Marcus & Millichap Investment Services of Chicago, Inc. v. Sekulovski

Citations: 639 F.3d 301; 2011 U.S. App. LEXIS 5912Docket: No. 10-1352

Court: Court of Appeals for the Seventh Circuit; March 23, 2011; Federal Appellate Court

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Marcus Millichap Real Estate Investment Services, Inc. (REIS) and its subsidiary, M. M Chicago, filed a lawsuit against former agent Tony Sekulovski for multiple claims including breach of contract, unjust enrichment, conversion, fraud, and tortious interference. REIS alleged that Sekulovski misrepresented his contributions to real estate transactions and misappropriated commissions upon leaving the brokerage. In response, Sekulovski counterclaimed for breach of contract, unjust enrichment, declaratory relief, and unlawful withholding of wages. The district court ruled in favor of M. M Chicago by dismissing Sekulovski's wage claim and the jury sided with M. M Chicago on all counts. Sekulovski's motions for judgment as a matter of law or a new trial were denied. 

Sekulovski began his career with REIS in 1999 at M. M Ohio and later transferred to M. M Chicago in 2005. Though he utilized REIS resources, Sekulovski never signed a formal salesperson agreement with M. M Chicago, which is required under REIS policy. He claimed to have an oral agreement regarding his compensation but provided no substantial details. REIS agents are compensated through commissions rather than salaries, with a structured division of commissions based on performance thresholds. Agents involved in transactions submit booking statements to allocate work and commission shares, which M. M Chicago generally approves if documented in writing. Additionally, Mark Luttner, a contractor mentored by Sekulovski, moved to M. M Chicago with him.

An informal partnership was formed between Sekulovski and Luttner as real estate agents, with discussions about starting their own brokerage that never materialized. Initially, they split commissions evenly, but after Sekulovski reached a graduated commission scale in September 2006, he began to claim a significant majority (75-100%) of commissions from their joint transactions, citing Luttner's lack of contribution as justification for reducing Luttner's share. Allegations arose that Sekulovski incentivized Luttner to accept these diminished allocations through kickbacks, benefiting both men at M. M Chicago's expense.

Sekulovski resigned from M. M Chicago in June 2007 without resolving commission distributions from pending transactions. He directed a title company to pay him directly for two commissions, violating state law and M. M Chicago's Policy Manual, which required all real estate business to be conducted under the firm's name. He later joined NAI Horizon while continuing to close deals initiated at M. M Chicago, retaining commissions from these transactions, which M. M Chicago contested.

M. M Chicago filed a lawsuit against Sekulovski for breach of contract, unjust enrichment, conversion, fraud, and tortious interference. Sekulovski counterclaimed for similar issues. Luttner testified for M. M Chicago, admitting to misrepresenting commission allocations with Sekulovski. The jury found in favor of M. M Chicago on all claims against Sekulovski, who then appealed the district court's judgment after his post-trial motions were denied. The court recognized a contract existed between Sekulovski and M. M Chicago, despite Sekulovski's claims of an oral agreement and lack of signed representation.

A contract can be implied from the conduct of the parties involved; in this case, Sekulovski and M. M Chicago are deemed to have an implied contract governed by the Policy Manual, despite the lack of a signed agreement. Sekulovski raises seven issues, which are categorized into four groups: evidentiary rulings, jury instructions, application of the Illinois Wage Payment and Collections Act, and denial of post-trial motions. 

In addressing evidentiary rulings, Sekulovski contends that the district court improperly restricted his cross-examination of Luttner and excluded evidence meant to show Luttner's bias, which he claims affected the case's outcome due to Luttner's credibility being central. The appellate court emphasizes deference to district court evidentiary decisions and will only overturn such decisions if there is an abuse of discretion. While evidence of bias is generally admissible for impeachment, the court clarifies that proffered bias evidence is still subject to the Federal Rules of Evidence and the trial court's discretion. Sekulovski's argument for a strict rule of admissibility for bias evidence is rejected, with the court supporting the district court's decisions to exclude certain evidence on the grounds of limited probative value and potential confusion, as well as the nature of hearsay. The court concludes that the district court did not abuse its discretion in its evidentiary rulings.

Sekulovski failed to address or refute the district court’s analyses under Rules 401, 403, and 802 in his opening brief, only raising evidentiary arguments in his reply brief, which were deemed too late. The district court’s rulings on evidence were upheld as reasonable, despite Sekulovski's claim that they prejudiced the jury’s view of Luttner's credibility. The court noted that the jury likely did not find either party credible, as they could have formed their own conclusions through corroboration and inferences. The evidence admitted included redacted emails showing Luttner’s hostility, and both parties accused the other's witnesses of fabrication, indicating that the jury understood the biases involved. Sekulovski also challenged the exclusion of Luttner’s post-trial email as grounds for a new trial, which will be addressed later.

Regarding jury instructions, Sekulovski argued that he deserved a new trial due to improper instructions on calculating fraud damages. He contended that the jury should have discounted amounts M. M Chicago would owe Luttner if the fraud had not occurred and criticized the exclusion of evidence related to those hypothetical amounts. Under Illinois law, damages for fraud are determined by the plaintiff's loss, not the defendant's gain, with the aim of restoring the defrauded party to their financial position as if the misrepresentation had not occurred. However, the Illinois cases referenced typically involved consumer fraud, differing from the misrepresentation in this case.

In Giammanco v. Giammanco, the court addressed the appropriate measure of damages in a fraud case where a buyer was misled about property quality. Sekulovski misrepresented facts that led REIS to overpay him under their contract, but this did not affect the decision to contract. His interpretation of "plaintiff's loss" was deemed inappropriate as it would allow him to keep commissions that should have been considered losses due to his fraud. The district court correctly instructed the jury that damages should reflect the commissions Sekulovski received due to his misrepresentations. The court also ruled that REIS's other financial obligations did not affect the damages calculation, referencing Gerill Corp. v. Jack L. Hargrove Builders. Furthermore, Sekulovski challenged the jury instructions related to M. M Chicago’s tortious interference claim and Illinois real estate licensing requirements, claiming they misled the jury about his relationship with M. M Chicago. The court found the licensing statute relevant to his activities while with the brokerage, and Sekulovski failed to adequately explain how the instruction was misleading, leading to a waiver of this argument on appeal.

The district court correctly ruled that the statute in question, while not definitive of M. M Chicago’s interests in the disputed transactions, could influence the jury's evaluation of that interest. Sekulovski's argument that the jury was misled by the instructions and that this misguidance prejudiced him was unconvincing. The court adequately informed the jury of the relevant law, and since Sekulovski's claims of instructional error lack merit, he is not entitled to a new trial.

Regarding the Illinois Wage Collection and Payment Act, the court classified Sekulovski as an independent contractor rather than an employee, a critical distinction meant to protect employees from wage theft. The Act’s broad definition of "employee" excludes independent contractors, as established by precedent. Sekulovski would not qualify as an employee if M. M Chicago did not control his work, he operated outside of its premises, and he was engaged in an independent business, all of which must be satisfied conjunctively. 

The district court, after considering extensive evidence from both parties, granted M. M Chicago's motion for judgment as a matter of law on Sekulovski’s claims, concluding he was not a protected party under the Wage Act. Consequently, the jury's verdict indicated Sekulovski was not entitled to the commissions he claimed. In his appeal, Sekulovski argued that the court misinterpreted the Wage Act and that the ruling was against the weight of the evidence. However, he did not present a clear dispute regarding the district court's statutory interpretation, resulting in a waiver of this argument. The appellate review presumes the district court applied the correct interpretation of the Wage Act, and Sekulovski's primary issue is the classification as an independent contractor. The standard for reviewing the grant of judgment as a matter of law is de novo, allowing for reversal only if the evidence supports a verdict for the non-moving party.

Classifying Sekulovski as an employee or independent contractor is a factual determination that the district court relied upon when granting M. M Chicago's motion for judgment as a matter of law. Such a ruling is appropriate only if the jury lacked a legally sufficient basis to find Sekulovski was an employee. The court agrees with the district court's conclusion that Sekulovski was an independent contractor under the Wage Act, noting his consistent use of the independent contractor designation and that he sought employee status only for potential profit. However, the review standard necessitates assessing whether the evidence, favoring Sekulovski, could support a jury's finding of employment status. M. M Chicago must show no reasonable jury could conclude Sekulovski fell outside the independent contractor exception's three prongs, which are conjunctive. A reasonable jury could not find in Sekulovski's favor on the first and third prongs, but the second prong is more complex due to the Illinois Appellate Court's interpretation that an employer's place of business can extend beyond its offices. A jury could reasonably find Sekulovski represented M. M Chicago’s interests despite working away from the office. Thus, the district court may have erred in its ruling. However, this potential error is not grounds for reversal, as the jury's verdicts on other counts indicated Sekulovski was not owed any commissions related to his Wage Act claims. Sekulovski did not contest this point, and without owed commissions, he cannot sustain a Wage Act claim, making any error harmless. The court will not reverse the district court's decision to dismiss Sekulovski's claims.

After the jury ruled in favor of M. M Chicago and against Sekulovski on his counterclaims, Sekulovski filed two post-trial motions. He argued that the district court wrongly denied his Rule 50(b) motion for judgment as a matter of law, claiming the jury's verdicts were contrary to the evidence's manifest weight. He also asserted that the court abused its discretion by denying his Rule 59 motion for a new trial based on Luttner's alleged post-trial admission of perjury. Both arguments were rejected.

Regarding the Rule 50(b) motion, Sekulovski contended there was inadequate evidence of a fraudulent scheme to support the jury's findings and that any employment contract did not include the Policy Manual, which he claimed invalidated the breach of contract and other claims. The district court found sufficient evidence of fraud, noting discrepancies in Sekulovski’s booking statements and concluded that the parties had acted as if the Policy Manual governed their relationship. The appellate review confirmed the district court's reasoning was sound and that reasonable jurors could have supported M. M Chicago’s position.

In relation to the Rule 59 motion for a new trial, Sekulovski's arguments hinged on the alleged unreliability of Luttner, erroneous jury instructions, and the verdict being against the evidence's weight. The court previously determined that the jury instructions were correct, and it reviewed the denial of the new trial motion under an abuse of discretion standard, upholding the original verdict based on the evidence presented.

Appellants like Sekulovski face a significant challenge in overturning a verdict, as this can only happen if no rational jury could have reached that conclusion. Sekulovski's appeal argues that the jury and trial judge were misled by a purported contract, but the evidence clearly supported the contract's existence with M. M Chicago. It would be irrational to think the parties conducted numerous transactions without understanding their terms. Sekulovski's claim that Luttner's post-trial email confirmed him as a dishonest witness does not warrant a new trial, as the email—allegedly fabricated by Sekulovski—suggests Luttner would lie for money but does not meet the criteria for admissibility as new evidence. Sekulovski failed to demonstrate that the email was not merely cumulative or impeaching, and hearsay issues were not addressed. The district court correctly ruled that the email's introduction would not likely change the trial outcome, especially since Luttner's credibility was already significantly challenged during the trial. Consequently, Sekulovski did not fulfill the necessary conditions for obtaining a new trial based on newly discovered evidence, and the jury's verdicts were reasonable given the evidence presented.

The district court did not abuse its discretion in denying Sekulovski’s Rule 59 motion for a new trial. The court affirmed its judgment in favor of M. M Chicago regarding Sekulovski's Wage Act claims and upheld the jury's verdicts on other claims, as well as the denial of Sekulovski's post-trial motions. An example illustrates commission distribution where Agent A, having reached a 70% cap, receives $35,000 while Agent B, not at the cap, receives $25,000, with M. M Chicago retaining $40,000. If the booking statement allocated all work to Agent A, he would receive $70,000, and M. M Chicago would retain only $30,000. Sekulovski argues that the district court's interpretation of the Wage Act is inconsistent with Illinois law but fails to adequately explain the alleged narrow construction. The court found M. M Chicago did not exercise statutory control over Sekulovski, as true control involves directing both the work and the manner of its execution. Sekulovski was engaged in an independent business, supported by evidence of his work becoming a standalone enterprise. Additionally, Sekulovski's late argument regarding the nature of commissions in M. M Chicago's conversion claims was deemed waived due to its untimely presentation. Lastly, he suggested an email was admissible as a statement against interest without sufficient argument or legal backing, which was also considered waived.