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BP Amoco Chemical Co. v. Flint Hills Resources LLC

September 27, 2009

BP AMOCO CHEMICAL COMPANY, PLAINTIFF/COUNTER--DEFENDANT,
v.
FLINT HILLS RESOURCES LLC, DEFENDANT/COUNTER--PLAINTIFF.
FLINT HILLS RESOURCES LLC, THIRD-PARTY PLAINTIFF,
v.
BP CORPORATION NORTH AMERICA INC., DEFENDANT.



The opinion of the court was delivered by: Judge Amy J. St. Eve

BP AMOCO CHEMICAL COMPANY'S MOTION AND SUPPLEMENTAL SUBMISSION REGARDING FLINT HILLS' MOTION IN LIMINE NO. 7 AND EVIDENCE OF FLINT HILLS' POST-TRANSACTION FINANCIAL PERFORMANCE

Before trial, the Court granted in part, granted in part without prejudice, and denied in part without prejudice Flint Hills' Motion In Limine No. 7, which sought to bar evidence of the actual post-transaction financial performance of the PCBU. (Dkt. 746) Since the start of trial, the arguments Flint Hills made to exclude the evidence have proven unfounded, and instead, Flint Hills' entire approach to this trial has confirmed why this post-sale financial performance evidence is not only relevant, but critical, so that the jury is not misled. Throughout the trial, Flint Hills has repeatedly highlighted the relevance of and opened the door to this evidence, asking dozens upon dozens of questions and making repeated statements about post-transaction revenues, profitability, and EBITDA that Flint Hills contends could have been generated by the unutilized capacity of the PCBU. Flint Hills opened this door from the very start, during its opening statement, and has pursued this line of questioning and testimony with every "deal witness" who has testified, starting with Mr. Mahoney, then Mr. Wrenn, then during Mr. Schumaker's video deposition, and then with Mr. Sanders.

As a result of Flint Hills' overarching trial theme, which focuses upon revenues, profitability, EBITDA, and growth, the jury has been given the false and unfair impression that Flint Hills was unable to make any of the alleged $140 million or more in incremental revenue because of the allegedly deficient production capacity of the Joliet Plant. In addition, given the evidence that Flint Hills has elicited, the only rational conclusion the jury can draw is that Flint Hills' purchase of the PCBU has been a very bad and financially disappointing deal as a result of BP Amoco's alleged contract breach and fraud. In fact, based upon the evidence Flint Hills has put into the record, combined with its ability thus far to preclude BP Amoco from putting the complete facts before the jury, the jury can only conclude that the PCBU was not worth what Flint Hills paid for it. Indeed, that is precisely what Flint Hills has suggested and asserted to the jury, most recently through the testimony of its proposed expert Jeffrey Baliban.

The facts, which are based upon Flint Hills' own financials and thus cannot be disputed, are starkly to the contrary. Although the jury thus far has not been allowed to know this, Flint Hills has done very well financially under this deal, and it has exceeded various of the economic projections presented to its Board of Directors when seeking approval for the deal. In sum, having put the success of the deal at issue with its questions and witness testimony, while at the same time having successfully kept the jury from learning of its actual post-sale financial performance, Flint Hills has used the Court's initial ruling on its Motion In Limine No. 7 as both a sword and a shield -- as a sword, to lead the jury to conclude that this was a bad deal for Flint Hills, and as a shield, to prevent the jury from learning the true facts about how well it did. The most recent example of this came from Flint Hills' proposed expert, Mr. Baliban, when he testified that Flint Hills would not have done the deal at the $300 million price had it known the production capacities assumed by Mr. Baliban. (Ex. 1, 9/23/09 Tr. at 2287:1-10) And yet, the pre-sale Board documents show what Flint Hills hoped to earn, and the fact is that Flint Hills did earn more than its acceptable "downside" case from 2004 to 2008, and earned better than its "expected" case in 2007 -- evidence precisely at odds and in rebuttal to what Baliban affirmatively testified. (Ex. 2, Trial Ex. 5234.001)*fn1

Flint Hills' trial approach, and the fundamentally unfair advantage it has gained by repeatedly stressing future post-transaction financial profitability and EBITDA themes and by playing the victim in this fashion could not have been anticipated by the Court before trial. And yet, that is the manner in which Flint Hills has chosen to try its case. In this regard, we note that early on, the Court at side-bar expressly warned Flint Hills about its approach -- but after that side-bar, the warning was not heeded, and Flint Hills put even more evidence into the record on its theme of post-transaction profitability and EBITDA performance. (Ex. 3, 9/11/09 Tr. at 566:1-569:10)

The relevance of the post-transaction financial performance also has been made clear in several other respects, as described further below. Accordingly, BP Amoco respectfully requests that this Court allow BP Amoco to present evidence to the jury regarding the post-transaction financial performance of the PCBU. It is the only fair and non-prejudicial result possible, given how Flint Hills has chosen to present its evidence and try its case to the jury.

ARGUMENT

Now that the trial is well underway, evidence of the post-transaction financial performance of the PCBU should no longer be excluded. First, the jury should be allowed to know whether, as Flint Hills has repeatedly suggested, the PCBU's financial and EBITDA performance has not been up to Flint Hills' expectations. Second, the fact that the Joliet assets as well as the rest of the PCBU generated significant EBITDA in the first four years of post-sale operation supports the conclusion that those assets were in "substantially good operating condition.." Third, the PCBU's actual financial results are relevant to rebutting the opinion of Flint Hills' damages experts Jeffrey Baliban and Sharon Moore Bettius. Fourth, evidence of the PCBU's post-transaction financial performance also is relevant to establish that Flint Hills is seeking to obtain a windfall by claiming the amount of diminution-in-value damages it seeks. Moreover, such evidence is relevant to show that Flint Hills seeks cost-of-repair damages that are disproportionate, not reasonable, and thus improper as a matter of law.

I. FLINT HILLS HAS OPENED THE DOOR TO THIS POST-TRANSACTION FINANCIAL PERFORMANCE EVIDENCE, BY PUTTING SQUARELY AT ISSUE THE PCBU'S POST-SALE FINANCIAL AND EBITDA PERFORMANCE

In its opening statement and through its repeated questioning of witnesses, Flint Hills again and again has put at issue and raised questions regarding the post-transaction financial and EBITDA performance of the PCBU and Joliet Plant. This started with Flint Hills' opening statement, when Flint Hills' counsel stated that "the sale was made" after BP Amoco told Flint Hills that it could make $140 million "of additional revenue" after the closing by taking advantage of the unutilized capacity of the PCBU:

The sale was made, "If you can sell it -- you have this spare capacity, this unutilized capacity that you can convert into," according to BP into "$140 million of additional revenue. If you can sell it, you can produce it." (Ex. 4, 9/9/09 Tr. at 28:18-21; see also id. at 30:22-31:3)

From this initial door opening and continuing through Mr. Baliban last week, Flint Hills has expressly put at issue the questions of post-transaction revenue, EBITDA, profitability and other financial metrics again and again. The first witness Flint Hills presented to the jury was James Mahoney. Consistent with Flint Hills' opening, Flint Hills' counsel elicited testimony from Mr. Mahoney that "$140 million. was presented as the capacity that was available in the plant today that could be used if you could develop the market and that that capacity did not require capital." (Id. at 177:20-178:2; see also id. at 179:14-180:6)

In addition to revenues, Flint Hills specifically questioned Mr. Mahoney about, and he testified concerning, post-sale EBITDA:

Q: And in the third bullet point, it talks about opportunity for EBITDA growth. Is that a term that -- EBITDA, is that an earnings term?

A: Yes, sir.

Q: And it talks about the way that BP was describing a potential purchaser could grow the earnings for that business; is that right?

A: Yes, sir..

Q: What's your best recollection of the substance of Mr. Schumaker's discussion about the opportunity for earnings growth?

A:. And that the plant had an underutilized capacity in all of the chemicals. And if you could continue down that patch of changing the marketing strategy and trying to move more product, the plant could produce it.

(Id. at 175:17-175:24, 176:24-177:11; see also id. at 177:20-178:11; 179:14-180:6; Ex. 5, ...


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