Trytko v. Hubbell, Inc.

• Decision Date: 06 October 1994
• Docket Number: 93-1857,Nos. 93-1740,s. 93-1740
• Citation: 28 F.3d 715
• Parties: 40 Fed. R. Evid. Serv. 1364 John E. TRYTKO, Jr., Plaintiff-Appellee, Cross-Appellant, v. HUBBELL, INC., Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 715

28 F.3d 715

40 Fed. R. Evid. Serv. 1364

John E. TRYTKO, Jr., Plaintiff-Appellee, Cross-Appellant, v. HUBBELL, INC., Defendant-Appellant, Cross-Appellee.

Nos. 93-1740, 93-1857.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 15, 1994.

Decided July 7, 1994.

Rehearing Denied Oct. 6, 1994.

Thomas J. Brunner, Jr. (argued), Paul J. Peralta, Kevin D. O'Rear, Baker & Daniels, South Bend, IN, John W. Purcell, Cynthia P. Purvis, Baker & Daniels, Indianapolis, IN, for plaintiff-appellee.

Thomas W. Yoder (argued), Karl J. Veracco (argued), Miller, Carson & Boxberger, Fort Wayne, IN, for defendant-appellant in No. 93-1740.

Thomas W. Yoder (argued), Karl J. Veracco (argued), Miller, Carson & Boxberger, Fort Wayne, IN, C. Erik Chickedantz, Hawk, Haynie, Gallmayer & Chickedantz, Fort Wayne, IN, for defendant-appellee in No. 93-1857.

Before COFFEY and FLAUM, Circuit Judges, and MORAN, Chief District Judge. ^*

FLAUM, Circuit Judge.

In this diversity case, John E. Trytko, Jr., a resident of Indiana, filed a three-count amended complaint against Hubbell, Inc., a Connecticut corporation. In Count I, Trytko alleged negligent misrepresentation on the part of Hubbell's then-general counsel, Richard Davies, with respect to the expiration dates of Hubbell stock options. In Counts II and III respectively, Trytko alleged constructive fraud and a violation of the Indiana Blue Sky laws, based upon the same facts underlying Count I. On the second day of trial, the district court granted judgment as a matter of law for Hubbell on Counts II and III while permitting Count I to be decided by the jury. The jury returned a verdict for Trytko in the amount of $629,300. Hubbell then filed post-trial motions for judgment notwithstanding the verdict and for a new trial, both of which the district court denied. Hubbell appeals the disposition of Count I with respect to both liability and damages. Trytko cross-appeals the entry of judgment as a matter of law on Count II. We affirm the judgment against Trytko on Count II and the jury verdict for Trytko on Count I, but we reduce the damage award by the option price of $95,000.

I.

From September, 1976, to June 1, 1985, John Trytko served as president of Raco, Inc., a manufacturer of electrical devices located in South Bend, Indiana. In April, 1981, Hubbell acquired Raco and offered Hubbell stock options to certain Raco employees, including Trytko. Pursuant to its 1973 "Stock Option Plan for Key Employees" ("the Plan"), Hubbell granted the ten-year options in question here on December 8, 1981, December 14, 1982, and December 13, 1983. According to the Plan, retired employees could exercise option rights until the earlier of (a) the end of the specified option period, or (b) three years after the date of retirement. Each option permitted its holder to purchase a fixed number of Hubbell shares at a price set on the date the option was granted. Thus, the value of a given option could be determined by subtracting the option price from the prevailing market price.

Trytko decided to retire on June 1, 1985. A few months prior to the appointed date, on March 19, 1985, Trytko arranged a meeting at Hubbell headquarters in Orange, Connecticut, in order to discuss his retirement benefits with Hubbell officials. On that day, Trytko met with Roger Search, Hubbell's vice president of personnel, and Richard Davies, Hubbell's secretary and general counsel. Search provided Trytko with a written summary of his stock options, but instructed Trytko to direct any questions he may have to Davies, with whom he met later in the day. Trytko and Davies present contradictory accounts of what was said during their meeting. Trytko claims that Davies erroneously advised him that he would have the balance of the full ten-year term in which to exercise his stock options. According to Trytko, Davies stated that Trytko had "until the expiration date" to exercise the options. When Trytko responded "what you're saying is I have until 1991, 1992, and 1993"--the dates listed on Trytko's stock option record--Davies allegedly did not respond, changing the subject instead. Trytko then wrote "1991, 1992, and 1993" directly on the stock option document that he had received from Search. Davies, on the other hand, contends that he advised Trytko several times of the three year period during which retired employees must exercise their stock options. Davies maintains that Trytko understood the special retirement rule and asked no questions.

Although Trytko exercised the qualified (or "tax-favored") portions of his stock options within three months of his retirement, he made no effort to exercise his non-qualified stock option rights until over three years had passed since his retirement. On December 5, 1988, Trytko telephoned Davies to express his desire to exercise his remaining options. Davies informed Trytko that the unexercised options had expired on June 1, 1988. Trytko then advised Davies of the notes he had made during their 1985 meeting which indicated his understanding that the options had a ten-year term. Davies asked Trytko to provide a copy of the document. Extensive correspondence over the next several months between Trytko and Hubbell failed to resolve the dispute to Trytko's satisfaction. On May 31, 1990, Trytko filed suit.

The case went to trial on January 6, 1993. On the second day of trial, the district court granted judgment as a matter of law for Hubbell on Counts II and III of Trytko's amended complaint, alleging constructive fraud and a violation of Indiana's Blue Sky laws. The trial then proceeded on the sole remaining count--whether Davies negligently misrepresented the expiration dates of Trytko's stock options. Over Hubbell's continuing objections, Trytko's counsel examined Davies at length, both on direct and cross-examination, concerning Hubbell's practice of sending notices to option holders notifying them of the expiration dates of their options. Davies' testimony revealed that Hubbell began the practice of sending reminder notices in January, 1988, five months before Trytko's options allegedly expired. Hubbell never sent such a notice to Trytko. Furthermore, also over Hubbell's objection, Trytko's counsel presented evidence of the then-current value of the stock Trytko would have acquired had he been permitted to exercise his stock options in a timely fashion. As of June 1, 1988, the 9,500 shares of Hubbell stock for which Trytko held options had a market value of $300,000, for which Trytko would have paid an option price of $95,000. By December 5, 1988, the value of the shares had increased to $320,000. In 1989, Hubbell began issuing stock dividends which, by the eve of trial, would have increased Trytko's proportional share of ownership to 11,547 shares, with a market value of $629,325.67.

After a four-day trial, the jury returned a verdict for Trytko on his negligent misrepresentation claim and awarded damages in the amount of $629,300. The district court denied Hubbell's post-trial motions for judgment notwithstanding the verdict and for a new trial. Hubbell appeals the jury verdict as to both liability and damages. Trytko cross-appeals the entry of judgment as a matter of law on his constructive fraud claim.

II.

A.

As a threshold matter, we address Hubbell's contention that it was entitled to judgment as a matter of law on Count I because Indiana does not recognize the tort of negligent misrepresentation. As a federal court hearing a case in its diversity jurisdiction, we must "determine the issues presented herein as we believe the Indiana courts would under the circumstances." Kutsugeras v. Avco Corp., 973 F.2d 1341, 1346 (7th Cir.1992). In other words, we must apply Indiana law as declared by its supreme court, or in the absence of a statement by that court, by its intermediate appellate courts. See id. (citing Affiliated FM Insurance Co. v. Trane Co., 831 F.2d 153, 155 (7th Cir.1987)). Where, as here, the state supreme court has not addressed the subject at hand, directly or otherwise, and the state appellate courts have issued seemingly contradictory opinions, the task of finding the applicable state law is easier articulated than performed. In such circumstances, "a federal court must exhaustively dissect each piece of evidence thought to cast light on what the highest state court would ultimately decide." Dolores K. Sloviter, A Federal Judge Views Diversity Jurisdiction through the Lens of Federalism, 78 Va.L.Rev. 1671, 1676 (1992) (citation omitted) (quoting Judge Henry Friendly).

As Hubbell points out, earlier Indiana appellate decisions declined to recognize the new tort of negligent misrepresentation. See Wilson v. Palmer, 452 N.E.2d 426, 429 (Ind.App. 4th Dist.1983); Essex v. Ryan, 446 N.E.2d 368, 370 (Ind.App.2d Dist.1983); English Coal Co., Inc. v. Durcholz, 422 N.E.2d 302, 310 (Ind.App. 1st Dist.1981). However, in Eby v. York Division, Borg-Warner, 455 N.E.2d 623, 628-629 (Ind.App. 4th Dist.1983), the court, adopting the Restatement (Second) of Torts, Sec. 552, ¹ recognized the tort of negligent misrepresentation in the limited context of an employer-employee relationship. In Eby, the court reversed the grant of summary judgment for an employer who had negligently made false representations to an employee concerning future employment in another state. As the court noted,

One of the major questions in negligence cases is naturally the duty to be attributed to the party making the representations and to whom that duty extends. In this case there is the clear-cut principle that it is an employer's duty to protect its employee against the employer's own negligence. See Cleveland, Cincinnati, Chicago & St. Louis Railway Co. v. Gossett, (1909) 172 Ind. 525, 87 N.E. 723; Conway v. Park, (1941) 108 Ind.App. 562, 31 N.E.2d 79. Although typically used in reference to physical injuries suffered in such master-servant relationships, we find no reason not to apply the...