Hodge v. Matrix Grp., Inc.

• Decision Date: 06 January 2022
• Docket Number: Court of Appeals No. 20CA0746
• Citation: 507 P.3d 1010,2022 COA 4
• Parties: George HODGE, Plaintiff-Appellee, v. MATRIX GROUP, INC., and Waterpark II & III, LLC, Defendants-Appellants.
• Court: Colorado Court of Appeals

507 P.3d 1010

2022 COA 4

George HODGE, Plaintiff-Appellee,

v.MATRIX GROUP, INC., and Waterpark II & III, LLC, Defendants-Appellants.

Court of Appeals No. 20CA0746

Colorado Court of Appeals, Division II.

Announced January 6, 2022

Bachus & Schanker, LLC, Corey A. Holton, Denver, Colorado, for Plaintiff-Appellee

Campbell, Wagner, Frazier & Dvorchak, LLC, Michael O. Frazier, Kirstin M. Dvorchak, Joel A. Richardson, Greenwood Village, Colorado, for Defendants-Appellants

Opinion by JUDGE YUN

¶ 1 Defendants, Matrix Group, Inc., and Waterpark II & III, LLC (collectively, Waterpark), appeal the judgment entered on the jury's verdict in favor of plaintiff, George Hodge, in the amount of $752,500. Waterpark argues that the district court reversibly erred by permitting Hodge to offer evidence of the lost profits of his solely owned S corporation, Hodge Services, Inc., to support his claim of lost earning capacity following a slip-and-fall accident. Because Hodge is the sole shareholder of Hodge Services and the corporation's profits are attributable to Hodge's own skill and effort rather than invested capital and the labor of others, we conclude, as a matter of first impression in Colorado, that the jury could properly consider the corporation's lost profits in determining Hodge's loss of earning capacity. Accordingly, we affirm the judgment.

I. Background

¶ 2 Hodge, a fire and products liability investigator, is the sole owner and CEO of Hodge Services, a small forensic expert witness company. His major clients are insurance companies and law firms that hire him to investigate fire and products liability claims. The company's office is in Hodge's home, and its only other employee is a secretary.

¶ 3 Hodge Services leased a storage unit from Waterpark. In February 2018, while visiting the storage unit, Hodge slipped and fell on ice. The fall caused a complete retinal detachment

and loss of useful vision in his right eye.

¶ 4 Hodge brought a personal injury lawsuit against Waterpark, alleging negligence and violations of the Premises Liability Act, § 13-21-115, C.R.S. 2021. As part of his economic damages, Hodge claimed a loss of earning capacity. The revenue from Hodge Services was Hodge's only source of income. When the company was doing well, Hodge paid himself a salary of $1,000 per week and occasional dividends from corporate profits; during slow periods, he did not take a salary. He testified that the eye injury dramatically reduced his ability to earn money because "99 percent of [his work] is looking at items to see what failed and why."

¶ 5 During the litigation, Waterpark designated Hodge Services as a nonparty at fault pursuant to section 13-21-111.5, C.R.S. 2021. In the designation, Waterpark asserted that (1) Hodge Services was the tenant of the storage unit and had signed a lease agreement in effect at the time of Hodge's fall; (2) the lease provided that "Tenant shall keep immediate entry areas in front and back of the Premises free and clear of ice and snow"; (3) Waterpark believed Hodge's fall occurred in such "immediate entry areas"; and (4) Hodge Services was therefore "legally responsible for the condition of the subject premises, and was a cause of [Hodge's] alleged injuries and damages."

¶ 6 Before trial, Waterpark filed a motion in limine to bar Hodge from offering evidence of Hodge Services’ lost profits to support his claim of lost earning capacity. Because Hodge Services is incorporated, Waterpark argued, "the [c]ompany's profits are not Hodge's as a matter of law ... and therefore, are improper for the jury's consideration." Rather, Hodge should be "limited to pursuing his personal wage loss."

¶ 7 The district court denied the motion, ruling that

the entire loss claimed by Mr. Hodge is predicated on the decline in income of his business as a result of his slip-and-fall. Because Mr. Hodge is self-employed, he has used the loss of business income as a barometer for his personal income and loss of earnings. He decides how much money his company pays him.... So the Court finds that the lost profits of Mr. Hodge's company [are] closely intertwined with his actual income and ... the Court will permit that testimony.

¶ 8 At trial, Hodge's expert testified that he had been retained to evaluate Hodge's loss of earning capacity and that, in determining what Hodge's average annual earnings would have been without the injury, he considered both Hodge's salary from Hodge Services and the profits of his business. When asked why he considered both salary and profits, he testified that

[o]ne of the benefits of self-employment, having your own business, is you get to decide how much you pay yourself in salary and how much you take in profits. And for some people, that can have tax consequences. And so, generally, what happens is people who have their own business strategize with their accountant and decide how much they want to take in salary, how much they want to take in profit. But in the end, it's all money that they can use to buy stuff. And so again, [w]hat represents [your] earning capacity is your salary and your profit. And that's, of course, assuming that you are the sole owner of your company.

¶ 9 The jury found that Hodge was 40% at fault, Hodge Services was 25% at fault, and Waterpark was 35% at fault. The jury further found that Hodge had suffered $1,150,000 in economic damages, including loss of earning capacity. Ultimately, the court entered judgment against Waterpark and awarded Hodge a total of $752,500.

II. Analysis

¶ 10 Waterpark contends that the district court reversibly erred by admitting evidence of Hodge Services’ lost profits because (1) the corporation's profits do not belong to Hodge; (2) admitting the evidence "led to an inconsistent verdict"; and (3) the evidence should have been barred as a discovery sanction. We examine each contention in turn.

A. Admissibility of Evidence of Hodge Services’ Lost Profits

¶ 11 Hodge first argues that the district court abused its discretion by admitting evidence of Hodge Services’ lost profits because Hodge may not claim damages that belong to his corporation. We disagree.

1. Standard of Review

¶ 12 We review a district court's determination of the admissibility of evidence, including expert testimony, for an abuse of discretion. Bocian v. Owners Ins. Co. , 2020 COA 98, ¶ 63, 482 P.3d 502. A court abuses its discretion when its decision is manifestly arbitrary, unreasonable, or unfair, or based on a misapplication or misunderstanding of the law. Genova v. Longs Peak Emergency Physicians, P.C. , 72 P.3d 454, 458 (Colo. App. 2003). To the extent a court's ruling encompasses purely legal issues, we review that aspect of its ruling de novo. Corsentino v. Cordova , 4 P.3d 1082, 1087 (Colo. 2000).

2. Law and Discussion

¶ 13 "The principle of making the injured party whole underlies all negligence cases." Cope v. Vermeer Sales & Serv. of Colo., Inc. , 650 P.2d 1307, 1309 (Colo. App. 1982). As a general rule, a party is entitled to recover for damages that naturally and probably result from the negligence of another. Id. A trial court may instruct the jury on an injured party's impairment of earning capacity if such an instruction is appropriate in light of the evidence in the case. Jones v. Cruzan , 33 P.3d 1262, 1264 (Colo. App. 2001). Impairment of earning capacity is determined by comparing what the injured party was capable of earning before the accident with what the injured party is capable of earning thereafter. Hildyard v. W. Fasteners, Inc. , 33 Colo. App. 396, 405, 522 P.2d 596, 601 (1974).

¶ 14 Generally, when a duly formed corporation is harmed by some action of a third party, "the right to seek redress for that wrong belongs to the corporation," A.R.A. Mfg. Co. v. Cohen , 654 P.2d 857, 860 (Colo. App. 1982), and "a stockholder is precluded from asserting a personal right of action against [the] third party whose actions have caused damage to the corporation," Nicholson v. Ash , 800 P.2d 1352, 1356 (Colo. App. 1990). Accordingly, a plaintiff in a personal injury action may not recover, as a distinct element of damages, a corporation's loss of "business profits" — that is, "the net earnings of a business [that] arise from the elements of invested capital and employed labor." Ford Motor Co. v. Conrardy , 29 Colo. App. 577, 582-83, 488 P.2d 219, 222 (1971).

¶ 15 On the other hand,

when an injured plaintiff is engaged in a business or occupation in which the element of plaintiff's personal services predominates and the elements of capital and the labor of others [are] not so material, then evidence of loss of profits may be shown as an aid in determining the pecuniary value of plaintiff's loss of time.... Such holdings are neither in conflict with nor an exception to the rule that ‘profits,’ as such, are not recoverable in personal injury actions. The distinction ... is that in such cases the plaintiff's loss is not a loss of profits, in the sense that that term is used in actions for breach of contract, but is a loss of earnings from personal services and, as such, is a loss recoverable as an element of damages.

Id. at 584, 488 P.2d at 222-23 ; see Trujillo v. Wilson , 117 Colo. 430, 433-34, 189 P.2d 147, 149-50 (1948) (Evidence of the injured party's profits from his turkey-raising business was properly admitted "as an aid to the jury in estimating a fair and just compensation for being prevented by the injury from prosecuting such work."); Schell v. Navajo Freight Lines, Inc. , 693 P.2d 382, 385 (Colo. App. 1984) (Because the injured farmer's income was based on personal labor, evidence of "loss of income or profits [was] admissible ... to show damage suffered ... as a result of being prevented from engaging in his farming operations."); Rio Grande W. Ry. Co. v. Rubenstein , 5 Colo. App. 121, 122, 125, 38 P. 76, 76-77 (1894) (An injured traveling salesman could introduce evidence of "the extent and amount of his ordinary business, and thus lay the foundation...