Haslund, Shannon L. v. Simon Property Group ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-3658
SHANNON L. HASLUND,
Plaintiff-Appellee,
v.
SIMON PROPERTY GROUP, INC.,
Defendant-Appellant.
____________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 01 C 9587—Milton I. Shadur, Judge.
____________
ARGUED MAY 26, 2004—DECIDED AUGUST 6, 2004
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Before BAUER, POSNER, and COFFEY, Circuit Judges.
POSNER, Circuit Judge. In a diversity suit for breach of
contract governed by Illinois law, the district judge after a
bench trial awarded Shannon Haslund $537,634.41 in dam-
ages, plus prejudgment interest, against Simon Property
Group (SPG). 284 F. Supp. 2d 1102 (N.D. Ill. 2003). SPG’s
appeal argues that the provision of the contract that it was
found to have violated was too indefinite to be enforceable,
that no injury was proved, and that in any event no pre-
judgment interest should have been awarded.
2 No. 03-3658
During the dot-com boom of the late 1990s, SPG, a real
estate company that operates hundreds of shopping malls,
decided to form a subsidiary, “clixnmortar.com,” to create
Internet-related services ancillary to its mall business. It
appointed its chief information officer, Melanie Alshab, to
be the president of the new subsidiary. She approached
Haslund, a management consultant who had done work for
SPG in the past and was employed by Ernst & Young, to be
clixnmortar’s vice president for operations. Haslund was
interested, but told Alshab that she wanted not only a
substantial raise (from $125,000, her salary at Ernst &
Young, to $175,000), but also equity in clixnmortar. She was
taking a chance by leaving an established firm for a startup,
and so she wanted upside potential. She made clear that
unless she was given equity she wouldn’t sign on with the
new company. Alshab got authorization from her superiors
to offer Haslund not only the salary increase that she requested
but also one percent of clixnmortar’s equity. The deal was
confirmed in a letter to Haslund from SPG’s director of
human resources that under the caption “Annual Salary”
recited “$175,000 plus 1% equity in clixnmortar.com, struc-
ture to be determined.”
Haslund started her new job at the end of 1999 shortly
after receiving this letter. No stock was issued to her, how-
ever, either then or later. She kept badgering SPG for the
stock to no avail, and 10 months after starting work she was
fired, having denounced SPG’s boss in an email to a firm
that was in the process of acquiring an interest in
clixnmortar. The startup never turned a profit—in fact never
had any significant income—and was soon moribund, though
it wasn’t dissolved until last year.
The fact that a contract is incomplete, presents interpretive
questions, bristles with unresolved contingencies, and in
short has as many holes as a Swiss cheese does not make it
No. 03-3658 3
unenforceable for indefiniteness. Otherwise there would be
few enforceable contracts. Complete contingent contracts are
impossible. The future, over which contractual performance
evolves, is too uncertain. We once decided a case in which
the contract exceeded 2000 pages yet the dispute that gave
rise to the suit had not been anticipated (or, if anticipated,
provided for). S.A. Healy Co. v. Milwaukee Metropolitan
Sewerage District, 50 F.3d 476 (7th Cir. 1995). If contracting
parties had to provide for every contingency that might arise,
contract negotiations would be interminable. Contracts can
be shorter and simpler and cheaper when courts stand
ready to fill gaps and resolve ambiguities in the minority of
contracts that get drawn into litigation. Jinwoong, Inc. v.
Jinwoong, Inc., 310 F.3d 962, 965 (7th Cir. 2002).
But that is in general and not in every case. A contract is
rightly deemed unenforceable for indefiniteness when it
leaves out (1) a crucial term that (2) a court cannot reason-
ably be asked to supply in the name of interpretation.
Academy Chicago Publishers v. Cheever, 578 N.E.2d 981, 984
(Ill. 1991); Hintz v. Lazarus, 373 N.E.2d 1018, 1020 (Ill. App.
1978); Goldstick v. ICM Realty, 788 F.2d 456, 461-62 (7th Cir.
1986) (Illinois law); Olympia Equipment Leasing Co. v. Western
Union Telegraph Co., 797 F.2d 370, 381 (7th Cir. 1986). An
example is the contract price. E.g., Tranzact Technologies, Ltd.
v. Evergreen Partners, Ltd., 366 F.3d 542, 546 (7th Cir. 2004)
(Illinois law); Cloud Corp. v. Hasbro, Inc., 314 F.3d 289, 292
(7th Cir. 2002) (ditto); Feldman v. Allegheny Int’l, Inc., 850
F.2d 1217, 1223-24 (7th Cir. 1988) (ditto); Goldstick v. ICM
Realty, supra, 788 F.2d at 461-62. Not only is price central, so
that if the choice of price could be delegated to a court it
would be the court and not the parties that was the contract
maker, but there is no interpretive path that leads from the
terms the parties agreed on to the price they would have
agreed on. In the division of functions between parties and
the judiciary in the joint enterprise of fixing contractual
4 No. 03-3658
meaning, the selection of the contract price falls clearly on
the parties’ side. What is more, the omission of crucial terms
is powerful evidence that no contract was intended.
So if the employment agreement had said that Haslund
would receive equity but hadn’t indicated how much, a court
could not supply the missing percentage. Cf. Architectural
Metal Systems, Inc. v. Consolidated Systems, Inc., 58 F.3d 1227,
1229 (7th Cir. 1995) (Illinois law); Ray Dancer, Inc. v. DMC
Corp., 530 N.E.2d 605, 610 (Ill. App. 1988). No interpretive
technique would enable the court to build a bridge between
what the parties had agreed to and the percentage of the
equity in the new firm that she would receive. But the contract
did specify the percentage. What it omitted was a number
of details, such as the form of the equity—would it be vot-
ing stock or nonvoting stock?—and whether there would be
restrictions on vesting: could Haslund show up for work on
December 27, 1999, and the next day announce she was quit-
ting and demand her shares? Important details, to be sure;
but their absence did not necessarily make the contract in-
definite. A court might be able to fill them in without
shouldering an inordinate burden of inquiry or creating an
inordinate risk of error. There might for example be a cus-
tom in the industry as to whether stock in a startup issued
to a new employee carries voting rights, whether the right
to the stock vests immediately or only after the employee
has been on the job for a reasonable period of time, whether
the right is forfeited if the employee is fired for cause, and
whether and when and to whom the employee can sell the
stock once it is issued to him.
Evidence of trade usage is admissible to supply the an-
swers to such questions. E.g., Chicago Bridge & Iron Co. v.
Reliance Ins. Co., 264 N.E.2d 134, 139 (Ill. 1970); Merchants
Environmental Industries, Inc. v. SLT Realty Limited Partnership,
731 N.E.2d 394, 405 (Ill. App. 2000); Architectural Metal
No. 03-3658 5
Systems, Inc. v. Consolidated Systems, Inc., supra, 58 F.3d at
1229. Neither party presented such evidence, but Haslund
presented evidence that, if not nearly as good, was never-
theless sufficient. This was Alshab’s testimony that there
were no restrictions on the equity interest that Haslund was
to receive—that all that “structure to be determined” meant
was that SPG had not yet decided on the form that equity in
clixnmortar would take, for example the number of shares
that would be issued and whether there would be classes of
stock, such as voting and nonvoting. Alshab’s testimony was
implausible—it seems almost unthinkable that SPG would
have agreed to give Haslund an unrestricted one percent
interest in a company that SPG hoped not wholly without
reason would be highly valuable; for if taken literally the
absence of any restrictions would mean that she could quit
and sell the stock the day she received it even if she’d been
on the job for only five minutes. And Alshab had quit SPG
before the trial and there was no love lost between her and
her former employer; she may have been inclined to shade
her testimony in favor of Haslund, whom after all she had
recruited. Nevertheless, her testimony was not so implausi-
ble that the district judge’s crediting it over the evasive and
ambiguous denials of SPG’s principal, David Simon, could
be found to be reversible error.
SPG might have presented evidence, presumably in the
form of expert testimony by management consultants
knowledgeable about dot-com startups during the boom,
that equity in a startup would never be given to a new em-
ployee without restrictions, specifically a restriction on vesting
and sale. SPG presented no such evidence. It is common
knowledge that such restrictions are the norm, but that
doesn’t mean that they are universal.
So the contract was enforceable, and was broken, and the
next question is whether the district judge was right to
award Haslund some half million dollars in damages (or,
6 No. 03-3658
indeed, as we shall see, whether he was right to award her
any amount of damages). The amount he awarded was one
percent of his estimate that clixnmortar had a net worth
when Haslund was fired of $54 million. The principal evi-
dence on which he relied for this extravagant estimate— for
remember that when Haslund was fired (indeed at all times)
clixnmortar had not shown a profit on the basis of which a
capital value could be estimated by conventional methods,
and apparently had no assets whose value could be
appraised—consisted of two transactions. In the first a
company named CPG Partners bought a 9.3 percent equity
interest in clixnmortar from SPG for $5 million, which im-
plies (arithmetically) a total value of clixnmortar of $54
million. In the second transaction a consulting company
named Found.com (the investor to which Haslund had sent
the email that precipitated her being fired) forgave $3.7
million in consulting fees owed it by SPG in exchange for a
6.9 percent equity stake in clixnmortar, implying, by the
same arithmetical procedure of dividing the amount of con-
sideration by the percentage of equity received, a similar
valuation of the company.
These transactions—though the one with CPG, at least,
was rich in the structure missing from Haslund’s one per-
cent interest, since the number of shares and the type of
stock were specified, along with restrictions on transfer—
constitute but poor evidence of clixnmortar’s value. Com-
pare Ashe v. Sunshine Broadcasting Corp., 412 N.E.2d 1142,
1145 (Ill. App. 1980). The transaction with CPG was devoid
of economic substance, because at the same time that CPG
paid $5 million for 50,000 shares in clixnmortar’s common
stock SPG paid $5 million for 50,000 shares of the common
stock of a subsidiary of CPG—which means that no money
changed hands. Probably the aim of the transaction was to
make each company seem to be worth $5 million more than
it was. But what is certain is that the swap provided no in-
No. 03-3658 7
formation with regard to the value of either company. And
Haslund does not argue that SPG’s accounting maneuver
should estop SPG to deny that 9.3 percent of clixnmortar
was worth $54 million when the transaction was made.
As for the “investment” by Found, its $3.7 million receivable
in uncollected consulting fees was the softest of soft num-
bers. For, having essentially no assets, liquid or otherwise,
clixnmortar could not be expected to cough up $3.7 million
in cash for consulting services. Found would have expected
to have to write off much of the bill; and so clixnmortar would
not have given Found, or Found insisted on receiving, equity
actually worth $3.7 million. The stock Found received was
worth only the collectable portion of the debt, not its face val-
ue, and no evidence concerning that amount was presented.
Even if, as we do not for a moment believe, clixnmortar
was worth $54 million when Haslund was fired, and even if
we accept, as we must (though reluctantly), Alshab’s testi-
mony that there would have been no restrictions whatever
on Haslund’s selling the stock had she been issued it, and
even though Haslund might well have wanted to sell her
stock then had it been issued to her, it is beyond unlikely
that she could have persuaded anyone to pay her $537,000
for the stock. Even if we accept, as we should not, that CPG
and Found really did invest in a meaningful sense in
clixnmortar, there is a big difference between putting money
into a startup and buying stock in a startup from another
investor. In the first case the investor is strengthening the
startup by his investment and thus increasing the likelihood
of its succeeding. In the second case he is contributing
nothing to the company unless the purchase is big enough
to affect the price at which the company might issue new
stock. The district judge speculated that CPG or Found
might have bought Haslund’s stock. But this is hopelessly
speculative and utterly implausible—CPG, remember, had
8 No. 03-3658
not contributed a nickel to clixnmortar, while Found had
contributed only a wooden nickel. Neither company had
indicated any willingness actually to invest cash in the
startup.
All that Haslund has going for her on the proof-of-damages
front is SPG’s failure to propose an alternative damages
figure other than zero. As we have remarked in the past,
this is a risky strategy for defendants. Avitia v. Metropolitan
Club of Chicago, Inc., 49 F.3d 1219, 1230 (7th Cir. 1995);
AMPAT/Midwest, Inc. v. Illinois Tool Works Inc., 896 F.2d
1035, 1046 (7th Cir. 1990); Lancaster v. Norfolk & Western Ry.,
773 F.2d 807, 823 (7th Cir. 1985). It turns the damages phase
of a litigation into a simulacrum of final-offer arbitration,
where each party submits a figure to the arbitrator and he
must choose one of the figures—he cannot pick a number in
between. When a plaintiff asks for damages in a specific
amount and the defendant ripostes that the plaintiff’s dam-
ages are zero, period, and no evidence is presented that
would support an intermediate figure, the trier of fact has
to decide whether it is more likely that the plaintiff’s figure
(or the plaintiff’s minimum figure, if the plaintiff has pro-
posed a minimum figure—for the strategy of proposing only
a maximum figure is as risky for a plaintiff as the strategy
of proposing only zero is for a defendant) is correct or that
zero is correct, because he is given no basis for picking an
intermediate figure. If the plaintiff testifies that his damages
were $100 million and the defendant that they were $0, the
trier of fact cannot just throw a dart to determine the
amount of damages to award within that range; yet that is
what he would be doing were there no basis in the evidence
for estimating the damages. Assessing damages is often and
permissibly speculative, but only within limits. A “plaintiff
has the burden of proving damages to a reasonable degree
of certainty.” Williams v. Board of Education, 367 N.E.2d 549,
553 (Ill. App. 1977); see also Bigelow v. RKO Radio Pictures,
No. 03-3658 9
Inc., 327 U.S. 251, 264-66 (1946); BE&K Construction Co. v.
Will & Grundy Counties Building Trades Council, 156 F.3d 756,
770 (7th Cir. 1998); Sir Speedy, Inc. v. L & P Graphics, Inc., 957
F.2d 1033, 1038 (2d Cir. 1992).
On this record, we have to say that it is more likely that
zero is correct than that $537,000 is, and we are sufficiently
confident about this conclusion to pronounce the district
judge’s contrary finding clearly erroneous and therefore not
binding on us. There is no evidence that there would have
been a market for Haslund’s equity interest, had it been
given to her in accordance with the contract, during the
limited period between when she was fired and when it
became apparent that clixnmortar would never leave the
starting gate. The “investments” by CPG and Found are no
evidence at all that there would have been a willing buyer
for Haslund’s stock even in the unlikely event that the stock
would have been completely unrestricted.
She argues that by breaking the contract and never issuing
her the stock, SPG prevented her from testing the market; and
it is true that when a defendant by violating the plaintiff’s
rights makes it difficult for her to prove her damages, all
reasonable doubts about the amount of damages are
resolved in her favor. Bigelow v. RKO Radio Pictures, Inc., supra,
327 U.S. at 264-66; BE&K Construction Co. v. Will & Grundy
Counties Building Trades Council, supra, 156 F.3d at 770; Bailey
v. Meister Brau, Inc., 535 F.2d 982, 991 (7th Cir. 1976). But
this rule does not apply to the threshold issue of injury.
Once the plaintiff proves injury, broad latitude is allowed in
quantifying damages, especially when the defendant’s own
conduct impedes quantification. But the injury itself must be
proved in the usual way, without speculation or burden
shifting. Story Parchment Co. v. Paterson Parchment Paper Co.,
282 U.S. 555, 562-63 (1931); Fishman v. Estate of Wirtz, 807
F.2d 520, 550-51 (7th Cir. 1986); In re Lower Lake Erie Iron Ore
10 No. 03-3658
Antitrust Litigation, 998 F.2d 1144, 1176 (3d Cir. 1993).
Haslund failed to prove that she was injured by the breach.
So far as appears, the stock to which she was entitled would
have been worthless in her hands.
But, surely, it will be replied, she could have gotten some-
thing for her equity interest—if only a few hundred dollars.
No doubt. But if that is all she could have gotten, she would
have held on to the stock in the hope that clixnmortar would
succeed—in which event she would have been holding fairy
dust when the company failed. Although SPG’s breach of
her employment contract appears to have been deliberate
and indeed reprehensible, without proof of actual loss
Haslund is entitled only to nominal damages, Kleinwort Benson
North America, Inc. v. Quantum Financial Services, Inc., 673
N.E.2d 369, 378 (Ill. App. 1996); Movitz v. First Nat’l Bank of
Chicago, 148 F.3d 760, 765 (7th Cir. 1998) (Illinois law)—
which eliminates any entitlement to prejudgment interest, as
well.
The judgment is reversed with instructions to enter judg-
ment for the plaintiff for nominal damages only.
REVERSED AND REMANDED, WITH DIRECTIONS.
No. 03-3658 11
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—8-6-04