Gregg v. U.S. Industries, Inc., s. 88-3056

• Decision Date: 25 October 1989
• Docket Number: 88-3676,Nos. 88-3056,s. 88-3056
• Parties: F. Browne GREGG, Plaintiff-Counterclaim Defendant-Appellee, Cross-Appellant, v. U.S. INDUSTRIES, INC., a Delaware Corporation, and U.S. Industries Management Services, Defendants-Counterclaim Plaintiffs-Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1462

887 F.2d 1462

F. Browne GREGG, Plaintiff-Counterclaim Defendant-Appellee, Cross-Appellant, v. U.S. INDUSTRIES, INC., a Delaware Corporation, and U.S.

Industries Management Services,

Defendants-Counterclaim

Plaintiffs-Appellants, Cross-Appellees.

Nos. 88-3056, 88-3676.

United States Court of Appeals, Eleventh Circuit.

Oct. 25, 1989.

William F. Sondericker, Derek G.P. MacKenzie, Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, James E. Cobb, Jack W. Shaw, Mathews, Osborne, McNatt, Gobelman & Cobb, Jacksonville, Fla., Mark G. Krum, Irwin H. Warren, Dennis J. Block, Weil, Gotshal & Manges, New York City, for defendants-counterclaim plaintiffs-appellants, cross-appellees.

C. Harris Dittmar, Timothy J. Corrigan and Julie Hills Tucker, Jacksonville, Fla., for plaintiff-counterclaim defendant-appellee, cross appellant.

Appeals from the United States District Court for the Middle District of Florida.

Before FAY, Circuit Judge, RONEY ^*, Senior Circuit Judge, and ALLEN, ^** Senior District Judge.

FAY, Circuit Judge:

This action involves an appeal and cross-appeal from a second jury verdict in this case. In 1969, the plaintiff-appellee, cross-appellant, F. Browne Gregg sold several of his businesses engaged in construction, sand mining and design of dredging equipment to the defendant-appellant, cross-appellee, U.S. Industries, Inc. ("USI"). According to the agreement reached with USI, Gregg transferred his companies to USI for $3.5 million in USI stock, with the right to receive up to $6.5 million more in USI stock ("earn-out stock") if the former Gregg companies met specified profitability levels over the next five years. After the contract was executed, disputes arose between the parties and litigation ensued. In this appeal, USI claims that: 1) The damages awarded on Gregg's fraud claim should be set aside; 2) The trial court erred in its charge to the jury on USI's counterclaim for breach of contract and breach of warranty by requiring reliance upon Gregg's purported misrepresentations; 3) The trial court erred in failing to direct a verdict in USI's favor on Gregg's claim of tortious interference with his business relationships; and 4) The trial court erred in failing to order a new trial because the jury's verdict was the product of undue influence and prejudice. Gregg cross-appeals that: 1) The trial court erred in dismissing his conversion claim; 2) The jury should have considered the issue of punitive damages on Gregg's fraud claim; and 3) The Florida post-judgment interest rate should apply in the case. We hold that the district court properly resolved all issues at trial and therefore, we affirm its judgment.

The facts and procedural history of this case are fully set forth in this court's prior opinion reported in Gregg v. U.S. Indus., Inc., 715 F.2d 1522, modified, 721 F.2d 345 (11th Cir.1983), cert. denied, 466 U.S. 960, 104 S.Ct. 2173, 80 L.Ed.2d 556 (1984). We thus set forth the facts only when necessary in the discussion of each individual issue. We note however, that after remand of this case following this court's prior opinion, the jury in the trial extending from March 16 to March 30, 1987 rendered a verdict for Gregg, and the trial court entered judgment in the amount of $38,066,801.22. This verdict comprised $8,128,515 ($18,952,469 after interest) of compensatory damages on Gregg's fraud claim; $103,340 for breach of Gregg's employment contract ($225,281.20 after interest); and $43,050 compensatory damages and $18.5 million punitive damages, which the trial court remitted to $2 million, for Gregg's claim of tortious interference with his business relationship. We now address the merits of the issues on appeal.

I. THE FRAUD DAMAGES

A. Measure of Damages

USI's first contention on appeal is that the trial court erred in instructing the jury on an "out-of-pocket" rather than a "benefit of the bargain" measure of damages for Gregg's fraud claim, and therefore, those damages should be set aside. Under a benefit of the bargain approach--that is, the difference between what Gregg would have received had the agreement with USI been carried through to completion and what he actually received--USI argues that the maximum amount Gregg could have recovered for the fraud would have been approximately $5.6 million. This amount represents the difference between $10 million, the maximum possible amount of USI stock which Gregg could receive under the agreement ($3.5 million in USI stock at closing plus a possible $6.5 million in USI earn-out stock), and the amount Gregg actually received, approximately $4.4 million (the $3.5 million in USI stock plus approximately $900,000 in earn-out stock). USI claims that this benefit of the bargain calculation of fraud damages was the correct method and therefore, Gregg's award under the out-of-pocket theory was improper.

At trial, the judge instructed the jury that the measure of damages for Gregg's fraud claim would be calculated under an out-of-pocket theory, that is, "the difference in value between what Gregg gave USI and the value of what he received from USI in return." (R134-118). The court stated that the object of awarding Gregg damages was to place him in the same position as before USI defrauded him. Accordingly, under this method of damage calculation, the jury awarded Gregg approximately $8.1 million in compensatory damages on the fraud claim which equalled the jury's determination of the value of Gregg's stock at closing ($12.5 million) less the value of the USI stock Gregg actually received ($4.4 million).

USI contends that, under Florida law, ¹ the benefit of the bargain measure of damages is the proper approach for this case. It states that this court, in its prior opinion, ² held that the benefit of the bargain was the correct measure of Gregg's fraud damages, and since Gregg ratified the contract by his actions subsequent to the fraud, he was limited to this measure of recovery. Gregg counters, however, that Florida law permits the trial court to instruct the jury on either theory of damage calculation, depending upon the circumstances of the case, to compensate the defrauded party as fully as possible for the wrong committed by the defrauder.

Our review of the relevant case law indicates that Florida follows the "flexibility theory" in fraud actions, which permits a trial court to instruct the jury under either the out-of-pocket rule or the benefit of the bargain rule, whichever will more fully compensate the defrauded party. Martha A. Gottfried, Inc. v. Amster, 511 So.2d 595, 599 (Fla. 4th DCA 1987); Getelman v. Levey, 481 So.2d 1236, 1239 n. 4 (Fla. 3d DCA 1985); Hilsenroth v. Kessler, 446 So.2d 147, 150 (Fla. 3d DCA 1983); DuPuis v. 79th Street Hotel, Inc., 231 So.2d 532, 536 (Fla. 3d DCA), cert. denied, 238 So.2d 105 (Fla.1970). In DuPuis, the court noted that Florida has followed the out-of-pocket rule in several cases, but that it also has "adopted and followed both rules in order to do such justice as the circumstances may demand." DuPuis, 231 So.2d at 536. Thus, the flexibility theory provides:

'(1) if the defrauded party is content with the recovery of only the amount that he actually lost, his damages will be measured under that rule; (2) if the fraudulent representation also amounts to a warranty, recovery may be had for loss of the bargain, because a fraud accompanied by a broken promise should cost the wrongdoer as much as the latter alone....'

Id. (quoting 37 Am.Jur.2d Fraud and Deceit, Sec. 352). This court has also recognized the flexibility theory under Florida law. Silverberg v. Paine, Webber, Jackson & Curtis, Inc., 710 F.2d 678, 686-87 (11th Cir.1983).

Contrary to USI's assertion that a party is limited to benefit of the bargain damages when he affirms or ratifies a contract which he was fraudulently induced to enter, ³ Florida law permits a defrauded plaintiff to prove either theory of damages as justice requires to best compensate him for the defendant's wrong. Amster, 511 So.2d at 599. This is true even in cases alleging breach of contract along with the fraud:

'[O]ne who has been fraudulently induced into a contract may elect to stand by that contract and sue for damages for the fraud. When this happens and the defrauding party also refuses to perform the contract as it stands, he commits a second wrong, and a separate and distinct cause of action arises for the breach of contract. The same basic transaction gives rise to distinct and independent causes of action which may be consecutively pursued to satisfaction.... [A] suit on a contract and a suit for fraud in inducing the contract are two different causes of action with separate and consistent remedies.'

Ashland Oil, Inc. v. Pickard, 269 So.2d 714, 723 (Fla. 3d DCA 1972) (quoting Bankers Trust Co. v. Pacific Employers Ins. Co., 282 F.2d 106, 110 (9th Cir.1960), cert. denied, 368 U.S. 822, 82 S.Ct. 41, 7 L.Ed.2d 27), cert. denied, 285 So.2d 18 (Fla.1973).

Considering the circumstances of this case, we find no error in the trial court's instructions on the out-of-pocket damages recovery. Here, Gregg testified that the value of his companies when he sold them to USI exceeded the value that he could receive from it under the contract he was fraudulently induced to enter. (R127-129, 130). Since the purpose of the flexibility theory is to apply the measure of damages "warranted by the particular facts of each case, and as the court finds justice demands," Amster, 511 So.2d at 599, the out-of-pocket approach to calculating damages best compensates Gregg for the fraud the jury determined USI perpetrated upon him. ⁴ The jury assessed the evidence presented regarding the value of Gregg's companies prior to the closing with USI and awarded Gregg an out-of-pocket amount of damages representing that value less the value of the stock he received from USI. This approach restored Gregg to the position he was in prior to his dealings with USI; a...