Creative Demos, Inc. v. Wal-Mart Stores, Inc.

• Decision Date: 08 April 1998
• Docket Number: Nos. 97-1356,97-1556,WAL-MART,s. 97-1356
• Citation: 142 F.3d 367
• Parties: CREATIVE DEMOS, INC., Plaintiff-Appellant, Cross-Appellee, v.STORES, INC., Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 367

142 F.3d 367

CREATIVE DEMOS, INC., Plaintiff-Appellant, Cross-Appellee, v. WAL-MART STORES, INC., Defendant-Appellee, Cross-Appellant.

Nos. 97-1356, 97-1556.

United States Court of Appeals Seventh Circuit.

Argued Oct. 31, 1997.

Decided April 8, 1998.

George W. Hopper (argued in 97-1356 & 97-1556), Mark R. Galliher (in 97-1556), Hopper & Galliher, J. Lee McNeely, McNeely, Stephenson, Thopy & Harrold, Shelbyville, IN, for Plaintiff-Appellant.

Thomas L. Davis (argued), Locke, Reynolds, Boyd & Weisell, Indianapolis, IN, for Defendant-Appellee.

Before FLAUM, EASTERBROOK, and KANNE, Circuit Judges.

EASTERBROOK, Circuit Judge.

Wal-Mart acquired 28 food stores owned by Wholesale Club, Inc., and afterward operated them under the Sam's Club trade name. Creative Demos had been engaged by Wholesale Club to perform food demonstrations in the stores, but it does not argue that any obligations were transferred from Wholesale Club to Wal-Mart. During January 1991, the month before Wal-Mart took over, Denise Baustert (Wal-Mart's "sales enhancement manager") told Creative Demos that Wal-Mart would use its services through September 1991, after which Wal-Mart would conduct demonstrations in-house. In the event, however, Wal-Mart replaced Creative Demos in March, and this litigation under the diversity jurisdiction ensued. The parties agree that it is governed by the law of Indiana.

A jury awarded Creative Demos more than $7 million on account of this early termination. The district court reduced the award to $681,263, with a series of conditional new-trial orders if we should disagree with this calculation. 955 F.Supp. 1032 (1997). To make things manageable, we describe each of Creative Demos' claims separately. To anticipate the bottom line: Creative Demos is entitled to $137 plus a new trial on a claim of unjust enrichment.

1. Contract. The district court granted summary judgment to Wal-Mart on Creative Demos' claim that Baustert's statement created a contract for a definite term. Creative Demos worked for Wholesale Club without a legally enforceable contract and continued that arrangement with Wal-Mart. The court observed that Wal-Mart and Creative Demos never reached agreement on (indeed, never discussed) issues such as whether Creative Demos' work could be terminated on Wal-Mart's subjective dissatisfaction or whether, instead, "good cause" from an objective perspective would be required. Many other terms also were left open--one that becomes important later is whether Wal-Mart or Creative Demos owned information such as the schedule of future demonstrations. The district judge pointed out that "Creative Demos never memorialized any alleged agreement in writing; nor did [it] refer to the existence of any agreement upon being terminated by Sam's Club". We therefore agree with the district court that there was no material dispute requiring resolution at trial.

2. Promissory Estoppel. The jury concluded that Creative Demos is entitled to $681,126 on a claim of promissory estoppel--essentially, that Baustert's statement in January 1991 led Creative Demos to rely on an expectation of conducting demonstrations through September. The award is the jury's estimate of the profits Creative Demos lost because of early termination. One problem with this part of the verdict is that in Indiana, as in most other states, promissory estoppel does not support lost-profits damages. The proper remedy is the amount necessary to restore the injured party to the position it would have occupied had the promise not been made. First National Bank of Logansport v. Logan Mfg. Co., 577 N.E.2d 949 (Ind.1991); E. Allan Farnsworth, I Farnsworth on Contracts § 3.26a (1990). Because Creative Demos was making substantial profits conducting the food demonstrations, the district judge concluded that the damages were zero--which was another way of saying that the evidence did not permit a reasonable person to conclude that Creative Demos had relied on Baustert's statement to its detriment. 955 F.Supp. at 1037-38. Detrimental reliance is an essential element of promissory estoppel in Indiana. Muncie Industrial Revolving Loan Fund Board v. Indiana Construction Corp., 583 N.E.2d 769, 771-72 (Ind.App.1991); Hearing & Speech Clinic of Evansville, Inc. v. Indiana Department of Welfare, 466 N.E.2d 462 (Ind.App.1984).

Creative Demos actually relied on the promise: it hired and trained additional workers, scheduled and performed demonstrations, and so on. But did this reliance work to its detriment? Given the substantial profits Creative Demos was making, reliance was beneficial rather than detrimental. Had Baustert said something like "you're welcome to continue performing food demonstrations, but Wal-Mart reserves the right to replace you at its discretion", Creative Demos would have done exactly what it did. Creative Demos was at least $60,000 and perhaps as much as $288,000 better off by working through mid-March 1991 than it would have been had it quit at the end of January--and Creative Demos cannot persuasively argue that it could have saved the costs of preparing for future demonstrations, for it would have hoped to impress Wal-Mart with the quality of its work and thus persuade it to extend the arrangement. The district court's reasoning was sound, and the verdict on the promissory estoppel claim therefore cannot stand.

3. Fraud. On March 1, 1991, and again on March 5, Baustert asked Creative Demos to send her schedules of whatever demonstrations Creative Demos had set up for the coming months.

When asked why Sam's Club wanted these documents, Baustert represented that the documents were needed so that Sam's Club could compare them against its own documents to confirm that various food vendors had fulfilled their commitment to participate in food demonstrations and to coordinate dates and locations of scheduled demonstrations with local store managers. Creative Demos shipped the requested documents by overnight delivery on March 6, 1991. On March 7, 1991, Sam's Club notified Creative Demos by fax that their demonstration services were being terminated at nineteen of the Sam's Club stores as of March 15, 1991, and that their services at the remaining nine stores would be terminated shortly thereafter. In fact, according to testimony developed at trial, by March 1, Baustert had decided to terminate Creative Demos, and had contacted another demonstration company, Sales Talk, to ask if it would be willing and able to take over the food demonstrations for the twenty-eight former Wholesale Clubs as of March 15.

955 F.Supp. at 1036. The jury concluded that Baustert had defrauded Creative Demos into sending these schedules, and it awarded $137 in actual damages (the cost of copying and sending the papers) plus $6.5 million in punitive damages. On post-trial motions the district judge held that the award of actual damages is supported by the evidence, id. at 1039-40, but that Indiana law does not permit any punitive award under these circumstances, id. at 1041. Once again the district court's decision is sound.

Baustert lied; of that there is no doubt. She testified at trial that Wal-Mart was entitled to the documents (the demos took place on its property, after all, and required coordination so that the stores would have adequate supplies of the products being demonstrated and could satisfy the demand that the demos were designed to create) but the jury could have concluded from Baustert's testimony (and that of her immediate superior) that Wal-Mart feared that if Baustert told Creative Demos the truth it would try to charge for the information or, worse, walk away in a huff and leave the stores without demonstrations. To avoid giving Creative Demos this holdup power Baustert gave a false reason. If Wal-Mart were indeed legally entitled to the information, then the falsity would not support an award of damages for fraud. But the district judge held that Baustert's belief was incorrect--and precisely because Creative Demos was wrong in its contract claim. The parties never reached agreement on their respective rights. Creative Demos was an independent contractor and entitled to retain its own documents and other intellectual property, unless it had promised to share them with its employer--which, the jury was entitled to find, Creative Demos had not done. Arguments pro and con about the customs of the trade were for the jury to evaluate, and it came down with evidentiary support in Creative Demos' corner.

Punitive damages are another matter. In Indiana, "[p]unitive damages may be awarded only if there is clear and convincing evidence that the defendant 'acted with malice,...