Pincus v. Pabst Brewing Co.

Decision Date05 March 1990
Docket NumberNo. 89-1673,89-1673
Citation893 F.2d 1544
PartiesRobert E. PINCUS, Plaintiff-Appellee, v. PABST BREWING COMPANY, a Delaware corporation, Defendant-Appellant.
CourtU.S. Court of Appeals — Seventh Circuit

George P. Kersten, argued, Bruce J. Landgraf, Kersten & McKinnon, Milwaukee, Wis., for plaintiff-appellee.

Henry A. Field, Jr., Boardman, Suhr, Curry & Field, Madison, Wis., Kevin H. Brogan, William M. Bitting, argued, Hill, Farrer & Burrill, Los Angeles, Cal., for defendant-appellant.

Before CUMMINGS, COFFEY and MANION, Circuit Judges.

CUMMINGS, Circuit Judge.

Robert E. Pincus alleges that Pabst Brewing Company ("Pabst") contracted to grant him an exclusive right of first refusal for the purchase of a wholly owned Pabst subsidiary, PMP Fermentation Products, Inc. ("PMP"), then reneged. Federal jurisdiction is based on diversity. Pincus, a chemical engineer and retired president of several Pabst subsidiaries, resides in Florida; Pabst is a Delaware corporation with its principal place of business in California. The negotiations at issue took place primarily in Milwaukee, Wisconsin, where the suit was filed on June 8, 1987.

Following a week-long jury trial, Pabst moved for a directed verdict, which was denied by the trial court. The jury returned three special verdicts, finding that Pabst had contracted to grant Pincus a valid right of first refusal, that Pabst had breached the contract, and that Pincus was entitled to $3,885,595.30 in damages flowing from the breach. On December 2, 1988, the court entered judgment in favor of Pincus and awarded damages of precisely the amount found by the jury. On March 6, 1989, by unpublished order explaining its reasoning, the trial court denied Pabst's post-trial motion for a judgment notwithstanding the verdict ("JNOV") or a new trial.

On appeal, Pabst asks this Court to enter a directed verdict or JNOV. In the alternative it requests a new trial on the issues of liability and damages. Pabst claims that it did not honor the right of first refusal because the right was never triggered, that certain evidence was erroneously admitted under Rule 803(6) of the Federal Rules of Evidence (the business records exception to the hearsay rule), and that the damages awarded were grossly excessive and not rationally related to the evidence. For the reasons that follow, the judgment of the district court is affirmed except that the damages, which were not rationally related to evidence of Pincus' expectation interest, are to be reduced to $525,000 if Pincus is willing to accept a remittitur in that amount to avoid a new trial on damages alone.

BACKGROUND
The Right of First Refusal

During the early 1980s, Pabst explored the sale of subsidiaries to raise cash and reorganize in the face of a series of hostile At that time Pincus was president of Pabst's non-beer subsidiaries, which included both PMP and PL. Negotiations for the sale of PL were still in progress when August U. Pabst, executive vice president of operations for the brewery that bears his family name, met with Pincus regarding his future with Pabst. The two men discussed an arrangement under which Pincus would resign as president of PL, but remain president of PMP and assist Pabst in negotiating the PL sale. Pincus' salary and benefits would not change. Pincus asked Mr. Pabst if, as part of this arrangement, he could have a right of first refusal to purchase PMP, which manufactured and sold industrial fermentation products. After conferring briefly with William F. Smith, president and chief executive officer of Pabst, Mr. Pabst agreed to grant that prerogative to Pincus. Pincus' attorney drafted a concise, one-page document, which was signed by both sides within hours after the meeting. The document (hereinafter "the Pabst-Pincus agreement") stated in relevant part:

takeover attempts. See Kalmanovitz v. G. Heileman Brewing Co., 769 F.2d 152 (3d Cir.1985) (discussing fight to gain control of Pabst). Toward that end, Pabst signed a letter of intent in November 1982 to sell one of its Milwaukee-based subsidiaries, PL Biochemicals, Inc. ("PL"), to Pharmacia, Inc., a Swedish company.

For good and valuable consideration, [Pabst] hereby grants and gives to [Pincus] the exclusive right of first refusal to purchase the assets or stock of PMP Fermentation Products, Inc. at the price and terms of any bona fide offer made for it. This right of first refusal extends to all bona fide offers made for either the assets or stock of PMP Fermentation Products, Inc., [with an exception irrelevant to this appeal].

Notice of exercise of the rights contained within this agreement shall be given by [Pincus] in writing within sixty (60) days of [Pincus'] receiving written notice that a bona fide offer has been made and its terms and conditions.

App. A-131 (emphasis added).

On December 17, 1982, Pabst closed the PL sale to Pharmacia. Smith acknowledged Pincus' help in closing the deal in a letter later written to Pincus. Shortly after the closing, on January 24, 1983, Pincus retired from all Pabst employment at the request of Pabst.

Immediately upon retirement, Pincus began a series of discussions with Charles Wallace, Pabst's treasurer, in an attempt to purchase PMP. Pincus submitted a proposed agreement, under which a corporation "to be formed" would contract to buy PMP and its intangible assets, such as copyrights, patents, and trademarks, for $250,000, and also to buy PMP's inventory at 90% of book value, but in no case pay more than $1.1 million for the inventory.

Pincus hoped to arrange financing to purchase PMP through Joh. A. Benckiser GmbH ("Benckiser"), a West German chemical company. On May 3, 1983, Pincus and Benckiser signed a "draft agreement," which included provisions that (1) Benckiser would lend Pincus' new corporation money for the purchase of PMP's intangible assets from Pabst and (2) Benckiser would have an option to purchase all shares of the new corporation for $300,000, following Pincus' retirement from the management of PMP.

A Second Bidder

On June 16, 1983, a second international chemical corporation entered the picture. Armak Company, a division of a Delaware corporation with its roots in the Netherlands, proposed to purchase PMP from Pabst with an offer superior to Pincus': $500,000 for intangible assets, and cash equal to 100% of the book value of finished goods in inventory at the time of closing. Wallace informed Pincus in writing of Armak's richer proposal on June 29 and invited "an expeditious response as to whether you intend to match the Armak offer...."

Pincus' lawyer, James Urdan, complained to Wallace that this first Armak proposal was too vague for Pincus to react to it. Urdan specifically protested that the right of first refusal could not be triggered until Pincus received "the pertinent details of Spurred on by Armak's competing interest, Pincus and Benckiser executed a new contract on August 25, superseding their May 3rd agreement. Its notable features included a $1.5 million payment-on-demand loan from Benckiser to Pincus and an option that would allow Benckiser to acquire PMP from Pincus, Inc., the new corporation to be formed by Pincus. Benckiser would have a "call" option to acquire the stock of Pincus, Inc. for $200,000 on two days' notice; Pincus would have a "put" option to force Benckiser to acquire the stock for $200,000, also on two days' notice. It also included a confidentiality clause, prohibiting Pincus or Benckiser from discussing the new agreement with any third party. By his own estimation, Pincus would have received a total of $525,000 from Benckiser if Benckiser had exercised its option ($200,000 for sale of the stock of Pincus, Inc., $300,000 through a consulting contract over the course of six years, and $25,000 for securing a particular supply contract from Pabst). Thus under the new agreement Benckiser was entitled to buy out the new Pincus, Inc., including its PMP assets, for $525,000, instead of waiting for Pincus' retirement to trigger Benckiser's right to take over PMP.

                the offer."    Stephen C. Raymonds, then senior attorney for Pabst, responded by stating that Pabst had not then intended to trigger the 60-day right of first refusal period.  Raymonds stated that Pabst was soliciting "a formal offer" from Armak, which it hoped would arrive soon.  On August 11, Wallace wrote Pincus that Pabst would have Armak's draft purchase agreement around August 22 and would furnish that information to Pincus.  On August 23, Wallace gave Pincus an Armak proposal labeled "draft," which described the Armak offer in some detail
                

Five days after striking this new agreement with Benckiser, Pincus submitted a fresh proposal to Pabst: $400,000 for PMP's principal patents, $100,000 for all other assets aside from inventory, and 90% of the book value of inventory. This new offer stated that Pincus would exercise his right of first refusal on behalf of a Florida corporation that he would form.

Right of First Refusal Allegedly Triggered

In an internal memorandum dated September 6, 1983, not revealed to Pincus at the time, Pabst Treasurer Wallace informed three Pabst executives that Armak's offer was superior to Pincus' for four reasons, including the following two which suggest that Pincus was inherently disfavored despite his right of first refusal: (1) "key PMP employees" did not share Pincus' management style and (2) Armak was a large international concern with better contacts in the industry. After Pincus learned of Pabst's preference for Armak, a meeting was convened at Pabst corporate headquarters on September 21, which was attended by Pincus, his attorney Urdan, Wallace, Pabst counsel Raymonds, and John Martin, a member of the Pabst finance department. Descriptions given at trial of what was said at the meeting, going to the heart of Pincus' claims, were varied.

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