Eateries, Inc. v. J. R. Simplot Co.

346 F.3d 1225, 2003 U.S. App. LEXIS 20349, 2003 WL 22285828
CourtCourt of Appeals for the Tenth Circuit
DecidedOctober 6, 2003
Docket02-6060, 02-6063
StatusPublished
Cited by61 cases

This text of 346 F.3d 1225 (Eateries, Inc. v. J. R. Simplot Co.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Tenth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Eateries, Inc. v. J. R. Simplot Co., 346 F.3d 1225, 2003 U.S. App. LEXIS 20349, 2003 WL 22285828 (10th Cir. 2003).

Opinions

BRORBY, Senior Circuit Judge.

J.R. Simplot Company appeals the district court’s award of damages to Eateries, Inc., and Fiesta Restaurants, Inc. Eateries and Fiesta likewise appeal a portion of the damage award. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm in part and reverse in part.

BACKGROUND

Eateries is the sole shareholder of Fiesta. Fiesta owns and operates several Garcia’s Mexican Restaurants. Eateries and Fiesta contracted with Simplot for Simplot [1228]*1228to provide the Garda’s restaurants with chile rellenos. Simplot delivered the chile rellenos but some of them were contaminated with salmonella. Customers at four Garcia’s locations became sick after eating the contaminated chile rellenos. Newspaper and television stations provided extensive eoveragé of the salmonella contamination.

Seeking to recover the damage they incurred as a result of the salmonella contamination, Eateries and Fiesta filed suit in Oklahoma state court alleging breach of contract and breach of express and implied warranties. Simplot removed the case to United States District Court for the Western District of Oklahoma based on diversity jurisdiction. Simplot then admitted liability for selling the contaminated chile rellenos. After a bench trial on damages, the district court awarded Eateries and Fiesta “$6,551,264.40, plus attorney’s fees and costs.” Both sides filed motions asking the district court to amend its findings and judgment. After considering the motions, the district court entered an amended memorandum opinion and judgment awarding Eateries and Fiesta “$8,405,-420.13, plus attorney’s fees and costs.” Simplot appealed, and Eateries and Fiesta cross-appealed.

On appeal, Simplot argues the district court used an incorrect methodology to calculate damages and erroneously allowed a double recovery. Eateries and Fiesta argue the district court erred in calculating the extent of damages. Before reaching the merit of these arguments, we first discuss the analysis underlying the district court’s damage award.

In essence, the district court compared Eateries’ fair market value before the salmonella contamination with Eateries’ fair market value after the salmonella contamination and awarded the difference as damages to Eateries and Fiesta. The district court also awarded damages for Eateries’ and Fiesta’s increased insurance costs.

In arriving at Eateries’ fair market value prior to the salmonella contamination, the district court considered a pre-contam-ination offer to purchase Eateries’ assets. A few weeks before the salmonella contamination occurred, Halpern, Denny & Company offered to purchase Eateries’ assets for approximately $9.00 per share. This price was greater than the price of Eateries’ publicly traded stock because the price included a premium for control of the company. Halpern Denny withdrew its offer in the aftermath of the salmonella contamination because Eateries’ value declined. Several months later, Halpern Denny made a new offer of about $4.00 per share, but Eateries rejected it. In any event, the district court found the $9.00 per share offer reflected Eateries’ fair market value prior to the salmonella contamination.

The district court’s calculation of Eateries’ fair market value after the salmonella contamination is a bit more complex. The district court based its calculation on an Eateries stock repurchase that took place roughly seven months after the salmonella contamination occurred. An investor owning about 27 percent of Eateries’ outstanding shares contacted Eateries about selling all its (the investor’s) stock. Rather than allowing the investor to drive down the price of Eateries stock by dumping its shares on the market, Eateries repurchased the investors’ stock for $5.125 per share. This repurchase price was the “then existing market price for the stock.” The district court, however, concluded the repurchase price alone did not reflect the fair market value of Eateries because it did not include a premium for control of the company. Finding “a premium of 30% to 40% is common,” the district court added a 35 percent control premium to the $5.125 per share repurchase price, arriving [1229]*1229at a value of $6.92 per share. The district court found this value reflected Eateries’ fair market value after the salmonella contamination.

Subtracting the $6.92 per share post-contamination value of Eateries from its $9.00 per share pre-contamination value, the court concluded Eateries “suffered harm of $2.08 per share.” The court then multiplied this amount by the number of Eateries shares (3,942,643), yielding diminution in value damages of $8,200,697.40.

The district court also awarded Eateries and Fiesta “damages for increased insurance premiums.” The district court found there was “evidence that as a result of the salmonella incident [Eateries’ insurance] premiums increased by at least $109,000.00 per year.” It concluded Eateries and Fiesta were entitled to two years worth of Eateries’ future increased insurance costs. The district court discounted the value of these increased insurance premiums to present value using a 5 percent interest rate, concluding Eateries and Fiesta were damaged in the amount of $202,675.73 for increased insurance costs.

DISCUSSION

We now turn to the parties’ arguments. As discussed above, Simplot argues “the district court erred as a matter of law by using an invalid methodology to calculate diminution damages.” Simplot also believes “the district court’s award of increased insurance premiums erroneously allows a double recovery and fails to address causation.” Eateries and Fiesta also believe the district court’s damage award is incorrect, arguing “the district court erred in adding 35% as a control premium to the ‘after incident’ stock repurchase price when calculating Eateries’ diminution in value.”

“We review the amount of a damage award for clear error and questions of law de novo. The methodology a district court uses in calculating a damage award, such as determining the proper elements of the award or the proper scope of recovery, is a question of law” we review de novo. So. Colo. MRI, Ltd. v. Med-Alliance, Inc., 166 F.3d 1094, 1100 (10th Cir.1999) (citations omitted). ‘We review the district court’s underlying factual determinations regarding the amount of damages for clear error.” Nieto v. Kapoor, 268 F.3d 1208, 1221 (10th Cir.2001). See also Furr v. AT&T Tech., Inc., 824 F.2d 1537, 1547 (10th Cir.1987) (“The amount of damages is a factual issue and we will uphold the district court’s findings of fact unless they are clearly erroneous.”).

I. Party Awarded Damages

Simplot argues the district court erred in awarding damages based on Eateries’ diminution in value rather than on Fiesta’s diminution in value. Simplot asserts “[w]hen a business directly damaged is a wholly-owned subsidiary of a separate legal entity, only the subsidiary (not the parent) may recover for the loss.” At the heart of Simplot’s argument is its belief only Fiesta (the subsidiary that owned the restaurants) suffered damages.

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346 F.3d 1225, 2003 U.S. App. LEXIS 20349, 2003 WL 22285828, Counsel Stack Legal Research, https://law.counselstack.com/opinion/eateries-inc-v-j-r-simplot-co-ca10-2003.