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WINDSOR SHIRT CO. v. NEW JERSEY NATL. BANK

May 11, 1992

WINDSOR SHIRT COMPANY
v.
NEW JERSEY NATIONAL BANK



The opinion of the court was delivered by: BY THE COURT; EDWARD N. CAHN, J.

 CAHN, J.

 May 11, 1992

 I. Background

 On December 1st, 1989, defendant New Jersey National Bank ("Bank") informed plaintiff Windsor Shirt Company ("Windsor") that it was ending its banking relationship with Windsor. The Bank called Windsor's Loan Agreement of November 18, 1988 ("Loan Agreement"), which was not due to expire until May, 1990, because it believed that Windsor had materially breached the Loan Agreement. The Bank demanded that Windsor immediately repay its remaining obligations under the Loan Agreement, $ 5.2 million, or face bankruptcy. Windsor agreed to repay $ 3.5 million in December through emergency liquidation of its Christmas inventory *fn1" in exchange for the Bank's promise to forbear from forcing Windsor into bankruptcy and to permit Windsor's management to sell the company. By February, 1990, Windsor had paid the Bank all of the $ 5.2 million it owed, and Windsor's management sold the company to Phillips Van Heusen ("PVH"), Windsor's former main supplier, for $ 2.00.

 This suit was brought by Kenneth J. Bogdanoff ("Bogdanoff") and Judith Bogdanoff, the founders and sole shareholders of Windsor, on behalf of themselves and Windsor (who had assigned its rights against the Bank to the Bogdanoffs). Plaintiffs alleged various tort and contract claims, some of which were dismissed by this court during trial in response to a motion by Defendant pursuant to Fed. R. Civ. P. 50(a). Plaintiffs alleged that the Bank agreed to lend Windsor an additional $ 3 million over the credit line in the Loan Agreement, and breached that oral contract by refusing to make the alleged loan. Plaintiffs alleged that the Bank's refusal to fund the $ 3 million loan gave rise to damages resulting from the Bank's contract breach, tortious breach of contract, negligent misrepresentation, fraudulent conduct, and violation of its duty of good faith. Plaintiffs also alleged, in connection with the Loan Agreement, that the Bank breached the Loan Agreement and violated its duty of good faith. This court dismissed all of Windsor's claims except the allegations of breach of contract and violation of the duty of good faith in connection with the Loan Agreement. This court also dismissed the Bogdanoffs as parties to this suit, leaving Windsor as the sole plaintiff. See Order of November 15, 1991. The Bank also brought a counterclaim, based on the Loan Agreement, which would allow it to recover costs associated with the enforcement of the Loan Agreement.

 This case was tried to a jury for 19 trial days from October 8, 1991 until November 15, 1991. In its answers to interrogatories, the jury found that Windsor had proven, by a preponderance of the evidence, that the Bank had violated the contractual provisions of the Loan Agreement. *fn2" The jury then awarded damages in the amount of $ 3.5 million for the loss suffered by Windsor as a result of the breach. *fn3"

 Now before the court is Defendant's Motion for Judgment as Matter of Law or, in the alternative, For a New Trial. *fn4" The court heard oral argument on these motions on February 3, 1992. For the reasons set forth below, the Motion will be denied.

 II. Standards

 A. Standards for Granting Judgment as a Matter of Law

 A court cannot enter judgment as a matter of law unless the party seeking the judgment made a Rule 50(a) Motion at the close of all the evidence at trial. See Keith v. Truck Stops Corp. of America, 909 F.2d 743, 744 (3d Cir. 1990); Mallick v. International Brotherhood of Electrical Workers, 644 F.2d 228, 233 (3d Cir. 1981); Fed. R. Civ. P. 50(b).

 The specific grounds for [judgment as a matter of law] must be asserted in the motion for a directed verdict. If the issue was not raised in the motion for the directed verdict at the close of all the evidence, it is improper to grant the [motion] on that issue. The requirement that the specific issue be raised first in the motion for a directed verdict, before the issue is submitted to the jury, affords the non-moving party an opportunity to reopen its case and present additional evidence. Further, when a trial court decides an issue after it was properly submitted to the jury, it may deprive the non-moving party of [its] seventh amendment rights.

 Bonjorno v. Kaiser Aluminum and Chemical Corp., 752 F.2d 802, 814 (3d Cir. 1984), cert. denied, 477 U.S. 908, 91 L. Ed. 2d 572, 106 S. Ct. 3284 (1986) (emphasis supplied) (citations omitted).

 In deciding whether a Rule 50(b) motion should be granted, "[a] court must view the evidence in the light most favorable to the non-moving party, and determine whether 'the record contains the "minimum quantum of evidence from which a jury might reasonably afford relief."'" Keith, 909 F.2d at 745 (citation omitted). See also Andrews v. City of Philadelphia, 895 F.2d 1469, 1478 (3d Cir. 1990); Bhaya v. Westinghouse Electric Corp., 832 F.2d 258, 259 (3d Cir. 1987), cert. denied, 488 U.S. 1004, 102 L. Ed. 2d 774, 109 S. Ct. 782 (1989); Grace v. Mauser-Werke GMBH, 700 F. Supp. 1383, 1387 (E.D. Pa. 1988). It is for this reason that "normally, when the evidence is contradictory, [judgment as a matter of law] is inappropriate." Bonjorno, 752 F.2d at 811 (citation omitted). The jury must weigh the evidence, if the evidence is in dispute, because evaluation of witness credibility is the exclusive function of the jury." Bhaya, 832 F.2d at 262. See also Bonjorno, 752 F.2d at 811; Grace, 700 F. Supp. at 1387.

 B. Standard for Granting a New Trial

 "In general, the ordering of a new trial is committed to the sound discretion of the district court." Bonjorno, 752 F.2d at 812. See also Williamson v. Consolidated Rail Corp., 926 F.2d 1344, 1348 (3d Cir. 1991); Honeywell v. American Standards Testing Bureau, Inc., 851 F.2d 652, 655 (3d Cir. 1988), cert. denied, 488 U.S. 1010, 102 L. Ed. 2d 787, 109 S. Ct. 795 (1989); Feingold v. Raymark Industries, Inc., 1988 Westlaw 76114 at *3 (E.D. Pa. July 19, 1988); Grace, 700 F. Supp. at 1387). A new trial cannot be granted, however, merely because the court would have weighed the evidence differently and reached a different conclusion. See Feingold, 1988 Westlaw 76144 at *3; Grace, 700 F. Supp. at 1387. A court can only exercise its discretion to grant a new trial because the verdict was against the weight of the evidence when the failure to do so would result in injustice, or would shock the conscience of the court. See Williamson, 926 F.2d at 1352-53; Feingold, 1988 Westlaw 76114 at *3; Grace, 700 F. Supp. at 1388.

 III. Defendant's Argument for Judgment As a Matter of Law

 A. The "Important" Distinction Between a Company And Its Stock

 The Bank argues that this court should direct a verdict for the defendant, notwithstanding the jury's findings of fact, because as a matter of law, Plaintiff did not prove any damages during trial. Defendant's argument is based on its motion, made orally before the court as a supplement to its Rule 50(a) motion, that Plaintiff had introduced "no competent evidence in the record of damage to the company" as a result of the Bank's decision to call its loan to Windsor. N.T. Nov. 15 at 4026; see also Memorandum In Support of Defendant's Motion For Judgment or, in the alternative, For a New Trial ("Defendant's Memorandum") at 9. Defendant argues that the statements by witnesses called by Windsor and the Bank upon which Plaintiff relied in arguing its damages case to the jury all referred to the value of Windsor's stock, which was owned by the Bogdanoffs, and not the value of Windsor itself. See Defendant's Supplemental Brief In Reply ("Defendant's Supplemental Brief") at 2.

 Defendant seems to be arguing that the this court should have granted a directed verdict at the Rule 50(a) stage of this trial because, although Windsor may have proven that the Bank's actions significantly affected the value of Windsor's stock, Plaintiff did not prove any connection between the value of Windsor's shares and the value of Windsor, the corporation. A review of Defendant's motion under Rule 50(a), Defendant's Memorandum, and Defendant's Supplemental Brief, reveal that Defendant has made no argument contradicting Plaintiff's evidence of the decline in value of Windsor's stock. Defendant is therefore basing its entire Rule 50(b) motion on the contention that a factfinder cannot infer damage to a corporation from a drop in the value of the corporation's stock caused by a contract breach by the corporation's bank. The court rejects this unsupportable argument.

 It is beyond peradventure that the market capitalization of all the shares of a company's stock represents the approximate market value of the company. Admittedly, the more inefficient the market, the more divergence there may be between the market capitalization of a company, as represented by the sum of the market price of all its shares, and its "true" value, as measured from the perspective of a fully-informed buyer in a perfectly efficient market. But those subtleties are the concern of academics and are irrelevant to the world of business: To a businessperson, the market capitalization of a company's stock is the company's market value.

 Defendant seems to be suggesting that, notwithstanding its proof of the effect of the Bank's actions on the market price of Windsor's stock, Windsor needed to provide the jury with evidence that there was, in late 1989, a reliable relationship between Windsor's share price and its value as a company. This court can find no case law supporting this proposition. The case law, in fact, clearly supports the opposite. See In re Sunrise Securities Litigation, 916 F.2d 874, 886 (3d Cir. 1990) ("decreases in share value reflect decreases in the value of the company"), cert. denied, 479 U.S. 987 (1986), citing Rand v. Araconda-Ericcson, Inc., 794 F.2d 843, 849 (2nd Cir. 1986); Gaff v. FDIC, 828 F.2d 1145, 1150 (6th Cir. 1987) ("diminution in the value of corporate stock constitutes a direct injury to the corporation").

 In fact, Defendant's claim that none of the witnesses testified about value of Windsor before the Bank's alleged breach can only make sense if one misreads those parts of the record where witnesses for both parties discuss the value of Windsor and the value of Windsor's stock interchangeably. Contrary to Defendant's claims in its Supplemental Brief at 2, both Mr. Klatsky and Chandler Joyner, the Bank's valuation expert, discussed the value of Windsor without reference to the value of its stock throughout their testimony. See, e.g., N.T. Oct. 23 at 1167 (Klatsky: "Well, if we bought the company [Windsor] on one day with a particular performance and a particular set of assets and a particular earnings potential versus another day, the company is worth one thing one day and another thing another day."); N.T. Oct. 23 at 1185-86 (Klatsky describing Irving Winter's in-house analysis of PVH-Windsor deal at various purchase prices for "the company"); N.T. Nov. 13 at 3649 (Joyner's description of Winter analysis as "a way to buy the company"); N.T. Nov. 12 at 3383 (Joyner's reference to PVH's estimate of "the value of Windsor Shirt" in 1991); N.T. Nov. 12 at 3385 (Joyner's recalculation of PVH's equation with a new price/earnings ratio which results in a figure (to be compared with PVH's) which Joyner calls "equity value").

 B. The Problem of Proof of Damages to Windsor

 Defendant's ultimate argument for Judgment As a Matter of Law appears in the middle of Defendant's Supplemental Brief when it contrasts the damages evidence presented by Windsor with the damages evidence recognized as sufficient by the Third Circuit Court of Appeals in Franklin Music Co. v. American Broadcasting Companies, Inc., 616 F.2d 528 (3d Cir. 1980). Defendant's point, which was much more fully developed in oral argument before the court, is that Plaintiff did not offer any proof that the Bank's breach caused anything other than nominal damage to Windsor. *fn6" The Bank argues that the net effect of its breach was to demand repayment of $ 3.5 million on December 1st, 1989, instead of $ 5.2 million on December 30, l989. *fn7" See N.T. Feb 3 at 6. The Bank argues that Windsor had an obligation to prove to the jury the effect of demanding $ 3.5 million a month early: "There is nothing in the record which shows any economic impact upon Windsor of the bank's having required that 3.5 million be paid prior to December 30." N.T. Feb. 3 at 6. Defendant directs the court's attention to Franklin Music in order to illustrate the type of evidence our circuit requires in order to substantiate damages in a case where a company's value was diminished by the wrongful acts of another.

 Defendant raises an important point. This court noted early in the case that Plaintiff's greatest obstacle would be establishing damages. See N.T. Oct. 8 at 245; see also N.T. Feb. 3 at 35-36. Plaintiff's damages strategy was to have the jury focus on two figures: the 7 or 9 million dollars it claimed the company was worth in early 1989, and the $ 2.00 for which the company was sold in 1990. See N.T. Nov. 14 at 3940, citing N.T. Oct. 23 at 1284. Defendant's damages strategy was two-pronged: It used Mr. Joyner to argue that Windsor was never worth 7 or 9 million dollars (see, e.g., Defendant's Exhibit 247) and Carl Steidtmann to argue that regardless of Windsor's alleged value in early 1989, by late 1989 its performance was very poor, and its poor performance was in no way caused by the Bank's breach. See N.T. Nov. 13 at 3739.

 Defendant now advances the following argument: Even if Mr. Joyner was wrong and Mr. Klatsky was right about Windsor's value in early 1989, Plaintiff offered no proof to the jury that Windsor was worth anything more than a nominal amount on November 30, 1989, the day before the Bank breached. *fn8" Mr. Steidtmann testified that the entire men's clothing industry was suffering one of the worst business downturns in recent memory. See N.T. Nov. 13 at 3724-25, 3735. Mr. Steidtmann also testified that specific decisions made by Windsor were "blunders" that (a) placed it into a contracting market; (b) focussed it on a increasingly unpopular product; and (c) placed it in direct competition with department stores. See N.T. Nov. 13 at 3728. It is reasonable to assume, argues the Bank, that the factors described by Mr. Steidtmann suggest that Windsor faced very different prospects in late 1989 than it did in early 1989. According to the Bank, Mr. Steidtmann's testimony might even substantiate Mr. Joyner's claim that by January 1990, Windsor, had it continued to exist, would have had even a greater "negative equity value" than it had in early 1989. See N.T. Nov. 12 at 3377.

 It is possible that the jury accepted some or all of Mr. Steidtmann's opinions. Mr. Steidtmann was called as an expert on retail marketing, not on valuation. See N.T. Nov. 13 at 3713. Mr. Steidtmann persuasively described the dire condition of Windsor's market and he was very critical of Windsor's marketing strategy. Mr. Steidtmann, however, never put a number on how much, in his opinion, Windsor's value was depressed by the poor market for men's clothes and its own "blunders." Nor did Mr. Steidtmann offer an opinion on the value of Windsor just before the Bank's breach. His testimony could only go to the question of how well or poorly Windsor was doing in late 1989, and how good or bad its performance prospects would have been had the Bank not breached.

 Most importantly, Mr. Steidtmann did not offer an opinion as to the percentage of decline in Windsor's value after December 1, 1989 that was attributable to the Bank's acts. Mr. Steidtmann's statement that none of the problems facing Windsor that he described in his testimony were caused by the Bank's breach may be true but is irrelevant. See N.T. Nov. 13 at 3739. The problems Mr. Steidtmann described, which were related to macroeconomic trends and marketing "blunders" dating from 1986 do not produce sudden, dramatic effects. According to Windsor, however, the decline in its value caused by the breach occurred very rapidly: Although Windsor was sold to PVH on February 9, 1990 (See N.T. Oct. 22 at 1089), its zero value after December 1 had been recognized by PVH and Bogdanoff as early as mid-December. See N.T. Oct. 22 at 1098 (Bogdanoff stating that he agreed in his first post-breach conversation with Klatsky to "give" Windsor to PVH since "it was assumed that there would be no book value by the end"); N.T. Oct. 23 at 1216 (Klatsky stating that in mid-December PVH determined that Windsor "wasn't worth very much at that time"). Thus, even if Mr. Steidtmann was correct that Windsor was doing poorly in December 1989 and would have done even more poorly in 1990, his testimony was irrelevant to the jury, which needed to know how much of Windsor's decline--from being a company with admittedly poor performance at the beginning of December to being a worthless company by mid-December--was attributable to the Bank.

 Defendant argues that no one testified as to what percentage of Windsor's decline was attributable to the Bank's acts. See Defendant's Supplemental Brief at 2. The Bank argues that testimony from Mr. Klatsky that the Bank "hurt" Windsor by a "significant" amount cannot be used by the jury to calculate how much of Windsor's pre-breach value was destroyed by the breach. Id. ("even if the jury believed Mr. Klatsky that the Bank had "hurt" Windsor, plaintiff introduced no figures which would have permitted the jury to calculate damages . . ."). At least one number had been introduced, however: Both Bogdanoff and Mr. Klatsky testified that as a result of the Bank's actions, Windsor had no value. They testified, in effect, that the percentage of decline in value attributable to the breach was 100%.

 Since Mr. Steidtmann did not offer his opinion of what percentage of the decline in Windsor's value after the breach was attributable to the Bank, and Plaintiff's witnesses did offer testimony on this question, Defendant cannot argue that the jury was given "no figures which would have permitted the jury to calculate damages." The jury had the figure of 100%, which it could accept, or reject, or modify, and it could apply that figure to whatever value of Windsor as of November 30, 1989 it chose to accept from the valuation opinions it heard. The jury was told by Mr. Klatsky that in early 1989 Windsor's book value was $ 4 million, and that with synergies PVH might have paid 7 to 9 million dollars for Windsor. *fn9" See N.T. Oct. 23 at 1200 & 1284. The jury returned a damages figure of $ 3.5 million, which is 87.5% of what Plaintiff claimed was Windsor's book value and between 38% and 50% of what Plaintiff claimed Windsor was worth to PVH in early 1989. It is not unreasonable to assume that the jury adopted Mr. Steidtmann's opinion and factored the grim retail news into its calculation of what Windsor was worth on November 30, 1989. This calculation would have allowed the jury to arrive at a figure of $ 3.5 million, and then attribute 100% of Windsor's decline from $ 3.5 million to zero between the date of breach and mid-December to the Bank's acts, thus generating a damages figure of $ 3.5 million. *fn10"

 The Bank points out that in Franklin Music, which involved a suit for by a retail music store for damages caused by breach of fiduciary duty and conspiracy, the plaintiff introduced evidence of lost earnings resulting from lost advertising rebates and a defendant's improper neglect of his duties, as well as evidence of the plaintiff's gross profit ratios, actual sales and losses, and sales growth before and during the period when the injury occurred. See Defendant's Supplemental Brief at 5-6. From this the Bank concludes that to "prove[] damages under the Franklin Music standard, Windsor might have introduced evidence of its profits, sales and losses and overall performance (or some other equivalent) both before and after the November 27 - December 1, 1989 actions by the Bank." Defendant's Supplemental Brief at 7. The Third Circuit Court of Appeals did not require this in Franklin Music; nor did the District Court in its Memorandum and Order in Franklin Music. See Appendix to Defendant's Supplemental Brief in Reply at Exhibit A (hereinafter "Franklin Music Memorandum"). Both the District Court and the Third Circuit Court of Appeals relied upon traditional tests to determine the type of evidence which must be submitted to the jury. See Ashcraft v. C.G. Hussey & Co., 359 Pa. 129, 58 A.2d 170, 172 (Pa. 1948) ("reasonable quantity of information must be supplied . . . so that the jury may fairly estimate the amount of damages from the estimate"); see also Marrazzo v. Scranton Nehi Bottling Co., 422 Pa. 518, 223 A.2d 17, 21 (Pa. 1966) (evidence must be sufficient to support verdict without resort to conjecture).

 The only place where specific evidence relating to "general operations, profits or sales" is mentioned in Franklin Music is in the Franklin Music Memorandum where the district court discusses the plaintiff's proof of "business damages." Franklin Music Memorandum at 34. The discussion of business damages in the Franklin Music Memorandum makes sense, since in that case, Franklin Music alleged that its damages arose, in part, from losses suffered over a number of years caused by a countless number of injurious choices and actions by the defendant. See Franklin Music Memorandum at 33 (conspiracy damage assessment "could have been predicated on any number of specific acts of misconduct by the defendants").

 This case is not factually similar to Franklin Music in several respects. Here we have a single act, not many; the period involved is very short, not four years; and most importantly, the damages have to do with the destruction of Windsor as a going concern, not business damages having to do with lost profits, or income opportunities. For example, in Franklin Music, the plaintiff claimed that one defendant injured the company by neglecting his responsibilities, and therefore, with regard to this allegation the plaintiff was entitled to produce evidence pertaining to "general operations, profits or sales." Franklin Music, 616 F.2d at 537 (see, e.g., the discussion of the $ 25,000 of lost advertising revenues attributed to defendant's breach of fiduciary duty). In this case, the damage to Windsor had nothing to do with an employee or fiduciary causing Windsor to forego business opportunities over a period of time. In this case the damages question had to do with the effect of the Bank's breach of the Loan Agreement on Windsor's value as a going concern. The value of a company as a going concern is related to its ability to operate as a limited liability corporation: To borrow money, to make contracts with suppliers and employees, to conceive of and carry out long and short term marketing and business strategies, and those other qualities that distinguish a corporation from merely a group of individuals who have legal title to some property. It is obvious that the sort of questions one must ask in order to determine whether a company's value as a going concern was affected by another's act have little to do with the sort of evidence adduced in Franklin Music.

 There was direct testimony from Mr. Bogdanoff about the effect of the Bank's breach on Windsor as a going concern. When asked by Defendant's attorney about what difference in impact on Windsor there was between the Bank's calling the loan as opposed to the Bank waiting for Windsor to pay the revolver down to zero under the Loan Agreement, Mr. Bogdanoff responded as follows:

 A: The difference in what actually occurred [and what was required under the Loan Agreement] was that the bank . . . dictated who I could pay and who I couldn't pay and supervised every activity that was going on-within my operation, denied me the opportunity to run my business and maybe get more sales. Denied me the opportunity to -- to go out and pursue the equity which we had both agreed was a good idea.

 I think there is a big difference.

 Q: Well, first of all, the bank did not actually take over the management of Windsor Shirt Company; did it?

 A: The bank specifically called every shot with regard to how we ran our company.

 Q: Did the bank take over the management of Windsor Shirt Company and if so, tell me how?

 A: The bank took over the control of the management of Windsor Shirt Company. We couldn't do anything without clearing it with Mr. Turko. ...


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