if it can prove it has a valid defense. USAir argues that the agreements should be rescinded based on fraudulent inducement and mistake of fact. USAir claims RVC falsely represented and USAir genuinely believed the travel certificates would only be used in real estate-related promotions.
A. Fraudulent Inducement
To establish common law fraud under Illinois law, USAir must prove (1) a statement of a material fact, as opposed to an opinion, (2) that was false, (3) that was known or believed by RVC to be untrue, (4) that was reasonably relied on by USAir to its detriment, (5) that was made for the purpose of inducing reliance, and (6) that generated detrimental reliance leading to USAir's injury. Weeks v. Samsung Heavy Ind. Co., Ltd., 126 F.3d 926, slip op. at 27 (7th Cir. 1997). Mr. Buckley testified he believed the agreement between USAir and RVC restricted the use of travel certificates to real estate-related promotions. (Buckley Dep. at 94-98). However, USAir has not presented testimony that RVC ever falsely stated the certificates would only be used for real estate-related promotions. In fact, Mr. George, at one point, sent a proposed contract to USAir which stated the certificates would only "primarily" be used for real estate-related services. (Def.'s App. to 12(N) Statement of Add. Facts, Ex. 6). Further, USAir did not even raise the issue of the use of the travel certificates until July 14, 1994, two months after the parties negotiated the Second Amendment. Yet, Mr. George sent USAir information regarding using travel certificates for supermarket promotions months earlier. (Def.'s App. to 12(N) Statement of Add. Facts, Ex. 39).
The mere fact Mr. Buckley may have "believed" the certificates would only be used for real estate-related promotions is insufficient to prove RVC fraudulently induced USAir to enter into the July 30 letter agreement. There is no evidence that Mr. George secretly planned to use the certificates for non-real estate-related promotions or knowingly made untrue statements to Mr. Buckley to induce him into entering the July 30 agreement. Thus USAir has not satisfied even the first element required for a claim of fraudulent inducement. This defense therefore fails.
B. Mistake of Fact
Rescission for mistake is proper under Illinois law if four elements are met: (1) the mistake is of a material nature, (2) the mistake is of such consequence that enforcement is unconscionable, (3) the mistake occurred notwithstanding the exercise of due care by the party seeking rescission, and (4) rescission can place the other party in status quo ante. Siegel v. Levy Org. Dev. Co., Inc., 153 Ill. 2d 534, 607 N.E.2d 194, 199, 180 Ill. Dec. 300, 305 (Ill. 1992)(citation omitted).
There is no evidence that USAir believed the use of the certificates was a material part of the contract or that USAir exercised reasonable care in forming the contract. USAir could have contractually limited the use of the travel certificates to real estate-related promotions. Yet, the July 30 letter, a document drafted by USAir, is silent on the uses of the certificates. The First and Second Amendments also do not restrict the use of travel certificates. As noted above, the Second Amendment was drafted some months after discussions had occurred between Mr. George and employees of USAir regarding the use of the certificates in retail food promotions. (Def.'s App. to 12(N) Statement of Add. Facts, Ex. 39). Even if USAir believed the use of the certificates was a material issue, the fact it neglected to place a restriction in any of the three contracts with RVC shows a lack of due care by USAir. Accordingly, the defense of unilateral mistake must fail.
Breach of Contract Damages
USAir claims that it is entitled to summary judgment on the contract claims because RVC cannot prove any damages. RVC seeks to recover damages in the following categories: (1) out-of-pocket expenses, (2) the value of Mr. George's time, (3) lost profits from real estate-related promotions, and (4) lost profits from supermarket-related promotions.
As an initial matter, "a failure of proof of damages does not justify the dismissal of a claim for breach of contract, as it does most tort claims. The victim of a breach of contract is always entitled to nominal damages if he proves a breach but no damages." Olympia Hotels Corp. v. Johnson Wax Dev. Corp., 908 F.2d 1363, 1366, 1372 (7th Cir. 1990) (district court should not have directed verdict on breach of contract counterclaim for lack of evidence on damages); accord Hydrite Chem. Co. v. Calumet Lubricants Co., 47 F.3d 887, 891 (7th Cir. 1995) ("when the breach of contract is shown[,] . . . the plaintiff is entitled to nominal damages, even if he cannot show any injury from the breach"); Doe v. United States, 976 F.2d 1071, 1085 (7th Cir. 1992)(citing Schoeneweis v. Herrin, 110 Ill. App. 3d 800, 443 N.E.2d 36, 42, 66 Ill. Dec. 513 (5th Dist. 1982) (under Illinois law, if plaintiff cannot provide proper basis from which to determine damages, he is entitled to nominal damages). Nevertheless, a party may be entitled to summary judgment with respect to certain categories of damages sought. Stuart Park Assocs. Ltd. Partnership v. Ameritech Pension Trust, 846 F. Supp. 701, 715 (N.D. Ill. 1994) (granting summary judgment "with respect to the portion of [damages] . . . for lost profits").
"The measure of damages for breach of contract is the amount which will compensate the injured party for the loss which either fulfillment of the contract would have prevented or which the breach of it has entailed." LeFevour v. Howorka, 224 Ill. App. 3d 428, 586 N.E.2d 656, 658, 166 Ill. Dec. 698, 700 (1st Dist. 1991). "Absolute certainty concerning the amount of damages is not necessary to justify recovery where the existence of damages is established. Rather, evidence need only tend to show a basis for the computation of damages with a fair degree of probability." LeFevour, 586 N.E.2d at 658, 166 Ill. Dec. at 700.
Illinois law generally restricts the ability of a new business to recover lost profits.
Stuart Park Assocs. Ltd. Partnership v. Ameritech Pension Trust, 51 F.3d 1319, 1328 (7th Cir. 1995); SK Hand Tool Corp. v. Dresser Indus., Inc., 284 Ill. App. 3d 417, 672 N.E.2d 341, 348, 219 Ill. Dec. 833, 840 (1st Dist. 1996)(unprofitable business). The evidence demonstrating lost profit, like any other loss, must provide "a reasonable basis for the computation of damages" and cannot be "conjecture or sheer speculation." Midland Hotel Corp. v. Reuben H. Donnelley Corp., 118 Ill. 2d 306, 515 N.E.2d 61, 66, 113 Ill. Dec. 252, 257 (Ill. 1987). This task is particularly complicated in regards to "lost profits [because they] are frequently the result of several intersecting causes[; therefore, it must] . . . be shown with a reasonable degree of certainty that the defendant's breach caused a specific portion of the lost profits." Id. (emphasis added). Prior profits provide a baseline against which the post-breach situation may be measured to arrive at a reasonably certain calculation of lost profits. Stuart Park Assocs., 846 F. Supp. at 715.
On the other hand, it would be unjust to effectively immunize a defendant whose very breach prevents a new business from growing. See Vendo Co v. Stoner, 58 Ill. 2d 289, 321 N.E.2d 1, 13 (Ill. 1974); Schatz v. Abbott Labs., Inc., 51 Ill. 2d 143, 281 N.E.2d 323, 325-26 (Ill. 1972).
A. Out-of-Pocket Expenses and Mr. George's Time
Regarding out-of-pocket expenses, RVC produced a multi-page worksheet itemizing expenses and documentation, such as receipts, upon which Mr. George relied in drafting the worksheet. USAir points out and Mr. George agrees that he did not retain documentation for every expense on the worksheet and made several errors in his calculations. Given these facts, RVC may ultimately recover less than it wishes.
Still, the "evidence need only tend to show a basis for the computation of damages with a fair degree of probability," LeFevour, 586 N.E.2d at 658, 166 Ill. Dec. at 700, and "a plaintiff is not required to propose a specific damages figure to a jury." Olympia Hotels Corp., 908 F.2d at 1372. RVC has presented "evidence [which will] enable [a] jury to come up with a figure that represents a reasonable estimate of the plaintiff's [out-of-pocket expenses] damages." Id; see also Illinois Structural Steel Corp. v. Pathman Constr. Co., 23 Ill. App. 3d 1, 318 N.E.2d 232, 236 (1st Dist. 1974) (party's own testimony regarding breach of contract damages, supported by records, was not speculative).
As for the value of Mr. George's lost time, RVC's evidence consists of Mr. George's testimony that he spent "substantially all [his] time" on the project involving USAir certificates. Mr. George, however, could remember the names of only a few potential promotion customers that he contacted during these years. He named only one customer, Investors Guarantee, Inc., with whom he actually reached an agreement to use the USAir certificates. Mr. George testified he was "sure" he had made telephone calls to realtors, attorneys and mortgage companies, but could not remember how many calls were made. He could recall the name of only one title insurance company that he called, apart from Investors Title, and said only that he called three of these companies. Mr. George similarly could recall the name of only one mortgage company and one property management company with whom he says he spoke concerning a promotion program using USAir certificates.
USAir argues presumably that there is no basis to support Mr. George's claim of $ 500,000 in lost time. Mr. George has never made $ 500,000 in any given three-year period. Id. Furthermore, Mr. George has not provided evidence regarding what his time might be worth or whether RVC could even have compensated him. Nevertheless, he undoubtedly spent some time on this project and he is entitled to have the jury determine a value for that time.
B. Lost Profits from Real Estate Promotions
On July 31, 1992, RVC entered into a four-year contract with Investors Title Guarantee, Inc. ("ITG"). (Def.'s 12(M) Reply P 60); (Def.'s App. to 12(M) Statement, Ex. 38). ITG's clients, attorneys, realtors, and mortgage companies, would receive RVC's so-called TRIP$ certificates and offer them to their clients. The ultimate consumers would redeem the TRIP$ certificates through RVC, which would use the USAir certificates in the ticketing process. (Def.'s 12(M) Reply PP 58, 61.) RVC sold ITG approximately 123 TRIP$ certificates. (Def.'s 12(M) Reply P 74.) RVC claims that had USAir delivered the certificates it promised, RVC would have been able to sell 200 TRIP$ certificates to ITG per month.
(12(M) Reply PP 218-220). The only evidence for this figure is Mr. George's testimony that the parties estimated that ITG would use 200 USAir certificates each month. Mr. George's estimate, without more, is too speculative to go to a jury.
RVC also claims that had USAir delivered the certificates it promised, RVC would have concluded contracts with three to five additional title companies each year, captured two to three percent of the homeseller/realtor promotion market, and sold 5,000 TRIP$ certificates annually in mortgage-related promotions.
The only evidence that these deals did not go through due to USAir's breach is Mr. George's testimony that he spoke to numerous individuals in these various industries and they expressed a desire to purchase travel certificates with few restrictions. But, Mr. George could remember the name of only one title insurance company aside from ITG that he actually spoke with about promotions, and it chose not to do business with Mr. George. Additionally, Mr. George could not recall any geographic location other than Indianapolis that would be receptive to his travel incentive promotions. Mr. George also could not remember the names of any real estate companies or real estate agents he spoke to regarding promotions. He also could remember the name of only one property management company he spoke with regarding apartment leasing promotions using USAir travel certificates. Mr. George has indicated nothing will refresh his recollection about the companies he spoke to regarding promotions.
Without more, a reasonable fact finder could not infer that the reason RVC was unable to sell more TRIP$ certificates to ITG or to conclude contracts with other entities was USAir's failure to provide the certificates described in the agreement. See Midland Hotel, 515 N.E.2d at 66, 113 Ill. Dec. at 257 ("Since lost profits are frequently the result of several intersecting causes, it must be shown with a reasonable degree of certainty that the defendant's breach caused a specific portion of lost profits.").
C. Lost Profits from Supermarket Promotions and USAir's Motion to Strike RVC's Expert Witness.
Mr. George believes RVC could have done numerous retail food and drug promotions if USAir had delivered the agreed upon certificates. To prove this, RVC hired Dr. Robert Olley to provide an expert report on the profits RVC could have earned under its contract with USAir. Dr. Olley reported that RVC would have earned $ 9.8 million per year in supermarket promotions if USAir had tendered conforming certificates to RVC. USAir moves to strike Dr. Olley's testimony as deficient under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 125 L. Ed. 2d 469, 113 S. Ct. 2786 (1993). USAir also argues that, even with Dr. Olley's testimony, USAir did not cause RVC's injury and RVC's damages are speculative.
RVC's claim for supermarket promotion damages suffers from the same causation deficiencies as its claim for real estate promotion damages. The burden rests on RVC to show "with a reasonable degree of certainty that the defendant's breach caused a specific portion of lost profits." Midland Hotel, 515 N.E.2d at 66, 113 Ill. Dec. at 257. Mr. George estimates that RVC could have done ten retail food and drug promotions per year had USAir supplied conforming certificates. Mr. George, however, has no prior experience in food store promotions and provides no reasonable basis for his estimate.
Furthermore, Mr. George only had serious negotiations concerning a possible food store promotion with Alan Stec, the founder and president of a company that provides strategy and tactics for food retailers. Mr. George and Mr. Stec discussed a promotion that would have involved RVC, USAir, and Kash 'N Karry food stores. Mr. George and Mr. Stec never consummated this promotion deal. According to Mr. Stec, the promotion fell through for a variety of reasons: 1) Mr. George insisted on going first to Kash 'N Karry with the promotion idea before getting USAir involved, 2) Mr. George's insistence on going to Kash 'N Karry first made it impossible to get all three parties together on a contractual basis, and 3) Mr. Stec believed a Letter of Agreement drafted by Mr. George would have prohibited Mr. Stec from working on promotions in the food retail business for several years. (Stec Dep. at 47-49, 52-54). RVC has offered no evidence that it was attempting to or could have used USAir travel certificates in other supermarket promotions.
It may be that, as argued by RVC, since the USAir certificates lacked the restrictions standard in the airline industry, they were an attractive commodity. Without more, however, a jury could not find that the reason RVC was unable to engineer supermarket promotions or conclude a contract with Mr. Stec was USAir's failure to provide the certificates described in the agreement. RVC has failed to offer any evidence from which a jury could find that RVC had met its burden of proving causation of lost profits to "a reasonable degree of certainty."
Even assuming causation, RVC's expert does not pass muster under Daubert. The proponent of proffered expert testimony bears the burden of establishing its admissibility by a preponderance of proof. Bradley v. Brown, 852 F. Supp. 690, 697 (N.D. Ind.), aff'd, 42 F.3d 434 (7th Cir. 1994); Daubert v. Merrell Dow Pharmaceuticals, Inc., 43 F.3d 1311, 1316 (9th Cir. 1995) (hereinafter " Daubert II ") ("The party presenting the expert must show that the expert's findings are based on sound science."). In determining whether RVC has met its burden in this case, the Court is guided by Federal Rule of Evidence 702
and its construction by the Supreme Court in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 125 L. Ed. 2d 469, 113 S. Ct. 2786 (1993).
An expert opinion that is not supported by a scientifically reliable methodology is not admissible under Federal Rule of Evidence 702. Daubert, 509 U.S. at 590. Courts must take their role as "gatekeeper" seriously and exclude "subjective belief or unsupported speculation." Porter, 9 F.3d 607, 614 (citing Daubert, 509 U.S. at 590); see also Rosen v. Ciba-Geigy Corp., 78 F.3d 316, 318 (7th Cir. 1996)("[A] district judge asked to admit scientific evidence must determine whether the evidence is genuinely scientific, as distinct from being unscientific speculation offered by a genuine scientist.").
While Dr. Robert Olley certainly has sufficient credentials, the expert evidence he purports to offer in this case is unscientific speculation that will not be beneficial to the trier of fact. He has not studied the profitability of promotional agencies in actual supermarket promotions (Olley Dep. at 108), and did not do an analysis of the demand for supermarket promotions in USAir's markets. (Olley Dep. at 173). Dr. Olley nevertheless assumes that RVC would have entered into ten supermarket promotions a year using USAir certificates. His only source for this assumption is Mr. George, who, by his own admission, has no experience in supermarket promotions. (12/7/95 George Dep. at 146).
Dr. Olley concluded that the average profit RVC would earn for each travel certificate redeemed was $ 30. Dr. Olley's conclusion again was based only on Mr. George's estimate of $ 30 in profit per certificate redeemed. (Olley Dep. at 182). Dr. Olley did not compare the discounts Mr. George used in calculating the $ 30 number with actual discounts used in prior, successful promotions (Olley Dep. at 187-88). Indeed, he acknowledged he knew of no empirical evidence to back up the $ 30 estimate (Olley Dep. at 195).
The same problems occur with Dr. Olley's opinion as to the percent of people using discounted travel certificates who would purchase an additional companion ticket. Mr. George decided 30% of those purchasing certificates would purchase a companion ticket. (Pl.'s 12(N) Statement of Add. Facts P 228). Dr. Olley believed it "seemed reasonable that [Mr. George's estimate] might be [correct]." (Olley Report at 6). Still, Dr. Olley testified he was aware of no empirical evidence to back up Mr. George's estimate of 30%. (Olley Dep. at 195). It appears Dr. Olley's analysis of this number is his belief that "Mr. Jones isn't likely to go off to Florida without taking Mrs. Jones or vice versa...." (Olley Dep. at 194). Dr. Olley testified that the 30% figure accorded with what he had seen when consumers buy automobiles and recreation vehicles, but never stated how these markets are at all analogous to airline ticket promotions at supermarkets. (Olley Dep. at 194-95). Dr. Olley's opinions regarding lost profits on supermarket promotions will not assist the trier of fact because they are based on unsupported facts. See Dana Corp. v. American Standard, Inc., 866 F. Supp. 1481, 1499 (N.D. Ind. 1994)("Unsupported facts do not provide a sufficient basis from which a reasonable juror could find the expert's opinion more certain or reasonable."). Accordingly, the motion to bar this testimony is granted.
Without Dr. Olley's opinions, the evidence provided by RVC does not allow a reasonable fact finder to estimate the amount of lost profits for supermarket promotions in this case. The only other evidence presented on lost profits from supermarket promotions consists of Mr. George's numbers. But, Mr. George admits he has no experience in supermarket promotions and he has provided no substantiation for his estimates. They are simple speculation. RVC has not presented evidence that would allow a jury to find an award of lost profits from supermarket promotions "with a fair degree of probability."
USAir moves for summary judgment on the fraud count in RVC's complaint. RVC claims that USAir knew shortly after entering the original agreement set forth in the July 30, 1991 letter that it would not tender conforming travel certificates to RVC and that USAir entered into the First Amendment and Second Amendment with no intention of fulfilling the obligations stated in the Amendments. Instead, RVC alleges, USAir was attempting to stall the start of litigation and hopefully exhaust RVC's resources to avoid being sued altogether.
As noted earlier, to establish common law fraud RVC must prove USAir knowingly made a materially false statement that RVC properly relied upon to its detriment. Siegel v. Levy Org. Dev. Co., Inc., 153 Ill. 2d 534, 607 N.E.2d 194, 198, 180 Ill. Dec. 300, 304 (Ill. 1992)(citation omitted). The misrepresentation is material "if it relates to a matter upon which the plaintiff could be expected to rely in determining whether to engage in the conduct in question." Shah v. Chicago Title & Trust Co., 119 Ill. App. 3d 658, 457 N.E.2d 147, 150, 75 Ill. Dec. 357, 360 (1st Dist. 1983).
RVC presents evidence that, shortly after it received the first set of travel certificates, RVC informed USAir that the certificates did not conform to the terms of the original agreement and explained why the certificates were non-conforming. A reasonable fact finder could conclude that, before entering into the First and Second Amendments, USAir was aware RVC found the travel certificates unacceptable and knew exactly what restrictions RVC expected on the travel certificates. USAir entered into Amendments which stated RVC would be provided with certificates that conformed to the terms of the original agreement. Although RVC continually requested conforming certificates from USAir, such certificates were never provided. RVC notes that one USAir employee admitted that she had never seen USAir issue the type of certificate called for by the original agreement.
USAir's promise to provide conforming travel certificates was a material part of all the contracts RVC signed. There is a genuine issue of material fact as to whether USAir entered the First and Second Amendments knowing it would not provide the certificates RVC requested. RVC was justified in relying on USAir's continued promises and RVC's reliance may have led to Mr. George's out-of-pocket expenses. Accordingly, USAir's motion for judgment as a matter of law on RVC's fraud claim is denied.
For the reasons stated above, RVC's motion for partial summary judgment is granted on the breach of contract claims in its complaint. RVC's motion for summary judgment is also granted on USAir's counterclaims for fraud and rescission. USAir's motion for summary judgment is granted regarding RVC's lost profits claims for real estate-related promotions, and lost profits for supermarket-related promotions. USAir's motion for summary judgment is denied regarding Mr. George's out-of-pocket expenses, lost time and on RVC's fraud Count. USAir's motion to strike RVC's expert witness testimony on damages for lost supermarket promotions is granted.
Elaine E. Bucklo
United States District Judge
Dated: September 30, 1997