Garry Boyd v. Tornier Inc.

• Decision Date: 24 August 2011
• Docket Number: Nos. 10–2052,10–2068.,s. 10–2052
• Parties: Garry BOYD, Boyd Medical, Inc., Charles Wetherill, and Addison Medical, Inc., Plaintiffs–Appellees, Cross–Appellants,v.TORNIER, INC., Defendant–Appellant, Cross–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

656 F.3d 487

Garry BOYD, Boyd Medical, Inc., Charles Wetherill, and Addison Medical, Inc., Plaintiffs–Appellees, Cross–Appellants,

v.TORNIER, INC., Defendant–Appellant, Cross–Appellee.

Nos. 10–2052

10–2068.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 29, 2010.Decided Aug. 24, 2011.

David S. Corwin (argued), Sher Corwin LLC, St. Louis, MO, for Plaintiffs–Appellees, Cross–Appellants.Charles F. Webber (argued), Attorney, Faegre & Benson, Minneapolis, MN, for Defendant–Appellant in No. 10–2052.Deborah A. Ellingboe, Faegre & Benson, Minneapolis, MN, for Defendant–Appellee in No. 10–2068.Before BAUER, WOOD, and SYKES, Circuit Judges.WOOD, Circuit Judge.

Tornier is a manufacturer of medical goods related to joint replacement and soft tissue repair. It has distributors all over the United States, including Boyd Medical, run by Garry Boyd, (collectively “Boyd”) in Missouri and Addison Medical, run by Charles Wetherill, (collectively “Wetherill”) in Iowa. Both Boyd and Wetherill had exclusive distributorship agreements with Tornier and relied heavily on that relationship for their financial health. Tornier, sadly for them, had other ideas and terminated its agreements with each one. As with many breakups, somebody got hurt. This time it was Boyd and Wetherill, both of whom were forced to shut down their businesses. Soon after, they sued Tornier for breach of contract, intentional misrepresentation, and negligent misrepresentation. Additionally, both asked for punitive damages on the intentional misrepresentation claims.

The district court dismissed Wetherill's negligent misrepresentation claim at summary judgment but allowed the other claims to proceed to trial. The jury returned a verdict against Tornier on all of the remaining claims, awarding both actual and punitive damages to both plaintiffs. The magistrate judge, presiding by the consent of the parties under 28 U.S.C. § 636(c), set aside the punitive damages awards, finding that the evidence did not support the jury's decision. The court then entered judgment for each distributor's actual damages. This appeal and cross-appeal followed. Tornier argues that the contract expressly precludes the award of lost profits for the breach of contract; that the plaintiffs' intentional and negligent misrepresentation claims fail as a matter of law and fact; and that the damages awards on the tort claims were not adequately supported by the evidence. Boyd and Wetherill counter that the punitive damages awards should be reinstated.

We conclude that each side must win something and lose something. We vacate the awards for the plaintiffs of lost profits on their breach of contract action. We affirm the verdicts against Tornier on intentional misrepresentation and negligent misrepresentation, but we vacate the jury's awards of actual damages, as they were supported by insufficient evidence. Finally, we affirm the court's decision to set aside the punitive damages awards. We thus remand the case to the district court for a recalculation of damages consistent with this opinion.

I

In 2003, Tornier entered into exclusive distributorship agreements with Boyd and with Wetherill. Each agreement specified that the local agent was to be the only authorized seller of Tornier products in its designated regions. The agreements also demanded exclusivity for Tornier: each distributor was restricted from selling products that competed with Tornier products. As an added layer of contractual protection, Tornier had the right to set sales quotas for Boyd and Wetherill; if the distributor did not meet the quotas, Tornier could terminate the agreement. These arrangements were confined to Tornier's product markets; Boyd and Wetherill were still free to sell non-competing, non-Tornier products. The agreements included a Texas choice-of-law clause.

In truth, Tornier was not necessarily committed to its existing model of exclusive distributors. At the same time as it was signing these agreements, it was crafting alternative plans for its future expansion and growth. One of Tornier's ideas was to “capture” the distributors so that they were selling only Tornier products. This meant that Tornier needed to persuade its distributors to drop the non-competing non-Tornier products and become dedicated Tornier outlets. To this end, Tornier told Boyd and Wetherill that it was going to acquire some bigger and better products and give them exclusive distribution rights in a solid long-lasting relationship. At one point Tornier told Boyd that if Boyd dropped the non-Tornier products, he would be Tornier's “guy in St. Louis.” To Wetherill, Tornier similarly promised that he was the “chosen one” in Iowa. Tornier also promised Wetherill that Wetherill would get exclusive distribution rights to Nexa, a popular orthopedic brand that Tornier was soon going to acquire. Buoyed by these lofty promises, Boyd and Wetherill each began to prepare for their future with Tornier, by dropping some of their other products and concentrating on Tornier's.

But all was not as it seemed: Tornier was in fact not pleased with either Boyd or Wetherill. Tornier had decided internally that Boyd and Wetherill did not fit the new business model it had devised for itself. Indeed, it had already positioned alternative distributors to take over for them. Tornier then hiked Boyd's and Wetherill's 2007 quotas to an unreasonable level—for Boyd, 56% higher than the previous year, and for Wetherill, 82% higher than the previous year. When Boyd and Wetherill could not meet those expectations, Tornier cut them from the team and brought in their replacements. By that time, Boyd and Wetherill had become financially dependent on their relationships with Tornier and consequently went out of business.

Boyd and Wetherill then sued Tornier for breach of contract, intentional misrepresentation, and negligent misrepresentation. In addition, they asked for punitive damages in connection with their intentional misrepresentation theories. Invoking diversity jurisdiction, see 28 U.S.C. § 1332, they brought their action in the federal court in the Southern District of Illinois. Tornier is a Delaware corporation with its principal place of business in Minnesota; Boyd and his company are citizens of Missouri, and Wetherill and his company are citizens of Iowa. Boyd's tort claims are governed by Missouri law and Wetherill's by Iowa law. The breach-of-contract claims are governed by Texas law, as stipulated in the agreements' choice-of-law clauses.

At summary judgment, the district court allowed the breach-of-contract claims to proceed based on Tornier's unreasonable hiking of Boyd's and Wetherill's sales quotas. It allowed the intentional misrepresentation claims to go forward based on Tornier's allegedly misleading statements telling Boyd and Wetherill to drop other product lines to ensure a promising relationship with Tornier and promising Wetherill that Tornier would grant him the distribution rights to the Nexa brand. Finally, with regard to the negligent misrepresentation counts (which were predicated on the same statements as the intentional misrepresentation charges), the district court allowed Boyd's claim to proceed, but it dismissed Wetherill's claims because Iowa law limits such claims to attorneys, accountants, and other professionals in the business of guiding others in their affairs. At trial, the jury returned a verdict against Tornier on all of the claims that had survived summary judgment, awarding $1,491,000 in actual damages for Boyd and $1,100,000 in actual damages for Wetherill. The jury also gave Boyd and Wetherill $2 million each in punitive damages. In response to Tornier's post-trial motions under Federal Rules of Civil Procedure 50(b) and 59(e), the magistrate judge upheld the jury verdicts on the misrepresentation claims, set aside the punitive damages, and entered judgment for the actual damages. All parties timely appealed.

II

A

We begin by discussing Tornier's argument that the court erred when it upheld the jury's award of lost profits for each plaintiff's breach of contract claims. We review the denial of Tornier's motion to alter the judgment for abuse of discretion, noting that for relief under Rule 59(e) the movant must demonstrate a manifest error of law or fact or present newly discovered evidence. Fed.R.Civ.P. 59(e); Kapelanski v. Johnson, 390 F.3d 525, 530 (7th Cir.2004); County of McHenry v. Insurance Co. of the West, 438 F.3d 813, 819 (7th Cir.2006).

The Tornier Agency Agreement signed by both plaintiffs addressed the subject of lost profits in a manner that is not helpful to the plaintiffs. Article 9.6, which was identical in the two agreements, says, “Upon termination of this Agreement, neither party shall be liable to the other for any loss of profits of any kind or nature sustained or arising out of such termination.” Despite this language, the court upheld the jury's decision to award one year's lost profits for both Boyd and Wetherill. In so doing, it relied on a principle of Texas law to the effect that a contractual limitation on damages may not be enforced when a disparity of bargaining power exists— i.e., when one party has no real choice in accepting the agreement limiting the liability of the other party. Federated Dep't Stores, Inc. v. Houston Lighting & Power Co., 646 S.W.2d 509, 511–12 (Tex.App.1982). The court reasoned that the question whether this kind of imbalance of power existed was one of fact and thus for the jury. See id. (stating that the existence of this disparity is a question of fact). The jury in turn found the necessary disparity. We conclude, to the contrary, that on this record the jury should never have been asked to make this determination.

Boyd and Wetherill point to little that indicates a substantial disparity in bargaining power. They state that they were both dependent on Tornier's business and that they had been unable to negotiate contractual terms...