Gold v. Ziff Communications Co.

• Decision Date: 30 March 2001
• Docket Number: No. 1-99-3142.,1-99-3142.
• Citation: 748 N.E.2d 198,322 Ill. App.3d 32,254 Ill.Dec. 752
• Parties: Anthony R. GOLD, PC Brand, Inc., Software Communications, Inc., Hanson & Connors, Inc., Plaintiffs and Counterdefendants-Appellees, v. ZIFF COMMUNICATIONS COMPANY, d/b/a Ziff-Davis Publishing Company, Defendant and Counterplaintiff-Appellant.
• Court: United States Appellate Court of Illinois

748 N.E.2d 198

322 Ill. App.3d 32

254 Ill.Dec. 752

Anthony R. GOLD, PC Brand, Inc., Software Communications, Inc., Hanson & Connors, Inc., Plaintiffs and Counterdefendants-Appellees, v. ZIFF COMMUNICATIONS COMPANY, d/b/a Ziff-Davis Publishing Company, Defendant and Counterplaintiff-Appellant.

No. 1-99-3142.

Appellate Court of Illinois, First District, Second Division.

March 30, 2001.

Rehearing Denied May 17, 2001.

Terry M. Grimm, Neil E. Holmen, Mary Patricia Benz, Stephen V. D'Amore, Winston & Strawn, Chicago, for Plaintiffs-Appellees.

Francis J. Higgins, Kenneth E. Rechtoris, Bell, Body & Lloyd LLC, Kevin M. Forde, Kevin M. Forde, Ltd., Chicago, for Defendant-Appellant.

Justice COUSINS delivered the opinion of the court:

Plaintiffs Anthony Gold (Gold), PC Brand, Inc. (PC Brand), Software Communications, Inc. (SCI), and Hanson & Connors, Inc. (Hanson), sued defendant Ziff Communications Company, doing business as Ziff-Davis Publishing Company (Ziff), for breach of contract, seeking damages arising from Ziff's alleged breach of an agreement which provided that any company controlled by Gold could advertise in Ziff's publications at reduced rates. This action was previously before this court in Gold v. Ziff Communications, 265 Ill.App.3d 953, 202 Ill.Dec. 888, 638 N.E.2d 756 (1994) (Gold II), which remanded for trial the "control" issue, i.e., "the question of whether Gold violated the terms of the amended Ad/List agreement with his holdings in PC Brand." Gold II, 265 Ill.App.3d at 965,202 Ill.Dec. 888,638 N.E.2d 756.

After a five-week trial, the jury found Ziff liable and awarded two verdicts: (1) $44,580,000 to PC Brand, Inc./Gold for future lost profits and business value damages; and (2) $10,800,000 to Hanson & Connors, Inc./SCI/Gold for future lost profits and business value damages. The trial court subsequently awarded prejudgment interest of $26,773,834.58 to PC Brand, Inc./Gold and $6,486,265.27 to Hanson & Connors, Inc./SCI/Gold.

Ziff now appeals, arguing that: (1) the trial court erred by accepting the claims of multiple plaintiffs on a single verdict form; (2) PC Brand and Hanson were not proper plaintiffs; (3) evidence failed to support the jury's verdict that Ziff breached the contract as to PC Brand and caused damages; (4) damages awarded to Gold and PC Brand were based on speculation; (5) evidence failed to support the jury's verdict that Ziff breached the contract as to Hanson and caused damages; (6) the trial court erred by awarding prejudgment interest; and (7) certain errors occurred at trial which entitle Ziff to a new trial. Additionally, plaintiffs cross-appeal a ruling concerning the return of funds that it deposited into escrow.

BACKGROUND

In 1981, Gold founded PC Magazine for users of personal computers. In 1982, Ziff, a publisher of specialty magazines, bought the magazine from Gold for more than $10 million. In connection with the purchase, Gold and Ziff signed a letter dated November 19, 1982, providing Gold or a company he "owned and controlled" a right to advertise at an 80% discount on a limited number of pages in PC Magazine, as well as free usage of Ziff's subscriber lists (collectively, the ad/list rights). Gold intended to use these ad/list rights as the foundation for computer mail order companies he planned to set up.

In 1983, Gold formed SCI to use the ad/list rights. SCI, wholly owned by Gold, conducted a mail order software business and advertised in PC Magazine at the 80% discount. On September 15, 1986, Gold and Ziff signed another agreement (Ad/List Agreement) which modified the 1982 agreement. Paragraph 4(i) of the Ad/List Agreement, which presented the control issue remanded for trial, stated that the ad/list rights:

"may only be used by you [Gold] personally or by a company which you control (that is, in which you own at least 51% of the voting stock) and may not be assigned, transferred or allocated to any other person or entity".

Gold was to receive the 80% ad discount and free subscribers' list usage, and those rights were expanded to other Ziff publications. Gold's ads were to be subject to the current rate card in effect for the particular publication. Rate cards contained price lists and conditions.

Paragraph 2(ii) stated that Ziff could withhold approval of list usage if it determined that the mailing could injure Ziff's business reputation and Ziff had to make its objections within seven days. Paragraph 4(ii) prohibited Gold from advertising products of existing advertisers, and paragraph 4(iii) prohibited Gold from competing with Ziff in the sale of ad space in its magazine. Paragraph 6(b) stated that a failure by Ziff to "insist upon strict adherence to any term of this agreement on any occasion shall not be considered a waiver." The Ad/List Agreement also contained a December 31, 1992, expiration date and a right to terminate upon breach of a "material provision" and failure to cure within 30 days. Explicitly, New York law governed.

To maximize the use of the ad/list rights, Gold formed two new mail order companies in late 1987 and early 1988—Hanson and PC Brand. Gold formed Hanson to sell software by sending catalogs to names on Ziff's subscriber lists. Hanson took over SCI's business and assumed most of its assets. Gold hired Howard Gosman to operate Hanson as its president.

Gold also contacted Stephen Dukker and they negotiated a structure for a new business which became PC Brand. On January 15, 1988, Gold and Dukker signed a number of interrelated agreements drafted by their attorney, Richard Friedman. One agreement provided that Gold assigned ad/list rights to PC Brand and, in return, PC Brand was to pay Gold or SCI the cash value of the 80% discount used by PC Brand once it became profitable. Also, Gold owned 90% of PC Brand's stock while Dukker owned 10%. Gold, however, agreed to transfer shares to Dukker each year, so that Dukker would hold 51% record ownership when the Ad/List Agreement expired on December 31, 1992. Dukker was named president though December 31, 1992, and had sole responsibility for determining the amount of directors' fees, so long as he and Gold were paid equally.

PC Brand's certificate of incorporation defined voting shares as shares of stock "which confer unlimited voting rights in the election of one or more directors." PC Brand's certificate and bylaws also provided that: (1) only two directors, Dukker and Gold, would serve on the board until December 31, 1992; (2) the Dukker-Gold board composition could only be changed unanimously; (3) upon death or incapacity of either Gold or Dukker, the remaining director would become sole director; and (4) the certificate of incorporation could not be amended without unanimous consent of the stockholders.

PC Brand began operations in May 1988. Gold's capital contribution to PC Brand was about $1,000. Several internal memoranda to Ziff's in-house counsel, Malcolm Morris, indicated that full-rate advertisers learned of Gold's ad/list rights and demanded similar treatment. Plaintiffs allege that complaints by full-rate advertisers motivated Ziff to breach the Ad/List Agreement as to PC Brand and Hanson.

Three contract disputes arose between Gold and Ziff in 1988. The first dispute involved Hanson's use of the discounted space in PC Magazine to place full-page ads of other advertiser's products. On May 13, 1988, Morris declared a breach of the Ad/List Agreement based on these ads, stating that they constituted a transfer of Gold's discount to the manufacturers whose products appeared in the ads. Plaintiffs allege that the objectionable ads were nearly identical to ads Gold had run for several years through SCI without objection. In July 1988, Gold told Morris that Hanson was voluntarily refraining from placing the large ads for third-party products. At trial, Hanson claimed damages resulting from Ziff's refusal to run the large ads.

The second dispute concerned Hanson's use of Ziff's subscriber lists. The Ad/List Agreement gave Gold access to Ziff's lists six times per year. On May 10, 1989, Hanson requested the lists for a sixth mailing. On May 22, 1989, Morris wrote to Gold that Ziff would release its lists only if Hanson paid outstanding invoices and provided Ziff with other financial assurances. Plaintiffs allege that even after Hanson paid the outstanding amount, Ziff refused to release the subscriber list unless Hanson provided proof that it had working capital and inventory of goods to fill orders from the catalog mailing. Ziff, on the other hand, alleges that Hanson was insolvent and unable to pay its debts and its request for assurances was reasonable. Plaintiffs also allege that Ziff delayed in providing a subscriber list for Hanson's second catalog. Howard Gosman, president of Hanson, testified that in June 1989 Hanson ceased active business operations because Ziff erected roadblocks when Hanson attempted to utilize the ad/list rights.

The third dispute centered around the issue of whether Gold "controlled" PC Brand for purposes of utilizing the Ad/List Agreement. Ziff alleges that it first learned of PC Brand through a May 13, 1988, letter in which Gold stated he owned and controlled PC Brand. PC Brand began placing ads at the 80% discount rate in May 1988. After reviewing PC Brand's corporate records, Ziff informed Gold in a letter dated November 8, 1988, that "PC Brand is not eligible for allocation of the rights under the Ad/List Agreement" based on Ziff's conclusion that PC Brand was not controlled by Gold. The letter stated that Gold's 90% record ownership of stock was meaningless and that Dukker, as president, had greater control of the company. The letter also stated that PC Brand must pay full price for ads it had placed at the 80% discount and that if the matter was not resolved in 30 days, Ziff would have to consider other appropriate steps.

Gold testified that he contacted Morris repeatedly in the days following November 8, 1988, but Morris...