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Vojdani v. Pharmsan Labs, Inc.

United States Court of Appeals, Seventh Circuit

December 20, 2013

Aristo Vojdani and Immunosciences Lab, Inc., Plaintiffs-Appellees/Cross-Appellants,
Pharmsan Labs, Inc. and NeuroScience, Inc., Defendants-Appellants/Cross-Appellees.

Argued September 10, 2013

Appeals from the United States District Court for the Western District of Wisconsin. No. 10-cv-37-wmc — William M. Conley, Chief Judge.

Before Wood, Chief Judge, and Easterbrook and Hamilton, Circuit Judges.

Hamilton, Circuit Judge.

Plaintiffs Immunosciences Lab, Inc. and its owner, Dr. Aristo Vojdani, were in the business of developing and selling medical tests and testing materials. In 2007, defendants Pharmsan Labs, Inc. and NeuroScience, Inc. —sister companies offering medical testing to consumers— wanted to expand their offerings. Vojdani and Immunosciences (we refer to them collectively as "Vojdani") and Pharmsan and NeuroScience (collectively "NeuroScience") decided to collaborate, but the business relationship fell apart within two years.

These appeals concern two trials and two claims for breach of contract brought by Vojdani against NeuroScience. In the first trial, a jury decided the first claim—that NeuroScience did not pay Vojdani what it had contracted to pay for medical testing materials—in favor of NeuroScience. But the district court ordered a new trial on that claim, concluding that this verdict was undermined by flawed special verdict questions. The jury in the second trial found for Vojdani but awarded him much less money than he was seeking. NeuroScience contends on appeal that the court's grant of a new trial was an abuse of discretion. Vojdani cross-appeals, arguing that the court abused its discretion by allowing NeuroScience to argue in the new trial that the parties had orally modified their written contract.

The second claim is that NeuroScience breached a separate confidentiality agreement by continuing to use Vojdani's testing methods after the parties ended their business relationship. The jury in the first trial awarded Vojdani nearly $1.2 million on this claim, but the district court granted judgment as a matter of law for NeuroScience, explaining that Vojdani had relied on an impermissible damages theory. As part of his cross-appeal, Vojdani seeks reinstatement of the original verdict on this claim.

We affirm the district court's judgment in all respects. As we explain in Part I, the court acted within its discretion in granting the new trial on the first claim and including NeuroScience's contract modification theory within the scope of the second trial. We explain in Part II that the award for breach of the confidentiality agreement was not based on a permissible measure of damages that had actually been presented to the jury, so the district court correctly entered judgment as a matter of law for NeuroScience on that claim.

I. First Claim — Breach of the Letter of Intent

A. Factual and Procedural Background

Vojdani and NeuroScience signed a "letter of intent" in June 2007, and despite that provisional title, both sides agree it was a binding contract. The letter of intent provided in part that Vojdani's company would ship medical testing plates and components to NeuroScience accompanied by "an invoice for the material at 50% of client price." The parties would "absorb their own costs of operation, " and NeuroScience would pay the invoices "according to [NeuroScience's] monthly sales." The agreement in the letter was set to expire after 180 days, during which time a longer-term agreement was to be hammered out.

After the parties signed the letter of intent, Vojdani regularly shipped testing plates and components to NeuroScience and submitted monthly invoices for 50 percent of the price that NeuroScience would charge customers for each test. NeuroScience interpreted its obligation to pay Vojdani "50% of client price" according to its "monthly sales" as an obligation to pay only for those tests it actually sold. Vojdani accepted these payments without complaint and never included a past-due amount on any invoice. That pattern continued for the 180 days covered by the letter of intent and during an oral extension of the agreement that lasted for several months. No written agreement ever replaced the letter of intent, though several draft agreements were exchanged. In June 2009, NeuroScience notified Vojdani that it would no longer do business with him. All shipments and payments then ceased.

Vojdani responded to NeuroScience's decision to sever ties with him by suing in federal court for breach of contract. Federal jurisdiction was based on diversity of citizenship. (Vojdani and Immunosciences are citizens of California; Pharmsan and NeuroScience are citizens of Wisconsin.) Of the numerous claims that went to trial, the first of the two involved in these appeals was that NeuroScience breached the letter of intent by not paying Vojdani's invoices in full.

In the first trial, NeuroScience attempted to defeat this claim by arguing that the ambiguous terms of the letter of intent did not require full payment of the invoices. Vojdani's acceptance of payments for only those tests that were actually sold, without complaining that he was being short-changed, reflected the parties' actual agreement according to NeuroScience. In the alternative, NeuroScience argued, even if the terms of the letter of intent did in fact require payment in full, the parties had modified the terms in line with what NeuroScience had actually paid.

On this claim, the first jury was instructed on contract modification, including the point that contracts can be modified orally or by "conduct or other means of expression" indicating that "strict performance was not insisted upon." The problem here arose from the design of the special verdict form, which did not include any question about contract modification. Although NeuroScience had asked (somewhat vaguely) for questions that would allow the jury to consider "what happened" after the contract's execution and had opined that the proposed questions were confusing, the court dismissed the company's concerns. The jury was asked on this claim only: (1) whether Vojdani had proven by a preponderance of the evidence that NeuroScience "agreed in the June 21, 2007 letter of intent … to pay plaintiff the invoiced amount for each [testing] plate sent to defendant NeuroScience whether the plate was sold to a client or not, " and (2) whether Vojdani had proven by a preponderance of the evidence that ...

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