Zivitz, Robert v. Greenberg, Joel ( 2002 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-1672
ROBERT ZIVITZ and NANCY ZIVITZ,
Plaintiffs-Appellees,
v.
JOEL GREENBERG,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 98 C 5350--Suzanne B. Conlon, Judge.
Argued December 7, 2000--Decided February 4, 2002
Before BAUER, MANION, and ROVNER, Circuit
Judges.
ROVNER, Circuit Judge. Robert and Nancy
Zivitz brought this action alleging that
several defendants cost them millions of
dollars in investments by participating
in an insider trading scheme involving
Incomnet, a telephone service reseller.
The plaintiffs eventually settled with
all of the defendants except one--
Incomnet board member Joel Greenberg. A
jury later found Greenberg liable for
fraud and awarded the plaintiffs $1
million in damages. After the jury
returned its verdict, Greenberg moved to
reduce the damages award by the amount
previously paid to the plaintiffs by the
settling defendants; the district court,
however, denied his request. On appeal
Greenberg challenges the court’s refusal
to reduce the jury’s damage award. We
affirm.
We construe the facts in the light most
favorable to the jury’s verdict. The
plaintiffs first purchased Incomnet stock
in 1991; as of July 1995, they owned
750,000 shares. Incomnet’s board included
Sam Schwartz, the company’s president and
CEO; Rita Schwartz (Sam’s wife); and
Greenberg, a family friend and investment
adviser of the plaintiffs. Sam and Rita
Schwartz owned the largest percentage of
Incomnet stock; Greenberg was the next
largest shareholder.
Incomnet’s revenue and stock price grew
over time, helped in part by a series of
insider trades. In January 1994 Incomnet
(through Sam Schwartz) entered into a
consulting agreement with an investment
firm, Broad Capital Associates, Inc.
("Broad Capital"). Under this agreement,
Broad Capital agreed to serve as
Incomnet’s financial adviser in exchange
for warrants to purchase 500,000 shares
of Incomnet stock. Broad Capital also
agreed not to resell Incomnet stock. In
addition to the consulting arrangement,
that same year Sam Schwartz sold 500,000
shares of Incomnet stock to Broad Capital
through a brokerage account. Schwartz did
not disclose this transaction to the
Securities and Exchange Commission
("SEC") even though he was required by
law to do so. In May 1994 Incomnet
(again, through Schwartz) issued
additional warrants to Broad Capital for
another 500,000 shares in exchange for
Broad Capital’s early exercise of the
warrants conveyed pursuant to the
consulting agreement. In December 1994
Broad Capital exercised these warrants
and, contrary to the consulting
agreement, sold 501,000 shares of
Incomnet stock.
In January 1995 Broad Capital loaned
Greenberg $1.8 million, securing the loan
with 513,000 shares of Incomnet stock.
Broad Capital made no public filing of
the loan and immediately sold the stock
at a substantial profit.
In February 1995 Incomnet acquired a
majority interest in Rapid Cast, Inc.
("RCI"), a privately held company whose
founding shareholders were also the sole
shareholders of Broad Capital. Incomnet
paid for its majority interest in RCI
with cash and Incomnet stock. As part of
this acquisition, RCI shareholders were
to receive up to 750,000 shares of
Incomnet stock if RCI met specified
earnings targets. In June 1995, however,
Incomnet issued 600,00 shares to RCI in
exchange for RCI shareholders’ waiver of
their conditional right to receive the
750,000 shares. Ultimately RCI did not
meet the specified earning targets.
After Incomnet’s stock price began to
fall, the plaintiffs, relying on a
computerized trading model, decided to
sell their stock. Before doing so,
however, they spoke with Greenberg, who
convinced them not to sell. Greenberg as
sured the plaintiffs that Incomnet was
stable and that its stock had good value.
Soon thereafter Incomnet disclosed to the
SEC that Sam Schwartz had traded Incomnet
stock to defend against short-sellers. A
subsequent Incomnet SEC filing
represented that these trades had been
unanimously approved by the board and
that Schwartz had tendered to Incomnet
all of the short-swing profits generated
by the trades. Greenberg and Schwartz
later admitted that these statements were
false.
Incomnet’s stock price plummeted after
it publicly disclosed Schwartz’s trades;
Schwartz and Greenberg eventually
resigned under pressure. Incomnet’s stock
never recovered and the company
eventually filed for bankruptcy
protection.
In August 1998 the plaintiffs brought
this diversity action against Broad
Capital (and its two principals), Sam
Schwartz, Rita Schwartz, and Greenberg.
The complaint alleged civil conspiracy
and common-law fraud. The district court
dismissed the plaintiffs’ fraud claims
for lack of personal jurisdiction against
all of the defendants except Greenberg.
After the court denied the defendants’
motions for summary judgment, the
plaintiffs reached a settlement with Sam
and Rita Schwartz for $250,000.
On the morning of trial, the plaintiffs
informed the district court that they had
reached a settlement with the Broad
Capital defendants. The court then
dismissed the conspiracy claims against
the Broad Capital defendants and the case
proceeded against Greenberg. At the close
of evidence, the plaintiffs moved to
dismiss the conspiracy count and the
court granted their request--all that
remained was the plaintiffs’ fraud claim.
After closing argument, the court
instructed the jury to assess damages in
an amount "that will reasonably and
fairly compensate [the plaintiffs] for
any actual damages proven by the evidence
to have resulted from the conduct of the
defendant, Joel Greenberg." Greenberg had
proposed this instruction in the pretrial
order. The jury’s $1 million verdict was
far less than the amount requested by the
plaintiffs.
Greenberg filed a timely motion to alter
or amend judgment under Federal Rule of
Civil Procedure 59(e), arguing that the
settlement amounts paid to the plaintiffs
should be offset against the jury award
to prevent a double recovery. Because the
amount recovered by the plaintiffs
exceeded the verdict, Greenberg asked the
court to reduce the damage award to zero.
The district court denied his
motion,concluding that Greenberg could
not demonstrate that the jury assessed
damages for a single injury caused by all
of the defendants, particularly since the
court had instructed the jury to award
damages only for Greenberg’s own conduct.
On appeal Greenberg argues that the
district court erred by refusing to
offset the damages award by the amount
paid by the settling defendants. We
review the court’s denial of Greenberg’s
Rule 59(e) motion for abuse of
discretion. See Bordelon v. Chi. Sch.
Reform Bd. of Trs., 233 F.3d 524, 529
(7th Cir. 2000). Under Illinois law,
which the parties agree applies to this
dispute, see Grundstad v. Ritt, 166 F.3d
867, 870 (7th Cir. 1999), "[w]hen a
settlement is reached in good faith, the
amount a plaintiff receives on any claim
against any other nonsettling tortfeasors
is to be reduced by the amount stated in
the settlement agreement, or the amount
actually paid by the settling tortfeasor,
whichever is greater." Dubina v. Mesirow
Realty Dev., Inc., 756 N.E.2d 836, 842
(Ill. 2001); 740 ILCS 100/2(c). Illinois
law therefore "protects nonsettling
defendants from paying more than their
pro rata share of the final damage
judgment and reflects a public policy
protecting the financial interests of
nonsettling tortfeasors." Dubina, 756
N.E.2d at 842. Nonsettling tortfeasors,
however, are entitled to a setoff only
for damages that are awarded for the same
injury for which the settling defendants
compensated the plaintiff. Pasquale v.
Speed Prods. Engineering, 654 N.E.2d
1365, 1382 (Ill. 1995); Berard v. Eagle
Air Helicopter, Inc., 629 N.E.2d 221, 223
(Ill. App. 1994).
Greenberg bears the burden of
demonstrating that he is entitled to a
setoff. Pasquale, 654 N.E.2d at 1382;
Kravcik v. Golub & Co., 676 N.E.2d 668,
674-75 (Ill. App. 1997); Muro v. Abel
Freight Lines, Inc., 669 N.E.2d 1217,
1218 (Ill. App. 1996). Greenberg argues
that the jury’s verdict resulted in a
windfall for the plaintiffs because they
had already been compensated (through
settlements) in excess of $1 million, the
dollar value of their injury as
calculated by the jury. He asserts that
the jury compensated the plaintiffs for
the same injury covered by the
settlements because the fraudulent acts
committed by Greenberg also furthered the
conspiracy.
We conclude that the court did not abuse
its discretion by denying a setoff. The
jury in this case could have easily
inferred Greenberg’s individual liability
arising from his own actions, separate
and apart from the conspiracy. At trial
the plaintiffs presented evidence that
Greenberg lied to them regarding
Incomnet’s financial condition in
thesummer of 1995--misrepresentations
that led them to hold onto the stock
longer than they should have. Greenberg’s
communication with the plaintiffs led to
a distinct harm-- the jury could have
punished him solely for his own conduct
and not for the acts of his alleged co-
conspirators. See Pasquale, 654 N.E.2d at
1382 (recognizing that courts should not
impose a setoff against a recovery from
injuries separate and distinct from those
for which the plaintiff was already
compensated through settlement).
Consequently, despite Greenberg’s urging,
we cannot hold as a matter of law that
the jury awarded damages for the
identical injury that formed the basis of
the conspiracy claim. The jury could have
reasonably found that Greenberg’s fraud
injured the plaintiffs by making them
hold onto the stock, and that their
financial loss was exacerbated by the
conspiracy. In other words, the jury
could have concluded that the plaintiffs
suffered two injuries that are related
but not identical. See id.
Moreover, the district court, employing
a damages instruction selected by the
parties, instructed the jury to
compensate the plaintiffs for those
injuries that resulted only from
Greenberg’s conduct. This instruction was
consistent with Greenberg’s trial
strategy, which was to separate himself
from the actions of the other defendants.
Greenberg testified at trial that he had
no knowledge of the insider trading or of
Broad Capital’s involvement in buying and
selling Incomnet stock. This account of
the facts was corroborated by Sam
Schwartz. Indeed, this strategy may have
paid off--the jury awarded the plaintiffs
only $1 million, far less than the $10
million they sought. The amount awarded
by the jury may reflect its best effort
to hold Greenberg accountable only for
his own actions and not for the acts of
the conspirators.
In any event because Greenberg agreed to
the general damages instruction, he may
not challenge a jury award that reflected
a proper application of that instruction
to the facts. See Jabat, Inc. v. Smith,
201 F.3d 852, 857 (7th Cir. 2000).
Greenberg could have proposed a more
detailed instruction; for instance, he
could have asked the jury to determine
the dollar loss attributable to both the
conspiracy and to Greenberg’s fraud. Had
the jury been so instructed and awarded
damages in an amount that exceeded the
calculated amount attributable to the
fraud, then the court may have had a
basis to reduce the damages award; we
would not need to speculate whether the
jury was compensating the plaintiffs for
the same injury covered by the
settlements. But the parties agreed to
instruct the jury to compensate the
plaintiffs for the injury caused
byGreenberg, and there is no indication
that the jury did not follow that
instruction. Therefore, Greenberg must
abide by the jury’s damage award, and the
court did not abuse its discretion by
denying his request for a setoff.
The judgment of the district court is
AFFIRMED.