Commonwealth Ins. Co. v. Titan Tire Corp.

• Decision Date: 02 November 2004
• Docket Number: No. 03-3224.,No. 03-3225.,No. 03-3223.,03-3223.,03-3224.,03-3225.
• Citation: 398 F.3d 879
• Parties: COMMONWEALTH INSURANCE COMPANY, Plaintiff, v. TITAN TIRE CORPORATION, Defendant-Appellant, v. Pirelli Tire, LLC, formerly known as Pirelli Tire Corporation, formerly known as Pirelli Armstrong Tire Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

398 F.3d 879

COMMONWEALTH INSURANCE COMPANY, Plaintiff, v. TITAN TIRE CORPORATION, Defendant-Appellant, v. Pirelli Tire, LLC, formerly known as Pirelli Tire Corporation, formerly known as Pirelli Armstrong Tire Corporation, Defendant-Appellee.

No. 03-3223.

No. 03-3224.

No. 03-3225.

United States Court of Appeals, Seventh Circuit.

Argued September 21, 2004.

Decided November 2, 2004.

COPYRIGHT MATERIAL OMITTED

Thomas A. Vickers, Daar, Fisher, Kanaris & Vanek, Chicago, IL, for Plaintiff.

Joel D. Bertocchi (argued), J. Gregory Deis, Mayer, Brown, Rowe & Maw, Chicago, IL, for Defendant-Appellant.

David L. Drake, Drake, Narup & Mead, Springfield, IL, Valerie A. Moore (argued), Haight, Brown & Bonesteel, Los Angeles, CA, for Defendant-Appellee.

Before MANION, ROVNER, and WOOD, Circuit Judges.

MANION, Circuit Judge.

Following a $55 million settlement of a Texas case involving eight deaths allegedly caused by a defective tire, the two tire companies involved sued each other, claiming breach of an indemnity agreement. The claims were eventually tried in the Central District of Illinois, which had diversity jurisdiction over the matter.¹ Pirelli Tire, LLC won a jury verdict for the underlying trial expenses and attorneys' fees against Titan Tire Corporation in the amount of $259,775.98, which included interest. On appeal, Titan challenges a key jury instruction ruling by the district court as well as several other district court rulings that affected the trial proceedings. We affirm in part and reverse in part.

I.

On July 16, 1994, Pirelli sold a tire plant in Des Moines, Iowa, to Titan. At the same time, the two entered into a manufacturing agreement under which Titan would manufacture light truck tires for Pirelli at the Des Moines plant according to Pirelli's specifications. Pursuant to this agreement, Titan agreed to indemnify Pirelli for any expenses caused by tire defects resulting from Titan's actions or inactions. This contractual relationship lasted until 1998, when a strike caused the permanent shut-down of the Des Moines plant.

Shortly after Titan began producing tires under the initial agreement in September 1994, Pirelli discovered a tread defect in the relevant tire design. Consequently, in November and December 1994, Titan temporarily halted production, and Pirelli improved its design. On November 22, 1994, Pirelli provided its design improvements to Titan and by letter agreed to indemnify Titan and hold Titan harmless with respect to any claims arising from the tread defects of the prior design. This so-called letter agreement of November 22 ("the letter agreement") was modified on December 14, 1994, with an addendum ("the addendum") handwritten on the margin of the letter agreement by Titan's president, Maurice Taylor, a non-attorney. The addendum stated that the indemnity arrangement in the letter agreement covered tires "that had been produced since Sept[ember] 1, 1994." The addendum is at the epicenter of this appeal.

The addendum became a point of contention as the result of a 1998 automobile accident in Duval County, Texas, in which eight people died. The accident triggered a negligence and product liability action over a light truck tire involved in the accident. Initially, Titan and Pirelli were named as defendants in the underlying action, but, in the early stages of that case, the plaintiffs dismissed their claims against Pirelli. Nonetheless, as the result of a Titan cross-claim for indemnity, Pirelli remained exposed to liability in the underlying suit. During the underlying litigation, Titan and Pirelli posited — to varying degrees — that the tire at issue was not defective. In the end, however, Titan's insurer, Commonwealth Insurance Company, paid $55 million to settle the underlying case, and Titan dismissed its cross-claim against Pirelli in that case.

The indemnity battle, nevertheless, was far from over. After the settlement, three new lawsuits involving indemnity and other claims arising from the underlying litigation were filed in three different jurisdictions by and against Pirelli, Titan, and Commonwealth. Each entity was a plaintiff as well as defendant in at least one of the three suits. Eventually, the three suits were consolidated in the United States District Court for the Central District of Illinois. Matters concerning Commonwealth are not before this court, and only two causes of action are pertinent to this appeal: Titan's direct claim against Pirelli for breach of indemnity agreement, and Pirelli's counterclaim against Titan for breach of the same indemnity agreement. Through these claims, each party sought to recover the attorneys' fees and other expenses it incurred as the result of the underlying action. Of the district court's numerous decisions in this complex case, only four remain at issue in this appeal.

At the summary judgment stage, the district court concluded that the unambiguous text of the addendum limited the duration of the letter agreement. Specifically, the district court, applying Illinois law, ruled that the addendum confined Pirelli's obligation to indemnify Titan for tires produced between September 1, 1994 and December 14, 1994. After that date, when the addendum's coverage expired, the default indemnity arrangement formulated in the original manufacturing agreement controlled. Under the district court's interpretation of the addendum, the key fact of each party's indemnity claim against the other was when the tire at issue was made. For Titan to prevail on its claim, Titan had to prove that the tire was made before December 14, 1994. On the other hand, Pirelli had to prove that the tire was made after December 14, 1994. Further, the district court twice ruled that the date the tire was produced was an issue for trial. In the second ruling, the district court explicitly held that the evidence presented by Pirelli did not show when the tire was made and, as a result, that question of fact remained for trial.

The case then proceeded to trial. On the first day of trial, Titan's witness, who was expected to establish the date of production, suddenly backed out of testifying. The witness determined, at the last minute, that he could not testify that the tire was made before December 14, 1994. Absent this testimony, Titan conceded that it could not meet its burden of proving that the tire was made before December 14, 1994. Titan rested its case without presenting any evidence, and the district court granted Pirelli's uncontested motion for judgment as a matter of law on Titan's claim against Pirelli.

The district court then began the trial on Pirelli's counter-claim. At a mid-trial conference on the jury instructions, Titan proposed an instruction requiring Pirelli to prove that the tire in question was manufactured after December 14, 1994. The district court rejected the proposed instruction and further refused to include any instruction regarding the date of production, thereby relieving Pirelli of its burden of proving when the tire was manufactured. The reason behind this on-the-record ruling is not clear. The transcript reveals that the district court, although having made contrary summary judgment rulings, adopted Pirelli's contention that Pirelli did not have the burden of proving when the tire was made. Further, the transcript indicates that the district court treated Titan's concession that it could not prove that the tire was made before December 14, 1994, as an admission that the tire was made after December 14, 1994. The question of when the tire was made was thus dropped from the trial.

As a consequence, to prevail on its counterclaim against Titan, Pirelli only had to prove that the tire was defective as the result of some failure on the part of Titan and that the defect caused the underlying accident. As an additional defense, Titan argued that the doctrine of judicial estoppel precluded Pirelli from claiming that the tire was defective because, in the underlying litigation, Pirelli had taken the exact opposite position, i.e., that the tire was not defective. The district court disagreed, concluding that the doctrine of judicial estoppel was inapplicable because the underlying case settled and, as a result, Pirelli never won a favorable judicial ruling with its prior non-defect position.

Additionally, to prove that the tire was defective and that the defect caused the accident, Pirelli relied upon the deposition testimony of Robert Ochs, the plaintiffs' expert from the underlying litigation. However, Titan moved for discovery sanctions under Federal Rule of Civil Procedure 37(c)(1), requesting that the district court exclude Ochs's testimony from trial because Pirelli failed to properly disclose this opinion evidence under Federal Rule of Civil Procedure 26(a)(2)(A). The district court denied Titan's motion, finding that the discovery violation was harmless for two reasons. First, Titan participated in Ochs's deposition and thus knew the substance of his testimony. Second, Pirelli put Titan on notice of its intent to rely on Ochs's opinion when it responded to Titan's interrogatories in this case.

Ultimately, the jury returned a verdict in favor of Pirelli and awarded $223,625.00 in damages. This amount represents the attorneys' fees and costs incurred by Pirelli as the result of Titan's breach of its contractual obligation to indemnify Pirelli for matters related to the underlying accident. The district court also awarded $36,150.98 in prejudgment interest for a total judgment amount of $259,775.98. Titan appeals.

II.

Titan seeks to overturn that judgment by challenging four key district court decisions: (a) the interpretation of the addendum, (b) the rejection of the proposed jury instruction on the elements of Pirelli's counterclaim, (c) the decision to not judicially estop Pirelli on the defectiveness issue, and (d) the determination that Pirelli's discovery violation was harmless. We will address each in turn.

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