Zander et al v. Katz, Sapper & Miller, LLP et al

Filing 285

MEMORANDUM OPINION OF THE COURT signed by Chief Judge Kevin H. Sharp on 1/8/2015. (ds)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
JEFFREY J. ZANDER, individually and
as Trustee of the CARDINAL TRUST
under Agreement dated February 11,
2009, and JJZ INSURANCE AGENCY,
a Tennessee general partnership d/b/a
ZANDER INSURANCE GROUP,

Plaintiffs,
v.
KATZ, SAPPER & MILLER LLP;
KSM BUSINESS SERVICES, INC., and
ANDREW J. MANCHIR,
Defendants.

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Civil No. 3:12-cv-967
Judge Sharp

MEMORANDUM
This matter, concerning claims of negligence and negligent misrepresentation arising out
of a corporate acquisition, was tried to a jury in Nashville, Tennessee on July 1-10, 2014. The
jury returned a verdict in favor of Plaintiffs Jeffrey Zander and JJZ Insurance Agency (“JJZIA”),
and awarded Plaintiffs damages in the amount of $7,986,779.00. Now pending before the Court
are Defendants Katz, Sapper & Miller LLP, KSM Business Services, Inc. and Andrew J.
Manchir’s Motion for Remittitur (Docket No. 249), Motion Judgment as a Matter of Law
(Docket No. 250), and Motion for New Trial (Docket No. 251), as well as a Motion for Oral
Argument on Post-Trial Motions (Docket No. 252). The Motion for Remittitur will be granted
and all other Motions will be denied as moot.

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I.

BACKGROUND

The dispute arose from a September 2011 corporate transaction that has been well
documented in the Parties’ previous filings and the Memorandum accompanying the Order that
denied their cross-motions for summary judgment. (Docket No. 184). To review briefly, prior
to the transaction, Plaintiff Jeffrey Zander owned 100% of JJZIA. He sought to recapitalize his
interest by transferring a minority share of JJZIA to an employee stock ownership plan, Zander
Group Holdings, Inc. Defendants projected this structure would deliver liquidity, additional
income, and – at issue here – $2.4 million “tax savings” over the first five years. (Docket No.
183 at 2). Mr. Zander, relying on this information, believed he would pay $2.4 million less in
federal income tax as a result. However, the transaction failed to yield the expected tax savings
benefit and the employee stock ownership plan served only to reduce taxable income on some
portion of $2.4 million.
II.

APPLICATION OF LAW

Rule 59(a) of the Federal Rules of Civil Procedure empowers the Court to “grant a new
trial on all or some of the issues … after a jury trial, for any reason for which a new trial has
heretofore been granted in an action at law in federal court.” In the alternative, the Court may
“deny a defendant’s motion for new trial on the condition that the plaintiff agree to remit a
suggested amount of damages awarded by the jury.” Riccardi v. Vanderbilt Univ. Med. Ctr.,
2008 WL 60507, at *5 (M.D. Tenn. Jan. 2, 2008) (citing Brewer v. Uniroyal, Inc., 498 F.2d 973,
976 (6th Cir. 1974) (“[T]he District Court must offer the party awarded damages the choice of a
new trial or the amount of the Court’s remittitur.”)). See also Glazer v. Whirlpool Corp. (In re
Whirlpool Corp. Front-Loading Washer Products Liability Litigation), 722 F.3d 838, 845 (6th
Cir. 2013) (“Whether to grant or deny a motion for remittitur is a discretionary decision for the
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district court to make and explain after that court has carefully reviewed the trial evidence to
determine whether the jury verdict was excessive.”)
“When deciding a motion for remittitur in a case governed by state law,‘[t]he role of the
district court is to determine whether the jury’s verdict is within the confines set by state law, and
to determine, by reference to federal standards developed under [Federal Rule of Civil
Procedure] 59, whether a new trial or remittitur should be ordered.’” Farley v. Country Coach
Inc., 403 Fed. Appx. 973, 980 (6th Cir. 2010) (citing Gasperini v. Ctr. for Humanities, Inc., 518
U.S. 415, 435 & n. 18, (1996); Browning-Ferris Indus. of Vt., Inc. v. Kelco Disposal, Inc., 492
U.S. 257, 279 (1989)). Section 20-10-102(a) of the Tennessee Code empowers a trial judge who
“is of the opinion that the verdict in favor of a party should be reduced” to grant a motion for
remittitur. In so doing, the “trial judge acts as thirteenth juror,” Bain v. Simpson, 2002 WL
360320, at *2 (Tenn. Ct. App. March 7, 2002), and “independently weigh[s] the evidence,
determine[s] the issues, and decide[s] whether the verdict is supported by the evidence.”
Johnson v. Torrington Co., 2012 WL 2337615, at *9 (Tenn Ct. App. June 19, 2012).
In this case, after carefully examining the record, the Court concludes that the jury’s
verdict, which awarded to Plaintiffs damages for ten years in the amount of $7,986,779.00, was
not justified by the evidence presented at trial. Instead, based upon the testimony offered at trial
and the particular facts and circumstances of this case, the Court finds that the maximum amount
of damages reasonably supported by the evidence is commensurate five years.
While Tennessee law permits some degree of estimation regarding amount of damages
provided the existence of damages is established, courts have generally viewed damages
calculations based on speculative projections with suspicion. See e.g., Starr Printing Co., Inc. v.
Air Jamaica, 45 F. Supp. 2d 625, 634 (“In order to recover lost profits, the profits must not be
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remote, uncertain, or speculative.”); Bodie-Rickett and Assoc. v. Mars, Inc., 957 F.2d 287, 292
(concluding a party whose damages calculation was highly speculative lacked standing). In this
case, the Court agrees with Defendants that an award for damages exceeding the five-year point
is simply not supported. All projections created in anticipation of the transaction were limited to
the five-year mark, including the spreadsheet Mr. Manchir sent to Plaintiffs setting out the “tax
savings” the transaction would bring, (Docket No. 74-11), and Mr. Zander’s own projection of
his company profits for use in valuation, (Docket No. 228 at 65). This limited period reflects the
realities of the fast-paced business environment in which such closely-held companies operate,
fluctuations in the economy and general business climate, as well as Mr. Zander’s own desire for
flexibility to divest himself of the venture at any time. (Docket 229 at 110).
The only basis provided for the ten-year calculation offered by Plaintiffs was Mr.
Zander’s own testimony that he thought continued ownership for ten years was a “reasonable
expectation.”

(Id.)

This sparse justification is further weakened by the testimony that

immediately followed, in which Mr. Zander emphasized his ability sell his shares at any time he
had “worn out [his] welcome or no longer wanted to be involved.” (Id.) Without further
evidence, this assertion – hailing solely from the party which stands to benefit from it – is
insufficient to “permit a factfinder to draw reasonable inferences and make a fair and reasonable
assessment.” Grantham and Mann Inc. v. American Safety Products, Inc. 831 F.2d 596, 601-02
(6th Cir. 1987); see also Haynes v. Cumberland Builders, Inc., 546 S.W.2d 228, 233 (Tenn. Ct.
App. 1976) (noting the burden of proving damages lies with the plaintiff, who may recover only
for damages “which are not remote or speculative but which are proved to be a reasonable
certainty.”).

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For the reasons set forth above, Defendants’ Motion for Remittitur (Docket No. 249) will
be granted.

The Court will recommend a remittitur of the damages award for ten years

($7,986,779.00) to a damages award for five years, which is calculated at $3,876,748.00. If
Plaintiff chooses to reject this suggestion, the case will be remanded for a new trial. Defendants’
Motion Judgment as a Matter of Law (Docket No. 250), Motion for New Trial (Docket No. 251),
and Motion for Oral Argument on Post-Trial Motions (Docket No. 252) will be denied as moot.
An appropriate order will enter.

_________________________________________
KEVIN H. SHARP
UNITED STATES DISTRICT JUDGE  

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