Venture Industries Corp. v. Autoliv ASP, Inc.

Error: Bad annotation destination
United States Court of Appeals for the Federal Circuit
05-1537
VENTURE INDUSTRIES CORPORATION, VEMCO, INC.,
PATENT HOLDING COMPANY, and LARRY J. WINGET,
Plaintiffs-Appellees,
v.
AUTOLIV ASP, INC. (successor to Morton International, Inc.),
Defendant-Appellant,
and
AUTOLIV, INCORPORATED,
Defendant.
John E. Anding, Drew, Cooper & Anding, of Grand Rapids, Michigan, argued for
plaintiffs-appellees. With him on the brief was Thomas V. Hubbard. Of counsel on the
brief was Richard W. McLaren, Jr., Welsh & Katz, Ltd., of Chicago, Illinois.
Peter G. Greene, Skadden, Arps, Slate, Meagher & Flom LLP, of New York, New
York, argued for defendant-appellant. With him on the brief was Cyrus Amir-Mokri. Of
counsel on the brief was William H. Horton, Cox, Hodgman & Giarmarco, P.C., of Troy,
Michigan.
Appealed from: United States District Court for the Eastern District of Michigan
Senior Judge Avern Cohn
United States Court of Appeals for the Federal Circuit
05-1537
VENTURE INDUSTRIES CORPORATION, VEMCO, INC.,
PATENT HOLDING COMPANY, and LARRY J. WINGET,
Plaintiffs-Appellees,
v.
AUTOLIV ASP, INC. (successor to Morton International, Inc.),
Defendant-Appellant,
and
AUTOLIV, INCORPORATED,
Defendant.
___________________________
DECIDED: August 7, 2006
___________________________
Before LINN, DYK, and PROST, Circuit Judges.
DYK, Circuit Judge.
Autoliv ASP, Inc. (“Autoliv”) appeals the decision of the United States District
Court for the Eastern District of Michigan denying Autoliv’s motion for relief from
judgment in favor of Venture Industries Corp., Vemco, Inc., Patent Holding Co., and
Larry J. Winget (collectively “Venture”), pursuant to Federal Rule of Civil Procedure 60,
sections (b)(2) and (b)(3). Venture Indus. Corp. v. Autoliv ASP, Inc., No. 99-75354
(E.D. Mich. July 15, 2005) (Judge Avern Cohn).1 We conclude that the district court did
not err in denying Autoliv’s request under Rule 60(b)(2), but that the district court erred
in failing to address whether Venture’s use at trial of financial statements containing
false information constituted “fraud, misrepresentation, or other misconduct” warranting
relief under Rule 60(b)(3). Accordingly, we affirm in part, vacate in part, and remand.
BACKGROUND
This appeal presents the issue of whether the use of falsified information in
financial statements by Venture’s damages expert at trial entitles Autoliv to relief from
judgment under either Rule 60(b)(2) or 60(b)(3) of the Federal Rules of Civil Procedure.
As part of the 1995 settlement of a patent dispute between Venture and Autoliv,
Venture and Autoliv executed a supply agreement.2 Under the supply agreement,
Autoliv was obligated to purchase airbag covers from Venture so long as Venture was
capable of filling the order and Venture’s bids were “reasonably competitive” with the
bids of other suppliers. In the period after 1995, Autoliv purchased some covers from
Venture, but also acquired covers from other sources.
On November 3, 1999, Venture filed suit against Autoliv alleging that Autoliv
breached the supply agreement with respect to 38 airbag cover projects either by not
allowing Venture to bid on the projects or by rejecting Venture’s reasonably competitive
bids. Venture’s complaint also stated several patent law claims, including claims for
1
On August 4, 2005, the district court issued an opinion explaining its
reasons for denying Autoliv’s Rule 60(b) motion. Venture Indus. Corp. v. Autoliv ASP,
Inc., No. 99-75354 (E.D. Mich. Aug. 4, 2005) (“Rule 60(b) Opinion”).
2
The supply agreement and two other agreements that were part of the
settlement were executed by Venture and Morton International, Inc. (Autoliv ASP’s
predecessor in interest). Morton was acquired by and merged into Autoliv ASP in 1997.
For convenience, we refer to both Morton International, Inc. and Autoliv ASP as
“Autoliv.”
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correction of inventorship, declaratory judgment of unenforceability of patents Autoliv
claimed to own, and declaratory judgment of infringement of patents Venture claimed to
own. These claims were stayed by the district court pending the outcome of arbitration
of these claims as required by a cross-license agreement, also executed as part of the
settlement of the 1995 litigation. Other claims relating to the supply agreement were
either stayed by stipulation of the parties or voluntarily dismissed.3 Discovery and other
pretrial proceedings took place for the next several years.
Discovery proved to be contentious. For this reason, on March 5, 2002, the
district court appointed a Special Master to oversee discovery. On November 14, 2002,
Autoliv submitted to Venture the following request for production of documents:
Please produce each and every one of Venture’s monthly, quarterly, and
annual internal and external financial statements for the years 1995 to the
present, whether reviewed, compiled or audited, and all documents relied
upon, referred to, consulted or generated in preparing such statements,
including your general ledgers, subsidiary ledgers, accounts payable and
receivable ledgers, trial balances, accountants’ work papers, bank
statements, check registers and bank records. The term financial
statements shall include, but is not limited to your balance sheets, income
statements, profit and loss statements, cash flow statements, statements
of net worth, statements of retained earnings and all notes to such
financial statements.
J.A. at 648. Autoliv also requested financial information regarding the relationship
between Venture and its subsidiaries. Venture responded that these requests “lack[ed]
foundation in that Defendants have never contended Plaintiffs’ financial condition was
the basis for withholding the award of any program.” J.A. at 668. Unsatisfied, Autoliv
3
The other claims related to the supply agreement were for fraudulent
inducement and misrepresentation, termination and cancellation of contract, accounting,
unjust enrichment, and unfair competition. Venture also asserted claims for fraudulent
inducement of the settlement of the 1995 litigation and misappropriation of trade
secrets.
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filed a motion to compel further responses on January 27, 2003. On March 10, 2003,
the Special Master denied Autoliv’s motion, concluding that “[r]equests for financial
information in this lawsuit are appropriate, but these requests are overbroad.” Rule
60(b) Opinion, slip op. at 6 (quoting Special Master report and recommendation).
On April 9, 2003, Autoliv, seeking additional financial information, filed a motion
to compel the depositions of representatives of Venture and two of its subsidiaries
pursuant to Rule 30(b)(6) of the Federal Rules of Civil Procedure. On September 23,
2003, the district court orally denied Autoliv’s motion, concluding that “[a]ll of [Venture’s]
financial statements, its annual statements and its quarterly statements and its monthly
statements should be produced,” but that Autoliv’s proposed deposition topic (“the basis
for [the deponent’s] contention that Venture’s bid on each [project] would have been
reasonably competitive with those quotes submitted by others”) was “actually asking for
Venture’s position in the litigation.” Id. at 6-7. The district court explained: “I prefer to
wait until the final pretrial statement is prepared and we see which witnesses Venture is
going to offer and the nature of their testimony . . . and then if there’s some basis for
asking that because you don’t already have that, that’s okay . . . .” Id. at 7.
Autoliv did not challenge or seek reconsideration of either the Special Master’s or
the district court’s discovery rulings. Autoliv also did not submit further requests for the
documents or alert the district court to any further problems with the discovery of
Venture’s financial information.
On November 4, 2003, trial began in Venture’s action against Autoliv for breach
of the Supply Agreement. Venture’s expert witness on damages at trial was Aron
Levko. To calculate Venture’s damages, Levko relied on financial information from a
05-1537 4
manufacturing facility in Grand Blanc, Michigan, operated by a Venture subsidiary,
Vemco, Inc., which would have produced the airbag covers for the projects awarded to
Venture under the supply agreement with Autoliv. Levko utilized Venture’s actual bids,
some third party bids, and two independent production cost studies commissioned by
Venture in 1997 and 1998. The cost estimates in the bids on which Levko relied did not
separate variable costs (e.g., the costs of material and labor) from fixed costs (e.g.,
general overhead). Levko needed to separate fixed from variable costs for two reasons:
(1) In addition to claiming lost profits, Venture claimed the right to recover the fixed
costs attributable to the contracts; and (2) Levko needed to assign the correct amount of
variable costs to the hypothetical bids he constructed for programs where no bid was
submitted. To do this, Levko used the ratio of fixed to variable costs reflected in Grand
Blanc’s plant-wide financial statements.
In order to compute the material cost component of the variable costs, Levko
needed to calculate the amount of the purchased raw material that would become
unusable scrap. To verify the accuracy of the material (scrap) costs reflected in the
bids, Levko compared the scrap rate reflected in the bids (15 percent), against the scrap
rate discernable from actual production data (approximately 11 percent), and the scrap
rate reflected in Grand Blanc’s plant-wide financial statements (12.4 percent). To be
conservative, Levko used the bid scrap rate of 15 percent in his calculations. Based on
the bid data, Levko calculated a contribution margin of 25 percent.
On December 4, 2003, the jury found that Autoliv had breached the supply
agreement and awarded Venture $27,576,001 in damages. The district court entered
05-1537 5
final judgment against Autoliv in the amount of the jury’s verdict on January 20, 2004,
pursuant to Rule 54(b) of the Federal Rules of Civil Procedure.
During the discovery period, Venture filed for reorganization under the
Bankruptcy Code. The bankruptcy court appointed Doeren Mayhew & Company, P.C.
(“Doeren Mayhew”), a forensic accounting firm, to investigate certain aspects of
Venture’s financial condition, including “inter-company, shareholder and related party
transactions.” Rule 60(b) Opinion, slip op. at 3.4
After the entry of final judgment in this case, on March 10, 2004, Doeren Mayhew
issued a report stating that “Venture had suffered multi-million dollar damages as a
result of fraudulent related party transactions.” Rule 60(b) Opinion, slip op. at 3-4. This
conclusion called into question the representations in Venture’s firm-wide financial
statements.
On March 25, 2004, Doeren Mayhew issued a second report concerning the
results of its “preliminary investigation of potential accounting irregularities.” J.A. at 583.
The report focused on Vemco and the Grand Blanc facility.5 As noted, the books and
records of that facility had been used by Venture’s damages expert at trial. Doeren
4
The scope of Doeren Mayhew’s initial investigation included (1)
investigating “related party transactions that have taken place with Venture for the six-
year period, March 29, 1997 through March 28, 2003 . . . . to determine whether the
transaction was considered on no less favorable terms to the Debtor than would be
obtained if such transaction were an ‘arms-length’ transaction with a non-affiliated
entity[,]” J.A. at 185; and (2) reviewing and identifying “preferential transfers to insiders
or affiliated companies as defined by Code Section 547(b) of the United States
Bankruptcy Code” during the twelve-month period preceding Venture’s date of
insolvency, May 28, 2002. J.A. at 187.
5
Doeren Mayhew undertook this investigation after it was “notified in early
March 2004 regarding potential accounting irregularities discovered by Venture’s
management at the company’s Grand Blanc facility.” J.A. at 583. The scope of the
investigation was limited to the Grand Blanc facility’s internal financial information.
05-1537 6
Mayhew discovered “questionable accounting procedures and practices,” a “[l]ack of
proper accounting controls,” and “potential accounting irregularities” and “errors,” and
concluded (1) that Grand Blanc’s “material cost may have been understated by
approximately $700,000 on a monthly basis” during 2003, and (2) that “Grand Blanc had
overstated its inventory on its financial records as of December 31, 2002 and 2003 by
$2,800,000 and $2,500,000 respectively.” J.A. at 584-85, 588. These misstatements
resulted from an employee’s manipulation of entries in the Grand Blanc facility’s
computerized accounting system and were reflected in reports generated by that
system, including Grand Blanc’s plant-wide financial statements. Doeren Mayhew’s
second report also called into question Venture’s firm-wide financial statements, insofar
as those statements were based in part on the inaccurate Grand Blanc plant-wide
financial statements.
On April 5, 2004, Venture filed a Securities and Exchange Commission Form 8-K
disclosing the information in the Doeren Mayhew reports. As to the related-party
transactions addressed in the March 10, 2004 Doeren Mayhew report, the 8-K stated
that Venture had filed a lawsuit seeking “[r]ecovery of payments to one or more of
Defendants aggregating in excess of [$300,000,000],” J.A. at 591, and that as a result
of the related-party transactions, “financial information previously publicly reported by
Venture Holdings as far back as at least 1998 is unreliable and should not be relied
upon by investors.” J.A. at 592. As to the Grand Blanc accounting issues addressed in
the March 25, 2004 Doeren Mayhew report, the 8-K stated that “[i]nvestigation by
[Venture] and Doeren Mayhew disclosed . . . [a]pparent understatement of payables at
the Grand Blanc facility during fiscal 2003 aggregating $8,000,000 -- $10,000,000 . . .
05-1537 7
[and] [o]verstatement of inventory at the Grand Blanc facility during fiscal 2002 and
2003 in the range of $2,500,000 -- $2,800,000.” J.A. at 592.
The Doeren Mayhew investigation was not immediately called to the district
court’s attention by either party. On April 7, 2004, the district court entered an amended
final judgment in the amount of $33,459,134.84, adding prejudgment interest to the jury
award. Autoliv appealed to the United States Court of Appeals for the Sixth Circuit,
which transferred the appeal to this court on July 16, 2004. On October 4, 2004, we
stayed the appeal to allow Autoliv the opportunity to file with the district court a motion
for a new trial pursuant to Rule 60(b) based on the Doeren Mayhew reports. Autoliv
filed its Rule 60(b) motion on October 21, 2004. Autoliv argued that the falsified
financial information identified in the Doeren Mayhew reports constituted: (1) newly
discovered evidence that could have affected the outcome of the trial, entitling Autoliv to
a new trial pursuant to Rule 60(b)(2); and (2) “fraud, misrepresentation, or other
misconduct of an adverse party” during discovery and the trial, entitling Autoliv to a new
trial under Rule 60(b)(3).
After conducting an evidentiary hearing at which Levko testified that Doeren
Mayhew’s conclusions had no effect on his trial testimony, the district court denied
Autoliv’s Rule 60(b) motion. As to Rule 60(b)(2), the district court concluded that Autoliv
failed to prove that the newly discovered financial information would have had an effect
on the jury’s decision on damages. As to Rule 60(b)(3), the district court held that
Venture did not commit discovery misconduct by failing to produce financial information
that Autoliv alleged would have disclosed the misrepresentations Doeren Mayhew
uncovered in time for use at trial. Because the district court had earlier denied Autoliv’s
05-1537 8
motions to compel such production, and Autoliv neither challenged those rulings nor
requested further disclosures of internal financial information from Venture, the district
court concluded that there had been no discovery misconduct. The district court did not
address Autoliv’s request for relief under Rule 60(b)(3) based on Levko’s trial testimony.
Autoliv timely appealed from the district court’s disposition of the Rule 60(b)
issues.6 Because Venture’s complaint asserted claims under the patent laws, we have
jurisdiction pursuant to 28 U.S.C. § 1295(a)(1). The ruling of a district court under Rule
60(b) is final and appealable pursuant to 28 U.S.C. § 1292. Ashland Oil, Inc. v. Delta
Prods. Corp., 806 F.2d 1031, 1032 (Fed. Cir. 1984). At oral argument, we requested
supplemental briefing as to the legal standard applicable to Autoliv’s Rule 60(b)(3)
request.
DISCUSSION
The denial of a motion for a new trial under Rule 60(b) is reviewed for abuse of
discretion. Good v. Ohio Edison Co., 149 F.3d 413, 423 (6th Cir. 1998); Mallory v.
Eyrich, 922 F.2d 1273, 1279 (6th Cir. 1991). “An abuse of discretion will be found if the
district court relies on clearly erroneous findings of fact, improperly applies the law or
uses an erroneous legal standard.” United States v. Chambers, 441 F.3d 448, 455 (6th
Cir. 2006).
We address Autoliv’s Rule 60(b)(2) and Rule 60(b)(3) arguments separately.
6
We lifted the stay, allowing Autoliv’s appeal from the jury verdict and final
judgment (nos. 04-1486 and 04-1488) to proceed. In an opinion also issued today, we
affirm the judgment on the merits, subject to the remand proceedings that we order in
this appeal. As to Venture’s cross appeal, we vacate the district court’s award of
prejudgment interest and remand to the district court. Venture Indust. Corp., et al. v.
Autoliv ASP, Inc., Nos. 04-1486, -1488 (Fed. Cir. August 7, 2006).
05-1537 9
I
As a threshold matter, we reject Venture’s contention that Autoliv’s motion was
untimely. Rule 60(b) provides that motions “shall be made within a reasonable time,
and for reasons (1), (2), and (3) not more than one year after the judgment, order, or
proceeding was entered or taken.” Autoliv filed its Rule 60(b) motion on October 21,
2004, nine months after the entry of judgment on January 20, 2004. Though the district
court accepted Autoliv’s motion without comment, Venture argues here that the nine-
month delay was unreasonable under Rule 60(b).
The Sixth Circuit has held that whether the time of filing a Rule 60(b) motion was
reasonable “is dependent upon the facts in a case, including length and circumstances
of delay in filing, prejudice to opposing party by reason of the delay, and circumstances
warranting equitable relief.” In re G.A.D., Inc., 340 F.3d 331, 334 (6th Cir. 2003).7
Here, Venture makes no colorable claim that it was prejudiced by Autoliv’s delay.
Further, Venture itself was likely under an obligation to promptly notify the district court
of the inaccuracies in Levko’s testimony. See Mich. R. Prof’l Conduct 3.3(a)(4),
adopted by reference E.D. Mich. Local R. 83.22(b) (“If a lawyer has offered material
evidence and comes to know of its falsity, the lawyer shall take reasonable remedial
measures.”); see also Schreiber Foods, Inc. v. Beatrice Cheese, Inc., 402 F.3d 1198,
1205 (Fed. Cir. 2005) (“Once counsel became aware that highly material false
statements had been made by a witness, in pleadings submitted to the court and in
7
One exception (not pertinent here) applies to Rule 60(b)(1) motions
predicated upon alleged errors of law, for which the Sixth Circuit has held that the
“reasonable time” is limited to the time for filing a notice of appeal. Barrier v. Beaver,
712 F.2d 231, 234-35 (6th Cir. 1983).
05-1537 10
response to discovery requests . . . Schreiber and its counsel were under an obligation
to promptly correct the record.”).
Rule 60(b)(2) provides, in pertinent part: “On motion and upon such terms as are
just, the court may relieve a party . . . from a final judgment, order, or proceeding for the
following reasons: . . . (2) newly discovered evidence which by due diligence could not
have been discovered in time to move for a new trial under Rule 59(b)[.]” Fed. R. Civ.
P. 60(b)(2) (West 2006). “In order to prevail on a Rule 60(b)(2) motion, a movant must
demonstrate . . . that the evidence is material and controlling and clearly would have
produced a different result if presented before the original judgment.” Good, 149 F.3d
at 423 (internal quotation marks, brackets, and citation omitted).
Autoliv argues that the Doeren Mayhew reports constitute newly discovered
evidence that undercut the accuracy of Levko’s testimony, entitling Autoliv to a new trial
under Rule 60(b)(2). At the evidentiary hearing on Autoliv’s motion, Levko testified in
detail that Doeren Mayhew’s findings had no effect on his assessment of Venture’s
damages because, in making his calculations, he did not rely primarily on information
from the Grand Blanc facility’s main accounting system or the plant-wide financial
statements. Instead, he relied principally on information from the Grand Blanc facility’s
“bid” (or “quote”) system. Both Levko and Autoliv’s expert, Glenn Sheets, testified that
the bid system was separate and independent from the accounting system and that the
information from the bid system was not called into question by the Doeren Mayhew
reports. The district court found that “Autoliv has not made out a case for a finding that
had the accounting irregularities described in the March 25 Doeren Mayhew report been
05-1537 11
known prior to trial, Levko’s opinion and conclusion on damages would have produced a
different result at trial with regard . . . to damages.” Rule 60(b) Opinion, slip op. at 18.
Autoliv insists that the district court, in making findings of fact and determinations
of the weight and credibility of the evidence, rejected Autoliv’s Rule 60(b)(2) motion
based on the district court’s own judgment rather than the probable effect of the
evidence on the jury. We disagree. The district court expressly assessed the probable
effect on the jury, stating: “It cannot be said that if the jury was presented with the
Doeren Mayhew reports . . . its decision on damages would have been any different.”
Id. at 20. The district court reviewed the factual record in the light of the newly
discovered evidence and made findings as to the weight of that evidence to determine
what the effect on the jury likely would have been. Analysis of the record is necessary
to resolve a Rule 60(b)(2) request.8
Autoliv also challenges several of the district court’s specific findings regarding
the effect of the accounting irregularities on Levko’s testimony. Autoliv questions the
bid system information that Levko used primarily in calculating Venture’s damages. The
bid information was obtained from the Grand Blanc facility’s separate bid system. The
district court found that this information “was separate and independent from the Grand
Blanc facility plant-wide financial data” implicated by the Doeren Mayhew reports, id. at
18, and “was specific and reliable.” Id. at 10. Levko relied on Venture’s bids on Autoliv
projects that were submitted before 2002, whether accepted or not. For projects that
8
See, e.g., Daniels v. Pipefitters’ Ass’n Local Union No. 597, 983 F.2d 800,
802-03 (7th Cir. 1993) (“[I]t is only logical that a district court weigh the credibility of
evidence before granting or denying a Rule 60(b)(2) motion. Rule 60(b)(2) motions are
decided by judges; not by juries. Credibility determinations are necessary to these
decisions. To hold otherwise would mean that the district court would have to order a
new trial no matter how incredible the new evidence.”).
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Venture did not actually bid on, Levko created hypothetical bids using data from
submitted bids and five third-party bids.
Autoliv points out that the erroneous Grand Blanc financials were the result of a
“lack of proper accounting controls.” J.A. at 588. It argues that because there were
errors in the Grand Blanc facility’s financial statements for 2002-2003, “[t]he only
reasonable inference to be drawn . . . is that [Venture’s accounting] controls were not
appropriate during that earlier time period either.” Reply Br. of Autoliv at 25. Autoliv
contends that this inference undercuts the reliability of the pre-2002 bid data Levko
used. The district court concluded, however, that “Levko’s opinion on damages was
grounded on bids that antedated December 31, 2001,” and that “[t]here is no evidence
to suggest that the accounting irregularities at the Grand Blanc facility . . . affected
Venture’s 1996-2001 financial statements.” Rule 60(b) Opinion, slip op. at 20. We see
no clear error in these factual conclusions.
Autoliv also contends that a new trial should have been granted because Levko
relied, in some of his testimony, on the fact that the Grand Blanc facility’s plant-wide
financial statements were audited and therefore presumptively reliable. Levko testified
at trial that the fact that Grand Blanc had independently certified plant-wide financial
statements “tells me [that] what’s being reported is fair . . . [and that] the internal
controls are appropriate and adequate . . . .” Rule 60(b) Opinion, slip op. at 11 n.4. At
the Rule 60(b) hearing, the district court questioned Levko about whether having the
information in the Doeren Mayhew reports concerning the Grand Blanc financial
statements would have altered his trial testimony. Levko responded “I couldn’t say that
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the certified statements were accurate, but it wouldn’t change my conclusions.” J.A. at
130.
Autoliv contends that even if Levko’s conclusions would have remained the
same, these alterations to Levko’s testimony might have “colored” the trial. While the
district court’s Rule 60(b) opinion did not expressly address this possibility, the district
court specifically recognized it during the Rule 60(b) hearing, and we are convinced that
the district court considered the question and rejected Autoliv’s contention utilizing the
Rule 60(b)(2) standard for prejudice. We see no error in that conclusion.
Although Autoliv agrees that the Grand Blanc accounting system was separate
from the bid system, Autoliv argues that financial information directly called into
question by Doeren Mayhew was utilized by Levko in two respects: (1) to determine the
ratio of fixed to variable costs; and (2) to test the accuracy of the scrap rate reflected in
the bids.
As to the first, Autoliv contends that Levko’s separation of the fixed and variable
costs was affected because Doeren Mayhew found that inventory was overstated and
recommended a downward inventory adjustment. Levko explained that a downward
inventory adjustment would increase the cost of sales to the Grand Blanc facility,
potentially altering the ratio of fixed and variable production costs. Levko stated in an
affidavit that Doeren Mayhew’s findings did not affect his allocation of fixed and variable
costs in the bid data because the inventory adjustment would not materially affect the
ratio. The district court explained that of the $2.5 million inventory adjustment,
“$888,000 consisted of non-air bag inventory which had no effect on the cost of sales
related to air bag covers. Of the $1.6 million dollar balance, approximately 25% could
05-1537 14
be attributed to the cost of sales of air bag cover products.” Rule 60(b) Opinion, slip op.
at 5. The district court concluded that, while Levko determined the fixed-to-variable cost
ratio from Grand Blanc’s plant-wide financial statements, “any change in the financial
statements as a consequence of the Doeren Mayhew reports did not affect the
allocation.” Id. at 12. We see no error in this conclusion.
As to the scrap rate, Levko used a scrap rate of 15 percent in his calculations.
He derived that scrap rate from the bid information. Levko checked the bid-based scrap
rate against the plant-wide scrap rate reported in Grand Blanc’s plant-wide financial
statements. That figure was 12.4 percent. He nevertheless used the 15 percent rate
from the bids in order to make his calculations conservative. Autoliv relies on the
affidavit of Kevin Dages, an accounting consultant, to argue that the inventory
adjustments recommended by the Doeren Mayhew reports would have resulted in
increased scrap rates for 2002 and 2003. Levko testified, however, that even assuming
the inventory adjustment, the plant-wide scrap rate (only partially attributable to airbag
cover production) would increase to 13.4 percent, still well below the 15 percent rate
Levko used. The district court explained in detail that it rejected Dages’ analysis on the
basis of several methodological flaws, including Dages’ calculation of increases in
“[p]roduction costs based on plant-wide financial data [which] does not particularize air
bag production costs.” Rule 60(b) Opinion, slip op. at 19. The district court found that
even after making the inventory adjustment called for by the Doeren Mayhew reports,
“the plant-wide scrap rate would be 13.4%, still below the 15% rate Levko used,” id. at
13, and thus concluded that the Doeren Mayhew reports’ effect on the scrap rate would
not have altered the jury’s decision. We find no clear error in this determination. The
05-1537 15
district court also did not err in failing to consider the totality of the allegedly prejudicial
evidence.
Clear error only exists if we are “’left with a definite and firm conviction that a
mistake has been committed.’” United States v. Monumental Life Ins. Co., 440 F.3d
729, 732 (6th Cir. 2006) (quoting Alexander v. Local 496, Laborers’ Int’l Union of N.
Am., 177 F.3d 394, 402 (6th Cir. 1999)). Here, we are left with no such conviction. We
conclude that the district court did not abuse its discretion in denying Autoliv’s motion for
a new trial pursuant to Rule 60(b)(2).
II
We now address Autoliv’s Rule 60(b)(3) motion. Rule 60(b)(3) provides: “On
motion and upon such terms as are just, the court may relieve a party . . . from a final
judgment, order, or proceeding for the following reasons: . . . (3) fraud (whether
heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of
an adverse party . . . .”
A
Autoliv argues that Venture engaged in discovery misconduct by withholding
“Venture’s non-public financial information—the data that ultimately disclosed Venture’s
fraud.” Autoliv’s Rule 60(b) Motion at 2. Autoliv contends that Venture should have
disclosed the information in response to Autoliv’s document-production requests and
through the deposition testimony of representatives of Venture and pertinent Venture
subsidiaries. In particular, Autoliv contends that it was denied the opportunity to depose
the controller at the Grand Blanc facility who, according to Doeren Mayhew,
05-1537 16
manipulated the accounting system to cause the misrepresentations in the financial
statements.
Failure to produce material in response to legitimate discovery requests can
constitute misconduct under Rule 60(b)(3). Abrahamsen v. Trans-State Express, Inc.,
92 F.3d 425, 428 (6th Cir. 1996).9 However, the question is not whether Venture failed
to comply with Autoliv’s initial discovery requests; it is whether Venture complied with
Autoliv’s requests as limited by the Special Master and the district court. There is no
contention that Venture failed to comply with the discovery ordered by the district court.
As the district court stated, “Autoliv had ample opportunity to ask the Court to require
further of Venture if it felt that its discovery requests [were] not being met.” Rule 60(b)
Opinion, slip op. at 7. Autoliv did not request further action from the district court in this
regard. We conclude that the district court did not abuse its discretion in holding that
Venture did not engage in discovery misconduct within the meaning of Rule 60(b)(3).10
B
We now turn to Autoliv’s contention that reliance on the financial statements by
Venture’s damages expert warrants relief under Rule 60(b)(3). As a threshold matter,
Venture insists that Autoliv failed to raise this ground before the district court. Based on
our examination of the record, we conclude that the issue was properly raised in
Autoliv’s Rule 60(b)(3) motion.
9
See also Summers v. Howard Univ., 374 F.3d 1188, 1193 (D.C. Cir.
2004); Cummings v. Gen. Motors Corp., 365 F.3d 944, 955 (10th Cir. 2004); Schultz v.
Butcher, 24 F.3d 626, 630 (4th Cir. 1994); Stridiron v. Stridiron, 698 F.2d 204, 207 (3d
Cir. 1983); Rozier v. Ford Motor Co., 573 F.2d 1332, 1339 (5th Cir. 1978).
10
We note that Autoliv does not contend that Venture engaged in any
misconduct in opposing the discovery requests.
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Autoliv’s contention here is based on the same grounds as its request under Rule
60(b)(2): (1) Levko’s reliance on the bid data; (2) Levko’s testimony that the Grand
Blanc facility’s certified financial statements gave him comfort about Venture’s
accounting controls; and (3) Levko’s reliance on the Grand Blanc plant-wide financial
statements to derive the fixed/variable cost ratio and check the bid-based scrap rate for
his damage calculations.
The district court did not address Autoliv’s Rule 60(b)(3) contention with respect
to Levko’s testimony. The district court did, however, hold that Autoliv failed to establish
prejudice according to the Rule 60(b)(2) standard. Thus, even if Autoliv could establish
fraud, misrepresentation, or other misconduct, the district court’s failure to address
Autoliv’s Rule 60(b)(3) contention as to Levko’s testimony could only constitute harmful
error if the standard for prejudice under Rule 60(b)(3) is different from the standard for
prejudice under Rule 60(b)(2). We conclude that the standard for prejudice is indeed
different under the two rules, and thus that the district court’s error was potentially
harmful.
At oral argument, we requested supplemental briefing from both parties
addressing the appropriate standard for relief under Rule 60(b)(3) in the Sixth Circuit.
Venture argues that the issue is controlled by the Sixth Circuit’s decision in
Abrahamsen. While the court stated that relief is appropriate where a witness testifies
falsely and “without [the false testimony], a jury might have reached a different
conclusion,” Abrahamsen, 92 F.3d at 428 (internal quotation marks omitted), the court
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did not clearly articulate a general standard for determining prejudice.11 Nor does any
other published Sixth Circuit decision.
Autoliv contends that the appropriate rule is stated in Jordan v. Paccar, Inc., No.
95-3478, 1996 WL 528950 (6th Cir. 1996), an unpublished decision. In the Sixth
Circuit, only published decisions are binding on the court;12 unpublished decisions may
be persuasive authority depending on their pertinence and depth of reasoning. Harper
v. Autoalliance Int’l, Inc., 392 F.3d 195, 205 n.3 (6th Cir. 2004).13 Autoliv urges that we
should rely on Jordan because the court in Jordan thoroughly analyzed the question of
the proper legal standard under Rule 60(b)(3). See 1996 WL 528950, at *6-*9. We
agree. The court in Jordan set forth the legal standard applicable under Rule 60(b)(3)
based on thorough analysis of the language of the rule and its treatment by other
circuits. Thus, we conclude that relying on Jordan is appropriate under the
circumstances.
In some circuits, the standard for prejudice under Rule 60(b)(3) requires the
movant to demonstrate that the fraud or misconduct “prevented the moving party from
fully and fairly presenting his case.” Schultz, 24 F.3d at 630; see also Anderson v.
11
Prejudice was obvious in Abrahamsen because the district court expressly
held that it would not have found the plaintiffs contributorily negligent absent the false
testimony. Id. at 428-29.
12
United States v. Wood, 364 F.3d 704, 725 (6th Cir. 2004); S.J. v. Hamilton
County, Ohio, 374 F.3d 416, 423 n.5 (6th Cir. 2004); Sheets v. Moore, 97 F.3d 164, 167
(6th Cir. 1996); see also Sixth Cir. R. 206(c) (“Reported panel opinions are binding on
subsequent panels.”).
13
See also Sixth Cir. R. 28(g) (citation of unpublished opinions is
“disfavored,” but permissible “[i]f a party believes . . . that an unpublished disposition
has precedential value in relation to a material issue in a case, and that there is no
published opinion that would serve as well . . . .”); Oviedo v. Jago, 809 F.2d 326, 329
n.3 (6th Cir. 1987) (relying on unpublished decision because “the panel’s reasoning [is]
sound and its decision supported by the existing law”).
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Cryovac, Inc., 862 F.2d 910, 924 (1st Cir. 1988).14 The Sixth Circuit in Jordan,
however, “dispens[ed] with any requirement that the moving party demonstrate
prejudice,” Jordan, 1996 WL 528950, at *8, holding that “prejudice should be
presumed[ ] once the moving party has shown by clear and convincing evidence that
misbehavior falling into one or more of the three categories set out in Rule 60(b)(3) has
occurred.” Id. The burden then shifts to the non-moving party “to demonstrate by clear
and convincing evidence that the misbehavior which occurred had no prejudicial effect
on the outcome of the litigation.” Id.As we noted earlier, under Rule 60(b)(2) the moving party must show that the
newly discovered evidence, if introduced at trial, “clearly would have produced a
different result if presented before the original judgment.” Good, 149 F.3d at 423. The
prejudice standards of Rule 60(b)(3) and Rule 60(b)(2) thus differ as to the party that
initially bears the burden of proof, and as to the nature of the necessary showing. The
district court analyzed the possibility of prejudice from Levko’s testimony only under the
Rule 60(b)(2) standard.15 It did not apply the standard for prejudice that we conclude is
applicable to Autoliv’s Rule 60(b)(3) request with respect to Levko’s testimony.
14
See also Cummings, 365 F.3d at 955; Sellers v. Mineta, 350 F.3d 706,
715 (8th Cir. 2003); Tobel v. City of Hammond, 94 F.3d 360, 362 (7th Cir. 1996); Diaz v.
Methodist Hosp., 46 F.3d 492, 496 (5th Cir. 1995); In re M/V Peacock, 809 F.2d 1403,
1404-05 (9th Cir. 1987); Stridiron, 698 F.2d at 207; GAF Corp. v. Transamerica Ins. Co.,
665 F.2d 364, 371 (D.C. Cir. 1981).
15
“Autoliv has not made out a case for a finding that had the accounting
irregularities described in the March 25 Doeren Mayhew report been known prior to trial,
Levko’s opinion and conclusion on damages would have produced a different result at
trial with regard . . . to damages.” Rule 60(b) Opinion, slip op. at 18; see also id. at 20
(“It cannot be said that if the jury was presented with the Doeren Mayhew reports,
particularly the March 25 Doeren Mayhew report, its decision on damages would have
been any different.”).
05-1537 20
We conclude that we must vacate in part the district court’s denial of Autoliv’s
Rule 60(b)(3) motion as it concerned Levko’s testimony and remand for adjudication
under the proper legal standard. In doing so, we do not address the question of
whether Levko’s testimony constitutes “fraud, misrepresentation, or other misconduct”
within the purview of Rule 60(b)(3); that is a question best addressed by the district
court in the first instance.16 On remand, the district court must decide whether Autoliv
has established, by clear and convincing evidence, that reliance upon Venture’s
financial information by Venture’s damages expert constituted fraud or
misrepresentation. If Autoliv makes such a showing, the district court must consider
whether Venture established, by clear and convincing evidence, that the misbehavior
had no prejudicial effect on the outcome of the litigation.
III
In summary, we affirm the district court’s denial of Autoliv’s motion for a new trial
pursuant to Rule 60(b)(2). We also affirm the district court’s conclusion that Autoliv is
not entitled to a new trial under Rule 60(b)(3) on the basis of discovery misconduct. But
because the district court did not consider Autoliv’s allegation with respect to Levko’s
testimony as a ground for relief under Rule 60(b)(3), we vacate the district court’s denial
of Autoliv’s Rule 60(b)(3) motion and remand for further proceedings consistent with this
opinion.
16
In this connection, we do not decide—one way or the other—whether, as
the district court correctly held in connection with the alleged discovery misconduct
issue, “there is no evidence that Venture was aware of the accounts payable
understatement or inventory overstatement that Doeren Mayhew describes . . . in its
March 25 report.” Rule 60(b) Opinion, slip op. at 8. We have rejected the discovery
argument on a different ground—that the failure to produce documents that would
reveal the fraud was not misconduct.
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CONCLUSION
The decision of the district court is
AFFIRMED IN PART, VACATED IN PART, AND REMANDED.
COSTS
No costs.
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