RMS Inc v. Shea-Kiewit Joint Venture et al

Filing 191

ORDER signed by Magistrate Judge Nancy Joseph on 6/9/2016 regarding the parties' motions in limine 169 , 176 . PLEASE SEE ORDER. (cc: all counsel) (llc)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
RMS OF WISCONSIN, INC.,
Plaintiff,
v.

Case No. 13-CV-1071

S-K JV and J.F. SHEA CONSTRUCTION,
INC.,
Defendants.
ORDER ON MOTIONS IN LIMINE
In preparation for trial, the parties in the above-captioned case each filed numerous
motions in limine. (Docket # 169, 176.) Several of the motions were decided at the pretrial
conference. (Docket # 190.) There are nine outstanding motions in limine to be resolved:
first, both RMS and the defendants have filed a motion in limine regarding the admissibility
of a six-page document created by David Olson; second, both RMS and the defendants have
filed a motion in limine regarding whether Tammy Miramontes and Rick Wilinski can offer
testimony regarding RMS’ damages; third, RMS has moved to allow Michael Betters to
testify as a fact witness; fourth, the defendants move that Stuart Lipofsky should be allowed
to testify about practices in the construction industry regarding union labor; fifth, the
defendants move to dismiss RMS’ claim for breach of the covenant of good faith and fair
dealing; sixth, the defendants move to exclude evidence of breach of contract based on a
March 16, 2012 settlement agreement signed by the parties; and seventh, the defendants
move to exclude evidence of breach of contract based on Section 3 of the subcontract. I will
address each of these motions in turn.

The David Olson Document (RMS’ Motion # 2; Defendants’ Motion # 7)
RMS filed a motion in limine seeking an order prohibiting the admission into
evidence a six-page document created by David Olson of J.F. Shea shortly before the May
10, 2016 Daubert hearing. The defendants state that the six-page document summarizes
information contained in a 108-page document. The 108-page document is S-K’s internal
estimate for RMS’ scope of work on the project. The document takes line items of S-K’s
estimate that appear on various pages relating to labor and summarizes them in an Excel
spreadsheet to present the total number of hours that S-K estimated it would take to
complete the scope of work called for by the subcontract with RMS. (Docket # 184 at 6.)
RMS argues that the supporting documents Olson relied on were not produced in
discovery and it has not had the opportunity to depose Olson on the meaning of the
numbers and acronyms in his chart. At the hearing, RMS argued that the document should
be excluded as a sanction for the defendants’ failure to produce it in discovery. Sanctions
pursuant to Fed. R. Civ. P. 37 “may only be imposed where a party displays ‘wilfulness, bad
faith, or fault.’” Langley by Langley v. Union Elec. Co., 107 F.3d 510, 514 (7th Cir. 1997)
(quoting Philips Medical Systems Int’l, B.V. v. Bruetman, 982 F.2d 211, 214 (7th Cir. 1992)).
To find that the sanction RMS requests is appropriate, I would need to make a
preliminary finding that the defendants did not respond to the discovery request or
responded to it in bad faith. RMS made a request in May 2014 for “all versions of the
‘Contract Items and Unit Prices’ relating to the Deep Tunnel Connector Project. Production
should include, but is not limited to, documents corresponding to the attached Exhibit B.”
(Docket # 180-4.) The attached Exhibit B is a document entitled “Contract Items and Unit
Prices.” The defendants argue that they responded with a document entitled “Contract
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Items and Unit Prices,” which was another version of the document RMS referenced in its
discovery request. It is clear what the defendants provided was responsive to RMS’ demand,
but what remains unclear is whether the wording of the demand also called for the
production of the information that is the subject of the 108 pages. The first sentence of the
request supports the defendants’ reading of the demand. The second, more broader sentence
could support RMS’ reading of the demand; however, even after reviewing the demand, the
“Contract Items and Unit Prices” document, and the 108 pages, this remains unclear.
Accordingly, I do not have the factual basis to exclude the summary as a sanction.
The defendants argue that the six-page document is admissible as a summary to
prove content under Fed. R. Evid. 1006 and that under that rule, the summarized
documents need not be produced in discovery.
Fed. R. Evid. 1006 provides as follows:
The proponent may use a summary, chart, or calculation to prove the content
of voluminous writings . . . that cannot be conveniently examined in court.
The proponent must make the originals or duplicates available for
examination or copying, or both, by other parties at a reasonable time and
place. And the court may order the proponent to produce them in court.
In Fid. Nat. Title Ins. Co. of New York v. Intercounty Nat. Title Ins. Co., 412 F.3d 745, 753 (7th
Cir. 2005), the court stated that Rule 1006 requires only that the summarized documents be
made available to the opposing party at a “reasonable time.” The court stated that the rule
does not say that the summary itself must be made available to the opposing party. Id. The
court further stated, however, that “[n]o federal rule is needed” to “empower a district judge
to prevent a party from springing summaries of thousands of documents on the opposing
party so late in the day that the party can’t check their accuracy against the summarized
documents before trial.” Id. The court found that 30 days before trial was sufficient time for
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counsel to have “spot checked the summaries for accuracy” and if the “spot check” revealed
inaccuracies, to move to exclude them from the trial unless the inaccuracies were promptly
corrected. Id. Thus, the timing of the disclosure in itself does not provide grounds for
exclusion in this case.
RMS argues, however, that it does not understand the meaning of the numbers in the
chart, “has no idea” what the acronyms in the chart stand for, and had the documents been
turned over during discovery, it could have deposed Olson for clarification. (Docket # 169
at 11.) Given the circumstances of the disclosure of the 108 pages, I will allow RMS to
depose Olson for the purpose of “spot checking” the summary for accuracy. I recognize that
trial is a matter of days away and will not be adjourned. However, in the interest of avoiding
trial by surprise, which is the purpose of discovery, I find this remedy appropriate.
Testimony of Tammy Miramontes and Rick Wilinski Regarding RMS’ Damages (RMS’
Motion # 3; Defendants’ Motion # 6)
RMS has moved to allow Miramontes and Wilinski to offer testimony as to RMS’
damages, including lost profits. The defendants conversely have moved to exclude
Miramontes and Wilinski’s testimony regarding RMS’ lost profits. RMS argues that under
Wisconsin law, the owners of a company may testify as to losses sustained by their business.
The defendants argue that because Wilinski is not an owner of RMS, he cannot testify as a
lay witness about lost profits. Additionally, the defendants argue that neither are qualified to
offer testimony as to lost profits.
“In the realm of lost profits, lay opinion testimony is allowed in limited
circumstances where the witness bases his opinion on particularized knowledge he possesses

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due to his position within the company.” Von der Ruhr v. Immtech Intern., Inc., 570 F.3d 858,
862 (7th Cir. 2009). For example, “the owner of an established business with a documented
history of profits may testify to [her] expectation of continued or expanded profits when that
opinion is based on [her] ‘knowledge and participation in the day-to-day affairs of [her]
business.’” Id. (internal quotation and citation omitted). This is allowed because the
testimony is tied to the witness’ personal knowledge. Id. A lay witness with “‘special
knowledge of the business and its operations may also testify as to the facts of the business
that underlie profit expectations’ but ‘may not make inferences from the data . . . .’” Id. at
865 (quoting R.I. Spiece Sales Co. v. Bank One, N.A., No. 1:03–CV–175–TS, 2005 WL
3005484, *1 (N.D. Ind. Nov. 9, 2005)).
As one court explained, there is a “fine line between lay and expert testimony.” BRC
Rubber & Plastics, Inc. v. Cont’l Carbon Co., No. 1:11-CV-190, 2014 WL 554565, at *4 (N.D.
Ind. Feb. 11, 2014).
“[L]ay witnesses could testify where lost profits arose from an impairment to
the existing operations of the business. They would be doing nothing more
than describing the normal workings of the enterprise. Their testimony was,
in essence, a reconstruction of what would have transpired, based upon the
existing level of acting, ‘but for’ the wrongful conduct.
Where, however, lay witnesses seek to go beyond the existing business and
opine upon future sales, they are no longer supplying particularized
knowledge derived from their positions in the business. Instead, they are
engaging in an economic analysis. Their testimony must consider comparable
products or services, the activities of competitors, pricing, demand for the
product or service, and the ability to meet that demand. In contrast to
testimony that is a snap-shot of a business at the time of an injury, an opinion
that incorporates future sales assumptions is an assessment of a relevant
market. Evaluating conditions in a market is not based upon knowledge of the
internal workings of a business; it is analysis requiring specialized knowledge.
This should be the exclusive province of expert testimony.”

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Id. (quoting Martin G. Gilbert, Proving Lost Profits Through Lay Opinion Testimony—Is the
Back Door Still Open?, 22 Franchise L.J. 19 (Summer 2002)).
Thus, as to Miramontes, she will be allowed to testify “as to the facts of the business
that underlie [her] profit expectations” but will not be allowed to “make inferences from the
data.” See R.I. Spiece, 2005 WL 3005484 at *1. While she can testify as to her personal
knowledge as to the workings of RMS, she may not cross the line into expert testimony by
giving economic analysis.
As to Wilinski, I do not find the fact he is not an owner of RMS fatal to his ability to
testify. At the hearing, counsel for RMS stated that Wilinski did much of the preliminary
research into the Indianapolis Project and participated in the decision making as to whether
to enter into the subcontract. While it is often the owner of the business that seeks to testify
under Rule 701, the cases do not turn on one’s title within the company. Rather, what
matters is that the individual has “special knowledge of the business and its operations.” See
id. Thus, similar to Miramontes, Wiliniski will be permitted to testify as a lay witness under
Rule 701 as to the facts of the business underlying his profit expectations but will not be
allowed to make inferences from the data. See id. Nor will Wilinski be allowed to engage in
economic analysis.
Testimony of Michael Betters as Fact Witness (RMS’ Motion # 4)
RMS sought to introduce expert testimony of its accountant, Michael Betters, as to
RMS’ future lost profits. For the reasons explained in the Daubert decision, I excluded
Betters’ lost profits opinion. (Docket # 168.) RMS now moves to allow the lay testimony of
Betters as to RMS’ historical economic performance. Surely Betters cannot offer expert
testimony through the cloak of a lay witness. Recall that I already found that Betters’ expert
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opinion as to RMS’ lost profits was not based upon sufficient facts or data and was not the
product of a reliable methodology under Daubert. And RMS did not seek to qualify Betters
as an accounting expert. So he also cannot offer expert testimony as an accountant.
However, at the hearing, counsel stated that Betters would testify as to RMS’ past
profitability to counter expected cross-examination of Miramontes that on the face of RMS’
balance sheets, it did not appear very profitable. I will reserve ruling on this motion until
after Miramontes testifies at trial.
Testimony of Stuart Lipofsky Regarding Construction Industry Practices (RMS’ Motion # 5)
At the hearing, I granted RMS’ motion to allow evidence of the defendants’
“dumping” employees onto RMS’ payroll. The defendants counter that because this
evidence is admitted, I should re-examine my ruling excluding the expert testimony of
Stuart Lipofsky regarding construction industry practices of using union employees. The
issue of Lipofsky’s expert testimony was not argued at the hearing. Thus, the parties should
be prepared to address this issue at the continued hearing on June 13, 2016.
Dismissal of RMS’ Claim for Breach of the Covenant of Good Faith and Fair Dealing
(Defendants’ Motion # 2)
The defendants have moved to dismiss RMS’ claim for breach of the covenant of
good faith and fair dealing, arguing that under Indiana law, it has no cause of action. RMS
argues that the defendants cannot use a motion in limine to dismiss a claim. It further argues
that the defendants waived the choice of law provision as to the application of Indiana law
and under Wisconsin law, it has a legitimate cause of action. Finally, RMS argues that even
if the defendants did not waive the choice of law provision, Wisconsin law should apply for
public policy reasons.
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Whether Wisconsin or Indiana law applies is dispositive of whether RMS’ claim for
breach of the covenant of good faith and fair dealing can continue. While Wisconsin implies
a duty of good faith and fair dealing in every contract, Northgate Motors, Inc. v. General Motors
Corp., 111 F. Supp. 2d 1071, 1082 (E.D. Wis. 2000), Indiana does not, Allen v. Great Am.
Reserve Ins. Co., 766 N.E.2d 1157, 1162 (Ind. 2002). Indiana, rather, implies such a covenant
into contracts where the parties have an agency relationship, such as insurance contracts.
See Allen, 766 N.E.2d at 1163. For this reason, if Indiana law applies, RMS does not have a
proper cause of action for breach of the covenant of good faith and fair dealing.
RMS argues that the defendants cannot use a motion in limine to dismiss a claim. I
disagree. As Judge Griesbach stated in Marine Travelift, Inc. v. Marine Lift Sys., Inc., No. 10-C1046, 2013 WL 6255700, at *1 (E.D. Wis. Dec. 4, 2013), even if the relief sought should
have been filed as a motion for partial summary judgment or a motion to dismiss, “it makes
little sense to ignore the issue and proceed to trial without resolving it” when the party “did
not waive the argument by failing to raise it on summary judgment, and if it is right on the
law, it will significantly narrow one of the few issues remaining for trial.” Once again, if the
defendants are right on the law, the cause of action effectively does not exist under these
circumstances under Indiana law.
I do not agree that the defendants waived the choice of law provision. At the hearing,
RMS noted several instances in which the defendants purportedly relied on Wisconsin law
to show that they have always acquiesced in using Wisconsin law. Several of those
instances, however, related to the fraud in the inducement claim, such as the arguments
related to the use of the crime-fraud exception to override the attorney-client privilege.
(Docket # 57.) As to the breach of contract action, the defendants argued that Indiana law
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applied based on the choice of law clause found in the subcontract (Docket # 123 at 10) and
I agreed that Indiana law applied to RMS’ breach of contract claim (Docket # 150 at 8).
Although I agree that it would have been more prudent and efficient for the defendants to
have argued that under Indiana law RMS’ claim was futile at the time RMS moved for
leave to file a third amended complaint, I do not agree that the defendants waived the
contractual provision by failing to raise it at that time. Additionally, the parties stated at the
hearing that the addition of the claim did not require further discovery.
I also do not find that public policy dictates the use of Wisconsin law in this case. In
Bush v. Nat’l Sch. Studios, Inc., 139 Wis. 2d 635, 642, 407 N.W.2d 883, 886 (1987), the
Wisconsin Supreme Court explained that while parties are permitted to stipulate to the
applicable law in the contract, this principle of “party autonomy” cannot be permitted to
override “important public policies of a state whose law would be applicable if the parties
choice of law provision were disregarded.” The court further acknowledged that while a
“precise delineation of those policies which are sufficiently important to warrant overriding
a contractual choice of law stipulation is not possible,” it stated that in general, “statutes or
common law which make a particular type of contract enforceable, e.g., usury laws, or
which make a particular contract provision unenforceable, e.g., laws prohibiting covenants
not to compete, or that are designed to protect a weaker party against the unfair exercise of
superior bargaining power by another party, are likely to embody an important state public
policy.” Id. at 643, 407 N.W.2d at 887.
The Bush court goes on to list a “survey of decisions” that found laws embodying
public polices which warrant overriding the parties’ contractual choice of law clause,
including (1) prohibitions of covenants not to compete; (2) unconscionability doctrines; (3)
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fair dealership laws; (4) boxing licensing schemes; (5) state bankruptcy laws; (6) contractor
licensing schemes; (7) statutes of frauds; (8) usury statutes; and (9) insurance laws barring
suicide exception clauses. Id. at 643 n.1, 407 N.W.2d at 887. RMS does not cite, and I have
not found, any Wisconsin law stating that breach of the covenant of good faith and fair
dealing falls into this category of “sufficiently important” policies. Further, although RMS
argues that the covenant of good faith and fair dealing protects a weaker party against the
unfair exercise of superior bargaining power by another party, this was not the case here.
While RMS may be a smaller business, it is not unsophisticated. For these reasons, I do not
find Wisconsin public policy dictates the use of Wisconsin law as to the breach of the
covenant of good faith and fair dealing claim.
In sum, I find that given the choice of law provision in the parties’ subcontract,
Indiana law applies to RMS’ breach of the covenant of good faith and fair dealing claim and
under Indiana law, the claim must be dismissed. Thus, I grant the defendants’ second
motion in limine.
Evidence of Breach of Contract Based on March 16, 2012 Settlement Agreement (Defendants’
Motion # 4) and Evidence of Breach of Contract Based on Section 3 of Subcontract
(Defendants’ Motion # 5)
The defendants argued that based on a March 16, 2012 agreement entitled “Final
Adjustment to Progress Pymts thru 3/09/12” signed by the parties, S-K owed nothing to
RMS through March 9 based on the agreement, and because S-K paid 100% of the charges
on the invoices RMS gave it after March 9, RMS cannot base any breach of contract claim
on the contention that S-K failed to pay money owed to RMS. Similarly, the defendants
argue that Section 3 of the subcontract contains a clause that states the “acceptance of
partial payment shall constitute a release by Subcontractor in favor of Owner, Contractor
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and its surety of any claims which arose during the performance of the Work for which
payment is made, except for written claims properly submitted to Contractor.” Thus, the
defendants argue that RMS cannot argue that any failure to pay by S-K was a breach of
contract.
In its response brief, RMS argues that it signed the “Final Adjustment to Progress
Pymts thru 3/09/12” agreement under duress and submits a declaration from Miramontes
where she states that she felt forced to sign the agreement or her company would “have
gone under.” (Docket # 181.) However, at the hearing, RMS changed course and argued
that it was not seeking damages through March 9 but rather wants to include evidence of the
circumstances surrounding the signing of the “Final Adjustment to Progress Pymts thru
3/09/12” agreement. RMS further argued that the settlement agreement itself is evidence of
breach of contract.
As to the duress argument, Indiana does not recognize economic duress as a defense.
Vaughn v. Gen. Foods Corp., 797 F.2d 1403, 1417 (7th Cir. 1986). For this reason, RMS will
not be permitted to present evidence that the agreements were signed under duress. As to
using it for any other purpose, admission is governed by the relevancy rules of Fed. R. Evid.
401, which will be determined based on the record developed at trial.
ORDER
NOW, THEREFORE, IT IS ORDERED that I will reserve ruling on the following
motions: RMS’ Motion # 4 regarding the lay testimony of Michael Betters and RMS’
Motion # 5 regarding the expert testimony of Stuart Lipofsky.
IT IS FURTHER ORDERED that as to RMS’ Motion # 3 and Defendants’ Motion
# 6, Tammy Miramontes and Rick Wilinski will be permitted to offer lay testimony as
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outlined above; Defendants’ Motion # 2 is granted and RMS’ claim for breach of the
covenant of good faith and fair dealing is dismissed; and as to Defendants’ Motion # 4 and
#5, RMS is not permitted to introduce evidence of duress.

Dated at Milwaukee, Wisconsin this 9th day of June, 2016.
BY THE COURT:
s/Nancy Joseph ____________
NANCY JOSEPH
United States Magistrate Judge

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