Murray v. Ross-Dove Co., Inc., ROSS-DOVE
| Citation | 5 F.3d 573 |
| Decision Date | 03 May 1993 |
| Docket Number | ROSS-DOVE,No. 92-2342,92-2342 |
| Parties | John P. MURRAY, et al., Plaintiffs, Appellants, v.COMPANY, INC. and Dovetech, Inc., Defendants, Appellees. . Heard |
| Court | United States Courts of Appeals. United States Court of Appeals (1st Circuit) |
Robert M. Duffy with whom Michael P. DeFanti and Hinckley, Allen & Snyder, Providence, RI, were on brief, for plaintiffs, appellants.
Michael B. Waitzkin with whom Eric L. Lewis, Rima Sirota, Nussbaum & Wald, Washington, DC, Mark C. Hadden and Gidley, Sarli & Marusak, Providence, RI, were on brief, for defendants, appellees.
Before TORRUELLA, Circuit Judge, FEINBERG, * Senior Circuit Judge, and BOUDIN, Circuit Judge.
This is an appeal from a decision of the district court withdrawing from the jury a commercial dispute at the end of the plaintiffs' case. Although we think that the plaintiffs' evidence failed to show fraud and we treat an aiding and abetting claim as abandoned, the evidence of negligence and injury was in our view just adequate to foreclose a directed verdict. Accordingly, we affirm the ruling as to the fraud claim but vacate the judgment as to the negligence claims and remand for further proceedings, strongly encouraging the parties to explore settlement of this case.
Plaintiffs are three individuals, Franklin D. Crawford, John P. Murray, Jr. and J. Michael Murray, known collectively as "the Crawford Group," and an associated investment entity, Bevmar Acquisition Corp. Defendants are Ross-Dove Company, Inc., a commercial auction firm, and Dovetech, a division of Ross-Dove (which may well not be a suable entity). The dispute arises out of an appraisal done by Ross-Dove of certain assets of Bevmar, Inc. ("Bevmar"), a California corporation formerly engaged in the manufacture and sale of electronic circuitry panels.
In 1989, one Robert H. Marik, an acquaintance of Crawford, organized Bevmar Acquisition Corp. as part of an effort to solicit investments in Bevmar. In aid of that effort, an investment banker working with Marik engaged Dovetech to appraise certain of Bevmar's assets. Dovetech's appraisal was conducted by Bruce Schneider, with help from other employees, and was completed in June 1989. That appraisal valued Bevmar's machinery, equipment, molds and dies at three different values, ranging from over $2 million total to over $6 million depending on the circumstances of sale. The appraisal said that the appraised value of molds and dies should not decline for at least three years.
In September 1989, Marik invited Crawford to invest in Bevmar, through the Bevmar Acquisition Corp., and Marik made the Dovetech appraisal of Bevmar's assets available to Crawford. Crawford contacted Schneider to explain his interest in Bevmar and to determine the status of the Dovetech appraisal. Schneider assured Crawford that the appraisal was still valid. In October 1989 Crawford, together with the two Murrays, paid $3 million for a stake in Bevmar comprising a loan to Bevmar to be repaid at 20 percent annual interest, a 40 percent equity interest in the company, and a bonus depending on the fortunes of the company.
To secure the loan, Bevmar gave the Crawford group a security interest in all of its machinery, equipment, molds and dies. There were some discrepancies between items listed in the Dovetech appraisal and items listed in the recorded security filings, but the latter lists were delayed and the discrepancies not immediately noticed. What did become rapidly apparent was that Bevmar was in deep trouble. Crawford invested a further $500,000 but in March 1990 a chapter 7 petition was filed and Bevmar entered bankruptcy. When its assets were liquidated, the amount realized on the machinery, equipment, molds and dies was about $453,000.
The plaintiffs then commenced this suit in the district court charging Ross-Dove and Dovetech with negligence, negligent misrepresentation, fraud, and aiding and abetting the torts of others. 1 Actual damages in the amount of $4.5 million were sought, as well as punitive or exemplary damages. The gist of the complaint was that Dovetech had carelessly or dishonestly overestimated the value of the assets it had appraised in June 1989 and that the Crawford group had relied to its detriment on that appraisal in investing in Bevmar.
After discovery, a four-day jury trial occurred in September 1992. Plaintiffs offered testimony from a number of witnesses, either in person or by deposition, including the three Crawford group members, Schneider, two Bevmar employees, an employee of the company that purchased the molds and dies after Bevmar's bankruptcy, and an appraiser who had appraised Bevmar machinery and equipment and given a general opinion about the value of its molds and dies in March 1989. Surprisingly, plaintiffs did not provide an expert witness to testify as to the inadequacy or incompetence of Dovetech's appraisal. 2
At the close of plaintiffs' case, defendants sought judgment as a matter of law under Fed.R.Civ.P. 50(a)(1), the current name of the traditional relief afforded by a directed verdict. On October 1, 1992, the district court delivered a detailed oral opinion concluding that plaintiffs had failed to show that the appraisal was inaccurate or that defendants were at fault. Alternatively, the court found failures of proof as to justifiable reliance on the appraisal and as to causation of injury. Although we regard this case as a close call, on balance we think that plaintiffs did at the completion of their opening case have enough evidence to reach a jury on a negligence theory.
On a Rule 50(a) motion, appellate review is plenary. American Private Line Serv., Inc. v. Eastern Microwave, Inc., 980 F.2d 33, 35 (1st Cir.1992). The evidence and inferences from it are considered in the light most favorable to the party opposing the directed verdict, here, the plaintiffs. Richmond Steel, Inc. v. Puerto Rican American Ins. Co., 954 F.2d 19, 22 (1st Cir.1992). A directed verdict is proper at the close of plaintiffs' case only when the plaintiffs' evidence, viewed in this light, would not permit a reasonable jury to find in favor of the plaintiffs on any permissible claim or theory.
A reviewing court must thus ask whether the plaintiffs have offered enough evidence to permit findings in plaintiffs' favor on each of the elements necessary to prove at least one cause of action. Here, the parties have assumed that Rhode Island law defines the causes of action--why is not clear--and we accept this premise. See In re Newport Plaza Associates, L.P., 985 F.2d 640, 644 (1st Cir.1993). It also appears to be common ground that, under Rhode Island law, a cause of action for negligence or negligent misrepresentation exists if the Dovetech appraisal was inaccurate, the inaccuracy stemmed from negligence, reliance on the appraisal was justified, and the reliance proximately resulted in injury. 3 With this yardstick, we turn to the evidence.
The first two elements, inaccuracy in the appraisal and negligence in its preparation, are closely related and need to be considered together. In the abstract, an appraisal could be inaccurate without fault, or it could be carelessly prepared but correct in its conclusion. But in this case, as in many, the issues overlap because if inaccuracy is shown, the magnitude of the inaccuracy may be some evidence of negligence. How strong the inference would be depends, as usual, on the facts.
Here, plaintiffs' best case for error in the appraisal and for negligence, stripped to its essentials, can be easily summarized. First and most important, plaintiffs offered evidence of a gross disparity between the appraisals of value assigned by Dovetech to the Bevmar molds and dies in June 1989 and the value realized for the Bevmar molds and dies about a year later. In the Dovetech appraisal, the molds and dies were evaluated as follows:
AUCTION: $16,000 x 96 = $1,536,000
ORDERLY: $21,000 x 96 = $2,016,000
IN PLACE: $42,000 x 96 = $4,032,000
According to the appraisal, "auction" meant disposition "as is" at an auction sale completed in a 30-40 day time frame; "orderly" meant orderly liquidation over a maximum of six months; and "in place" meant as part of an ongoing enterprise.
When the 96 molds and dies were auctioned as a lot in July 1990, the winning bid was $40,000 for the whole lot and was made by Elcor Corporation, which had sold 96 molds and dies to Bevmar in 1986. When its representative arrived to collect the molds and dies, he found some to be in poor condition and others to be incomplete, missing, or claimed by another company. Thus the plaintiffs' starting point was their proof (subject to reservations yet to be discussed) that molds and dies appraised at a minimum price of $1.5 million in 1989 had sold for less than 3 percent of the this figure a year later.
There was far less of a disparity as to the machinery and equipment; the minimum estimate provided by Dovetech was around $676,000 and the auctions of these items returned about $413,000. The district court, after evaluating the gap between the appraisal and the realized price for the machinery and equipment found no proof of material inaccuracy at all. But the molds and dies represented about two-thirds of the total value attributed by Dovetech to machinery, equipment, molds and dies. A serious error in their appraisal could by itself easily be an adequate basis for finding the appraisal to be materially in error.
The disparity in the price predicted and the price realized for the molds and dies is hardly conclusive. The auction might not have been fair, although there is no suggestion of that in this record. Or conditions might have changed so materially that no negligence could be imputed based on the disparity; in this instance, Crawford testified briefly that market conditions had if anything improved. But a very large and unexplained disparity offers a...
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