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Hess v. Biomet, Inc.

United States District Court, N.D. Indiana, South Bend Division

November 13, 2019

CHARLES HESS, et al., Plaintiffs,
BIOMET, INC., et al. Defendants.



         This case is approaching trial on the Distributors breach-of-contract claims against Biomet.[1] Both sides have filed motions in limine, and they have also filed Daubert motions. In this order, the Court resolves those motions and addresses other issues that have come to light through the pretrial filings.


         1. July 2015 letter negotiating buy-out

         The Distributors first move to exclude a letter their attorney sent to Zimmer-Biomet on July 20, 2015, arguing that the letter is a settlement communication excluded by Rule 408. As background, Biomet was going through the process of merging with Zimmer, Inc. around 2015. As part of that process, Biomet made buy-out offers to each of the retired distributors to which it was paying lifetime commissions, including each of the plaintiffs here. In response, the Distributors pushed back on the amount of the buy-out and asked for better offers. Those discussions and the pending merger also raised an additional dispute: whether the Distributors would be entitled to lifetime commissions on sales by Zimmer or Zimmer-Biomet (the new post- merger entity), instead of just sales on Biomet products. After preliminary discussions between the parties failed to produce a resolution of either the buy-out offers or the Distributors' right to commissions on Zimmer or Zimmer-Biomet sales, the Distributors retained counsel.

         On July 20, 2015, the Distributors' attorney sent a letter to Zimmer-Biomet addressing both of those topics. Much of the letter outlined the Distributors' history with Biomet and the reasons they should receive more favorable buy-outs. The letter also raised the Distributors' contention that they were entitled to commissions on sales by the post-merger entity. The letter asserted, for example, that Biomet had anticipatorily repudiated its obligations by taking a contrary position, and that Biomet made clear that it intended to breach its obligations to pay commissions on Zimmer-Biomet products following the merger. The letter stated that the Distributors would take any steps necessary to protect their rights unless Zimmer-Biomet either made an acceptable buy-out offer or provided written assurance that it would pay commissions on products “sold by Zimmer-Biomet in the relevant territories.”

         As relevant to Biomet's present arguments, however, the letter also included some references to the payment of commissions on Biomet products. It stated, for example, that since the Distributors' retirement, “Biomet has honored its obligations, and paid commissions on all products sold in the relevant territories.” It likewise stated that “[u]ntil recently, the Legacy Distributors had no complaints regarding Biomet holding up its end of the bargain and honoring the Distributorship Agreements.” At trial, though, the Distributors' only claim is that Biomet has been underpaying them since their retirements by paying commissions on a smaller set of Biomet products than dictated by the agreements. Biomet argues that the statements in this letter show that the Distributors' current interpretation of the agreements is a recent invention and does not reflect the parties' understanding or intent when they entered the agreements.

         The Distributors move to exclude the letter under Rule 408, arguing that the letter was a settlement communication and that Biomet intends to use the letter for prohibited purposes, namely to disprove the validity of their claim or impeach by contradiction. Rule 408 states:

Evidence of the following is not admissible-on behalf of any party-either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction:
. . . .
(2) conduct or a statement made during compromise negotiations about the claim[.]

Fed. R. Evid. 408(a). Though Biomet attempts to argue otherwise, it plainly intends to use the letter to disprove the Distributors' claim or contradict their testimony. [DE 256 p. 5 (admitting that Biomet “will reference the letter at trial to counter the testimony offered by Plaintiffs as to the meaning of a decades-old contract provision”)].

         The question, then, is whether this letter falls within Rule 408's coverage. In arguing that it does not, Biomet asserts that the letter was only negotiating a contractual buy-out-a routine business negotiation, not a disputed claim-and that the claim at issue now is a new theory that was not in dispute then and was not raised until the next year when the Distributors filed suit. The Distributors disagree, arguing that there was a dispute at the time of the letter: a dispute over whether the Distributors were entitled to commissions on Zimmer or Zimmer-Biomet products. The Court agrees that the disagreement over that issue had likely ripened into a disputed claim by the time of the letter-the letter accuses Biomet of having anticipatorily repudiated its obligation to pay those commissions and states that Biomet made clear that it intended to breach its obligations.

         Critically, however, that is not the claim going to trial in this case. For Rule 408 to apply, the claim being negotiated must be the same claim at issue in the litigation. As the Seventh Circuit recently explained, “settlement discussions concerning a specific claim are excluded from evidence to prove liability on that claim, not on others. That is, when a settlement discussion concerns Claim A, and statements from that discussion are later offered to prove or disprove liability on Claim B, Rule 408(a) does not make those statements inadmissible.” Wine & Canvas Dev., LLC v. Muylle, 868 F.3d 534, 541 (7th Cir. 2017); see also Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d 682, 689 (7th Cir. 2005) (“The balance is especially likely to tip in favor of admitting evidence when the settlement communications at issue arise out of a dispute distinct from the one for which the evidence is being offered.”). That conclusion follows from the rule's text, which states that a party may not seek to disprove the validity of “a claim” with statements made during compromise negotiations “about the claim.” Rule 408(a) (emphasis added); see also Muylle, 868 F.3d at 541 (“Paragraph (a) uses the term “a disputed claim, ” not “disputed claims” or “any claims.” Subparagraphs (1) and (2) of paragraph (a) likewise speak of “the” claim.”); Armstrong v. HRB Royalty, Inc., 392 F.Supp.2d 1302, 1304 (S.D. Ala. 2005) (“[T]he definite article “the” limits “the claim” as to which evidence may not be admitted to the claim previously referenced, i.e., the claim which was the subject of a settlement offer.”).

         Here, to the extent the July 2015 letter discusses a disputed claim, that claim relates to whether the Distributors would be entitled to commissions on sales of Zimmer or Zimmer- Biomet products once the merger occurred. The Distributors' counsel made that point at the final pretrial conference, explaining that the dispute at the time of the letter was whether the lifetime commissions payments would extend to the products of the new Zimmer-Biomet entity. As counsel also noted, however, that claim has been dismissed and is not part of the trial in this case. The claim going to trial has nothing to do with whether Zimmer or Zimmer-Biomet-branded products became subject to the lifetime commissions provision after the merger; it relates solely to the proper scope of commission payments on sales of legacy Biomet products, dating back to the Distributors' retirements.

         The Distributors have never argued that a dispute existed as to that claim at the time of the letter, nor does the letter itself contemplate such a claim. [DE 175-3 p. 8 (“In the years following the Legacy Distributors' retirement, Biomet has honored its obligations, and paid commissions on all products sold in the relevant territories.”)]. In fact, the Distributors have argued elsewhere that they were not even aware of that claim “until shortly before filing this lawsuit in 2016.” [DE 198 p. 9].[2] If the Distributors were not even aware of this claim at the time of the July 2015 letter, they cannot argue that the letter constituted an attempt to compromise that claim. Armstrong, 392 F.Supp.2d at 1305 (noting that “one can hardly dispute a claim of which he is unaware”); see also Tendeka, Inc. v. Glover, No. 2015 WL 2212601, at *21 (S.D. Tex. May 11, 2015) (holding that a letter attempting to settle one claim was not excluded by Rule 408 to disprove a different claim of which the parties were not even aware at the time).

         Because the claim for which this evidence is being offered is not the claim being negotiated in the July 2015 letter, Rule 408 does not bar its admission. Therefore, the Court denies this motion.

         2. Al Plows email

         The Distributors similarly move to exclude an email sent to Biomet's general counsel by Al Plows, another former Biomet distributor. This email was sent in May 2015, and was a precursor to the letter just discussed. In his email, which he copied to each of the Distributors, Mr. Plows responded to Biomet's buy-out offer and also asked for written confirmation “that going forward Zimmer-Biomet will continue to honor their obligation to pay override commissions on any/all reconstructive products sold in our respective territories.”

         The Distributors argue that this email is excluded as a settlement communication under Rule 408, but for the same reasons just discussed, the Court finds that Rule 408 does not apply. The Distributors also argue that Mr. Plows' email is hearsay, but that argument is insubstantial. Hearsay is defined as an assertion that is offered to prove the truth of the matter asserted. Fed.R.Evid. 801(a), (c)(2). Mr. Plows' statement was a request, not an assertion of truth-he asked for confirmation that Zimmer-Biomet will pay commissions on reconstructive products sold in their territories moving forward. The relevance of this statement is not the truth of anything he asserted, but the fact that he asked for confirmation only as to “reconstructive products.”[3]Because this was a request, not an assertion offered for its truth, it does not qualify as hearsay, so Biomet does not need to meet any exception to the hearsay rule. See Carter v. Douma, 796 F.3d 726, 735 (7th Cir. 2015).

         The Distributors finally argue that this email should be excluded under Rule 403. The Distributors argue that allowing this email would require explanations of the circumstances of Mr. Plows' involvement in the negotiations and why he is not a plaintiff in this case, and could require some context about the merger. However, the details about Mr. Plows can be established quickly and without inviting confusion, and context about the merger will inevitably come up anyway-both Biomet and Zimmer Biomet are defendants in this case. And although the Distributors offer reasons that might explain away Mr. Plows' reference to “reconstructive products, ” that does not negate the relevance of this exhibit, as the jury could find that Biomet's interpretation is the more plausible reading. Thus, the Court does not believe that the danger of any unfair prejudice substantially outweighs the probative value of this exhibit. Accordingly, the Court denies the motion to exclude this exhibit.

         3. Distributors' violations of agreements

         The Distributors next move to exclude any evidence or argument that they violated their distributorship agreements while they were active distributors. Though Biomet responded in opposition to this motion, it clarified at the final pretrial conference that it does not intend to offer any argument that the Distributors breached their agreements. To the contrary, it intends to argue that the Distributors did not breach their agreements, and that their course of performance in compliance with those agreements informs the meaning of the agreements. On that understanding, the Court grants the motion as unopposed. The defendants may not argue or present evidence that the Distributors breached their agreements as active distributors, though that does not prevent them from presenting evidence of the course of performance in accordance with those agreements.

         4. Challenge to damages calculation

         The Distributors next move to bar Biomet's damages expert, Bryan Callahan, from challenging their own expert's damages calculation. The Court addresses the admissibility of Mr. Callahan's opinions below relative to the Distributors' Daubert motion. That ruling suffices to frame the scope of Mr. Callahan's testimony, so no further order is warranted on that issue.[4]

         5. Shera's prior lawsuit

         The Distributors move to exclude evidence of a previous lawsuit Frank Shera brought against Biomet. That suit involved a dispute over the scope of Mr. Shera's distributorship under his distributorship agreement. Most notably, his stipulation to dismiss that suit included the following statement: “Frank L. Shera and Frank L. Shera, Inc. admit that the Distributorship Agreement does not contractually grant them the right to sell the products of Biomet's present subsidiaries or companies which Biomet may acquire in the future.” The Distributors argue that this admission is not relevant because that suit involved a dispute over a different provision in the agreement, and that its use at trial would be prejudicial.

         The Court disagrees. Mr. Shera's admission about the scope of the agreement is highly relevant. It is a direct admission by a plaintiff in this case about the scope of the same agreement being litigated in this case. The Distributors attempt to deflect that statement by noting that the previous suit involved a dispute over the products Mr. Shera was allowed to carry as an active distributor (addressed in Section 2) while the current suit involves a dispute over the products he is entitled to receive commissions on in his retirement (addressed in Section 9 of the same contract). But Biomet's core theory in this case is that those two provisions have the same scope-that Mr. Shera is entitled to receive retirement commissions only on products within the scope of his distributorship. See B&R Oil Co. v. Stoler, 77 N.E.3d 823, 827 (Ind.Ct.App. 2017) (“We review the contract as a whole[.]”). An admission that Mr. Shera was not entitled to distribute products of Biomet's subsidiaries is thus highly relevant to his claim for lifetime commissions on products sold by those subsidiaries. That the Distributors intend to offer a competing interpretation does not make this admission irrelevant.

         Given the significant probative value of this evidence, the Court cannot find that the probative value is substantially outweighed by any of the concerns for prejudice raised by the Distributors. Accordingly, the Court denies this motion.

         6. Dollar amount already paid to distributors in the past

         The Distributors also moved to exclude evidence of the amount the Distributors were paid while they were active distributors, and to prohibit argument that the Distributors “have been fairly compensated in retirement based solely on the total amount of retirement commissions they have received.” [DE 1 p. 14');">241 p. 14]. Biomet does not object to either of those requests, as narrowly framed in that manner, so the Court grants the motion. As Biomet notes, however, that will not preclude evidence of the amount the Distributors have been paid in retirement commissions. Nor will it preclude argument that those amounts satisfy Biomet's obligations under the agreements.

         7. Testimony by Biomet witnesses about intent

         The Distributors also move to exclude testimony by Biomet's witnesses about Biomet's intent at the time it entered the agreements. The Distributors argue that those witnesses- particularly Daniel Hann, Biomet's former general counsel-were not employed by Biomet at the time or were not part of the agreements' negotiation, so they lack firsthand knowledge and should not be permitted to relate hearsay about what Biomet's founders intended at the time. The Distributors' motion is overbroad, as the admissibility of this testimony will depend on the precise testimony, the foundation laid for it, and the purpose for which it is offered. The Court thus declines to resolve this issue through an order in limine. However, the parties' arguments raise some issues that warrant discussion at this point in order to frame the analysis that will apply at trial.

         The Distributors express concern that Mr. Hann will testify about conversations he had with Biomet's founders, including Dane Miller, in which the founders talked about what they intended when they entered the distributorship agreements. Should such a statement be offered for the truth of the matter asserted by Mr. Miller, it would constitute hearsay. And as the Distributors note, the state-of-mind exception to the hearsay rule would not apply if the statement refers to what Mr. Miller intended at some earlier point. The state-of-mind exception applies only to the declarant's “then-existing state of mind, ” Fed.R.Evid. 803(3), so a statement about what the declarant intended at a previous time would not be covered. The statement would meet that exception, though, if Mr. Miller expressed his current state of mind about what he understood the agreements to mean at the time he made a statement to Mr. Hann. That would be a statement of his “then-existing” state of mind; the jury could then decide to what extent Mr. Miller's belief at that time supports an inference about his intent at the earlier time when the parties entered the agreement. See 2 McCormick on Evidence § 274 (7th ed. 2016) (“Although the statement must describe a state of mind or feeling existing at the time of the statement, the evidentiary effect of the statement is broadened by the notion of the continuity in time of states of mind.”).

         There is also other testimony that Mr. Hann could offer that would not be excluded as hearsay. Some statements by Mr. Miller might not be hearsay to begin with, as Biomet notes. Hearsay is an out-of-court “assertion” offered to prove “the truth of the matter asserted.” Fed.R.Evid. 801(a), (c). If, for example, Mr. Miller gave Mr. Hann a direction or instruction about what action to take with regard to Biomet's performance under the agreements, that would not be an assertion offered for its truth, so it would not be hearsay. See Ruhl v. Hardy, 743 F.3d 1083, 1099 (7th Cir. 2014) (holding that a statement was not hearsay because it was “a direct command, not a statement offered to prove the truth of the matter asserted”); Carter v. Douma, 796 F.3d 726, 735 (7th Cir. 2015) (holding that a request and an instruction were not hearsay “because they were not ‘statements' making any factual assertions”). Other testimony might be based on Mr. Hann's personal knowledge. For example, as the general counsel who was involved in executing the agreements on behalf of Biomet, he would have personal knowledge of Biomet's performance under the agreements, which would be relevant to Biomet's course-of-performance argument.

         That said, the Court does not agree with Biomet that Mr. Hann's testimony is insulated from the rule against hearsay because he was designated as a corporate representative for a deposition under Rule 30(b)(6). That rule allows a party to serve a notice of deposition on a corporation, identifying specific matters to be discussed. The corporation must then produce a representative who “must testify about information known or reasonably available to” the corporation on those matters. Fed.R.Civ.P. 30(b)(6). Biomet argues that because Mr. Hann was designated as a corporate representative for a Rule 30(b)(6) deposition, he can testify to its corporate knowledge without any need for personal knowledge, and thus can testify without regard to the rule against hearsay. Under Rule 32(a)(3), an “adverse party” may use at trial the deposition of a party's designee under Rule 30(b)(6). But Mr. Hann is Biomet's own representative, and Rule 32(a)(3) does not allow a party to use its own designee in this manner. See Union Pump Co. v. Centrifugal Tech. Inc., 404 Fed.Appx. 899, 907-08 (5th Cir. 2010) (“Federal Rule of Civil Procedure 30(b)(6) allows corporate representatives to testify to matters within the corporation's knowledge during deposition, and Rule 32(a)(3) permits an adverse party to use that deposition testimony during trial. However, a corporate representative may not testify to matters outside his own personal knowledge to the extent that information is hearsay not falling within one of the authorized exceptions.” (citation, quotation, and alteration omitted)); see also Fed. R. Civ. P. 32(a)(1)(B) (stating that a deposition may be used under this rule “to the extent it would be admissible under the Federal Rules of Evidence if the deponent were present and testifying”). Thus, notwithstanding that Biomet produced Mr. Hann in response to a Rule 30(b)(6) notice, Mr. Hann's testimony at trial will still have to comply with the rules of evidence in order to be admitted.

         8. Statute of limitations

         The Distributors next move to exclude evidence or argument concerning Biomet's statute of limitations defense. At summary judgment, the Court made two holdings relevant to the statute of limitations. It first held that the statute of limitations accrued separately for each payment that came due, so the statute of limitations could not bar the Distributors' claims in their entirety, it could only limit the period for which they could seek damages. Second, the Court held that the applicable statute of limitations was not provided by the Uniform Commercial Code (which would have been four years). Instead, the default statute of limitations for breach of contract claims applied. The Court did not resolve, however, whether that term was 20 years (for contracts entered before September 1, 1982) or 10 years (for contracts entered after), since that would not have affected the outcome of the motion.

         In their motion in limine, the Distributors first argue that five of the Distributors are subject to the 20-year statute of limitations, as they entered their original distributorship agreements before September 1982. And because none of those Distributors received commission payments more than 20 years before this suit was filed on April 4, 2016, they argue that the statute of limitations has no possible application to their claim. The sixth plaintiff, Mr. Shera, concedes that his contract is subject to a 10-year statute of limitations, but he is willing to forego any damages that accrued more than ten years before suit, in which case there would be no work left for the statute of limitations on his claim, either.

         Biomet offers little substantive response to these arguments, except to say that it wishes to argue this defense to the jury. The applicable statute of limitations is a question of law for the Court to decide, though, and a motion in limine is an appropriate vehicle for making that determination. Under Indiana law, the statute of limitations on breach of contract claims is 20 years for contracts entered before September 1, 1982, and 10 years for contracts entered after. It is undisputed that five of the Distributors (all but Mr. Shera) entered the distributorship agreements upon which their claims are based prior to September 1982, so they are subject to the 20-year term. Biomet argues in response that those Distributors signed termination agreements later, but those agreements expressly provided that the long-term commission provisions in the original distributorship agreements remained in effect. The parties even entered a stipulation to that fact. [DE 267 (“The Termination Agreements differ in name and some other respects, but all state that the Long Term Commission Program found in the Distributorship Agreements survives Plaintiffs' ...

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