this case in the April 3 issue of the
Schenk, Van Voorhees Win Appellate Court
Reversal of Securities Fraud Ruling
On April 1, 2014, the Arizona Court of Appeals remanded for
retrial in Yuma County Superior Court a securities fraud case,
Caruthers v. Underhill.
The request for a new trial, successfully argued by Aiken Schenk attorneys
Joe Schenk and
Craig Van Voorhees (now retired), was made on
behalf of David Caruthers and his wife.
The case stemmed from the July 2006 purchase of the Caruthers’
64 shares of stock in Underhill Holding Company (UHC) by Clinton Underhill. The
stock was sold for $6,000 per share, for a total of $384,000.
Three months later, Caruthers accused Clinton Underhill of
knowingly undervaluing the stock in a successful attempt to purchase the shares
for substantially less than their actual value. Caruthers claimed that Clinton
Underhill had based the purchase price on an outdated valuation of UHC performed
for estate tax purposes and had lied to Caruthers when asked whether a more
current appraisal existed. Caruthers demanded the return of the stock
certificates pending an agreement to adjust the purchase price, but Clinton
Underhill did not respond to the demand.
Trial. In June 2007,
Caruthers and four other shareholders sued Clinton Underhill for fraud,
negligent misrepresentation and breach of fiduciary duty. They also sued
Clinton’s father, James Underhill, for conspiracy and aiding and abetting.
(Clinton Underhill purchased the Caruthers’ stock, at least in part, with money
loaned to him by James Underhill.) Caruthers was represented by Aiken Schenk
attorney Joe Schenk. In their suit, Caruthers and the other shareholders
requested two alternative remedies - money damages or rescission of the stock
sale transaction with the option of choosing between the two remedies when the
case was submitted to the jury.
In October 2010, on the sixth day of trial, the other
shareholder chose the damages remedy, and Caruthers chose rescission. The jury
awarded to the other shareholders compensatory and punitive damages, but the
trial court refused to allow the jury to decide Caruthers’ rescission claim.
Instead, the jury was allowed to make a determination in an “advisory” capacity,
which it did in Caruthers’ favor.
However, after having given Caruthers, before trial, the option
of choosing the rescission remedy, the court entered an order denying the
Caruthers’ rescission remedy, concluding that Caruthers had unreasonably delayed
in rescinding and had waived the right to rescission. Caruthers moved for a new
trial on damages, but the court denied the request, entered a judgment in favor
of the Underhills, and ordered Caruthers to pay more than $100,000 in attorney's
fees and costs.
Appeal. Caruthers appealed
the trial court’s Judgment. The Court of Appeals ruled in favor of Caruthers,
holding that the trial court “erred by disallowing the remedy of rescission
based on the findings it made.” Further, the Court of Appeals ruled that “if
rescission were unavailable, [Caruthers] should have been allowed a damage
remedy.” The Court let stand a finding of fraud against Clinton Underhill.
The Court of Appeals’ ruling also:
reversed the judgment against Caruthers that would
have forced Caruthers to pay the Underhills’ attorney's fees and costs
associated with the first trial, and
granted Caruthers a new trial in which Caruthers has the
right to seek rescission, an award of damages, or a combination of
rescission and damages.