Cont'l Vineyard, LLC v. Vinifera Wine Co., s. 19-2089 & 19-2173

973 F.3d 747

CONTINENTAL VINEYARD, LLC, and Indeck-Paso Robles LLC, Plaintiffs-Appellants, Cross-Appellees,

v.VINIFERA WINE CO., LLC, and Randy Dzierzawski, Defendants-Appellees, Cross-Appellants.

Nos. 19-2089 & 19-2173

United States Court of Appeals, Seventh Circuit.

Argued June 1, 2020

Decided September 2, 2020

Todd Joseph Ohlms, Attorney, Freeborn & Peters LLP, Chicago, IL, for Plaintiffs - Appellants.

Jan Jeffrey Rubinstein, Attorney, Rubinstein Law Firm, Bingham Farms, MI, for Defendants-Appellees.

Before Ripple, Wood, and Scudder, Circuit Judges.

Wood, Circuit Judge.

This case pits two wine enterprises against one another. In one corner, we have Gerald Forsythe, who formed Indeck-Paso Robles, LLC ("Indeck") for the purpose of creating and managing a wine-grape vineyard. In the other, we have Randy Dzierzawski, who started out as Forsythe's business associate and vice-president and later branched out on his own. In time, Forsythe became convinced that Dzierzawski and his company stole valuable business opportunities from Forsythe's operations. Litigation ensued, with an ultimate outcome largely favoring Dzierzawski, but also giving Forsythe's company $285,731 as disgorgement.

Forsythe and his related companies have appealed from the judgment in favor of the Dzierzawski parties, largely on the ground of allegedly fatal inconsistencies in the jury's verdict. Dzierzawski has cross-appealed from the disgorgement order. Forsythe argues that Dzierzawski stole a corporate opportunity from his company, but we agree with the district court that the evidence does not support such a finding. As for the verdicts, we are left to make the best of a bad thing. They are hard to reconcile at first glance, but neither party made any objection until several weeks after the jury was disbanded. Without such a contemporaneous objection, the court was left on its own. It resolved the uncertainties in a way that respected what the jury said. Finally, with respect to the cross-appeal, we see no reversible error in the disgorgement order. Although the case is something of a procedural mess, we conclude in the final analysis that the judgment of the district court should be affirmed.

I

We begin with a closer look at the events leading up to this litigation, as the issues on appeal are largely factual. In 2006, Indeck purchased Shimmin Canyon Vineyard in Paso Robles, California. Forsythe later established Continental Vineyard, LLC ("Continental"), as a wholly-owned subsidiary of Indeck, for the purpose of operating Shimmin Canyon. Forsythe appointed himself chairman and CEO and named Dzierzawski president. In that capacity, Dzierzawski was in charge of all of Continental's day-to-day operations.

At first, Forsythe and Dzierzawski wanted Continental to operate Shimmin Canyon exclusively as a grape-growing enterprise. Later, however, they decided to get into the business of winemaking. Continental's first step was to hire Chris Cameron, an experienced vintner, as Director of Winemaking.

In 2010, Cameron and Dzierzawski, on behalf of Continental, met with Mark Esterman, a wine buyer for the Meijer grocery store chain, to discuss developing custom wine for the store. This was an ambitious plan: fulfilling Meijer's need would have required Continental to purchase wine from other suppliers, because Shimmin Canyon's crop was too small and did not include all the right varieties for Meijer's desired wines. After the Esterman meeting, Dzierzawski informed Forsythe about the Meijer opportunity. Forsythe was uninterested; he stated that Shimmin Canyon was already a money-loser and that he did not want to invest additional capital into buying "juice" from other suppliers. A week or two later, Dzierzawski again urged Forsythe to pursue the Meijer opportunity, but Forsythe again declined.

Only then did Dzierzawski decide to take matters into his own hands. Along with Cameron, he formed Vinifera Wine Company ("Vinifera") and, working with Meijer, he obtained his wines (Zinfandel and Moscato) from third parties. In time, Vinifera began to source some of its wine from Continental. It paid Continental to bottle, store, and ship wine under Vinifera's label. Continental also worked with at least two other companies. Cameron provided some winemaking services to these companies, but he worked primarily for Vinifera. His services to Vinifera were extensive, and he became concerned that Vinifera was not compensating Continental properly for the use of its resources.

At trial, Cameron testified that Dzierzawski concealed the extent of Vinifera's operations from Forsythe during this period. In addition, Cameron accused Dzierzawski of using his position as Continental's president to sell the same wine under both the Continental and Vinifera labels and to assign lower prices to the Vinifera wines, thereby siphoning sales away from Continental. Cameron also reported that Dzierzawski instructed Continental employees to enter these identical wines in the same wine contests to enhance the reputation and market share of the cheaper Vinifera-labelled wines.

In 2012, in anticipation of an audit of Continental, Dzierzawski disclosed the scope of Vinifera's operations to Forsythe. Forsythe responded angrily, stating that he had made it clear that Continental was not to purchase wine from other vineyards. He demanded that Dzierzawski shutter operations at Vinifera. Dzierzawski initially agreed but quickly thought better of it and resigned from Continental and Indeck. In short order, Continental and Indeck (to which we refer collectively as Continental) sued Dzierzawski and Vinifera, alleging that Dzierzawski had injured them by starting a competing business while he was still serving as Continental's vice president.

II

Continental raised five theories in its complaint against Dzierzawski and Vinifera: (1) breach of fiduciary duty for failing to act in good faith; (2) breach of fiduciary duty of loyalty for self-dealing; (3) unfair competition; (4) unjust enrichment; and (5) usurpation of a corporate opportunity. The district court granted summary judgment in favor of the defendants on the corporate opportunity theory but allowed the other four counts to proceed to trial. A jury found the defendants liable on the unfair competition contention, but it ruled in their favor on the other three theories. But its verdict with respect to unfair competition was opaque: despite rendering a verdict seemingly in Continental's favor, the jury left the damages section on the verdict form blank. After the jury returned its verdict, the court suggested that it should poll the jury members individually to ensure that the blank damages section indicated that they intended to award no damages. Counsel agreed, and so the court polled the jurors, who unanimously responded that this was, in fact, their intention.

Continental did not object to the jury's verdict at the time that it came down. Several weeks after the jury was discharged, however, it filed a timely motion for a new trial under Federal Rule of Civil Procedure 59. It argued that the jury's verdict was inconsistent in two respects: first, it contended that it is impossible to reconcile the finding that Dzierzawski was liable for unfair competition with its verdict that he was not liable for breach of the fiduciary duty of loyalty; and second, it argued that the jury's decision not to award damages for Continental could not be squared with its finding that Dzierzawski was liable for unfair competition.

The district court denied the motion for a new trial. It found that Continental had waived its opportunity to raise the argument that the jury's verdict was inconsistent, because it had failed to make an objection to the jury instructions. See FED. R. CIV. P. 51. The court did, however, grant Continental's request for disgorgement as alternative relief, and ordered Dzierzawski to pay $285,731 to Continental. The court observed that "the jury's verdict is merely advisory on the issue of equitable disgorgement, as it is an equitable remedy to be imposed by the Court as opposed to the jury." (internal quotation marks omitted). Continental and Indeck appealed both from the denial of their motion for new trial and from the adverse ruling on summary judgment on their claim under the corporate-opportunity doctrine. Vinifera and Dzierzawski filed a cross-appeal challenging the disgorgement award.

III

A

Before turning to the main event, we briefly touch on jurisdiction and choice of law. Continental filed its complaint in the Northern District of Illinois; it relied on diversity jurisdiction under 28 U.S.C. § 1332. The two plaintiffs, Continental Vineyard, LLC and Indeck-Paso Robles LLC, are both Delaware limited-liability companies. Continental's sole member is Indeck-Paso Robles LLC, and Indeck's sole member is Indeck Energy Services, Inc., an Illinois corporation with its principal place of business in Illinois. That means that both Continental and Indeck are Illinois citizens for purposes of section 1332. Wise v. Wachovia Sec., LLC, 450 F.3d 265, 267 (7th Cir. 2006). Vinifera is a Michigan limited-liability corporation whose sole member at the time of suit was Dzierzawski. He is a citizen of Michigan. Finally, the amount in controversy exceeds $75,000 (by a comfortable margin).

Personal jurisdiction is a bit of a puzzle, but the time for making an objection passed and it is now too late to raise one. See FED. R. CIV. P. 12(b)(2), (h)(1). Continental chose the Illinois forum and contended that Illinois's courts have specific personal jurisdiction over Vinifera and Dzierzawski based on Vinifera's sale of wine in Illinois and the harms Continental suffered in that state because of those sales. Given the waiver of this point, we make no comment on the adequacy of these allegations under cases such as Walden v. Fiore , 571 U.S. 277, 134 S.Ct. 1115, 188 L.Ed.2d 12 (2014).

The choice-of-law principles of the forum state, Illinois, govern here. See Klaxon Co. v....