Shilling v. PolyOne Corporation

Filing 131

ORDER RE 117 , 118 , 121 MOTIONS IN LIMINE. Signed by Judge Beth Labson Freeman on 2/17/2017. (blflc4, COURT STAFF) (Filed on 2/17/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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JOHN D. SHILLING,

Case No. 14-cv-03562-BLF

Plaintiff,
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v.

ORDER RE MOTIONS IN LIMINE

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POLYONE CORPORATION,

[Re: ECF 117, 118, 121]

Defendant.

United States District Court
Northern District of California

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This case arises out of PolyOne Corporation (“PolyOne”)’s purchase of Glasforms, Inc.

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(“Glasforms”) pursuant to a Share Purchase Agreement (“SPA”) and concerns the parties’

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respective obligations under that agreement. Plaintiff John D. Shilling, Trustee of the Peter Pfaff

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Revocable Trust (“Shilling”) brings this lawsuit against PolyOne, asserting claims of declaratory

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relief, breach of implied covenant of good faith and fair dealing, and express contractual

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indemnity. Notice of Removal and Compl., ECF 1. PolyOne counter-claims that Shilling is liable

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for breach of contract, express contractual indemnity, and also seeks declaratory relief. Second

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Am. Cross-Compl., ECF 73. This Order addresses the parties’ motions in limine. For the reasons

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explained below and on the record at the February 16, 2017 pretrial conference, the motions are

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decided as follows:

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Shilling’s Motion in Limine No. 1: GRANTED IN PART AND DENIED IN PART.

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Shilling’s Motion in Limine No. 2: DENIED.

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Shilling’s Motion in Limine No. 3: DENIED.

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PolyOne’s Motion in Limine No. 1: DENIED IN PART AND DEFERRED IN PART.

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PolyOne’s Motion in Limine No. 2: DEFERRED.

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I.

SHILLING’S MOTIONS IN LIMINE
A.

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Shilling’s Motion in Limine No. 1 to exclude untimely expert supplemental
reports. GRANTED IN PART AND DENIED IN PART.
Shilling moves to exclude supplemental reports and trial testimony of PolyOne’s expert

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witnesses, Dr. Barbara Luna and Andre Jardini, because they were not disclosed by the February

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2, 2017 deadline, when parties’ Rule 26(a)(3) pretrial disclosures were due. MIL No. 1 at 2, ECF

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121. According to Shilling, supplementation at this time would be unduly prejudicial to Shilling.

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Id. at 3. Shilling claims that discovery might have to be reopened and Shilling’s experts need to

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draft responsive reports in response to the supplemental disclosures. Shilling argues that such

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endeavors incur great time and expense to both parties. Id. at 3.
PolyOne responds that it plans to provide Shilling no later than 30 days before trial, an

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United States District Court
Northern District of California

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updated expert report by Dr. Luna to reflect the 2016 revenue information. Opp’n No. 1 at 2, ECF

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122. It also supplemented Dr. Jardini’s report on February 3, 2017 to incorporate attorney’s fees

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and cost incurred from July 1, 2016 through January 31, 2017 so as to bring PolyOne’s attorney’s

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fee claim current. Id. PolyOne argues that these reports were not supplemented by the February

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2, 2017 deadline because of PolyOne’s counsel’s “calendaring misunderstanding.” Id. PolyOne

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attributes this misunderstanding to Rule 26(a)(3)(B), stating that, “[u]nless the court orders

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otherwise, these [pretrial] disclosures must be made at least 30 days before trial.” Id. PolyOne

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further argues that Shilling will suffer no prejudice as Shilling will have thirty days before trial to

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review the updated report and that additional depositions and discovery would not be necessary.

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Id.

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At the pretrial conference, Shilling represented to the Court that he will not be objecting to

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Dr. Jardini’s supplemental report that was disclosed one day after the Rule 26(a)(3) pretrial

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disclosure deadline. As such, the Court DENIES in part this motion in limine as to Mr. Jardini’s

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supplemental report. As to Dr. Luna’s supplemental report, the Court finds that allowing PolyOne

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to use this supplemental report at trial would be unduly prejudicial to Shilling. Although PolyOne

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argues that the report only incorporates new company sales data from 2016 without any other new

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analysis or opinions, allowing this newly added information would still be prejudicial to Shilling,

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who has not had access to this new information that was under PolyOne’s control. Given that
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discovery is closed, Shilling would not have an opportunity to properly rebut this evidence at trial

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or even verify the accuracy of the underlying documentation. Accordingly, the Court GRANTS

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this motion in limine in part as to Dr. Luna’s supplemental report.

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B.

Shilling’s Motion in Limine No. 2 to bifurcate claim for indemnification of the
TRC lawsuit. DENIED.
Shilling seeks to bifurcate PolyOne’s claim for indemnification of the matter of Total Rod

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Concepts, Inc. v. Glasforms, Inc., et al. (Montgomery County, Texas, Case No. 14-05005365)
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(the “TRC Lawsuit”). MIL No. 2 at 2, ECF 121-1. First, Shilling argues that PolyOne’s claim for
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indemnification of the TRC Lawsuit is separate and distinct from its claims for indemnification
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pertaining to certain of Glasforms’ customers. Id. at 2. Second, Shilling claims that both parties
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did not conduct meaningful discovery pertaining to the TRC Lawsuit indemnification claim
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United States District Court
Northern District of California

because PolyOne’s counsel represented that the evidentiary matters were handled within the
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confines of the TRC Lawsuit litigation. Id. at 3. Third, Shilling argues that trial on this
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indemnification claim could undermine the trial of the TRC Lawsuit in Texas, which is scheduled
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to commence on May 1, 2017. Id. Finally, Shilling asserts that bifurcation of this TRC Lawsuit
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claim would be more expeditious and promote efficiency. Id. at 2, 4 (citing Fed. R. Civ. Proc.
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41(b); Shaughnessy v. Ass’n of Apartment Owners of Moana Pac., No. 09-00051, 2011 WL
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97254, at *4 (D. Haw. Jan. 12, 2011)).
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Shilling does not oppose this motion to bifurcate the indemnification claim for the TRC
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Lawsuit. Opp’n No. 2 at 1, ECF 123. Shilling adds that the bifurcated claims would include
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PolyOne’s claims under SPA Sections 5.14 and 9.2(a)(v), including the duty to defend Glasforms
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and PolyOne in the TRC Lawsuit and indemnification against any judgment or settlement in the
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TRC Lawsuit. Id.
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Fed. R. Civ. Proc. 42(b) provides that a court may “order a separate trial of one or more
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separate issues” for “convenience, to avoid prejudice, or to expedite and economize.” Whether to
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grant bifurcation is left to the sound discretion of the district court. Hangarter v. Provident Life &
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Acc. Ins. Co., 373 F.3d 998, 1021 (9th Cir. 2004). Bifurcation “is the exception rather than the
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rule of normal trial procedure.” GEM Acquisitionco, LLC v. Sorenson Grp. Holdings, LLC, No.
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09-01484-SI, 2010 WL 1729400, at *3 (N.D. Cal. Apr. 27, 2010) (citations omitted).
While the Court is mindful about the potential impact this trial may have on the TRC

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Lawsuit, bifurcation would not be in the interest of judicial efficiency. The Court is not opposed

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to continuing the trial if the parties agree that continuation is the best course of action and timely

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make a request for continuance. However, separate trials would not be conducive to expedition

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and economy, given that the indemnification claims relating to the TRC Lawsuit also arise from

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the parties’ obligations pursuant to the Share Purchase Agreement, like the other claims to be tried

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at trial. Shilling’s argument on the lack of meaningful discovery is inapposite to the issue of

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bifurcation because discovery is closed and will not be reopened simply because the trial is
bifurcated. Accordingly, the reasons proffered by Shilling do not justify bifurcation and the Court

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United States District Court
Northern District of California

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DENIES this motion in in limine.

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C.

Shilling’s Motion in Limine No. 3 to bifurcate parties’ claims for attorney’s fees.
DENIED.
Shilling moves to bifurcate the claims for attorney’s fees because the claims are separate

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and distinct from the breach of contract and breach of implied covenant of good faith and fair
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dealing claims. MIL No. 3 at 2-3, ECF 121-2 (citing Budinich v. Becton Dickinson & Co., 486
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U.S. 196, 200 (1988)). Shilling argues that since both parties are only seeking fees and costs if
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they prevail, the fees claims are collateral to the substantive claims and no prejudice would result
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from bifurcation. Id. at 3-4. Shilling proposes that after trial, the prevailing party will seek fees
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by filing a motion and supporting memorandum and declarations. Id. at 4.
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PolyOne opposes this motion, arguing that the attorney’s fees claims should not be
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resolved on post-trial motions as they pertain to a component of indemnifiable “Losses” under the
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section 9.2(a) of the SPA. Opp’n No. 3 at 1-2, ECF 124. Unlike the situation in Budinich,
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PolyOne contends that the attorney’s fees claim here is an item for proof at trial, as a breach of
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contract claim, and not a “collateral” issue. Id. at 2. PolyOne further argues that allowing Shilling
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to withhold information regarding a claim for damages until post-trial motions would be
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prejudicial to PolyOne. Id. at 3.
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The fact that the fees will only be sought by the prevailing party does not persuade the
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Court that the amount of attorney’s fees should be resolved on post-trial motions. The attorney’s

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fees are damages, which constitute an essential element of the breach of contract claims. This

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fundamental element of a cause of action must be proven at trial. This is different from Budinich,

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where the request for attorney’s fees under 18 U.S.C. section 1988 in a civil rights case raised

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legal issues collateral to and “separate from” the decision on the merits. 486 U.S. at 200.

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Accordingly, the Court DENIES this motion in limine.

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II.

POLYONE’S MOTIONS IN LIMINE
A.

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PolyOne’s Motion in Limine No. 1 to exclude certain opinion testimony of Eric
Nath and James Turner as improper rebuttal. DENIED IN PART AND
DEFERRED IN PART.

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PolyOne moves to exclude certain opinion testimony of Eric W. Nath and James A. Turner

United States District Court
Northern District of California

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because they do not solely contradict or rebut Dr. Luna’s report. MIL No. 1 at 1, ECF 117.

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According to PolyOne, Shilling disclosed no experts by the initial expert disclosure deadline but

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provided rebuttal disclosures, setting forth new analysis of damages. Id. at 2. PolyOne claims

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that the rebuttal disclosures of Nath and Turner pertain to Shilling’s case-in-chief and should have

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been provided as initial disclosures. Id. 2-3 (citing Fed. R. Civ. Proc. 26(a)(2)(C); Matthew

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Enter. v. Chrysler Grp. LLC, No. 13-04236-BLF, 2016 U.S. Dist. LEXIS 108694, at *4 (N.D. Cal.

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Aug. 3, 2016)). In particular, PolyOne claims that Section VI in Nath’s report provides an

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alternative theory for analyzing the “Equity and Enterprise value of the business,” and Section VII

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relates to “impairment” of “goodwill,” neither of which depends on any opinion or conclusions of

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Dr. Luna. MIL No. 1 at 4. PolyOne also asserts that Turner’s opinions derived from Nath’s work.

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Id. PolyOne further argues that the belated disclosures were tactical and were not harmless as

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Shilling had no justification and PolyOne was deprived of the opportunity to rebut. Id. at 6.

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In opposition, Shilling argues that the contested reports and testimony are not part of his

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case-in-chief as the declaratory relief cause of action “does not go to the dollar amount of

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PolyOne’s tendered claims.” Opp’n No. 1 at 3. Even if the portions of the rebuttal report and

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testimony could be part of Shilling’s case-in-chief, they are not barred as long as they are offered

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only to refute PolyOne’s expert witness testimony. Id. (citing Hellmann-Blumberg v. Univ. of

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Pac., No. 12-00286, 2013 WL 3422699, at *5 (E.D. Cal. July 8, 2013)). Regardless, Shilling
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contends that the rebuttal is proper because it provides an alternative approach to calculate

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damages, the market approach, to show that PolyOne’s expert omitted facts and methods in the

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report. Id. at 4. Shilling further argues that it would be improper to limit a rebuttal expert’s

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methodology to that advanced by the initial expert. Id. at 5 (citing Deseret Mgmt. Corp. v. United

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States, 97 Fed. Cl. 272, 274 (2011)). Similarly, with respect to Section VII of Nath’s report on

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“impairment of goodwill,” Shilling argues that expert evidence on “impairment of goodwill”

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rebuts PolyOne’s assertion that there was diminution in value, as the SEC filings did not disclose

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any “impairment of goodwill.” Id. at 5-6. Shilling further contends that PolyOne waived the issue

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of prejudice, if any, for failing to bring this motion earlier, having received the rebuttal reports in

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August 2016. Id. at 6. Lastly, Shilling urges the Court to exercise its broad discretion to admit all

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United States District Court
Northern District of California

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expert evidence on damages because the “gatekeeper obligation is less pressing in connection with

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a bench trial.” Id. (citing Wolkowitz v. Lerner, No. 07-777, 2008 WL 1885770, at *2 (C.D. Cal.

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Apr. 21, 2008)).

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“[A]n expert may introduce new methods of analysis in a rebuttal report if they are offered

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to contradict or rebut another party’s expert.” Deseret Mgmt., 97 Fed. Cl. at 274. Furthermore,

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just because the expert evidence may be offered in a party’s “case-in-chief does not necessarily

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bar its admission by a rebuttal expert.” Hellmann-Blumberg , 2013 WL 3422699, at *5. Here, the

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contested sections of the Nath and Turner reports discuss the “market approach” as an alternative

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methodology to rebut the “income approach,” the methodology used by PolyOne’s expert, Dr.

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Luna. As such, this is not improper rebuttal. PolyOne avers that the contested sections of the

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reports not only present the alternative methodology but also compute the damages amount based

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on this alternative methodology, making this an improper rebuttal report. However, the

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computation can lend credence to the alternative methodology and Shilling represents that the

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computed amount itself is not offered for the purpose of proving a damage amount. Given that

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this is a bench trial and that the evidence has a proper rebuttal purpose, the Court shall exercise its

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discretion and allow the admission of this evidence at trial. Wolkowitz, 2008 WL 1885770, at *2.

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PolyOne also objects to section VII of Nath’s report pertaining to “impairment of

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goodwill” and any related portion of Turner’s report, on the grounds that the opinions are
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speculative. As to this objection, the Court cannot evaluate whether the opinions are speculative

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based on the parties’ submissions at this time. Whether the opinions will be admitted will depend

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on whether a foundation can be established at trial. Accordingly, PolyOne may renew its

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objection at trial and the Court will DEFER IN PART as to the opinions relating to “impairment of

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goodwill” on the ground of speculation.

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B.

PolyOne’s Motion in Limine No. 2 to exclude evidence of “Transition Effects.”
DEFERRED.

PolyOne moves to exclude evidence of “transition effects resulting from change in
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ownership” because they are without sufficient probative value and irrelevant. MIL No. 2 at 4-5,
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ECF 118. Specifically, PolyOne argues that there is no evidence to show that “the business of the
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six customers that are the subject of the case was lost due to PolyOne’s purchase of the company
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United States District Court
Northern District of California

or changes in operation of Glasforms after the purchase.” Id. at 2-3. As such, PolyOne concludes
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that Shilling’s argument suggesting that “transition effects” affected the sales decline of the six
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customers lacks foundational support. Id. at 3.
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In response, Shilling contends that irrelevant evidence does not present much of a risk in a
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bench trial. Opp. No. 2 at 2-3, 5, ECF 127-1 (citing Fed. R. Evid. §§ 401, 403). Shilling first
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asserts that the evidence relating to “transition” is important as it shows how the “great difficulties
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in the transition year” could have caused sales to decline. Id. at 3-4. As such, Shilling argues that
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PolyOne fails to show how the evidence of “transition effects” is irrelevant or prejudicial. Id. at 5.
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Regardless, Shilling claims that whether probative value substantially outweighs the prejudice
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should not be a great concern since the Court is the sole trier of fact. Id. at 5-6 (citing Wolkowitz,
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2008 WL 1885770, at *2; Cmty. Ass’n for Restoration of the Env’t, Inc. v. Cow Palace, LLC, 80 F.
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Supp. 3d 1180, 1216 (E.D. Wash. 2015)).
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Based on the parties’ submissions, it is not clear to the Court at this time whether the
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witnesses testifying on Shilling’s theory on “transition effects” will be able to establish a sufficient
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foundation for their testimony and whether the related evidence will be relevant. Even if
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attenuated, the evidence on “transition effect” can be potentially relevant to the measure of
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damages in this case and may be sufficient to clear Fed. R. Evid. 401’s relatively low bar. It is
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also unclear whether the probative value of this evidence will be substantially outweighed by

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unfair prejudice, waste of time, or other factors of Fed. R. Evid. 403. As Shilling aptly noted,

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Rule 403 has a limited role, if any, in a bench trial. Cmty. Ass’n for Restoration of the Env’'t, 80

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F. Supp. 3d at 1216 (citing E.E.O.C. v. Farmer Bros. Co., 31 F.3d 891, 898 (9th Cir. 1994)). As

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such, the Court DEFERS this motion in limine until trial.

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IT IS SO ORDERED.

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United States District Court
Northern District of California

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Dated: February 17, 2017
______________________________________
BETH LABSON FREEMAN
United States District Judge

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