Europlast, Ltd. v. Oak Switch Systems, Inc.

• Decision Date: 23 November 1993
• Docket Number: No. 92-3571,92-3571
• Citation: 10 F.3d 1266
• Parties: EUROPLAST, LIMITED, Plaintiff-Appellee, v. OAK SWITCH SYSTEMS, INCORPORATED, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1266

10 F.3d 1266

EUROPLAST, LIMITED, Plaintiff-Appellee, v. OAK SWITCH SYSTEMS, INCORPORATED, Defendant-Appellant.

No. 92-3571.

United States Court of Appeals Seventh Circuit.

Argued May 11, 1993.

Decided Nov. 23, 1993.

Paul W. Grauer (argued), Grauer & Associates, Schaumburg, IL, for Europlast, Ltd.

William I. Caldwell, Jr., Caldwell, Berner & Caldwell, Woodstock, IL, Mark I. Levy, Timothy S. Bishop (argued), Mayer, Brown & Platt, Chicago, IL, for Oak Switch Systems, Inc.

Before CUMMINGS, COFFEY, and MANION, Circuit Judges.

COFFEY, Circuit Judge.

Appellant Oak Switch Systems appeals the district court's refusal to grant a JNOV or new trial after a jury awarded compensatory and punitive damages on plaintiff's contract and tort claims. We affirm the remitted compensatory damage award but reverse the granting of punitive damages.

I. BACKGROUND

The defendant-appellant, Oak Switch Systems, Inc. ("Oak"), produces and sells computer keyboards and electric switches. Oak's products are made by injecting plastic into steel molds under high pressure and temperature. Oak owns the steel molds for its plastic parts, but contracts with other companies to inject the plastic into the molds. Oak then assembles the plastic parts into computer keyboards and electric switches.

Oak originally used several manufacturers, including plaintiff-appellee, Europlast, Limited ("EPL"), to produce plastic parts. However Oak became dissatisfied both with the quality of the plastic parts it was receiving and with the maintenance of its molds. In 1987, Oak decided to consolidate all its business with EPL. The consolidation project took about a year and involved transferring over three hundred molds to EPL.

Early in 1987, Oak made known to EPL that it might be interested in purchasing EPL if the consolidation venture proved successful. The buy-out idea was not actively pursued until early 1988 when Oak requested financial information about EPL and scheduled a meeting for February 23, 1988 to examine EPL's books, finances and operations. EPL's co-owner, Harold Zacharias, faxed Oak its "financials" prior to the February 23 meeting. In preparation for the meeting, Oak also obtained a Dunn & Bradstreet financial report on EPL that revealed a tax lien against Apex Mold & Die, another company owned by the same individuals who own EPL and also housed in the same building. Additionally, the report reflected that EPL took an average of fifty days to pay its bills. After reviewing the financial data received prior to the February 23 meeting, Robert Bergslien, Oak's company controller informed Oak President James Septer that "there's not much there."

At the February 23 meeting, Bergslien questioned EPL's bookkeeper and obtained additional financial data on EPL. Bergslien prepared a report for Oak's principals dealing with EPL's financial problems based on the information he had collected. The report concluded that EPL's net profit margin was low, a mere 4.5 percent, and that its total liabilities were double its total assets.

At some point, and this is the source of contention between the parties, Oak abandoned its interest in purchasing EPL and began to consider the possibility of creating its own plastic molding plant. Oak requested that Lewis Butler, EPL's national sales manager, generate some figures outlining the start-up costs involved in beginning a plastic molding business. Although Butler was not paid for his services, Oak indicated to Butler that he would "head up" the new Oak plastics division. Butler submitted his report, generated on EPL's computer, to the president of Oak, James Septer, during a golf outing in Florida. Shortly thereafter, Oak abandoned its idea of starting a plastics molding division, concluding that high start-up costs made it infeasible. In late May 1988, at a golf outing in Wisconsin, Septer advised Butler that Oak intended to withdraw its work from EPL. Septer testified that it was his understanding that Butler would not notify EPL of Oak's decision, and, in fact, Butler never did communicate this information to EPL's owners.

On June 9, 1988, Oak terminated EPL as its plastic parts supplier and removed all of its molds from EPL's factory without prior notice. Thereafter, Oak explained in a letter to EPL that its reason for terminating EPL was that it had found a more acceptable acquisition candidate. However, at trial Septer testified that Oak's real concern was that EPL was in a precarious financial situation and could go out of business at any time, potentially leaving Oak in the untenable position of possibly not being able to retrieve its molds. Septer stated at trial that his fear was based upon Butler's repeated warnings of EPL's poor financial condition which placed Oak's molds in jeopardy. Butler denied ever warning Septer about EPL's financial condition.

EPL sued Oak in federal district court under diversity jurisdiction claiming that Oak breached the parties' contract, tortiously interfered with EPL's employment contract with Lewis Butler, and fraudulently misrepresented its intentions to buy out EPL. A jury found in favor of EPL on all counts awarding $200,000 in compensatory damages as well as $300,000 in punitive damages. After trial, Oak moved for JNOV, a new trial, and a remittitur. The trial court denied the motions for JNOV and a new trial, but granted a remittitur reducing the compensatory damages to $162,000 and punitive damages to $75,000.

II. DISCUSSION

On appeal, the defendant asks us to determine whether the trial court's denial of its motions for JNOV and/or a new trial was proper. We must also evaluate whether the jury's award of punitive damages was appropriate in this case and whether the record supports a finding of $162,000 in compensatory damages.

A. Standard of Review

In this diversity case, we apply the forum state's standard of review for granting a JNOV motion. Pennsylvania Truck Lines, Inc. v. Solar Equity Corp., 882 F.2d 221, 225 (7th Cir.1989). Under Illinois law, JNOV is proper when "all of the evidence, when viewed in its aspect most favorable to opponent, so overwhelmingly favors movant that no contrary verdict based on that evidence could ever stand." Pedrick v. Peoria & E. R.R. Co., 37 Ill.2d 494, 229 N.E.2d 504, 513 (1967) accord Trzcinski v. American Cas. Co., 953 F.2d 307 (7th Cir.1992). We review de novo the lower court's application of Pedrick. Fleming v. County of Kane, 898 F.2d 553, 559 (7th Cir.1990). The defendant faces a very heavy burden on appeal because JNOVs and directed verdicts are proper when there is but a mere scintilla of evidence that supports the non-movant's allegations, or when there is some evidence supporting the non-movant's claim which loses its significance when viewed in light of all the evidence. Pennsylvania Truck Lines, 882 F.2d at 225. "It is also settled that the court must resolve conflicts in evidence in favor of the plaintiff, and if it finds any evidence, which if believed, could support a verdict for plaintiff, it is error to direct a verdict for a defendant." Hicks v. Hendricks, 33 Ill.App.3d 486, 342 N.E.2d 144 (1975).

Our review of the district court's denial of Oak's motions for the granting of a new trial is governed by federal law. Trzcinski, 953 F.2d at 315. "A district court may grant a new trial 'only where the verdict is against the clear weight of the evidence, and we will reverse the district judge's decision only where there is a clear abuse of discretion. We will not set aside a jury verdict if a reasonable basis exists in the record to support the verdict." Id. (quoting M.T. Bonk Co. v. Milton Bradley Co., 945 F.2d 1404, 1407 (7th Cir.1991)).

B. Breach of Contract Claim

EPL argues that Oak's failure to timely renew its directed verdict motion on the contract claim at the conclusion of the testimony precludes subsequent review of the district court's refusal to grant JNOV. It is obvious that the trial court determined that Oak preserved its challenge to the contract claim because the court addressed the merits of the defendant's JNOV motion on that claim. Likewise, based on the record, we are of the opinion that Oak preserved its JNOV motion on the contract claim. ¹

Oak argues that its termination of EPL as its sole plastic parts supplier complied with the terms of their contract. In support of this contention Oak relies on a provision in the standardized purchase orders supplied by Oak from which the parties conducted business. The provision reads:

"DEFAULTS--BANKRUPTCY--CANCELLATION. Buyer may cancel this order in whole or in part by written or telegraphic notice (a) if the Seller shall become insolvent or make a general assignment for the benefit of creditors, or a receiver or liquidator for a Seller is appointed or applied for, or if Seller admits in writing its inability to pay its debts as they become due."

Oak contends that EPL fails each of the prevailing tests for insolvency and thus Oak justifiably cancelled its contract with EPL. EPL counters that there is nothing in the record to establish that they were insolvent and thus Oak was guilty of breach of contract. The district court ruled that the purchase orders were valid contracts between EPL and OAK and the question for the jury was whether Oak breached those contracts. Oak's termination of the contractual relationship was not a breach if EPL was insolvent.

Long ago we noted that "insolvency is a term which has been variously defined." Brusselback, et al. v. Chicago Joint Stock Land Bank, 85 F.2d 617 (7th Cir.1936). The Third Circuit measures insolvency "both by a balance sheet showing all assets and liabilities and the test of whether one can meet current debts as persons engaged in a trade normally do." Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1014 (3rd Cir.1980). However, the Third Circuit also noted that "[a] determination of solvency requires a factual review of the [parties'] financial condition...