Haupt v. Heaps
| Decision Date | 14 October 2005 |
| Docket Number | No. 20040296-CA.,20040296-CA. |
| Citation | 2005 UT App 436,131 P.3d 252 |
| Parties | Robert HAUPT, Plaintiff and Appellant, v. David O. HEAPS, Defendant and Appellee. |
| Court | Utah Court of Appeals |
Allen K. Young, Young Kester & Petro, Provo, and Jonah Orlofsky, Chicago, Illinois, for Appellant.
Evan A. Schmutz, William Kelly Nash, and Curtis R. Hussey, Hill Johnson & Schmutz, LC, Provo, for Appellee.
Before DAVIS, McHUGH, and THORNE, JJ.
OPINION (For Official Publication)
¶ 1 Robert Haupt appeals from a jury verdict in favor of Defendant David Heaps on Haupt's complaint for common law fraud. Haupt filed this appeal, claiming that the trial court erred by excluding certain evidence and by incorrectly instructing the jury. We affirm.
¶ 2 Authorize.Net was established in 1996 to provide Internet merchants with the ability to process online credit card transactions. Although such transactions are routine today, at that time credit card processing over the Internet was a new concept.
¶ 3 Authorize.Net hired Robert Haupt in 1997 on a contract basis to develop a computer program that would allow Authorize.Net to process the online credit transactions. In March of 1997, Haupt became a full-time employee of Authorize.Net and was given 75,000 shares of the company's common stock. At about this same time, David Heaps was hired as Authorize.Net's Chief Executive Officer and was also given 75,000 shares of the company's common stock.
¶ 4 Haupt resigned from Authorize.Net on May 1, 1998, but did not dispose of his shares of the company at that time. In the summer of 1998, Heaps began contacting Haupt and other shareholders to inquire whether they would voluntarily relinquish some of their shares back to Authorize.Net. Heaps represented that the company needed to restructure stock ownership to attract outside investors. Haupt refused to relinquish his stock.
¶ 5 Sometime later, in August or September 1998, Haupt contacted a representative of Authorize.Net and offered to sell his shares of the company for $12,000. Haupt alleges that he made the decision to sell his shares at that price because Heaps and other company officials told him that Authorize.Net was on the verge of collapse and that without an immediate infusion of outside capital the company would fail. Authorize.Net's Board of Directors met on September 10, 1998, and voted unanimously to purchase Haupt's shares for $12,000.
¶ 6 On September 30, 1998, Heaps arranged to meet with Haupt and his accountant, Mr. Bigler, to finalize the agreement. At Haupt's request, Heaps brought with him certain financial information about the company's performance. The financial reports provided related only to the first and second quarters of 1998. There is no dispute that the financial information was reviewed by Bigler and Heaps and that it showed Authorize.Net was operating at a small profit and experiencing growth.
¶ 7 After reviewing the documents with his accountant, Haupt executed a Stock Relinquishment Agreement (Agreement). The Agreement contained a standard merger clause representing that the written document contained the entire agreement of the parties; a waiver of all claims against the company and its officers, directors, and employees; and a provision acknowledging that Haupt had been given sufficient opportunity to receive and review all pertinent documents relating to Authorize.Net's past history, current status, and future prospects.
¶ 8 On July 1, 1999, approximately nine months after Haupt sold his stock to the company for $12,000, Authorize.Net merged with Go2Net, a publicly traded company. At the time of the merger, the value of each share of Authorize.Net was estimated by Go2Net to be between $90.00 and $96.00.1
¶ 9 Haupt initiated the present action against Heaps, Authorize.Net, and an officer of the company, Jeffrey Knowles. Haupt claimed that he had been defrauded into selling his stock to the company at an artificially low price due to the misrepresentations about the imminent financial collapse of Authorize.Net. Before trial, Haupt settled with the other defendants and this matter was tried before a jury on a theory of common law fraud against Heaps. The jury found in favor of Heaps. The special verdict form shows that although the jury concluded Heaps had made material misrepresentations to Haupt, it also found that Haupt did not reasonably rely on the false or misleading statements or omissions of material fact. Haupt filed this appeal.
¶ 10 Haupt claims that the trial court committed reversible error by (1) refusing to admit a Form 8-K/A filed with the Securities and Exchange Commission (SEC) by Go2Net one year after the sale of Haupt's stock, (2) excluding certain expert testimony, and (3) improperly instructing the jury.
¶ 11 We review the admissibility of evidence for an abuse of discretion. See E.B. v. State, 2002 UT App 270, ¶ 10, 53 P.3d 963. Determinations as to who qualifies as an expert witness and the admission of the witness's testimony fall within this discretion, see id., as does the admission of documentary evidence, see Jensen v. Intermountain Power Agency, 1999 UT 10, ¶ 12, 977 P.2d 474. Trial courts are "in the best position to assess the credibility of witnesses and to derive a sense of the proceeding as a whole," State v. Pena, 869 P.2d 932, 936 (Utah 1994), and we will not reverse a trial court absent a clear abuse of discretion, see E.B., 2002 UT App 270 at ¶ 10.
¶ 12 Whether the trial court properly instructed the jury is a legal determination that we review for correctness. See Jensen, 1999 UT 10 at ¶ 16. We examine the challenged instruction in context. See id. "[I]f the jury instructions as a whole fairly instruct the jury on the applicable law, reversible error does not arise merely because one jury instruction, standing alone, is not as accurate as it might have been." Id. (quotations and citation omitted).
¶ 13 Haupt contends that it was reversible error for the trial court to exclude Exhibit 96, a Form 8-K/A filed with the SEC by Go2Net on September 10, 1999, approximately one year after the sale of Haupt's shares to Authorize.Net. Haupt argues that the trial court should not have evaluated the 8-K/A under the test set forth by the Utah Supreme Court in State v. Rimmasch, 775 P.2d 388, 397-99 (Utah 1989), because it is a historical document that should have been admitted under rule 401 of the Utah Rules of Evidence.2 Haupt oversimplifies the analysis.
¶ 14 The trial transcript indicates that the trial court excluded Exhibit 96 under rule 403 of the Utah Rules of Evidence, which states:
Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence.
Utah R. Evid. 403. The Form 8-K/A was filed several months after the merger with Go2Net and one full year after the sale of stock by Haupt that was the subject of the fraud allegations. The financial statements attached to the Form 8-K/A were audited by KPMG, an international accounting firm. Those financial statements include a footnote that applies a Straight-Line Ramp-Up Method (SLR Method) to determine the amount of expense to the company that should be included for the sale. None of Haupt's experts was familiar with the SLR Method and no one from KPMG was offered to explain its use in the footnote. Furthermore, the trial court had previously ruled that
the proper measure of damages is the difference between the price paid by a third party for the stock on July 1, 1999 and the price that was paid by defendant for the stock on September 30, 1998. Both of those numbers are known and do not require the analysis of the KPMG financial documents.
The trial court concluded that the decision on the proper measure of damages rendered the SLR Method valuation in the Form 8-K/A moot.3 It then found that it was not probative for any other purpose.4 Under the facts of this case and considering the wide discretion afforded the trial court in weighing the probative value against the potential for prejudice, we affirm the exclusion of Exhibit 96. See State v. Hobbs, 2003 UT App 27, ¶ 28, 64 P.3d 1218 (); State v. Vigil, 922 P.2d 15, 27-28 (Utah Ct.App.1996) ().
¶ 15 Haupt also claims the trial court committed reversible error in excluding the testimony of his experts, Dr. Paul Randle, Mr. Curtis Bramble, and Professor William Steven Albrecht. After reviewing the excluded evidence, we disagree.
¶ 16 Haupt sought to introduce the testimony of Dr. Paul Randle, an economist who was prepared to testify as to the value of the Authorize.Net stock in September 1998 when Haupt sold his shares back to the company. Randle's valuation, however, was based upon the Form 8-K/A dated September 10, 1999, and prepared by KPMG. Specifically, Randle relied on the SLR Method found in a footnote to the financial statements attached to the 8-K/A. The SLR Method plots the known value of the stock at a point in June 1997 and the known value when the company was merged with Go2Net in June 1999. It then draws a line between those two points and assumes that the value of the stock changed at a consistent rate between those two data points. By making the assumption that the value of the stock increased at a steady rate with no variation based on actual events, a value can be assigned for...
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