Opinion ID: 531044
Heading Depth: 1
Heading Rank: 1

Heading: the fraud damages

Text: 3 USI's first contention on appeal is that the trial court erred in instructing the jury on an out-of-pocket rather than a benefit of the bargain measure of damages for Gregg's fraud claim, and therefore, those damages should be set aside. Under a benefit of the bargain approach--that is, the difference between what Gregg would have received had the agreement with USI been carried through to completion and what he actually received--USI argues that the maximum amount Gregg could have recovered for the fraud would have been approximately $5.6 million. This amount represents the difference between $10 million, the maximum possible amount of USI stock which Gregg could receive under the agreement ($3.5 million in USI stock at closing plus a possible $6.5 million in USI earn-out stock), and the amount Gregg actually received, approximately $4.4 million (the $3.5 million in USI stock plus approximately $900,000 in earn-out stock). USI claims that this benefit of the bargain calculation of fraud damages was the correct method and therefore, Gregg's award under the out-of-pocket theory was improper. 4 At trial, the judge instructed the jury that the measure of damages for Gregg's fraud claim would be calculated under an out-of-pocket theory, that is, the difference in value between what Gregg gave USI and the value of what he received from USI in return. (R134-118). The court stated that the object of awarding Gregg damages was to place him in the same position as before USI defrauded him. Accordingly, under this method of damage calculation, the jury awarded Gregg approximately $8.1 million in compensatory damages on the fraud claim which equalled the jury's determination of the value of Gregg's stock at closing ($12.5 million) less the value of the USI stock Gregg actually received ($4.4 million). 5 USI contends that, under Florida law, 1 the benefit of the bargain measure of damages is the proper approach for this case. It states that this court, in its prior opinion, 2 held that the benefit of the bargain was the correct measure of Gregg's fraud damages, and since Gregg ratified the contract by his actions subsequent to the fraud, he was limited to this measure of recovery. Gregg counters, however, that Florida law permits the trial court to instruct the jury on either theory of damage calculation, depending upon the circumstances of the case, to compensate the defrauded party as fully as possible for the wrong committed by the defrauder. 6 Our review of the relevant case law indicates that Florida follows the flexibility theory in fraud actions, which permits a trial court to instruct the jury under either the out-of-pocket rule or the benefit of the bargain rule, whichever will more fully compensate the defrauded party. Martha A. Gottfried, Inc. v. Amster, 511 So.2d 595, 599 (Fla. 4th DCA 1987); Getelman v. Levey, 481 So.2d 1236, 1239 n. 4 (Fla. 3d DCA 1985); Hilsenroth v. Kessler, 446 So.2d 147, 150 (Fla. 3d DCA 1983); DuPuis v. 79th Street Hotel, Inc., 231 So.2d 532, 536 (Fla. 3d DCA), cert. denied, 238 So.2d 105 (Fla.1970). In DuPuis, the court noted that Florida has followed the out-of-pocket rule in several cases, but that it also has adopted and followed both rules in order to do such justice as the circumstances may demand. DuPuis, 231 So.2d at 536. Thus, the flexibility theory provides: 7 '(1) if the defrauded party is content with the recovery of only the amount that he actually lost, his damages will be measured under that rule; (2) if the fraudulent representation also amounts to a warranty, recovery may be had for loss of the bargain, because a fraud accompanied by a broken promise should cost the wrongdoer as much as the latter alone....' 8 Id. (quoting 37 Am.Jur.2d Fraud and Deceit, Sec. 352). This court has also recognized the flexibility theory under Florida law. Silverberg v. Paine, Webber, Jackson & Curtis, Inc., 710 F.2d 678, 686-87 (11th Cir.1983). 9 Contrary to USI's assertion that a party is limited to benefit of the bargain damages when he affirms or ratifies a contract which he was fraudulently induced to enter, 3 Florida law permits a defrauded plaintiff to prove either theory of damages as justice requires to best compensate him for the defendant's wrong. Amster, 511 So.2d at 599. This is true even in cases alleging breach of contract along with the fraud: 10 '[O]ne who has been fraudulently induced into a contract may elect to stand by that contract and sue for damages for the fraud. When this happens and the defrauding party also refuses to perform the contract as it stands, he commits a second wrong, and a separate and distinct cause of action arises for the breach of contract. The same basic transaction gives rise to distinct and independent causes of action which may be consecutively pursued to satisfaction.... [A] suit on a contract and a suit for fraud in inducing the contract are two different causes of action with separate and consistent remedies.' 11 Ashland Oil, Inc. v. Pickard, 269 So.2d 714, 723 (Fla. 3d DCA 1972) (quoting Bankers Trust Co. v. Pacific Employers Ins. Co., 282 F.2d 106, 110 (9th Cir.1960), cert. denied, 368 U.S. 822, 82 S.Ct. 41, 7 L.Ed.2d 27), cert. denied, 285 So.2d 18 (Fla.1973). 12 Considering the circumstances of this case, we find no error in the trial court's instructions on the out-of-pocket damages recovery. Here, Gregg testified that the value of his companies when he sold them to USI exceeded the value that he could receive from it under the contract he was fraudulently induced to enter. (R127-129, 130). Since the purpose of the flexibility theory is to apply the measure of damages warranted by the particular facts of each case, and as the court finds justice demands, Amster, 511 So.2d at 599, the out-of-pocket approach to calculating damages best compensates Gregg for the fraud the jury determined USI perpetrated upon him. 4 The jury assessed the evidence presented regarding the value of Gregg's companies prior to the closing with USI and awarded Gregg an out-of-pocket amount of damages representing that value less the value of the stock he received from USI. This approach restored Gregg to the position he was in prior to his dealings with USI; a measure wholly consistent with the dictates of Florida law. The damages award therefore, will not be set aside. 5 13
14 USI's next claim on appeal is that the trial court erred in failing to instruct the jury to value Gregg's right to receive earn-out stock as part of the consideration he received for the contract. USI argues that the jury should have been instructed to credit it not only for the earn-out stock Gregg actually received (approximately $900,000), but also for the contingent right it gave to Gregg to receive yet additional stock if the former Gregg companies reached specified profit levels in the five years following the closing. USI states that the jury determined, in its $12.5 million valuation based on an earnings theory, that the companies had large potential for future earnings and therefore, it had to find that Gregg's contingent earn-out right was correspondingly large because the earn-out was directly related to the companies' earnings potential. Thus, USI maintains that the jury instruction regarding calculation of Gregg's compensatory fraud damages was erroneous, and the award must be set aside. 15 The record indicates that USI raised its challenge to the jury instruction after the parties had initially agreed to the charge as set forth in the charge conference. 6 See (R132-133, 134; R19-485). As the parties prepared to present final arguments to the jury, USI's counsel told the trial court that, although they failed to mention it at the charge conference, they wished the words including his right to receive earnout stock appended to the fraud instruction. See (R134-5). Although USI challenged the instruction so late in the proceedings, Rule 51 of the Federal Rules of Civil Procedure permits a party to do so if the party objects before the jury retires to consider its verdict. Accordingly, we consider on appeal the challenged instructions as part of the entire charge, in light of the allegations of the complaint, the evidence presented, and the arguments of counsel, to determine whether the jury was misled and whether the jury understood the issues. Pate v. Seaboard R.R., Inc., 819 F.2d 1074, 1077 (11th Cir.1987) (footnote omitted). 16 USI asserts that the jury was misled because the trial court's instruction disregarded this court's prior ruling on the fraud damage issue. On the contrary, we find that even without reference to the additional language USI requested, the district court's instruction directed the jury to take into account the earn-out payment of approximately $900,000 USI remitted to Gregg in calculating Gregg's out-of-pocket loss, the amount to which the prior appeal was directed. This court's prior opinion states that the earnout provision is not too speculative and uncertain to be considered in calculating damages.... [T]he uncertainty in amount of ... the earnout, [was] reduced by trial time because [this] amount had become known. Gregg, 715 F.2d at 1533. Therefore, it was permissible for the jury to value Gregg's right to receive earn-out stock as the amount of the one payment USI actually made to Gregg for this purpose. 17 In addition, it does not necessarily follow that because the jury determined that the former Gregg companies had large potential for future profits, that the earn-out would be correspondingly large. The jury apparently concluded that it was USI's fraud in failing to provide working capital and refusing to allow Gregg to run his companies that deprived Gregg of his right to receive additional stock and limited the value of that contingent right to $900,000. Considering the entire record as it relates to the jury instructions given, including the evidence presented by both parties and the arguments of counsel, we hold that the jury was fully apprised of and understood the issues for consideration in awarding compensatory damages on Gregg's fraud claim. Thus, we find no error in the trial court's instruction. 18
19 USI next contends that the district court erred in denying its motions for directed verdict, judgment notwithstanding the verdict, and new trial on Gregg's fraud claim. USI argues that the jury's award of $8.1 million resulted from its erroneous valuation of Gregg's companies at $12.5 million; a figure based solely on Gregg's own opinion as to the worth of his companies. USI claims that both the jury's valuation and Gregg's opinion were flawed because they failed to take into account the status of a dredging job in progress, Canal 38 (C-38), at the time the parties entered into the contract. According to USI, at the time of closing, the C-38 job was incurring losses and overruns which Gregg failed to consider in his valuation of the companies. Thus, USI maintains that the value of the businesses Gregg sold to it was much less than he acknowledged, and therefore, the verdict cannot stand. 20 Motions for judgments n.o.v. and directed verdicts test the sufficiency of the evidence supporting a jury verdict. J & H Auto Trim Co. v. Bellefonte Ins. Co., 677 F.2d 1365, 1368 (11th Cir.1982). Consideration of the sufficiency of the evidence is a question of law subject to de novo review by this court. Id. We therefore apply the same standard on appeal as the trial court applied in rendering its initial ruling. Id. In evaluating the district court's denial of a motion for directed verdict or judgment n.o.v.: 21 [T]he Court should consider all of the evidence--not just that evidence which supports the non-mover's case--but in the light and with all reasonable inferences most favorable to the party opposed to the motion.... [I]f there is substantial evidence opposed to the motions, that is, evidence of such quality and weight that reasonable and fair-minded men in the exercise of impartial judgment might reach different conclusions, the motions should be denied, and the case submitted to the jury.... [I]t is the function of the jury as the traditional finder of the facts, and not the Court, to weigh conflicting evidence and inferences, and determine the credibility of witnesses. 22 Boeing Co. v. Shipman, 411 F.2d 365, 374-75 (5th Cir.1969) (en banc) (footnote omitted). 7 Motions for a new trial are within the sound discretion of the district court. McDonough Power Equip., Inc. v. Greenwood, 464 U.S. 548, 556, 104 S.Ct. 845, 850, 78 L.Ed.2d 663 (1984). Our review of the district court's denial of a new trial involves determining whether the trial judge clearly abused his discretion. Pate, 819 F.2d at 1077. With these principles in mind, we turn to the merits of USI's claim. 23 The jury awarded Gregg $8.1 million in compensatory damages for his fraud claim based on its valuation of Gregg's companies as of the closing at $12.5 million less the $4.4 million in USI stock (including the earn-out) which USI actually paid to Gregg. Gregg's testimony at trial supports the jury verdict. He testified that at closing, the value of his companies was 12-and-a-half million. (R127-129). Contrary to USI's assertion that Gregg's valuation of his company was predicated upon a pre-closing discussion with a USI employee and, therefore, was not an independent valuation opinion, Gregg stated that when I was first contacted by USI we had evaluated the company right at $10 million, basically on the same basis that they evaluated it on, an earnings ratio. Id. (emphasis supplied). Moreover, Gregg testified regarding the additional $2.5 million in value he personally placed into the companies at closing: 24 I put in a million dollars as they requested early. I put in $400,000 that had been--was requested. I gave them a $500,000 note. I put in the office building, I put in the--I forgave the indebtedness that the company owed me, and that comes to approximately two million five hundred. 25 Id. at 130. USI did not object to this testimony nor comment on it at summation to the jury. 26 This court has recognized that, in Florida, an owner of property is qualified to testify regarding the value of his property. Electro Servs., Inc. v. Exide Corp., 847 F.2d 1524, 1526 (11th Cir.1988); Neff v. Kehoe, 708 F.2d 639, 644 (11th Cir.1983); J & H Auto Trim, 677 F.2d at 1369; Hill v. Marion County, 238 So.2d 163, 166 (Fla. 1st DCA 1970). In addition, an officer of a corporation may testify to the value of the property if the officer is qualified by virtue of his experience, his management of the affairs of the corporation and his knowledge of relevant value. Mercury Marine Div. v. Boat Town U.S.A., Inc., 444 So.2d 88, 90 (Fla. 4th DCA 1984). Here, Gregg could testify under both conditions. His position as founder, owner and manager of his companies from their inception made him uniquely qualified to render an opinion as to the value of his businesses. 27 USI's contention that Gregg's evaluation of his businesses was incomplete and flawed is directed at the weight of his testimony, rather than its admissibility. The weight of such testimony is, of course, affected by the owner's knowledge of circumstances which affect value, and as an interested witness, it is for the jury to evaluate the credibility of his testimony. Berkshire Mutual Ins. Co. v. Moffett, 378 F.2d 1007, 1011 (5th Cir.1967) (footnotes omitted). The owner's valuation may be attacked at trial through cross-examination and submission of independent evidence refuting his estimate. Neff, 708 F.2d at 644. USI did not cross-examine Gregg on this point at trial. However, it did present expert testimony as to its valuation of the companies. 28 USI's experts testified at trial that the former Gregg companies actually had a negative or minimal value at the time of closing in 1969, primarily due to losses incurred in completing the C-38 dredging project. 8 While it was proper for USI to challenge Gregg's valuation of his company in this manner, it was equally permissible for the jury to reject the experts' opinions. USI did not object to the proposed jury instruction regarding the expert testimony. See (R132-132). Nor did it dispute the charge given at trial that the jury was to consider the expert testimony and give it the weight the jury determined the testimony deserved. 9 (R134-117). Even uncontradicted expert opinion testimony is not conclusive, and the jury has every right not to accept it. Remington Arms Co., Inc. v. Wilkins, 387 F.2d 48, 54 (5th Cir.1967). 29 The jury here apparently found Gregg's testimony credible. Our review of the record concerning the valuation indicates that Gregg presented substantial evidence from which reasonable jurors could conclude that the companies had a value of $12.5 million at closing. 10 Gregg testified that he independently valued his companies at $10 million based on an earnings ratio, and he detailed the additional $2.5 million in cash and capital that he put into the businesses. It was wholly within the jury's function to credit Gregg's valuation. Boeing, 411 F.2d at 375. We therefore, refuse to set aside the jury's award of damages on Gregg's fraud claim. 11