Ryan Dev. Co. v. Ind. Lumbermens Mut. Ins. Co.

• Decision Date: 27 March 2013
• Docket Number: No. 11–3356.,11–3356.
• Citation: 711 F.3d 1165
• Parties: RYAN DEVELOPMENT COMPANY, L.C., d/b/a Agriboard Industries, Plaintiff–Appellee, v. INDIANA LUMBERMENS MUTUAL INSURANCE COMPANY, Defendant–Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

711 F.3d 1165

RYAN DEVELOPMENT COMPANY, L.C., d/b/a Agriboard Industries, Plaintiff–Appellee,

v.INDIANA LUMBERMENS MUTUAL INSURANCE COMPANY, Defendant–Appellant.

No. 11–3356.

United States Court of Appeals,Tenth Circuit.

March 27, 2013.

Kevin McMaster (and Jennifer M. Hill of McDonald, Tinker, Skaer, Quinn & Herrington, P.A., on the brief), Wichita, KS, for Defendant–Appellant.

Randall Rathbun of Depew, Gillen, Rathbun & McInteer, L.C., Wichita, KS, for Plaintiff–Appellee.

Before KELLY, HOLLOWAY, and MATHESON, Circuit Judges.

KELLY, Circuit Judge.

Defendant–Appellant Indiana Lumbermens Mutual Insurance Company (ILM) appeals from the district court's denial of its motion for judgment as a matter of law, or in the alternative, for a new trial following a $2,261,166 jury verdict in favor of Plaintiff–Appellee Ryan Development Company, L.C., d/b/a Agriboard Industries (Agriboard). Ryan Dev. Co. v. Ind. Lumbermens Mut. Ins. Co., No. 09–1264–EFM, 2011 WL 5080309, at *6 (D.Kan. Oct. 25, 2011). Agriboard sued ILM for breach of an insurance contract. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

Background

This case arose from a fire that destroyed a Texas manufacturing facility in April 2009. Aplt. App. 163–64. The owner of the facility, Agriboard, manufactured building panels made of compressed straw. Id. at 167. At the time of the fire, Agriboard was insured under a fire and related losses insurance policy issued by ILM with various coverages including lost income. Id. at 1025, 1063. By May 2009, ILM had paid $450,000; Agriboard filed suit and thereafter ILM paid $1.8 million. Id. at 47. Agriboard continued to seek recovery under the policy, but ILM refused to pay the amount requested and Agriboard re-filed suit, seeking $2.4 million in unpaid coverages. Id. at 80–81.

Agriboard began as a struggling start-up company in Electra, Texas. Id. at 167–68. In 1998, Ron Ryan, the owner of a successful airline, learned of Agriboard's operations and decided to invest in the business. Id. at 237. Mr. Ryan took an increasingly active role in the company, and by 2001, had purchased at auction all of Agriboard's hard assets. Id. at 238. He quickly learned that Agriboard's production process was flawed and that its product was uncertified. Id. at 238–39. Mr. Ryan rebuilt the production process, and in 2005, obtained the necessary certifications. Id. at 239–40. He also solicited two former airline executives to run Agriboard's operations, and through their efforts, Agriboard constructed several buildings in Wichita, Kansas. Id. at 239, 242.

Mr. Ryan soon hired Mike Huskey, a “top-quality manufacturing guru,” to further refine Agriboard's operations. Id. at 244. Mr. Huskey cut waste from the manufacturing process, improved product quality, expedited production, and reduced price. Id. at 245. In 2009, Agriboard temporarily suspended operations in order to rebuild and meet the increasing demand for its product. Id. at 246. On April 9, 2009, however, a fire swept through the property and destroyed the facility. Id. at 248.

Agriboard sought recovery under its insurance policy, soliciting help from Mr. Ryan's long-time accounting firm, Larson & Company, P.A. Id. at 250–51. Derry Larson, principal of the firm, delegated the work to certified public accountants Stephanie Williams and Karl Rump, both of whom were familiar with Agriboard's business. Id. at 310. Ms. Williams, who had handled Agriboard's tax returns and books, calculated the claim for lost income, and Mr. Rump calculated all claims relating to tangible personal property. Id. Both accountants timely submitted proofs of loss to ILM. Id. at 312.

To calculate lost income, Ms. Williams followed ILM's formula. Based on historical data and estimates, she provided amounts—e.g., projected sales for 2009 ($7,120,000), the cost of goods sold on what it would cost to make the product (49.7%), payroll costs, the restoration period (9 months), and extra expenses—and calculated that Agriboard had $2.4 million in total earnings exposure. Id. at 319–22. The policy limit for lost income was $2.2 million, and at the time of trial, ILM had paid only $400,000. Id. at 92. Thus, Agriboard sought the remaining $1.8 million. Id. at 327. Mr. Rump also complied with ILM's request to document Agriboard's physical losses. Id. at 477. He reviewed Agriboard's general ledger and invoices, and spoke with individuals who claimed losses. Id. at 485. He submitted proofs of loss, but again, ILM refused to make complete payment. Id. at 488–89. Thereafter, Agriboard filed suit.

Prior to trial, ILM filed a motion in limine to exclude expert testimony from Mr. Larson, Ms. Williams, and Mr. Rump because Agriboard had failed to designate any expert witnesses as required under Rule 26. Id. at 14–20; seeFed.R.Civ.P. 26(a)(2)(c). The trial court agreed the accountants could not provide expert testimony but doubted the testimony was expert in nature:

I agree with defense that ... the hallmark of expert testimony is opinion testimony. It doesn't sound to me like that's what [Agriboard] intends to have [its] accountants testify to, so as I understand what they're going to testify to, I don't think that's 702 expert testimony. I think it's 701 perception testimony, even to the extent that perception or facts perception is based in their specialized knowledge of accountancy.

So I agree they can't give expert opinions. If they're just testifying as based on their role as the accountants for the plaintiff as to their completion of these forms and where those numbers came from, I think they're entitled to do that. It doesn't sound to me like defendant necessarily disputes that. So I'm granting your motion, but I'm not sure it limits the testimony that I understand [Agriboard] intends to solicit from those accountants.

Aplt. App. 939–44. The three accountants testified at trial, and ILM objected on the basis that they offered expert testimony. Id. at 308–09, 542–44.

At the close of Agriboard's case-in-chief, ILM moved for judgment as a matter of law on the ground that the evidence was insufficient to proceed. Id. at 563–71. ILM renewed its expert testimony objection as well. Id. at 566–69, 576–78. ILM admitted, however, that it had not deposed Ms. Williams or Mr. Rump prior to trial. Id. at 567. The trial court denied the motion and “reaffirm[ed] [its] ruling that the[ ] testimony was not expert testimony but was appropriately admitted in this case.” Id. at 586. ILM then called two witnesses to testify—Steven J. Meils, a forensic accountant, and Randall Thompson, ILM's claims specialist. Id. at 590–628, 680–725.

At the close of evidence, the trial court conferred with the parties about the proposed jury instructions. Id. at 744. ILM objected to Instructions 12 and 13 ¹ as confusing and inappropriate because they went beyond the scope of the evidence. Id. at 755–57. The trial court disagreed, finding sufficient testimony for both instructions. Id. at 757–60. ILM also renewed its motion for judgment as a matter of law, which the trial court denied. Id. at 791–92.

In closing, counsel for Agriboard referenced the Texas endorsement appended to the insurance policy. The endorsement provided, in part, that “[a] fire insurance policy, in case of a total loss by fire of property insured, shall be held and considered to be a liquidated demand against the company for the full amount of such policy. The provisions of this article shall not apply to personal property.” Id. at 1108. Counsel explained:

What does that mean? That means that any of our claims that weren't personal property, such as the loss of income, which is not a personal property claim, immediately, under Texas law, which became a part of this policy, it was considered a liquidated demand for the entire amount of the policy limits.

So they didn't even have to do anything at that point. All they had to do was make a demand for the entire policy limits on the income coverage, and they didn't have to do anything at that point. But, of course, there's a whole notebook full of things they did.

Id. at 799–800. ILM did not contemporaneously object to these remarks.

When ILM closed, ILM's counsel questioned Agriboard's decision not to call ILM's corporate counsel, Jack McInteer, as a witness. Id. at 823–24. In rebuttal, counsel for Agriboard stated that ILM had listed Mr. McInteer as a witness. Id. at 831. ILM objected that this information was inadmissible, and the trial court sustained the objection. Id. Agriboard then suggested that ILM had not called Mr. McInteer because his testimony was damaging. Id. at 832.

The jury awarded Agriboard $2,261,166 for breach of contract as part of a general verdict. Id. at 123. ILM renewed its motion for judgment as a matter of law, or in the alternative, for a new trial, asserting four grounds for relief: (1) prejudicial remarks in Agriboard's closing arguments; (2) confusing and inappropriate jury instructions; (3) inadmissible expert testimony; and (4) a verdict unsupported by the evidence. Ryan, 2011 WL 5080309, at *1–6. The trial court denied the motion. Id. at *6. ILM timely appealed.

Discussion

Before the trial court, ILM moved for judgment as a matter of law, or in the alternative, for a new trial. On appeal, ILM omits its request for judgment as a matter of law. See Aplt. Br. 15–16. We thus limit our review to the issue of a new trial, and we review the trial court's decision for abuse of discretion, M.D. Mark, Inc. v. Kerr–McGee Corp., 565 F.3d 753, 762 (10th Cir.2009). We will reverse “only if the trial court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances.” Minshall v. McGraw Hill Broad. Co., 323 F.3d 1273, 1283 (10th Cir.2003). We address the issues raised in turn.

A. Expert Testimony

ILM first argues that a new trial is warranted because Agriboard's accountants offered expert testimony after the trial court ruled in limine that such testimony was...