MCC Management of Naples, Inc. v. International Bancshares Corp.

FILED
United States Court of Appeals
Tenth Circuit

January 5, 2012
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT

MCC MANAGEMENT OF NAPLES,
INC., a Florida corporation; BGC II
MANAGEMENT OF NAPLES INC., a
Florida corporation; MILES C. No. 10-6283
COLLIER, individually; BARRON G. (D.C. No. 5:06-CV-01345-M)
COLLIER, II, individually, (W.D. Okla.)

Plaintiffs - Appellees,

v.

INTERNATIONAL BANCSHARES
CORPORATION, a Texas corporation;
INTERNATIONAL BANK OF
COMMERCE, a Texas corporation,

Defendant-Third-Party-Plaintiffs
- Appellants,

and

KRISTY CARVER,

Defendant-Third-Party-
Defendant - Appellee.

ORDER AND JUDGMENT *

Before KELLY, O’BRIEN, and MATHESON, Circuit Judges.

*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
 Defendant-Appellant International Bancshares Corporation (“IBC”) appeals

from the judgment of the district court, after trial, in favor of Plaintiff-Appellee

MCC Management of Naples (“Colliers”). The Colliers sued for breach of

contract and fraud in a dispute over tax benefits. We have jurisdiction under 28

U.S.C. § 1291 and we affirm.

Background

This is a contract and tort dispute over entitlement to $16 million in tax

benefits accruing over a period of years to an Oklahoma bank called Local. The

“benefits” at issue are tax deductions that reduce taxable income. On one side are

Miles and Barron Collier, brothers and investors, who owned Local at the time the

tax benefits arose; on the other is International Bancshares Corporation, which

now owns the bank. In 1988, Local began buying troubled loan assets. An

agency later absorbed into the FDIC guaranteed the value of the assets; in return

Local had to “share” some of its profits. When Congress repealed the deductions

Local claimed on losses from these assets, Local stopped its sharing payments and

sued in the Court of Federal Claims; the FDIC counterclaimed for non-payment.

Local’s potential liability in the FDIC suit—possibly as much as $20

million—made prospective purchasers of the bank wary. So when, in 1997, the

Townsend Group, a band of investors, purchased Local from the Colliers, the

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contract (or “Redemption Agreement”) required that the Colliers escrow $10

million of the $154 million purchase price on account of the FDIC liability.

Local already had a $12.7 million FDIC reserve. If the FDIC won more than the

combined $22.7 million, the Colliers had to indemnify Townsend/Local. The

contract was designed to allow Townsend to buy Local while carving out the

potential FDIC liability. In 1999, the parties signed a “Settlement Agreement” to

resolve certain post-closing disputes not relevant here. What is relevant,

however, are clauses in the contract that reaffirmed the terms of the Redemption

Agreement as they bore on the FDIC litigation.

In 2002, Local and the FDIC settled the suit for somewhere around $25-27

million. That same day, Townsend/Local and the Colliers signed a “Resolution

and Modification Agreement,” or RMA. This is the nub of the conflict. Two

things now happened. First, the parties signed an agreement whose effect they

dispute: IBC claims the RMA released any Collier claims on Local assets, which

Local takes to include the disputed tax benefits. The Colliers contend that the

agreement specifically carved out from supersession their interest in these tax

benefits. Second, in 2004, Local realized that by using a different method of

measurement it could claim about $7 million more in tax deductions than it

thought—the “Excess Basis Deduction,” which increases losses attributable to

already-written-down loans that are liquidated at less than book value. Local also

claimed a $7 million deduction on the principal payment made to the FDIC and

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some $140,000 in deductions for attorney’s fees. That year IBC bought Local and

inherited this dispute.

Finally, in 2006, as Local prepared for an audit of the Excess Basis

Deduction, Kristy Carver, Local’s “tax director,” abruptly quit over what she

believed was a bonus owed her for “discovering” the deduction. Instead she

began consulting for the Colliers and alerted them to the millions in deductions

that Local claimed. R. 15, 10891. A few months later the Colliers sued

IBC/Local for these amounts on a variety of fraud and contract theories.

IBC/Local counterclaimed against the Colliers, and added third-party claims

against Ms. Carver for breach of confidentiality and tortious interference with

contract.

The Colliers and Ms. Carver prevailed after a 17-day jury trial in March

2010. The jury found IBC liable for breach of contract. They also found that

Local not only failed to disburse the tax benefits, owed by contract to the

Colliers, but concealed from the Colliers that the deductions had been taken. IBC

was found liable for breach of the duty of good faith and fair dealing, breach of

fiduciary duty, non-disclosure, false representation, constructive fraud, and

negligent misrepresentation. The jury awarded $15.8 million in compensatory

damages and $1.4 million in punitive damages. The district court added $4.3

million in prejudgment interest. The final recovery was $21.6 million.

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 Discussion

IBC contends that it was entitled to judgment as a matter of law or, in the

alternative, a new trial. Denial of a Rule 50 motion is reviewed de novo, but IBC

must prove that the evidence and its inferences (viewed in the light most

favorable to its opponents) points but one way, i.e., in its favor. Rocky Mountain

Christian Church v. Bd. of Cnty. Comm’rs, 613 F.3d 1229, 1235 (10th Cir. 2010).

Denial of a motion for a new trial is reviewed for abuse of discretion. Minshall v.

McGraw Hill Broad. Co., Inc., 323 F.3d 1273, 1283 (10th Cir. 2003). This court

will reverse the denial of a motion for a new trial “only if the trial court made a

clear error of judgment or exceeded the bounds of permissible choice in the

circumstances.” Id. We address the issues raised in turn.

A. Did the 2002 RMA supersede or waive the Colliers’ entitlement to the tax
benefits?

This is the central dispute. IBC argues that the 2002 RMA terminated any

Collier claims and that the district court erred in deeming its provisions

ambiguous, obligating a jury to sort out the arrangement. It points to paragraph 3

of the RMA as expressing the crucial terms. The Colliers claim that the contract

did not release their claims, and, in any event, it was a good-faith dispute

resolved by the jury. They look to Section 4 of the 2002 RMA, which refers to

Section 7 of the 1999 Settlement Agreement, which in turn refers to the Collier’s

rights under Section 5.1 of the 1997 Redemption Agreement.

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 Under Oklahoma law, the determination of whether a contract is ambiguous

is a question of law; but if the court determines that a contract is ambiguous, its

construction depends on extrinsic evidence and interpretation becomes a question

of fact. Pitco Prod. Co. v. Chaparral Energy, Inc., 63 P.3d 541, 545 (Okla. 2003).

Ambiguity exists when the contract is reasonably susceptible of more than one

construction, such that reasonable persons could honestly disagree as to the

meaning. Id. at 545-46.

We find language in the RMA stating that its terms supersede those of prior

agreements; we also find language that prevents such superseding effect, at least

with regard to liabilities in the FDIC suit. The RMA, in Section 4 (headed “This

Agreement Supersedes the Redemption and Settlement Agreements”), states, in its

opening words, “Except for Section 7 of the Settlement Agreements which will

remain in full force and effect as originally stated....” Then, Section 7, for its

part, styled a “Mutual Release and Waiver of Claims,” purports to discharge both

sides from any claims—“except for any and all rights...with regard to...Section

5.1 of the Redemption Agreement...which [is] hereby expressly excepted from

this mutual release and waiver.” The last line in this paragraph repeats: “this

Mutual Release and waiver...shall not apply to the full performance and

enforcement of Section 5.1 of the Redemption Agreement.”

IBC disparages this interpretation as creating a sort of Jacob’s Ladder toy,

in which this section refers to this section which refers back to this section. But

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we find the Colliers’ explanation perfectly plausible, namely, that the purpose of

the drafting was to exclude from modification the terms covering the FDIC

claims. This makes sense because these claims—Local’s claim and the FDIC’s

counterclaim—were a potential liability of unknown amount. The three

agreements, read together, seem only to work to set aside the whole question.

Joseph Perkovich, who handled the sale of Local for the Colliers, testified that the

intent was to keep Local “financially neutral” in relation to the FDIC suit. R. 15,

10827-29. “It basically took the benefits and obligations right off the bank’s

financial statement and put them on the Colliers’ personal ledger.” R. 15, 10829.

Certainly the ambiguity is apparent enough for the district court to have submitted

to the jury the question of the parties’ intent. This court cannot set aside their

finding absent a conclusion, which we are unable to make, that it was

unreasonable for the jury to reject IBC’s interpretation.

B. Were the Colliers entitled to the benefit of the “Excess Basis Deduction”?

IBC claims the Excess Basis Deduction was purely an asset of the bank.

Unlike the deductions on the FDIC principal payment and the attorney’s fees, this

deduction required no expenditure by the Colliers. Moreover, IBC claims that the

provision, even if ambiguous, should have been construed against the Colliers,

who purportedly drafted it. Finally, it contends it was error to allow an attorney

tax expert, Mr. Scott Knutson, to testify on possible interpretations of the

contract, since it claims he simply dictated the Colliers’ interpretation to the jury.

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The Colliers, again, see a good-faith dispute and claim ample evidence exists to

show that Local received FDIC assistance on those assets from which the Excess

Basis Deduction derived. They also contend that Townsend lawyers were

involved in the drafting of the agreement and that their expert, approved after a

Daubert hearing, refrained from stating legal conclusions.

This court reviews de novo the question of contract ambiguity. As noted,

under the laws of Oklahoma, if reasonable, fair, and honest disagreement exists,

so does ambiguity. Pitco Prod. Co., 63 P.3d at 545-46. We agree that the district

court correctly concluded that the contract was ambiguous on this point. IBC’s

position—in essence, that through its own tax ingenuity it made more fruitful use

of the bank’s assets—is well taken, but we do not find the contracts or extrinsic

evidence dispositive so as to empower us to overturn the district court (on the

law) and the jury (on the facts). The Colliers can plausibly claim (though from

our reading of the record it is hardly self-evident) that the Excess Basis Deduction

was “related” to the FDIC litigation: the loans were “covered” under the FDIC

agreement and the losses occurred during Collier ownership (1988-1993); losses

allow deductions against income; the deductions therefore belonged to the

Colliers. They also show that the financial advantage of such a deduction could

have been claimed by the FDIC (had the agency known of it), under the “sharing”

agreement, and since the Colliers were answerable for the liabilities, so too could

they expect the benefits. See R. 15, 10829, 10833-34 (testimony of Joseph

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Perkovich); R. 16, 11241 (testimony of Kristy Carver).

We review a district court’s admission of expert testimony for abuse of

discretion. To reverse we must have a definite and firm conviction that the court

below “made a clear error of judgment or exceeded the bounds of permissible

choice in the circumstances.” Hollander v. Sandoz Pharma. Corp., 289 F.3d 1193,

1204 (10th Cir. 2002).

The “mystique” that IBC claims Mr. Knutson possessed before the jury, as

he discussed complex tax arrangements, is a concern with experts generally. A

leading case in this circuit is Specht v. Jensen, 853 F.2d 805 (10th Cir. 1988) (en

banc), where an attorney-expert, in a § 1983 suit alleging an illegal search, was

examined about a “hypothetical” that was identical to the actual facts. With an

“array of legal conclusions,” he “painstakingly developed over an entire day the

conclusion that defendants violated plaintiffs’ constitutional rights.” Id. at 808.

This court reversed and drew the following line: expert testimony under Rule 702

is proper “if the expert does not attempt to define the legal parameters within

which the jury must exercise its fact-finding function.” Id. at 809-10. The expert

can refer to the law in expressing his opinion, but he may not tell the jury what

legal standards must guide their verdict. Id.

Mr. Knutson did not overstep this line. He discussed the “common

methodology” that tax lawyers use interpreting phrases like the one at issue—“net

of any related tax benefits, in respect of the FDIC counterclaim”—and suggested

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three possible readings: “narrow,” “intermediate,” or “broad.” R. 16, 11659.

(Only the last would give all three deductions in dispute to the Colliers.) This

was helpful to a lay jury: intricate arrangements and technical tax jargon were

illuminated by his experience with FDIC-bank agreements and knowledge of

industry custom, tax law, and authorities in the field. Mr. Knutson never told the

jury what legal standards applied or which interpretation was correct as a matter

of law, but specifically disclaimed any attempt to interpret the contract for the

jury: “You need to bring to bear your own sort of reasons and based upon all of

the testimony that you have here as to how broad or how narrow you want to

interpret this phrase.” R. 16, 11687. He did testify that, in his opinion, it was

“reasonable to conclude” that the agreement was drafted in a “very broad

manner,” R. 16, 11682, a conclusion touching the heart of this dispute, but expert

opinion is not objectionable because it embraces an ultimate issue to be decided

by the trier of fact. Fed. R. Evid. 704(a). To justify exclusion we require

something more peremptory. Mr. Knutson set out his views in detail sufficient to

allow acceptance or rejection by the jury.

IBC calls him the “worst type of shill,” because he “developed litigation

theories for the Colliers” then testified as an “unbiased expert on them.” Aplt Br.

54. But a shill is a decoy hired to sell something while hiding his affiliations.

Oxford English Dictionary (2d ed. 1989 & online version 2011). Mr. Knutson

believed what he said. He also testified that he consulted but did not concoct

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legal theories, draft complaints, depose witnesses, or participate in any other

litigation activity. IBC’s authority is inapposite. In United States v. Tran Trong

Cuong, 18 F.3d 1132, 1143-44 (4th Cir. 1994), an expert relied on the report of

another expert who prepared it for the prosecution; Mr. Knutson wrote his own

report. This was also Mr. Knutson’s first appearance as an expert witness, yet

IBC points us to National Bank of Commerce v. Dow Chemical Co., 965 F.Supp.

1490 (E.D. Ark. 1996), which excluded a professional “advocate” whose

“litigation animus” was revealed in her participation in some 8,000 cases. Id. at

15163-1515. IBC is correct that this court often has reviewed admission of

attorney-experts. Zuchel v. City and County of Denver, Colo., 997 F.2d 730, 742

(10th Cir. 1993) (expert witness is less objectionable when his expertise is in

police tactics, not constitutional law). But this doesn’t exclude attorneys. In

United States v. Arutunoff, 1 F.3d 1112 (10th Cir. 1993), a securities-law

professor permissibly testified about “several aspects of securities law,” including

the meaning of statutory terms; but he “did not attempt to apply the law to the

facts of the case or otherwise tell the jury how the case should be decided.” Id. at

1118. The district court here did not abuse its discretion in permitting Mr.

Knutson to testify.

As for IBC’s argument that the contract must be construed against the

Colliers, we find that in Oklahoma the rule of contra proferentem applies only as

a matter of last resort, once the other common-law principles of construction

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(which Oklahoma at any rate has codified) are applied. Okla. Stat. tit. 15, § 170

(“In cases of uncertainty not removed by the preceding rules, the language of a

contract should be interpreted most strongly against the party who caused the

uncertainty to exist.”); Dismuke v. Cseh, 830 P.2d 188, 190 (Okla. 1992). In any

event, the jury was instructed that if it could not “decide the intention of the

parties” then it could “interpret the unclear terms in the contract most strongly

against the party responsible for the uncertainty.” Instruction No. 20, R. 5, 5531.

The jury’s decision has substantial support in the record; we sustain its verdict on

this issue.

C. Did the trial court err in denying IBC judgment as a matter of law on the
attorney’s fee deduction?

IBC claims the Colliers never paid attorney’s fees in the FDIC suit, nor did

the FDIC seek fees in its counterclaim; but instead that the fees were paid from

the Local-owned escrow account. The Colliers respond that because the escrow

account was created with Collier money (from proceeds received from their sale

of Local) and because they remained liable for all attorney’s fees, they are

entitled to tax benefits derived therefrom. On appeal IBC must show that all of

the evidence, viewed in the light most favorable to the Colliers, reveals no legally

sufficient evidentiary basis to find for them. Burrell v. Armijo, 603 F.3d 825, 832

(10th Cir. 2010). We find substantial evidence to establish that the Colliers are

entitled to this deduction. The Colliers may not in every instance have paid the

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lawyers challenging the FDIC directly, but those payments issued from an escrow

account created of their money. Even after the 2002 RMA, the Colliers paid

invoices for attorney’s fees sent by Local. R. 15, 10882-83 (testimony of Joseph

Perkovich).

D. Did Judge Steele’s opinion cause unfair prejudice to IBC?

In June 2007, the Colliers sued Arnold & Porter, the attorneys in the FDIC

suit, in federal district court in Florida alleging malpractice and conspiracy to

commit fraud. Early in the proceedings Arnold & Porter filed a Rule 12(f) motion

to strike allegations from the pleadings, claiming they were based on privileged

information that the Colliers received from Ms. Carver. In May 2009, the trial

judge (Judge Steele) denied the motion, ruling that the Colliers violated neither

ethical rules nor Local’s attorney-client privilege in receiving Ms. Carver’s

revelations. MCC Management of Naples, Inc. v. Arnold & Porter, LLP, Nos. 07-

cv-387, 07-cv-420, 2009 WL 1514423 at *25 (M.D. Fla. 2009). The use of that

order in this case was fiercely contested. IBC filed motions in limine to exclude

any reference to it. The district court decided to permit witnesses and counsel to

reference the opinion but to disallow them from quoting it or introducing it into

evidence. (IBC accepted the “language” of the instruction but did not believe it

“cure[d] the error.” R. 15, 10796.) IBC claims that judicial opinions are

uncommonly prejudicial under Rule 403; that reference to the order forced them

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to dispute the findings of a federal judge on the very facts at bar; that it was

impossible to explain to a jury that a Rule 12(f) motion concerns only the

pleadings’ permissibility, not their merit; and that the order was hearsay.

Both parties rely on Johnson v. Colt Industries Operating Corp., 797 F.2d

1530 (10th Cir. 1986). In that case, a products-liability suit against a gunmaker,

the plaintiff introduced a Missouri state-court decision to show that a Colt

executive knew that a dropped pistol could discharge. We held that the Missouri

opinion was improperly admitted as substantive evidence, since judicial opinions

present “obvious dangers”:

The most significant possible problem posed by the admission of a
judicial opinion is that the jury might be confused as to the proper
weight to give such evidence. It is possible that a jury might be
confused into believing that the opinion’s findings are somehow
binding in the case at bar. Put most extremely, the jury might
assume that the opinion is entitled to as much weight as the trial
court’s instructions since both emanate from courts.

Id. at 1534. We cautioned that a court decision should be admitted as substantive

evidence “only in the rarest of cases when no other form of evidence is available

and then only with detailed limiting instructions.” Id. Instead, the “typical and

preferable method of introducing such evidence is through the testimony of one

familiar with the similar accident or the subsequent litigation.” Id. at 1534 n. 4.

(Still, the error was harmless, as the evidence against Colt was overwhelming.)

By contrast, in United States v. Zimmerman, 943 F.2d 1204 (10th Cir. 1991), this

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court reversed the conviction of a lawyer after the district court allowed into

evidence statements by two bankruptcy judges essentially accusing him of

conspiring to hide money. The district court found them admissible under Rule

404, to show notice, but the circuit saw nothing less than judicial conclusions of

guilt as to the crime being tried. Id. at 1211.

The guiding principle, then, in admitting what we might call “judicial”

evidence is that, notwithstanding its special potency, it must be treated like any

other evidence. There is no bright-line rule against its admission. In evaluating

whether the district court’s Rule 403 balancing was an abuse of discretion, we

might consider: How aggressive was the use of the prejudicial evidence? Were

other means available to establish the claim or defense? What exactly was the

judicial finding? Was it a factual finding? Above all, the question is: did the

judicial representation prevent the jury from making its own, and perhaps

different, finding?

It is clear from the record that the Florida order was used by the Colliers

and Ms. Carver to undermine IBC’s allegation that she breached confidentiality

agreements with Local and interfered tortiously with Collier-Local arrangements.

Three witnesses for plaintiff were examined about the Florida order. According

to the first, Mr. Perkovich, “[t]he judge told us that the Colliers were entitled to

all information about the FDIC case and that the information about these tax

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deductions was not confidential as to the Colliers.” 1 R. 15, 10913; see also

11111. Ms. Carver said that “Judge Steele issued an order out of that court that

said that I didn’t do anything wrong, that the information wasn’t privileged or

confidential as to the Colliers.” 2 R. 16, 11467-68. Prof. Tom Morgan, an expert

witness for the Colliers, testified that the judge “said there was nothing wrong,

the information was not confidential with respect to the Colliers, it was not a

violation of the attorney-client privilege, it was not a violation of any duty of

confidentiality.” 3 R. 17, 11785-86. Clearly it was probative for the plaintiffs

(involving, as it did, the same people and facts) and potentially prejudicial to the

defendant.

This is a close question. We have reviewed the record provided as a whole

and conclude that the use of the order, as permitted by the district court, was not

an abuse of discretion. Precedents in which use of judicial opinions, remarks, or

findings constituted reversible error involved statements far more redolent of

1
The question from Colliers’ counsel was: “What, if anything, did Judge
Steele, in the Florida case, say concerning the issues that were presented to him?”
R. 15, 10912-13. Carver’s counsel later asked: “The Court’s ruling was, just in
summary, after hearing her testimony, it was what?” Id. at 11111. Perkovich
responded: “It was that the information pertaining to the tax deductions were
not—the information was not confidential as to the Colliers and we were entitled
to get that information from Kristy, or the bank.” Id.
2
The question from Carver’s counsel was: “What order was issued out of
the Florida Court on May 29, 2009?” R. 16, 11467.
3
The question from the Colliers’ counsel was: “What did the judge rule?”
R. 17, 11785.

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strong opinion, far more conclusory, and far more aggressively used. First, the

Colliers and Carver only referenced the opinion, through the testimony of those

present at the Florida hearing. The order itself was never admitted, which is the

crucial distinction from Johnson. We realize that parties could seek to introduce

prejudicial information by other means. For instance, in United States v. Sine,

493 F.3d 1021 (9th Cir. 2007), a prosecutor seeking to prove mail fraud was

disallowed from proffering the remarks of a federal judge, made in another

proceeding, that disparaged the defendant’s character (“chicanery, mendacity,

deceit, and pretense”). Yet he evaded the restriction by asking some 200

questions about it. Id. at 1028. That did not happen here. On direct examination,

Ms. Carver, over the course of a day-long examination, was asked fourteen

questions about the Florida order. R. 15, 11110-12, R. 16, 11467. Mr. Perkovich,

also on direct examination, over some 200 transcript pages, was asked twenty. R.

15, 10911. Prof. Morgan was asked fifteen. R. 17, 11784-87; 11842-43. IBC

cross-examined these witnesses and repeatedly emphasized the order’s

preliminary nature, see, e.g., R. 16, 11480-81, and the fact that only the conduct

of the Colliers, not Ms. Carver, was directly at issue in Florida. Nor did the

blameworthiness of Ms. Carver turn merely on Judge Steele’s findings. IBC was

able to suggest through witnesses and cross-examination that, among other things,

Ms. Carver violated confidentiality agreements, R. 16, 11403-05; that she had

mercenary motives in contacting the Colliers, R. 16, 11412; that she left Local in

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anger, R. 16, 11398-400; and that accounting practices mandate confidentiality,

R. 16, 11441.

Second, the Colliers and Ms. Carver used the opinion defensively, to rebut

an accusation of fraud. The district court was within its discretion in deciding

that a party, faced with allegations of tortious or malicious conduct, should not be

disabled from inquiring about highly probative evidence. IBC not only alleged

various torts but sought indemnity from Ms. Carver, meaning that IBC was

potentially seeking some $16 million from an individual. See Answer,

Counterclaim, and Third-Party Complaint of Defendants International Bancshares

Corporation, No. 06-cv-1345-M, Doc. 48.

Third, the ruling merely denied a motion to strike information from the

pleadings in the Florida suit. Unlike the judicial remarks in Zimmerman, it cast

no aspersions in any direction. It was a comprehensive 14,000-word opinion that

followed three days of testimony.

Fourth, the court read a jointly prepared limiting instruction when the

Florida order first arose at trial and, later, in its jury instructions. 4 We find that

4
The instruction during the trial was as follows:

Pertaining to the Florida litigation, you have heard or will hear
testimony and argument about a lawsuit by the Colliers against
the law firm of Arnold and Porter, including an order issued by
Judge Steele, the judge in the Florida case. You are instructed
that you are the ultimate finders of fact and the credibility of
witnesses in this case. I have already ruled in this case that
Judge Steele’s opinion is not binding on this Court. His

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the district court struck a permissible balance between the Colliers’ right to

probative evidence and IBC’s right to a fair trial. The fact that we might have

struck the balance in a different fashion is not the inquiry under an abuse-of-

discretion standard of review. We cannot say that the concern of Johnson—that a

jury might accept the Florida order as settling disputed facts in place of making

its own independent finding—was realized here.

IBC is right that judicial declarations are hearsay. Herrick v. Garvey, 298

F.3d 1184, 1191 (10th Cir. 2002). It claims the Florida order was “used

exclusively for the truth” of proving Local’s duty to disclose and the propriety of

the Carver-Collier collaboration. Aplt. Br. 61. The Colliers argue that the order

was only offered for the non-hearsay purpose of “rebut[ting]” IBC’s claim that

Carver and the Colliers acted in a “malicious” manner. Carver Br. 32.

Even if the order was hearsay, to overturn the jury verdict we must find

that the error affected the substantial rights of IBC. Fed.R.Civ.P. 61; Beacham v.

Lee-Norse, 714 F.2d 1010, 1014 (10th Cir. 1983). Wrongly admitted evidence is

fatally prejudicial only if “it can be reasonably concluded that with or without

such evidence, there would have been a contrary result.” Sanjuan v. IBP, Inc.,

opinion also is not binding on you. You may give it the
weight and significance, if any, you find it deserves. Further,
you are bound to apply the law as I instruct you at the end of
this case, regardless of any rulings made by Judge Steele in the
Florida case.

R. 15, 10979-80.

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160 F.3d 1291, 1296 (10th Cir. 1998) (internal quotation marks omitted). We

think any error would have been harmless. The Florida order supported Ms.

Carver’s contention that she and the Colliers acted properly, but it is by no means

the only such evidence. The order harmonized with Ms. Carver’s claim that she

acted properly, but she gave a personal account of her conduct. It was consistent

with Mr. Perkovich’s belief that the Colliers were entitled to her information, but

he had an independent understanding of why this was so, based on his dealings

with Local. It reflected Prof. Morgan’s opinion, but he detailed his own view

separately, drawing on his expertise. There was substantial evidence that Local

acted culpably and that the Colliers were contractually entitled to the information

IBC claims was confidential. The prejudicial effect was mitigated by IBC’s

persistent cross-examination emphasizing the limits of the opinion and by

testimony from Local witnesses suggesting Ms. Carver’s blameworthiness. As

noted, we cannot say that the persuasive force of the Florida order settled a fact

for the jury without its independent judgment. We reject Ms. Carver’s

contention, however, that by seeking attorney’s fees for time spent reviewing the

Florida order IBC “injected” the order into the case; her need to defend against a

claim of fees hardly requires introducing the substance of the order.

E. Is IBC entitled to judgment as a matter of law on the Colliers’ tort and
punitive damages claims?

IBC claims that it was error to permit the jury to award tort and punitive

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damages in a contract case without a showing of wrongful conduct independent of

the breach. They assert that they believed in good faith that the Colliers (1) were

never entitled to the Excess Basis Deduction and (2) released their claims to the

principal-payment deduction—the same good-faith beliefs, they observe, that

allowed the jury ultimately to find for the Colliers. They also claim that the

Colliers could have discovered the facts allegedly withheld through reasonable

diligence and the imputed knowledge of Arnold & Porter. They seek judgment as

a matter of law on the fraud, non-disclosure, constructive fraud, and negligent

misrepresentation claims. Finally, they deny any fiduciary relationship existed,

since everything was done at arm’s length and the Colliers had counsel, and

therefore claim the finding of fiduciary breach of duty requires a new trial.

In Oklahoma, damages for fraud, including punitive damages, may be

awarded in contract cases, so long as the breach amounts to an “independent,

willful tort.” Z.D. Howard Co. v. Cartwright, 537 P.2d 345, 347 (Okla. 1975).

We are persuaded that there was clear and convincing evidence upon which the

Colliers could prove fraud. Testimonial and documentary evidence supports a

finding that IBC received some $15 million in tax benefits, and concealed it,

despite contractual obligations to the contrary. See, e.g., Perkovich testimony, R.

15, 10904 (“I was upset.... [B]asically they pocketed this and have been holding it

for years and hiding it from us”); Carver testimony, R. 16, 11242 (reporting that

Local’s CEO told her that “I don’t want you working on anything that is going to

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benefit [the Colliers]”). Tom Dwyer, then an Arnold & Porter lawyer working on

the FDIC claims, testified for Local that the company’s CEO “made it clear to me

I wasn’t to disclose [Local’s deductions to the Colliers].” R. 18, 12344. There

was testimony that Local’s amended tax return was worded with a vagueness

suggestive of concealment. Ms. Carver, who helped draft the disclosure, testified

that it was “intentionally non-descriptive to prohibit the IRS, the FDIC, and the

Colliers from knowing what was happening.” R. 16, 11278; see also R. 16,

11256. The jury was entitled to find fraudulent misrepresentation in the decision

of Local’s CFO to keep silent about the deductions to Colliers and instructing Ms.

Carver and Mr. Dwyer to say nothing to the Colliers unless asked. Finally, it

bears mention that tortious wrongdoing was alleged on both sides in this dispute.

IBC is correct that the Oklahoma Supreme Court has held that “[a]ctionable

fraud consists of a false material representation made as a positive assertion

which is known either to be false, or made recklessly without knowledge of the

truth, with the intention that it be acted upon, and which is relied upon by a party

to his/her detriment.” Tice v. Tice, 672 P.2d 1168, 1171 (Okla. 1983). But upon

a review of the record, we think a jury could have found that the fraudulent

assertion was the tax disclosure drafted to prevent inquiry into the material facts

and hinder the Colliers from discovering the deductions.

The record also supports the jury’s determination that Local was a fiduciary

of the Colliers. Local controlled the books, documents, records, and assets.

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Local prepared the tax returns. The Colliers had no representatives at the bank.

In Oklahoma, fiduciary relationships can “arise anytime the facts and

circumstances surrounding a relationship would allow a reasonably prudent

person to repose confidence in another person.” Combs v. Shelter Mut. Ins., 551

F.3d 991, 1000 (10th Cir. 2008) (internal quotation marks omitted). The Colliers

had no choice but to rely on Local. See R. 15, 10836-39 (testimony of Joseph

Perkovich). This factual predicate can also constitute the “special relationship”

necessary to a finding of a violation of the duty of good faith and fair dealing.

Combs, 551 F.3d at 999. Finally, it is not true that Arnold & Porter’s knowledge

must be imputed to the Colliers, if the firm was then acting adversely to the

Colliers’ interests. U.S. Fid. & Guar. Co. v. State of Okla. ex rel. Sebring, 383

F.2d 417, 419 (10th Cir. 1967). The Colliers believed (correctly or not) that the

Arnold & Porter lawyers were their lawyers, yet it is apparent that the firm was

taking direction from Local. See R. 18, 12343-44 (testimony of Tom Dwyer).

IBC seems to contend that it is contradictory to hold that IBC (1)

interpreted the contract in good faith yet (2) intended to deceive. We fail to see,

however, why a jury could not conclude that Local had a good-faith opinion that

it was entitled to the tax-deduction benefits, but was nonetheless bound frankly to

disclose them and not (as the jury found) conceal their receipt in opaque half-

disclosures. Because the jury’s findings are not against the weight of the

evidence, IBC cannot show that it is entitled to a new trial or judgment as a

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matter of law.

F. Does the admission of the ethics expert’s testimony require a new trial?

IBC claims that Professor Thomas Morgan, who testified about Carver’s

ethical duties, merely testified about legal standards and served as a medium to

import Judge Steele’s order. Rulings on the admission of expert testimony are

reviewed for abuse of discretion. James River Ins. Co. v. Rapid Funding, LLC,

658 F.3d 1207, 1212 (10th Cir. 2011).

We see no abuse of discretion. Prof. Morgan, a nationally recognized

expert on ethics, helped the jury understand ethics rules, the tort of champerty and

improper payments, the contours of attorney-client privilege, and aspects of

confidentiality that may have bound Ms. Carver. (He believed it a “real stretch”

to say that her confidentiality agreements barred her from communicating with

the Colliers, R. 17, 11783). He gave his opinion that the Colliers “did exactly

what they should have done” in receiving information from a woman they had

worked with reliably for years. R. 17, 11773-74; R. 17, 11775-77. His

testimony was solidly based in his expertise and his review of depositions, filings,

and other documents. 5 Most importantly, since he was retained in the Florida suit,

and submitted an affidavit expressing views identical to those here, R. 17, 11786-

87, we can be sure his opinion was not formed upon the Florida order. Even if he

5
The district court only permitted him to proffer into evidence that he
considered the Florida litigation in his expert report and in forming his opinion in
this case.

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had not been involved in that case, that order is the type of material on which an

expert in Prof. Morgan’s field can reasonably rely in forming his views—as IBC’s

own ethics expert did. R. 19, 12994-95.

G. Was the KPMG document inadmissible double hearsay?

IBC claims it was error to admit a memo produced by KPMG, IBC’s

external auditor, that contained handwritten comments like “Collier [sic] may

have claim,” “What are obligation[s] do [sic] we have to tell Collier,” and “Have

we studied tax sharing agreements with Collier [sic].” R. 12, 9110-13. The

district court admitted the memo, over IBC’s objection, under the business-

records exception to the hearsay rule, or, alternatively, as the statement of a

party-opponent. IBC claims there was no evidence that KPMG created the memo;

that it was that company’s regular practice to create such memos; that the

handwriting was KPMG’s; or that the handwriting, if KPMG’s, was added in the

ordinary course of business. We review the ruling for abuse of discretion. United

States v. Blechman, 657 F.3d 1052, 1063 (10th Cir. 2011).

Federal Rule of Evidence 803(6) allows records of regularly conducted

activity to be admitted for their truth, even though hearsay, since they are

presumed to be inherently reliable. Though she did not type the document, the

typed portion of the document apparently was created by Kristy Carver, not

KPMG. R. 16, 11454-57; R. 5, 5289. The nature of KPMG’s engagement and the

circumstances under which the handwritten notes were created are unclear and we

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doubt the report is a regularly created business record—they do not appear to be

the product of any system, but rather the impressions of an anonymous author.

See Trustees of the Chicago Plastering Instit. Pension Tr. v. Cork Plastering Co.,

570 F.3d 890, 901 (7th Cir. 2009) (audit report not part of routinely conducted

audit probably would not qualify as a business record). Tom Travis, Local’s

CEO, testified that, as to the source of the handwriting, “[w]e assume it is KPMG,

somebody in their diligence work area.” R. 20, 13286. He continued: “These are

notes, these are like when you are listening to things and you write things in the

margin, you know, you are trying to put things on a piece of paper to understand.”

R. 20, 13286. He seemed to suggest that these were notes made by KPMG,

during a 2004 meeting, recording the remarks of Local officers and attorneys

(hence the “we”). The Colliers and Carver do not dispute this. See Carver Br.

34. The handwriting, therefore, was not likely made by one under a business duty

to report to KPMG, the fact that presumptively guarantees the reliability of

evidence admitted under this exception. Nonetheless, information provided by

an outsider can become a business record if it is shown that (1) the business has a

policy of verifying the information provided to it, or (2) the business possesses a

“sufficient self-interest in the accuracy of the record to justify an inference of

trustworthiness.” Blechman, 657 F.3d at 1066 (citations omitted). Here,

however, no foundation supports such an inference. R.16, 11454-55. KPMG no

doubt has an interest in providing sound services to its client, but the handwriting

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merely notes what an unidentified speaker is saying. See Paddack v. Dave

Christensen, Inc., 745 F.2d 1254, 1259 (9th Cir. 1984) (audit reports based upon

inadmissible hearsay were not admissible as summaries). We do not know

whether KPMG relied on the memo, verified it, or just discarded it. United States

v. Carranco, 551 F.2d 1197, 1200 (10th Cir. 1977), held that handwritten

notations on a freight bill—made by another company—can constitute a business

record if relied upon in the regular course of business. But, again, here it was not

shown that KPMG generally relies on the verbal representations of its clients.

Nor do we believe the statement-of-a-party-opponent exclusion applies, since

KPMG made the statements, not Local, and nothing in the record suggests that

KPMG, hired to provide services to Local, could be construed as Local’s “agent

or employee.” Fed. R. Evid. 801(d)(2)(D). We find that it was error to admit this

document.

Wrongly admitted evidence constitutes reversible error only if “it can be

reasonably concluded that with or without such evidence, there would have been a

contrary result.” Sanjuan, 160 F.3d at 1296. We do not believe a contrary result

could have obtained had this memo been excluded: by IBC’s admission, the

handwriting reflects what was said by officers of Local, most likely Ms. Carver,

all of which was otherwise exhaustively explored at trial. We will not order a

new trial or declare judgment for IBC as a matter of law on this basis.

H. Did the district court err in awarding the Colliers prejudgment interest on

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 the principal payment and Excess Basis deductions?

An Oklahoma statute allows an award of prejudgment interest to a

prevailing party on “damages certain,” Okla. Stat. tit. 23, § 6, meaning damages

that are “liquidated or capable of ascertainment before judgment,” Taylor v. State

Farm Fire & Cas. Co., 981 P.2d 1253, 1261 (Okla. 1999). This court will reverse

a district court’s finding that damages were certain (or not) only if clearly

erroneous. Strickland Tower Maint., Inc. v. AT&T Commc’ns, Inc., 128 F.3d

1422, 1429 (10th Cir. 1997).

IBC cites Transpower Constructors v. Grand River Dam Authority, 905

F.2d 1413, 1422 (10th Cir. 1990), for the proposition that, under Oklahoma law,

if a trial is necessary to determine damages, then, by definition, the damages

cannot be “certain.” But in that case the plaintiff only got about 60% of what it

claimed; the court ruled that if Transpower’s damages were capable of being

made “certain” before trial, the jury’s award would not have “differed from

Transpower’s total claim by such a significant amount.” Id. (emphasis added).

Here, by contrast, the Colliers initially sought “compensatory damages exceeding

$16,470,122,” see Consolidated Amended Complaint, 23, No. 06-civ-1345-M,

Doc. 33 (filed Aug. 20, 2007), and recovered $17,223,312, see Order, 2, No. 06-

civ-1345-M, Doc. 430 (filed Nov. 16, 2010). In Chesapeake Operating, Inc. v.

Valence Operating Co., 193 F.3d 1153, 1156 (10th Cir. 1999), this court held that,

under Oklahoma law, “if the fact-finder must weigh conflicting evidence in order

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to determine the precise amount of damages due to the plaintiff, then a court

cannot grant prejudgment interest.” Id. The claim in that case was “certain”

because the parties, though contesting the fact of liability, stipulated to the

amount. Here, too, the parties agree that the amount at issue is the sum of the tax

benefits; this dispute is over the fact of liability. Tort and punitive damages were

both part of the judgment, but the jury filled out a verdict form, at IBC’s urging,

that split damages into components. 6 This allowed the district court to award

prejudgment interest only on the principal payment and Excess Basis deductions.

We do not find that the district court’s finding that damages were certain was

clearly erroneous.

AFFIRMED.

Entered for the Court

Paul J. Kelly, Jr.
Circuit Judge

6
The district court entered judgment on the jury’s verdict against IBC for
actual and punitive damages in the amount of $17,223,312.00, consisting of
$7,017,237.00 in actual damages for the principal payment deduction,
$7,136,201.00 in actual damages for the excess basis deduction, $140,482.00 in
actual damages for the attorney’s fee deduction, $1,500,000.00 in actual damages
for amounts withheld in escrow, and $1,429,392.00 in punitive damages.

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