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Lyons, Inc. v. Sonus-USA, Inc.: US District Court : CIVIL PROCEDURE - submitting evidence with reply briefs

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Thomas W. Lyons, Inc., Civil No. 07-4227 (DWF/SRN)
f/k/a Gulf Atlantic Hearing
Aid Centers, Inc.,
Plaintiff,
MEMORANDUM
v. OPINION AND ORDER
Sonus-USA, Inc.,
Defendant and Counterclaim Plaintiff,
v.
Thomas W. Lyons and Thomas W. Lyons, Inc.,
f/k/a Gulf Atlantic Hearing Aid Centers, Inc., and
Thomas W. Lyons,
Counterclaim Defendants.
________________________________________________________________________
Michael R. Riemenschneider, Esq., and William H. Cantwell, II, Esq., OBrien,
Riemenschneider, Wattwood & Cantwell, PA, and Sarah E. Bushnell, Esq., and
Timothy D. Kelly, Esq., Kelly & Berens, PA, counsel for Plaintiff and Counterclaim
Defendants.
Emily E. Duke, Esq., and Jennifer A. Kitchak, Esq., Fredrikson & Byron, PA, counsel for
Defendant and Counterclaim Plaintiff.
This matter is before the Court on a Motion for Summary Judgment brought by
Sonus-USA, Inc. (Sonus). Also before the Court is a Motion to Strike bought by
Thomas W. Lyons and Thomas W. Lyons, Inc., f/k/a Gulf Atlantic Hearing Aid Centers,
2
Inc.1 For the reasons stated below, the Court grants the summary judgment motion and
grants in part and denies in part the motion to strike.
BACKGROUND
Sonus is a Washington corporation with its principal place of business in
Minnesota. It operates a hearing healthcare network of retail locations that provides
Siemens products to hearing-impaired consumers.
Gulf Atlantic was a Florida corporation formed to operate a hearing aid sales and
service business in Florida. Lyons owned and operated Gulf Atlantic. Gulf Atlantic
consisted of seven clinics (the Gulf Atlantic clinics) that sold Starkeys Nu-Ear line of
hearing aids. In 2001, another hearing aid business that sold a different line of Starkey
products began competing with Gulf Atlantic for customers.2 The competition caused
Gulf Atlantic to suffer financially, increase its advertising costs, hold open houses, and
engage in pricing-wars with the other business. The parties dispute whether this
competition was the motivation behind Lyons decision to sell Gulf Atlantic to Sonus.
In early 2004, Sonus, through Scott Klein, contacted Lyons about purchasing Gulf
Atlantic. Sonus, which did not have retail experience in the hearing aid business, wanted
1 The Court will refer to Thomas W. Lyons, as an individual, as Lyons, and
Thomas W. Lyons, Inc., f/k/a Gulf Atlantic Hearing Aid Centers, Inc., as Gulf Atlantic.
2 In 2004, Starkey initiated an arbitration proceeding against Gulf Atlantic for
past-due invoices, and Gulf Atlantic filed a counterclaim related to Starkeys sales of
products to the competing hearing aid business. The arbitration concluded sometime in
2006. There is nothing in the record about the arbitration outcome because Lyons has
refused to answer any questions about it.
3
an earn-out provision tied to any purchase agreement to ensure that Lyons would
continue to manage the Gulf Atlantic clinics for a period of time. Sonus initially
proposed a three-year earn-out provision. Although Lyons was reluctant to agree to any
earn-out provision, he eventually agreed to a one-year earn-out provision. The parties
disagree about representations Klein made to Lyons before the Purchase Agreement was
signed concerning the amount of control Lyons would retain over the Gulf Atlantic stores
and the amount Sonus would charge the Gulf Atlantic stores for the Siemens goods that
they sold.
The parties lawyers jointly drafted the Purchase Agreement, which is governed by
Minnesota law. On June 25, 2004, Gulf Atlantic and Sonus entered into an Asset
Purchase Agreement (the Purchase Agreement) whereby Sonus agreed to purchase
certain of Gulf Atlantics assets, including the Gulf Atlantic clinics, for million. The
Purchase Agreement also provided that Gulf Atlantic could earn an additional million
above the purchase price if certain conditions were met under a three-prong, one-year
earn-out provision.
The earn-out provision provides:
Earn-Out. The balance of the Purchase Price shall be calculated and paid
in accordance with the provisions of this Section 3(c). [Sonus] shall pay to
[Gulf Atlantic] additional ,000,000 if the following conditions are met:
(i) the Net Revenue of the Business for the period commencing on
the Closing Date and ending on the day immediately preceding the
one-year anniversary of such date (the Earn-Out Period) is equal
to or greater than ,500,000 (the Net Revenue Target);
4
(ii) the EBITDA3 of the Business for the Earn-Out Period exceeds
is equal to or greater than 0,000 (the EBITDA Target); and
(iii) [Lyons] remains continuously employed by Buyer from the
Closing Date until the last day of the Earn-Out Period.
. . . .
In determining EBITDA, EBITDA shall . . . (ii) not include any gains,
losses or profits realized from the sale of any assets other than in ordinary
course of business; . . .
For purposes of this Section 3(c), the term Business means the business
acquired from Seller pursuant to this Agreement that is conducted
exclusively at the [Gulf Atlantic retail locations identified in Exhibit A to
the Purchase Agreement] during the Earn-Out Period. . . .
(Affidavit of Jennifer Kitchak (Kitchak Aff), Ex. 14 at 3(c).) Paragraph 3(c) of the
Purchase Agreement required Sonus to provide Lyons with earn-out calculations at the
end of the earn-out period, and the Purchase Agreement gave Lyons ten days to contest
Sonus calculations in writing. (Id.) The Purchase Agreement also included the
following integration clause:
This Agreement contains the entire agreement of the parties concerning the
subject matter hereof, and supersedes all prior communications,
understandings and agreements. No representations, promises or
agreements, oral or otherwise, not contained herein shall be of any force or
effect.
(Id., Ex. 14 at 13.)
The Purchase Agreement contemplated that Lyons and Sonus would enter into an
Employment Agreement, and in fact, the parties agree that the Employment Agreement
3 EBITDA stands for earnings before interest, taxes, depreciation, and amortization.
5
has been made part of the Purchase Agreement. The Employment Agreement between
Lyons and Sonus identifies Lyons as the full-time general manager of the Business
Locations subject to Sonus control, rules, regulations, policies and programs. (Id.,
Ex. 15 at 1.2.) The Business Locations are defined as the Gulf Atlantic clinics.
Under the Employment Agreement, Lyons salary for the year was ,000. (Id., Ex. 15
at 2.1.) In addition, the Employment Agreement also contained an integration clause:
This Agreement constitutes the entire understanding of Employer and
Employee as to its subject matter, supersedes any prior agreement or
arrangement relative to its subject matter, whether oral or written, and no
modification, supplement, or amendment of any provision hereof shall be
valid unless made in writing and signed by both parties.
(Id., Ex. 15 at 6.1.)
After the Purchase Agreement was signed, Lyons became Sonus general manager
for the Gulf Atlantic clinics. He retained many of the same policies that were in place
before the purchase, including the commission plan, the use of open houses, advertising,
what products to sell, and the price of the products. The parties disagree, however, about
the amount of the control Lyons ultimately had over certain aspects of the Gulf Atlantic
stores. Specifically, the parties have disputes, among other things, about the costs
associated with advertising, direct mail, and commissions for certain open house events.
The parties also disagree about whether Sonus mislead Lyons into believing that Gulf
Atlantic was on target to meet the EBITDA target.
In late December 2004, Lyons also entered into a Commission Agreement with
Sonus, under which Sonus agreed to pay Lyons a commission if he helped Sonus acquire
certain business assets. (Id., Ex. 42.) The Commission Agreement provided that
6
[n]othing herein contained shall in any way be construed to restrict, alter or otherwise
amend the terms of the Employment Agreement, dated June 24, 2004 and the Asset
Purchase Agreement, dated June 25, 2004. (Id., Ex. 42 at 4.1.) The parties dispute
whether these additional duties interfered with Lyons ability to help the Gulf Atlantic
clinics reach the EBITDA target.
In June 2005 at the close of the one-year earn-out period, Sonus informed Lyons
that the Gulf Atlantic clinics did not meet one of the three targets to earn the million,
specifically the Gulf Atlantic clinics did not have an EBITDA of at least 0,000. After
Sonus informed Lyons that the Gulf Atlantic clinics did not meet the EBITDA target,
Lyons never contacted Sonus in writing to contest Sonus EBITDA calculations.
Sometime thereafter, Lyons contacted Klein and demanded the million from
the earn-out provision. Klein explained that the Gulf Atlantic clinics had not met the
EBITDA target for the earn-out, but Klein explained that Sonus was interested in
continuing to work with Lyons. Klein suggested an amendment to the Purchase
Agreement, whereby the parties enter into a second earn-out provision.
Klein directed Greg Guggisberg, a Sonus employee, to draft an amendment to the
Purchase Agreement for a second earn-out provision and to prepare a check request for
0,000. The amendment provided for an immediate payment of 0,000 to Lyons
and an additional three-year earn out under which Lyons could earn 0,000 or more.
Guggisberg sent Lyons the amendment to the Purchase Agreement on September 8, 2005.
The next day, Sonus sent ,000 to Lyons by wire transfer, and on September 13, 2005,
7
Sonus sent Lyons a check for 0,000. Lyons received the 0,000 and the
amendment to the Purchase Agreement. However, Lyons never signed the amendment.
In January 2006, Lyons and his accountant traveled to Sonus corporate offices to
examine Sonus EBITDA calculations. The accountant concluded that the financial data
Sonus used to perform the EBITDA calculations matched the data in Sonus financial
records and that Sonus calculated the EBDITA figure correctly. Assuming the numbers
supplied by Sonus were accurate, Lyons accountant concluded that the Gulf Atlantic
clinics earned less that half of the 0,000 EBITDA target.
In October 2007, Gulf Atlantic filed suit in this Court. In the Amended
Complaint, Gulf Atlantic alleges two counts against Sonus for breach of contract and
fraud. In response, Sonus filed a counterclaim against Gulf Atlantic and Lyons for unjust
enrichment, demanding the return of the 0,000 that Guggisberg sent Lyons. Sonus
now moves for summary judgment on both of Gulf Atlantics counts in the Amended
Complaint.
DISCUSSION
Summary judgment is proper if there are no disputed issues of material fact and
the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The
Court must view the evidence and the inferences that may be reasonably drawn from the
evidence in the light most favorable to the nonmoving party. Enter. Bank v. Magna Bank
of Mo., 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated,
[s]ummary judgment procedure is properly regarded not as a disfavored procedural
shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed
8
to secure the just, speedy and inexpensive determination of every action. Celotex
Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed. R. Civ. P. 1).
The moving party bears the burden of showing that there is no genuine issue of
material fact and that it is entitled to judgment as a matter of law. Enter. Bank, 92 F.3d at
747. The nonmoving party must demonstrate the existence of specific facts in the record
that create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th
Cir. 1995). A party opposing a properly supported motion for summary judgment may
not rest upon mere allegations or denials but must set forth specific facts showing that
there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256
(1986).
I. Breach of Contract (Count I)
In Count I, Gulf Atlantic alleges that Sonus breached the earn-out provision of the
Purchase Agreement by failing to pay Gulf Atlantic the entire million earn-out amount
because the three prongs of the earn-out provision were met or were waived. (Am.
Compl. at 16.) To prevail on a claim for breach of contract under Minnesota law, a
plaintiff must demonstrate: (1) the formation of a contract; (2) performance by the
plaintiff of any conditions precedent; (3) a breach of the contract by the defendant; and
(4) damages. See Briggs Transp. Co. v. Ranzenberger, 217 N.W.2d 198, 200 (Minn.
1974).
Sonus now moves for summary judgment, asserting that Gulf Atlantic lacks
evidence to support that it met its EBITDA target earn-out provision, that Sonus waived
the EBITDA earn-out provision, or that Sonus breached the Purchase Agreement. Sonus
9
states that the damages element of a breach of contract action is moot, given that Sonus
cannot establish the performance or breach elements.
A. EBITDA
Sonus asserts that Gulf Atlantic cannot establish that it met the EBITDA target,
given that Sonus expert verified Sonus EBITDA calculation and that Gulf Atlantics
accountant testified that Sonus correctly calculated the EBITDA. Because Gulf Atlantic
did not meet the EBITDA target, Sonus argues that Gulf Atlantic failed to perform its
condition precedent under the Purchase Agreement and that, as a result, Sonus did not
breach the Purchase Agreement by not paying the million for the earn-out provision.
Gulf Atlantic responds that there are errors with Sonus experts calculations with
respect to the EBITDA number. Gulf Atlantic bases this argument on statements and
questions raised by Lyons in a post-deposition affidavit about costs of goods sold,
commissions paid to an outside consultant for open houses, and number of hearing aids
sold.
The Court agrees with Sonus. Mere allegations, unsupported by specific facts or
evidence beyond the nonmoving partys own conclusions, are insufficient to withstand a
motion for summary judgment. See Celotex Corp., 477 U.S. at 324. Here, Lyons is not
an accountant or otherwise qualified as an expert in this matter. His affidavit merely
raises allegations concerning Sonus calculations, as opposed to offering concrete facts to
create a genuine issue of material fact. Moreover, assuming for the sake of this motion
that Gulf Atlantics allegations and calculations would change the EBITDA, the EBITDA
would change to 1,998.60, which remains short of the 0,000 target.
10
B. Waiver
In the alternative, Gulf Atlantic contends that Sonus waived the EBITDA target
requirement when it sent Lyons 0,000 in September 2005. Sonus asserts that the
record cannot support a waiver claim, given portions of Lyons deposition in which
Lyons acknowledged that Sonus told him that Gulf Atlantic did not met the EBITDA
target and that that the only way for him to earn the million was to renegotiate the
earn-out provision. Sonus also points out that after Lyons had received the 0,000 and
the draft amendment to the Purchase Agreement, he traveled to Minnesota in January
2006 to inspect Sonus books to see if the EBITDA target had been met. In this way,
Sonus argues that Lyons acknowledged that Sonus had not waived the EBITDA target
requirement.
In response, Gulf Atlantic argues that, at a minimum, there is a genuine issue of
material fact with respect to whether Sonus relinquished its right to require compliance
with the EBITDA target. To support its argument, Gulf Atlantic points to Sonus partial
payment of 0,000 in September 2005 and to the fact that Gulf Atlantic never signed
an amendment to the Purchase Agreement.
As applied to contracts, a waiver is an intentional relinquishment of a known
right . . . . Hauenstein & Bermeister, Inc. v. Met-Fab Indus., Inc., 320 N.W.2d 886, 892
(Minn. 1982) (emphasis in original) (citation omitted). When offered to show
modification of a written agreement, the evidence must be clear and convincing. Thoe
v. Rasmussen, 322 N.W.2d 775, 777 (Minn. 1982). Viewing the evidence in the light
most favorable to Gulf Atlantic, the 0,000 payment and the unsigned amendment to
11
the Purchase Agreement neither provide clear and convincing evidence of Sonus waiver
of its right to the EBITDA target requirement nor do they create a genuine issue of
material fact with respect to the issue of waiver.
C. Hindrance
Finally, in responding to Sonus motion with respect to Count I, Gulf Atlantic
states that the focus of the breach of contract claim should be [d]id Sonus, by its acts,
breach the contract, impeding [Gulf Atlantics] ability to perform its contractual
obligations, and fail to perform its obligations under the contract in good faith which
resulted in various increases in costs, expenses and adjustments attributed to Gulf
Atlantic which kept it from reaching its EBITDA number? (Gulf Atlantic Oppn Mem.
at 16.) Gulf Atlantic contends that there is evidence to show that Sonus impeded Gulf
Atlantics ability to meet the EBITDA numbers. Gulf Atlantic supports this new theory
only by referring to the arguments it makes with respect to the fraud count. (Id.)
In Minnesota, every contract includes an implied covenant of good faith and fair
dealing requiring that one party not unjustifiably hinder the other partys performance
of the contract. In re Hennepin County 1986 Recycling Bond Litig., 540 N.W.2d 494,
502 (Minn. 1995) (citation omitted). Bad faith is defined as a partys refusal to fulfill
some duty or contractual obligation based on an ulterior motive, not an honest mistake
regarding ones rights or duties. Sterling Capital Advisors, Inc. v. Herzog, 575 N.W.2d
121, 125 (Minn. Ct. App. 1998). Contract performance by one party is generally excused
when performance is hindered or made impossible by the other party. Zobel & Dahl
Constr. v. Crotty, 356 N.W.2d 42, 45 (Minn. 1984). As described below, Gulf Atlantics
12
hindrance argument fails for the same reasons that its fraudulent-inducement claim fails.
The Purchase Agreement itself is controlling, and it specifically provided that Lyons was
subject to Sonus control.
Therefore, because there is no genuine issue of material fact with respect to
performance, waiver, or hindrance, Sonus cannot be liable for breach of the Purchase
Agreement. As a result, Count I fails and must be dismissed with prejudice.
II. Fraudulent Inducement (Count II)
In Count II, Gulf Atlantic alleges that Sonus fraudulently induced Lyons and/or
Gulf Atlantic into signing the Purchase Agreement. Gulf Atlantic bases its claim on
alleged statements made by Klein and other Sonus employees prior to when the parties
signed the Purchase Agreement, statements which related to Lyons ability to remain in
control of the Gulf Atlantic clinics, the costs of goods that Lyons could expect from
Sonus, and other ways in which the Gulf Atlantic clinics would be operated during the
earn-out period. (See Am. Compl. at 29-33.)
A claim of fraudulent inducement of an agreement requires the plaintiff to show
the following: (1) a misrepresentation of material fact by the defendant; (2) the defendant
knew the statement was false at the time or made the assertion without regard to its
falsity; (3) the defendant intended the plaintiff to act; (4) the plaintiff reasonably relied on
the statement; (5) the plaintiff acted to his detriment; and (6) the plaintiff incurred actual
damages. See Cohen v. Appert, 463 N.W.2d 787, 789 (Minn. Ct. App. 1990). Assuming
for the purposes of its summary judgment motion only that it made the statements alleged
by Gulf Atlantic in the Amended Complaint, Sonus moves for summary judgment on
13
Count II, asserting that Gulf Atlantic cannot establish the intent, reasonable reliance, or
resulting damages elements of its fraud claim.
A. Intent and Reasonable Reliance
The crux of Gulf Atlantics fraud claim is that Sonus intentionally mislead Lyons
and Gulf Atlantic into believing that Lyons would have complete operational control of
the Gulf Atlantic clinics during the earn-out period. According to Gulf Atlantic, Sonus
promised that Lyons, as the General Manager for the Gulf Atlantic clinics, would have
complete operational control over, among other things, the advertisements, direct mail
facility, and open houses. Gulf Atlantic contends that it would not have entered into the
Purchase Agreement without complete control so as to ensure that Lyons would earn
the million. As discussed at the motion hearing, in order to support this argument,
Gulf Atlantic must juxtapose the Purchase Agreement with the Employment Agreement
to demonstrate either: (1) that the parties intended for Lyons to have complete
operational control of the Gulf Atlantic clinics; or (2) that, at a minimum, an ambiguity
exists that creates a genuine issue of material fact with respect to the intent and
reasonable reliance elements of its fraudulent inducement claim.
The Purchase Agreement defines Business as the Gulf Atlantic clinics that
Lyons was selling to Sonus. (Kitchak Aff, Ex. 14 at p. 1.) Pending the closing date, the
Purchase Agreement requires Gulf Atlantic to conduct the Business in the ordinary
course and to possess[] all permits and licenses that are necessary to conduct the
Business in its present form. (Id., Ex. 14 at 6(b), 4(i).) The Purchase Agreement also
contemplates that Lyons will be continuously employed by [Sonus] from the Closing
14
date until the last day of the Earn-Out Period. (Id., Ex. 14 at 3(c).) The Purchase
Agreement also contained an integration clause. (See id., Ex. 14 at 6.1.) The
Employment Agreement acknowledges that the parties have entered into the Purchase
Agreement, and it explains that Sonus wishes to employee Lyons as a general manger
for [Sonus] hearing aid sales and service business conducted at the locations set forth in
the attached Exhibit A4 (together, the Business Locations). (Id., Ex. 15, at B, 1.2.) The
Employment Agreement further provides that Lyons agrees to be subject to [Sonus]
control, rules, regulations, policies and programs. (Id., Ex. 15 at 1.2.)
The construction and effect of a contract presents a question of law, unless an
ambiguity exists. Brookfield Trade Ctr., Inc. v. County of Ramsey, 584 N.W.2d 390, 394
(Minn. 1998). A contract is ambiguous only if its language is reasonably susceptible to
more than one interpretation, and contractual language is given its plain and ordinary
meaning. Id. The parol evidence rule prohibits the admission of extrinsic evidence of
prior or contemporaneous oral agreements, or prior written agreements, to explain the
meaning of a contract when the parties have reduced their agreement to an unambiguous
integrated writing. Alpha Real Estate Co. of Rochester v. Delta Dental Plan of Minn.,
664 N.W.2d 303, 312 (Minn. 2003). An exception to this general rule, however, is when
the written agreement is challenged due to fraud. Johnson Bldg. Co. v. River Bluff Dev.
Co., 374 N.W.2d 187, 193 (Minn. Ct. App. 1985). [T]he parol evidence rule is
4 Although Exhibit A was not attached to the Courts copy of the Employment
Agreement, there is no dispute between the parties concerning Exhibit A. Accordingly,
the Court assumes that Exhibit A lists the seven Gulf Atlantic clinic locations.
15
inapplicable to exclude evidence of fraudulent oral representations by one party which
induce another to enter into a written contract. Id. However, fraud is ineffective as a
defense to enforcement of a contract term when the contract provision explicitly states a
fact completely antithetical to the claimed misrepresentations. Commercial Prop. Invs.,
Inc. v. Quality Inns Intl, Inc., 938 F.2d 870, 875 (8th Cir.1991); see also River Bluff, 374
N.W.2d at 193-94 (stating that one cannot rely on a promise that is completely
contradictory to what is in the contract).
The Court concludes that both the Purchase Agreement and Employment
Agreement are unambiguous as a matter of law. There is no term in either the Purchase
Agreement or the Employment Agreement that reflects the parties intent that Lyons
would have full operational control over the Business post-closing date. Any reference to
Lyons control over the Business concerns pre-closing activities only, and any
reference to Lyons duties as a general manager are to managing the Gulf Atlantic clinics
only, not managing Sonus operations in general. The Court notes that both agreements
were drafted jointly by the parties counsel, that Lyons admitted that he never asked for
additional terms to be added to the agreements concerning operational control, and that
he understood that certain operations would be changed after Sonus purchased the clinics.
Moreover, both the Purchase Agreement and Employment Agreement contain an
integration clause that expressly states that the agreement supercedes any prior
agreement, whether written or oral.
Given this, and viewing the evidence in the light most favorable to Gulf Atlantic,
the Court finds that there are no genuine issues of material fact concerning whether Gulf
16
Atlantic can demonstrate the intent and reasonable reliance elements of its fraudulent
inducement claim. It cannot. Accord Northfield Telecomm, Inc. v. Maplewood Mall
Assoc., Ltd., No. A07-0687, 2008 WL 853537 (Minn. Ct. App. April 1, 2008) (affirming
district courts conclusion that plaintiff had not established fraudulent inducement claim
and that contract, including integration clause, was unambiguous as a matter of law).
B. Damages
The parties agree that, under Minnesota law, damages for fraud are the plaintiffs
out-of-pocket losses as measured by the difference between the actual value of the
property received and the price paid for the property, along with any special damages
naturally and proximately caused by the fraud prior to its discovery. B.F. Goodrich Co.
v. Mesabi Tire Co., 430 N.W.2d 180, 182 (Minn. 1988). Sonus asserts that it is entitled
to summary judgment on the fraud count because Gulf Atlantic has offered no evidence
regarding the actual value of the Gulf Atlantic clinics pre-acquisition. Gulf Atlantic
responds that the best evidence of the clinics value is what Sonus was willing to pay for
them, specifically million. Because Gulf Atlantic has only received ,200,000 from
Sonus, it asserts that it has therefore suffered an economic loss of 0,000.
In general, under the out-of-pocket loss rule, a plaintiff can recover what he
actually lost and not the expected profits from the transaction. LeSueur Creamery, Inc.
v. Haskon, Inc., 660 F.2d 342, 346 n.6 (8th Cir. 1981) (discussing Minnesota law). There
are, however, some exceptions to this rule when the recovery of out-of-pocket
expenditures will not return the injured party to a status quo ante position. Id. Viewing
the evidence in the light most favorable to Gulf Atlantic, the Court concludes that there is
17
no evidence to support the damages element of Gulf Atlantics fraud claim because it has
offered no evidenceexpert or otherwiseto support its claim for fraud damages.
Therefore, because there is no genuine issue of material fact with respect to intent,
reasonable reliance, or resulting damages, Count II fails and must be dismissed with
prejudice.
III. Motion to Strike
Pursuant to Federal Rule of Civil Procedure 12(f) and District of Minnesota Local
Rule 7.1, Gulf Atlantic moves to strike Sonus reply memorandum and supporting
affidavits and exhibits. The basis for the motion is that Sonus submitted additional
evidence in the form of affidavits and exhibits filed in connection with its reply, which
Gulf Atlantic contends is not allowed under the Local Rules because such evidence
should have been reasonably anticipated and therefore filed in connection with Sonus
opening memorandum.
Sonus opposes Gulf Atlantics motion, asserting that the exhibits and affidavits
submitted were necessary to respond to Gulf Atlantics arguments that were not
reasonably anticipated when Sonus brought its summary judgment motion. Sonus
contends that Gulf Atlantic raised a new theory in its opposition memorandum that had
not been previously allegednamely, that Sonus breached the Purchase Agreement by
hindering Gulf Atlantics performanceand that Gulf Atlantic supported this new theory
by submitting the post-deposition affidavit of Lyons. Given this, Sonus argues that its
reply, affidavits, and exhibits were submitted appropriately.
18
Motions to strike materials submitted with reply briefs are currently one of the
most debated topics in this District. Such motions often involve a fact-specific inquiry
into the circumstances surrounding the submission of certain documents into the record.
See Advisory Notes to Local Rule 7.1(b) (explaining that the Local Rules neither
permits nor prohibits the moving party from filing affidavits or other factual material
with a reply because such submissions are appropriate only when necessary to address
factual claims of the responding party that were not reasonably anticipated).
In this case, with the exception of one exhibit, the evidence submitted by Sonus
with its reply was already in the record and responded to new arguments raised by Gulf
Atlantic through Lyons post-deposition affidavit.5 However, the Declaration of
Debra K. Thompson was not previously in the record. Ms. Thompson is Sonus
accounting expert witness who testified, in part, about the EBITDA target. In connection
with its reply, Sonus submitted a declaration by Ms. Thompson, who had previously
submitted her expert report and been deposed, to respond to questions raised by Lyons in
his post-deposition affidavit.
Without addressing whether there was any foundation for Lyons opinions, the
Court in general discourages the submission of post-deposition affidavits. With respect
to the Thompson Declaration itself, given that the expert had already been deposed and
submitted her expert report, the Court will strike that declaration from the record. In so
5 Gulf Atlantic also objected to Exhibit 49, which is a document from Sonus Board
of Directors. Sonus voluntarily withdrew Exhibit 49 from the record at the motion
hearing.
19
doing, however, the Court notes that its decision on the summary judgment motion would
not be changed by the addition of the Thompson Declaration in the record. The Court
will allow the other evidence to remain part of the record, given that it was part of the
record before the summary judgment motion and that it was used to respond to Gulf
Atlantics new theory of hindrance.
The Court has no doubt that the parties made their submissions in good faith;
however, the Court does not condone Sonus practice of submitting non-record evidence
in connection with its reply, nor does it generally condone the practice of submitting
evidence in connection with the reply. Moreover, the Court is making no pronouncement
on future motions to strike in other cases. The Court suggests that a best practice in the
future would be for a party to contact the Court in writing to seek permission to submit
additional materials in connection with its reply. Such permission, however, would likely
be granted sparingly.
CONCLUSION
1. Sonus-USA, Incs Motion for Summary Judgment (Doc. No. 52) is
GRANTED.
2. Counts I and II of the Amended Complaint are DISMISSED WITH
PREJUDICE.
3. Thomas W. Lyons and Thomas W. Lyons, Inc.s Motion to Strike (Doc.
No. 77) is GRANTED IN PART and DENIED IN PART, consistent with this Order.
Dated: February 9, 2009 s/Donovan W. Frank
DONOVAN W. FRANK
Judge of United States District Court
 

 
 
 

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Work-Related Injury
Wrongful Death
Dog Bite
Slip and Fall
Other:


  How have your injuries affected

  your life?

 


  What kinds of medical care
  professionals have you seen?

 


  What has your treatment cost?

 

  Is Insurance Involved?
My insurance may cover
        this.

Someone else's insurance
        may cover this.

I already filed a claim.
I rejected a settlement
        offer.

I accepted a settlement
        offer.

  Were there any witnesses?
Bystanders Witnessed This.
Police Responded and Filed
        a Police Report

Police Responded but Did
        Not File a Police Report


 

 

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Copyright © Michael E. Douglas, Attorney at Law, Saint Paul MN. All Rights Reserved.
Minnesota Law Firm representing Personal Injury, Car / Auto Accident, Workers Compensation, Medical Malpractice, Social Security Disability claims.
Dedicated to Injured Workers, Victims of Negligence, Car Accidents, Victims of Fraud, and those in need of legal assistance.