Matthews v. C.E.C. Industries ( 1999 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
DEC 21 1999
TENTH CIRCUIT
PATRICK FISHER
Clerk
GEORGE A. MATTHEWS, JR.,
Plaintiff-Appellee,
v. No. 98-4184
C.E.C. INDUSTRIES CORP., a (D.C. No. 96-CV-729)
Nevada corporation, (D.Utah)
Defendant-Appellant.
ORDER AND JUDGMENT *
Before SEYMOUR, Chief Judge, BRISCOE , and MURPHY, Circuit Judges.
In this diversity action, George A. Matthews sued C.E.C. Industries Corp.
(“C.E.C.”) alleging that C.E.C. breached his employment contract, wrongfully
issued a “stop transfer” order to prevent him from receiving stock shares, and
ignored a directive from the company’s board of directors to distribute the shares
of a C.E.C. subsidiary. After a bench trial, the district court rendered a verdict in
Matthews’ favor on his breach of contract and “stop transfer” claims. C.E.C.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
appeals, contending that the district court erred when it (1) denied C.E.C.’s
motion to continue the trial and to substitute counsel; (2) denied C.E.C.’s motion
for a new trial or to amend the judgment; and (3) awarded Matthews two-thirds
of his fees and costs. We affirm.
I. The Motion to Continue the Trial and to Substitute Counsel
A. Background
C.E.C.’s first argument focuses on the performance of the company’s trial
counsel, Richard J. Leedy. On the first Monday of trial, Gerald Levine, the
president of C.E.C., detected alcohol on Leedy’s breath. Appellant’s Appendix
(“Aplt. App.”) at 68. When asked by Levine if he could proceed, Leedy stated
that he “didn’t need a mother.” Id. 1 On the second day of trial, Levine detected
an even stronger scent of alcohol on Leedy’s breath. According to Levine, Leedy
seemed “shaky,” would not listen to Levine’s suggestions, and became
belligerent when Levine asked him if he had been drinking. Id. at 68-69. Over
the course of the next several hours, Leedy forgot to sit down after making an
objection, spoke in a loud voice, and was corrected by the trial judge as he cross-
examined Matthews. Id. Leedy’s nose was bleeding during this time. Id. at 69.
1
Levine also reported that he met with Leedy on the evening before trial
to discuss the case. Leedy had several drinks at the meeting. Aplt. App. at 68.
2
At the conclusion of the second day of trial, Leedy went with Levine and
Levine’s wife to a pawn shop to purchase a briefcase. Leedy left the case files
on the floor of the pawn shop and left the store to go to a tavern without
informing Levine. Levine called the tavern and asked for Leedy, but Leedy
refused to speak to him. Id.
C.E.C.’s problems with Leedy continued on the third day of trial. Leedy
arrived several minutes late, and his nose was bleeding “profusely.” Id. at 69,
576. Levine inquired whether Leedy was okay and whether he could continue.
Leedy reiterated that he “didn’t need a mother” and called Levine an “***hole.”
Id. at 69. As the proceedings recommenced, the district court noticed that Leedy
appeared ill and asked about his well-being. Id. at 69, 576. Leedy broke down
and began crying. Id. at 69-70. The court then held a meeting in chambers with
Leedy and Matthews’ counsel. Id. at 70, 577. When Leedy returned from the
meeting he started sobbing again and (apparently off the record) used the same
epithet to describe Levine. Id. at 70. The court decided to hold another meeting
in chambers, this time with the parties’ counsel and the Levines. Leedy stated in
this meeting that “my clients have advised me they would prefer not to go
forward with me I guess in the condition I’m in. My condition is that, yes, I have
3
a high blood pressure. I’ve had severe heart problems.” Id. at 578. 2 Leedy
commented that he “w[ould] not represent these people anymore, so they’re going
to have to get a new lawyer,” and made an oral motion to withdraw. Id. at 581,
583, 587; see also id. at 582 (containing Leedy’s statement that “I prefer not to
represent these people anymore”); id. at 584 (stating that Leedy wanted to
represent C.E.C. but had a “personal problem” with the Levines and “just
[couldn’t] go on like this”). Levine expressed his view that:
In Mr. Leedy’s condition in my opinion [it] would really be unfair to
go ahead today. It’s not that I feel that we have to replace Mr.
Leedy . . . . And without putting it on the record, because I don’t
want to do anything that would embarrass or do anything to hurt Mr.
Leedy, . . . it would really be unfair for us, because he couldn’t
cross-examine me correctly. So we wouldn’t care even if the delay
was just until he felt better where he could say, “yes, I’m sure of
myself.”
Id. at 579-80. After some additional discussion, Levine went on to say that he
had
been trying to be very eloquent and not say that Mr. Leedy has been
drinking. But with the medicine . . . It’s just an unfair scenario for
us as officers of C.E.C. It’s just – it’s wrong. So I mean I was
trying to not bring it up or do . . . anything that would embarrass Mr.
Leedy, but since he says he doesn’t want to represent us, you know,
then we maybe have to figure something out.
Id. at 582-83. The court denied Leedy’s oral motion to withdraw and continued
2
Leedy suffered a serious heart attack approximately six months before
trial. A “personal friend” of Leedy’s informed the trial court of Leedy’s
condition by letter. Aplt. App. at 38.
4
the proceedings until the following Monday. Id. at 583, 585. The court
remarked that it was aware of Leedy’s health problems and that it was “alarmed
by the fact that blood was coming out of [Leedy’s] nose,” id. at 578, 580, but
stated that (1) only one more witness needed to be examined before closing
arguments, id. at 577-78; (2) Leedy had done a “fine job” and the case had been
“well tried so far,” id. at 578, 584; (3) Matthews had an interest in resolving the
case promptly, id. at 578, 583; and (4) its calendar was “just awful” and it might
be difficult to find another time to conduct the trial. Id. at 578-79. After the
court made this preliminary ruling, the parties went back into the courtroom to
gather their belongings. When Levine suggested that Leedy put the court papers
in his briefcase, Leedy told Levine to “go f*** yourself.” Id. at 70.
The next day (Thursday), the trial court convened another conference with
the parties and their attorneys. Levine informed the court that he and his wife
wished to substitute Merlin O. Baker for Leedy as their trial counsel. Id. at 590-
91. The Levines reiterated that they were “in a very bad situation, because Mr.
Leedy has already stated that he does not wish to represent us. So there’s no way
we’re ever going to feel that he is going to do the proper job for us when he point
blank said that to us on the record yesterday.” Id. at 593-94; see also id. at 596
(expressing Baker’s view that “key witnesses” would be on the stand on the final
day of trial and that the Levines “would strongly object to going forward . . .
5
with Mr. Leedy being their counsel”). The trial court explained that “changing
lawyers is not something that occurs ordinarily” during the latter stages of a trial,
id. at 591, 596, and that the court would permit Baker to act as C.E.C.’s counsel
only if he “step[ped] right into the shoes of Mr. Leedy” and agreed not to do
“anything other than what Mr. Leedy would do.” Id. at 591, 599. The court also
informed the Levines that a transcript would not be available for more than a
month; delaying the trial to permit Baker to review the transcript would force
Matthews to bear additional litigation expenses. Id. at 592-93. The court further
stated that it understood Leedy was “in good health,” id. at 593, was familiar
with the case and ready to complete the final day of trial, id. at 594, and had done
“an able job, a very fine, competent job.” Id. at 598, 601. 3
When Baker
indicated that it would be impossible for him to prepare by Monday (with or
without the transcript), the court suggested that Baker could act as co-counsel
with Leedy but refused to continue the proceedings and emphasized that it was
“not going to try the case again.” Id. at 597-98, 599-600; see also id. at 600
(stating that the case would not be “retried” and that Baker’s assistance would be
3
The trial court discounted Leedy’s statements that he did not want to
represent the Levines, noting that “[w]hen Mr. Leedy said that, Mr. Leedy was
not feeling well, and as you are well aware, emotions were running high.” Aplt.
App. at 594. The court asked Leedy whether he could put aside his problems
with the Levines and represent C.E.C. “competently and ably.” Leedy responded
by saying “Your Honor, if I could brag[,] I don’t think they could get a better
lawyer.” Id. at 594-95.
6
limited to “wrapping up”).
C.E.C. subsequently filed a written motion for “continuance of trial and
substitution of counsel.” Id. at 64. The motion recounted the company’s troubles
with Leedy, and alleged that “the relationship of attorney-client ha[d] been totally
destroyed.” Id. C.E.C. offered in the motion to “pay the cost of the transcript
and attorneys’ fees, as determined by the Court, to compensate the plaintiff for
th[e] continuance.” Id. at 66. When trial resumed on Monday, the trial court
denied C.E.C.’s motion. Id. at 466. The court repeated that (1) Leedy had
performed “effectively and competently,” id. at 464; (2) the Levines had not
indicated prior to the third day of trial that they were dissatisfied with Leedy, id. ;
(3) Leedy appeared healthy enough to proceed, id. at 464, 465; (4) substituting
Baker as C.E.C.’s counsel would require the court to reschedule the trial on a
“very crowded” docket, id. ; (5) Matthews would be prejudiced by such a
continuance and the court would be required to duplicate its prior efforts, id. at
465, 466; and (6) two days of trial had already passed and the case was “almost
completed.” Id. at 465; see also id. at 465-66 (finding that these considerations
overshadowed “the fact that the relationship between Mr. Leedy and his [client]
has encountered difficulties”). The court later permitted Baker to sit at C.E.C.’s
table in the courtroom, id. at 467; to conduct a supplemental cross-examination
of Matthews, Appellee’s Supplemental Appendix (“Aplee. Supp. App.”) at 17-24;
7
and to assist in the drafting of C.E.C.’s proposed conclusions of law. Aplt. App.
at 542.
B. Analysis
We review the trial court’s denial of C.E.C.’s motion for an abuse of
discretion. “Motions for continuance are addressed to the sound discretion of the
trial court.” Robinson v. United States , 718 F.2d 336, 338 n.1 (10th Cir. 1983);
accord Fulton v. Coppco, Inc. , 407 F.2d 611, 612 (10th Cir. 1969). The limits
upon the trial court in this context are “not exacting,” and “ordinarily the
appellate court will not interfere with the district court’s exercise of discretion.”
Robinson , 718 F.2d at 338 n.1; accord 9 Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 2352, at 230-32 (2d ed. 1995); see also Daniel
J. Hartwig Associates, Inc. v. Kanner , 913 F.2d 1213, 1222 (7th Cir. 1990)
(stating that “[m]atters of trial management are for the district judge” and that the
court of appeals “will intervene only when it is apparent that the judge has acted
unreasonably”). That said, some courts recognize that “[a]n exception to this
general rule exists in certain cases when the illness of counsel is the ground for a
continuance.” Smith-Weik Mach. Corp. v. Murdock Mach. & Eng’g Co. , 423
F.2d 842, 845 (5th Cir. 1970); cf. Hartwig , 913 F.2d at 1223 (listing “illness of
counsel on the eve of trial” as a circumstance that may justify a continuance);
Davis v. Operation Amigo, Inc. , 378 F.2d 101, 103 (10th Cir. 1967) (observing
8
that “illness of a litigant severe enough to prevent him from appearing in court is
always a legitimate ground for asking for a continuance”). Other courts
recognize that a continuance may be warranted when a party reasonably requests
additional time to obtain counsel or to prepare for trial, because “a myopic
insistence upon expeditiousness in the face of [a] justifiable request for delay can
render the right to defend with counsel an empty formality.” United States v.
9.19 Acres of Land , 416 F.2d 1244, 1245 (6th Cir. 1969); see also Santa Maria v.
Metro-North Commuter R.R. , 81 F.3d 265, 275 (2d Cir. 1996) (concluding that
“when extenuating circumstances arise, a court should grant the parties a
reasonable continuance to prepare”). These decisions illustrate the general
proposition that “the common thread in the rare cases that reverse the denial of a
continuance is the existence of changed circumstances to which a party cannot
reasonably be expected to adjust without an extension of time.” Hartwig , 913
F.2d at 1222-23. 4
4
We recently intimated that the criteria used to evaluate the denial of a
continuance in criminal cases should also be used in civil cases. See Morrison
Knudsen Corp. v. Fireman’s Fund Ins. Co. , 175 F.3d 1221, 1229 n.4 (10th Cir.
1999) (citing, among other cases, United States v. Johnson , 909 F.2d 1440, 1441-
42 (10th Cir. 1990) and United States v. West , 828 F.2d 1468, 1469-70 (10th Cir.
1987)); see also 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure § 2352, at 244 (2d ed. 1995) (“In determining whether the denial of a
continuance is an abuse of discretion in civil proceedings, the federal courts
often have applied standards established by the criminal law.”). The denial of a
continuance in a criminal trial is an abuse of discretion only if it was “arbitrary or
(continued...)
9
We conclude the trial court did not abuse its discretion in denying C.E.C.’s
motion for a continuance. “[A] request for a continuance properly may be
denied” when the denial will not be prejudicial to the movant. 9 Charles Alan
Wright & Arthur R. Miller, Federal Practice and Procedure § 2352, at 234-38 (2d
ed. 1995); see also Ahern v. Scholz , 85 F.3d 774, 792 (1st Cir. 1996) (affirming
the denial of a continuance for the purpose of obtaining new counsel and
commenting that even if the district court abused its discretion, “the error was
harmless”); Square Liner 360°, Inc. v. Chisum , 691 F.2d 362, 375 (8th Cir. 1982)
(affirming the denial of a motion to continue trial and to substitute counsel
because the performance of the movant’s existing attorney did not result in a
4
(...continued)
unreasonable and materially prejudiced the [defendant].” United States v.
Rivera , 900 F.2d 1462, 1475 (10th Cir. 1990) (citation omitted). Whether such a
denial is unreasonable or arbitrary requires an evaluation of the following
factors: (1) the diligence of the party requesting the continuance; (2) the
likelihood that the continuance, if granted, would accomplish the purpose
underlying the party’s expressed need for the continuance; (3) the inconvenience
to the opposing party, its witnesses, and the court resulting from the continuance;
and (4) the need asserted for the continuance and the harm that appellant might
suffer as a result of the district court’s denial of the continuance. Id. (citing
West , 828 F.2d at 1470). Similarly, to justify the substitution of counsel in a
criminal case, “the defendant must show good cause, such as a conflict of
interest, a complete breakdown of communication or an irreconcilable conflict
which leads to an apparently unjust verdict.” United States v. Blaze , 143 F.3d
585, 593 (10th Cir. 1998) (quoting United States v. Padilla , 819 F.2d 952, 955
(10th Cir. 1987)). Applying these criteria here would not produce a different
result. As explained in the text, C.E.C. cannot establish that the district court’s
failure to continue the trial and to substitute counsel caused “material prejudice”
or an “apparently unjust verdict.”
10
“miscarriage of justice”); cf. Smith-Weik , 423 F.2d at 844 (explaining that an
abuse of discretion occurs only when “the denial of the motion for a continuance
severely prejudiced the defendant”). Even though the relationship between
Leedy and the Levines was unquestionably strained, C.E.C. was not prejudiced
by the court’s refusal to grant a continuance. The trial court repeatedly
emphasized that Leedy represented C.E.C. “effectively and competently,” cf.
Square Liner , 691 F.2d at 375 (relying on the district court’s determination that
an attorney had been able to “examine and cross-examine witnesses, make
objections, and . . . competently represent his clients”), and nothing in the record
suggests that Leedy’s performance on the final day of trial materially interfered
with the company’s defense. The trial court further reduced the likelihood of
prejudice by permitting Baker to sit at C.E.C.’s table and to conduct a
supplemental examination of Matthews. Moreover, any risk of prejudice from
Leedy’s physical problems was blunted in the context of a bench trial. While a
jury might have been upset or offended by Leedy’s nosebleeds, the trial court
stated on the record that its judgment was not affected by Leedy’s ailments. See ,
e.g. , Aplt. App. at 580 (stating that the court was not repulsed by Leedy’s
appearance).
II. The Motion for a New Trial
11
A. Background
In the mid to late 1980s, C.E.C.’s primary business was the design,
manufacture, and sale of mineral processing equipment. C.E.C. conducted its
business through Custom Equipment (“Custom”), a wholly-owned subsidiary
with expertise in the field of gold processing. When gold prices declined,
Custom’s profitability began to tumble. As a result, C.E.C. “attempted to use
Custom’s expertise and know-how to develop carbon reactivation furnace
technology for application in the water treatment industry.” Appellant’s
Addendum (“Aplt. Add.”) ¶ 3, at 2,. C.E.C. eventually sold Custom, but retained
the patents associated with carbon reactivation. C.E.C. created a new subsidiary,
C.E.I., to continue the development of water treatment technologies. Id. ¶ 4, at 3.
Like Custom, however, C.E.I. was not profitable and was a continuing drain on
C.E.C.’s resources. It became apparent that C.E.C. needed additional funding to
continue C.E.I.’s research and development efforts. Id. ¶ 5.
A group of investors from Las Vegas, Nevada (“Las Vegas Group” or
“Group”) took control of C.E.C. in the Fall of 1993. The Group replaced
Matthews, who had served as C.E.C.’s president since 1986, with Ronald
Robinson. Id. ¶ 6. Before Matthews surrendered his position to Robinson,
however, he entered into an employment agreement (“agreement”) with C.E.C.
The agreement guaranteed Matthews a minimum annual salary of $100,000 for
12
three years, and compensated Matthews for certain losses by issuing him
additional shares of C.E.C. stock. The agreement specified that its terms were to
be construed according to Nevada law, and that the prevailing party in any action
to enforce the agreement would be entitled to recover legal fees. Matthews
signed the agreement as an “employee.” Robinson, who was the vice-president
of C.E.C. at the time, signed the agreement on behalf of the company. Id. ¶ 7.
Matthews and C.E.C. did not execute the agreement against a bullish
financial backdrop. In 1991, for example, C.E.C. suffered a net loss of more than
$390,000. C.E.C. reported a profit of less than $12,000 in 1992, and a profit of
less than $2,000 in 1993. For the fiscal year ending in 1994, the company
experienced a net loss of almost $300,000. In 1995, due in large part to C.E.C.’s
decision to borrow money to purchase land in Las Vegas, the company suffered a
net loss of more than $1,800,000. Id. ¶ 11, at 4-5. In 1995, the company also
opted to forgive hundreds of thousands of dollars of debt owed by C.E.I. Id. ¶
12, at 5.
Nevertheless, C.E.C.’s Board of Directors approved the agreement. The
Board first approved the agreement at a special meeting on November 10, 1993.
Four of the six members of the Board were present: Matthews, Robinson, Ronald
Stoecklein, and Donald Stoecklein. Robinson and the Stoeckleins voted to ratify
the agreement, with Matthews abstaining. Id. ¶ 8, at 4. The Board also ratified
13
the agreement on March 27, 1996. In response to a letter from Matthews
indicating that he had not received his monthly salary since May 1995, the Board
“unanimously approved a motion that Matthews would be paid the back salary
owed him.” Id. ¶ 17, at 6.
The Levines took control of C.E.C. in March 1996. Id. ¶ 18. The
relationship between Matthews and the Levines was “acrimonious,” id. ¶ 19, at 7,
and Matthews’ employment with the company ended in a matter of months. Id.
¶ 20. Matthews subsequently attempted to sell the C.E.C. stock shares he had
obtained through the employment agreement. The Levines refused to remove
restrictive legends on some of the shares, and issued a “stop transfer” order that
prevented Matthews from selling the shares for two months. Id. ¶ 23, at 7-8.
The Levines also declined to pay Matthews’ monthly salary from June 1995
through September 1996. Id. ¶ 25, at 8. Matthews filed suit in the Fall of 1996,
seeking back pay and compensation for the value of the restricted shares.
After a bench trial, the trial court determined that Matthews had been
injured by C.E.C.’s breach of the employment agreement and by the “stop
transfer” order. The court acknowledged that Matthews owed a fiduciary duty to
the company and that “the agreement between Matthews and C.E.C. raise[d] the
specter of self-dealing and conflict of interest.” Id. ¶ 4, at 9. Even so, the court
went on to find that the agreement was “properly ratified by a disinterested
14
board” as envisioned in Nevada Revised Statutes § 78.140. Id. ¶¶ 4-8, at 9-11;
see also id. ¶ 7, at 10 (citing § 78.140(2) (1993) to show that if “the votes of the
common or interested directors are not counted at the meeting, then a majority of
the disinterested directors may authorize, approve, or ratify a contract or
transaction”). In light of that finding, the court applied the business judgment
rule and required C.E.C. to rebut the presumption that “in entering into the
agreement with Matthews, the board ‘acted on an informed basis, in good faith
and in the honest belief that the action was in the best interest of the
corporation.’” Id. ¶ 9, at 11 (citation omitted). The court concluded that C.E.C.
“failed to overcome the presumption” and thus held in Matthews’ favor on the
breach of contract claim. Id. ¶¶ 10-12, at 11-13. Because the court determined
that the agreement was a “binding and enforceable contract,” it also concluded
that C.E.C. had “no legal right” to issue the “stop transfer” order. Id. ¶ 19, at 15.
The court awarded Matthews over $72,000 on his breach of contract claim and
over $68,000 on his “stop transfer” claim. Id. at 20-21.
C.E.C. timely filed a motion for a new trial pursuant to Federal Rule of
Civil Procedure 59(a). 5
C.E.C. asserted that a new trial was warranted for at least
5
Rule 59(a) provides in pertinent part that a new trial may be granted
in an action tried without a jury, for any of the reasons for which
rehearings have heretofore been granted in suits in equity in the
(continued...)
15
three reasons. First, C.E.C. indicated that it wished to submit additional
evidence, including Matthews’ deposition testimony and the minutes of a
September 30, 1993 Board meeting. C.E.C. argued that this evidence
demonstrated the agreement was not ratified by “disinterested directors.” Since
the directors were not disinterested, said C.E.C., the trial court erred by analyzing
the agreement under the business judgment rule. Second, C.E.C. contended that
even without this additional evidence, the facts developed at trial established that
the Board was not disinterested when it approved the agreement. Consequently,
C.E.C. asked the trial court to make additional findings and to amend the
judgment pursuant to Federal Rule of Civil Procedure 52(b). 6
Third, C.E.C.
asserted that the manner in which the Las Vegas Group assumed control of the
5
(...continued)
courts of the United States. On a motion for a new trial in an action
tried without a jury, the court may open the judgment if one has been
entered, take additional testimony, amend findings of fact and
conclusions of law or make new findings and conclusions, and direct
the entry of a new judgment.
6
Rule 52(b) states in full:
On a party’s motion filed no later than 10 days after entry of
judgment, the court may amend its findings – or make additional
findings – and may amend the judgment accordingly. The motion
may accompany a motion for a new trial under Rule 59. When
findings of fact are made in actions tried without a jury, the
sufficiency of the evidence supporting the findings may be later
questioned whether or not in the district court the party raising the
question objected to the findings, moved to amend them, or moved
for partial findings.
16
company was illegal. C.E.C. noted that the Group did not acquire enough stock
to obtain voting control, and argued that Matthews violated the shareholders’
rights by simply selling the company in exchange for his employment agreement.
After conducting a hearing, the trial court denied C.E.C.’s motion.
B. Analysis
We review the denial of a Rule 59(a) motion for a new trial for an abuse of
discretion. Sanjuan v. IBP, Inc. , 160 F.3d 1291, 1296 (10th Cir. 1998). The trial
court has considerable latitude when ruling on such a motion, and the court’s
decision will not be disturbed on appeal except for a showing of an abuse of that
discretion. Brownlow v. Aman , 740 F.2d 1476, 1491 (10th Cir. 1984).
Likewise, the grant or denial of a motion to amend the trial court’s findings
under Rule 52(b) is “committed to the sound discretion of the district court and
will not be disturbed absent an abuse of that discretion.” 9A Charles Alan
Wright et al., Federal Practice and Procedure § 2582, at 162 (2d ed. Supp. 1999);
accord Sequa Corp. v. GBJ Corp. , 156 F.3d 136, 143 (2d Cir. 1998); National
Metal Finishing Co. v. BarclaysAmerican/Commercial, Inc. , 899 F.2d 119, 125
(1st Cir. 1990).
1. C.E.C.’s “additional evidence” argument
C.E.C.’s initial argument – that a new trial should have been granted for
the limited purpose of admitting additional evidence – is unpersuasive. A party
17
seeking a new trial under Rule 59 based on new evidence must show (1) the
evidence was discovered since the trial; (2) the party was diligent in discovering
the evidence; (3) the evidence was not merely “cumulative or impeaching;” (4)
the evidence was material; and (5) the evidence probably would have produced a
different result at trial. Joseph v. Terminix Int’l Co. , 17 F.3d 1282, 1285 (10th
Cir. 1994); accord Wolfgang v. Mid-America Motorsports, Inc. , 111 F.3d 1515,
1529 (10th Cir. 1997); see also 11 Charles Alan Wright et al., Federal Practice
and Procedure § 2808, at 86-94 (2d ed. 1995) (stating that the standard for a new
trial under Rule 59(a) requires that (1) “[t]he moving party must have been
excusably ignorant of the facts despite using due diligence to learn about them;”
(2) the newly discovered evidence must be “admissible and probably effective to
change the result of the former trial;” and (3) the newly discovered materials
must do more than “merely affect the weight and credibility of the evidence” and
cannot be “cumulative of evidence already offered”). Here, the evidence
proffered by C.E.C. was in the company’s possession prior to trial. Matthews’
deposition testimony obviously was available before February 1998, and C.E.C.
essentially concedes that the September 30, 1993 minutes were in Leedy’s
possession before the commencement of trial. See Aplt. App. at 197 (indicating
that Baker found the minutes in Leedy’s files). These facts are fatal to C.E.C.’s
18
position on appeal. 7
Moreover, C.E.C.’s proffered evidence was cumulative and would not have
produced a different result. As discussed below, C.E.C. educed testimony at trial
that sufficiently permitted the company to argue that the Board of Directors was
not disinterested when it approved Matthews’ employment agreement. For that
reason, it is highly unlikely that C.E.C.’s proffered evidence would have changed
the outcome of the proceedings. That much is evident from the trial court’s
comments during the hearing on C.E.C.’s motion for a new trial. After fully
considering C.E.C.’s proffered evidence and listening to an extended argument
on the matter by the company’s attorney, the court stated:
As far as your argument that the new evidence in combination with
the trial transcript shows the board of Directors was not disinterested
and therefore the business judgment rule should not apply, I simply
find that the evidence, new and old – and I’m just putting aside why
. . . the new wasn’t advanced at trial – but I find that evidence
simply does not support that conclusion.
Aplt. App. at 630.
7
“[I]t has been held that a new trial may be granted even though proper
diligence was not used if this is necessary to prevent a manifest miscarriage of
justice.” 11 Charles Alan Wright et al., Federal Practice and Procedure § 2808,
at 91 (2d ed. 1995) (citing, among other cases, Ferrell v. Trailmobile, Inc. , 223
F.2d 697, 698 (5th Cir. 1955)). Nothing in the record suggests that the trial
court’s failure to hold a new trial in this case resulted in a “manifest miscarriage
of justice.”
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2. C.E.C.’s “interested directors” argument
More complicated is C.E.C.’s challenge to the trial court’s determination
that the agreement was ratified by a disinterested Board. Robinson and the
Stoeckleins, the three board members who approved the agreement, were also
members of the Las Vegas Group. C.E.C. contends that these three individuals
were not “disinterested” because they struck a deal with Matthews. That “deal”
required Matthews to transfer control of the company to the Group in exchange
for his employment agreement. To bolster this theory, C.E.C., through its
counsel Leedy, elicited several statements from Matthews at trial:
Q . . . Isn’t it true, Mr. Matthews, that in connection with your deal
when . . . the Las Vegas Group took over control of C.E.C. . . . you
required the employment contract; that’s a fair statement, is that not
correct?
A Correct.
Q When you passed control to the Las Vegas Group, you required
the C.E.C. consulting agreement as part of them taking control, you
also required, did you not, that they give you an irrevocable proxy to
vote C.E.C. shares in C.E.I.?
A Correct, for three years. . . .
Q . . . So they [the Las Vegas Group] gave you a pitch as to what
they could do for C.E.C., and you made certain requirements as to
what they had to do to – for you to give them control; is that correct?
A Yes. . . .
Aplt. App. at 433-34. Leedy posed similar questions to Matthews later in the
trial:
Q You were discussing . . . on September 30th, [1993,] that they
[the Las Vegas Group] would take control of C.E.C.?
A It was agreed to prior to that, yeah. . . .
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Q Isn’t it true that you required an employment contract before you
would give up control of C.E.C.?
A As part of the deal, yes.
Q . . . [I]n connection with your transfer of control to C.E.C., part
of your consideration was to get an employment contract?
A That’s correct. I would not turn over control to a strange group
without having –
Q An employment contract?
A – an employment contract. . . .
Q . . . [Y]ou were not going to release control of C.E.C. until they
gave you an employment contract?
A I probably would not have, that’s correct. . . .
Q So you transferred control of C.E.C., in exchange for which you
get a hundred thousand dollars a year, plus a right to vote the shares
of C.E.I.; is that correct?
A That’s correct.
Id. at 437-38, 439-40. Notwithstanding Matthews’ remarks, the trial court
rejected C.E.C.’s “quid pro quo” theory and concluded that the Las Vegas Group
obtained control of the company for consideration other than a promise of
continued employment to Matthews.
We review the trial court’s resolution of this issue of fact for clear error.
The Federal Rules of Civil Procedure expressly provide that “[f]indings of fact,
whether based on oral or documentary evidence, shall not be set aside unless
clearly erroneous, and due regard shall be given to the opportunity of the trial
court to judge the credibility of the witnesses.” Fed. R. Civ. P. 52(a); accord
Mid-West Conveyor Co. v. Jervis B. Webb Co. , 92 F.3d 992, 997 (10th Cir.
1996). “A finding of fact is ‘clearly erroneous’ if it is without factual support in
the record or if the appellate court, after reviewing all the evidence, is left with a
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definite and firm conviction that a mistake has been made.” Manning v. United
States , 146 F.3d 808, 812 (10th Cir. 1998) (citation omitted); accord Zimmerman
v. Sloss Equip., Inc. , 72 F.3d 822, 825 (10th Cir. 1995).
The trial court’s rejection of C.E.C.’s “quid pro quo” theory may have been
debatable, but it was not clearly erroneous. At the hearing on C.E.C.’s motion
for a new trial, the court thoroughly explained the basis for its ruling. After
taking into consideration C.E.C.’s “new” evidence, the court found that
the evidence still shows that the Las Vegas Group came in, and what
was given by the Las Vegas Group was real property. . . . I think it
was very clear that the quid pro quo was the real property that the
Las Vegas Group by some means was going to deliver. And that was
not only in the minutes that [C.E.C.] proposed, the September 30th
minutes, but there was a lot of trial testimony about . . . whether that
was a good deal for the company. Although it’s certainly true that
Mr. Matthews wanted to stay employed, and that he was going to
fight for that employment agreement, I don’t think the evidence
shows that that was the quid pro quo. There was evidence that the
new board had valid reasons for keeping Mr. Matthews on. He
testified he’d founded the company. He was the only one totally
familiar with its workings. He was needed to handle sale of assets.
He was needed to run C.E.I. And although . . . his duties
diminished, he did work. He did perform services.
Aplt. App. at 630-31. These findings are not “without factual support in the
record,” see , e.g. , id. at 332-33 (stating that the parties understood that the Las
Vegas Group would “bring in” some “income producing properties” to finance
research and development); id. at 333, 336-37 (stating that property worth several
million dollars was contributed to C.E.C. after the Las Vegas Group assumed
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control); id. at 339-40, 342-45 (stating that Matthews retained and fulfilled
certain responsibilities to the company under the employment agreement), and
thus do not justify reversal.
3. C.E.C.’s “illegal sale” argument
C.E.C. waived its final point by failing to raise it before or during trial. In
its motion for a new trial, C.E.C. argued for the first time that Matthews illegally
sold the company to the Las Vegas Group without obtaining the approval of
shareholders. It is well settled that motions for new trials “cannot be used to
raise arguments which could, and should, have been made before the judgment
issued. Moreover, they cannot be used to argue a case under a new legal theory.”
Simon v. United States , 891 F.2d 1154, 1159 (5th Cir. 1990) (quoting Federal
Deposit Ins. Corp. v. Meyer , 781 F.2d 1260, 1268 (7th Cir. 1986)); see also
Sequa , 156 F.3d at 144 (affirming that “Rule 59 is not a vehicle for relitigating
old issues, presenting the case under new theories, securing a rehearing on the
merits, or otherwise taking a ‘second bite at the apple’”); Midamar Corp. v.
National-Ben Franklin Ins. Co. of Illinois , 898 F.2d 1333, 1338 (8th Cir. 1990)
(stating that a party “should not be granted a new trial so that a new theory of
defense, not urged at the first trial, can be asserted”) (citation omitted); 11
Charles Alan Wright et al., Federal Practice and Procedure § 2805, at 58-59 (2d
ed. 1995) (same).
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C.E.C.’s assertion that it raised the “illegal sale” argument prior to trial is
inaccurate. C.E.C. attempts to support this assertion by pointing to three
“Contested Issues of Law” in the pretrial order: (1) “Is plaintiff’s employment
contract unenforceable as constituting self-dealing by plaintiff?” (2) “Has
plaintiff’s wrongful conduct precluded his recovery under the employment
contract?” (3) “Is plaintiff’s employment contract unenforceable as plaintiff and
the other directors’ approval thereof was in breach of the fiduciary duties owed
to C.E.C. Industries Corp. and its stockholders?” Aplt. App. at 47. As the mere
restatement of these issues makes clear, however, the focus of the pretrial order
was whether Matthews and the Board acted properly by ratifying the employment
agreement. The trial court resolved this dispute by concluding that the agreement
was neither contrary to the interests of the company nor demanded as a quid pro
quo for the right to control C.E.C. Whether Matthews illegally sold the company
without obtaining shareholders’ approval presents a distinct issue not addressed
in the pretrial order.
III. The Motion for Attorney Fees
C.E.C.’s objection to the trial court’s decision to award Matthews two-
thirds of his attorney fees is without merit. After finding in Matthews’ favor on
two of his three claims, the court based the award on the following provision of
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Matthews’ employment contract: “The prevailing party in any action to enforce
the terms and conditions of this Agreement shall be entitled to payment by the
other party of the prevailing party’s actual attorneys’ fees and costs of
enforcement, whether in litigation or negotiated settlement.” Id. at 637. C.E.C.
contends that Matthews should have been awarded only one-third of his fees
because the “stop transfer” claim sounded in tort rather than contract. This
argument exalts form over substance. As Matthews correctly notes in his
appellate brief, the only contested issue in connection with the “stop transfer”
claim was whether the agreement lawfully conveyed stock shares to him in the
first place. The claim was part and parcel of an “action to enforce the terms and
conditions” of the agreement.
AFFIRMED.
Entered for the Court
Mary Beck Briscoe
Circuit Judge
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