Court Opinion

ID: 767390
Source: CourtListenerOpinion
Date Created: 2012-04-18 08:33:02+00
Date Added: 2024-06-11T17:55:28.000049
License: Public Domain

201 F.3d 852 (7th Cir. 2000)
JABAT, INC.,    Plaintiff/Counterclaim Defendant-Appellant,v.GARY SMITH and THE LINKS CO.,    Defendants/Counterclaimants/Third-PartyPlaintiffs-Appellees,v.K. JABAT, INC.,    Third-Party Defendant-Appellant.
No. 99-1466
In the  United States Court of Appeals  For the Seventh Circuit
Argued September 28, 1999Decided January 7, 2000

Appeal from the United States District Court  for the Southern District of Illinois, Benton Division.  No. 97-CV-4192-JPG--J. Phil Gilbert, Chief Judge.
Before Bauer, Flaum and Diane P. Wood, Circuit  Judges.
Bauer, Circuit Judge.

1
This is a breach of  contract action arising from the breakdown of a  business relationshipbetween Gary Smith  ("Smith") and the Links Co. ("Links"), the  defendants/counter-plaintiffs/appellees in this  matter, and Jabat, Inc. and K. Jabat, Inc.  (collectively "Jabat"), the plaintiffs/counter-  defendants/appellants. The jury found for Smith  and Links and against Jabat. The district court  ordered a remittitur and denied Jabat's motion  for a new trial. Claiming error in the exclusion  of certain evidence at trial and that the  remittitur exceeds the highest possible award  supported by the evidence, Jabat appeals. We affirm.

I.  BACKGROUND

2
In 1993, Smith approached Jabat with a proposed  business deal. Jabat manufactures plastic parts  that are used in other products. Smith's  background is in production and sales, primarily  in the grass bag industry. He conducts business  through a sole proprietorship called "The Links  Company."

3
Through his work in the industry, Smith learned  that American Yard Products ("AYP") was paying  too much for the plastic parts used in its grass  bag production.1 He realized that if he could  find a manufacturer to sell him the parts at a  lower price he could turn around and sell them to  AYP for a mark-up, thereby making a profit for  himself. AYP produces over 1.5 million bags  annually for Sears, and, therefore, the business  from AYP could be substantial.

4
Smith obtained quotes from several plastic  extruder manufacturers, including Jabat, for the  plastic parts used to hold grass bags on lawn  mowers. Jabat's price for the plastic clips was  88/100 cents per inch, with an additional one  cent per part if notched off line. Based upon  this price, Smith began negotiating with Jabat.  He offered to bring AYP's business to Jabat if  Jabat used him as a broker.

5
Because Smith could not afford to buy the parts  from Jabat and resell them to AYP, it was agreed  that Smith would act more as a sales  representative. He would negotiate the price that  AYP would pay to Jabat and service the account.  In return, Jabat would pay Smith the "spread"  (the difference between the price Jabat quoted to  Smith and the price Smith negotiated with AYP).  The deal was executed on September 3, 1993. It  was subject to cancellation on ninety days  written notice if either party violated the  principle of good faith.

6
Jabat agreed to protect Smith's and Links'  exclusive rights to market Jabat products to AYP  as long as Smith was able to get an order from  AYP within one year of the signing of the  contract and as long as sales were maintained at  a minimum of $50,000 per year. Although Jabat  says it was its intent, there was no condition in  the contract that Smith deal exclusively for  Jabat.

7
The AYP business exceeded everyone's wildest  expectations. Smith produced an order within one  month, rather than within one year as required by  the contract. Sales for the first six months  totaled $205,000. Over time, Jabat and Smith were  able to increase their business with AYP until  they were the majority supplier of plastic bag  clips to AYP.

8
But, the relationship between Jabat and Smith  rapidly soured. Jabat began complaining that  Smith was not communicating with it regarding the  pricing on the AYP account. In time they also  began to suspect that Smith was not dealing  exclusively on behalf of Jabat. Notwithstanding  these concerns, Jabat continued working with  Smith. The account was simply too profitable to  jeopardize.

9
In January, 1995, Smith sought quotes from  Jabat on 12 new parts he intended to market to  AYP. Jabat confirmed that it would produce the  new parts but told Smith it wished to change the  manner of his compensation, from the "spread" to  a ten percent commission. Smith rejected this  proposal. The parties, by letter dated February  7, 1995, finally agreed that Smith would continue  to receive the "spread" on the original parts but  a ten percent commission on the 12 new parts.

10
The events which precipitated the breaking point  in the relationship began in the Spring of 1995.  Two of the 12 new parts Smith had marketed to AYP  were to be used on a new lift top dustless bag  AYP was making for Craftsman. AYP had tried for  years to develop the bag, without success. The  plastic parts needed to be bent to be sewn on the  curved grass bag. Initially, Lockscreen (a  competitor) and Jabat were both supplying blank  straight parts. AYP would then punch a v-notch in  the part, so the part could be bent. The sewers  would bend the part and sew it on the bag. This  process was time-consuming and slowed down  processing.

11
Smith worked with AYP's grass bag manager to  find a more expedient, cost effective process. At  first, AYP tried a routed part from Jabat. The  routed notch is more of a round notch than the v-  notch and eliminated a step in the process  because AYP was not required to punch the v-notch  in the part. But, ultimately, AYP found the Jabat  part was not acceptable because the routing  prevented the part from completely closing.

12
Smith promised to devise a way to close down  the notches for AYP, so that AYP would not have  to do it. Using a welder, he was able to take  Jabat's routed parts and Lockscreen's notched  parts and sonicly weld the parts. With this  configuration, all that AYP had to do was lay the  bent part on the fabric and sew it to the fabric.

13
Unbeknownst to Jabat, Smith was reworking these  parts in The Links' office in Georgia. He even  started having Jabat and Lockscreen ship the  parts directly to The Links' office. When two  Jabat representatives stopped by The Links'  office in February, 1996 to see Smith, they were  surprised to see the electronic welder (which  they interpreted as being a machine capable of  manufacturing the parts they were supplying to  AYP) and their competitor's products in the  office. Disturbed by these signs of "competitive  activity," the Jabat representatives purchased a  camera and returned to The Links' office to take  pictures through the office window.

14
Smith denied competing with Jabat and the  relationship floundered along for a little while  longer. But, highly suspicious of Smith now,  Jabat sought to change Smith's compensation  arrangement again so that he received only a  commission on all parts sold. The parties  disagree on whether this arrangement, outlined in  a letter dated June 4, 1996, ever became an  agreement. The letter was silent as to whether  cause was needed to terminate the parties'  relationship.

15
On August 26, 1996, Jabat received a call from  AYP's grass bag production line manager, upset  about an order. The AYP manager complained that  she had been trying for several days to contact  Smith about the order but had been unable to  reach him. Characterizing this as Smith's failure  to service the account and placing Jabat's  account with AYP at risk, Jabat terminated its  contract with Smith.

16
Jabat sued Smith, alleging that he had breached  the parties' contract by acting in bad faith.  Jabat sought an injunction to prevent Smith from  using Jabat's pricing information and money  damages for the profits that Smith allegedly  diverted from Jabat by selling his own product  directly to AYP. Smith counterclaimed against  Jabat, claiming that it breached the contract  when it terminated him. Smith sought money  damages for the compensation he would have earned  from Jabat's sales to AYP.

17
The trial was contentious, with each side  bitterly complaining about the other's conduct.  Jabat sought to introduce evidence that Smith  failed to file his income tax returns for 1996  and 1997. Furthermore, using Smith's deposition  testimony that the copies of those returns he had  produced during discovery were copies of the returns he sent to the IRS, Jabat sought to  challenge Smith's credibility because those  returns had not, at the time the deposition was  taken, been sent to the IRS. The District Court  refused to admit that testimony, ruling it would  be collateral and too prejudicial. The court did,  however, find that the returns themselves and the  information in them was admissible to show  Smith's income and damages.

18
Smith presented no expert testimony as to his  lost income, instead relying solely on an exhibit  calculating Jabat's sales to AYP through April,  1998. Despite this paucity of evidence, the jury  returned a verdict in favor of Smith and against  Jabat in the amount of $804,302.04. Jabat moved  for a new trial, claiming that the jury's verdict  was excessive and not supported by the evidence.  The District Judge agreed and said that unless  Smith and Links accepted a remittitur that  reduced the judgment to $590,000 he would order  a new trial on the issue of damages. Upon Smith's  and Links' acceptance of the remittitur, the  District Court entered judgment in that amount.

II.  DISCUSSION

19
A.Smith's Failure To File 1996 and 1997 Tax  Returns

20
Jabat first raises as error the District  Court's exclusion of facts demonstrating "Smith's  willingness to conceal and avoid the truth: his  failure to file income tax returns and his false  testimony that he had done so." The District  Court heard arguments on this issue in limine  before trial, ruling that the timeliness of the  tax returns' filing was a collateral issue which  would confuse the issues before the jury and be  unduly prejudicial. We review the District  Court's evidentiary decisions for an abuse of  discretion, United States v. Johnson, 127 F.3d 625, 630 (7th Cir. 1997) (citation omitted),  keeping in mind that judges have wide latitude  when deciding whether to admit or exclude  evidence. Rarely will we disturb those decisions. United States v. Saunders, 166 F.3d 907, 920 (7th  Cir. 1999).

21
In this instance we cannot say that the trial  court abused its discretion. The ruling was  carefully crafted to permit the introduction of  the tax returns themselves and allow cross-  examination of Smith as to the information  contained therein. This was important so that the  issue of Smith's mitigation of damages could be  addressed as could Jabat's contention that Smith  received income from its competitor. The issue of  whether Smith was late in filing the returns had  no bearing on these issues.

22
Jabat urges us to rule that the jury must be  allowed to consider evidence of a party's failure  to file tax returns to assess that party's  credibility. Jabat cites no cases from this  circuit to support its argument. Indeed, it  offers as authority only one case from this  jurisdiction in which evidence of prior  convictions for failure to file tax returns was  admissible for impeachment. United States v.  Wilson, 985 F.2d 348, 350 (7th Cir. 1993). But  that case is so factually dissimilar as to be  unpersuasive. There, the defendant was being  tried for conspiring to deceive the IRS, thus  making his failure to file tax returns relevant.  That is not the case here. The issue before the  jury was whether Smith breached the contract with  Jabat.

23
In sum, we hold that the District Court did not  abuse its discretion in barring Jabat from making  reference to Smith's untimely filing of his 1996  and 1997 tax returns. Jabat's motion for a new  trial on that ground was properly denied.

24
B.  Smith's Entitlement to Future Lost Income

25
Jabat next raises the issue of whether Smith is  entitled to damages beyond the trial date. Jabat  contends that Smith is not entitled to future  lost income because he presented no evidence of  how much the income might be. Indeed, Jabat  claims that the issue should never havegone to  the jury. However, Jabat made no objection to  Smith Instruction No. 8 which states:

26
The elements of damages claimed by Smith in this  case are the amount of money he would receive  from Jabat from Jabat's past sales to American  Yard Products and for Jabat's future sales to  American Yard Products if Jabat had not  wrongfully terminated the contract.

27
By failing to object to this instruction when it  was tendered, we find that Jabat has waived its  objection to the award of future lost income.

28
A party waives an argument on appeal if that  argument relates to a jury instruction it failed  to object to. Heritage Commons Partners v.  Village of Summit, 935 F.2d 1489, 1492 (7th Cir.  1991). See also Wilson v. Kelkhoff, 86 F.3d 1438,  1442-43 (7th Cir. 1996). Here, the argument  advanced by Jabat (that Smith could not recover  future damages because they were too remote and  speculative), is an indirect challenge to  Instruction No. 8. Such an argument, once waived,  cannot be brought on appeal. Bogan v. Stroud, 958 F.2d 180, 181-84 (7th Cir. 1992) reh'g den.; Sims  v. Mulcahy, 902 F.2d 524, 533-36 (7th Cir. 1990),  cert. denied, 498 U.S. 897 (1990).

29
"When parties do not object to jury  instructions, these instructions generally become  the law of the case." Geldermann, Inc. v.  Financial Management Consultants, Inc., 27 F.3d 307, 312 (7th Cir. 1994). See also Rakovich v.  Wade, 850 F.2d 1180, 1192 (7th Cir. 1987) (en  banc), cert. denied, 488 U.S. 968 (1988). Once  the law of the case is settled, the parties can  only argue that the jury did not properly apply  the instructions to the facts. Will v.  Comprehensive Accounting Corp., 776 F.2d 665, 675  (7th Cir. 1985), cert. denied, 475 U.S. 1129  (1986). By permitting an instruction to be given  which clearly authorized the jury to award  damages beyond the trial date, Jabat waived its  right to claim that such damages could not be  awarded.

C.  Evidence Supporting the Damages Award

30
Jabat's final challenge is to the amount of the  damages awarded. Jabat claims that it is  excessive and not supported by the evidence.  Jabat seeks either a new trial on the issue of  damages or a further remittitur in the amount of  $402,728.70. We find that although this argument  might indirectly relate to Instruction No. 8 it  is more properly characterized as a challenge to  the jury's application of the instructions to the  facts, an argument not waived by Jabat's failure  to object to Instruction No. 8. We review the  District Court's remittitur under an abuse of  discretion standard. DeBasio v. Illinois Central  Railroad, 52 F.3d 678, 687 (7th Cir. 1995), cert.  denied, 516 U.S. 1157 (1996) (citation omitted).

31
The substantive law of the state determines  whether the damage award was adequately supported  by the evidence. Gasperini v. Center for  Humanities, Inc., 518 U.S. 515, 538 (1996). In  Illinois, "the evidence need only to tend to show  a basis for the computation of damages with a  fair degree of probability." Medcom Holding  Company v. Baxter Travenol Laboratories, Inc.,  106 F.3d 1388, 1398 (7th Cir. 1997) (quoting In  Re: Busse, 464 N.E.2d 651, 655 (1st Dist. 1984)).  Moreover, lost profits need not be proven with  absolute certainty. Medcom, 106 F.3d at 1399.  Such damages are not capable of proof with  absolute certainty and thus we merely require the  evidence to "tend to establish a basis for the  assessment of damages." H. Vincent Allen &  Associates v. Weis, 379 N.E.2d 765, 770 (1st  Dist. 1978).

32
Like the District Court, we wish that more  evidence of Smith's future lost income had been  presented. But we cannot say that the evidence  that was submitted does not support the jury's  verdict. Smith Exhibit 33a shows AYP sales to  Jabat through April, 1998, and, correspondingly,  the monies that Smith and Links would have earned  during that time had the contract not been  terminated by Jabat. Gleaning from these and past  sales figures we know that Jabat's business with  AYP was growing at a steady rate of ten percent  per year. Thus, extrapolating from this, the jury  did have a basis upon which to assess damages.

33
The District Court was able to make this type  of extrapolation in determining the amount of the  remittitur. By seeking a further remittitur in  the specific amount of $402,728.70 Jabat has also  demonstrated that the measure of damages are  readily calculable. Thus we reject the argument  that the award of future damages cannot stand  because they are speculative or that they are not  supported by the evidence.

34
In setting the amount of its remittitur, the  District Court used the "maximum recovery rule,"  which directs that the court set an amount based  on the "highest amount of damages that the jury  could properly have awarded based on the relevant  evidence." Unisplay v. American Electronic Sign  Co. Inc., 69 F.3d 512, 519 (Fed Cir. 1995). Jabat  argues that the court made a "mathematical error"  by adding the projected 1998 amount ($190,447.85)  into the calculation twice, and thus contends the  remitted amount is excessive. We do not address  this issue as it was not presented to the trial  court and was raised for the first time on  appeal. We state merely that we believe that the  judgment entered after the remittitur is within  the range of the maximum recovery a jury could  have awarded Smith. The award accurately reflects  the proven commission amounts from August, 1996  through May, 1998, the length of time Smith had  already worked for Jabat, and the evidence that  the commissions Jabat paid on that account  increased annually at a rate of about ten  percent. This was the evidence at trial and the  District Court properly relied upon it in setting  the remittitur. There was no abuse of discretion.

III.  CONCLUSION

35
There was no error in the exclusion of the  evidence regarding the untimely filing of Smith's  tax returns. Our review of the evidence also  convinces us that the District Court's remittitur  was appropriate. Finding no abuse of discretion  on either issue we hereby AFFIRM the judgment in  favor of Gary Smith and The Links Co. and against  Jabat, Inc. and K. Jabat, Inc.

36
AFFIRMED.

Notes:

1
 AYP makes grass bags and mowers for Sears.