Jom Inc. v. Adell Plastics Inc.

• Citation: 193 F.3d 47
• Decision Date: 04 March 1998
• Docket Number: No. 97-2131,97-2131
• Parties: (1st Cir. 1999) JOM, INC., d/b/a CHIPCO INTERNATIONAL, LTD., Plaintiff, Appellee, v. ADELL PLASTICS, INC., Defendant, Appellant. . Heard
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 47

193 F.3d 47 (1st Cir. 1999)

JOM, INC., d/b/a CHIPCO INTERNATIONAL, LTD., Plaintiff, Appellee, v. ADELL PLASTICS, INC., Defendant, Appellant.

No. 97-2131.

UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT.

Heard March 4, 1998.

Decided Oct. 4, 1999.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINE

John M.R. Paterson, with whom Mary Elizabeth Fougere and Bernstein, Shur, Sawyer & Nelson were on brief for appellant.

Catherine R. Connors, with whom Peter W. Culley, Geraldine G. Sanchez and Pierce Atwood were on brief for appellee.

Before Torruella, Chief Judge, Selya, Boudin, Stahl, Lynch and Lipez, Circuit Judges, Coffin and Cyr, Senior Circuit Judges.

OPINION EN BANC

Per Curiam.

Adell Plastics, Inc. ("Adell") appealed from a district court judgment awarding JOM, Inc., d/b/a Chipco International, Ltd. ("Chipco"), $884,332 in compensatory damages for breach of contract. The panel opinion affirmed the liability ruling, but remanded to the district court for a recalculation of damages in accordance with a contractual damages-limitation clause. Chipco's motion for rehearing en banc having been granted, we vacate the panel opinion. Having concluded that oral argument is unnecessary, we rely instead on the parties' written submissions. We now reinstate that portion of the panel opinion affirming the district court's liability ruling, but remand to the district court for its determination as to whether the damages cap constituted a "material alteration" excludable from the contracts of the parties.

I BACKGROUND

Chipco produces and sells casino gaming chips manufactured from pelletized polyester resin. From 1986 to 1994, Chipco acquired its resin exclusively from General Electric. In September 1994, Chipco decided to purchase a less expensive resin produced by Adell, which Adell represented to be equal or superior in quality to the resin supplied by General Electric. The purchase orders which Chipco forwarded to Adell contained no language relating to warranties or remedies in the event of breach. In contrast, the reverse side of the invoices Adell forwarded to Chipco with each resin shipment listed numerous conditions of sale, one of which the "damages-limitation clause" ("No claim of any kind . . . shall be greater in amount than the purchase price of the materials in respect of which damages are claimed.") is central to the present appeal.

After July 1995, Chipco bought all its resin from Adell. Before long, however, Chipco's casino customers began to complain that the new gaming chips were less attractive and durable than those produced with the General Electric resin. Consequently, in accordance with its two-year unconditional product warranty Chipco had to replace more than one million chips due to defects attributable to their chemical composition. Since Adell was unable to correct its defective resin, by February 1996 Chipco had resorted to another resin supplier.

Chipco brought suit against Adell in federal district court, alleging breach of contract, breach of warranties, negligence, and fraudulent or negligent misrepresentation. Chipco demanded past and future damages for its chip-replacement costs and lost profits. Adell counterclaimed for the balance due on its account receivable against Chipco. The district court (Hornby, J.) granted Adell partial summary judgment on the ground that the damages-limitation clause in its invoices formed part of the sales contract and established the resin purchase price as the cap on damages recoverable by Chipco. The remaining issues were scheduled for trial on June 24, 1997, before United States Magistrate Judge Cohen ("trial judge").

On the eve of trial, Adell filed several motions in limine, seeking to exclude from evidence (i) proof relating to the defective condition and replacement cost of thousands of gaming chips which had been destroyed by Chipco during discovery and (ii) various documents which Chipco had culled from its business records for use in proving liability and damages, on the ground that Chipco had failed to produce the more complete business records Adell had requested during discovery. The trial judge denied both motions.

In addition, consistent with the earlier grant of partial summary judgment by Judge Hornby, Adell sought to exclude all evidence of damages over and above the purchase price of the resin. The trial judge denied this motion in limine as well, on the ground that our intervening decision in Ionics, Inc. v. Elmwood Sensors, Inc., 110 F.3d 184 (1st Cir. 1997), effectively displaced Judge Hornby's summary judgment ruling as the law of the case, thereby precluding as a matter of law any consideration of the damages-limitation clause in construing the sales contracts between Adell and Chipco.

After Chipco rested its case at trial, Adell successfully moved for judgment as a matter of law on the negligence and fraudulent misrepresentation counts, see Fed. R. Civ. P. 50(a)(1), but elected not to renew its Rule 50 motion as to the remaining counts following the close of the evidence. The jury returned a special verdict totaling $961,658 on Chipco's breach of contract and warranty claims, and for $77,336 on Adell's counterclaim. The district court accordingly entered final judgment for Chipco in the net amount of $884,322, from which Adell has appealed.

II DISCUSSION

A. Evidentiary Rulings Relating to Adell's Liability

1. The Destroyed Chips

At the outset Adell argues that it was error to admit evidence that Chipco's casino customers had returned thousands of chips manufactured with Adell resin, since Chipco conceded that it had destroyed all but a small sampling of the returned chips prior to trial, thereby depriving Adell of any opportunity to discover independent proof that the destroyed chips had been manufactured from General Electric resin, rather than Adell resin. Adell further contends that Chipco continued to destroy the returned chips even after Adell had made its discovery request that Chipco turn over all returned chips to Adell.

We review the denial of the motion in limine only for abuse of discretion. See Gonzalez-Marin v. Equitable Assurance Soc'y of the U.S., 845 F.2d 1140, 1147 (1st Cir. 1988); see also Blinzler v. Marriott Int'l, Inc., 81 F.3d 1148, 1158 (1st Cir. 1996). The district court, in its discretion, may exclude related evidence by way of sanctioning a willful or negligent destruction or alteration of physical evidence which causes unfair prejudice to another party. See Sacramona v. Bridgestone/Firestone, Inc., 106 F.3d 444, 446 (1st Cir. 1997). We discern no abuse of discretion by the trial judge.

Unlike most types of physical evidence, casino chips are a form of quasi-currency, which State gaming laws commonly require the casino or chip manufacturer to destroy upon removal from service. See, e.g., N.J. Admin. Code, tit. 19, ch. 46, § 19:46-1.6 (Inventory, Security, Storage and Destruction of Gaming Chips). Yet early in the discovery process, after Chipco had informed Adell of this ongoing chip destruction program, Adell inexplicably failed to ask the district court to intervene. See Fed. R. Civ. P. 37; R.W. Int'l Corp. v. Welch Foods, Inc., 937 F.2d 11, 18-19 (1st Cir. 1991) (noting that [Federal Civil] Rule 37 is a "case management tool" which "sets forth a clear path to be followed if a party believes that another litigant is not cooperating in the discovery process," and that "defendants should have filed a motion to compel production"). Instead, Adell lay in wait until the eve of trial before filing its motion in limine.

In these circumstances the district court fairly could infer that Adell had bided its time in order to exploit the incurability of the alleged discovery violation by Chipco, rather than undertake its own chemical analysis of the resin content of the sample chips proffered by Chipco at trial. Furthermore, Chipco adduced trial testimony that its customers had never complained about defective chips between 1986 and 1994 while Chipco was using General Electric resin but only after Chipco began using Adell resin. Adell cross-examined these witnesses at length.

Finally, the trial judge instructed the jury that it could draw an inference adverse to Chipco if it were to find that Chipco had destroyed the chips for other than an "innocent reason." See Blinzler, 81 F.3d at 1159 (endorsing similar instruction). As the destruction of chips did not unfairly prejudice Adell in these circumstances, the denial of its motion in limine did not constitute an abuse of discretion. See Gonzalez-Marin, 845 F.2d at 1147.

2. The Business Records

Adell next challenges the denial of its motion to exclude from evidence the so-called "chip replacement binder" ("CRB") maintained by Chipco. In November 1996, Adell sought to discover any "customer file folders" containing customer complaints received by Chipco relating to chips manufactured from Adell resin. Rather than provide Adell with the entire contents of its customer files, Chipco produced the documents it considered relevant to the claims in litigation and compiled them in the CRB. These documents included the original customer-order forms, the Chipco invoices, and a "Job Production Cost Summary" detailing what it cost Chipco to manufacture both the original and the replacement chips. Early in 1997 Adell exhaustively deposed Chipco officials regarding the contents of the CRB. In due course Chipco included the CRB on the Joint Exhibit List.

Once again on the eve of trial, Adell filed a motion in limine urging for the first time that the CRB be excluded because Chipco had not produced the customer files in their entirety. Since the chips returned by customers bore no distinctive markings which would permit a visual determination as to whether they had been manufactured from resin supplied by Adell or by General Electric, Adell surmised that other documents in the customer files might have enabled it to trace...