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Yuma Sun

Read about this case in the April 3 issue of the Yuma Sun.


Schenk, Van Voorhees Win Appellate Court
Reversal of Securities Fraud Ruling

April 2014

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 Caruthers claimed that Clinton Underhill had based the purchase price on an outdated valuation of UHC performed for estate tax purposes and had lied to Caruthers when asked whether a more current appraisal existed.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.