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Newell v. Krause: Award of Compensatory and Punitive Damages for Buyer's Fraud Upheld

In Newell v. Krause, the Supreme Court of Kansas addressed a broker's claims of fraud against a buyer, a seller, and related corporations. The court affirmed the dismissal of all defendants except the buyer, against whom it affirmed the finding of fraud and award of $171,000 actual damages and $150,000 punitive damages.

Brollier owned several farms in western Kansas. Newell (Broker) entered into an exclusive six-month listing agreement to sell six of the farms. Broker contacted Krause in order to sell the farms to European investors with whom Krause allegedly had contacts. Two of the farms were sold within the listing period to Paradise Valley Farms (PVF). Broker received a commission on these sales. Brollier and Krause had at least two private meetings during the time the listing agreement was in effect. The other four farms were also sold to PVF two to four months after the expiration of the listing agreement. Broker did not receive a commission on these sales. The sales to PVF were essentially "paper" transactions, as the true sales did not occur until PVF had a definite commitment from a European buyer. Substantial price markups occurred as the land flowed through PVF. The European investors wanted package deals including farm management services. Brollier became the farm manager, on a lucrative basis, for each of the farms.

Broker sued Brollier alleging that there had been a conspiracy to delay the four sales in order to cheat him out of his commission. Broker also sued Krause, alleging that, through an oral agreement, he was entitled to a portion of the net profits on the resale of the farms by PVF. Broker also sued two corporations with which Krause was, or had been, associated. The trial court removed all of the defendants except Brollier. The jury returned a verdict in favor of Broker awarding $171,000 actual and $150,000 punitive damages. Brollier and Broker appealed.

The Court noted that fraud "in its general sense, is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealments involving a breach of legal or equitable duty, trust, or confidence justly reposed, resulting in damage to another." The court also noted "honesty and fair dealing are presumed; therefore, the one charging fraud must prove it by clear and convincing evidence." This burden is stated as follows: "the witnesses to a fact must be found to be credible; the facts to which they testify must be distinctly remembered; the details in connection with the transaction must be narrated exactly and in order; the testimony must be clear, direct and weighty; and the witnesses must be lacking in confusion as to the facts at issue."

In applying the law to the facts, the Court noted that "the jury could well have concluded that Brollier would have profited from delaying the sales past the time of the listing agreement (thereby saving payment of Broker's commission); that he did conspire to manipulate dates of sales to accomplish this purpose; and that . . . he was negotiating secretly with Krause to ensure his management contract was a part of the package deal offered the European buyers. Thus, the court affirmed the finding of fraud.

The Court refuted Brollier's argument that Newell breached his fiduciary duty because he had proposed to profit on the property resales and was thereby barred from receiving any commission on the sales. The court found that the evidence showed that Newell gave Brollier adequate disclosure of any potential conflict of interest. Thus, the court affirmed the verdict. The Supreme Court of Kansas also affirmed the removal of all other defendants.

Newell v. Krause, 239 Kan. 550, 722 P.2d 530 (1986).