Desaracho v. Custom Food

• Decision Date: 03 March 2000
• Docket Number: Nos. 98-15003,98-15007,98-17051,s. 98-15003,98-15007,98-17051
• Citation: 206 F.3d 874
• Parties: (9th Cir. 2000) MARIA TERESA DE SARACHO,EUREKA CANNERS GROUP, S.A., a corporation formed under the laws of Mexico; EUREKA MEXICANA SA,a corporation formed under the law of Mexico,Plaintiffs-Appellees, v. CUSTOM FOOD MACHINERY INC., a California corporation; Ron MCNEIL, SR., Defendants-Appellants, and FRED AVALLI, and DOE 1 through DOE 25, inclusive, Defendant-Appellant
• Court: U.S. Court of Appeals — Ninth Circuit

Page 874

206 F.3d 874 (9th Cir. 2000)

MARIA TERESA DE SARACHO,EUREKA CANNERS GROUP, S.A., a corporation formed under the laws of Mexico; EUREKA MEXICANA SA,a corporation formed under the law of Mexico,Plaintiffs-Appellees, v. CUSTOM FOOD MACHINERY INC., a California corporation; Ron MCNEIL, SR., Defendants-Appellants, and FRED AVALLI, and DOE 1 through DOE 25, inclusive, Defendant-Appellant.

Nos. 98-15003,98-15007,98-17051

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted December 8, 1999

Submission Vacated December 15, 1999

Resubmitted January 27, 2000

Decided March 3, 2000

[Copyrighted Material Omitted] COUNSEL: Thomas V. Loran, III, Pillsbury, Madison & Sutro, San Francisco, California, for the defendants-appellants.

William J. Keegan, The Keegan Law Group, San Jose, California, for the plaintiffs-appellees.

Appeals from the United States District Court for the Northern District of California; William A. Ingram, District Judge, Presiding. D.C. No. CV-95-20854-WAI

Before: Myron Bright,¹ Harry Pregerson and William A. Fletcher, Circuit Judges.

Opinion by Judge Pregerson; Dissent by Judge Bright

PREGERSON, Circuit Judge:

This appeal requires us to review four procedural decisions made by the district court before, during, and after a jury trial that resulted in a $12.5 million verdict against defendants. Defendants contend that the district court erred in denying (1) a motion in limine seeking dismissal of one plaintiff; (2) a motion to strike expert testimony; (3) a motion for a new trial; and (4) a motion for relief from judgment. We have jurisdiction under 28 U.S.C. S 1291, and we affirm the district court's denial of all four motions.

I

Plaintiffs in this suit are Eureka Canners Group, S.A. ("ECG"), Maria De Saracho, and Eureka Mexicana, S.A. ("Mexicana"). Defendants are Custom Food Machinery, Inc. ("Custom"), Fred Avalli ("Avalli"), and Ron McNeil, Sr. ("McNeil"). ECG is a Mexican corporation that was formed in 1993 by Maria De Saracho, Mexicana's owner Cesar De Saracho, and Avalli to process and can tomatoes in Sinaloa, Mexico. Custom is a California corporation that sold food processing equipment to ECG. McNeil is Custom's president and controlling shareholder.

Shortly after its formation, ECG took out three loans from Banco de Credito Rural del Pacifico Norte, S.N.C. ("BanRural"), a Mexican bank, totaling more than $3.3 million. Maria De Saracho guaranteed the BanRural loans, executed promissory notes on the loans, and pledged her property as collateral. In May 1995, BanRural declared ECG's loans in default. The following month, ECG filed a lawsuit against BanRural in Mexican court, seeking to invalidate the trust agreement between Maria De Saracho and BanRural and to release the assets pledged as collateral for the loans. Later that year, BanRural filed an action against ECG in Mexican court ("BanRural litigation" or "BanRural suit"), seeking court orders designating an appraiser to value the assets pledged to the trust and allowing BanRural's representatives to enter ECG property to value its assets. BanRural did not seek a money judgment against ECG or Maria De Saracho. In March 1997, the Mexican court ruled that BanRural's representative lacked authority to sue in BanRural's name. In May 1998, a Mexican appeals court reversed that ruling.

Plaintiffs filed this lawsuit in December 1995, asserting claims for fraud, conspiracy to defraud, and breach of fiduciary duty. The case was tried before a jury during June and July 1997. At trial, plaintiffs attempted to prove that (1) defendants misrepresented that Avalli made a capital contribution to ECG of $1,050,000; (2) Maria De Saracho guaranteed the BanRural loans in reliance on that representation; (3) defendants misrepresented the value and quality of tomato processing equipment sold by Custom to ECG, causing the tomato processing business to fail; and (4) Custom paid kickbacks to Avalli. Plaintiffs sought damages for liability on the amount due on the BanRural loans in the sum of $11,395,457; ECG's lost profits which plaintiffs' expert testified exceeded $15,000,000; consequential damages; emotional distress; and reputational injury.

To prove the amount ECG owed to BanRural on the defaulted loans, plaintiffs introduced into evidence the loan agreements and promissory notes. Plaintiffs also presented two expert witnesses. Stephan Degnan, a certified public accountant, testified that the interest rate provisions in the loan documents required ECG to pay a default interest rate that was 1.5 times greater than the higher of the Mexican TBill rate or BanRural's cost of funds. Based on those provisions, Degnan calculated that $11,395,457 was owed to BanRural. An expert in Mexican law testified that BanRural had a viable cause of action under Mexican law to collect on the defaulted loans. Defendants did not present any evidence about the amount due on the loans or the viability of a foreclosure suit by BanRural. The jury awarded plaintiffs $12,516,000 in damages.

After the trial ended, defendants acquired new evidence purportedly proving that ECG owed significantly less than $11 million on the BanRural loans. According to defendants, Degnan mistakenly relied on the interest rate provision in the loan documents. They claim that as of February 1998, the sum of $5,447,553 was due on ECG's loans (instead of $11,395,457 as of May 1997).

II ECG's Authorization to Bring Suit

Defendants argue that ECG was not properly authorized to sue defendants. Defendant Avalli first challenged ECG's authorization to sue in a motion in limine filed on May 6, 1997, over eight months after filing his answer. The district court denied the motion "without prejudice to its renewal after the introduction and consideration of evidence concerning who is and who is not party to the purported partnership agreement." Avalli raised the same issue again at the close of the plaintiffs' case in chief in a Rule 50(a) motion for judgment as a matter of law. The district court denied the motion because it was untimely and "should have been determined before this case came for trial."² After the jury rendered its verdict, Avalli renewed the motion for a judgment as a matter of law under Rule 50(b). The court also denied that motion because it was untimely. Defendants then appealed the judgment entered against them.

We decline to review directly the district court's denial of the motion in limine.³ An appellate court will not review a denial of summary judgment after there has been a trial on the merits and an adverse jury verdict. At that stage, the propriety of the district court's denial of the summary judgment motion is an "academic question." See General Signal Corp. v. MCI Telecomms. Corp., 66 F.3d 1500, 1506 (9th Cir. 1995); Lum v. City & County of Honolulu, 963 F.2d 1167, 1169 (9th Cir. 1992); Lamas v. Borras, 16 F.3d 473, 477 n.5 (1st Cir. 1994) (collecting cases). We see no reason to treat any differently the denial of defendants' motion in limine to dismiss for lack of authority to sue.⁴

Even if we were to review the denial of the motion in limine directly, we would agree with the district court that defendants waived any objection to plaintiffs authorization to sue. A defendant must challenge a plaintiff's authority to sue by making a "specific negative averment." See FED. R. CIV. P. 9(a). Case law in this circuit states that the "specific negative averment" must be made "in the responsive pleading or by motion before pleading." Summers v. Interstate Tractor & Equip. Co., 466 F.2d 42, 49-50 (9th Cir. 1972) . Other authorities support this rule:

[A]lthough an objection to a party's capacity is not an affirmative defense, it can be analogized to an affirmative defense and treated as waived if not asserted by motion or responsive pleading, subject, of course, to the liberal amendment policy of Rule 15. Early waiver is necessary to give meaning to the requirement in Rule 9(a) that capacity must be put in issue by a "specific negative averment."

5 Wright & Miller, FED. PRAC. & PROC. CIV. 2dS 1295; see also Wagner Furniture Interiors, Inc. v. Kemner's Georgetown Manor, Inc., 929 F.2d 343, 345 (7th Cir. 1991) (holding that averment was untimely because it was raised in a motion to dismiss at the final pre-trial conference); MTO Maritime Transp. Overseas, Inc. v. McLendon Forwarding Co., 837 F.2d 215, 218 (5th Cir. 1988) (finding that the capacity issue was waived because the defendant did not raise it "until the eve of trial in the Joint Pre-Trial Order").

Similarly, if the motion in limine is construed as a motion to amend the pleadings, the district court did not abuse its discretion in denying it as untimely. While "leave [to amend a pleading] shall be freely given when justice so requires," Fed. R. Civ. P. 15(a), a district court may deny the motion if it will cause unfair delay. See Parker v. Joe Lujan Enterprises, 848 F.2d 118, 121 (9th Cir. 1988); McGlinchy v. Shell Chem. Co., 845 F.2d 802, 809 (9th Cir. 1988). "Where the party seeking amendment knows or should know of the facts upon which the proposed amendment is based but fails to include them in the original complaint, the motion to amend may be denied." Jordan v. County of Los Angeles, 669 F.2d 1311, 1324 (9th Cir.), vacated on other grounds, 459 U.S. 810 (1982), on remand, 713 F.2d 503 (9th Cir. 1983), opinion amended, 726 F.2d 1366 (9th Cir. 1984).

Defendants did not raise the authority to sue issue until one week before the trial was scheduled to begin. None of defendants made a "specific negative averment " in their answers, moved to amend their answers, or filed a motion for summary judgment on this issue. Nor was the authority to sue issue among the disputed factual issues listed in the Joint Pretrial Conference Statement filed with the court on April 21, 1997. Defendants seek to excuse their failure to raise the authority issue in a timely fashion by asserting that they...