to neither a judgment as a matter of law nor a new trial.
Third, Kato argues that if its letters satisfied the Statute of Frauds, the satisfaction came too late. For support, Kato relies on Culbertson v. Carruthers, which stated that if "an offer prescribes no time for acceptance, a reasonable time is implied." 66 Ill. App. 3d 47, 54, 383 N.E.2d 618, 22 Ill. Dec. 810 (5th Dist. 1978). Kato contends that its letters did not arrive within a reasonable time.
Roboserve maintains that the letters arrived within a reasonable time and, if they did not, their late arrival merely evidenced an intended earlier, seasonable acceptance of the amended CA.
Whether Kato accepted or intended to accept Roboserve's offer within a reasonable time is a factual matter for the jury. Judgement as a matter of law is "inappropriate if the parties disagree on the inferences which may reasonably be drawn from those undisputed facts." Cent. Nat'l Life Ins. Co. v. Fidelity and Deposit Co., 626 F.2d 537, 539-40 (7th Cir. 1980); see Paist, 772 F. Supp. at 414-5. We determine, then, only whether the jury's finding was unreasonable. By referencing the amended CA in its December 14 letter, Kato revealed that it believed itself bound. Moreover, by maintaining its negotiations with Roboserve until it believed the amended CA would soon run its course, Kato acted as if it were bound. In light of these facts, the jury's finding was not unreasonable. Therefore, on this point, Kato is entitled to neither a judgment as a matter of law nor a new trial.
Fourth, Kato argues that Roboserve should not be able to treat the December 14 letter as an anticipatory breach because it was not a positive and unequivocal repudiation. For support, Kato states that Roboserve maintained its units in the HRC after the supposed March 1, 1993, termination date. Maintaining them there would not have been an option if Kato truly repudiated the contract.
Roboserve argues that it should be able to treat the December 14 letter as an anticipatory breach because the letter's language is positive and unequivocal and, after Kato breached, Roboserve promptly filed suit.
The case law on anticipatory repudiation is well settled. "'Because the doctrine of anticipatory repudiation represents a harsh remedy, the requirement that a repudiating statement be clear and absolute is a strict one.'" LAK, Inc. v. Deer Creek Enter., 976 F.2d 328, 331 (7th Cir. 1992) (quoting Commonwealth Edison Co. v. Decker Coal Co., 612 F. Supp. 978, 981 (N. D. Ill. 1985)). "'To constitute an 'anticipatory breach,' . . . it must appear that the party bound under a contract has unequivocally refused to perform', or as the Supreme Court put it in Digley v. Oliver (citation omitted), there must be 'a positive, unconditional, and unequivocal declaration of fixed purpose not to perform the contract in any event or at any time.'" City of Fairfax v. Washington Metro. Area Transit Auth., 582 F.2d 1321, 1326 (7th Cir. 1978), cert. denied, 440 U.S. 914, 59 L. Ed. 2d 463, 99 S. Ct. 1229 (1979) (quoting Suburban Improvement Co. v. Scott Lumber Co., 67 F.2d 335, 337 (4th Cir. 1933)).
Once a party anticipatorily repudiates a contract, the non- breaching party may respond in a number of ways. "The promisee may, among others,
elect to treat the repudiation as a breach putting an end to the contract for all purposes of performance." Wilmette Partners v. Hamel, 230 Ill. App. 3d 248, 260, 594 N.E.2d 1177, 171 Ill. Dec. 657 (1st Dist.), appeal denied, 146 Ill. 2d 654, 176 Ill. Dec. 824, 602 N.E.2d 478 (1992) (citing Builders Concrete Co. v. Faubel & Sons, Inc., 58 Ill. App. 3d 100, 104, 373 N.E.2d 863, 15 Ill. Dec. 517 (3rd Dist 1978)). "A promisee may pursue such an election by either promptly filing suit or by detrimentally changing his position in reliance on the repudiation." Id. (citing Builder's Concrete, 58 Ill. App. 3d at 104). However, "'[a] continued willingness upon the part of the injured party to receive performance is an indication that, if the repudiator will withdraw his repudiation, but not otherwise, the contract may proceed. It is not an irrevocable election not to treat the renunciation as a breach.'" Builder's Concrete, 58 Ill. App. 3d at 105 (quoting Bu-Vi-Bar Petroleum Corp. v. Krow, 40 F.2d 488, 492 (10th Cir. 1930)).
Whether Kato intended to anticipatorily breach depends on the construction of the December 14 letter. Mr. Keeshin titled his letter "Termination of Concession Agreement." Further, in the body of the letter, he wrote that "Kato . . . hereby serves notice of termination of the [CA]." The plain language of the letter supports Roboserve's claim that Kato intended to anticipatorily breach.
Whether Roboserve responded properly after the breach depends on if it brought suit promptly or changed its position detrimentally. Wilmette Partners, 230 Ill. App. 3d at 260. The record reflects that, initially, Roboserve continued to receive performance, hoping that Kato would withdraw its repudiation. When Kato refused, Roboserve contested Kato's right to terminate the agreement. Tr. at 878. Once Roboserve believed that the contest was futile, it brought suit in August. Whether it filed suit promptly after the contest appeared hopeless is a matter for the jury. Given the time it takes large corporations to run the course of one option and gear up for the next, particularly if it is litigation, we find that the jury's verdict was not against the clear weight of the evidence. Therefore, on the issue of liability, Kato is entitled to neither a judgment as a matter of law nor a new trial.
On the other hand, under Wilmette Partners and Builder's Concrete, if a party chooses to treat the repudiation as a wrongful termination, it cannot toll the time for beginning to collect from the breaching party beyond the date of termination. Therefore, we grant Kato's motion for a judgment as a matter of law with regard to when the five year calendar began to run, and we determine that it began on the date of termination, March 1, 1993. Below, in the damages section, we will revisit this issue.
Therefore, on the issue of liability, we deny Kato's motion for judgment as a matter of law, but on the issue of damages, we grant its motion in part. We deny Kato's alternative motion for new trial.
D. Fraud Claim
1. Kato's Denial of Fraud
Kato denies that Hyatt perpetrated a fraud. It argues that the November 11 "one-year test" letter was not false when made because Mr. Connolly had a side agreement with ServiSystems that enabled Hyatt to nullify the contract if need be. It also argues that Hyatt did not induce Roboserve to rely on its supposedly false statement. Roboserve never asserted its rights under the CA for Kato to induce it to forego enforcing them. Moreover, if Roboserve did assert its rights, Kato would have had no reason to induce it to forego enforcing them because Kato's agreement with Roboserve was at least as profitable as Kato's agreement with ServiSystems.
Roboserve maintains that it made the necessary allegations to allege Hyatt's fraud. It alleged that Hyatt made an untrue material statement in the November 11 letter, which announced the one-year test."
Hyatt knew the statement was untrue because Mr. Connolly earlier signed the "noncancellable and unconditional" agreement with ServiSystems. Pl. Ex. 45. Hyatt made the untrue statement to induce Roboserve's reliance. It wrote the letter and, subsequently, staged negotiations so Roboserve would forego enforcing its rights under the amended CA and so Hyatt could continue enjoying its allegedly more profitable agreement with ServiSystems. Roboserve reasonably relied on Hyatt's false statement because it came from Mr. Zadikoff, a vice president of Hyatt. Finally, Roboserve's reasonable reliance led to its injury; Hyatt prevented it from getting the HRC and other Hyatt business and caused it to incur business and legal expenses.
Whether Kato's statement was false when made and whether it induced Roboserve to rely on its statement are issues of fact for the jury. Based on the above discussion, we believe that the jury did not act against the clear weight of the evidence when it found in favor of Roboserve. Therefore, on this point, Kato is entitled to neither judgment as a matter of law nor a new trial.
2. Kato's Denial of Vicarious Liability for Fraud
Kato argues that, if Hyatt perpetrated a fraud, Kato can be liable for it only as it relates to the HRC, not the rest of the Hyatt hotels. As a sophisticated player, Roboserve knew that all Hyatts were individually owned, that Kato owned only the HRC, and that Kato hired Hyatt to manage only the HRC. On those facts, Roboserve could not reasonably rely on a statement from Hyatt that would bind Kato beyond the HRC.
Roboserve argues that Kato cloaked Hyatt in apparent authority to bind Kato beyond its means. Actually, Roboserve's argument takes shape not as an "apparent authority to bind," but as some hybrid such as an "apparent authority to leverage." In Roboserve's own words, "Kato put Hyatt in a position where Hyatt could use promises of other Hyatt business to wrest concessions from Roboserve in [its] dealings with [the HRC]." Pl.'s Br. at 8. For support, Roboserve points to Mr. Keeshin's June 21, 1990, letter in which he discussed Roboserve's relationship with the HRC, other Hyatt hotels, and the Hyatt Corporation. Pl. Ex. 58.
The nature and extent of an agent's ability to bind a principal are well established.
An agent's actions might bind the principal based on express, implied, or apparent authority. The first two are species of actual authority. Implied authority is actual authority implied by facts and circumstances, and may be proved by circumstantial evidence. By contrast, apparent authority is a form of estoppel arising exclusively from the principal's words or conduct. It exists where a principal, by his own words and deeds, creates in a third party the reasonable impression that an agent has authority to perform a certain act on the principal's behalf. The elements of apparent agency are (1) the principal's consent to or knowing acquiescence in the agent's exercise of authority, (2) the third party's knowledge of facts giving rise to (3) a good faith belief that the agent possessed authority to perform the act on the principal's behalf, and (4) the third party's detrimental reliance on the agent's apparent authority.
Wabash Publishing Co. v. Stoppa, 1994 U.S. Dist. LEXIS 1522, at *12-3 (N. D. Ill. Feb. 14, 1994) (citations omitted); see Wabash Indep. Oil Co. v. King and Wills Ins. Agency, 248 Ill. App. 3d 719, 724, 618 N.E.2d 1214, 188 Ill. Dec. 644 (5th Dist.), appeal denied, 153 Ill. 2d 570, 191 Ill. Dec. 630, 624 N.E.2d 818 (1993). If an agent exceeds the scope of his authority, he incurs liability on himself, not his principal. Degen v. Amer. Ass'n of Oral and Maxillofacial Surgeons, 1994 U.S. Dist. LEXIS 354, 1994 WL 13754, at *3 (N. D. Ill. Jan. 14, 1994).
Whether for purposes of binding or leveraging, an apparent agency relationship cannot follow from Roboserve's evidence. For example, there is nothing to suggest that Kato, "by [its] own words and deeds, creat[ed] in [Roboserve] the reasonable impression that [Hyatt] had authority to" leverage its negotiations with other Hyatt business. Wabash Publishing, 1994 U.S. Dist. LEXIS 1522, 1994 WL 1522, at * 13. Because Mr. Keeshin is a Hyatt employee, his June 21 letter cannot be enough; it is not "exclusively" Kato's "word or deed." Wabash Publishing, 1994 U.S. Dist. LEXIS 1522, 1994 WL 1522, at * 13. Moreover, given Roboserve's sophistication, it could not have had a "good faith," "reasonable impression" that Hyatt's authority from Kato extended beyond the HRC. Wabash Publishing, 1994 U.S. Dist. LEXIS 1522, 1994 WL 1522, at * 13. On such an important matter in an arm's length deal, Roboserve must point to more than the agent's puffing.
Hyatt may have been a zealous manager for its clients, but Roboserve cannot place at Kato's feet liability for fraud that extended beyond its domain, certainly not the value of all leverageable business beyond its domain. That would be letting the tail wag the dog.
When we view all of the evidence "in its aspect most favorable to" Roboserve, the evidence still overwhelmingly favors Kato. Hardin, 962 F.2d at 640. Therefore, to the extent that the jury found Kato vicariously liable for Hyatt's fraud beyond the HRC, we grant Kato's motion for judgment as a matter of law. Below, in the damages section, we will revisit this issue.
E. Punitive Damages
1. Kato's Denial of Gross Fraud
Kato argues that we should reverse the punitive damages award because Hyatt committed no gross fraud. Kato contends that this was just a case of the right hand not knowing what the left hand was doing. Specifically, when Mr. Zadikoff wrote the November 11 letter, he was unaware of the contract with ServiSystems. Moreover, when he and Mr. Keeshin learned of the Servisystems contract, they understood it to include Mr. Connolly's oral side agreement, the one that would have allowed Kato to withdraw from the contract if need be.
Roboserve maintains that the November 11 letter instigated the Kato-authorized fraud, the "gross" nature of which arose during the multi-year cover-up of the ServiSystems contract. The cover-up constituted, for example, withholding information about the contract and staging negotiations with Roboserve.
"A federal court sitting in diversity looks to the law of the state, Illinois, in determining the appropriateness of punitive damages." Europlast, Ltd. v. Oak Switch Sys., 10 F.3d 1266, 1276 (7th Cir. 1993). "While it is true that punitive damages are unavailable in contract cases in Illinois, . . . there is an exception when the defendant is also found to have committed an independent tort, separate from the breach of contract." Hardin, 962 F.2d at 638.
"Illinois courts do not favor punitive damages and insist that plaintiffs must establish 'not only simple fraud but gross fraud, breach of trust, or 'other extraordinary or exceptional circumstances clearly showing malice or wilfulness."" Europlast, 10 F.3d at 1276 ((quoting AMPAT/Midwest v. Ill. Tool Works, Inc., 896 F.2d 1035, 1043 (7th Cir. 1990) (quoting another source)). "In a case involving intentional fraud, 'punitive damages are properly recoverable . . . 'where the false representations are wantonly and designedly made."" West v. W. Casualty and Sur. Co., 846 F.2d 387, 398 (7th Cir. 1988) ((quoting Home Sav. and Loan Ass'n v. Schneider, 108 Ill. 2d 277, 284, 483 N.E.2d 1225, 91 Ill. Dec. 590 (1985) (quoting another source)).
The record will not likely reflect a defendant's motives outwardly or objectively. "The transcript of a trial in a fraud case will seldom reveal admissions by the defendant that his conduct was not only fraudulent but intentionally, willfully, or recklessly so." Durant v. Sur. Homes Corp., 582 F.2d 1081, 1088 (7th Cir. 1978).
On the other hand, evidence of a pattern of conduct can imply a defendant's motives and support an award of punitive damages. "Punitive damages are appropriate [where] . . . the course of the [defendants'] conduct . . . demonstrates a continuing pattern of deceit." Merrill Lynch Mortgage Corp. v. Narayan, 1989 U.S. Dist. LEXIS 423, at *4 (N. D. Ill. January 17, 1989). "The record here does not support the punitive damage award made by the trial court. Taken as a whole, the record does not establish a pattern of bad faith by [the defendant] during its dealings with [the] plaintiffs." Kleidon v. Rizza Chevrolet, Inc., 173 Ill. App. 3d 116, 122, 527 N.E.2d 374, 122 Ill. Dec. 876 (1st Dist.), appeal denied, 123 Ill. 2d 559, 128 Ill. Dec. 891, 535 N.E.2d 402 (1988). "The jury was entitled to conclude that this conduct was deliberate and purposeful, orchestrated by responsible management over a significant period of time." West, 846 F.2d at 398.
"'Where a plaintiff's factual allegations are sufficient to state a legally cognizable claim for punitive damages, the trial court has discretion to submit the issue to the jury.'" AMPAT/Midwest, 896 F.2d at 1044 (quoting Motsch v. Pine Roofing Co., 178 Ill. App. 3d 169, 177, 533 N.E.2d 1, 127 Ill. Dec. 383 (1st Dist. 1988)).
Under cases such as West, Roboserve's supported allegation of a multi-year cover-up was evidence of a pattern of conduct sufficient to state a legally cognizable claim for punitive damages. See, e.g., 846 F.2d at 400. Based on that evidence, we properly exercised our discretion and allowed the issue to go to the jury. Moreover, given the duration and scale of the alleged cover-up, the jury's award of punitive damages was not against the clear weight of the evidence. Therefore, on this issue, Kato is entitled to neither a judgment as a matter of law nor a new trial.
2. Kato's Denial of Vicarious Liability for Gross Fraud
Kato argues that, if Hyatt committed gross fraud, Kato should not be held vicariously liable for it. Although "[Hyatt] was engaged to manage [the] HRC," "there was no evidence that [Hyatt] was an officer or director of Kato, that any of its employees were officers or directors of Kato, or that [Hyatt] was a division of Kato." Def. Br. at 9. Instead, "the agents whose conduct was sought to be imputed to Kato were in fact agents of Kato's agent, [Hyatt], acting with respect to proposed transactions unrelated to [Hyatt]'s operation of Kato's hotel." Id.
Roboserve maintains that Kato is vicariously liable because, in Illinois, corporate principals are liable for the gross fraud of their managerial agents. See Mattyasovszky v. West Towns Bus Co., 61 Ill. 2d 31, 36-7, 330 N.E.2d 509 (1975). Because Kato admits that Hyatt was its managerial agent, the damage award should stand.
Illinois follows the Restatement (Second) of Agency § 217C ("§ 217C"), which provides:
Punitive damages can properly be awarded against a master or other principal because of an act by an agent if, but only if: (a) the principal authorized the doing and the manner of the act, or (b) the agent was unfit and the principal reckless in employing him, or (c) the agent was employed in a managerial capacity and was acting within the scope of employment, or (d) the principal or a managerial agent of the principal ratified or approved the act.
Mattyasovszky, 61 Ill. 2d at 36-7. The issue is whether, pursuant to § 217C(c), Hyatt was an "agent . . . employed in a managerial capacity."
Some Illinois appellate courts have diverged from the plain language of § 217C, confusing the definition of the term. Those courts have allowed vicarious liability only when the agents are "superior officers" such as "officers and directors." For example, in Tolle v. Interstate Sys. Truck Lines, the court favorably noted that "other courts have followed a complicity rule whereby the corporate master is liable for punitive damages only when the superior officers order, participate in, or ratify outrageous conduct." 42 Ill. App. 3d 771, 773, 356 N.E.2d 625, 1 Ill. Dec. 437 (5th Dist. 1976) (citing Roginsky v. Richardson-Merrell, Inc., 378 F.2d 832, 842-3 (2nd Cir. 1967); see Oakview New Lenox School Dist. v. Ford Motor Co., 61 Ill. App. 3d 194, 200, 378 N.E.2d 544, 19 Ill. Dec. 43 (3rd Dist. 1978) (following the language in Tolle); Pendowski v. Patent Scaffolding Co., 89 Ill. App. 3d 484, 489, 411 N.E.2d 910, 44 Ill. Dec. 544 (1st Dist. 1980) (continuing to follow the language in Tolle).
Only one court, Kemner v. Monsanto Co., 217 Ill. App. 3d 188, 576 N.E.2d 1146, 160 Ill. Dec. 192 (5th Dist.), appeal denied, 142 Ill. 2d 655, 164 Ill. Dec. 918, 584 N.E.2d 130 (1991), has considered the "managerial agent" and "superior officer" language and presented definitions of the two terms. Id. at 206-8. It defined "managerial agent" as "an employee who acts with supervisory authority, being invested with general powers to exercise discretion and judgment in dealing with corporate matters; his interests are identified with those of the corporation . . . ." Id. Next, it defined "superior agent" by quoting Tolle:
Unless, as charged [by the court], 'the officers or directors, that is, the management' of the company or the relevant division 'either authorized, participated in, consented to or, after discovery, ratified the conduct' giving rise to such damages. [Citations]. New York, in other words, adheres to the 'complicity rule,' holding the corporate master liable for punitive damages 'only when superior officers either order, participate in or ratify outrageous conduct.'
Id. at 206-7 ((quoting Tolle, 42 Ill. App. 3d at 773) (quoting Roginsky, 378 F.2d at 842)).
The court implicitly sided with the Tolle definition: "As noted in Pendowski,10 this [respondeat superior] instruction, while valid under other circumstances, was ill-suited to convey the correct principles of law to the jury, since it could impute liability for any act done by an employee, rather than only those specifically ordered, participated in, or ratified by a superior officer." Id. at 208 (citing Pendowski, 89 Ill. App. 3d at 487).
Two significant cases reveal, however, that Illinois courts continue to follow the plain language definition of "managing agent." First, in Deal v. Byford, 127 Ill. 2d 192, 537 N.E.2d 267, 130 Ill. Dec. 200 (1989),
the plaintiff apartment resident sued SRP Associates ("SRP"), a partnership that owned the plaintiff's apartment, for the actions of Mr. Byford, the apartment complex's sometime manager, sometime handyman. Id. at 195-6. The plaintiff complained that Mr. Byford used verbal and physical threats to remove her from the apartment. The record showed that Mr. Byford's implied managerial duties included signing "documents" for SRP such as five-day notices. Id. at 198. More importantly, the record showed that the defendant admitted that Mr. Byford was the apartment complex's residential manager and that, as such, he was a managing agent. Id. at 205-6. Based on that showing, the court "conclude[d] that SRP's admissions were sufficient . . . to satisfy the standard expressed in Mattyasovszky and Restatement [217C] for the imposition of punitive damages against a principal when the agent is employed in a managerial capacity . . . . Id. at 20.
As in Deal, Kato admits that Hyatt was the HRC's manager and that, as such, Hyatt was a managing agent. As in Deal, that should be sufficient for the imposition of punitive damages.
Second, in Abshire v. Stoller, 235 Ill. App. 3d 849, 601 N.E.2d 1257, 176 Ill. Dec. 559 (1st Dist. 1992), appeal denied, 148 Ill. 2d 639, 183 Ill. Dec. 15, 610 N.E.2d 1259 (1993), the plaintiff claimed "that he was misled by Stoller's representation that a construction loan ha[d] been obtained." Id. at 859. Consequently, the plaintiff sued Stoller and his employer Salk, Ward & Salk, Inc. ("Salk"). The evidence showed that "Stoller's authority was limited to calling potential customers, gathering preliminary information, and completing an application form to submit to others at Salk who would then decide on the appropriateness of a particular borrower or project for further consideration." Id. at 857. The jury found Salk vicariously liable for punitive damages, and the appellate court reversed the jury's finding.
In its Mattyasovszky analysis, the court considered two definitions of "manager," one from Kemner and the other from Adams v. Zayre Corp., 148 Ill. App. 3d 704, 499 N.E.2d 678, 102 Ill. Dec. 121 (2nd Dist. 1986). From Kemner, the Abshire court quoted only its "managerial agent" and "managerial employee" language, fully discounting its "superior officer" language. See Kemner, 217 Ill. App. 3d at 206-8. From Adams, the Abshire court gleaned a similar definition of "managing agent," namely one who is "in a position of authority or control." In the end, the Abshire court wrote:
Whether we adopt the definition of a manager discussed in Kemner or the manager discussed in Adams whose authority was limited to a specific department, we conclude that Stoller, the agent in this case, could not be considered a manager in either context where he had no authority or responsibility for any other employees or the operation of any department within the corporation.
235 Ill. App. 3d at 859.
Although the Abshire court reached no conclusion on the full definition of "managing agent," the opinion remains important. It showed that the range of possible definitions need not include "superior officers." Further, it showed that, whatever the full definition of the term, the baseline includes only the concept of responsibility for other employees or the oversight of a corporate department.
As discussed in Abshire, Hyatt had responsibility for other employees; it managed the entire HRC. Also, Hyatt was in charge of a corporate department, or an equivalent, the HRC. As in Abshire, that should be sufficient for the imposition of punitive damages.
In any event, the split in the definition between "managing agent" and "superior officer" is more apparent than real. In Kemner, the "plaintiffs contend[ed] that the use of the term 'managerial agent' [was] consistent with Mattyasovszky, and that Tolle and Pendowski [wrongly] impose[ed] a stricter burden of proof on the plaintiffs through their use of the term 'superior officer.'" 217 Ill. App. 3d at 206. The court wrote: "Although plaintiffs assert that there is 'a big difference' between the terms, no case law is cited in support of this contention." Id. Apparently, then, the court did think it self-evident that there was "a big difference" between the terms, and the court did not go on to explain one.
As the Kemner court hinted, there is, in fact, no "big difference" between the terms. The Tolle court and its progeny took the "superior officer" language from Roginsky, a Second Circuit case from New York. In Pirre v. Printing Developments, Inc., 468 F. Supp. 1028 (S. D. N. Y.), aff'd without op., 614 F.2d 1290 (2nd Cir. 1979), the New York court provided a definition of "superior officer:"
The test of who is a 'superior officer' or a 'person of authority' to bind the corporate entity to participation or ratification cannot be rigid . . . [.] The question is whether the act or ratification is done by a person of such responsibility as to arouse the 'institutional conscience' . . . [.] The test is whether the continuing tortious conduct has been brought home to the consciousness of a relatively important managerial personnel with authority to make a decision for the corporation that would have prevented the damage.