Harrison County Development Authority v. Tetrick & Bartlett, PLLC ( 2015 )

STATE OF WEST VIRGINIA
SUPREME COURT OF APPEALS
Harrison County Development Authority FILED
Petitioner, Plaintiff Below
November 20, 2015
RORY L. PERRY II, CLERK
vs) No. 14-0964 (Harrison County Business Court 12-C-504-3) SUPREME COURT OF APPEALS
OF WEST VIRGINIA
Tetrick & Bartlett, PLLC
Respondent, Defendant Below
MEMORANDUM DECISION
Petitioner Harrison County Development Authority (”HCDA”), by counsel James A.
Varner, Sr., Debra Tedeschi Varner, and Jeffrey D. Van Volkenburg, appeals the August 26,
2014, order of the Circuit Court of Harrison County denying HCDA’s post-trial motion for an
award of prejudgment interest. Respondent, Tetrick & Bartlett, PLLC, by counsel John F.
McCuskey and Jennifer L. Tampoya, filed a response in support of the circuit court’s order.
HCDA submitted a reply.
This Court has considered the parties’ briefs and the record on appeal. The facts and legal
arguments are adequately presented, and the decisional process would not be significantly aided
by oral argument. Upon consideration of the standard of review, the briefs, and the record
presented, the Court finds no substantial question of law and no prejudicial error. For these
reasons, a memorandum decision affirming the circuit court’s order is appropriate under Rule 21
of the Rules of Appellate Procedure.
From the late 1990s through 2011, respondent completed annual financial statement
audits for HCDA. Beginning in or around 2000, an HCDA employee began embezzling HCDA
funds, and using HCDA’s credit card for her personal expenditures (including food, household
items and gifts). The embezzlement was not discovered until 2011, when HCDA’s president (an
accountant) became suspicious of the employee’s inability to produce backup documentation for
expense checks she had written. This suspicion led to a Harrison County Sheriff’s Department
investigation, which resulted in criminal charges being filed against the embezzling employee.1
In late November of 2012, the HCDA filed a lawsuit against respondent alleging claims
of negligence, negligent misrepresentation, and breach of fiduciary duty.2 HCDA alleged that, as
part of respondent’s yearly audit of HCDA’s financial transactions, respondent was required to
1
In November of 2011, the employee pled guilty to one count of embezzlement, and was
ordered to make restitution in the amount of $257,479.41.
2
HCDA’s claim for breach of fiduciary duty was dismissed prior to trial.
1
examine supporting documentation for selected credit card transactions to assure that HCDA’s
expenses were properly classified and appropriate for the organization. HCDA contends that
respondent’s review of HCDA’s credit card statements, for which no documentation was
provided, should have triggered further inquiry, and that this further inquiry would have led to
the earlier discovery of the employee’s embezzlement.
The case was ultimately referred to the Business Court Division of Harrison County
Circuit Court, where it was tried in May of 2014. During trial, the HCDA proffered evidence of
respondent’s alleged negligence through the testimony of Lt. McCarty of the Harrison County
Sheriff’s Department (the officer who completed the criminal investigation of the embezzlement)
and HCDA’s retained expert, Mr. Zandman. Respondent offered rebuttal expert testimony
through its own retained expert, Harry Potter.
At trial, respondent was critical of the methodology used by Lt. McCarty for determining
the total amount of the embezzlement. Instead of using the actual cancelled checks for backup,
Lt. McCarty relied on HCDA’s Quick Books check register, for an accounting of all checks
issued (for payment of credit card statements) by HCDA from 2004-2010. Further, Lt. McCarty
did not determine what part of this total in credit card payments constituted embezzled funds,
and what payments represented HCDA’s legitimate expenses.3 Respondent was further critical
of Lt. McCarty’s report and findings because the same did not reference the failure of the
HCDA’s board members (who co-endorsed checks written by the embezzling employee for
payment of her personal credit card expenses) to check the propriety of the payments issued by
the embezzling employee. Respondent argued that its auditors justifiably relied on the belief that
each check issued by the HCDA was being co-signed by an HCDA board member, and that the
board member was actually checking and reviewing backup documentation before endorsing the
checks.
Following a six day trial, the jury found respondent guilty of negligence which
proximately caused or contributed to the HCDA’s losses.4 The jury also determined that the
HCDA itself was guilty of negligence which proximately contributed to the failure of respondent
to properly perform its audit responsibilities for the HCDA. The jury found respondent 51%
negligent, and HCDA 49% comparatively negligent. The jury awarded HCDA total damages of
$221,000. Given HCDA’s comparative negligence, the circuit court entered judgment against
respondent in the amount of $112,710.00, together with post-judgment interest.
3
The untrustworthiness of Lt. McCarty’s report was exemplified by his reference to an
HCDA check (to a credit card company) which he believed to total over $39,000, but which he
acknowledged at trial totaled, $4,000, a $35,000 error in the amount of his calculation of
HCDA’s embezzlement losses.
4
The jury further found that respondent was guilty of misrepresenting the financial
statements of the HCDA, which proximately caused or contributed to the HDCA’s losses.
2
On August 5, 2014, HCDA filed a post-trial motion requesting an award of prejudgment
interest.5 After briefing and oral argument, on August 26, 2014, the circuit court entered its order
denying HCDA’s request for prejudgment interest. In its August 26, 2014, order, the circuit court
ruled that the jury’s verdict was based upon a series of audits performed by respondent over a
span of several years, with each audit performed creating a possible separate actionable event.
The circuit court found that the jury was not provided with any evidence to determine in which
year the jury found that any actionable negligence occurred or the amount alleged to have been
embezzled during that time period. The circuit court ruled that given the evidence presented to
the jury, and in light of the amount of the jury verdict, no “ascertainable pecuniary loss” could be
determined, and that the jury award was not subject to a reasonable calculation. It is from the
circuit court’s August 26, 2014, order that HCDA now appeals.
On appeal, HCDA asserts one assignment of error – that the circuit court erred in holding
that no “actionable pecuniary loss” could be determined, and that the judgment against
respondent was not subject to “reasonable calculation” to permit an award of prejudgment
interest. In Gribben, et al v. Kirk, 195 W.Va. 488, 500, 466 S.E.2d 147, 159 (1995), we
discussed the standard of review for awards of prejudgment interest, and noted that
[i]n reviewing a circuit court’s award of prejudgment interest, we usually apply an
abuse of discretion standard. See generally Perdue v. Doolittle, 186 W.Va. 681,
414 S.E.2d 442 (1992). Under the abuse of discretion standard, we will not
disturb a circuit court’s decision unless the circuit court makes a clear error of
judgment or exceeds the bounds of permissible choices in the circumstances.
However, when the award hinges, in part, on an interpretation of our decisional or
statutory law, we review de novo that portion of the analysis.
We further stated in Gribben that “[p]rejudgment interest may be calculated within the
range of the circuit court’s discretion to roughly and fairly compensate the plaintiff. Our review
of such a decision is based upon the abuse of discretion standard.” 195 W.Va. at 501-02, 466
S.E.2d at 161. With this recitation of the applicable standards of review, we shift our focus to the
merits’ of the parties’ contentions.
An award of prejudgment interest in tort actions is governed by West Virginia Code § 56­
6-31, which provides, in pertinent part, that:
[e]xcept where it is otherwise provided by law, every judgment or decree for the
payment of money . . . entered by any court of this State shall bear interest from
the date thereof, whether it be so stated in the judgment or decree or not:
Provided, That if the judgment or decree, or any part thereof, is for special
damages . . . the amount of the special . . . damages shall bear interest at the rate
in effect for the calendar year in which the right to bring the same shall have
accrued[.] . . . Special damages includes lost wages and income, medical
5
HCDA contends that the calculation of prejudgment interest, in favor of HCDA, should
run from 2004, based on the entire amount of the jury’s verdict.
3
expenses, damages to tangible personal property and similar out-of-pocket
expenditures, as determined by the court.
In syllabus point three of Capper v. Gates, 193 W.Va. 9, 454 S.E.2d 54 (1994), we held
that “[i]n contract or tort actions, prejudgment interest is available to a litigant as part of
compensatory damages if there is an ascertainable pecuniary loss.6” However, interest on this
type of pecuniary loss “is of limited applicability since it involves only pecuniary losses that are
subject to reasonable calculations that exist at the time of the trial.” Bond v. City of Huntington,
166 W.Va. 581, 601, 276 S.E.2d 539, 550 (1981).
In the instant case, the circuit court concluded that “special damages” as referenced in
West Virginia Code § 56-6-31 could include funds embezzled by an employee as “. . . similar
out-of-pocket expenditures . . . .” In Grove by and through Grove v. Myers, 181 W.Va. 342, 347,
382 S.E.2d 536, 541 (1989), we noted that “[i]t is clear that W.Va. Code § 56-6-31 requires [the]
trial court to determine which damages are special damages and to determine the date on which
the right to bring the action for such damages accrued.” In the case herein, the HCDA argues that
it is entitled to prejudgment interest because its damages (i.e., embezzlement losses) were special
damages under West Virginia Code § 56-6-31. Conversely, respondent argues that the HCDA is
not entitled to prejudgment interest because it has suffered no out-of-pocket expenditures or
precisely calculable pecuniary losses, as required by West Virginia Code § 56-6-31. Based upon
our review of the record before us and the limited circumstances of this case, we agree with
respondent, and find that HCDA was not entitled to prejudgment interest because its losses were
not subject to a reasonable calculation.7
In its August 26, 2014, order, the circuit court found that each audit respondent
performed for HCDA created a possible separate actionable event, and that the jury herein was
not provided any evidence to determine in which year either parties’ actionable negligence
occurred or the amounts that were embezzled during that specific time period. As such, there was
neither a mechanism for determining HCDA’s “ascertainable pecuniary loss,” nor were HCDA’s
losses subject to a reasonable calculation. Based upon our review of the record before us, we
agree and find that the circuit court did not abuse its discretion, or err, in finding that HCDA was
not entitled to prejudgment interest as to its claims against respondent herein.
6
In Grove this Court noted that “[a]scertainable pecuniary losses, upon which
prejudgment interest . . . may be awarded, are losses that are certain or capable of being
rendered certain by reasonable calculation.” 181 W.Va. at 347, 382 S.E.2d at 541.
7
We decline to address the parties’ arguments regarding the classification of
embezzlement losses as “special damages” under the purview of West Virginia Code § 56-6-31,
as the determination of the issues regarding the HCDA’s “ascertainable pecuniary loss” and
whether HCDA’s losses were subject to a reasonable calculation are dispositive as to HCDA’s
appeal herein.
4
Affirmed.
ISSUED: November 20, 2015
CONCURRED IN BY:
Chief Justice Margaret L. Workman
Justice Brent D. Benjamin
Justice Menis E. Ketchum
Justice Allen H. Loughry II
DISSENTING:
Justice Robin Jean Davis
5