King v. Horizon Corp., s. 80-1717

• Decision Date: 10 March 1983
• Docket Number: Nos. 80-1717,80-1752,s. 80-1717
• Citation: 701 F.2d 1313
• Parties: 13 Fed. R. Evid. Serv. 534 Frankie J. KING and Beverly J. King, Plaintiffs-Appellees and Cross-Appellants, v. HORIZON CORPORATION, Defendant-Appellant and Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1313

701 F.2d 1313

13 Fed. R. Evid. Serv. 534

Frankie J. KING and Beverly J. King, Plaintiffs-Appellees and Cross-Appellants, v. HORIZON CORPORATION, Defendant-Appellant and Cross-Appellee.

Nos. 80-1717, 80-1752.

United States Court of Appeals Tenth Circuit.

March 10, 1983.

Rehearing Denied June 6, 1983.

Robert J. Kapelke, Denver, Colo. (Stephen Klein, Denver, Colo., on briefs), Gorsuch, Kirgis, Campbell, Walker & Grover, Denver, Colo., for defendant-appellant and cross-appellee.

Kenneth N. Kripke, Denver, Colo. (Joseph M. Epstein, Denver, Colo., on brief), Kripke & Epstein, P.C., Denver, Colo., for plaintiffs-appellees and cross-appellants.

Before SETH and DOYLE, Circuit Judges, and ANDERSON, District Judge. ^*

ALDON J. ANDERSON, District Judge.

Appellant, Horizon Corporation [Horizon], is a Delaware corporation with its principal office and place of business in Tucson, Arizona. It has been acquiring, subdividing and reselling undeveloped lots in New Mexico, Texas, and Arizona. Generally, Horizon's pattern of sales has been to sell vacant unimproved land, sometimes without examination, for investment purposes, and then to induce the buyers to "trade up" their land to other lots after making site visits. This process of selling land to prior customers is sometimes referred to as "reloading."

Cross-appellants, Frankie J. King and Beverly J. King [Kings], unsophisticated real estate purchasers, first began investing in the Horizon developments in 1973. In the next few years the Kings were induced to trade in their old single-family lots toward the purchase of more expensive lots in the Horizon development located at Waterwood, Texas. This process of "trading up" occurred nine times before the transaction occurred that is the subject of this action.

In September of 1975 the Kings were once again persuaded to trade in their other Horizon property and to invest additional cash to purchase a multi-family lot in Waterwood, Texas. The new lot sold for $75,700, less a trade-in credit of $19,900. In order to induce the Kings to purchase this property, Horizon's sales representative, a Mr. Carl Gustafson, told them that the lot had a present value of $75,700 and was a good investment. This representation was false and was known by Mr. Gustafson to be false at the time it was made.

At the time of the above-noted sale, the Kings were supplied a number of documents that they were supposed to read before signing the relevant land sales contract. These documents contained various disclaimers as to Horizon's responsibility for the representations of its agents. For example, the Agreement for Deed that the Kings executed stated that "[b]uyer acknowledges that he has relied solely upon the representations contained herein ... that no guarantee of appreciation, resale or repurchase has been given." The Kings signed the agreement without having read it and without having read any of the documents they were given. The Kings claimed that the reason they did not read the documents was the fact that Horizon delivered them after they had been "wined and dined" and with no serious effort on the part of Horizon to inform them of the significance of the documents.

When the Kings discovered that the land they had purchased was only worth $8,300 they brought an action for deceit against Horizon in the United States District Court for the District of Colorado. Jurisdiction existed by virtue of diversity of citizenship. 28 U.S.C. Sec. 1332.

One year after the action was commenced in the trial court, Judge Ernest G. Barnes, Administrative Law Judge, rendered an Initial Decision (Docket No. 9017) in a Federal Trade Commission [FTC] proceeding entitled, "In the Matter of Horizon Corporation." [FTC Report.] The FTC action was commenced in March of 1975 with a 36 count complaint charging Horizon with unfair or deceptive acts and practices and unfair methods of competition. Over 200 witnesses and more than 2400 exhibits were heard and examined over an eighteen-month period from March, 1977 through September, 1978. After hearing this evidence Judge Barnes found that Horizon had engaged in a pattern and course of fraudulent and deceptive conduct. The Kings filed a Motion in Limine with the trial court seeking to have the FTC findings admitted into evidence under Rule 803(8)(c), Federal Rules of Evidence. The trial court in May of 1980 ruled that the findings were admissible under the Rule but limited their admissibility to that of "background material."

The action was tried to the trial court and on May 30, 1980, it entered its findings, conclusions, and judgment in the matter. The court ruled that Horizon's agent, Mr. Gustafson, had made a fraudulent statement that had induced the Kings to purchase the subject property; that the fraud could be attributed to Horizon; and that Horizon was liable to the Kings for what they were "out of pocket" from the deal, including the "trade in" value of their prior Horizon properties, less what the land was worth. The court did not feel that the Kings were entitled to punitive damages, however. Both sides have appealed from the judgment.

Horizon alleges that the trial court erred as a matter of law in finding that the Kings reasonably relied on its agent's misrepresentations, when the documents of sale expressly disclaimed any authority in its agents to make such representations. Horizon also alleges that the trial court erred in its calculation of the compensatory damage award since the court included the full so-called value of the land that the Kings had traded in toward the purchase price of the new acquisition.

The Kings' appeal from the trial court's judgment is based on their assertion that the court erred in limiting the admissibility of the FTC Report to background material. If the court had not limited the admissibility of the report, it is the Kings' allegation that a finding of punitive damages would have been appropriate.

Since the trial court below was the trier of fact, its findings of fact should not be disturbed on appeal unless clearly erroneous. Fed.R.Civ.P. 52(a); see, e.g., Guzman v. Pichirilo, 369 U.S. 698, 82 S.Ct. 1095, 8 L.Ed.2d 205 (1962). In addition, since the action was one based on diversity "[d]eference is to be accorded the views of a resident federal district judge with respect to the interpretation and application of the law of his state ... [and] [a]ppellate review is ... governed by the 'clearly erroneous' standard." Loveridge v. Dreagoux, 678 F.2d 870, 877 (10th Cir.1982). See also Audit Services, Inc. v. Rolfson, 641 F.2d 757 (9th Cir.1981); Great-West Life Assur. Co. v. Levy, 382 F.2d 357 (10th Cir.1967).

Applying the foregoing standards of appellate review, the court is persuaded that the trial court did not err in either its findings of fact or in its conclusions of law. Specifically, the court is of the opinion, for the reasons more fully set forth below, that the trial court was correct in ruling that the admissibility of the FTC Report should be limited, that the Kings were not entitled to punitive damages, that the Kings could have reasonably relied upon the misrepresentations of Horizon's agent in the face of Horizon's disclaimer clauses, and that there was a reasonable basis for adding the full value of the traded-in property in the assessment of damages.

A. The FTC Report

The Kings allege that the trial court erred in limiting the admissibility of the FTC Report to "background material." In support of their allegation the Kings argue that under the circumstances surrounding the FTC hearing (Horizon, represented by counsel, was present throughout the hearing, was given ample opportunity to cross-examine witnesses, and presented in excess of 100 witnesses in its own behalf) "[t]here cannot be any real question of trustworthiness of the findings of fact." Opening/Reply Brief of Plaintiff-Appellees and Cross-Appellants at 26. The Kings argue that "untrustworthiness" is the only basis for denying the admissibility of an "investigative report" under Rule 803(8)(c). ¹ The Kings further note that no court, which has admitted an exhibit under the rule, has limited the admission of an investigative report to "background material."

This court is not persuaded by the arguments presented. Once an exhibit has been admitted into evidence, and no one disputes that the trial court admitted the FTC Report, the "weight" to be given it is within the discretion of the trial court. As noted by the United States Supreme Court, regarding the effect of an arbitration decision on a subsequent suit in federal district court: "The arbitral decision may be admitted as evidence and accorded such weight as the court deems appropriate." Alexander v. Gardner-Denver Co., 415 U.S. 36, 60, 94 S.Ct. 1011, 1025, 39 L.Ed.2d 147 (1974) (emphasis added). Further, the Court refused to set up standards to be applied in determining the weight to be accorded the exhibit since "this must be determined in the court's discretion with regard to the facts and circumstances of each case." Id. at 60 n. 21, 94 S.Ct. at 1025 n. 21. See also United States v. School District of Ferndale, 577 F.2d 1339, 1355 (6th Cir.1978).

In regard to the FTC Report, the trial court expressed its fears that the findings might contain errors, since it had not yet been affirmed by the full commission and had not yet been subject to judicial review. Tr. (Supp. Vol. I) at 12. The report was, accordingly, limited to background material and this court will not say that the trial court abused its discretion in doing so.

B. Punitive/Exemplary Damages

The Kings allege that if the trial court had not erred in limiting the admissibility of the FTC Report it would have been convinced beyond a reasonable doubt that they were entitled to punitive damages. ² They argue that the report demonstrates that Horizon intentionally engaged in a nationwide scheme of fraudulent sales practices and that such intentional...