Atlando Holdings, LLC v. Bdo Seidman, Llp

• Citation: 660 S.E.2d 463,290 Ga. App. 665
• Decision Date: 28 March 2008
• Docket Number: No. A07A2093.,A07A2093.
• Parties: ATLANDO HOLDINGS, LLC v. BDO SEIDMAN, LLP.
• Court: United States Court of Appeals (Georgia)

290 Ga. App. 665

660 S.E.2d 463

290 Ga.App. 665

ATLANDO HOLDINGS, LLC v. BDO SEIDMAN, LLP.

No. A07A2093.

Court of Appeals of Georgia.

March 28, 2008.

Bondurant, Mixson & Elmore, Frank Mitchell Lowrey IV, Atlanta, for Appellant.

Sutherland, Asbill & Brennan, Peter J. Anderson, Atlanta, Gregory Scott Smith, Keith J. Barnett, Atlanta, for Appellee.

ADAMS, Judge.

Atlando Holdings, LLC f/k/a Mindis Acquisition Corporation (MAC)¹ sued the accounting firm of BDO Seidman, LLP for negligent misrepresentation in connection with MAC's 1993 purchase of Mindis Corporation. On appeal following a jury trial and a jury verdict for $44 million in favor of MAC (the 1999 trial), the Supreme Court of Georgia held that the trial court had used the wrong measure of damages. BDO Seidman, LLP v. Mindis Acquisition Corp., 276 Ga. 311, 578 S.E.2d 400 (2003) (Mindis II). The case was then retried on the issue of damages only (the 2005 trial), and the jury awarded MAC zero damages. MAC now appeals.

The underlying facts have been set forth by this Court in Mindis Acquisition Corp. v. BDO Seidman, LLP, 253 Ga.App. 360, 361, 559 S.E.2d 111 (2002) (Mindis I), rev'd in part, Mindis II, 276 Ga. at 311-312(1), 578 S.E.2d 400 and our Supreme Court in Mindis II and will be repeated here only as necessary for the disposition of the issues before us. BDO Seidman performed an inventory audit on Mindis Corporation, a scrap metal recycling business, prior to its purchase by MAC in 1993. BDO issued a final audit opinion estimating Mindis' inventory to be worth approximately $86 million on July 31, 1993; on October 29, 1993, MAC paid $40 million and assumed $31 million in debt to purchase Mindis. However, subsequent audits by different accounting firms revealed that Mindis' inventory was worth only $16 million, $70 million less than BDO Seidman certified in its audit. Mindis I, 253 Ga.App. at 361, 559 S.E.2d 111.

In the prior appeal, this Court upheld the verdict for Mindis, but our Supreme Court reversed on the issue of the measure of damages that should have been applied, holding that the proper measure of damages in a negligent misrepresentation case is the out-of-pocket standard rather than the benefit-of-the-bargain calculation utilized in the 1999 trial. Mindis II, 276 Ga. at 311-312(1), 578 S.E.2d 400. Under that measure:

The damages recoverable for a negligent misrepresentation are those necessary to compensate the plaintiff for the pecuniary loss to him of which the misrepresentation is a legal cause, including (a) The difference between the value of what he has received in the transaction and its purchase price or other value given for it; and (b) Pecuniary loss suffered otherwise as a consequence of the plaintiff's reliance upon the representation.

(Citation omitted.) Id.

During the 2005 trial, MAC sought to recover $40 million under part (a) (hereinafter referred to as "direct damages"), on the basis "that Mindis had a net negative value (i.e. was not worth even a dollar)" at the time of purchase in 1993, and additional damages under part (b) (hereinafter referred to as "consequential damages") including $10 million related to losses it allegedly incurred before it discovered the inventory discrepancy, as well as damages related to losses it allegedly incurred after it discovered the inventory discrepancy (operating losses). In this appeal following the zero verdict, MAC contends the trial court twice erred by admitting irrelevant and prejudicial evidence, by refusing to admit certain rebuttal evidence and by giving an erroneous charge to the jury.

1. MAC first contends the trial court erred by allowing BDO Seidman to introduce evidence that Regional Recycling, who purchased Mindis from MAC in 1998 for $7 million, sold Mindis for $65.5 million in 2005. MAC argues that the 2005 sale was not probative of the value of Mindis in 1993 because (1) the sale, which occurred 12 years after MAC purchased Mindis, was too remote; (2) the sale occurred after $32 million had been invested in Mindis for new equipment and capital improvements; and (3) there had been a radical upswing in the scrap metal market between 1993 and 2005. MAC argues the admission of this evidence was highly misleading and prejudicial as to the pivotal issue in this case—the value of Mindis at the time MAC purchased it in October 1993.

BDO Seidman argues that the 2005 sale was not used to show the value of Mindis in 1993; rather it was admitted to rebut MAC's experts' testimony that it should have liquidated Mindis on the date of purchase because Mindis was worth less than zero on that date. Additionally, BDO Seidman argues this evidence was admissible to show that MAC was not entitled to recover consequential damages because "[t]he Schnitzer sale revealed that the alleged $70 million loss ... was due to poor management, and Mindis had intrinsic value sufficient to be sold for $65.5 million with different management." MAC argues, however, that using the 2005 sale to refute its contention that Mindis had a negative value at the time of purchase still "depend[s] on using that sale to infer Mindis' value in 1993" and that using the 2005 sale to show that Mindis could have been operated profitably with proper management during the time MAC owned it, "assumes that what Schnitzer Steel paid in 2005 is proper evidence of the value (or potential value) of Mindis in 1993-1998."

"An abuse of discretion is generally the only basis for overruling a trial court's judgment as to evidence's relevancy. [Cit.] The existence of such an abuse may be measured by weighing the challenged evidence's probative value against the risk that its admission misled the jury or created a substantial danger of unfair prejudice or confusion. [Cit.]" Key v. Grant, 238 Ga.App. 818, 819(2), 520 S.E.2d 277 (1999).

Under this standard, we agree with MAC that the trial court abused its discretion by admitting evidence that Mindis was sold for $65.5 million in 2005. First, for the reasons MAC urges—remoteness, physical changes at Mindis and changes in market conditions—we find that this evidence was not relevant to establish the 1993 value of Mindis. "Evidence must relate to the questions being tried ... and bear upon them either directly or indirectly." OCGA § 24-2-1. Relevant evidence includes acts or circumstances which serve to elucidate or throw light upon a material issue. Smith v. Saulsbury, 286 Ga.App. 322, 649 S.E.2d 344 (2007). Thus, "[o]nly evidence which shows the value of the property on the [applicable] date is relevant and admissible." Clayton County Bd. of Tax Assessors v. Lake Spivey Golf Club, 207 Ga.App. 693, 694(1), 428 S.E.2d 687 (1993). As our Supreme Court noted in Bowden v. Achor, 95 Ga. 243, 259, 22 S.E. 254 (1895), the value of land at time of trial "cannot fairly throw light on the question of its value years before, especially where there has been a very great and rapid enhancement in the values of all lands in that vicinity.... Evidence of this kind is not only irrelevant, but may very seriously and unjustly [arouse] a prejudice in the minds of the jury." See also Ga. Power Co. v. Hinson, 179 Ga.App. 263, 269(5)(b), 346 S.E.2d 73 (1986) (trial court did not err by refusing to admit testimony...