United States District Court, N.D. Illinois
January 14, 2004.
VIGORTONE AG PRODUCTS, INC., formerly known as Provimi Acquisition Corporation, Plaintiff,
PM AG PRODUCTS, INC., Defendant
The opinion of the court was delivered by: HARRY LEINENWEBER, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Vigortone Ag Products, inc. (referred hereinafter as
"Provimi") filed this suit against PM Ag Products, Inc. PM Ag") in 1999,
asserting, among other things, claims of fraud and breach of contract in
connection with sale of Vigortone, Inc., a former subsidiary of PM Ag.
Following a trial before this Court, which resulted in a jury verdict
against PM Ag for fraud and breach of contract, PM Ag appealed from the
judgment against it. The Seventh Circuit reversed the fraud verdict,
holding that the jury's finding of justifiable reliance lacked sufficient
evidentiary basis, and remanded the case for a new trial on the breach of
contract claim. Presently before the Court are the parties' motions
in limine to exclude certain evidence at trial. The motions are
granted or denied, in whole or in part, as follows:
I. PLAINTIFF'S MOTIONS IN LIMINE
1. Provimi's Daubert Motion to Exclude Testimony of Mark J.
Hosfield Regarding Provimi's Alleged Mismanagement of the Pig Purchase
Contracts and Concerning Hedging. GRANTED for the reasons stated in
open court and set forth in separate opinion.
2. Provimi's Motion In Limine to Preclude Defendant from
Presenting Argument or Evidence Regarding Plaintiff's Alleged Failure to
Use Futures Contracts to Hedge Purchases of Baby Pigs Under the Pig
Purchase Contracts. DENIED. Setting aside the waiver issue,
Defendant is entitled to rebut any evidence that Plaintiff enters
regarding the availability of hedging as a means of mitigating damages.
It is unclear at this point the extent to which Plaintiff intends to
present this type of evidence (although one of their experts has opined
that using futures contracts as a means of hedging was not a viable
mitigation option), Although Defendant does not appear to have
articulated this exact theory of mitigation at the first trial, it did
plead failure to mitigate as an affirmative defense and certainly the
Seventh Circuit Opinion in this case (hereinafter "Seventh Circuit
Opinion") put this issue front and center (although the Seventh Circuit
was unsure whether the claim had been "forfeited"). This Court's June 19,
2003 ruling also raised the issue of whether Plaintiff would have
discounted the price "by the cost of obtaining hedging contracts," Thus,
Plaintiff cannot claim unfair prejudice or surprise if this issue
3. Provimi's Motion in Limine Barring PM Ag from Presenting
Evidence That Provimi's Damages Expert, Paul F. Charnetzki, Is Connected
to the Auditing Irregularities Associated with Andersen, GRANTED,
although the Court notes that parties have reached a stipulation that
withdraws this motion.
4. Provimi's (Renewed) Motion in Limine to Exclude Evidence or
Argument Concerning the Parties' Previous Arbitration on Accounting
Issues. GRANTED IN PART and DENIED IN PART. Motion is granted to the
extent it seeks to preclude any evidence directly pertaining to the
arbitration proceedings. The Seventh Circuit Opinion, as well as this
Court's rulings, have made clear that the arbitration proceedings are
inadmissible. The arbitration agreement clearly prohibits mention of the
arbitration proceedings in subsequent litigation, except where a party
seeks to enforce the award. Plaintiff's claims under Sections 3.4 and
3.21 are not identical to those resolved at arbitration. The Asset
Purchase Agreement makes clear that the arbitration was limited to
whether the post-closing balance sheet met GAAP standards and did not
address warranties set forth elsewhere in the Agreement,
The arbitration proceeding was also limited to the narrow issues of
whether GAAP required the accrual for future losses of the pig contracts
and whether the swine inventory was valued
properly. The arbitrator did not consider whether any warranties
The motion is denied to the extent it seeks to preclude all evidence
showing that parties had a dispute over the proper purchase price of the
company. The motion is over broad and unduly vague and the Court will
need context to further decide if any of this evidence is admissible for
5. Provimi's Motion in Limine to Exclude Testimony of Mark
Hosfield that Out-of-Pocket Losses Is Not an "Appropriate" Measure of
Damages. GRANTED IN PART and DENIED IN PART. Experts may not opine
on the appropriate measure of damages, as this is an issue of
law already decided by this Court and the Seventh Circuit. However,
experts may opine on the proper method of computing those
damages, as this is a factual issue within the province of the jury. The
Seventh Circuit suggested that the appropriate measure of damages for a
breach of warranty is "the difference between the purchasers' reasonable
expectations as to the worth of the company, as fairly described in the
warranties, and the actual worth of the company as a result of any breach
of warranties." This Court adopted this measure in its June 19, 2003
It may be that out-of-pocket losses are one way of computing the
"actual worth of the company as a result of any breach." This a matter
where the experts can disagree. There is Delaware case law holding that
out-of-pocket losses are available in a breach of
warranty. Moreover, the indemnification provision in Section 9.1
allows out-of-pocket losses for certain breaches, apparently including
Sections 3.28 and 3.25.
6. Provimi's Motion in Limine to Preclude PM Ag from Arguing that
the Mere Fact that Five of the Seven Pig Purchase Contracts Are Listed on
Schedule 3.9 Discloses the Fact that the Market Risks Inherent in Those
Contracts Had Not Been Hedged or Offset. DENIED. Nothing in Seventh
Circuit Opinion or this Court's rulings precludes Defendant from making
the argument that, the disclosure under Schedule 3.9 amounted to a
disclosure of the market risks in these contracts. This is an issue of
fact for the jury to decide. The Seventh Circuit Opinion and this Court's
ruling discuss the disclosures in Schedule 3.9 in terms of whether
Defendant could establish as a matter of law that the
disclosures precluded justifiable reliance under the former fraud claim,
7. Provimi's Motion in Limine to Exclude any Evidence Regarding
Provimi's Profits on Pre-Mix Sales. GRANTED. This Court and the
Seventh Circuit have ruled that pre-mix profits may not be used to offset
damages. Evidence of Provimi's actual pre-mix profits is not
necessary to show the purpose of the contract and would confuse and
mislead the jury.
8. Provimi's Motion in Limine to Exclude Evidence and Statements
Regarding Provimi's Reliance on PM Ag's Warranties.
9. Provimi's Motion in Limine to Exclude Testimony of Terrence
Quinlan and Laura Zielinski Because it Relates Only to Provimi's
Reliance, Which Is Irrelevant to Breach of Warranty Claims. Both of
these motions are GRANTED IN PART and DENIED IN PART. The foregoing
amends the ruling that was read in open court. Motions are granted
pertaining to evidence that goes solely to pre-purchase mitigation
because there is no duty to mitigate until a contract has been breached.
Motions are also granted as to any specific reference to review by
Provimi's attorney, Quinlan, or Laura Zielinski, or Deloitte, that goes
solely to establishing Provimi's reliance. Defendant cannot defend
against Provimi's Section 3.28 claim by pointing solely to Provimi's
purported knowledge of the pig contracts. PM Ag's waiver argument fails.
(See below under PM Ag's Motion Regarding the Admissibility of Facts
Disclosed to Provimi About the Pig Purchase Contracts for further
discussion on PM Ag's waiver claim).
Motions are denied as to the broader request of all other evidence or
statements that go to reliance as overly broad and vague. Defendant may
introduce evidence of what facts it disclosed to Provimi to the extent
that such evidence relates to either PM Ag's state of knowledge
regarding the pig contracts or any disputed issue of fact in this case,
including whether PM Ag failed to disclose the market risks of the pig
contracts. To the extent that the challenged testimony pertaining to
Quinlan or Zielinski goes to
these issues, PM Ag may be able to introduce such evidence. The
Court, however, will need to assess this evidence in the context of the
trial to make further rulings.
II. DEFENDANT'S MOTIONS IN LIMINE
1. PM Ag's Motion in Limine to Preclude Provimi from Introducing
Parol Evidence to Establish a Violation of Section 3.28 of the Asset
Purchase Agreement. DENIED. The law of this case clearly holds that
Defendant's pre-contract disclosures (or failures to disclose) may amount
to a violation of Section 3.28 of the Purchase Agreement, Both this
Court's rulings and the Seventh Circuit's opinion contemplate that
pre-contractual representations may have been warrantied by Section 3.25,
and, therefore the issue of whether the Defendant's pre-contract
representations amount to a breach of Section 3.28 is best left for the
jury to decide.
Defendant's new Delaware case does not compel a different outcome for
two reasons: (1) the facts of the case and the pertinent contractual
provisions made clear that the pre-contractual financial statements were
not part of the controlling agreement, and therefore the case is not a
contrary ruling of law, and; (2) the decision is by a Delaware trial
court, not the Delaware Supreme Court, and thus is not controlling
2. PM Ag's Motion in Limine to Exclude any Evidence of its
Alleged Fraud, Deception, Motive, Intent or any Other State of Mind
Evidence. GRANTED IN PART AND DENIED IN PART, Plaintiff may
introduce evidence that goes to Defendant's knowledge pertaining to
warranty sections that refer to seller's knowledge, such as Sections 3.28
and 3.25. However, Plaintiff may not introduce evidence that goes solely
to Defendant's purported intent, motive, deception, and so forth.
3. PM Ag's Motion in Limine Regarding the Admissibility of Facts
Disclosed to Plaintiff About the Pig Purchase Contracts. DENIED.
Movant's motion is predicated upon New York law, where a buyer apparently
may waive the breach of warranty if the seller has informed the buyer,
prior to the close of the sale, of sufficient facts to establish a breach
and the buyer nonetheless continues with the transaction. Movant does not
cite any Delaware law, which controls the breach of contract action here.
In addition, the sole Delaware case to cite movant's authority has
suggested that this "waiver rule" may not be settled New York law.
See In re IBP, Inc. Shareholders Litigation, 789 A.2d 14, 82
(Del.Ch. Jun 18, 2001) at n. 200. Thus, assuming arguendo, that
movant has not waived this claim, movant has not shown that Delaware law
adopts this purported waiver rule.
In addition, even if this New York law waiver rule controlled here,
movant does not show that it can establish that it disclosed sufficient
facts so that the buyer had "full knowledge" that a breach of warranty
existed before closing on the agreement, as New York law requires.
(Indeed, the Seventh Circuit Opinion
specifically found that seller's behavior amounted to prima
facie fraud, albeit without, sufficient reliance; movant would be
hard-pressed to argue now that it affirmatively disclosed the market
risks of the pig contracts so that the buyer was fully informed.)
Contrary to movant's assertions, Section 3.28 does not necessarily
require a factual inquiry into the buyer's knowledge.
4. PM Ag's Motion in Limine to Exclude the Testimony of Paul
Charnetzki, DENIED. Although the movant properly states that the
measure for damages pertaining to the breach of warranties claims is "the
difference, if any, between plaintiff's reasonable expectations as to the
worth of the company and the actual worth as a result of any breach of
warranties," Charnetzki's measure of out-of-pocket expenses may be one
method to calculate this. Delaware law docs hold that a breach of
warranty may entitle a party to out-of-pocket losses. Moreover,
Charnetzki's testimony is relevant to the measure of "expenses and
losses" specified in the indemnification provision of the agreement,
which the Seventh Circuit did not address.
5. PM Ag's Motion in Limine to Exclude the Testimony of Kevin
Dhuyvetter. GRANTED IN PART AND DENIED IN PART. Motion is granted
insofar as Plaintiff seeks to use Dhuyvetter's former testimony to argue
that Dhuyvetter opined on the reasonableness of Vigortone management
decisions to mitigate damages. Dhuyvetter did not opine on this area.
Motion is denied insofar as Plaintiff cannot be
precluded from using Dhuyvetter's former testimony to show that
Dhuyvetter opined that the strategy most likely to lead to optimal
economic results was to grow the pigs out. If Plaintiff can show that
Dhuyvetter is unavailable, the remaining requirements of Rule 804(b)(1)
hearsay exception are met. (To show unavailability, it may not be enough
for Plaintiff to state solely that Dhuyvetter is beyond subpoena power.)
Movant's Rule 702 analysis is incorrect, as the Seventh Circuit did not
opine on the underlying methods of Dhuyvetter and he was admitted,
without opposition, as an expert at the first trial.
6. PM Ag's Motion in Limine to Preclude Defendant [sic] from
Introducing Evidence to Establish a Breach of Sections 3.4 and 3.21 of
the Asset Purchase Agreement. DENIED. Plaintiff has not waived the
issue of whether certain financial statements listed in Schedule 3.4 were
true and complete and prepared according to GAAP, as warrantied by
Section 3.4, nor has Plaintiff waived the argument that Section 3.21
warranties pertaining to accounts receivables and notes were breached.
The underlying factual issues regarding these warranties have been
present throughout this litigation, and Defendant cannot claim to be
prejudiced or without notice.
The doctrines of res judicata and collateral estoppel do not apply, as
the arbitration proceedings did not address the identical issues present
in Sections 3.4 and 3.21, Specifically, Section 3.4
addresses certain financial statements that were not part of the
arbitration proceedings, and, moreover, warrants the fairness and
completeness of these statements, which are issues the arbitrator die!
not reach. Similarly, Section 3.21 warrants generally that all accounts
receivables and notes are good and collectible. The arbitrator focused on
the narrow issue of how to value the cost of swine inventory, which is
separate from the issue that Plaintiff raises regarding the alleged
treatment of losses from pig contracts into the account receivables.
Defendant's pre-closing conversations regarding the purported hiding of
losses are relevant to Section 3.25 and 3.28 warranties regarding the
seller's knowledge. Thus, the state of Defendant's knowledge is relevant,
7. PM Ag's Motion in Limine to Exclude Statements Made by PM Ag
in Response to Plaintiff's Local Rule 56.1 Statement. GRANTED IN
PART AND DENIED IN PART. Motion is denied to the extent it seeks to
exclude the admissions of fact in statements Mo. 85 (i.e., that Quinlan
read the contracts to determine only if they were assignable) and No. 97
(i.e., that Section 3.28 reads, in part, as listed), Motion is denied
because case law establishes that these statements may be entered at
Motion is granted to the extent that it seeks to exclude the admission
in No. 97 as an admission as to the legal effect or
Interpretation of Section 3.28, Motion to withdraw the admissions
is denied. Movant offers no support for this argument.
8. PM Ag's Motion in Limine to Preclude Provimi from Introducing
Evidence that Defendant Failed to Disclose the April 2, 1997 Tai Farms
Contract to Establish a Violation of Section 3.9 of the Asset Purchase
Agreement, DENIED. The controlling case law cited by movant does not
hold that a party is precluded from raising additional factual
allegations upon remand, provided that such factual allegations do not
purport to create either an entirely new cause of action or revive a
cause of action that was previously dismissed. The waiver case law holds
only that a party may not assert entirely new claims or arguments that
were not asserted in the underlying litigation and/or upon appeal. Here,
although Plaintiff is purportedly raising "new" factual allegations
regarding the omission of one of the Tai Farm contracts, the factual
allegations fail squarely within Plaintiff's longstanding claim of a
breach of the contractual provisions of Section 3.9. Thus, Plaintiff is
not seeking to resuscitate a newfound claim or argument upon remand.
Moreover, the policy implications cited by Plaintiff are persuasive: the
purpose of a waiver is to prevent the other party from unfair prejudice
due to surprise. Plaintiff asserted the absence of Tai Farms I contract
no later than April 9, 2003, and Defendant cannot now be heard to have
had no opportunity
to address the relatively-straightforward issue of whether all Tai
Farms contracts were listed on Schedule 3.9.
9. PM Ag's Motion in Limine to Prohibit any References to the
Seventh Circuit's Opinion in this Case, GRANTED. Parties agree that
there should be no reference to opinion. The case law cited by movant
indicates that it may be reversible error to allow a jury to hear the
result of an appellate decision because, among other things, it may
preclude the jury from making an independent determination drawn solely
from the evidence heard at trial.
The parties' motions in limine are granted and denied, as set
IT IS SO ORDERED.
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