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Shlasinger v. Yarrington

United States District Court, D. New Hampshire

August 15, 2018

Zev Shlasinger and Paul Gerardi
v.
Daniel Yarrington and Myriad Games, LLC

          Joseph A. Davidow, Esq., Howard A. Roever, Esq., Robert S. Carey, Esq. Lindsay Nadeau, Esq.

          MEMORANDUM ORDER

          JOSEPH N. LAPLANTE UNITED STATES DISTRICT JUDGE

         Plaintiffs' post-trial motions in this contract-based action turn on whether the jury returned an internally inconsistent verdict on one count. Plaintiffs Zev Shlasinger and Paul Gerardi brought one count of fraud in the inducement of a contract and one count of breach of the same contract against defendant Daniel Yarrington and his company, Myriad Games, LLC. After a four-day trial, the jury returned a verdict for the defendants on the fraud count and for the plaintiffs on the breach of contract count. As a remedy for that breach, however, the jury awarded the plaintiffs "[z]ero dollars."

         After the trial, the plaintiffs renewed their motion for judgment as a matter of law on both claims under Fed.R.Civ.P. 59(b). In the alternative, they ask the court to amend the judgment to award them damages that they did not request at trial. See id. Rule 59(e). Failing that, they seek a new trial on their breach of contract claim (or solely on damages) in light of the jury's verdict on that claim, which they characterize as internally inconsistent. See Id. Rule 59(a)(1)(A). As a last request, they seek a new trial in light of a juror's nondisclosure of a former connection between his company and the law firm representing the defendants. See id. And for their part, the defendants request an award of attorneys' fees.

         The court denies the plaintiffs' Rule 50 motions, for which the plaintiffs offered no evidentiary support. It also denies the plaintiffs' motion for a new trial, concluding that the jury's verdict on liability for the breach of contract claim was logically consistent, consistent with New York law, and consistent with the evidence. Nor are the plaintiffs entitled to a new trial in light of the purportedly undisclosed former association between a juror and the defendants' counsel.

         Concluding, however, that the plaintiffs are entitled to nominal damages on their breach of contract claim under New York law, the court grants the plaintiffs' motion to amend the judgment to the extent that it awards nominal damages. And because this award precludes the defendants from claiming the position of "prevailing party," even if the invoked fees provision applied to this action -- which does not appear to be the case -- the defendants are not entitled to recover thereunder.

         I. Background

         The travel of this lawsuit begins, as so many campaigns do, with parties questing together for a common end and concludes, as so many campaigns also do, with disputes over which road to take and how to distribute the treasure. Plaintiff Paul Gerardi, an avid gamer, wanted to open a store in his home borough of Staten Island, New York, to sell board games, card games, and associated merchandise. He also hoped to employ the store, as is the custom in the industry, as a venue in which his customers could play the games he sold. Zev Shlasinger, a friend of Gerardi's from gaming tournaments and a previous employer, agreed to provide financial backing for Gerardi's store.

         Finding their alliance incomplete, Shlasinger and Gerardi approached Daniel Yarrington, owner and sole member of Myriad Games, LLC, a games store with locations in Manchester and Salem, New Hampshire. Yarrington, whom Shlasinger met previously through trade shows, also operated Game Salute, a company that published and distributed board and card games. Yarrington thus brought experience as a retailer and distributor into the party, along with his existing supply chain.

         A. The parties' agreements

         Shlasinger, Gerardi, and Yarrington joined forces to create ZaP'D Games, LLC, in June 2012.[1]The rulebook for this venture was the ZaP'D Games Operating Agreement, [2] the agreement which formed the company. The Operating Agreement designated Shlasinger as the managing member and CEO of the company, Yarrington as Secretary, and Gerardi as Treasurer. In the Operating Agreement, the parties also set forth their plan to share the profits: each year, Shlasinger and Yarrington would each receive equal disbursements of the store's true net yield until they had received $100, 000, after which the parties would each receive one third of the net profits.[3]

         The parties each agreed to invest money and resources into the Staten Island store. Shlasinger was to invest $100, 000. Yarrington was to contribute money on an as-needed basis for the store's operating costs and inventory, up to a maximum of $100, 000, as well as to provide merchandise for the store through Myriad Games's distribution systems and an operations system for ordering and managing inventory. The parties memorialized these investments of money and resources in a separate agreement, the Store Agreement, entered into between ZaP'D Games and Myriad Games.[4]

         Finally, Gerardi was to manage the day-to-day operations of the store. He also took a salary of $60, 000 per year, except that for first three years of the store's operation, he would receive a salary of $30, 000. The $90, 000 total that he forewent in salary during those three years would represent his monetary investment in the store. Though the parties discussed Gerardi's investment before entering into the Store Agreement, it was not memorialized in that agreement or in the Operating Agreement.

         B. The Staten Island store

         Though Yarrington negotiated and signed a lease for the Staten Island store in October 2012[5] and the parties hoped to open in time for the holiday season that year, the store did not open until the end of January 2013.[6] In accordance with the Store Agreement, Shlasinger contributed $50, 000 to ZaP'D Games and another $50, 000 to Myriad Games, for a total of $100, 000. As anticipated, Gerardi prepared the store to open and managed it. Through Myriad Games, Yarrington provided the store with initial inventory and managed its inventory and payroll systems.

         Though operating under the company name ZaP'D Games, the Staten Island store effectively functioned as a Myriad Games store. It bore the name Myriad Games above its door, it shared inventory with other Myriad Games locations, and Myriad Games paid its costs out of its operating account. The Staten Island store did not have a separate operating account or any separate accounting system. Rather, Shlasinger's contributions and its sales went into Myriad Games's accounts[7] and the agreed-upon profits to be shared between Shlasinger and Yarrington came out of the same Myriad Games accounts.

         According to Shlasinger and Gerardi, the store began experiencing problems relatively early. These problems included:

• The store was not receiving copies of new and popular games, but was stocked with unpopular games from Yarrington's publishing company, Game Salute.
• The store received copies of some base games without that game's explanation sets or, alternatively, copies of the expansion sets without the base game.[8]
• The store did not receive popular games, even though it ran in-store tournaments for those games.
• The store received some games that were not appropriately targeted to a store in New York, such as Boston Red Sox-themed Monopoly games.[9]
• Yarrington failed to obtain a promised Pepsi refrigerator for the store (to store drinks for customers to purchase) for several months; it arrived only after Gerardi called about it.

         These problems, Shlasinger and Gerardi testified, resulted in poor sales for the Staten Island store, which could not reasonably expect to sell inventory it did not have, or that was incomplete, unpopular, or inappropriately targeted to other geographic markets.

         The defendants, in turn, presented evidence that Gerardi's management of the store contributed to its poor sales. Gerardi had never managed a retail location before and, despite training from Myriad Games and support from its staff, failed to follow certain procedures from the Myriad Games "game guide" -- its employee handbook.

         Though Yarrington sent monthly statements on the amount received in sales at the Staten Island store to Shlasinger and Gerardi, the plaintiffs had difficulty obtaining other inventory and financial data from Yarrington. Shlasinger and Gerardi were particularly troubled to learn that Yarrington had taken out a line of credit in Myriad Games's name in April 2013 and used Shlasinger's second payment of $50, 000 in July 2013 to pay down the loan and extend his credit. As a response of questionable legality and judgment, Gerardi twice took home money, totaling approximately $10, 000, from the Staten Island store's cash register. He did so, he explained, to see if Yarrington would notice and to demonstrate that Yarrington was ignoring the financial state of the Staten Island store. He returned the money after several weeks.

         In accordance with the Store Agreement, at the end of 2013, Myriad Games paid ZaP'D Games Shlasinger's half of the seven percent of the Staten Island store's total earnings that year. But the Staten Island store still had not turned a profit. That December, Yarrington and Shlasinger discussed, by email, how to move forward. Yarrington proposed two options: either Myriad Games could continue to run the store in accordance with the Store Agreement, reserving the sole discretion to close it if it continued to perform poorly, or Shlasinger and Gerardi could buy out the inventory, rename the store, and operate it themselves. Shlasinger chose the first option.

         Around the same time, Yarrington terminated Gerardi from his position as manager of the Staten Island store. At trial, he explained Gerardi's termination as a result of Gerardi's admitted theft, his failure to follow Myriad Games policies, and the store's generally poor performance. He replaced Gerardi with Paul Yellovich, a friend of Gerardi's and one of the store's employees.

         The Staten Island store never turned a profit. Both Yellovich and a regular visitor to the store described it as poorly managed after Gerardi's departure. At the end of April 2014, Yarrington unilaterally, and without informing Shlasinger or Gerardi, wound up the store's business assets and closed it. More specifically, he staged a raid: he and several employees of his New Hampshire stores visited the Staten Island location in the middle of the night, removed the merchandise, destroyed shelves that Gerardi had built for the store, and drove back to New Hampshire.

         C. The trial

         The plaintiffs brought two claims before the jury: one count of fraud in the inducement of the Operating Agreement and one count of breach of the Operating Agreement.[10] Before trial, the plaintiffs submitted their proposed jury instructions. With respect to their fraud in the inducement claim, they sought an instruction on reliance damages.[11] On the breach of contract claim, they proposed an instruction on expectation damages.[12]Though the court did not adopt the plaintiffs' language, it did adopt the substance of the plaintiffs' proposed damages instructions, which it found consistent with New York law and the New York pattern jury instructions. The plaintiffs never objected to these instructions nor requested any other damages instruction, such as an alternative instruction on reliance damages for their breach of contract claim. Nor did either party request an instruction on nominal damages.

         Both claims went to the jury, which returned a verdict against the plaintiffs on their fraud in the inducement claim. And though the jury found that the defendants had breached the Operating Agreement, it awarded "zero dollars" in damages to the plaintiffs for that breach.

         D. Post-trial motions

         The plaintiffs moved for judgment as a matter of law on both claims.[13] See Fed. R Civ. P. 50(a). In the event the court denied that motion (as it now does), they also ask the court for relief on their breach of contract claim, on which the jury found the defendants liable but awarded plaintiffs no damages. See Fed.R.Civ.P. 50(b). Specifically the plaintiffs ask the court either to grant an entirely new trial, or at least a new trial on damages, see Fed.R.Civ.P. 59(a), or to adjust the damages award to reflect the jury's liability conclusion, see id. Rule 59(e). Finally, the plaintiffs move for a new trial on grounds of alleged juror misconduct. The court addresses each of these motions in turn.

         II. Plaintiffs' motion for judgment as a matter of law

         "Under Federal Rule of Civil Procedure 50, the court may grant judgment as a matter of law to a party on an issue if 'the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the [nonmoving] party on that issue.'" T G Plastics Trading Co. v. Toray Plastics (Am.), Inc., 775 F.3d 31, 37 (1st Cir. 2014) (quoting Fed.R.Civ.P. 50) . "[A] party seeking to overturn a jury verdict faces an uphill battle,' since [c]ourts may only grant a judgment contravening a jury's determination when the evidence points so strongly and overwhelmingly in favor of the moving party that no reasonable jury could have returned a verdict adverse to that party.'" Id. (quoting Monteagudo v. Asociacion de Empleados del Estado Libre Asociado de P.R., 554 F.3d 164, 170 (1st Cir. 2009)).

         Plaintiffs moved at the appropriate times during trial for judgment as a matter of law on both of their claims.[14]Specifically, and as permitted by the court, [15] they filed an ex parte memorandum in support of their expected Rule 50 motion at the beginning of the trial. In accordance with this court's practice, [16] that motion was unsealed and provided to defense counsel, and defense counsel was afforded an opportunity to object, at the close of the plaintiffs' case in chief. The court took the motion under advisement. It now addresses -- and denies -- the plaintiffs' motion on both counts.[17]

         A. Fraud in the inducement (Count 1)

         The plaintiffs first claimed fraud in the inducement of the Operating Agreement. The plaintiffs moved for judgment as a matter of law on this claim, see Fed.R.Civ.P. 50(b), on two theories, only one of which they alleged in their complaint. Neither theory merits judgment in the plaintiffs' favor.

         1. Reliance on misrepresentations

         First, the plaintiffs contend that they are entitled to judgment as a matter of law on their claim for fraud in the inducement in its traditional form. That is, where one party makes a promise as to future action for the purpose of inducing the other to enter into a contract, knowing at the time that the promise was made that he did not intend to fulfill that promise, and then does not fulfill that promise, a party who relies on that promise to his detriment may recover for fraud. See Centro Empresarial Cempresa S.A. v. Am. Movil, S.A.B. de C.V., 952 N.E.2d 995, 1000 (N.Y. 2011) .

         The plaintiffs argue that they introduced evidence sufficient to prove this claim by demonstrating the defendants made certain representations for the purpose of inducing the plaintiffs to rely on those representation in entering into the Operating Agreement, and that the plaintiffs did so to their detriment.[18] They do not, however, cite or even refer in a general sense to the evidence that they contend is sufficient to entitle them to judgment as a matter of law.[19] A motion under Rule 50 "must specify the judgment sought and the law and facts that entitle the movant to the judgment." Fed.R.Civ.P. 50(a)(2) (emphasis added). Absent such support, plaintiffs' motion amounts to a mere recitation of their claim, and accordingly must be denied.

         Furthermore, to the extent that the record contains such evidence, it cannot be said that a reasonable jury would not have a legally sufficient evidentiary basis to find for the defendants on the plaintiffs' fraud in the inducement claim. See T G Plastics, 775 F.3d at 37. The plaintiffs bore the burden of proving the elements of that claim. A reasonable jury could have found, based on the evidence adduced at trial, that the plaintiffs failed to carry that burden. The court is disinclined, especially absent the plaintiffs' reliance on any specific evidence, to conclude otherwise.

         2. Fiduciary duty

         The plaintiffs also moved for judgment on the pleadings on a claim for fraud in the inducement on the theory that defendants concealed information that they had a fiduciary duty to disclose.[20] The plaintiffs did not plead this claim in their complaint nor seek to add it to the action until, midway through the trial, they moved to amend their complaint to conform to the evidence.[21] The court denied that motion from the bench.

         Under Rule 15(b), a party may move to amend the pleadings to conform them to the evidence "when an issue not raised by the pleadings is tried by the parties' express or implied consent . . . ." The defendants in this case did not expressly consent. Nor did they impliedly consent by "acquiesce[ing] in the introduction of evidence which is relevant only to" the plaintiffs' new claim. DCPB, Inc. v. City of Lebanon, 957 F.2d 913, 917 (1st Cir. 1992) (emphasis added) (internal quotations omitted). As the court explained on the record, the evidence relied on by the plaintiffs was relevant to their breach of contract claim. "The introduction of evidence directly relevant to a pleaded issue cannot be the basis for a founded claim that the opposing party should have realized that a new issue was infiltrating the case." Id. The plaintiffs' breach of fiduciary duty-based claim was thus never properly before the court or the jury. The court accordingly denies the plaintiffs' Rule 50 motion on that theory as well.

         B. Breach of the Operating Agreement (Count 2)

         The jury's verdict in the plaintiffs' favor on their claim for breach of contract renders moot the plaintiffs' motion for judgment as a matter of law on that claim.[22] The court denies it as such.

         Even were it not rendered moot by the jury's verdict, the plaintiffs' motion lacked any evidentiary support, and thus fails to satisfy Rule 50(a)(2). The plaintiffs merely repeated the allegations in their complaint concerning which provisions of the Operating Agreement the defendants allegedly breached, without recounting any evidence of the breach. Nor does the plaintiffs' mere citation to the law of reliance damages --which, as discussed infra Part III.C, the plaintiffs surrendered when they agreed to a jury instruction on expectation damages --without more afford them any relief.

         ILL. Motion for a new trial

         Following a jury trial, this court may "grant a new trial on all or some of the issues . . . for any reason for which a new trial has heretofore been granted in an action at law in federal court." Fed.R.Civ.P. 59(a)(1)(A). "A trial court may grant a new trial on the basis that the verdict is against the weight of the evidence," or "whenever, in its judgment, the action is required in order to prevent injustice." Jennings v. Jones, 587 F.3d 430, 436 (1st Cir. 2009). Its discretion is limited, however, in that it "may not grant a motion for a new trial merely because [it] might have reached a conclusion contrary to that of the jurors . . . ." Conway v. Electro Switch Corp., 825 F.2d 593, 598-99 (1st Cir. 1987) .

         The plaintiffs move for a new trial on the basis that the jury's verdict on that claim was internally inconsistent.[23] In returning its verdict, the jury answered "Yes" to the question "Do you find that the plaintiffs have proven, by a preponderance of the evidence, their claim for breach of the Operating Agreement?"[24] It then awarded "Zero dollars" to the plaintiffs on their claim for breach of contract.[25] Though they raised no objection at the time, the plaintiffs now argue that, under New York law, a jury cannot consistently conclude that a plaintiff has proven all of the elements of a breach of contract claim while at the same time awarding zero damages, as the jury did in this case.

         Concluding as it does that the jury's verdict is logically consistent under New York law, consistent with the jury instructions (to which the plaintiffs did not object), and not against the weight of the evidence, the court denies the plaintiffs' motion for a new trial.

         A. Logical consistency under New York law

         Under New York law, "the essential elements of a cause of action to recover damages for breach of contract" are "the existence of a contract, the plaintiff's performance under the contract, the defendant's breach of that contract, and resulting damages." JP Morgan Chase v. J.H. Elec. of New York, Inc., 8 93 N.Y.S.2d 237, 239 (N.Y.App.Div. 2010). The court so instructed the jury.[26] Without more than a statement of the elements of the claim, which is all that the plaintiffs invoke, the verdict does appear to be internally inconsistent on its face, as the plaintiffs argue. A more thorough consideration of New York law, however, suggests that it is not.

         As an initial matter, the plaintiffs failed to preserve their objection to the verdict's alleged logical inconsistency. "'[0]bjections to inconsistences in the verdict must be lodged 'while the jury is still in the box,' or the issue is forfeited." Smith v. Jenkins, No. 07-CV-12067-RGS, 2011 WL 1660577, at *2 n.3 (D. Mass. May 3, 2011), aff'd, 732 F.3d 51 (1st Cir. 2013) (quoting Correia v. ...


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