Wortley v. Camplin

• Citation: 333 F.3d 284
• Decision Date: 24 June 2003
• Docket Number: No. 02-2335.,02-2335.
• Parties: Joseph G. WORTLEY; Barbara J. Wortley, Plaintiffs, Appellants, v. Peter M. CAMPLIN, Defendant, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 284

333 F.3d 284

Joseph G. WORTLEY; Barbara J. Wortley, Plaintiffs, Appellants, v. Peter M. CAMPLIN, Defendant, Appellee.

No. 02-2335.

United States Court of Appeals, First Circuit.

Heard May 5, 2003.

Decided June 24, 2003.

COPYRIGHT MATERIAL OMITTED

David J. Perkins with whom Patrick J. Mellor and Perkins Olson, PA, were on brief for appellants.

Paul F. Macri with whom William D. Robitzek and Berman & Simmons, PA, were on brief for appellee.

Before LYNCH, Circuit Judge, and CAMPBELL and PORFILIO,^* Senior Circuit Judges.

LYNCH, Circuit Judge.

Peter Camplin, a Maine businessman, owned and operated the Sea Dog Brewing Company, which ran into financial trouble. In the spring of 2000 he sold the company to Joseph and Barbara Wortley, who set up a trust to hold the stock. Claims and litigation brought by each side ensued. Eventually a federal court jury found that Joseph Wortley had violated the federal securities laws, Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b) (2000), and Rule 10b-5, 17 C.F.R. § 240.10b-5 (2002), and awarded Camplin $265,000 plus interest. At trial the judge dismissed Wortley's claim that Camplin had violated warranties under Maine's version of the Uniform Commercial Code ("U.C.C.") on the ground that the evidence demonstrated the Wortleys had waived the claim through a document they executed.

The Wortleys appeal, making three arguments. Both appeal the dismissal of the U.C.C. warranty claim; Joseph Wortley also argues that the evidence was insufficient as a matter of law to sustain the jury verdict against him and that the damages award was excessive and contrary to law. We affirm.

I.

Camplin founded the Sea Dog Brewing Co. in 1992. He owned all the stock (one hundred shares) in Sea Dog, either through a proxy (his brother) or in his own name. He operated the business together with his two sons: Brett, who ran the kitchens, and Peter, Jr., who managed the business end. Sea Dog opened its first location, a tavern serving food and its own micro-brewed beers, in Camden, Maine in 1992. In 1995, Sea Dog opened a second location (in Bangor, Maine) and began bottling and distributing beer on a larger scale for sale outside the chain's restaurants and bars. Sea Dog's bottling and distribution operations produced substantial losses starting in 1996.

On February 28, 1997, Sea Dog closed on a $1.8 million loan from Camden National Bank.¹ Camplin personally guaranteed the loan.² As collateral, Camplin pledged his one hundred shares of Sea Dog stock; his personal residence in Lincolnville, Maine; and the stock and income from a trust holding a partial ownership interest in a building in Freeport, Maine. Camplin's Sea Dog stock remained subject to this pledge through spring 2000, when he sold the stock to Wortley.

Sea Dog lost over $900,000 from 1996 to 1998. In 1999, Camden National Bank asked Camplin to find another bank with which to do business. Camplin approached several banks but was unable to refinance.

Sea Dog's balance sheet shows that it was insolvent in 1999. Camplin's accountant indicated on Sea Dog's 1999 financial statement that the company might be unable to continue as a going concern. Sea Dog's near-term financial problems grew increasingly severe. By spring 2000, it owed over $500,000 to trade creditors, and the landlord at one of its locations had initiated eviction proceedings. Sea Dog nevertheless retained substantial assets, including an option on a piece of real estate in Bangor valued at over one million dollars.

Camplin decided to sell Sea Dog. In January 2000, he began negotiations to sell Sea Dog to Fred Forsley, a friend and business associate who was the president of Shipyard Brewing Co.³ Camplin and Forsley entered into a letter of intent for a secured creditor sale of Sea Dog; in this letter, Sea Dog acknowledged that it was in technical default of its obligations to Camden National Bank, and agreed not to block the Bank from foreclosing on Camplin's Sea Dog stock and then re-selling the stock to Forsley. The letter of intent provides that Forsley would use "[a]ll efforts... to maintain employees" after a sale. The deal fell apart in February or March 2000, apparently because Forsley would not indemnify Camplin for his personal guarantee of the bank loan. Camplin then began aggressively looking for another prospective buyer.

In March 2000, Scott Johnson, Camplin's brother-in-law, introduced Camplin to Wortley, an entrepreneur living in Florida who had been Johnson's college roommate. Camplin and Wortley met on March 21 and 22, 2000, in a restaurant in Florida to discuss Wortley's possible acquisition of Sea Dog. Camplin says that during these meetings the two men agreed that Camplin would sell Sea Dog to Wortley for $100 plus the following consideration: (1) Wortley would indemnify Camplin from any personal liability on the guarantee of the $1.8 million bank loan as well as smaller obligations to other Sea Dog creditors; (2) Wortley would pay Camplin the sum of $108,000 as reimbursement for personal funds Camplin had recently invested in Sea Dog, and Camplin would continue to receive his salary and benefits until this sum was paid; (3) Wortley would retain Camplin's two sons, Peter and Brett, in Sea Dog's senior management; and (4) the legal documents memorializing the transaction would incorporate these promises. Camplin's son, Peter, Jr., testified that Wortley made the first three promises again at a meeting on April 2, 2000.

Wortley's recollection of the meetings on March 21 and 22 and April 2 was very different. He acknowledged that Camplin raised the issues of the $1.8 million personal guarantee, the $108,000 investment, and his sons' employment, but he denied agreeing to Camplin's requests. As to the personal guarantee, Wortley testified that he told Camplin he would "stand between him and Camden National Bank" by foregoing any offer by the Bank to discount the debt as part of refinancing (which might require Camplin to pay the difference between the discounted amount and the full amount.) Wortley also acknowledged that he told Camplin there was a possibility "to take the bank out of the picture [altogether] by the end of the summer." Wortley testified that he refused to reimburse Camplin the sum of $108,000, but gave him the opportunity to earn at least some of the money back by consulting for Sea Dog. Wortley testified that he agreed merely to continue employing Camplin's sons, not to have them head Sea Dog. Wortley testified that the "driving force" behind Camplin's willingness to sell Sea Dog for the nominal consideration of $100 was his recognition that the business needed an immediate injection of cash in order to survive.

Camplin and Wortley met on April 7, 2000 to sign a stock purchase agreement (SPA). The SPA, which was drafted by Wortley's attorney, provides that Wortley purchase Camplin's Sea Dog stock for $100. It does not mention the promises Wortley allegedly gave as consideration at the March 2000 meetings.⁴ Clause 2(b) does provide that Wortley's obligation to purchase (but not Camplin's obligation to sell) is contingent upon the signing of "a more comprehensive stock purchase agreement containing comprehensive representations, warranties and covenants of Seller, satisfactory to Purchaser and his counsel, with respect to the Stock and the Company's business, financial condition, results of operations and prospects." The SPA contains an integration clause.

Camplin testified that before signing the SPA he observed to Wortley that the agreement omitted the promises that were his main consideration for the Sea Dog stock. Wortley, Camplin testified, responded that the parties would sign a subsequent, comprehensive agreement containing Wortley's promises. According to a letter sent by Camplin on November 6, 2000, Wortley referred Camplin to clause 2(b) of the SPA, assuring him that the omitted promises would be part of the agreement referenced therein. On this basis, Camplin testified, he signed the SPA. He says he put aside his concerns about the SPA's omissions and ambiguities partly because Sea Dog's precarious financial situation created strong time pressure.⁵ Camplin, a self-described sophisticated businessman who had several lawyers, was not represented by an attorney in the sale of Sea Dog to Wortley.

In mid-April, Wortley transferred $30,000 to a trust maintained by Camplin's attorney to be used to purchase merchandise for Sea Dog. Camplin did not receive any of this money. Apart from Camplin's salary and the initial $100 payment, Wortley made no payments to Camplin before Sea Dog's bankruptcy filing in November 2000.

On May 1, 2000, Wortley assigned his rights under the SPA to his wife for the purpose of placing the Sea Dog stock in trust. That day, Wortley's attorney faxed Camplin a letter, signed by both Mr. and Mrs. Wortley; an Assignment and Transfer of Rights; and a Stock Power. The letter notified Camplin of the assignment, requested that he sign and return the attached documents, and waived those "Conditions to Purchaser's Obligations" from the SPA that had not yet been fulfilled. Camplin then called Wortley's attorney to ask whether a more comprehensive agreement was forthcoming. Camplin testified that Wortley's attorney answered affirmatively. Wortley's attorney denied this and testified that he told Camplin that Camplin needed to speak directly to Wortley. Camplin executed the Assignment and Stock Power documents on May 2, 2000, transferring his Sea Dog stock to Mrs. Wortley. Later that day, Mrs. Wortley transferred the stock to the Sea Dog Trust.

Wortley initially kept Camplin and his sons on the payroll, but failed to fully meet his purported obligations to any of the family members. Sea Dog paid Camplin's salary and health benefits during much but not all of the summer and fall of 2000. Meanwhile, Wortley and Scott Johnson, whom Wortley appointed President of Sea Dog,...