LaFollette v. Savage

• Decision Date: 18 October 1995
• Docket Number: No. 94-3100,94-3100
• Citation: 63 F.3d 540
• Parties: Barbara J. LaFOLLETTE and Corrections Telecom, Incorporated, Plaintiffs-Appellants, v. Gary SAVAGE, Corrections Telecom Group, Incorporated, John Dietler, and Pat Dietler, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 540

63 F.3d 540

33 Fed.R.Serv.3d 534

Barbara J. LaFOLLETTE and Corrections Telecom, Incorporated, Plaintiffs-Appellants, v. Gary SAVAGE, Corrections Telecom Group, Incorporated, John

Dietler, and Pat Dietler, Defendants-Appellees.

No. 94-3100.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 6, 1995.

Decided Aug. 11, 1995.

Rehearing Denied Oct. 18, 1995.

Bronson C. LaFollette, Madison, WI, Michael J. Luebke (argued), Atterbury, Riley & Luebke, Madison, WI, for Barbara J. LaFollette and Corrections Telecom, Inc.

Kevin J. Palmersheim (argued), J. Thomas Haley, Haley Law Office, Middleton, WI, for Gary Savage and Corrections Telecom Group, Inc.

John Dietler, Sacramento, CA, pro se.

Pat Dietler, Sacramento, CA, pro se.

Before MANION and ROVNER, Circuit Judges, and NORGLE, District Judge. ^*

ILANA DIAMOND ROVNER, Circuit Judge.

This diversity case involves a business partnership that went sour. Plaintiffs Barbara J. LaFollette and Corrections Telecom, Incorporated ("CTI") contend that defendant Gary Savage, CTI's former president, converted corporate assets and, after forming a competing company, diverted CTI's business opportunities. The case was tried to a jury, which returned a special verdict absolving Savage and the other defendants of any liability on plaintiffs' claims. The district court subsequently denied plaintiffs' post-trial motions, and they now appeal, contending that they are entitled either to judgment as a matter of law on their claims for conversion of corporate assets and diversion of corporate opportunities, or alternatively, to a new trial. We are unable to consider the majority of plaintiffs' arguments, however, because they failed to include in the record on appeal either a complete transcript of the trial testimony or any of the numerous documentary exhibits considered by the jury. We accordingly dismiss the bulk of plaintiffs' appeal and otherwise affirm the judgment below.

I.

We recite the facts as best we can from the limited record available to us. Savage and LaFollette met at a trade show sometime prior to August 1991. At the time, Savage already had formed "Corrections Telecom Company," which was engaged in marketing telecommunications services to correctional facilities. In September or October 1991, Savage became an independent agent for Paytel of America ("Paytel"), a telephone service provider. As Paytel's independent agent, Savage attempted to procure contracts for Paytel to provide telephone service to correctional facilities. A month or two later, Savage helped LaFollette establish a similar agency relationship with Paytel.

In May or June of the following year, Savage and LaFollette decided to go into business together, and they incorporated CTI. This new venture was intended to expand upon the work Savage and LaFollette had been doing as independent Paytel agents, in that CTI would procure contracts with correctional facilities for Paytel or other telephone service companies, earning a commission plus residuals on each line the telephone company installed. LaFollette's husband Bronson, an attorney, drafted CTI's incorporation papers and other corporate documents. Savage and LaFollette were CTI's sole shareholders, and initially they each owned fifty percent of the corporation's stock. Savage was CTI's president and secretary while LaFollette served as vice president and treasurer. The two agreed that the corporation's profits would be split evenly between them. In the fall of 1992, Savage transferred two of his CTI shares to LaFollette, making LaFollette the majority shareholder and qualifying the company for certification as a minority-owned business. The transferred shares were placed in escrow, however, so that LaFollette would not gain a controlling interest in CTI, and she and Savage continued to split the corporation's profits evenly.

At about the same time that they formed CTI, Savage and Lafollette met John and Pat Dietler, who had many contacts within the corrections field in the State of California. The Dietlers agreed to become CTI's agents in California and to attempt to procure contracts with California correctional facilities. Under their arrangement, CTI agreed to pay the Dietlers a commission plus residuals on each telephone line sold, and the Dietlers agreed to cover their own expenses. Yet because the Dietlers soon began to incur fairly significant travel expenses, Savage realized that the only way to retain their services was to begin paying their travel expenses, and he committed to do so on behalf of CTI. LaFollette, however, who served as CTI's treasurer, refused to reimburse the Dietlers for any of their travel expenses. To meet his commitment, then, Savage himself reimbursed the Dietlers for $30,000 in travel expenses in 1993.

A dispute also developed between Savage and LaFollette over Savage's own expenses. It seems that Savage was traveling on behalf of the corporation far more than LaFollette, and he thus was incurring more significant expenses. He also was incurring expenses relating to trade shows and other promotional events. Indeed, Savage's expenses in some months were four or five times those of LaFollette. ¹ Savage expressed concern to LaFollette that if CTI did not reimburse him for these expenses, she would be receiving more than her fair share of the corporation's profits because they were simply splitting CTI's gross profits. LaFollette, however, had exclusive control over the corporation's checkbook, and she chose to ignore Savage's concerns. Thus, to honor his commitment to the Dietlers and to cover additional expenses he had already incurred on CTI's behalf, Savage instructed Paytel's President, Randall Thompson, to send four commission checks owed to CTI directly to Savage rather than to LaFollette as CTI's treasurer. ² The four checks, which totaled $68,000, form the basis for plaintiffs' conversion claim, as those checks were made out to Savage rather than to CTI. Savage deposited the Paytel checks in his own account and used the funds to reimburse the Dietlers and himself for corporate expenses. On at least one and perhaps two prior occasions, Savage had similarly instructed Thompson to send Paytel commission checks directly to him rather than to LaFollette. On those earlier occasions, however, LaFollette had been on an extended vacation, and Savage did not want to delay the deposit of Paytel's commission checks until her return. He thus would deposit the Paytel checks in his own account in Texas and then write a personal check for deposit in CTI's account in Wisconsin, thereby enabling CTI to cover its expenses while LaFollette was away.

By 1993, many of CTI's customers began to experience difficulties with the telephone service provided by Paytel, and Savage was required to expend a significant amount of his time attending to these difficulties. Because correctional facilities associated CTI with Paytel, they attributed their service problems also to CTI, and CTI's reputation therefore became tainted. Indeed, none of the correctional facilities serviced by CTI and Paytel were willing to renew their contracts after expiration of the initial one-year terms. Savage therefore began to negotiate with another telephone company to replace Paytel as CTI's service provider, but some of CTI's customers also insisted that Savage have another corporation in place to replace CTI before they would enter into contracts for telephone service. Thus, Savage incorporated a separate company, Corrections Telecom Group, Inc. ("CTG"), and along with the Dietlers, he began to solicit contracts with correctional facilities for CTG. Savage, however, did not inform LaFollette about his new venture. The contracts that Savage and the Dietlers procured for CTG form the basis for plaintiffs' diversion of corporate opportunity claim.

LaFollette and CTI subsequently filed the instant action against Savage, CTG, and the Dietlers in federal court. After hearing three days of testimony, a jury returned a special verdict in favor of defendants, finding that Savage had not converted assets of CTI and that neither Savage nor the Dietlers had diverted corporate opportunities belonging to that company. The district court entered judgment on the jury's verdict after denying plaintiffs' alternative motions for judgment as a matter of law or for a new trial. On the conversion claim, the court observed that the jury had heard evidence "from which it could have reasonably determined that the corporate president had the authority to pay corporate debts with corporate funds whether or not such funds were first placed in the corporate treasury." (R. 146 at 4.) As to whether defendants had diverted any of CTI's corporate opportunities, the court explained that substantial evidence supported the jury's conclusion that the allegedly diverted opportunities were not available to CTI due to the problems customers had encountered in the past with CTI and Paytel. (Id. at 5.)

II.

LaFollette and CTI now renew the argument that they are entitled either to judgment as a matter of law or to a new trial on their conversion and diversion of corporate opportunity claims. They argue that the record includes no credible evidence to support the jury's verdict in defendants' favor. We review the denial of a motion for judgment as a matter of law de novo. DeBiasio v. Illinois Cent. R.R., 52 F.3d 678, 682 (7th Cir.1995). We apply the federal standard to such a motion even in a diversity case, and we will reverse the denial of the motion only if reasonable persons could not have found that plaintiffs failed to meet their burden of proving any essential element of their claims. See Israel Travel Advisory Serv., Inc. v. Israel Identity Tours, Inc., 61 F.3d 1250, 1258-59 (7th Cir.1995); Mayer v. Gary Partners and Co., Ltd., 29 F.3d 330, 335 (7th Cir.1994); Fed.R.Civ.P. 50(a). Our review of the district court's denial of a motion for new trial is even more limited....