Quest Medical, Inc. v. Apprill

• Decision Date: 12 August 1996
• Docket Number: No. 95-10438,95-10438
• Parties: QUEST MEDICAL, INC., Plaintiff--Counter Claimant--Appellee, v. Earl J. APPRILL, Defendant--Counter Claimant--Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1080

90 F.3d 1080

QUEST MEDICAL, INC., Plaintiff--Counter Claimant--Appellee, v. Earl J. APPRILL, Defendant--Counter Claimant--Appellant.

No. 95-10438.

United States Court of Appeals Fifth Circuit.

Aug. 12, 1996.

Jasper G. Taylor, III, Hughes & Luce, Dallas, TX, for Quest Medical, Inc.

Gary S. Cohen, Denver, CO, for Earl J. Apprill.

Appeal from the United States District Court for the Northern District of Texas.

Before POLITZ, Chief Judge, and GOODWIN ¹ and DUHE, Circuit Judges.

DUHE, Circuit Judge:

Appellant, Earl J. Apprill, ("Apprill") sued appellee, Quest Medical, Inc., ("Quest") under four alternative theories of liability for Quest's alleged fraudulent conduct in a stock purchase transaction. After the jury returned a verdict in favor of Apprill on all theories, the district court, pursuant to Quest's motion for judgment notwithstanding the verdict, reduced the jury's award of $270,000 actual damages and $500,000 exemplary damages to $101,027 of actual damages with no exemplary damages. Apprill appealed, and we affirm.

I. BACKGROUND

In the fall of 1988, Quest began negotiating with Apprill to purchase Apprill's stock in HemoTec, Inc. Quest planned to launch a tender offer for HemoTec and needed to acquire certain large blocks of the stock before the tender offer could be successful. Quest represented to Apprill that the price offered for his stock ($4.625 per share) was equal to or higher than the price Quest would pay other large shareholders. Quest presented Apprill a Stock Purchase Agreement which Apprill refused to sign because it contained a clause purporting to grant Quest discretion to delay subsequent closings contemplated by the Agreement during the pendency of the tender offer. After Quest represented to Apprill that the provision did not give Quest the ability to delay the subsequent closings beyond April 1, 1989, Apprill signed the Agreement on January 6, 1989 and transferred most of his shares to Quest at the first closing on January 11. ²

Quest launched its tender offer on January 19, offering $5.00 per share. The tender offer continued until August 28. On April 1, because the tender offer was still outstanding, Quest refused to purchase the rest of Apprill's stock, but demanded that Apprill sell his stock to Quest the day after the tender offer ended. Apprill refused and sold his shares to another purchaser at a higher price.

Quest sued Apprill for breach of contract. Apprill counterclaimed asserting four different theories of liability based on Quest's misrepresentations. ³ At the first trial, the jury found Apprill breached the Agreement by refusing to sell the remainder of his stock to Quest. The jury rejected Apprill's Rule 10b-5, Texas Business and Commerce Code (" § 27.01"), and Texas Securities Act ("TSA") counterclaims, but concluded Apprill had established his common-law fraud counterclaim. The jury made awards in favor of each party against the other, and the district court entered a net judgment in favor of Apprill. Both parties appealed. In an unpublished disposition, we affirmed the verdict on Quest's breach of contract claim, remanding solely for redetermination of the amount of Quest's damages. Conversely, we reversed the jury's findings on Apprill's four counterclaims and remanded those claims to the district court for a new trial.

On remand, Quest moved for summary judgment, inter alia, on the amount of its damages for Apprill's breach of contract. The district court granted the motion only as to damages awarding Quest $105,493. The district court then set Apprill's fraud claims for trial, bifurcating the exemplary damages issue. The jury returned a verdict for Apprill on all four theories of recovery. Although instructed on the elements of all four theories, the jury received a single damages instruction. The jury awarded Apprill $270,000 in actual damages and, after completing the bifurcated portion of the trial, awarded him $500,000 in exemplary damages. Apprill moved for judgment on the verdict, and Quest sought judgment notwithstanding the verdict ("JNOV"). The district court denied Apprill's motion and granted Quest JNOV.

The district court concluded the evidence did not support an award of actual damages of $270,000. The district court then calculated the actual damages supported by the evidence under each of Apprill's theories of recovery. On Apprill's § 27.01 and common-law fraud claims, the court concluded that Apprill incurred no out-of-pocket loss and that his benefit-of-the-bargain loss was only $16,740. ⁴ The district court further concluded that $500,000 in exemplary damages was unreasonable in light of such a small actual damage award and that no reasonable amount of exemplary damages, when added to $16,740, would exceed Apprill's recovery under the TSA. Accordingly, the district court did not determine an appropriate amount of exemplary damages under these theories. On Apprill's TSA claim, the district court found sustainable damages of $101,027, basing its calculation on the 44,639 shares actually transferred by Apprill to Quest. The district court held exemplary damages were not recoverable under the TSA. Finally, as to Apprill's Rule 10b-5 claim, the district court refused to reach the damages issue because it was "satisfied that such damages, even if recoverable, would amount to no more than those recoverable under [the TSA]." Thus, the district court concluded that Apprill could only recover damages under one theory of recovery, that the TSA afforded Apprill the largest recovery, that the TSA did not provide for exemplary damages, and that Apprill's TSA damages were $101,027. ⁵ Accordingly, the district court entered net judgment in favor of Quest. Apprill appealed.

Apprill contends the district court erred by: (1) finding that the record did not support the jury's award of $270,000 in actual damages on his § 27.01 and common-law fraud claims; (2) concluding that the $500,000 in exemplary damages assessed by the jury was not reasonably proportioned to the actual damages awarded under the § 27.01 and common-law fraud theories; (3) holding that the TSA does not provide for the recovery of exemplary damages; and (4) basing Apprill's TSA damages only on the 44,639 shares actually transferred to Quest, and not on the entire 61,239 shares covered by the Agreement. Additionally, Apprill maintains the district court erred by entering judgment for Quest on its breach of contract claim and by imposing an incorrect interest rate for computing prejudgment interest owed by Apprill on Quest's breach of contract award. We find no merit in Apprill's contentions and affirm.

II. DISCUSSION

Apprill's appeal proceeds against the backdrop of the district court's granting Quest JNOV. We review rulings on motions for JNOV de novo, applying the same standard as the district court, Crist v. Dickson Welding, Inc., 957 F.2d 1281, 1285 (5th Cir.), cert. denied, 506 U.S. 864, 113 S.Ct. 187, 121 L.Ed.2d 132 (1992), which directs us to "view the evidence in the light most favorable to the party opposing the motion, and sustain the JNOV 'only if we find that on all the evidence no reasonable juror could arrive at a verdict contrary to the district court's conclusion,' " Allied Bank-West, N.A. v. Stein, 996 F.2d 111, 114 (5th Cir.1993) (quoting Ellison v. Conoco, Inc., 950 F.2d 1196, 1203 (5th Cir.1992), cert. denied, 509 U.S. 907, 113 S.Ct. 3003, 125 L.Ed.2d 695 (1993)).

A. Actual damages

1. § 27.01 and common-law fraud theories

Apprill argues the record supports the jury's award of $270,000 in actual damages under his § 27.01 and common-law fraud theories. His argument is two-fold.

a. Out-of-pocket measure of damages

The district court found that the parties stipulated that the value of HemoTec stock on the date of sale was $4.1875 per share. The parties stipulated this was the closing price of the stock on that date. The district court must determine the fair market value of the stock to properly compute out-of-pocket damages.

Apprill advocates that the district court should have determined the fair market value of the stock by employing by analogy the valuation technique used in stock conversion cases. ⁶ Had it done so, the district court would have found evidence that HemoTec stock reached a high of $10.75 per share on August 28, 1989, and that Apprill testified he would not have sold his stock had he not been misled by Quest. ⁷ From these facts, the jury could have inferred that Apprill would have held his stock and profited from the large increase in its value, since the stock conversion method allows consideration of later values. See supra note 6.

That the parties stipulated that "[o]n January 6, 1989, the closing price for Hemotec stock was $4.1875 per share" is true. (Emphasis added). However, the distinction Apprill attempts to draw between the price at which HemoTec stock last traded on January 6 and the market value of HemoTec stock on that date is untenable, and so we find no error and the district court's use of the closing price to compute out-of-pocket loss.

"According to the classic formulation, '[f]air market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.' " Amerada Hess Corp. v. Commissioner, 517 F.2d 75, 83 (3d Cir.) (citing United States v. Cartwright, 411 U.S. 546, 551, 93 S.Ct. 1713, 1716-17, 36 L.Ed.2d 528 (1973) (quoting Treas.Reg. § 20.2031-1(b))), certs. denied, 423 U.S. 1037, 96 S.Ct. 574, 46 L.Ed.2d 412 (1975). See also Keener v. Exxon Co., USA, 32 F.3d 127, 132 (4th Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 1108, 130 L.Ed.2d 1074 (1995); United States v. Campbell, 897 F.2d 1317, 1322 (5th Cir.1990); Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan Enters., 793 F.2d 1456, 1461 (5th Cir.1986), certs. denied, 479 U.S. 1034, 1089, ...