F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
OCT 6 2003
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
EATERIES, INC., an Oklahoma corporation;
FIESTA RESTAURANTS, INC., an Oklahoma
corporation,
Plaintiffs-Appellees and
Cross-Appellants,
v. Nos. 02-6060 & 02-6063
J. R. SIMPLOT COMPANY, a Nevada
corporation,
Defendant-Appellant and
Cross-Appellee.
Appeal from the United States District Court
for the Western District of Oklahoma
(D.C. No. 99-CV-1330-C)
Lana Jeanne Tyree (Ronald E. Stakem of Clark, Stakem, Wood & Patten, P.C.
Oklahoma City, Oklahoma, with her on the briefs) of Cartwright & Tyree,
Oklahoma City, Oklahoma, for Plaintiffs-Appellees and Cross-Appellants.
Mack J. Morgan III (D. Kent Meyers with him on the briefs) of Crowe &
Dunlevy, Oklahoma City, Oklahoma, for Defendant-Appellant and Cross-
Appellee.
Before KELLY, Circuit Judge, BRORBY, Senior Circuit Judge, and MURPHY,
Circuit Judge.
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 to provide the Garcia’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 coverage 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
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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.
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In arriving at Eateries’ fair market value prior to the salmonella
contamination, the district court considered a pre-contamination 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
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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 at 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
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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
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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. Because Eateries (the parent) did
not have any “direct ownership interest in the restaurants,” Simplot believes the
court erred in “award[ing] Eateries diminution damages for restaurants it does not
own.” We conclude the invited error doctrine prevents Simplot from seeking
reversal on this issue.
“The ‘invited error’ doctrine is equitable in nature.” Richardson v. Mo.
Pac. R.R. Co., 186 F.3d 1273, 1277 (10th Cir. 1999). It “‘prevents a party from
inducing action by a court and later seeking reversal on the ground that the
requested action was error.’” John Zink Co. v. Zink, 241 F.3d 1256, 1259 (10th
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Cir. 2001) (quoting United States v. Edward J., 224 F.3d 1216, 1222 (10th Cir.
2000)).
After reviewing the record, we conclude Simplot’s position on appeal
contradicts its arguments to the district court. On several occasions, Simplot
urged the district court to award damages based on Eateries’ diminution in value,
albeit in a lesser amount of damages than the district court awarded. In fact, one
of Simplot’s own experts concluded “the best measure of damages” is to calculate
“Eateries’ lost equity value due to the salmonella incident.” In a strange twist of
events, Simplot now argues, although its expert “offer[ed] an opinion regarding
diminution in market value,” the district court should not have relied on its
expert’s methodology because there was “no credible evidence” to support this
method. The fact remains, however, Simplot urged the district court to adopt its
expert’s methodology. The invited error doctrine prevents Simplot from
advocating a contrary position on appeal. 1
1
In a related argument, Simplot claims “[t]he amount of the diminution
award undeniably confirms the invalidity of [awarding damages based on
Eateries’ diminution in value rather than Fiesta’s diminution in value]. The
District Court calculated diminution damages for a temporary loss of sales as
being roughly equal to the entire value of the [Fiesta] restaurants as calculated by
Plaintiffs themselves.” Simplot asserts “even if the Phoenix Garcia’s Restaurants
had been completely destroyed, the damages could not exceed their total value.”
Even assuming this argument was not waived when Simplot urged the district
court to award diminution damages based on Eateries’ loss, this argument fails
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II. Values Compared in Diminution of Value Calculations
Simplot next argues the district court “us[ed] inappropriate and incongruent
values to calculate [the] diminution [in value] damages.” Simplot claims the court
erroneously found “the Halpern Denny contingent, verbal offer for Eateries’ assets
was comparable to [Eateries’] privately negotiated stock repurchase some seven
months later.” Simplot also claims “the values used by the District Court were not
accurate measures of the enterprise value of Eateries on either date.” Simplot
believes the court should have calculated the difference between the price of
Eateries’ publicly traded stock before and after the salmonella contamination
because this is “clearly the best evidence” of Eateries’ damages.
In their cross-appeal, Eateries and Fiesta argue the district court’s finding of
Eateries’ post-contamination fair market value was erroneous. They claim “[t]he
district court erred in adding 35% as a control premium to the ‘after incident’
stock repurchase price when calculating Eateries’ diminution in value.”
because it presupposes Simplot is liable only for harm to Fiesta. Yet Eateries
suffered damages in its own right. For example, Simplot contracted with Eateries
to supply the chile rellenos to the Fiesta restaurants. The record also shows, as a
result of the contamination, Eateries’ insurance premiums increased.
Consequently, it is of little help to compare the total damage Eateries incurred to
the value of the specific Phoenix area Fiesta restaurants.
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Simplot believes we should review its argument de novo, characterizing its
argument as attacking the district court’s methodology. We disagree with this
characterization. Simplot’s argument is properly characterized as a challenge to
the district court’s factual findings of Eateries’ fair market value before and after
the salmonella contamination, not a challenge to the methodology itself. We
therefore review its argument, as well as Eateries’ and Fiesta’s argument, for clear
error. See Nieto, 268 F.3d at 1221. As explained below, we conclude the district
court’s factual findings of fair market value are not clearly erroneous. 2
A. Pre-Contamination Value
As to Eateries’ fair market value before the salmonella contamination,
Simplot argues the Halpern Denny offer does not represent fair market value
2
In any event, we conclude the district court used a proper methodology.
As is clear from the district court’s opinion, it calculated damages by comparing
the Eateries’ fair market value before the contamination with Eateries’ fair market
value after the contamination. Fair market value is “[t]he price that a seller is
willing to accept and a buyer is willing to pay on the open market and in an
arm’s-length transaction.” Black’s Law Dictionary 1549 (7th ed. 1999). See also
Rhodes v. Amoco Oil Co., 143 F.3d 1369, 1373 n.4 (10th Cir. 1998). However, “a
stock’s price on the public markets [does not] conclusively establish[] its fair
market value.” Falls v. Fickling, 621 F.2d 1362, 1369 (5th Cir. 1980).
Diminution in fair market value is an appropriate methodology. See Protectors
Ins. Servs., Inc. v. United States Fid. & Guar. Co., 132 F.3d 612, 615-18 (10th
Cir. 1998); Mattingly, Inc. v. Beatrice Foods Co., 835 F.2d 1547, 1559 (10th Cir.
1987), vacated on other grounds, 852 F.2d 516 (10th Cir. 1988). It is also the
methodology urged by one of Simplot’s experts at trial.
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because it believes the offer was “contingent” and “subject to change.” Simplot’s
characterization of the offer contradicts the district court’s factual findings. The
district court specifically found “[a]lthough it had not yet been reduced to writing,
Halpern, Denny & Company considered that it had an agreement to purchase
Eateries’ assets. But for the salmonella incident, the sale of Eateries’ assets to
Halpern, Denny & Company would have closed.” This finding is supported by the
record. Halpern Denny sent Eateries a letter citing the salmonella contamination
as the reason it was backing out of the agreement. The president of Eateries
testified he believed the contamination was the sole reason Halpern Denny chose
not to complete the agreement. One of Halpern Denny’s general partners
confirmed this testimony. Thus, we reject Simplot’s assertion the offer did not
represent Eateries’ fair market value because it was too speculative.
In a related argument, Simplot maintains “there was no evidence offered to
quantify the control premium which was included in the [Halpern Denny] offer ...
[b]ecause there was no set closing date” on the offer. We reject this argument
because the record reveals several witnesses testified about the existence and
amount of the control premium. 3 In any event, Simplot waived this argument by
3
Part of this testimony is discussed infra in Part II.B.2.
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failing to raise it before the district court and in its opening brief on appeal. See
McDonld v. Kinder-Morgan, Inc., 287 F.3d 992, 999 (10th Cir. 2002); State Farm
Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 98 n.7 (10th Cir. 1994). 4
Based on the record before us, we conclude the district court did not commit
clear error in finding the Halpern Denny offer represents Eateries’ pre-
contamination fair market value.
B. Post-Contamination Value
While only Simplot opposed the district court’s determination of the pre-
contamination value of Eateries, both sides appeal the district court’s
determination of Eateries’ post-contamination fair market value. As discussed
above, the district court arrived at Eateries’ post-contamination fair market value
by adding a 35 percent control premium to the price Eateries paid to repurchase its
stock because the repurchase price “fail[ed] to account for a control premium.”
Simplot believes the court erred in relying on the stock repurchase price. Eateries
4
Simplot also argues “[t]here was no evidence introduced that supports the
proposition that the Halpern, Denny offer for the assets only of Eateries
constitutes fair market value. It clearly does not because the liabilities are not
also assumed.” Once again, however, Simplot did not raise this argument before
the district court or in its opening brief on appeal. We therefore decline to
address it. See McDonald, 287 F.3d at 999; State Farm, 31 F.3d at 984 n.7.
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and Fiesta argue the court should not have added a 35 percent control premium.
Addressing each argument in turn, we conclude the district court’s findings are not
clearly erroneous.
1. Stock Repurchase Price
As to the post-contamination value, Simplot devotes a few sentences to
argue that the stock repurchase price does not reflect the true market value because
it was “a forced purchase.” Simplot suggests the stock repurchase did not involve
a willing buyer and a willing seller.
We conclude Simplot’s superficial argument is insufficient to garner
appellate review. We first note Simplot has not offered any record citations or
legal authority in support of its argument. “We need not sift through the record to
find [evidence to support a party’s argument], nor manufacture a party’s argument
for [it].” Sil-Flo, Inc. v. SFHC, Inc., 917 F.2d 1507, 1513 (10th Cir. 1990)
(quotation marks and citations omitted). A party forfeits an issue it does not
support with “legal authority or argument.” Clark v. State Farm Mut. Auto. Ins.
Co., 319 F.3d 1234, 1244 (10th Cir. 2003). Furthermore, as in its previous
arguments, Simplot did not raise its contention the sale was “forced” before the
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district court or in its opening brief. 5 It therefore waived this argument. See
McDonald, 287 F.3d at 999; State Farm, 31 F.3d at 984 n.7. Under these
circumstances, we conclude Simplot’s belated and “perfunctory” challenge to the
district court’s findings on post-contamination fair market value is “insufficient to
invoke appellate review.” Robey-Harcourt v. BenCorp Fin. Co., 326 F.3d 1140,
1143 (10th Cir. 2003).
2. Control Premium
In their cross-appeal, Eateries and Fiesta argue “the district court erred in
adding 35% as a control premium to the ‘after incident’ stock repurchase price
when calculating Eateries’ diminution in value.” They maintain the court should
not have added any control premium because the repurchase price already included
a premium. Alternatively, Eateries and Fiesta claim the district court should have
added no more than a 26.4 percent premium.
A control premium is “[a] premium paid for shares carrying the power to
5
Simplot did mention in its opening brief the stock repurchase was
“privately negotiated.” Simplot, however, did not elaborate on this point at all or
provide record support. Nevertheless, we do not think the mere fact a purchase is
“privately negotiated,” without more, somehow indicates the purchase price is not
at least a good starting point for determining fair market value.
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control a corporation.” Black’s Law Dictionary 1200 (7th ed. 1999). Depending
on the facts of a particular case, it may be a relevant factor in the fair market value
analysis. See Estate of Godley v. Commissioner, 286 F.3d 210, 214-15 (4th Cir.
2002); Joe Esco South-West Tire Co. v. United States, 582 F. Supp. 993, 1001
(W.D. Okla. 1983). While “it is generally recognized that majority stock is more
valuable than minority stock,” McDaniel v. Painter, 418 F.2d 545, 548 (10th Cir.
1969), the amount of a control premium is a question of fact determined on a case-
by-case basis, see Godley, 286 F.3d at 214-16; Joe Esco Tire, 582 F. Supp. at
1001.
As to Eateries’ and Fiesta’s argument the stock repurchase price already
included a premium, we conclude there is sufficient evidence to support the
district court’s finding that the repurchase price “fail[ed] to account for a control
premium.” The president of Eateries testified the stock repurchase price was the
“then existing market price [of] the stock.” This indicates the repurchase price did
not include a premium. Other testimony stated Eateries repurchased only a
minority interest in Eateries. This also suggests the repurchase price of the stock
did not include a premium for control of the company.
Eateries and Fiesta concede the repurchase price did not contain a “control
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premium,” but nevertheless argue the repurchase price included “a premium above
market price” and a “premium is [a] premium.” They rely on the opinion of their
expert who testified the repurchase price “represented a premium above the market
trading price.” After reviewing the evidence, we conclude the district court did
not commit clear error in finding the repurchase price did not include a control
premium and a premium should be added. As discussed above, the president of
Eateries testified the repurchase price represented the “then existing market price.”
It was not error for the district court to credit this testimony and disregard the
testimony of Eateries’ expert. Thus, we will not upset the district court’s finding.
Eateries and Fiesta next argue that even if the court was correct in adding a
control premium, the court should have added at most a 26.4 percent control
premium because the “actual control premium included within the Halpern Denny
pre-incident offer ... was 26.4%.” Eateries and Fiesta raised a similar argument in
their motion to alter or amend the district court’s first decision. The district court
responded by stating their argument was “contrary to the Court’s determination of
the evidence.” The district court found that “[w]hile there was testimony
supporting different percentage amounts, the percentage used by the Court was
based on the testimony found most credible by the Court.”
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We find adequate support in the record for the district court’s finding of a
35 percent control premium. The district court heard a variety of conflicting
testimony concerning the amount of a control premium. One of Eateries’ experts,
Mr. Payne, calculated a control premium of 26.4 percent for the pre-contamination
Halpern Denny offer. He arrived at this percentage by averaging Eateries’ high
and low stock price during a two-month time period. Mr. Payne testified the
average control premium paid for similar businesses during this time period was
31.6 percent. In addition, one of Halpern Denny’s general partners testified the
$9.00 per share offer represented a market multiple of 6.7 and the stock was
trading at about a 5.5 multiple. Although he did not specifically calculate the
amount of the control premium, he testified the offer included “a premium to the
market” and the premium was “usual.” The district court also heard testimony
about typical control premiums from Simplot’s experts. Mr. Wilsey testified a
normal control premium was between 25 and 40 percent. Mr. Davis testified a
“typical[]” control premium would be between 30 and 40 percent. The district
court apparently found Mr. Davis’ testimony the most credible. We must give
“due regard” to the district court’s credibility determination. See Fed. R. Civ. P.
52(a).
Eateries and Fiesta nevertheless argue “[i]t was error for the Court to rely on
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the most general estimates of potential control premiums when the Court had an
actual control premium related to Eateries immediately before the damage.” This
argument mischaracterizes their expert’s testimony as calculating an actual control
premium. Their expert, however, did not and could not calculate a precise pre-
contamination control premium because there was no set closing date for the sale
to Halpern Denny. Instead, the experts estimated the control premium by
averaging the high and low stock price during what he deemed the relevant time
period. We cannot conclude the district court erred in discounting this testimony
and instead crediting other testimony. See Anderson, 470 U.S. at 574-75 (noting
the “special deference to be paid [to] credibility determinations” under Federal
Rule of Civil Procedure 52(a)).
Eateries and Fiesta also argue that because Eateries was “a distressed
company after the salmonella incident[,] ... there is no evidence and no reason to
assume that a control premium would apply, much less increase [to 35 percent],
while the value of the company, generally, decreased.” Even though Eateries may
have been “distressed,” we nonetheless conclude there is sufficient evidence in the
record to support the district court’s finding that a 35 percent control premium
should apply.
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We conclude the district court did not commit clear error in adding a 35
percent control premium to the stock repurchase price to arrive at Eateries’ post-
contamination fair market value.
III. Causation
Simplot next argues the district court erred because it failed to address “the
undisputed existence of multiple other factors that caused or contributed to a
decline in Eateries’ value.” Simplot believes the district court “erroneously and
incredibly assumed that the sole, proximate cause of the change in Eateries stock
price over a seven month time frame was the salmonella Incident.” Simplot claims
the district court should have awarded only “nominal damages” because the district
court failed to consider the effect of:
(1) Market conditions, including the performance of Eateries’ peers
and the restaurant industry in general during this time frame; (2)
Eateries’ second quarter earnings announcements; (3) Eateries’
earnings; (4) Performance of [other Eateries’] restaurants during this
period of time; (5) Acquisition of control by the management
directors of Eateries; and (6) competition.
We reject this argument.
Simplot raised the same argument before the district court in its motion to
amend the findings and judgment. In rejecting the argument, the district court
stated: “Throughout the trial, [Eateries and Fiesta] argued that [Simplot’s]
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wrongdoing was the sole cause of [Eateries’ and Fiesta’s] harm, while [Simplot]
attempted to attribute some portion of the harm to other factors.” The court
explained it had “consider[ed] and weigh[ed] the evidence presented by the parties
[and] agreed with [Eateries’ and Fiesta’s] position.” The district court also
criticized Simplot’s experts in its decision, finding they “failed to perform the
work necessary to provide a solid foundation for the calculations they offered.”
While Simplot touts the allegedly “undisputed” negative impact of factors
other than the salmonella contamination on Eateries’ value, we remind Simplot
that an Eateries’ expert contradicted its assertions that market forces significantly
affected restaurant stock prices. Eateries’ expert, Mr. Payne, analyzed the stock
price of several companies similar to Eateries. He testified that, while some
companies’ stock value went up and other companies’ stock value went down,
their market multiples remained constant. Thus, Mr. Payne concluded any decline
in the stock price of a company was “not because the industry [was] falling apart
or the industry [was] so much out of favor, [it was] because of company-specific
reasons.” Given this testimony, we cannot say the district court erred in rejecting
Simplot’s experts’ testimony about general market effects on the Eateries stock
price. See King Res. Stockholders’ Protective Comm. v. Baer (In re King Res.
Co.), 651 F.2d 1326, 1337 (10th Cir. 1980); see also Fed. R. Civ. P. 52(a).
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Of course, Simplot also argues Eateries stock price decline was attributable
to company-specific factors other than the salmonella contamination. Primarily,
Simplot claims losses suffered by Eateries’ restaurants not affected by the
salmonella contamination contributed to the stock price decline. One of Simplot’s
experts, Mr. Wilsey, testified that in the year following the salmonella
contamination, the Garcia’s restaurants enjoyed a profit while other Eateries’
restaurants suffered a loss. The record reveals questions as to the reliability of
this testimony. Mr. Wilsey admitted he based his opinion on accounting records
that may not have allocated many of Garcia’s expenses to Garcia’s. Another
witness testified it was important to allocate expenses before comparing profits
and losses because “[i]f you don’t have the allocations in, you don’t have a true
operating profit.” Following the salmonella contamination, the Garcia’s
restaurants launched an expensive marketing campaign to mitigate the harm the
contamination caused. Leaving such a large expense unallocated would distort
whatever profits Garcia’s may have had, if any. With the accuracy of the
underlying numbers in question, it was not error for the district court to discount
Mr. Wilsey’s testimony in its entirety. 6
6
Relying solely on Mr. Wilsey’s expert opinion, Simplot also blames the
Eateries stock price decline on Eateries’ announcement of its poor earnings in the
quarter before the salmonella contamination, Eateries stock repurchase, and
competition. Given the previously discussed problems with Mr. Wilsey’s
testimony, we cannot conclude it was error for the district court to reject his
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For these reasons, we conclude the district court did not err in failing to
attribute part of Eateries’ decline in value to factors other than the salmonella
contamination. There was sufficient evidence for the district court to conclude
Eateries’ decline in value was caused by the salmonella contamination. We affirm
the district court’s award of diminution in value damages.
IV. Insurance Costs
Lastly, Simplot argues the district court impermissibly allowed a double
recovery by awarding damages for increased insurance costs in addition to
diminution in value damages. Essentially, Simplot contends the diminution in
value damages encompass the anticipated future cost of insurance. According to
Simplot, “[b]usiness valuation, however performed, is a measure of the anticipated
profits or cash flows of the business .... The anticipated profits are, of course,
dependent upon comparing revenues with costs.” Consequently, Simplot claims
“[t]he award of insurance is a double recovery as a matter of law.” We agree.
testimony in its entirety. However, these arguments suffer from their own
infirmities as well. For example, there was testimony Garcia’s sales were
growing prior to the contamination, but turned negative after the incident, there
was testimony the previous owner of the repurchased stock would not have sold
the stock but for the salmonella contamination, and Mr. Payne testified his
damage calculations (using values other than the publicly traded stock price)
excluded any damage due to competition. Therefore, we reject Simplot’s
argument.
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Simplot raised this argument before the district court in its motion to amend.
The district court rejected the argument. It reasoned:
The award for diminution in value reflects the damage in the
company’s overall value, while the award for increased insurance
premiums reflects compensation for a specific out-of-pocket expense
caused by the [Simplot’s] wrongdoing. An award for this expense is
easily measured, it is separable from other costs and was clearly
delineated by the evidence. Thus, it is a permissible award in
addition to the diminution in value.
The court also stated that “[b]ased on the evidence offered at trial, the Court finds
the insurance cost was not a factor in altering [Eateries’ value].” Thus, the court
concluded awarding increased insurance costs was not an impermissible double
recovery. On appeal, Eateries’ and Fiesta’s arguments in support of the increased
insurance cost award closely tracks the district court’s reasoning.
In considering this issue, we note the purpose of damages in this case is to
put “the aggrieved party ... in as good a position as if the other party had fully
performed.” Okla. Stat. Ann. tit. 12A, § 1-106 (West 1963). See also Okla Stat.
Ann. tit. 12A §§ 2-714, 2-715 (West 1963). Oklahoma law does not generally
allow a party to recover more “than the maximum recoverable loss that the party
has sustained,” i.e., a party is not entitled to double recovery. Black’s Law
Dictionary 1280 (7th ed. 1999). See Houck v. Hold Oil Corp., 867 P.2d 451, 461
(Okla. 1993). Eateries and Fiesta do not argue a double recovery would be
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appropriate in this case. We review whether a damage award is in fact a double
recovery under a clearly erroneous standard. See United Phosphorus, Ltd. v.
Midland Fumigant, Inc., 205 F.3d 1219, 1235-36 (10th Cir. 2000.)
In order to determine whether the district court’s award amounts to a double
recovery, it is necessary to understand what diminution in value damages
encompasses. A court calculates diminution in value damages by comparing the
fair market value of a company before a breach with the fair market value of the
company after the breach. See Protectors Ins., 132 F.3d at 615-18; Mattingly, 835
F.2d at 1559; see also Black’s Law Dictionary 469 (7th ed. 1999) (defining
“diminution-in-value method”). As previously noted, fair market value is “[t]he
price that a seller is willing to accept and a buyer is willing to pay on the open
market and in an arm’s length transaction.” Black’s Law Dictionary at 1549; see
also Rhodes, 143 F.3d at 1373 n.4. Market value “is said to be the present value
of a projected profit stream.” R.E.B., Inc. v. Ralston Purina Co., 525 F.2d 749,
754-55 (10th Cir. 1975). Therefore, fair market value “necessarily incorporate[s]
expected future profits.” So. Colo. MRI, 166 F.3d at 1100 (emphasis added); see
also Protectors Ins., 132 F.3d at 616. Future profit, in turn, is the difference
between expected revenue and expenses. See Black’s Law Dictionary 1226 (7th ed.
1999). Fair market value, therefore, incorporates expected earnings and expenses.
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See Protectors Ins., 132 F.3d at 616 (stating “[t]he prospect of future earnings is
considered in arriving at the fair market value of a given business”).
Because fair market value, by definition, includes expected earnings and
expenses, courts have generally held a plaintiff may not recover diminution in
value damages and lost profits. See id. at 616-18; Ralston Purina, 525 F.2d at
753-54. 7 Cf. Houck, 867 P.2d at 460-61 (stating it would be duplicative to allow
damages for loss of use and diminution in value damages for the same piece of
land). The same principle logically precludes a plaintiff from recovering
7
See also Herrington v. County of Sonoma, 834 F.2d 1488, 1506 (9th Cir.
1987) (holding plaintiffs could not “obtain compensation for both lost value and
lost profit”); Johnson v. Oroweat Foods Co., 785 F.2d 503, 508 (4th Cir. 1986)
(“[T]he two methods of calculation – present value of all future earning or market
value of the business – are simply alternative methods of measuring the extent of
the same injury. That is why courts allow a plaintiff to recover either the present
value of lost future earnings or the present market value of the lost business, but
not both.”); Am. Anodco, Inc. v. Reynolds Metals Co., 743 F.2d 417, 424 (6th Cir.
1984) (“Where the loss of profits and loss of value are intertwined, as they are
here, and the loss of value is based on loss of future profits, to allow both would
be to permit a double recovery.”); Malley-Duff & Assocs. v. Crown Life Ins. Co.,
734 F.2d 133, 148 (3rd Cir. 1984) (“Generally, when the loss of business is
alleged to be caused by the wrongful acts of another, damages are measured by
one of two alternative methods: (1) the going concern value; or (2) lost future
profits.”); Arnott v. Am. Oil Co., 609 F.2d 873, 887 (8th Cir. 1979) (stating
“going concern value and lost future profits are each viable alternative measures
of antitrust damages”); Lehrman v. Gulf Oil Corp., 500 F.2d 659, 664 n.14 (5th
Cir. 1974) (“We, of course, realize that because future profits potential is a
principal element of a firms’ going concern value an award should not include
both.”).
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diminution in value damages for a business and increased future expenses for the
same business.
Here, the district court calculated Eateries’ diminution in value by
comparing Eateries’ fair market value before the salmonella contamination with its
fair market value after the contamination. The court found the $9.00 Halpern
Denny offer represented Eateries’ pre-contamination fair market value. In making
its offer, Halpern Denny considered historical and future profitability. Thus,
Eateries’ pre-contamination fair market value incorporated expectations of future
earnings and expenses.
The same is true for Eateries’ post-contamination fair market value. The
district court found Eateries’ post-contamination fair market value was $6.92. The
court explained that the fact “some value remained accounts for the market’s
assumption that [Eateries and Fiesta] will recover and earn profits in the future.”
Consistent with this explanation, the record shows Eateries’ expected future
profits were incorporated in its post-contamination fair market value. For
example, a Halpern Denny partner testified Eateries’ fair market value after the
contamination was less than $9.00 because its future profits were more uncertain.
Because the post-contamination fair market value included future profits, it also
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incorporated the components of future profit – future earnings and future
expenses.
In short, the fair market value of Eateries before and after the salmonella
contamination included future expenses. Adding another future expense to the
damage total in the form of increased insurance costs results in a double recovery.
Eateries and Fiesta nevertheless argue they are entitled to damages for
Eateries’ diminution in value and increased insurance costs because they suffered
two independent harms. Cf. Protectors Ins., 132 F.3d at 618. Rather than directing
us to testimony or exhibits presented to the district court, 8 they direct us to the
district court’s finding that “[a]n award for [insurance] expense[s] is easily
measured, it is separable from other costs and was clearly delineated by the
evidence.” We agree with the district court’s findings that Eateries’ insurance cost
8
Eateries and Fiesta do assert, “even [Simplot’s] expert [Mr.] Wilsey said
that Eateries should be compensated for the loss of profits and certain expenses,
including the insurance loss.” (Emphasis in original.) Mr. Wilsey did not opine
Eateries should be compensated for its lost profits and insurance costs. He
suggested the court award damages for the lost profits only at the Garcia’s
restaurant locations directly owned by Fiesta, as well as the increased insurance
costs for which Eateries was responsible. Because Eateries paid the increased
insurance costs itself, the insurance cost was not included as a Garcia’s expense
and, therefore, it was not a factor in the Garcia’s profits.
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increased and that the amount of the increase was easily measured. 9 However, the
concrete nature of the insurance cost evidence only strengthens our conclusion that
the award of increased insurance costs was duplicative. In its findings describing
the post-contamination fair market value, the district court specifically found the
market had sufficient time “to react to the incident and determine the future
recovery of [Eateries and Fiesta].” Given this finding, the market should have
been able to account for increased insurance costs so “easily measured.”
Furthermore, although we have combed the record, we find no evidence suggesting
future expenses, such as insurance, were not included in Eateries’ fair market
value. And, as discussed above, there is plenty of evidence suggesting the award
of increased insurance costs is duplicative. For these reasons, we reverse the
district court’s award of increased insurance costs.
CONCLUSION
For the foregoing reasons, we AFFIRM in part and REVERSE in part. We
REMAND the case to the district court for entry of judgment in accordance with
this opinion.
9
Simplot also faults the district court for failing to “make findings
regarding ... undisputed factors [other than the salmonella contamination] which
increased Eateries’ insurance premiums.” We need not address this argument
because we conclude the award of increased insurance premiums is duplicative.
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02-6060, 02-6063, Eateries, Inc. v. J.R. Simplot Co.
KELLY, Circuit Judge, concurring in part and dissenting in part.
I concur in the court’s opinion reversing the district court’s judgment
insofar as it awards insurance costs in addition to diminution in value damages. I
dissent from the court’s affirming the judgment awarding $8,200,607.40 in
diminution in value damages. In my view, such a large award is clearly erroneous
for three reasons.
First, the district court’s diminution in value award is close to what the
damages would have been if every Phoenix-area Garcia’s restaurant had been put
out of business. At the pertinent time, Eateries (1) owned and operated 48
Garfield’s restaurants and two Pepperoni Grill restaurants, and (2) owned 100% of
the stock of Fiesta Restaurants, Inc., a corporation that owned (a) five Phoenix-
area Garcia’s restaurants, (b) a Carlos Murphy’s restaurant, and (c) an additional
seven Garcia’s restaurants outside of Arizona. Aplt. App. 173-75, 182, 184, 205.
Seven months before the incident, Fiesta had purchased a group of restaurants,
including the Garcia’s chain, for a net price of approximately $4.6 million. Aplt.
App. 175-76; Aplee. Supp. App. at 245, 274-75. Eateries’ own subjective estimate
of the value of the five Phoenix-based Garcia’s restaurants was 6.6 times budgeted
cash flow or approximately $8.46 million. Aplt. App. 422; see also Aplee. Supp.
App. at 285 (company CEO suggesting a valuation multiple of 6.5 times budgeted
cash flow).
Second, the district court determined that 100% of the diminution in value
of the Eateries stock was attributable to the incident involving the Phoenix-based
Garcia’s restaurants. By December 1998, Eateries owned and operated 64
restaurants; 14 had the Garcia’s name; with seven of those in Arizona, and five in
the Phoenix area. However Eateries allocates its corporate expenses between its
restaurants, the bulk of its revenues and earnings come from its non-Phoenix based
Garcia’s restaurants, primarily Garfield’s. Likewise, the vast majority of the
company’s productive assets are elsewhere. The company’s internal corporate, as
well as its public, documents suggest a variety of reasons why its stock price might
decline, including increased competition, Garfield’s declining same store sales in
the third quarter of 1998, and a net loss for 1999 ($38,000) due to higher expenses,
as compared with modest net income in 1998 ($1,183,000). Aplt. App. 320, 353,
369.
Moreover, even Eateries’ expert acknowledged that other factors such as
competition would affect its stock price. Aplee. App. at 434 (“The price of stock
is going to be affected by a number of things including the amount of debt
employed in the company, the company’s earnings. There’s a number of
factors.”), 457 (competition). Although the district court is free to reject contrary
expert opinions, the failure to distinguish contrary evidence makes the district
court’s “all or nothing” causation finding suspect. Essentially, the district court
implicitly found that this is an unusual publicly-traded company whose stock price
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is unaffected by fundamental factors, market forces and earnings announcements.
Finally, the district court based its damage calculation on a value long
before trial, February 1999. It seems to me that the Plaintiff has recovered the
entire value of the five Phoenix-based Garcia’s restaurants, yet it still owns them
and those restaurants retain significant value. The purpose of damages is make
one whole, not provide a huge windfall. See Beck v. N. Natural Gas Co., 170 F.3d
1018, 1024 (10th Cir. 1999); Redhouse v. Quality Ford Sales, Inc., 511 F.2d 230,
238 (10th Cir. 1975).
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