Kapelanski v. Johnson

• Decision Date: 24 November 2004
• Docket Number: No. 02-3878.,02-3878.
• Citation: 390 F.3d 525
• Parties: Grace M. KAPELANSKI and Stanley J. Kapelanski, Plaintiffs-Appellees, v. Scott JOHNSON, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

390 F.3d 525

Grace M. KAPELANSKI and Stanley J. Kapelanski, Plaintiffs-Appellees, v. Scott JOHNSON, Defendant-Appellant.

No. 02-3878.

United States Court of Appeals, Seventh Circuit.

Argued April 2, 2004.

Decided November 24, 2004.

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Arthur S. Gold (argued), Levenfeld, Gold & Rosenfeld, Chicago, IL, for Plaintiff-Appellee.

David A. Epstein (argued), Chicago, IL, for Defendant-Appellant.

Before EASTERBROOK, MANION, and WILLIAMS, Circuit Judges.

WILLIAMS, Circuit Judge.

Stanley J. Kapelanski, a Chicago area dentist, and his wife and office manager, Grace M. Kapelanski, brought this action in diversity for common law fraud and breach of fiduciary duty under Illinois law, against the defendant, Scott Johnson, a businessman based in Florida. The Kapelanskis sought to recover monies they had conveyed to Johnson in a series of investments that included an "Off-Shore Trading Program" and the purchase of automatic teller machines for leasing. After trial, the jury found in favor of the plaintiffs and awarded them compensatory and punitive damages. In an oral ruling, the district court denied Johnson's post-trial motions to amend the judgment, or for a new trial, and entered judgment on the verdict." Johnson now appeals the jury verdict. Johnson argues that the district court should have amended the judgment or ordered a new trial because Johnson was unfairly prejudiced. Specifically, Johnson argues that he was prejudiced by the district court's questioning of him on the witness stand and the district court's action in allowing plaintiffs to change their theories about Johnson's fraud during the trial. Additionally, Johnson asserts that the damage awards were untenable. For the reasons stated below, we affirm.

I. Background

Plaintiff Stanley Kapelanski, an immigrant from Poland, practices dentistry in Chicago, Illinois, and his wife, plaintiff Grace Kapelanski, manages the dental practice. The Kapelanskis were interested in making financial investments. Calvert Heskiel, a friend of the Kapelanskis, put them in contact with defendant Scott Johnson, an independent businessman based in Florida. After a series of telephone conversations with Johnson, the Kapelanskis transferred $15,000 to Johnson in July 1998 to invest in what Johnson termed an "Offshore Venture" in the "Gateway International Group."

The investment relationship between the parties expanded in late 1998. In October 1998, Johnson and the Kapelanskis physically met in Chicago. Johnson urged the Kapelanskis to invest in automatic teller machines ("ATMs") through his company. The Kapelanskis agreed to purchase the ATMs and wired Johnson a total of $301,500 in four separate installments from October 26, 1998 to February 5, 1999.¹

On October 26, 1998, the Kapelanskis also decided to invest an additional $100,000 in a deal the parties referred to as the Offshore Trading Program ("OTP"). The Kapelanskis transferred $100,000 to the escrow account of Feder & Dunn, P.A., Johnson's Florida-based attorneys, for investment in the OTP. In December 1998, Johnson sent the Kapelanskis a check for $18,000. This amount represented a $3,000 return on their July 1998 investment. The Kapelanskis repeatedly requested information from Johnson regarding both their OTP and ATM investments. These requests included items such as proof of purchase, locations, and serial numbers for the ATM machines. Johnson did not respond to the Kapelanskis' requests, and the plaintiffs never received any proof of purchase for the ATMs, nor any information pertaining to the OTP.

The Kapelanskis filed this action for fraud and breach of fiduciary duty under Illinois law against Johnson. The Kapelanskis sought both compensatory and punitive damages for their ATM and OTP investments. During the litigation, despite three document requests and a court order demanding Johnson's compliance, Johnson failed to produce evidence that the OTP investment program actually existed. Johnson also failed to produce any evidence pertaining to proof of purchase of the ATMs.

The matter went to trial² where only three witnesses, the Kapelanskis and Johnson, testified. The jury was shown plaintiffs' exhibits of wire transfers. These wire transfers demonstrated that two days after Johnson had transferred $100,000 of the plaintiffs' money to a Russel Pierce³ for the OTP, Pierce sent $200,000 to Johnson. Plaintiffs presented evidence at trial which showed that Johnson placed the $301,500 for the ATMs into his business account. From this business account, Johnson later withdrew almost $400,000 to purchase a ski house in Colorado, a condominium, designer mountain bikes, boating equipment and two luxury automobiles — a Mercedes-Benz and a Jaguar.

The jury returned a verdict in favor of the Kapelanskis. The jury awarded the Kapelanskis $100,000 in compensatory damages and $331,250 in punitive damages on their fraud claim. The district court entered judgment on the jury's verdict. The district court also, in an oral ruling, denied the defendant's request for a new trial.

Johnson appeals on several grounds. He argues that the district court improperly denied his post-trial motion to amend the judgment or for a new trial. Johnson claims that there was insufficient evidence presented at trial to support the verdict for the plaintiffs. Johnson also argues that the compensatory and punitive damage awards are invalid. Johnson further contends that the district court judge committed error when he selectively questioned Johnson and allegedly showed disbelief of Johnson's credibility in front of the jury. Finally, the defendant argues that the district court allowed the plaintiffs to alter their trial theory in violation of its pre-trial order.

II. Analysis

A. Post-Trial Motion

As a federal court sitting in diversity, federal law governs our evaluation of Johnson's motion to amend the judgment or for a new trial under Federal Rule of Civil Procedure 59. M.T. Bonk Co. v. Milton Bradley Co., 945 F.2d 1404, 1407 (7th Cir.1991). We review a district court's decision to deny such motions for abuse of discretion. Neal v. Newspaper Holdings, Inc., 349 F.3d 363, 368 (7th Cir.2003); Carter v. Moore, 165 F.3d 1071, 1079 (7th Cir.1998). Under the abuse of discretion standard, "the proper inquiry is not how the reviewing court would have ruled if it had been considering the case in the first place, but rather whether any reasonable person could agree with the district court." EEOC v. Century Broadcasting Corp., 957 F.2d 1446, 1460 (7th Cir.1992).

In ruling on a motion for new trial, federal law requires a district court to determine "whether `the verdict is against the weight of the evidence ... the damages are excessive, or ... for other reasons, the trial was not fair to the party moving.'" Id. (quoting General Foam Fabricators, Inc. v. Tenneco Chems., Inc., 695 F.2d 281, 288 (7th Cir.1982)). We will not set aside a jury verdict if a reasonable basis exists in the record to support the verdict, viewing the evidence in the light most favorable to the prevailing party, and leaving issues of credibility and weight of evidence to the jury. Carter, 165 F.3d at 1079.

As a federal court sitting in diversity, we apply state law to all substantive claims. See, e.g., Mut. Serv. Cas. Ins. Co. v. Elizabeth State Bank, 265 F.3d 601, 612 (7th Cir.2001). The parties do not dispute that we are to apply Illinois state law in our review of plaintiffs' fraud claim. As the district court's instructions to the jury indicated, to sustain an action for fraud under Illinois law, the plaintiff must prove by clear and convincing evidence that: (1) the defendant made a false statement of material fact; (2) the defendant knew or believed that the statements were false, or the statements were made with a reckless disregard of whether they were true or false; (3) the statements were made with the intent to induce action; (4) the plaintiff reasonably believed the statements and justifiably acted in reliance on those statements; and (5) the plaintiff suffered damages as a result. See Soules v. Gen. Motors Corp., 79 Ill.2d 282, 37 Ill.Dec. 597, 402 N.E.2d 599, 601 (1980).

Contrary to Johnson's assertion, there is reasonable basis in the record to support the jury's verdict. At trial, Johnson admitted that he represented to the Kapelanskis that he would invest their money in ATMs. The Kapelanskis relied on that representation. Johnson admitted at trial that he knew of the Kapelanskis' reliance. The Kapelanskis did in fact transfer their money to Johnson based on these expectations. The Kapelanskis presented documentary evidence of the wire transfers they made for the ATMs. The Kapelanskis also submitted documentary evidence of the check for $100,000 they sent to Johnson's attorneys, as instructed, to be invested in the "Offshore Trading Program." Johnson also admitted on the stand that he did not produce any document to the Kapelanskis that would account for the $100,000.

In addition, the jury saw evidence which reflected that Johnson's attorneys sent $100,000 to the "Russel Pierce Consulting Company," which, within days of receipt, transmitted $200,000 to an account held by New Century Investors Incorporated. Johnson admitted that he never produced documentation or other evidence that would prove the existence of the OTP. Johnson failed to produce this evidence despite a court order compelling him to do so. The Kapelanskis never received proof of purchase of the ATMs and none was presented to the jury. Further, Grace Kapelanski testified that after failing to return repeated phone calls, Johnson eventually did get in touch with her only to call her a "belly-acher" and to insist that she did not "know how to play with the big boys."

Johnson claimed that Pierce was the individual responsible for stealing the Kapelanskis' money. However, Johnson presented no proof as to Pierce's actual existence.⁴ Johnson...