Neil Cole v. American Capital Partners

FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
AUGUST 23, 2010
JOHN LEY
CLERK
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 09-13608
Non-Argument Calendar
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D. C. Docket No. 06-80525-CV-DTKH
NEIL COLE,
Plaintiff-Appellee,
versus
AMERICAN CAPITAL PARTNERS
LIMITED, INC., et al.,
Defendants,
C. FRANK SPEIGHT,
JOSEPH I. EMAS,
Defendants-Appellants.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(August 23, 2010)

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Before CARNES, MARCUS and ANDERSON, Circuit Judges.
PER CURIAM:
This appeal concerns the appropriate calculation of damages. Defendant-
Appellant Frank Speight challenges the district court’s calculation and imposition
of $6,595,412.15 in damages after entry of summary judgment in favor of Plaintiff-
Appellee Neil Cole in a suit alleging fraud, conversion, breach of contract, breach
of fiduciary duty, and conspiracy.
I.
The facts, in short, are as follows: In various capacities, the defendants
facilitated a “Stock Loan” to Cole. In a Stock Loan, the borrower pledges stock as
collateral for loan monies. Cole engaged in two separate loans with Defendant
American Capital Partners Limited, Inc. In the first loan, which occurred in April
2005, American Capital loaned Cole $665,000.00. In return, Cole delivered
200,000 shares of Candy’s Inc. as collateral. In the second, which occurred in1
June 2005, American Capital loaned Cole $768,000.00. Cole delivered another
200,000 shares of Candy’s as collateral. At the time of each loan agreement, the2
parties also entered into escrow agreements under which the Candy’s shares were
Candy’s later changed its name to Iconix Brand Group, Inc. Cole is the President1
and Chief Executive Officer of Iconix.
Speight executed these loan agreements in his capacity as President of American2
Capital.
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to be held in escrow.3
In April 2006, Cole sought to prepay the balance of the first loan. He also
decided he would prepay the balance of the second loan after the conclusion of the
first year of that loan. Upon prepayment, his shares in Candy’s were to be returned
to him. On May 16, 2006, after a phone conversation between Cole’s counsel and
Defendant Emas, in which Emas falsely stated that he believed Cole had defaulted
under the loan agreement and that he had released some of the shares held in
escrow, Cole’s counsel sent Emas a letter to ascertain the status of the shares held
in escrow. Emas did not respond.
In actuality, Emas had long since disposed of all of the shares. The
purported escrow account was actually Emas’s personal brokerage account at
Fordham Financial. Between May 4 and June 13, 2005, Emas sold all 400,000 of
the Candy’s shares, receiving approximately $2,143,337.00. A portion of the
monies were used to fund the “loans” to Cole. The balance of the proceeds was
divided amongst the defendants.
Cole brought this lawsuit in May 2006. During discovery, all of the
In late September 2005, American Capital informed Cole that it had assigned the3
loans to Defendant Consolidated Financial Group, a company formed by Speight and Defendant
Ellis. Cole was directed to make payments to Consolidated Financial at an address in New York
City. Cole timely made payments throughout 2005 and early 2006. Cole was not aware that
Consolidated Financial was controlled by Speight and Ellis.
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defendants invoked their Fifth Amendment privilege in response to Cole’s
interrogatories and during his attempts to depose them. In light of documentary
evidence presented by Cole and the defendants’ invocations of the Fifth
Amendment, the district court granted summary judgment to Cole. The district
court awarded Cole $6,595,412.15 in damages. The district court calculated the
damages by taking the value of the stock at the time Cole learned it had been
improperly sold, subtracting the amount Cole received in “loans,” adding the
amount of “loan” payments made by Cole, and then applying pre- and
post-judgment interest.
Speight appeals the district court’s damage calculation.
II.
“We review the district court’s determination of the proper legal standard to
compute damages de novo. The court’s factual findings, however, will only be
reversed if clearly erroneous.” A.A. Profiles, Inc. v. City of Fort Lauderdale, 253
F.3d 576, 581 (11th Cir.2001) (citation omitted).
The parties agree that the central component of damages is the value of the
Candy’s stock that was pledged by Cole as collateral and improperly sold by the
defendants. The district court calculated damages by taking the value of the stock
at the time Cole learned the defendants had improperly sold it – i.e., the value of
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the stock in mid-May 2006. At that time, the 400,000 shares were worth
$6,352,000.00. The defendants argue that the value of the stock should be
calculated by aggregating the amount of money received each time the a portion of
stock was improperly sold between in May and June of 2005. The defendants
calculate that amount to be $2,132,375.00.
Both sides also agree on the appropriate cases to consult in determining
damages. Before the district court and again on appeal, both point to a Second
Circuit case, Schultz v. Commodities Future Trading Commission, 716 F.2d 136
(2d Cir. 1983). There, the Second Circuit held that “the measure of damages for
wrongful conversion of stock is either (1) its value at the time of conversion or (2)
its highest intermediate value between notice of the conversion and a reasonable
time thereafter during which the stock could have been replaced had that been
desired, whichever of (1) or (2) is higher.” Id. at 141. The district court adopted
this approach, finding that it was in agreement with Florida law. In this regard, it
cited Madison Fund, Inc. v. Charter Co., 427 F. Supp. 597 (S.D.N.Y. 1977), and
Berman v. Airlift International, Inc., 302 F. Supp. 1203 (N.D. Ga. 1969), as two
federal cases applying the Schultz approach under Florida law.
We conclude that the district court did not err in calculating the damages.
Cole argues that under Florida’s choice of law analysis, New York law would
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apply to this case, and thus, Schultz would control directly. In the alternative, he
argues that even if Florida tort law applies the approach of Schultz is consonant
with Florida law. We need not decide that argument because we conclude that the
result is the same under both Schultz and Florida tort law. Under Florida law,
“[t]he goal of damages in tort actions is to restore the injured party to the position
it would have been in had the wrong not been committed.” Totale, Inc. v. Smith,
877 So. 2d 813, 815 (Fla. 4th DCA 2004) (internal quotation marks omitted). In
this regard, Florida applies a “flexibility theory” of damages. Under that approach,
damages are calculated using either the “benefit of the bargain” rule or the “out of
pocket” rule. Id. Courts are to use the rule that would more likely fully
compensate the injured party. Id.
Here, if Cole had received the “benefit of the bargain” he entered into, then
in or around May 2006, he would have previously received two loans, paid them
back in full, and received his 400,000 shares of Candy’s stock in return at that
time. Neither party disputes that at that point the shares were valued at $15.88 per
share, for a total amount of $6,352,000.00. Looking to Schultz, Cole was notified
of the conversion of his stock in mid-May 2006. Again, the value of the stock at
that time was $6,352,000.00. Through whatever lens you view the question, the
result is the same.
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Speight does not challenge the district court’s application of pre- and post-
judgment interest.
After thorough review, we affirm the district court’s order entering final
judgment in the amount of $6,595,412.15.
AFFIRMED.4
Appellant’s motion to file reply brief out of time is GRANTED.4
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