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September 21, 1989


Richard A. Posner, United States District Judge.

The opinion of the court was delivered by: POSNER

POSNER, Circuit Judge (sitting by designation).

 I have before me the defendants' post-trial motions in this fraud and breach of contract case that pitted Marjorie B. Price against Highland Community Bank and its president, George R. Brokemond. At the end of a four-day trial in June (at which I presided by designation of the chief judge of the circuit to help the district court with its heavy caseload), the jury found in favor of Price and directed the defendants to pay her $ 25,000 in compensatory damages for the fraud and the breach of contract and $ 150,000 in punitive damages for the fraud. Although the jury was asked to assess compensatory damages separately on the two counts, the parties had agreed beforehand that the plaintiff was entitled to only a single recovery, since the harms allegedly caused by the two violations were identical. Cf. Douglass v. Hustler Magazine, Inc., 769 F.2d 1128, 1146 (7th Cir. 1985).

 I declined to enter judgment on the jury's verdict and instead set a briefing schedule for post-trial motions. The last brief was filed on August 3 and the case is now ripe for final decision. The defendants' motions ask, alternatively, for judgment notwithstanding the verdict, for a new trial, and for a reduction in the compensatory and punitive damages awarded by the jury.

 The suit had originally been filed in an Illinois state court, in June 1987, but because it claimed among other things that the bank had violated the terms of a profit-sharing plan, the defendants were able to remove the suit to this court as an ERISA suit, see Brundage-Peterson v. Compcare Health Services Ins. Corp., 877 F.2d 509, 510 (7th Cir. 1989), with pendent claims for fraud and breach of contract under the common law of Illinois, see United Mine Workers v. Gibbs, 383 U.S. 715, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966). The plaintiff then dropped her ERISA claim, but this did not affect federal jurisdiction, which with immaterial exceptions depends on the facts and claims when the suit is removed, rather than on subsequent developments. See, e.g., In re Carter, 618 F.2d 1093, 1101 (5th Cir. 1980). Although the general rule is that if the federal claim falls out before trial the district judge will relinquish jurisdiction over the pendent state-law claims, see United Mine Workers v. Gibbs, supra, 383 U.S. at 726; Blau Plumbing, Inc. v. SOS Fix-It, Inc., 781 F.2d 604, 611-12 (7th Cir. 1986), there are a number of exceptions, for example where there is a dispositive federal defense to the pendent state claim or where the statute of limitations has run and would therefore bar a refiled claim. See, e.g., Rosado v. Wyman, 397 U.S. 397, 402-05, 25 L. Ed. 2d 442, 90 S. Ct. 1207 (1970); Graf v. Elgin, Joliet & Eastern Ry., 790 F.2d 1341, 1347-48 (7th Cir. 1986); United States v. Zima, 766 F.2d 1153, 1158-59 (7th Cir. 1985).

  The present case invites the creation of a new exception, for the case where the suit was properly removed and the plaintiff then decided to abandon his federal claim. The existence of such an exception is implicit in the Supreme Court's decision in Carnegie-Mellon University v. Cohill, 484 U.S. 343, 108 S. Ct. 614, 98 L. Ed. 2d 720 (1988). The plaintiffs in that case had filed a complaint in state court that contained a mixture of federal and state claims. The defendants removed the case to federal court, and later the plaintiffs both abandoned their federal claim and moved to remand the case to state court. The issue in the Supreme Court was whether the district court had the power to remand the case, or whether its only mode of relinquishing jurisdiction over the state law claims was to dismiss the case. In the course of holding that the district court had the power to remand the case, the Supreme Court remarked that "when the single federal-law claim in the action was eliminated at an early stage of the litigation, the District Court had a powerful reason to choose not to continue to exercise jurisdiction." Id. at 619. The Court did not hold, however, that it would have been improper for the district court to retain jurisdiction -- a course of action the plaintiffs were not requesting. Here neither party asked to return to state court. On the contrary, both sides were eager to try the case in federal court rather than rejoin the long state-court queue. The case when it came to me had been in federal court almost two years, and all preparations for trial had been completed. In the circumstances I did not and do not think that I was required to relinquish jurisdiction by dismissing or remanding the case.

 I said that both sides were eager to try the case but it would be more accurate to say that the defendants were unwilling to settle it. At a pretrial conference on the eve of trial, the plaintiff's lawyer offered to settle the case for a very modest amount and made clear that this was his initial, not his final, offer. The defendants refused to consider settlement, a refusal that in retrospect was imprudent but that is immaterial to my consideration of the issues raised by the post-trial motions.

 The essential facts and areas of contention can be described briefly. Highland Community Bank is a successful minority bank in the southern part of Chicago, with assets last year of about $ 80 million, net income of almost $ 800,000, and about fifty employees. Its president, chief executive officer, and unquestioned boss, George Brokemond, is an able, knowledgeable, and aggressive banker whose energy and skill appear to be the principal ingredients in the bank's success. Late in 1983 Brokemond decided to experiment with creating a separate marketing staff in the bank. He hired Linda Hurley to head up the new staff. On March 1, 1984, Hurley hired Marjorie Price, the plaintiff, for the marketing staff. Price at the time was working in a different capacity for Continental bank, but Continental had just announced a reduction in force that would abolish Price's job, and her prospects for finding another job in Continental were shaky. She initially accepted a substantial reduction in salary to come with Highland -- from $ 37,500 to $ 25,000 -- but later she persuaded Hurley (who persuaded Brokemond) to raise her salary to $ 30,000. According to Price's testimony, which Hurley corroborated, Price accepted a lower salary than she was getting at Continental in part because she was promised an incentive-compensation plan, which she had not had at Continental.

 Price remained at Highland Community Bank for two years and eight months, leaving voluntarily to accept a marketing position at another minority bank in Chicago. She received no incentive compensation at Highland -- indeed no incentive-compensation plan was ever put into effect -- and this, she testified, was a determining factor in her decision to leave. Hurley left the bank around the same time and now works for the State of Washington. She has no successor; the marketing staff has been disbanded.

 Several months after Price had begun working for the bank, Brokemond sent her another letter, this one dated August 13, 1984 (plaintiffs exhibit 5), which confirmed the terms of her employment and included a statement that while she would be eligible to participate in the employee profit-sharing plan at the end of her first year, "the incentive program outlined in my letter dated February 11, 1984 goes into effect immediately." The letter also reflects the bank's agreement to pay her an annual salary of $ 30,000, rather than $ 25,000 as first agreed. At the bottom of the letter is a space for Price to sign her name under the caption "terms and conditions accepted," which she duly did.

 According to her and Hurley's testimony, the incentive program was of great interest to the members of the marketing staff, and Brokemond repeatedly assured them that the program was in the works and would soon be made final. Hurley repeated these assurances to Price, who also heard them directly from Brokemond. But according to Brokemond's own testimony at trial, he never did devise such a program or place it in effect. He regarded the terms sketched in his letter of February 11 as preliminary thoughts, tentative and nonbinding, speculative and ruminative; and, distracted by other matters, he never progressed to the point of settling on the terms of the program and putting it into effect. In part this was because he was dissatisfied with the marketing staff, which he regarded as an experiment and ultimately as a failed experiment. He considered himself the principal marketer of the bank's products and doubted whether the cost of the marketing department was justified. Since the events in this case, the bank has as I have noted abolished the department.

 If there was a contract, there was a breach -- but was there a contract? When the question is whether a contract has been formed from a series of writings plus oral statements, the answer is within the lap of the jury, see, e.g., Western Industries, Inc. v. Newcor Canada Ltd., 739 F.2d 1198, 1205 (7th Cir. 1984); Meyers v. Selznick Co., 373 F.2d 218, 222-23 (2d Cir. 1966); Farnsworth, Contracts 516-17 (1982), and can be disturbed only if unreasonable. I have cited federal cases on this point because the allocation of power between judge and jury in a federal diversity case is a question of federal rather than state law. Byrd v. Blue Ridge Rural Electric Coop., Inc., 356 U.S. 525, 538, 2 L. Ed. 2d 953, 78 S. Ct. 893 (1958). Cases so holding with specific reference to the respective roles of judge and jury in the interpretation of contracts include Afga-Gevaert, A.G. v. A.B. Dick Co., 879 F.2d 1518, 1521 (7th Cir. 1989); Cooper Laboratories, Inc. v. International Surplus Lines Ins. Co., 802 F.2d 667, 671 (3d Cir. 1986); and Meyers v. Selznick Co., supra, 373 F.2d at 222 n. 1 (Friendly, J.).

 The jury's finding that there was a contract in this case was reasonable. Apart from oral promises that the jury was entitled to find that Brokemond had made, the letters of February 4 and August 11 can easily be read to promise the implementation, immediately upon Price's ...

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