Manchester Mfg v . Dylex Ltd CV-91-752-SD 01/04/96 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Manchester Manufacturing Acquisitions, Inc.; Gary A . Dinco; Felix J. Weingart, J r . v. Civil N o . 91-752-SD
Dylex Limited; Dylex (Nederland) B.V.; 293483 Ontario Ltd.; Harold R. Levy; Mac Gunner Estate of Kenneth Axelrod
O R D E R
This order addresses the issues raised by certain post-trial
motions filed upon conclusion of fourteen days of a hotly
contested jury trial.
1. Background
In December 1988 the plaintiffs, Manchester Manufacturing
Acquisitions, Inc. (Acquisitions), Gary A . Dinco, and Felix J.
Weingart, Jr., purchased a distribution warehouse business
located in Colebrook, New Hampshire. Known as Manchester
Manufacturing, Inc. (MMI), that business had originally been founded as a joint venture among Sears, Roebuck & Company (Sears), Dylex Limited, and 293483 Ontario Limited to manufacture clothing for Sears. MMI subsequently became a distribution center for Sears, employing plaintiff Dinco as plant manager and plaintiff Weingart as financial comptroller. Acquisitions, a corporation of which Dinco and Weingart are co-owners and officers, was founded to aid in their purchase of MMI.
Plaintiffs claimed that, in connection with the December 1988 sale of MMI to them, certain representations were made to the effect that the Sears distribution business with MMI would continue at the same level as existed at the time of the sale. Shortly after completion of the sale, however, Sears decreased and, by the end of 1989, terminated its distribution business with MMI. The business volume and profits of MMI dropped drastically, and in November 1990 First NH Bank, provider of the funds obtained by Acquisitions to purchase M M I , foreclosed on its loan.
Plaintiffs then commenced this lawsuit against Sears, Dylex Limited, Dylex (Nederland) B.V., 293483 Ontario Limited, Harold
2 Levy, Mac Gunner, and Kenneth Axelrod,1 alleging that said
defendants violated federal and state securities laws and made
fraudulent and/or negligent misrepresentations to plaintiffs in
connection with the sale to plaintiffs of MMI.
Eventually, the case came to trial against all defendants but Sears.2 The jury, by medium of special verdicts, absolved
defendant Levy, but found against the remaining defendants. A
verdict for plaintiffs of $2,385,000 was returned on a count of
violation of the "Blue-Sky" Law of New Hampshire, New Hampshire
Revised Statutes Annotated (RSA) 421-B:3.3 A verdict of $523,500
1 Defendants Levy, Gunner, and Axelrod had long been associated in Canada in the business of clothing manufacturing. They oversaw the operations of M M I , and they formed 293483 Ontario Limited to hold their shares of MMI stock. 2 Sears settled with plaintiffs prior to trial for the sum of $750,000. Over the defendants' objection, the court approved this settlement on October 1 9 , 1995. 3 RSA 421-B:3 provides:
Sales and Purchases. It is unlawful for any person, in connection with the offer, sale, or purchase of any security, directly or indirectly: I . To employ any device, scheme, or artifice to defraud; I I . To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or
3 for plaintiffs was returned on a claim of fraudulent
misrepresentation.
2. Defendants' Motion for Judgment as a Matter of Law,
document 185
Defendants move for judgment as a matter of law. Rule 50(b), Fed. R. Civ. P.4 The plaintiffs object. Document 189.
III. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person. 4 Replacing the earlier motion for directed verdict, Rule 50(b) provides:
Whenever a motion for judgment as a matter of law made at the close of all the evidence is denied or for any reason is not granted, the court is deemed to have submitted the action to the jury subject to a later determination of the legal questions raised by the motion. Such a motion may be renewed by service and filing not later than 10 days after entry of judgment. A motion for a new trial under Rule 59 may be joined with a renewal of the motion for judgment as a matter of law, or a new trial may be requested in the alternative. If a verdict was returned, the court may, in disposing of the renewed motion, allow the judgment to stand or may reopen the judgment and either order a new trial or direct the entry of judgment as a matter of law. . . .
4 A motion for judgment as a matter of law may be granted only if upon examination of the evidence and all reasonable inferences therefrom in the light most favorable to the nonmovant the court determines that the evidence would lead a reasonable person to only one conclusion, favorable to the movant. Aetna Cas. Surety C o . v . P&B Auto Body, 43 F.3d 1546, 1556 (1st Cir. 1994)
(internal quotations and citations omitted). Viewed through such legal prism, it is clear that defendants are not entitled to the relief here sought.
Defendants seek to exclude from consideration certain proceedings among the parties which took place prior to plaintiff's entry into actual negotiations for the purchase of MMI. But such proceedings were relevant to the issues of fact to be decided by the jury. They include a January 1988 meeting among Dinco, Weingart, and defendant Levy in person, joined by telephone conference call from defendant Gunner. In the course of such meeting, defendants represented to plaintiffs that Sears' business would continue as usual in the future and that the reasons for a sale of MMI related only to a Sears policy
concerning divestiture of warehouse ownership and a desire of the individual defendants to retire.
5 In February of 1988 plaintiffs attended a meeting with M . Hill of Sears and the business brokers hired by the defendants to sell MMI. On query of Hill by the brokers with respect to future business, the response was that Sears' policy barred the giving of written guarantees of business, but that in Hill's experience, Sears' business post-divestiture had in every instance remained the same or increased.
In May of 1988 plaintiffs met with Hill, the business brokers, and one B . Elias, a prospective purchaser of MMI. In response to inquiry from Elias, Hill made practically the same response concerning the refusal of written guarantees and the continuation of Sears' business.
There was also evidence that at the May 1988 meeting the individual defendants represented to the plaintiffs that Sears' business with MMI would continue as usual and that they would support the plaintiffs in every way necessary to acquire the business. Later in the course of that same meeting, the business brokers, as agents of the defendants, revealed to plaintiffs a "confidential business profile" which contained representations concerning the stabilization of Sears-MMI's business at $1.7 million annually.
6 In June 1988 the individual plaintiffs reported to the board of directors of MMI with information that plaintiffs had received concerning Sears Departments 640 and 677. Sears' representative to the MMI board advised members of the board that plaintiffs had not been told the truth concerning such information. The board did not disclose such truth to plaintiffs, but advised plaintiffs to travel to Chicago in an attempt to procure other business from Sears.
As so directed, plaintiffs went to Chicago in July 1988 to talk with the buyers for other Sears departments. They returned with an optimistic feeling about new business, but were unaware that the business brokers had told Hill of the necessity for Sears to make plaintiffs feel comfortable about future business if the sale to plaintiffs was to take place.
In August 1988 defendant Gunner advised plaintiffs that Sears had rejected plaintiffs' request for a volume business guarantee because of a "policy" of Sears which prevented such guarantees. Yet in October 1987, in the presence of Hill, one Israel Madew, a prospective purchaser of M M I , had requested a written guarantee of a volume of business over a defined period of time. Madew had been advised that Sears would give only a limited guarantee for one year and assure some business for a
7 second year. This offer contradicted the purported policy of "no
written guarantees".
Other evidence that Sears intended, prior to the sale of
MMI, to decrease or terminate further business occurred in the
course of Hill's meeting in September 1988 with plaintiffs'
banker. Hill once more repeated his statements concerning no
written guarantees, coupled with an optimistic future business
forecast. This scenario was also repeated at the time of the
closing of the sale in December of 1988.
The foregoing summary of certain of the evidence presented
at trial satisfies this court that the jury could find that
defendants misrepresented and failed to disclose material facts
to the plaintiffs. Moreover, instructed as they were on the
eight factors outlined in Kennedy v . Josephthal & Co., Inc., 814
F.2d 7 9 8 , 804 (1st Cir. 1987), the jury could find that
defendants' reliance on the representations made was reasonable.
Jackvony v . RIHT Fin. Corp., 873 F.2d 4 1 1 , 416 (1st Cir. 1989).
Defendants' reliance on the Master Distribution Agreement
(Plaintiffs' Exhibit 17) is misplaced. That document fails to
address business volume, either by its terms or within the
annually executed schedules. In contrast, significant evidence
is found in the Stock Purchase Agreement (Plaintiffs' Exhibit
8 179) and its section 3.4 requirements as to survival of representations and warranties. See Astor Chauffeured Limousine C o . v . Runnfeldt Investor Corp., 910 F.2d 1540, 1545-46 (7th Cir. 1990). And the stress placed by defendants on the testimony of their experts is an equally weak reed on which to lean. "The rule is well settled that expert opinion testimony, even if not directly contradicted, is not ordinarily binding on a jury." Quinones-Pacheco v . American Airlines, Inc., 979 F.2d 1 , 5 (1st Cir. 1992).
From what has been written to this point, it is clear that the evidence presented at the trial of this case was more than sufficient for the jury to find, as it did, that plaintiffs were entitled to verdicts. The motion for judgment as a matter of law is denied.
2. Defendants' Motion for New Trial, document 184
Alternatively, defendants have moved for a new trial. Rule
5 9 , Fed. R. Civ. P. Plaintiffs object to this relief. Document
189.
A new trial may be ordered "only in those few instances
where [the trial judge] supportably concludes that the verdict,
9 if allowed to stand, will work a miscarriage of justice."
Quinones-Pacheco, supra, 979 F.2d at 3 , 4 (citations omitted).
The instant case does not fall within the parameters of this
rule.
The court's outline of relevant evidence set forth earlier
in the course of this order serves to rebut defendants' claim
that the verdicts were against the clear weight of the evidence.
Nor is there any merit to defendants' challenge to the expert
testimony of plaintiffs' witness Mark McKinsey. In the course of
its (32-page) October 1 9 , 1995, ruling on pretrial motions, the
court collected the relevant authority concerning the
admissibility of expert testimony. Document 1 4 8 , at 2 5 , 2 6 .
Pointing out the "case-specific inquiry" to be made in such
circumstances, the court deferred ruling on the testimony of
McKinsey until trial, where it would be subject to direct and
cross examination, followed, if necessary, by a motion to strike.
Id. at 26-27.
When presented, the testimony of McKinsey demonstrated his
possession of specialized knowledge, not only as to the workings
of corporate boards of directors, but also as to warehousing and
distribution. His opinions clearly encompassed issues that were
without the sphere of knowledge of lay jurors, and in each
10 instance were stated to be based upon a reasonable degree of certainty arrived at from his experience and education in the field of corporate management and affairs. Such evidence was not speculative and was properly admitted. Defendants complain on hearsay grounds that the court erred in admitting certain handwritten notes of Suzanne Mayo, a Sears employee. Plaintiffs' Exhibit 7 2 . This argument overlooks the testimony of Mayo and other witnesses in support of admissibility.
The alleged notes were made either contemporaneously with a November 5 , 1987, meeting of certain distribution personnel of Sears or in preparation for a follow-up November 1 0 , 1987, memorandum of that meeting which Mayo prepared for her superior, Mr. Stafford. Plaintiffs' Exhibit 7 4 . They concerned the (previously described in this order) desire of Israel Madew to procure assurances that MMI would continue to receive business from Sears. Stafford's handwritten notes of the same meeting recite facts similar to those contained in the Mayo notes. Plaintiffs' Exhibit 7 3 .
At a December 2 , 1987, meeting of the MMI board of directors, attended by Sears personnel who had been present at the November 5 , 1987, meeting, the Madew option was discussed and
11 made known to the defendants. The Mayo notes were admissible at trial as admissions of a party's agent or servant within the scope of their agency or employment, Rule 801(d)(2)(D), Fed. R. Evid., or within the co-conspirator exception of Rule 801(d)(2)(E), Fed. R. Evid.
Defendants also object to the exclusion of testimony from defendants Gunner and Levy as to statements made by the deceased defendant Kenneth Axelrod to plaintiffs in the course of the May 1988 meeting. Defendants proffered such hearsay, not for its truth, but as it bears on plaintiffs' state of mind. The proffered testimony concerned alleged warnings by Axelrod to plaintiffs to the effect that plaintiffs should not purchase MMI.
Such testimony, however, would add nothing to what plaintiffs Dinco and Weingart themselves described as the statements made to them by Axelrod. The plaintiffs testified that Axelrod told them that, given their leveraged financing, the business would be a tough nut to crack and that Axelrod hoped that plaintiffs knew what they were getting into. On both direct and cross examination, plaintiffs explained the effect of these statements on their state of mind, detailing their understanding of how difficult their lives would be as owners rather than mere employees of MMI.
12 Defendants also proffered the testimony of Alan Axelrod, a Canadian lawyer who is the nephew and executor of the estate of Kenneth Axelrod. This proffer was as to statements made by Kenneth Axelrod to Alan Axelrod after the complaint in this action had been served on Kenneth Axelrod. Hospitalized at the time, Kenneth Axelrod allegedly told Alan Axelrod that he warned plaintiffs against the purchase of MMI as it was a highly leveraged transaction which plaintiffs might not be able to handle if there were a downturn in business. Although Kenneth Axelrod allegedly also expressed at this time a desire to confer with his trial counsel, Attorney Kantor, no efforts were made to preserve his testimony in the ensuing two months of the life of Kenneth Axelrod.
When plaintiffs moved pre-trial to exclude any such testimony from Alan Axelrod, the court deferred the matter until trial. Document 1 4 8 , at 18-21. At trial, voir dire of Alan Axelrod was held without the presence of the jury. At its conclusion, the court ruled that the proffered testimony did not meet the requirement of trustworthiness (document 1 4 8 , at 20-21) and barred its presentation to the jury. The court is satisfied that it did not err in so ruling.
13 Applicable at the time of trial, Local Rule 10 5 required,
inter alia, the setting of discovery deadlines. Rule 26(2)(A)
through ( C ) , Fed. R. Civ. P., governs the requirement of
disclosure of experts. In violation of the provisions of these
rules, defendants sought to adduce testimony concerning a certain
real estate appraisal made by one Stafford Young.6
Objecting to this procedure, plaintiffs moved in limine to
bar such evidence, and the court granted the motion to the extent
that defendants were barred from introducing evidence as to the
amount of the appraisal. Document 1 4 8 , at 28-30. The court did
permit the introduction of evidence that there had been an
appraisal of the property. Id.
Unhappy with such ruling, defendants then tried to coax the
proposed testimony of Young into the "lay witness" category of
Rule 7 0 1 , Fed. R. Evid. Finding this approach to be akin to the
futile efforts of Cinderella's sisters to wear the glass slipper, the court rejected this argument.
5 As of January 1 , 1996, brand-new local rules have supplanted those which were extant as of the time of the trial of this action. 6 Defendants did not disclose prior to the expiration of discovery deadlines any intent to call Stafford Young as an expert witness. Plaintiffs claimed that had such timely disclosure been made, they were prepared to counter any such testimony with their own expert.
14 The wide latitude of the trial court in formulating pretrial
orders and sanctioning parties who fail to comply with procedural
rules, Atlas Truck Leasing, Inc. v . First NH Banks, Inc., 808
F.2d 9 0 2 , 903 (1st Cir. 1987), includes expert witnesses, Duford
v . Sears, Roebuck & Co., 833 F.2d 4 0 7 , 413 (1st Cir. 1987), and is here applicable. The exclusion of the appraisal evidence was
not error.
The motion for new trial is denied.
3. Defendants' Motion to Alter or Amend Judgment, document 186
Claiming the jury verdicts to be excessive and duplicative, defendants move to alter or amend the judgments. Rule 59(e), Fed. R. Civ. P.7 The plaintiffs object. Document 190.
A motion filed under Rule 59(e), Fed. R. Civ. P., must either clearly establish a manifest error of law or must present newly discovered evidence, but it may not be used to argue a new legal theory. Jorge Rivera Surillo v . Falconer Glass Indus., 37
7 Rule 59(e), Fed. R. Civ. P., permits the service of a motion to alter or amend the judgment not later than 10 days after entry of the judgment. The filing herein is timely, although the court has since vacated the judgment originally entered to allow for further proceedings concerning attorney fees.
15 F.3d 2 5 , 29 (1st Cir. 1994) (citing and quoting F D I C v . World
Univ., Inc., 978 F.2d 1 0 , 16 (1st Cir. 1992)).
Initially, defendants argue that the $2,385,000 verdict on
the "Blue-Sky Law" count is duplicable of the $523,500 verdict
returned on the common-law fraudulent misrepresentation count.
Generally, however, remedies provided under Blue-Sky laws are in
addition to other remedies, including common-law claims. 69A A M .
J U R . 2D Securities Regulation--State § 2 1 2 , at 248 (Lawyer's
Coop. Pub. 1993). In addition, the New Hampshire Blue-Sky
statute specifically provides that its "rights and remedies . . .
are in addition to any other right or remedy that may exist at
law or in equity . . . ." R S A 421-B:25, X I .
Accordingly, the court finds that this case does not concern
multiple recoveries of the type criticized by the courts in
Phillips v . Veraz Corp., 138 N . H . 2 4 0 , 637 A.2d 906 (1994), and
Dopp v . H T P Corp., 947 F.2d 506 (1st Cir. 1991). The verdicts
which have been returned in this litigation are not duplicative.
Defendants next challenge the verdict on the "Blue-Sky"
count as excessive. They suggest that the jury necessarily
failed to consider and deduct certain elements which were not
properly includable as damages. They also point out that the
16 offset for the settlement between plaintiffs and Sears must be
deducted prior to the computation of any interest.
Plaintiffs respond by pointing to specific groupings of the
evidence before the jury which could have been adopted by the
jury in arriving at their verdicts. As the jury did not accept in full the arguments of either side, this argument is more
persuasive than that advanced by the defendants.
Plaintiffs read the "offset" provisions of RSA 507:7-i8 as
somehow repealing the earlier-passed provisions of RSA 524:1-b9
and its interpretation by the New Hampshire Supreme Court in
Saltzman v . Saltzman, 124 N.H. 515, 520-21, 475 A.2d 1 , 4 (1984).
No known rule of statutory construction permits or requires such
interpretation, and it is clear that, as Saltzman holds, the
$750,000 Sears settlement is to be deducted from the total of
verdict plus prejudgment interest, but interest on the settlement
amount is to be offset from the date of such settlement.
8 Adapted in 1986 as part of a so-called "tort reform" package of legislative bills, as to which there was a marked paucity of legislative hearings, RSA 507:7-i (Supp. 1994) requires the court, when a plaintiff's verdict has been returned, to reduce the verdict by the amount of any settlement release or covenant not to sue previously in effect as between plaintiff and other tortfeasors. 9 Generally in effect since 1957, and frequently amended thereafter through 1969, RSA 524:1(b) provides for addition of interest from the date of the writ to the date of verdict.
17 As the Sears settlement was here approved on October 1 9 ,
1995, interest thereon should be offset from such date. The
court finds that the offset of the settlement should first be
applied to the Blue-Sky Law verdict, plus its interest, rather
than to the common-law count.
The court also finds to be without merit the defendants'
arguments that they are entitled to additional credit for the
amount of the mortgage foreclosure and for earnings of the
individual plaintiffs made from MMI subsequent to its sale to
them. Any claims of plaintiffs for damages included a reduction
for the amount of the foreclosure sale, and no known legal
authority supports the claim for deduction of plaintiffs'
earnings.
Finally, the court rejects defendants' claims that the
verdicts returned necessarily included interest of the genre
criticized as "double counting" by the court in Lakin v . Daniel
Marr & Son Co., 732 F.2d 233, 238 (1st Cir. 1984). Neither the
plaintiffs' arguments nor the court's damage instructions
warranted any of the further deductions here sought by the
defendants. The motion to alter or amend judgment is accordingly
denied.
18 4. Conclusion
For the reasons hereinabove stated, the court has denied the
defendants' motions seeking, respectively, judgment as a matter
of law (document 1 8 5 ) ; a new trial (document 1 8 4 ) ; or to alter or
amend judgment (document 1 8 6 ) .
SO ORDERED.
Shane Devine, Senior Judge United States District Court
January 4 , 1996
cc: Randall F. Cooper, Esq. Steven J. Kantor, Esq. John L . Putnam, Esq. Kenneth H . Merritt, Esq.