Lead Opinion
On August 4, 1992, Roboserve, Inc. (“Roboserve”), sued Kato Kagaku Co., Ltd. (“Kato”), claiming breach of contract, wrongful termination, and fraud. The parties went to trial on October 18, 1993 and the jury returned a verdict in Roboserve’s favor on all counts, awarding it compensatory and punitive damages totalling $9,950,000. Subsequently, Kato filed a motion for judgment as a matter of law or, in the alternative, for a new trial or a remittitur. The district court agreed with Kato on certain technical points and granted a remittitur of $127,500, but otherwise upheld the jury’s verdict. On appeal Kato challenges the verdict and damages award as utterly contrary to the evidence. We affirm the jury’s findings of breach of contract, wrongful termination, and fraud, but vacate the award of damages for
I. Background
Roboserve, a Delaware corporation, leases and services hotel minibars. Kato, a Japanese company, owns the Hyatt Regency Chicago (“HRC”). The HRC is managed by Hyatt Corporation (“Hyatt”), a corporate entity separate from Kato. On June 23, 1986, Roboserve and Hyatt entered into a Concession Agreement (“Agreement”) providing that Roboserve would install 1000 of its “Robobar” minibars in HRC rooms. The Agreement also required the HRC to use “reasonable endeavors” to place those guests most' likely to use minibars in the Robobar rooms and to encourage them to make purchases from the minibars.
According to Roboserve, due to delays in installation, Roboserve and Hyatt negotiated an amended Agreement on October 2, 1986. The amended version altered the Agreement’s duration, making it last five years from “the date when all the Robobar units have been commissioned,” meaning installed. (Emphasis added.) Kato vigorously denies the Agreement was ever amended.
Between February and April 1987, Roboserve installed 900 of the 1000 units called for in the Agreement. Hyatt officials then decided to review the success of the Robobar program before proceeding with further installations in the HRC or other Hyatt hotels. At the time Roboserve was hoping to secure a nationwide contract with Hyatt, so it was less than insistent about enforcing its contractual right to install the remaining 100 bars.
Despite Hyatt’s commitment to promote Robobars, Roboserve learned in late 1987 and early 1988 that Hyatt intended to contract with ServiSystems, a Roboserve competitor, to install in HRC’s east tower a number of “ServiBars,” ServiSystems’ minibars. (The Robobars were to remain in the west tower.) A November 11, 1988 letter to Roboserve from Hyatt vice president David Zadikoff explained this as a test “to evaluate the two Honor Bar systems that are presently being utilized in our hotels — Robobar and ServiBar.” Mr. Zadikoff assured Roboserve that Hyatt’s agreement with ServiSystems was for “a one-year test period only.” According to Roboserve, Hyatt representatives also indicated orally that the winner of the test would become the preferred minibar provider for Hyatt hotels and would “get the Hyatt business.” By the time the November 11 letter was sent, Kato had purchased the HRC and designated Hyatt as its manager.
Roboserve won the one-year test and soon thereafter began protracted negotiations with Hyatt about replacing the ServiBars in the HRC with Robobars. However, the evidence suggests (and the jury ultimately believed) that the one-year test was a pretext. Unbeknownst to Roboserve, by the time Hyatt announced the test it had already signed a contract with ServiSystems to provide ServiBars for the HRC “for a term commencing on May 15,1988 and expiring on May 14, 1995.” During the negotiations, Hyatt’s official position was that Roboserve was the preferred provider of minibars, which Roboserve claims caused it to fully anticipate getting the broader Hyatt business and thus to forego any attempt to force the installation of the remaining 100 bars at the HRC.
Roboserve sued Kato alleging that Kato, through its agent Hyatt, (1) breached the Agreement by not allowing the installation of all 1000 bars and by failing to properly promote the Robobars, (2) wrongfully terminated the contract before its five-year term had begun, and (3) defrauded Roboserve of further Hyatt business. (At oral argument counsel for Roboserve stated that because Hyatt was Kato’s agent, they “did not have to” sue Hyatt.) Roboserve claimed that as a result it suffered $1 million in damages from the breach of contract and another $1 million on account of the fraud (the wrongful termination count merely asked for specific performance). The prayer for relief then requested $4 million in actual and consequential damages and $2 million in punitive damages. The jury did not stop there, however. Not only did it find for Roboserve on each count, it also awarded nearly $10 million in damages: $2.1 million for the breach of contract, $850,000 for the wrongful termination (reduced by the court to $722,500), and $7 million for fraud ($1 million in compensatory and $6 million in punitive damages).
II. Analysis
On appeal, Kato challenges both the finding of liability and the amount of the damages award for each claim. Regarding the fraud claim, Kato contends that the district court improperly permitted the jury to hear evidence suggesting that Hyatt fraudulently promised Roboserve business opportunities beyond the HRC. According to Kato, this caused the jury to believe that Kato was responsible for actions of Hyatt which were well beyond the scope of the Kato-Hyatt agency relationship. Kato challenges the award of $1 million in damages for fraud on the ground that the jury improperly based its calculations on the value of Hyatt’s unfulfilled promises of business beyond the HRC, which Kato never had the means to deliver. Kato also denies the evidence suggests conduct sufficiently gross or outrageous to justify the award of any punitive damages, let alone $6 million.
As for the contract claim, Kato argues that the Agreement’s “reasonable endeavors” clause was too vague to be enforceable and that the district court improperly excluded evidence that Roboserve waived its rights to install all 1000 Robobars. With respect to the $2.1 million award for contract damages, Kato contends that the jury improperly compensated Roboserve for lost profits to which it was never entitled.
Finally, Kato challenges the verdict on the wrongful termination claim by arguing that the Agreement was never amended and that, at any rate, it was never truly terminated. Kato challenges the damages award (like that for breach of contract) on the ground that it was based on calculations of lost profits to which Roboserve was never entitled.
A Fraud
1. Scope of Kato’s liability for Hyatt’s acts.
Initially, we consider Kato’s contention that the district court improperly allowed the jury to consider as evidence of fraud certain promises Hyatt allegedly made to Roboserve concerning business at other Hyatt hotels. Such promises, Kato argues, were well beyond the scope of the Kato-Hyatt agency relationship, which was limited to the management of the HRC.
Kato is correct that it cannot be held liable for Hyatt’s statements to Roboserve concerning deals at other Hyatt hotels. The scope of Hyatt’s agency relationship with Kato simply did not extend beyond the management of the HRC. Moreover, as a sophisticated player in the hotel industry, Roboserve knew (or should have known) that Kato could not deliver business at hotels it did not own. The evidence indicates that Roboserve courted Hyatt not merely as Kato’s agent for the HRC but as a separate corporate entity, as the gatekeeper for business at Hyatt hotels nationwide. Therefore, to the extent it was wrongfully deprived of the broader Hyatt business, Roboserve’s gripe is with Hyatt, not Kato. The district court came to this conclusion in ruling on Kato’s post-trial motion, holding that “Roboserve cannot place at Kato’s feet liability for fraud that extended beyond its domain, certainly not the value of all leverageable business beyond its domain.” Roboserve, Inc.,
Kato’s contention remains, then, that evidence of Hyatt’s conduct for which Kato was not liable was improperly admitted at trial. This court reviews claims that evidence was improperly admitted under an abuse of discretion standard, “giving the judge great deference.” Littlefield v. McGuffey,
Although the trial judge could have been more restrictive, we find no abuse of discretion in admitting evidence of those Hyatt dealings that extended beyond the HRC. Roboserve’s theory of recovery on the fraud count depended upon showing that Hyatt, acting as Kato’s agent, improperly used promises of future Hyatt business, not only at the HRC but also at other hotels, to extract concessions from Roboserve that were beneficial to Kato. It would have been more difficult for the jury to get the entire picture of this complex transaction without evidence of all the negotiations and maneuverings. As we hold below, the district court’s error was not in allowing the jury to hear such evidence but in failing to reduce the jury’s unfounded award of damages.
2. Liability.
Kato’s challenge to the jury’s fraud verdict faces a formidable hurdle in the established standard of review. Under Illinois law, we may overturn the verdict only if “all of the evidence, when viewed in its aspect most favorable to [Roboserve], so overwhelmingly favors [Kato] that no contrary verdict based on that evidence could ever stand.” Commercial Credit Equipment Corp. v. Stamps,
After a review of the record, we find that there is sufficient evidence for a reasonable jury to have found that Roboserve was induced by the diversionary one-year test to forego its contractual rights in the hopes of receiving additional HRC business. Because of this, and the additional reasons elaborated in the district court’s opinion, we hold that Kato is not entitled to judgment as a matter of law on the question of liability for fraud. Roboserve, Inc.,
S. Compensatory damages.
The jury’s award of $1 million in compensatory and $6 million in punitive damages is another matter. Compensatory damages for fraud are intended to compensate for “any injury which is the direct and natural consequence of [the plaintiffs] acting on
By contrast, so-called “benefit-of-the-bargain” damages (as were awarded here) are available only under much narrower circumstances. The Restatement (Second) of Torts § 549(2) (1977) provides that:
the recipient of a fraudulent misrepresentation in a business transaction is also entitled to recover additional damages sufficient to give him the benefit of his contract with the maker, if these damages are proved with reasonable certainty.
Illinois, whose law we apply in this matter, has apparently adopted this standard. See, e.g., Gold,
Here, Roboserve is entitled to recover for those out-of-pocket losses attributable to Kato’s misrepresentations, including the loss of its time and resources in preparing proposals for adding new Robobars to the HRC. Testimony at trial indicated that Roboserve incurred $12,810 in attorney’s fees and costs. We believe the evidence also indicates that officials at Roboserve, independent of its attorney, expended a substantial amount of time and effort preparing for and conducting negotiations with Hyatt, for which Roboserve deserves compensation. We assume the jury took this into account when calculating the damages and, in addition to the $12,810 in attorney’s fees, awarded Roboserve $25,000 in out-of-pocket losses for the wasted time and effort of its employees.
The jury’s $1 million verdict, however, went far beyond compensation for Roboserve’s out-of-pocket losses. It obviously included benefit-of-the-bargain damages. But what bargain? There was a misleading contest that could have resulted in a contract for the winner. There were hints of Hyatt placing Robobars in a number of other hotels throughout the country. But this alleged fraud did not induce any contract. Yet, in his jury instructions on the fraud count, the judge stated that “[p]laintiffs compensatory damages may include the benefit of its bargain, which means that the plaintiff is entitled to be placed in the same financial position as it would have been in had the misrepresentations in fact been true.” Under these facts, that instruction was wrong. Roboserve is not entitled to recover for the loss of contractual benefits it never actually secured. Nothing indicates that Roboserve ever consummated a deal giving it the right to additional HRC business, much less the broader Hyatt business. Roboserve does not even contend that Hyatt’s misrepresentations gave rise to an enforceable contract obliging Hyatt to install
Based on a jury instruction that did not conform with Illinois law, the jury’s award of $1 million in compensatory damages for fraud is both “monstrously excessive” and “not rationally connected to the evidence” and thus “may be altered” by this court. Pincus v. Pabst Brewing Co.,
L Punitive damages.
In its post-trial motion for judgment as a matter of law, Kato assailed the jury’s $6 million punitive damages award as unwarranted and excessive. The district court reviewed its own decision to submit the question of punitive damages to the jury under an abuse of discretion standard. Given “Roboserve’s supported allegation of a multi-year cover-up,” the court found “evidence of a pattern of conduct sufficient to state a legally cognizable claim for punitive damages” and so held that it did not abuse its discretion when it allowed the issue to go to the jury. Roboserve, Inc.,
We review de novo the district court’s denial of Kato’s motion for judgment as a matter of law on the question of punitive damages. Williams v. O’Leary,
“Illinois courts do not favor punitive damages and insist that plaintiffs must establish ‘not only simple fraud but gross fraud, breach of trust, or other extraordinary or exceptional circumstances clearly showing malice or willfulness.’ ” Europlast,
Our review of the record does not reveal evidence of “gross,” “wanton” or “malicious” conduct on the part of Hyatt or Kato. Rather than evidence of outrageous conduct, what emerges from a review of the facts is a picture of a highly competitive marketplace with sophisticated advocates on all sides jockeying for position and profit. Hyatt indeed played loose with its contractual obligations and was less than candid — and may even have lied — about its present actions and future plans. Yet despite the district court’s ominous characterization of Kato’s conduct as a “multi-year cover-up,” Roboserve, Inc.,
But in Illinois “deceit alone cannot support a punitive damage award.” Schneider, 91 IlLDec. at 593,
Accordingly, since we can find no evidence of an intent to injure constituting gross misconduct or malicious behavior, we hold that the district court erred in denying Kato’s motion for judgment as a matter of law on the question of punitive damages. See Europlast,
B. Breach of Contract
1. Liability.
Kato attacks the verdict on the breach of contract count by arguing that the trial court erred in refusing to allow the jury to consider evidence in support of its affirmative defenses of waiver, failure to mitigate and estoppel. It further contends that the “reasonable endeavors” clause in the Agreement was too vague to be enforceable and thus could not be the basis for liability.
We find no error in the district court’s ruling in regard to Kato’s proposed affirmative defenses. The Agreement contained an explicit non-waiver provision that could only be overcome through a separate written agreement signed by both parties.
As the district court correctly noted, non-waiver “clauses are enforceable [in] Illinois,” Monarch Coaches, Inc. v. ITT Industrial Credit,
Kato’s complaints about the vagueness of the clause in the Agreement requiring it to use “reasonable endeavors” to promote Roboserve’s bars are also unpersuasive. The clause may be somewhat vague, but it still has meaning. “Reasonable efforts” clauses are enforceable in Illinois. The question of what is “reasonable” under a contract is an issue of fact for the trier of fact. See Honkomp v. Dixon,
2. Damages.
Once again, however, we are forced to conclude that the amount of the jury’s award of damages cannot be upheld. Of course, the “fixing of a damage award is an exercise in fact-finding” which should not lightly be disturbed on appeal. Pincus,
“Damages recoverable under a breach of contract theory are based upon the mutual expectations of the parties. The basic principle for the measurement of contract damages is that the injured party is entitled to recover an amount that will put him in as good a position as he would have been in had the contract been performed as agreed.” Collins v. Reynard,
In a pretrial motion in limine, Kato reiterated these fundamental maxims of contract damages and requested the court to exclude as irrelevant evidence relating to Servi-System’s profits. Kato argued that in the event a breach was found, Roboserve was entitled only to the profits it would have received had the contract been properly honored but not to revenues generated by the ServiBars.
The district court was not persuaded, however, and at trial the jury was permitted to hear testimony from Roboserve’s expert that, between 1988 and 1993, $2,343,744 in ServiBar sales should have gone to Roboserve. The expert testified that the HRC contained 1870 in-room bars (900 Robobars and 970
The jury was clearly persuaded by these numbers, awarding Roboserve $2.1 million in contract damages.
Determining the proper amount of damages in this case is somewhat of a mathematical challenge. To note just one deficiency, missing from the record on appeal is a precise indication of Roboserve’s per-unit profits, an essential figure for calculating appropriate compensation. Nevertheless, the numbers in the record do suggest a more reasonable, if still generous, damages award.
We have established that 900 of the 1000 Robobars were installed in the HRC but not properly promoted. Roboserve is therefore entitled to the profits it would have had if all 1000 Robobars had been installed and properly promoted as required by the Agreement. Roboserve’s expert witness estimated that between 1988 and 1993 ServiSystem had $2,343,744 in sales that would otherwise have gone to Roboserve. In other words, he estimated that the contractual value to Roboserve of lost ServiBar sales amounted to $2,343,744. Working backwards we can calculate the per-use profit of each minibar. ServiBars were present in 970 rooms in the HRC. If we assume an average occupancy rate of 70%, then on average 679 (970 x .70) rooms with ServiBars were occupied each day. With 32.1% as the maximum usage rate for in-room bars (as Roboserve’s expert testified), about 218 (679 x .321) uses of ServiBars occurred each day. This amounts to 477,420 ServiBar uses during the six years between 1988 and 1993 (218 uses per day x 365 days per year x 6 years = 477,420 uses over 6 years). Roboserve’s expert estimated
Using these figures derived from Roboserve’s expert, we can estimate Roboserve’s actual profits. With 900 Robobars installed, and again assuming a 70% occupancy rate, 630 Robobar rooms (900 x .70) would have been occupied each day at the HRC. Again assuming the 32.1% usage rate supplied by Roboserve’s expert, this implies there were about 202 uses of the Robobars each day (630 x .321), 73,730 each year (202 x 365 days per year), and 442,380 over the roughly six years of the contract (73,730 x 6 years). By these calculations, we estimate that Roboserve actually made about $2,172,086 in profits between 1988 and 1993 (442,380 uses x $4.91 per usage).
We now consider what Roboserve’s profits should have been under the contract. Roboserve claims, in essence, that its usage rate would have been 60% had Kato used “reasonable endeavors” to promote its bars. As noted, we find this assertion to be without support in the record, in clear contradiction of the testimony of its own expert, and highly improbable. Nevertheless, the jury found that Kato breached the Agreement, and we have assumed this means it found Kato did not put forth appropriate efforts to promote Robobars. Accordingly, we also assume the jury determined that had Kato used “reasonable endeavors” to promote Robobars, at least some increase in Robobar sales would have occurred. Although an increase to 60% is implausible, we believe it is possible — and assume for purposes of calculating damages — that Robobar sales could have increased to as much as 40% of occupied rooms. Moreover, we assume that a proper promotion of Robobar rooms would also have increased the occupancy rate of Robobar rooms to about 75% from 70%.
Using the figures derived above and the assumptions just stated, Roboserve would have reaped $3,225,870 in profits if 40% of the guests in occupied Robobar rooms had used their Robobars.
We acknowledge the relative imprecision of the above calculations. Since Kato chose not to offer its own estimates of Roboserve’s contract losses, our calculations were necessarily limited to the numbers provided by Roboserve’s expert. Where there was doubt, we have erred on the side of Roboserve in deference to its victory at trial. Thus, our estimation that Roboserve suffered $1,053,-784 in losses due to Kato’s breach is undoubtedly generous. What it conclusively reveals, however, is that the jury’s award of $2.1 million was out of all proportion to the actual injury Roboserve sustained. Roboserve was never entitled to all of ServiSystem’s profits. Its damages award should have been limited to the losses it suffered due to Kato’s failure to properly promote the 1000 Robobars called for in the Agreement. Using Roboserve’s own estimates of per unit profits, we hold that such losses could not have been more than $1,053,784.
C. Wrongful Termination
1. Liability.
Kato contests the jury’s determination that it wrongfully terminated the Agreement. Throughout, Roboserve has maintained that due to delays in installation, the original Agreement was modified so that the five-year contract period would not begin until all 1000 Robobar units had been installed. Thus, when Kato terminated the contract with only 900 Robobars installed, it actually terminated before the contract began. Hence, it became liable for five years of Roboserve’s lost profits. Kato vigorously denies that the Agreement was ever amended, pointing to a clause in the Agreement
The district court engaged in a thorough and extensive review of these arguments in its memorandum opinion and concluded that the parties satisfied the Amendment Only in Writing clause; that there was sufficient evidence to support the jury’s finding that Kato waived that clause; that the amended Agreement satisfied the Illinois Statute of Frauds (an issue not raised on appeal); and that Kato accepted Roboserve’s offer to amend within a reasonable time period. Roboserve, Inc.,
2. Damages.
As with the other damages awards, Kato disputed the jury’s award of $850,000 for wrongful termination in its post-trial motion on the ground that it was excessive and that, in any event, the jury calculated it based on an incorrect starting date. The district court denied that the award was excessive as a matter of law, but agreed with Kato that the jury had used the wrong starting date in its calculations and so remitted $127,500 of the award, reducing it to $722,-500. Id. at 1143-44. On appeal, Kato contends that even as remitted the award was illegitimately based on ServiBar profits and thus should be further remitted by at least 50%.
In contrast to the other damages awards, we cannot say that the award of $722,500 is grossly disproportionate to the actual injury Roboserve suffered from the wrongful termination. We held above that the facts in the record could support an award (albeit generous) of $1,053,784 for Kato’s failure to honor the Agreement over a six year period. In comparison to that amount, an award of $722,500 for termination of the Agreement five years early is not clearly excessive and therefore must stand.
III. Conclusion
In sum, we affirm the jury’s finding of liability on the fraud, breach of contract, and wrongful termination counts, but vacate the award of damages for fraud (including punitive damages) and breach of contract and remand for a new trial on those issues unless Roboserve accepts a remittitur as specified above.
Affirmed in Part, Vacated in Part, and Remanded.
Notes
. We adopt the district court’s rendition of the facts, the necessary parts of which are repeated here. See Roboserve, Inc. v. Kato Kagaku Co., Ltd.,
. Section 8(l)(n) of the Agreement required Hyatt to “use reasonable endeavors to procure that rooms in which RoboBar Units are operating are first let to guests who are best able to use the facilities thereby offered and in priority to any rooms at the Location in which no such unit is operating.” Section 9(3) required Hyatt to "use ... reasonable endeavors to encourage the purchase of merchandise from the RoboBar Units at the Location ...”
.On August 12, 1988, Kato acquired the HRC, and on October 18, 1988, Kato assumed the prior owner’s management agreement designating Hyatt as the HRC’s manager.
. There seems to be no question that Kato can be held liable for Hyatt's actions taken on behalf of the HRC. It is well established under Illinois law that a principal can be held vicariously liable for the acts (including gross fraud) of its managerial agents. Mattyasovszky v. West Towns Bus Co.,
. In Hardin we explained that "Illinois courts look to three factors in analyzing [the excessiveness of punitive damages]: (1) the nature and enormity of the wrong, (2) the financial status of the defendant, and (3) the potential liability of the defendant resulting from multiple claims.” Id.
. Section 19 of the Agreement provides: "The rights and remedies of the parties shall not be diminished waived or extinguished by the granting by one party of any indulgence forbearance or extension of time to the other party nor by any failure or delay by a party in asserting or exercising such rights or remedies." This clause is not iron-clad, however, for it is modified by section 26, which provides: "This Agreement and any other matters agreed in writing between the parties hereto in relation to the subject matter of this Agreement shall constitute the entire agreement between [Roboserve] and the [HRC] in relation to such subject matter and no variation to the same shall be binding on [Roboserve] unless in writing and signed by both parties."
. Kato’s failure to put on an expert witness of its own bolsters our conclusion that the jury relied on the figures presented by Roboserve's expert witness in calculating the contract damages.
. 1000 rooms x 75% occupancy rate = 750 occupied rooms per day x 40% usage = 300 uses per day x 365 days per year = 109,500 uses per year x 6 years = 657,000 uses over the 6 years of the contract x $4.91 per usage profit = $3,225,870 profit.
. Kato may have a point in claiming that Roboserve's expert presented figures inflated with ServiBar proceeds. But when compared to the now-reduced award for the six-year breach of contract, the five-year contract termination award is relatively small. By not presenting competing expert testimony, Kato leaves us only with Roboserve’s calculations. And their expert testified by referring to charts and documents that the jury observed but for some reason were not made part of the record. So these inflated and somewhat inconsistent figures are the result of Kato's own decisions at trial.
Concurrence Opinion
concurring in part and dissenting in part.
To the extent that the majority formulates the standard for imposing punitive damages
Read in their entirety, the decisions of the Illinois courts suggest that the presence of other aggravating circumstances, many of which do not rise to the level of an intent to injure, will justify the imposition of punitive damages for fraud. E.g., Martin v. Heinold Commodities, Inc.,
Although I do not join the majority’s conclusion that total abrogation of punitive damages on the fraud count is appropriate, it is clear that the amount of the award must be reassessed. The jury was permitted to consider evidence, decide issues, and award damages based on evidence of “Hyatt business” from hotels other than the HRC. The district court took the view that the jury had not awarded damages for fraud beyond the confines of the HRC, but following, as we must, the presumption that jurors follow the instructions given to them, e.g., Domes v. Volkswagen of America, Inc.,
Remand is also the appropriate course with respect to damages on Roboserve’s claim for breach of contract. The majority correctly concludes that the jury’s award cannot be supported by the record, but an appropriate division of responsibility between the court of appeals and the district court requires that a determination of the proper amount be conducted, in the first instance, by the trier of fact. I would, therefore, remand this issue as well.