Roger J. Walsh, Edward Boden, Sr., and Edward Boden, Jr. v. McCain Foods Limited and McCain Usa, Incorporated

Citation: 81 F.3d 722Docket: 95-2942

Court: Court of Appeals for the Seventh Circuit; May 31, 1996; Federal Appellate Court

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A jury awarded plaintiffs Roger J. Walsh, Edward Boden, Sr., and Edward Boden, Jr. $4.8 million in a breach of contract case against McCain Foods Limited and McCain USA, Inc. McCain's motions for a new trial and to amend the verdict were denied, leading to an appeal of those decisions and various evidentiary rulings by the district court. The appeal was affirmed by the Seventh Circuit.

In October 1985, the plaintiffs, who owned Bodine's, a company distributing frozen concentrated orange juice, attempted to sell the business. They provided McCain with financial information, leading to a preliminary agreement. McCain required the plaintiffs to warrant the accuracy of financial statements and disclosed no material changes since August 31, 1985. The sale closed on November 6, 1985, with payment structured as half at closing and the remainder through promissory notes.

After closing, McCain discovered that the plaintiffs were under investigation for adulterating their product and that an audit revealed a far worse financial condition than represented. Consequently, McCain halted payments on the promissory notes, prompting the plaintiffs to sue for breach of contract.

The Bodens and Walsh were indicted for selling adulterated orange juice, violating the Federal Food, Drug, and Cosmetic Act. The Bodens pleaded guilty to adulteration with grapefruit but not sugar, while Walsh died before prosecution. His estate settled with McCain prior to trial. At trial, the Bodens admitted to adulterating the orange juice with sugar, arguing that McCain should still be liable on promissory notes because it was indifferent to the adulteration when acquiring Bodine's. Plaintiffs presented evidence that McCain's intent was to completely overhaul Bodine's operations, focusing on its land and assets rather than its product quality. The jury sided with the Bodens, awarding them $4,864,084.

McCain filed motions for a new trial, claiming fraud and seeking to amend verdicts, which the district court denied. On appeal, McCain argued that the court erred by denying the motion for a new trial based on fraud, asserting that the Bodens' admission of adulteration contradicted their previous denials. However, McCain did not challenge this inconsistency during the trial, which the court found waived their claim of surprise. The court concluded that a party must object at trial to seek relief under Rule 60(b), and McCain's failure to do so meant it could not claim entitlement to a new trial.

To obtain relief from a judgment under Rule 60(b)(3), a movant must demonstrate: (1) a meritorious claim was maintained at trial; (2) the adverse party's fraud, misrepresentation, or misconduct hindered the movant from fully and fairly presenting its case. McCain's assertion of unfair prejudice due to the Bodens' admission of a fact it intended to prove is unconvincing. McCain claimed it was unprepared to argue its lack of knowledge regarding the adulteration of orange juice, despite having nearly nine years to prepare. To effectively argue its defense and counterclaim, McCain should have anticipated the need to prove both the adulteration and its impact on its purchasing decision, which was central to its case. Consequently, McCain's Rule 60(b) motion was properly denied.

McCain also requested a new trial based on alleged evidentiary errors, particularly concerning admissions made by Walsh during discovery. Walsh did not respond to requests for admissions regarding the Bodens' nondisclosure of the adulteration and misrepresentation of financial status, resulting in those requests being deemed admitted. However, the district court ruled these admissions were inadmissible as evidence against the Bodens. Although admissions under Rule 36 are typically admissible, they still face hearsay objections unless they fit within an exception. Walsh's admissions were deemed hearsay since they were made outside of court, and McCain's argument to admit them as statements of a party-opponent was rejected. The agency relationship between Walsh and the Bodens ended with the sale of Bodine's, making Walsh's admissions inadmissible as party-opponent statements. Therefore, the court correctly excluded this evidence.

McCain contends that the district court erred in its handling of expert testimony. On May 27, 1994, McCain was allowed to add expert James Matthews to its trial list, who reported that the plaintiffs had overstated Bodine's expected net worth by approximately $3.7 million. The court allowed plaintiffs to depose Matthews, during which he demonstrated limited familiarity with specific items referenced in his report. After the deposition, McCain did not supplement Matthews's testimony or report. Plaintiffs moved to exclude Matthews's opinion on the overstatements, arguing he lacked a basis for his claims. The district court denied this motion but ruled that Matthews would be restricted at trial to the statements made during his deposition to comply with Fed. R.Civ. P. 26(a)(2). The court found that Rule 26 mandates experts to disclose their opinions and the basis for them, and any material changes must be supplemented. The court has discretion to impose sanctions for non-compliance, including evidence exclusion.

Additionally, McCain argues that the court improperly granted plaintiffs' motion in limine, which sought to apply the parol evidence rule to prevent McCain from suggesting that any discrepancies between the post-closing audit and unaudited financial statements would automatically adjust the purchase price. The court sustained objections when McCain attempted to introduce testimony regarding the disclosure of the post-audit to the plaintiffs. McCain claims this was inappropriate as it aimed only to clarify the knowledge of the Bodens regarding the audit, not to modify the purchase agreement's terms.

The parol evidence rule restricts the introduction of prior or contemporaneous agreements to contradict a partially integrated written agreement, as established in Merk v. Jewel Food Stores. Although McCain's questioning may not have aimed to contradict the purchase agreement, there was no demonstrated prejudice from the district court's ruling. McCain claimed that the jury was misled into believing the post-closing audit was a surprise tactic against the plaintiffs. However, it is unlikely that this perception would have altered the jury's verdict. The core issue remained whether the plaintiffs misrepresented the corporation's value. 

McCain also argued that the district court erred by denying its motion to amend the judgment under Fed. R. Civ. P. 59(e), based on discrepancies in financial statements. McCain asserted that its expert identified a $3.7 million overstatement, while the plaintiffs’ expert only rebutted $2.5 million, suggesting a judgment reduction of $1.2 million. However, the plaintiffs disputed the entire comparability of McCain's report, not just specific figures.

Testimony revealed that McCain's expert could not properly compare the independent firm’s audited balance sheet with Bodine's unaudited statements because there was no verification of consistent accounting practices. This lack of comparability led the jury to potentially disregard McCain's entire report, justifying the district court's denial of McCain's motion to amend. Ultimately, McCain failed to demonstrate entitlement to a new trial due to alleged fraud or reversible errors by the district court, leading to the affirmation of the judgment.