Opinion ID: 729764
Heading Depth: 2
Heading Rank: 2

Heading: Reinstatement of the Medcom

Text: I Jury Verdict 31 MHC argues that the district court impermissibly substituted its judgment for the Medcom I jury's judgment. The district court found that the evidence was sufficient to support the jury's determination of liability. Nevertheless, the court vacated the award of damages because it found that the evidence did not permit the jury to adjust the amount of damages downward from the amount of damages sought by MHC. (MEMORANDUM OPINION AND ORDER, 6/29/90, 1990 WL 104039 at  13.) Essentially, the district court presumed that the jury was not capable of understanding the experts' testimony relating to accounting and lost profits well enough to make a downward adjustment of the damages from the amount testified to by MHC's expert. 32 A closer look at the district court's decision illuminates the issue. The Medcom I jury awarded total compensatory damages of $5,725,000. The total award broke down into damages of $2,225,000 for the September 30, 1986 balance sheet overstatement and $3,500,000 in lost profits relating to the domestic programs. After finding that the evidence was not sufficient to permit the jury to adjust the amount of damages downward from the amount sought by MHC, the district court granted a new trial on compensatory damages. 33 The standard of review for the district court's grant of a motion for a new trial on damages is a tricky proposition. Where the district court denies a motion for a new trial on damages, we review for an abuse of discretion. Superbird Farms, Inc. v. Perdue Farms, Inc., 970 F.2d 238, 247 (7th Cir. 1992); see also Gasperini v. Center For Humanities, Inc., 116 S. Ct. 2211, 2223-24 (1996) (denial of motion to set aside a jury verdict as excessive is reviewed for abuse of discretion). On the other hand, we apply a somewhat more exacting standard of appellate review when reviewing a district court's decision to grant a new trial on damages. Superbird Farms, 970 F.2d at 247 (internal quotation and citation omitted). 34 We apply this deferential standard of review more exactingly because the decision to grant a motion for new trial has Seventh Amendment implications; when the court grants a new trial it substitutes its judgment for the jury's. In the Matter of Innovative Const. Sys., 793 F.2d 875, 888 (7th Cir. 1986). Pursuant to the Seventh Amendment, the right of trial by jury shall be preserved, and no fact tried by jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law. U.S. Const. amend. VII. The trial court may disturb the jury's damage award only if the award is monstrously excessive, a product of passion and prejudice, or if there is no rational connection between the award and the evidence. Cygnar v. City of Chicago, 865 F.2d 827, 847 (7th Cir. 1989). 35 In this case, the court vacated the damages award on the ground that the damages bore no rational connection to the evidence. A trial judge in the federal system has discretion to grant a new trial if the verdict appears against the weight of the evidence. Gasperini, 116 S. Ct. at 2222. However, Illinois law governs the substantive assessment of whether the evidence supports the damages awarded when liability is based on Illinois law. 36 Illinois law governs the damages question in this case. Although the jury found Baxter liable for Rule 10b-5 fraud, a cause of action sounding in federal law, the district court expressly disallowed benefit of the bargain damages under Rule 10b-5 relating to the domestic programs claim. Thus, MHC relied upon its Illinois common law fraud claim to justify the jury award. Second, MHC relied entirely upon the warranty in the SPA providing that Baxter would pay MHC the amount of any overstatement in the balance sheet to establish damages for the balance sheet overstatement. The award must be justified by reference to MHC's breach of contract claim. In sum, the trial court had to look to Illinois law for the substantive standard of what evidence would satisfy proof of damages. Id. at 2224-25. 37 The district court found that the evidence was not sufficient to permit the jury to adjust the amount of damages downward from the amount sought by MHC. The court stated that the jury cannot be expected to appropriately revise [MHC's expert's] model. (MEMORANDUM OPINION AND ORDER, 6/29/90, 1990 WL 104039 at  13.) The district court's finding denigrates the historic and practical abilities of the jury. More importantly, the district court's finding directly contradicts Illinois law. 38 Pursuant to Illinois law, where the existence of damages is established, the evidence need only tend to show a basis for the computation of damages with a fair degree of probability. In re Busse, 464 N.E.2d 651, 655 (Ill. App. Ct. 1984). The jury awarded $3.5 million for Baxter's misrepresentations regarding the content of the domestic library and $2.225 million for Baxter's misrepresentations regarding the September 30, 1986 balance sheet. These figures were less than MHC sought and less than the calculations provided by MHC's experts. They were, however, within the reasonable range of valuations testified to by MHC's experts and Baxter's experts. As the Appellate Court of Illinois has noted, the law does not require 39 that a jury verdict must match either of two experts' figures, or a combination of the assumptions. Rather, all the law requires is that the evidence tend to establish, with a fair degree of probability, a basis for the assessment of damages. . . . The ascertainment and assessment of damages is a question of fact for the jury; although the amount may not be speculative, it need not be proved with mathematical certainty. The jury must bring in a verdict within the range of the valuation testimony presented. 40 . . . . Where experts differ on the amount of damages there is no rule of law requiring that a jury agree with one or the other or that its award be capable of precise determination. Furthermore, a jury may reduce an expert's damage calculations without invalidating the verdict. 41 F.L. Walz, Inc. v. Hobart Corp., 586 N.E.2d 1314, 1319 (Ill. App. Ct. 1992) (citations omitted). A review of the evidence relating to each category of damages illuminates the district court's erroneous assumptions regarding the jury's capacities. 3
42 On a common law fraud claim, Illinois law permits Medcom to be placed in the same financial position it would have been in had the misrepresentation been true. Brown v. Broadway Perryville Lumber Co., 508 N.E.2d 1170, 1176 (Ill. App. Ct. 1987). To prove damages for the domestic programs library, MHC had to establish the amount of lost profits from the obsolete programs that Baxter had represented as current programs. MHC relied on the testimony of its expert, litigation economist Dr. Steven Schwartz, to establish and to calculate damages. Dr. Schwartz testified that because MHC received fewer current programs than Baxter promised, MHC suffered approximately $6,305,000 in lost profits. At trial, Baxter disputed Dr. Schwartz's conclusion that Medcom possessed only 554 current domestic programs in 1986 and claimed that Dr. Schwartz's method of calculating damages was flawed. 43 The district court found that the jury was entitled to accept Dr. Schwartz's assumption that only 554 programs were current in 1986. The court found, however, that the evidence did not afford the jury an opportunity to adjust the damages downward. The district court's reasoning is perplexing. Dr. Schwartz based his calculation of lost profits on the assumption that all noncurrent programs could achieve the same sales average as the average current program. His analysis was based upon the company's actual 1989 sales. The district court found this problematic because a Medcom employee testified that in 1989, Medcom marketed only the 500 best selling programs. Thus, the district court stated that Schwartz's thesis that every noncurrent program could be a 'best seller' was unsupported by the evidence. (MEMORANDUM OPINION AND ORDER, 6/29/90, 1990 WL 104039 at  12.) Baxter's expert criticized Schwartz's opinion regarding the number of current programs and the potential sales of noncurrent programs without offering an alternative projection. The district court therefore concluded that the evidence afforded the jury no basis to adjust the amount of damages downward. Consequently, the $3,500,000 award for the domestic library must be set aside. Id. at  13. 44 First, we agree with MHC that the district court has mischaracterized Dr. Schwartz's testimony. The district court's characterization would be apt if Dr. Schwartz used the average sales figure for the top ten or 100 current programs out of the total number of approximately 500 current programs. But he did not. Dr. Schwartz based his calculations on the assumption that the noncurrent programs, had they actually been current as Baxter had represented, would have sold as well as the average current program that Medcom actually sold. Dr. Schwartz testified that there were approximately 500 current programs. The fact that these current programs sold better than the approximately 1000 noncurrent programs is not surprising. It does not, however, change the fact that Dr. Schwartz used the average sales figure for the current programs. This rationale is plainly reasonable and does not support the district court's conclusion that Dr. Schwartz assumed that every noncurrent program could be a best seller. 45 Apart from our concern with the district court's characterization of the testimony, we must conclude that the district court erred in vacating the jury's award. The court's decision was based on its assumption that the jury was not capable of adjusting the amount of damages downward: 46 Schwartz's calculations were based on the palpably errant notion that each noncurrent program could achieve exceptional sales. Schwartz's calculations do not lend themselves to easy adjustment. Medcom failed to offer any analysis based upon reasonable sales expectations, and the jury cannot be expected to appropriately revise Schwartz's model. 47 Id. (emphasis added). 48 We disagree. The court underestimated the jury's abilities. Dr. Schwartz was the subject of lengthy cross-examination. In addition, Baxter's responsive expert discussed Dr. Schwartz's analysis at length. The jury had the information it needed to decide whether Dr. Schwartz's analysis was flawed. Thus, the jury could reasonably adjust the analysis to reflect the percentage of programs that were proven to be noncurrent and to reflect the appropriate amount of lost profits from each noncurrent program. 49 The jury must bring in a verdict within the range of the valuation testimony presented. 50 . . . . Where experts differ on the amount of damages there is no rule of law requiring that a jury agree with one or the other or that its award be capable of precise determination. Furthermore, a jury may reduce an expert's damage calculations without invalidating the verdict. 51 F.L. Walz, Inc., 586 N.E.2d at 1319 (citations omitted). Moreover, under Illinois law, it is not necessary to prove lost profits with absolute certainty; it is permissible to establish criteria by which the probable profits can be estimated with reasonable certainty. Havoco of America, Ltd. v. Sumitomo Corp. of America, 971 F.2d 1332, 1345 (7th Cir. 1992) (quoting Midland Hotel Corp. v. Reuben H. Donnelley Corp., 515 N.E.2d 61, 66 (Ill. 1987)). 52 We emphasize that the calculation and assessment of damages are questions of fact reserved for the jury. F.L. Walz, Inc., 586 N.E.2d at 1319. Expert testimony may begin the inquiry into damages because it will assist the trier of fact to understand the evidence or to determine a fact in issue . . . . Fed. R. Evid. 702. Expert testimony, however, cannot end the inquiry. The jury must determine the facts in issue. The rules of evidence recognize that an expert on the stand may give a dissertation or exposition of scientific or other principles relevant to the case but it is the trier of fact who appl[ies] them to the facts. Fed. R. Evid. 702, advisory committee notes. 53 The district court did not apply Illinois law when it determined that the jury was not capable of reducing MHC's expert's damages calculations. When reviewed against the appropriate standard, the verdict is not against the weight of the evidence. The jury reduced the damages award, as it was free to do.
54 MHC also sought damages based on the $10.6 million balance sheet. MHC relied upon the warranty in the SPA providing that Baxter would pay MHC the amount of any overstatement in the balance sheet. Thus, the district court found that the award must be justified by reference to the breach of contract claim. 55 MHC produced one witness, Michael Reagan of the accounting firm of Deloitte, Haskins & Sells, to testify to the amount of overstatement. Reagan testified that a 40 percent reduction of the balance sheet was appropriate, resulting in approximately $4.1 million in damages. The jury returned a verdict in the amount of $2,225,000. 56 Reagan analyzed the balance sheet overstatement line-item by line-item. For each item that he concluded that Baxter had overstated in the balance sheet, he testified as to why he reached this conclusion and by how much Baxter had overstated the value of the asset. Reagan was cross-examined on each balance sheet line-item. He also testified extensively on both direct and cross examination regarding his workpapers, which were provided to the jury as exhibits. In addition, Baxter called an accounting expert, who rebutted each of Reagan's opinions line-item by line-item. Baxter's expert also suggested that Reagan's entire analysis should be rejected and that there were flaws that should lead to partial rejection of some line-items. 57 The district court again found that the jury was not capable of adjusting the damages award. 58 [MHC] asserts that the jury had Reagan's working papers, permitting the jury to determine the proper amount to reduce the balance sheet. These voluminous papers are unintelligible to a lay person. They do not provide guidance to the jury. . . . [MHC]'s evidence did not permit the jury to adjust its verdict downward if it decided only to partially accept Reagan's qualified opinion that the balance sheet should be reduced by $4,000,000. Since the $2,225,000 verdict is not rationally related to the evidence, the verdict is set aside. 59 (MEMORANDUM OPINION AND ORDER, 6/29/90, 1990 WL 104039 at  14.) Again, the district court's finding contradicts Illinois law and underrates the jury's abilities. The jury's function is to decide which evidence to accept and which evidence to reject. The jury took into account Baxter's numerous challenges to Reagan's analysis and the testimony of Baxter's own expert. The jury then determined that the balance sheet was overstated by only $2,225,000. As MHC points out, there are numerous permutations that would permit the jury to arrive at a verdict of $2,225,000 rather than $4.1 million. See Wagner v. City of Chicago, 626 N.E.2d 1227, 1240 (Ill. App. Ct. 1993) (A jury's award will not be subject to remittitur where it falls within the 'flexible range' of conclusions which can be reasonably supported by the facts.), aff'd, 651 N.E.2d 1120 (Ill. 1995). 60 Even if we assume that the jury could not run the exact numbers and calculations of Reagan's model with mathematical certainty (which we are hesitant to assume), the jury was entitled to reduce an expert's damage calculations without invalidating the verdict. F.L. Walz, Inc., 586 N.E.2d at 1319. Under the appropriate standard, Illinois law, the verdict is not against the weight of the evidence. 61
62 Baxter argues that the jury mistakenly divided the total amount of compensatory damages among the three separate counts, and that this mistake provides an independent basis for affirming the court's ruling vacating the compensatory damage awards. As the district court noted: 63 The special verdict form required the jury to indicate the amount of damages it desired to award under the rule 10b-5 claim, the fraud claim and the breach of contract claim. The next instruction on the special verdict form required the jury to indicate the total compensatory damages award. The jury apparently reasoned that the sum of the separate awards for the three counts must equal the total award. The jury awarded $1,000,000 under rule 10b-5 (Count I), $3,000,000 for common law fraud (Count IV) and $1,725,000 for breach of contract (Count V). The jury awarded total compensatory damages of $5,725,000. Since the court has ordered a new trial on the issue of compensatory damages, issues arising from the jury's allocation of damages among the three counts are moot. 64 (MEMORANDUM OPINION AND ORDER, 6/29/90, 1990 WL 104039 at  15 n.8.) Because this Court has found that the district court erred in ordering a new trial on compensatory damages, the issue is now before us. 65 Baxter argues that the count-by-count awards evidence real confusion by the jury regarding the standards it was supposed to apply in two instances. First, there is no rational explanation for the difference in jury awards on Count IV and Count V, because the jury was instructed that the same benefit of the bargain measure of damages applied to both counts. Baxter believes that the award should have been the same, and to the extent it was different, the Count IV award should have been smaller, because that count (common law fraud) had additional elements and a higher burden of proof than Count V (breach of contract). Second, as the district court noted, MHC relied upon the warranty in the SPA providing that Baxter would pay MHC the amount of any overstatement in the balance sheet. Accordingly, the award must be justified, if at all, by reference to [MHC's] breach of contract claim. (MEMORANDUM OPINION AND ORDER, 6/29/90, 1990 WL 104039 at  13.) Yet the jury awarded MHC $500,000 more on the balance sheet claim than it did on the corresponding count for breach of contract. 66 We recognize that the jury may have been confused by the special verdict form in this regard. In fact, the district court warned counsel prior to submission of the form to the jury that they had agreed upon a confusing special verdict form. This confusion does not require vacating the jury's award of damages, however, because the jury's intent was clear. See Atlantic & Gulf Stevedores, Inc. v. Ellerman Lines, Ltd., 369 U.S. 355, 364 (1962) (Where there is a view of the case that makes the jury's answers to special interrogatories consistent, they must be resolved that way. For a search for one possible view of the case which will make the jury's finding inconsistent results in a collision with the Seventh Amendment.); see also Congregation of the Passion v. Touche Ross & Co., 636 N.E.2d 503, 518-19 (Ill.) (holding damages verdict need not be vacated because of inconsistency in awards between counts when jury's intent was clear and remittitur cured excessiveness), cert. denied, 115 S. Ct. 358 (1994); Churchill v. Norfolk & Western Railway Co., 383 N.E.2d 929, 938 (Ill. 1978) (Verdicts are to be construed liberally and may be amended to conform to the pleadings and evidence contained in the record whenever the intention of the jury is clear.); Anderson v. Smith, 415 N.E.2d 643, 646 (Ill. 1980) (defect in jury verdict may be corrected when the jury's intention is clear). 4 At three times--by actual total, by claim, and by count--the jury indicated an intent to award total damages of $5,725,000. In addition, the jury indicated that the damages amounted to $3,500,000 for the domestic programs claim and $2,225,000 for the balance sheet overstatement. The jury was not confused as to how much damages it was awarding. As the district court noted, [t]he jury apparently reasoned that the sum of the separate awards for the three counts must equal the total award. (MEMORANDUM OPINION AND ORDER, 6/29/90, 1990 WL 104039 at  15 n.8.) These awards have a reasonable basis in the evidence and are not against the weight of evidence. Because the jury's intent is clear, the confusion with regard to the special verdict form does not invalidate the award.