Kraatz v. Heritage Imports

• Decision Date: 12 June 2003
• Docket Number: No. 20010598-CA.,20010598-CA.
• Citation: 71 P.3d 188,2003 UT App 201
• Parties: William Anthony KRAATZ, Plaintiff, Appellant, and Cross-appellee, v. HERITAGE IMPORTS, a Utah corporation dba Heritage Honda; O. Bryan Wilkinson; and Jeffery J. Wilkinson, Defendants, Appellees, and Cross-appellants.
• Court: Utah Court of Appeals

71 P.3d 188

2003 UT App 201

William Anthony KRAATZ, Plaintiff, Appellant, and Cross-appellee, v. HERITAGE IMPORTS, a Utah corporation dba Heritage Honda; O. Bryan Wilkinson; and Jeffery J. Wilkinson, Defendants, Appellees, and Cross-appellants.

No. 20010598-CA.

Court of Appeals of Utah.

June 12, 2003.

Kent B. Linebaugh, Jones Waldo Holbrook & McDonough, Michael N. Zundel, and James A. Boevers, Prince Yeates & Geldzahler, Salt Lake City, for Appellant.

Donald J. Winder and Gerry B. Holman, Winder & Haslam, Salt Lake City, for Appellee.

Before JACKSON, P.J., and DAVIS and THORNE, JJ.

AMENDED OPINION

JACKSON, Presiding Judge:

BACKGROUND

¶ 1 This appeal originates from an employment contract signed by Appellant William Kraatz and Appellee Heritage Imports (Heritage) in May 1990.¹ Heritage hired Kraatz as its manager, and the contract provided an employment term of five years. Twenty-seven months later, Heritage terminated Kraatz and their contract. Kraatz filed suit for wrongful termination in January 1993, seeking $3,507,980, plus interest, in direct (general) and consequential (special) damages. A four-day trial ensued in August 1996. Later in 1996, the trial court ruled that Heritage did not wrongfully terminate Kraatz.

¶ 2 Kraatz appealed, and in March 1999, we reversed the trial court's ruling and remanded the case for determination of damages. See Kraatz v. Heritage, 1999 UT App 70 (Kraatz I) (memorandum decision). After the parties filed memoranda and exhibits, the trial court conducted a brief motion hearing on March 26, 2001. On April 30, 2001, the trial court entered its amended findings and conclusions awarding Kraatz certain direct damages, and excluded all consequential damages as a matter of law. Judgment was entered June 28, 2001, for $188,775.81 in damages, and $432,941.36 in attorney fees.

¶ 3 Kraatz appealed again, asserting that he was entitled to damages of $649,915.94, and $432,941.36 in attorney fees, totaling $1,082,857.30. Heritage cross-appealed, challenging the amount of attorney fees.

ANALYSIS

Damages for Breach of Contract

¶ 4 The primary remedy for economic losses caused by the non-performance of contracts is an action for damages for breach. See 24 Samuel Williston, A Treatise on the Law of Contracts § 64:1 (4th ed.2002). The fundamental principle underlying availability of contract damages is that of compensation. See id. The disappointed promisee is usually entitled to an award of money damages reasonably calculated to make him whole. See id. Damages are measured according to pecuniary loss suffered. See id. Thus, an award of monetary damages supplies the compensation. See id. The idea is to place the plaintiff-promisee in as good a position as he would have been in had the defendant-promisor not breached the contract. See id. In addition to recovery of direct (general) damages, the non-breaching party may also be entitled to recover so-called consequential (special) damages. See id.

¶ 5 In Kraatz I, the only issue before us was whether Heritage had breached Kraatz's employment contract by wrongfully terminating the contract and the employment. There, the trial court ruled that the termination was not wrongful. On appeal, we ruled that the termination was wrongful. Thus, we remanded the case to the trial court to assess Kraatz's damages, i.e., all economic losses. Where an employment contract

is for a definite term, the employee may recover damages for benefits, such as pension contributions, insurance, and the use of an automobile, which would have been received had the employment agreement not been breached, since limiting damages solely to the salary payable for the remainder of the contract would not make the employee whole. The discharged employee may thus recover damages for lost tangible benefits, such as insurance, and rights in stock ownership or pension plans, and there is even authority permitting the recovery of damages for lost intangible benefits....

Id. § 66:5.

¶ 6 We first review the trial court's damage awards made pursuant to the express terms of the contract. Then we review the trial court's rulings with respect to consequential damages, attorney fees, and prejudgment interest.

I. Direct Damages

A. Appreciation of Heritage's Stock Value

¶ 7 Under the terms of the contract, Kraatz was entitled to fifteen percent of the value of Heritage's stock in excess of $2.5 million in the event of wrongful termination. After hearing extensive evidence on the value of Heritage's stock at the time of Kraatz's wrongful termination, the trial court found the stock to be worth $3.1 million. It awarded Kraatz $90,000, i.e., fifteen percent of $600,000 ($3.1 million less $2.5 million). Kraatz challenges the trial court's finding that the dealership was worth $3.1 million at the time of his termination.

[A]ppellate courts may not set aside a trial court's findings of fact "unless clearly erroneous." Utah R. Civ. P. 52(a). To successfully demonstrate that a factual finding is clearly erroneous, the appellant must marshal all the evidence in favor of the factual finding and show that, even when viewed in the light most favorable to the trial court's factual finding, the favorable evidence is insufficient to support the finding. Moreover, in assessing whether a finding is clearly erroneous, reviewing courts must give "due regard ... to the opportunity of the trial court to judge the credibility of the witnesses." Utah R. Civ. P. 52(a).

Roderick v. Ricks, 2002 UT 84,¶ 27, 54 P.3d 1119 (footnote omitted).

¶ 8 The evidence adduced at trial, upon which the trial court based its finding of $3.1 million as the value of the dealership, consisted solely of testimony by Larry H. Miller.² Miller testified that shortly before Kraatz's termination, Miller purchased sixty percent of the stock in Heritage from "Bry" Wilkinson for $3 million to $3.1 million. This figure, Miller testified, included more than simply the value of the sixty percent share in the corporation, since it included, among other things, the value of "blue sky."

¶ 9 Miller further testified that he offered to pay Wilkinson $1.2 million for the remaining forty percent of the stock. However, he qualified that testimony by indicating that the offer of $1.2 million had more to do with a personal obligation to Wilkinson's children, who would receive the payment, than with the actual value of the stock. Ultimately, Miller testified that at the time of the purchase, the entire dealership was worth $3.1 million.

¶ 10 Kraatz introduced testimony by expert witnesses seeking both to discredit Miller's testimony and to establish an alternate value of the dealership. According to both Kraatz's separate valuation and his analysis of Miller's testimony, the dealership should have been valued at least at $4.2 million, and possibly as much as $4.4 million. According to Heritage, Kraatz's expert witnesses based this figure "on a subjectively determined capitalization rate of 17.5%, after making numerous adjustments to actual income. He also based his valuation on a [National Automobile Dealers Association] guide of `above average' dealers, rather than actually evaluating the Heritage dealership."

¶ 11 The trial court ultimately made a credibility determination, finding Miller more credible than Kraatz's witnesses. This determination was based in part on Miller's superior position as one of the largest and most reputable automobile dealers in Utah, and in part on the relative soundness of Miller's valuation methodology compared with that of Kraatz's experts.

¶ 12 Kraatz asks us to overturn the trial court's finding that the dealership was worth $3.1 million by essentially rearguing the evidence that was considered at trial. He points out inconsistencies in Miller's testimony, and Heritage's counsel admits to those inconsistencies. However, while Kraatz has marshaled the evidence in support of the finding, he has failed to show "the fatal flaw" in the evidence whose "gravity [is] sufficient to convince [us] that the court's finding resting upon the evidence is clearly erroneous." West Valley City v. Majestic Inv. Co., 818 P.2d 1311, 1315 (Utah Ct.App.1991).

¶ 13 For example, Kraatz cites several times Miller's testimony that Miller purchased sixty percent of the stock for $3.1 million, and then contrasts that testimony with Miller's testimony that at the same time the dealership was worth exactly the same amount. Kraatz's counsel argued at oral argument that Miller essentially testified that "two plus two equals three." While this may be convincing rhetoric, it ignores the complexity of business valuation principles generally and of this transaction specifically.

¶ 14 In dealing with that complexity, the trial court explicitly based its valuation finding on its determination that Miller was more credible as a valuation witness than were Kraatz's experts. Kraatz offers no "fatal flaw," id., in that determination of credibility. Thus, he has not "convince[d] us of the [trial] court's missteps in application of the evidence to its findings. The findings, then, have not been shown to be clearly erroneous." Id. Accordingly, we affirm the trial court's finding regarding the dealership's valuation at the time of Kraatz's termination, and its award of $90,000 in stock appreciation bonus.

B. Profit Bonus

¶ 15 The employment contract gave Kraatz the right to a yearly bonus of $4,000 plus ten percent of the dealership's net profits over $280,000. The contract provides that the net profits shall be "determined in accordance with accounting practices acceptable to and used by [Heritage] in reporting to American Honda, Incorporated, or such other accounting method as is mutually acceptable to both [Heritage] and [Kraatz]." The trial court awarded Kraatz no additional profit-sharing bonus because Heritage reported net losses in two of the three years in question, and reported only $5,169 profit for the other year in question. Thus...