Opinion ID: 424016
Heading Depth: 1
Heading Rank: 2

Heading: The validity of the jury verdicts

Text: 47 (A) The statute of frauds and the parol evidence rule 48 On Gregg's common law fraud claim the jury awarded him $500,000 compensatory and $500,000 punitive damages. The crux of this claim is fraudulent inducement: that USI fraudulently promised to provide Gregg's former businesses with capital required for their successful operation, when in fact USI's established financial policies severely limited the cash that it could make available to him for additional working capital; and that USI fraudulently promised to employ him to operate and manage the former Gregg companies when it did not intend to continue him in this position. USI contends on numerous grounds that the trial court erred in denying its motions for directed verdict and for judgment n.o.v. on this fraud claim. 49 USI's undertaking to provide additional working capital is in paragraph 3(g) of the reorganization agreement: 50 (g) USI agrees to add such additional working capital as may reasonably be required for the expansion of the business. It is further contemplated that USI will make available an amount approximating $400,000 in 1969 and $800,000 in 1970 for additions to plant and equipment. However, consistent with USI's obligations to shareholders, all of the foregoing shall be done within and subject to the normal operating financial policies of USI. 51 USI asserts that Gregg's fraudulent inducement claim with respect to working capital is barred as a matter of law because it is based solely on oral statements that are within the Florida statute of frauds, Fla.Stat.Ann. Sec. 725.01, because the statements concern promises that could not take place within one year. 2 The purpose of the statute of frauds is to prevent fraud and perjury by requiring specified transactions to be evidenced by a writing signed by the party to be charged. Rowland v. Ewell, 174 So.2d 78 (Fla.Dist.Ct.App.1965). USI maintains that Gregg, under the guise of a fraud claim, is seeking to enforce an oral agreement concerning working capital that is unenforceable under the statute of frauds. 52 Under Florida law a fraud action may not be used to recover for breach of an unenforceable oral contract. Canell v. Arcola Housing Corp., 65 So.2d 849, 851 (Fla.1953). Nor may recovery be had for fraudulent inducement to enter an unenforceable oral contract. Ashland Oil, Inc. v. Pickard, 269 So.2d 714, 721 (Fla.Dist.Ct.App.1972), cert. denied, 285 So.2d 18 (Fla.1973). But if an enforceable contract is entered, prior oral agreements and other representations that caused the party to enter the written agreement may be used to prove fraud. See, id.; see e.g., Nantell v. Lim-Wick Construction Co., 228 So.2d 634 (Fla.Dist.Ct.App.1970) (oral agreement admitted into evidence to show fraudulent inducement to enter a written real estate transaction); North Dade Imported Motors, Inc. v. Brundage Motors, Inc., 221 So.2d 170, 177 (Fla.Dist.Ct.App.), (oral inducement to enter franchise agreement must be evaluated in interpreting the written instrument), cert. denied, 226 So.2d 817 (Fla.1969); Associated Heavy Equipment Schools, Inc. v. Masiello, 219 So.2d 465 (Fla.Dist.Ct.App.1969) (fraudulent advertising inducing student to enter written contract to take correspondence course admitted into evidence to prove fraud). Here the parties entered into a written contract sufficient under the statute of frauds. Gregg's evidence of fraudulent inducement to enter that contract is not barred by the statute. 53 Nor is there any merit in USI's argument that the parol evidence rule prohibits admission of the evidence. The parol evidence rule precludes the admission of parol or extrinsic evidence to contradict or vary the terms of a written instrument. Greenwald v. Food Fair Stores Corp., 100 So.2d 200, 202 (Fla.Dist.Ct.App.1958). Although a party cannot use a claim of fraud to contradict or vary the terms of a written contract, id., the parol evidence rule has no application where the claim is for fraudulently inducing a party to enter into the writing. Ashland Oil, Inc., 269 So.2d at 722. The rule in Greenwald is directed, for example, to preventing a party who has contracted expressly for 10 items from claiming he was promised 20 items. Here the contractual language of the working capital provision is not specific in amount; so evidence of negotiations and the parties' intent does not contradict or vary the express terms of the contract. Extrinsic evidence is admissible to explain and clarify provisions that are indefinite on their face. See Royal American Realty, Inc. v. Bank of Palm Beach & Trust Co., 215 So.2d 336, 338 (Fla.Dist.Ct.App.1968); cf. Tobias v. Lynch, 192 A.D. 54, 182 N.Y.S. 643, 644-45 (1920), aff'd, 233 N.Y. 515, 135 N.E. 898 (1922). The evidence here is admissible both for the purpose of showing fraud in the inducement and for the purpose of explaining the intent of paragraph 3(g). 54 (B) Sufficiency of the evidence 55 USI also contends that the judgment against it for fraud should be reversed because the promises claimed to be fraudulent were never made, and if made were performed, and in any event were not relied upon by Gregg, and if Gregg did rely he did not prove that he was damaged. These contentions are developed in the briefs of the parties at great length. There is a succinct answer. All of these were jury issues, and no basis is shown for this court to interfere with the jury's conclusions. 56 (C) Exclusion of the earnout stock from the calculation of damages 57 Before trial the court informed counsel that the measure of damages on the fraud claims would be the difference in the fair market value, on the closing date, of the stock the prevailing party gave up and the stock the prevailing party received. At trial the court instructed:Damages under the common law of fraud and the Federal Securities Law are measured the same way. The prevailing claimant is entitled to receive in money the difference in value between what he gave up and what he received at the closing of the acquisition on October 20, 1969. For example, in assessing money damages in Gregg's favor, you would determine the difference in value between the stock he gave USI and the USI stock he received in exchange. In assessing money damages in USI's favor, you would make the same calculation, determining the difference in value between the stock USI gave Gregg at closing and what it received in return from him. In summary, what you are called upon to do in the event you find either party entitled to recover against the other, is to determine the value of Gregg's stock and USI's stock--that is the exchange of stock--at closing. 58 Therefore, in calculating Gregg's damages, measured as of the date of closing, the jury could not treat as consideration flowing to him, and thus as an element decreasing his damages, the value of his right to earn and receive earnout stock. USI requested, and was refused, a jury instruction that this stock was to be deducted from any damages suffered by Gregg. 59 We hold that the jury instructions were erroneous. The parties agreed that Gregg's right to receive additional USI stock based on profits of his transferred companies was additional consideration for the Gregg shares that he transferred to USI. Paragraph 3 of the Plan and Agreement, titled Consideration for Shares provides in subparagraph (b)(i) that as further consideration for the [Gregg] shares to be transferred to USI [on the closing date], USI shall issue and deliver to Gregg an additional number of shares of [USI] common stock, determined on the basis of a prescribed formula, if pre-tax profits of the former Gregg companies for 1969 exceed $800,000. A method of valuing the USI stock to be issued is included, based on average daily closing price of USI stock during a prescribed month. Gregg cannot receive more than $500,000 worth of common stock under this subparagraph. 60 Subparagraph (ii), in like language, provides for additional USI stock as further consideration for Gregg's shares to be transferred, based upon 1970 pre-tax profits exceeding $1.2 million, with a maximum of $1 million worth of common stock. 61 Paragraph (c) covers a somewhat different calculation of stock as further consideration for Gregg shares transferred, based on pre-tax profits for 1969 and 1970 and also for 1971 through 1973. 3 62 The Agreement also contains elaborate provisions concerning calculation of pre-tax profits and for alternative arrangements if any of the former Gregg companies is sold. 63 Nothing in the Agreement says, implies or hints that the right to receive additional USI stock is anything other than what the Agreement says, further consideration for the [Gregg] shares to be transferred to USI. The Employment Agreement, executed approximately two months later at closing, does not purport to attribute the right to receive USI stock to consideration for Gregg's employment. Gregg is authorized a salary of $50,000 per year, participation in USI's bonus and stock option plans, and death and disability benefits. He agrees not to compete. The only reference to the earnout stock is this: 64 12. Referring to the Agreement, at such time as USI shall have issued and delivered to or for the benefit of Executive the maximum amount of additional shares of USI stock and any other consideration as may be paid under the Agreement, Executive or Seller or USI at any time thereafter may on ninety days' advance written notice terminate his employment agreement. 65 USI's Tenth counterclaim asserted that Gregg was unjustly enriched because he transferred stock in Gregg companies having a negative net worth and received from USI stock valued at $4,771,484 (consisting of $3,500,000 of stock at closing and $871,484 of stock thereafter), as additional consideration. To this Gregg answered: [Gregg] admits that USI subsequently delivered to Gregg USI stock having a value of $871,484 as additional consideration for the Gregg shares delivered to USI. (emphasis added). 66 Pretermitting whether the parol evidence rule would permit extrinsic evidence varying these specific provisions, nothing of substantial importance occurred at trial that varied or contradicted the terms of the written instruments. There was testimony for witnesses from both sides that the earnout stock was part of the consideration for Gregg's stock. In addition to Gregg's answer quoted above, other pleadings and memoranda filed by Gregg referred to the earnout stock as additional consideration. USI was entitled to the instruction that it requested, directing that the earnout stock (or the right to receive it) was part of Gregg's consideration. 67 It is not clear to us why the district judge excluded the earnout stock from the calculation of consideration given by USI. There is a colloquy in which he seemed to say that to include it within the consideration would be inconsistent with testimony by USI officers that Gregg earned the stock by achieving the required profitability levels in 1969. But using earnings as a device for measuring the amount of stock, if any, to which Gregg would be entitled, does not alter or limit the bargain struck. 68 Gregg's argument to us that as a matter of law nothing that occurred after the closing date could affect the damages confuses the separate substantive issues of what the parties agreed to and what the valuation is of the bargain. Moreover, the earnout provision is not too speculative and uncertain to be considered in calculating damages. The valuation of the right to receive more stock is not necessarily any more speculative than establishing anticipated profits, which are recoverable in both tort and contract actions in Florida if the amount of the loss is proved with a reasonable degree of certainty even though it cannot be proved with exactitude. See Pallardy-Watrous Insurance Agency, Inc. v. Tucker, 120 Fla. 895, 163 So. 284 (1935); Talisman Sugar Corp. v. Farmland Development Co., 156 So.2d 392 (Fla.Dist.Ct.App.1963); see also Innkeepers International, Inc. v. McCoy Motels, Ltd., 324 So.2d 676, 679 (Fla.Dist.Ct.App.1975) (recovery of anticipated profits not generally allowed for injury to a new business with no history of profits but may be recovered for injury to established business), cert. denied, 336 So.2d 106 (Fla.1976). Indeed, valuation of Gregg's stock as of closing necessarily includes the earning or profit potential of his companies, which was the basis for measuring the amount of earnout stock he would receive. Moreover, the uncertainty in amount of the earnings/profit potential and its function, the earnout, were reduced by trial time because these amounts had become known. In determining the true value of consideration given, later developments may be considered. See Austin v. Loftsgaarden, 675 F.2d 168, 181 (8th Cir.1982) (reversible error to refuse to allow defendants in fraud action to prove the economic benefits in the form of tax advantages eventually received by plaintiffs because of tax shelter defendant sold to plaintiffs); Dupuy v. Dupuy, 551 F.2d 1005, 1025 (5th Cir.) (later developments could be considered in valuing stock of a closely held corporation in a fraud suit), cert. denied, 434 U.S. 911, 98 S.Ct. 312, 54 L.Ed.2d 197 (1977); Titan Group, Inc. v. Faggen, 513 F.2d 234, 239-40 (2d Cir.), cert. denied, 423 U.S. 840, 96 S.Ct. 70, 46 L.Ed.2d 59 (1975) (a note that included valuable conversion rights was properly valued at its later value, the amount eventually paid, though the cash value of the note at the time of closing was substantially less). 69 The correctness of the jury instruction on damages was adequately raised by USI. See Marshall v. Isthmian Lines, 334 F.2d 131, 137 n. 13 (5th Cir.1964). The court had announced before trial what its instruction on measure of damages would be, and it adhered to its announcement. Under the instruction given the right to receive earnout stock could not be considered as part of a payment for Gregg's stock. USI requested, and the court denied, an instruction that it must be considered. 4