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Kauffman-Harmon v. Kauffman12/3/2001
APPEAL FROM: District Court of the Eleventh Judicial District, In and for the County of Flathead, The Honorable Ted O. Lympus, Judge presiding.
Submitted on Briefs: March 7, 2001
Elizabeth Kauffman-Harmon and Rebecca Kauffman-Piotrowski (hereinafter "Elizabeth and Rebecca") appeal from the Findings of Fact, Conclusions of Law and Order issued by the Eleventh Judicial District, Flathead County on June 16, 2000.
Although the appellants present seven issues on appeal, we find one issue dispositive: Do principles of equity, such as judicial estoppel and the clean hands doctrine, prevent Dr. David V. Kauffman, Sr., and Ruth E. Kauffman from claiming the corporation's assets and stock are held in resulting and constructive trusts?
We reverse and remand for further proceedings.
BACKGROUND
Kauffman Land and Livestock is a family controlled and operated corporation which has been in existence for approximately 25 years. The four children of Dr. David V. Kauffman, Sr. (hereinafter "Dr. Kauffman"), and Ruth E. Kauffman (hereinafter "Mrs. Kauffman") each own 25% of the stock of the corporation. The four shareholders are David V. Kauffman, Jr. (hereinafter "David"), Stephen L. Kauffman (hereinafter "Stephen"), Elizabeth and Rebecca.
Dr. and Mrs. Kauffman have resided in Flathead County since the 1960's when Dr. Kauffman established a medical practice there. Dr. and Mrs. Kauffman acquired several pieces of real property in the Flathead Valley over the years while Dr. Kauffman was practicing medicine. In 1975, Dr. and Mrs. Kauffman consulted an attorney, John Lence, regarding their business affairs and estate planning. After reviewing their assets, Lence informed them that they faced severe estate tax consequences if they wished to transfer assets to their children upon their death. Lence recommended the formation of a corporation as the simplest and best estate plan and the best vehicle to preserve the estate. He indicated that they could transfer their assets to the corporation, receive shares of stock, and then gift the shares of stock to their children to avoid estate taxes.
Dr. and Mrs. Kauffman formed the corporation entitled Kauffman Land and Livestock on or about January 19, 1976, and transferred several large pieces of real property to the corporation. In consideration for the assets, the corporation issued 10,000 shares of common stock to Dr. Kauffman and 10,000 shares of common stock to Mrs. Kauffman. The corporation's business activities consisted of farming, ranching, grazing and real estate rental. The corporation was primarily formed to preserve Dr. and Mrs. Kauffman's assets from possible future creditors since Dr. Kauffman did not carry medical malpractice insurance and to serve as estate planning vehicle through which estate taxes could be minimized.
In 1986, Dr. Kauffman faced two medical malpractice lawsuits. In one of the cases, a judgment was entered for approximately $50,000 against Dr. Kauffman. Shortly thereafter, while on a family ski vacation, Dr. Kauffman voluntarily gifted to Mrs. Kauffman all of his shares of the corporation's stock. The paperwork was backdated so that it appeared that the stock transfer occurred significantly prior to the 1986 judgment. During a subsequent debtor's examination hearing relating to the judgment, Dr. Kauffman testified that he had no rights or interest in the corporation and no substantial assets in his control or ownership. Based upon Dr. Kauffman's testimony, the tort victims and their attorney concluded that there were no assets to execute on to satisfy the judgment.
After Dr. Kauffman's stock transfer to Mrs. Kauffman, Mr
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