Timothy S. Novak v. R. Paul Gray

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
APRIL 10, 2012
No. 11-13196
Non-Argument Calendar JOHN LEY
CLERK
________________________
D.C. Docket No. 8:09-cv-00880-RAL-TGW
TIMOTHY S. NOVAK,
llllllllllllllllllllllllllllllllllllllll Plaintiff - Counter
lllllllllllllllllllllllllllllllllllllll Defendant - Appellee,
versus
R. PAUL GRAY,
llllllllllllllllllllllllllllllllllllllll Defendant - Counter
llllllllllllllllllllllllllllllllllllllll Claimant - Third Party
llllllllllllllllllllllllllllllllllllllll Plaintiff - Appellant,
NANCY D. NOVAK,
llllllllllllllllllllllllllllllllllllllll Third Party Defendant.
________________________
Appeal from the United States District Court
for the Middle District of Florida
________________________
(April 10, 2012)
Before CARNES, BARKETT and ANDERSON, Circuit Judges.
PER CURIAM:
This is a case about an oral agreement between business partners to split the
proceeds from the sale of some stock options. A jury found that after fraudulently
inducing the plaintiff to enter a valid contract, the defendant breached it, and the
plaintiff suffered damages as a result. The district court entered judgment on the
verdict and denied the defendant’s post-judgment motions. This is the defendant’s
appeal.
I.
Timothy Novak and Paul Gray were friends and business partners. In 2003
they made an oral agreement to split 50/50 the net proceeds from stock options
that Gray was to receive for his service on the board of the United Therapeutics
Corporation. In exchange Novak agreed to participate in other business projects
with Gray and to bear a heavier workload while Gray was busy with his work on
the board for United Therapeutics. Novak did not receive a regular salary for his
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work with Gray, and he relied on Gray’s representations about the proceeds from
the stock options as an inducement to continue working. Gray and Novak
discussed the possibility of having their consulting company, Core Concepts,
LLC, hold the options, but Gray told Novak that securities laws prohibited the
direct issuance of the options to Core Concepts. Gray did not tell Novak that
United Therapeutics’ stock option plan had restrictions that limited the
assignability or transferability of the stock options.
Periodically from 2005 through 2008 Novak asked Gray about exercising
the stock options. At first Gray told him that because of family hardship he would
prefer not to share the net proceeds of some exercised options and that he would
make it up to Novak in future exercises and sales. Later Gray told Novak that he
could not exercise the options because of his insider status or that the options were
likely to increase in value, so it would be better to hold on to them. Gray also
assured Novak’s wife that the stock options were their financial safety net. In the
meantime, however, Gray was actually exercising the options, selling the
underlying shares, and keeping the proceeds for himself.
Novak filed a lawsuit against Gray alleging breach of contract and fraud in
the inducement and seeking relief based on the theories of unjust enrichment and
equitable estoppel. Gray counterclaimed against Novak, alleging abuse of
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process, and he filed a third party complaint against Novak’s wife alleging
conspiracy to abuse process. After discovery the parties filed cross-motions for
summary judgment. The district court granted the Novaks’ motion for summary
judgment on Gray’s counterclaim for abuse of process and his third party claim for
conspiracy. The court denied Gray’s motion for summary judgment on all of
Novak’s claims against him, and the case proceeded to trial.
The trial lasted for two days, and nine witnesses testified, including Gray
and Novak. The jury returned a verdict in Novak’s favor on his breach of contract
claim, awarding $1,372,700 in damages, and on his fraudulent inducement claim,
awarding $2,745,400 in damages. The district court entered judgment on the
verdict.
Gray filed motions challenging the judgment on these five grounds: (1) the
parties’ contract was illegal under Florida law and federal securities laws; (2)
under Florida’s parol evidence rule the parties had no contract because their oral
agreement attempted to modify Core Concepts, LLC’s written operating
agreement; (3) under Florida’s economic loss doctrine Novak’s fraudulent
inducement claim must fail as a matter of law; (4) the jury instructions on
fraudulent inducement were incorrect; and (5) the damage awards were
speculative. On those grounds Gray sought judgment as a matter of law under
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Rule 50(b), a new trial under Rule 59(a)(1)(A), an altered or amended judgment
under Rule 59(e), or relief from final judgment under Rule 60(b). The district
court denied all of Gray’s motions, and he challenges that judgment on the same
five grounds before this Court. We will address each of his contentions in turn.
II.
Gray contends that his 2003 oral contract with Novak required him to hold
the stock options in his name for Novak’s benefit, which was illegal because it
concealed Novak’s “beneficial ownership” of the options. The district court
concluded that the agreement “was not per se illegal.” Gray cites no authority to
support the proposition that an agreement to share the net proceeds of stock
options is illegal on its face. In his answer to Novak’s amended complaint Gray
asserted the affirmative defense that enforcement of the agreement was against
public policy,1 but as the district court observed Gray “asserted no jury instruction,
no special verdict, and failed to even mention the words illegal, void, or
unenforceable throughout the trial and at closing.” The district court also noted
that Gray failed to move under Rule 50(a) for judgment as a matter of law based
on the alleged illegality of the contract before the case went to the jury.
1
Even in his answer, Gray did not assert that the contract was illegal on its face. Instead,
he alleged: “The claim made by Plaintiff is barred as against public policy since as pled it would
violate the securities law of the United States and the securities laws of the State of Florida.”
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The Supreme Court of Florida has held that “when a contract is valid on its
face, the defense of illegality must be pleaded and proved at trial.” Rotemi Realty,
Inc. v. Act Realty Co., 911 So.2d 1181, 1185 n.1 (Fla. 2005).2 At trial conflicting
evidence was presented about the validity of the contract. The jury resolved that
issue in Novak’s favor by responding to interrogatories on the verdict form and
specifically finding that Gray and Novak had entered into a valid oral contract.
The record shows that Gray failed to carry his burden of proving that the contract
was illegal. The district court did not err by denying Gray’s motions for judgment
as a matter of law, a new trial, an altered or amended judgment, or relief from final
judgment on the ground of the alleged illegality of the contract.
III.
Gray also contends that the agreement to split the proceeds from the United
Therapeutics stock options was a “side deal” that conflicted with the written
operating agreement of Core Concepts, LLC, a company comprised of members
Gray, Novak, and a third person, Anthony Crisp. Gray argues that the operating
agreement prohibits the Core Concepts members from “engag[ing] in activities
which are not related to the business of the LLC.” He also asserts that the
operating agreement provides that any modification of it must be taken to “all
2
The parties agree that Florida law applies in this case.
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Members entitled to vote on the action” and that Crisp was never consulted about
the “side deal,” even though United Therapeutics was a Core Concepts client.
According to Gray, because Crisp did not agree to oral modification of the Core
Concepts operating agreement, Gray and Novak’s agreement is invalid under
Florida law.
The district court held that there was sufficient evidence for the jury to find
that Gray and Novak had entered into a separate oral agreement that was outside
of any Core Concepts agreements. It found that Gray had presented no evidence
to justify overturning the jury’s verdict about the validity of the oral contract.
Novak testified that he and Gray “had agreed to share these stock options
individually, outside of Core Concepts.” Doc. 109 at 100. He testified that he
worked on several other projects that were separate from Core Concepts, such as
launching a company called TenthGate and serving on the board of Earth Search
Sciences. Novak told the jury that he “agreed to continue to work on the high risk
projects” in order to “pick up the slack of things that [Gray] could not participate
in due to his additional workload associated with his service to United
Therapeutics.” Id. at 99.
Not surprisingly, Gray took the opposite position. He testified that he “had
no agreement” with Novak “other than the operating agreement” for Core
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Concepts. Doc. 109 at 107. When asked why he did not tell Novak about selling
certain United Therapeutics options, he responded that it was his “personal
business” and he “didn’t feel compelled to tell [Novak] about [his] personal
business.” Id. at 134.
The jury was free to credit Novak’s testimony instead of Gray’s in finding
that Gray and Novak had agreed to split the proceeds from the sale of options as
part of a valid oral contract that was separate and distinct from their Core
Concepts operating agreement. See Cleveland v. Home Shopping Network, Inc.,
369 F.3d 1189, 1193 (11th Cir. 2004) (“Credibility determinations, the weighing
of the evidence, and the drawing of legitimate inferences from the facts are jury
functions, not those of a judge.” (quoting Reeves v. Sanderson Plumbing Prods.,
530 U.S. 133, 150, 120 S.Ct. 2097, 2110 (2000))); see also Owens v. Wainwright,
698 F.2d 1111, 1113 (11th Cir.1983) (“Appellate courts reviewing a cold record
give particular deference to credibility determinations of a fact-finder who had the
opportunity to see live testimony.”). The district court did not err by denying
Gray’s motions for judgment as a matter of law, a new trial, an altered or amended
judgment, or relief from final judgment on the basis of Florida’s parol evidence
rule and the Core Concepts operating agreement.
IV.
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Gray contends that if his alleged representations to Novak about the 50/50
split of the United Therapeutics stock options formed the consideration for the
parties’ oral contract, under Florida’s economic loss rule that cannot also be the
basis for the separate tort of fraudulent inducement. According to Gray, Novak
can claim Gray breached the contract but not that he fraudulently induced Novak
to enter it. Gray moved for summary judgment on Novak’s fraudulent inducement
claim on the basis of Florida’s economic loss rule, and the district court denied
that motion.
The Florida Supreme Court has held:
The economic loss rule has not eliminated causes of action based
upon torts independent of the contractual breach even though there
exists a breach of contract action. Where a contract exists, a tort
action will lie for either intentional or negligent acts considered to be
independent from the acts that breached the contract. Fraudulent
inducement is an independent tort in that it requires proof of facts
separate and distinct from the breach of contract.
Indemnity Ins. Co. of N. Am. v. Am. Aviation, Inc., 891 So. 2d 532, 537 (Fla.
2004) (quoting HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So. 2d 1238,
1239 (Fla.1996)). Despite the clear rule that a plaintiff can bring separate claims
for fraudulent inducement and breach of contract, Gray argues that in denying
summary judgment on Novak’s fraudulent inducement claim the district court
misunderstood the economic loss rule.
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Novak’s fraudulent inducement claim was presented to the jury, which
made specific findings that Gray “knowingly or with reckless disregard for the
facts” made material misrepresentations or omissions that induced Novak to act.
Doc. 110 at 61. The jury also found that Novak reasonably relied on Gray’s
misrepresentations or omissions and was injured as a result. Id.The jury instructions covered the elements of a fraudulent inducement
claim. See, e.g., Shakespeare Found., Inc. v. Jackson, 61 So. 3d 1194, 1199 (Fla.
1st DCA 2011) (“The essential elements to establish a claim for fraudulent
inducement are: (1) a false statement of material fact; (2) the maker of the false
statement knew or should have known of the falsity of the statement; (3) the maker
intended that the false statement induce another’s reliance; and (4) the other party
justifiably relied on the false statement to its detriment.”) (quotation marks
omitted). The jury considered those elements and found that Novak had proved
his claim based on facts that were separate and distinct from the breach of contract
claim. For those reasons, the district court’s decision to deny summary judgment
on the fraudulent inducement claim, which is essentially what Gray is challenging,
is not subject to review. Akouri v. State of Florida Dept. of Transp., 408 F.3d
1338, 1347 (11th Cir. 2005) (“[A]fter a full trial and judgment on the merits, we
will not review the pretrial denial of a motion for summary judgment.”).
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V.
Gray contends that the district court incorrectly instructed the jury on
fraudulent inducement. Before the jury charges were given, Gray argued: “[T]he
damages in the fraud claim would be the amount that [Novak] suffered from—in
changing his position and reasonably relying upon the misrepresentation. In other
words, it would be similar to the unjust enrichment measure of damages rather
than contractual damages.” Doc. 110 at 7–8. Gray also argues that the
instructions failed to inform the jury that Novak’s reliance on Gray’s
misrepresentations had to be reasonable.
If jury instructions accurately reflect the law, the district court “is given
wide discretion as to the style and wording employed in the instruction.” Eskra v.
Provident Life & Acc. Ins. Co., 125 F.3d 1406, 1415 (11th Cir. 1997) (quotation
marks omitted). On the fraudulent inducement claim the jury was instructed that if
it found in Novak’s favor, it “should award [Novak] an amount of money that the
preponderance of the evidence shows will fairly and adequately compensate
[Novak] for [Gray’s] fraudulent inducement.” Doc. 110 at 49–50. The jury was
also instructed that Novak’s reliance on Gray’s representations had to be
reasonable. The court charged the jury that the fifth element of the fraudulent
inducement claim Novak had to prove was that he “reasonably relied on the
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misrepresentation.” Id. at 48. The jury answered “yes” in response to the question
on the special verdict form: “That the Plaintiff reasonably relied upon the
misrepresentation or omission and suffered injury or damage as a result?” Id. at
61. The jury was instructed as Gray argues it should have been, and he has failed
to show that the district court erred in this regard.
VI.
Gray contends that the amount of damages awarded by the jury was
speculative and that the jury gave Novak a double recovery.3 As we have already
mentioned, the jury awarded $1,372,700 on the breach of contract claim and
$2,745,400 on the fraudulent inducement claim.4 Our review of a district court’s
decision not to remit compensatory damages is “highly deferential.” Griffin v. City
of Opa–Locka, 261 F.3d 1295, 1315 (11th Cir. 2001). “[T]he jury enjoys
substantial discretion in awarding damages within the range shown by the
evidence, and while the jury may not pull figures out of a hat, its verdict does not
fail for a lack of exhaustive or dispositive evidence so long as a rational basis
exists for the calculation.” United States v. Sullivan, 1 F.3d 1191, 1196 (11th Cir.
3
Before the district court Gray requested a variety of forms of post-judgment relief,
including remittitur of the damages award. See Doc. 119 at 55, ¶¶ 172, 175.
4
Gray argues that the jury must have taken the amount of the breach of contract damages
and multiplied it by two in order to come up with the fraudulent inducement damages amount.
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1993). However, “we cannot ‘permit damage speculation where the formula for
calculation is articulable and definable. Flexibility beyond the range of the
evidence will not be tolerated.’” Rodriguez v. Farm Stores Grocery, Inc., 518 F.3d
1259, 1268 (11th Cir. 2008) (quoting Jamison Co. v. Westvaco Corp., 526 F.2d
922, 936 (5th Cir.1976)).
A.
On the breach of contract claim the jury was instructed that Novak claimed
the parties had entered a valid contract “to share equally, that is, on a 50/50 basis,
the proceeds of the United Therapeutics Corporation stock options issued to
[Gray] in exchange for [Novak’s] participation in various business ventures.”
Doc. 110 at 47. The instructions were that if the jury found there was a valid
contract, that Gray had breached it, and that Novak had suffered damages as a
result, the jury “should award [Novak] an amount of money that the preponderance
of the evidence shows will fairly and adequately compensate [him] for [Gray’s]
breach of contract.” Id.About the breach of contract claim, Novak testified that his damages were
based on the total value of stock options sold during the relevant time period,
which amounted to $3,610,260.95. Doc. 108 at 171. He also counted some stock
options that had not yet been executed, and the value of those amounted to
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$1,461,720. Id. He added those figures, which resulted in “total net proceeds” of
$5,071,980.95, and he claimed that he was entitled to 50 percent of that
($2,535,990.48). See id. The jury awarded him $1,372,700 on the breach of
contract claim.
B.
On the fraudulent inducement claim, as we have already discussed, the jury
was instructed that if it found in Novak’s favor, it “should award [Novak] an
amount of money that the preponderance of the evidence shows will fairly and
adequately compensate [Novak] for [Gray’s] fraudulent inducement.” Doc. 110 at
49–50. The jury set that figure at $2,745,400, and the district court determined
that Novak had “provided more than sufficient evidence to substantiate the jury’s
calculation of the extent to which he suffered a pecuniary loss as a result of relying
on Gray’s fraudulent representations.”
On the fraudulent inducement claim, Novak testified that the damages he
had suffered were “50 percent of the $5 million.” Doc. 108 at 172. When asked
why he used that number, Novak replied:
Because it was—that is the lost opportunity cost, that is the time, the
years that I toiled and worked with—trusting that Mr. Gray was going
to fulfill his obligation. Those were the opportunities that I left
behind and had to—lost to take care of my family, and so those are
the damages I seek.
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Id. The work Novak did in exchange “50 percent of the $5 million” is the same
work that he did in exchange for Gray’s promise to give him 50 percent of the
proceeds of the United Therapeutics Corporation stock options. Novak’s own
testimony establishes that he was claiming the same damages for the fraudulent
inducement as he was for the breach of contract, and the maximum amount that he
was claiming under either theory was 50 percent of the total net proceeds of the
stock options—in other words half of $5,071,980.95, which is $2,535,990.48.
“A plaintiff . . . may not recover damages for fraud that duplicate damages
awarded for breach of contract.” Ghodrati v. Miami Paneling Corp., 770 So. 2d
181, 183 (Fla. 3d DCA 2000); see also Williams v. Peak Resorts Int’l Inc., 676 So.
2d 513, 517 (Fla. 5th DCA 1996) (“It is well settled that a party may not recover
damages for both breach of contract and fraud unless the party first establishes that
the damages arising from the fraud are separate or distinguishable from the
damages arising from the breach of contract.”).
A fraudulent inducement damages award that duplicates the plaintiff’s
breach of contract damages cannot stand. See Florida Temps, Inc. v. Shannon
Props., Inc., 645 So. 2d 102, 104 (Fla. 2d DCA 1994) (holding that counterclaim
plaintiff “is not entitled to damages for fraud that duplicate damages awarded for
breach of the contract”); Rosen v. Marlin, 486 So. 2d 623, 626 (Fla. 3d DCA
15
1986) (“Where the compensatory damages requested in a count for tort are
identical to the compensatory damages sought in a count for breach of contract,
compensatory damages and punitive damages for the tort are not recoverable.”).
Rolls v. Bliss & Nyitray, Inc., 408 So. 2d 229, 237 (Fla. 3d DCA 1981)
(“Therefore, since plaintiffs failed to prove that they sustained compensatory
damages based on a theory of fraud which were in any way separate or
distinguishable from their compensatory damages based on the contract, we
conclude that plaintiffs have failed to meet the strict pleading and proof
requirements necessary to recover compensatory and punitive damages based on
fraud, and that these damages must therefore be reversed.”). In the present case
the evidence failed to show that the damages for Novak’s fraudulent inducement
claim were separate or distinct from the damages for his breach of contract claim.
For the breach of contract claim Novak sought 50 percent of “total net proceeds”
of $5,071,980.95, which amounts to $2,535,990.48, Doc. 108 at 171, and for the
fraudulent inducement claim he sought roughly the same amount based on the
same proceeds and the same work done in exchange for it: “50 percent of the $5
million.” Id. at 172. The evidence simply did not support duplicative damages for
fraudulent inducement.
We have explained that “[a]s a general rule, ‘a remittitur order reducing a
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jury’s award to the outer limit of the proof is the appropriate remedy where the
jury’s damage award exceeds the amount established by the evidence.’”
Rodriguez v. Farm Stores Grocery, Inc., 518 F.3d 1259, 1266 (11th Cir. 2008)
(quoting Goldstein v. Manhattan Indus., Inc., 758 F.2d 1435, 1448 (11th
Cir.1985)); see also Frederick v. Kirby Tankships, Inc., 205 F.3d 1277, 1284 (11th
Cir. 2000) ( “The rule in this circuit states that where a jury’s determination of
liability was not the product of undue passion or prejudice, we can order a
remittitur to the maximum award the evidence can support.”). For those reasons,
we reverse the part of the district court’s judgment denying Gray’s request for a
remittitur and remand the case for the district court to reduce the award to the
maximum amount established by the evidence. We note that the maximum
amount cannot exceed $2,535,990.48 because that is the outer limit of the
damages Novak claimed in his sworn testimony that he was entitled to receive. In
all other respects, the district court’s judgment is affirmed.
AFFIRMED in part, REVERSED in part and REMANDED.
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