Continental Vineyard LLC et al v. Vinifera Wine Co., LLC et al
Filing
287
MEMORANDUM Opinion and Order: Therefore, Plaintiffs' motion for a new trial, R. 279 , is continued pending the Court's consideration of further briefing on the issues identified in this opinion. The parties should prepare briefs of no mor e than 20 pages and exchange them with each other on January 18, 2019, but not file them with the Court. This exchange is intended to provide the parties the opportunity to address each other's arguments in revised briefs of no more than 25 page s, which they should file with the Court on February 1, 2019. No further briefing will be permitted.The Court will wait to address Defendants' bill of costs, R. 281 , until Plaintiffs' motion for a new trial is fully resolved. The status hearing set for 12/13/18 is vacated. The Court will rule by mail on the continued motion for a new trial. Signed by the Honorable Thomas M. Durkin on 12/12/2018:Mailed notice(srn, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CONTINENTAL VINEYARD LLC and
INDECK-PASO ROBLES LLC,
Plaintiffs,
v.
No. 12 C 3375
Judge Thomas M. Durkin
RANDY DZIERZAWSKI and VINIFERA WINE
CO., LLC,
Defendants.
MEMORANDUM OPINION AND ORDER
Plaintiffs allege that their former employee, Randy Dzierzawski, injured them
by starting a company, Vinifera, that competed with Plaintiffs’ business while
Dzierzawski was still employed by Plaintiffs. Plaintiffs sought damages for these
injuries by making several different legal claims: (1) breach of fiduciary duty of
loyalty for failure to act in good faith; (2) breach of fiduciary duty of loyalty for selfdealing; (3) unfair competition; and (4) unjust enrichment. Plaintiffs also separately
asked the Court to invoke its equitable authority to disgorge any profits Defendants
earned as a result of any of these alleged legal violations. A jury found for Dzierzawski
on three of the four claims, the exception being unfair competition. Despite this
verdict in Plaintiffs’ favor on that single claim, the jury awarded no damages.
Plaintiffs have filed a motion for a new trial under Federal Rule of Civil
Procedure 59. Plaintiffs argue that a new trial is necessary because the jury’s verdict
was inconsistent in two respects: (1) the jury’s verdict that Dzierzawski is liable for
unfair competition is inconsistent with the jury’s verdict that Dzierzawski is not
liable for breach of fiduciary duty of loyalty; and (2) the jury’s verdict that
Dzierzawski is liable for unfair competition is inconsistent with the jury’s award of
no damages on that claim.
Analysis
Under Federal Rule of Civil Procedure 59(a)(1)(A), a court may grant a motion
for a new trial “for any reason for which a new trial has heretofore been granted in
an action at law in federal court.” “A new trial on all claims is the appropriate remedy
(rather than judgment as a matter of law) in a case in which the jury has returned
inconsistent verdicts.” Deloughery v. City of Chicago, 422 F.3d 611, 617 (7th Cir.
2005). However, a “party claiming that inconsistent verdicts have been returned is
not entitled to a new trial ‘unless no rational jury could have brought back’ the
verdicts that were returned.” Id. (quoting Will v. Comprehensive Accounting Corp.,
776 F.2d 665, 678 (7th Cir. 1985)). “If possible, [a] court must reconcile apparently
inconsistent verdicts, rather than overturn them.” Deloughery, 422 F.3d at 617.
I.
Inconsistent Verdicts for Unfair Competition and
Breach of Fiduciary Duty of Loyalty
The Court instructed the jury that in order to find Dzierzawski liable for unfair
competition they had to find that he “injured” either plaintiff. 1 Thus, the jury’s finding
1
The instruction read in relevant part as follows:
Plaintiffs claim that the Defendants Randy Dzierzawski
and Vinifera Wine Co., LLC engaged in unfair competition.
To succeed on this c1aim, Plaintiffs must prove the
following by a preponderance of the evidence:
2
of unfair competition liability implies that the jury found that Dzierzawski injured at
least one of the plaintiffs.
The Court also instructed the jury that they should find that Dzierzawski
breached a fiduciary duty of loyalty to Plaintiffs if (1) he “owed a fiduciary duty of
loyalty to either or both Plaintiffs,” and (2) he “injured either or both Plaintiffs.” 2 The
(1) either or both Plaintiffs were in competition with
Vinifera;
(2) either or both Defendants intended to confuse the
public by passing off Vinifera’s products or labels or
other identifying marks as if they were the products or
labels or other identifying marks of either or both
Plaintiffs;
(3) there was a “likelihood of confusion” by the public
between either or both Plaintiffs’ products and
Vinifera’s products; and
(4) either or both Plaintiffs were injured by either or both
Defendants’ acts.
R. 263 at 29.
2
The instructions read as follows:
Plaintiffs claim that Defendant Randy Dzierzawski
breached his fiduciary duty of loyalty by failing to act in
good faith. To succeed on this claim, Plaintiffs must prove
the following by a preponderance of the evidence:
(1) Randy Dzierzawski owed a fiduciary duty of loyalty to
either or both Plaintiffs; and
(2) Randy Dzierzawski:
(a) failed to act in the best interests of either or both
Plaintiffs; or
(b) injured either or both Plaintiffs; or
(c) deprived either or both Plaintiffs of profits; or
(d) consciously disregarded his obligations to either or
both Plaintiffs.
R. 263 at 23.
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Court instructed the jury further that “[o]fficers of a company owe a fiduciary duty of
loyalty to the company.” Id. at 22. The evidence was such that no reasonable juror
could have found that Dzierzawski was not Plaintiffs’ officer.
Plaintiffs argue that since the jury found Dzierzawski liable for unfair
competition, the jury necessarily found that he injured Plaintiffs. Plaintiffs argue
further that since the jury found that Dzierzawski injured them, and the evidence
required a finding that Dzierzawski was an officer of Plaintiffs, the jury should have
found that Dzierzawski breached his fiduciary duty of loyalty to Plaintiffs.
Dzierzawski argues that the verdicts are not necessarily inconsistent because
the “claims protect against different injuries. On the one hand, breach of fiduciary
duty protects against injuries flowing from a corporate officer’s disregard of his
fiduciary duties, and on the other, unfair competition protects against injuries flowing
from a likelihood of confusion from two competing brands.” R. 283 at 10. This is true
as far as it goes. But Dzierzawski’s argument—that an injury sufficient to establish
liability for one legal claim is not always sufficient to establish liability for a different
legal claim—misses the mark here where the claims seek liability for the same
underlying conduct. Plaintiffs argue that if Dzierzawski injured them by causing
brand confusion, that injury is also sufficient to constitute a breach of fiduciary duty
since Dzierzawski was their officer. Dzierzawski does not meaningfully oppose this
reasoning.
For these reasons, there is no question that the verdicts are irreconcilably
inconsistent. The jury should have been instructed that if they found an injury
4
sufficient to establish liability for unfair competition, they were required to also find
liability for breach of fiduciary duty. 3
The real question here is whether Plaintiffs waived this argument by failing to
raise it at the instruction conference or immediately after the jury’s verdict. The
Second, Tenth, and Ninth Circuits have held that a failure to raise the argument
before the jury is discharged constitutes waiver. See Fox v. Hayes, 600 F.3d 819, 844
(7th Cir. 2010) (citing 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); Home Indem. Co. v. Lane
Powell Moss & Miller, 43 F.3d 1322, 1331 (9th Cir. 1995)). The Seventh Circuit has
acknowledged the benefits of such a rule in the context of inconsistency between a
general liability verdict and special interrogatories, see Strauss v. Stratojac Corp.,
810 F.2d 679, 683-84 (7th Cir. 1987), but has not had occasion to determine whether
waiver is appropriate in the context of inconsistency between general verdicts, which
is the case here. See Fox, 600 F.3d at 844 (citing Pearson v. Welborn, 471 F.3d 732,
739 (7th Cir.2006)). 4
Some circuit courts have held that inconsistency of general liability verdicts, like
the verdicts at issue here, is an insufficient basis to order a new trial (as opposed to
inconsistency of special interrogatories which does require a new trial). See Venezia
v. Bentley Motors, Inc., 374 Fed. App’x 765, 768 (9th Cir. 2010) (“But even if the
verdicts were inconsistent, inconsistencies between general verdicts on different
claims do not merit new trials.” (citing Zhang v. Am. Gem Seafoods, Inc., 339 F.3d
1020, 1035 (9th Cir. 2003))). The Seventh Circuit is not one of them. See Will, 776
F.2d at 677 n.5 (“Inconsistent general verdicts may be much rarer, but there is no
good reason to treat them differently from inconsistent special verdicts as a rule.”).
3
However, the Seventh Circuit has held that objection to an instruction that
improperly permitted an inconsistent verdict of liability and $0 damages can be
waived by a failure to preserve it in accordance with Federal Rule of Civil Procedure
51. See Bogan v. Stroud, 958 F.2d 180, 182 (7th Cir. 1992) (“We need not address the
4
5
Courts that have held that objections to inconsistent general liability verdicts
can be waived have done so based on Federal Rule of Civil Procedure 51, which
governs objections to jury instructions. See Jarvis v. Ford Motor Co., 283 F.3d 33, 56
(2d Cir. 2002) (Sotomayor, J.) (“Objection to an inconsistency between two general
verdicts that is traced to an alleged error in the jury instruction or verdict sheet is
properly made under Fed. R. Civ. P. 51.”). As noted, Plaintiffs’ argument here boils
down to an objection that the jury instructions and verdict form should not have
permitted the jury to enter a verdict in Plaintiffs’ favor on unfair competition while
at the same time entering a verdict in Dzierzawski’s favor on breach of fiduciary duty.
Rule 51 requires that objections to jury instructions be made during a time designated
to “give the parties an opportunity to object on the record and out of the jury’s hearing
before the instructions and arguments are delivered.” Fed. R. Civ. P. 51(b)(2),
(c)(2)(A). The Court and the parties spent significant time preparing the jury
instructions and Plaintiffs failed to object to the aspect of the instructions at issue
here. The Court finds that Plaintiffs did not preserve this issue.
However, Rule 51 also provides that a “court may consider a plain error in the
instructions that has not been preserved . . . if the error affects substantial rights.”
Fed. R. Civ. P. 51(d)(2); cf. Strauss, 810 F.2d at 683 (“We realize that, at some future
date, we might encounter a case where the inconsistency in the special interrogatories
is so obvious that it would be proper to hold that the trial judge had an independent
merits of this argument because the defendants waived their right to present it on
appeal by failing to object to a jury instruction which authorized the verdict.”).
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responsibility to act despite trial counsel’s silence.”). A party’s “substantial rights”
are “affected” if the error is “of such great magnitude that it probably changed the
outcome of the trial.” Lewis v. City of Chi. Police Dep’t, 590 F.3d 427, 434 (7th Cir.
2009).
Examining only potential liability, it may seem that the jury’s failure to find
liability for breach of fiduciary duty did not change the outcome of the trial. The jury
held Dzierzawski liable for the underlying conduct by finding him liable for unfair
competition. The jury then considered whether damages should be awarded for that
liability. Simply adding a second liability finding based on this same conduct would
not seem to change the outcome of the trial.
A potentially different outcome is present, however, in the different damages
available according to the different damages instructions for the two claims. For both
claims, the jury was instructed to consider whether Plaintiffs lost profits due to
Dzierzawski’s conduct. 5 But only the instruction for breach of fiduciary duty
5
The damages instruction for unfair competition provided, in relevant part:
If either or both Plaintiffs prove the elements of the unfair
competition I instructed you about earlier with respect to
either or both Defendants, then that Plaintiff is entitled to
the losses it sustained as a proximate result of the unfair
competition. This means that a Plaintiff is entitled to the
profits they would have received but for Defendants’
conduct, as well as any expenses that the Plaintiff incurred
because of Defendants’ conduct.
R. 263 at 35.
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instructed the jury to consider whether Dzierzawski was unjustly enriched by his
breach, and whether those profits should be disgorged. 6
Thus, whether the Court should excuse Plaintiffs’ failure to preserve the issue
of inconsistent verdicts depends on whether the flawed jury instructions that caused
the inconsistent verdict affected the trial’s outcome. This question can only be
answered by examining whether there was sufficient evidence for the jury to have
imposed damages for a breach of fiduciary duty that they did not consider for unfair
6
The damages instruction for breach of fiduciary of loyalty provided:
Either or both Plaintiffs are entitled to damages for
Defendant Randy Dzierzawski's breach of the fiduciary
duty of loyalty (whether by failing to act in good faith or
self-dealing) if Plaintiffs prove the elements of the claim I
instructed you about earlier, and they prove either or both
of the following:
(1) either or both Plaintiffs suffered damages; and/or
(2) Randy Dzierzawski profited as a result of his breach of
fiduciary duty.
One potential form of damages for a breach of fiduciary
duty claim is lost profits. If you find that Randy
Dziewzawski’s breach of fiduciary duty caused either
or both Plaintiffs to lose profits, you may only award lost
“net” profits. Lost “net” profits are computed by estimating
the gross revenue either Plaintiff would have earned but
for Defendants’ wrongful act, minus “avoided costs.”
“Avoided costs” are those costs that would have been
incurred in connection with the generation of the lost
revenues but were not incurred.
Another potential form of damages for a breach of fiduciary
duty claim is disgorgement, which is measured by the
unjust enrichment either Defendant received from either
Plaintiff.
R. 263 at 34 (emphasis added).
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competition. And that question requires examination of the evidence of any unjust
enrichment by Dzierzawski that may have been caused by Dzierzawski’s “passing off”
Vinifera’s products as Plaintiffs’ products, which was the basis for the jury finding
Dzierzawski liable for unfair competition. If the Court’s analysis of the evidence
shows that the jury’s failure to make a finding about damages according to the
instructions for breach of fiduciary duty of loyalty “probably” did not “change the
outcome of the trial,” Lewis, 590 F.3d at 434, the Court will consider the issue waived
and will not order a new trial.
Neither party has addressed this question in their briefs. The Court requires
further briefing as described in the conclusion paragraph to this opinion.
II.
Inconsistent Verdicts for Unfair Competition Liability
and Unfair Competition Damages
In addition to the purported conflict between the verdicts on unfair competition
and breach of fiduciary duty, Plaintiffs argue that it was logically inconsistent for the
jury to find injury by unfair competition but award no damages for that injury. See
Thomas v. Stalter, 20 F.3d 298, 303 (7th Cir. 1994) (holding that a “jury’s finding of
liability is in irreconcilable conflict with its award of zero damages” where the
instruction on liability “specifically required the jury to find damages before it could
find liability”). But it is logically possible for a jury to find an injury but not award
damages because the evidentiary burdens are distinct. See Otis Clapp & Son, Inc. v.
Filmore Vitamin Co., 754 F.2d 738, 745 (7th Cir. 1985) (“When determining damages
in an unfair trade practices case, the courts distinguish between the amount of proof
needed to show that some damages were the certain result of the wrong and the
9
amount of proof needed to ascertain the exact amount of damage.”); see also Chain v.
Tropodyne Corp., 2000 WL 1888719, at *4 (6th Cir. Dec. 20, 2000) (“In trademark
cases courts draw a sharp distinction between proof of the fact of damage and proof
of the amount of damage. . . . Once the existence of damages has been shown, all that
an award of damages requires is substantial evidence in the record to permit a
factfinder to draw reasonable inferences and make a fair and reasonable assessment
of the amount of damages.”). Even after finding that an injury exists, the jury must
determine that there is “substantial evidence in the record to permit a factfinder to
draw reasonable inferences and make a fair and reasonable assessment of the amount
of damages.” Id. Thus, the jury’s verdict of liability for unfair competition is not
necessarily inconsistent with its verdict of $0 damages, and the Court must attempt
to “reconcile apparently inconsistent verdicts, rather than overturn them.”
Deloughery, 422 F.3d at 617.
In order to determine whether the unfair competition liability and damages
verdicts are inconsistent, the Court must analyze the relevant evidence. The
instructions identified the relevant category of evidence:
If either or both Plaintiffs prove the elements of the unfair
competition I instructed you about earlier with respect to
either or both Defendants, then that Plaintiff is entitled to
the losses it sustained as a proximate result of the unfair
competition. This means that a Plaintiff is entitled to the
profits they would have received but for Defendants’
conduct, as well as any expenses that the Plaintiff incurred
because of Defendants’ conduct.
R. 263 at 35. Plaintiffs do not argue that this instruction incorrectly limited potential
damages. Plaintiffs’ motion also does not address the possibility that they failed to
10
prove that they lost profits due to Dzierzawski’s unfair competition. The only place in
the briefing where Plaintiffs address evidence of damages is with regard to their
disgorgement claim, where they identify evidence relevant to Vinifera’s profits and
Dzierzawski’s portion of those profits. But this evidence does not help the Court
determine whether Plaintiffs lost profits. Further briefing is required on this issue to
determine whether the evidence is such that a reasonable jury could have found both
liability and $0 damages. If so, the verdict is not inconsistent, and no new trial is
required on this basis. However, if the evidence is such that a reasonable jury could
not have found $0 damages, then a new trial is required on this claim. See Deloughery,
422 F.3d at 617 (a “party claiming that inconsistent verdicts have been returned is
not entitled to a new trial unless no rational jury could have brought back the verdicts
that were returned.”). 7
III.
Equitable Disgorgement
Plaintiffs also ask the Court to order disgorgement as an equitable remedy.
They contend that disgorgement is always available as an equitable remedy no
matter the claim. But Plaintiffs have not cited any authority that Michigan law
permits disgorgement of a defendant’s profits from unfair competition. Plaintiffs
As discussed above, Rule 51 requires an inconsistency arising from an erroneous
instruction to be preserved before the jury is discharged. But unlike the issue of
inconsistency between the fiduciary duty and unfair competition verdicts, the Court
does not perceive the potential inconsistency between the unfair competition liability
and damages verdicts as deriving from an instructional error; rather any
inconsistency is a question of evidentiary weight. And the Seventh Circuit’s general
requirement of consistent verdicts (see Deloughery) would appear to allow Plaintiffs
to properly raise and preserve that issue with this post-trial Rule 59 motion.
7
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should cite such authority in their brief if they continue to seek such relief from the
Court.
Conclusion
Therefore, Plaintiffs’ motion for a new trial, R. 279, is continued pending the
Court’s consideration of further briefing on the issues identified in this opinion. The
parties should prepare briefs of no more than 20 pages and exchange them with each
other on January 18, 2019, but not file them with the Court. This exchange is
intended to provide the parties the opportunity to address each other’s arguments in
revised briefs of no more than 25 pages, which they should file with the Court on
February 1, 2019. No further briefing will be permitted.
The Court will wait to address Defendants’ bill of costs, R. 281, until Plaintiffs’
motion for a new trial is fully resolved. The status hearing set for 12/13/18 is vacated.
The Court will rule by mail on the continued motion for a new trial.
ENTERED:
______________________________
Honorable Thomas M. Durkin
United States District Judge
Dated: December 12, 2018
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