CONTINENTAL VINEYARD, LLC, and INDECK-PASO ROBLES LLC, Plaintiffs-Appellants, Cross-Appellees, v. VINIFERA WINE CO., LLC, and RANDY DZIERZAWSKI, Defendants-Appellees, Cross-Appellants.
Nos. 19-2089 & 19-2173
United States Court of Appeals For the Seventh Circuit
ARGUED JUNE 1, 2020 — DECIDED SEPTEMBER 2, 2020
Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 12 C 3375 — Thomas M. Durkin, Judge.
WOOD, Circuit Judge. This case pits two wine enterprises against one another. In one corner, we have Gerald Forsythe, who formed Indeck-Paso Robles, LLC (“Indeck“) for the purpose of creating and managing a wine-grape vineyard. In the other, we have Randy Dzierzawski, who started out as Forsythe‘s business associate and vice-president and later branched out on his own. In time, Forsythe became convinced
Forsythe and his related companies have appealed from the judgment in favor of the Dzierzawski parties, largely on the ground of allegedly fatal inconsistencies in the jury‘s verdict. Dzierzawski has cross-appealed from the disgorgement order. Forsythe argues that Dzierzawski stole a corporate opportunity from his company, but we agree with the district court that the evidence does not support such a finding. As for the verdicts, we are left to make the best of a bad thing. They are hard to reconcile at first glance, but neither party made any objection until several weeks after the jury was disbаnded. Without such a contemporaneous objection, the court was left on its own. It resolved the uncertainties in a way that respected what the jury said. Finally, with respect to the cross-appeal, we see no reversible error in the disgorgement order. Although the case is something of a procedural mess, we conclude in the final analysis that the judgment of the district court should be affirmed.
I
We begin with a closer look at the events leading up to this litigation, as the issues on appeal are largely factual. In 2006, Indeck purchased Shimmin Canyon Vineyard in Paso Robles, California. Forsythe later established Continental Vineyard, LLC (“Continental“), as a wholly-owned subsidiary of Indeck, for the purpose of оperating Shimmin Canyon. Forsythe appointed himself chairman and CEO and named Dzierzawski president. In that capacity, Dzierzawski was in charge of all of Continental‘s day-to-day operations.
In 2010, Cameron and Dzierzawski, on behalf of Continental, met with Mark Esterman, a wine buyer for the Meijer grocery store chain, to discuss developing custom wine for the store. This was an ambitious plan: fulfilling Meijer‘s need would have required Continental to purсhase wine from other suppliers, because Shimmin Canyon‘s crop was too small and did not include all the right varieties for Meijer‘s desired wines. After the Esterman meeting, Dzierzawski informed Forsythe about the Meijer opportunity. Forsythe was uninterested; he stated that Shimmin Canyon was already a money-loser and that he did not want to invest additional capital into buying “juice” from other suppliers. A week or two later, Dzierzawski again urged Forsythe to pursue the Meijer opportunity, but Forsythe again declined.
Only then did Dzierzawski decide to take matters into his own hands. Along with Cameron, he formed Vinifera Wine Company (“Vinifera“) and, working with Meijer, he obtained his wines (Zinfandel and Moscato) from third parties. In time, Vinifera began to source some of its wine from Continental. It paid Continental to bottle, store, and ship wine under Vinifera‘s label. Continental also worked with at least two other companies. Cameron provided some winemaking services to these companies, but he worked primarily for Vinifera. His services to Vinifera were extensive, and he became concerned that Vinifera was not compensating Continental properly for the use of its resources.
In 2012, in anticipation of an audit of Continental, Dzierzawski disclosed the scope of Vinifera‘s operations to Forsythe. Forsythe responded angrily, stating that he had made it clear that Continental was not to purchase wine from other vineyards. He demanded that Dzierzawski shutter operations at Vinifera. Dzierzawski initially agreed but quickly thought better of it and resigned from Cоntinental and Indeck. In short order, Continental and Indeck (to which we refer collectively as Continental) sued Dzierzawski and Vinifera, alleging that Dzierzawski had injured them by starting a competing business while he was still serving as Continental‘s vice president.
II
Continental raised five theories in its complaint against Dzierzawski and Vinifera: (1) breach of fiduciary duty for failing to act in good faith; (2) breach of fiduciary duty of loyalty for self-dealing; (3) unfair competition; (4) unjust enrichment; and (5) usurpation of a corporate opportunity. The district court granted summary judgment in favor of the defendants on the corporate opportunity theory but allowed the other four counts to proceed to trial. A jury found the defendants liable on the unfаir competition contention, but it ruled in
Continental did not object to the jury‘s verdict at the time that it came down. Several weeks after the jury was discharged, however, it filed a timely motion for a new trial under
The district court denied the motion for a new trial. It found that Continental had waived its opportunity to raise the argument that the jury‘s verdict was inconsistent, because it had failed to make an objection to the jury instructions. See
III
A
Before turning to the main event, we briefly touch on jurisdiction and choice of law. Continental filed its complaint in the Northern District of Illinois; it relied on diversity jurisdiction under
Personal jurisdiction is a bit of a puzzle, but the time for making an objection passed and it is now too late to raise one. See
The choice-of-law principles of the forum state, Illinois, govern here. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). The parties agree that Illinois directs us to the laws of Michigan and Delaware.
B
1
Moving on to the heart of the appeal, we begin with the district court‘s handling of Continental‘s motion for a new trial. We need to clear away some underbrush before we tackle that issue head-on. As we noted earlier, Continental asserted that a new trial was necessary because of inconsistencies in the jury‘s verdict, which took the form of a general verdict with answers to written questions, as contemplated by
The district court, in an order issued December 12, 2018, concluded that the jury had returned irreconcilably inconsistent verdicts when it found Dzierzawski liable for unfair competition, implying that he injured the plaintiffs, yet at the same time it exonerated him on the charge that he owed and breached a fiduciary duty to Continental “and/or” Indeck. Faced with this conflict, it turned to the question whether Continental waived the inconsistency argument “by failing to raise it at the instruction conference or immediately after the jury‘s verdict,” as required by Rule 51. In this connection, it noted that three circuits take the position that a failure to raise this type of argument before the jury is discharged leads to waiver. See Kosmynka v. Polaris Indus., Inc., 462 F.3d 74, 83 (2d Cir. 2006); Oja v. Howmedica, Inc., 111 F.3d 782, 790 (10th Cir. 1997);
The court also preliminarily addressed Continental‘s other concern, which was the finding of liability for unfair competition coupled with a finding of no damages. It ruled that these two findings were not necessarily inconsistent. Instead, they might have reflected a failure of proof on Continental‘s part. Continental had introduced evidence of Vinifera‘s profits and Dzierzawski‘s share of that pot, but it failed to show how those profits damaged Continental or Indeck. Before finally ruling, however, the court also called for further briefing on this point.
Finally, the court allowed Continental to proceed with its claim for equitable disgorgement, if further rеsearch indicated that Michigan law permits such a remedy.
After the court received the requested supplemental briefs, it resolved the remaining issues in an order of May 10, 2019. First, it found that the outcome of the trial had not been affected by the conflict between the unfair-competition and
Looking at the zero-damage award on the unfair-competition count, the court found support in the record for this outcome in the defendants’ expert‘s report, which pointed out that Vinifera provided considerable benefits to Continental, even while it was engaged in the objectionable operations. Last, noting that the jury‘s verdict was only advisory with respect to the equitable disgorgement issue, the court found it appropriate to follow the Restatement (Third) of Unfair Competition § 37 (Am. Law Inst. 1995), which permits disgorgement of net profits, when ascertaining the probable content of Michigan law. Examining the evidence and excluding sales that were unaffected by the unfair competition, the court awarded a total of $285,731 as net profits that Vinifera and Dzierzawski had to return to Continental and Indeck.
2
Continental first attacks the district court‘s finding that it waived its objection to the inconsistent verdicts, relying on three cases from this court: Gordon v. Degelmann, 29 F.3d 295 (7th Cir. 1994); Timm v. Progressive Steel Treating, Inc., 137 F.3d 1008 (7th Cir. 1998); and Turyna v. Martam Construction Company, Inc., 83 F.3d 178 (7th Cir. 1996). None of those, however, is directly on point, nor for that matter is Rule 51. We begin with the question of the time when an objection to inconsistent verdicts should be made, and we then turn to the details of this case.
In Gordon, a jury found a municipality liable under state law, but it absolved an individual defendant. The parties filed no contemporaneous objections, but the district court granted judgment as a matter of law to the municipality on the ground that vicarious liability required primary liability. With respect to the inconsistent verdicts, we wrote: “If the problem is not caught before the jury disbands (and no one noticed this conflict until post-trial motions), the proper thing to do is to hold a new trial with respect to all affected parties.” 29 F.3d at 298–99. We ultimately upheld the district court‘s grant of judgment as a matter of law on other grounds.
Gordon differs from the present case, however, in that it concerns inconsistent verdicts for multiple defendants. The jury‘s verdict was irreconcilably inconsistent, because resolving the inconsistency would have required either imposing liability on a defendant the jury had absolved or freeing a defendant from liability in the face of the jury‘s finding to the contrary—and as we said, “there is no priority among inconsistent verdicts.” Id. at 298.
Pertinent differences also exist between our case and Timm. There, we commented in dicta that “[a] judge cannot treat one verdict … as the jury‘s ‘true’ disposition to which the other verdict must be conformed … If inconsistency escapes notice until after the jury has disbanded, the proper thing to do is to hold a new trial.” 137 F.3d at 1010. In Timm, however,
Turyna is also distinguishable in several pertinent rеspects. The district judge there asked the lawyers to stay within five minutes of the courtroom while the jury deliberated, because he “hated to have the jury wait once it was ready with a verdict.” 83 F.3d at 180. The jury thus came back to an empty room: defense counsel waived his right to be present while the verdict was read, and plaintiff‘s counsel was absent for unknown reasons. Thus, “no one with any incentive to take action was present” when the jury returned its verdict. Id. Unfortunately, the jury returned a hopelessly muddled verdict that this court determined could not be salvaged. We did not address waiver because the jury verdict was so inconsistent that only a new trial could fix it.
That leaves the question what to do when a litigant fails to object tо an apparently inconsistent general verdict with written questions before the jury disbands. We flagged this issue but did not resolve it in Fox v. Hayes, 600 F.3d 819, 844 (7th Cir. 2010), and as we noted earlier, three of our sister circuits follow the rule that the failure to lodge a contemporaneous objection to an inconsistent verdict constitutes a waiver. See Kosmynka (2d Cir.); Oja (10th Cir.); and Home Indem. Co. (9th Cir.).
We find the reasoning of our sister circuits to be sound, and thus now adopt the position that a party wishing to challenge a jury‘s general verdict on the ground of inconsistent verdicts must normally make a contemporaneous objection before the jury disbands. Without such an objection, the court‘s option to fix the problem by resubmission to the jury
Neither of those exceptions to the contemporаneous objection rule applies here. Continental had ample opportunity to object to the inconsistent verdict. When the jury announced its verdict, the court polled each juror individually. The court also held a sidebar to address the jury‘s decision to leave blank the line for damages attributable to the unfair competition it had found. With the input of counsel, the court again polled each jury member to ensure that he or she intended to award no damages. Each juror stated that this was, in fact, his or her intent. After that, the jurors left the courtroom but were instructed to remain in the jury room. The court then asked the parties if there was anything more they wished to put on the record, and both pаrties declined the opportunity.
Continental thus had many opportunities to object to the verdict. This is not a case like Turyna, where counsel could not object because of a bizarre confluence of circumstances. Here, counsel was in the room, understood the situation, and was expressly invited by the court to raise any concerns.
The alleged inconsistencies stem from the apparent contrast between the jury‘s findings on Questions 1 and 2 (fiduciary duty of loyalty) and its finding in Question 3 to the effect that Dzierzawski “engaged in unfair competition with respect to Continental Vineyards, LLC and/or Indeck-Paso Robles, LLC,” though he did not do so through fraud, with willful or reckless disregard of the plaintiffs’ rights, or with malicious intent. Here is how the jury answered Questions 1 and 2:
1a. Have Plaintiffs proven that Randy Dzierzawski owed a fiduciary duty of loyalty to Continental Vineyards, LLC and/or Indeck-Paso Robles, LLC and that Randy Dzierzawski breached his fiduciary duty of loyalty to Continental Vineyards, LLC and/or Indeck-Paso Robles LLC by failing to act in good faith?
Yes____________ No _____X______
If you answered “Yes” proceed to Question 1b.
If you answered “No” proceed to Question 2.
2a. Have Plaintiffs proven that Randy Dzierzawski owed a fiduciary duty of loyalty to Continental Vineyards, LLC and/or Indeck-Paso Robles, LLC and that Randy Dzierzawski engaged in self-dealing by appearing on both sides of any transactions between Vinifera Wine Co., LLC and Continental Vineyards, LLC (and/or between Vinifera Wine Co., LLC and Indeck Paso Robles, LLC)?
Yes____X______ No _____________
If you answered “Yes” proceed to Question 2b.
If you answered “No” proceed to Question 3.
2b. Has Randy Dzierzawski proven thаt all self-dealing transactions with Continental Vineyards, LLC and Indeck-Paso Robles, LLC were entirely fair?
Yes ____________ No _____X_______
Proceed to Question 2c.
2c. Has Randy Dzierzawski proven that the Acquiescence Defense applies to all self-dealing transactions with Continental Vineyards, LLC and Indeck-Paso Robles, LLC?
Yes _______X______ No _____________
Proceed to Question 3 [Unfair Competition].
What are we to make of these answers? Unfortunately, several are not as clear as they might be, because they respond to compound questions, and so it is difficult to know which part of the question prompted the jury‘s choice. Take
Those findings do not necessarily conflict with the jury‘s reaction to the unfair-competition count. There it found that, while Dzierzawski did engage in unfair competition with Continental аnd Indeck, he did not do so fraudulently, with willful or reckless disregard of plaintiffs’ rights, or maliciously. (The jury was also asked in Question 8a whether Vinifera engaged in unfair competition with respect to either plaintiff, but it answered in the negative.)
In Question 4, it found that Dzierzawski had not been unjustly enriched at Continental‘s or Indeck‘s expense, and in Question 9, it made the same finding with respect to Vinifera. The finding with respect to Dzierzawski can stand as long as it is correct that acts of unfair competition may not necessarily inflict damage on the victim, or (as the district court found) the plaintiffs simply failed to prove the amount of damage they suffered.
In addition to the reasons we already have given, there are other grounds for finding that plaintiffs’ substantial rights were not affected by the apparent inconsistency in the jury‘s verdicts. The instructions for both breach of fiduciary duty and unfair competition told the jury that it could award damages for lost profits. Yet only the instruction for breach of fiduciary duty (not the one on unfair competition) directed the
Continental also alleges that it is impossible to reconcile the jury‘s decision to find Dzierzawski liable for unfair competition with its decision to award $0 in damages. Continental argues that by awarding $0 in damages, the jury necessarily found that Continental was not injured, making the verdict irreconcilably inconsistent as a matter of law. See Thomas v. Stalter, 20 F.3d 298, 303 (7th Cir. 1994) (granting a motion for a new trial where the jury instructions specifically required the jury to find damages before it could find liability).
The district court rejected this contention, and so do we. The damages available for unfair competition are (1) lost profits and (2) expenses incurred. Looking to the defendants’ expert, the court concluded that there was a sufficient basis for the jury to find that Continental had lost $0 in profits. The expert‘s report stated that the minimum amount of expenses that Continental incurred as a result of the defendants’ conduct was $5,000. At the same time, there was evidence that Continental actually profited from Dzierzawski‘s conduct. Continental‘s controller testified that Vinifera brokered sales of Continental wine and that Dzierzawski‘s promotion of Vinifera created opportunities for the distribution and sale of
Mindful of the great respect owed to jury verdicts, we agree with the outcome reached by the district court. Although the verdicts at first glance appear to be inconsistent, a closer look shows that they can be reconciled. The jury apparently concluded that, although Dzierzawski through Vinifera had competed with Continental unfairly, Continental ultimately gained more than it lost from Dzierzawski‘s conduct. That conclusion could have been reinforced by the lack of concrete proof of loss from Continental. The jury thus could have determined that the amount of lost profits was negative; that is to say, that Continental‘s profits grew rather than declined as a result of Dzierzawski‘s conduct. Because the verdicts can be resolved, the district court was correct to uphold the jury‘s verdict and deny Continеntal‘s motion for a new trial.
IV
Continental and Indeck also ask us to reverse the district court‘s finding that the defendants were entitled to summary judgment on the claim that Dzierzawski illegally usurped a corporate opportunity from Forsythe and Continental. Delaware law supplies the rule of decision for this claim. Under the corporate-opportunity doctrine, the officer of a corporation may not take a business opportunity for himself if: (1) the corporation of which he is an officer is financially able to exploit the opportunity; (2) the opportunity is within the corporation‘s line of business; (3) the corporation has an interest or expectancy in the opportunity; and (4) by taking thе
The district court held that the Meijer contract qualified as a corporate opportunity for this purpose, but that Dzierzawski took the necessary steps to fall within the safe harbor. We agree. Dzierzawski approached Forsythe twice with the opportunity to source wines for Meijer. Both times, Forsythe explicitly and emphatically declined the opportunity, believing that the vineyard was already a money-loser. Dzierzawski thus fulfilled his duty to disclose the opportunity.
Lastly, Continental argues that a corporate officer must not only disclose the opportunity itself to the corporation; he must also disclose his intention personally to take advantage of the opportunity if the corporation turns it down. Because Dzierzawski did not make the latter disclosure, Continental contends, he is not eligible for the safe harbor. We are not persuaded. First, the weight of authority is not on Continental‘s
The district court correctly granted summary judgment on this count. Dzierzawski brought the Meijer opportunity to Forsythe, not once but twice. He was not required to do anything more under standard principles of corporate law.
V
Dzierzawski and Vinifera may have felt that they won the battles but lost the war: after defeating in one way or the other Continental‘s theories at the jury trial, they found themselves subject to equitable disgorgement in the amount of more than $285,000. This is the subject of their cross-appeal. We review a district court‘s grant of equitable relief in the form of disgorgement for abuse of discretion. Fed. Trade Comm‘n v. Febre, 128 F.3d 530, 534 (7th Cir. 1997). Once again, the district court looks to Illinоis choice of law rules, see Klaxon. Illinois follows
Dzierzawski offers two reasons why the district court abused its discretion in granting disgorgement. First, he argues that Michigan law does not recognize disgorgement as a remedy for unfair competition. Second, he argues that the district court made a commitment not to order disgorgement when it stated earlier that it planned to handle the equitable portion of the case strictly according to the determination of the jury.
It appears that no Michigan appellate court has upheld an award of disgorgement for unfair competition. In fact, no Michigan appellate court has ever addressed the issue. In the absence of guidance from Michigan‘s judiciary, the district court turned to the Restatement (Third) of Unfair Competition, which states that disgorgement is an appropriate remedy for unfair competition where “the actor engaged in the conduct with thе intention of causing confusion or deception; and the award of profits is not prohibited by statute and is otherwise appropriate” based “upon a comparative appraisal of all the factors of the case.” Id. § 37.
Dzierzawski argues that the district court‘s reliance on the Restatement was misplaced, because no Michigan court has
Dzierzawski next points to an order in which the district court stated that it would “be bound by [the jury‘s] liability finding across all of Plaintiffs’ claims, whether seeking damages or equitable relief.” Dzierzawski argues that this statement was binding law of the case and must prevail over any later decision by the district court about how to calculate monetary relief. But that makes no sense: of course district courts have the power to correct their own missteps, as Rule 59 underscores; the only questiоn on appeal is whether the court landed in the right place. That is why we have held that the law-of-the-case doctrine does not prevent a district court from exercising its discretion to reconsider earlier interlocutory orders. Williams v. C.I.R., 1 F.3d 502, 504 (7th Cir. 1993).
In any event, the court‘s earlier order is not at odds with its later disgorgement decision. Although the court did state that it would be bound by the jury‘s liability finding, it also stated, under a separate heading on “disgorgement,” that “[d]isgorgement is an equitable remedy to be imposed by the
VI
We AFFIRM the decision of the district court.