Jury Awards $2,930,000 for Fraud in Sale of Business

Trial attorney Gregory G. Brown and Mark Higuchi of Brown & Charbonneau, LLP obtained $2,930,000 for client who was defrauded in the sale of a business.  In a trial that spanned three (3) weeks, an Orange County Jury awarded $1,650,000 in compensatory damages to the business owner. In an extremely rare occurrence, the jury also found by clear and convincing evidence that each of the four defendants committed intentional misrepresentation and fraudulent concealment with malice, oppression or fraud, and awarded punitive damages in the amount of $1,280,000.  In addition, under the contract, the buyer is entitled to all of his attorneys’ fees, expert fees and costs in the amount of $250,000.  The two individual defendants were found to have been acting on behalf of both defendant corporations when the wrongful conduct occurred.

The jury agreed with the buyer, who provided extensive evidence that he was given false financial records during the due diligence process.  At trial, the other records (that were obtained during discovery) were presented to the jury.  During trial, the Defendants continued to maintain that the business had been generating over 7 figures in annual gross revenues. However, counsel for Plaintiffs introduced extensive evidence proving Defendants were not telling the truth. This included SEC filings, which showed the annual gross revenues were about 35% less than represented and that the business actually had been losing money.

In their award, the jurors awarded damages for:

1.   The different in price paid for the business v. the actual value of the business;

2.  Losses incurred during ownership of the business and lost profits before trial;

3.  Money invested into the business by the buyer;

4.  Lost future profits based upon the expectancy of profits by the buyer; and

5.  Punitive damages designed to deter the wrongful conduct in the future.

During the punitive damage phase of the trial, Mr. Brown presented evidence of the defendants’ combined net worth in excess of $30,000,000.  Based upon this evidence, the jury awarded an additional $1,285,000 in punitive damages.  Plaintiffs served a CCP 998 settlement offer in the amount of $550,000 approximately six (6) months before trial. This expired. Just prior to the March 2015 trial, Plaintiff demanded $350,000 in cash and $350,000 worth of defendant’s publicly traded stock. Defendants ignored this offer with no additional offers.

After the $1,650,000 verdict, and before the punitive phase, Plaintiffs offered to settle for $1,900,000 (compensatory damages plus attorneys fees, expert fees and costs) in exchange for forgoing the punitive phase. This was rejected. Before Judgment was entered, Plaintiffs again offered to settle for $1,900,000.