Chicago Business Litigation Lawyer Blog
An employee of a wine-making company was sued by his former employer for starting a competing business while he was still serving as the company’s president. The company also alleged that he misused his position as president to sell the same wine under the company’s brand and the brand of his new company, while assigning lower prices to the wine from his new brand, thereby siphoning sales away from the winemaker. After a trial, a jury found in favor of the company but awarded it no damages. The company appealed, arguing that the jury’s verdict was inconsistent with its findings regarding liability. The appellate panel disagreed, finding that the jury could reasonably have concluded that though the ex-employee was liable, his actions did not cause the company any significant financial harm. The panel upheld the verdict and the judgment of the district court.
Gerald Forsythe formed Indeck-Paso Robles, LLC for the purpose of creating and managing a wine-grape vineyard. In 2006, Indeck purchased Shimmin Canyon Vineyard in Paso Robles, California. Forsythe later established Continental Vineyard LLC, as a wholly-owned subsidiary of Indeck, for the purpose of operating Shimmin Canyon. Forsythe appointed himself chairman and CEO and named Randy Dzierzawski president. Dzierzawski was in charge of all of Continental’s day-to-day operations.
Though the two originally intended for Continental to only operate as a grape-growing enterprise, they eventually decided that they wished to branch out into winemaking. Continental then hired Chris Cameron, and 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. Dzierzawski brought the opportunity to Forsythe, but Forsythe declined to pursue it, finding it to be a money loser.
At this point, Dzierzawski, along with Cameron, formed Vinifera Wine Company. Working with Meijer, Vinifera obtained his wines from third parties. In time, Vinifera began to source some wine from Continental, paying Continental to bottle, store, and ship wine under the Vinifera label. Cameron worked primarily for Vinifera at this point and became concerned that Vinifera was not compensating Continental properly for the use of its resources. Dzierzawski concealed the extent of Vinifera’s operations from Forsythe until 2012 when an audit was scheduled to take place. Just before the audit, Dzierzawski informed Forsythe of the extent of Vinifera’s operations. Forsythe grew angry, and Dzierzawski resigned from both Indeck and Continental.
Continental and Indeck sued Dzierzawski and Vinifera, alleging that Dzierzawski had injured them by starting a competing business while he was still serving as Continental’s president. At trial, Cameron testified that Dzierzawski concealed the extent of Vinifera’s operations. 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.
Continental raised five theories in its complaint: breach of fiduciary duty for failing to act in good faith; breach of fiduciary duty of loyalty for self-dealing; unfair competition; unjust enrichment; and 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 ruled in favor of the defendants on the other three theories. Despite rendering a verdict in Continental’s favor on one count, the jury left the damages section blank. After being polled by the court, the jury stated that it was their intention to award no damages to Continental. Continental filed a motion for a new trial, which was denied. The court granted Continental’s request for disgorgement as alternative relief and ordered Dzierzawski to pay $285,731 to Continental. Both sides then appealed.
The appellate panel began by analyzing the jury’s response to the various questions asked on the general verdict form. The panel determined that, even if some residual tension remained among the jury’s findings, it agreed with the district court that Continental could not show that its substantial rights were affected by the court’s refusal to grant a new trial. The panel then stated that, although at first glance the jury’s verdicts appear to be inconsistent, a closer look showed that they could be reconciled. The panel stated that the jury apparently concluded that, although Dzierzawski through Vinifera had competed with Continental unfairly, Continental ultimately gained more than it lost from Dzierzawski’s conduct. The panel found that this conclusion could have been reinforced by the lack of concrete proof of loss from Continental. The panel determined therefore that the district court was correct to uphold the jury’s verdict and deny Continental’s motion for a new trial.
Finally, the panel turned to the cross-appeal and the disgorgement award. The panel noted that the district court was faced with silence from the state courts on the relevant issue of whether disgorgement was an appropriate remedy for unfair competition. The panel stated that in such a situation, the district court must make an educated guess about the likely content of state law. The panel found that the district court was, therefore, correct to rely on the Restatement as a guide. The panel determined that the district court did not err, and it, therefore, affirmed the decision of the court.
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