, compensa rather than the structive dramatically had years Two out-of-pocket damages, has the ef tion for Although may it increased value. have restoring to adequately fect of the estate purely “speculative” whether quo ante. As we held Jacobs the status actually profited in plaintiffs would have Co., Mut. Ins. 377 N.W.2d v. Farmland way they the same retained the (Minn.1985), 441, permitting the re 445-46 they the court held that could recover restores the scission of the contract which profits prevent unjust defendant’s to his not parties quo to the status ante should words, In other enrichment. Id. at 786. damage accompanied by punitive a award. to fashioned relief the court seemed find a limited distinction between While we prevent wrongdoer to from the windfall presented the facts the instant case and wrongful benefit of his conduct. See Jacobs, pronouncement our we reaffirm Corp., 429 A.2d Lynch Energy v. Vickers extraordinary remedy of 497, (Del.1981),overruled on other 501-03 an damages should not be extended to UOP, Inc., Weinberger v. 457 grounds, at 446. “atypical rescission situation.” Id. 701, (Del.1983). too have A.2d 714 We acknowledged that there are situations argu estate’s We then address the application a dam where a strict of rule of refusing ment that the trial court erred ages injured party would not restore inter compute prejudgment and award position carved out an its former and have pursuant subd. est to Minn.Stat. § exception general rule. B.F. Good (1988). allow a com urges It this court to Co., 430 rich Co. v. Mesabi Tire N.W.2d putation of interest not on the trust 180, (Minn.1988); Lewis Citizens is, income, that principal, but also on its Madelia, Inc., 306 Minn. Agency of children under interest to Kvamme’s Accord purchase agreement with the installment ingly, profit from Blume entitled to Company. Reliance Electric the sale of Kato stock in 1978 because However, find the award of interest beneficiary was the of a construc equitable imposition and, incompatible profits for the tive trust children, proceeds of of a constructive trust on as innocent donees transaction, rescinding ployees Engineering of Kato a common the sale. quo parties upon that understanding restoration status retirement em- trust with it the return of the ployees ante carries retain could not stock or transfer its income to the defrauded principal and to others retirement. Ernest Mueller Calculating trust the value of the party. testified, specifically so prin- requires itself an identification of the the fact corroborated that William paid by cipal purchaser and interest Cliff to transfer was unable stock to due; engage in require the trial court to hearsay son when he retired. state- ascertaining inquiry of the difficult Emlyn, purpose ments of admitted for the against interest precision the amount belief, state showing of mind or in this installment transaction is calculated indicated that he was aware of and shared impose impossible an almost would be understanding. Bateman, Fae 40- Moreover, the contem- burden. statute year employee vice “pecuniary plates an award interest company, testified that Kvamme himself damages.” Even strained definition had told him at time of Cliff’s retire- encompass not return that term would go ment that Cliff’s common stock had to original rescission of the company treasury back to and was transaction. family transferable to member. part; part. reversed in Affirmed Mueller, nephew, testified that company’s days everyone earliest knew KELLEY, (dissenting): Justice required or she was to sell her back his or retirement, found respectfully dissent. The stock on and that specif- defrauded ically that. Both Lorraine knew Jones and *6 Engineering retirement from Kato Emlyn’s whose daughter Emlyn testified that be- Company imminent as the result of his was lieved the stock had to be sold the back to health, deteriorating repre- when Kvamme company, and Lorraine claims Peder Engi- the 10 shares sented that of Kato sure, so told Kvamme also her. To be Company in neering by owned Jones testimony much of present- the recited was being pur- and were worth were by ed in respondent rebuttal to Peder by compa- chased Kvamme behalf of the in self-serving testimony trial Kvamme’s ny. I That claim of fraud. which he denied existence of such agree evidence was sufficient to Nevertheless, company policy. the other But, support jury’s finding.1 I dissent case, testimony in this from those who damages applied by measure of as to the knowledge, in to have position majority. in redemption policy firms that the existed em- company other 1966. fact, Emlyn, obligation upon

If in had the daughter ployees, Emlyn’s wife and his to retirement sell his ten shares of stock sold, the stock had to be believed that redemption by back to the then, shortly corporation, or albeit to the company obviously oc- would have thereafter, Emlyn’s pending retire- due curred within months of the time true, being I ment. and have That been As far I been sale Kvamme. as have any “evidence” in the record, unable to find record from the able ascertain all it, appears case, dispute regard- in to me that exception this it “evidence” with the fraud, trial, less of own testi- Kvamme’s Kvamme’s which, clear, Engi- by would redeemed Kato mony as the verdict makes have been unpersuasive neering to the in for its then true jury, was was value— $122,500. there em- Had it re- among proximately effect that existed been respect alleged misrepre- mind at of the transaction. There was 1. With Kvamme’s the time redeeming however, evidence, sup- sentation other which would have to some extent it was bottomed on contrary ported example, that conclusion—for hearsay Emlyn, majori- statements which the paid corporation, for not stock was ty concludes were admitted as hear- but check. rather exception say rule to reflect state of $119,550. paid him for it—for a net of price, and sur- deemed money in Additionally, had that and the have awarded vivors would effect, generated thereafter. punitive damages. Although income it the trial jury restored to precisely that is what the prejudg- rejected Lorraine’s claim in family of the stock the Jones interest, legal in order to make the ment —the from the date of the its increase 1966 and purely compensatory, my in view remedy but, addition, jury also sale; in pre post verdict she should recover $46,000 punishment damages of as pu- compensatory interest on both for his to Kvamme damages nitive from the date of the fraud. done, suggest If that she would be that is in 1966 to the sold Had the stock been remedy, adequate legal afforded an which company’s re- pursuant to the Emlyn substantially place her in a status presumably would demption “policy,” ante, quo making unnecessary When the to resort paid its value. would have been many years alleged equitable remedy sold to an of re- corporation was scission, itself, not then have approved by or his survivors would in any part any increment to claim majority, unexpected, able results an Moreover, that scenario re- its value. my might what view be characterized as situation, later ac- the true due to flected undeserved, windfall. to this quisitions unrelated transaction, ultimately Kvamme would profit reaped the sale majority, in addition to affirm- however, full, apparently restitution penalty in ex- approve an additional theory unjust

cess of million on $½ though had the 1966

enrichment—even thought, then transaction been as SHEREK, Appellant, Donald P. and had he been the then true value of stock, he or his survivors could have INDEPENDENT SCHOOL DISTRICT acquired nothing more. It seems to me *7 699, GILBERT, Minnesota, NO. missing Nothing link is causation. Respondent, justifies assumption I find in the record underlying majority position, that had fraud, Emlyn it not for the and his Eleven, Beste, Laurance Thomas profit. realized this survivors would have defendants, Kriska, David rule Had sold the stock back to the com- Respondents. pany in had the Additionally, stock in 1978 to sell. without No. C8-88-1284. doubt, many slightest other factors Supreme of Minnesota. Court greatly inflated val- contributed to ue of the which had —factors 5, 1990. Jan. nothing jury-found to do with Kvamme’s Therefore, suggest that the ma- jority’s upon Janigan Taylor reliance There,

misplaced. alleged fraud relat- representation companies’

ed to a prospects prospects

business as those

might com- affect the value of stock—a setting, my opinion,

pletely different

than we are faced with here.

By its verdict the

widow the true value of the stock at

time sold it—less what Kvamme