Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 98 C 5350--Suzanne B. Conlon, Judge.
Before Bauer, Manion, and Rovner, Circuit Judges.
The opinion of the court was delivered by: Rovner, Circuit Judge
Robert and Nancy Zivitz brought this action alleging that several defendants cost them millions of dollars in investments by participating in an insider trading scheme involving Incomnet, a telephone service reseller. The plaintiffs eventually settled with all of the defendants except one--Incomnet board member Joel Greenberg. A jury later found Greenberg liable for fraud and awarded the plaintiffs $1 million in damages. After the jury returned its verdict, Greenberg moved to reduce the damages award by the amount previously paid to the plaintiffs by the settling defendants; the district court, however, denied his request. On appeal Greenberg challenges the court's refusal to reduce the jury's damage award. We affirm.
We construe the facts in the light most favorable to the jury's verdict. The plaintiffs first purchased Incomnet stock in 1991; as of July 1995, they owned 750,000 shares. Incomnet's board included Sam Schwartz, the company's president and CEO; Rita Schwartz (Sam's wife); and Greenberg, a family friend and investment adviser of the plaintiffs. Sam and Rita Schwartz owned the largest percentage of Incomnet stock; Greenberg was the next largest shareholder.
Incomnet's revenue and stock price grew over time, helped in part by a series of insider trades. In January 1994 Incomnet (through Sam Schwartz) entered into a consulting agreement with an investment firm, Broad Capital Associates, Inc. ("Broad Capital"). Under this agreement, Broad Capital agreed to serve as Incomnet's financial adviser in exchange for warrants to purchase 500,000 shares of Incomnet stock. Broad Capital also agreed not to resell Incomnet stock. In addition to the consulting arrangement, that same year Sam Schwartz sold 500,000 shares of Incomnet stock to Broad Capital through a brokerage account. Schwartz did not disclose this transaction to the Securities and Exchange Commission ("SEC") even though he was required by law to do so. In May 1994 Incomnet (again, through Schwartz) issued additional warrants to Broad Capital for another 500,000 shares in exchange for Broad Capital's early exercise of the warrants conveyed pursuant to the consulting agreement. In December 1994 Broad Capital exercised these warrants and, contrary to the consulting agreement, sold 501,000 shares of Incomnet stock.
In January 1995 Broad Capital loaned Greenberg $1.8 million, securing the loan with 513,000 shares of Incomnet stock. Broad Capital made no public filing of the loan and immediately sold the stock at a substantial profit.
In February 1995 Incomnet acquired a majority interest in Rapid Cast, Inc. ("RCI"), a privately held company whose founding shareholders were also the sole shareholders of Broad Capital. Incomnet paid for its majority interest in RCI with cash and Incomnet stock. As part of this acquisition, RCI shareholders were to receive up to 750,000 shares of Incomnet stock if RCI met specified earnings targets. In June 1995, however, Incomnet issued 600,00 shares to RCI in exchange for RCI shareholders' waiver of their conditional right to receive the 750,000 shares. Ultimately RCI did not meet the specified earning targets.
After Incomnet's stock price began to fall, the plaintiffs, relying on a computerized trading model, decided to sell their stock. Before doing so, however, they spoke with Greenberg, who convinced them not to sell. Greenberg as sured the plaintiffs that Incomnet was stable and that its stock had good value. Soon thereafter Incomnet disclosed to the SEC that Sam Schwartz had traded Incomnet stock to defend against short-sellers. A subsequent Incomnet SEC filing represented that these trades had been unanimously approved by the board and that Schwartz had tendered to Incomnet all of the short-swing profits generated by the trades. Greenberg and Schwartz later admitted that these statements were false.
Incomnet's stock price plummeted after it publicly disclosed Schwartz's trades; Schwartz and Greenberg eventually resigned under pressure. Incomnet's stock never recovered and the company eventually filed for bankruptcy protection.
In August 1998 the plaintiffs brought this diversity action against Broad Capital (and its two principals), Sam Schwartz, Rita Schwartz, and Greenberg. The complaint alleged civil conspiracy and common-law fraud. The district court dismissed the plaintiffs' fraud claims for lack of personal jurisdiction against all of the defendants except Greenberg. After the court denied the defendants' motions for summary judgment, the plaintiffs reached a settlement with Sam and Rita Schwartz for $250,000.
On the morning of trial, the plaintiffs informed the district court that they had reached a settlement with the Broad Capital defendants. The court then dismissed the conspiracy claims against the Broad Capital defendants and the case proceeded against Greenberg. At the close of evidence, the plaintiffs moved to dismiss the conspiracy count and the court granted their request--all that remained was the plaintiffs' fraud claim.
After closing argument, the court instructed the jury to assess damages in an amount "that will reasonably and fairly compensate [the plaintiffs] for any actual damages proven by the evidence to have resulted from the conduct of the defendant, Joel Greenberg." Greenberg had proposed this instruction in the pretrial order. The jury's $1 million verdict was far less than the amount requested by the plaintiffs.
Greenberg filed a timely motion to alter or amend judgment under Federal Rule of Civil Procedure 59(e), arguing that the settlement amounts paid to the plaintiffs should be offset against the jury award to prevent a double recovery. Because the amount recovered by the plaintiffs exceeded the verdict, Greenberg asked the court to reduce the damage award to zero. The district court denied his motion,concluding that Greenberg could not demonstrate that the jury assessed damages for a single injury caused ...