Opinion ID: 2551687
Heading Depth: 1
Heading Rank: 3

Heading: The $4 Million Award

Text: The Hodes next challenge the damage award on the ground that the buyers did not prove their damages with reasonable certainty. The Hodes call attention to the structure of the transaction at issue. Under the contract, the buyers would purchase 51% of TSI for $2.5 million. One million dollars in cash, along with a note for $1.5 million was due on the day of closing. The note was payable 1 year from that date and secured by TSI stock. On closing, the buyers were to obtain an option to purchase the remaining 49% of TSI for $2 million. The Hodes do not dispute that the sellers (Hood in particular) had a loan commitment to pay the $1 million due in cash at closing. They do dispute there was evidence that Hood could pay the $1.5 million note a year later. The damages here were based on the assumption that buyers would have ultimately owned 100% of TSI. The Hodes contend that because it was unclear whether Hood could have paid the $1.5 million note or the $2 million for the remaining shares, the damages were speculative. They cite Apperson v. Security State Bank, 215 Kan. 724, Syl. ¶ 7, 528 P.2d 1211 (1974), and McMahan & Co. v. Wherehouse Entertainment, Inc., 65 F.3d 1044 (2d Cir. 1995). Apperson and McMahan indicate that if damages are contingent on the happening of some event and the plaintiffs cannot prove that contingency will occur, a damage award cannot stand. McMahan, 65 F.3d at 1050; Apperson, 215 Kan. at 735-36. Here, the Hodes contend that damages were based on the sellers having acquired 100% of TSI. However, contingencies must occur before buyers could obtain that 100%. The first contingency was Hood's ability to pay the $1.5 million note. The second was Hood's ability to exercise the option to purchase the remaining 49% of TSI. The Hodes' argument invites careful consideration. On direct examination, Hood testified: Q: Did you have the means to pay off that note one year from the closing? A: Yes. Q: How would you have done that? A: Any of several different ways. I could have liquidated some assets. I certainly had assets in excess of that. I could have brought in my friend Stan Goldberg as a partner. We had not specifically discussed an actual arrangement, but he knew about the business and was kind of kept informed of it. In fact, he knew about it before I knew about it. He knew Mr. Paul before that. So I had numerous ways of raising that kind of money. When asked what his net worth was, Hood answered, Several million dollars. Although the Hodes do not argue that Hood could not pay the initial $1 million in cash, they do point out that he had difficulty getting that money. Hood admitted on cross-examination that he did not have his own $1 million in cash to close the transaction. Hood could only obtain a loan commitment for $250,000 based on his personal assets (a mortgage on his home and his medical accounts receivable). His friend, Stan Goldberg, provided the creditworthiness to support the additional $750,000 for the $1 million total loan commitment. Three other banks turned Hood down for the $1 million loan. Hood's lender testified. In the lender's opinion, Hood would have been able to pay off the $1.5 million note. Based on this corroborating testimony, there is sufficient evidence to support a finding that Hood would have acquired 51% of TSI. There is less evidence in the record to support a finding that Hood could have exercised the option to buy the remaining 49% of TSI. On cross-examination, Hood said that he did not know where he would get the $2 million to pay for the stock options. He contended that he would be able to borrow it, liquidate assets or take on partners. We find no financial statement for Hood in the record. The contingent nature of the stock options and Hood's ability to pay for them presents a close question. Both the damage testimony and the jury's verdict assumes Hood's 100% ownership of TSI. We also have the issue of timing. All damage evidence attempted to value TSI in March 1993, when the deal should have closed. But even if the deal had closed, the buyers would not have owned 100% of TSI in March 1993; they would have owned only 51%. Both McMahan & Co. and Apperson require proof that certain events would occur to prove damages with reasonable certainty. Although it is not clear from the record here that Hood would have or could have personally exercised the option, that is not as critical under these facts as the Hodes would assert. The Hodes fail to acknowledge the position Hood would have been in if the deal closed. Hood would have owned a 51% controlling interest in TSI with an option to buy the remaining 49% any time over the next 10 years. The Hodes ask us to speculate as to whether Hood's desired ownership of 100% of TSI's stock would ever have come to fruition. That is not our focus. Our focus is on what rights Hood would obtain, if the agreement had not been breached, and the value of those rights. The buyers proved their damages with reasonable certainty. The buyers showed Hood would have obtained the valuable contract rights at issue (a controlling interest and option) and his damages for not having obtained those rights. Buyers' damage expert testified that TSI was worth in the range of $8 to $14 million. Subtracting the purchase price, the expert testified that damages could be in the range of $3.5 to $9.5 million. If the deal closed, Hood would have owned the company for all practical purposes. The buyers' expert testified that Hood could have sold TSI to an able buyer. In that respect, Hood owned TSI. The expert's damage estimates were not speculative.