Millenkamp v. Davisco Foods ( 2009 )


Menu:
  •                  FOR PUBLICATION
    UNITED STATES COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    BILL MILLENKAMP; SUSIE                
    MILLENKAMP, husband and wife,
    dba Millenkamp Cattle,
    Plaintiffs-Appellees,
    No. 07-35299
    v.
    DAVISCO FOODS INTERNATIONAL,                 D.C. No.
    CV-03-0439-S-EJL
    INC.,
    Defendant-Appellant,
    and
    CARGILL INCORPORATED,
    Defendant.
    
    BILL MILLENKAMP; SUSIE                
    MILLENKAMP, husband and wife,
    dba Millenkamp Cattle,
    Plaintiffs-Appellants,
    No. 07-35318
    v.
    DAVISCO FOODS INTERNATIONAL,                D.C. No.
    CV-03-00439-EJL
    INC.,
    Defendant-Appellee,            OPINION
    and
    CARGILL INCORPORATED,
    Defendant.
    
    Appeal from the United States District Court
    for the District of Idaho
    Edward J. Lodge, District Judge, Presiding
    4289
    4290             MILLENKAMP v. DAVISCO FOODS
    Argued and Submitted
    September 15, 2008—Moscow, Idaho
    Filed April 14, 2009
    Before: J. Clifford Wallace, Stephen S. Trott and
    N. Randy Smith, Circuit Judges.
    Opinion by Judge N.R. Smith
    4294           MILLENKAMP v. DAVISCO FOODS
    COUNSEL
    Kenneth R. White, MacKenzie & Gustafson. Ltd., St. Peter,
    MN, and Tom Lopez and Lou Piccioni, Lopez & Kelly,
    P.L.L.C., Boise, Idaho, for the defendants-appellants.
    Tom Arkoosh and David Heida, Arkoosh Law Offices, Chtd.,
    Gooding, Idaho, for the plaintiffs-appellees.
    MILLENKAMP v. DAVISCO FOODS               4295
    OPINION
    N.R. SMITH, Circuit Judge:
    Davisco Foods International, Inc. (“Davisco”) here appeals
    from (1) the district court judgment that it breached express
    and implied warranties to Bill and Susie Millenkamp (the
    “Millenkamps”) and (2) the district court’s denial of post-trial
    motions that would relieve Davisco of the judgment. We con-
    clude that the district court erred in admitting evidence and
    giving jury instructions concerning Idaho milk permeate
    labeling laws and also abused its discretion in admitting
    Exhibits 18 and 25. These acts prejudiced Davisco. The dis-
    trict judge should have granted Davisco’s motion for a new
    trial. Accordingly, we reverse the district court’s denial of
    Davisco’s motion for a new trial and remand the case to the
    district court for proceedings consistent with this opinion.
    Because the district court must conduct a new trial, the par-
    ties’ arguments concerning offsets for damages, attorneys’
    fees, and prejudgment interest are moot.
    Facts and Procedural History
    The Millenkamps raise bovine calves in Idaho. Davisco
    operates the “Jerome Cheese Company,” which produces milk
    permeate as a byproduct of its cheese-making operation.
    Because milk permeate is sometimes used as a source of
    dietary energy, protein, and minerals in livestock feeding pro-
    grams, Davisco sells milk permeate to several dairies near
    Jerome, Idaho.
    Given the use of milk permeate in other feeding programs,
    the Millenkamps decided to investigate using it as part of their
    calf feeding operation. They discussed its use in their opera-
    tion with Davisco employee, Steven Ewing. Ewing admits
    that he provided the Millenkamps an analysis sheet that set
    forth the contents of Davisco’s milk permeate and represented
    that it had a pH level of at least 6. The Millenkamps also
    4296                MILLENKAMP v. DAVISCO FOODS
    assert that Ewing told them that (1) he “thought” the milk per-
    meate “would be good to feed” the calves; and (2) it should
    be stored in plastic tanks similar to tanks Ewing observed
    while touring the Millenkamps’ facilities. The Millenkamps
    then consulted nutritionist Matt Schmitt of Cargill, Inc. After
    such investigation, the Millenkamps purchased milk permeate
    from Davisco, stored it in plastic tanks, and, beginning on
    May 25, 2002, incorporated it into the feed for their calves.
    Within days, Bill Millenkamp noticed that several calves
    became sick, so he stopped feeding them milk permeate. Soon
    thereafter, many of the Millenkamps’ calves died or failed to
    gain weight at a desirable rate. On June 3 and 4, 2002, the
    Millenkamps’ veterinarian, Dr. Michael Mihlfried, conducted
    necropsies on three dead calves. He concluded that two of
    them died from rumen acidosis and the third died from a dis-
    ease to which acidosis can predispose calves. Mihlfried pos-
    ited that the Millenkamps stored the milk permeate at an
    improper temperature, which allowed lactose to ferment into
    a harmful lactic acid that caused the calves to fall prey to
    rumen acidosis.
    In October 2004, the Millenkamps filed a Complaint
    against Davisco alleging breach of express warranties, breach
    of the implied warranty of fitness for a particular purpose,
    general negligence, and negligence per se.1 The Millenkamps
    moved for summary judgment on the negligence per se claim;
    Davisco moved for summary judgment on all negligence
    claims. The district court granted summary judgment to
    Davisco, concluding that the Idaho economic loss rule barred
    recovery in negligence, even though Davisco may have been
    negligent per se.
    The Millenkamps and Davisco proceeded to trial on the
    1
    The Millenkamps also asserted a general negligence claim against Car-
    gill, Inc., which Cargill settled. Accordingly, Cargill is not a party to this
    appeal.
    MILLENKAMP v. DAVISCO FOODS                 4297
    Millenkamps’ claims for breach of express warranty and
    breach of implied warranty of fitness for a particular purpose.
    The jury awarded damages to the Millenkamps, finding that
    Davisco breached those warranties. Davisco subsequently
    moved for judgment as a matter of law or, in the alternative,
    a new trial, renewing its in-trial objections to several evidenti-
    ary rulings, the jury instructions, and the sufficiency of the
    evidence. Davisco also asserted that Idaho law required the
    district court to offset the jury’s damages award by the
    amount of the Cargill settlement. The district court denied
    Davisco’s motions and the offset.
    The Millenkamps subsequently filed a motion requesting
    prejudgment interest, costs and attorneys’ fees. The district
    court denied the Millenkamps’ request for prejudgment inter-
    est, but awarded attorneys’ fees. Both parties timely appealed.
    Analysis
    Davisco argues that the district court (A) mishandled the
    issue of Cargill’s involvement by failing to give the jury
    instructions regarding (1) Cargill’s comparative negligence
    and (2) the Millenkamps’ potential responsibility for Cargill’s
    acts under an agency theory. Davisco argues that the district
    court (B) should not have allowed evidence or instructed the
    jury concerning Idaho’s statutory requirement to label milk
    permeate for safe use. Davisco argues that (C) the district
    court (1) made several erroneous evidentiary rulings by
    improperly admitting (a) Dr. Alois Kertz’s expert testimony,
    (b) Exhibit 25, a letter from Davisco responding to the Mil-
    lenkamps’ settlement request, and (c) Exhibit 18, a letter from
    Cargill’s nutritionist to the Millenkamps, and (2) erred by (a)
    rejecting Davisco’s proposed spoliation of evidence jury
    instruction and (b) failing to give the jury a “Time of Deliv-
    ery” jury instruction regarding the Millenkamps’ breach of
    warranty theories. Davisco argues that (D) the district court
    erred by failing to offset the jury’s damages award by the
    amount of the Cargill settlement. Finally, Davisco challenges
    4298             MILLENKAMP v. DAVISCO FOODS
    the district court’s award of attorneys’ fees to the Mil-
    lenkamps. The Millenkamps cross appeal the district court’s
    decision not to award them prejudgment interest.
    A
    Davisco argues that the district court erred by (1) ruling
    that Idaho law did not require instructions regarding Cargill’s
    comparative negligence and (2) failing to instruct the jury that
    the Millenkamps were responsible for Cargill’s acts under
    Idaho agency theory, therefore allowing the jury to compare
    the Millenkamps’ actions to Davisco’s in determining
    whether Davisco breached the contract. We review these
    arguments de novo, because Davisco challenges the district
    court’s interpretation of Idaho law while instructing the jury.
    See Fireman’s Fund Ins. Co. v. Alaskan Pride P’ship, 
    106 F.3d 1465
    , 1469 (9th Cir. 1997). We affirm the district court
    for the reasons set forth below.
    (1)
    Based on the evidence that (a) Cargill’s nutritionist
    designed the feed mixture that was fed to the calves, and (b)
    Bill Millenkamp blamed Cargill for at least some of the
    calves’ problems, Davisco argues that the district court (a)
    should have instructed the jury regarding Cargill’s compara-
    tive negligence, because Cargill was somewhat responsible
    for the Millenkamps’ losses and (b) should have allowed the
    jury to compare the fault of Cargill and Davisco. The district
    court declined a comparative negligence instruction. We
    affirm the district court’s decision.
    [1] Davisco was not entitled to a jury instruction regarding
    Cargill’s comparative negligence, because negligence is not a
    defense to liability for breach of warranty claims in Idaho.
    Idaho courts “allow the defenses of misuse of a product or
    assumption of the risk to reduce or deny a plaintiff’s recovery
    for breach of warranty, but [they] otherwise deny negligence
    MILLENKAMP v. DAVISCO FOODS               4299
    as a defense.” Duff v. Bonner Bldg. Supply, Inc., 
    666 P.2d 650
    , 653 (Idaho 1983) (emphasis added). Davisco relies on
    Vannoy v. Uniroyal Tire Co., 
    726 P.2d 648
     (Idaho 1985), to
    argue that the jury should compare the fault of all parties
    whose conduct may have contributed to the Millenkamps’
    damages. Davisco’s reliance on Vannoy is misplaced, because
    that case involved negligence and strict liability (defective
    design and inadequate warnings), therefore tort claims. See
    Empire Lumber Co. v. Thermal-Dynamic Towers, Inc., 
    971 P.2d 1119
    , 1125 (Idaho 1998) (distinguishing Vannoy and
    holding that an affirmative tort-based defense is not a defense
    to contractual liability).
    [2] Davisco’s argument that “Idaho law will develop to
    require the comparison of fault where a party seeks conse-
    quential damages” is also unpersuasive. Davisco supports its
    argument by citing cases from other jurisdictions and suggest-
    ing that Idaho law will develop similar law. We disagree.
    Idaho law does not provide for affirmative tort-based defenses
    in cases involving contractual liability. See Empire Lumber
    Co., 
    971 P.2d at 1125
    . How Idaho law will “develop” to the
    contrary in the future is both impossible to determine and
    irrelevant to our decision. Accordingly, we affirm the district
    court’s refusal to instruct the jury regarding Cargill’s compar-
    ative negligence.
    (2)
    Davisco argues, in the alternative, that (a) the jury should
    have been instructed that Cargill was the Millenkamps’ agent,
    (b) the Millenkamps were responsible for Cargill’s acts under
    agency theory, and (c) the Millenkamps’ actions therefore
    should have been compared to Davisco’s actions in determin-
    ing whether Davisco breached the agreement. We disagree
    with Davisco’s argument for giving the instruction. To the
    extent the instruction would assist the jury in determining
    Davisco’s liability for breach of contract, it would have been
    error to give it.
    4300               MILLENKAMP v. DAVISCO FOODS
    [3] A principal is responsible for its agent’s tortious acts,
    so long as the agent has acted within the course and scope of
    authority delegated by the principal. Bailey v. Ness, 
    708 P.2d 900
    , 902 (Idaho 1985). This cause of action, however, is
    grounded in breach of contract, not tort. Accordingly, whether
    the Millenkamps’ agent—and by extension, the Millenkamps
    themselves—was at “fault” has no bearing on whether
    Davisco is liable for breach of contract. See Duff, 
    666 P.2d at 653-54
    ; Empire Lumber Co., 
    971 P.2d at 1125
    . Given Idaho
    law, the extent to which Cargill and/or the Millenkamps “mis-
    used” the milk permeate is only relevant to determine whether
    the Millenkamps’ recovery for the breach should be reduced,
    potentially down to zero. The district court’s verdict form and
    instructions 33 and 34 properly provided Davisco with this
    defense. The district court therefore did not err in rejecting
    Davisco’s jury instructions regarding the alleged agency rela-
    tionship.
    B
    Davisco challenges the district court’s (1) instruction to the
    jury that it must consider Idaho’s “legal requirement that the
    milk permeate contain a label” that includes “directions for
    use and precautionary statements” in determining whether
    Davisco breached its warranty to the Millenkamps, and (2)
    admission of Dr. Kertz’s testimony regarding the develop-
    ment of milk permeate labeling requirements. Because
    Davisco asserts that the district court misapplied the law of
    express and implied warranties2 in instructing the jury, we
    review that instruction de novo. See Fireman’s Fund Ins. Co.,
    
    106 F.3d at 1469
    . An erroneous ruling that affects the sub-
    stantial rights of a party is grounds for reversal, unless it affir-
    2
    We only resolve this issue with respect to allegations that Davisco
    breached an express warranty and/or an implied warranty of fitness for a
    particular purpose. Our analysis does not extend to breach of the implied
    warranty of merchantability, because the Millenkamps did not allege that
    Davisco breached this warranty.
    MILLENKAMP v. DAVISCO FOODS                4301
    matively appears from the whole record that it was not
    prejudicial. McCandless v. United States, 
    298 U.S. 342
    , 347-
    48 (1936). This is particularly true of an error in jury instruc-
    tions. Cancellier v. Federated Dept. Stores, 
    672 F.2d 1312
    ,
    1316 (9th Cir. 1982) (citing Fillippon v. Albion Vein Slate
    Co., 
    250 U.S. 76
    , 82 (1919)). Accordingly, if the record indi-
    cates that Davisco was unfairly prejudiced by the district
    court’s instructions, we must reverse and remand the case for
    a new trial. We review the evidentiary ruling for an abuse of
    discretion. See Tritchler v. County of Lake, 
    358 F.3d 1150
    ,
    1155 (9th Cir. 2004).
    (1)
    [4] Title 6 of the Idaho Administrative Procedures Act
    (“IDAPA”) provides for “Rules Pertaining to the Idaho Com-
    mercial Feed Law.” Section 02.06.02.250 of the IDAPA,
    titled “Directions for Use and Precautionary Statements,”
    requires, inter alia, that all commercial feeds must be labeled
    with “[a]dequate directions for use and precautionary state-
    ments for safe and effective use.” IDAPA § 02.06.02.250.03
    (“Idaho’s Milk Permeate Labeling Requirement”). Violations
    of Idaho’s regulatory scheme may result in a “withdrawal
    from sale” order, IDAPA § 02.06.02.600 (Detained Commer-
    cial Feeds), and civil penalties not to exceed $10,000 per vio-
    lation, IDAPA § 02.06.02.900 (Civil Penalties).
    The district court instructed the jury regarding Idaho’s Milk
    Permeate Labeling Requirement and its relationship to the
    Millenkamps’ breach of warranty claims. In effect, the district
    court told the jury that a violation of Idaho’s Milk Permeate
    Labeling Requirement is a basis to find breach of an express
    warranty and/or the implied warranty of fitness for a particu-
    lar purpose. Davisco argues that the district court erred by
    instructing the jury that a violation of Idaho’s Milk Permeate
    Labeling Requirement is a breach of these warranties.
    Davisco is correct.
    4302                MILLENKAMP v. DAVISCO FOODS
    [5] Idaho law recognizes that a state statute may, under cer-
    tain circumstances, create the basis for tort liability and a pri-
    vate cause of action. See Obendorf v. Terra Hug Spray Co.,
    Inc., 
    188 P.3d 834
    , 840 (Idaho 2008) (“It is well established
    that statutes and administrative regulations may define the
    applicable standard of care in a negligence action and that
    violations of such statutes and regulations may constitute neg-
    ligence per se.”). There is no statute or case law, however,
    making the violation of a regulatory or safety statute a breach
    of the express or implied warranty alleged here.3
    [6] In Duffin v. Idaho Crop Imp. Ass’n, 
    895 P.2d 1195
    (Idaho 1995), the Idaho Supreme Court determined that com-
    pliance with regulatory provisions governing potato seed cer-
    tification could not be read into a contract without evidence
    that compliance was a part of the bargain between the parties.
    
    Id. at 1205
    . Using the same reasoning, we conclude that the
    legal requirement to label milk permeate had no bearing on
    the Millenkamps’ breach of express warranty claim, because
    there was no evidence of an express warranty by Davisco that
    the milk permeate would comply with labeling laws.
    [7] As to the implied warranty of fitness claim, the Mil-
    lenkamps argued that Davisco was aware of their intended
    purpose to feed permeate to calves after storing it in unrefrig-
    erated tanks. They also argue it was unfit for that purpose as
    furnished to them. Idaho Code Section 28-2-315 creates an
    implied warranty of fitness for a particular purpose and a
    cause of action against a seller who fails to furnish goods suit-
    able for the intended purpose. However, it does not create a
    cause of action against a seller who fails to comply with all
    applicable statutory labeling requirements. Evidence of label-
    3
    The implied warranty of merchantability requires a merchant to prop-
    erly label the items it sells. 
    Idaho Code § 28
     2-314(2)(e). A failure to label
    under Idaho’s Milk Permeate Labeling Requirement may result in a breach
    of the implied warranty of merchantability, but the Millenkamps did not
    allege a breach of this warranty.
    MILLENKAMP v. DAVISCO FOODS                 4303
    ing practices may be relevant to the extent that a label could
    render a product suitable for a particular purpose by instruct-
    ing an otherwise uninformed buyer as to the product’s proper
    use. The legal requirement to label, however, was irrelevant
    in these circumstances, because it did not affect Davisco’s
    knowledge of the intended use or the fitness of the milk per-
    meate as delivered. Accordingly, compliance with Idaho’s
    Milk Permeate Labeling Requirement does not address
    whether Davisco breached an implied warranty of fitness for
    a particular purpose.
    [8] By instructing the jury that Davisco’s failure to label the
    milk permeate would cause the breach of an express warranty
    or the implied warranty of fitness for a particular purpose, the
    district court erroneously applied Idaho law. Because this
    instruction allowed the jury to improperly find Davisco liable
    for breach of warranties here, Davisco was unfairly preju-
    diced by such instructions. See Cancellier, 
    672 F.2d at 1316
    .
    Accordingly, we reverse the district court with respect to its
    jury instruction regarding Idaho’s Milk Permeate Labeling
    Requirement. We also remand the case to the district court for
    a new trial that should not include any instruction regarding
    Idaho’s Milk Permeate Labeling Requirement and is other-
    wise consistent with the remainder of this opinion.
    (2)
    [9] In addition to instructing the jury regarding Idaho’s
    Milk Permeate Labeling Requirement, the district court
    admitted testimony concerning this same issue from the Mil-
    lenkamps’ expert, Dr. Kertz. He testified that the American
    Feed Control Officials’ model feed law required sellers to
    label milk permeate. Davisco argues that this was an error.
    Because this testimony, like the jury instruction regarding
    Idaho’s Milk Permeate Labeling Requirement, is (1) not rele-
    vant to determine whether Davisco breached the warranties
    alleged here and (2) prejudicial to Davisco, we hold that the
    district court abused its discretion in admitting it. See
    4304             MILLENKAMP v. DAVISCO FOODS
    Tritchler, 
    358 F.3d at 1155
    ; Geurin v. Winston Indus., Inc.,
    
    316 F.3d 879
    , 882 (9th Cir. 2002).
    C
    Davisco also argues that the district court (1) made several
    erroneous evidentiary rulings by improperly admitting (a) Dr.
    Kertz’s expert opinion that the milk permeate likely caused
    the calves’ illness; (b) Exhibit 25, a letter from Davisco
    responding to the Millenkamps’ settlement request; and (c)
    Exhibit 18, a letter from Cargill’s nutritionist to Millenkamp;
    and (2) erred by (a) rejecting Davisco’s proposed spoliation
    of evidence jury instruction and (b) failing to give the jury a
    “Time of Delivery” jury instruction regarding the Mil-
    lenkamps’ breach of warranty theories. We affirm the district
    court with respect to its decisions to allow Dr. Kertz’s testi-
    mony and reject Davisco’s spoliation of evidence and “Time
    of Delivery” jury instructions. We reverse the district court
    with respect to its admissions of Exhibits 25 and 18.
    (1)
    Pursuant to the standards set forth by Daubert v. Merrell
    Dow Pharmaceuticals, Inc., 
    509 U.S. 579
     (1993), and Federal
    Rule of Evidence 702, the district court allowed Dr. Kertz’s
    expert opinion that the milk permeate likely caused the
    calves’ illness. The district court has discretion whether to
    hold a Daubert hearing in determining whether to admit
    expert testimony. See In re Hanford Nuclear Reservation Lit.,
    
    292 F.3d 1124
    , 1138 (9th Cir. 2002). We review the district
    court’s decision to admit Dr. Kertz’s testimony for an abuse
    of discretion. Clausen v. M/V New Carissa, 
    339 F.3d 1049
    ,
    1055 (9th Cir. 2003) (citing Metabolife Int’l, Inc. v. Wornick,
    
    264 F.3d 832
    , 839 (9th Cir. 2001)). We may only reverse the
    district court, if our review leaves us with “a definite and firm
    conviction that the district court committed a clear error of
    judgment in admitting that testimony.” Clausen, 
    339 F.3d at
    1055 (citing SEC v. Coldicutt, 
    258 F.3d 939
    , 941 (9th Cir.
    MILLENKAMP v. DAVISCO FOODS                4305
    2001)). We review the district court’s decisions to admit
    Exhibits 25 and 18 for abuse of discretion. See Tritchler, 
    358 F.3d at 1155
    .
    (a)
    [10] Davisco argues that the district court erred by failing
    to hold a Daubert hearing before admitting Dr. Kertz’s testi-
    mony and that the testimony lacked foundation. We disagree.
    “District courts are not required to hold a Daubert hearing
    before ruling on the admissibility of scientific evidence.” In
    re Hanford Nuclear Reservation Lit., 
    292 F.3d at
    1138 (citing
    United States v. Alatorre, 
    222 F.3d 1098
    , 1102 (9th Cir.
    2000)). Davisco deposed Dr. Kertz. The parties provided the
    district court with briefing on his scientific expertise and pro-
    posed testimony prior to trial. The district court could prop-
    erly determine that this information comprised an adequate
    record from which the court could make its ruling. See Oddi
    v. Ford Motor Co., 
    234 F.3d 136
    , 154 (3d Cir. 2000) (decid-
    ing no abuse of discretion for failure to hold an evidentiary
    hearing when district court had depositions and affidavits of
    plaintiffs’ experts). In addition, Dr. Kertz testified as to his
    credentials, prior to the district court’s ruling on the admissi-
    bility of his opinion. Accordingly, we conclude that the dis-
    trict court conducted an adequate inquiry before admitting Dr.
    Kertz’s testimony (despite not conducting a separate Daubert
    hearing).
    [11] Moreover, Dr. Kertz’s scientific testimony was admis-
    sible, because it was supported by a sufficient foundation. He
    arrived at his conclusions using scientific methods and proce-
    dures. Those conclusions were not mere subjective beliefs or
    unsupported speculation. See Claar v. Burlington N. R.R. Co.,
    
    29 F.3d 499
    , 502 (9th Cir. 1994). The Millenkamps’ veteri-
    narian, Dr. Mihlfried, had previously identified rumen acido-
    sis as the likely cause of death in the calves he had examined.
    Dr. Kertz provided foundational testimony as to his back-
    ground in calf nutrition and knowledge of acidosis, including
    4306             MILLENKAMP v. DAVISCO FOODS
    several peer reviewed publications. Dr. Kertz testified also
    that he analyzed the Millenkamps’ feed mixture with the
    “Young Calf Model”—a peer reviewed computer program for
    evaluating a feed mixture. Dr. Kertz was not required to
    address all possible causes of the calves’ illness with “differ-
    ential diagnosis methodology.” See Clausen, 
    339 F.3d at 1057
    . Dr. Kertz did not purport to employ differential diagno-
    sis, and Clausen does not preclude the use of all other meth-
    ods to determine the cause of an illness. See 
    id. at 1057-61
    .
    Accordingly, the district court did not abuse its discretion in
    admitting this expert testimony.
    (b)
    Exhibit 25 is a letter from Davisco responding to the Mil-
    lenkamps’ request for a $500,000 settlement prior to suit. We
    must determine whether the district court’s decision to admit
    the letter was an abuse of discretion. See Tritchler, 
    358 F.3d at 1155
    . The district court admitted Exhibit 25 over Davisco’s
    objection that it was irrelevant and part of settlement negotia-
    tions. See Fed. R. Evid. 401, 403 & 408. We conclude that the
    district court should not have admitted Exhibit 25.
    [12] Rule 408 bars the admission of settlement negotiations
    offered to prove liability. However, it does not require exclu-
    sion when the evidence is offered for another purpose. Fed. R.
    Evid. 408(b). See also Brocklesby v. United States, 
    767 F.2d 1288
    , 1292 (9th Cir. 1985). Exhibit 25 may be settlement cor-
    respondence showing liability, but it is not admissible for that
    purpose. Exhibit 25 was not relevant for any admissible pur-
    pose and should not have been admitted.
    [13] Relevant evidence is “evidence having any tendency
    to make the existence of any fact that is of consequence to the
    determination of the action more probable or less probable
    than it would be without the evidence.” Fed. R. Evid. 401. We
    conclude that Exhibit 25 has no tendency to make any fact
    that is of consequence to the determination of the Mil-
    MILLENKAMP v. DAVISCO FOODS                4307
    lenkamps’ breach of warranty claims any more or less proba-
    ble than it would be without the letter. Additionally, even if
    Exhibit 25 were of limited relevance, it should be “excluded
    if its probative value is substantially outweighed by the dan-
    ger of unfair prejudice. . . .” Fed. R. Evid. 403. Davisco wrote
    the letter after the Millenkamps informed it of the problems
    they had with the milk permeate. Thus, the Millenkamps
    argue that it has probative value as to Davisco’s knowledge
    of the Millenkamps’ intended use of the milk permeate at the
    time of sale. However, the prejudicial effect of the threat in
    Exhibit 25 to “aggressively pursue remedies” against the Mil-
    lenkamps (should they file suit against Davisco) substantially
    outweighed any potential limited relevance. Accordingly,
    Exhibit 25 should not have been admitted, and on remand
    should not be admitted in the course of a new trial.
    (c)
    Exhibit 18 is a letter from Cargill’s nutritionist, Matt
    Schmitt, to Bill Millenkamp, discussing the cause of the Mil-
    lenkamps’ calves’ illnesses. The district court admitted
    Exhibit 18 over Davisco’s objection that it was hearsay. The
    court held that the letter was a Rule 803(6) business record
    hearsay exception. See Fed. R. Evid. 803(6). We conclude
    that this evidentiary ruling was an abuse of discretion. See
    Tritchler, 
    358 F.3d at 1155
    .
    [14] In order to be admissible under Rule 803(6), a docu-
    ment must have been “made at or near the time” of the events
    it records or describes, “by, or from information transmitted
    by, a person with knowledge” of those events, “kept in the
    course of a regularly conducted business activity,” and part of
    a business’s “regular practice.” Fed R. Evid. 803(6). Exhibit
    18 fails to meet the requirements of Rule 803(6) for admis-
    sion. It was not generated in the ordinary course of Davisco’s
    business, nor kept in the course of the regularly conducted
    business activity. Instead, Exhibit 18 appears to have been
    generated in anticipation of litigation, rather than as part of a
    4308             MILLENKAMP v. DAVISCO FOODS
    regular business practice. It places the blame for the calves’
    illness on Davisco. Moreover, there is no testimony from the
    letter’s author nor other evidence that Exhibit 18 would have
    been generated, but for the Millenkamps’ request. See, e.g.,
    Latman v. Burdette, 
    366 F.3d 774
    , 787 (9th Cir. 2004) (bank
    records not admissible where no evidence was offered that
    they were generated as part of a bank’s “regularly conducted
    activity”). Accordingly, we reverse the district court with
    respect to its admission of Exhibit 18.
    (2)
    Davisco also argues that the district court erred by (a)
    rejecting Davisco’s proposed spoliation of evidence jury
    instruction and (b) failing to give the jury a “Time of Deliv-
    ery” jury instruction. We review the district court’s decision
    not to provide a spoliation instruction for an abuse of discre-
    tion, see Transue v. Aesthetech Corp., 
    341 F.3d 911
    , 920-21
    (9th Cir. 2003). Because Davisco asserts that the court mis-
    stated the law when denying its “Time of Delivery” instruc-
    tion, we review that question de novo, see Fireman’s Fund
    Ins. Co., 
    106 F.3d at 1469
    .
    (a)
    At the trial’s conclusion, Davisco sought a jury instruction
    that would have allowed the jury to draw adverse inferences
    from the Millenkamps’ alleged failure to retain evidence.
    Davisco argues that the Millenkamps failed to preserve (1)
    evidence of tissue samples collected as part of necropsies, (2)
    the feed provided to the Millenkamps’ calves, (3) the milk
    permeate as of the time of the incidents, and (4) other relevant
    evidence. Davisco argues further that, had the district court
    instructed the jury regarding spoliation, it “may well have
    provided different responses to the liability interrogatories.”
    We disagree.
    [15] The adverse inference a jury may draw from the
    destruction of evidence is “based on two rationales, one evi-
    MILLENKAMP v. DAVISCO FOODS               4309
    dentiary and one not.” Akiona v. United States, 
    938 F.2d 158
    ,
    161 (9th Cir. 1991). “The evidentiary rationale is nothing
    more than the common sense observation that a party who has
    notice that a document is relevant to litigation and who pro-
    ceeds to destroy the document is more likely to have been
    threatened by the document than is a party in the same posi-
    tion who does not destroy” it. 
    Id.
     The second rationale has to
    do with “its prophylactic and punitive effects”—“[a]llowing
    the trier of fact to draw an adverse inference presumably
    deters parties from destroying relevant evidence before it can
    be introduced at trial.” 
    Id.
     Allowing Davisco’s jury instruction
    serves neither rationale.
    [16] Both rationales presume that the evidence-destroying
    party knew of impending litigation that would render the evi-
    dence relevant. Yet there is no evidence in the record to indi-
    cate that the Millenkamps knew that litigation would be
    forthcoming when they allowed the evidence to spoil. The
    Millenkamps’ attorney apparently wrote Davisco a letter con-
    templating litigation on October 29, 2002, but Mihlfried con-
    ducted the necropsies on June 3 and 4, 2002—nearly five
    months prior to the letter. The evidence had likely deterio-
    rated or been discarded by the time that the Millenkamps
    determined legal action was appropriate. Accordingly, the
    benefits of allowing the jury to draw negative inferences from
    the spoliation of evidence—that the destroyed evidence was
    likely damaging to the party’s case—would not be realized by
    Davisco’s proposed instruction. 
    Id.
    [17] Similarly, providing the jury a spoliation instruction
    would not serve the deterrence rationale in these circum-
    stances. Under this rationale, “[a] party should only be penal-
    ized for destroying documents if it was wrong to do so, and
    that requires, at a minimum, some notice that the documents
    are potentially relevant.” 
    Id.
     Because it was not “wrong” to
    allow the evidence to spoil nearly five months before Davisco
    could show that the Millenkamps contemplated any litigious
    4310             MILLENKAMP v. DAVISCO FOODS
    intent, we conclude that the district court did not abuse its dis-
    cretion in rejecting Davisco’s proposed instruction.
    (b)
    Davisco challenges the district court’s failure to instruct the
    jury that “the express warranty could only apply to future per-
    formance if explicitly stated.” Because Davisco asserts that
    the district court misapplied the law in instructing the jury, we
    review that instruction de novo. See Fireman’s Fund Ins. Co.,
    
    106 F.3d at 1469
    . In these circumstances, we affirm the dis-
    trict court.
    [18] Davisco’s argument with regard to breach of express
    warranty is waived under the Ninth Circuit’s strict interpreta-
    tion of Federal Rule of Civil Procedure 51. See Voohries-
    Larson v. Cessna Aircraft Co., 
    241 F.3d 707
    , 713-15 (9th Cir.
    2001). Because Davisco did not advocate for any “Time of
    Delivery” instruction at trial, and only included a “Time of
    Delivery” instruction in its proposed jury instructions on
    breach of implied warranty, we conclude that Davisco cannot
    now assert a deficiency in the express warranty instructions.
    [19] Further, the district court should not have given a
    “Time of Delivery” instruction as to these breach of express
    or implied warranty claims. Under Idaho law, an implied war-
    ranty may be breached by a latent defect that could not have
    been discovered during an inspection at delivery. Whitehouse
    v. Lange, 
    910 P.2d 801
    , 807 (Idaho Ct. App. 1996). Idaho
    Code Section 28-2-725(2) expressly states that, “where a war-
    ranty explicitly extends to future performance of the goods,”
    the breach occurs at the time of such performance. While a
    buyer must inspect its contracted-for goods at the time of
    delivery to find patent defects, that same buyer is allowed a
    reasonable time after inspecting and accepting the goods to
    discover latent defects. 
    Idaho Code § 28-2-608
    . Here, the Mil-
    lenkamps allege a breach due to a latent defect in milk
    permeate—its propensity to turn acidic and thus harmful to
    MILLENKAMP v. DAVISCO FOODS                4311
    calves if not refrigerated. Accordingly, the defect could not
    have been found on inspection at delivery. The district court
    therefore did not misstate Idaho law by omitting the proposed
    “Time of Delivery” jury instructions.
    D
    Davisco challenges the district court’s denial of its request
    for an offset of the jury’s damages award by the amount of
    Cargill’s settlement under 
    Idaho Code § 6-1606
     and the dis-
    trict court’s award of attorneys’ fees to the Millenkamps. The
    Millenkamps cross-appeal, arguing that the district court
    should have awarded them pre-judgment interest. Because (1)
    we conclude that the district court erred in instructing the jury
    regarding Idaho’s Milk Permeate Labeling Law and in admit-
    ting Exhibits 25 and 18, and (2) we conclude that these errors
    unfairly prejudiced Davisco, we reverse the district court and
    remand this case for a new trial. Accordingly, all issues on
    appeal that relate to the damages award, fees, and prejudg-
    ment interest are moot, because they are predicated upon the
    jury’s conclusions that Davisco was liable for the Mil-
    lenkamps’ damages.
    AFFIRMED in part, REVERSED in part, and
    REMANDED. Each party shall bear its own costs on appeal.
    

Document Info

Docket Number: 07-35299

Filed Date: 4/14/2009

Precedential Status: Precedential

Modified Date: 10/14/2015

Authorities (25)

securities-and-exchange-commission-v-elizabeth-l-coldicutt-and-edpof , 258 F.3d 939 ( 2001 )

Daubert v. Merrell Dow Pharmaceuticals, Inc. , 113 S. Ct. 2786 ( 1993 )

richard-k-latman-bettina-l-latman-v-virginia-burdette-trustee-and , 366 F.3d 774 ( 2004 )

United States v. Jorge Alberto Alatorre , 222 F.3d 1098 ( 2000 )

McCandless v. United States , 56 S. Ct. 764 ( 1936 )

Fillippon v. Albion Vein Slate Co. , 39 S. Ct. 435 ( 1919 )

Whitehouse v. Lange , 128 Idaho 129 ( 1996 )

Carrie Tritchler v. The County of Lake, the Superior Court ... , 358 F.3d 1150 ( 2004 )

Barbara A. Brocklesby v. United States of America, and ... , 767 F.2d 1288 ( 1985 )

Duff v. Bonner Building Supply, Inc. , 105 Idaho 123 ( 1983 )

aaron-k-akiona-adam-baker-bonnie-baker-edward-w-moore-iii-v-united , 938 F.2d 158 ( 1991 )

linda-n-voohries-larson-surviving-mother-of-torrence-justin-voohries , 241 F.3d 707 ( 2001 )

h-jerome-claar-ben-mar-maynard-young-donald-doll-v-burlington-northern , 29 F.3d 499 ( 1994 )

firemans-fund-insurance-companies-switzerland-general-insurance-company , 106 F.3d 1465 ( 1997 )

metabolife-international-inc-a-california-corporation-v-susan-wornick , 264 F.3d 832 ( 2001 )

Obendorf v. Terra Hug Spray Co., Inc. , 145 Idaho 892 ( 2008 )

philip-d-cancellier-john-w-costello-and-zelma-smith-ritter , 672 F.2d 1312 ( 1982 )

Duffin v. Idaho Crop Improvement Ass'n , 126 Idaho 1002 ( 1995 )

max-clausen-dba-clausen-oysters-lilli-clausen-dba-clausen-oysters-v-mv , 339 F.3d 1049 ( 2003 )

Empire Lumber Co. v. Thermal-Dynamic Towers, Inc. , 132 Idaho 295 ( 1998 )

View All Authorities »