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Edmark Auto, Inc. v. Zurich, American Insurance Co.

United States District Court, D. Idaho

March 1, 2019

EDMARK AUTO, INC., an Idaho corporation; CHALFANT CORP., an Idaho corporation, Plaintiffs,
v.
ZURICH AMERICAN INSURANCE CO., a New York corporation; and UNIVERSAL UNDERWRITERS SERVICE CORP., a Delaware corporation, Defendants.

          MEMORANDUM DECISION AND ORDER

         INTRODUCTION

         The Court has before it four motions in limine including: Zurich American Insurance Company's and Universal Underwriters Services Corporation's (together, “Insurers”) First Motion in Limine Regarding Bifurcation of Trial and Related Evidentiary Matters (Dkt. 215); Insurers' Second Motion in Limine Regarding Equitable Unjust Enrichment and Disgorgement Issues (Dkt. 216); Insurers' Third Motion in Limine Regarding Testimony of Robert Anderson (Dkt. 217).

         The fourth motion in limine was filed by Edmark Auto, Incorporated and Chalfant Corporation (together, “Dealers”). Dealers' motion contains three distinct subparts, which Dealers have labeled motions one through three. Dkt. 222-1. Dealers' first motion seeks to exclude the report and testimony of Kathi Ingham. Id. at 2-7. Dealers' second motion seeks to exclude specific pieces of evidence pursuant to Federal Rule of Civil Procedure 37. Id. at 7-10. Dealers' last motion seeks to exclude any evidence related to the sale of Edmark to Kendall Auto in 2016 and any “Financial Condition Evidence” related to the Dealers and their namesakes. Id. at 10-16.

         FACTUAL BACKGROUND

         The factual background of this case has been described in extensive detail by Judge Candy W. Dale (Dkt. 134 and 169) and Judge Edward J. Lodge (Dkt. 145). The Court will assume the reader's familiarity with those decisions.

         LEGAL STANDARD

         There is no express authority for motions in limine in either the Federal Rules of Civil Procedure or the Federal Rules of Evidence. Nevertheless, these motions are well recognized in practice and by case law. See, e.g., Ohler v. United States, 529 U.S. 753, 758 (2000). The key function of a motion in limine is to “exclude prejudicial evidence before the evidence is actually offered.” Luce v. United States, 469 U.S. 38, 40 (1984).

         ANALYSIS

         1. Insurers' First Motion in Limine Regarding Bifurcation of Trial and Related Evidentiary Matters (Dkt. 215)

         A. Arguments Raised in Motion

         Insurers make four requests, the first two of which are interrelated. First, Insurers ask the Court to bifurcate the trial to separate the jury's consideration of liability and compensatory damages from their consideration of punitive damages. Dkt. 215-1 at 3-7. Second, Insurers ask the Court to issue an order precluding Dealers from “referenc[ing]… or [producing] evidence … [related to] Defendants' company-wide financial condition and net worth until” the punitive damages phase of the trial. Id. at 6. Defendants specifically identify “(1) Universal's and Zurich's company-wide consolidated audited financial statements for 2010-2017; and, (2) Universal's and Zurich's company-wide balance sheets and annual reports” as the evidence they want excluded from the liability phase. Id. at 5. Third, Insurers ask the Court to restrict the financial information presented to the jury during the punitive phase of the proceedings to their 2017 audited financial information. Id. Finally, Insurers seek to exclude parent company Zurich Financial Group's financial information from trial. Id. at 8-10.

         B. Legal Standards Applicable to the Arguments Raised in Insurers' First Motion in Limine

         In the normal course of litigation, all claims and issues in a civil action are presented for resolution in one trial. Federal Rule of Civil Procedure 42(b), however, empowers courts to bifurcate a trial for any one of the following reasons: (1) “convenience”; (2) “to avoid prejudice”; or (3) “to expedite and economize.” A district court is given “broad discretion” to determine whether bifurcation is appropriate. Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002). Absent some experience demonstrating the worth of bifurcation, “separation of issues for trial is not to be routinely ordered.” Fed.R.Civ.P. 42(b) (advisory committee notes to the 1966 amendment). The party moving for bifurcation bears the burden of demonstrating that bifurcation is warranted. See Spectra-Physics Lasers, Inc. v. Uniphase Corp., 144 F.R.D. 99, 101 (N.D. Cal. 1992).

         Although bifurcation should not be “routinely ordered, ” this Court routinely bifurcates trials involving claims for punitive damages “to avoid placing evidence of a defendant's net worth before the jury in the main trial as liability is being considered.” PMG, Inc. v. Lockheed Martin Idaho Techs. Co., No. CV-02-539-E-BLW, 2006 WL 1207609, at *2 (D. Idaho Apr. 27, 2006) (Winmill, J.). Nevertheless, denial of a motion to bifurcate is appropriate where there is substantial overlap in the evidence that will be used to prove both liability and punitive damages. See, e.g., Hangarter v. Provident Life & Acc. Ins. Co., 373 F.3d 998, 1021 (9th Cir. 2004).

         C. Insurers' Request to Bifurcate Trial and Exclude Evidence Related to Punitive Damages Claims Is Conditionally Granted

         Insurers, who bear the burden under Federal Rule of Civil Procedure 42(b) to show that bifurcation is appropriate, argue that “evidence relating to … the … [Insurers'] company-wide financials and net worth should be excluded during the liability and compensatory damage phase of the trial.” Dkt. 215-1 at 6. More specifically, Insurers seek an order precluding Dealers from presenting the following information prior to the punitive phase of the trial: “(1) Universal's and Zurich's company-wide consolidated audited financial statements for 2010-2017; and, (2) Universal's and Zurich's company-wide balance sheets and annual reports.” Id. at 5.

         In response, Dealers argue that they intend to use Insurers' company-wide consolidated audited financial statements, balance sheets, and annual reports to prove Insurers' liability. Specifically, Dealers assert that the financial information is relevant to the intent and knowledge elements of their fraud claim. Dkt. 234 at 3-6. Dealers also argue that “the return on investment of the funds in the No. Charge Back Program demonstrates Insurers' breaches of contractual, fiduciary, and statutory duties, as well as damages related thereto.” Id. at 6. Finally, Dealers argue that the Insurers produced the “No Charge Back Program” materials in such a way that the company-wide financial data appears in the same financial reports as those containing “information about the Insurers' management of revenue, the flow of funds that went into the No. Charge Back Program, and the data from which reasonable rates of return were calculated for the purpose of showing liability (whether the funds were properly managed).” Id. at 7.

         In evaluating the Parties' arguments, the Court is immediately confronted by the problem that Insurers have described the evidence they are seeking to exclude from the liability phase of the trial in the broadest of terms, while the Dealers have described with great generality how they will use this evidence to prove liability. At this point, the prudent course is to grant the Insurers' motion conditionally: During their case-in-chief, Dealers will be allowed to offer the evidence in support of their liability claims but not as part of their claim for punitive damages. If they are successful in persuading the Court that the evidence is admissible as part of their liability claims, the issues will be submitted to the jury without bifurcation. If the Dealers cannot convince the Court that the evidence they are seeking to admit satisfies Rules 401, 402, and 403 with respect to Dealers' liability claims, then the Court will exclude them until the punitive damages phase of the trial.

         D. Insurers Request to Exclude All Financial Records Except Their Audited 2017 Financial Statements Is Denied

         Next, Insurers argue that Dealers should be limited to presenting only 2017 company-wide financial information to the jury. Dkt. 215-1 at 7-8. This request is expanded in Insurers' Reply brief, in which they argue that the presentation of any financial records other than Insurers' audited financial statements (e.g., balance sheets, profit and loss statements, income statements, etc.) would be prejudicial and misleading to the jury. Dkt. 242 at 7-8.

         Insurers' argument is not well taken. First, it is the Court's experience that jurors are sufficiently savvy that they can distinguish between financial information from different years, especially when capable counsel is present on both sides. Second, in considering whether to grant punitive damages, the jury is entitled to more than a mere snapshot of Insurers' net-worth. See White v. Ford Motor Co., 500 F.3d 963, 977 (9th Cir. 2007). To provide the jury with a full portrait of the Insurers' net-worth, Dealers are entitled to show how that net-worth has evolved temporally and may, in that effort, rely on documents outside of the Insurers' audited financial statements. Such evidence falls comfortably within the bounds of Federal Rules of Evidence 401, 402, and 403.

         E. The Court Will Reserve Ruling on Whether Non-Party Zurich Insurance Group's Consolidated Financial Reports Are Admissible

         Finally, Insurers ask the Court to exclude evidence relating to Zurich Insurance Group's consolidated financial reports. Dkt. 215-1 at 8-10. Zurich Insurance Group is the parent corporation of both Insurers. Id. Dealers respond that they “do not intend to use the net worth of non-party Zurich Insurance Group to prove the amount of punitive damages that should be awarded against Insurers, ” but do intend to use the information to establish liability and compensatory damages. Dkt. 215 at 10.

         Again, on this record, the Court cannot determine what, if anything, should be excluded from the jury. In general, the Court agrees that presentation of a parent company's financial information is inappropriate because the evidence is irrelevant and unfairly prejudicial when just the subsidiaries' conduct is at issue. Fresno Rock Taco, LLC v. Nat'l Sur. Corp., No. 1:11-CV-00845-SKO, 2013 WL 2182864, at *7 (E.D. Cal. May 20, 2013). But the Court cannot say, on this record, that Zurich Insurance Group's financial information is per se irrelevant to Dealers' claims. As such, the Court will reserve ruling on this evidence until trial.

         2. Insurers' Second Motion in Limine Regarding Equitable Unjust Enrichment and Disgorgement Issues (Dkt. 216)

         A. Arguments Raised in Motion

         Insurers' second motion in limine contains three distinct arguments. First, Insurers ask the Court to find that Dealers are not entitled to a jury trial on their unjust enrichment claim and on the disgorgement remedy. Dkt. 216-1 at 3-4. Second, Insurers ask that any evidence related to “conscious wrongdoing, ” which is an element of the disgorgement remedy, be reserved for the punitive phase of the trial.[1] Id. at 4-6. Third, Insurers ask the Court to preemptively limit the profits subject to disgorgement. Id. at 6-10.

         Dealers oppose Insurers at every turn. First, Dealers contend that disgorgement is not purely an equitable remedy, and therefore should go to the jury. Dkt. 235 at 6-9. Second, Dealers strenuously argue against the imposition of a preemptive limit on the profits subject to disgorgement. Id. at 9-13. According to Dealers, they are entitled to prove the exact amount of profits that should be disgorged at trial subject to the sole restriction that Dealers “are not seeking disgorgement of all ‘company wide' profits in general, … [but instead] specifically seek the profits from the sale of F&I products.” Dkt. 235 at 13.

         B. Legal Standards Applicable to the Arguments Raised in Insurers' Second Motion in Limine

         (1) The Jury Trial Right

         The Seventh Amendment states “[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved.” “The right to a jury trial includes more than the common-law forms of action recognized in 1791; the phrase ‘Suits at common law' refers to ‘suits in which legal rights [are] to be ascertained and determined, in contradistinction to those where equitable rights alone [are] recognized, and equitable remedies [are] administered.'” Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S. 558, 564 (1990).

         The Supreme Court has developed a two-part test to determine if the jury trial right is triggered. “First, … [the court must] compare the … action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. Second, … [the court] examine the remedy sought and determine whether it is legal or equitable in nature.” Tull v. United States, 481 U.S. 412, 417-418 (emphasis added). The second inquiry is the more important factor. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42 (1989). The Supreme Court has “characterized damages as equitable where they are restitutionary, such as in ‘action[s] for disgorgement of improper profits.'” Tull, 481 U.S. at 424.

         When legal and equitable claims are joined in the same action, the trial judge has only limited discretion in determining the sequence of trial. This means that the court's discretion must be exercised to preserve the right to a jury trial, whenever possible. Dollar Systems, Inc. v. Avcar Leasing Systems, Inc., 890 F.2d 165, 170 (9th Cir. 1989). “[O]nly under the most imperative circumstances ... can the right to a jury trial of legal issues be lost through prior determination of equitable claims.” Dollar Systems, 359 U.S. at 509. When legal and equitable claims involve the same set of facts, the right to a jury trial should predominate. If, however, the legal and equitable claims do not involve any common questions of law or fact, a court does not abuse its discretion by deciding the equitable claims prior to the legal claims. Id. at 170-71.

         (2) The Causation ...


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