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Wichansky v. Zowine

United States District Court, D. Arizona

April 1, 2016

Marc A. Wichansky, Plaintiff,
David T. Zowine, et al., Defendants.


David G. Campbell United States District Judge

Defendants previously filed a motion in limine to preclude Plaintiff from seeking damages at trial based on income he would have received from Zoel. See Doc. 336. At the final pretrial conference, the Court heard oral arguments from the parties and requested further briefing on the issue. See Doc. 387. After the final pretrial conference, the Court issued its pretrial ruling on the pending motions in limine, including a tentative ruling on the lost profits issue so the parties could address the Court’s thinking in their supplemental briefing. See Doc. 394 at 13-15.

The parties subsequently filed simultaneous briefs, which included over eight hundred pages of supporting documentation. See Docs. 401; 402. The Court held oral arguments on March 30, 2016. Doc. 421. After continuing to consider the parties positions, the Court scheduled a second oral argument today. Before the argument, the Court provided the parties with an updated version of its thinking so they could address it directly. Doc. 425. The Court is now prepared to rule.

I. Background.

In the summary judgment briefing, Defendants argued that Plaintiff could recover no “lost income” because the state court had valued his interest in Zoel on an income basis and Plaintiff therefore had been paid for any lost income. Doc. 275 at 27-28. Defendants argued that permitting Plaintiff to recover additional lost income “would amount to impermissible double recovery.” Id. at 28. Plaintiff did not address this argument in his response. Doc. 288.

Because Defendants did not distinguish in their briefing between profit distributions and salary, and referred only to “lost income, ” the Court understood Defendants to be arguing about income in the traditional sense - salary. With this understanding, the Court denied this portion of Defendants’ motion for summary judgment because the state court valuation focused on the income of Zoel, not Plaintiff. Doc. 310 at 11.

Defendants subsequently moved in limine to preclude evidence of lost profits. Doc. 336. Because the motion distinguished, for the first time, between lost profits and lost salary, the Court asked the parties to provide supplemental briefing. Doc. 394 at 13. As part of that briefing, the parties provided the Court with complete expert reports submitted in the state court valuation trial before Judge Oberbillig. See Docs. 401-1 at 2-162; 401-2 at 2-128. The Court reviewed both expert reports and confirmed that the state court proceeding valued Zoel on an income basis. Based on arguments the Court heard on March 30, 2016, however, the Court developed a new understanding of Plaintiff’s damages theory. That understanding was confirmed by today’s second oral argument. Plaintiff’s position is as follows.

1. Had Defendants not breached fiduciary duties, there would have been no dissolution of Zoel and no state court valuation. Therefore, any remedy for that breach must put Plaintiff, as nearly as possible, in the same financial position he would have been in had the breach not occurred.

2. The state court proceeding valued Zoel, but it did not address Plaintiff’s breach of fiduciary duty claim. Plaintiff has cited several excerpts from the state court record which make clear that Judge Oberbillig did not decide or award damages for Defendants’ alleged breach of fiduciary duty. Doc. 402 at 4-5.[1]

3. This case, then, addresses questions that were never decided in the state court: did Defendants breach fiduciary duties to Plaintiff, and, if so, what damages will restore Plaintiff to the financial position he would have been in had they not breached those duties?

4. Damages for breaches of fiduciary duty may include lost profits, lost salary, out of pocket expenses, and lost equity value. Plaintiff asserts that he has the right to choose his damages theory and select from among these possibilities.

5. Plaintiff has chosen, as the remedy for the breach of fiduciary duty that has never been litigated before, recovery of his lost profits and lost salary, and out-of-pocket expenses. These damages measures are set forth in his expert report. Doc. 276-6 at 44-45. Plaintiff is not seeking to recover the lost equity value of Zoel as a portion of his damages in this case. This point is made clear in his expert report, which expressly does not attempt to assign a value to Plaintiff’ 50% equity interest in Zoel. Id. at 39, 45, 48. In fact, Plaintiff’s expert deducts from his damages calculation the amounts Plaintiff has received in payments from Zowine for his share of the Zoel equity value. Id. at 48.[2]

6. Plaintiff agrees that he cannot recover damages twice. Thus, if he prevails in this case and recovers the measures of damages he has identified for breach of fiduciary duty, he agrees that he cannot retain or recover any portion of the valuation award he received in the state case. That is why his expert deducted payments he has received from the state case. Stated differently, because he seeks in this case to be restored to the financial position he would have been in if Defendants had not breached their fiduciary duties, he cannot retain ...

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