Opinion
No. 98-C-5350
February 14, 2000
MEMORANDUM OPINION AND ORDER
After a jury trial, Joel Greenberg ("Greenberg") was found liable for fraud against Robert and Nancy Zivitz ("the Zivitzes") in the amount of $1,000,000. Greenberg moves for judgment as a matter of law, or in the alternative, for a new trial. The Zivitzes have submitted a bill of costs incurred in this litigation. Both Greenberg and the Zivitzes move to alter or amend the judgment.
BACKGROUND
This case involves the Zivitzes' trading in Incomnet stock. Sam Schwartz ("Schwartz") was Incomnet's president, chief executive officer, and chairman of the board of directors from 1988 to November 1995. Greenberg served on Incomnet's board of directors from 1988 to May 1996. Incomnet retained Broad Capital as a financial consultant. Broad Capital's founders and sole shareholders are Murray Huberfeld and David Bodner ("the Broad defendants"). The Zivitzes contend Schwartz used Kaliber Management, Inc. ("Kaliber") to illegally trade in "restricted" Incomnet stock with the Broad defendants in 1994 and early 1995. In July 1995, Schwartz wrote a letter to Incomnet's board reporting that the Kaliber transactions were designed to counter short sellers of Incomnet stock. Schwartz also had Incomnet's board sign a document known as the Irrevocable Tender of Payment ("ITP"). Among other things, the ITP stated Schwartz' trading was for the benefit of Incomnet, was designed to combat short sellers, and that the board had known about and approved the trading. Greenberg signed the ITP. The Zivitzes contend Schwartz wrote the July 1995 letter in an attempt to conceal and legitimize his illegal Kaliber trading. The Zivitzes also claim the ITP was false, that the board never approved Schwartz' Kaliber trading, and that the ITP was created to cover Schwartz' illegal trading. They argue Greenberg knew of the ITP's falsity, as well as the nature of Schwartz' illegal Kaliber trading. They contend Greenberg failed to disclose this information during conversations with them regarding Incomnet's health in the summer and early fall of 1995.
The Zivitzes sued Schwartz, Greenberg, and the Broad defendants for fraud and conspiracy under Illinois law. The court dismissed the fraud claims against Schwartz and the Broad defendants for lack of personal jurisdiction. Schwartz and the Broad defendants settled the remaining conspiracy claims against them prior to trial. The Zivitzes voluntarily dismissed their conspiracy claim against Greenberg. The jury found Greenberg liable for fraud.
DISCUSSION
I. GREENBERG'S POST-TRIAL MOTION FOR JUDGMENT AS A MATTER OF LAW, OR IN THE ALTERNATIVE, FOR A NEW TRIAL
Greenberg moves pursuant to Fed.R.Civ.P. 50 and 59 for judgment in his favor as a matter of law, or in the alternative, for a new trial. Greenberg contends the jury could not reasonably find him liable because the Zivitzes failed to prove the elements of fraud under Illinois law, that the verdict was contrary to the manifest weight of the evidence, and that the court erred in its instructions to the jury.
A. Judgment as a Matter of Law
In deciding whether to grant a motion for judgment as a matter of law, the court must determine "whether the evidence presented, combined with all reasonable inferences permissibly drawn therefrom, is sufficient to support the verdict when viewed in a light most favorable to the party to whom the motion is directed." Creative Demos, Inc. v. Wal-Mart Stores, Inc., 955 F. Supp. 1032, 1036 (S.D. Ind. 1997) (quoting Cygnar v. City of Chicago, 865 F.2d 827, 834 (7th Cir. 1989)). The court will grant the motion "only when there can be but one conclusion from the evidence." Id. (quoting Emmel v. Coca-Cola Bottling Co. of Chicago, 95 F.3d 627, 636 (7th Cir. 1996)). The court may not weigh the evidence, reexamine the credibility of witnesses, or substitute its judgment of the facts. Id. (citing Rakovich v. Wade, 850 F.2d 1180, 1188 (7th Cir. 1988)). "If the evidence, taken as a whole, provides a sufficient probative basis upon which a jury could reasonably reach a verdict, without speculation over legally unfounded claims, the motion should be denied." Id. (citing Cygnar, 865 F.2d at 835).
Greenberg failed to present his motion for judgment as a matter of law at the close of all evidence. His failure to properly preserve the motion precludes him from asserting the motion now. The Seventh Circuit has repeatedly stressed that it "gives effect to the plain language of Rule 50(b) by requiring that a motion for judgment as a matter of law be made at the close of all evidence in order to be preserved for post-trial consideration." Mid-America Tablewares, Inc. v. Mogi Training Co., Ltd., 100 F.3d 1353, 1364 (7th Cir. 1996); Downes v. Volkswagen of America, Inc., 41 F.3d 1132, 1139 (7th Cir. 1993) ("[Rule 50(b)] requires that a directed verdict motion must be made at the close of all evidence."). The Seventh Circuit has adhered to this rule despite arguments, like those made by Greenberg, that the rule cannot withstand scrutiny. Mid-America Tablewares, 100 F.3d at 1364. Invoking stare decisis, the Seventh Circuit has rejected the argument that strict adherence to the requirement should be overlooked when necessary to promote fundamental fairness. See id., n. 5 (recognizing Seventh Circuit's rejection of arguments based on 9 Charles A. Wright Arthur R. Miller, Federal Practice and Procedure § 2537 (1971)). Bound by this precedent, the court must deny Greenberg's motion for judgment as a matter of law.
B. Motion for New Trial
In order to receive a new trial, Greenberg must show the jury's verdict was against the weight of the evidence, the damages were excessive, or the trial was unfair. Fed.R.Civ.P. 59(a); Scaggs v. Consolidated Rail Corp., 6 F.3d 1290, 1293 (7th Cir. 1993). A court examines the evidence in the light most favorable to the prevailing party and will not set aside the jury's verdict if there is a reasonable basis in the record supporting the verdict. Allison v. Ticor Title Ins. Co., 979 F.2d 1187, 1196 (7th Cir. 1992). Greenberg argues the jury could not reasonably arrive at a verdict against him because the Zivitzes failed to prove the essential elements of fraud under Illinois law. In so doing, Greenberg rehashes many of the arguments made in his motion for summary judgment. He paints a favorable picture of his actions based on a selective review of the evidence. But on a motion for a new trial, the court is concerned only with whether the jury could reasonably have found in favor of the Zivitzes, not whether the jury could have reasonably found in Greenberg's favor. The court finds there was sufficient evidence to support the jury's verdict, and that the verdict is not against the manifest weight of the evidence.
1. Proof of Fraud
To establish fraud in Illinois, a plaintiff must show: (1) a false statement of material fact; (2) the party making the statement knew or believed it to be untrue; (3) the party to whom the statement was made had a right to rely on the statement; (4) the party to whom the statement was made did rely on the statement; (5) the statement was made for the purpose of inducing the other party to act; and (6) the reliance by the person to whom the statement was made led to that person's injury. Siegel v. Levy Organization Development Co., 153 Ill.2d 534, 542-43 (1992).
First, Greenberg argues the Zivitzes failed to prove by clear and convincing evidence that he knowingly made material misrepresentations or omissions. Greenberg states he did not know of Schwartz's secret trading in Incomnet stock through Kaliber. He argues he made nothing more than rosy affirmations of Incomnet's core business operations and simply confirmed available public information when questioned by Robert Zivitz about Incomnet. Greenberg further contends he believed Incomnet's core business prospects were good, and that he was therefore truthful when he commented favorably to the Zivitzes regarding Incomnet's status. Greenberg notes his conversations with the Zivitzes during the summer of 1995 regarding Incomnet were initiated by the Zivitzes. Greenberg argues a jury could not reasonably find him liable for fraud because he did not actively initiate communications with the Zivitzes. However, the Zivitzes' claim is based not on information confirmed by Greenberg, but on Greenberg's failure to disclose Schwartz' Kaliber trading. Evidence indicating Greenberg's knowledge of Schwartz' trading, the content of Schwartz' July 1995 letter, and the falsity of the ITP was presented to the jury. The jury could reasonably conclude from the evidence that Greenberg knowingly withheld material information from the Zivitzes.
Next, Greenberg asserts the Zivitzes did not prove their justified reliance on any misstatements or omissions made by him because the Zivitzes continued to hold their Incomnet stock and purchase additional shares after learning of Schwartz' Incomnet trading. Greenberg concludes that if the Zivitzes were induced to hold their stock by his failure to disclose Schwartz' trading, the Zivitzes would have sold their stock once they finally learned of Schwartz' trading. However, Robert Zivitz provided evidence showing that he decided to hold his stock based on Greenberg's misrepresentations and omissions in August and September 1995, even though his computer trading program indicated he should sell his Incomnet stock in August 1995. From this, a jury could reasonably find that the Zivitzes relied on Greenberg's misstatements and omissions in deciding not to sell their stock.
Finally, Greenberg argues the Zivitzes failed to establish that their reliance on his misrepresentations caused their damages. Specifically, Greenberg asserts the Zivitzes failed to prove transaction causation — that they would not have engaged in the transaction at issue but for Greenberg's untruthful statements or omissions. Greenberg contends the Zivitzes' failure to sell their Incomnet stock and their decision to purchase more after they became aware of Schwartz' Incomnet trading negate an inference of transaction causation. However, the Zivitzes testified they did not sell their stock because they relied on Greenberg's misrepresentations and omissions. The price of the stock dropped as information about Schwartz' trading became public. The drop in stock price is a loss, a loss the Zivitzes would not have suffered had they sold their stock in August 1995. From this, the jury could reasonably conclude Greenberg caused the Zivitzes' loss.
2. Trial Errors
Greenberg asserts the court committed two errors in instructing the jury, errors warranting a new trial. First, Greenberg contends the court erred in failing to instruct the jury on the definition of "clear and convincing evidence." The questionable propriety of giving the jury a definition of "clear and convincing" under Illinois law was specifically discussed during the jury instructions conference. 12/3/99 Tr. at 15-18. Greenberg's counsel agreed to the court's suggested solution of telling the jury that the clear and convincing standard applies to the fraud claim remaining before them. Id. at 17. According to this understanding, the court later explained to the jury:
During trial, the Zivitzes dismissed their conspiracy claim against Greenberg; the preponderance of evidence standard would have applied to the conspiracy claim.
Now, at the beginning of the trial I discussed with you the difference between criminal cases and civil cases and the very high burden of proof that applies only in criminal cases, that's proof beyond a reasonable doubt. And I mentioned preponderance of evidence as the standard that usually applies in civil cases.
There is an exception and I am going to cover it now with respect to a claim of fraud, not as to damages but as to a claim of fraud. There is a special standard called clear and convincing. To prove fraud against defendant Greenberg, the Zivitzes have the burden of proving each of the following propositions by clear and convincing evidence . . .
12/6/99 Tr. at 8 [Emphasis supplied]. Thus, Greenberg did not object to the court's explanation of the burden of proof, nor did he persist in requesting a definition of "clear and convincing." Indeed, these terms are readily understandable and are used commonly.
Second, Greenberg argues the court erred in instructing the jury on "Indirect Misrepresentations." The court's instruction on indirect misrepresentations stated:
A person who makes a material false statement of fact may be liable to a third party if the person making the material false statement of fact intends or has reason to expect that this statement will be communicated to a third party. It is not necessary, however, that the person making the material false statement of fact have any particular third party in mind.
Greenberg claims the Zivitzes sought damages based solely on private communications between themselves and Greenberg, and did not proceed on a fraud on the market theory based on public disclosures or disclosures to third parties. Accordingly, Greenberg asserts the instruction confused and mislead the jury regarding the nature and proof of the Zivitzes' claim.
Providing this instruction was not error. One of the Zivitzes' theories was that Greenberg signed the ITP, a document Greenberg knew to be false. By signing the ITP, Greenberg made a representation he reasonably could expect would be communicated to the Zivitzes. Stein v. D'Amico, 1989 WL 91874, at *3 (N.D. Ill. Aug. 8, 1989) (Leinenweber, J.) ("It is enough that [defendant] intends or has reason to expect to have his misrepresentation or concealment repeated to a particular class of persons and that the person relying upon it is one of that class.") (citing Restatement (Second) of Torts, § 533, comment g (1977)). Greenberg's signing of the ITP qualifies as an indirect misrepresentation. Therefore, it was not error to instruct the jury on indirect misrepresentation.
II ZIVITZES' MOTION TO AMEND JUDGMENT TO INCLUDE PREJUDGMENT INTEREST
The Zivitzes move pursuant to Fed.R.Civ.P. 59(e) to amend the judgment against Greenberg to include an award of prejudgment interest. The jury rendered its verdict of $1,000,000 on December 6, 1999. The Zivitzes claim they would have sold their Incomnet stock on August 4, 1995 but for Greenberg's fraud. Therefore, they claim they are entitled to interest on the verdict calculated at the prime rate from August 4, 1995 to December 6, 1999, an amount totaling $413,698.
Because the jurisdiction of this court is based on diversity of citizenship, the award of prejudgment interest is based on Illinois law. Lovejoy Electronics v. O'Berto, 873 F.2d 1001, 1007 (7th Cir. 1989). In Illinois, prejudgment interest is generally recoverable only when an express agreement between the parties exists or if prejudgment interest is authorized by statute. Movitz v. First National Bank of Chicago, 982 F. Supp. 566, 568 (N.D. Ill. 1997). Prejudgment interest may also be recovered "when warranted by equitable considerations, and disallowed if such an award would not comport with justice and equity. Whether equitable circumstances support an award of interest is a matter lying within the sound discretion of the trial judge." McKenzie Dredging Co., Inc. v. Deneen River Co., 619 N.E.2d 188, 191 (Ill.App. 1993) (citations omitted). It is upon these equitable grounds that the Zivitzes seek prejudgment interest.
The Zivitzes fail to establish that an award of prejudgment interest is equitable. Greenberg argues the Zivitzes asked the jury to find damages based on the calculations of Dr. Marcia Kramer Mayer, and that those calculations included prejudgment interest. The Zivitzes do not dispute this contention. The court has no way of determining whether the verdict includes prejudgment interest, or whether the jury simply arrived at an amount of damages based on the money lost by the Zivitzes by holding their stock because of Greenberg's misrepresentations or omissions. The verdict form did not require a finding whether the jury's award included a prejudgment interest component. In order for the court to award prejudgment interest, it would have to assume the jury award did not include prejudgment interest. Otherwise, an award of prejudgment interest would provide a windfall to the Zivitzes at Greenberg's expense because prejudgment interest would be recovered twice. See McKenzie, 619 N.E.2d at 192 (the purpose of prejudgment interest is to compensate the plaintiff, not to overcompensate the plaintiff and punish the defendant). There is no rational basis to assume the verdict excludes prejudgment interest.
Moreover, the verdict form does not indicate the date chosen by the jury as the "damage date" — the date on which the Zivitzes would have sold their stock if they had not been defrauded by Greenberg. Therefore, the court has no basis from the verdict to calculate prejudgment interest and could only speculate as to the damage date. Accordingly, the Zivitzes' motion for prejudgment interest must be denied.
III. GREENBERG'S MOTION TO ALTER OR AMEND THE JUDGMENT
Greenberg moves pursuant to Fed.R.Civ.P. 59(e) to nullify the damages award. Under Illinois law, a nonsettling defendant can claim as a setoff any amount that the plaintiff may have recovered in an antecedent settlement with the settling defendants. 740 ILCS § 100/2; Johnson v. Belleville Radiologists, Ltd., 581 N.E.2d 750, 753 (Ill.App. 1991);Schoonover v. International Harvester Co., 525 N.E.2d 1041, 1042 (Ill.App. 1988). This right to setoff is designed to prevent a plaintiff from a double recovery for a single injury, a result prohibited under Illinois law. Foster v. Kanuri, 608 N.E.2d 8, 10 (Ill.App. 1992) (citing Wilson v. Hoffman Group, Inc., 546 N.E.2d 524 (Ill. 1989)). "The general rule is that the trial court must set off the settlement funds received from other defendants against the judgment, even if the judgment is thereby reduced to $0." Foster, 608 N.E.2d at 10; Pasguale v. Speed Products Engineering, 654 N.E.2d 1365, 1382 (Ill. 1995) However, a nonsettling defendant may seek a setoff only where the prior settlements compensate the same injury for which the nonsettling defendant was found liable. Pasguale, 654 N.E.2d at 1382. Setoff is inappropriate where the injuries compensated by the settlement are "separate and distinct" from the injury caused by the nonsettling defendant. Id. Whether the settlements and the judgment arise from the same injury is a matter within the trial court's discretion. See id. Greenberg bears the burden of establishing his entitlement to setoff. Muro v. Abel Freight Lines, Inc., 669 N.E.2d 1217, 1218 (Ill.App. 1996)
Greenberg states on information and belief that the amounts paid to the Zivitzes by the settling defendants exceed the $1,000,000 jury verdict against him. According to Greenberg, the Zivitzes have sought compensatory damages for a single injury — a conspiracy to defraud the Zivitzes into buying and holding Incomnet stock. He argues that the Zivitzes sought damages arising from a single holding of Incomnet stock, and that even after the Zivitzes settled with the other defendants, they sought recovery from Greenberg for all of their injuries. In support, Greenberg notes that before the other defendants settled, the Zivitzes sought recovery under a measure of damages that assumed the Zivitzes would have sold their Incomnet holdings on a common date but for the inducements of "defendants." The measure of damages did not segregate damages caused by each of the defendants. After the Zivitzes settled with Schwartz and the Broad defendants, the Zivitzes continued to employ this measure of damages at trial. Greenberg concludes that payment of the $1,000,000 judgment would be a windfall for the Zivitzes because they have already been compensated in excess of $1,000,000, the value placed on their injury by the jury. The Zivitzes respond they were injured by multiple frauds occurring over a two and half year period. They argue that Schwartz and the Broad defendants engaged in illegal and undisclosed transactions during 1994 and early 1995, and that they were injured during this period by purchasing Incomnet stock. According to the Zivitzes, this caused an injury distinct from the fraud committed by Greenberg in August and September 1995 by failing to disclose the illegal transactions and participating in an attempt to cover them up.
Greenberg fails to demonstrate his entitlement to setoff. Greenberg does not point to any case where set off was permitted in a securities fraud case involving multiple transactions over a period of time and misrepresentations by multiple defendants at different times during that period. And whatever the parties' theories about the nature of the Zivitzes' injury, the court must consider that the Zivitzes proceeded to trial against Greenberg only for the fraud that he himself committed; they did not submit the conspiracy claim to the jury. The jury was not instructed to assess all damages suffered by the Zivitzes for their total Incomnet investment. Rather, the jury was instructed to award damages only for the injury explicitly caused by Greenberg. The jury was instructed of the Zivitzes' burden to show that their damages "resulted from the misrepresentations made by Greenberg to them or from the withholding of material facts by Greenberg from them." 12/6/99 Tr. at 9. The jury was instructed to "fix the amount of money that will reasonably and fairly compensate [the Zivitzes] for any actual damages proven by the evidence to have resulted from the conduct of the defendant, Joel Greenberg." 12/6/99 Tr. at 11. Greenberg essentially asks the court to speculate that the jury verdict assessed damages against him for a unitary injury caused by all defendants. The court cannot do this, particularly in light of the fact that the jury was instructed to focus only on the amount of damages caused by Greenberg. Accordingly, Greenberg's motion to alter or amend the judgment must be denied.
IV. PLAINTIFFS' BILL OF COSTS
The Zivitzes submitted an itemized bill of costs. They request reimbursement of $22,253.33. This figure is based upon the $150 filing fee, $486 incurred in serving five defendants, $8,937.90 incurred in deposing nine witnesses, and $12,679.43 for copying papers and exhibits. Greenberg objects to many of the itemized costs on the ground that they are attributable to the Zivitzes' litigation against the other defendants and were not necessary to the Zivitzes' litigation against him.
Under Fed.R.Civ.P. 54(d) and 28 U.S.C. § 1920, "district courts have broad discretion to determine whether and to what extent to award costs to prevailing parties." Barber v. Ruth, 7 F.3d 636, 644 (7th Cir. 1993). Costs may be awarded only if they are reasonable and necessary to the litigation. Cengr v. Fusibond Piping Systems, Inc., 135 F.3d 445, 454 (7th Cir. 1998). However, the Seventh Circuit has "consistently interpreted Rule 54(d) as providing a strong presumption that the prevailing party will recover costs." Weeks v. Samsung Heavy Industries Co., Ltd., 126 F.3d 926, 945 (7th Cir. 1997). The presumption in favor of awarding costs to the prevailing party is difficult to overcome, and the court must award costs unless it states good reasons for denying them. Id. Finally, it is "the generally accepted rule that a prevailing party may recover its costs from any losing party since the losing parties are jointly and severally liable for costs." United States v. Local 1804-1, 1996 WL 22377, at *2 (S.D.N.Y. Jan. 22, 1996). This is true even where some defendants settle prior to trial. Id. After reviewing the bill of costs and Greenberg's objections, the court concludes the Zivitzes' requested costs are reasonable.
Greenberg contests the claim for $486 for serving five defendants on the ground that the Zivitzes do not identify the parties served, and because service on any other defendant was not necessary to the Zivitzes' suit against Greenberg. However, the other defendants were not dismissed from the case until shortly before trial. Until then, the Zivitzes pursued a conspiracy claim against all defendants, including Greenberg. Service on those defendants was therefore necessary, and the associated costs were reasonably incurred by the Zivitzes. Moreover, because Greenberg is liable for all costs reasonably incurred by the Zivitzes, the Zivitzes may seek service costs from Greenberg.
Second, Greenberg argues the Zivitzes make no showing that the costs for depositions are reasonable or that the depositions were necessary. Greenberg notes that the Zivitzes did not use the depositions of Rita Schwartz, David Bodner, or Murray Huberfeld at trial, nor did the Zivitzes call those witnesses. However,
The introduction of a deposition in a summary judgment motion or at trial is not a prerequisite for finding that it was necessary to take that deposition. The proper inquiry is whether the deposition was "reasonably necessary" to the case at the time it was taken, not whether it was used in a motion or in court.Cengr, 135 F.3d at 455 (citations omitted). The depositions were necessary at the time they were taken, as Greenberg's codefendants did not settle until the eve of trial. Moreover, aside from Rita Schwartz's deposition, all the depositions were used in responding to the summary judgment motions filed by all defendants. Greenberg joined in the motions filed by his codefendants. Therefore, the depositions were necessary in the Zivitzes' case against Greenberg.
Third, Greenberg contests the Zivitzes' claimed copying costs. The Zivitzes seek costs of copying (1) papers filed in response to Greenberg's motion to dismiss and all defendants' motions for summary judgment; (2) defendants' document production; (3) the pretrial order; and (4) trial exhibits, including exhibit boards. Copying responses to defendants' dispositive motions and defendants' document production is necessary. While the bill of costs fails to state the number of copies made of defendants' document production and the pretrial order, the Zivitzes state that they seek only those costs resulting from producing a single copy of the production. This is sufficient to establish that the Zivitzes did not make inordinate numbers of copies. See M.T. Bonk Co. v. Milton Bradley Co., 945 F.2d 1404, 1410 (7th Cir. 1991). Therefore, the associated costs are reasonable. And because the Broad defendants did not settle until the first day of trial, the costs of preparing a pretrial order and exhibits for a trial against Greenberg and the Broad defendants was reasonable and necessary at the time they were duplicated.
Finally, Greenberg argues the costs of copying exhibit boards may not be claimed by the Zivitzes because all the boards were not used at trial and the exhibit boards were not necessary to the jury's understanding of an issue or a material aid to the jury, but were simply illustrative of expert testimony. However, the Zivitzes' bill of costs seeks reimbursement only for costs associated with exhibit boards actually used at trial. Moreover, the exhibit boards actually used aided the jury in understanding the complex stock valuation calculations essential in assessing damages.
CONCLUSION
Greenberg's motion for judgment as a matter of law or, in the alternative, for a new trial is denied. The Zivitzes' motion to amend the judgment to include prejudgment interest is denied. Greenberg's motion to alter or amend the judgment to enforce his right to setoff is denied. The Zivitzes' bill of costs is granted. Greenberg is directed to pay the Zivitzes $22,253.33 in costs.