Phoenix Associates III v. Stone

• Decision Date: 12 July 1995
• Docket Number: D,No. 1019,1019
• Citation: 60 F.3d 95
• Parties: 42 Fed. R. Evid. Serv. 999 PHOENIX ASSOCIATES III, Barry Silverstein, Dennis McGillicuddy, and D. Stevens McVoy, individually and as general partners of Phoenix Associates III, Plaintiffs-Counter-Defendants- Appellants, v. Martin STONE, Defendant-Counter-Claimant-Appellee. ocket 94-7744.
• Court: U.S. Court of Appeals — Second Circuit

Page 95

60 F.3d 95

42 Fed. R. Evid. Serv. 999

PHOENIX ASSOCIATES III, Barry Silverstein, Dennis McGillicuddy, and D. Stevens McVoy, individually and as general partners of Phoenix Associates III, Plaintiffs-Counter-Defendants- Appellants, v. Martin STONE, Defendant-Counter-Claimant-Appellee.

No. 1019, Docket 94-7744.

United States Court of Appeals Second Circuit.

Argued March 13, 1995.

Decided July 12, 1995.

David N. Ellenhorn, New York City (Harry Frischer, John J. O'Connell, Stein, Zauderer, Ellenhorn, Frischer & Sharp, New York City, of counsel), for appellants.

Louis A. Craco, New York City (Eliott M. Berman, Willkie Farr & Gallagher, New York City, James M. Brooks, Brooks & Meyer, Lake Placid, NY, of counsel), for appellee.

Before: MESKILL, CARDAMONE and ALTIMARI, Circuit Judges.

MESKILL, Circuit Judge:

This appeal requires us to review evidentiary rulings in a jury trial involving certain oral business agreements.

Phoenix Associates III and its general partners, Barry Silverstein, Dennis McGillicuddy and Stevens McVoy (Phoenix Associates) ¹ appeal from a judgment of the United States District Court for the Northern District of New York, Gagliardi, J., United States District Judge for the Southern District of New York, sitting by designation. Judgment entered following the jury's rejection of appellants' claim that they had an oral contract with defendant-appellee Martin Stone. Appellants contend that the district court erroneously refused to allow into evidence certain documents substantiating their claim. We agree, reverse the judgment below and remand for a new trial.

BACKGROUND

The jury heard evidence of the following events. Silverstein, McGillicuddy and McVoy began a personal and business relationship with Martin Stone in 1987. Stone joined appellants in various business ventures, occasionally on the basis of oral rather than written agreements. Because many of his assets were real estate holdings, Stone often relied on appellants to advance funds for mutual investments on his behalf, with the understanding that he would reimburse them for his share at a later date. Stone maintained numerous investments of his own, and in August 1987 he sought to interest Silverstein in one such enterprise, California Business News. Stone owned this regional business magazine in its entirety but was running out of funds to pay its ongoing expenses, and he sought appellants' help to support the magazine until it became profitable, whereupon it could be sold at a higher price.

Stone's initial inquiry led to detailed negotiations. Specifically, Stone offered Phoenix Associates fifty percent of the magazine's shares in return for a cash payment of $1.2 million, plus an additional $500,000 for Stone's salary for two years, with each party to provide another $250,000 in funding if needed. Although the parties did not reach an agreement on these terms, Phoenix Associates agreed to make available to California Business News a $400,000 certificate of deposit as security for a loan.

Throughout the period from August 1987 to May 1988 the parties negotiated intermittently, with most discussions occurring between Stone and Robert Ambrosini, appellants' accountant and chief financial officer of many of appellants' ventures. In January 1988, with no agreement having been reached, Phoenix Associates began funding the magazine's monthly budget shortfalls and repaid the $400,000 loan for the magazine. In time, losses of California Business News required an ever-increasing investment, raising the price of Phoenix Associates' expected contribution in the parties' negotiations. Phoenix Associates decided to continue funding the magazine's monthly losses, despite Ambrosini's conclusion in May 1988 that the magazine could not maintain itself in the near future and thus could not soon be sold for a profit.

By the summer of 1988 Phoenix Associates had advanced almost $2.7 million to California Business News. Stone had invested an additional $800,000. Ambrosini and Stone again negotiated in May, June and September 1988, and Ambrosini described the results of these meetings in memoranda regularly sent to Silverstein. Specifically, in a September 25, 1988 memorandum Ambrosini agreed with Stone's assessment that it might require another $1.2 or $1.3 million in subsidies for the magazine to reach profitability. The memorandum set forth Stone's proposal that appellants purchase half of California Business News for $2,871,633, a figure that included their payments to date. Ambrosini also described Stone's opinion that they should continue to fund the magazine until it broke even, and stated that Stone had agreed to share equally with Phoenix Associates any future costs of the magazine once appellants' investment equaled the $2,871,633 base amount. Silverstein agreed to the arrangement after reviewing this memorandum, and Ambrosini allegedly conveyed Silverstein's assent to Stone.

Appellants alleged at trial that this agreement constituted an enforceable oral contract, rendering Stone liable for one-half of all payments made by appellants above the base amount. The agreement, they contended, supported their decision regularly to advance funds to the magazine while the magazine continued to lose money. Appellants assert that throughout the period from October 1988 to March 1990 Stone paid a far smaller amount of the magazine's expenses, and Silverstein, McGillicuddy and McVoy all testified to Stone's assurances that he would reimburse Phoenix Associates for the advances made on his behalf when he could sell some real estate. Phoenix Associates had invested a total of $3,380,665 in the magazine by the end of 1988 and a total of $5,688,665 by the end of 1989.

In March 1990 Stone succeeded in selling some property, and he wired $1.2 million to California Business News on March 20, 1990. The magazine then transferred $950,000 to Phoenix Associates that same day. Appellants contended that this transaction reflected Stone's acknowledgement and partial repayment to Phoenix Associates of his share of the advances previously made on his behalf. Stone, they argued, allegedly had informed Ambrosini that he wanted his repayment routed through California Business News for tax reasons. Stone, on the other hand, asserted that he sent the money to California Business News for publishing expenses, and that the magazine wired the $950,000 to Phoenix Associates as a partial repayment of appellants' loans. In support of his position Stone offered evidence that the magazine's March 31, 1990 balance sheet denoted his $1.2 million check as an increase of the debt owed by the magazine to Stone, and Phoenix Associates' books similarly declared the $950,000 it received as a repayment from the magazine. A written notation on appellants' record of the wire transfer, however, stated that the $950,000 was a repayment of Stone's debt to Phoenix Associates.

Appellants further alleged at trial that they continued to fund the magazine for both parties until 1991. Phoenix Associates ultimately became unable to pay California Business News' expenses and stopped funding the magazine. The magazine then was liquidated, with its balance sheets showing a total debt to Stone of $6,787,363 and to Phoenix Associates of $6,192,665.

The parties thus agree that Phoenix Associates held an interest in California Business News, based on an oral agreement between the parties, but disagree as to the form that agreement took. The question at trial was whether the agreement involved only an investment by Phoenix Associates in return for either repayment of the amounts loaned or fifty percent of the magazine's shares, as claimed by Stone, or whether, as asserted by appellants, the parties also agreed to share the magazine's ongoing expenses after Phoenix Associates' investment of $2.87 million equalized the parties' ownership interests.

Appellants attempted to introduce several documents into evidence to support their claim. First, appellants offered the record of the March 20, 1990 wire transfer, recording the $950,000 wired from California Business News to Phoenix Associates, which stated that the transfer was a reimbursement for funds advanced by Phoenix Associates on Stone's behalf. Second, appellants sought to introduce a financial work paper that Ambrosini used in preparing appellants' 1989 financial statements, showing that appellants' assets included a receivable from Stone to Phoenix Associates in the amount of $1,796,932. Third, appellants offered four memoranda from Ambrosini to Silverstein, written from May to September 1988, that recorded the terms of the agreement and the debt allegedly owed by Stone. The district court refused to allow the documents into evidence, sustaining Stone's objections on hearsay grounds.

Stone contended at trial ² that the parties never even discussed the agreement as alleged by appellants, and he relied on the fact that the various unsigned draft agreements prepared by the parties' lawyers throughout the months of sporadic negotiations never included any terms concerning payment of future expenses. Indeed, Stone's counsel continually referred to the absence of any form of written documentation supporting the alleged agreement throughout the trial, and he asserted in his closing argument that appellants' failure to supply any written documentation corroborating the existence of the alleged oral agreement proved that the agreement was merely a recent fabrication. The jury agreed, returning a verdict for Stone. This appeal followed.

DISCUSSION

We will reverse the evidentiary rulings of a district court only if they are manifestly erroneous. See Salem v. United States Lines Co., 370 U.S. 31, 35, 82 S.Ct. 1119, 1122, 8 L.Ed.2d 313 (1962); Proteus Books Ltd. v. Cherry Lane Music Co., 873 F.2d 502, 514 (2d Cir.1989). Absent such an abuse of discretion, a trial court's rulings on evidence will be left undisturbed. See Malarkey v. Texaco,...