Unpublished Disposition, 862 F.2d 875 (9th Cir. 1988)

MEMORANDUM^* 

We have examined Touche's objections to the judgment and conclude they do not justify reversal:

1. Touche objects to sentences A and B of the following jury instruction:

A corporation can act only through its agents and officers and can know only what its agents and officers know. Generally, if an agent of a corporation has knowledge of a particular fact, the corporation is deemed to have the same knowledge. [A] However, the exception to this rule is that knowledge of the corporation's agents or officers is not imputed to it when there is a conflict between the interests of the officers and agents and the interests of the corporate principal. [B] In other words, if the agent is a participant in deceiving the corporation, his knowledge will not be imputed to the corporation. [C] If, however, the agent engaged in wrongdoing on behalf of the corporation then his knowledge will be imputed to the corporation.

(lettered brackets added for reference).

A party may not challenge on appeal a jury instruction to which it did not object prior to jury deliberations. Lifshitz v. Walter Drake & Sons, Inc., 806 F.2d 1426, 1430 (9th Cir. 1986); Fed. R. Civ. P. 51.

Touche did not state "distinctly," as required by Rule 51, that the basis for its objection to sentence A was that it did not accurately state the standard for imputation of an agent's knowledge to a principal. On the contrary, Touche's objection to sentence A was reasonably interpreted as directed to use of the term "corporate principal" rather than "corporation." Accordingly, Touche's claim that sentence A misstated the Montana imputation rule was not preserved for appeal.¹ 

Touche twice stated it had no objection to sentence B provided sentence C, which it proposed, was added. The trial judge agreed to do so. Any objection Touche may have had to sentence B was waived.² 

2. Touche challenges the jury's finding Westmont did not contribute to Touche's failure to discover the improper accounting of receivables and did not impede Touche's audits. We review the jury verdict only to determine if it was supported by substantial evidence. Hasbrouck v. Texaco, Inc., 830 F.2d 1513, 1517 (9th Cir. 1987).

The evidence was ample. Gallagher, Westmont's president, and Kero, Westmont's Chief Financial Officer, testified Westmont did not know its receivables were uncollectable, and investigation did not substantiate doubts about the honesty of Westmont's credit officers. They also testified Westmont did not withhold information from Touche. Touche's accountants testified they knew of no information Westmont had withheld. Touche's partner-in-charge of the 1979 audits admitted Touche was not entitled to rely on representations of Westmont's management in the face of contrary evidence. He also testified Touche possessed such contrary evidence, including that reflected in Touche's comparative aging chart. Gallagher and Kero testified they told Touche of Westmont's investigation of the accounts receivable problem. Finally, Westmont's expert testified that, contrary to usual audit practice, Westmont made no representations about the collectability of the accounts receivable.

3. Touche claims it was error to exclude evidence regarding the Rehbein transaction. "Evidentiary rulings are reviewed for abuse of discretion and will not be reversed absent some prejudice." Kisor v. Johns-Manville Corp., 783 F.2d 1337, 1340 (9th Cir. 1986).

To the extent the excluded evidence was offered to attack Gallagher's credibility, it was properly excluded under Fed.R.Evid. 608(b). See Lewy v. Southern Pacific Transportation Co., 799 F.2d 1281, 1299 n. 13 (9th Cir. 1986).

Exclusion was also proper under Rule 403. The probative value of the evidence was not substantial. The record suggests the distinction between a sale and a lease is problematic, and that it is common practice to treat leases as sales for accounting purposes. One of Touche's tax partners testified the Rehbein transaction gave him no reason to doubt the integrity of Westmont's personnel. The justifications for exclusion "substantially outweigh" the limited probative value of the evidence. The issue was collateral: the Rehbein account was not among those for which inadequate loss reserves were maintained. The implication of impropriety Touche sought to raise invited rebuttal; and a lengthy contest over such a collateral matter could well confuse the issues. Coursen v. A.H. Robins Co., Inc., 764 F.2d 1329, 1335 (9th Cir.), corrected, 773 F.2d 1049 (1985) ("The district court did not abuse its discretion in concluding, under Rule 403, that prejudice and confusion would be generated by innuendoes of collateral misconduct."). See also Maddox v. City of Los Angeles, 792 F.2d 1408, 1417-18 (9th Cir. 1986) (upholding exclusion of testimony given at an administrative disciplinary proceeding because jury might infer guilt from mere investigation).

4. Question 8 of the special verdict asked, "What is the amount of plaintiff Westmont Tractor's damages?" The jury entered the figure of $5 million and appended the following footnote:³ 

* Client loss $4,629,759.00 Attorney fee Assuming 33 1/3% $1,606,360.00  Overcharge by Touche for 12/79 Audit not necessary 164,000.00 $250,000.00 x 10 mos. for actual liquidation overhead 2,500,000.00 expense ------------- $8,963,119.00 

The district court informed the jurors the footnote was "unnecessary" and obtained their consent to excise it. Touche argues this excision was improper and the district court's refusal to consider the footnote and take corrective action was error.

A court's procedural response to claims of jury misconduct is reviewed for abuse of discretion. Hard v. Burlington Northern R.R., 812 F.2d 482, 483 (9th Cir. 1987). The court did not abuse its discretion.

Tanno v. S.S. President Madison VES, 830 F.2d 991 (9th Cir. 1987), controls. There, a jury included in its special verdict parenthetical notations explaining the damage computation which revealed a potential inconsistency in the jury's verdict. The court stated:

[W]e hold that what the jury put in parentheses is surplusage and must be disregarded. The matter in parentheses was not responsive to the questions asked. The matter was, rather, an attempt to explain the mental processes of the jury. It was equivalent to the jurors testifying as witnesses about their verdict--testimony that would be excluded under Fed.R.Evid. 606(b). The jury here as a whole volunteered information about how its answers might be explained. Public policy has long dictated that such explorations impeaching the result not be tendered or heard.

Id. at 993.

Hard, which Touche cites, is not to the contrary. That case recognizes an exception to Fed.R.Evid. 606(b) for juror statements "which tend to show deceit during voir dire" or demonstrate the introduction of extraneous information into jury deliberations. 812 F.2d at 484-85. Neither occurred here.

Touche's reliance on E.F. Hutton & Co., Inc. v. Arnebergh, 775 F.2d 1061 (9th Cir. 1985), and R.H. Baker & Co. v. Smith-Blair, Inc., 331 F.2d 506 (9th Cir. 1964), is also unavailing. Baker holds only that a special verdict must be "construed in the light of the surrounding circumstances" to resolve alleged ambiguities. 331 F.2d at 509. Arnebergh likewise involved an allegedly ambiguous special verdict. 775 F.2d at 1063. There is no ambiguity here: the jury clearly stated that Touche should pay $5 million damages.

5. Touche claims the $5 million damage verdict has "no evidentiary basis." "A jury's finding of the amount of damages must be upheld unless the amount is clearly not supported by the evidence and is grossly excessive, monstrous, or shocking to the conscience." Gilchrist v. Jim Slemons Imports, Inc., 803 F.2d 1488, 1501 (9th Cir. 1986). See also Los Angeles Coliseum, 791 F.2d at 1366.

Touche notes the verdict exceeds the amount of damages Westmont argued it should be awarded. This alone does not undermine the verdict. Glovatorium, Inc. v. NCR Corp., 684 F.2d 658, 663-64 (9th Cir. 1982).⁶ 

Westmont argues Touche's failure to discover the overstatement of accounts receivable in the May 1979 audit deprived Westmont of the opportunity to liquidate under then-prevailing, favorable market conditions. It also argues that gradual liquidation over a period between 1981 and 1986, which left the company with a value of zero, was a reasonable effort to mitigate damages. If the jury adopted this theory, Touche would be liable for Westmont's value in May 1979.

The jury was instructed it might award damages "which will compensate Westmont for all the detriment proximately caused by Touche Ross' conduct." Under this very general damage instruction, the jury was entitled to accept Westmont's theory of damages, to determine that Westmont's liquidation efforts were reasonable, and to award Westmont its May 1979 value.

Although Westmont's expert argued the May 1979 value of the company was $4,692,759, there was evidence in the record to support a value greater than $7 million. There was also evidence that Westmont had no value after liquidation. Although the company retained unsold parts and uncollected receivables, these were reflected in the calculation of the zero valuation Westmont presented to the jury. Touche claims a building exchanged for a $1.5 million debt was in fact worth $3 million, but the value of the building was disputed and the record supports the jury's apparent conclusion the building was worth no more than the debt for which it was exchanged.

Since the record would support a damage award in excess of $7 million, the $5 million damage award is affirmed.

AFFIRMED.