The opinion of the court was delivered by: Judge Amy J. St. Eve
BP AMOCO'S RESPONSE TO FHR'S MOTION IN LIMINE NO. 7 (RE-FILED IN UNSEALED FORM PER COURT ORDER, DKT. NO. 749) RESPONSE OF BP AMOCO CHEMICAL COMPANY AND BP CORPORATION NORTH AMERICA INC. TO FHR'S MOTION TO BAR EVIDENCE OF THE POST-TRANSACTION FINANCIAL PERFORMANCE OF THE PCBU
Flint Hills Resources, LLC ("FHR") moves to bar the admission of evidence relating to the post-sale financial and operational performance of the Performance Chemicals Business Unit ("PCBU"), contending that such evidence is either irrelevant or that its probative value is substantially outweighed by its unfairly prejudicial effect. FHR's motion should be denied for several reasons.
First, FHR's motion is simply an untimely Daubert challenge. BP Amoco's principal damages expert, Craig Elson, relied on and referenced the very same evidence as one of the basis for certain of his opinions. FHR did not move to exclude those opinions on Daubert grounds, and therefore this motion should be denied as an untimely Daubert challenge.
Second, evidence of the post-sale financial performance of the PCBU is relevant and material to the damages issues the jury will be asked to decide. The Court's opinions have recognized that FHR is entitled to be returned to the position in which it would have found itself absent the alleged breach of warranty - but not to a better position. Thus, the jury can consider evidence of FHR's post-sale financial performance in determining whether awarding large repair costs would result in FHR being placed in a position better than that in which it expected to be absent any breach. Moreover, post-sale financial performance is relevant to assessing the reliability of the pre-sale financial projections upon which FHR seeks to have its expert, Jeffrey Baliban, rely. Similarly, such post-sale financial performance evidence is relevant to the jury's assessment of Sharon Moore Bettius's valuation opinions that the PCBU was worth only $200 million in the claimed "as-sold" condition, when in fact through July 2008, the first fifty months of ownership by FHR, the PCBU already had generated in excess of $160 million in earnings for FHR.
Third, FHR has asserted that it intends to argue to the jury that one of the reasons why it delayed making certain repairs and replacing certain equipment was a scarcity of financial resources. (See Dkt. # 585 at 6.) FHR has made this argument before as well. Thus, FHR has put at issue its financial ability to make repairs and the replacements it now contends are required to restore equipment and facilities to their warranted condition. Having put its financial ability to make repairs and pay for replaced equipment at issue, evidence of the PCBU's post-sale financial performance showing that FHR has earned substantial amounts of cash that it could have used to make repairs or replacements is certainly relevant and responsive to issues FHR has raised in this case. Such post-sale financial evidence directly rebuts FHR's resource-constraint assertions. For example, in 2007 alone the PCBU generated more than $106 million in earnings, belying FHR's assertions that it lacked sufficient cash to complete claimed necessary repairs and replacements sooner.
Last,this evidence is not unfairly prejudicial, confusing or time-consuming. FHR fails to support or explain these asserted grounds for excluding this evidence. Moreover, the relevance of the evidence to FHR's asserted damages claims is manifest, and the reasons for the post-sale profitability of the PCBU need not be presented to the jury at length. While this evidence is quite damaging to FHR's case, because it calls into serious question the veracity of FHR's witnesses, the reliability of the opinions of FHR's damages and capacity experts, and FHR's recent assertions that limited financial resources constrained FHR's ability to address claimed problems with the condition and capacity of plant equipment sooner, such prejudice is neither unfair nor undue in this case.
A. FHR Prepares Financial And Operating Reporting Packages On A Monthly Basis In The Ordinary Course
On a monthly basis, FHR prepares "Financial and Operating Reporting Packages," which are referred to in this response as "Packages." (Ex. 1, 7/9/08 Nicol Dep. at 134:5 - 139:8; Ex. 2, DX-2557 at Tabs 2 (12/04 Package), 4 (12/05 Package), 6 (12/06 Package), 8 (12/07 Package), 10 (5/08 Package); Ex. 3, Daugherty Dep. at 14:3 - 15:13; Ex. 4, DX-2608; Ex. 5, Sementelli Dep. at 256:21 - 270:19; Ex. 6, DX-2253.)
These Packages include both information for the financial and operating performance of the PCBU for the indicated month, as well as information for the year-to-date. (See id.) For example, the December 2005 Package includes information about the financial and operating performance of the business both for December 2005 and for the entire year of 2005. (See Ex. 2, DX-2557 at Tab 4.) Prior to May 2009, the most recent Package FHR had produced to BP Amoco was the Package for July 2008, but in May 2009, FHR produced to BP Amoco for the first time seven additional monthly Packages for the months of August 2008 through February 2009. (Ex. 7, 5/13/09 Letter From R. Stiles to S. Fowkes & W. Patberg at 2.)
B. FHR's Monthly Packages Establish That The PCBU Generated More Than $160 Million In Earnings For FHR Through July 2008
The timely-produced Packages show that FHR realized from operating the former PCBU approximately $163 million in earnings before interest, taxes, depreciation, and amortization ("EBITDA") through July 2008. (See Ex. 2, DX-2557 at Tabs 2, 4, 6 & 8; Ex. 4, DX-2608 at Tab 6.) Indeed, in 2007 alone the former PCBU generated nearly $107 million in EBITDA for FHR. (Ex. 2, DX-2557 at Tab 8.*fn1
These financial results contrast sharply with FHR's appraiser's opinions that the PCBU FHR acquired from BP Amoco had a fair market value of only $200 million in its actual "as-sold" condition (Ex. 8, DX-2764 at 4), thus clearly calling into question the reliability of the valuation analysis prepared by FHR's appraiser, Ms. Bettius.
These financial results also contrast sharply with FHR's repeated allegations and assertions that the business it acquired from BP Amoco was in poor condition, that its earnings potential was overstated by means of inflated capacity estimates and constrained by the allegedly poor condition of the assets, and that the financial results achieved by the business were disappointing. (Ex. 9, Monte Miller Dep. at 87:10 - 88:23.)
C. FHR's Monthly Packages Establish FHR Has Run The TMA And MAN Units At Actual Rates That, When Annualized, Exceed The Rates FHR's ...