Loan Modification Group, Inc. v. Reed

Filing

OPINION issued by Michael Boudin, Appellate Judge; Michael Daly Hawkins, Senior Appellate Judge and Timothy Belcher Dyk, Appellate Judge. Published. [11-1947]

Case: 11-1947

Document: 00116434316

Page: 1

Date Filed: 09/21/2012

Entry ID: 5676879

United States Court of Appeals
For the First Circuit

No. 11-1947
LOAN MODIFICATION GROUP, INC.,
Plaintiff, Appellant,
v.
LISA REED,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Leo T. Sorokin, U.S. Magistrate Judge]
Before
Boudin, Hawkins* and Dyk,**
Circuit Judges.

Isaac H. Peres, for appellant.
Thomas J. Gleason, for appellee.

September 21, 2012

___________
*
Of the Ninth Circuit, sitting by designation.
**
Of the Federal Circuit, sitting by designation.

Case: 11-1947

Document: 00116434316

DYK,

Circuit

Page: 2

Judge.

Date Filed: 09/21/2012

Entry ID: 5676879

Plaintiff-Appellant

Loan

Modification Group, Inc. (“LMG”) appeals from a jury verdict
awarding $414,000 in damages against LMG for breach of partnership
duties and responsibilities owed to Defendant-Appellee, Lisa Reed
(“Reed”).

On appeal, LMG urges that the jury verdict should be

overturned because (1) recovery on any express oral partnership
agreement is barred by the Statute of Frauds; (2) any partnership
agreement that arose by implication is at-will and does not support
a damages award; and (3) assuming liability, the amount of the
damages award is not supported by substantial evidence. We affirm.
I.
Given the favorable jury verdict, we recite the facts “in
the light most favorable to [Reed], giving [her] the benefit of
every favorable inference that may be fairly drawn.”

Dumas v.

MacLean, 404 F.2d 1062, 1064 (1st Cir. 1968).
In 2008, this country was in the throes of a subprime
mortgage crisis, prompting Congress to pass the Emergency Economic
Stabilization Act of 2008 (“the Act”), Pub. L. No. 110-343, 122
Stat. 3765 (codified as amended at 12 U.S.C. § 5201, et seq.).

One

of the primary purposes of the Act was “to immediately provide
authority and facilities that the Secretary of the Treasury can use
to restore liquidity and stability to the financial system of the
United States” in order to “protect[] home values, college funds,
retirement

accounts,

and

life

-2-

savings

[and]

preserve[]

Case: 11-1947

Document: 00116434316

homeownership.”

Page: 3

12 U.S.C. § 5201.

Date Filed: 09/21/2012

Entry ID: 5676879

To further this purpose, on

March 4, 2009, the Treasury Department created the Home Affordable
Modification Program (“HAMP”).

See U.S. Dep’t of the Treasury,

Home Affordable Modification Program Guidelines (Mar. 4, 2009),
available at http://www.treasury.gov/press-center/press-releases/
documents/modification_program_guidelines.pdf. The aim of HAMP was
to assist homeowners on the verge of foreclosure to modify their
loans to an affordable level.

The government offered financial

incentives to mortgage servicers who agreed to such modifications
on behalf of the mortgage holders.

HAMP was scheduled to expire at

the end of 2012.1
In

2008,

Massachusetts.

Reed

was

working

as

mortgage

broker

in

That same year she met David Zak (“Zak”), a lawyer

who ran a Massachusetts-based regulatory compliance consulting
practice for mortgage brokers and bankers known as Zak Law Offices
(“ZLO”).

In late 2008, Reed and Zak discussed the possibility of

entering

into

a

loan

modification

business,

apparently

in

anticipation of the creation of HAMP. The discussions between Reed
and Zak culminated in an oral agreement to enter into the loan
modification business together.

The planned business model was to

offer assistance to homeowners who were in danger of foreclosure.
An

analysis

would

be

conducted

to

determine

whether

those

homeowners were good candidates for loan modification under HAMP.

1

HAMP has since been extended to December 31, 2013.
-3-

Case: 11-1947

Document: 00116434316

Page: 4

Date Filed: 09/21/2012

Entry ID: 5676879

If they were, the homeowners would be provided assistance in
securing a modification.

The homeowners would pay a fee for this

service.
Under the agreement, Zak agreed to supply the initial
funding for the business and Reed agreed to develop the client base
from her existing client database, which consisted of subprime
mortgagees (homeowners) with high interest mortgages who might
benefit from loan modification.

Although Reed requested a formal

written agreement detailing their partnership, Zak assured her that
a written agreement was not necessary.
In February 2009, Zak created LMG, a company wholly owned
by Zak, as the entity that would conduct the partnership business
together with Reed. The niceties of LMG’s corporate existence were
largely ignored during briefing, the parties treating LMG and Zak
as interchangeable.

When LMG and Reed began operating the loan

modification business in early 2009, Reed was initially paid a “per
file fee” of approximately $400 to $450 for each loan modification
customer that she brought in.

However, in June 2009, the payment

arrangement was modified such that Reed and Zak would split the
profits from the business fifty/fifty, and each would also receive
a bi-weekly salary of $2,500.

Additionally, once the business

became profitable, at least once per month, Reed requested that Zak
put their partnership agreement in writing, but was unsuccessful in
obtaining a written partnership agreement.

-4-

Case: 11-1947

Document: 00116434316

Page: 5

Date Filed: 09/21/2012

Entry ID: 5676879

On January 4, 2010, Zak approached Reed, told her that he
no

longer

needed

her in

the

loan

directed her to leave LMG’s offices.

modification

business, and

Reed was then escorted out of

the office by an armed police officer.

On January 8, 2010, Reed,

through counsel, sent a letter to LMG requesting an immediate
inspection of the books and records of the partnership, a formal
accounting,

and

her

Massachusetts law.

share

of

the

profits

as

required

under

However, Reed never received the requested

inspection, accounting, or profits.

In short, at no time after

Reed was ejected from the business in January 2010 was there any
winding up of the purported partnership between Reed and LMG.
Following Reed’s expulsion, LMG continued to operate the loan
modification business and retained all the profits.
On February 25, 2010, LMG, ZLO, and another entity filed
a copyright infringement suit against Reed in the United States
District Court for the District of Massachusetts, alleging that
Reed unlawfully copied loan modification software created by a
third party for exclusive use by LMG and ZLO.
counterclaim,

alleging,

inter

alia,

that

she

Reed filed a
had

formed

a

partnership with LMG and that LMG breached its obligations and
duties

to

the

partnership

by

attempting

to

terminate

the

partnership without providing Reed with records inspection, an

-5-

Case: 11-1947

Document: 00116434316

Page: 6

Date Filed: 09/21/2012

accounting, or her share of the profits.2

Entry ID: 5676879

Reed’s theory was that

LMG’s failure to do so meant that the partnership continued in
existence, entitling Reed to damages.3

The parties subsequently

settled the copyright dispute, and the case proceeded to trial only
on Reed’s partnership-related counterclaims based on this theory.
On June 20, 2011, a four-day jury trial commenced.
Following the presentation of several witnesses and documentary
evidence, the court instructed the jury that the “[p]arties may
form a partnership by oral agreement . . . or by the conduct in
which the parties engaged and the relationship the parties actually
created,” but if a partnership is based on an oral agreement, the
jury

must

consider

the

Statute

of

Frauds

which

“bars

the

enforcement of an oral agreement that, by the terms of the oral
agreement, cannot be performed within one year.”
court

also

instructed

that

“[u]nless

the

J.A. 56, 58.

parties

formed

The
an

enforceable agreement which specified the circumstances under which

2

Reed also alleged that a partnership was created with
ZLO, but the jury rejected this theory at trial, and Reed does not
press it on appeal.
3

Count Five (Breach of Partnership Agreement) and Count
Six (Breach of Contract) of Reed’s counterclaim also alleged that
LMG breached the partnership agreement, which was “intended to
exist for a specific length of time in order to accomplish a
particular purpose,” by refusing to share the profits from the
business.
J.A. 29-30.
These counts were based on the earlier
allegations that “[t]he partnership[] [was] intended to exist for
a specific length of time, until December 31, 2012, in order to
accomplish a particular purpose, specifically to provide loan
modifications to homeowners under [HAMP].” J.A. 27. We discuss
only Reed’s primary theory as presented at trial.
-6-

Case: 11-1947

Document: 00116434316

Page: 7

Date Filed: 09/21/2012

Entry ID: 5676879

the partnership could be dissolved, the partnership is ‘at-will’
and any partner may dissolve the partnership at any time.”
60.

J.A.

As to damages, the court stated that if the jury found the

existence of an enforceable partnership and that a partner had
breached the duties of that partnership, it could award Reed “her
share of the profits . . . of the partnership from the date of the
dissolution of the partnership until the date of the termination of
the partnership or, if . . . no such termination occurred, than
[sic] the present.”

J.A. 62.

The case was then submitted to the

jury.
After deliberations, the jury returned a verdict finding
that Reed had formed an enforceable partnership with LMG, and that
LMG

had

breached

partnership.

the

duties

and

responsibilities

of

the

The jury’s verdict form was general, and did not

specify whether the jury found the existence of a partnership based
upon an oral agreement not barred by the Statute of Frauds (express
partnership agreement) or based on the actions of the parties
(implied partnership agreement). The jury awarded Reed $414,000 in
damages based on LMG’s breach. Although the damages portion of the
verdict form was also general, the jury noted at the bottom of the
form how the damages award had been calculated.

Specifically, the

jury indicated that it was awarding Reed $18,000 per month for
eighteen months as “partnership profit share” ($324,000 total), and
$5,000 per month for eighteen months as a “salary” ($90,000 total),

-7-

Case: 11-1947

Document: 00116434316

Page: 8

for a total award of $414,000.

Date Filed: 09/21/2012

Entry ID: 5676879

The eighteen-month period on which

the award was based encompassed the period of time from Reed’s
expulsion from LMG to trial.
Following trial, LMG moved for judgment as a matter of
law, contending that any express partnership between Reed and LMG
was barred by the Statute of Frauds, and any implied partnership
agreement was terminable at-will and therefore could not support
the jury’s damages award.
and entered final judgment.

The district court denied LMG’s motion
LMG timely appealed.
II.

On appeal, LMG argues that the district court erred in
denying its motion for judgment as a matter of law.

We review the

district court’s denial of LMG’s motion for judgment as a matter of
law under Federal Rule of Civil Procedure 50(b) de novo.

See N.

Laminate Sales, Inc. v. Davis, 403 F.3d 14, 26 (1st Cir. 2005).
“The verdict must be upheld unless the facts and inferences, viewed
in the light most favorable to the verdict, point so strongly and
overwhelmingly in favor of the movant that a reasonable jury could
not have [returned the verdict].” Borges Colón v. Román-Abreu, 438
F.3d 1, 14 (1st Cir. 2006) (alteration in original) (quoting
Acevedo-Diaz v. Aponte, 1 F.3d 62, 66 (1st Cir. 1993)) (internal
quotation marks omitted).

-8-

Case: 11-1947

Document: 00116434316

Page: 9

Date Filed: 09/21/2012

Entry ID: 5676879

A.
LMG first contends that any oral partnership agreement
between Reed and LMG is barred by the Statute of Frauds as a matter
of law because the partnership was designed to last for the entire
four-year duration of HAMP, and agreements which are not to be
performed within one year must be written in accordance with Mass.
Gen. Laws ch. 259, § 1.4
At trial, Reed contended that the oral agreement was not
for a specific duration (and that therefore there was no Statute of
Frauds issue).
1936).

See Coughlin v. McGrath, 4 N.E.2d 319, 323 (Mass.

In particular, Reed testified that the partnership could

have terminated at any time if the business was unsuccessful.

To

support its contention that the agreement was for a partnership of
four years’ duration, and was thus barred by the Statute of Frauds,
LMG relied on Reed’s testimony on cross-examination that the
purpose of LMG’s business was to perform loan modifications in
accordance with HAMP, and that HAMP was supposed to last through
the end of 2012 (i.e., for four years).

Reed also testified that

she and Zak could not walk away from the partnership in LMG unless
one of them engaged in some dishonest conduct.

4

LMG argues that

Mass. Gen. Laws ch. 259 § 1 provides that “No action
shall be brought . . . [u]pon an agreement that is not to be
performed within one year from the making thereof; [u]nless the .
. . agreement upon which such action is brought . . . is in writing
and signed by the party to be charged therewith or by some person
thereunto by him lawfully authorized.”
-9-

Case: 11-1947

Document: 00116434316

Page: 10

Date Filed: 09/21/2012

Entry ID: 5676879

Reed’s testimony brings the partnership agreement between LMG and
Reed within the Massachusetts Statute of Frauds.

We disagree.

Other than Reed’s own statements on cross-examination,
LMG presented no evidence that the partnership was of a fixed
duration (indeed, Zak testified that there was no partnership at
all).

When pressed on this issue on cross-examination, Reed

explicitly stated, “[the agreement] could have been a possibility
of four years; it could have been a possibility of two years; it
could have been a possibility of six or eight years.”

Transcript

of Trial at 110, Loan Modification Grp., Inc. v. Reed, No. 10-cv10333 (D. Mass. June 21, 2011), ECF No. 67 (emphasis added). Based
on

this

testimony,

the

jury

was

entitled

to

find

that

the

partnership here was not of a fixed duration.
Under

Massachusetts

law,

“if

an

agreement

whose

performance would otherwise extend beyond a year may be completely
performed within a year on the happening of some contingency, it is
not within the statute of frauds.”

See Coughlin, 4 N.E.2d at 323

(quoting Carnig v. Carr, 46 N.E. 117, 118 (Mass. 1897)); see also
Boothby

v.

Texon,

Inc.,

608

N.E.2d

1028,

1036

(Mass.

1993)

(“Because [the plaintiff’s] contract was for permanent employment,
it could have been performed within one year: . . . [the defendant]
could have discontinued its business, at which point its obligation
to employ [the plaintiff] would end.”).

Given the ambiguity in

Reed’s testimony, the jury was entitled to find that although Reed

-10-

Case: 11-1947

Document: 00116434316

Page: 11

Date Filed: 09/21/2012

Entry ID: 5676879

and LMG’s partnership was formed in anticipation of and carried out
in accordance with HAMP, it could be fully performed within one
year and need not last for the entire four-year duration of HAMP.
Thus, the jury could have reasonably rejected application of the
Statute of Frauds.
B.
In addition to considering whether Reed and LMG had
formed a partnership by express oral agreement, the jury also
considered whether a partnership agreement was implied based upon
“the conduct in which the parties engaged and the relationship the
parties actually created.”

J.A. 56.

On appeal, LMG does not

challenge the sufficiency of the evidence to support a jury finding
that there was an implied at-will partnership agreement based upon
the conduct and relationship between the parties.

Thus, the

evidence clearly supported the jury’s finding that a partnership
existed, whether based on an express oral partnership agreement or
on an implied partnership agreement.
Reed’s primary theory at trial and in her post-trial
filings was that although the partnership was dissolved, LMG never
provided

the

accounting

and

profit

sharing

required

by

Massachusetts law, that the partnership continued, and that Reed
was entitled to share in the profits even after the dissolution.5

5

Reed’s theory was stated clearly in her closing argument:

There was no compliance with her requests as she made
-11-

Case: 11-1947

Document: 00116434316

Page: 12

Date Filed: 09/21/2012

Entry ID: 5676879

To the extent that Reed also argued that LMG wrongfully dissolved
the partnership, we do not understand Reed to press that theory on
appeal.

Rather her theory is that Zak’s conduct was wrongful even

if the partnership was at will.6
C.
LMG claims that an at-will partnership cannot support the
jury’s damages award.

Although an at-will partnership can be

dissolved by any partner at any time, see Meehan v. Shaughnessy,
535 N.E.2d 1255, 1260 (Mass. 1989), under Massachusetts law, the
dissolution

of

the

partnership

does

not

end

the

matter.

Dissolution is merely “the change in the relation of the partners

those requests pursuant to law, and the business
continued; there’s no doubt about that, even though she
was wrongfully excluded from it, and that she’s entitled
to a share of the profits of the business when it
continued after the time he wrongfully excluded her. He
continued on with the business and refused to acknowledge
her demands as a partner, so that’s what we say our
theory of the case is.
Transcript of Trial at 45, Loan Modification Grp., Inc. v. Reed,
No. 10-cv-10333 (D. Mass. June 24, 2011), ECF No. 69. In other
words, because there was no proper termination of the partnership,
Reed continued as a partner and could not be excluded from sharing
in the partnership profits.
6

On appeal, Reed contends that “in order to have found the
existence of a partnership, based on the evidence, it must have
been under a theory of partnership by implication because all of
the initial partnership discussions were with ZLO prior to the
legal existence of LMG . . . There was sufficient evidence
introduced at trial for the jury to conclude that although the
partnership may have been terminable at-will by either party there
was still a breach of the partnership agreement.” Appellee’s Br.
at 6.
-12-

Case: 11-1947

Document: 00116434316

Page: 13

Date Filed: 09/21/2012

Entry ID: 5676879

caused by any partner ceasing to be associated in the carrying on
as distinguished from the winding up of the business.”

Mass. Gen.

Laws ch. 108A, § 29. Dissolution occurs, among other things, “[b]y
the expulsion of any partner from the business,” as happened here
when

Reed

was

excluded

from

LMG.

Id.

§

31(1)(d).

Under

Massachusetts law, upon dissolution of an at-will partnership, each
partner “has the right to wind up the partnership affairs.”
37.

“On

dissolution
until

winding

continues

the

completed.”

the

Id. § 30.

partnership
up

is

of

not

Id. §

terminated,

partnership

affairs

but
is

“Winding up” is “the process that occurs

during the period following dissolution and preceding termination,
during

the

course

of

which

work

in

process

is

completed,

partnership assets are sold, creditors are paid, and the business
of the partnership is brought to an orderly close.”

Anastos v.

Sable, 819 N.E.2d 587, 592 (Mass. 2004) (quoting Adams v. United
States, 218 F.3d 383, 388 (5th Cir. 2000)).
Each partner’s right to “wind up” includes “the right to
an account of his interest” in the partnership, Mass. Gen. Laws ch.
108A, § 43, and the right to receive the payment of “the net amount
due him from the partnership,” id. § 38.

See Eddy v. Fogg, 78 N.E.

549, 550 (Mass. 1906) (“[A partner’s] right to an accounting and
settlement accrue[s] upon the dissolution of the firm.”).
principles apply equally to at-will partnerships.
Bateman,

51

N.E.2d

954,

955-56

-13-

(Mass.

1943)

These

See Murray v.

(former

partner

Case: 11-1947

Document: 00116434316

Page: 14

Date Filed: 09/21/2012

Entry ID: 5676879

entitled to an accounting upon dissolution of at-will partnership);
Lawson v. Shine, 295 N.E.2d 177, 177-78 (Mass. App. Ct. 1973)
(expelled partner in at-will partnership was entitled to half of
the value of the partnership).
Here, Zak’s own testimony indicated that, despite Reed’s
demands,

she

was

never

provided

with

an

accounting

of

her

partnership interest or a distribution of her portion of the
profits, and the loan modification business continued. In essence,
following dissolution, there was never any winding up of the
partnership affairs as is required by Massachusetts law before a
partnership can be terminated. The result was that the partnership
continued through the date of trial (which was approximately
eighteen months following dissolution).

Under Mass. Gen. Laws ch.

108A, § 23(2), “[a] continuation of the business by the partners
. . . without any settlement or liquidation of the partnership
affairs,

is

partnership.”

prima

facie

evidence

of

a

continuation

of

the

See also id. § 30; Shapira v. Budish, 175 N.E. 159,

161 (Mass. 1931).
Having determined that the partnership was never wound up
following Reed’s expulsion, the jury could have also reasonably
concluded that Reed was entitled to damages based upon LMG’s postdissolution continuation of the business, while employing assets
that Reed contributed.
The Supreme Judicial Court of Massachusetts considered a
situation very similar to this case in Murray v. Bateman, 51 N.E.2d
-14-

Case: 11-1947

954.

Document: 00116434316

In

that

partnership
shipfitters.

case,

agreement

Page: 15

four
to

men

Date Filed: 09/21/2012

entered

establish

into

and

an

Entry ID: 5676879

at-will

conduct

a

school

oral
for

Under the agreement, each of the four partners would

receive one fourth of the profits from the school.

Shortly after

the school opened, three of the partners expelled the fourth,
directing him to leave the school premises.

Id. at 955.

Although

the three partners told the expelled partner that the partnership
was dissolved, they nonetheless continued to operate the school
without him, employing the good will that he had contributed.7 Id.
The court noted that where the partnership agreement was “for a
partnership at will and any party could retire from the firm at any
time he desired,” the retiring partner generally “would not have
any right . . . to claim damages because he was thereby deprived of
sharing in the future profits of the business.”

Id. at 955-56.

However, the court held that, under the Uniform Partnership Act as
adopted

in

Massachusetts,8

“[p]rofits

made

by

the

remaining

partners subsequently to dissolution, through the employment of the
firm’s assets, must be accounted for to the partner who had retired
and has not been paid his share of the assets.”

Id. at 956

(emphasis added).

7

As the court noted in Murray, “[g]ood will is generally
understood to mean the advantage that accrues to a business on
account of its name, location and reputation, which tends to enable
it to retain the patronage of its old customers.” 51 N.E.2d at
955.
8

1922.

Massachusetts enacted the Uniform Partnership Act in
See Tropeano v. Dorman, 441 F.3d 69, 75 (1st Cir. 2006).
-15-

Case: 11-1947

Document: 00116434316

Page: 16

Date Filed: 09/21/2012

Entry ID: 5676879

The rule articulated in Murray has been similarly adopted
in other jurisdictions that have enacted the Uniform Partnership
Act.

See, e.g., Schrempp & Salerno v. Gross, 529 N.W.2d 764, 771

(Neb. 1995) (“[A] partner [has] a continuing fiduciary duty to [the
partnership] that prohibits a partner of a dissolved partnership
from entering into contracts for personal gain in connection with
unfinished business of the partnership.”); Hamilton Co. v. Hamilton
Tile Corp., 197 N.Y.S.2d 384, 386-87 (N.Y. Sup. Ct. 1960) (“Being
a partnership at will, [a former partner] may have had the right to
dissolve and to request a winding up of the partnership affairs; he
could even then go off to another new venture, but he could not
secretly become part of a venture that looks for its profits to the
accounts and fruits of the former partnership still in a process[]
of being wound up.”); see also, e.g., Wanderski v. Nowakowski, 49
N.W.2d 139, 145 (Mich. 1951) (“[P]laintiff [under state law similar
to the Uniform Partnership Act] was entitled . . . to be awarded
his

share

of

the

profits

arising

from

partnership assets in the business
dissolution]

until

the

entry

of

no

question

the

continued

use

of

. . . from [the time of

decree

in the

circuit court

. . . .”).
There
partnership

is

business

here

following

that

Reed’s

LMG

continued

expulsion

from

the
the

partnership. The jury was also presented with substantial evidence
that Reed contributed the majority, if not all, of the client base
for the loan modification business.
-16-

Based on that evidence, the

Case: 11-1947

Document: 00116434316

Page: 17

Date Filed: 09/21/2012

Entry ID: 5676879

jury could have easily concluded that LMG utilized Reed’s client
database to operate its business, and that by continuing the
business with the assets (customer base) that Reed contributed, LMG
breached its duties and obligations to Reed. Where the partnership
breaches its fiduciary duty by continuing the partnership business
with partnership assets, but depriving the expelled partner of
participation in the business, the expelled partner is entitled to
“the net amount due him,” Mass. Gen. Laws ch. 108A, § 38, from the
continuing partnership.

See Murray, 51 N.E.2d at 956; see also

Essay v. Essay, 123 N.W.2d 20, 27 (Neb. 1963) (“[An expelled
partner

who]

does

not

acquiesce

in

the

termination

of

the

partnership but demands a winding up of the partnership . . . is
entitled to share in the profits until the partnership business has
been finally terminated.”).
Based on the evidence, the jury could conclude that “the
net amount due” Reed was fifty percent of LMG’s profits and the
agreed upon $2,500 bi-weekly salary. Reed was entitled to the full
amount due to her (including the salary) as long as the partnership
continued regardless of whether the partnership agreement was
express or implied.

See Shulkin v. Shulkin, 16 N.E.2d 644, 649

(Mass. 1938) (“The right of a partner to compensation for his
services depends wholly upon agreement, express or implied.”); see
also Boyer v. Bowles, 37 N.E.2d 489, 493 (Mass. 1941) (“[T]he
subsequent course of dealing and conduct of the parties may be
considered in determining whether there is such an implication in
-17-

Case: 11-1947

Document: 00116434316

Page: 18

Date Filed: 09/21/2012

Entry ID: 5676879

favor of the allowance of compensation as is tantamount to an
express agreement.”).

As the district court instructed, having

found that the partnership was never terminated and that LMG
breached its fiduciary duties, the jury was free to “award Ms. Reed
her share of the profits . . . of the partnership [and her salary]
from the date of the dissolution of the partnership until [the date
of trial].”

J.A. 62.
D.

LMG finally contends that the jury verdict should be set
aside because the amount of the jury’s damages award is not
supported by the evidence.

In particular, LMG apparently argues

that the award of $324,000 as Reed’s “partnership profit share” for
the eighteen-month period is not supported by the record because
Reed is only entitled to fifty percent of LMG’s net income during
the eighteen-month period, which was substantially less than the
premise of the jury award–-i.e., a total net profit of $648,000.
We
deference.”

review

a

jury’s

award

of

damages

with

“great

Segal v. Gilbert Color Sys., Inc., 746 F.2d 78, 81

(1st Cir. 1984). “[T]he jury is free to select the highest figures
for which there is adequate evidentiary support.

And, such a

verdict will be reduced or set aside only if it is shown to exceed
any rational appraisal or estimate of the damages that could be
based upon the evidence before the jury.”

Id. (internal quotation

marks and citation omitted). Accordingly, we will not overturn the
jury’s

damages

award

“unless
-18-

it

is

‘grossly

excessive,’

Case: 11-1947

Document: 00116434316

Page: 19

Date Filed: 09/21/2012

Entry ID: 5676879

‘inordinate,’ ‘shocking to the conscience of the court,’ or ‘so
high that it would be a denial of justice to permit it to stand.’”
Id. at 80-81 (quoting McDonald v. Fed. Labs., 724 F.2d 243, 246
(1st Cir. 1984)).
LMG’s theory concerning the amount of net profits during
the eighteen-month period is not entirely clear.

LMG’s apparent

premise is that its gross receipts during that time were $367,384
as reflected in LMG’s bank statements, and that even without
accounting for any reductions for business expenses, the gross
income was far less than the amount of net income assumed by the
jury’s damages award ($648,000).9

In contrast, Reed’s theory at

trial was that LMG diverted its income to ZLO in an attempt to
conceal its true post-dissolution profits.

Reed pointed to the

combined LMG and ZLO bank statements during the relevant eighteenmonth period, which showed that the total gross income for both LMG
and ZLO combined was approximately $3.5 million.

There was also

evidence that LMG and ZLO’s combined expenses for the first three
months of the eighteen-month period were on average $154,554 per
month.

Assuming $3.5 million in net revenue and average expenses

of $154,554 per month for eighteen months, LMG’s total profit
during the eighteen-month period would have been approximately

9

LMG also points to its profit and loss statement which
showed $207,717 in net income for 2009 and $7,258 in net income for
January through March, 2010.
However the eighteen-month period
here began in January 2010, when Reed was expelled from the
partnership, and concluded in June 2011, the month of trial.
-19-

Case: 11-1947

Document: 00116434316

$718,000,

exceeding

the

Page: 20

$648,000

Date Filed: 09/21/2012

assumed

by

the

Entry ID: 5676879

jury.

Additionally, Reed presented evidence indicating that before she
was ousted, the profits from the business exceeded $60,000 per
month, and the business was steadily growing.

As the district

court concluded in rejecting LMG’s motion for judgment as a matter
of law, the jury was entitled to reject LMG’s evidence in favor of
the contrary evidence presented by Reed, and to calculate a total
profit of $648,000 and Reed’s profit share as $18,000 per month
over the eighteen-month period.
Accordingly,

we

conclude

that

there

was

adequate

evidentiary support to sustain the jury’s damages award.
III.
For the foregoing reasons, we find that there was no
error in the jury verdict, and that the district court did not err
in denying LMG’s Rule 50 motion.

Affirmed.

-20-