Greenwood Prods., Inc. v. Greenwood Forest Prods., Inc.

• Court: Oregon Supreme Court
• Writing for the Court: BREWER, J.
• Citation: Greenwood Prods., Inc. v. Greenwood Forest Prods., Inc., 357 Or 665, CA A135701, CC 050302553, No. 33 (Or. Sep 11, 2015)
• Decision Date: 11 September 2015
• Docket Number: CC 050302553,SC S062497,CA A135701,No. 33,33
• Parties: GREENWOOD PRODUCTS, INC., an Oregon Corporation; and Jewett-Cameron Lumber Corp., an Oregon corporation, Petitioners on Review, v. GREENWOOD FOREST PRODUCTS, INC., an Oregon corporation; Jim Dovenberg, an individual; and Bill Lefors, an individual, Respondents on Review.

357 Or 665

GREENWOOD PRODUCTS, INC., an Oregon Corporation;and Jewett-Cameron Lumber Corp., an Oregon corporation, Petitioners on Review, v. GREENWOOD FOREST PRODUCTS, INC., an Oregon corporation;Jim Dovenberg, an individual; and Bill Lefors, an individual, Respondents on Review.

No. 33

CC 050302553

CA A135701

SC S062497

SUPREME COURT OF THE STATE OF OREGON

Argued and submitted June 16, 2015

September 11, 2015

En Banc

On review from the Court of Appeals.^*

Kevin H. Kono, Davis Wright Tremaine LLP, Portland, argued the cause and filed the briefs for petitioners on review. With him on the briefs were Timothy Cunningham and Robert D. Newell.

Maureen Leonard, Portland, argued the cause for respondents on review. Travis Eiva filed the brief. With him on the brief was Maureen Leonard.

BREWER, J.

The decision of the Court of Appeals is reversed, and the case is remanded to the Court of Appeals for further proceedings. The order of the circuit court denying defendants' motion for a new trial is affirmed.

BREWER, J.

The issue on review in this case is whether the trial court erred in denying defendants'¹ motion for a new trial under ORCP 64 (B)(4),² based on the asserted ground of newly discovered evidence. The trial court determined that defendants' proffered evidence did not satisfy the legal standard for granting a new trial under that rule. The Court of Appeals reversed, concluding that defendants' post-trial proffer qualified as newly discovered evidence, that the evidence was material for defendants, and that defendants exercised reasonable diligence in attempting to produce the evidence at trial. Greenwood Products v. Greenwood Forest Products, 264 Or App 1, 330 P3d 662 (2014) (Greenwood III).³ Because we conclude that, irrespective of whether the proffered evidence was newly discovered and material for defendants, defendants failed to exercise reasonable diligence to produce the evidence at trial, we ultimately conclude that the trial court did not err in denying defendants' motion for a new trial. Accordingly, we affirm the trial court's order denying a new trial, reverse the decision of the Court of Appeals, and remand the case to that court.

I. FACTS AND PROCEDURAL BACKGROUND

This case has a complex procedural history that the Court of Appeals thoroughly described in its opinion. For the sake of brevity and clarity, we take a condensed version of that history from the opinion of the Court of Appeals and the record. Defendants were in the business of processingand selling industrial wood products and maintained a large inventory of such products at numerous distribution centers throughout the United States. Id. at 3. In February 2002, defendants and plaintiffs entered into an asset purchase agreement (PA), which provided that (1) by the closing date, defendants would dismiss most of their employees who would then be rehired by plaintiff; (2) over a two-year period, plaintiffs would purchase defendants' inventory in seven geographically determined units for cost plus a two percent premium; and (3) until plaintiffs' purchase of an inventory unit, plaintiffs, for a fee, would provide defendants with, in the words of the PA, "all management and administrative services associated with purchasing, processing, and maintaining [defendants'] inventory." Id. at 3-4.

Pursuant to the PA, plaintiffs took over defendants' offices and equipment. Most of defendants' employees and managers became plaintiffs' employees, holding the same positions that they had held with defendants. Defendants continued to exist side-by-side with plaintiffs—with defendants being responsible, at least on paper, for maintaining the inventory that plaintiffs' employees sold. For the inventory units that had not yet been purchased by plaintiffs, plaintiffs' employees sold wood products to outside customers, purchasing inventory to cover each sale from defendants at cost plus two percent. The purchases and sales were tracked automatically on two sets of books—one for each company. Although defendants were responsible, during the transition, for replenishing, processing, and maintaining the supply of inventory that plaintiffs' employees sold, plaintiffs' employees actually performed all of that work, under the "management and administrative services" provision of the PA. Id. at 4.

After the closing in late February 2002, defendants retained only two employees—Dovenberg and LeFors; defendants' remaining central staff went to work for plaintiffs. Various key employees, including Fahey, the head bookkeeper, and Pattillo, the vice president, while working for plaintiffs, spent part of their time attending to defendants' accounts and overseeing that company's operations. In practice, it was difficult to say which "hat" a given employee was wearing at any particular time. Id. at 4-5.

Units of inventory were purchased and sold as the parties had envisioned for some 13 months after closing, at which point the parties agreed to "finish it off" in a single transaction. Plaintiffs issued two promissory notes, dated March 18, 2003, for the remaining inventory. In June 2003, plaintiffs issued another promissory note and paid about $100,000 in cash for "an accumulation of payable for prior purchases of inventory that were due for payment." The amounts of the notes and cash payment were based on inventory figures provided by traders' assistants and other higher level "accounting people," including Fahey and Pattillo. At the time of the final payments and transfers, the transaction set out in the PA appeared to be essentially completed. Id. at 5.

In August 2003, plaintiffs' books were audited by a certified public accountant, Schmidt. Schmidt found unusual entries in the books—an unexplained account with a balance of nearly $1.2 million and many entries that did not appear to be related to normal inventory activity. Schmidt suspected that there was a problem with the accounting of sales of inventory between plaintiffs and defendants. On the theory that any inventory transactions by plaintiffs also should be reflected in defendants' accounting records, Schmidt asked for, and obtained, permission to review those records. While comparing defendants' records with plaintiffs' records, Schmidt found hundreds of entries that did not match. Schmidt eventually decided that, to accurately determine what had happened with the inventory, he would have to reconstruct both plaintiffs' and defendants' books from scratch, using "invoices and purchase orders and all the underlying documentation that would happen on a day-to-day basis in a business." When Schmidt completed that work, the figures led him to the conclusion that plaintiffs had paid defendants for $819,731.68 of inventory that they never had received. Id. at 5-6.

After Schmidt completed his work on defendants' books, Dovenberg approached him about some inconsistencies in Dovenberg's own personal accounts. Schmidt attempted to help Dovenberg sort out the problem. Ultimately, the two determined that Fahey, the bookkeeper who was employed by plaintiffs but was providing inventory-related servicesto defendants, had embezzled at least $360,000 from defendants' accounts between February and December of 2002. Id. at 6.

Three legal actions—including this case—ensued. First, in 2004, defendants brought a conversion action against Fahey. Second, in March 2005, plaintiffs brought this action against defendants asserting breach of contract and equitable claims for reformation or rescission of the promissory notes, and defendants asserted counterclaims, including a claim based on plaintiffs' failure to pay the entire face value of the promissory notes to defendants. Third, in April 2005, after being contacted by defendants, the district attorney brought criminal charges for theft against Fahey. Id.

In January 2006, Fahey pleaded guilty to 10 counts of theft. Fahey's sentencing initially was scheduled for May 2, 2006, approximately one week before trial was set to begin in this case. In resolving his criminal case, Fahey agreed to cooperate with defendants' efforts to locate missing assets, including its efforts in this action. On May 1, Fahey's sentencing hearing was postponed, in Dovenberg's words, so that "[Fahey] could help in trying to find out what happened to" the missing assets. Thereafter, plaintiffs' attorney learned about the postponement of Fahey's sentencing and that defendants had subpoenaed Fahey to testify at trial in this case. On Friday, May 5, plaintiffs' attorney had a subpoena served on Fahey for a deposition that was scheduled to begin the next morning. Although plaintiffs' attorney served defendants' attorney with notice of the deposition, he did not notify Fahey's criminal defense attorney that he had subpoenaed Fahey. As a result, lawyers for the parties in this action were present the following morning, but Fahey's attorney was not. Id. at 6-7.

At the beginning of his deposition, Fahey made the following statement:

"For the record, I was served yesterday evening at 6:35 p.m. I have not had a chance to contact my counsel. As there is a pending criminal case on this in Washington County, [on] anything alluding to any of those areas I will be taking the Fifth Amendment."

Id. at 7. During the deposition, plaintiffs' attorney asked Fahey questions about his work for defendants, as well as questions about the criminal action, including questions about the amount of money that Fahey had taken—an issue that was central both to this action and also to the criminal charges against Fahey. In response to many questions, Fahey asserted his Fifth Amendment privilege. In addition, he did not respond to some questions because he thought that a protective order precluded him from answering. Id. at 8.

Nevertheless, Fahey answered many of plaintiffs' questions. In doing so, Fahey indicated that plaintiffs may not, in fact, have paid for more inventory than they had actually received. That was so based on Fahey's theory concerning the...