Court Opinion

ID: 9510246
Source: CourtListenerOpinion
Date Created: 2023-08-06 21:54:09.839415+00
Date Added: 2024-06-11T09:07:58.652399
License: Public Domain

JUSTICE TRIEWEILER
dissenting.
¶48 I dissent from the majority’s decision to affirm the judgment of the District Court. I conclude that based on erroneous evidentiary rulings, in combination with false testimony offered by Wells Fargo’s expert witness, the plaintiff, Simmons Oil Corporation, was denied a fair trial on the issue of damages, and that a new trial limited to the issue of damages should, therefore, have been granted.
¶49 To fully understand the impact of the District Court’s evidentiary rulings and the false testimony of J. David Capers, it is necessary to consider the evidence more carefully than is done in the majority opinion.
¶50 It was Simmons’ contention that because of Wells Fargo’s sale of its promissory notes to Holly Corporation, Holly was able to foreclose on the stock of Simmons Refining Company (a wholly owned subsidiary of Simmons Oil Corporation) and acquire one hundred percent ownership of the Black Eagle Refinery. Simmons’ claim for damages was based on its contention that because of the loss of its partnership interest in the refinery, it lost a fifty percent share of the cash flow that had been produced by the refinery and would be produced in the future. Simmons attempted to prove the value of that loss through the testimony of Don Knudsen, a certified public accountant who had extensive experience working with oil industry partnerships. Knudsen arrived at his estimation of lost partnership income by analyzing financial statements derived from the refinery operation during the period from January 1,1988, through August 31,1993 (trial occurred in November 1993). He then made the required adjustments to arrive at cash flow figures during that time and projected cash flow *131figures after that date because, pursuant to the partnership agreement, partnership distributions were based on actual cash flow.
¶51 Based on an assumption that the partnership would have operated the refinery for at least another twenty years (the partnership agreement provided for operation for a period of fifty years), he estimated that Simmons’ loss of past and future partnership income had a value of between $53.5 and $59 million.
¶52 Wells Fargo objected to Knudsen’s testimony on the basis that it was speculative for the reason that no one from the refinery had testified that future performance would reflect past performance. Although that objection was overruled, Knudsen was then cross-examined extensively about whether he had adequately considered the cost of capital improvements which would be necessary in the future. He testified that his projections were based on the assumption that future capital improvements would be paid for from additional profits and used the refinery’s projections for its new sulphur reduction facility as an example. He explained that based on the capital budget worksheet prepared for the Montana Refining Company on October 1,1992, the sulphur reduction facility would require an investment of $10.7 million, but that from that investment the company anticipated a net return of $3.6 million per year over a period of sixteen years.
¶53 His assumption that income from capital improvements would exceed capital expenditures was challenged by Wells Fargo’s attorney, and he was asked to point out where, in any of the company’s projections, his estimates were corroborated. At that point, the company’s capital budget worksheet for the sulphur reduction unit was marked as Exhibit No. 73 for identification and was discussed at length by Knudsen at the insistence of Wells Fargo’s attorney. He was asked to relate from the document the actual cost of the alkylation unit. He was asked to refer to the document and relate to the jury the cost of the sulphur reduction unit, and finally, he was asked during cross-examination why he did not consult with employees of Holly Corporation when arriving at his estimate of future lost income. He explained it had not been necessary because he had relied on their budgets and their projections for cash flow from capital improvements, such as reflected in Exhibit 73.
¶54 Counsel for Wells Fargo repeatedly attempted to impeach Knudsen’s projections of future lost income by pointing out that more would have to be spent on capital improvements than he had pro*132jected and by suggesting that the cost of needed capital improvements would exceed anticipated revenue. Exhibit 73 was critical to Knudsen’s contention that the major capital improvement, the sulphur reduction unit, would not only pay for itself, but increase net income. However, after cross-examining Knudsen extensively regarding the effect of future capital improvements and, in particular, the sulphur reduction unit, and after referring extensively to Exhibit 73 which corroborated Knudsen’s opinions, Wells Fargo not only objected to the admission of Exhibit 73, but moved to strike Knudsen’s testimony which was based on the figures which the document included. After listening to the arguments about the document’s admissibility, the District Court instructed as follows: “The jury is to disregard the testimony regarding the profits expected from the desulphurization unit from the instrument referred to that is not yet in evidence.”
¶55 The logical meaning of the court’s instruction was that the jury was not to consider any evidence of the company’s projected profits from its investment in the sulphur reduction unit over the next sixteen years, since all of that testimony was based directly or indirectly on the excluded worksheet.
¶56 It is not correct, as stated in the majority opinion, that evidence of the anticipated future profit from the sulphur reduction unit was admitted for the jury’s consideration without regard to Exhibit 7 3. All of Knudsen’s testimony regarding the company’s projected future profit from the sulphur reduction unit was based on his examination of Exhibit 73 and the jury would logically have inferred from the court’s instruction that none of his testimony in that regard was to be considered.
¶57 Neither is the majority opinion correct when it states, in relation to Issue 3, that Knudsen did not rely on Exhibit 73 in arriving at his opinions. His projection of the company’s future cash flow, which was the basis of Simmons’ claim for damages, was based in large part on his assumption that future capital expenditures would be paid for by the increased income which resulted from those expenditures. His assumptions were, in large part, based upon the company’s own projections, as illustrated by Exhibit 73. That corroboration was essential to the plaintiff’s case in light of the defense’s arguments to the contrary, and its criticism that he had not consulted personnel from the refining company.
*133¶58 Furthermore, both Exhibit 73 and Knudsen’s testimony, which was based on that exhibit, were admissible pursuant to the Montana Rules of Evidence. Rule 106, M.R.Evid., provides, in relevant part, that:
(a) When part of... [a] writing ... is introduced by a party:
(1) an adverse party may require the introduction at that time of any other part of such item or series thereof which ought in fairness to be considered at that time; or
(2) an adverse party may inquire into or introduce any other part of such item of evidence or series thereof.
¶59 When Knudsen was cross-examined by Wells Fargo’s attorneys from Exhibit 73 in an effort to demonstrate that the refining company anticipated substantial future expenditures for capital improvements, Simmons was entitled to offer all of Exhibit 73 to demonstrate that it was the refining company’s expectation that increased income from the capital improvements would exceed their cost and provide a substantial long-term net profit. To permit the negative inference that was produced by the cross-examination without the positive information that was included in the same document was simply unfair.
¶60 In addition, Rule 703 provides:
The facts or data in a particular case upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing. If of a type reasonably relied upon by experts in a particular field in forming opinions or inferences upon the subject, the facts or data need not be admissible in evidence.
¶61 Knudsen was entitled to base his opinion about future refining company cash flow on the company’s own business records and projections. A proper foundation was laid during the course of his testimony for him to do so. Therefore, when the District Court instructed the jury that it was not to consider Knudsen’s testimony regarding profits expected if based on Exhibit 73, the District Court erred and its instruction was extremely prejudicial to the plaintiff’s theory of damages.
¶62 The impact of these evidentiary rulings was compounded by the nature of evidence offered by Wells Fargo. The defendant attempted to disprove Simmons’ claim of lost future income through the testimony of its expert, J. David Capers.
¶63 Capers is a chemical engineer with extensive experience in the oil refining industry. For a fee of over $40,000, he testified that the to*134tal present value of the refinery was about one-fourth of the net income that the refinery had generated during the previous year, and only twice what the refinery had generated as net income in the two months immediately preceding trial.
¶64 Capers testified that the refining company was unlikely to produce income in the future similar to what had been produced in the past because of capital expenditures he anticipated would be necessary and which, in his opinion, greatly exceeded the cost estimated by Knudsen. He testified that even after the sulphur reduction unit was complete, he anticipated that profits would decline by $3 million annually due to its additional cost.
¶65 In sum, Capers testified that a refining operation which had been in existence for sixty years, which according to the partnership agreement had a life expectancy of another fifty years, and which during the previous five and one-half years had produced net income of $28 million, had a present value of only $2.2 million. However, one of the principal bases for his opinion was that the necessary capital expenditures, including the cost of the sulphur reduction unit, would greatly exceed any additional income that could be expected to result from those expenditures. Because the defendant made that argument and simultaneously inferred that the plaintiffs expert had not taken into consideration the mining company’s own projections in this regard, Exhibit 73, which was proof to the contrary, was especially critical. Simmons was prejudiced by the District Court’s refusal to admit it, and further prejudiced by the District Court’s instruction to the jury that it should not consider any testimony of the plaintiff’s expert which was based on that document. For these reasons alone, I would reverse the judgment of the District Court and remand this case for a new trial limited to the issue of damages.
¶66 However, I also disagree with the majority’s conclusion that Simmons was not prejudiced by Capers’ false testimony regarding his conversation with Leland Griffin.
¶67 It was Simmons’ position that it had lost future income as a result of its loss of its partnership interest in the refining company. A basis for its expectation of future income was its contention that future capital expenditures would increase income in an amount greater than the expenditure. The refining company’s projections for the sulphur reduction unit corroborated Simmons’ position.
¶68 It was Wells Fargo’s position, on the other hand, that due to new regulations capital expenditures, such as those for the sulphur reduc*135tion unit, would be greater than future income and reduce the likelihood of any future profit.
¶69 Leland Griffin was the manager of the Montana Refining Company. He was involved in the preparation of a proposal to install the sulphur reduction units and had prepared the “Montana Refining Company Capital Budget Worksheet” which related to those units and had been marked as Exhibit 73.
¶70 During his examination, Capers testified that he had consulted with Griffin and clearly inferred that Griffin confirmed his opinion that no net profit would result from construction of the new units. He also testified that he had visited the refining plant the day prior to his testimony, that the sulphur reduction unit was not yet operational, and that to make it operational would require substantial additional expense which would consume any additional profit the company could expect during that year and the following year.
¶71 When asked if he did anything to verify whether his pessimistic calculations were correct, as opposed to those that had been made by the company, he answered:
Yes, I interviewed a fellow named Mr. Leland Griffin. Mr. Griffin was the originator of the AFE for the sulphur reduction unit. He was the one that proposed that to the board. He did many of the calculations that related to the unit itself. He even did some of the design work on some of the equipment that was going to be put in.
When I interviewed him, he was the refinery manager over across the river. And I had a chance to ask him about this discrepancy that I kept running into when I calculated things. And what he did is confirm ....
¶72 At that point, there was an objection made to Capers’ testimony on the basis that he was about to relate hearsay. The plaintiff’s attorney argued that if defendant wanted testimony from Griffin, he should be called as a witness. The court and plaintiff’s attorneys were advised by defense counsel that Griffin was not available. When the parties returned to the courtroom, the examination of Capers continued. He was asked if, when he visited the refinery, he learned anything that caused him to change his assessment that the refinery’s estimated profits could not be achieved. He stated: “I learned nothing to change that opinion.”
¶73 He then gave the following answers in response to the following questions:
Q. And did you receive any confirmation of your opinion?
*136A. Yes, I did.
Q. And did anybody — did you find — did anybody there disagree with your assessment?
A. No, ma’am.
¶74 This testimony, in combination with his previous testimony that he had interviewed Griffin, the very author of the refinery’s projections, definitely inferred to the jury that Griffin repudiated his own projection and supported Wells Fargo’s theory that no or little net income could be anticipated in the future. On top of that, the court was advised by Wells Fargo’s attorney that Griffin was unavailable.
¶75 However, subsequent to trial, Griffin was located by the plaintiff’s attorney and his deposition was taken. He testified that the sulphur reduction units were constructed to give the refinery the ability to reduce the percentage of sulphur in diesel fuel and to reduce sulphur emissions from the refinery in order to conform to the Clean Air Amendment of the 1990 EPA Act. He testified that the company anticipated an investment of $10,750,000, but that investment would be recovered in 3.83 years based on anticipated profit from the operation of the unit, and that they hoped to have a net return from the unit of $3,633,000 per year for a period of time that could exceed sixteen years.
¶76 Griffin testified that although he had met with Capers in September, he did not recall Capers disputing his projections during that conversation, and that if Capers had advised him that he disagreed with his projection, he would have disagreed with Capers. He testified that he was also present and working at the refinery on Tuesday, November 9, 1993, the day before Capers testified, and that he had not been contacted by Capers at anytime on that date, nor to his knowledge, had Capers come to the premises on that date.
¶77 Griffin also testified that contrary to Capers’ representations, the desulphurization unit was operational on November 9,1993, and was producing 1500 barrels of low sulphur diesel fuel per day. He also stated that he had been available to testify during the week of November 8,1993 (the week during which counsel for Wells Fargo said he would be unavailable), but that no one from Wells Fargo had contacted him during that week. He did acknowledge that he had anticipated being gone that week and had made that known to Wells Fargo’s attorneys sometime prior to that week.
¶78 Capers’ testimony was false in many critical respects. He testified that a sulphur reduction unit was necessary because of federal *137regulations which became effective on October 1,1993, and which required that diesel fuel have a decreased percentage of sulphur. He testified that as of November 9, 1993, the refining company had no operational sulphur reduction unit, was therefore in a bind to operate, and that the future investment necessary to complete the unit would exceed any additional income that the unit could be expected to generate. He testified that the company’s earlier projections of a profit from the sulphur reduction unit were in error, and that that error had been confirmed by the very person who was in charge of constructing the unit and who had pr oj ected the profit — Leland Griffin.
¶79 Other than the fact that a sulphur reduction unit was necessary, none of what Capers said was true. He had not been on the plant premises the day before his testimony, nor had he talked to Griffin on that date. The sulphur reduction unit was partially operational at the time that he testified, and Griffin did not agree with Capers’ conclusion that the sulphur reduction unit would not be profitable. However, plaintiffs were hampered in their effort to rebut Capers’ misstatements when Wells Fargo’s attorney represented that Griffin was unavailable as a witness. Whether that representation was innocent or otherwise is irrelevant. The effect was the same.
¶80 These circumstances present grounds for a new trial that are squarely within the anticipation of § 25-11-102(4), MCA, which provides that a new trial may be granted for “newly discovered evidence material for the party making the application which he could not, with reasonable diligence, have discovered and produced at the trial.”
¶81 The majority opinion dismisses this issue for the same reason that it dismissed the previous two issues by simply concluding that because Simmons’ damage expert did not rely on additional income from the sulphur reduction unit, and because there was testimony about the income from the sulphur reduction unit, the District Court did not abuse its discretion. However, the majority opinion is incorrect. The projected income from the sulphur reduction unit corroborated Simmons’ contention that there would be future cash flow from which partners would be paid. It was even more critical in light of Wells Fargo’s contention during cross-examination that capital expenditures would exceed future income. Finally, there was no testimony from which the jury could consider cash flow from the sulphur reduction unit because the District Court instructed the jury to disregard any testimony derived from Exhibit 73. All testimony related to *138future cash flow from the sulphur reduction unit, except for Capers’ misrepresentations, was derived from Exhibit 73.
¶82 For these reasons, I also conclude that the District Court erred when it denied Simmons’ motion for a new trial based on Capers’ misrepresentations. I conclude that the inaccuracy.of that testimony could not have been known during trial based upon defendant’s representation that Griffin was unavailable, and that Griffin’s subsequent testimony was newly discovered material evidence which justified a new trial limited to the issue of damages.
¶83 The cumulative effect of the District Court’s exclusion of Exhibit 73 and Capers’ false testimony was to completely distort the refining company’s prospects for future profit and, therefore, minimize the likelihood of future cash flow from which Simmons had a right to be paid. As a result, the jury’s verdict was totally inconsistent with the company’s past earnings history and the only credible evidence of its prospects for future earnings.
¶84 The only way to correct these errors is to vacate the judgment of the District Court and remand this case to that court for retrial limited to the issue of damages. For these reasons, I dissent from the majority opinion.
JUSTICE HUNT joins in the foregoing dissenting opinion.